10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2006

¨ 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 1-16467

Cortex Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-0303583
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

15241 Barranca Parkway, Irvine, California 92618

(Address of principal executive offices, including zip code)

(949) 727-3157

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES  x     NO  ¨

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

Large accelerated filer   ¨                Accelerated filer   x                Non-accelerated filer  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

32,863,460 shares of Common Stock as of May 5, 2006

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CORTEX PHARMACEUTICALS, INC.

INDEX

		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements and Notes (Unaudited)
	Condensed Balance Sheets — March 31, 2006 and December 31, 2005	3
	Condensed Statements of Operations — Three months ended March 31, 2006 and 2005	4
	Condensed Statements of Cash Flows — Three months ended March 31, 2006 and 2005	5
	Notes to Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	22
SIGNATURES		23

Items 1 and 3-5 of Part II have been omitted because they are not applicable with respect to the current reporting period.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Cortex Pharmaceuticals, Inc.

Condensed Balance Sheets

	(Unaudited) March 31, 2006			(Note) December 31, 2005
Assets
Current assets:
Cash and cash equivalents	$	6,586,879		$	2,062,531
Marketable securities		12,612,638			15,198,384
Accounts receivable		18,587			14,926
Other current assets		238,235			240,535
Total current assets		19,456,339			17,516,376
Furniture, equipment and leasehold improvements, net		451,149			438,841
Other		33,407			33,407
	$	19,940,895		$	17,988,624
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,109,945		$	1,851,906
Accrued wages, salaries and related expenses		412,112			543,243
Unearned revenue		485,524			125,841
Advance for MCI project		287,926			285,630
Total current liabilities		2,295,507			2,806,620
Deferred rent		54,824			49,988
Total liabilities		2,350,331			2,856,608
Stockholders’ equity:
Series B convertible preferred stock, $0.001 par value; $0.6667 per share liquidation preference; shares authorized: 3,200,000; shares issued and outstanding: 37,500; common shares issuable upon conversion: 3,679		21,703			21,703
Common stock, $0.001 par value; shares authorized: 75,000,000; shares issued and outstanding: 34,863,460 (March 31, 2006) and 32,794,958 (December 31, 2005)		34,863			32,795
Additional paid-in capital		87,997,799			81,000,213
Deferred compensation		(128,675	)		(142,000	)
Unrealized loss, available for sale marketable securities		(40,624	)		(45,735	)
Accumulated deficit		(70,294,502	)		(65,734,960	)
Total stockholders’ equity		17,590,564			15,132,016
	$	19,940,895		$	17,988,624

See accompanying notes.

Note: The balance sheet as of December 31, 2005 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

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Cortex Pharmaceuticals, Inc.

Condensed Statements of Operations

(Unaudited)

	Three months ended March 31,
	2006			2005
Revenues:
Research and license revenue	$	214,721		$	658,478
Grant revenue		16,161			40,680
Total revenues		230,882			699,158
Operating expenses (A):
Research and development expenses		3,465,399			2,656,953
General and administrative expenses		1,475,460			767,836
Total operating expenses		4,940,859			3,424,789
Loss from operations		(4,709,977	)		(2,725,631	)
Interest, net		150,435			160,760
Increase in fair value of common stock warrants		—			(63,500	)
Amortization of capitalized financing costs		—			(19,491	)
Net loss	$	(4,559,542	)	$	(2,647,862	)
Basic and diluted net loss per share:	$	(0.14	)	$	(0.08	)
Shares used in calculating per share amounts Basic and diluted		32,834,773			32,626,200
(A) Operating expenses include the following non-cash stock compensation charges:
Research and development	$	741,868		$	20,487
General and administrative		552,015			(14,950	)
	$	1,293,883		$	5,537

See accompanying notes.

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Cortex Pharmaceuticals, Inc.

