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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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



For the fiscal year ended June 30, 2004



OR



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



For the transition period from
 to



Commission file number 0-17951



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 December 31, 2003 was $53,084,500 (based on the closing sale price of the common stock as
reported by The American Stock Exchange on such date). As of September 22, 2004, there were 28,455,303 shares of the registrants common stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the registrants definitive proxy statement for the Annual Meeting of Stockholders to be held on December 16, 2004 (to be filed with the
Commission on or before October 28, 2004) are incorporated by reference into Part III.



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TABLE OF CONTENTS



|                           |  |                                                                                       |  |     
|-------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                           |  |                                                                                       |  | Page
|PART I                     |  |                                                                                      
|                           |  |                                                                                      
|Item 1.                    |  | Business                                                                              |  | 3   
|                           |  |                                                                                      
|Item 2.                    |  | Properties                                                                            |  | 26  
|                           |  |                                                                                      
|Item 3.                    |  | Legal Proceedings                                                                     |  | 26  
|                           |  |                                                                                      
|Item 4.                    |  | Submission of Matters to a Vote of Security Holders                                   |  | 26  
|                           | 
|PART II                    |  |                                                                                      
|                           |  |                                                                                      
|Item 5.                    |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 26  
|                           |  |                                                                                      
|Item 6.                    |  | Selected Financial Data                                                               |  | 28  
|                           |  |                                                                                      
|Item 7.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 29  
|                           |  |                                                                                      
|Item 7A.                   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 35  
|                           |  |                                                                                      
|Item 8.                    |  | Financial Statements and Supplementary Data                                           |  | 36  
|                           |  |                                                                                      
|Item 9.                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 36  
|                           |  |                                                                                      
|Item 9A.                   |  | Controls and Procedures                                                               |  | 36  
|                           |  |                                                                                      
|Item 9B.                   |  | Other Information                                                                     |  | 36  
|                           | 
|PART III                   |  |                                                                                      
|                           |  |                                                                                      
|Item 10.                   |  | Directors and Executive Officers of the Registrant                                    |  | 37  
|                           |  |                                                                                      
|Item 11.                   |  | Executive Compensation                                                                |  | 37  
|                           |  |                                                                                      
|Item 12.                   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 37  
|                           |  |                                                                                      
|Item 13.                   |  | Certain Relationships and Related Transactions                                        |  | 38  
|                           |  |                                                                                      
|Item 14.                   |  | Principal Accountant Fees and Services                                                |  | 38  
|                           | 
|PART IV                    |  |                                                                                      
|                           |  |                                                                                      
|Item 15.                   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 39  
|                           | 
|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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INTRODUCTORY NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 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
|------- | --------



Since 1993, the primary effort at Cortex has been 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 brain membrane.



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 and Drug Administration is usually applied to products where the number of patients 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 reach to a few, selected medical
centers in the United States (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 may also 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, further 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



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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.



In the fiscal years 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, with amounts for the fiscal year ended June 30, 2004 including $1,106,000 of non-cash charges related to warrants and stock options and increased
research and development expenses for initiating toxicology and Phase I clinical testing of the AMPAKINE CX717.



Cortex faces a number of risks in moving its technology through research, development and commercialization. Since its inception in 1987, the Company has
never had revenues from commercial sales, has never been profitable on an annual basis and has incurred net losses approximating $48,051,000. 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, Cortex has not obtained FDA approval to market any of its products. All of these risks, and others, are described
in Risk Factors starting on page 20.



In this
annual report, the terms the Company, Cortex, we, our, and us refer to Cortex Pharmaceuticals, Inc., a Delaware corporation. Cortex was organized in 1987. 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.



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 hopes that this selective amplification of the normal glutamate signal will eventually find utility in the treatment of



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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  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 21 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 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 (U.K.). The studies are being conducted with the
assistance of Quintiles  Guys Drug Research Unit, a large and well-respected clinical research organization.



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.



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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 will be giving multiple doses over a period of
ten days 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. If the compound is successful in additional clinical trials, the
eventual dosage regimens for patients may be greatly simplified.



The third study is a randomized, double-blind multiple rising dose study to examine the safety and tolerability of CX717 in young, healthy men. Three groups of eight volunteers (CX717 = six; placebo = 2) will receive 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 based upon the results from the first study. So far, single daily doses
of 100 mg and 300 mg have been administered to these subjects for ten days with excellent safety results. In order to increase the exposure of the drug to volunteers, Cortex has decided to increase the dose to twice per day in future tolerance
studies to help define a maximum tolerated dose for CX717. Cortex anticipates that these studies will be completed in October 2004.



The fourth of the studies is a randomized, double-blind, multiple dose study in healthy, elderly men and women to examine the safety, tolerability and
pharmacokinetics of CX717 when administered daily for at least 10 days. This study has not been initiated yet, although Cortex anticipates that it will be completed during the fourth quarter of calendar year 2004. Additional pharmacodynamic
parameters will be measured in this group of elderly subjects.



The pharmacokinetic results to date from the 64 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. Very high unchanged drug
levels and area under the curve values were found and indicated 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 primates, the potential for once a day dosing seems feasible.



In addition to the tolerance studies that continue and involve twice daily dosing over a ten-day period, Cortex has 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 II efficacy trials during calender 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 in the planning stages to initiate a Phase I/II pilot efficacy in sleep deprivation in the U.K. Cortex hopes to have results from
such a trial by early calendar year 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 half of calendar 2005, the Company also plans to
immediately initiate a three-month toxicology study for CX717 so that by mid-calendar 2005, it potentially may begin longer Phase IIb efficacy studies for this drug. Cortex plans to have a Notice of Claimed Investigational Exemption for a New Drug
(IND) filed with the Food and Drug Administration for CX717 before the end of calendar year 2004.



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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.



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 BDNF, which is a protein associated with the formation of synapses by neurons. This possible mode of action also
may prove beneficial to patients with Alzheimers disease, although it has not been demonstrated whether the same mechanism may produce similar results in humans.



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.



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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 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 (not regulated by the Drug Enforcement Agency) approach 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 (drugs with low potential for addiction) treatment
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 daytime 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 daytime 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.



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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.



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.



Electroconvulsive Therapy



Electroconvulsive therapy 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 rarely apparent more than 10 days after ECT. 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, events of several months before treatment are most likely forgotten.



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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.



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.



The effect of ECT on memory is based upon the assumption that sequence of memory formation corresponds to sequence of
synaptic modification that is altered by ECT. To the degree that initial encoding and later consolidation of memory depend upon the induction and stabilization of long term potentiation (LTP), or the formation of memory, medications that
enhance these cellular effects are expected to potentially preclude memory loss or at least minimize it.



