10KSB40

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

                                  FORM 10-KSB

      X   Annual Report pursuant to Section 13 or 15(d) of the Securities
     ---  Exchange Act of 1934 For the fiscal year ended June 30, 2001
                                                         -------------
                                       OR

          Transition Report pursuant to Section 13 or 15(d) of the Securities
     ___  Exchange Act of 1934 For the transition period from _______________ to
          ______________

                        Commission file number 0-17951

                         Cortex Pharmaceuticals, Inc.
                (Name of small business issuer in its charter)

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




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

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

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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days. YES   X
                                                                           -----
NO____

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.   X
                               -----

Revenues for the issuer's most recent fiscal year were $4,443,000. The aggregate
market value of the voting stock held by non-affiliates as of September 18,2001
was $36,625,957 (based on the last sale price of the common stock as reported by
The American Stock Exchange on such date).

As of September 18, 2001, there were 16,629,887 shares of the issuer's common
stock outstanding.

Transitional Small Business Disclosure Format (check one): YES_____   NO   X
                                                                         -----


                      DOCUMENTS INCORPORATED BY REFERENCE

PART III: Portions of the registrant's definitive proxy statement for the Annual
          Meeting of Stockholders to be held on December 11, 2001.

                               TABLE OF CONTENTS



                                                                                                        Page
                                                                                                        ----
                                                                                                     
PART I

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

Item 2.          Description of Property........................................................       18

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

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

PART II

Item 5.          Market for Common Equity and Related Stockholder Matters.......................       19

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

Item 7.          Financial Statements...........................................................       24

Item 8.          Changes in and Disagreements with Accountants
                 on Accounting and Financial Disclosure.........................................       24

PART III

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

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

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

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

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

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

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

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


                                      -2-


INTRODUCTORY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-KSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include, but are not limited to, statements
regarding (i) future research plans, expenditures and results, (ii) potential
collaborative arrangements, (iii) the potential utility of the Company's
proposed products and (iv) the need for, and availability of, additional
financing.

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

PART I

Item 1.   Description of Business

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

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

     In January 1999, the Company entered a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a subsidiary of Akzo
Nobel. The agreement grants Organon worldwide rights to develop and
commercialize the Company's Ampakine technology for the treatment of
schizophrenia and depression. In April 2000, the Company entered into an option
agreement with Shire Pharmaceuticals, plc ("Shire") under which Shire will
evaluate the use of the Company's Ampakine CX516 for the treatment of Attention
Deficit Hyperactivity Disorder ("ADHD"). In October 2000, the Company entered a
research collaboration and license agreement with Les Laboratoires Servier
("Servier"). The agreements will allow Servier to develop and commercialize the
Company's Ampakine technology as a treatment for memory impairment associated
with aging and neurodegenerative diseases in defined territories of Europe,
Asia, the Middle East and certain South American countries. The indications
covered

                                      -3-


include, but are not limited to, Alzheimer's disease, Mild Cognitive Impairment,
sexual dysfunction and the dementia associated with multiple sclerosis and Lou
Gehrig's disease.

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

     In the fiscal years ended June 30, 2001 and 2000, the Company's
expenditures on research and development were $4,409,708 and $3,896,627,
respectively. The increase in fiscal year 2001 represents expenses related to
preparing a Notice of Claimed Investigational Exemption for a New Drug ("IND")
and costs for manufacturing the drug for use in planned clinical trials.

AMPA Receptor Program

     In June 1993, Cortex licensed a new class of molecules and technology --the
Ampakine technology -- from the University of California. Cortex has
subsequently been working to develop and patent new Ampakine molecules and to
demonstrate efficacy and safety in a number of potential indications. Ampakine
compounds facilitate the activity of the AMPA receptor, which binds the
neurotransmitter glutamate. The Ampakine compounds interact in a highly specific
manner with the AMPA receptor in the brain, lowering the amount of
neurotransmitter required to generate a response, and increasing the magnitude
of the response to any given amount of glutamate. It is hoped that this
selective amplification of the normal glutamate signal will eventually find
utility in the treatment of neurological diseases and disorders characterized by
depressed functioning of brain pathways that utilize glutamate as a
neurotransmitter.

     It is well known that synaptic connections, including those that utilize
glutamate, decline with age. Thus, disorders associated with aging may be
amenable to treatment with Ampakine compounds. Two such disorders include Mild
Cognitive Impairment and Alzheimer's disease. Schizophrenia and other disorders
that may involve neurotransmitter imbalances, including reduced levels of
glutamate transmission, may also benefit from AMPA-receptor directed
therapeutics. A recently completed study with Ampakine compounds in patients
with schizophrenia indicated improvement in a number of symptoms also common to
patients with ADHD. The Company and its collaborators have obtained other
encouraging preliminary results in animal models of depression, sexual
dysfunction and stroke.

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

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

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

                                      -4-


cortex. Therefore a potential corrective approach to alleviate age-related
cognitive deficits is to enhance the activity of the remaining functional AMPA
receptors. Ampakine compounds amplify glutamate currents and have been shown to
alleviate memory deficits in experiments in both elderly animals and humans.

     Patients with Mild Cognitive Impairment ("MCI") do not meet the clinical
criteria for Alzheimer's disease, but do represent the earliest clinically-
defined group with memory impairment beyond that expected for normal individuals
of the same age and education. It is estimated that there are between 3 and 4
million people with MCI, and that each year approximately 15% to 20% of MCI
patients will progress to Alzheimer's disease. However, not all patients with
MCI progress to Alzheimer's disease.

     Alzheimer's disease is the best known destroyer of memory, currently
afflicting some 4 million Americans and 12 million people worldwide. With the
aging of our population, the number of people in the U.S. with Alzheimer's
disease is expected to reach 14 million by the middle of this century, unless a
treatment is found. According to the Alzheimer's Association, Alzheimer's
disease is already the third most expensive disease in the U.S. (after heart
disease and cancer), with an estimated annual cost to society of $100 billion
and a lifetime cost per patient of $174,000. The impact of an effective
treatment, even a symptomatic one, would be enormous.

     It is in the early stages of Alzheimer's disease that Cortex believes
Ampakine molecules may play a valuable role, enhancing the effectiveness of the
brain cells that have not yet succumbed to the disease. This may help to
alleviate the memory and cognitive deficits that make up the early symptoms.
There is also a possibility that treatment with Ampakine compounds may slow the
progression of Alzheimer's disease. The reason for this is that brain cells, or
neurons, require continued input from other brain cells to remain alive. As
neurons die, other neurons begin to lose their inputs, hastening their own
death. Ampakine compounds may slow the rate at which functional levels of input
from other neurons are lost. Research also suggests that Ampakine compounds may
increase the production of neurotrophic factors that are known to be protective
for nerve cells.

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

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

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

     The second trial, at the same clinical site in Berlin, involved 30 healthy
elderly volunteers, aged 65 to 76, each of whom was administered a single oral
dose of drug or placebo. In this double-blinded trial, Ampalex was again found
to be safe and well-tolerated. The elderly volunteers were also given the

                                      -5-


same nonsense syllable memory test that had been given to the young volunteers
in the first study. In the absence of drug, the elderly volunteers' memory was
substantially worse than that of the young volunteers. In the presence of drug,
a statistically significant positive effect on memory performance was observed.
Several of the elderly volunteers receiving the highest dosage of Ampalex scored
at or above the average score achieved by the young volunteers in the earlier
study.

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

     After these encouraging results, Cortex initiated a Phase I/IIa study in
patients experiencing deficits of memory and cognition due to Alzheimer's
disease. The double-blind, placebo-controlled dose escalation study, which was
conducted at the National Institutes of Health in Bethesda, Maryland, involved
administration of CX516 to an eventual total of 14 patients for up to 28 days. A
preliminary analysis of the data indicates improvement in ADAS-cog and CIBIC
plus, two measures used to detect changes in Alzheimer's disease patients.

     In June 2000, Cortex received $247,000 from the Institute for the Study of
Aging (the "Institute"), a non-profit foundation based in New York City
dedicated to the improvement in quality of life for the elderly. The funds will
provide support for the clinical trial conducted with Servier in patients with
MCI, as explained more fully below. Data from this study may support the concept
of AMPA modulation as a treatment for MCI, and would justify additional, larger
trials. In the event that Cortex enters an Ampakine into Phase III clinical
studies as a treatment for Alzheimer's disease, Cortex has agreed to repay the
funds to the Institute to allow them to assist other biotechnology companies.

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

     In March 2001, a Food and Drug Association ("FDA") advisory panel concluded
that MCI is a distinct condition separate from Alzheimer's disease and a valid
target for new therapies -- regardless of whether a new drug slows progression
to dementia. The FDA indicated its willingness to approve a drug that can be
shown to be safe and effective in improving memory.  The decision represents a
marked departure from the FDA's prior reluctance to approve such drugs,
encouraging Cortex in its pursuit of developing a drug that can treat memory
disorders. Cortex has rights to issued or allowed patents in the United States,
Mexico and Australia covering the use of any AMPA receptor modulating compounds
to improve memory and cognition.

     Together with Servier, Cortex is currently planning a cross-national study
of the Ampakine technology as a potential treatment for MCI. A total of 200
patients are projected to enroll in this study, in an estimated 8 clinical
centers in the U.S. and in 12 clinical centers in 3 to 4 countries in Europe.
Cortex anticipates commencing enrollment in the study in 2002. Servier has
agreed to pay most of the costs associated with this trial.

                                      -6-


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

Schizophrenia

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

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

     The first so-called neuroleptics or conventional anti-psychotics for
schizophrenia were developed in the 1950s and 1960s. These drugs, such as
chlorpromazine and haloperidol, helped to reduce the positive symptoms of the
disease and greatly reduced the need for chronic hospitalization. However, these
drugs, which are still in use today, are characterized by troublesome and
occasionally life-threatening side effects. One of the most common side effects
of conventional anti-psychotics is EPS or "extrapyramidal signs," which include
restlessness and tremors. EPS side effects have a strongly negative impact on
quality of life and tend to lead to poor patient compliance with medication.

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

     The newer atypical agents achieve good control of positive symptoms,
partial control of negative symptoms and better patient compliance with
medication due to lower levels of EPS side effects. However, schizophrenia
clinicians agree that there are still substantial side effects and that the
cognitive symptoms of schizophrenia are not greatly improved by any available
agent. The persistence of cognitive symptoms prevents many patients with
schizophrenia from successfully reintegrating into society.

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

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

                                      -7-


have demonstrated that Ampakine compounds in combination with either
conventional or atypical anti-psychotic drugs have additive or synergistic
effects in this model system.

  In January 1999, the Company entered an exclusive worldwide license agreement
with Organon. The agreement will enable Organon to develop and commercialize
Cortex's proprietary Ampakine technology for the treatment of schizophrenia.
Under the agreement, Organon has rights to intellectual property that includes
broad medical use patents covering the use of any AMPA receptor modulating
compound to treat schizophrenia, either as a monotherapy or in combination with
other antipsychotic medications.

     The agreement also included an option for Organon to expand its rights to
the technology as a potential treatment for depression. Organon exercised such
option in January 2001, thereby committing to specified spending on research in
the field using Ampakine compounds.

