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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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

For the fiscal year ended December 31, 2005

OR



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

Commission file number 1-16467



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Cortex Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)



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

15241 Barranca Parkway, Irvine, California, 92618

(Address of principal executive offices, including zip code)

(949) 727-3157

(Registrants telephone number, including area code)



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



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

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

Common Stock, $0.001 par value

(Title of Class)



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Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES ̈NO  x

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

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

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

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer ̈Accelerated
filer  x    Non-accelerated filer ̈

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

The aggregate market value of the voting stock held by non-affiliates as of June 30, 2005 was $75,806,800 (based on the closing sale price of the common stock as reported by The American Stock Exchange on such
date). As of March 10, 2006, there were 33,128,293 shares of the registrants common stock outstanding.

DOCUMENTS INCORPORATED
BY REFERENCE

PORTIONS OF THE REGISTRANTS DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 10, 2006 (TO BE
FILED WITH THE COMMISSION ON OR BEFORE APRIL 30, 2006) ARE INCORPORATED BY REFERENCE INTO PART III.



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TABLE OF CONTENTS



|                           |  |                                                                                                              |  |     
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                           |  |                                                                                                              |  | Page
|PART I                     |  |                                                                                                              |  |     
|                           |  |                                                                                                             
|Item 1.                    |  | Business                                                                                                     |  | 3   
|                           |  |                                                                                                             
|Item 1A.                   |  | Risk Factors                                                                                                 |  | 18  
|                           |  |                                                                                                             
|Item 1B.                   |  | Unresolved Staff Comments                                                                                    |  | 24  
|                           |  |                                                                                                             
|Item 2.                    |  | Properties                                                                                                   |  | 24  
|                           |  |                                                                                                             
|Item 3.                    |  | Legal Proceedings                                                                                            |  | 24  
|                           |  |                                                                                                             
|Item 4.                    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 25  
|                           |  |                                                                                                             
|PART II                    |  |                                                                                                              |  |     
|                           |  |                                                                                                             
|Item 5.                    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 26  
|                           |  |                                                                                                             
|Item 6.                    |  | Selected Financial Data                                                                                      |  | 27  
|                           |  |                                                                                                             
|Item 7.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 28  
|                           |  |                                                                                                             
|Item 7A.                   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 36  
|                           |  |                                                                                                             
|Item 8.                    |  | Financial Statements and Supplementary Data                                                                  |  | 37  
|                           |  |                                                                                                             
|Item 9.                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 37  
|                           |  |                                                                                                             
|Item 9A.                   |  | Controls and Procedures                                                                                      |  | 37  
|                           |  |                                                                                                             
|Item 9B.                   |  | Other Information                                                                                            |  | 39  
|                           |  |                                                                                                             
|PART III                   |  |                                                                                                              |  |     
|                           |  |                                                                                                             
|Item 10.                   |  | Directors and Executive Officers of the Registrant                                                           |  | 39  
|                           |  |                                                                                                             
|Item 11.                   |  | Executive Compensation                                                                                       |  | 40  
|                           |  |                                                                                                             
|Item 12.                   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 40  
|                           |  |                                                                                                             
|Item 13.                   |  | Certain Relationships and Related Transactions                                                               |  | 40  
|                           |  |                                                                                                             
|Item 14.                   |  | Principal Accountant Fees and Services                                                                       |  | 41  
|                           |  |                                                                                                             
|PART IV                    |  |                                                                                                              |  |     
|                           |  |                                                                                                             
|Item 15.                   |  | Exhibits and Financial Statement Schedules                                                                   |  | 41  
|                           | 
|Signatures                 |  | S-1                                                                                                         
|                           | 
|Financial Statements       |  | F-1                                                                                                         
|                           | 
|Exhibit Index and Exhibits |  | EXH-1                                                                                                       

(Attached to this Report on Form 10-K)



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

INTRODUCTORY NOTE
REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which may
be identified by words including anticipates, believes, intends, estimates, expects, and similar expressions include, but are not limited to, statements regarding (i) future research
plans, expenditures and results, (ii) potential collaborative arrangements, (iii) the potential utility of our proposed products and (iv) the need for, and availability of, additional financing.

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

PART I

Item 1. Business

Our primary focus is to develop a novel pharmacology that positively modulates AMPA-type
glutamate receptors, a complex of proteins involved in the communication between nerve cells in the human brain. We are developing a family of proprietary pharmaceuticals known as AMPAKINE® compounds that enhance the activity of
this receptor. We believe that AMPAKINE compounds hold promise for correcting neurological and psychiatric diseases and disorders that are known, or thought, to involve depressed functioning of pathways in the brain that use glutamate
as a neurotransmitter.

AMPAKINE compounds, which act on chemical pathways that impact at least 85% of all the
neurotransmission occurring in the brain, have been demonstrated to enhance memory and cognition in both animals and humans. The compounds can be taken orally or intravenously, and rapidly pass through the blood-brain barrier. During the past year a
new AMPAKINE compound, CX717, was advanced into Phase II clinical development and key efficacy trials for the compound should be completed by the end of March 2006.

The AMPAKINE platform addresses large potential markets. According to research data from IMS Health, in 2004 worldwide sales for central
nervous system products to treat brain-related disorders and diseases exceeded $72 billion, with growth at more than 20% on an annualized basis. Our business plan involves partnering with larger pharmaceutical companies for research, development,
clinical testing, manufacturing and global marketing of specific AMPAKINE compounds for those indications that require sizable, expensive Phase III clinical trials  and very large sales forces to achieve significant market
penetration. Diseases such as Alzheimers disease, mild cognitive impairment (MCI), Parkinsons disease, Attention Deficit Hyperactivity Disorder (ADHD), schizophrenia, depression and others may benefit from
treatment with AMPAKINE drugs and require such larger distribution. At the same time, we plan to develop compounds internally for a selected set of indications, many of which will allow us to apply for Orphan Drug status.
Such designation by the Food and Drug Administration (the FDA) is



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usually applied to products where the number of patients in the United States (U.S.) in the given disease
category is less than 200,000 per year. These Orphan Drug indications typically require more modest investment in the development stages, follow a quicker regulatory path to approval, and involve a more concentrated and smaller sales force
targeted at selected medical centers in the U.S. The key indications that we plan to pursue internally include (a) restoration of memory and diminution of loss of memory due to electroconvulsive therapy, (b) excessive daytime sleepiness
due to narcolepsy, sleep apnea and shift work, (c) Huntingtons disease, (d) Amyotrophic Lateral Sclerosis and (e) Fragile X syndrome.

We may also pursue other Orphan Drug indications and upon any related approval, may expand our clinical potential into non-Orphan Drug indications. As an example, if we obtain approval for an indication related to
Fragile X syndrome, expansion into treatment of autism may follow. While the market potential in the U.S. for most of the listed Orphan Drug indications varies between $200 million and $400 million per indication, Cortex estimates that the
consolidated potential for all indications that we may pursue, including expansion into non-Orphan Drug indications, provides us with a market potential of over $3 billion. This amount does not include any revenues from any potential license of the
Companys intellectual property. We will continue to seek one or more significant license or collaboration arrangements with larger pharmaceutical companies, while we prepare ourselves for potential entrance into the pharmaceutical market with
our own products. These arrangements may permit other applications of the AMPAKINE compounds to be advanced into later stages of clinical development and may provide access to the extensive clinical trials management, manufacturing
and marketing expertise of such companies.

In January 1999, we entered into a research collaboration and exclusive worldwide license
agreement with NV Organon (Organon), a subsidiary of Akzo Nobel. The agreement grants Organon worldwide rights to develop and commercialize our AMPAKINE technology for the treatment of schizophrenia and depression. In
October 2000, we entered into a research collaboration and license agreement with Les Laboratoires Servier (Servier). The agreement, as amended to date, will allow Servier to develop and commercialize select AMPAKINE
compounds in defined territories of Europe, Asia, the Middle East and certain South American countries as a treatment for (i) declines in cognitive performance associated with aging, (ii) neurodegenerative diseases and (iii) anxiety disorders. The
indications covered include, but are not limited to, Alzheimers disease, MCI, sexual dysfunction and anxiety disorders. Either we or Servier may terminate the research collaboration effective December 7, 2006, by giving at least six months
notice. We are currently in discussions with Servier regarding the termination.

For the years ended December 31, 2005 and 2004, our
research and development expenses were approximately $11,179,000 and $8,173,000, respectively. For the six-month periods ended December 31, 2004 and 2003, our research and development expenses were approximately $4,926,000 and $2,869,000,
respectively. For the years ended June 30, 2004 and 2003, our research and development expenses were approximately $6,116,000 and $3,724,000, respectively. The increased expenses for the most current periods reflect increased research and
development costs for initiating toxicology and human clinical testing of the AMPAKINE CX717.

We face a number of risks in
moving our technology through research, development and commercialization. We have never had revenues from commercial sales, have never been profitable on an annual basis and have incurred net losses approximating $63,700,000 through
December 31, 2005. We do not anticipate profitability in the short term and will continue to require external funding, either from the private or public equity markets or from corporate partners and licenses of our technology. As of yet,
neither we nor any of our corporate partners have obtained FDA approval to market any of our products. All of these risks, and others, are described in Risk Factors starting on page 18.

Our executive offices are located at 15231 Barranca Parkway, Irvine, California 92618, and our telephone number is (949) 727-3157.



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

As reported on our Current Report on Form 8-K dated November 10, 2004, we changed our fiscal year end from June 30 to December 31. As a
result, we are reporting amounts for the six-month transition period ended December 31, 2004 in order to reflect the change to our fiscal year to match the calendar year.

AMPA Receptor Modulator Program

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

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

The majority of excitatory synaptic connections in the brain utilize glutamate, and those synaptic connections decline with age. Thus,
brain disorders associated with aging may be amenable to treatment with AMPAKINE compounds. Such disorders include MCI, Alzheimers disease and Parkinsons disease. Schizophrenia, depression and other psychiatric disorders
may involve imbalances of neurotransmitters in the brain, such as dopamine, serotonin, acetylcholine and norepinephrine. Given that glutamate modulates many of these other neurotransmitters, it may play a role in the rebalancing of
neurotransmission. AMPAKINE compounds may provide a new approach to treat both neurological and psychiatric disorders by directly modulating the AMPA receptor to enhance the release of glutamate. A study with AMPAKINE
compounds in patients with schizophrenia indicated improvement in a number of symptoms also common to patients with ADHD. We and our collaborators have obtained other encouraging preliminary results in animal models of sleep deprivation, Fragile X
syndrome, depression, libido and stroke.

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

Lead Development Candidate  AMPAKINE CX717

One of the most compelling animal studies conducted with the AMPAKINE CX717 involves a model that examines the effects of sleep deprivation
on cognitive performance in non-human primates. As reported by Wake Forest University School of Medicine in the September 2005 publication of the Public Library of Sciences  Biology, the model utilizes a colony of rhesus macaque
monkeys. The monkeys are trained to use a cursor to respond to computer images and carry out simple memory tasks. When the monkeys get a correct answer, they are rewarded with a squirt of juice.

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



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

Based upon these results, and extensive required safety testing in rats and dogs, as well as monkeys, we have completed a series of Phase I clinical
studies of CX717 in the United Kingdom. The studies were conducted with the assistance of Quintiles  Guys Drug Research Unit, a large and well-respected clinical research organization. All of the Phase I safety trials were completed by
early 2005 and provided evidence of safety for doses of up to 1,600 mg of CX717 in single doses and up to 800 mg of the drug given twice daily for ten (10) days in 104 human subjects.

The first of these Phase I studies was a randomized, double-blind single rising dose study to explore the safety, tolerability and pharmacokinetics (the
time course of absorption, distribution, metabolism and excretion of the drug from the body) of CX717 in healthy young male volunteers between the ages of 18 and 45. Eight volunteers per dose group randomly received CX717 (n = six men) or placebo (n
= two men). We dosed patients with up to 1,600 mg of CX717 in this protocol and did not reach a maximum tolerated single dose. We decided that further single-dose increases were not warranted in this study. On a single dose basis, the 54 volunteers
who have received CX717 tolerated the drug very well.

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

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

The fourth of the studies was a randomized, double-blind, multiple dose study in seven healthy, elderly male volunteers (CX717 = five men; placebo = two
men) and eight healthy elderly female volunteers (CX717 = six women; placebo = two women) to examine the safety, tolerability and pharmacokinetics of CX717 with 300 mg administered once daily for ten (10) days. This study was initiated in
December 2004 and the treatment phase of the study was completed in early March 2005. At the end of the ten-day dosing period, there were no significant differences in pharmacokinetic assessments between the elderly males and elderly females, and,
in addition, the pharmacokinetic profile of CX717 in the healthy elderly was not different from that seen for the healthy young volunteers. The safety and tolerability of the 300 mg dose in the healthy elderly was excellent. There were no
withdrawals, serious adverse events or clinically significant adverse events. The few adverse events that were noted during the ten-day treatment period were all mild in severity. Headache and sleep disturbance were the most commonly reported
adverse events.



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In addition to the volunteers listed in the above studies, seven other volunteers received CX717 in a
formulation crossover study.

The pharmacokinetic results to date from the 104 volunteers who have taken CX717 show that the half life of
the drug averages over 9 hours and the amount of drug absorbed over the range of 25 mg to 1600 mg was linear and predictable. Very high plasma drug levels and area under the curve values were found, both indicating an excellent absorption profile
for the drug. Additionally, using the single dose kinetic parameters, we have been able to accurately predict the results of the multi-dosing trials. The simulations and the actual data overlapped as would be expected if the kinetic data was
accurate. In summary, to date we have found the drug to have an excellent safety profile, seemingly well absorbed and linear kinetics over a large range of doses in normal volunteers. The doses administered to the normal volunteers were up to 16
times greater than those needed to produce efficacy results in the primates. If the clinical efficacy in humans can be demonstrated over the same dosage ranges as has been found in non-human primates, the potential for once a day dosing seems
feasible.

In addition to the safety and tolerance studies that continue and daily dosing over a ten-day period, we completed a kinetic
study to evaluate the absorption of an oral solution as compared to oral capsules filled with drug of two different particle sizes. The results from this study were as expected. The oral solution was most rapidly absorbed, followed by the capsule
containing the smaller particles. The capsule with the larger drug particles had the slowest absorption. This dissolution rate controlled absorption process is quite common and will allow us to improve the dosage forms to be used in the planned
Phase IIb efficacy trials to be initiated later during calendar year 2006. No significant differences were found in the amount of drug absorbed by the subjects or in the elimination half-life for the drug among the various dosage forms tested.

We also have completed a Phase IIa pilot efficacy trial in sleep deprivation that was conducted in the United Kingdom. The study was
designed to evaluate the effectiveness of CX717 in ameliorating the sleepiness and temporary cognitive impairment induced by overnight sleep deprivation. The study was a randomized, double-blind, placebo-controlled, four-way crossover trial of 16
male volunteers. Doses tested were 100 mg, 300 mg, and 1,000 mg of CX717 as well as placebo. The main outcome measures were the maintenance of wakefulness test (MWT), polysomnography during a recovery sleep phase, and cognitive
performance testing during the sleep deprivation portion. The primary finding, derived from results on the MWT and polysomnography, was that CX717 enhanced alertness in a dose-dependent manner. The study also demonstrated preliminary evidence that
CX717 may improve some cognitive performance measures. The improvements in cognitive function with CX717 were best illustrated in the subjects who suffered a decline in their cognition as a result of the sleep deprivation. There were no serious
adverse events or clinically significant safety issues in the study. All doses of CX717 were well tolerated. Mild headache was the most common adverse event.

Additionally, we recently completed two separate three-month toxicology studies for CX717, one with a rodent species and one with a non-rodent species, as required by the guidelines of the FDA. Each study examined the
effects of very high (toxicological) daily doses of CX717 for ninety consecutive days. Each study included extra animals to assess whether any observed toxicological effects were reversible once dosing was stopped. Full reports for each of these
three-month toxicology studies have been submitted to the FDA for review. We also initiated reproductive toxicology studies of CX717 that are necessary to include women of childbearing potential in future Phase IIb studies. We are planning longer
(e.g., six-month) general toxicology studies to support clinical studies of greater than three months duration.

We have subsequently
initiated three different Phase IIa studies to evaluate the efficacy of CX717 in (a) the treatment of ADHD in adult patients, (b) the effect on adult male subjects in a shift work paradigm being funded by the Defense Advanced Research
Projects Agency (DARPA), and (c) a positron emission tomography (PET) scan analysis of the drug in Alzheimers disease patients.



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Preliminary results of the ADHD study are described below. Additional results of the ADHD study and the shift work study
are expected to be reported in March or April 2006.

Potential Applications for AMPAKINE Compounds

ADHD

ADHD is a common psychiatric disorder in
both children and adults. The National Institute of Mental Health (NIMH) estimates that ADHD affects three to five percent of school-age children, with about one child in every classroom in the U.S. in need of help for this disorder.
ADHD is characterized by inattentiveness, poor impulse control and hyperactivity. The disorder was historically thought of as a childhood illness. Longitudinal studies however have documented the persistence of symptoms into adulthood in a large
percentage of childhood sufferers. The prevalence of ADHD is estimated at 2% to 4% of adults. ADHD exacts a significant toll on social relationships, education, and vocational attainment. Relative to those without the disorder, adults with ADHD tend
to have higher rates of divorce, lower grade point averages in school, lower graduation rates, lower socioeconomic status, and more frequent problems with unemployment.

Psychostimulants, including amphetamine, methylphenidate and pemoline, represent the most widely researched and commonly prescribed treatments for the disorder. Because of the availability and frequent prescribing of
psychostimulants, concerns over their potential overuse and abuse have intensified. Along with the abuse potential, treatments with psychostimulants may result in side effects. According to the National Institutes of Health, some children on these
medications may lose weight, have less appetite and temporarily grow more slowly. Others may experience problems falling asleep. Given the lack of consistent improvement beyond the disorders core symptoms and the deficit of long-term studies,
the need remains for additional testing with medications and behavioral treatments.

We believe that AMPAKINE compounds may
represent a novel, non-stimulant approach for treating ADHD patients, but until the development of CX717, we have lacked an AMPAKINE compound with the appropriate potency and duration of activity to treat ADHD. Given the impressive
behavioral improvement in attention and performance in primate studies with CX717 and of the longer acting AMPAKINE compounds, we undertook a pilot trial in adults with ADHD.

In early March 2006, we reported preliminary results from our lead AMPAKINE drug, CX717, which showed positive results in the treatment of
adults with ADHD. Forty-nine patients with ADHD completed the randomized, double-blind, placebo-controlled, two-way crossover design study performed at seven U.S. sites. We undertook this Phase IIa clinical trial to assess both the dose of drug
required and the effectiveness of CX717 in an adult ADHD population. The primary outcome measure was the ADHD Rating Scale (ADHD-RS) which evaluates both the inattentiveness and hyperactivity symptoms. The overall ADHD-RS score showed a positive
trend in the 800 mg twice daily dose group of 22 patients with a statistically significant effect on the hyperactivity subscale (p=0.050) compared to placebo. The 200 mg twice daily dose, tested in a group of 27 patients, did not show a significant
effect. CX717 was well tolerated, and there were no serious adverse events or other significant safety concerns with either dose.