Condensed Statements of Cash Flows

(Unaudited)

	Three months ended March 31,
	2006			2005
Cash flows from operating activities:
Net loss	$	(4,559,542	)	$	(2,647,862	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		23,581			24,386
Stock option compensation expense		1,293,883			5,537
Amortization of capitalized financing costs		—			19,491
Increase in fair value of common stock warrants		—			63,500
Changes in operating assets/liabilities:
Accrued interest on marketable securities		13,783			48,907
Accounts receivable		(3,661	)		1,681
Other current assets		2,300			16,689
Accounts payable and accrued expenses		(873,092	)		(369,307	)
Unearned revenue		364,519			462,231
Advance for MCI project and other		(1,884	)		1,682
Net cash used in operating activities		(3,740,113	)		(2,373,065	)
Cash flows from investing activities:
Purchase of marketable securities		(1,922,203	)		(9,617,075	)
Proceeds from sales and maturities of marketable securities		4,503,457			6,050,000
Purchase of fixed assets		(35,889	)		(86,627	)
Net cash provided by (used in) investing activities		2,545,365			(3,653,702	)
Cash flows from financing activities:
Adjustment to proceeds from issuance of common stock in December 2004 private placement, net		—			(24,211	)
Proceeds from issuance of common stock upon exercise of warrants and stock options		5,719,096			24,182
Net cash provided by (used in) financing activities		5,719,096			(29	)
Increase (decrease) in cash and cash equivalents		4,524,348			(6,026,796	)
Cash and cash equivalents, beginning of period		2,062,531			9,157,315
Cash and cash equivalents, end of period	$	6,586,879		$	3,130,519

See accompanying notes.

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Cortex Pharmaceuticals, Inc.

Notes to Condensed Financial Statements

(Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the full fiscal year. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

In January 1999, Cortex Pharmaceuticals, Inc. (“Cortex” or the “Company”) entered into a research collaboration and exclusive worldwide license agreement with NV Organon (“Organon”). The agreement will enable Organon to develop and commercialize the Company’s AMPAKINE^® technology for the treatment of schizophrenia and depression. In October 2000, the Company entered into a research collaboration agreement and a license agreement with Les Laboratoires Servier (“Servier”), covering defined territories. The agreement, as amended to date, will enable Servier to develop and commercialize select AMPAKINE compounds for the treatment of memory impairment associated with aging, neurodegenerative diseases such as Alzheimer’s disease and anxiety disorders. In March 2006, Cortex notified Servier of its intention to terminate the research collaboration effective December 7, 2006 (Note 2). The license agreement with Servier, as amended to date, will continue in full force and effect in accordance with its terms.

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

To supplement its existing resources, in addition to seeking licensing arrangements with other pharmaceutical companies, the Company may seek 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.

Revenue Recognition

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

The Company recognizes research revenue from its collaboration with Servier (Note 2) as services are performed under the agreement. The Company records grant revenues as the expenses related to the grant

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projects are incurred. All amounts received under collaborative research agreements or research grants are nonrefundable, regardless of the success of the underlying research.

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

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

In November 2002, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board reached consensus on Issue 00-21. EITF Issue 00-21 addresses the accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. As required, the Company applies the principles of Issue 00-21 to multiple element research and licensing agreements that it enters into after July 1, 2003.

In accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB 104”), amounts received for upfront technology license fees under multiple-element arrangements are deferred and recognized over the period of committed services or performance, if such arrangements require the Company’s on-going services or performance.

Employee Stock Options and Stock-based Compensation

The Company’s 1996 Stock Incentive Plan (the “1996 Plan”) provides for the granting of options and rights to purchase 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 must be at least 85% of the fair market value of the common stock on the date of grant. The exercise price of incentive stock options must be at least equal to the fair market value of the common stock on the date of grant. Options granted generally vest over a three-year period, although options granted to officers may include more accelerated vesting. Options generally expire ten years from the date of grant, but options granted to consultants may expire five years from the date of grant.

The 1996 Plan terminates October 25, 2006. On March 30, 2006, the Company’s Board of Directors approved the 2006 Stock Incentive Plan, subject to approval by the Company’s stockholders.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share Based Payment,” using a modified prospective application. Earlier periods were not restated. SFAS No. 123(R) is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

Prior to adopting SFAS No. 123(R), as permitted, the Company elected to follow APB 25 in accounting for its 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

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on the date of grant. The Company transitioned to SFAS No. 123 by utilizing SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”). In accordance with SFAS No. 148, the Company disclosed the effects of stock-based employee compensation on reported net income or loss and earnings or loss per share in the footnotes to its annual and interim financial statements.

Given that the Company previously followed APB 25 and SFAS No. 148 in accounting for its employee stock options, the impact of adopting the expense recognition requirements of SFAS 123(R) was significant to the Company’s results of operations, but not its financial position. The Company’s net loss for the three months ended March 31, 2006 includes approximately $1,043,000 of non-cash stock-based employee compensation costs. For the three months ended March 31, 2005, the Company’s net loss includes a credit of approximately $27,000 for non-cash stock based employee compensation costs.