     The agreement with Organon provided an up-front payment of $2,000,000 and
research and development payments of roughly $3,000,000 per year for two years.
The agreement also includes milestone payments and royalty payments on worldwide
sales. The Company believes that the agreement with Organon will provide an
accelerated program to bring the Ampakine technology to market for schizophrenia
and depression, if proven safe and effective in clinical trials.

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

     Further clinical testing of the Ampakine compounds in patients with
schizophrenia will be conducted by the Company's corporate partner, Organon.
Data obtained from the testing performed at Massachusetts General Hospital
should be very helpful in the design of such trials. In May 2000, Cortex
achieved its first milestone under the related agreement when Organon selected a
licensed compound to pursue in Phase I clinical testing, triggering a $2,000,000
payment to Cortex. Shortly after June 30, 2001, Organon informed Cortex of its
intent to continue development of the selected compound by entering Phase II
clinical testing, triggering a second $2 million milestone payment. Additional
payments from the Organon agreement will depend upon the results of the Phase II
study.

Attention Deficit Hyperactivity Disorder

     Attention Deficit Hyperactivity Disorder is the most commonly diagnosed
disorder of children. The National Institute of Mental Health ("NIMH") estimates
that ADHD affects three to five percent of school-age children, with about one
child in every classroom in the United States in need of help for this disorder.
According to the NIMH, national public school spending on behalf of students
with ADHD may have exceeded $3 billion in 1995.

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

                                      -8-


patients, but also their families, schools and communities. For many, the
symptoms and impact of the disorder extend into adulthood.

     Psychostimulants, including amphetamine, methylphenidate and pemoline,
represent the most widely researched and commonly prescribed treatments for the
disorder. One theory suggests that ADHD stems from difficulties in inhibiting
responses to internal and external stimuli. Evidence suggests that those areas
of the brain thought to be involved in planning, foresight, and consideration of
alternative responses may be under-stimulated in patients with ADHD. Stimulant
medication may work on these areas of the brain to increase neural activity to
more normal levels.

     Because psychostimulants are more readily available and more frequently
prescribed, 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.

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

     In April 2000, the Company entered into an option agreement with Shire,
under which Shire will evaluate the use of Cortex's Ampakine CX516 for the
treatment of ADHD. Under the terms of the agreement, Shire will undertake a
double-blind, placebo-controlled evaluation of CX516 in ADHD patients. In
addition, Shire purchased $115,000 of study drug from Cortex during the year
ended June 30, 2001. Shire will be responsible for all costs associated with the
trial. In exchange for the option, Cortex received $130,000; Shire also
purchased 254,353 shares of Cortex common stock for $870,000.

     Enrollment in the study began in July 2001, and testing is expected to take
approximately one year to complete. If the study proves effective, Shire has the
right to convert its option into an exclusive worldwide license for the Ampakine
technology for ADHD under a development and licensing agreement. Should Shire
elect to execute this agreement, Shire will bear all future developmental costs.
Cortex would receive a license fee, milestone payments based on successful
clinical and commercial development, research support for additional Ampakine
compounds and royalties on sales.

Stroke

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

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

     Treatment of stroke victims represents a critical unmet need. The National
Stroke Association estimates that there are nearly four million people in the
U.S. who have survived a stroke and are living with the after-effects. Stroke
costs the U.S. $30 billion each year, with directs costs of $17 billion for
hospitals, physicians and rehabilitation, and indirect costs of $13 billion for
lost productivity.

                                      -9-


     General recovery guidelines indicate that 35% of stroke survivors recover
nearly completely, or with minor impairments. Of the remaining 65% of survivors,
40% suffer moderate to severe impairments, 10% require specialized care in a
nursing home or other long-term care facility and 15% die shortly following the
stroke.

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

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

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

     The goals of the research plan include determining if an Ampakine compound
administered in advance can reduce damage to neurons in an animal model of
stroke; and to determine if the compound reduces damage to the memory of the
animals. An Ampakine compound will also be administered after the stroke to
determine if there is an improved recovery of memory function. As of June 30,
2001, Cortex had completed approximately 25% of the three-year project.


Calpain Inhibitor Program

     Calpain is a protease, a protein that digests other proteins. It is
involved in a variety of biological processes throughout the body and has been
implicated in the pathology of several diseases and disorders, including brain
damage due to stroke. The Company has certain rights to calpain inhibitor
technology, but has shifted more of its resources to its Ampakine technology
platform, including the research of its Ampakine compounds as a potential stroke
therapy.


Manufacturing

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

Marketing

     The Company has no experience in the marketing of pharmaceutical products
and does not anticipate having the resources to distribute and broadly market
any products that it may develop. The Company will therefore continue to seek
commercial development arrangements with other pharmaceutical companies for its
proposed products. In entering such arrangements, the Company may

                                      -10-


seek to retain the right to promote or co-promote products for certain
indications in North America. The Company's worldwide licensing agreements with
Organon and potential agreement with Shire (see Notes 5 and 6 of Notes to
Financial Statements) do not provide Cortex with co-promotional rights. There is
no assurance that the Company will be able to enter marketing arrangements in
connection with its other licensing activities, or that marketing rights will
lead to greater revenues for the Company.

Technology Rights and Collaborative Agreements

AMPA Receptor Modulating Compounds

     In 1993, Cortex entered an agreement with the Regents of the University of
California, under which Cortex secured exclusive commercial rights to AMPA-
receptor modulating technology and compounds (the Ampakine technology) for the
treatment of deficits of memory and cognition. The agreement later was expanded
to include additional indications. The Company paid an initial license fee and
is obligated to make additional payments, including license maintenance fees and
patent expense reimbursements creditable against future royalties, over the
course of initiating and conducting human clinical testing and obtaining
regulatory approvals. When and if sales of licensed products commence, the
Company will pay royalties on net sales.

Patents and Proprietary Rights

     The Company is aggressively pursuing patent protection of its technologies.
Cortex owns or has exclusive rights (within its areas of product development) to
approximately 30 issued or allowed U.S. and foreign patents and a number of
additional U.S. patent applications and their international counterparts.

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

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

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

                                      -11-


such technology. In addition, there is no assurance that Cortex can
meaningfully protect its rights in such unpatented proprietary technology or
that others will not wrongfully obtain such technology.

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

Government Regulation

     In order to test, produce and market human therapeutic products in the
United States, mandatory procedures and safety standards established by the FDA
must be satisfied. Obtaining FDA approval is a costly and time-consuming
process. Cortex has initiated Phase I (safety) testing in Europe. In the U.S.,
the Company has conducted or is now conducting Phase I/IIa studies with CX516 in
patients with schizophrenia and Alzheimer's disease. Clinical trials in the U.S.
were and are performed under Notices of Claimed Investigational Exemption for a
New Drug ("IND") filed with the FDA by the Company's clinical collaborators.
Cortex filed an IND for CX516 in the name of the Company in the fall of 2000. It
is the Company's intent that Organon, Shire, Servier or other pharmaceutical
company partner or partners that the Company is seeking, will pursue other
required regulatory approvals to conduct further clinical testing.

     Clinical trials are normally conducted in three phases. Phase I trials are
concerned primarily with safety of the drug, involve fewer than 100 subjects,
and may take from six months to over a year. Phase II trials normally involve a
few hundred patients. Phase II trials are designed primarily 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 may also be examined. Phase III trials
may involve up to several thousand patients who have the disease or condition
for which the drug is intended, to approximate more closely the conditions of
ordinary medical practice. Phase III trials are also designed to clarify the
drug's benefit-risk relationship, to uncover less common side effects and
adverse reactions, and to generate information for proper labeling of the drug.
The FDA receives reports on the progress of each phase of clinical testing, and
may require the modification, suspension, or termination of clinical trials if
an unwarranted risk is presented to patients. The FDA estimates that the
clinical trial period of drug development can take up to ten years, and averages
five years. With certain exceptions, once clinical testing is completed, the
sponsor can submit a New Drug Application ("NDA") for approval to market a drug.
The FDA's review of an NDA can also be lengthy.

     Therapeutic products that may be developed and sold by the Company outside
the United States will be subject to regulation by the various countries in
which they are to be distributed. In addition, products manufactured in the
United States that have not yet been cleared for domestic distribution will
require FDA approval in order to be exported to foreign countries for
distribution there.

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

     Cortex does not have the financial and other resources to conduct the
clinical testing and other procedures required to obtain approval to market its
products. Accordingly, the Company will be dependent upon entering into
partnerships or other collaborative arrangements with third parties with the
required resources to obtain the needed approvals. Along with its licensing
agreements with Organon and Servier and its option agreement with Shire, Cortex
intends to enter into license or other arrangements with other pharmaceutical
companies under which those companies would conduct the required clinical

                                      -12-


trials and seek FDA approval for most or all of its proposed products. There is
no assurance that Cortex will be able to enter into such arrangements on
favorable terms, or at all, or that such arrangements will ultimately result in
obtaining the necessary governmental approvals.

Competition

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

     In addition, colleges, universities, governmental agencies and other public
and private research organizations will continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements to
collect license fees, milestone payments and royalties in exchange for license
rights to technology that they have developed, some of which may be directly
competitive with that of the Company. These institutions also compete with
companies such as Cortex in recruiting highly qualified scientific personnel.

     The Company expects technological developments in the neuropharmacology
field to continue to occur at a rapid rate and expects that competition will
remain intense as advances continue to be made. Although the Company believes,
based on the technical qualifications, expertise and reputations of its
Scientific Directors, consultants and other key scientists, that it will be able
to compete in the discovery and early clinical development of therapeutics for
neurological and psychiatric disorders, the Company does not have the resources,
and does not presently intend, to compete with major pharmaceutical companies in
clinical testing, manufacturing and marketing.

Product Liability Insurance

     The clinical testing, manufacturing and marketing of the Company's products
may expose the Company to product liability claims, against which the Company
maintains liability insurance. Although the Company has never been subject to a
product liability claim, there is no assurance that such claims will not be
brought in the future, that the coverage limits of the Company's insurance
policies will be adequate or that one or more successful claims brought against
the Company would not have a material adverse effect upon the Company's
business, financial condition and results of operations.

Employees

     As of June 30, 2001, Cortex had 28 full-time employees and had engaged one
part-time DVM-level, one part-time M.D.-level and two part-time Ph.D.-level
scientific consultants. Of the 28 full-time employees, 22 are engaged in
research and development, of which eight are Ph.D.-level or equivalent, and six
are engaged in management and administrative support. The Company also sponsors
a substantial amount of research in academic laboratories, primarily at the
University of California, Irvine.


Risk Factors

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

                                      -13-


If we cannot raise capital on acceptable terms, we may need to significantly
curtail our operations.

     Without further infusions of capital, we anticipate that we have sufficient
funds to maintain our operations through at least June 30, 2002. We will require
additional funds to continue our operations beyond that time. We cannot say with
any amount of certainty that we will be able to obtain the additional needed
funds on reasonable terms, or at all. If we decide to raise additional funds by
issuing more of our securities, stockholders at the time of issuance will
experience a dilution to the value of their securities.

     Should Shire elect to exercise its option to license the Ampakine
technology for the treatment of Attention Deficit Hyperactivity Disorder, Shire
will be required to pay an up-front fee, research support payments, milestone
payments and royalties on sales. Additional funds may result from milestone
payments related to our agreements with Organon and Servier. There is no
assurance that Shire will exercise its license option or that we will receive
milestone payments from Organon or Servier within the desired time frame, or at
all.