It has been shown that the repetitive release of a transmitter over a period of 3050 milliseconds allows AMPA receptors to generate sufficient
depolarization to unblock NMDA receptors and thereby induce LTP. Both the AMPA and NMDA receptors must be triggered in order to induce LTP. Increasing the amount of glutamate released during stimulation or enhancing the effects of the transmitter on
AMPA receptors can reduce this requirement and enhance memory capabilities. High impact AMPAKINE compounds have been demonstrated to facilitate the release of Brain Derived Neurotrophic Factor (BDNF), or brain growth
factor, and theoretically may provide a neuroprotective effect against current induced by ECT, thereby potentially reducing retrograde amnesia effects.



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



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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.



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 one of these compounds before the end of calendar year 2004. If those tests are successful, Cortex plans to prepare this drug candidate for clinical trials during mid-calendar year 2005.



Proof of Principal Compound  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, 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),
Alzheimers disease, 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.



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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 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.



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. 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, Alzheimers disease and schizophrenia (as a combination with anti-psychotics). Cortex advised the investigators
from these studies of the results from the MCI trial with CX516. All of the investigators elected to continue their clinical trials with the compound. Because the 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.



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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).



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



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learning, memory, problem solving and distractability. Interestingly, the improvements noted in CX516-treated patients appeared to persist for a period after
cessation of treatment.



Further clinical testing of the
AMPAKINE compound, ORG24448, a successor compound to CX516, in patients with schizophrenia is being conducted by the Companys corporate partner, 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 results of the Phase II study.



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 June 30, 2004, Cortex had received approximately $575,000 from this four-year grant award, as extended. Also as of June 30, 2004, approximately two-thirds of the planned enrollment for this study had been completed. It is
currently projected that enrollment will be completed during the first calendar quarter of 2005, with results potentially available during the third calendar quarter of 2005.



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 (not regulated by the Drug Enforcement Agency) approach 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.



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Fragile X and Autism



Fragile X is an inherited disorder that represents the most common cause of inherited mental retardation. Autism is a
complex developmental disability that typically appears during the first three years of life. 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.



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.



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. Planned enrollment for this study currently is approximately 60% completed.



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.



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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 June 30, 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  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 21 for a discussion of certain risks related to the development and commercialization of the Companys products.



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  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 21 for a discussion of certain risks related
to the development and commercialization of the Companys products.



Technology Rights



In 1993, Cortex entered an
agreement with the Regents of the University of California, 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 Regents of the University of California 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.



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Patents and Proprietary Rights



The Company is aggressively pursuing patent protection of its technologies. Cortex owns or has exclusive rights (within its
areas of product development) to approximately 50 issued or allowed U.S. and foreign patents and has a number of additional U.S. patent applications and their international counterparts pending.



Cortex has rights to over 36 composition of matter patents that cover
hundreds of its 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.



In 1998, the Regents of the University of California (the
University) received a U.S. patent that contained a broad claim for any AMPA-modulating compound to treat schizophrenia. Under the Companys agreements with the University, Cortex has exclusive rights to AMPAKINE
compounds for all applications covered by the Universitys patent rights, other than endocrine modulation, and the treatment of sexual dysfunction in North and South America. Cortexs rights are contingent upon it making certain minimum
annual payments to the University, meeting certain milestones, and diligently seeking to commercialize the underlying technology.



In April 1999, a method of use patent issued in the U.S. that covers the Companys AMPAKINE compounds  as well as compounds made
by others  and describes the mechanism by which AMPAKINE compounds may effect the treatment of memory and cognition. 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 issued to Cortex in
Mexico, Australia and New Zealand. In November 2003, a similar patent was issued by the European Patent Office. These patents have issued to the University of California and rights to the patents are licensed exclusively to Cortex.



Under the rules of the European Patent Office, the patent that issued in
November 2003 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. During August 2004, GlaxoSmithKline also filed an opposition.
Cortex, in cooperation with the University of California, 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.



There is no assurance that patents, whether already issued or issuing in the
future in connection with current or future patent applications, will afford effective protection against competitors with similar technology. There is also no assurance that any patents issued or licensed to Cortex will not be infringed upon or
designed around by others. Further, since issuance of a patent does not guarantee the right to practice the claimed invention, there is no assurance that others will not obtain patents that the Company would then need to license or design around in
order to practice its patented technologies, or that Cortex would be able to obtain licenses that might be required to practice these technologies due to patents of others on reasonable terms. Additionally, any unpatented manufacture, use or sale of
the Companys technology, processes or products may infringe on patents or proprietary rights of others, and the Company may be unable to obtain licenses or other rights to these other technologies that may be required for commercialization of
the Companys proposed products or processes.



Cortex
relies to a certain extent upon unpatented proprietary technology and may determine in some cases that its interests would be better served by reliance on trade secrets or confidentiality agreements rather than patents. No assurance is made that
others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to or disclose such technology. In addition, there is no assurance that Cortex can meaningfully protect its rights in such
unpatented proprietary technology or that others will not wrongfully obtain such technology.



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If Cortex is unable to obtain strong protection of its proprietary rights in its products or processes
prior to or after obtaining regulatory clearance, whether through patents, trade secrets or otherwise, competitors may be able to market competing products by obtaining regulatory clearance through demonstration of equivalency to the Companys
products, without being required to conduct the same lengthy clinical tests conducted by the Company.



Government Regulation



In order to test, produce and market human therapeutic products in the 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
intends to submit an IND for the AMPAKINE CX717 as soon as the data from the Phase I studies underway in the U.K. are available to add to the filing. 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.



There is no assurance that any required FDA or other governmental approval will be granted or, if granted, will not be withdrawn. Governmental regulation
may substantially delay or prevent the marketing of the Companys proposed products, or cause the Company to undertake additional procedures, which may be both costly and lengthy, and thereby furnish a competitive advantage to the competitors
of the Company or its licensees.



Cortex 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 would 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



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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. There is no assurance that Cortex will be able to enter into such arrangements on favorable terms, or at all, or that such arrangements will ultimately
result in obtaining the necessary governmental approvals.



Competition



The pharmaceutical industry is characterized by rapidly
evolving technology and intense competition. Many companies of all sizes, including both major pharmaceutical companies and specialized biotechnology companies, are engaged in activities similar to those of Cortex. A large number of drugs intended
for the treatment of Alzheimers disease, 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. Although the Company has never been subject to a product liability claim, there is no assurance that such claims will not be
brought in the future, that the coverage limits of the Companys insurance policies will be adequate or that one or more successful claims brought against the Company would not have a material adverse effect upon the Companys business,
financial condition and results of operations.



Employees



As of June 30, 2004, Cortex had 18 full-time employees and two part-time
employees and had engaged one part-time DVM-level and three part-time Ph.D.-level scientific consultants. One of the Ph.D.-level consultants to the Company is also an M.D. Of the 18 full-time employees, 13 were engaged in research and development,
of which 7 were Ph.D.-level or equivalent, and 5 were engaged in management and administrative support. Shortly after June 30, 2004, Cortex added an M.D. to its staff as its Vice President of Clinical Development and Chief Medical Officer.