For options granted during the three months ended March 31, 2006, the fair value of each option award was estimated using the Black-Scholes option pricing model and the following assumptions: weighted average risk-free interest rate of 4.8%; dividend yield of 0%; volatility factor of the expected market price of the Company’s common stock of 82%; and a weighted average life of 3.8 years. Expected volatility is based on the historical volatility of the Company’s stock. The Company also uses historical data to estimate the expected term of options granted and employee termination rates. The risk-free rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of option activity for the three months ended March 31, 2006 is as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance, December 31, 2005	7,544,721		$	2.05
Granted	995,017		$	2.98
Exercised	(5,000	)	$	0.38
Forfeited	—			—
Expired	(5,000	)	$	0.38
Balance, March 31, 2006	8,529,738		$	2.16	7.6 years	$	26,321,595
Exercisable, March 31, 2006	4,929,226		$	1.89	6.4 years	$	16,545,867

For the three months ended March 31, 2005, the following pro forma information regarding net loss and net loss per share 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: weighted average risk-free interest rate of 4.2%; dividend yield of 0%; volatility factor of the expected market price of the Company’s common stock of 92%; and a weighted average life of 5.0 years.

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For purposes of pro forma disclosures, the estimated fair value of the options is amortized as expense over the vesting period of the options, resulting in the following pro forma information for the three-month period ended March 31, 2005:

	Three Months ended March 31, 2005
Net loss, as reported	$	(2,647,862	)
Stock-based employee compensation included in net loss		(26,722	)
Fair value of stock-based employee compensation		(441,555	)
Pro forma net loss	$	(3,116,139	)
Net loss per share:
Basic and diluted — as reported	$	(0.08	)
Basic and diluted — pro forma	$	(0.10	)

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2006 and 2005 was $1.79 and $1.99, respectively.

In connection with an employment agreement with an executive officer, in August 2004 the Company issued 100,000 restricted shares of its common stock (“Restricted Shares”). The Restricted Shares shall vest in equal installments over a four-year period from the date of issuance and are subject to forfeiture in the event that employment of the executive officer terminates before the applicable vesting dates. As of December 31, 2005 and March 31, 2006, 75,000 Restricted Shares remained unvested. No additional Restricted Shares were granted during the three months ended March 31, 2006 and no Restricted Shares were forfeited.

As of March 31, 2006, there was approximately $3,327,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That non-cash cost is expected to be recognized over a weighted-average period of 1.4 years.

For the three months ended March 31, 2005, the Company’s net loss includes a credit for non-cash stock-based compensation costs relating to earlier re-priced stock options issued to employees, directors and consultants. The Company applied variable accounting to the re-priced stock options, in accordance with Financial Accounting Standards Board Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB 25” (“FIN 44”). The accounting requirements of FIN 44 were superseded by SFAS No. 123(R), and given that all of the re-priced options were fully vested and exercisable as of the date of adopting SFAS No. 123(R), these options are not subject to the requirements of SFAS No. 123(R). Consequently, the accounting for these re-priced options did not impact results of operations for the three months ended March 31, 2006 and will not impact future results of operations.

The Company continues to follow EITF Issue 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees. In accordance with EITF Issue 96-18, these stock options and warrants issued as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. The Company’s net loss for the three months ended March 31, 2006 and 2005 includes approximately $251,000 and $32,000, respectively of non-cash stock based compensation for options issued to consultants and other non-employees.

Cash received from stock option exercises for the three months ended March 31, 2006 and 2005 was approximately $1,900 and $24,200, respectively. The Company issues new shares to satisfy stock option exercises.

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The effect of potentially issuable shares of common stock was not included in the calculation of diluted loss per share given that the effect would be anti-dilutive.

Comprehensive Loss

The Company presents unrealized gains and losses on its marketable securities, classified as “available for sale,” in its statement of stockholders’ equity and comprehensive income or loss on an annual basis and in a footnote in its quarterly reports. During the three months ended March 31, 2006 and 2005, total comprehensive loss was $4,600,166 and $2,730,095, respectively. Other comprehensive income or loss consists of unrealized gains or losses on the Company’s marketable securities, which are comprised of securities of the U.S. government or its agencies, preferred securities and other asset and mortgage backed securities. Unrealized losses on the Company’s marketable securities for the three months ended March 31, 2006 and 2005 amounted to $40,624 and $82,233, respectively.