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

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

     Along with seeking additional corporate alliances, we may raise 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 we issue equity securities
to raise additional capital, our existing stockholders will likely suffer
dilution of their percentage ownership.

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

     We are dependent on future payments from Organon and Servier to continue
the development and commercialization of our Ampakine technology. Under the
agreement with Organon that we entered in January 1999, we share the research
efforts. Organon has primary responsibility for developing and commercializing
Ampakine compounds for use in the treatment of schizophrenia and depression. The
agreement provided an up-front payment by Organon of $2,000,000 and research
support payments of roughly $3,000,000 per year for two years. The agreement
also includes milestone payments, plus royalty payments on a worldwide basis. We
achieved the first milestone from the agreement in May 2000, which triggered a
$2,000,000 payment to us from Organon. Shortly after June 30, 2001, we achieved
the second milestone from the agreement, triggering Organon's payment to us of
another $2,000,000. Under the terms of the agreement, Organon has the right at
any time to terminate the agreement upon four months' prior notice. If Organon
were to discontinue its financial support, we might not be able to continue the
development of our Ampakine technology as a potential treatment for patients
with schizophrenia and depression.

                                      -14-


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

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

     Since our formation on February 10, 1987 through June 30, 2001, we have
generated only modest operating revenues and we have incurred net losses
approximating $39,899,000. As of June 30, 2001, we had an accumulated deficit of
approximately $41,932,000. 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. It is possible that we will never achieve profitable operations. We will
require substantial additional funds to advance our research and development
programs, particularly if we decide to independently conduct later-stage
clinical testing and apply for regulatory approval of any of our proposed
products.

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.

     We do not have the resources, and do not presently intend, to conduct
later-stage human clinical trials or to manufacture our proposed products.
Therefore, in addition to our agreements with Organon, Shire and Servier, we are
seeking other pharmaceutical company partners to conduct such activities for
most or all of our proposed products. In connection with our efforts to secure
corporate partners, we will seek to retain certain co-promotional rights to our
proposed products. These co-promotional rights will allow us to market our
products to selected medical specialists while our corporate partner markets our
products to the general medical market. We cannot assure you that we will be
able to enter into any partnering arrangements on this or any other basis. In
addition, we cannot assure you that we, Organon, Shire, Servier or our
prospective corporate partners, can successfully introduce our proposed
products. We also face the risks that our products will be rejected by patients,
health care providers or insurance companies, or that our products cannot be
manufactured and marketed at prices that would permit us to operate profitably.

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

     We cannot assure you that our research and development activities will
enable us to produce any products able to withstand competition. Our development
of each product is subject to the risks of failure commonly experienced in the
development of products based upon innovative technologies and the expense and
difficulty of obtaining approvals from regulatory agencies. All of our proposed
products are in the preclinical or early clinical stage of development and will
require significant additional funding for research, development and clinical
testing before we are able to submit them to any of the regulatory

                                      -15-


agencies for clearances for commercial use. We cannot assure you that we will be
able to license any technologies or proposed products, other than those licensed
to Organon or Servier. We cannot assure you that we will be able to complete
successfully any of our research and development activities. Even if we do
complete them, we cannot assure you that we will be able to market successfully
any of the products or that we will be able to obtain the necessary regulatory
approvals or that customers will like our products. We also face the risk that
any or all of our products will not work as intended or that they will be toxic,
or that, even if they do work and are safe, that our products will be
uneconomical to manufacture and market on a large scale. We also face the risk
that the rights of other persons or entities will stop us from marketing any of
our products or that other persons or entities might develop and market a
superior or equivalent product. Due to the extended testing and regulatory
review process required before we can obtain marketing clearance, we do not
expect to be able to commercialize any therapeutic drug for at least five years,
either directly or through our corporate partners or licensees.

Our products rely on licenses from the Regents of the University of California,
and if we lose access to these technologies, our revenues could decline.

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

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

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

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

There is a large number of shares of common stock that may be sold upon exercise
or conversion of outstanding securities, which may depress the market price of
our stock.

     If all outstanding warrants and options are exercised prior to their
expiration, approximately 2.7 million additional shares of common stock could
become freely tradable without restriction. A total of 5,679 shares of common
stock are issuable upon conversion of currently outstanding 9% preferred stock
and Series B preferred stock. On issuance, such shares will be freely tradable.
Sales of substantial

                                      -16-


amounts of common stock in the public market could adversely affect the
prevailing market price of our common stock.

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.
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.
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.

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
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 was disrupted, our AMPA-
receptor research program could be adversely affected. Our agreements with Dr.
Lynch and our other consultants are generally terminable by the consultant on
short notice.

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. 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.


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

     We are in the biopharmaceutical industry and the market price of securities
of life sciences companies in general has been very unpredictable. The following
factors, in addition to factors that affect

                                      -17-


that market generally, could significantly impact our business, and the market
price of our common stock could fall:

     .  competitors announcing technological innovations or new commercial
        products
     .  competitors' publicity regarding actual or potential products under
        development
     .  regulatory developments in the United States and foreign countries
     .  developments concerning proprietary rights, including patent litigation
     .  public concern over the safety of therapeutic products

We are subject to anti-takeover provisions that could affect the market price of
our common stock.

     Certain provisions of our certificate of incorporation could make it more
difficult for a third party to acquire control of our business, even if such
change in control would be beneficial to our stockholders. Our certificate of
incorporation allows our board of directors to issue up to 549,100 shares of
preferred stock without stockholder approval. Any such issuance could make it
more difficult for a third party to acquire our business and may adversely
affect the market price of our common stock.

Item 2.   Description of Property

     The Company leases approximately 32,000 square feet of office, research
laboratory and expansion space in Irvine, California under an operating lease
that expires May 31, 2004. Current monthly rent on these facilities is
approximately $20,000. The Company believes that this facility will be adequate
for its research and development activities for at least the next three years.

Item 3.   Legal Proceedings

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

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

     The Company did not submit any matter to a vote of security holders during
the fourth quarter of the fiscal year ended June 30, 2001, through the
solicitation of proxies or otherwise.

                                      -18-


PART II

Item 5.   Market for Common Equity and Related Stockholder Matters

     The Company's common stock (AMEX symbol: COR) began trading on The American
Stock Exchange on May 9, 2001. From March 17, 1999 to May 8, 2001, the Company's
common stock was listed on the OTC Bulletin Board. Prior to March 17, 1999, the
Company's common stock was listed on the Nasdaq SmallCap Market. The following
table presents quarterly information on the high and low sales prices of the
common stock for the fiscal years ended June 30, 2001 and 2000.

                                                              High    Low
                                                              ----    ---

  Fiscal Year ended June 30, 2001

  Fourth Quarter........................................... $ 3.30  $ 1.50
  Third Quarter............................................   2.75    1.44
  Second Quarter...........................................   3.63    1.41
  First Quarter............................................   4.50    2.47

  Fiscal Year ended June 30, 2000

  Fourth Quarter........................................... $ 5.06  $ 2.25
  Third Quarter............................................   8.13    0.69
  Second Quarter...........................................   0.88    0.66
  First Quarter............................................   1.03    0.59

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

     As of June 30, 2001, there were 553 stockholders of record of the Company's
common stock, and approximately 8,300 beneficial owners. The high and low sales
prices for the Company's common stock on September 18, 2001, as reported by The
American Stock Exchange, were $2.50 and $2.00, respectively.

     The Company has never paid cash dividends on its common stock and does not
anticipate paying such dividends in the foreseeable future. The outstanding
shares of 9% Preferred Stock bear a fixed dividend of $0.09 per share per annum,
which accrues in equal semiannual installments on June 15 and December 15 of
each year and which must be paid in full before any dividends can be paid on the
common stock. At June 30, 2001, Cortex had paid all accrued dividends on the
currently outstanding 9% Preferred Stock. The payment of future dividends, if
any, will be determined by the Board of Directors in light of conditions then
existing, including the Company's financial condition and requirements, future
prospects, restrictions in financing agreements, business conditions and other
factors deemed relevant by the Board of Directors.

                                      -19-


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

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

Results of Operations

From inception (February 10, 1987) through June 30, 2001, the Company's revenue
has consisted of (i) $15,884,000 of license fees and research and development
funding, (ii) net interest income aggregating $1,962,000 and (iii) $513,000 of
grant revenue.

In January 1999, the Company entered a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a pharmaceutical
business unit of Akzo Nobel (The Netherlands). The agreement will allow Organon
to develop and commercialize the Company's proprietary Ampakine(R) technology
for the treatment of schizophrenia and depression.

During the year ended June 30, 2000, the Company recorded research revenues of
$3,284,000, reimbursement for study drug of $75,000 and a milestone payment of
$2,000,000 from its agreement with Organon. The milestone was triggered by
Organon's selection of a compound to pursue in Phase I clinical testing as a
potential treatment for schizophrenia. During the year ended June 30, 2001,
revenues related to the agreement included the remaining scheduled research
support of $1,470,000.

Shortly after June 30, 2001, Organon informed Cortex of its intent to continue
developing the selected compound in Phase II clinical testing, triggering a
$2,000,000 payment to Cortex from Organon. Cortex remains eligible to receive
additional milestone payments based upon successful clinical development, and
ultimately, royalty payments on worldwide sales.

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

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

In October 2000, the Company entered a research collaboration and an exclusive
license agreement with Les Laboratoires Servier ("Servier"). The agreement will
allow Servier to develop and commercialize the Company's Ampakine technology for
the treatment of declines in cognitive performance associated with aging and
neurodegenerative diseases. The indications covered include, but are not limited
to, Alzheimer's disease, Mild Cognitive Impairment, sexual dysfunction, and the
dementia associated with multiple sclerosis and Lou Gehrig's disease. During the
year ended June 30, 2001, Servier paid Cortex a nonrefundable up-front fee of
$5,000,000 and research support of $1,654,000. The agreement includes research
support payments of up to $2,025,000 per year for three years (subject to Cortex
providing agreed-upon levels of research personnel). The agreement also includes
milestone payments, plus royalty payments on sales in licensed territories.

From inception (February 10, 1987) through June 30, 2001, the Company sustained
losses aggregating $39,899,000. Due to projected fluctuations in funding,
continuing losses are likely over the next several years, as the Company's
ongoing operating expenses will only be offset, if at all, by research support

                                      -20-


payments and possible milestone payments from its research collaborations with
Organon and Servier, by possible payments on exercise of its option agreement
with Shire, or under planned strategic alliances that the Company is seeking
with other pharmaceutical companies for the clinical development, manufacturing
and marketing of its products. The nature and timing of payments to Cortex under
the Organon, Servier and Shire agreements or other planned strategic alliances,
if and when entered into, are likely to significantly affect the Company's
operations and financing activities and to produce substantial period-to-period
fluctuations in reported financial results. Over the longer term, the Company
will require successful commercial development of its products by Organon,
Servier, Shire or its other prospective partners to attain sustained profitable
operations from royalties or other product-based revenues.

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

Fiscal Years ended June 30, 2001 and 2000

For the year ended June 30, 2001, the Company's loss from operations was
$2,398,000 compared to a loss from operations of $203,000 for the prior year.
The difference primarily represents decreased revenues from the research
collaboration with Organon.

Revenues for the prior year included a $2,000,000 milestone payment, triggered
when Organon selected a lead compound to pursue in Phase I clinical testing.
Revenues for the prior year also included a full-year of Organon research
revenues. The collaborative research phase of the Organon agreement ended in
mid-January 2001, producing roughly a half-year of research revenues in the
current fiscal year.