Each
subject received placebo during one treatment and either CX717 200 mg twice daily or CX717 800 mg twice daily in the other treatment period. Each treatment period was three weeks with a two-week washout in between. Sixty-eight subjects were
randomized of whom 65 took either CX717 or placebo. Of those 65, 49 completed all assessments in both treatment periods. Most subjects who withdrew did so for non-treatment related reasons. Analyses of parameters other than the primary outcome
measure, ADHD-RS, are ongoing.



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Alzheimers Disease

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

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

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

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

Day-Time Sleepiness Disorders

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

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

Narcolepsy represents an Orphan Drug indication that would reduce both our cost and time to market for a potential therapeutic agent. The potential of
using AMPAKINE compounds for treatment of



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narcolepsy comes from work done in a monkey model of sleep deprivation. In these monkey studies, CX717 and other
AMPAKINE compounds were able to reverse the deficits that sleep deprivation caused in the ability of the monkeys to accurately perform a challenging cognitive performance task. The results in the monkey model were supported by our
results with CX717 in a human sleep deprivation model.

In June 2004, we announced that Dr. Sam Deadwyler, Professor and Vice
Chairman, Department of Physiology and Pharmacology at Wake Forest University School of Medicine has received a grant of approximately $5,100,000 from DARPA to continue his research at Wake Forest University on the effects of sleep deprivation in
primates, including the effects of CX717 and other AMPAKINE compounds.

Depression

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

In the U.S., the depression market is considered the largest segment of the central nervous system market with global sales of $15.9 billion in 2004. This is a mature market with a number of the leading brands facing
patent expiration in the next six years.

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

In December 2003 Organon exercised its option to the depression field and currently has a Phase II study in bipolar depression underway at the NIMH.
Organon is subject to annual spending requirements for research and development using AMPAKINE compounds in the depression field. The terms of the agreement also include milestone payments based upon clinical development and royalties
on worldwide sales.

Fragile X and Autism

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

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

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

Autism impacts the normal development of the brain in
the areas of social interaction and communication skills. Children and adults with autism typically have difficulties in verbal and nonverbal



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communication, social interactions, and leisure or play activities. Persons with autism may exhibit repeated body
movements, unusual responses to people or attachments to objects, and resistance to changes in routines. Individuals also may experience heightened sensitivities of sight, hearing, touch, smell and taste. There are currently no approved therapeutic
treatments for autism, although early behavioral intervention dramatically improves outcome.

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

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

Some Fragile X clinicians believe that AMPAKINE compounds with the potential to raise neurotrophic levels may improve Fragile X patients,
especially if administered at a young age. An earlier study with CX516 in Fragile X did not prove to be efficacious, but suffered from the same deficiencies of all the other CX516 studies that were related to the inadequacies of the compound. More
potent and longer lasting AMPAKINE compounds, particularly ones which up regulate BDNF, will be required to moderate this disease.

Huntingtons Disease

Huntingtons disease (HD) is an inherited, progressive brain disorder
characterized by involuntary movements, psychiatric disturbances, and dementia. It typically strikes people whose ages are in the 30s or 40s. Patients ultimately lose physical and mental abilities to care for themselves. Walking becomes impossible,
swallowing difficult, and dementia profound. At the end stage of the disorder, most patients require institutionalization. Current epidemiologic data show that there are 25,000 to 30,000 patients in the United States with HD, thus qualifying it as
an Orphan Drug indication.

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

Memory Loss Due to Electroconvulsive Therapy

Electroconvulsive therapy (ECT) is the most effective treatment of major depression, with approximately 100,000 patients receiving ECT in the U.S. ECT works by the intentional induction of a controlled
generalized seizure by administration of electrical impulses to the anesthetized patient. Despite its effectiveness, patient and clinician acceptance is limited due to significant memory loss that has been associated with this therapy.

The effects of chronic ECT have been discussed in recent studies on the pathophysiology of depression. This work has led to the hypothesis that ECT
and antidepressant drugs, via regulation of neurotrophic factors, reverse the atrophy of stress-vulnerable neurons or protect these neurons from further damage. It is possible that AMPAKINE compounds may enhance the recovery of memory
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The availability of monkey models of ECT could allow us to test intervention with CX717 and other
AMPAKINE compounds. If AMPAKINE drugs, like CX717 or a high impact AMPAKINE compound are protective against the negative effects of ECT, this could provide a unique niche for AMPAKINE drugs
in the hospitals where ECT is currently used.

Mild Cognitive Impairment

In the aging population, there is a continuum of cognitive decline. This continuum ranges from normal (for the general age group) to MCI to probable
Alzheimers disease or other types of dementia. Patients with MCI currently represent the earliest clinically-defined group with memory impairment beyond that expected for normal individuals of the same age and education, but do not meet
clinical criteria for Alzheimers disease.

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

Given the lack of consensus by the FDA on the diagnostic and outcome for success in MCI, we believe that the low impact AMPAKINE CX717 or high impact compounds in our pipeline must first demonstrate
efficacy in Alzheimers disease before undertaking studies with these compounds in MCI. Yet given the potential size of the MCI market, we remain interested in this indication.

Schizophrenia

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

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

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

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



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

A second AMPAKINE drug candidate
licensed to Organon is currently in two clinical trials for the treatment of schizophrenia, one a mono-therapy trial that should be completed in 2006 and the other trial in combination with other antipsychotic agents that is just being initiated.

Stroke

A stroke occurs when a
blood clot blocks a blood vessel interrupting blow flow to the brain or when a blood vessel in the brain breaks. When a stroke occurs, brain cells within the immediate area of damage usually die within minutes to a few hours. When brain cells die,
control of functions such as speech, movement and sensation may be lost. A stroke can happen to anyone, although the risk increases significantly with age. According to the National Stroke Association, two-thirds of all strokes happen to people over
the age of 65, with the risk doubling each decade past age 55.

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

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

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

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

The goals of the research plan include determining if an AMPAKINE compound administered in advance
can reduce damage to neurons in an animal model of stroke; and to determine if the compound reduces damage to the memory of the animals. An AMPAKINE compound will also be administered after the stroke to determine if there is an
improved recovery of memory function. As of December 31, 2005, we had received approximately $780,000 from this grant award, with the term of the project extended through August 2006. Research of the AMPAKINE technology as a
treatment for stroke, beyond that funded by the SBIR grant, will depend upon our financial resources.



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Traumatic Brain Injury

Traumatic Brain Injury (TBI) is an injury to the head that disrupts the normal function of the brain. The injury is not degenerative or congenital in nature, and is caused by an external physical force.
There is a wide range of injuries with this disorder from mild, with only a brief loss of consciousness, to severe, resulting in life-long coma. The injury may be focal or diffuse, closed or penetrating. TBI is the leading cause of death and
disability among children and young adults. People over the age of 75 have the highest rate of TBI, with falls being the main cause. Young adults have the next highest rate, with transportation being the most common cause. Finally, the third highest
rate of TBI is that of children under the age of 5 years, with their most common causes being falls and motor vehicle accidents. In the U.S., there are 5.3 million people with TBI and there is an incidence of over 1.7 million cases per
year.

Other Indications

We may
conduct studies in various other indications that have not been discussed above. In addition to the AMPAKINE CX717, we plan to advance other AMPAKINE compounds that have shown promise in animal models. We hope to
initiate toxicology testing for additional new AMPAKINE compounds during calendar year 2006. If those tests are successful, we hope to have a second drug candidate in clinical trials by early 2007.

Proof of Principal Compound  AMPAKINE CX516

Our development of the AMPAKINE technology began with our exclusive license of the technology from the University of California in 1993. CX516 was among a number of AMPAKINE compounds
that were rapidly synthesized and evaluated by our scientists during the early discovery and preclinical development processes. Given concerns about potential brain-related side effects caused by excess glutamate, many believed that
AMPAKINE compounds (through their potentiation of glutamate) would cause serious side effects in humans.

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

Phase II studies in MCI, ADHD, schizophrenia and Fragile X syndrome subsequently were initiated and/or completed
with CX516. Because CX516 has an extremely short half-life in humans and had very low potency, it failed to show any material benefits in any of the Phase II trials. However, it did reduce the concern about toxicity of excess glutamate and point the
way for future generations of AMPAKINE compounds that may overcome the shortcomings of CX516. No further clinical development of CX516 is planned and all projects related to this compound have been terminated.

Manufacturing

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



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Marketing

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

Technology Rights

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

Patents and Proprietary Rights

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

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

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



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In November 2003, a similar patent was issued to the University by the European Patent Office. Under the
rules of the European Patent Office, this patent entered into a nine-month period during which oppositions to the issuance could be filed. Upon issuance of the patent, an opposition was filed by Eli Lilly and Company. In August 2004, GlaxoSmithKline
also filed an opposition. In cooperation with the University, we responded to the oppositions. There is no timeframe available for a decision from the European Patent Office and such decision may be appealed by us or the party filing the opposition.
As a result, the process to determine whether the oppositions filed for this patent will or will not prevail in Europe may take anywhere from six months to several years to resolve.

Another method of use patent contains a broad claim for any AMPA-modulating compound to treat schizophrenia. This patent was issued to the University in
the U.S. in 1998, and subsequently has issued in Australia.

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

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

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

Government Regulation

In order to test, produce and market human therapeutic products in the U.S., mandatory procedures and
safety standards established by the FDA must be satisfied. Obtaining FDA approval is a costly and time-consuming process. We have initiated Phase I and early Phase II testing in the U.S. and Europe, primarily with the assistance of clinical
collaborators and our corporate partners, Organon and Servier. Some clinical trials were and are performed in the U.S. under Notices of Claimed Investigational Exemption for a New Drug (IND) filed with the FDA by our clinical
collaborators. We filed an IND for the AMPAKINE CX516 in our name in the fall of 2000. Given the clinical shortcomings of CX516, in 2005 we formally requested the FDA to withdraw this IND. We filed an IND for the
AMPAKINE CX717 in December 2004. It is our intent that Organon, Servier or another pharmaceutical company partner or partners that we are seeking, will pursue other required regulatory approvals to conduct further clinical testing
with AMPAKINE compounds. However, we intend to file other INDs for additional AMPAKINE compounds to facilitate the development of our Orphan Drug strategy.

Clinical trials are normally conducted in three phases. Phase I trials are concerned primarily with safety of the drug, involve fewer than 100 subjects,
and may take from six months to over a year. Phase II trials normally involve a few hundred patients. Phase II trials are designed to demonstrate effectiveness and to determine optimal dosing in treating or diagnosing the disease or condition for
which the drug is intended. Short-term side effects and risks in people whose health is impaired also may be examined. Phase III trials may involve up to several thousand patients who have the disease or condition for which



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the drug is intended, to approximate more closely the conditions of ordinary medical practice. Phase III trials also are
designed to clarify the drugs benefit-risk relationship, to uncover less common side effects and adverse reactions, and to generate information for proper labeling of the drug. The FDA receives reports on the progress of each phase of clinical
testing, and may require the modification, suspension, or termination of clinical trials if an unwarranted risk is presented to patients. The FDA estimates that the clinical trial period of drug development can take up to ten years, and averages
five years. With certain exceptions, once clinical testing is completed, the sponsor can submit a New Drug Application (NDA) for approval to market a drug. The FDAs review of an NDA can also be lengthy.

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

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

Competition

The pharmaceutical industry is characterized by rapidly evolving technology and intense
competition. Many companies of all sizes, including both major pharmaceutical companies and specialized biotechnology companies, are engaged in activities similar to ours. A large number of drugs intended for the treatment of Alzheimers
disease, MCI, schizophrenia, depression, ADHD and other neurological and psychiatric diseases and disorders are on the market or in the later stages of clinical testing. For example, approximately 15 drugs are in development in the U.S. for
schizophrenia and over 25 drugs are under clinical investigation in the U.S. for the treatment of Alzheimers disease. Most of our competitors have substantially greater financial and other resources and larger research and development staffs.
Larger pharmaceutical company competitors also have significant experience in preclinical testing, human clinical trials and regulatory approval procedures.

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

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



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Product Liability Insurance

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

Employees

We currently have 25 full-time employees and one part-time employee. Of the 25 full-time employees, six are engaged in management and administrative support and the remainder are engaged in research and development, including twelve
Ph.D.-level or equivalent employees and one M.D.

We anticipate that we may make modest increases in our employee levels based upon the
further development of the AMPAKINE CX717. However, we will continue to outsource a substantial amount of our research and development to qualified vendors. We sponsor a substantial amount of research in academic laboratories,
primarily at the University of California, Irvine and at Wake Forest University in North Carolina.

Item 1A. Risk Factors

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

Risks related to our business

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

Since our formation on February 10, 1987 through December 31, 2005, we have generated only modest operating revenues and we have incurred net
losses approximating $63,700,000. For the years ended December 31, 2005 and 2004, our net losses were approximately $11,606,000 and $6,234,000, respectively. For the six months ended December 31, 2004 and 2003 and fiscal years ended
June 30, 2004 and 2003, our net losses amounted to approximately $4,046,000, $3,806,000, $5,994,000 and $1,175,000, respectively. As of December 31, 2005, we had an accumulated deficit of approximately $65,735,000. We have not generated
any revenue from product sales to date, and it is possible that we will never generate revenues from product sales in the future. Even if we do achieve significant revenues from product sales, we expect to incur significant operating losses over the
next several years. As with other companies in the biotechnology industry, it is possible that we will never achieve profitable operations.

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

We will require substantial additional funds to advance our research and development programs and to continue our operations, particularly if we decide to
independently conduct later-stage clinical testing and apply for regulatory approval of any of our proposed products, and if we independently undertake marketing and promotion of our products. Additionally, we may require additional funds in the
event that we decide to pursue strategic acquisitions of or licenses for other products or businesses. Based



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on our current operating plan, including planned clinical trials and other product research and development costs, we
estimate that our existing cash resources, including committed sources of funding from Servier, will be sufficient to meet our requirements into calendar year 2007. However, we believe that we will require additional capital to fund on-going
operations beyond that time. Additional funds may result from milestone payments related to our agreements with Organon and Servier, although there is no assurance that we will receive milestone payments from Organon or Servier within the desired
timeframe, or at all. Additional funds also may result from the exercise of warrants to purchase shares of our common stock. As of December 31, 2005, warrants to purchase up to approximately 10.5 million shares of our common stock were
outstanding. In February 2006, warrants to purchase approximately 333,000 shares of common stock were exercised, resulting in proceeds of approximately $850,000. If the remaining warrants are fully exercised, of which there can be no assurance, such
exercise would provide approximately $30,000,000 of additional capital.

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



| |  |  | the results of our clinical trials;
| | - |  | -----------------------------------



| |  |  | the time and costs involved in obtaining regulatory approvals;
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| |  |  | the costs of setting up and operating our own marketing and sales organization;
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| |  |  | the ability to obtain funding under contractual and licensing agreements;
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| |  |  | the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



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

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

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

Under our agreements with The Regents of the University of California, we
have exclusive rights to AMPAKINE compounds for all applications for which the University has patent rights, other than endocrine modulation.

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



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Under our agreements, we are required to make minimum annual royalty payments approximating $70,000.
Separately, we are required to spend a minimum of $750,000 per year to advance the AMPAKINE compounds during the three years ending in May 2006. At the end of May 2006, our spending requirements will decrease to $250,000 per year, and
will continue at that level until we begin marketing an AMPAKINE compound. The commercialization efforts in the agreements require us to file for regulatory approval of an AMPAKINE compound before October 2007.

Although we currently are in compliance with our obligations under the agreements, including minimum annual payments and diligence
milestones, our failure to meet any of these requirements could allow the University to terminate that particular agreement. Management believes that it maintains a strong relationship with the University.

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

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

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



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

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



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

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

Risks related to our industry

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

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

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

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

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

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



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

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

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

We are highly
dependent upon key management and technical personnel and currently do not carry any insurance policies on such persons. In particular, we are highly dependent on our Chairman, President and Chief Executive Officer, Roger G. Stoll, Ph.D.; our Chief
Medical Officer, Harry H. Mansbach, M.D.; our Chief Scientific Officer and Chief Operating Officer, Mark A. Varney, Ph.D.; and our Senior Vice President, Pharmaceutical Research, Gary A. Rogers, Ph.D., all of whom have entered into employment
agreements with us. Competition for qualified employees among pharmaceutical and biotechnology companies is intense. The loss of any of our key management or technical personnel, or our inability to attract, retain and motivate the additional
highly-skilled employees and consultants that our business requires, could substantially hurt our business and prospects. We cannot assure you that we will be able to retain our existing personnel or attract additional qualified employees when we
need them.

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

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

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



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Other risks

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

The market price of securities of life
sciences companies in general has been very unpredictable. The range of sales prices of our common stock for the fiscal year ended December 31, 2005, the six-month period ended December 31, 2004 and fiscal years ended June 30, 2004
and June 30, 2003, as quoted on The American Stock Exchange, was $1.96 to $3.03, $1.40 to $3.10, $1.62 to $4.99 and $0.51 to $2.49, respectively. The following factors, in addition to factors that affect that market generally, could
significantly impact our business, and the market price of our common stock could decline:



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



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



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



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



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



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

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

If all
outstanding warrants and options are exercised prior to their expiration, approximately 18 million additional shares of common stock could become freely tradable without restriction. Sales of substantial amounts of common stock in the public
market could adversely affect the prevailing market price of our common stock.

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

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease approximately 32,000 square feet of office, research laboratory and expansion
space in Irvine, California, under an operating lease that expires May 31, 2009. Current monthly rent on these facilities is approximately $40,000. We believe that our current facilities will be adequate and suitable for our research and
development activities for at least the remainder of the lease term.

Item 3. Legal Proceedings

We are not a party to any material legal proceedings, nor has any material
proceeding been terminated during the fiscal year ended December 31, 2005.