Note 2 — Research and License Agreement with Les Laboratoires Servier

In October 2000, the Company entered into a research collaboration agreement and a license agreement with Servier. The agreements, as amended to date, will enable Servier to develop and commercialize Cortex’s proprietary AMPAKINE technology for the treatment of indications including, but not limited to, anxiety disorders, Alzheimer’s disease, mild cognitive impairment, sexual dysfunction, and the dementia associated with multiple sclerosis and amyotrophic lateral sclerosis. The territory covered by the exclusive license excludes North America, allowing Cortex to retain commercialization rights in its domestic market, South America (except Argentina, Brazil and Venezuela), Australia and New Zealand. The research collaboration agreement, as amended to date, includes an up-front payment by Servier of $5,000,000 and research support payments of approximately $2,298,000 per year through early December 2006 (subject to Cortex providing agreed-upon levels of research personnel). Pursuant to the terms of the license agreement, Cortex is eligible to receive milestone payments, based upon successful clinical development, plus royalty payments on sales in licensed territories.

As reported in the Current Report on Form 8-K filed on March 27, 2006, Cortex has notified Servier of its intention to terminate the research collaboration effective December 7, 2006. The Company is currently having further discussions with Servier regarding the possibility of terminating the research collaboration at an earlier date. The license agreement with Servier, as amended to date, will continue in full force and effect in accordance with its terms.

Cortex had been recording revenue from Servier’s earlier $5,000,000 up-front payment over the three-year collaborative research phase included in the October 2000 agreement. With the subsequent amendments to the agreement, Cortex adjusted the period that the Company records the Servier licensing revenue to include the extended research term that ends in early December 2006.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Financial Statements and Notes relating thereto appearing elsewhere in this report and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Introductory Note

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward looking statements be subject to the safe harbors created thereby. These forward-looking statements relate to, among other things, (i) future research plans, expenditures and results, (ii) potential collaborative arrangements, (iii) the potential utility of our proposed products and (iv) the need for, and availability of, additional financing.

The forward-looking statements included herein are based on current expectations, which involve a number of risks and uncertainties and assumptions regarding our business and technology. These assumptions involve judgments with respect to, among other things, future scientific, economic and competitive conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized and actual results may differ materially. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that we file from time to time with the Securities and Exchange Commission, including, without limitation, Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and subsequent Current Reports on Form 8-K.

About Cortex Pharmaceuticals

We are engaged in the discovery and development of innovative pharmaceuticals for the treatment of neurodegenerative diseases and other neurological and psychiatric disorders. Since 1993, our primary efforts have been to develop products that affect the AMPA-type glutamate receptor, a complex of proteins that is involved in communication between nerve cells in the human brain. We are developing a family of chemical compounds, known as AMPAKINE^® compounds, which enhance the activity of this receptor. We believe 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.

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The AMPAKINE program addresses large potential markets. Our commercial development plan involves partnering with larger pharmaceutical companies for research, development, clinical testing, manufacturing and global marketing of AMPAKINE products for those indications that require sizable, expensive clinical trials and very large sales forces to achieve significant market penetration. At the same time, we plan to develop internally a selected set of indications, eligible for orphan drug status. These indications typically require more modest investment in the development stages, and involve a more concentrated sales force to reach selected medical centers and a limited number of medical specialists in the United States. If we are successful in the pursuit of this operating strategy, we may be in a position to contain our costs over the next few years, to maintain our focus on the research and early development of novel pharmaceuticals (where we believe that we have the ability to compete) and eventually to participate more fully in the commercial development of AMPAKINE products in the United States.

Critical Accounting Policies and Management Estimates

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

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

Revenue Recognition

Our revenue recognition policies are in accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”). SAB 104 provides guidance in applying accounting principles generally accepted in the United States to revenue recognition issues, and specifically addresses revenue recognition for up-front, nonrefundable fees received in connection with research collaboration arrangements.

In accordance with SAB 104, revenues from up-front fees from our collaborators are deferred and recorded over the term that we provide ongoing services. Similarly, research support payments are recorded as revenue as we perform the research under the related agreements. We record grant revenues as we incur expenses related to the grant projects. All amounts received under collaborative research agreements or research grants are nonrefundable, regardless of the success of the underlying research.

Revenues from milestone payments are recognized when earned, as evidenced by written acknowledgment from our collaborator, provided that (i) the milestone event is substantive and its achievement was not reasonably assured at the inception of the agreement, and (ii) our performance obligations after the milestone achievement will continue to be funded by its collaborator at a

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comparable level to that before the milestone achievement. If both of these criteria are not met, the milestone payment is recognized over the remaining minimum period of our performance obligations under the agreement.