During the year ended June 30, 2001, revenues related to the agreement with
Servier partially offset the decreased revenues from the agreement with Organon.
Cortex received a $5,000,000 nonrefundable, up-front payment from Servier in
October 2000. In accordance with Staff Accounting Bulletin No. 101 ("SAB 101"),
revenues related to the up-front payment are being recorded over the three-year
research phase of the agreement, which began in December 2000. As a result,
approximately $940,000 of the $5,000,000 received was recorded as licensing
revenues during the current fiscal year. The agreement with Servier also
provided current year research revenues of $1,148,000.

Research and development expenses increased to $4,410,000, or by 13%, during the
year ended June 30, 2001 compared to the prior year. Most of the increase
related to costs for preparing a Notice of Claimed Investigational Exemption for
a New Drug ("IND") and expenses for manufacturing drug for use in planned
clinical trials.

General and administrative expenses amounted to $2,431,000 for the year ended
June 30, 2001, increasing 34% from the prior year. Most of the increase
represents costs related to expanded investor relations activities, initial
listing fees for The American Stock Exchange and salary expenses related to the
addition of a business development executive late in fiscal 2000.


Plan of Operation; Liquidity and Capital Resources

Cortex has funded its organizational and research and development activities to
date primarily from the issuance of equity securities, with net proceeds from
inception (February 10, 1987) through June 30, 2001 aggregating $38,542,000. Net
interest income from inception through June 30, 2001 was $1,962,000.

Research and licensing payments received in connection with the agreement with
Organon totaled $9,880,000 through June 30, 2001. Of this amount, Cortex
received $1,287,000 during the year ended June 30, 2001, which represented the
agreement's remaining scheduled research support. Shortly after June 30, 2001,
Cortex received notice from Organon of its intent to enter Phase II testing of
the selected

                                      -21-


Ampakine compound, triggering a $2,000,000 payment to Cortex. Under the terms of
the agreement, Cortex may receive additional milestone payments based on
clinical development of the licensed technology and royalties on worldwide
sales.

Under the agreement with Servier, Cortex received research and licensing
payments of $6,654,000 during the year ended June 30, 2001. This amount included
a $5,000,000 nonrefundable, up-front fee and research support of $1,654,000. The
agreement provides research support of up to $2,025,000 per year for three
years, plus milestone payments based upon successful clinical development, and
royalties on sales in licensed territories.

In October 2000, Cortex received notice of a Phase II Small Business Innovative
Research award from the National Institutes of Health. The award will provide up
to $1,074,000 over a three-year period and will offset the Company's expenses in
researching its Ampakine compounds as a potential new therapy for stroke.

As of June 30, 2001, the Company had cash, cash equivalents and short-term
investments totaling $4,558,000 and working capital of $1,984,000. As of June
30, 2000, the Company had cash, cash equivalents and short-term investments of
$2,705,000 and working capital of $1,921,000.

The increase in cash as of June 30, 2001 primarily reflects the receipt of the
$5,000,000 nonrefundable, up-front payment from the agreement with Servier in
October 2000. Working capital did not increase correspondingly due to the impact
of SAB 101. In accordance with SAB 101, the revenue related to the up-front fee
will be amortized over the agreement's three-year collaborative research phase,
which began in December 2000. As of June 30, 2001, current liabilities related
to the Servier agreement include unearned revenues of $1,667,000 from the
nonrefundable, up-front fee and $506,000 of quarterly research support received
in advance.

The Company leases approximately 32,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 2004.
The commitments under the lease agreement for the years ending June 30, 2002,
2003 and 2004 are $274,000, $358,000 and $343,000, respectively. From inception
(February 10, 1987) through June 30, 2001, net expenditures for furniture,
equipment and leasehold improvements aggregated $2,500,000.

The Company is committed to $989,000 for sponsored research and other
remuneration to academic institutions, of which $554,000 is payable over the
next twelve months. Remaining Cortex commitments for Phase I/IIa clinical
studies on the Ampakine compounds are not significant.

In July 2001, Shire began enrollment in a Phase IIb study of the Ampakine
technology as a potential treatment for Attention Deficit Hyperactivity
Disorder. Shire is responsible for all costs associated with the clinical trial.
Together with its corporate partner, Servier, the Company is planning to conduct
a transnational clinical study with the Ampakine CX516 in patients with Mild
Cognitive Impairment (MCI). Servier is expected to incur the bulk of the costs
for this study, which is currently in the planning phase.

As of June 30, 2001, Cortex had 28 full-time employees. Neither significant
investments in plant or equipment nor increases to staffing levels are
contemplated under current spending plans for the upcoming fiscal year.

In June 2000, the Company received $247,300 from the Institute for the Study of
Aging (the "Institute"), which will partially offset the Company's costs for the
planned testing in patients with MCI (Note 8). Given that Cortex must use the
funding from the Institute solely for the planned clinical trials, the Company
has recorded the amounts received as restricted cash in its balance sheet.
Provided that Cortex complies with the conditions of the funding agreement,
including the restricted use of the amounts

                                      -22-


received, repayment of the advance shall not be required unless Cortex enters an
Ampakine compound into Phase III clinical trials for Alzheimer's disease. Upon
such potential clinical trials, repayment would include interest computed at a
rate equal to one-half of the prime lending rate. In lieu of cash, in the event
of repayment the Institute may elect to receive the balance of outstanding
principal and accrued interest as shares of Cortex common stock. The conversion
price for such form of repayment shall initially equal $4.50 per share, subject
to adjustment under certain circumstances.

Between March 17, 1999 and May 8, 2001, the Company's common stock was traded in
the over-the counter market on Nasdaq's "Electronic Bulletin Board," under the
symbol "CORX." Effective May 9, 2001, Cortex common stock began trading on The
American Stock Exchange under the symbol "COR."

Cortex anticipates that its cash and cash equivalents -- and the Organon
milestone payment and scheduled research support payments from its agreements
with Servier -- will be sufficient to satisfy the Company's capital requirements
through at least June 30, 2002. Additional funds will be required to continue
operations beyond that time. Should Shire elect to exercise its option to
license the Ampakine technology for the treatment of ADHD, the negotiated
agreement includes an up-front fee, research support payments, milestone
payments and royalties on sales. Cortex may also receive additional milestone
payments from the Organon and Servier agreements. There is no assurance that
Shire will exercise its license option or that the Company will receive
milestone payments from Organon or Servier within the desired timeframe, or at
all. See "Risk Factors -- If we cannot raise capital on acceptable terms, we may
need to significantly curtail our operations."

In order to provide for both its immediate and longer-term spending
requirements, the Company is presently seeking collaborative or other
arrangements with larger pharmaceutical companies. Under these agreements, it is
intended that such companies would provide additional capital to the Company in
exchange for exclusive or non-exclusive license or other rights to certain of
the technologies and products the Company is developing. Competition for such
arrangements is intense, however, with a large number of biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical
companies. Although the Company has been engaged in discussions with candidate
companies, there is no assurance that an agreement or agreements will arise from
these discussions in a timely manner, or at all, or that revenues that may be
generated thereby will offset operating expenses sufficiently to reduce the
Company's short and longer-term funding requirements.

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

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

                                      -23-


Item 7.   Financial Statements

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

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

Not applicable.



PART III

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

The sections entitled "Nominees for Director," "Executive Officers" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" included
in the Company's Proxy Statement for its 2001 Annual Meeting of Stockholders are
incorporated herein by reference.

Item 10.  Executive Compensation

The sections entitled "Executive Compensation," "Option Matters," "Employment
and Consulting Agreements" and "Director Compensation" included in the Company's
Proxy Statement for its 2001 Annual Meeting of Stockholders are incorporated
herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The section entitled "Principal Stockholders" included in the Company's Proxy
Statement for its 2001 Annual Meeting of Stockholders is incorporated herein by
reference.

Item 12.  Certain Relationships and Related Transactions

The section entitled "Certain Transactions" included in the Company's Proxy
Statement for its 2001 Annual Meeting of Stockholders is incorporated herein by
reference.

                                      -24-


Item 13.    Exhibits and Reports on Form 8-K

      (a)   Item 601 Exhibits


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

   3.1    Restated Certificate of Incorporation dated April 11, 1989, as amended
          by Certificate of Amendment on June 27, 1989, by Certificate of
          Designation filed April 29, 1991, by Certificate of Correction filed
          May 1, 1991, by Certificate of Amendment of Certificate of Designation
          filed June 13, 1991, by Certificate of Amendment of Certificate of
          Incorporation filed November 12, 1992, by Certificate of Amendment of
          Restated Certificate of Incorporation filed January 11, 1995, by
          Certificate of Designation filed December 8, 1995, by Certificate of
          Designation filed October 15, 1996, and by Certificate of Designation
          filed June 4, 1997, incorporated by reference to Exhibit 3.1 of the
          Company's Registration Statement on Form SB-2 filed June 18, 1997.
   3.2    By-Laws of the Company, as adopted March 4, 1987, and amended through
          October 8, 1996, incorporated by reference to Exhibit 3.2 to the
          Company's Annual Report on Form 10-KSB filed October 15, 1996.
  10.2    Consulting Agreement, dated October 30, 1987, between the Company and
          Carl W. Cotman, Ph.D. *
  10.3    Consulting Agreement, dated as October 30, 1987, between the Company
          and Gary S. Lynch, Ph.D. *
 10.19    License Agreement dated March 27, 1991 between the Company and the
          Regents of the University of California, incorporated by reference to
          Exhibit 10.19 of the Company's Amendment on Form 8 filed November 27,
          1991 to the Company's Annual Report on Form 10-K filed September 30,
          1991. (Portions of this Exhibit are omitted and were filed separately
          with the Secretary of the Commission pursuant to the Company's
          application requesting confidential treatment under Rule 24b-2 under
          the Securities Exchange Act of 1934).
 10.31    License Agreement dated June 25, 1993 between the Company and the
          Regents of the University of California, incorporated by reference to
          the Company's Amendment of Annual Report on Form 10-KSB/A filed
          November 26, 1993. (Portions of this Exhibit are omitted and were
          filed separately with the Secretary of the Commission pursuant to the
          Company's application requesting confidential treatment under Rule
          24b-2 of the Securities Exchange Act of 1934).
 10.44    Lease Agreement, dated January 31, 1994, for the Company's facilities
          in Irvine, California, incorporated by reference to Exhibit 10.44 of
          the Company's Quarterly Report on Form 10-QSB filed May 16, 1994.
 10.48    Amendment to the Non-Employee Director Formula Grant Plan, adopted
          December 15, 1994, incorporated by reference to the same numbered
          Exhibit to the Company's Annual Report on Form 10-KSB filed October
          13, 1995.*
 10.49    Settlement Agreement between the Company and Alkermes, Inc., dated
          October 5, 1995, incorporated by reference to the same numbered
          Exhibit to the Company's Annual Report on Form 10-KSB filed October
          13, 1995. (Portions of this Exhibit are omitted and were filed
          separately with the Secretary of the Commission pursuant to the
          Company's Application requesting confidential treatment under Rule 406
          of the Securities Act of 1933).
 10.56    Employment Agreement dated May 15, 1996, between the Company and
          Vincent F. Simmon, Ph.D., incorporated by reference to the same
          numbered Exhibit to the Company's Current Report on Form 8-K filed
          June 4, 1996.
 10.60    1996 Stock Incentive Plan, incorporated by reference to the same
          numbered Exhibit to the Company's Quarterly Report on Form 10-QSB
          filed November 12, 1996.
 10.64    Research and Collaboration and License Agreement between the Company
          and N.V. Organon, dated January 13, 1999, incorporated by reference to
          Exhibit 10.64 of the Company's quarterly report on Form 10-QSB as
          filed on February 16, 1999. (Portions of this Exhibit were omitted and
          filed separately with the Secretary of the Commission pursuant to the
          Company's application requesting confidential treatment under Rule
          24b-2 of the Securities Exchange Act of 1934.)
 10.65    Amendment No. 1 to the Lease Agreement for the Company's facilities in
          Irvine, California, dated February 1, 1999, incorporated by reference
          to the same number Exhibit to the Company's Annual Report on Form 10-
          KSB filed September 28, 1999.