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

On December 1, 2005, we held our Annual
Meeting of Stockholders, with stockholders holding 27,953,356 shares of common stock (representing 85.3% of the total number of shares outstanding and entitled to vote) present in person or by proxy at the meeting. Proxies for the meeting were
solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. Robert F. Allnutt, Charles J. Casamento, Carl W. Cotman, Ph.D., Peter F. Drake, Ph.D., M. Ross Johnson, Ph.D., Roger G. Stoll, Ph.D. and Gary D. Tollefson, M.D., Ph.D. were
listed as managements nominees in the proxy statement and were elected as directors at the meeting. The votes for each nominee were as follows:



|                               |  |                             |  |                         
|------------------------------ |  | --------------------------- |  | ------------------------
|Name                           |  | Number of Affirmative Votes |  | Number of Votes Withheld
|Robert F. Allnutt              |  | 27,561,635                  |  | 391,721                 
|Charles J. Casamento           |  | 27,392,292                  |  | 561,064                 
|Carl W. Cotman, Ph.D.          |  | 27,173,977                  |  | 779,379                 
|Peter F. Drake, Ph.D.          |  | 27,609,486                  |  | 343,870                 
|M. Ross Johnson, Ph.D.         |  | 27,596,529                  |  | 356,827                 
|Roger G. Stoll, Ph.D.          |  | 27,276,336                  |  | 677,020                 
|Gary D. Tollefson, M.D., Ph.D. |  | 27,435,902                  |  | 517,454                 

At the meeting, we also sought approval of an amendment to our Restated Certificate of
Incorporation to increase the authorized number of shares of our common stock from 50,000,000 to 75,000,000. This proposal was approved with 26,858,485 affirmative votes. There were 1,062,429 negative votes and 32,442 abstentions.

At the meeting, we also sought the ratification of Haskell & White LLP as our independent auditors for the fiscal year ended December 31,
2005. This proposal was approved by 27,812,553 affirmative votes. There were 72,060 negative votes and 68,743 abstentions.



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PART II

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

Our common stock trades on The American Stock Exchange under the symbol, COR. The following table presents quarterly information on the high and low sales prices of the common stock for the fiscal year
ended December 31, 2005, the six-month period ended December 31, 2004 and the fiscal year ended June 30, 2004, as furnished by The American Stock Exchange.



|                                         |  |      |      |     |   |     
|---------------------------------------- |  | ---- | ---- | --- | - | ----
|                                         |  | High |      | Low
|Fiscal Year ended December 31, 2005      |  |      |      |     |   |     
|Fourth Quarter                           |  | $    | 2.67 |     | $ | 2.02
|Third Quarter                            |  |      | 2.53 |     |   | 2.05
|Second Quarter                           |  |      | 2.73 |     |   | 1.96
|First Quarter                            |  |      | 3.03 |     |   | 2.15
|                                         |  |     
|Six-Month Period ended December 31, 2004 |  |      |      |     |   |     
|Second Quarter                           |  | $    | 3.10 |     | $ | 2.26
|First Quarter                            |  |      | 2.95 |     |   | 1.40
|                                         |  |     
|Fiscal Year ended June 30, 2004          |  |      |      |     |   |     
|Fourth Quarter                           |  | $    | 2.92 |     | $ | 2.15
|Third Quarter                            |  |      | 4.17 |     |   | 2.48
|Second Quarter                           |  |      | 4.34 |     |   | 2.50
|First Quarter                            |  |      | 4.99 |     |   | 1.62

As of March 10, 2006, there were 491 stockholders of record of our common stock, and
approximately 9,500 beneficial owners. The high and low sales prices for our common stock on March 13, 2006, as reported by The American Stock Exchange, were $3.65 and $3.85, respectively.

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

On or about July 11, 2005, we issued warrants to purchase an aggregate of 100,000 shares of the Companys
common stock to a licensor. The warrants were issued in connection with our license of patents jointly filed by the licensor, us and the Regents of the University of California. The warrants have an exercise price of $2.75 per share, a five-year
term and only become exercisable upon issuance of the underlying patents filed in the United States.

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

During the fiscal year ended December 31, 2005, we did not repurchase any of our securities.



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Item 6. Selected Financial Data

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

(In thousands, except per share data)



|                                                                         |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | --------------------------- | ------- | ---- | -------------------------------- | - | ------ | -------------------- |  | ---- | ------ | - | ---- | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                         |  | Year endedDecember 31, 2005 |         |      | Six
MonthsendedDecember 31, 2004 |   |        | Years ended June 30, | 
|                                                                         |  |                             |         | 2004 |                                  |   | 2003   |                      |  | 2002 |        |   | 2001 |  
|INCOME STATEMENT DATA                                                    |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|Revenues:                                                                |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|Research and license revenue                                             |  | $                           | 2,473   |      |                                  | $ | 1,788  |                      |  | $    | 6,792  |   |      | $ | 4,765  |   |  | $ | 5,777  |   |  | $ | 4,264  |  
|Grant revenue                                                            |  |                             | 104     |      |                                  |   | 108    |                      |  |      | 181    |   |      |   | 467    |   |  |   | 655    |   |  |   | 179    |  
|                                                                         |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|Total revenues                                                           |  |                             | 2,577   |      |                                  |   | 1,896  |                      |  |      | 6,973  |   |      |   | 5,232  |   |  |   | 6,432  |   |  |   | 4,443  |  
|                                                                         |  |                             |         |      |                                  |  
|Operating expenses:                                                      |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|Research and development                                                 |  |                             | 11,179  |      |                                  |   | 4,926  |                      |  |      | 6,116  |   |      |   | 3,724  |   |  |   | 4,918  |   |  |   | 4,254  |  
|General and administrative                                               |  |                             | 3,391   |      |                                  |   | 1,530  |                      |  |      | 2,291  |   |      |   | 2,480  |   |  |   | 2,389  |   |  |   | 2,183  |  
|Non-cash stock compensation charges                                      |  |                             | 167     |      |                                  |   | 152    |                      |  |      | 1,106  |   |      |   | 217    |   |  |   | 180    |   |  |   | 404    |  
|                                                                         |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|Total costs and expenses                                                 |  |                             | 14,737  |      |                                  |   | 6,608  |                      |  |      | 9,513  |   |      |   | 6,421  |   |  |   | 7,487  |   |  |   | 6,841  |  
|                                                                         |  |                             |         |      |                                  |  
|Loss from operations                                                     |  |                             | (12,160 | )    |                                  |   | (4,712 | )                    |  |      | (2,540 | ) |      |   | (1,189 | ) |  |   | (1,055 | ) |  |   | (2,398 | )
|                                                                         |  |                             |         |      |                                  |  
|Change in fair value of common stock warrants                            |  |                             | (83     | )    |                                  |   | 498    |                      |  |      | (3,603 | ) |      |   |       |   |  |   |       |   |  |   |       |  
|                                                                         |  |                             |         |      |                                  |  
|Loss before cumulative effect of change in accounting principle          |  |                             | (11,606 | )    |                                  |   | (4,046 | )                    |  |      | (5,994 | ) |      |   | (1,175 | ) |  |   | (983   | ) |  |   | (2,143 | )
|Cumulative effect of change in accounting principle(1)                   |  |                             |        |      |                                  |   |       |                      |  |      |       |   |      |   |       |   |  |   |       |   |  |   | (530   | )
|                                                                         |  |                             |         |      |                                  |  
|Net loss applicable to common stock                                      |  |                             | (11,606 | )    |                                  |   | (4,046 | )                    |  |      | (5,994 | ) |      |   | (1,175 | ) |  |   | (983   | ) |  |   | (2,663 | )
|                                                                         |  |                             |         |      |                                  |  
|Basic and diluted net loss per share                                     |  |                             | (0.36   | )    |                                  |   | (0.14  | )                    |  |      | (0.26  | ) |      |   | (0.07  | ) |  |   | (0.06  | ) |  |   | (0.16  | )
|Shares used in basic and diluted calculation                             |  |                             | 32,665  |      |                                  |   | 28,355 |                      |  |      | 23,182 |   |      |   | 16,868 |   |  |   | 16,712 |   |  |   | 16,603 |  
|                                                                         |  |                             |         |      |                                  |  
|BALANCE SHEET DATA                                                       |  |                             |         |      |                                  |   |        |                      |  |      |        |   |      |   |        |   |  |   |        |   |  |   |        |  
|Cash and equivalents                                                     |  | $                           | 2,063   |      |                                  | $ | 9,157  |                      |  | $    | 9,977  |   |      | $ | 1,125  |   |  | $ | 1,849  |   |  | $ | 4,558  |  
|Marketable securities                                                    |  |                             | 15,198  |      |                                  |   | 18,839 |                      |  |      | 12,211 |   |      |   |       |   |  |   |       |   |  |   |       |  
|Working capital                                                          |  |                             | 14,710  |      |                                  |   | 26,070 |                      |  |      | 20,567 |   |      |   | (1,505 | ) |  |   | (349   | ) |  |   | 1,984  |  
|Total assets                                                             |  |                             | 17,989  |      |                                  |   | 29,912 |                      |  |      | 22,891 |   |      |   | 2,179  |   |  |   | 2,981  |   |  |   | 5,540  |  
|Unearned revenue, net of current portion , and other long-term liability |  |                             | 50      |      |                                  |   | 23     |                      |  |      | 381    |   |      |   | 247    |   |  |   | 727    |   |  |   | 2,394  |  
|Common stock warrants                                                    |  |                             |        |      |                                  |   | 3,958  |                      |  |      |       |   |      |   |       |   |  |   |       |   |  |   |       |  
|Total stockholders equity (deficit)                                     |  |                             | 15,132  |      |                                  |   | 23,647 |                      |  |      | 20,489 |   |      |   | (1,420 | ) |  |   | (592   | ) |  |   | 120    |  

---

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



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

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

Critical Accounting Policies and Management Estimates

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

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

Revenue Recognition

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

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

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

Employee Stock Options and Stock-Based Compensation

As permitted under Statement of Financial Accounting Standards No. 123 (SFAS 123), we have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), in accounting for our employee stock options, given that the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options.
According to APB 25, no compensation expense is recognized since the exercise price of our stock options generally equals the market price of the underlying stock on the date of grant. Adoption of SFAS 123 for options issued to employees would
require recognition of employee compensation expense based on the computed fair value of the options on the date of grant. In accordance with SFAS 123 and EITF Issue 96-18, Accounting for Equity



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

In
December 2004, the Financial Accounting Standards Board issued Statement No. 123(R), Share Based Payment, which is a revision of SFAS 123 and supersedes APB 25. Statement No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

As
required, we will adopt Statement No. 123(R) during our quarter ending March 31, 2006. Under Statement No. 123(R), we may either recognize compensation cost for share-based payments to employees based on the grant-date fair value from
the beginning of the period in which the provisions are first applied, without restating periods prior to adoption, or we may elect to restate prior periods by recognizing compensation costs in the amounts previously reported in our pro-forma
footnote disclosures under the provisions of SFAS 123. We anticipate that we will adopt Statement No. 123(R) prospectively, without restating prior periods.

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

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

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

Results of Operations

General

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

The agreements with Servier, as amended to date, include a nonrefundable
up-front fee of $5,000,000 and research support payments of $2,025,000 per year through early December 2006 (subject to us providing agreed-upon levels of research personnel). The amount of research support is subject to annual adjustment based upon
the increase in the U.S. Department of Labors Consumer Price Index. Currently, we receive research support of approximately $2,298,000 per year. The agreement also includes potential milestone payments, plus royalty payments on sales in
licensed territories. Both we and Servier have the right to terminate the research collaboration agreement, and the research support, on an annual basis upon six months prior notice, with the next applicable termination date being December 7, 2006.
We are currently in discussions with Servier regarding the termination of the research collaboration agreement.



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

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

The agreement with Organon also includes milestone payments based upon clinical development, plus royalty payments on worldwide sales. Through December 31, 2005, we have received milestone payments totaling
$6,000,000 under the agreement with Organon.

From inception (February 10, 1987) through December 31, 2005, we sustained losses
approximating $63,700,000. Due to projected fluctuations in funding, continuing losses are likely over the next several years, as our ongoing operating expenses will only be offset, if at all, by research support payments and possible milestone
payments from our research collaborations with Servier and Organon, or under planned strategic alliances that we are seeking with other pharmaceutical companies for the clinical development, manufacturing and marketing of our products. The nature
and timing of payments to us under the Servier and Organon agreements or other planned strategic alliances, if and when entered into, are likely to significantly affect our operations and financing activities and to produce substantial
period-to-period fluctuations in reported financial results. Over the longer term, we will require successful commercial development of our products by Servier, Organon, or our other prospective partners to attain sustained profitable operations
from royalties or other product-based revenues.

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

Years ended December 31, 2005 and 2004 (unaudited)

For the fiscal year ended December 31, 2005, our net loss of approximately $11,606,000 compared to a net loss of approximately $6,234,000 for the
prior year.

Revenues for the fiscal year ended December 31, 2005 decreased to approximately $2,577,000 from approximately $4,275,000,
or by 40%, from the prior year mostly due to the end of scheduled research support under the October 2002 amendment to the agreement with Servier. Under that amendment, we received $1,500,000 during the prior year. We continue to receive
approximately $2,298,000 of annual research revenues under our October 2000 collaborative research agreement with Servier, as amended to date.

Research and development expenses for the fiscal year ended December 31, 2005 increased to approximately $11,179,000 from approximately $8,173,000, or by 37%, compared to the corresponding prior year period. Most of the increase
reflects expenses incurred for preclinical and clinical development of the AMPAKINE compounds, including AMPAKINE CX717, which entered three Phase IIa clinical trials during 2005: in adult patients with Attention
Deficit Hyperactivity Disorder, in patients with mild to moderate Alzheimers disease and in patients subjected to shift work schedules with minimal recovery sleep times. Expenses for the fiscal year ended December 31, 2005 also include
costs for additions to our research staff and an increase in sponsored research at academic laboratories.

General and administrative
expenses for the fiscal year ended December 31, 2005 increased to approximately $3,391,000 from approximately $2,666,000, or by 27%, from the prior year period. Most of the increased expenses reflect fees related to preparing for our assessment
of our internal control system as of December 31, 2005, as required by The Sarbanes-Oxley Act of 2002.



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Net interest income increased in fiscal year 2005 due to an increase in cash available for investing
following our net proceeds of approximately $10,400,000 from the private placement of our common stock and warrants to purchase shares of common stock in December 2004.

Other expenses for the years ended December 31, 2005 and 2004 represent non-cash charges for the change in estimated value of warrants issued in connection with our private equity financings in December and
January 2004, respectively, as explained more fully in Note 3 to the Financial Statements.

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

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

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

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

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

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

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



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

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

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

Fiscal Years ended June 30, 2004 and
2003

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

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

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

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

Non-cash stock compensation charges increased from approximately $217,000 for the year ended June 30, 2003 to approximately $1,106,000 for the year
ended June 30, 2004 with the increase primarily reflecting the estimated fair value for the vesting of warrants issued earlier with a professional services agreement.

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

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



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Liquidity and Capital Resources

Under the agreement signed with Servier in October 2000, as amended to date, we receive research support of approximately $2,298,000 per year through early December 2006. The agreement also includes milestone payments
based upon successful clinical development and royalties on sales in licensed territories. Under the terms of the agreement with Organon, we may receive additional milestone payments based on clinical development of the licensed technology and
ultimately, royalties on worldwide sales.

In August 2003, we completed a private placement of an aggregate of 3,333,334 shares of our
common stock at $1.50 per share and five-year warrants to purchase up to an additional aggregate of 3,333,334 shares at an exercise price of $2.55 per share. We received approximately $4,496,000 in net proceeds from the private placement. The
warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $6.00 per share for any thirteen consecutive trading day period. In January 2004, we received proceeds of approximately $870,000 from
the exercise of warrants issued in connection with this private placement. In February 2006, we received another $850,000 of proceeds from the exercise of related warrants. If the remaining warrants are fully exercised, of which there can be no
assurance, these warrants would provide approximately $6,780,000 of additional capital.

In January 2004, we completed a private placement
of an aggregate of 6,909,091 shares of our common stock at $2.75 per share and five-year warrants to purchase up to an additional aggregate of 4,490,910 shares at an exercise price of $3.25 per share. We received approximately $17,500,000 in net
proceeds from the private placement. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $7.50 per share for any 13 consecutive trading day period. If the warrants are fully
exercised, of which there can be no assurance, these warrants would provide approximately $14,600,000 of additional capital.

In December
2004, we completed a private placement of an aggregate of 4,233,333 shares of our common stock at $2.66 per share and five-year warrants to purchase up to an additional aggregate of 2,116,666 shares at an exercise price of $3.00 per share. We
received approximately $10,385,000 in net proceeds from the private placement. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $7.50 per share for any 13 consecutive trading day
period. If the warrants are fully exercised, of which there can be no assurance, these warrants would provide approximately $6,350,000 of additional capital.

Cash Proceeds

As of December 31, 2005, we had cash, cash equivalents and marketable securities totaling $17,261,000
and working capital of approximately $14,710,000. As of December 31, 2004, we had cash, cash equivalents and marketable securities of approximately $27,996,000 and working capital of approximately $26,070,000. The decreases in cash and working
capital reflect amounts required to fund operations, including our clinical development of the AMPAKINE technology.

Net
cash used in operating activities was approximately $10,435,000 during the year ended December 31, 2005, and included our net loss for the period of approximately $11,606,000, adjusted for non-cash stock compensation credits (including the
change in fair value of common stock warrants) of $231,000, depreciation and amortization charges aggregating approximately $126,000, and changes in operating assets and liabilities. For the year ended December 31, 2004, net cash used in
operating activities approximated $5,745,000, reflecting our net loss of approximately $6,234,000 for the period, adjusted for non-cash credits for stock compensation (including the change in fair value of common stock warrants) of approximately
$140,000, depreciation and amortization charges aggregating approximately $230,000, and changes in operating assets and liabilities.



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Net cash provided by investing activities approximated $3,324,000 during the year ended December 31,
2005, and primarily resulted from the maturity and sale of short-term investments of approximately $22,928,000, partially offset by the purchase of marketable securities and fixed assets of $19,422,000 and $182,000, respectively. For the year ended
December 31, 2004, net cash used in investing activities approximated $18,870,000, and mostly included $29,210,000 for the purchase of short-term investments, offset by the maturity of short-term investments of $10,600,000. Fixed asset
purchases for the period amounted to approximately $260,000.

Net cash provided by financing activities was minimal for the year ended
December 31, 2005 and resulted from the exercise of options to purchase shares of our common stock. For the year ended December 31, 2004, net cash provided by financing activities totaled approximately $28,925,000, reflecting net proceeds
of approximately $27,808,000 from our private placements of common stock and warrants to purchase common stock, along with proceeds of approximately $1,117,000 from the exercise of options and warrants to purchase common stock.

Commitments

We lease approximately 32,000 square
feet of research laboratory, office and expansion space under an operating lease that expires May 31, 2009. The commitments under the lease agreement for the years ending December 31, 2006, 2007, 2008 and 2009 are approximately $497,000,
$517,000, $536,000 and $227,000, respectively. From inception (February 10, 1987) through December 31, 2005, expenditures for furniture, equipment and leasehold improvements aggregated approximately $3,059,000.

We are committed to approximately $667,000 for sponsored research to academic and other external institutions over the next twelve months. Commitments
for preclinical and clinical development expenses approximate $2,764,000, all of which is payable within the next twelve months.