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 also sponsors a



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substantial amount of research in academic laboratories, primarily at the University of California, Irvine and at Wake Forest University in North Carolina.



Risk Factors



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



Risks related to our business



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



Since our formation on February 10, 1987 through June 30, 2004, we have generated only modest operating revenues and we have incurred net losses
approximating $48,051,000. For the fiscal years ended June 30, 2004, 2003 and 2002, our net losses amounted to $5,994,000, $1,175,000 and $983,000, respectively. As of June 30, 2004, we had an accumulated deficit of approximately $50,083,000. 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 at least mid-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.



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



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reasonable terms, or at all. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If we
issued preferred equity or debt securities, these securities could have rights superior to holders of our common stock, and could contain covenants that will restrict our operations. We might have to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to our technologies, product candidates or products that we otherwise would not relinquish. If adequate funds are not available, we could lose our key employees and might have
to delay, scale back or eliminate one or more of our research and development programs, which would impair our future prospects. In addition, we may be unable to meet our research spending obligations under our existing licensing agreements and may
be unable to continue our business operations.



Our products rely on
licenses from the Regents of the University of California, and 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, and the treatment of sexual dysfunction in North and South America.



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. 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 June 30, 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 June 30, 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
June 30, 2004, we have received an up-front payment of $5,000,000 and research support payments of approximately $10,900,000. Under the October 2000 agreement, as amended to date, we currently receive approximately $2,165,000 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. Under the October 2002 amendment, we currently receive an additional $2,000,000 per year, which Servier is obligated to
continue until October 2004. 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 June 30, 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. Servier also has the right to terminate the agreement upon
six-months prior notice at any time after the research phase of the collaboration. In addition, Servier has the right to terminate the related research and development in the event that we materially breach 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.



In connection with our efforts to secure corporate partners, we will seek to retain certain co-promotional rights to our proposed products. These
co-promotional rights will allow us to market our products to selected medical specialists while our corporate partner markets our products to the general medical market. We cannot assure you that we will be able to enter into any partnering
arrangements on this or any other basis. In addition, we cannot assure you that we, Organon, Servier or our prospective corporate partners, can successfully introduce our proposed products. We also face the risks that our products will be rejected
by patients, health care providers or insurance companies, or that our products cannot be manufactured and marketed at prices that would permit us to operate profitably. Additionally, we plan to develop certain compounds for selected smaller
indications referred to previously as Orphan Drugs. We may or may not be successful in getting the appropriate clinical results and obtaining approval to market our compounds for these indications in the U.S.



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 challenged by others, and if successful, such challenges 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



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to our products. If they are successful at demonstrating the equivalency between the products, our competitors would not have to conduct the same lengthy
clinical tests that we have conducted.



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



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



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



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



Our business is characterized by intensive research efforts. Our competitors include many companies, research institutes and universities that are working
in a number of pharmaceutical or biotechnology disciplines to develop therapeutic products similar to those we are currently investigating. For example, the Pharmaceutical Research and Manufacturers of America 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



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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 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 fiscal years ended June 30, 2004 and June 30, 2003, as quoted on The American Stock Exchange, was $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 12.9 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



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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 $32,000. The Company believes that this facility will be adequate for its research and development activities for at least the remainder of the lease term.



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



The Company is not a party to any material legal proceedings, nor has any material proceeding been terminated during the fourth quarter of the fiscal year
ended June 30, 2004.



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



The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2004, through the
solicitation of proxies or otherwise.



PART II



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



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 fiscal years ended June 30, 2004 and 2003, as furnished by The American Stock Exchange.



|                                |  |      |      |     |   |     
|------------------------------- |  | ---- | ---- | --- | - | ----
|                                |  | High |      | Low
|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 June 30, 2004,
there were 519 stockholders of record of the Companys common stock, and approximately 10,200 beneficial owners. The high and low sales prices for the Companys common stock on September 24, 2004, as reported by The American Stock
Exchange, were $2.60 and $2.45, 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



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requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors.



During the fiscal year ended June 30, 2004, in connection with
the engagement of a consultant for investor relations purposes, the Company issued warrants to purchase an aggregate of 48,000 shares of the Companys common stock to two investors. The warrants have a weighted average exercise price of $2.95
per share and a five-year term.



The sales and issuances of
each 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
agreements executed in connection with the issuance of the warrants contain representations to support the Companys reasonable belief that the purchasers are familiar with or have access to information concerning the operations and financial
condition of the Company, and the purchasers are acquiring the securities for investment and not with a view to the distribution thereof. At the time of their issuance, the warrants were deemed to be restricted securities for purposes of the
Securities Act of 1933, as amended, and the warrants bear legends to that effect.



During the fourth quarter of the fiscal year ended June 30, 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 Annual Report on Form 10-K.



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



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



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produce a materially different result. See our audited financial statements and notes thereto which begin on page F-1 of this Annual Report on Form 10-K,
which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States.



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 (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 $2,165,000 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 will be 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 June 30, 2004, the Company sustained losses
aggregating $48,051,000. 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



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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.



Fiscal Years ended June 30, 2004 and 2003



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



Revenues for the year ended June 30, 2004 increased from $5,232,000 to $6,973,000, or by 33% compared to the prior year, primarily due to a
$2,000,000 milestone payment received from Organon. 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 $3,724,000
to $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
$2,480,000 to $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.



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.



Net interest income for the year
ended June 30, 2004 increased from $15,000 to $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.



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Fiscal Years ended June 30, 2003 and 2002



For the year ended June 30, 2003, the Companys net loss of $1,175,000 compared to a net loss of $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 $6,433,000 to $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 $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 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 $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 $407,000 from comparatively lower staffing levels and a resultant decrease of $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 $2,480,000 were materially consistent with the prior year.



Net interest income for the year ended June 30, 2003 decreased to $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 and amended, as of June 30, 2004 Cortex has received research and licensing payments approximating $15,913,000. Of
this amount, Cortex received $2,957,000 during the year ended June 30, 2004. The October 2000 agreement, as amended, provides research support of approximately $2,165,000 per year through early December 2005, subject to annual adjustment based on
the U.S. Department of Labors Consumer Price Index. Beginning in October 2002,



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Servier has 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. 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 June 30, 2004. Of this amount, Cortex received
$2,000,000 during the year ended June 30, 2004, representing the third milestone from Organon. The related agreement required the milestone payment in order for Organon to retain its rights to the Companys AMPAKINE technology in
the field of depression. 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 to 22 accredited investors 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 $4,500,000 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 $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 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 following March 18, 2005. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $14,600,000
of additional capital.



Cash Proceeds



As of June 30, 2004 the Company had cash, cash equivalents and marketable securities
totaling $22,188,000 and working capital of $20,567,000. As of June 30, 2003, the Company had cash and cash equivalents of $1,125,000 and a working capital deficit of $1,505,000. The increases in cash and working capital reflect approximately
$22,000,000 of net proceeds from the private placements of the Companys common stock and warrants in August 2003 and January 2004.