                                      -25-


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

 10.66    Option Agreement between the Company and Shire Pharmaceuticals Group,
          plc dated April 20, 2000, incorporated by reference to Exhibit 10.66
          of the Company's quarterly report on Form 10-QSB as filed on May 12,
          2000. (Portions of this Exhibit were omitted and filed separately with
          the Secretary of the Commission pursuant to the Company's application
          requesting confidential treatment under Rule 24b-2 of the Securities
          Act of 1934.)
 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).
 10.68    Amendment dated December 17, 1999 to the Employment Agreement dated
          May 15, 1996, between the Company and Vincent F. Simmon, Ph.D.,
          incorporated by reference to the same numbered Exhibit to the
          Company's Quarterly Report on Form 10-QSB filed February 12, 2001.
 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.
  21      Subsidiaries of the Registrant, incorporated by reference to the same
          numbered Exhibit to the Company's Annual Report on Form 10-KSB filed
          October 13, 2000.
 23.1     Consent of Ernst & Young LLP, independent auditors.
  24      Power of Attorney (see page S-1).

____________________

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

    (b)   Reports on Form 8-K

          On May 2, 2001, the Company filed a report on 8-K announcing that it
          was approved for trading on the American Stock Exchange under the
          symbol COR. No other reports on Form 8-K were filed during the quarter
          ended June 30, 2001.

                                      -26-


                                  Signatures

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

                                    CORTEX PHARMACEUTICALS, INC.


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

We, the undersigned directors and officers of Cortex Pharmaceuticals, Inc., do
hereby constitute and appoint each of Vincent F. Simmon, Ph.D. and Maria S.
Messinger as our true and lawful attorney-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 attorney-in-
fact and agent 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-KSB, 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 Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.



          Signature                            Title                                         Date
          ---------                            -----                                         ----
                                                                                  
  /s/ Vincent F. Simmon, Ph.D.              President and Chief                         September 21, 2001
---------------------------------               Executive Officer, Director
       Vincent F. Simmon, Ph.D.
    (Principal Executive Officer)


  /s/ Maria S. Messinger                    Vice President, Chief Financial             September 21, 2001
---------------------------------               Officer and Secretary
  Maria S. Messinger
  (Principal Financial and
  Accounting Officer)

  /s/ Robert F. Allnutt                     Chairman of the Board                       September 21, 2001
---------------------------------               and Director
  Robert F. Allnutt

  /s/ Charles J. Casamento                  Director                                    September 21, 2001
---------------------------------
  Charles J. Casamento


  /s/ Carl W. Cotman, Ph.D.                 Director                                    September 21, 2001
---------------------------------
  Carl W. Cotman, Ph.D.

  /s/ Michael G. Grey                       Director                                    September 21, 2001
---------------------------------
  Michael G. Grey

  /s/ Davis L. Temple, Jr., Ph.D.           Director                                    September 21, 2001
---------------------------------
  Davis L. Temple, Jr., Ph.D.


                                      S-1



Index to Financial Statements



                                                                                                               Page
                                                                                                               ----
                                                                                                           
         Report of Independent Auditors...................................................................      F-2

         Balance Sheets-- As of June 30, 2001 and 2000....................................................      F-3

         Statements of Operations-- For the years ended
            June 30, 2001 and 2000........................................................................      F-4

         Statements of Stockholders' Equity-- For the period from
            June 30, 1999 through June 30, 2001...........................................................      F-5

         Statements of Cash Flows-- For the years ended
            June 30, 2001 and 2000 .......................................................................      F-6

         Notes to Financial Statements....................................................................      F-7


                                      F-1


         Report of Independent Auditors


         The Stockholders and Board of Directors
         Cortex Pharmaceuticals, Inc.

         We have audited the accompanying balance sheets of Cortex
         Pharmaceuticals, Inc. (the "Company") as of June 30, 2001 and 2000, and
         the related statements of operations, stockholders' equity and cash
         flows for the years then ended. These financial statements are the
         responsibility of the Company's management. Our responsibility is to
         express an opinion on these financial statements based on our audits.

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

         In our opinion, the financial statements referred to above present
         fairly, in all material respects, the financial position of Cortex
         Pharmaceuticals, Inc. at June 30, 2001 and 2000, and the results of its
         operations and its cash flows for the years then ended, in conformity
         with accounting principles generally accepted in the United States.

         As discussed in Note 1 to the financial statements, in 2001 the Company
         changed its revenue recognition policy.

                                                       /s/   Ernst & Young LLP


         San Diego, California
         July 20, 2001

                                      F-2


Cortex Pharmaceuticals, Inc.
Balance Sheets



                                                               June 30, 2001     June 30, 2000
----------------------------------------------------------------------------------------------
                                                                           
     Assets

     Current assets:
       Cash and cash equivalents                               $   4,557,516     $   2,704,961
       Restricted cash                                               192,300           247,300
       Other current assets                                          260,679           103,802
                                                               -------------     -------------
          Total current assets                                     5,010,495         3,056,063

     Furniture, equipment and leasehold improvements, net            496,586           398,570
     Other                                                            33,407            33,407
                                                               -------------     -------------
                                                               $   5,540,488     $   3,488,040
                                                               =============     =============
     Liabilities and Stockholders' Equity

     Current liabilities:
       Accounts payable                                        $     391,784     $     469,800
       Accrued dividends                                                  --            25,988
       Accrued wages, salaries and related expenses                  146,676            89,551
       Unearned revenue                                            2,230,117           302,085
       Advance for Alzheimer's project                               258,110           247,300
                                                               -------------     -------------
          Total current liabilities                                3,026,687         1,134,724

     Unearned revenue, net of current portion                      2,393,518                --

     Stockholders' equity:
       9% cumulative convertible preferred stock,
          $0.001 par value; $1.00 per share liquidation
          preference; shares authorized: 1,250,000;
          shares issued and outstanding: 15,000 (2001)
          and 27,500 (2000)                                           15,000            27,500
       Series B convertible preferred stock, $0.001
          par value; $0.6667 per share liquidation
          preference; shares authorized: 3,200,000;
          shares issued and outstanding: 37,500                       21,703            21,703
       Common stock, $0.001 par value; shares
          authorized: 30,000,000; shares issued and
          outstanding: 16,629,887 (2001) and
          16,576,174 (2000)                                           16,629            16,575
       Deferred compensation                                              --           (92,000)
       Additional paid-in capital                                 41,998,545        41,637,793
       Accumulated deficit                                       (41,931,594)      (39,258,255)
                                                               -------------     -------------
          Total stockholders' equity                                 120,283         2,353,316
                                                               -------------     -------------
                                                               $   5,540,488     $   3,488,040
                                                               =============     =============


              See accompanying notes.

                                      F-3


Cortex Pharmaceuticals, Inc.
Statements of Operations



                                                                 Years ended June 30,
                                                            ------------------------------
                                                                     2001             2000
         ---------------------------------------------------------------------------------
                                                                      
         Revenues:
           Research and license revenue                     $   4,263,986    $   5,369,488
           Grant revenue                                          178,849          138,999
                                                            -------------    -------------
             Total revenues                                     4,442,835        5,508,487
                                                            -------------    -------------

         Operating expenses:
           Research and development                             4,409,708        3,896,627
           General and administrative                           2,431,321        1,814,632
                                                            -------------    -------------
             Total operating expenses                           6,841,029        5,711,259
                                                            -------------    -------------
         Loss from operations                                  (2,398,194)        (202,772)
         Interest income, net                                     254,855            5,370
                                                            -------------    -------------

         Loss before cumulative effect of
           change in accounting principle                      (2,143,339)        (197,402)
                                                            -------------    -------------
         Cumulative effect of change in
           accounting principle                                  (530,000)              --
                                                            -------------    -------------

         Net loss before preferred stock dividends             (2,673,339)        (197,402)

         Dividends on 9% Cumulative
           Convertible Preferred Stock                            (10,462)           2,475
                                                            -------------    -------------
         Net loss applicable to common stock                $  (2,662,877)   $    (199,877)
                                                            =============    =============

         Basic and diluted net loss per share:
           Loss before cumulative effect of
             change in accounting principle                 $       (0.13)   $       (0.01)
           Cumulative effect of change in
             accounting principle                                   (0.03)              --
                                                            -------------    -------------
         Net loss per share, basic and diluted              $       (0.16)   $       (0.01)
                                                            =============    =============

         Shares used in basic and diluted calculation          16,602,846       15,795,595
                                                            =============    =============


               See accompanying notes.

                                      F-4


Cortex Pharmaceuticals, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY



                                                                       9%     Series B
                                                              convertible  convertible                   Additional
                                                                preferred    preferred       Common         paid-in      Deferred
                                                                    stock        stock        stock         capital  compensation
     ----------------------------------------------------------------------------------------------------------------------------
                                                                                                      
     Balance, June 30, 1999                                     $  27,500    $  43,405    $  15,519    $ 38,811,100     $      --

        Issuance of 496,459 shares of common stock upon
           exercise of warrants                                        --           --          496       1,501,844            --
        Issuance of 302,301 shares of common stock upon
           exercise of stock options                                   --           --          303         113,049            --
        Issuance of 254,353 shares of common stock to
           Shire Pharmaceuticals Group, plc                            --           --          254         826,586            --
        Conversion of 37,500 shares of Series B preferred
           stock into 3,679 shares of common stock                     --      (21,702)           3          21,699            --
        Issuance of warrants to purchase 200,000 shares
           of common stock                                             --           --           --         241,500            --
        Issuance of stock options to consultants                       --           --           --          92,000       (92,000)
        Extension of stock options previously granted
           to former Chairman of the Board                             --           --           --          32,490            --
        9% preferred stock dividends                                   --           --           --          (2,475)           --
        Net loss and comprehensive loss                                --           --           --              --            --
                                                                ---------    ---------    ---------    ------------     ---------
     Balance, June 30, 2000                                        27,500       21,703       16,575      41,637,793       (92,000)

        Issuance of 52,047 shares of common stock upon
           exercise of stock options                                   --           --           52          26,203            --
        Conversion of 12,500 shares of 9% preferred stock
           into 1,666 shares of common stock                      (12,500)          --            2          12,498            --
        Adjustment of accrued dividends for conversion
           of 9% preferred stock                                       --           --           --          12,375            --
        Issuance and vesting of stock options for consultants          --           --           --         111,832        92,000
        Non-cash compensation charges for stock options
           re-priced in 1998                                           --           --           --         199,757            --
        9% preferred stock dividends                                   --           --           --          (1,913)           --
        Net loss and comprehensive loss                                --           --           --              --            --
                                                                ---------    ---------    ---------    ------------     ---------
     Balance, June 30, 2001                                     $  15,000    $  21,703    $  16,629    $ 41,998,545     $      --
                                                                =========    =========    =========    ============     =========