In June
2000, we received $247,300 from the Institute for the Study of Aging (the Institute), a non-profit foundation supported by the Estee Lauder Trust. The advance partially offset our limited costs for our testing in patients with mild
cognitive impairment that we conducted with our partner, Servier. Provided that we comply with the conditions of the funding agreement, including the restricted use of the amounts received, repayment of the advance will not be required unless we
enter an AMPAKINE compound into Phase III clinical trials for Alzheimers disease. Upon such potential clinical trials, repayment would include interest computed at a rate equal to one-half of the prime lending rate. In lieu of
cash, in the event of repayment the Institute may elect to receive the balance of outstanding principal and accrued interest as shares of our common stock. The conversion price for such form of repayment shall initially equal $4.50 per share,
subject to adjustment under certain circumstances.



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The following table sets forth our contractual obligations as of December 31, 2005:



|                                                                      |  |                        |           |                  |   |           |  |           |           |                   |   |         |  |   |        
|--------------------------------------------------------------------- |  | ---------------------- | --------- | ---------------- | - | --------- |  | --------- | --------- | ----------------- | - | ------- |  | - | -------
|Contractual Obligations                                               |  | Payments Due by Period
|                                                                      |  | Total                  |           | Less than 1 Year |   | 1-3 Years |  | 3-5 Years |           | More than 5 Years
|Operating Lease Obligations                                           |  | $                      | 1,777,000 |                  | $ | 497,000   |  | $         | 1,053,000 |                   | $ | 227,000 |  | $ |       
|Other Long-Term Liabilities Reflected on our Balance Sheet under GAAP |  |                        | 50,000    |                  |   | 50,000    |  |           |          |                   |   |        |  |   |       
|Other Contractual Obligations                                         |  |                        | 4,291,000 |                  |   | 3,501,000 |  |           | 140,000   |                   |   | 140,000 |  |   | 510,000
|                                                                      |  |                        |           |                  |   |           |  |           |           |                   |   |         |  |   |        
|Total                                                                 |  | $                      | 6,118,000 |                  | $ | 4,048,000 |  | $         | 1,193,000 |                   | $ | 367,000 |  | $ | 510,000
|                                                                      |  |                        |           |                  |   |           |  |           |           |                   |   |         |  |   |        

Staffing

As of December 31, 2005, we had 22 full-time employees and one part-time employee. We anticipate a modest increase in the number of its full-time employees within the coming year.

Plant and Equipment

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

Outlook

We anticipate that our cash and cash equivalents, marketable securities and scheduled research support payments from our agreements with Servier will be
sufficient to satisfy our capital requirements into 2007. Additional funds will be required to continue operations beyond that time. We may receive additional milestone payments from the Organon and Servier agreements, but there is no assurance that
we will receive such milestone payments within the desired timeframe, or at all. We may also receive funds from the exercise of warrants to purchase shares of our common stock. As of December 31, 2005, warrants to purchase up to approximately
10.5 million shares of our common stock were outstanding. In February 2006, warrants to purchase 333,335 shares of common stock were exercised, resulting in proceeds of approximately $850,000. If the remaining warrants are fully exercised, of
which there can be no assurance, such exercise would provide approximately $30,000,000 of additional capital. See Risk Factors  Risks related to our business We will need additional capital in the future and, if it is not
available on terms acceptable to us, or at all, we may need to scale back our research and development efforts and may be unable to continue our business operations.

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



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engaged in discussions with candidate companies, there is no assurance that an agreement or agreements will arise from
these discussions in a timely manner, or at all, or that revenues that may be generated thereby will offset operating expenses sufficiently to reduce our short and longer-term funding requirements.

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

Our proposed products are in the preclinical or early clinical stage of development and will require significant further research, development, clinical
testing and regulatory clearances. They are subject to the risks of failure inherent in the development of products based on innovative technologies. These risks include the possibilities that any or all of the proposed products will be found to be
ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances; that the proposed products, although effective, will be uneconomical to market; that third parties may now or in the future hold proprietary rights that preclude us
from marketing them; or that third parties will market superior or equivalent products. Accordingly, we are unable to predict whether our research and development activities will result in any commercially viable products or applications. Further,
due to the extended testing and regulatory review process required before marketing clearance can be obtained, we do not expect to be able to commercialize any therapeutic drug for at least five years, either directly or through our prospective
corporate partners or licensees. There can be no assurance that our proposed products will prove to be safe or effective or receive regulatory approvals that are required for commercial sale.

Off-Balance Sheet Arrangements

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Our exposure to interest rate risk arises from financial instruments entered into in the normal course of business. Certain of our financial instruments are fixed rate, short-term investments in government and
corporate notes and bonds, which are available for sale (and have been marked to market in the accompanying financial statements). Changes in interest rates generally affect the fair value of the investments, however, because these financial
instruments are considered available for sale, all such changes are reflected in the financial statements in the period affected. We manage interest rate risk on our investment portfolio by matching scheduled investment maturities with
our cash requirements. As of December 31, 2005, our investment portfolio had a carrying amount of approximately $15,198,000. If market interest rates were to increase immediately and uniformly by 10% from levels as of December 31, 2005,
the resulting decline in the fair value of fixed rate bonds held within our portfolio would not be material to our financial position, results of operations and cash flows.

Our borrowing consists solely of our advance from the Institute, which is subject to potential repayment in the event that we enter an
AMPAKINE compound into Phase III clinical testing as a potential treatment for Alzheimers disease. Potential repayment would include interest accruing at a discount to the prime lending rate. Changes in interest rates generally
affect the fair value of such debt, but, based



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upon historical activity, such changes are not expected to have a material impact on earnings or cash flows. As of
December 31, 2005, the principal and accrued interest of the advance amounted to approximately $286,000.

Item 8. Financial Statements and Supplementary Data

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

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

Not
applicable.

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules
13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

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

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



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Managements Report on Internal Control Over Financial Reporting

Management of Cortex Pharmaceuticals, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Management conducted an assessment of the effectiveness, as of December 31, 2005, of the Companys internal control over financial reporting, based on the framework established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under that framework, management concluded that the Companys internal control over
financial reporting was effective as of December 31, 2005.

Managements assessment of the effectiveness of the Companys
internal control over financial reporting as of December 31, 2005 has been audited by Haskell & White LLP, an independent registered public accounting firm, which also audited the financial statements of the Company included in this
Annual Report on Form 10-K. Haskell & White LLPs attestation report on managements assessment and on the effectiveness of the Companys internal control over financial reporting as of December 31, 2005 appears on page
F-2 of this Annual Report on Form 10-K.



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

February 3, 2006



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Item 9B. Other Information

The Compensation Committee of our Board of Directors amended the annual
salaries of our executive officers. For the year ending December 31, 2006, Roger G. Stoll, Chairman, President and Chief Executive Officer will receive $336,000, James H. Coleman, Senior Vice President, Business Development will receive
$232,000, Harry H. Mansbach, Chief Medical Officer will receive $288,750, Maria S. Messinger, Vice President, Chief Financial Officer and Corporate Secretary will receive $209,000 and Gary A. Rogers, Ph.D., Senior Vice President, Pharmaceutical
Research will receive $226,200.

PART III

Item 10. Directors and Executive Officers of the Registrant

The sections entitled Nominees for
Director, Executive Officers, Other Key Employees, Scientific Consultants, Board Committees  Audit Committee and Compliance with Section 16(a) of the Securities Exchange Act of
1934 included in our Proxy Statement for our 2006 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or before April 30, 2006, are incorporated herein by reference.

Stockholder Recommendations of Board Candidates

In
December 2005, the Board of Directors created a Nominating and Corporate Governance Committee. The members of the Committee as of the date of this Annual Report on Form 10-K are Peter F. Drake, Ph.D. as Chairman, Robert F. Allnutt and John F.
Benedik. As of the date of this Annual Report on Form 10-K, there were no material changes to the procedures by which stockholders may recommend nominees to the Board of Directors as previously disclosed in our proxy statement for our 2005 Annual
Meeting of Stockholders, except for the designation of the Nominating and Corporate Governance Committee (rather than the Board of Directors) as the recipient of any such stockholder nominations c/o Cortex Pharmaceuticals, Inc., 15241 Barranca
Parkway, Irvine, California 92618.

Code of Ethics

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



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Item 11. Executive Compensation

The sections entitled Executive Compensation, Option
Matters, Employment and Consulting Agreements, Compensation Committee Interlocks and Insider Participation and Director Compensation included in our Proxy Statement for our 2006 Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission on or before April 30, 2006, are incorporated herein by reference.

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

The section entitled PRINCIPAL STOCKHOLDERS included in our Proxy Statement for our 2006 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or before April 30, 2006, is incorporated
herein by reference.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information regarding outstanding options, warrants and rights and shares reserved for future issuance under our existing
equity compensation plans as of December 31, 2005. Our only stockholder approved equity compensation plan consists of the 1996 Stock Incentive Plan. We do not have any non-stockholder approved equity compensation plans.



|                                                           |  |                                                                                          |  |                                                                          |      |                                                                                                                                     |          
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | ----------------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                           |  | (a)                                                                                      |  | (b)                                                                      |      | (c)                                                                                                                                
|Plan Category                                              |  | Number of securities tobe issued upon
exerciseof outstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |      | Number of securitiesremaining available forissuance under equitycompensation
plans(excluding securitiesreflected in column (a)) (1)
|Equity compensation plans approved by security holders     |  | 7,544,721                                                                                |  | $                                                                        | 2.05 |                                                                                                                                     | 1,303,816
|Equity compensation plans not approved by security holders |  |                                                                                         |  |                                                                          |     |                                                                                                                                     |         
|Total                                                      |  | 7,544,721                                                                                |  | $                                                                        | 2.05 |                                                                                                                                     | 1,303,816

---

|(1) | Our only equity compensation plan, the 1996 Stock Incentive Plan, provides that on the last day of each of our fiscal years, a number of shares equal to twenty percent (20%) of
the increase in the number of shares of Common Stock outstanding since the last day of the previous fiscal year (except in the case of fiscal year ending June 30, 1997, in which case the added shares of Common Stock shall equal twenty percent
(20%) of the increase in the number of shares of Common Stock outstanding since October 25, 1996) shall be added to the aggregate number of shares authorized for issuance under the 1996 Stock Incentive Plan. The foregoing table takes into
account all adjustments through December 31, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 13. Certain Relationships and Related Transactions

The section entitled Certain
Transactions included in our Proxy Statement for our 2006 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or before April 30, 2006, is incorporated herein by reference.



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##### Table of Contents

Item 14. Principal Accountant Fees and Services

The section entitled RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS included in our Proxy Statement for our 2006 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission on or before April 30, 2006, is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules



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



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

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



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

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



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

See (b) below.



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##### Table of Contents

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



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1           |  | Restated Certificate of Incorporation dated April 11, 1989, as amended by Certificate of Amendment on June 27, 1989, by Certificate of Designation filed April 29, 1991, by
Certificate of Correction filed May 1, 1991, by Certificate of Amendment of Certificate of Designation filed June 13, 1991, by Certificate of Amendment of Certificate of Incorporation filed November 12, 1992, by Certificate of
Amendment of Restated Certificate of Incorporation filed January 11, 1995, by Certificate of Designation filed December 8, 1995, by Certificate of Designation filed October 15, 1996, by Certificate of Designation filed June 4, 1997,
by Certificate of Amendment of Restated Certificate of Incorporation filed December 21, 1998, and by Certificate of Designation filed February 11, 2002, incorporated by reference to the same numbered Exhibit of the Companys Amendment No. 1 to
Registration Statement on Form 8-A, No.001-16467, filed February 15, 2002, as further amended by Certificate of Amendment of Restated Certificate of Incorporation filed December 15, 2003, incorporated by reference to Exhibit 3.3 to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004.
|              | 
|3.2           |  | By-Laws of the Company, as adopted March 4, 1987, and amended on October 8, 1996, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on
Form 10-KSB filed October 15, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|3.4           |  | Certificate of Amendment of Restated Certificate of Incorporation filed March 2, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|4.1           |  | Rights Agreement, dated as of February 8, 2002, between the Company and American Stock Transfer & Trust Company, which includes as Exhibit A thereto a form of Certificate of Designation for
the Series A Junior Participating Preferred Stock, as Exhibit B thereto the Form of Rights Certificate and as Exhibit C thereto a Summary of Terms of Stockholder Rights Plan, incorporated by reference to Exhibit 4.2 to the Companys Amendment
No. 1 to Registration Statement on Form 8-A, No. 001-16467, filed February 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|              | 
|10.2          |  | Consulting Agreement, dated October 30, 1987, between the Company and Carl W. Cotman, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Registration
Statement on Form S-1, No. 33-28284, effective on July 18, 1989.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|              | 
|10.3          |  | Consulting Agreement, dated as October 30, 1987, between the Company and Gary S. Lynch, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Registration
Statement on Form S-1, No. 33-28284, effective on July 18, 1989. *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|              | 
|10.19         |  | License Agreement dated March 27, 1991 between the Company and the Regents of the University of California, incorporated by reference to the same numbered Exhibit to the Companys
Amendment on Form 8 filed November 27, 1991 to the Companys Annual Report on Form 10-KSB filed September 30, 1991. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the
Companys application requesting confidential treatment under Rule 24b-2 under the Securities Exchange Act of 1934).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|              | 
|10.31         |  | License Agreement dated June 25, 1993, as amended May 28, 2003, between the Company and the Regents of the University of California, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|10.44         |  | Lease Agreement, dated January 31, 1994, for the Companys facilities in Irvine, California, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on
Form 10-QSB filed May 16, 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|10.49         |  | Settlement Agreement between the Company and Alkermes, Inc., dated October 5, 1995, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB
filed October 13, 1995. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys Application requesting confidential treatment under Rule 406 of the Securities Act of
1933).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|              | 
|10.60         |  | Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form 10-Q as filed on November 14,
2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|              | 
|10.64         |  | Research and Collaboration and License Agreement between the Company and N.V. Organon, dated January 13, 1999, incorporated by reference to the same numbered Exhibit to the Companys
Quarterly Report on Form 10-QSB as filed on February 16, 1999. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.65         |  | Amendment No. 1 to the Lease Agreement for the Companys facilities in Irvine, California, dated February 1, 1999, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-KSB filed September 28, 1999.                                                                                                                                                                                                                                                    
|              | 
|10.67         |  | Collaborative Research, Joint Clinical Research and Licensing Agreements with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-QSB filed November 14, 2000. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Act of 1934).            
|              | 
|10.69         |  | Employment agreement dated May 17, 2000, between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form 10-QSB
filed February 12, 2001.*                                                                                                                                                                                                                                                                                 
|              | 
|10.70         |  | Severance agreement dated October 26, 2000, between the Company and Maria S. Messinger, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form
10-QSB filed February 12, 2001.*                                                                                                                                                                                                                                                                            
|              | 
|10.71         |  | Employment agreement dated June 5, 1995, between the Company and Gary A. Rogers, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-K
filed October 15, 2002.*                                                                                                                                                                                                                                                                                  
|              | 
|10.73         |  | Amendment dated October 3, 2002 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed October 15, 2002.                                                                                                                                                                                                                                             
|              | 
|10.74         |  | Employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form
10-Q as filed on November 14, 2002.*                                                                                                                                                                                                                                                                     
|              | 
|10.75         |  | Securities Purchase Agreement dated August 21, 2003, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit A
thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed August 22, 2003.                                                                                               
|              | 
|10.76         |  | First Amendment dated April 8, 2003 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit to
the Companys Annual Report on Form 10-K filed September 19, 2003.*                                                                                                                                                                                                                                  
|              | 
|10.77         |  | Amendment dated December 16, 2003 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934).
|              | 
|10.78         |  | Securities Purchase Agreement dated January 7, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit A
thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to Exhibit 10.75 to the Companys Report on Form 8-K filed January 9, 2004.                                                                                                           
|              | 
|10.79         |  | Amendment No. 2 to the Lease Agreement for the Companys facilities in Irvine, California, dated March 9, 2004, incorporated by reference to the same numbered Exhibit to the Companys
Annual Report on Form 10-K filed on September 27, 2004.                                                                                                                                                                                                                                                      
|              | 
|10.80         |  | Form of Incentive/Non-qualified Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                          
|              | 
|10.81         |  | Form of Restricted Stock Award Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys
Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                                        
|              | 
|10.82         |  | Amendment dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                            
|              | 
|10.83         |  | Amendment dated January 1, 2004 to the employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D., incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                                                                                       



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                               
|10.84         |  | Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on
Form 10-Q filed on November 15, 2004.*                                                                                                                                                                      
|              | 
|10.85         |  | Employment letter of agreement dated July 26, 2004 between the Company and Harry H. Mansbach, M.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report
on Form 10-Q filed on November 15, 2004.*                                                                                                                                                                    
|              | 
|10.86         |  | Second Amendment dated November 10, 2004 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit
to the Companys Quarterly Report on Form 10-Q filed on November 15, 2004.*                                                                                                                             
|              | 
|10.87         |  | Securities Purchase Agreement dated December 14, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit
A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed December 20, 2004.
|              | 
|10.88         |  | Form of Notice of Grant of Stock Options and Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered
Exhibit to the Companys Transition Report on Form 10-K filed on March 21, 2005.*                                                                                                                                  
|              | 
|10.89         |  | Stock Ownership Policy for the Companys Directors and Executive Officers as adopted by the Board of Directors on December 16, 2004, incorporated by reference to the same numbered Exhibit
to the Companys Transition Report on Form 10-K filed on March 21, 2005.*                                                                                                                                     
|              | 
|10.90         |  | Third Amendment dated August 13, 2005 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D, incorporated by reference to Exhibit 10.1 to the
Companys Report on Form 8-K filed August 17, 2005.*                                                                                                                                                              
|              | 
|10.91         |  | Cash Bonus Payments for Executive Officers for 2005, incorporated herein by reference to the Companys Form 8-K Current Report filed January 18, 2006.*                                                                                                                                                                                                                                                   
|              | 
|10.92         |  | Employment letter of agreement dated January 9, 2006 between the Company and Mark Varney, Ph.D.*                                                                                                                                                                                                                                                                                                          
|              | 
|21            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|23.1          |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                              
|              | 
|23.2          |  | Consent of Haskell & White LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                            
|              | 
|24            |  | Power of Attorney (see page S-1).                                                                                                                                                                                                                                                                                                                                                                         
|              | 
|31.1          |  | Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                      
|              | 
|31.2          |  | Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                      
|              | 
|32            |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                   

---

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



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##### Table of Contents

Signatures

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



|                     |  |                              |  |                                                
|-------------------- |  | ---------------------------- |  | -----------------------------------------------
|                     |  | CORTEX PHARMACEUTICALS, INC.
|                     |  |                             
|Date: March 15, 2006 |  | By:                          |  | /s/ Roger G. Stoll, Ph.D.                      
|                     |  |                              |  | Roger G. Stoll, Ph.D.                          
|                     |  |                              |  | Chairman, President and Chief Executive Officer