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
June 30, 2005, 2006, 2007, 2008 and 2009 are $435,000, $459,000, $478,000, $498,000 and $472,000, respectively. From inception (February 10, 1987) through June 30, 2004, expenditures for furniture, equipment and leasehold improvements aggregated
$2,698,000.



The Company is committed to nearly $1,350,000 for sponsored
research to academic institutions, of which $787,000 is payable over the next 12 months. Remaining Cortex commitments for the Phase I clinical study for CX717 approximate $2,300,000, all of which is payable within the next 12 months.



In June 2000, the Company received $247,300 from 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



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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 June 30, 2004:



|                                                                                 |  |                        |           |                  |   |           |  |           |           |                   |   |           |  |   |        
|-------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---------------- | - | --------- |  | --------- | --------- | ----------------- | - | --------- |  | - | -------
|Contractual Obligations                                                          |  | Payments Due by Period
|                                                                                 |  | Total                  |           | Less then 1 Year |   | 1-3 Years |  | 3-5 Years |           | More than 5 Years
|Operating Lease Obligations                                                      |  | $                      | 2,342,000 |                  | $ | 435,000   |  | $         | 937,000   |                   | $ | 970,000   |  | $ |       
|Other Long-Term Liabilities Reflected on the Companys Balance Sheet under GAAP1 |  |                        |          |                  |   |          |  |           |          |                   |   |          |  |   |       
|Other Contractual Obligations                                                    |  |                        | 4,627,000 |                  |   | 3,204,000 |  |           | 703,000   |                   |   | 140,000   |  |   | 580,000
|                                                                                 |  |                        |           |                  |   |           |  |           |           |                   |   |           |  |   |        
|Total                                                                            |  | $                      | 6,969,000 |                  | $ | 3,639,000 |  | $         | 1,640,000 |                   | $ | 1,110,000 |  | $ | 580,000
|                                                                                 |  |                        |           |                  |   |           |  |           |           |                   |   |           |  |   |        



|1 | These liabilities represent the Companys unearned licensing revenues from its $5,000,000 non-refundable, upfront payment that it received from Servier in
October 2000. These unearned revenues are amortized as revenue ratably over the research phase of the related agreement, which began in December 2000 and ends in December 2005 (when the related revenue will be fully earned). The liabilities do not
represent a payment obligation of Cortex, but rather an obligation to provide committed services.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Staffing



As of June 30, 2004, Cortex had 20 employees. Cortex anticipates a modest increase in the number of its full-time employees within the coming year. The Company expects that it will require modest investments in plant
and equipment within the same timeframe.



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 at least mid-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. See Risk Factors  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.



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In order to provide for both 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, however, with a large number of biopharmaceutical companies attempting to secure alliances with more established pharmaceutical companies. Although
the Company has been engaged in discussions with candidate companies, there is no assurance that an agreement or agreements will arise from these discussions in a timely manner, or at all, or that revenues that may be generated thereby will offset
operating expenses sufficiently to reduce the Companys short and longer-term funding requirements.



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



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 June
30, 2004, the Companys investment portfolio had a carrying amount of approximately $12,320,000. If market interest rates were to increase immediately and uniformly by 10%



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from levels as of June 30, 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 June 30, 2004, the principal and accrued interest of the advance amounted to $275,112.



|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
|------- | ------------------------------------------------------------------------------------



Not applicable.



|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
|-------- | -----------------



Not Applicable.



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PART III



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



The sections entitled Nominees for Director, Executive Officers, Scientific Directors and Consultants, Audit Committee and
Compliance with Section 16(a) of the Securities Exchange Act of 1934 included in the Companys Proxy Statement for its 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or before October
28, 2004, are incorporated herein by reference.



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.



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



The sections entitled Executive Compensation, Option Matters, Employment and Consulting Agreements, Compensation Committee
Interlocks and Insider Participation and Director Compensation included in the Companys Proxy Statement for its 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or before October
28, 2004, are incorporated herein by reference.



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



The section entitled Principal Stockholders included in the Companys Proxy Statement for its 2004 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission on or before October 28, 2004, is incorporated herein by reference.



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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 June 30, 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 securities tobe issued upon exerciseof outstanding options,warrants and rights |  | (b) Weighted-averageexercise price ofoutstanding options,warrants and rights |      | (c) Number of securitiesremaining available forissuance under equity compensation plans(excluding securities reflected in column (a)) (1)
|Equity compensation plans approved by security holders     |  | 4,789,082                                                                                    |  | $                                                                            | 1.77 |                                                                                                                                           | 3,428,096
|Equity compensation plans not approved by security holders |  |                                                                                             |  |                                                                              |     |                                                                                                                                           |         
|Total                                                      |  | 4,789,082                                                                                    |  | $                                                                            | 1.77 |                                                                                                                                           | 3,428,096



|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



The section entitled Certain Transactions included in the Companys Proxy Statement for its 2004 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or before October 28, 2004, is incorporated herein by reference.



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



The section entitled Ratification of Appointment of Independent Auditors included in the Companys Proxy Statement for its 2004 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or before October 28, 2004, is incorporated herein by reference.



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PART IV



|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K
|-------- | ---------------------------------------------------------------



|(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 (c) below.



|(b) | Reports on Form 8-K during the fourth quarter:
|--- | ----------------------------------------------



The Company furnished the press release announcing its financial results for the fiscal quarter ended March 31, 2004 to the Securities and Exchange
Commission in a Report on Form 8-K dated May 10, 2004.



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|(c) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



- 40 -



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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.                                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|10.80         |  | Form of Incentive/Non-qualified Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|10.81         |  | Form of Restricted Stock Award Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                         
|              | 
|10.82         |  | Amendment dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman.                                                                                                                                                                                                                                                                                                                                                                             
|              | 
|10.83         |  | Amendment dated January 1, 2004 to the employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D.                                                                                                                                                                                                                                                                                                                                                                         
|              | 
|21            |  | Subsidiaries of the Registrant, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB filed October 13, 2000.                                                                                                                                                                                                                                                                                                                                         
|              | 
|23.1          |  | Consent of Ernst & Young 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.                                                                                                                                                                                                                                                                                                                                                 



- 41 -



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##### Table of Contents

|              |  |                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                            
|              | 
|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.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------



- 42 -



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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: September 27, 2004 |  |  |  | By:                          |  | /s/ Roger G. Stoll, Ph.D.
|                         |  |  |  |                              |  |                           |  | Roger G. Stoll, Ph.D.                          
|                         |  |  |  |                              |  |                           |  | Chairman, President and Chief Executive Officer



