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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                  FORM 10-KSB

    X     Annual Report pursuant to Section 13 or 15(d) of the Securities
   ---
          Exchange Act of 1934
          For the fiscal year ended June 30, 2000
                                    -------------

                                      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.
                (Name of small business issuer in its charter)

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

               15241 Barranca Parkway, Irvine, California, 92618
         (Address of principal executive offices, including zip code)

                                (949) 727-3157
                          (Issuer's telephone number)

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

             Securities registered under Section 12(g) of the Act:
                        Common Stock, $0.001 par value

                               (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days. YES  X
                                                                           ---
NO ___

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. X
                              ---

Revenues for the issuer's most recent fiscal year were $5,508,000. The aggregate
market value of the voting stock held by non-affiliates as of September 6, 2000
was $66,121,550 (based on the last sale price of the common stock as reported by
the Over-the-Counter Bulletin Board).

As of September 25, 2000, there were 16,582,758 shares of the issuer's common
stock outstanding.

Transitional Small Business Disclosure Format (check one): YES ___  NO  X
                                                                       ---
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                      DOCUMENTS INCORPORATED BY REFERENCE

PART III: Portions of the registrant's definitive proxy statement for the Annual
          Meeting of Stockholders to be held on December 12, 2000.

                               TABLE OF CONTENTS

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PART I

 Item 1.  Description of Business.............................................       3

 Item 2.  Description of Property.............................................      17

 Item 3.  Legal Proceedings...................................................      18

 Item 4.  Submission of Matters to a Vote of Security Holders.................      18

PART II

 Item 5.  Market for Common Equity and Related Stockholder Matters............      18

 Item 6.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations......................      20

 Item 7.  Financial Statements................................................      23

 Item 8.  Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure.............................      23

PART III

 Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act..................      24

 Item 10. Executive Compensation..............................................      24

 Item 11. Security Ownership of Certain Beneficial Owners
           and Management.....................................................      24

 Item 12. Certain Relationships and Related Transactions......................      24

 Item 13. Exhibits and Reports on Form 8-K....................................      25

Signatures....................................................................     S-1

Financial Statements..........................................................     F-1

Exhibit Index and Exhibits....................(Attached to this Report on Form 10-KSB)
</TABLE>

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INTRODUCTORY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-KSB 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 include 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.   Description of Business

     Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") was organized in
1987 to engage in the discovery, development and commercialization of innovative
pharmaceuticals for the treatment of neurodegenerative diseases and other
neurological and psychiatric disorders. Since 1993, the primary effort at Cortex
has been centered on developing products that affect the AMPA-type glutamate
receptor, a complex of proteins that is involved in most "excitatory"
communication between nerve cells in the human brain. Cortex is developing a
family of chemical compounds, known as Ampakines, that enhance the activity of
this receptor. Cortex believes that Ampakines hold promise for correcting
deficits brought on by a variety of diseases and disorders that are known, or
thought, to involve depressed functioning of pathways in the brain that use
glutamate as a neurotransmitter.

     The Ampakine program addresses large potential markets. The Company's
commercial development plan involves partnering with larger pharmaceutical
companies for research, development, clinical testing, manufacturing and global
marketing of many of its proposed products. The Company may retain the right to
eventually market or co-promote Ampakines for selected indications in the United
States. If the Company is successful in the pursuit of this partnering strategy,
it may be in a position to contain its costs over the next few years, to
maintain its focus on the research and early development of novel
pharmaceuticals (where it believes that it has the ability to compete) and
eventually to participate more fully in the commercial development of its
proposed products in the United States.

     In January 1999, the Company entered a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a subsidiary of Akzo
Nobel (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's Ampakine technology for the treatment of
schizophrenia and, upon Organon's election, for the treatment of depression. In
April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals, plc ("Shire") under which Shire will evaluate the use of the
Company's Ampakine CX516 for the treatment of Attention Deficit Hyperactivity
Disorder ("ADHD"). In October 2000, the Company entered into a research
collaboration and license agreement with Les Laboratoires Servier ("Servier").
The agreement will allow

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Servier to develop and commercialize the Company's Ampakine technology 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, multiple sclerosis and
Lou Gehrig's disease.

     Cortex continues to seek collaborative or licensing arrangements with other
pharmaceutical companies. These arrangements may permit other applications of
the Ampakines 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. The Company may not be able to secure
such arrangements on favorable terms, or at all, and its products may not be
successfully developed and approved for marketing by government regulatory
agencies.

In the fiscal years ended June 30, 2000 and 1999, the Company's expenditures on
research and development were $3,896,627 and $3,379,732, respectively, with the
increase attributable to expenses related to the alliance with Organon.

AMPA Receptor Program

     In June 1993, Cortex licensed a new class of compounds -- the Ampakines --
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. Ampakines facilitate the activity of the
AMPA receptor, which binds the neurotransmitter glutamate. The Ampakines
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. It is
hoped that this selective amplification of the normal glutamate signal will
eventually find utility in the treatment of neurological diseases and disorders
characterized by depressed functioning of brain pathways that utilize glutamate
as a neurotransmitter.

     It is well known that synaptic connections, including those that utilize
glutamate, decline with age. Thus, disorders such as mild cognitive impairment
associated with aging may be amenable to treatment with Ampakines. Two prominent
diseases that may benefit from AMPA receptor-directed therapeutics are
Alzheimer's disease and schizophrenia. A recently completed study with Ampakines
in patients with schizophrenia indicated improvement in a number of symptoms
also common to patients with ADHD. Additionally, the Company and its
collaborators have obtained encouraging preliminary results in animal models of
depression, sexual dysfunction and depressed endocrine function.

Deficits of Memory and Cognition -- Mild Cognitive Impairment and Alzheimer's
Disease

     Impairment of memory and cognition is a serious health care problem that is
growing as the elderly population continues to increase. While not fatal (except
when associated with diseases such as Alzheimer's disease), the incidence and
prevalence of cognitive deficits increase inexorably with age. Many elderly
individuals are confined to nursing homes because of psychological
disorientation and functional difficulties. Pharmaceuticals to alleviate
deficits in memory and cognition could potentially enable these elderly
individuals to remain independent longer. Cognitive deficit is also associated
with a number of other neurodegenerative diseases, including multiple sclerosis,
Amyotrophic Lateral Sclerosis and Huntington disease.

     Although disease and physiological malfunctions are thought to be the
fundamental cause of severe mental decline, age itself is a contributory factor,
with the human brain losing about 10% of its weight over a normal life span. In
the cerebral cortex, a great deal of the communication between neurons is
mediated by receptors for the neurotransmitter glutamate, including a subtype
known as the AMPA receptor. AMPA receptors and synapses decline in number with
aging, on average by 25-30% between the ages of 25 and 65, making it more
difficult for information to pass through and between areas of the cerebral
cortex. Therefore a potential corrective approach to alleviate age-related
cognitive deficits is to enhance the activity of the remaining functional AMPA
receptors. Ampakines amplify glutamate

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currents and have been shown to alleviate memory deficits in experiments in both
elderly animals and humans.

     Patients with mild cognitive impairment ("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. It is estimated that each year,
approximately 15% to 20% of patients with MCI will progress to Alzheimer's
disease.

     Alzheimer's disease is the best known destroyer of memory, currently
afflicting some four million Americans. With the aging of our population, the
number of people in the U.S. with Alzheimer's disease is expected to double over
the next two decades unless a treatment is found. According to the Alzheimer's
Association, Alzheimer's disease is already the third most expensive disease in
the U.S. (after heart disease and cancer), with an estimated annual cost to
society of $100 billion and a lifetime cost per patient of $174,000. The impact
of an effective treatment, even a symptomatic one, would be enormous.

     It is in the early stages of Alzheimer's disease -- the first few years --
that Cortex believes Ampakines may play a valuable role, enhancing the
effectiveness of the brain cells that have not yet succumbed to the disease.
This may help to alleviate the memory and cognitive deficits that make up the
early symptoms. There is also a possibility that treatment with Ampakines may
slow the progression of Alzheimer's disease. The reason for this is that 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. Ampakines may slow the rate at which functional levels of input from
other neurons are lost. Research also suggests that Ampakines may increase the
production of neurotrophic factors that are known to be protective for nerve
cells.

     One of the most compelling of the animal studies conducted to date with the
Ampakines involved an assessment of the effects on memory performance in middle-
aged rats. A number of researchers have demonstrated that healthy middle-aged
rats have significant deficits in memory performance when compared to younger
animals. This provides an animal model for age-associated memory impairment in
humans. In a study published in Synapse, the authors conducted research
involving a maze task with middle-aged and young adult rats. The middle-aged
rats showed striking deficits in performance when compared with the young adult
animals. When given an Ampakine, the performance of the middle-aged rats
improved to levels equivalent to those found in young animals.

     Three human clinical safety studies have been completed with CX516
("Ampalex") in healthy volunteers. In all three studies, CX516 was safe and
well-tolerated on acute oral administration and, importantly, statistically-
significant positive effects on memory performance were seen in healthy
volunteers.

     The initial study, conducted by AFB Parexel in Berlin involved single
administrations of drug or placebo to a total of 48 healthy young adult
volunteers, ranging in age from 18 to 35. The trial was double-blinded and
placebo-controlled, and involved administering a single dose of drug, in capsule
form, to each volunteer. Several dosages of drug were tested and at all dosage
levels, the drug was safe and well-tolerated. In addition, analysis of
psychological data that was collected revealed a highly statistically
significant positive effect on a test of memory performance that involved recall
of a list of nonsense syllables.

     The second trial, at the same clinical site in Berlin, involved 30 healthy
elderly volunteers, aged 65 to 76, each of whom was administered a single oral
dose of drug or placebo. In this double-blinded trial, Ampalex was again found
to be safe and well-tolerated. The elderly volunteers were also given the same
nonsense syllable memory test that had been given to the young volunteers in the
first study. In the absence of drug, the elderly volunteers' memory was
substantially worse than that of the young volunteers. In the presence of drug,
a statistically significant positive effect on memory performance was

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observed. Several of the elderly volunteers receiving the highest dosage of
Ampalex scored at or above the average score achieved by the young volunteers in
the earlier study.

     The third study, at the Karolinska Hospital in Stockholm, Sweden, involved
administration of CX516 to healthy young adults under double-blind, placebo-
controlled conditions. This five-day study involved administration of placebo on
days 1, 4 and 5 and drug on days 2 and 3, with psychological testing conducted
on each day. Ampalex was safe and well-tolerated by all volunteers receiving
drug, with no adverse events reported. Statistically significant improvements in
performance on several measures of learning and memory were noted in the group
that received CX516.

     After these encouraging results, Cortex initiated a Phase I/IIa study in
patients experiencing deficits of memory and cognition due to Alzheimer's
disease. The double-blind, placebo-controlled dose escalation study, which is
being conducted at the National Institutes of Health in Bethesda, Maryland,
involves administration of CX516 to an eventual total of 16 to 20 patients for
up to 28 consecutive days. To date, 15 patients have been enrolled in this
study, with enrollment of an additional five patients anticipated.

     In June 2000, Cortex received $247,300 from the Institute for the Study of
Aging (the "Institute"), a non-profit foundation based in New York City
dedicated to the improvement in quality of life for the elderly. The funds will
support a study of Ampakines for effects in psychometric tests of memory and
cognition in elderly patients with MCI. Data from this study may support the
concept of AMPA modulation as a treatment for MCI, and would justify additional,
larger trials. In the event that Cortex enters an Ampakine into Phase III
clinical studies as a treatment for Alzheimer's disease, Cortex has agreed to
repay the funds to the Institute to allow them to assist other biotechnology
companies.