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

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



|                                   |  |                                  |  |               
|---------------------------------- |  | -------------------------------- |  | --------------
|Signature                          |  | Title                            |  | Date          
|                                   |  |                                 
|/s/ Roger G. Stoll, Ph.D.          |  | Chairman of the Board, President |  | March 15, 2006
|Roger G. Stoll, Ph.D.              |  | and Chief Executive Officer      |  |               
|(Principal Executive Officer)      |  |                                  |  |               
|                                   |  |                                 
|/s/ Maria S. Messinger             |  | Vice President, Chief Financial  |  | March 15, 2006
|Maria S. Messinger                 |  | Officer and Secretary            |  |               
|(Principal Financial and           |  |                                  |  |               
|Accounting Officer)                |  |                                  |  |               
|                                   |  |                                 
|/s/ Robert F. Allnutt              |  | Director                         |  | March 15, 2006
|Robert F. Allnutt                  |  |                                  |  |               
|                                   |  |                                 
|/s/ John F. Benedik                |  | Director                         |  | March 15, 2006
|John F. Benedik                    |  |                                  |  |               
|                                   |  |                                 
|/s/ Charles J. Casamento           |  | Director                         |  | March 15, 2006
|Charles J. Casamento               |  |                                  |  |               
|                                   |  |                                 
|/s/ Carl W. Cotman, Ph.D.          |  | Director                         |  | March 15, 2006
|Carl W. Cotman, Ph.D.              |  |                                  |  |               
|                                   |  |                                 
|/s/ Peter F. Drake, Ph.D.          |  | Director                         |  | March 15, 2006
|Peter F. Drake, Ph.D.              |  |                                  |  |               
|                                   |  |                                 
|/s/ M. Ross Johnson, Ph.D.         |  | Director                         |  | March 15, 2006
|M. Ross Johnson, Ph.D.             |  |                                  |  |               
|                                   |  |                                 
|/s/ Gary D. Tollefson, M.D., Ph.D. |  | Director                         |  | March 15, 2006
|Gary D. Tollefson, M.D., Ph.D.     |  |                                  |  |               



S - 1



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##### Table of Contents

Index to Financial Statements



|                                                                                                                                                                                          |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                          |  | Page
|Reports of Independent Registered Public Accounting Firms                                                                                                                                 |  | F-2 
|                                                                                                                                                                                          | 
|Balance Sheets  As of December 31, 2005 and December 31, 2004                                                                                                                            |  | F-4 
|                                                                                                                                                                                          | 
|Statements of Operations  For the year ended December 31, 2005 and 2004 (unaudited), six months ended December 31, 2004 and 2003 (unaudited) and the years ended June 30, 2004 and 2003  |  | F-5 
|                                                                                                                                                                                         
|                                                                                                                                                                                          | 
|Statements of Stockholders Equity (Deficit)  For the period from June 30, 2002 through December 31, 2005                                                                                |  | F-6 
|                                                                                                                                                                                          | 
|Statements of Cash Flows  For the years ended December 31, 2005 and 2004 (unaudited), six months ended December 31, 2004 and 2003 (unaudited) and the years ended June 30, 2004 and 2003 |  | F-8 
|                                                                                                                                                                                          | 
|Notes to Financial Statements                                                                                                                                                             |  | F-9 



F-1



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Cortex Pharmaceuticals, Inc.

We have audited the accompanying balance
sheets of Cortex Pharmaceuticals, Inc. (the Company) as of December 31, 2005 and 2004 and the related statements of operations, stockholders equity (deficit) and cash flows for the year ended December 31, 2005 and six
months ended December 31, 2004. We have also audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that Cortex Pharmaceuticals, Inc. maintained effective
control over financial reporting as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Cortex Pharmaceuticals, Inc.s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on these financial statements, an opinion on managements assessment, and an opinion on the effectiveness of the Companys internal control over financial reporting based on our
audits.

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

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

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cortex Pharmaceuticals, Inc. as of
December 31, 2005 and 2004, and the results of its operations and its cash flows for the twelve months ended December 31, 2005 and six months ended December 31, 2004 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, managements assessment that Cortex Pharmaceuticals, Inc. maintained effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects,
based on criteria established in Internal ControlIntegrated Framework issued by the COSO. Furthermore, in our opinion, Cortex Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the COSO.



/s/ Haskell & White LLP


Irvine, California

February 3, 2006



F-2



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors

Cortex Pharmaceuticals,
Inc.

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

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

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



/s/ Ernst & Young LLP


San Diego, California

July 27, 2004



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

BALANCE SHEETS



|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                                                                                                                     |  | December 31, 2005 |             |   | December 31, 2004 |  
|Assets                                                                                                                                                                                                               |  |                   |             |   |                   |   |             |  
|                                                                                                                                                                                                                     |  |                  
|Current assets:                                                                                                                                                                                                      |  |                   |             |   |                   |   |             |  
|Cash and cash equivalents                                                                                                                                                                                            |  | $                 | 2,062,531   |   |                   | $ | 9,157,315   |  
|Marketable securities                                                                                                                                                                                                |  |                   | 15,198,384  |   |                   |   | 18,838,601  |  
|Accounts receivable                                                                                                                                                                                                  |  |                   | 14,926      |   |                   |   | 41,738      |  
|Other current assets                                                                                                                                                                                                 |  |                   | 240,535     |   |                   |   | 317,850     |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|Total current assets                                                                                                                                                                                                 |  |                   | 17,516,376  |   |                   |   | 28,355,504  |  
|                                                                                                                                                                                                                     |  |                  
|Furniture, equipment and leasehold improvements, net                                                                                                                                                                 |  |                   | 438,841     |   |                   |   | 387,818     |  
|Capitalized financing costs                                                                                                                                                                                          |  |                   |            |   |                   |   | 1,135,724   |  
|Other                                                                                                                                                                                                                |  |                   | 33,407      |   |                   |   | 33,407      |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|                                                                                                                                                                                                                     |  | $                 | 17,988,624  |   |                   | $ | 29,912,453  |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|Liabilities and Stockholders Equity                                                                                                                                                                                 |  |                   |             |   |                   |   |             |  
|                                                                                                                                                                                                                     |  |                  
|Current liabilities:                                                                                                                                                                                                 |  |                   |             |   |                   |   |             |  
|Accounts payable                                                                                                                                                                                                     |  | $                 | 1,851,906   |   |                   | $ | 1,365,604   |  
|Accrued wages, salaries and related expenses                                                                                                                                                                         |  |                   | 543,243     |   |                   |   | 263,959     |  
|Unearned licensing revenue                                                                                                                                                                                           |  |                   | 125,841     |   |                   |   | 377,524     |  
|Advance for MCI project                                                                                                                                                                                              |  |                   | 285,630     |   |                   |   | 277,978     |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|Total current liabilities                                                                                                                                                                                            |  |                   | 2,806,620   |   |                   |   | 2,285,065   |  
|                                                                                                                                                                                                                     |  |                  
|Other non-current liability                                                                                                                                                                                          |  |                   | 49,988      |   |                   |   | 22,576      |  
|                                                                                                                                                                                                                     |  |                  
|Common stock warrants                                                                                                                                                                                                |  |                   |            |   |                   |   | 3,958,165   |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|Total liabilities                                                                                                                                                                                                    |  |                   | 2,856,608   |   |                   |   | 6,265,806   |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|Commitments and Contingencies (Note 7)                                                                                                                                                                               |  |                   |            |   |                   |   |            |  
|                                                                                                                                                                                                                     |  |                  
|Stockholders equity (deficit):                                                                                                                                                                                      |  |                   |             |   |                   |   |             |  
|Series B convertible preferred stock, $0.001 par value; $0.6667 per share liquidation preference; shares authorized: 3,200,000; shares issued
and outstanding: 37,500; common shares issuable upon conversion: 3,679 |  |                   | 21,703      |   |                   |   | 21,703      |  
|Common stock, $0.001 par value; shares authorized: 75,000,000; shares issued and outstanding: 32,794,958 (December 31, 2005) and 32,688,636
(December 31, 2004)                                                      |  |                   | 32,795      |   |                   |   | 32,688      |  
|Additional paid-in capital                                                                                                                                                                                           |  |                   | 81,000,213  |   |                   |   | 77,964,857  |  
|Deferred compensation                                                                                                                                                                                                |  |                   | (142,000    | ) |                   |   | (195,250    | )
|Unrealized loss, available for sale marketable securities                                                                                                                                                            |  |                   | (45,735     | ) |                   |   | (48,116     | )
|Accumulated deficit                                                                                                                                                                                                  |  |                   | (65,734,960 | ) |                   |   | (54,129,235 | )
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|Total stockholders equity                                                                                                                                                                                           |  |                   | 15,132,016  |   |                   |   | 23,646,647  |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  
|                                                                                                                                                                                                                     |  | $                 | 17,988,624  |   |                   | $ | 29,912,453  |  
|                                                                                                                                                                                                                     |  |                   |             |   |                   |   |             |  

See accompanying notes.



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF OPERATIONS



|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | ------------------------------------- | - | ---------- | -------------------------------- |  | - | ------------------------------------------- | - |  | ----------------------- | ---------- | - | ----------------------- | - | ---------- | - |  | - | ---------- | -
|                                                                                |  | Year endedDecember 31,2005 |             |   | Year endedDecember 31,2004(Unaudited) |   |            | Six Months endedDecember 31,2004 |  |   | Six Months endedDecember 31,2003(Unaudited) |   |  | Year endedJune 30, 2004 |            |   | Year endedJune 30, 2003 |  
|Revenues:                                                                       |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Research and license revenue                                                    |  | $                          | 2,473,747   |   |                                       | $ | 4,075,492  |                                  |  | $ | 1,787,747                                   |   |  | $                       | 4,503,667  |   |                         | $ | 6,791,412  |   |  | $ | 4,765,048  |  
|Grant revenue                                                                   |  |                            | 103,723     |   |                                       |   | 199,701    |                                  |  |   | 107,940                                     |   |  |                         | 89,708     |   |                         |   | 181,469    |   |  |   | 466,902    |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Total revenues                                                                  |  |                            | 2,577,470   |   |                                       |   | 4,275,193  |                                  |  |   | 1,895,687                                   |   |  |                         | 4,593,375  |   |                         |   | 6,972,881  |   |  |   | 5,231,950  |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Operating expenses:                                                             |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Research and development                                                        |  |                            | 11,178,525  |   |                                       |   | 8,172,809  |                                  |  |   | 4,925,607                                   |   |  |                         | 2,869,073  |   |                         |   | 6,116,275  |   |  |   | 3,724,459  |  
|General and administrative                                                      |  |                            | 3,391,430   |   |                                       |   | 2,665,707  |                                  |  |   | 1,529,946                                   |   |  |                         | 1,155,224  |   |                         |   | 2,290,985  |   |  |   | 2,479,528  |  
|Non-cash stock compensation charges (A)                                         |  |                            | 167,622     |   |                                       |   | 368,452    |                                  |  |   | 152,178                                     |   |  |                         | 889,369    |   |                         |   | 1,105,643  |   |  |   | 217,347    |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Total operating expenses                                                        |  |                            | 14,737,577  |   |                                       |   | 11,206,968 |                                  |  |   | 6,607,731                                   |   |  |                         | 4,913,666  |   |                         |   | 9,512,903  |   |  |   | 6,421,334  |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Loss from operations                                                            |  |                            | (12,160,107 | ) |                                       |   | (6,931,775 | )                                |  |   | (4,712,044                                  | ) |  |                         | (320,291   | ) |                         |   | (2,540,022 | ) |  |   | (1,189,384 | )
|Interest income, net                                                            |  |                            | 637,373     |   |                                       |   | 303,311    |                                  |  |   | 167,346                                     |   |  |                         | 13,006     |   |                         |   | 148,971    |   |  |   | 14,511     |  
|Change in fair value of common stock warrants                                   |  |                            | (82,991     | ) |                                       |   | 394,526    |                                  |  |   | 498,456                                     |   |  |                         | (3,498,909 | ) |                         |   | (3,602,839 | ) |  |   |           |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Net loss applicable to common stock                                             |  | $                          | (11,605,725 | ) |                                       | $ | (6,233,938 | )                                |  | $ | (4,046,242                                  | ) |  | $                       | (3,806,194 | ) |                         | $ | (5,993,890 | ) |  | $ | (1,174,873 | )
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Net loss per share, basic and diluted                                           |  | $                          | (0.36       | ) |                                       | $ | (0.23      | )                                |  | $ | (0.14                                       | ) |  | $                       | (0.20      | ) |                         | $ | (0.26      | ) |  | $ | (0.07      | )
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Shares used in basic and diluted calculation                                    |  |                            | 32,665,016  |   |                                       |   | 27,644,032 |                                  |  |   | 28,355,202                                  |   |  |                         | 19,480,020 |   |                         |   | 23,182,179 |   |  |   | 16,868,310 |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|(A) Non-cash stock compensation charges include the following related expenses: | 
|Research and development                                                        |  | $                          | 182,572     |   |                                       | $ | 213,327    |                                  |  | $ | 84,533                                      |   |  | $                       | 60,164     |   |                         | $ | 188,958    |   |  | $ | 76,842     |  
|General and administrative                                                      |  |                            | (14,950     | ) |                                       |   | 155,125    |                                  |  |   | 67,645                                      |   |  |                         | 829,205    |   |                         |   | 916,685    |   |  |   | 140,505    |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|                                                                                |  | $                          | 167,622     |   |                                       | $ | 368,452    |                                  |  | $ | 152,178                                     |   |  | $                       | 889,369    |   |                         | $ | 1,105,643  |   |  | $ | 217,347    |  
|                                                                                |  |                            |             |   |                                       |   |            |                                  |  |   |                                             |   |  |                         |            |   |                         |   |            |   |  |   |            |  

See accompanying notes.



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)



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

Continued



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(Continued)



|                                                                                                                  |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | ----------- | - | ------------------------- |  | - | -------------------- | - |  | --------------------------------- | -------- | - | ------------------ | - | ------- | ----- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                                  |  | Series Bconvertiblepreferredstock |        | Commonstock |   | Additionalpaid-in capital |  |   | Deferredcompensation |   |  | AccumulatedOtherComprehensiveLoss |          |   | Accumulateddeficit |   |         | Total | 
|Balance, June 30, 2004                                                                                            |  | $                                 | 21,703 |             | $ | 28,354                    |  | $ | 70,557,574           |   |  | $                                 |         |   |                    | $ | (35,670 | )     |  | $ | (50,082,993 | ) |  | $ | 20,488,968  |  
|                                                                                                                  |  |                                   |        |             |   |                           | 
|Sale of 4,233,333 shares of common stock, $2.66 per share, net of estimated value of warrants issued to investors |  |                                   |       |             |   | 4,233                     |  |   | 6,790,265            |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 6,794,498   |  
|Issuance of 313 shares of common stock upon exercise of stock options                                             |  |                                   |       |             |   | 1                         |  |   | 256                  |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 257         |  
|Issuance of 100,000 shares of restricted stock in connection with an employment agreement                         |  |                                   |       |             |   | 100                       |  |   | 212,900              |   |  |                                   | (213,000 | ) |                    |   |        |       |  |   |            |   |  |   |            |  
|Issuance and vesting of stock options and warrants for consultants and other service providers                    |  |                                   |       |             |   |                          |  |   | 384,188              |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 384,188     |  
|Amortization of deferred compensation for issued restricted stock                                                 |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   | 17,750   |   |                    |   |        |       |  |   |            |   |  |   | 17,750      |  
|Non-cash compensation charges for stock options re-priced in 1998                                                 |  |                                   |       |             |   |                          |  |   | 19,674               |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 19,674      |  
|Comprehensive loss                                                                                                |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Net loss                                                                                                          |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   |         |   |                    |   |        |       |  |   | (4,046,242  | ) |  |   | (4,046,242  | )
|Unrealized loss on available for sale U.S. Government and other marketable securities                             |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   |         |   |                    |   | (12,446 | )     |  |   |            |   |  |   | (12,446     | )
|                                                                                                                  |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Comprehensive loss                                                                                                |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   |         |   |                    |   | (12,446 | )     |  |   | (4,046,242  | ) |  |   | (4,058,688  | )
|                                                                                                                  |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Balance, December 31, 2004                                                                                        |  |                                   | 21,703 |             |   | 32,688                    |  |   | 77,964,857           |   |  |                                   | (195,250 | ) |                    |   | (48,116 | )     |  |   | (54,129,235 | ) |  |   | 23,646,647  |  
|                                                                                                                  |  |                                   |        |             |   |                           | 
|Issuance of 106,322 shares of common stock upon exercise of stock options                                         |  |                                   |       |             |   | 107                       |  |   | 39,763               |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 39,870      |  
|Issuance and vesting of stock options and warrants for consultants and other service providers                    |  |                                   |       |             |   |                          |  |   | 161,617              |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 161,617     |  
|Amortization of deferred compensation for issued restricted stock                                                 |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   | 53,250   |   |                    |   |        |       |  |   |            |   |  |   | 53,250      |  
|Non-cash compensation charges for options re-priced in 1998                                                       |  |                                   |       |             |   |                          |  |   | (47,245              | ) |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | (47,245     | )
|Change in value of warrants issued with sales of common stock in December 2004                                    |  |                                   |       |             |   |                          |  |   | 63,500               |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 63,500      |  
|Amortization of capitalized financing costs for sales of common stock in December 2004                            |  |                                   |       |             |   |                          |  |   | 19,491               |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 19,491      |  
|Reclassification of estimated value of warrants issued with sales of common stock in December 2004                |  |                                   |       |             |   |                          |  |   | 3,958,165            |   |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | 3,958,165   |  
|Reclassification of unamortized capitalized financing costs for sales of common stock in December 2004            |  |                                   |       |             |   |                          |  |   | (1,159,935           | ) |  |                                   |         |   |                    |   |        |       |  |   |            |   |  |   | (1,159,935  | )
|Comprehensive loss                                                                                                |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Net loss                                                                                                          |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   |         |   |                    |   |        |       |  |   | (11,605,725 | ) |  |   | (11,605,725 | )
|Unrealized gain on available for sale U.S. Government and other marketable securities                             |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   |         |   |                    |   | 2,381   |       |  |   |            |   |  |   | 2,381       |  
|                                                                                                                  |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Comprehensive loss                                                                                                |  |                                   |       |             |   |                          |  |   |                     |   |  |                                   |         |   |                    |   | 2,381   |       |  |   | (11,605,725 | ) |  |   | (11,603,344 | )
|                                                                                                                  |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  
|Balance, December 31, 2005                                                                                        |  | $                                 | 21,703 |             | $ | 32,795                    |  | $ | 81,000,213           |   |  | $                                 | (142,000 | ) |                    | $ | (45,735 | )     |  | $ | (65,734,960 | ) |  | $ | 15,132,016  |  
|                                                                                                                  |  |                                   |        |             |   |                           |  |   |                      |   |  |                                   |          |   |                    |   |         |       |  |   |             |   |  |   |             |  

See accompanying notes.