                                                                 Accumulated
                                                                     deficit            Total
     ----------------------------------------------------------------------------------------
                                                                            
     Balance, June 30, 1999                                    $ (39,060,853)     $  (163,329)

        Issuance of 496,459 shares of common stock upon
           exercise of warrants                                           --        1,502,340
        Issuance of 302,301 shares of common stock upon
           exercise of stock options                                      --          113,352
        Issuance of 254,353 shares of common stock to
           Shire Pharmaceuticals Group, plc                               --          826,840
        Conversion of 37,500 shares of Series B preferred
           stock into 3,679 shares of common stock                        --               --
        Issuance of warrants to purchase 200,000 shares
           of common stock                                                --          241,500
        Issuance of stock options to consultants                          --               --
        Extension of stock options previously granted
           to former Chairman of the Board                                --           32,490
        9% preferred stock dividends                                      --           (2,475)
        Net loss and comprehensive loss                             (197,402)        (197,402)
                                                               -------------      -----------
     Balance, June 30, 2000                                      (39,258,255)       2,353,316

        Issuance of 52,047 shares of common stock upon
           exercise of stock options                                      --           26,255
        Conversion of 12,500 shares of 9% preferred stock
           into 1,666 shares of common stock                              --               --
        Adjustment of accrued dividends for conversion
           of 9% preferred stock                                          --           12,375
        Issuance and vesting of stock options for consultant              --          203,832
        Non-cash compensation charges for stock options
           re-priced in 1998                                              --          199,757
        9% preferred stock dividends                                      --           (1,913)
        Net loss and comprehensive loss                           (2,673,339)      (2,673,339)
                                                               -------------      -----------
     Balance, June 30, 2001                                    $ (41,931,594)     $   120,283
                                                               =============      ===========


     See accompanying notes.




Cortex Pharmaceuticals, Inc.
Statements of Cash Flows



                                                                                            Years ended June 30,
                                                                                     ----------------------------
                                                                                           2001              2000
              ---------------------------------------------------------------------------------------------------
                                                                                                
              Cash flows from operating activities:
                Net loss                                                           $ (2,673,339)      $  (197,402)
                Adjustments to reconcile net loss
                  to net cash used in operating activities:
                    Depreciation and amortization                                       149,478           172,764
                    Stock option compensation expense                                   403,589            32,490
                    Warrants issued for debt restructuring                                   --           241,500
                    Changes in operating assets/liabilities:
                      Accounts payable and accrued expenses                             (20,891)          (31,620)
                      Unearned revenue                                                4,321,550           203,501
                      Decrease in restricted cash                                        55,000                --
                      Other current assets                                             (156,877)          (42,825)
                    Changes in other assets and other liabilities                        10,810          (185,952)
                                                                                   ------------       -----------
                Net cash provided by operating activities                             2,089,320           192,456
                                                                                   ------------       -----------

              Cash flows from investing activities:
                Purchase of fixed assets                                               (247,494)          (39,364)
                                                                                   ------------       -----------
                Net cash used in investing activities                                  (247,494)          (39,364)
                                                                                   ------------       -----------

              Cash flows from financing activities:
                Proceeds from issuance of common stock                                   26,254         2,442,532
                Payment of 9% preferred stock dividends                                 (15,525)               --
                Principal payments on note payable to Alkermes, Inc.                         --          (800,000)
                                                                                   ------------       -----------
                Net cash provided by financing activities                                10,729         1,642,532
                                                                                   ------------       -----------

              Increase in cash and cash equivalents                                   1,852,555         1,795,624
              Cash and cash equivalents, beginning of period                          2,704,961           909,337
                                                                                   ------------       -----------
              Cash and cash equivalents, end of period                             $  4,557,516       $ 2,704,961
                                                                                   ============       ===========


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


              Supplemental schedule of non-cash investing and financing
              activities:
                Conversion of preferred stock to common stock                      $     12,500       $    21,702
                Advance for Alzheimer's project                                              --           247,300


                See accompanying notes.

                                      F-6


Cortex Pharmaceuticals, Inc.
NOTES TO FINANCIAL STATEMENTS


Note 1 -- Business and Summary of Significant Accounting Policies

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

In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a subsidiary of Akzo
Nobel (Note 4). The agreement will enable Organon to develop and commercialize
the Company's AMPAKINE(R) technology for the treatment of schizophrenia and
depression. In April 2000, the Company entered into an option agreement with
Shire Pharmaceuticals Group, plc ("Shire") under which Shire will evaluate the
use of the Company's AMPAKINE CX516 for the treatment of Attention Deficit
Hyperactivity Disorder (Note 5). In October 2000, the Company entered into a
research collaboration and exclusive license agreement with Les Laboratoires
Servier ("Servier").  The agreement will enable Servier to develop and
commercialize the Company's AMPAKINE technology for the treatment of memory
impairment associated with aging and neurodegenerative diseases such as
Alzheimer's disease (Note 6).

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

Basis of Presentation -- From inception through June 30, 2001, the Company has
generated only modest operating revenues and has incurred losses approximating
$39,899,000. The Company has derived the majority of its revenues from its
agreements with Organon and Servier, as further described in Notes 4 and 6,
respectively. These agreements contributed 92% and 97% of total revenues for the
year ended June 30, 2001 and 2000, respectively. The Company anticipates that it
has sufficient capital to maintain its operations through at least June 2002;
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 will likely 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.

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

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

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

                                      F-7


Long-Lived Assets -- In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," if indicators of impairment exist, the
Company assesses the recoverability of the affected long-lived assets by
determining whether the carrying value of such assets can be recovered through
the undiscounted future operating cash flows. If impairment is indicated, the
Company measures the amount of such impairment by comparing the carrying value
of the asset to the present value of the expected future cash flows associated
with the use of the asset. While the Company's historical operating cash flow
losses are indicators of impairment, the Company believes that the future cash
flows to be received from the long-lived assets will exceed the assets' carrying
value. Accordingly, the Company has not recognized any impairment losses through
June 30, 2001.

Net Loss per Share -- In accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS 128), net loss per share is
computed based on the weighted average number of common shares outstanding and
includes preferred stock dividends. The Company has reserved 2,711,285 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 9% preferred stock
and Series B preferred stock, as further described in Note 3. The effect of the
potentially issuable shares of common stock were not included in the calculation
of diluted loss per share because their effect would be anti-dilutive. For
purposes of computing net loss per share, preferred stock dividends include
dividends actually accrued and `imputed dividends' for preferred stock issued
with a nondetachable beneficial conversion feature near the date of issuance.
Imputed dividends represent the aggregate difference between conversion price
and the fair market value of the common stock as of the date of issuance of the
preferred stock, without regard to the actual date upon which the preferred
stock may be converted.

Employee Stock Options -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), in accounting for its employee stock options because the alternative fair
value accounting provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), requires use of
option valuation models that were not developed for use in valuing employee
stock options. According to APB 25, no compensation expense is recognized since
the exercise price of the Company's stock options generally equals the market
price of the underlying stock on the date of grant.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB 25." 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. By adopting the Interpretation, the
Company now applies variable accounting for these options. Consequently, if the
market price of the Company's stock increases, the Company will recognize
additional compensation expense that it otherwise would not have incurred. For
the fiscal year ended June 30, 2001, the effect of adopting the Interpretation
was an increase in the net loss of $199,757, or $0.01 per share.

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

Revenue Recognition -- The Company recognizes research revenue from the
collaborations with Organon (Note 4) and Servier (Note 6) as services are
performed under the agreement. The Company records grant revenues as the
expenses related to the grant projects are incurred. All amounts received under
collaborative research agreements or research grants are non-refundable,
regardless of the success of the underlying research.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides
the SEC Staff's views in applying generally accepted accounting principles to
various revenue recognition issues, and specifically addresses revenue
recognition for up-front, non-refundable fees received in connection with
research collaboration arrangements. It is the SEC's position that such fees
should be generally recognized over the term of the related agreements.

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

                                      F-8


reasonably assured at the inception of the agreement, and (ii) the Company's
performance obligations after the milestone achievement will continue to be
funded by the collaborator at a comparable level to before the milestone
achievement. 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. Royalties, if any, will be recognized as
earned.

As required, Cortex adopted SAB 101 in the fourth quarter of its fiscal year
ending June 30, 2001. Before fully adopting SAB 101, Cortex applied the related
principles to its accounting for the up-front fee from the agreement with
Servier (Note 6). The revenues from the Servier $5,000,000 non-refundable fee
are being recorded evenly over the three-year research phase of the agreement,
which began in December 2000.

The Company's previous accounting policy was to recognize such nonrefundable
fees as revenues when the payments were received. SAB 101 required Cortex to
change its accounting method for the up-front fee from the collaboration with
Organon (Note 4) in 1999, resulting in a cumulative change in accounting
principal of approximately $530,000.

This cumulative effect of the change in accounting principle was retroactively
recorded as of July 1, 2000, increasing previously reported net loss per share
by $0.02 in the first quarter, and decreasing previously reported net loss per
share by $0.01 in both the second and third quarters. As of June 30, 2001, all
revenues received from research collaborations have been recorded in conformity
with SAB 101.

Prior year amounts have not been restated in the accompanying statement of
operations. Had this change in accounting principle been applied retroactively,
the net income (loss) applicable to common shares and earnings (loss) per share
amounts for the fiscal years ended June 30, 2001 and 2000 would have been as
follows:



                                                                                 Years ending June 30,
                                                                                  2001          2000
                                                                         ---------------------------------
                                                                                           
Pro-forma net income (loss) applicable to common shares                    $ (2,132,877)         $ 800,123
Pro-forma basic earnings (loss) per share                                       ($ 0.13)         $    0.05
Pro-forma diluted earnings (loss) per share                                     ($ 0.13)         $    0.04


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

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

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives, but with no maximum life. The amortization
provisions of SFAS 142 apply immediately to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to adopt SFAS 142
effective July 1, 2002. As of June 30, 2001, the Company does not have any
recorded goodwill or unamortized intangible assets.

                                      F-9


Note 2 -- Furniture, Equipment and Leasehold Improvements

Furniture, equipment and leasehold improvements consist of the following:




                                                                        June 30,
                                                         --------------------------------
                                                                 2001               2000
                                                         --------------------------------
                                                                       
               Laboratory equipment                       $   1,340,996      $ 1,240,241
               Leasehold improvements                           696,295          623,176
               Furniture and equipment                          172,896          115,909
               Computers and software                           290,015          273,382
                                                          -------------     ------------
                                                              2,500,202        2,252,708
               Accumulated depreciation                      (2,003,616)      (1,854,138)
                                                          --------------    ------------
                                                          $     496,586      $   398,570
                                                          =============     ============


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

The 9% Cumulative Convertible Preferred Stock as of June 30, 2001 and June 30,
2000 consisted of 15,000 and 27,500 shares, respectively, of an original
1,250,000 shares of 9% Preferred issued in a 1988 private placement. Each share
of 9% Preferred is convertible into approximately 0.1333 shares of common stock
at an effective conversion price of $7.50 per share of common stock, subject to
adjustment under certain circumstances, such as stock splits or stock dividends.
Cash dividends on the 9% Preferred accrue semi-annually on June 15th and
December 15th at the rate of $0.09 per share per annum. Upon conversion of 9%
Preferred, accrued and unpaid dividends are credited to additional paid-in
capital. Accrued and unpaid dividends as of June 30, 2001 and June 30, 2000 were
$0 and $25,988, respectively. The Company may redeem the 9% Preferred at any
time at a price of $1.00 per share, an amount equal to its liquidation
preference, upon not less than 30 nor more than 60 days' notice.