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



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



|                                                                                      |  |                                                              |  |                   
|------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ------------------
|Signature                                                                             |  | Title                                                        |  | Date              
|                                                                                      |  |                                                             
|/s/ Roger G. Stoll, Ph.D.Roger G. Stoll, Ph.D. (Principal Executive Officer)          |  | Chairman of the Board, President and Chief Executive Officer |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ Maria S. MessingerMaria S. Messinger (Principal Financial and Accounting Officer) |  | Vice President, Chief Financial Officer and Secretary        |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ Robert F. AllnuttRobert F. Allnutt                                                |  | Director                                                     |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ Charles J. CasamentoCharles J. Casamento                                          |  | Director                                                     |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ Carl W. Cotman, Ph.D.Carl W. Cotman, Ph.D.                                        |  | Director                                                     |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ Peter F. Drake, Ph.D.Peter F. Drake, Ph.D.                                        |  | Director                                                     |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ M. Ross Johnson, Ph.D.M. Ross Johnson, Ph.D.                                      |  | Director                                                     |  | September 27, 2004
|                                                                                      |  |                                                             
|/s/ Gary D. Tollefson, M.D., Ph.D.Gary D. Tollefson, M.D., Ph.D.                      |  | Director                                                     |  | September 27, 2004



S - 1



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##### Table of Contents

Index to Financial Statements



|                                                                                                       |  |     
|------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                       |  | Page
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  | F-2 
|                                                                                                       | 
|Balance Sheets  As of June 30, 2004 and 2003                                                          |  | F-3 
|                                                                                                       | 
|Statements of Operations  For the years ended June 30, 2004, 2003 and 2002                            |  | F-4 
|                                                                                                       | 
|Statements of Stockholders Equity (Deficit)  For the period from June 30, 2001 through June 30, 2004 |  | F-5 
|                                                                                                       | 
|Statements of Cash Flows  For the years ended June 30, 2004, 2003 and 2002                            |  | F-6 
|                                                                                                       | 
|Notes to Financial Statements                                                                          |  | F-7 



F-1



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##### 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cortex Pharmaceuticals, Inc. at June 30,
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-2



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##### Table of Contents

Cortex Pharmaceuticals, Inc.



BALANCE SHEETS



|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                                                                                                                                                     |  | June 30, 2004 |             |   | June 30, 2003 |  
|Assets                                                                                                                                                                                                               |  |               |             |   |               |   |             |  
|Current assets:                                                                                                                                                                                                      |  |               |             |   |               |   |             |  
|Cash and cash equivalents                                                                                                                                                                                            |  | $             | 9,976,957   |   |               | $ | 1,125,054   |  
|Marketable securities                                                                                                                                                                                                |  |               | 12,210,554  |   |               |   |            |  
|Restricted cash                                                                                                                                                                                                      |  |               |            |   |               |   | 83,411      |  
|Accounts receivable                                                                                                                                                                                                  |  |               | 132,527     |   |               |   | 428,451     |  
|Other current assets                                                                                                                                                                                                 |  |               | 268,265     |   |               |   | 210,539     |  
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|Total current assets                                                                                                                                                                                                 |  |               | 22,588,303  |   |               |   | 1,847,455   |  
|Furniture, equipment and leasehold improvements, net                                                                                                                                                                 |  |               | 269,192     |   |               |   | 298,268     |  
|Other                                                                                                                                                                                                                |  |               | 33,407      |   |               |   | 33,407      |  
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|                                                                                                                                                                                                                     |  | $             | 22,890,902  |   |               | $ | 2,179,130   |  
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|Liabilities and Stockholders Equity (Deficit)                                                                                                                                                                       |  |               |             |   |               |   |             |  
|Current liabilities:                                                                                                                                                                                                 |  |               |             |   |               |   |             |  
|Accounts payable                                                                                                                                                                                                     |  | $             | 1,306,292   |   |               | $ | 852,016     |  
|Accrued wages, salaries and related expenses                                                                                                                                                                         |  |               | 233,859     |   |               |   | 213,037     |  
|Unearned licensing revenue                                                                                                                                                                                           |  |               | 205,922     |   |               |   | 988,426     |  
|Unearned research revenue                                                                                                                                                                                            |  |               |            |   |               |   | 1,028,752   |  
|Advance for MCI project                                                                                                                                                                                              |  |               | 275,112     |   |               |   | 270,140     |  
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|Total current liabilities                                                                                                                                                                                            |  |               | 2,021,185   |   |               |   | 3,352,371   |  
|Unearned licensing revenue, net of current, and other long-term liabilities                                                                                                                                          |  |               | 380,749     |   |               |   | 247,107     |  
|Stockholders equity (deficit):                                                                                                                                                                                      |  |               |             |   |               |   |             |  
|Series B convertible preferred stock, $0.001 par value; $0.6667 per share liquidation preference; shares authorized: 3,200,000; shares issued
and outstanding: 37,500; common shares issuable upon conversion: 3,679 |  |               | 21,703      |   |               |   | 21,703      |  
|Common stock, $0.001 par value; shares authorized: 30,000,000; shares issued and outstanding: 28,354,995 (2004) and 17,153,659
(2003)                                                                                |  |               | 28,354      |   |               |   | 17,153      |  
|Additional paid-in capital                                                                                                                                                                                           |  |               | 70,557,574  |   |               |   | 42,629,899  |  
|Unrealized loss, available for sale marketable securities                                                                                                                                                            |  |               | (35,670     | ) |               |   |            |  
|Accumulated deficit                                                                                                                                                                                                  |  |               | (50,082,993 | ) |               |   | (44,089,103 | )
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|Total stockholders equity (deficit)                                                                                                                                                                                 |  |               | 20,488,968  |   |               |   | (1,420,348  | )
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  
|                                                                                                                                                                                                                     |  | $             | 22,890,902  |   |               | $ | 2,179,130   |  
|                                                                                                                                                                                                                     |  |               |             |   |               |   |             |  



See accompanying
notes.



F-3



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##### Table of Contents

Cortex Pharmaceuticals, Inc.