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

STATEMENTS OF CASH FLOWS



|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|------------------------------------------------------------------------------ |  | -------------------------- | ----------- | - | ------------------------------------- | - | ----------- | ------------------------------- |  | - | ------------------------------------------ | - |  | ----------------------- | ---------- | - | ----------------------- | - | ----------- | - |  | - | ---------- | -
|                                                                               |  | Year endedDecember 31,2005 |             |   | Year endedDecember 31,2004(Unaudited) |   |             | Six monthsendedDecember 31,2004 |  |   | Six monthsendedDecember 31,2003(Unaudited) |   |  | Year endedJune 30, 2004 |            |   | Year endedJune 30, 2003 |  
|Cash flows from operating activities:                                          |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Net loss applicable to common stock                                            |  | $                          | (11,605,725 | ) |                                       | $ | (6,233,938  | )                               |  | $ | (4,046,242                                 | ) |  | $                       | (3,806,194 | ) |                         | $ | (5,993,890  | ) |  | $ | (1,174,873 | )
|Adjustments to reconcile net loss to net cash used in operating activities:    |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Depreciation and amortization                                                  |  |                            | 106,484     |   |                                       |   | 116,092     |                                 |  |   | 55,768                                     |   |  |                         | 59,424     |   |                         |   | 119,748     |   |  |   | 155,846    |  
|Stock option compensation expense                                              |  |                            | 167,622     |   |                                       |   | 368,452     |                                 |  |   | 152,178                                    |   |  |                         | 889,369    |   |                         |   | 1,105,643   |   |  |   | 217,347    |  
|Amortization of capitalized financing costs                                    |  |                            | 19,491      |   |                                       |   | 113,474     |                                 |  |   | 9,544                                      |   |  |                         | 32,241     |   |                         |   | 136,171     |   |  |   |           |  
|Change in fair value of common stock warrants                                  |  |                            | 63,500      |   |                                       |   | (508,000    | )                               |  |   | (508,000                                   | ) |  |                         | 3,466,668  |   |                         |   | 3,466,668   |   |  |   |           |  
|Loss on impairment of fixed assets                                             |  |                            | 18,049      |   |                                       |   |            |                                 |  |   |                                           |   |  |                         |           |   |                         |   |            |   |  |   |           |  
|Changes in operating assets/liabilities:                                       |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Restricted cash                                                                |  |                            |            |   |                                       |   | 2,713       |                                 |  |   |                                           |   |  |                         | 80,698     |   |                         |   | 83,411      |   |  |   | 97,475     |  
|Accrued interest on marketable securities                                      |  |                            | 137,374     |   |                                       |   | 123,457     |                                 |  |   | 101,946                                    |   |  |                         |           |   |                         |   | 21,511      |   |  |   |           |  
|Accounts receivable                                                            |  |                            | 26,812      |   |                                       |   | 636,102     |                                 |  |   | 90,789                                     |   |  |                         | (249,389   | ) |                         |   | 295,924     |   |  |   | (312,979   | )
|Other current assets                                                           |  |                            | 77,315      |   |                                       |   | 641         |                                 |  |   | (49,585                                    | ) |  |                         | (107,952   | ) |                         |   | (57,726     | ) |  |   | 140,333    |  
|Accounts payable and accrued expenses                                          |  |                            | 765,586     |   |                                       |   | 15,427      |                                 |  |   | 89,412                                     |   |  |                         | 549,083    |   |                         |   | 475,098     |   |  |   | 671,149    |  
|Unearned revenue                                                               |  |                            | (224,271    | ) |                                       |   | (389,267    | )                               |  |   | (186,571                                   | ) |  |                         | (1,474,918 | ) |                         |   | (1,677,614  | ) |  |   | (649,659   | )
|Changes in other assets and other liabilities                                  |  |                            | 12,868      |   |                                       |   | 9,651       |                                 |  |   | 7,732                                      |   |  |                         | 3,053      |   |                         |   | 4,972       |   |  |   | 5,468      |  
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Net cash used in operating activities                                          |  |                            | (10,434,895 | ) |                                       |   | (5,745,196  | )                               |  |   | (4,283,029                                 | ) |  |                         | (557,917   | ) |                         |   | (2,020,084  | ) |  |   | (849,893   | )
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Cash flows from investing activities:                                          |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Purchase of marketable securities                                              |  |                            | (19,421,417 | ) |                                       |   | (29,210,174 | )                               |  |   | (14,342,439                                | ) |  |                         | (600,000   | ) |                         |   | (15,467,735 | ) |  |   |           |  
|Proceeds from maturities of marketable securities                              |  |                            | 22,927,846  |   |                                       |   | 10,600,000  |                                 |  |   | 7,600,000                                  |   |  |                         | 200,000    |   |                         |   | 3,200,000   |   |  |   |           |  
|Purchase of fixed assets                                                       |  |                            | (181,977    | ) |                                       |   | (260,044    | )                               |  |   | (179,260                                   | ) |  |                         | (9,888     | ) |                         |   | (90,672     | ) |  |   | (2,834     | )
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Net cash provided by (used in) investing activities                            |  |                            | 3,324,452   |   |                                       |   | (18,870,218 | )                               |  |   | (6,921,699                                 | ) |  |                         | (409,888   | ) |                         |   | (12,358,407 | ) |  |   | (2,834     | )
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Cash flows from financing activities:                                          |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Proceeds from issuance of common stock in December 2004 private placement, net |  |                            | (24,211     | ) |                                       |   | 10,384,829  |                                 |  |   | 10,384,829                                 |   |  |                         |           |   |                         |   |            |   |  |   |           |  
|Proceeds from issuance of common stock in January 2004 private placement, net  |  |                            |            |   |                                       |   | 17,462,007  |                                 |  |   |                                           |   |  |                         |           |   |                         |   | 17,462,007  |   |  |   |           |  
|Proceeds from issuance of common stock in August 2003 private placement, net   |  |                            |            |   |                                       |   | (38,419     | )                               |  |   |                                           |   |  |                         | 4,495,729  |   |                         |   | 4,457,310   |   |  |   |           |  
|Proceeds from issuance of common stock upon exercise of warrants               |  |                            |            |   |                                       |   | 984,194     |                                 |  |   |                                           |   |  |                         | 75,180     |   |                         |   | 1,059,374   |   |  |   |           |  
|Proceeds from issuance of common stock upon exercise of stock options          |  |                            | 39,870      |   |                                       |   | 132,843     |                                 |  |   | 257                                        |   |  |                         | 119,117    |   |                         |   | 251,703     |   |  |   | 128,772    |  
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Net cash provided by financing activities                                      |  |                            | 15,659      |   |                                       |   | 28,925,454  |                                 |  |   | 10,385,086                                 |   |  |                         | 4,690,026  |   |                         |   | 23,230,394  |   |  |   | 128,772    |  
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Increase (decrease) in cash and cash equivalents                               |  |                            | (7,094,784  | ) |                                       |   | 4,310,040   |                                 |  |   | (819,642                                   | ) |  |                         | 3,722,221  |   |                         |   | 8,851,903   |   |  |   | (723,955   | )
|Cash and cash equivalents, beginning of period                                 |  |                            | 9,157,315   |   |                                       |   | 4,847,275   |                                 |  |   | 9,976,957                                  |   |  |                         | 1,125,054  |   |                         |   | 1,125,054   |   |  |   | 1,849,009  |  
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  
|Cash and cash equivalents, end of period                                       |  | $                          | 2,062,531   |   |                                       | $ | 9,157,315   |                                 |  | $ | 9,157,315                                  |   |  | $                       | 4,847,275  |   |                         | $ | 9,976,957   |   |  | $ | 1,125,054  |  
|                                                                               |  |                            |             |   |                                       |   |             |                                 |  |   |                                            |   |  |                         |            |   |                         |   |             |   |  |   |            |  

See accompanying notes.



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

NOTES TO FINANCIAL STATEMENTS

(Information for the Year ended December 31, 2004 and Six Months ended December 31, 2003 is unaudited)

Note 1  Business and Summary of Significant Accounting Policies

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

In January 1999, the Company
entered into a research collaboration and exclusive worldwide license agreement with NV Organon (Organon) that will enable Organon to develop and commercialize the Companys AMPAKINE® technology for the treatment
of schizophrenia and depression (Note 5). In October 2000, the Company entered into a research collaboration and exclusive license agreement with Les Laboratoires Servier (Servier). The agreement, as amended to date, will enable Servier
to develop and commercialize the Companys AMPAKINE technology for the treatment of anxiety disorders and memory impairment associated with aging and neurodegenerative diseases, such as Alzheimers disease (Note 4).

From inception through December 31, 2005, the Company has generated only modest operating revenues, the majority of which it derived from its
agreements with Servier and Organon, as further described in Notes 4 and 5, respectively. These agreements contributed 96%, 95%, 94%, 98%, 97% and 91% of total revenues for the years ended December 31, 2005 and 2004, six months ended
December 31, 2004 and 2003 and the years ended June 30, 2004 and 2003, respectively.

Under the agreement with Servier, during the years ended
December 31, 2005 and 2004, six months ended December 31, 2004 and 2003 and years ended June 30, 2004 and 2003 the Company recorded research and licensing revenues of approximately $2,474,000, $4,075,000, $1,788,000, $2,504,000,
$4,791,000 and $4,756,000, respectively. During the same periods, the Company incurred direct and indirect expenses for the Servier research collaboration totaling approximately $2,222,000, $2,164,000, $1,082,000, $1,058,000, $2,139,000 and
$2,098,000, respectively.

Under the agreement with Organon, the Company recorded research and licensing revenues of $2,000,000 for the six months ended
December 31, 2003 and the year ended June 30, 2004. There were no research or license revenues under such agreement for the years ended December 31, 2005 and 2004, six months ended December 31, 2004 or the year ended
June 30, 2003. During the same periods the Company incurred no direct or indirect expenses for the Organon research collaboration.

Cortex anticipates
that it has sufficient capital and committed funding to maintain its operations into early 2007; however, successful completion of the Companys development program and its transition, ultimately, to attaining profitable operations is dependent
upon obtaining additional financing adequate to fulfill its research and development activities, and achieving a level of revenue adequate to support the Companys cost structure. There can be no assurance that the Company will be successful in
these areas. To supplement its existing resources, the Company likely will need to raise additional capital through the sale of debt or equity. There can be no assurance that such capital will be available on favorable terms, or at all; if
additional funds are raised by issuing equity securities, dilution to existing stockholders is likely to result.

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



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##### Table of Contents

Basis of Presentation  As reported on the Companys Current Report on Form 8-K dated November 10,
2004, the Company changed its fiscal year end from June 30 to December 31. As a result, the Company is reporting a six-month transition period ended December 31, 2004 in order to change its fiscal year to match the calendar year.
Unaudited results for the year ended December 31, 2004 and the six-month period ended December 31, 2003 have been included for comparative purposes.

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

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

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

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

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

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

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

The Company records grant revenues as the expenses related to the grant projects are incurred. All amounts received under collaborative research
agreements or research grants are nonrefundable, regardless of the success of the underlying research.

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

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



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##### Table of Contents

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

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

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

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

As permitted under SFAS 123, the Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), in accounting for its employee
stock options, given that the alternative fair value accounting provided for under SFAS 123 requires use of option valuation models that were not developed for use in valuing employee stock options. According to APB 25, no compensation expense is
recognized since the exercise price of the Companys stock options generally equals the market price of the underlying stock on the date of grant. Adoption of SFAS 123 for options issued to employees would require recognition of employee
compensation expense based on the computed fair value of the options on the date of grant. In accordance with SFAS 123 and EITF Issue 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring,
or in Conjunction with Selling Goods and Services, stock options and warrants issued to consultants and other non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of the services
provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period the services are provided.

Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock
plans under the fair value method. The fair value was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions for the years ended December 31, 2005 and 2004, six months ended December 31,
2004 and 2003 and years ended June 30, 2004 and 2003, respectively: weighted average risk-free interest rates of 4.3%, 3.3%, 3.3%, 2.1%, 2.2% and 2.8%; dividend yields of 0%; volatility factors of the expected market price of the Companys
common stock of 82%, 65%, 63%, 106%, 105% and 99%; and a weighted average life of 5.3 years, 4.8 years, 4.8 years, 3.8 years, 3.8 years and 4.0 years.



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##### Table of Contents

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 December 31, 2005 and 2004, six months ended December 31, 2004 and 2003 and the years ended June 30, 2004 and 2003:



|                                                                                                         |  |                            |             |   |                            |   |            |                                 |  |   |                                            |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | - | -------------------------- | - | ---------- | ------------------------------- |  | - | ------------------------------------------ | - |  | ----------------------- | ---------- | - | ----------------------- | - | ---------- | - |  | - | ---------- | -
|                                                                                                         |  | Year endedDecember 31,2005 |             |   | Year endedDecember 31,2004 |   |            | Six monthsendedDecember 31,2004 |  |   | Six monthsendedDecember 31,2003(Unaudited) |   |  | Year endedJune 30, 2004 |            |   | Year endedJune 30, 2003 |  
|Net loss applicable to common stock, as reported                                                         |  | $                          | (11,605,725 | ) |                            | $ | (6,233,938 | )                               |  | $ | (4,046,242                                 | ) |  | $                       | (3,806,194 | ) |                         | $ | (5,993,890 | ) |  | $ | (1,174,873 | )
|Stock-based employee compensation expense included in reported net loss                                  |  |                            | (40,034     | ) |                            |   | 23,274     |                                 |  |   | 16,927                                     |   |  |                         | 30,948     |   |                         |   | 37,295     |   |  |   |           |  
|Total stock-based employee compensation expense determined under fair value based method for all options |  |                            | (1,768,753  | ) |                            |   | (1,287,282 | )                               |  |   | (665,491                                   | ) |  |                         | (1,116,369 | ) |                         |   | (1,857,440 | ) |  |   | (692,366   | )
|                                                                                                         |  |                            |             |   |                            |   |            |                                 |  |   |                                            |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Pro forma net loss applicable to common stockholders                                                     |  | $                          | (13,414,512 | ) |                            | $ | (7,497,946 | )                               |  | $ | (4,694,806                                 | ) |  | $                       | (4,891,615 | ) |                         | $ | (7,814,035 | ) |  | $ | (1,867,239 | )
|                                                                                                         |  |                            |             |   |                            |   |            |                                 |  |   |                                            |   |  |                         |            |   |                         |   |            |   |  |   |            |  
|Basic and diluted net loss per share available to common stockholders, as reported                       |  | $                          | (0.36       | ) |                            | $ | (0.23      | )                               |  | $ | (0.14                                      | ) |  | $                       | (0.20      | ) |                         | $ | (0.26      | ) |  | $ | (0.07      | )
|                                                                                                         |  |                            |             |   |                            |  
|Basic and diluted net loss per share available to common stockholders, pro forma                         |  | $                          | (0.41       | ) |                            | $ | (0.27      | )                               |  | $ | (0.17                                      | ) |  | $                       | (0.25      | ) |                         | $ | (0.34      | ) |  | $ | (0.11      | )

The pro forma effect on net loss shown above is not necessarily indicative of potential pro forma effects on
results for future years. The estimated weighted average fair value of options granted during the years ended December 31, 2005 and 2004, six months ended December 31, 2004 and 2003 and the years ended June 30, 2004 and 2003 was
$1.63, $1.38, $1.38, $1.96, $1.95 and $0.53, respectively.

In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB 25 (FIN 44 or the Interpretation). As required, the Company adopted the Interpretation on July 1, 2000. The
Interpretation requires that stock options that have been modified to reduce the exercise price be accounted for as variable. Prior to release of FIN 44, in December 1998 the Company re-priced previously issued stock options to purchase
approximately 970,000 shares of common stock to a price of $0.375 per share, which represented the fair market value of the common stock on the date of the re-pricing. By adopting the Interpretation, the Company applied variable accounting for these
options until such options were exercised or forfeited.

For the year ended December 31, 2005, applying the Interpretation decreased the net loss by
$47,200, with no impact on net loss per share. For the year ended December 31, 2004, the effect of applying FIN 44 was an increase in the net loss of $28,600, with no impact on net loss per share.

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



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##### Table of Contents

For the fiscal year ended June 30, 2004, applying the Interpretation increased the net loss by $44,000, with no
impact on the net loss per share. For the fiscal year ended June 30, 2003, applying the Interpretation had no impact on the net loss or the net loss per share.

Of the options re-priced in December 1998, as of December 31, 2005 options to purchase 129,597 remained outstanding. The variable accounting treatment for these options under FIN 44 will not be applied beyond
December 31, 2005, when the Company will adopt Statement No. 123(R), Share Based Payment, which is discussed more fully below. Additionally, given that all of the re-priced options outstanding as of December 31, 2005 are
vested and exercisable, these options are not expected to be subject to the requirements of Statement No. 123(R). Consequently, the accounting for the re-priced options is not expected to impact future results of operations.

In December 2004, the Financial Accounting Standards Board issued Statement No. 123(R), Share Based Payment, which is a revision of Statement
No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Statement No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

As required, the Company
will adopt Statement No. 123(R) beginning January 1, 2006. Under Statement No. 123(R), the Company may either recognize compensation cost for share-based payments to employees based on the grant-date fair value from the beginning of
the period in which the provisions are first applied, without restating periods prior to adoption, or the Company may elect to restate prior periods by recognizing compensation costs in the amounts previously reported in the pro-forma footnote
disclosures under the provisions of Statement No. 123, as included above. Cortex anticipates that it will adopt Statement No. 123(R) prospectively, without restating prior periods.

The Company estimates that the impact of adopting Statement No. 123(R) will approximate the pro-forma disclosures for prior periods, and therefore believes that the
impact may be material to its results of operations.

The Company does not anticipate that adoption of Statement
No. 123(R) will materially impact its financial condition.

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

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

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

The Company has
reserved approximately 18 million shares of common stock for issuance upon exercise of outstanding stock options and stock purchase warrants, as well as for conversion of the Companys Series B preferred stock, as further described in Note
3. The effect of the potentially issuable shares of common stock was not included in the calculation of diluted loss per share given that the effect would be anti-dilutive.