Series B Convertible Preferred Stock as of June 30, 2001 and June 30, 2000
consisted of 37,500 shares of Series B Preferred issued in a May 1991 private
placement. Each share of Series B Preferred is convertible into approximately
0.09812 shares of common stock at an effective conversion price of $6.795 per
share of common stock, subject to adjustment under certain circumstances such as
stock splits or stock dividends. The Series B Preferred may be redeemed by the
Company at a price of $0.6667 per share, an amount equal to its liquidation
preference, at any time upon 30 days' notice. The liquidation preference of the
Series B Preferred is subordinate to that of the 9% Preferred.


Common Stock and Common Stock Purchase Warrants

In connection with a December 1995 private placement, the Company issued to the
placement agent for the transaction a five-year non-redeemable warrant to
purchase 106,195 shares of common stock at a price of $2.825 per share, subject
to adjustment under certain circumstances. During the year ended June 30, 2000,
warrants to purchase 15,274 shares were converted into 8,459 shares of common
stock. During the year ended June 30, 2001, the remaining warrants to purchase
90,921 shares expired unexercised.

                                      F-10


In connection with a June 1997 private placement, the Company issued to the
eleven participating institutional investors four-year non-redeemable warrants
to purchase an aggregate of 800,000 shares of common stock at a price of $3.08
per share, subject to adjustment under certain circumstances. During the year
ended June 30, 2000, warrants to purchase 488,000 shares of Cortex common stock
were exercised, resulting in proceeds of $1,502,000. The remaining warrants to
purchase 312,000 shares expired unexercised during the year ended June 30, 2001.

In connection with the February 1998 restructuring of the note payable to
Alkermes, Inc. (Note 7), the Company issued to Alkermes a five-year warrant to
purchase 75,000 shares of common stock at an exercise price of $1.55 per share.
In connection with the July 1999 restructuring of the note payable, the Company
issued to Alkermes 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
were derived from the fair market value of the Company's common stock. The
Company recorded expense of $241,500 for the estimated fair value of the
warrants issued during the year ended June 30, 2000.

As of June 30, 2001, the Company had reserved an aggregate of 2,000 shares of
common stock for issuance upon conversion of the outstanding 9% Preferred Stock;
3,679 shares for issuance upon conversion of the Series B Preferred Stock;
275,000 shares for issuance upon exercise of warrants; 2,430,606 shares for
issuance upon exercise of outstanding stock options; and 733,263 shares for
issuance upon exercise of stock options available for future grant.


Stock Option and Stock Purchase Plans

1996 Stock Incentive Plan -- The 1996 Plan provides for the granting of options
and rights to purchase up to an aggregate of 3,519,717 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 of the date of
grant. The exercise price of incentive stock options must be at least equal to
the fair market value of the common stock on the date of grant. Each
non-employee director (other than those who serve on the Board of Directors to
oversee an investment in the Company) is automatically granted options to
purchase 30,000 shares of common stock upon commencement of service as a
director and additional options to purchase 10,000 shares of common stock on the
date of each Annual Meeting of Stockholders. Non-employee directors who serve on
the Board of Directors to oversee an investment in the Company receive options
to purchase 7,500 shares of common stock upon commencement of service as a
director and additional options to purchase 3,000 shares of common stock on the
date of each Annual Meeting of Stockholders. These nonqualified options have an
exercise price equal to 100% of the fair market value of the common stock on the
date of grant, have a ten-year term and vest in equal increments of 33 1/3% on
the anniversary dates of the dates of grant. As of June 30, 2001, options to
purchase an aggregate of 2,430,606 shares of common stock were outstanding under
the 1996 Plan, and an additional 733,263 shares of common stock were reserved
for future option grants.

As of June 30, 2001, options to purchase an aggregate of 1,323,833 shares of
common stock were exercisable under the Company's stock option plans. During the
years ended June 30, 2001 and 2000 no options to purchase shares of common stock
were issued with exercise prices below the fair market value of the common stock
on the dates of grant.

                                      F-11


Stock option transactions under the Company's stock option plans for each of the
two years in the period ended June 30, 2001 are summarized below:



                                                                        Weighted average
                                                               Number     exercise price
                                                            of shares          per share
                                                          ------------------------------
                                                                  
               Outstanding as of June 30, 1999              1,442,796      $        0.42
                  Granted                                     787,665               1.68
                  Exercised                                  (302,301)              0.38
                  Forfeited                                   (73,681)              0.77
                                                          -----------
               Outstanding as of June 30, 2000              1,854,479      $        0.95
                  Granted                                     641,949               2.39
                  Exercised                                   (52,047)              2.23
                  Forfeited                                   (13,775)              3.68
                                                          -----------
               Outstanding as of June 30, 2001              2,430,606      $        1.32
                                                          ===========
               Available for future grant                     733,263
                                                          ===========


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

Pro forma information regarding net loss and net loss per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and has been determined as if the Company had
accounted for its employee stock plans under the fair value method. The fair
value was estimated at the date of grant using the Black-Scholes option pricing
model and the following assumptions for the years ended June 30, 2001 and 2000,
respectively: weighted average risk-free interest rates of 4.8% and 6.4%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 108% and 144%; and a weighted average life of 3.9
years and 3.7 years. The estimated weighted average fair value of options
granted during the years ended June 30, 2001 and 2000 was $1.75 and $1.43,
respectively.

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

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized as expense over the vesting period of the options, resulting in the
following pro forma information for the years ended June 30, 2001 and 2000:

                                                                     June 30,
                                                         2001          2000
                                                   --------------------------
               Pro forma net loss                  $ (3,434,990)   $ (547,237)
               Pro forma net loss applicable to
                  common stock                       (3,424,528)     (549,712)
               Pro forma net loss per share        $      (0.21)   $    (0.03)

                                      F-12


Information regarding stock options outstanding at June 30, 2001 is as follows:



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

                                                 Weighted
                              Number              average         Weighted              Number           Weighted
        Range of         outstanding            remaining          average         exercisable            average
 exercise prices    at June 30, 2001     contractual life   exercise price    at June 30, 2001     exercise price
-----------------------------------------------------------------------------------------------------------------
                                                                                    
$    0.34 - 0.38             627,483            5.7 years     $       0.38             617,083       $       0.38
     0.47 - 0.75             745,600            8.0 years             0.59             531,869               0.58
     0.76 - 2.69             553,811            9.1 years             1.81              63,847               1.28
     2.70 - 6.97             503,712            9.4 years             3.06             111,034               3.25
                    ----------------                                          ----------------
                           2,430,606                                                 1,323,833
                    ================                                          ================


Note 4 -- Research and License Agreement with NV Organon

In January 1999, the Company entered a research collaboration and exclusive
worldwide license agreement with NV Organon, a pharmaceutical business unit of
Akzo Nobel (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's proprietary AMPAKINE technology for the treatment of
schizophrenia and depression.

In connection with the Organon agreement, during the year ended June 30, 1999
the Company received an up-front payment of $2,000,000. The agreement also
included research support of up to $3,000,000 per year for two years (subject to
Cortex providing agreed-upon levels of research).

Along with the $2,000,000 up-front payment, during the year ended June 30, 1999
Cortex received research support payments of $1,150,000. During the year ended
June 30, 2000, the Company received further support of $3,443,000 and a
milestone payment of $2,000,000, triggered when Organon selected a compound to
pursue in Phase I clinical testing as a potential treatment for schizophrenia.
During the year ended June 30, 2001, Cortex received the remaining scheduled
research support from the agreement of $1,470,000.

Shortly after June 30, 2001, Cortex received notice from Organon of its intent
to continue developing the selected AMPAKINE compound by entering Phase II
clinical testing, triggering a second milestone payment of $2,000,000. Cortex
remains eligible for additional milestone payments based upon further clinical
development of the licensed technology, and ultimately, royalties on worldwide
sales.

Note 5 -- Option Agreement with Shire Pharmaceuticals Group, plc

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

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

                                      F-13


Note 6 -- Research and License Agreement with Les Laboratoires Servier

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

In connection with the agreement, Servier paid Cortex a non-refundable, up-front
payment of $5,000,000 and research support payments of $1,654,000. The agreement
includes research support of up to $2,025,000 per year for three years (subject
to Cortex providing agreed-upon levels of research) and milestone payments, plus
royalty payments on sales in licensed territories. The collaborative research
phase of the agreement began in December 2000.

Note 7 -- Note Payable to Alkermes, Inc.

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

In November 1993, Alkermes filed an action alleging that the Company had
breached the agreement by developing calpain inhibitors for cerebral vasospasm.
In October 1995, the Company and Alkermes agreed to a settlement of the dispute.
In connection with the settlement, the Company issued to Alkermes a $1,000,000
three-year promissory note accruing interest semi-annually at the federal funds
rate.

Subsequently, the terms of the note were restructured a number of times, with
Cortex issuing warrants to Alkermes as a condition for such restructurings. In
March 2000, the Company paid Alkermes the remaining balance of the note's
principal and accrued interest.

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

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

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

                                      F-14


Note 9 -- Commitments

The Company leases its offices and research laboratories under an operating
lease that expires May 31, 2004. Rent expense under this lease for the years
ended June 30, 2001 and 2000 was $240,000 and $269,000, respectively.
Commitments under the lease for the years ending June 30, 2002, 2003 and 2004
are $274,000, $358,000 and $343,000, respectively.

As of June 30, 2001, the Company was obligated to an executive officer under an
employment agreement expiring in May 2004. The agreement involves annual salary
payments aggregating $270,000 and provides for bonuses under certain
circumstances. Additionally, in the event that the Company commercializes a
compound developed by or under the supervision of one of its senior scientific
employees, the Company may be obligated to pay the employee a royalty based on
net sales, as defined and subject to adjustment, of products containing the
compound. As of June 30, 2001, commitments under scientific consulting and
external research agreements for the years ending June 30, 2002, 2003, 2004,
2005 and 2006 aggregated $346,000, $227,000, $58,000, $58,000 and $58,000,
respectively.

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 $80,000 for
the year ending June 30, 2001 and for each year thereafter for the remaining
life of the patents covering the subject technologies.

The agreements with the academic institution commit the Company to pay up to an
additional $875,000 upon achieving certain clinical testing and regulatory
approval milestones. The Company also is required to remit a portion of certain
remuneration received in connection with sublicensing agreements. As of June 30,
2001, the Company is committed to pay the academic institution approximately
$535,000 related to such remuneration, in installments of approximately $267,000
during each of the years ended June 30, 2002 and 2003, respectively.

Note 10 -- Related Party Transactions

During the years ended June 30, 2001 and 2000, the Company paid or accrued
scientific and other consulting fees to stockholders aggregating $96,750 and
$82,250, 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.