STATEMENTS OF OPERATIONS



|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                |  | Years ended June 30, |           
|                                                                                |  | 2004                 |            |   | 2003 |   |            | 2002 | 
|Revenues:                                                                       |  |                      |            |   |      |   |            |      |  |   |            |  
|Research and license revenue                                                    |  | $                    | 6,791,412  |   |      | $ | 4,765,048  |      |  | $ | 5,777,217  |  
|Grant revenue                                                                   |  |                      | 181,469    |   |      |   | 466,902    |      |  |   | 655,286    |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total revenues                                                                  |  |                      | 6,972,881  |   |      |   | 5,231,950  |      |  |   | 6,432,503  |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Operating expenses:                                                             |  |                      |            |   |      |   |            |      |  |   |            |  
|Research and development                                                        |  |                      | 6,116,275  |   |      |   | 3,724,459  |      |  |   | 4,917,608  |  
|General and administrative                                                      |  |                      | 2,290,985  |   |      |   | 2,479,528  |      |  |   | 2,388,906  |  
|Non-cash stock compensation charges (A)                                         |  |                      | 1,105,643  |   |      |   | 217,347    |      |  |   | 180,768    |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                        |  |                      | 9,512,903  |   |      |   | 6,421,334  |      |  |   | 7,487,282  |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Loss from operations                                                            |  |                      | (2,540,022 | ) |      |   | (1,189,384 | )    |  |   | (1,054,779 | )
|Interest income, net                                                            |  |                      | 148,971    |   |      |   | 14,511     |      |  |   | 72,143     |  
|Increase in fair value of common stock warrants                                 |  |                      | (3,602,839 | ) |      |   |           |      |  |   |           |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Net loss before preferred stock dividends                                       |  |                      | (5,993,890 | ) |      |   | (1,174,873 | )    |  |   | (982,636   | )
|Dividends on 9% cumulative convertible preferred stock                          |  |                      |           |   |      |   |           |      |  |   | 675        |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Net loss applicable to common stock                                             |  | $                    | (5,993,890 | ) |      | $ | (1,174,873 | )    |  | $ | (983,311   | )
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Net loss per share, basic and diluted                                           |  | $                    | (0.26      | ) |      | $ | (0.07      | )    |  | $ | (0.06      | )
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Shares used in basic and diluted calculation                                    |  |                      | 23,182,179 |   |      |   | 16,868,310 |      |  |   | 16,712,115 |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|(A) Non-cash stock compensation charges include the following related expenses: |  |                      |            |   |      |   |            |      |  |   |            |  
|Research and development                                                        |  | $                    | 188,958    |   |      | $ | 76,842     |      |  | $ | 125,241    |  
|General and administrative                                                      |  |                      | 916,685    |   |      |   | 140,505    |      |  |   | 55,527     |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|                                                                                |  | $                    | 1,105,643  |   |      | $ | 217,347    |      |  | $ | 180,768    |  
|                                                                                |  |                      |            |   |      |   |            |      |  |   |            |  



See accompanying
notes.



F-4



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                                   |            |   |                    |   |         |       |  |   |             |   |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | --------------------------------- | - | ----------- |  | ------------------------- | ------ |  | --------------------------------- | ---------- | - | ------------------ | - | ------- | ----- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                                                               |  | 9%cumulativeconvertiblepreferredstock |         |   | Series Bconvertiblepreferredstock |   | Commonstock |  | Additionalpaid-in capital |        |  | 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 for consultants                                                                          |  |                                       |        |   |                                   |   |            |  |                           |       |  |                                   | 103,167    |   |                    |   |        |       |  |   |            |   |  |   | 103,167    |  
|Issuance of warrants to purchase 116,000 shares of common stock for services                                                   |  |                                       |        |   |                                   |   |            |  |                           |       |  |                                   | 62,280     |   |                    |   |        |       |  |   |            |   |  |   | 62,280     |  
|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                                                                                                             |  |                                       |        |   |                                   |   |            |  |                           |       |  |                                   |           |   |                    |   |        |       |  |   |            |   |  |   | (6,029,560 | )
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                                   |            |   |                    |   |         |       |  |   |             |   |  |   |            |  
|Balance, June 30, 2004                                                                                                         |  | $                                     |        |   |                                   | $ | 21,703      |  | $                         | 28,354 |  | $                                 | 70,557,574 |   |                    | $ | (35,670 | )     |  | $ | (50,082,993 | ) |  | $ | 20,488,968 |  
|                                                                                                                               |  |                                       |         |   |                                   |   |             |  |                           |        |  |                                   |            |   |                    |   |         |       |  |   |             |   |  |   |            |  



See accompanying
notes.



F-5



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF CASH FLOWS



|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------------- |  | -------------------- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                          |  | Years ended June 30, |            
|                                                                                          |  | 2004                 |             |   | 2003 |   |            | 2002 | 
|Cash flows from operating activities:                                                     |  |                      |             |   |      |   |            |      |  |   |            |  
|Net loss before preferred stock dividends                                                 |  | $                    | (5,993,890  | ) |      | $ | (1,174,873 | )    |  | $ | (982,636   | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                      |             |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                                             |  |                      | 119,748     |   |      |   | 155,846    |      |  |   | 153,176    |  
|Stock option compensation expense                                                         |  |                      | 1,105,643   |   |      |   | 155,067    |      |  |   | 180,768    |  
|Amortization of capitalized financing costs                                               |  |                      | 136,171     |   |      |   |           |      |  |   |           |  
|Change in fair value of common stock warrants                                             |  |                      | 3,466,668   |   |      |   |           |      |  |   |           |  
|Warrants issued for services                                                              |  |                      |            |   |      |   | 62,280     |      |  |   |           |  
|Changes in operating assets/liabilities:                                                  |  |                      |             |   |      |   |            |      |  |   |            |  
|Restricted cash                                                                           |  |                      | 83,411      |   |      |   | 97,475     |      |  |   | 11,414     |  
|Accounts receivable                                                                       |  |                      | 295,924     |   |      |   | (312,979   | )    |  |   | (115,472   | )
|Other current assets                                                                      |  |                      | (57,726     | ) |      |   | 140,333    |      |  |   | (90,193    | )
|Accounts payable and accrued expenses                                                     |  |                      | 475,098     |   |      |   | 671,149    |      |  |   | (144,556   | )
|Unearned revenue                                                                          |  |                      | (1,677,614  | ) |      |   | (649,659   | )    |  |   | (1,709,691 | )
|Changes in other assets and other liabilities                                             |  |                      | 26,483      |   |      |   | 5,468      |      |  |   | 6,562      |  
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Net cash used in operating activities                                                     |  |                      | (2,020,084  | ) |      |   | (849,893   | )    |  |   | (2,690,628 | )
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Cash flows from investing activities:                                                     |  |                      |             |   |      |   |            |      |  |   |            |  
|Purchase of marketable securities                                                         |  |                      | (15,467,735 | ) |      |   |           |      |  |   | (1,000,000 | )
|Proceeds from maturities of marketable securities                                         |  |                      | 3,200,000   |   |      |   |           |      |  |   | 1,000,000  |  
|Purchase of fixed assets                                                                  |  |                      | (90,672     | ) |      |   | (2,834     | )    |  |   | (107,870   | )
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Net cash used in investing activities                                                     |  |                      | (12,358,407 | ) |      |   | (2,834     | )    |  |   | (107,870   | )
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Cash flows from financing activities:                                                     |  |                      |             |   |      |   |            |      |  |   |            |  
|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              |  |                      | 4,457,310   |   |      |   |           |      |  |   |           |  
|Proceed from issuance of common stock upon exercise of warrants                           |  |                      | 1,059,374   |   |      |   |           |      |  |   |           |  
|Proceeds from issuance of common stock upon exercise of stock options                     |  |                      | 251,703     |   |      |   | 128,772    |      |  |   | 90,666     |  
|Payment of 9% preferred stock dividends                                                   |  |                      |            |   |      |   |           |      |  |   | (675       | )
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                                                 |  |                      | 23,230,394  |   |      |   | 128,772    |      |  |   | 89,991     |  
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Increase (decrease) in cash and cash equivalents                                          |  |                      | 8,851,903   |   |      |   | (723,955   | )    |  |   | (2,708,507 | )
|Cash and cash equivalents, beginning of year                                              |  |                      | 1,125,054   |   |      |   | 1,849,009  |      |  |   | 4,557,516  |  
|                                                                                          |  |                      |             |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents, end of year                                                    |  | $                    | 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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##### Table of Contents

Cortex Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS



Note 1 
Business and Summary of Significant Accounting Policies



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



In January 1999, the Company entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon), 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).