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



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Note 2  Detail of Selected Balance Sheet Accounts

The following is a summary of marketable securities as of December 31, 2005:



|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | ----------
|                                                                                                                                                          |  | Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Corporate obligations                                                                                                                                     |  | $    | 4,882,927  |                      | $ | 45                    |  | $ | (16,496             | ) |  | $ | 4,866,476 
|U.S. Government obligations                                                                                                                               |  |      | 499,112    |                      |   |                      |  |   | (2,782              | ) |  |   | 496,330   
|Mortgage backed government securities                                                                                                                     |  |      | 3,850,466  |                      |   |                      |  |   | (19,196             | ) |  |   | 3,831,270 
|Other asset and mortgage backed securities                                                                                                                |  |      | 6,011,614  |                      |   | 2,449                 |  |   | (9,755              | ) |  |   | 6,004,308 
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total marketable securities                                                                                                                               |  | $    | 15,244,119 |                      | $ | 2,494                 |  | $ | (48,229             | ) |  | $ | 15,198,384
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|                                                                                                                                                         
|The amortized cost and estimated fair value of available-for-sale marketable securities as of December 31, 2005, by contractual maturity, are as follows:
|                                                                                                                                                          |  |      |            |                     
|                                                                                                                                                          |  | Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                                                                                                                                                |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Within one year                                                                                                                                           |  | $    | 7,871,012  |                      | $ | 101                   |  | $ | (31,158             | ) |  | $ | 7,839,955 
|After one year through five years                                                                                                                         |  |      | 7,373,107  |                      |   | 2,393                 |  |   | (17,071             | ) |  |   | 7,358,429 
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total marketable securities                                                                                                                               |  | $    | 15,244,119 |                      | $ | 2,494                 |  | $ | (48,229             | ) |  | $ | 15,198,384
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|                                                                                                                                                         
|The following is a summary of marketable securities as of December 31, 2004:                                                                             
|                                                                                                                                                          |  |      |            |                     
|                                                                                                                                                          |  | Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Corporate obligations                                                                                                                                     |  | $    | 4,562,185  |                      | $ |                      |  | $ | (23,689             | ) |  | $ | 4,538,496 
|U.S. Government obligations                                                                                                                               |  |      | 1,490,717  |                      |   | 242                   |  |   | (144                | ) |  |   | 1,490,815 
|Mortgage backed government securities                                                                                                                     |  |      | 4,835,044  |                      |   |                      |  |   | (24,291             | ) |  |   | 4,810,753 
|Other asset and mortgage backed securities                                                                                                                |  |      | 6,998,771  |                      |   | 312                   |  |   | (546                | ) |  |   | 6,998,537 
|Preferred securities                                                                                                                                      |  |      | 1,000,000  |                      |   |                      |  |   |                    |   |  |   | 1,000,000 
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total marketable securities                                                                                                                               |  | $    | 18,886,717 |                      | $ | 554                   |  | $ | (48,670             | ) |  | $ | 18,838,601
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|                                                                                                                                                         
|The amortized cost and estimated fair value of available-for-sale marketable securities as of December 31, 2004, by contractual maturity, are as follows:
|                                                                                                                                                          |  |      |            |                     
|                                                                                                                                                          |  | Cost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFair Value
|Maturities                                                                                                                                                |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Within one year                                                                                                                                           |  | $    | 17,140,160 |                      | $ | 389                   |  | $ | (41,741             | ) |  | $ | 17,098,808
|After one year through five years                                                                                                                         |  |      | 1,746,557  |                      |   | 165                   |  |   | (6,929              | ) |  |   | 1,739,793 
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           
|Total marketable securities                                                                                                                               |  | $    | 18,886,717 |                      | $ | 554                   |  | $ | (48,670             | ) |  | $ | 18,838,601
|                                                                                                                                                          |  |      |            |                      |   |                       |  |   |                     |   |  |   |           



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##### Table of Contents

Gross realized gains and losses on sales of marketable securities were not significant in the years ended
December 31, 2005 and 2004, six months ended December 31, 2004 and 2003, or the fiscal years ended June 30, 2004 or 2003. The Company manages risk on its investment portfolio by matching scheduled investment maturities with its cash
requirements.

Furniture, equipment and leasehold improvements consist of the following:



|                         |  |              |            |   |      |   |            |  
|------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                         |  | December 31, |           
|                         |  | 2005         |            |   | 2004 |  
|Laboratory equipment     |  | $            | 1,627,899  |   |      | $ | 1,615,573  |  
|Leasehold improvements   |  |              | 729,186    |   |      |   | 719,482    |  
|Furniture and equipment  |  |              | 167,089    |   |      |   | 178,764    |  
|Computers and software   |  |              | 331,422    |   |      |   | 223,522    |  
|                         |  |              |            |   |      |   |            |  
|                         |  |              | 2,855,596  |   |      |   | 2,737,341  |  
|Accumulated depreciation |  |              | (2,416,755 | ) |      |   | (2,349,523 | )
|                         |  |              |            |   |      |   |            |  
|                         |  | $            | 438,841    |   |      | $ | 387,818    |  
|                         |  |              |            |   |      |   |            |  

Note 3  Stockholders Equity

Preferred Stock

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

Series B Preferred outstanding as of December 31, 2005 and 2004 consisted of 37,500 shares issued in a May 1991 private placement. Each share of Series B Preferred is convertible into approximately 0.09812
shares of common stock at an effective conversion price of $6.795 per share of common stock, subject to adjustment under certain circumstances. As of December 31, 2005, the remaining shares of Series B Preferred outstanding are convertible into
3,679 shares of common stock. The Company may redeem the Series B Preferred at a price of $0.6667 per share, an amount equal to its liquidation preference, at any time upon 30 days prior notice.

Common Stock and Common Stock Purchase Warrants

On
August 21, 2003, the Company issued 3,333,334 shares of common stock to accredited investors in a private placement transaction for $1.50 per share, providing gross proceeds of $5,000,000. Net proceeds from the transaction, after issuance costs
and placement fees, were approximately $4,500,000. In connection with the transaction, the Company also issued five-year warrants to the investors to purchase up to an additional 3,333,334 shares of the Companys common stock at an exercise
price of $2.55 per share. In January 2004, warrants to purchase 339,997 common shares were exercised, resulting in proceeds of approximately $870,000. In February 2006, warrants to purchase another 333,335 common shares were exercised, resulting in
proceeds of approximately $850,000.

In connection with the August 2003 private placement, the Company also issued warrants to two placement agents to
purchase 30,000 and 83,061 shares of the Companys common stock, respectively. The warrant to purchase 30,000 shares of the Companys common stock has an exercise price of $1.50 per share and a five-year term. The warrant to purchase
83,061 shares of the Companys common stock has an exercise price of $2.71 per share and a three-year term. Of the warrants issued to the placement agents, during the year ended June 30, 2004 warrants to purchase 27,000 common shares were
exercised, providing proceeds of approximately $40,000. All of the warrants issued in the August 2003 transaction provide a call right in favor to the Company to the extent that the price per share of the Companys common stock exceeds $6.00
per share for 13 consecutive trading days, subject to certain circumstances.



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

On December 14, 2004, the
Company issued 4,233,333 shares of common stock to accredited investors in a private placement transaction for $2.66 per share, resulting in gross proceeds of $11,260,663. Net proceeds from the transaction, after issuance costs and placement fees,
were approximately $10,400,000. In connection with the December 2004 transaction, the Company issued five-year warrants to the investors to purchase up to 2,116,666 shares of the Company common stock at an exercise price of $3.00 per share.
The Company also issued three-year warrants to purchase 164,289 shares of the Companys common stock at an exercise price of $3.43 per share to the placement agent for the transaction. All of the warrants issued in the December 2004 transaction
provide a call right in favor to the Company to the extent that the price per share of the Companys common stock exceeds $7.50 per share for 13 consecutive trading days, subject to certain circumstances.

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

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

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

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

The
fair value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: no dividends; risk-free interest rate of 3.4%; the contractual life of 5 years and volatility of 100%. The fair value of the
warrants was estimated to be $5,000,000 on the closing date of the transaction. The fair value of the warrants was re-measured at December 8, 2003, the date of effectiveness of the registration statement. The increase in fair value of the
warrants of $3,467,000 from the closing date of the transaction to the effective date of the registration statement has been recorded as a charge to other expense in the Statement of Operations for the year ended June 30, 2004. The warrant
liability was reclassified to additional paid-in capital as of the date of effectiveness of the registration statement, or December 8, 2003.



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

The fair value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: no dividends; risk-free interest rate of 3.0%;
the contractual life of 5 years and volatility of 96%. The fair value of the warrants was estimated to be $9,521,000 on the closing date of the transaction. The fair value of the warrants was re-measured at March 18, 2004, the date of
effectiveness of the applicable registration statement, with no resulting increase in fair value. The warrant liability was reclassified to additional paid-in capital as of the date of effectiveness for the registration statement, or March 18,
2004.

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

The fair value of the warrants was estimated using the Black-Scholes option pricing model with the following assumptions: no dividends, risk-free interest rate of 3.5%; the contractual life of 5 years and volatility
of 88%. The fair value of the warrants was estimated to be $4,466,000 on the closing date of the transaction. The fair value of the warrants was re-measured at December 31, 2004, with a resulting decrease in fair value.

The fair value of the warrants was re-measured at January 26, 2005, the date of effectiveness of the registration statement, and the increase in estimated fair
value was recorded as other expense in the Statement of Operations for the year ended December 31, 2005. As of the effectiveness of the registration statement, the warrant liability was reclassified to additional paid-in capital, evidencing the
non-impact of these adjustments on the Companys financial position and business operations.

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

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

In connection with an employment agreement with an executive
officer, in August 2004 the Company issued 100,000 restricted shares of its common stock (Restricted Shares). The Restricted Shares shall vest in equal installments over a four-year period from the date of issuance and are subject to
forfeiture in the event that employment of the executive officer terminates before the applicable vesting dates. The fair market value of the Restricted Shares as of the issuance date, or $213,000, has been recorded as deferred compensation in the
accompanying Balance Sheet and related expense is being amortized over the vesting period.

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

In connection with the engagement of a consultant for capital raising purposes, in December 2002 the Company issued a five-year warrant to purchase 200,000 shares of
common stock at an exercise price of $0.67



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##### Table of Contents

per share. This warrant became exercisable during the fiscal year ended June 30, 2004 and the Company recorded
non-cash expense of approximately $660,000. Warrants to purchase a total of 162,000 shares of the Companys common stock were exercised during the fiscal year ended June 30, 2004, resulting in proceeds of approximately $109,000.

In connection with the engagement of a consultant for investor relations purposes, from February 2003 through June 2003 the Company issued five-year
warrants to purchase up to an aggregate of 116,000 shares of common stock at a weighted-average exercise price of $0.88 per share. In connection with the same agreement, from July 2003 through June 2004 the Company issued warrants to purchase up to
48,000 shares of common stock at a weighted-average exercise price of $2.95 per share. From July 2004 through December 2004, the Company issued warrants to purchase another 24,000 shares of common stock at a weighted-average exercise price of $2.33
per share. During the year ended December 31, 2005, the Company issued warrants to purchase another 8,000 shares of common stock at a weighted-average exercise price of $2.765 per share. The above warrants are fully exercisable and resulted in
expense of approximately $13,000, $34,000, $107,000 and $62,000 for the fiscal year ended December 31, 2005, six months ended December 31, 2004 and the fiscal years ended June 30, 2004 and 2003, respectively. The exercise prices for
the above warrants were derived from the fair market value of the Companys common stock on the date of issuance. During the year ended June 30, 2004, related warrants to purchase a total of 55,000 shares of the Companys common stock
were exercised, resulting in proceeds of approximately $43,000.

As of December 31, 2005, the Company had reserved an aggregate of 3,679 shares for
issuance upon conversion of the Series B Preferred; 10,457,972 shares for issuance upon exercise of warrants; 7,544,721 shares for issuance upon exercise of outstanding stock options; and 1,303,816 shares for issuance upon exercise of stock options
available for future grant.

Warrant transactions by the Company for each of the two years in the period ended June 30, 2004, the six-month period
ended December 31, 2004 and the year ended December 31, 2005 are summarized below:



|                                    |  |                  |   |  |                                          |     
|----------------------------------- |  | ---------------- | - |  | ---------------------------------------- | ----
|                                    |  | Number of shares |   |  | Weighted averageexercise price per share
|Outstanding as of June 30, 2002     |  | 275,000          |   |  | $                                        | 1.50
|Issued                              |  | 316,000          |   |  |                                          | 0.75
|Exercised                           |  |                 |   |  |                                          |    
|Expired                             |  | (75,000          | ) |  |                                          | 1.55
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2003     |  | 516,000          |   |  | $                                        | 1.03
|Issued                              |  | 8,313,014        |   |  |                                          | 2.96
|Exercised                           |  | (733,997         | ) |  |                                          | 1.64
|Expired                             |  |                 |   |  |                                          |    
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2004     |  | 8,095,017        |   |  | $                                        | 2.96
|Issued                              |  | 2,304,955        |   |  |                                          | 3.02
|Exercised                           |  |                 |   |  |                                          |    
|Expired                             |  |                 |   |  |                                          |    
|                                    |  |                  |   |  |                                          |     
|Outstanding as of December 31, 2004 |  | 10,399,972       |   |  | $                                        | 2.97
|Issued                              |  | 108,000          |   |  |                                          | 2.75
|Exercised                           |  |                 |   |  |                                          |    
|Expired                             |  | (50,000          | ) |  |                                          | 3.02
|                                    |  |                  |   |  |                                          |     
|Outstanding as of December 31, 2005 |  | 10,457,972       |   |  | $                                        | 2.97
|                                    |  |                  |   |  |                                          |     



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##### Table of Contents

Information regarding warrants outstanding at December 31, 2005 is as follows:



|                        |  |                                                     |  |                                          |  |                               |     
|----------------------- |  | --------------------------------------------------- |  | ---------------------------------------- |  | ----------------------------- | ----
|Range ofexercise prices |  | Numberoutstanding andexercisable atDecember 31,2004 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price
|$ 0.67  -   0.80        |  | 91,000                                              |  | 2.1 years                                |  | $                             | 0.74
|1.50   -   2.19         |  | 27,000                                              |  | 2.9 years                                |  |                               | 1.93
|2.39   -   3.25         |  | 9,886,724                                           |  | 3.1 years                                |  |                               | 2.97
|3.43   -   4.29         |  | 453,248                                             |  | 1.4 years                                |  |                               | 3.47
|                        |  |                                                     |  |                                          |  |                               |     
|                        |  | 10,457,972                                          |  |                                          |  |                               |     
|                        |  |                                                     |  |                                          |  |                               |     

Stock Option and Stock Purchase Plan

1996 Stock Incentive Plan  The 1996 Plan provides for the granting of options and rights to purchase up to an aggregate of 10,213,474 shares of the Companys authorized but unissued common stock
(subject to adjustment under certain circumstances, such as stock splits, recapitalizations and reorganizations) to qualified employees, officers, directors, consultants and other service providers. The exercise price of nonqualified stock options
and the purchase price of stock offered under the 1996 Plan, which terminates October 25, 2006, must be at least 85% of the fair market value of the common stock on the date of grant. The exercise price of incentive stock options must be at
least equal to the fair market value of the common stock on the date of grant.

Subject to any restrictions under federal or securities laws, the Chief
Executive Officer may award stock options to new non executive-officer employees and consultants, with a market value at the time of hire equivalent to up to one time the employees annual salary or consultants anticipated consulting
fees. The Chief Executive Officer shall have the discretion to increase or decrease such awards based on market and recruiting factors subject to a limit per person of options to purchase 35,000 shares. Additionally, on an annual basis, the Chief
Executive Officer may grant continuing employees and consultants, based upon performance and objectives, a stock option for that number of shares up to 40% of the employees annual salary or the consultants fees, but not to exceed 35,000
shares per person per year. Any option grant exceeding 35,000 shares per person per year requires approval by the Compensation Committee of the Board of Directors. These options shall be granted with an exercise price equal to the fair market value
of the Companys common stock on the date of issuance, have a ten-year term, vest annually over a three-year period from the dates of grant and have other terms consistent with the 1996 Plan.

Each non-employee director (other than those who serve on the Board of Directors to oversee an investment in the Company) is automatically granted options to purchase
30,000 shares of common stock upon commencement of service as a director and additional options to purchase 25,000 shares of common stock on the date of each Annual Meeting of Stockholders. Stock option issuances to non-employee directors who serve
on the Board of Directors to oversee an investment in the Company are determined separately. The nonqualified options to non-employee directors have an exercise price equal to 100% of the fair market value of the common stock on the date of grant,
have a ten-year term and vest in equal increments of 33% on the anniversary dates of the dates of grant.

As of December 31, 2005, options to purchase
an aggregate of 4,621,043 shares of common stock were exercisable under the Companys stock option plan. During the years ended December 31, 2005, six-month period ended December 31, 2004 and the years ended June 30, 2004 and
2003 the Company did not issue options to purchase shares of common stock with exercise prices below the fair market value of the common stock on the dates of grant.