As consideration for its agreement to provide financial advisory services, in
November 1994, Vector Securities International Inc. ("Vector") was paid a
retainer of $50,000 and was issued a six-year non-redeemable warrant to purchase
57,193 shares of the Company's common stock at $3.06 per share. During the year
ended June 30, 2001, this warrant expired unexercised.

Note 11 -- Income Taxes

The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the liability method, deferred taxes are determined based
on differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates. As of June 30, 2001, the Company had
federal and California tax net operating loss carryforwards of approximately
$33,515,000 and $2,096,000, 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 and the fifty percent limitation on California loss carryforwards. The
California tax loss carryforwards will continue to expire in 2002 (approximately
$705,000 expired in 2001), while the federal carryforwards begin expiring in
2004. The Company also has federal and California research and development tax
credit carryforwards totaling $1,090,000 and $412,000, respectively. The federal
research and development tax credit carryforwards will begin to expire in 2004.

                                      F-15


Utilization of the net operating loss and tax credit carryforwards from the tax
years ended on or before June 30, 1992 is subject to an annual limitation of
approximately $1,500,000, due to ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. If there should be
future changes of ownership, these annual limitations for utilization of net
operating loss and tax credit carryforwards may become more restrictive.
Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net
operating loss carryforwards may be limited if a cumulative change in ownership
of more than 50% occurs within any three-year period since the last ownership
change.

Significant components of the Company's deferred tax assets as of June 30, 2001
and June 30, 2000 are shown below. A valuation allowance of $16,625,000 and
$15,896,000 as of June 30, 2001 and 2000, respectively, has been provided
against the Company's deferred tax assets as realization of such assets is
uncertain.

Deferred tax assets:



                                                                                          June 30,
                                                                                    2001                2000
                                                                           -------------        ------------
                                                                                          
                  Net operating loss carryforwards                          $ 11,851,000        $ 12,646,000
                  Capital loss carryforwards                                      22,000              22,000
                  Research and development credits                             1,357,000           1,613,000
                  Capitalized research and development costs                   1,318,000           1,325,000
                  Unearned revenue                                             1,861,000                  --
                  Depreciation                                                   119,000             115,000
                  Other, net                                                      97,000             175,000
                                                                            ------------        ------------
                  Net deferred tax assets                                     16,625,000          15,896,000
                  Valuation allowance for deferred tax assets                (16,625,000)        (15,896,000)
                                                                            ------------        ------------
                  Total deferred tax assets                                 $         --        $         --
                                                                            ============        ============


Note 12-- Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for the years ended June 30, 2001 and 2000,
respectively is as follows:



                                      1st Quarter                       2nd Quarter                 3rd Quarter         4th Quarter
                             ------------------------------    -------------------------  ------------------------      -----------
                             As previously                     As previously               As previously
                               Reported         As Restated      Reported    As Restated     Reported     As Restated
                             ------------------------------------------------------------------------------------------------------
                                                                                                   
2001 Quarters

Total revenues                    $    716,574   $   966,574   $   836,380   $ 1,086,380   $ 1,240,078    $ 1,270,078   $ 1,119,803
Total costs and expenses             2,074,338     2,074,338     1,287,778     1,287,778     1,564,794      1,564,794     1,914,119
Loss from operations                (1,357,764)   (1,107,764)     (451,398)     (201,398)     (324,716)      (294,716)     (794,316)
Loss before change in accounting
   principle                        (1,311,497)   (1,061,497)     (371,688)     (121,688)     (250,060)      (220,060)     (740,094)
Cumulative effect of change in
   accounting principle                     --      (530,000)           --            --            --             --            --
Net loss                          $ (1,311,497)  $(1,591,497)  $  (371,688)  $  (121,688)  $  (250,060)      (220,060)  $  (740,094)

Per common share:
Loss before change in accounting
   principle                      $      (0.08)  $     (0.07)  $     (0.02)  $     (0.01)  $     (0.02)   $     (0.01)  $     (0.04)
Cumulative effect of change in
   accounting principle                     --         (0.03)           --            --            --             --            --
Basic and diluted loss per share  $      (0.08)  $     (0.10)  $     (0.02)  $     (0.01)  $     (0.02)   $     (0.01)  $     (0.04)


2000 Quarters

Total revenues                    $    834,556                 $   990,695                 $   852,488                  $ 2,830,748
Total costs and expenses             1,119,180                   1,404,549                   1,504,826                    1,682,704
Income (loss) from operations         (284,624)                   (413,854)                   (652,338)                   1,148,044
Net income (loss)                 $   (291,183)                $  (423,159)                $  (657,627)                 $ 1,174,567
Basic and diluted loss per share  $      (0.02)                $     (0.03)                $     (0.04)                 $      0.07


Quarterly results for 2001 reflect a change in revenue recognition policy to
adopt the SEC's Staff Accounting Bulletin No. 101 (See Note 1).

                                     F-16


                         Cortex Pharmaceuticals, Inc.
                         Annual Report on Form 10-KSB
                           Year ended June 30, 2001
                                 Exhibit Index



Exhibit                                                                                               Sequentially
Number         Description                                                                            Numbered Page
--------------------------------------------------------------------------------------------------------------------
                                                                                                
  3.1          Restated Certificate of Incorporation dated April 11, 1989, as amended by
               Certificate of Amendment of June 27, 1989, by Certificate of Designation filed
               April 29, 1991, by Certificate of Correction filed May 1, 1991, by Certificate of
               Amendment of Certificate of Designation filed June 13, 1991, by Certificate of
               Amendment of Certificate of Incorporation filed November 12, 1992, by Certificate
               of Amendment of Restated Certificate of Incorporation filed January 11, 1995,
               by Certificate of Designation filed December 8, 1995, by Certificate of
               Designation filed October 15, 1996, and by Certificate of Designation filed June 4,
               1997, incorporated by reference to Exhibit 3.1 of the Company's Registration Statement
               on Form SB-2 filed June 18, 1997.                                                                   --
  3.2          By-Laws of the Company, as adopted March 4, 1987, and amended through
               October 8, 1996, incorporated by reference to Exhibit 3.2 to the Company's Annual
               Report on Form 10-KSB filed October 15, 1996.                                                       --
 10.2          Consulting Agreement, dated October 30, 1987, between the Company and Carl W. Cotman, Ph.D. *       --
 10.3          Consulting Agreement, dated as October 30, 1987, between the Company and
               Gary S. Lynch, Ph.D. *                                                                              --
 10.19         License Agreement dated March 27, 1991 between the Company and the
               Regents of the University of California, incorporated by reference to
               Exhibit 10.19 of the Company's Amendment on Form 8 filed November 27, 1991
               to the Company's Annual Report on Form 10-K filed September 30, 1991.
               (Portions of this Exhibit are omitted and were filed separately with
               the Secretary of the Commission pursuant to the Company's application
               requesting confidential treatment under Rule 24b-2 under the Securities
               Exchange Act of 1934).                                                                              --
 10.31         License Agreement dated June 25, 1993 between the Company and the
               Regents of the University of California, incorporated by reference to the
               Company's Amendment of Annual Report on Form 10-KSB/A filed November 26, 1993. (Portions of
               this Exhibit are omitted and were filed separately with the Secretary of the Commission
               pursuant to the Company's application requesting confidential treatment under Rule 24b-2
               of the Securities Exchange Act of 1934).                                                            --
 10.44         Lease Agreement, dated January 31, 1994, for the Company's facilities in
               Irvine, California, incorporated by reference to Exhibit 10.44 of the Company's
               Quarterly Report on Form 10-QSB filed May 16, 1994.                                                 --
 10.48         Amendment to the Non-Employee Director Formula Grant Plan, adopted
               December 15, 1994, incorporated by reference to the same numbered
               Exhibit to the Company's Annual Report on Form 10-KSB filed October 13, 1995 *                      --
 10.49         Settlement Agreement between the Company and Alkermes, Inc., dated October 5,
               1995, incorporated by reference to the same numbered Exhibit to the Company's
               Annual Report on Form 10-KSB filed October 13, 1995. (Portions of this Exhibit
               are omitted and were filed separately with the Secretary of the Commission
               pursuant to the Company's Application requesting confidential treatment
               under Rule 406 of the Securities Act of 1933).                                                      --
 10.56         Employment Agreement dated May 15, 1996, between the Company and Vincent
               F. Simmon, Ph.D., incorporated by reference to the same numbered Exhibit to the
               Company's Current Report on Form 8-K filed June 4, 1996.                                            --
 10.60         1996 Stock Incentive Plan, incorporated by reference to the same numbered Exhibit to
               the Company's Quarterly Report on Form 10-QSB filed November 12, 1996.                              --


                                     EXH-1




Exhibit                                                                                                        Sequentially
Number         Description                                                                                    Numbered Page
---------------------------------------------------------------------------------------------------------------------------
                                                                                                         
 10.64         Research and Collaboration and License Agreement between the Company and N.V.
               Organon, dated January 13, 1999, incorporated by reference to Exhibit 10.64 of the
               Company's quarterly report on Form 10-QSB as filed on February 16, 1999. (Portions
               of this Exhibit were omitted and filed separately with the Secretary of the Commission
               pursuant to the Company's application requesting confidential treatment under Rule 24-b2
               of the Securities Exchange Act of 1934.)                                                                  --
 10.65         Amendment No. 1 to the Lease Agreement for the Company's facilities in Irvine, California,
               dated February 1, 1999, incorporated by reference to the same numbered Exhibit to the
               Company's Annual Report on Form 10-KSB filed September 28, 1999.                                          --
 10.66         Option Agreement between the Company and Shire Pharmaceuticals Group, plc dated
               April 19, 2000, incorporated by reference to Exhibit 10.66 to the Company's quarterly
               report on Form 10-QSB as filed on May 12, 2000 . (Portions of this Exhibit were omitted
               and filed separately with the Secretary of the Commission pursuant to the Company's
               application requesting confidential treatment under Rule 24b-2 of the Securities Act of 1934.)            --
 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).                                                                                             --
 10.68         Amendment dated December 17, 1999 to the Employment Agreement dated May 15,
               1996 between the Company and Vincent F. Simmon, Ph.D., incorporated by reference to
               the same numbered Exhibit to the Company's Quarterly Report on Form 10-QSB filed
               February 12, 2001.                                                                                        --
 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.                                                  --
 21            Subsidiaries of the Registrant, incorporated by reference to the same numbered Exhibit
               to the Company's Annual Report on Form 10-KSB filed October 13, 2001.                                     --
 23.1          Consent of Ernst & Young LLP, independent auditors.                                                       --
 24            Power of Attorney (included as part of the signature page of this Annual Report on
               Form 10-KSB.                                                                                              --


________________

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

                                     EXH-2

EX-23.1

                                                                    EXHIBIT 23.1


              CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the 1996 Stock Incentive Plan, the 1989 Incentive Stock
Option, Nonqualified Stock Option and Stock Purchase Plan, the 1989 Special
Nonqualified Stock Option and Stock Purchase Plan and the Executive Stock Plan
of our report dated July 20, 2001, with respect to the financial statements of
Cortex Pharmaceuticals, Inc. included in the Annual Report (Form 10-KSB) for the
year ended June 30, 2001.

                                                      /s/ Ernst & Young LLP

                                                      ERNST & YOUNG LLP

San Diego, California
September 18, 2001