     In October 2000, the Company entered into a research collaboration and
exclusive license agreement with Servier. The agreements will enable Servier to
develop and commercialize Cortex's proprietary Ampakine technology for the
treatment of declines in cognitive performance associated with aging and of
neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimer's disease, Mild Cognitive Impairment, sexual dysfunction, multiple
sclerosis and Lou Gehrig's disease. The territory covered by the exclusive
license excludes North America, allowing Cortex to retain commercialization
rights in its domestic market. The territory covered by the agreement also
excludes South America (except Argentina, Brazil and Venezuela), Australia and
New Zealand. The agreement includes an up-front payment by Servier of
$5,000,000, research support payments of up to $2,025,000 per year for three
years and milestone payments, plus royalty payments on sales in licensed
territories.

     While the clinical testing of Ampakines initiated by Cortex provided
preliminary indications of desired effects on memory and cognition,
psychological testing of patients with Alzheimer's disease is subject to a high
level of variability. Full-scale Phase II studies designed to achieve
significance on broad psychological scales will require larger numbers of
patients. Cortex intends that further clinical studies of Ampakines as a
treatment for Alzheimer's disease will be conducted in collaboration with its
corporate partner, Servier.

Schizophrenia

     Schizophrenia is a major health care problem. The worldwide incidence of
the disease is approximately one percent, regardless of ethnic, cultural or
socioeconomic status. On any given day, approximately 100,000 of the estimated
two million U.S. patients with schizophrenia are in public mental hospitals.

     Schizophrenia typically develops in late adolescence or early adulthood and
is best understood as a syndrome, or collection of symptoms. These are generally
characterized as positive symptoms (delusions and hallucinations), negative
symptoms (social withdrawal and loss of emotional responsiveness) and cognitive
symptoms (disordered thought and attention deficits).

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     The first "wonder drugs" for schizophrenia, the so-called neuroleptics or
conventional anti-psychotics, were developed in the 1950s and 1960s. These
drugs, such as chlorpromazine and haloperidol, helped to reduce the positive
symptoms of the disease and greatly reduced the need for chronic
hospitalization. However, these drugs, which are still in use today, 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 strongly negative impact on quality of life and tend to lead to poor
patient compliance with medication.

     More recently, 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 typical neuroleptics, either because of lack of efficacy or side effects.
Risperidone and olanzapine are other recent clozapine-like 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, schizophrenia
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 with
schizophrenia from successfully reintegrating into society.

     Schizophrenia has long been thought to have its biochemical basis in an
overactivity 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 an underactivity of glutamate pathways projecting
into the same area. Cortex is therefore studying whether Ampakines, which
increase current flow through the AMPA subtype of glutamate receptor, might have
relevance to the treatment of schizophrenia.

     In late 1995, Cortex announced the discovery that an Ampakine reduced
stereotypic behavior (mechanical repetition of posture or movement) in rats that
had been injected with methamphetamine. Reduction of methamphetamine-induced
stereotypic behavior is widely used for initial screening of anti-psychotic
drugs. Scientists at both the University of California, Irvine and Cortex have
since extended this finding to include additional Ampakines. Further, Cortex
scientists have demonstrated that Ampakines in combination with either
conventional or atypical anti-psychotic drugs have additive or synergistic
effects in this model system.

     In January 1999, the Company 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 and to explore it in the area of depression. The agreement
includes an upfront payment of $2,000,000, research and development payments of
up to $3,000,000 per year for two years, and milestone payments, plus royalty
payments on worldwide sales. The Company believes that the agreement with
Organon will provide an accelerated program to bring the Ampakines to market for
schizophrenia and possibly depression, if proven safe and effective in clinical
trials.

     Shortly thereafter, in April 1999 the Company 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 clinical and
psychological testing was also 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. Preliminary results indicate that
CX516 is reasonably safe in combination with clozapine and improves performance
on a number of tests of

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

     Further clinical testing of the Ampakines in patients with schizophrenia
will be conducted by the Company's corporate partner, Organon. Data obtained
from the testing performed at Massachusetts General Hospital should be very
helpful in the design of such trials. In May 2000, Cortex achieved its first
milestone under the agreement when Organon selected a licensed compound to
pursue in Phase I clinical testing, triggering a $2,000,000 payment to Cortex.
Based upon the progress and results of the Phase I trials, an additional
milestone payment from the agreement may occur during fiscal 2001.

Attention Deficit Hyperactivity Disorder

     Attention Deficit Hyperactivity Disorder is the most commonly diagnosed
disorder of children. The National Institute of Mental Health estimates that
ADHD affects three to five percent of school-age children, with about one child
in every classroom in the United States in need of help for this disorder.
Additional 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, 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 extend into
adulthood.

     Psychostimulants, including amphetamine, methylphenidate and pemoline,
represent the most widely researched and commonly prescribed treatments for the
disorder. One theory suggests that ADHD relates to 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 psychostimulants are more readily available and more frequently
prescribed, concerns over their potential overuse and abuse have intensified.
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.

     In April 1999, the Company reported preliminary results from a study with
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 Ampakines may represent a
novel, non-controlled (not regulated by the Drug Enforcement Agency) approach
for treating ADHD patients.

     In April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals, plc ("Shire") under which Shire will evaluate the use of
Cortex's Ampakine CX516 for the treatment of ADHD. Under the terms of the
agreement, Shire will undertake a double-blind, placebo-controlled evaluation of
CX516 in ADHD patients. In exchange for the option, Cortex received $130,000 and
issued 254,353 shares of common stock to Shire for $870,000. In addition, Shire
will purchase study drug from Cortex and be responsible for all costs associated
with the trial.

     If the study proves effective, Shire has the right to convert its option
into an exclusive worldwide license for the Ampakines for ADHD under a
development and licensing agreement. Should Shire elect to execute this
agreement, Shire will bear all future developmental costs. Cortex would receive
a license

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fee, milestone payments based on successful clinical and commercial development,
research support for additional Ampakines and royalties on sales.


Calpain Inhibitor Program

     Calpain is a protease, a protein that digests other proteins. It is
involved in a variety of biological processes throughout the body and has been
implicated in the pathology of several diseases and disorders.

     The Company's first target for calpain inhibitor therapeutics was brain
damage following stroke. A stroke is a vascular event causing localized damage
to the brain. There are two general categories of stroke: ischemic stroke, which
is due to a blockage of blood flow, and hemorrhagic stroke, which involves a
blood vessel bursting in the brain. In either case, the insult to the brain is
often immediately life threatening, and initiates a cascade of molecular events
that may lead to permanent brain damage.

     In 1990 and 1991, Cortex established laboratory models of ischemia and used
them to identify a range of calpain inhibitor compounds that appeared to have
the potential to block brain damage due to stroke and other ischemic events. In
January 1992, Cortex entered into a Development and License Agreement, amended
in October 1992, (the "Alkermes Agreement") with Alkermes, Inc. ("Alkermes").
Cortex granted to Alkermes an exclusive worldwide license, with a right to
sublicense, to commercialize the Company's calpain inhibitor technology for the
prevention or treatment of acute and chronic neurodegenerative diseases and
disorders of the nervous system.

     In November 1993, Alkermes filed an action in U.S. District Court in
Massachusetts alleging that the Company had breached the Alkermes Agreement by
developing calpain inhibitors for cerebral vasospasm. In October 1995, the
Company and Alkermes agreed to a settlement of the dispute.

     Alkermes agreed to dismiss its action against Cortex and to relinquish all
rights previously granted them by the Company, as well as rights to related
technologies developed by Alkermes. In connection with the settlement, the
Company issued to Alkermes a $1,000,000 non-transferable, three-year promissory
note accruing interest semi-annually at the federal funds rate. The Company also
committed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations. Subsequently, the terms
of the note were restructured several times, with Cortex issuing warrants to
Alkermes as a condition for such restructurings. During the month of March 2000,
using the proceeds from the exercise of non-related warrants to purchase shares
of Cortex common stock, the Company paid Alkermes the remaining balance of
principal and accrued interest.

     Cortex has subsequently shifted more of its resources from its calpain
inhibitor program to its Ampakine technology platform. As part of the Company's
emphasis on its Ampakine program, Cortex canceled its licensing agreement with
Georgia Tech Research Corporation related to the Company's calpain inhibitor
technology during the year ended June 30, 1999.

Manufacturing

     Cortex has no experience in manufacturing pharmaceutical products and
relies, and presently intends to rely, on the manufacturing and quality control
expertise of contract manufacturing organizations or prospective corporate
partners. There is no assurance that the Company will be able to enter
arrangements for manufacturing of its proposed products on favorable terms.
However, generally there is an excess of manufacturing capacity and the
Ampakines do not have any particularly unique manufacturing characteristics.

                                      -9-
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Marketing

     The Company has no experience in the marketing of pharmaceutical products
and does not anticipate having the resources to distribute and broadly market
any products that it may develop. The Company will therefore continue to seek
commercial development arrangements with other pharmaceutical companies for its
proposed products. In entering into such arrangements, the Company may seek to
retain the right to promote or co-promote products for certain indications in
North America. The Company's worldwide licensing agreements with Organon and
potential agreement with Shire (see Notes 5 and 6 of Notes to Financial
Statements) do not provide Cortex with co-promotional rights. There is no
assurance that the Company will be able to enter into marketing arrangements in
connection with its other licensing activities, or that marketing rights will
lead to greater revenues for the Company.

Technology Rights and Collaborative Agreements

AMPA Receptor Modulating Compounds

     In 1993, Cortex entered into an agreement with the Regents of the
University of California, under which Cortex secured exclusive commercial rights
to AMPA receptor modulating technology and compounds (Ampakines) for the
treatment of deficits of memory and cognition. The agreement was subsequently
amended to include additional 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.

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 15 issued or allowed U.S. patents and a number of additional U.S.
patent applications and their international counterparts.

     In April 1999, Cortex received a patent that covers the Company's Ampakines
-- as well as compounds made by others -- for the treatment of memory and
cognition. It allows Cortex and its licensees to exclude others in the United
States from making and selling AMPA-receptor modulating compounds for the
treatment of memory or dementia, including Alzheimer's disease. The Company
believes that the coverage also extends to psychiatric conditions with cognitive
disturbances including depression, obsessive compulsive disorder, attention
deficit disorder, and phobic disorders. In June 2000, Cortex received a notice
of allowance for a similar patent filed in Mexico. In 1998, Cortex received a
United States patent that contained a broad claim for any AMPA-modulating
compound to treat schizophrenia. Other recently allowed or issued patents
include claims for enhancing neurotrophic factor expression, which may restore
the size and function or aged neurons, and claims for the use of AMPA receptor
modulating compounds, regardless of structure, to treat sexual dysfunction.

     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.

                                      -10-
<PAGE>

     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.

     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
United States, mandatory procedures and safety standards established by the Food
and Drug Administration ("FDA") must be satisfied. Obtaining FDA approval is a
costly and time-consuming process. Cortex has initiated Phase I (safety) testing
in Europe. In the U.S., the Company has conducted or is now conducting Phase
I/IIa studies with CX516 in patients with schizophrenia and Alzheimer's disease.
Clinical trials in the U.S. were and are performed under Notices of Claimed
Investigational Exemption for a New Drug ("IND") filed with the FDA by the
Company's clinical collaborators. Cortex is currently preparing to file an IND
for CX516 in the name of the Company. It is the Company's intent that Organon,
Shire, Servier or other pharmaceutical company partner or partners that the
Company is seeking, will pursue other required regulatory approvals to conduct
further clinical testing.

     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 and are designed primarily to demonstrate effectiveness in
treating or diagnosing the disease or condition for which the drug is intended,
although short-term side effects and risks in people whose health is impaired
may also 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 are also 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 United States will be subject to regulation by the various countries in
which they are to be distributed. In addition, products manufactured in the
United States 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.