In November 2002, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board reached consensus on Issue 00-21. EITF Issue 00-21 addresses the accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. As required, we apply the principles of Issue 00-21 to multiple element agreements that we enter into after July 1, 2003.

In accordance with SAB 104, amounts received for upfront technology license fees under multiple-element arrangements are deferred and recognized over the period of committed services or performance, if such arrangements require our on-going service or performance.

Employee Stock Options and Stock-Based Compensation

Prior to January 1, 2006, we accounted for stock-based employee compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). According to APB 25, no compensation expense is recognized since the exercise price of our stock options generally equals the market price of the underlying stock on the date of grant. We transitioned to Statement of Financial Accounting Standards No. 123, “Accounting For Stock-Based Compensation” (“SFAS 123”), by utilizing Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”). In accordance with SFAS 148, we disclosed the effects of stock-based employee compensation on reported net income or loss and earnings or loss per share in the footnotes to our annual and interim financial statements.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), “Share Based Payment” (“SFAS 123(R)”) using a modified prospective application. Earlier periods were not restated. SFAS 123(R) is a revision of SFAS 123, and supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values.

Given that we previously followed APB 25 and SFAS 148 in accounting for our employee stock options, the impact of adopting the expense recognition requirements of SFAS 123(R) was significant to our results of operations, but not our financial position. Our net loss for the three months ended March 31, 2006 includes approximately $1,043,000 of non-cash stock-based employee compensation costs. For the three months ended March 31, 2005, our net loss includes a credit of approximately $27,000 for non-cash stock based employee compensation costs.

As of March 31, 2006, there was approximately $3,327,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. These non-cash costs are expected to be recognized over a weighted-average period of 1.4 years.

Under the fair value recognition provisions of SFAS 123(R), share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment in estimating the amount of share-based awards that are expected to be forfeited. If actual results

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differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

In accordance with EITF Issue 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” stock options and warrants issued to our consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined. We recognize this expense over the period the services are provided.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for our judgment in their application. There are also areas in which our judgment in selecting any available alternative would not produce a materially different result.

Results of Operations

General

In January 1999, we entered into a research collaboration and exclusive worldwide license agreement with NV Organon (“Organon”). The agreement will allow Organon to develop and commercialize our proprietary AMPAKINE technology for the treatment of schizophrenia and depression. In connection with the agreement, we received approximately $8,000,000 in up-front and research support payments. The agreement with Organon also includes milestone payments based upon clinical development, plus royalty payments on worldwide sales. To date, we have received milestone payments from Organon totaling $6,000,000. For each milestone payment, we recorded the related revenue upon achievement of the milestone.

In October 2000, we entered into a research collaboration agreement and a license agreement with Les Laboratoires Servier (“Servier”). The agreements will allow Servier to develop and commercialize select AMPAKINE compounds for the treatment of (i) declines in cognitive performance associated with aging, (ii) neurodegenerative diseases and (iii) anxiety disorders. The research collaboration agreement, as amended, includes an up-front payment by Servier of $5,000,000 and research support payments of approximately $2,298,000 per year through early December 2006 (subject to us providing agreed-upon levels of research personnel). The license agreement includes milestone payments based upon successful clinical development and royalty payments on sales in licensed territories. We have notified Servier of our intent to terminate the research collaboration in early December 2006, and are discussing with Servier the possibility of terminating at an earlier date. The license agreement with Servier, as amended to date, will continue in accordance with its terms.

From inception (February 10, 1987) through March 31, 2006, we have sustained losses aggregating $68,263,000. Continuing losses are anticipated over the next several years. During that time, our ongoing operating expenses will only be offset, if at all, by proceeds from Small Business Innovative Research (“SBIR”) grants, research support payments from the collaboration with Servier and by possible milestone payments from Organon and Servier. Ongoing operating expenses may also be funded by payments under planned strategic alliances that we are seeking with other pharmaceutical

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companies for the clinical development, manufacturing and marketing of our products. The nature and timing of payments to us under the Organon and Servier agreements or other planned strategic alliances, if and when entered into, are likely to significantly affect our operations and financing activities and to produce substantial period-to-period fluctuations in reported financial results. Over the longer term, we will be dependent upon the successful introduction of a new product into the North American market from our internal development, as well as the successful commercial development of our products by Organon, Servier or our other prospective partners to attain profitable operations from royalties or other product-based revenues.