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##### Table of Contents

Stock option transactions under the Companys stock option plan for the two years in the period ended June 30,
2004, the six-month period ended December 31, 2004 and the year ended December 31, 2005 are summarized below:



|                                    |  |                  |   |  |                                          |     
|----------------------------------- |  | ---------------- | - |  | ---------------------------------------- | ----
|                                    |  | Number of shares |   |  | Weighted averageexercise price per share
|Outstanding as of June 30, 2002     |  | 2,628,415        |   |  | $                                        | 1.58
|Granted                             |  | 1,563,195        |   |  |                                          | 0.78
|Exercised                           |  | (304,276         | ) |  |                                          | 0.42
|Expired                             |  | (3,000           | ) |  |                                          | 0.38
|Forfeited                           |  | (226,610         | ) |  |                                          | 2.20
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2003     |  | 3,657,724        |   |  | $                                        | 1.29
|Granted                             |  | 1,536,527        |   |  |                                          | 2.76
|Exercised                           |  | (280,678         | ) |  |                                          | 0.90
|Expired                             |  | (4,000           | ) |  |                                          | 0.38
|Forfeited                           |  | (120,491         | ) |  |                                          | 1.96
|                                    |  |                  |   |  |                                          |     
|Outstanding as of June 30, 2004     |  | 4,789,082        |   |  | $                                        | 1.77
|Granted                             |  | 1,754,275        |   |  |                                          | 2.58
|Exercised                           |  | (100,313         | ) |  |                                          | 2.12
|Forfeited                           |  | (6,501           | ) |  |                                          | 2.00
|                                    |  |                  |   |  |                                          |     
|Outstanding as of December 31, 2004 |  | 6,436,543        |   |  | $                                        | 1.97
|Granted                             |  | 1,391,500        |   |  |                                          | 2.35
|Exercised                           |  | (106,322         | ) |  |                                          | 0.38
|Expired                             |  | (12,000          | ) |  |                                          | 0.73
|Forfeited                           |  | (165,000         | ) |  |                                          | 2.55
|                                    |  |                  |   |  |                                          |     
|Outstanding as of December 31, 2005 |  | 7,544,721        |   |  |                                          | 2.05
|                                    |  |                  |   |  |                                          |     
|Available for future grant          |  | 1,303,816        |   |  |                                          |     
|                                    |  |                  |   |  |                                          |     

Information regarding stock options outstanding at December 31, 2005 is as follows:



|                         |  |                                      |  |                                          |  |                               |      |                                      |           |                               |   |     
|------------------------ |  | ------------------------------------ |  | ---------------------------------------- |  | ----------------------------- | ---- | ------------------------------------ | --------- | ----------------------------- | - | ----
|                         |  | Options Outstanding                  |  | Options Exercisable                     
|Range of exercise prices |  | Numberoutstanding atDecember 31,2005 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price |      | Numberexercisable atDecember 31,2005 |           | Weightedaverageexercise price
|$0.38     -  $  0.75     |  | 1,154,094                            |  | 5.3 years                                |  | $                             | 0.65 |                                      | 1,154,094 |                               | $ | 0.65
|0.76     -      1.11     |  | 975,187                              |  | 5.8 years                                |  |                               | 0.82 |                                      | 890,521   |                               |   | 0.82
|1.56     -      2.30     |  | 786,844                              |  | 7.6 years                                |  |                               | 2.11 |                                      | 419,146   |                               |   | 2.08
|2.35     -      2.65     |  | 1,415,200                            |  | 9.8 years                                |  |                               | 2.35 |                                      | 33,700    |                               |   | 2.45
|2.68     -      2.74     |  | 1,417,510                            |  | 8.5 years                                |  |                               | 2.68 |                                      | 585,189   |                               |   | 2.68
|2.76     -      4.44     |  | 1,795,886                            |  | 7.2 years                                |  |                               | 2.87 |                                      | 1,538,393 |                               |   | 2.87
|                         |  |                                      |  |                                          |  |                               |      |                                      |           |                               |   |     
|                         |  | 7,544,721                            |  | 7.5 years                                |  |                               | 2.05 |                                      | 4,621,043 |                               |   | 1.82
|                         |  |                                      |  |                                          |  |                               |      |                                      |           |                               |   |     

Stockholder Rights Plan

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



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##### Table of Contents

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

The Company has 35,000 shares of Series A Junior Participating Preferred
Stock authorized (35,000,000 Units), of which no shares or Units are issued or outstanding at December 31, 2005. Each Unit would entitle the holder to (A) one vote, voting together with the shares of common stock; (B) in the event
that the Companys assets are liquidated, a payment of $1.00 or an amount equal to the payment to be distributed per share of common stock, whichever is greater; and (C) in the event of any merger, consolidation or other transaction in
which shares of common stock are exchanged, a payment in the amount equal to the payment received per share of common stock. The number of Rights per share of common stock, and the purchase price, are subject to adjustment in the event of each and
any stock split, stock dividend or similar event.

Note 4  Research and License Agreement with Les Laboratoires Servier

In October 2000, the Company entered into a research collaboration and exclusive license agreement with Les Laboratoires Servier. The agreement will enable Servier to
develop and commercialize Cortexs proprietary AMPAKINE technology for the treatment of declines in cognitive performance associated with aging and neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimers disease, mild cognitive impairment, sexual dysfunction, multiple sclerosis and Amyotrophic Lateral Sclerosis. The territory covered by the exclusive license excludes North America, allowing Cortex to retain commercialization
rights in its domestic market. The territory covered by the agreement also excludes South America (except Argentina, Brazil and Venezuela), Australia and New Zealand.

In connection with the agreement, Servier paid Cortex a nonrefundable, up-front payment of $5,000,000. The upfront payment is being amortized as revenue over the research support period, as extended by the amendments
entered into in October 2002 and December 2003. The October 2000 agreement includes research support through early December 2006, subject to Cortex providing agreed-upon levels of research. The amount of support is subject to annual adjustment based
upon the increase in the U.S. Department of Labors Consumer Price Index. Under the October 2000 agreement, as amended to date, Cortex currently receives annual support of approximately $2,298,000. The agreement also includes milestone payments
based upon clinical development and royalty payments on sales in licensed territories.

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

Note 5 
Research and License Agreement with NV Organon

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



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##### Table of Contents

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

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

Note 6  Advance from the Institute for the Study of Aging

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

As the funding from the Institute must be used solely for the planned clinical trials in MCI patients, Cortex recorded the amounts received as restricted cash in the Companys balance sheet. Provided that Cortex complies with the
conditions of the funding agreement, repayment of the advance shall be forgiven unless Cortex enters one of its AMPAKINE compounds into Phase III clinical trials for Alzheimers disease. Upon such potential clinical trials,
repayment would include the principal amount plus accrued interest computed at a rate equal to one-half of the prime lending rate. In lieu of cash, in the event of repayment the Institute may elect to receive the outstanding principal balance and
any accrued interest thereon as shares of Cortex common stock. The conversion price for such form of repayment shall initially equal $4.50 per share, subject to adjustment under certain circumstances. Included in the balance sheet is accrued
principle and interest of $285,630 and $277,978 at December 31, 2005 and December 31, 2004, respectively.

Note 7  Commitments

The Company leases its offices and research laboratories under an operating lease that expires May 31, 2009. Rent expense under this lease for the
years ended December 31, 2005 and 2004, six months ended December 31, 2004 and 2003 and years ended June 30, 2004 and 2003 was approximately $504,000, $405,000, $243,000, $167,000, $329,000, and $295,000, respectively. Commitments
under the lease for the years ending December 31, 2006, 2007, 2008 and 2009 are approximately $497,000, $517,000, $536,000 and $227,000, respectively.

As of December 31, 2005, the Company has employment agreements with two of its executive officers, which agreements expire in May 2006 and August 2008. The agreements involve annual salary payments approximating $535,000 and provide
for bonuses under certain circumstances.

The Company has entered into severance agreements with each of its executive officers. In the event of a
termination of employment, under certain circumstances, these severance agreements provide defined benefits to the executive officers, including compensation equal to 12 to 18 months of the executive officers then current salary.

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



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##### Table of Contents

Commitments for preclinical and clinical studies of CX717 amount to approximately $2,764,000. Separately, commitments
under sponsored research agreements for services to be rendered for the year ending December 2006 approximated $667,000. Commitments under scientific consulting agreements for services to be rendered for the year ending December 31, 2006
approximate $50,000.

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 approximately $70,000 for the year ended December 31, 2005 and for
each year thereafter for the remaining life of the patents covering the subject technologies, with December 2018 the date of the last to expire related patent. The agreements commit the Company to spend a minimum of $750,000 per year to advance the
AMPAKINE compounds during the three years ending in May 2006. Thereafter, the Companys spending requirements will decrease to $250,000 per year and will continue at that level until the Company begins marketing an
AMPAKINE compound. The agreements also commit the Company to pay up to an additional $875,000 upon achievement of certain clinical testing and regulatory approval milestones, and to remit a portion of certain remuneration received in
connection with sublicensing agreements.

Note 8  Related Party Transactions

During the years ended December 31, 2005 and 2004, six months ended December 31, 2004 and 2003 and years ended June 30, 2004 and 2003, the Company paid scientific and other consulting fees to directors
and/or stockholders aggregating approximately $196,000, $199,000, $101,000, $26,500, $58,800 and $53,000, respectively. Under certain circumstances, the Company is obligated to make royalty payments to certain of its scientific consultants, some of
whom are stockholders, and to one employee, upon successful commercialization of certain of its products by the Company or its licensees.

Note 9 
Income Taxes

The Company uses the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (SFAS 109). Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax
rates. As of December 31, 2005, the Company had federal and California tax net operating loss carryforwards of approximately $53,000,000 and $37,000,000, respectively. The difference between the federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development expenses for California franchise tax purposes. The federal and California net operating loss carryforwards will expire at various dates from 2006 to 2025. The Company also has
federal and California research and development tax credit carryforwards totaling approximately $900,000 and $500,000, respectively. The federal research and development tax credit carryforwards will expire at various dates from 2006 to 2025. The
California research and development tax credit carryforward does not expire and will carryforward indefinitely until utilized.

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

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

Significant components of the Companys deferred tax assets as of December 31, 2005 and 2004 are shown below. A valuation allowance of $23,618,000 as of December 31, 2005 has been established against
the Companys deferred tax assets as realization of such assets is uncertain. The increase in the valuation allowance of $4,073,000 from December 31, 2004 to December 31, 2005 relates primarily to continuing net operating losses.



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##### Table of Contents

Deferred tax assets consist of the following:



|                                            |  |                  |             |   |                  |   |             |  
|------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                            |  | December 31,2005 |             |   | December 31,2004 |  
|Net operating loss carryforwards            |  | $                | 20,849,000  |   |                  | $ | 16,715,000  |  
|Research and development credits            |  |                  | 1,262,000   |   |                  |   | 1,367,000   |  
|Capitalized research and development costs  |  |                  | 564,000     |   |                  |   | 459,000     |  
|Unearned revenue                            |  |                  | 55,000      |   |                  |   | 147,000     |  
|Depreciation                                |  |                  | 90,000      |   |                  |   | 87,000      |  
|Other, net                                  |  |                  | 798,000     |   |                  |   | 770,000     |  
|                                            |  |                  |             |   |                  |   |             |  
|Net deferred tax assets                     |  |                  | 23,618,000  |   |                  |   | 19,545,000  |  
|Valuation allowance for deferred tax assets |  |                  | (23,618,000 | ) |                  |   | (19,545,000 | )
|                                            |  |                  |             |   |                  |   |             |  
|Total deferred tax assets                   |  | $                |            |   |                  | $ |            |  
|                                            |  |                  |             |   |                  |   |             |  

Note 10  Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for the years ended December 31, 2005 and 2004, respectively is as follows:



|                                              |  |                                  |            |   |                                 |   |            |                                      |  |   |                                     |   |  |   |            |  
|--------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ---------- | ------------------------------------ |  | - | ----------------------------------- | - |  | - | ---------- | -
|                                              |  | Three Months EndedMarch 31, 2005 |            |   | Three Months EndedJune 30, 2005 |   |            | Three Months EndedSeptember 30, 2005 |  |   | Three Months EndedDecember 31, 2005 |  
|2005 Quarters                                 |  |                                  |            |   |                                 |   |            |                                      |  |   |                                     |   |  |   |            |  
|                                              |  |                                  |            |  
|Total revenues                                |  | $                                | 669,158    |   |                                 | $ | 647,023    |                                      |  | $ | 625,122                             |   |  | $ | 606,167    |  
|Total costs and expenses                      |  |                                  | 3,424,789  |   |                                 |   | 3,489,377  |                                      |  |   | 3,317,172                           |   |  |   | 4,506,239  |  
|Loss from operations                          |  |                                  | (2,725,631 | ) |                                 |   | (2,842,354 | )                                    |  |   | (2,692,050                          | ) |  |   | (3,900,072 | )
|Change in fair value of common stock warrants |  |                                  | (82,991    | ) |                                 |   |           |                                      |  |   |                                    |   |  |   |           |  
|Net loss                                      |  | $                                | (2,647,862 | ) |                                 | $ | (2,688,816 | )                                    |  | $ | (2,530,052                          | ) |  | $ | (3,738,995 | )
|Basic and diluted loss per share              |  | $                                | (0.08      | ) |                                 | $ | (0.08      | )                                    |  | $ | (0.08                               | ) |  | $ | (0.11      | )
|                                              |  |                                  |            |  
|                                              |  | Three Months EndedMarch 31, 2004 |            |   | Three Months EndedJune 30, 2004 |   |            | Three Months EndedSeptember 30, 2004 |  |   | Three Months EndedDecember 31, 2004 |  
|2004 Quarters                                 |  |                                  |            |   |                                 |   |            |                                      |  |   |                                     |   |  |   |            |  
|                                              |  |                                  |            |  
|Total revenues                                |  | $                                | 1,166,009  |   |                                 | $ | 1,213,497  |                                      |  | $ | 1,175,166                           |   |  | $ | 720,521    |  
|Total costs and expenses                      |  |                                  | 1,967,581  |   |                                 |   | 2,631,656  |                                      |  |   | 2,756,058                           |   |  |   | 3,851,673  |  
|Loss from operations                          |  |                                  | (801,572   | ) |                                 |   | (1,418,159 | )                                    |  |   | (1,580,892                          | ) |  |   | (3,131,152 | )
|Change in fair value of common stock warrants |  |                                  | (103,930   | ) |                                 |   |           |                                      |  |   |                                    |   |  |   | 498,456    |  
|Net loss                                      |  | $                                | (873,504   | ) |                                 | $ | (1,314,192 | )                                    |  | $ | (1,511,101                          | ) |  | $ | (2,535,141 | )
|Basic and diluted loss per share              |  | $                                | (0.03      | ) |                                 | $ | (0.05      | )                                    |  | $ | (0.05                               | ) |  | $ | (0.09      | )



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##### Table of Contents

Cortex Pharmaceuticals, Inc.

Annual Report on Form 10-K

Year ended December 31, 2005

Exhibit Index



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



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                          
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | SequentiallyNumbered Page
|10.49         |  | Settlement Agreement between the Company and Alkermes, Inc., dated October 5, 1995, incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-KSB
filed October 13, 1995. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys Application requesting confidential treatment under Rule 406 of the Securities Act of
1933).                                                          |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.60         |  | Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form 10-Q as filed on November 14,
2002.*                                                                                                                                                                                                                                                                                                                 |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.64         |  | Research and Collaboration and License Agreement between the Company and N.V. Organon, dated January 13, 1999, incorporated by reference to the same numbered Exhibit to the Companys
quarterly report on Form 10-QSB as filed on February 16, 1999. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment under Rule
24-b2 of the Securities Exchange Act of 1934.)              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.65         |  | Amendment No. 1 to the Lease Agreement for the Companys facilities in Irvine, California, dated February 1, 1999, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-KSB filed September 28, 1999.                                                                                                                                                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.67         |  | Collaborative Research, Joint Clinical Research and Licensing Agreements with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-QSB filed November 14, 2000. (Portions of this Exhibit were omitted and filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Ruled 24b-2 of the Securities Act of 1934).            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.69         |  | Employment agreement dated May 17, 2000, between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 10-QSB filed
February 12, 2001.*                                                                                                                                                                                                                                                                                            |  |                          
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.70         |  | Severance agreement dated October 26, 2000, between the Company and Maria S. Messinger, incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report on Form
10-QSB filed February 12, 2001.*                                                                                                                                                                                                                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.71         |  | Employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Annual Report on Form 10-K
filed October 15, 2002.*                                                                                                                                                                                                                                                                                    |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.73         |  | Amendment dated October 3, 2002 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed October 15, 2002.                                                                                                                                                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.74         |  | Employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered exhibit to the Companys Quarterly Report on
Form 10-Q, as filed on November 14, 2002.*                                                                                                                                                                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.75         |  | Securities Purchase Agreement dated August 21, 2003, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit
A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed August 22, 2003.                                                                                                |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.76         |  | First Amendment dated August 8, 2003 to the employment agreement between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered Exhibit to the Companys
Annual Report on Form 10-K filed September 19, 2003.*                                                                                                                                                                                                                                                         |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.77         |  | Amendment dated December 16, 2003 to the Collaboration Research Agreement with Les Laboratoires Servier dated October 13, 2000, incorporated by reference to the same numbered Exhibit to the
Companys Quarterly Report on Form 10-Q filed February 12, 2004. (Portions of this Exhibit are omitted and were filed separately with the Secretary of the Commission pursuant to the Companys application requesting confidential treatment
under Rule 24b-2 of the Securities Exchange Act of 1934). |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.78         |  | Securities Purchase Agreement dated January 7, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as Exhibit
A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed January 9, 2004.                                                                                                |  |                         



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                            |  |                          
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                |  | SequentiallyNumbered Page
|10.79         |  | Amendment No. 2 to the Lease Agreement for the Companys facilities in Irvine, California, dated March 9, 2004, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.                                                                                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.80         |  | Form of Incentive/Nonqualified Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                 |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.81         |  | Form of Restricted Stock Award under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to the Companys Annual
Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                                        |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.82         |  | Amendment dated January 1, 2004 to the employment agreement dated May 17, 2000 between the Company and James H. Coleman, incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                                  |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.83         |  | Amendment dated January 1, 2004 to the employment agreement dated June 5, 1995 between the Company and Gary A. Rogers, Ph.D., incorporated by reference to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed on September 27, 2004.*                                                                                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.84         |  | Consulting Agreement dated April 16, 2004 between the Company and Gary D. Tollefson, M.D., Ph.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly Report
on Form 10-Q filed on November 15, 2004.*                                                                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.85         |  | Employment letter of agreement dated July 26, 2004 between the Company and Harry H. Mansbach, M.D., incorporated by reference to the same numbered Exhibit to the Companys Quarterly
Report on Form 10-Q filed on November 15, 2004.*                                                                                                                                                                     |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.86         |  | Second Amendment dated November 10, 2004 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D., incorporated by reference to the same numbered
Exhibit to the Companys Quarterly Report on Form 10-Q filed on November 15, 2004.*                                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.87         |  | Securities Purchase Agreement dated December 14, 2004, by and among Cortex Pharmaceuticals, Inc. and the investors named therein, including the Registration Rights Agreement attached as
Exhibit A thereto and a form of Common Stock Purchase Warrant attached as Exhibit C thereto, incorporated by reference to the same numbered Exhibit to the Companys Report on Form 8-K filed December 20, 2004. |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.88         |  | Form of Notice of Grant of Stock Options and Stock Option Agreement under the Companys Amended and Restated 1996 Stock Incentive Plan, incorporated to the same numbered Exhibit to the
Companys Annual Report on Form 10-K filed March 21, 2005.*                                                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.89         |  | Stock Ownership Policy for the Companys Directors and Executive Officers as adopted by the Companys Board of Directors on December 16, 2004, incorporated by reference to the same
numbered Exhibit to the Companys Annual Report on Form 10-K filed March 21, 2005.*                                                                                                                                   |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.90         |  | Third Amendment dated August 13, 2005 to the employment agreement dated October 29, 2002 between the Company and Roger G. Stoll, Ph.D, incorporated by reference to Exhibit 10.1 to the
Companys Report on Form 8-K filed August 17, 2005.*                                                                                                                                                               |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.91         |  | Cash Bonus Payment for Executive Officers for 2005, incorporated by reference to the Companys Form 8-K Current Report filed on January 18, 2006.*                                                                                                                                                                                                                                                         |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|10.92         |  | Employment letter of agreement dated January 9, 2006 between the Company and Mark Varney, Ph.D.*                                                                                                                                                                                                                                                                                                           |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|21            |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                            |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|23.1          |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                               |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|23.2          |  | Consent of Haskell & White LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                             |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|24            |  | Power of Attorney (included as part of the signature page of this Annual Report on Form 10-K.                                                                                                                                                                                                                                                                                                              |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|31.1          |  | Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                       |  |                         
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|31.2          |  | Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                       |  |                         



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##### Table of Contents

|              |  |                                                                                                                         |  |                          
|------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|ExhibitNumber |  | Description                                                                                                             |  | SequentiallyNumbered Page
|32            |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |                         

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