                                      -11-
<PAGE>

     Cortex does not have the financial and other resources to conduct the
clinical testing and other procedures required to obtain approval to market its
products. Accordingly, the Company will be dependent upon entering into
partnerships or other collaborative arrangements with third parties with the
required resources to obtain the needed approvals. Along with its licensing
agreements with Organon and Servier and its option agreement with Shire, 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, 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. In addition, over 25 drugs are under
clinical investigation in the U.S. for the treatment of Alzheimer's disease. 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 and 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. These institutions also compete with
companies such as Cortex in recruiting highly qualified scientific personnel.

     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 advances continue to be made. Although the Company believes,
based on the technical qualifications, expertise and reputations of its
Scientific Directors, consultants and other key scientists, that it will be able
to compete in the discovery and early clinical development of therapeutics for
neurological and psychiatric disorders, the Company does not have the resources,
and does not presently intend, to compete with major pharmaceutical companies in
clinical testing, manufacturing and marketing.

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, 2000, Cortex had 23 full-time employees and had engaged one
part-time M.D.-level and two part-time Ph.D.-level scientific consultants. Of
the 23 full-time employees, 18 are engaged in research and development and five
are engaged in management and administrative support. The Company also sponsors
a substantial amount of research in academic laboratories, primarily at UCI.

                                      -12-
<PAGE>

Risk Factors

     In addition to the other matters set forth in this Report, the Company's
continuing operations and the price of the Company's Common Stock are subject to
the following risks:

Need for Additional Funds

     Without further injections of capital, we anticipate that we have
sufficient funds to maintain our operations through fiscal year 2002. We will
require additional funds to continue our operations beyond that time. We cannot
say with any amount of certainty that we will be able to obtain the additional
needed funds on reasonable terms, or at all. If we decide to raise additional
funds by issuing more of our securities, stockholders at the time of issuance
will experience a dilution to the value of their securities.

     Should Shire elect to exercise its option to license the Ampakine
technology for the treatment of ADHD, the negotiated agreement includes an up-
front fee, research support payments, milestone payments and royalties on sales.
Additional funds may result from milestone payments related to the Company's
agreement with Organon and Servier. There is no assurance that Shire will
exercise its license option or that Cortex will receive milestone payments from
Organon or Servier within the desired time frame, or at all.


     If we are unable to obtain additional funds, we could lose our key
employees and could be required to abandon one or more of our product
development programs. In addition, we may be unable to meet our research
spending obligations under existing licensing agreements and may be unable to
continue our business operations.

     We are presently seeking collaborative or other arrangements with larger
pharmaceutical companies to provide for both our immediate and longer-term
funding requirements. 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Reliance on Organon and Servier

     We are dependent on future payments from Organon and Servier to continue
the development and commercialization of our Ampakine technology.  Under the
agreement with Organon that we entered into in January 1999, we share the
research efforts. Organon has primary responsibility for developing and
commercializing Ampakines for use in the treatment of schizophrenia, with an
option to extend the rights to the treatment of depression.  The agreement
provides an up-front payment by Organon of $2,000,000 and research support
payments of up to $3,000,000 per year for two years (subject to us providing
agreed-upon levels of research). The agreement also includes milestone payments,
plus royalty payments on a worldwide basis.  Cortex achieved the first milestone
from the agreement in May 2000, which triggered a $2,000,000 payment to Cortex
from Organon. Under the terms of the agreement, Organon has the right at any
time to terminate the agreement upon four months' prior notice.  In addition,
Organon has the right to terminate the research and development related to the
agreement upon 30 days' prior notice in the event that we materially breach the
agreement and do not cure the breach within 60 days of receipt of a notice of
breach from Organon. If Organon were to discontinue its financial support, we
might not be able to continue the development of our Ampakine technology as a
potential treatment for patients with schizophrenia.

                                      -13-
<PAGE>

     Under the agreement with Servier that we entered into in October 2000, we
share the research efforts. Servier has primary responsibility for developing
and commercializing Ampakines for use in the treatment of memory impairment
associated with aging, and of neurodegenerative diseases such as Alzheimer's
disease. The agreement includes an up-front payment of $5,000,000 and research
support payments of up to $2,025,000 per year for three years (subject to us
providing agreed-upon levels of research). The agreement also includes milestone
payments, plus royalty payments on sales in licensed territories. Under the
terms of the agreement, Servier has the right to terminate the agreement in the
case of a merger or acquisition involving Cortex 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. The agreement defines the
research phase as a minimum of three years.  In addition, Servier has the right
to terminate the research and development related to the agreement in the event
that we materially breach the agreement. If Servier were to discontinue its
financial support, we might not be able to continue the development of our
Ampakine technology for the applications licensed to Servier and our financial
condition could be seriously impaired. See "Description of Business;"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

History of Losses

     Since our formation on February 10, 1987 through June 30, 2000, we have
generated only modest operating revenues and we have incurred net losses
aggregating $37,226,000. As of June 30, 2000, we had an accumulated deficit of
$39,258,000. We will require substantial additional funds to advance our
research and development programs, particularly if we decide to independently
conduct later-stage clinical testing and apply for regulatory approval of any of
our proposed products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Business."

Dependence on Strategic Alliances and Third Parties for Clinical Testing,
Manufacturing and Marketing

     We do not have the resources, and do not presently intend, to conduct
later-stage human clinical trials or to manufacture our proposed products.
Therefore, in addition to our agreements with Organon, Shire and Servier, we are
seeking other pharmaceutical company partners to conduct such activities for
most or all of our proposed products. 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, Shire, 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.
See "Description of Business."

Technological Uncertainty; Early Stage of Product Development; No Assurance of
Regulatory Approvals

     We cannot assure you that our research and development activities will
enable us to produce any products able to withstand competition. Our development
of each product 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. 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. We cannot assure you that we will be able to
license any technologies or proposed products, other than those licensed to
Organon or Servier. 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 cannot assure you that we will be able to market successfully
any of the products or

                                      -14-
<PAGE>

that we will be able to obtain the necessary regulatory approvals or that
customers will like our products. We also face the risk that any or all of our
products will not work as intended or that they will be toxic, or that, even if
they do work and are safe, that our products will be uneconomical to manufacture
and market on a large scale. We also face the risk that the rights of other
persons or entities will stop us from marketing any of our products or that
other persons or entities might develop and market a superior or equivalent
product. 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 at least five years, either directly or
through our corporate partners or licensees. See "Description of Business."

Limited Proprietary Rights; Uncertainty Associated With Patent Protection

     Under our agreements with the Regents of the University of California, we
have exclusive rights to our Ampakine compounds for all applications. These
rights are secured by patents or patent applications owned wholly by others or
by others as co-owners with us. Our existing agreements require us to make
certain minimum annual payments, meet certain milestones or diligently seek to
commercialize the underlying technology. Our failure to meet any of these
requirements could allow the other party to terminate that particular agreement.


     Our success will depend, in part, on our ability to get patent protection
for our products and processes in the United States and elsewhere. We have filed
and intend to continue to file patent applications as we need them. We cannot
assure you, however, that any additional patents will issue from any of these
applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect our technology. Also, we cannot assure you that
any patents issued to us or licensed by us can withstand challenges made by
others or that we will be able to protect our rights.

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

     We also rely on trade secrets and confidential information that we try to
protect by entering into confidentiality agreements with other parties. We
cannot assure you that any of the confidentiality agreements will be honored,
or, if breached, that we would have enough remedies to protect the confidential
information. Further, we cannot assure you that our competitors will not
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 favor
of the Company. See "Description of Business -- Patents and Proprietary Rights."

Shares Eligible for Future Sale; Dilution

     If all outstanding warrants and options are exercised prior to their
expiration, approximately 2.6 million additional shares of Common Stock could
become freely tradable without restriction. A total of 7,346 shares of Common
Stock are issuable upon conversion of currently outstanding 9% Preferred Stock
and Series B Preferred Stock. On issuance such shares will be freely tradable.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock. See "Market
for Common Equity and Related Stockholder Matters" and Note 4 of Notes to
Financial Statements.

                                      -15-
<PAGE>

Intense Competition

     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.
Most of these competitors have substantially greater financial, technical,
manufacturing, marketing, distribution and/or other resources than us. 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.  See "Description of Business--Competition."

Dependence Upon Key Personnel

     We are highly dependent upon key management and technical personnel.
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense. The loss of any of our key management or technical
personnel, or our inability to attract, retain and motivate the additional
highly-skilled employees and consultants that our business requires, could
substantially hurt our business and prospects. We cannot assure you that we will
be able to retain our existing personnel or attract additional qualified
employees when we need them. See "Description of Business -- Employees."

Dependence on Relationships with Consultants and the University of California,
Irvine

     We depend upon our relationships with academic consultants, particularly
Dr. Gary S. Lynch of the University of California, Irvine ("UCI"). Dr. Lynch
plays a role in guiding our research. In addition, we sponsor preclinical
research in Dr Lynch's laboratories at UCI that is part of our product
development and corporate partnering profile. If our relationship with Dr. Lynch
or UCI was disrupted, our AMPA receptor research program could be adversely
affected. Our agreements with Dr. Lynch and our other consultants are generally
terminable by the consultant on short notice.

Government Regulation

     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. 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. 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. See "Description of Business--Government Regulation."

Lack of Listing on an Exchange or on the Nasdaq System; Restrictions on Our
Stock

     Our Common Stock is not listed on any exchange or on the Nasdaq System.
Our Common Stock is reported on the OTC Bulletin Board.  Because our shares are
not listed on any exchange or on the Nasdaq System, they are subject to the
regulations regarding trading in "penny stocks," which are those securities
trading for less than $5.00 per share.  The following is a list of the
restrictions on the sale of penny stocks:

     .    Prior to the sale of penny stock by a broker-dealer to a new
          purchaser, the broker-dealer must determine whether the purchaser is
          suitable to invest in penny stocks. To make that

                                      -16-
<PAGE>

          determination, a broker-dealer must obtain, from a prospective
          investor, information regarding the purchaser's financial condition
          and investment experience and objectives. Subsequently, the broker-
          dealer must deliver to the purchaser a written statement setting forth
          the basis of the suitability finding.
     .    A broker-dealer must obtain from the purchaser a written agreement to
          purchase the securities. This agreement must be obtained for every
          purchase until the purchaser becomes an "established customer."
     .    The Exchange Act requires that prior to effecting any transaction in
          any penny stock, a broker-dealer must provide the purchaser with a
          "risk disclosure document" that contains, among other things, a
          description of the penny stock market and how it functions and the
          risks associated with such investment. These disclosure rules are
          applicable to both purchases and sales by investors.
     .    A dealer that sells penny stock must send to the purchaser, within ten
          days after the end of each calendar month, a written account statement
          including prescribed information relating to the security.

As a result of our securities not being listed on an exchange or the Nasdaq
System and the rules regarding penny stock transactions, your ability to sell to
a third party may be limited.  We make no guarantee that our current market-
makers will continue to make a market in our securities, or that any market for
our securities will continue.

Volatility of Stock Price

     We are in the biopharmaceutical industry and the market price of securities
of life sciences companies in general has been very unpredictable. See "Market
for Common Equity and Related Stockholder Matters." Announcements by us or our
competitors concerning technological innovations, new products, proposed
governmental regulations or actions, developments or disputes relating to
patents or proprietary rights, public concern over the safety of therapeutic
products and other factors that affect the market generally could significantly
impact our business and the market price of our securities.

Dividends

     Since our formation in 1987, we have not paid cash dividends on our Common
Stock. We do not anticipate paying any dividends on our Common Stock in the
future. Furthermore, the terms of the 9% Preferred Stock do not allow for the
payment of cash dividends unless we have paid the accrued and unpaid dividends
on the 9% Preferred Stock in full. As of June 30, 2000, accrued and unpaid
dividends on the 9% Preferred Stock were $25,988.