Comparison of the Three Months ended March 31, 2006 and 2005

For the three months ended March 31, 2006, our net loss of approximately $4,560,000 compares with a net loss of approximately $2,648,000 for the corresponding prior year period, an increase of 72% due primarily to increased non-cash stock compensation charges. These increased charges include amounts related to our adoption of SFAS 123(R) as of January 1, 2006 and the recording of expense for all share-based payments to employees, including grants of employee stock options, based on their fair values.

Revenues for the three months ended March 31, 2006 decreased from approximately $699,000 to approximately $231,000, or by 67% compared to the three months ended March 31, 2005, mostly due to decreased research revenues from the agreement with Servier. As discussed above, we are in the process of winding down the Servier research collaboration.

Our research and development expenses for the three-month period ended March 31, 2006 increased from approximately $2,657,000 to approximately $3,465,000, or by 30% from the corresponding prior year period. Increased non-cash stock compensation charges accounted for approximately $721,000 of the change, with expenses related to additions to our scientific staff contributing most of the remaining increase. Of the increase in non-cash stock compensation charges, approximately $490,000 resulted from the adoption of SFAS 123(R) and approximately $231,000 related to amounts for the vesting of options previously issued to our consultants.

Our general and administrative expenses for the three-month period ended March 31, 2006 increased from approximately $768,000 to approximately $1,475,000, or by 92% compared to the corresponding prior year period. Non-cash stock compensation charges represented $567,000 of this increase. Legal fees increased in the current year period in connection with corporate partnering discussions. Audit fees also increased in the current year period with the completion of procedures related to Section 404 of the Sarbanes-Oxley Act of 2002, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005 that we filed in March 2006.

Other expenses for the three months ended March 31, 2005 include non-cash charges for the change in estimated value of warrants issued in connection with our private equity financing in December 2004. The charges represent the change in estimated value of the warrants from December 31, 2004 to January 26, 2005, when the related registration statement for the underlying shares was declared effective by the Securities and Exchange Commission.

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Liquidity and Capital Resources

Sources and Uses of Cash

From inception (February 10, 1987) through March 31, 2006, we have funded our organizational and research and development activities primarily through the issuance of equity securities, funding related to collaborative agreements and net interest income.

Under the research collaboration agreement with Servier dated October 2000, as amended to date, we receive research support payments of approximately $2,298,000 per year through early December 2006, subject to us providing agreed-upon levels of research personnel. As reported on our Current Report on Form 8-K dated March 27, 2006, we have elected to terminate the research collaboration effective December 7, 2006. We are currently having further discussions with Servier regarding the possibility of terminating the research collaboration at an earlier date. The license agreement with Servier dated October 2000, as amended to date, will continue in accordance with its terms and includes milestone payments based upon successful clinical development and royalties on sales in licensed territories.

In August 2003, we completed a private placement of an aggregate of 3,333,334 shares of our common stock at $1.50 per share and five-year warrants to purchase up to an additional aggregate of 3,333,334 shares at an exercise price of $2.55 per share. We received approximately $4,500,000 in net proceeds from the private placement. During the three months ended March 31, 2006, we received approximately $2,830,000 from the exercise of warrants issued with this private placement. As of March 31, 2006, warrants to purchase up to 1,883,335 shares remained outstanding. If these remaining warrants are fully exercised, of which there can be no assurance, such exercise would provide us approximately $4,803,000 of additional capital. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $6.00 per share for any 13 consecutive trading days.

In January 2004, we completed a private placement of an aggregate of 6,909,091 shares of our common stock at $2.75 per share and five-year warrants to purchase up to an additional aggregate of 4,490,910 shares at an exercise price of $3.25 per share. We received approximately $17,500,000 in net proceeds from the private placement. During the three months ended March 31, 2006, we received approximately $1,696,000 from the exercise of warrants issued with this private placement. As of March 31, 2006, warrants to purchase up to 3,969,137 shares remained outstanding. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would provide us approximately $12,900,000 of additional capital. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $7.50 per share for any 13 consecutive trading days.

In December 2004, we completed a private placement of an aggregate of 4,233,333 shares of our common stock at $2.66 per share and five-year warrants to purchase up to an additional aggregate of 2,116,666 shares at an exercise price of $3.00 per share. We received approximately $10,400,000 in net proceeds from the private placement. During the three months ended March 31, 2006, we received approximately $1,023,000 from the exercise of warrants issued with this private placement. As of March 31, 2006, warrants to purchase up to 1,775,689 shares remained outstanding. If the remaining warrants are fully exercised, of which there can be no assurance, these warrants would

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provide us approximately $5,327,000 of additional capital. The warrants are subject to a call right in our favor to the extent that the closing price of our common stock exceeds $7.50 per share for any 13 consecutive trading days.