Basis of Presentation  From inception through June 30, 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 97%, 91% and 89% of total revenues for the years ended June 30, 2004, 2003 and 2002, respectively.



Under the agreement with Servier, during the years ended June 30, 2004, 2003 and 2002 the
Company recorded research and licensing revenues of $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 $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, $0 and $2,000,000 for the years ended June 30, 2004, 2003 and 2002, respectively. 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 placements of
its common stock in August 2003 and January 2004, Cortex anticipates that it has sufficient capital and committed funding to maintain its operations through mid-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.



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



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##### Table of Contents

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 and cash equivalents. The Company limits its exposure to credit loss by investing its cash with high credit
quality financial institutions.



Furniture, Equipment and Leasehold
Improvements Furniture, equipment and leasehold improvements are recorded at cost and 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 June 30, 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.



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.



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##### Table of Contents

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 years ended June 30, 2004, 2003 and 2002, respectively: weighted average
risk-free interest rates of 2.1%, 2.7% and 3.4%; dividend yields of 0%; volatility factors of the expected market price of the Companys common stock of 1.06%, 99% and 68%; and a weighted average life of 3.7 years, 4.1 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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##### Table of Contents

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



|                                                                                                         |  |                     |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                         |  | Year ended June 30, |           
|                                                                                                         |  | 2004                |            |   | 2003 |   |            | 2002 | 
|Net loss applicable to common stockholders, as reported                                                  |  | $                   | (5,993,890 | ) |      | $ | (1,174,873 | )    |  | $ | (983,311   | )
|Stock-based employee compensation expense included in reported net loss                                  |  |                     | 12,100     |   |      |   |           |      |  |   | 41,226     |  
|Total stock-based employee compensation expense determined under fair value based method for all options |  |                     | (1,671,471 | ) |      |   | (537,314   | )    |  |   | (617,889   | )
|                                                                                                         |  |                     |            |   |      |   |            |      |  |   |            |  
|Pro forma net loss applicable to common stockholders                                                     |  | $                   | (7,653,261 | ) |      | $ | (1,712,187 | )    |  | $ | (1,559,974 | )
|                                                                                                         |  |                     |            |   |      |   |            |      |  |   |            |  
|Basic and diluted net loss per share available to common stockholders, as reported                       |  | $                   | (0.26      | ) |      | $ | (0.07      | )    |  | $ | (0.06      | )
|Basic and diluted net loss per share available to common stockholders, pro forma                         |  | $                   | (0.33      | ) |      | $ | (0.10      | )    |  | $ | (0.09      | )



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 years ended June 30, 2004, 2003 and 2002 was $1.92, $0.54 and $1.36,
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 June 30, 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 fiscal year ended June
30, 2004, applying the Interpretation increased the net loss by $43,999, 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 $41,226, with no impact on the net loss per share.



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.



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Net Loss per Share  In accordance with Statement of Financial Accounting Standards 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. As of June 30,
2004, 2003 and 2002, there were no shares of the 9% Cumulative Convertible Preferred Stock outstanding.



The Company has reserved 12.9 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 year 2003 and 2002 financial statements to
conform with the fiscal year 2004 presentation.



Note 2  Detail of
Selected Balance Sheet Accounts



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



|                                      |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|------------------------------------- |  | ---- | ---------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                      |  | Cost |            | GrossUnrealizedGains |   | 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 |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                     |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Within one year                |  | $    | 5,420,632  |                      | $ |                      |  | $ | (10,680             | ) |  | $ | 5,409,952 
|After one year through 5 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 fiscal years ended June 30, 2004, 2003 or 2002.



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Accounts receivable consist of the following:



|                               |  |          |         |      |   |        
|------------------------------ |  | -------- | ------- | ---- | - | -------
|                               |  | June 30,
|                               |  | 2004     |         | 2003
|Receivables from Servier       |  | $        | 111,715 |      | $ | 368,349
|Receivables for grant projects |  |          | 20,812  |      |   | 13,775 
|Other receivables              |  |          |        |      |   | 46,327 
|                               |  |          |         |      |   |        
|                               |  | $        | 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 pays many of the associated expenses directly, it
receives reimbursement for these amounts from Servier.



Other current assets
consist of the following:



|                           |  |          |         |      |   |        
|-------------------------- |  | -------- | ------- | ---- | - | -------
|                           |  | June 30,
|                           |  | 2004     |         | 2003
|Prepaid license fees       |  | $        | 93,351  |      | $ |       
|Prepaid sponsored research |  |          | 8,000   |      |   | 12,458 
|Prepaid insurance fees     |  |          | 118,187 |      |   | 62,457 
|Prepaid financing costs    |  |          |        |      |   | 72,344 
|Prepaid consulting fees    |  |          | 10,000  |      |   | 25,000 
|Other                      |  |          | 38,727  |      |   | 38,280 
|                           |  |          |         |      |   |        
|                           |  | $        | 268,265 |      | $ | 210,539
|                           |  |          |         |      |   |        



Furniture, equipment and leasehold
improvements consist of the following:



|                         |  |          |            |   |      |   |            |  
|------------------------ |  | -------- | ---------- | - | ---- | - | ---------- | -
|                         |  | June 30, |           
|                         |  | 2004     |            |   | 2003 |  
|Laboratory equipment     |  | $        | 1,447,007  |   |      | $ | 1,400,804  |  
|Leasehold improvements   |  |          | 718,874    |   |      |   | 716,724    |  
|Furniture and equipment  |  |          | 179,329    |   |      |   | 175,431    |  
|Computers and software   |  |          | 356,368    |   |      |   | 317,947    |  
|                         |  |          |            |   |      |   |            |  
|                         |  |          | 2,701,578  |   |      |   | 2,610,906  |  
|Accumulated depreciation |  |          | (2,432,386 | ) |      |   | (2,312,638 | )
|                         |  |          |            |   |      |   |            |  
|                         |  | $        | 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 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 of June 30,
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.



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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 also 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. The Company cannot exercise this call right prior to March 18, 2005.



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



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



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



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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.