Anti-Takeover Provisions

     Certain provisions of our Certificate of Incorporation 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 Certificate of
Incorporation allows our Board of Directors to issue up to 549,100 shares of
preferred stock without stockholder approval. Any such issuance could make it
more difficult for a third party to acquire our business and may adversely
affect the rights of our stockholders.

Item 2.   Description of Property

     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, 2004. Current monthly rent on these facilities is
approximately $20,000. The Company believes that this facility will be adequate
for its research and development activities for at least the next three years.

                                      -17-
<PAGE>

Item 3.   Legal Proceedings

The Company is not a party to any material legal proceedings.

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, 2000, through the
solicitation of proxies or otherwise.

PART II

Item 5.   Market for Common Equity and Related Stockholder Matters

     The Company's Common Stock (OTC symbol: CORX) is not currently listed on
any exchange or on the Nasdaq System, but is reported on the OTC Bulletin Board.
Prior to March 17, 1999, the Company's Common Stock was listed on the Nasdaq
SmallCap Market. The following table presents quarterly information on the high
and low sale prices of the Common Stock for the fiscal years ended June 30, 2000
and 1999.

                                                         High     Low
                                                         ----     ---

  Fiscal Year ended June 30, 2000

  Fourth Quarter.....................................  $ 5-1/16  $2-1/4
  Third Quarter......................................    8-1/8     11/16
  Second Quarter.....................................      7/8     21/32
  First Quarter......................................    1-1/32    19/32

  Fiscal Year ended June 30, 1999

  Fourth Quarter.....................................  $1-27/32  $ 9/32
  Third Quarter......................................   1-15/16    1/4
  Second Quarter.....................................    1-3/8     9/32
  First Quarter......................................    2-1/8       1

     Information for the periods referenced above has been furnished by Nasdaq
and the OTC Bulletin Board. The quotations furnished by the OTC Bulletin Board
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

     As of June 30, 2000, there were 582 stockholders of record of the Company's
Common Stock, and approximately 8,300 beneficial owners. The high and low sale
prices for the Company's Common Stock on September 26, 2000, as reported by the
OTC Bulletin Board, were $3-1/8 and $2-15/16, respectively.

     The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in the Company's
business. The outstanding shares of 9% Preferred Stock bear a fixed dividend of
$0.09 per share per annum, which accrues in equal semiannual installments on
June 15 and December 15 of each year and which must be paid in full before any
dividends can be paid on the common stock. The Company paid the semiannual
dividends on the 9% Preferred Stock that accrued in 1989, but elected not to
distribute subsequent dividends in order to conserve capital for operations. At
June 30, 2000, accrued and unpaid dividends on the 9% Preferred Stock totaled
$25,988. The payment of future dividends, if any, will be determined by the
Board of Directors in light of conditions then existing, including the Company's
financial condition and requirements, future prospects, restrictions in
financing agreements, business conditions and other factors deemed relevant by
the Board of Directors.

                                      -18-
<PAGE>

     During the year ended June 30, 2000, as part of the extension of an
obligation of the Company to Alkermes, the Company issued to Alkermes warrants
to purchase a total of 200,000 shares of the Company's Common stock. The
warrants have a five-year term, and exercise prices ranging from $0.76 to $3.02
per share. Between February and March 2000, Cortex issued an aggregate of
488,000 shares of its Common Stock to five accredited investors on exercise of
privately placed warrants originally issued in June 1997. The aggregate proceeds
from such exercises were $1,502,000. The securities issued in the foregoing
transactions were issued without registration under the Securities Act of 1933,
as amended, in reliance on the exemptions provided under Section 4(2) of the
Act.

                                      -19-
<PAGE>

Item 6.    Management's Discussion and Analysis of Financial Condition and
Results of Operations; Plan of Operation

The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere herein.

Results of Operations

From inception (February 10, 1987) through June 30, 2000, the Company's revenue
has consisted of (i) $12,151,000 of license fees and research and development
funding, (ii) net interest income aggregating $1,707,000 and (iii) $334,000 of
grant revenue.

In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a pharmaceutical
business unit of Akzo Nobel (The Netherlands). The agreement will allow Organon
to develop and commercialize the Company's proprietary Ampakine(R) technology
for the treatment of schizophrenia and, upon Organon's election, for the
treatment of depression. In connection with the agreement, during the year ended
June 30, 1999, the Company received an up-front payment of $2,000,000 and
research support of $1,150,000. During the year ended June 30, 2000, the Company
received research support of $3,368,000, reimbursement for study drug of $75,000
and a milestone payment of $2,000,000 from its agreement with Organon. The
milestone was triggered by Organon's selection of a compound to pursue in Phase
I clinical testing.

Subsequent to June 30, 2000, the Company received further research support of
$735,000. The agreement includes research support of up to $3,000,000 per
research year for two years (subject to Cortex providing agreed-upon levels of
research personnel) and milestone payments, plus royalty payments on worldwide
sales.

In April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals Group, plc ("Shire") under which Shire will evaluate the use of
the Company's Ampakine CX516 for the treatment of Attention Deficit
Hyperactivity Disorder ("ADHD"). In exchange for the option, Cortex received
$130,000 and issued to Shire 254,353 shares of common stock for $870,000. Shire
will be responsible for all costs associated with the clinical trial.

If the study proves effective, Shire has the right to convert its option into an
exclusive worldwide license for the Ampakines for ADHD under a development and
licensing agreement. Should Shire elect to execute this agreement, Shire will
bear all future developmental costs. Cortex would receive an up-front fee,
milestone payments based upon successful clinical and commercial development,
research support for additional Ampakines and royalties on sales.

In October 2000, the Company entered into a research collaboration and exclusive
license agreement with Les Laboratoires Servier ("Servier"). The agreement will
allow Servier to develop and commercialize the Company's Ampakine technology
for the treatment of declines in cognitive performance associated with aging and
neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimer's disease, Mild Cognitive Impairment, sexual dysfunction, multiple
sclerosis and Lou Gehrig's disease. The agreement includes an up-front payment
by Servier of $5,000,000 and research support payments of up to $2,025,000 per
year for three years (subject to Cortex providing agreed-upon levels of research
personnel). The agreement also includes milestone payments, plus royalty
payments on sales in licensed territories.

From inception (February 10, 1987) through June 30, 2000, the Company sustained
losses aggregating $37,226,000. Due to projected fluctuations in funding,
continuing losses are possible over the next several years, as the Company's
ongoing operating expenses will only be offset, if at all, by research support
payments and possible milestone payments from its research collaborations with
Organon and Servier, by possible payments on exercise of its option agreement
with Shire, or under planned strategic alliances that the Company is seeking
with other pharmaceutical companies for the clinical development, manufacturing
and marketing of its products. The nature and timing of payments to Cortex under
the

                                      -20-
<PAGE>

Organon, Servier and Shire agreements or other planned strategic alliances, if
and when entered into, are likely to significantly affect the Company's
operations and financing activities and to produce substantial period-to-period
fluctuations in reported financial results. Over the longer term, the Company
will require successful commercial development of its products by Organon,
Servier, Shire 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, 2000 and 1999

For the year ended June 30, 2000, the Company's loss from operations was
$203,000 compared to a loss from operations of $1,630,000 for the prior year,
with the improvement attributable to increased revenues from the research
collaboration with Organon.

Research and development expenses increased to $3,897,000, or by 15%, during the
year ended June 30, 2000 compared to the prior year. Most of the increase
related to additional scientific personnel dedicated to the Organon alliance.

General and administrative expenses were $1,815,000 for the year ended June 30,
2000, increasing 29% from the prior year. Most of the increase represents non-
cash charges for the estimated value of warrants issued with a restructured note
payable agreement. The increase also includes consulting fees related to
business development.

Plan of Operation; Liquidity and Capital Resources

Cortex has funded its organizational and research and development activities to
date primarily from the issuance of equity securities, with net proceeds from
inception (February 10, 1987) through June 30, 2000 aggregating $38,516,000. An
additional $3,600,000 in research and license payments was received from
Alkermes in 1992 and 1993 in connection with a development and license agreement
with that firm (see Note 7 of Notes to Financial Statements). Net interest
income from inception through June 30, 2000 was $1,707,000.

During the year ended June 30, 2000, the Company received $5,443,000 related to
its research and licensing agreement with Organon (See Note 5 of Notes to
Financial Statements). The amount received includes research support and a
$2,000,000 milestone payment triggered by Organon's selection of an Ampakine
compound to pursue in Phase I clinical testing. Subsequent to June 30, 2000, the
Company

                                      -21-
<PAGE>

received $735,000 of additional research support from Organon, with the final
scheduled support payment expected to be $550,000. The agreement includes
additional milestone payments based on clinical development of the licensed
technology and royalties on worldwide sales.

As of June 30, 2000, the Company had cash, cash equivalents and short-term
investments totaling $2,705,000 and working capital of $1,921,000. As of June
30, 1999, the Company had cash, cash equivalents and short-term investments of
$909,000 and a working capital deficit of $742,000. The increases reflect the
full-year of research support received from Organon and the option fee received
from Shire. The improvement in working capital also reflects the payment of the
note and accrued interest due to Alkermes.

In connection with the settlement of a license dispute (see Note 7 of Notes to
Financial Statements), in October 1995 the Company issued to Alkermes a
$1,000,000 three-year promissory note accruing interest semi-annually at the
then federal funds rate. The Company also agreed to pay Alkermes a graduated
royalty on calpain inhibitor development proceeds, as defined and subject to
certain limitations. The terms of the note were subsequently restructured a
number of times, with Cortex issuing warrants to Alkermes in exchange for such
restructured agreements. With the proceeds from the exercise of warrants to
purchase shares of Cortex common stock, during the month of March 2000, the
Company paid Alkermes the remaining balance of principal and interest. The
warrants exercised were previously issued in connection with the Company's
private placement of Series A Preferred Stock in June 1997.

The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 2004.
The commitments under the lease agreement for the years ending June 30, 2001,
2002, 2003 and 2004 are $262,000, $274,000, $358,000 and $343,000, respectively.
From inception (February 10, 1987) through June 30, 2000, net expenditures for
furniture, equipment and leasehold improvements aggregated $2,249,000.

As of June 30, 2000, Cortex had 27,500 outstanding shares of 9% cumulative
convertible preferred stock, which accrue cumulative semi-annual dividends at an
annual rate of $0.09 per share. To conserve capital for operations, the Company
has elected not to distribute the dividends that have accrued since 1989.
Accrued and unpaid dividends as of June 30, 2000 were $25,988.

Over the next twelve months the Company is committed to $496,000 for sponsored
research in academic laboratories. Remaining commitments for Phase I/IIa
clinical studies on the Company's Ampakine compounds are not significant.

As of June 30, 2000, Cortex had 23 full-time employees. This amount includes an
increase in the Company's research staff, in response to the agreement with
Organon. Neither significant investments in plant or equipment nor increases to
staffing levels are contemplated under current spending plans for the upcoming
fiscal year.

In October 2000, the Company entered into a research collaboration and exclusive
license agreement with Servier. The agreement will enable Servier to develop and
commercialize the Company's Ampakine technology for the treatment of memory
impairment associated with aging and neurodegenerative diseases such as
Alzheimer's disease. In connection with the agreement, the Company will receive
an up-front payment of $5,000,000. The agreement includes research support of up
to $2,025,000 per year for three years, milestone payments and royalty payments
on sales in licensed territories.

Cortex anticipates that its cash and cash equivalents -- and the scheduled
research support payments from its agreements with Organon and Servier -- will
be sufficient to satisfy the Company's capital requirements through June 30,
2002. Additional funds will be required to continue operations beyond that time.
Should Shire elect to exercise its option to license the Ampakine technology for
the treatment of ADHD, the negotiated agreement includes an up-front fee,
research support payments, milestone

                                      -22-
<PAGE>

payments and royalties on sales. Cortex may also receive milestone payments from
the Organon and Servier agreements. There is no assurance that Shire will
exercise its license option or that the Company will receive milestone payments
from Organon or Servier within the desired timeframe, or at all. See "Risk
Factors -- Need for Additional Capital."