As of March 31, 2006, we had cash, cash equivalents and marketable securities totaling approximately $19,200,000 and working capital of approximately $17,161,000. In comparison, as of December 31, 2005, we had cash, cash equivalents and marketable securities of approximately $17,261,000 and working capital of approximately $14,710,000. The increases in cash and working capital reflect proceeds from the exercise of warrants to purchase shares of our common stock, partially offset by amounts required to fund our operations.

Net cash used in operating activities was approximately $3,740,000 during the three months ended March 31, 2006, and included our net loss for the period of approximately $4,560,000, adjusted for non-cash expenses for depreciation, amortization and stock compensation approximating $1,317,000, and changes in operating assets and liabilities. For the three months ended March 31, 2005, net cash used in operating activities approximated $2,373,000, reflecting our net loss of approximately $2,648,000 for the period, adjusted for non-cash expenses for depreciation, amortization and stock compensation (including the change in fair value of common stock warrants) of approximately $113,000 and changes in operating assets and liabilities.

Net cash provided by investing activities approximated $2,545,000 during the three months ended March 31, 2006, and primarily resulted from the sales and maturities of marketable securities of approximately $4,503,000, partially offset by the purchase of marketable securities of $1,922,000. Fixed asset purchases for the current year period approximated $36,000. For the three months ended March 31, 2005, net cash used in investing activities approximated $3,654,000, and primarily resulted from the purchase of marketable securities of approximately $9,617,000, partially offset by the maturity of marketable securities of $6,050,000. Fixed asset purchases for the prior year period approximated $87,000.

Net cash provided by financing activities amounted to approximately $5,719,000 for the three months ended March 31, 2006 and resulted primarily from the exercise of warrants to purchase shares of our common stock issued to investors in connection with our prior financings as well as the exercise of other outstanding warrants. For the three months ended March 31, 2005, net cash used in financing activities was minimal.

Commitments

We lease approximately 32,000 square feet of research laboratory, office and expansion space under an operating lease that expires May 31, 2009. The commitments under the lease agreement for the years ending December 31, 2006, 2007, 2008 and 2009 are $379,000, $525,000, $549,000 and $234,000, respectively.

Remaining commitments for clinical studies of CX717 and other preclinical expenses amount to approximately $2,440,000. Separately, we are committed to approximately $369,000 for sponsored research at academic institutions, all of which is payable over the next twelve months.

In June 2000, we received approximately $247,000 from the Institute for the Study of Aging (the “Institute”), a non-profit foundation supported by the Estee Lauder Trust. The advance partially

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

Staffing

As of March 31, 2006, we had a total of 25 full-time research and administrative employees. We anticipate modest increases in staffing and investments in plant or equipment through the next twelve months.

Outlook

We anticipate that our cash, cash equivalents and marketable securities will be sufficient to satisfy our capital requirements into 2007. Additional funds will be required to continue operations beyond that time. We may receive additional milestone payments from the Organon and Servier agreements. However, there is no assurance that we will receive such milestone payments from Organon or Servier. Additionally, on the afternoon of March 31, 2006, the U.S. Food and Drug Administration (the “FDA”) notified us that it had placed a clinical hold on our lead compound, AMPAKINE CX717. We have initiated discussions with representatives of the FDA to identify specific acute preclinical studies that we would need to perform related to the issues and recommendations provided by the agency. Our future capital requirements will be impacted by our ability to successfully address the FDA’s concerns and to effect the removal of the clinical hold.

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

Because there is no assurance that we will secure additional corporate partnerships, we may seek to raise additional capital through the sale of debt or equity securities. There is no assurance that funds will be available on favorable terms, or at all. If equity securities are issued to raise additional funds, dilution to existing stockholders is likely to result. Such additional capital would, more importantly, enhance the ability of us to achieve significant milestones in our efforts to develop the AMPAKINE technology.