For both transactions, 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 and January 2004, specifically the potential penalties if the Company did not timely register the common stock underlying the warrants
issued in either 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 the
restructuring of a note payable, in July 1999 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. 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 these
warrants. The Company fully repaid the principal and accrued interest on the restructured note during the fiscal year ended June 30, 2000.



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 48,000 shares of common stock at a
weighted-average exercise price of $2.95. The above warrants are fully exercisable and resulted in expense of approximately $107,000 and $62,000 for the fiscal years ended June 30, 2004 and 2003, respectively. The exercise prices for



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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 June 30, 2004, the Company had reserved an aggregate of 3,679 shares for issuance upon conversion of the Series B Preferred Stock; 8,095,017 shares for issuance
upon exercise of warrants; 4,789,082 shares for issuance upon exercise of outstanding stock options; and 3,428,096 shares for issuance upon exercise of stock options available for future grant.



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 9,375,481 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 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.



Subject to any restrictions under federal or state securities laws, each non-officer employee
is 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-officer employee is 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-officer employee is awarded on the date six months from the date of hire. Additionally, all non-officer employees are
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.



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 June 30, 2004, options to purchase an aggregate of 3,269,245 shares of common stock
were exercisable under the Companys stock option plan. During 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 are summarized below:



|                                |  |                  |   |  |                                           |     
|------------------------------- |  | ---------------- | - |  | ----------------------------------------- | ----
|                                |  | Number of shares |   |  | Weighted average exercise 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
|                                |  |                  |   |  |                                           |     
|Available for future grant      |  | 3,428,096        |   |  |                                           |     
|                                |  |                  |   |  |                                           |     



Information regarding stock options
outstanding at June 30, 2004 is as follows:



|                         |  |                                   |  |                                          |  |                               |      |                                   |           |                               |   |     
|------------------------ |  | --------------------------------- |  | ---------------------------------------- |  | ----------------------------- | ---- | --------------------------------- | --------- | ----------------------------- | - | ----
|                         |  | Options Outstanding               |  | Options Exercisable                     
|Range of exercise prices |  | Numberoutstandingat June 30, 2004 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price |      | Numberexercisableat June 30, 2004 |           | Weightedaverageexercise price
|$  0.38 - 0.75           |  | 1,272,083                         |  | 6.4 years                                |  | $                             | 0.63 |                                   | 948,758   |                               | $ | 0.58
|0.76 - 2.20              |  | 1,315,274                         |  | 7.6 years                                |  |                               | 1.14 |                                   | 952,244   |                               |   | 1.02
|2.27 - 2.76              |  | 1,587,589                         |  | 8.9 years                                |  |                               | 2.71 |                                   | 937,439   |                               |   | 2.69
|2.78 - 4.44              |  | 614,136                           |  | 7.3 years                                |  |                               | 3.08 |                                   | 430,804   |                               |   | 3.05
|                         |  |                                   |  |                                          |  |                               |      |                                   |           |                               |   |     
|                         |  | 4,789,082                         |  |                                          |  |                               |      |                                   | 3,269,245 |                               |   |     
|                         |  |                                   |  |                                          |  |                               |      |                                   |           |                               |   |     



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.



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



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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 June 30, 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 for three years, 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 $2,165,000. 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 will be paid in quarterly installments of $500,000 over a two-year period, beginning in October 2002.



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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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 $275,112 and $270,140 at June 30, 2004 and 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 years ended June 30,
2004, 2003 and 2002 was approximately $329,000, $295,000 and $279,000, respectively. Commitments under the lease for the years ending June 30, 2005, 2006, 2007, 2008 and 2009 are approximately $435,000, $459,000, $478,000, $498,000 and $472,000,
respectively.



As of June 30, 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 aggregating $430,000 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 the Phase I clinical study of CX717 initiated in May 2004 amount to
approximately $2,300,000. Separately, commitments under sponsored research agreements for services to be rendered for the years ending June 30, 2005 and 2006 approximated $787,000 and $562,000, respectively. Commitments under scientific consulting
agreements for services to be rendered for the year ending June 30, 2005 approximated $129,000. Thereafter, such commitments for consulting agreements approximate $93,000 annually.



F-18



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##### Table of Contents

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 June 30, 2004 and for each
year thereafter for the remaining life of the patents covering the subject technologies, with the most recently issued patent expiring in April 2021. 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 years ended June 30, 2004, 2003 and 2002, the
Company paid scientific and other consulting fees to stockholders aggregating $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 June 30, 2004, the Company had
federal and California tax net operating loss carryforwards of approximately $41,000,000 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 2008. The Company also has
federal and California research and development tax credit carryforwards totaling approximately $1,000,000 and $400,000, 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 June 30, 2004 and June 30, 2003 are shown below. A valuation
allowance of $18,705,000 as of June 30, 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 $971,000 from June 30, 2003 to June 30, 2004
relates primarily to continuing net operating losses.



F-19



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##### Table of Contents

Deferred tax assets consist of the following:



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



Note 10  Quarterly Financial
Information (Unaudited)



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



|                                              |  |             |            |   |             |   |           |             |  |   |             |   |  |   |            |  
|--------------------------------------------- |  | ----------- | ---------- | - | ----------- | - | --------- | ----------- |  | - | ----------- | - |  | - | ---------- | -
|                                              |  | 1st Quarter |            |   | 2nd Quarter |   |           | 3rd Quarter |  |   | 4th Quarter |  
|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      | )
|                                              |  |             |            |  
|                                              |  | 1st Quarter |            |   | 2nd Quarter |   |           | 3rd Quarter |  |   | 4th Quarter |  
|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-20



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

Annual Report on Form 10-K

Year ended June 30, 2004

Exhibit Index



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Sequentially Numbered 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Sequentially Numbered 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 Decemer 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.                                                                                                                                                                                                                                                                                                                                                                                      |  |                          
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.80         |  | Form of Incentive/Nonqualified Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                             |  |                          



EXH-2



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##### Table of Contents

|               |  |                                                                                                                                                              |  |                          
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|Exhibit Number |  | Description                                                                                                                                                  |  | SequentiallyNumbered Page
|               |  |                                                                                                                                                             
|10.81          |  | Form of Restricted Stock Award under the Companys Amended and Restated 1996 Stock Incentive Plan.                                                           |  |                         
|               |  |                                                                                                                                                             
|10.82          |  | Amendment dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman.                                     |  |                         
|               |  |                                                                                                                                                             
|10.83          |  | Amendment dated January 1, 2004 to the employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D.                                 |  |                         
|               |  |                                                                                                                                                             
|21             |  | Subsidiaries of the Registrant, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB filed October 13, 2000. |  |                         
|               |  |                                                                                                                                                             
|23.1           |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                                                                 |  |                         
|               |  |                                                                                                                                                             
|24             |  | Power of Attorney (included as part of the signature page of this Annual Report on Form 10-KSB.                                                              |  |                         
|               |  |                                                                                                                                                             
|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