In order to provide for both its immediate and 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 shareholders is likely to result.

The Company's proposed products are in the preclinical or early clinical stage
of development and will require significant further research, development,
clinical testing and regulatory clearances. They are subject to the risks of
failure inherent in the development of products based on innovative
technologies. These risks include the possibilities that any or all of the
proposed products will be found to be ineffective or toxic, or otherwise fail to
receive necessary regulatory clearances; that the proposed products, although
effective, will be uneconomical to market; that third parties may now or in the
future hold proprietary rights that preclude the Company from marketing them; or
that third parties will market superior or equivalent products. Accordingly, the
Company is unable to predict whether its research and development activities
will result in any commercially viable products or applications. Further, due to
the extended testing and regulatory review process required before marketing
clearance can be obtained, the Company does not expect to be able to
commercialize any therapeutic drug for at least five years, either directly or
through its 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 "Description of Business -- Risk Factors."

Item 7.   Financial Statements

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 8.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

Not applicable.

                                      -23-
<PAGE>

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act

The sections entitled "Nominees for Director," "Executive Officers" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" included
in the Company's Proxy Statement for its 2000 Annual Meeting of Stockholders are
incorporated herein by reference.

Item 10.  Executive Compensation

The sections entitled "Executive Compensation," "Option Matters," "Employment
and Consulting Agreements" and "Director Compensation" included in the Company's
Proxy Statement for its 2000 Annual Meeting of Stockholders are incorporated
herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The section entitled "Principal Stockholders" included in the Company's Proxy
Statement for its 2000 Annual Meeting of Stockholders is incorporated herein by
reference.

Item 12.  Certain Relationships and Related Transactions

The section entitled "Certain Transactions" included in the Company's Proxy
Statement for its 2000 Annual Meeting of Stockholders is incorporated herein by
reference.

                                      -24-
<PAGE>

Item 13.  Exhibits and Reports on Form 8-K

     (a)  Item 601 Exhibits

Exhibit
Number   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, incorporated by reference to Exhibit 3.1 of the
         Company's Registration Statement on Form SB-2 filed June 18, 1997.
  3.2    By-Laws of the Company, as adopted March 4, 1987, and amended through
         October 8, 1996, incorporated by reference to Exhibit 3.2 to the
         Company's Annual Report on Form 10-KSB filed October 15, 1996.
  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. *
  10.9   1989 Special Nonqualified Stock Option and Stock Purchase Plan. *
  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 between the Company and the
         Regents of the University of California, incorporated by reference to
         the Company's Amendment of Annual Report on Form 10-KSB/A filed
         November 26, 1993. (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).
  10.42  Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
         Plan adopted December 13, 1993, incorporated by reference to Exhibit
         4.8 of the Company's Registration Statement on Form S-8 filed January
         28, 1994.
  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.
  10.46  Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
         Plan adopted December 1994, incorporated by reference to Exhibit 4.9 of
         the Company's Registration Statement on Form S-8 filed February 8,
         1995.
  10.48  Amendment to the Non-Employee Director Formula Grant Plan, adopted
         December 15, 1994, incorporated by reference to the same numbered
         Exhibit to the Company's Annual Report on Form 10-KSB filed October 13,
         1995.*
  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).
  10.51  Warrant dated December 8, 1995, to purchase 106,195 shares issued to
         Swartz Investments, Inc., incorporated by reference to Exhibit 4.3 of
         the Company's Current Report on Form 8-K filed December 22, 1995.

                                      -25-
<PAGE>

 Exhibit
 Number    Description
 -------------------------------------------------------------------------------

  10.53    Warrant dated November 29, 1994, to purchase 35,000 shares issued to
           Vector Securities International, Inc., incorporated by reference to
           the same numbered Exhibit to the Company's Pre- Effective Amendment
           No. 1 to Post Effective Amendment No. 2 to Registration Statement on
           Form SB-2, No. 33-71894, filed January 26, 1996.
  10.56    Employment Agreement dated May 15, 1996, between the Company and
           Vincent F. Simmon, Ph.D., incorporated by reference to the same
           numbered Exhibit to the Company's Current Report on Form 8-K filed
           June 4, 1996.
  10.58    Amendment to 1989 Special Nonqualified Stock Option and Stock
           Purchase Plan adopted December 12, 1995, incorporated by reference to
           Exhibit 4.10 of the Company's Registration Statement on Form S-8
           filed September 13, 1996.
  10.60    1996 Stock Incentive Plan, incorporated by reference to the same
           numbered Exhibit to the Company's Quarterly Report on Form 10-QSB
           filed November 12, 1996.
  10.62    Form of Warrant issued to each purchaser of Series A Preferred Stock,
           incorporated by reference to Exhibit 10.62 to the Company's
           Registration Statement on Form SB-2 filed June 18, 1997.
  10.63    Registration Rights Agreement with holder of Series A Preferred Stock
           dated June 5, 1997, incorporated by reference to Exhibit 10.63 to the
           Company's Registration Statement on Form SB-2 filed June 18, 1997.

  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.
  10.66    Option Agreement between the Company and Shire Pharmaceuticals Group,
           plc dated April 20, 2000, incorporated by reference to Exhibit 10.66
           of the Company's quarterly report on Form 10-QSB as filed on May 12,
           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.)
    21     Subsidiaries of the Registrant.
   23.1    Consent of Ernst & Young LLP, independent auditors.
    24     Power of Attorney (see page S-1).
   27.1    Financial Data Schedule.
______________

     *     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.

    (b)    Reports on Form 8-K

           No reports on Form 8-K were filed during the quarter ended June 30,
           2000.

                                      -26-
<PAGE>

                                   Signatures

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

                              CORTEX PHARMACEUTICALS, INC.


                         By:  /s/ Vincent F. Simmon, Ph.D.
                              -------------------------------------
                              Vincent F. Simmon, Ph.D.
                              President and Chief Executive Officer

Know all men by these presents, that each person whose signature appears below
constitutes and appoints each of Vincent F. Simmon, Ph.D. and Maria S.
Messinger, acting singly, as his true and lawful attorney-in-fact and agent,
will full power of substitution, and for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents, full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.

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

<TABLE>
<CAPTION>
          Signature                                 Title                              Date
          ---------                                 -----                              ----
<S>                                        <C>                                   <C>
  /s/ Vincent F. Simmon, Ph.D.             President and Chief                   October 13, 2000
--------------------------------
    Vincent F. Simmon, Ph.D.                Executive Officer, Director
 (Principal Executive Officer)


     /s/ Maria S. Messinger                Vice President, Chief Financial       October 13, 2000
--------------------------------
      Maria S. Messinger                    Officer and Secretary
   (Principal Financial and
      Accounting Officer)


      /s/ Robert F. Allnutt                Chairman of the Board                 October 13, 2000
--------------------------------
        Robert F. Allnutt                   and Director


    /s/ Charles J. Casamento               Director                              October 13, 2000
---------------------------------
      Charles J. Casamento


    /s/ Carl W. Cotman, Ph.D.              Director                              October 13, 2000
---------------------------------
      Carl W. Cotman, Ph.D.


     /s/ Michael G. Grey                   Director                              October 13, 2000
---------------------------------
       Michael G. Grey


 /s/ Davis L. Temple, Jr., Ph.D.           Director                              October 13, 2000
---------------------------------
    Davis L. Temple, Jr., Ph.D.
</TABLE>

                                      S-1
<PAGE>

Index to Financial Statements

<TABLE>
<CAPTION>
                                                                 Page
                                                                ------
     <S>                                                        <C>
     Report of Independent Auditors.............................  F-2

     Balance Sheets -- As of June 30, 2000 and 1999.............  F-3

     Statements of Operations -- For the years ended
      June 30, 2000 and 1999....................................  F-4

     Statements of Stockholders' Equity -- For the period from
      June 30, 1998 through June 30, 2000.......................  F-5

     Statements of Cash Flows -- For the years ended
      June 30, 2000 and 1999....................................  F-6

     Notes to Financial Statements..............................  F-7
</TABLE>

                                      F-1
<PAGE>

     Report of Independent Auditors


     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, 2000 and 1999, and the related
     statements of operations, stockholders' equity and cash flows for the years
     then ended. 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 auditing standards generally
     accepted in the 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, 2000 and 1999, and the results of its operations and its
     cash flows for the years then ended, in conformity with accounting
     principles generally accepted in United States.

                                                    /s/ Ernst & Young LLP


     San Diego, California
     July 21, 2000,
     except for Note 12, as to
     which the date is
     October 13, 2000

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
Cortex Pharmaceuticals, Inc.
Balance Sheets

                                                               June 30, 2000     June 30, 1999
   -------------------------------------------------------------------------------------------
   Assets
   <S>                                                         <C>               <C>
  Current assets:
    Cash and cash equivalents                                  $  2,704,961      $    909,337
    Restricted cash                                                 247,300                --
    Other current assets                                            103,802            60,977
                                                               ------------      ------------
      Total current assets                                        3,056,063           970,314

  Furniture, equipment and leasehold improvements, net              398,570           531,970
  Other                                                              33,407            46,737
                                                               ------------      ------------
                                                               $  3,488,040      $  1,549,021
                                                               ============      ============

  Liabilities and Stockholders' Equity (Deficit)

  Current liabilities:
    Accounts payable                                           $    469,800      $    523,474
    Accrued dividends                                                25,988            23,513
    Accrued wages, salaries and related expenses                     89,551            67,497
    Unearned revenue                                                302,085            98,584
    Advance for Alzheimer's project                                 247,300                --
    Current portion of note payable to Alkermes, Inc.                    --           999,282
                                                               ------------      ------------
      Total current liabilities                                   1,134,724         1,712,350

  Stockholders' equity (deficit):
    9% cumulative convertible preferred stock,
      $0.001 par value; $1.00 per share liquidation
      preference; shares authorized: 1,250,000;
      shares issued and outstanding: 27,500                          27,500            27,500
    Series B convertible preferred stock, $0.001
      par value; $0.6667 per share liquidation
      preference; shares authorized: 3,200,000;
      shares issued and outstanding: 37,500 (2000)
      and 75,000 (1999)                                              21,703            43,405
    Common stock, $0.001 par value; shares
      authorized: 30,000,000; shares issued and
      outstanding: 16,576,174 (2000) and
      15,519,382 (1999)                                              16,575            15,519
    Deferred compensation                                           (92,000)               --
    Additional paid-in capital                                   41,637,793        38,811,100
    Accumulated deficit                                         (39,258,255)      (39,060,853)
                                                               ------------      ------------
      Total stockholders' equity (deficit)                        2,353,316          (163,329)
                                                               ------------      ------------
                                                               $  3,488,040      $  1,549,021
                                                               ============      ============
</TABLE>

        See accompanying notes.

                                      F-3
<PAGE>

Cortex Pharmaceuticals, Inc.
Statements of Operations


<TABLE>
<CAPTION>
                                                                    Years ended June 30,
                                                               ------------------------------
                                                                  2000                1999
   ------------------------------------------------------------------------------------------
   <S>                                                         <C>                <C>
   Revenues:

     Research and license revenue                              $ 5,369,488        $ 3,051,406
     Grant revenue                                                 138,999            100,001
                                                               -----------        -----------
       Total revenues                                            5,508,487          3,151,407
                                                               -----------        -----------

     Operating expenses:
      Research and development                                   3,896,627          3,379,732
      General and administrative                                 1,814,632          1,401,602
                                                               -----------        -----------
       Total operating expenses                                  5,711,259          4,781,334
                                                               -----------        -----------
     Loss from operations                                         (202,772)        (1,629,927)
     Interest income, net                                            5,370              8,477
                                                               -----------        -----------
     Net loss before preferred stock
       accretion and dividends                                    (197,402)        (1,621,450)
                                                               -----------        -----------

     Preferred stock accretion and dividends:
      Accretion of and dividends on 9% Cumulative
       Convertible Preferred Stock                                   2,475              2,475
                                                               -----------        -----------
     Net loss applicable to common stock                       $  (199,877)       $(1,623,925)
                                                               ===========        ===========

     Shares used in basic and diluted calculation               15,795,595         13,407,945
                                                               ===========        ===========
     Basic and diluted net loss per share                      $     (0.01)       $     (0.12)
                                                               ===========        ===========
</TABLE>

        See accompanying notes.

                                      F-4
<PAGE>

Cortex Pharmaceuticals, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                          9%       Series B
                                 convertible    convertible               Additional
                                   preferred      preferred     Common       paid-in        Deferred    Accumulated
                                       stock          stock      stock       capital    compensation        deficit          Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>            <C>             <C>       <C>           <C>            <C>              <C>
Balance, June 30, 1998                35,000         86,810     10,237    36,276,202              --    (37,439,403)    (1,031,154)

 Conversion of 7,500
  shares of 9% preferred
  stock into 999 shares of
  common stock                        (7,500)            --         --         7,500              --             --             --
 Conversion of 75,000
  shares of Series B
  preferred stock
   into 7,359 shares of
    common stock                          --        (43,405)         7        43,398              --             --             --
 Conversion of 250 shares
  of Series A preferred
  stock into 5,272,398 shares
    of common stock                       --             --      5,273     2,455,177              --             --      2,460,450
 Adjustment of accrued
  dividends for conversion
  of 9% preferred stock                   --             --         --         5,737              --             --          5,737
 9% preferred stock
  dividends                               --             --         --        (2,475)             --             --         (2,475)
 Issuance of compensatory
  stock options                           --             --         --        25,000              --             --         25,000
 Issuance of 1,500 shares
  of common stock upon
  exercise of stock options               --             --          2           561              --             --            563
 Net loss and
  comprehensive loss                      --             --         --            --              --     (1,621,450)    (1,621,450)
                                   ---------      ---------    -------   -----------    ------------    -----------     ----------
Balance, June 30, 1999                27,500         43,405     15,519    38,811,100              --    (39,060,853)      (163,329)

 Issuance of 496,459
  shares of common stock
  upon exercise of warrants               --             --        496     1,501,844              --             --      1,502,340
 Issuance of 293,301
  shares of common stock
  upon exercise of stock
    options                               --             --        303       113,049              --             --        113,352
 Issuance of 254,353
  shares of common stock to
  Shire Pharmaceuticals
   Group, plc                             --             --        254       826,586              --             --        826,840
 Conversion of 37,500
  shares of Series B
  preferred stock into
  3,679 shares of common
  stock                                   --        (21,702)         3        21,699              --             --             --
 Issuance of warrants to
  purchase 200,000 shares
  of common stock                         --             --         --       241,500              --             --        241,500
 Issuance of stock options
  to consultants                          --             --         --        92,000         (92,000)            --             --
 Extension of stock
  options previously
  granted to former
  Chairman of the Board                   --             --         --        32,490              --             --         32,490
 9% preferred stock
  dividends                               --             --         --        (2,475)             --             --         (2,475)
 Net loss and
  comprehensive loss                      --             --         --            --              --       (197,402)      (197,402)
                                   ---------      ---------    -------   -----------    ------------   ------------     ----------
Balance, June 30, 2000             $  27,500      $  21,703    $16,575   $41,637,793    $    (92,000)  $(39,258,255)    $2,353,316
                                   =========      =========    =======   ===========    ============   ============     ==========
</TABLE>

See accompanying notes.

                                      F-5
<PAGE>

Cortex Pharmaceuticals, Inc.
Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                      Years ended June 30,
                                                                  -----------------------------
                                                                      2000             1999
-----------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>
Cash flows from operating activities:
         Net loss                                                 $ (197,402)       $(1,621,450)
         Adjustments to reconcile net loss
          to net cash used in operating activities:
           Depreciation and amortization                             172,764            197,662
           Changes in operating assets/liabilities:
            Accounts payable and accrued expenses                    171,881            219,033
            Other current assets                                     (42,825)            10,589
           Stock option compensation expense                          32,490                 --
           Warrants issued for debt restructuring                    241,500                 --
           Changes in other assets and other liabilities            (185,952)            53,145
                                                                  ----------        -----------
         Net cash provided by (used in) operating activities         192,456         (1,141,021)
                                                                  ----------        -----------

       Cash flows from investing activities:
         Purchase of fixed assets                                    (39,364)           (74,213)
                                                                  ----------        -----------
         Net cash used in investing activities                       (39,364)           (74,213)
                                                                  ----------        -----------

       Cash flows from financing activities:
         Proceeds from issuance of common stock                    2,442,532                563
         Principal payments on note payable to Alkermes, Inc.       (800,000)                --
                                                                  ----------        -----------
         Net cash provided by financing activities                 1,642,532                563
                                                                  ----------        -----------

       Increase (decrease) in cash and cash equivalents            1,795,624         (1,214,671)
       Cash and cash equivalents, beginning of period                909,337          2,124,008
                                                                  ----------        -----------
       Cash and cash equivalents, end of period                   $2,704,961        $   909,337
                                                                  ==========        ===========


       Supplemental disclosure of cash flow information:
         Cash paid for interest                                   $  239,700        $        --


       Supplemental schedule of non-cash investing
       and financing activities:
         Conversion of preferred stock to common stock            $   21,702        $ 2,517,093
         Advance for Alzheimer's project                             247,300                 --
</TABLE>

         See accompanying notes.

                                      F-6
<PAGE>

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. The Company previously reported its financial statements as a
development stage company.

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(R) technology for the treatment of schizophrenia and, at
Organon's election, for the treatment of depression. In April 2000, the Company
entered into an option agreement with Shire Pharmaceuticals Group, plc ("Shire")
under which Shire will evaluate the use of the Company's Ampakine CX516 for the
treatment of Attention Deficit Hyperactivity Disorder (Note 6). Subsequent to
June 30, 2000, the Company entered into a research collaboration and exclusive
license agreement with Les Laboratoires Servier ("Servier"). The agreement will
enable Servier to develop and commercialize the Company's Ampakine technology
for the treatment of memory impairment associated with aging and
neurodegenerative diseases such as Alzheimer's disease (Note 12).

The Company is seeking collaborative or other arrangements with larger
pharmaceutical companies, under which 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 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 discussion with 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 or longer-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.

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 are being 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 -- In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," if
indicators of impairment exist, the Company assesses

                                      F-7
<PAGE>

the recoverability of the affected long-lived assets by determining whether the
carrying value of such assets can be recovered through the undiscounted future
operating cash flows. If impairment is indicated, the Company measures the
amount of such impairment by comparing the carrying value of the asset to the
present value of the expected future cash flows associated with the use of the
asset. While the Company's historical operating cash flow losses are indicators
of impairment, the Company believes that the future cash flows to be received
from the long-lived assets will exceed the assets' carrying value. Accordingly,
the Company has not recognized any impairment losses through June 30, 2000.

Net Loss per Share -- Net loss per share is computed based on the weighted
average number of common shares outstanding and includes preferred stock
dividends. Shares issuable upon conversion of preferred stock and upon exercise
of outstanding stock options and warrants are not included since the effects
would be anti-dilutive. For purposes of computing net loss per share, preferred
stock dividends include dividends that actually accrued and `imputed dividends'
for preferred stock issued with a nondetachable beneficial conversion feature
near the date of issuance. Imputed dividends represent the aggregate difference
between conversion price and the fair market value of the common stock as of the
date of issuance of the preferred stock, without regard to the actual date upon
which the preferred stock may be converted.

Employee Stock Options -- 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 because the alternative fair
value accounting provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (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.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB 25." The Company is required to adopt 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. The Company has repriced stock options on December 22, 1998 and in
accordance with generally accepted accounting principles accounts for the
repriced stock options as fixed. As a result of adopting the Interpretation, the
Company will be required to apply variable accounting for these options.
Consequently, if the market price of the Company's stock increases, the Company
will recognize additional compensation expense that it otherwise would not have
incurred. However, the impact cannot be determined as it is dependent on the
change in the market price of the stock from July 1, 2000 until the stock
options are exercised, forfeited or expire unexercised.

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

Revenue Recognition -- The Company recognizes research revenue from the
collaboration with Organon (Note 5) as services are performed under the
agreement. The Company records grant revenues as the expenses related to the
grant projects are incurred. All amounts received under collaborative research
agreements or research grants are non-refundable, regardless of the success of
the underlying research. Revenues from the receipt of milestone payments are
recognized upon achievement of the milestone event.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulleting No. 101. "Revenue Recognition" ("SAB 101"). SAB 101
provides the SEC Staff's views in applying generally accepted accounting
principles to various revenue recognition issues and specifically addresses
revenue recognition for upfront, non-refundable fees received in connection with
research collaboration arrangements. It is the SEC's position that such fees
should be generally recognized over the term of the agreement. Effective July 1,
2000 the Company will adopt SAB 101. Such adoption is not expected to have a
material impact on the Company's historical financial statements.

Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles 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.

New Accounting Standards -- Effective July 1, 2001, the Company will adopt SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
adoption of SFAS No. 133 is not anticipated to have an impact on the Company's
results of operations or financial condition, as the Company holds no derivative
financial instruments and does not currently invest in derivative instruments or
engage in hedging activities.

                                      F-8
<PAGE>

Note 2 -- Furniture, Equipment and Leasehold Improvements

Furniture, equipment and leasehold improvements consist of the following:

                                                   June 30,
                                          -------------------------
                                               2000         1999
                                          -------------------------


       Laboratory equipment               $ 1,240,241   $ 1,216,266
       Leasehold improvements                 623,176       622,036
       Furniture and equipment                115,909       112,129
       Computers and software                 273,382       262,913
                                          -----------   -----------
                                            2,252,708     2,213,344
       Accumulated depreciation            (1,854,138)   (1,681,374)
                                          -----------   -----------
                                          $   398,570   $   531,970
                                          ===========   ===========

Note 3 -- Redeemable Preferred Stock

Series A Convertible Preferred Stock ("Series A Preferred") originally consisted
of 400 shares issued in a two-tranche private placement in June 1997. As of June
30, 1999, all outstanding shares of Series A Preferred had been converted into
an aggregate of 6,105,276 shares of the Company's common stock at effective
conversion prices ranging from $0.30 to $2.17 per share of common stock. Imputed
dividends of $1,012,493 related to the private placement were recorded for the
year ended June 30, 1997.

Note 4 -- 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"); 400 shares have been
designated as Series A Convertible Preferred Stock (non-voting, "Series A
Preferred"); and 549,100 shares are presently undesignated and may be issued
with such rights and powers as the Board of Directors may designate.

The 9% Cumulative Convertible Preferred Stock as of June 30, 2000 and June 30,
1999 consisted of 27,500  shares of an original 1,250,000 shares of 9% Preferred
issued in a 1988 private placement. Each share of 9% Preferred is convertible
into approximately 0.1333 shares of common stock at an effective conversion
price of $7.50 per share of common stock, subject to adjustment under certain
circumstances, such as stock splits or stock dividends. Cash dividends on the 9%
Preferred accrue semi-annually on June 15th and December 15th at the rate of
$0.09 per share per annum. In order to conserve capital for operations, the
Company has elected not to distribute the dividends that have accrued from June
15, 1990. Upon conversion of 9% Preferred, accrued and unpaid dividends are
credited to additional paid-in capital. Accrued and unpaid dividends as of June
30, 2000 and June 30, 1999 were $25,988 and $23,513, respectively. The Company
may redeem the 9% Preferred at any time at a price of $1.00 per share, an amount
equal to its liquidation preference, upon not less than 30 nor more than 60
days' notice.

Series B Convertible Preferred Stock as of June 30, 2000 and June 30, 1999
consisted of 37,500 and 75,000 shares, respectively, 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 such as stock splits or stock dividends. The Series
B Preferred may be redeemed by the Company at a price of $0.6667 per share, an
amount equal to its liquidation preference, at any time upon 30 days' notice.
The liquidation preference of the Series B Preferred is subordinate to that of
the 9% Preferred.

                                      F-9
<PAGE>

Series C Convertible Preferred Stock originally consisted of 160 shares issued
in a private placement in December 1995. As of June 30, 1997, all outstanding
shares of Series C Preferred had been converted into 1,517,611 shares of common
stock. The relative effective conversion prices ranged from $2.33 to $2.83 per
share, as computed in accordance with a formula that was indexed to the average
bid price of the Company's common shares.

Series D Convertible Preferred Stock originally consisted of 400 shares issued
in a three-tranche private placement initiated in October 1996 and completed in
February 1997. As of June 30, 1997, all outstanding shares of Series D Preferred
had been converted into an aggregate of 1,433,437 shares of the Company's common
stock. The effective conversion prices ranged from $2.06 to $3.35 per share, as
computed in accordance with a formula that was indexed to the average bid price
of the Company's common shares. During the year ended June 30, 1997, imputed
dividends aggregating $879,672 were recorded in connection with the three
tranches.

Common Stock and Common Stock Purchase Warrants

In connection with the December 1995 private placement of 160 shares of Series C
Preferred Stock, the Company issued to the placement agent for the transaction a
five-year non-redeemable warrant to purchase 106,195 shares of common stock at a
price of $2.825 per share, subject to adjustment under certain circumstances.
The warrants contain cashless exercise provisions and include piggyback
registration rights. During the year ended June 30, 2000, warrants to purchase
15,274 shares were converted into 8,459 shares of common stock. Warrants to
purchase 90,921 shares of common stock remained outstanding as of June 30, 2000.

In connection with the June 1997 private placement of 400 shares of Series A
Preferred Stock, the Company issued to the eleven participating institutional
investors four-year non-redeemable warrants to purchase an aggregate of 800,000
shares of common stock at a price of $3.08 per share, subject to adjustment
under certain circumstances. During the year ended June 30, 2000, warrants to
purchase 488,000 shares of Cortex common stock were exercised, resulting in
proceeds of $1,502,000. As of June 30, 2000, warrants to purchase 312,000 shares
of common stock remained outstanding.

In connection with the February 1998 restructuring of the note payable to
Alkermes, Inc. (Note 7), the Company issued to Alkermes a five-year warrant to
purchase 75,000 shares of common stock at an exercise price of $1.55 per share,
representing the average of the high and low sale prices of Cortex common stock
as of the date of the restructuring.

In connection with the July 1999 restructuring of the note payable to Alkermes,
Inc. (Note 7), the Company  issued to Alkermes a five-year warrant to purchase
100,000 shares of common stock at an exercise price of $1.07 per share. As part
of the note payable restructuring, in December 1999 the Company issued to
Alkermes a five-year warrant to purchase 50,000 shares of common stock at an
exercise price of $0.76 per share. Because the note payable was extended beyond
February 2000, the Company issued to Alkermes a final five-year warrant to
purchase 50,000 shares of Cortex common stock at an exercise price of $3.02 per
share. The exercise prices for all warrants issued to Alkermes during the year
ended June 30, 2000 were derived from the fair market value of the Company's
common stock. The Company recorded expense of $241,500 for the estimated fair
value of the warrants issued during the year ended June 30, 2000.

As of June 30, 2000, the Company had reserved an aggregate of 3,667 shares of
common stock for issuance upon conversion of the outstanding 9% Preferred Stock;
3,679 shares for issuance upon conversion of the Series B Preferred Stock;
735,114 shares for issuance upon exercise of warrants; 1,854,479 shares for
issuance upon exercise of outstanding stock options; and 1,150,079 shares for
issuance upon exercise of stock options available for future grant.

Stock Option and Stock Purchase Plans

                                      F-10
<PAGE>

Consultant Plan -- The Company's 1989 Special Nonqualified Stock Option and
Stock Purchase Plan provided for the granting by the Company of options and
rights to purchase up to an aggregate of 400,000 shares of the Company's
authorized but unissued common stock (subject to adjustment under certain
circumstances, such as stock splits, recapitalizations and reorganizations) to
consultants to the Company. The exercise price of nonqualified stock options and
the purchase price of stock offered under this plan, which terminated February
2, 1999, was at least 50% of the fair market value of the common stock on the
date of grant. As of June 30, 2000, options to purchase an aggregate of 2,000
shares of common stock were outstanding under this plan.

1996 Stock Incentive Plan -- The 1996 Plan provides for the granting of options
and rights to purchase up to an aggregate of 3,306,358 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. No further options will be granted under the Company's earlier stock
option and stock purchase plans. 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 of 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. 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 15,000 shares of common stock upon commencement of
service as a director and additional options to purchase 6,000 shares of common
stock on the date of each Annual Meeting of Stockholders. Non-employee directors
who serve on the Board of Directors to oversee an investment in the Company
receive options to purchase 7,500 shares of common stock upon commencement of
service as a director and additional options to purchase 3,000 shares of common
stock on the date of each Annual Meeting of Stockholders. These nonqualified
options have an exercise price equal to 100% of the fair market value of the
common stock on the date of grant, have a ten-year term and vest in equal
increments of  33% on the anniversary dates of the dates of grant. As of June
30, 2000, options to purchase an aggregate of 1,852,479 shares of common stock
were outstanding under the 1996 Plan, and an additional 1,150,078 shares of
common stock were reserved for future option grants.

As of June 30, 2000, options to purchase an aggregate of 811,994 shares of
common stock were exercisable under the Company's stock option plans. During the
years ended June 30, 2000 and 1999 no options to purchase shares of common stock
were issued with exercise prices below the fair market value of the common stock
on the dates of grant.

                                     F-11
<PAGE>

Stock option transactions under the Company's stock option plans for each of the
two years in the period ended June 30, 2000 are summarized below:

<TABLE>
<CAPTION>
                                                  Weighted average
                                         Number     exercise price
                                         of shares       per share
                                         -------------------------
<S>                                      <C>            <C>
        Outstanding as of June 30, 1998       994,646   $      3.90
          Granted                           1,545,896          0.45
          Exercised                            (1,500)         0.38
          Forfeited                        (1,096,246)         3.63
                                           ----------
        Outstanding as of June 30, 1999     1,442,796   $      0.42
          Granted                             787,665          1.68
          Exercised                          (302,301)         0.38
          Forfeited                           (73,681)         0.77
                                           ----------
        Outstanding as of June 30, 2000     1,854,479   $      0.95
                                           ==========
        Available for future grant          1,150,078
                                           ==========
</TABLE>

Pro-Forma Information -- The Company has elected to continue accounting for its
employee stock options in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25,
because the exercise price of the Company's employee stock options is equal to
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net loss and net loss per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("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, 2000 and 1999,
respectively: weighted average risk-free interest rates of 6.4%, and 5.5%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 144% and 186%, and a weighted average life of 3.7
years and 3.0 years. The estimated weighted average fair value of options
granted during the years ended June 30, 2000, and 1999 was $1.43 and $0.40,
respectively.

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.

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, 2000 and 1999:

                                                  June 30,
                                              2000          1999
                                          ----------------------

     Pro forma net loss before preferred
       stock accretion and dividends        $547,237   $1,895,558
     Pro forma net loss applicable to
       common stock                          549,712    1,898,033
     Pro forma net loss per share           $  (0.03)  $    (0.14)

                                     F-12
<PAGE>

The results above are not necessarily indicative of the effects of SFAS 123 on
reported net income or loss for future periods as these amounts reflect the
related expense for only two years of stock option vesting.

Information regarding stock options outstanding at June 30, 2000 is as follows:

<TABLE>
<CAPTION>

                                       Options Outstanding                      Options Exercisable
                      --------------------------------------------------  --------------------------------

                                                Weighted
                                Number           average        Weighted            Number        Weighted
            Range of       outstanding         remaining         average       exercisable         average
     exercise prices  at June 30, 2000  contractual life  exercise price  at June 30, 2000  exercise price
----------------------------------------------------------------------------------------------------------
<S>                   <C>               <C>               <C>             <C>               <C>
    $0.34  - 0.47              872,133       7.0 years          $0.40              577,834        $0.39
     0.50  - 6.97              982,346       9.3 years           1.44              234,160         0.64
                      ----------------                                    ----------------
                             1,854,479                                             811,994
                      ================                                    ================
</TABLE>

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 (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's proprietary Ampakine technology for the treatment of
schizophrenia and, upon Organon's election, for the treatment of depression.

In connection with the agreement with Organon, during the year ended June 30,
1999, the Company received an up-front payment of $2,000,000 and research
support payments of $1,150,000. During the fiscal year ended June 30, 2000, the
Company received further support of $3,443,000 and a milestone payment of
$2,000,000, which was triggered when Organon selected a compound to pursue in
Phase I clinical testing. The agreement includes research support payments of up
to $3,000,000 per research year for two years (subject to Cortex providing
agreed-upon levels of research), milestone payments, plus royalty payments on
worldwide sales. Subsequent to June 30, 2000, Cortex received $735,000 of
additional research support from the agreement. The remaining research support
payment is expected to approximate $550,000.


Note 6 -- Option Agreement with Shire Pharmaceuticals Group, plc

In April 2000, the Company entered into an option agreement with Shire
Pharmaceuticals Group, plc ("Shire") under which Shire will evaluate the use of
the Company's Ampakine CX516 for the treatment of Attention Deficit
Hyperactivity Disorder ("ADHD"). Under the terms of the agreement, Shire will
undertake a double-blind, placebo-controlled evaluation of CX516 in ADHD
patients. In exchange for the option, Cortex received $130,000 and issued
254,353 shares of common stock to Shire for $870,000. In addition, Shire will be
responsible for all costs associated with the clinical trial.

If the study proves effective, Shire has the right to convert its option into an
exclusive worldwide license for the Ampakines for ADHD under a development and
licensing agreement. Should Shire elect to execute this agreement, Shire will
bear all future developmental costs. Cortex would receive an upfront fee,
milestone payments based on successful clinical and commercial development,
research support for additional Ampakines and royalties on sales.


Note 7 -- Note Payable to Alkermes, Inc.

In January 1992, the Company entered into an agreement with Alkermes, Inc.
("Alkermes") for the development, clinical testing and commercialization of the
Company's calpain inhibitor products (the "Alkermes Agreement"). In connection
with the Alkermes Agreement, the Company granted Alkermes an exclusive worldwide
license to commercialize calpain inhibitor products for the prevention and
treatment of  neurodegenerative diseases and disorders of the central and
peripheral nervous systems. The Company

                                     F-13
<PAGE>

received an aggregate of $3,600,000 in research payments under the Alkermes
Agreement during the fiscal years ended June 30, 1992 and 1993.

In November 1993, Alkermes filed an action alleging that the Company had
breached the Alkermes Agreement by developing calpain inhibitors for cerebral
vasospasm. In October 1995, the Company and Alkermes agreed to a settlement of
the dispute. Alkermes agreed to dismiss its action against the Company and to
relinquish all rights previously granted them by the Company, as well as rights
to related technologies developed by Alkermes. In connection with the
settlement, the Company issued to Alkermes a $1,000,000 three-year promissory
note accruing interest semi-annually at the federal funds rate. The Company also
committed to pay Alkermes a graduated royalty on calpain inhibitor development
proceeds, as defined and subject to certain limitations.

In February 1998, the terms of the note were restructured to include a principal
payment of $200,000 upon signing of the new agreement. The balance of the note
and accrued interest was payable in October 1999 or upon the consummation of a
corporate partnership between Cortex and a larger pharmaceutical company,
whichever was earlier. In connection with the restructuring agreement, the
Company issued to Alkermes a five-year warrant to purchase 75,000 shares of
common stock at an exercise price of $1.55 per share, representing the average
of the high and low sale prices of Cortex common stock as of the date of the
restructuring. With the signing of the license agreement with NV Organon (Note
5), the note and accrued interest became due and payable.

In July 1999, Alkermes agreed to restructure the terms of the note to include a
principal and interest payment of $250,000 and monthly payments of $50,000 from
August 1999 through January 2000. The balance of the note and accrued interest
was due February 28, 2000. Interest on the unpaid balance accrued at a 1% to 3%
premium to the prime lending rate, based upon the date of payment. In connection
with this restructuring agreement, the Company issued to Alkermes a five-year
warrant to purchase 100,000 shares of common stock at an exercise price of $1.07
per share. Because the balance of principal and interest was not paid by
December 31, 1999, in accordance with the restructured terms, Cortex issued to
Alkermes another five-year warrant to purchase 50,000 shares of common stock.
The exercise price for this warrant is $0.76 per share.

As agreed upon earlier, when the note was extended beyond February 28, 2000, the
Company issued to Alkermes a final five-year warrant to purchase 50,000 shares
of Cortex common stock at an exercise price of $3.02 per share. For all warrants
issued during the year ended June 30, 2000, the exercise prices were derived
from the fair market value of the Company's common stock for the 30-trading days
preceding the date of issuance. The Company recorded expense of $241,500 for the
estimated fair value of the warrants issued during the year ended June 30, 2000.

In March 2000, using the proceeds from the exercise of non-related warrants to
purchase shares of Cortex common stock, the Company paid Alkermes the remaining
balance of principal and accrued interest. The exercised warrants were
previously issued to investors in connection with the Company's June 1997
private placement of Series A preferred stock.

Note 8 -- Advance from the Institute for the Study of Aging

In June 2000, the Company received $247,300 from the Institute for the Study of
Aging (the "Institute") to fund testing of the Company's Ampakine CX516 in
patients with mild cognitive impairment ("MCI"). Patients with MCI represent the
earliest clinically-defined group with memory impairment beyond that expected
for normal individuals of the same age and education, but such patients do not
meet the clinical criteria for Alzheimer's disease. The Institute is a non-
profit foundation based in New York City and dedicated to the improvement in
quality of life for the elderly.

As the funding from the Institute must be used solely for the planned clinical
trials in MCI patients, Cortex has recorded the amounts received as restricted
cash in the Company's balance sheet. Provided that Cortex complies with the
conditions of the funding agreement, including the restricted use of the amounts
received, repayment of the advance shall be forgiven unless Cortex enters an
Ampakine into Phase III clinical trials for Alzheimer's disease. Upon such
potential clinical trials, repayment would include interest computed at a rate
equal to one-half of the prime lending rate. In lieu of cash, in the event of
repayment the Institute may elect to receive the outstanding principal balance
and any accrued interest thereon as shares of Cortex common stock.

                                     F-14
<PAGE>

The conversion price for such form of repayment shall initially equal $4.50 per
share, subject to adjustment under certain circumstances.

Note 9 -- Commitments

The Company leases its offices and research laboratories under an operating
lease that expires May 31, 2004. Rent expense under this lease for the years
ended June 30, 2000 and 1999 was $269,000 and $260,000, respectively.
Commitments under the lease for the years ending June 30, 2001, 2002, 2003 and
2004 are $262,000, $274,000, $358,000 and $343,000, respectively.

As of June 30, 2000, the Company was obligated to an executive officer under an
employment agreement expiring in May 2004. The agreement involves annual salary
payments aggregating $255,000 and provides for bonuses under certain
circumstances. 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. As of June 30, 2000, commitments under scientific consulting and
external research agreements for the years ending June 30, 2001, 2002, 2003,
2004 and 2005 aggregated $554,000, $346,000, $227,000, $58,000 and $58,000.

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 $85,000 for
the year ending June 30, 2001 and for each year thereafter for the remaining
life of the patents covering the subject technologies. The agreements also
commit the Company to pay up to an additional $875,000 upon achieving certain
clinical testing and regulatory approval milestones, as well as a portion of
certain remuneration received by the Company in connection with sublicensing
agreements that the Company may enter into.

Note 10 -- Related Party Transactions

During the years ended June 30, 2000 and 1999, the Company paid or accrued
scientific and other consulting fees to stockholders aggregating $82,250 and
$78,417, 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.

In connection with its services as placement agent in the 1993 private placement
of 2,750,000 shares of common stock, Vector Securities International, Inc.
("Vector") was paid a fee of $1,096,800 and was issued a five-year non-
redeemable warrant to purchase 274,200 shares of the Company's common stock at
$9.375 per share. In connection with Vector's assistance in reaching the
settlement with Alkermes (Note 7), this warrant was canceled and reissued as a
new warrant to purchase 363,113 shares of the Company's common stock at $3.47
per share, as adjusted and subject to further adjustment, at any time through
January 15, 2000. The value of this new warrant was computed utilizing the
Black-Scholes option pricing model. This warrant expired unexercised.

As consideration for its agreement to provide financial advisory services, as
amended and extended in November 1994, Vector was paid a retainer of $50,000 and
was issued a six-year non-redeemable warrant to purchase 57,193 shares of the
Company's common stock at $3.06 per share, subject to adjustment under certain
circumstances. Warrants to purchase 8,169 shares of the Company's common stock
vested immediately, and warrants to purchase 24,512 shares of the Company's
common stock vest upon the consummation of each strategic alliance when and as
secured by Vector.

Note 11 -- 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." 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, 2000, the Company had
federal and California tax net operating loss carryforwards of approximately
$35,147,000 and $5,987,000, respectively. The difference between the federal

                                     F-15
<PAGE>

and California tax loss carryforwards is primarily attributable to the
capitalization of research and development expenses for California franchise tax
purposes and the fifty percent limitation on California loss carryforwards. The
California tax loss carryforwards will continue to expire in 2000 (approximately
$806,000 expired in 1999), while the federal carryforwards begin expiring in
2004. The Company also has federal and California research and development tax
credit carryforwards totaling $1,281,000 and $510,000, respectively, which will
begin to expire in 2004.

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 credit carryforwards may become more restrictive.
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.

Significant components of the Company's deferred tax assets as of June 30, 2000
and June 30, 1999 are shown below. The valuation allowance related to deferred
tax assets is $15,896,000 and $15,629,000 for the years ended June 30, 2000 and
1999, respectively. The increase in the valuation allowance for the year ended
June 30, 2000 of $267,000 is due principally to the increase in deferred tax
assets resulting from the increase in tax net operating loss carryforwards.

Deferred tax assets:

<TABLE>
<CAPTION>
                                                                      June 30,
                                                                 2000           1999
                                                       -----------------------------
<S>                                                    <C>              <C>
          Net operating loss carryforwards               $ 12,646,000   $ 12,299,000
          Capital loss carryforwards                           22,000         22,000
          Research and development credits                  1,613,000      1,436,000
          Capitalized research and development costs        1,325,000      1,309,000
          Settlement with Alkermes, Inc.                           --        407,000
          Depreciation                                        115,000         88,000
          Other-net                                           175,000         68,000
                                                         ------------   ------------
          Net deferred tax assets                          15,896,000     15,629,000
                                                         ------------   ------------
          Valuation allowance for deferred tax assets     (15,896,000)   (15,629,000)
                                                         ------------   ------------
          Total deferred tax assets                      $         --   $         --
                                                         ============   ============
</TABLE>

Note 12 -- 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 Lou Gehrig's disease. The territory covered by the exclusive
license excludes North America, allowing Cortex to retain commercialization
rights in its domestic market. The territory covered by the agreement also
excludes South America (except Argentina, Brazil and Venezuela), Australia and
New Zealand. The agreement includes an up-front payment by Servier of
$5,000,000, research support payments of up to $2,025,000 per year for three
years (subject to Cortex providing agreed-upon levels of research) and milestone
payments, plus royalty payments on sales in licensed territories.

                                     F-16
<PAGE>

                          Cortex Pharmaceuticals, Inc
                         Annual Report on Form 10-KSB
                           Year ended June 30, 2000
                                 Exhibit Index

Exhibit                                                             Sequentially
Number   Description                                               Numbered Page
--------------------------------------------------------------------------------

  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, incorporated by reference to Exhibit 3.1 of the
         Company's Registration Statement on Form SB-2 filed June 18, 1997.
  3.2    By-Laws of the Company, as adopted March 4, 1987, and amended through
         October 8, 1996, incorporated by reference to Exhibit 3.2 to the
         Company's Annual Report on Form 10-KSB filed October 15, 1996.
  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. *
  10.9   1989 Special Nonqualified Stock Option and Stock Purchase Plan. *
  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 between the Company and the
         Regents of the University of California, incorporated by reference to
         the Company's Amendment of Annual Report on Form 10-KSB/A filed
         November 26, 1993. (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).
  10.42  Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
         Plan adopted December 13, 1993, incorporated by reference to Exhibit
         4.8 of the Company's Registration Statement on Form S-8 filed January
         28, 1994.
  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.
  10.46  Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
         Plan adopted December 1994, incorporated by reference to Exhibit 4.9 of
         the Company's Registration Statement on Form S-8 filed February 8,
         1995.
  10.48  Amendment to the Non-Employee Director Formula Grant Plan, adopted
         December 15, 1994, incorporated by reference to the same numbered
         Exhibit to the Company's Annual Report on Form 10-KSB filed October 13,
         1995.*
  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
<PAGE>

Exhibit                                                             Sequentially
Number   Description                                               Numbered Page
--------------------------------------------------------------------------------

 10.51   Warrant dated December 8, 1995, to purchase 106,195 shares issued to
         Swartz Investments, Inc., incorporated by reference to Exhibit 4.3 of
         the Company's Current Report on Form 8-K filed December 22, 1995.

 10.53   Warrant dated November 29, 1994, to purchase 35,000 shares issued to
         Vector Securities International, Inc., incorporated by reference to the
         same numbered Exhibit to the Company's Pre- Effective Amendment No. 1
         to Post Effective Amendment No. 2 to Registration Statement on Form SB-
         2, No. 33-71894, filed January 26, 1996.

 10.56   Employment Agreement dated May 15, 1996, between the Company and
         Vincent F. Simmon, Ph.D., incorporated by reference to the same
         numbered Exhibit to the Company's Current Report on Form 8-K filed June
         4, 1996.

 10.58   Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
         Plan adopted December 12, 1995, incorporated by reference to Exhibit
         4.10 of the Company's Registration Statement on Form S-8 filed
         September 13, 199 6.

 10.60   1996 Stock Incentive Plan, incorporated by reference to the same
         numbered Exhibit to the Company's Quarterly Report on Form 10-QSB filed
         November 12, 1996.

 10.62   Form of Warrant issued to each purchaser of Series A Preferred Stock,
         incorporated by reference to Exhibit 10.62 to the Company's
         Registration Statement on Form SB-2 filed June 18, 1997.

 10.63   Registration Rights Agreement with holder of Series A Preferred Stock
         dated June 5, 1997, incorporated by reference to Exhibit 10.63 to the
         Company's Registration Statement on Form SB-2 filed June 18, 1997.

 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.
 10.66   Option Agreement between the Company and Shire Pharmaceuticals Group,
         plc dated April 20, 2000, incorporated by reference to Exhibit 10.66 of
         the Company's quarterly report on Form 10-QSB as filed on May 12, 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.)
  21     Subsidiaries of the Registrant.
 23.1    Consent of Ernst & Young LLP, independent auditors.
  24     Power of Attorney.
 27.1    Financial Data Schedule.

 ___________________________
 *     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-2