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Additional Risks and Uncertainties

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

Off-Balance Sheet Arrangements

We have not engaged in any “off-balance sheet arrangements” within the meaning of Item 303(a)(4)(ii) of Regulation S-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Our exposure to interest rate risk arises from financial instruments entered into in the normal course of business. Certain of our financial instruments are fixed rate, short-term investments in government and corporate notes and bonds. Changes in interest rates generally affect the fair value of the investments, however, because these financial instruments are considered “available for sale,” all such changes are reflected in the financial statements in the period affected. We manage interest rate risk on our investment portfolio by matching scheduled investment maturities with our cash requirements. As of March 31, 2006, our investment portfolio had a fair value and carrying amount of approximately $12,613,000. If market interest rates were to increase immediately and uniformly by 10% from levels as of March 31, 2006, the resulting decline in the fair value of fixed rate bonds held within the portfolio would not be material to our financial position, results of operations and cash flows.

Our borrowing consists of our advance from the Institute for the Study of Aging, which is subject to potential repayment in the event that we enter an AMPAKINE compound into Phase III clinical testing as a potential treatment for Alzheimer’s disease. Potential repayment would include interest accruing at a rate equal to one-half of the prime lending rate. Changes in interest rates generally affect the fair value of such debt, but, based upon historical activity, such changes are not expected to have a

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material impact on earnings or cash flows. As of March 31, 2006, the principal and accrued interest of the advance amounted to approximately $288,000.

Item 4. Controls and Procedures

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

We performed an evaluation, under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based upon that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were effective in timely alerting them to material information required to be included in our periodic filings under the Exchange Act.

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

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than the matter described below, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005.

On the afternoon of March 31, 2006, the FDA notified us that it had placed a clinical hold on our lead compound, AMPAKINE CX717. We have initiated discussions with representatives of the FDA to identify specific acute preclinical studies that we would need to perform related to the issues and recommendations provided by the agency. Our objective is to have the FDA remove the clinical hold and allow us to proceed with our clinical studies currently on hold as soon as possible, however, it is uncertain at this time when, or if, such clinical hold will be removed. If we are unable to resume our clinical studies on AMPAKINE CX717 in a timely fashion, or at all, there could be a significant negative impact on our business operations and the market price of our common stock.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2006, we issued (i) an aggregate of 1,110,002 shares of our common stock to eight accredited investors, upon exercise of warrants previously sold to such investors in August 2003 in a private placement, in exchange for payments totaling $2,830,505; (ii) an aggregate of 521,773 shares of our common stock to five accredited investors, upon exercise of warrants previously sold to such investors in January 2004 in a private placement, in exchange for payments totaling $1,695,762; (iii) an aggregate of 340,977 shares of our common stock to four accredited investors, upon exercise of warrants previously sold to such investors in December 2004 in a private placement, in exchange for payments totaling $1,022,931; and (iv) an aggregate of 90,750 shares of our common stock to four accredited investors, upon exercise of warrants previously issued to such investors, in exchange for payments totaling $168,023. The foregoing shares of our common stock were issued on reliance upon the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving any public offering. There were no underwriters, brokers or finders employed in connection with the foregoing warrant exercises.

During the three months ended March 31, 2006, we did not repurchase any of our securities.

Item 6. Exhibits

Exhibits

10.93	Non-Qualified Stock Option Agreement dated January 30, 2006 between the Company and Mark Varney, Ph.D.
31.1	Certification by Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CORTEX PHARMACEUTICALS, INC.
May 9, 2006	By:	/s/ Maria S. Messinger
		Maria S. Messinger
		Vice President and Chief Financial Officer; Corporate Secretary (Chief Accounting Officer)

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EX-10.93

Exhibit 10.93

CORTEX PHARMACEUTICALS, INC.

Non-Qualified Stock Option Agreement

This Stock Option Agreement (“Agreement”) is entered into as of January 30, 2006 by and between Cortex Pharmaceuticals, Inc., a Delaware corporation (the “Company”) and Mark A. Varney (the “Optionee”).

1. Grant of Option. The Company hereby grants to Optionee a non-qualified option (the “Option”) to purchase all or any portion of a total of 250,000 shares (the “Shares”) of the Common Stock of the Company at a purchase price of $2.95 per share (the “Exercise Price”), subject to the terms and conditions set forth herein. This Option is not intended to qualify and will not be treated as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

2. Vesting of Option. The right to exercise this Option shall vest in installments, and this Option shall be exercisable from time to time in whole or in part as to any vested installment, in accordance with the vesting schedule as provided below:

83,334 shares on January 30, 2007

83,333 shares on January 30, 2008

83,333 shares on January 30, 2009

No additional shares shall vest after, and the portion of the Option related to such additional shares shall terminate upon the date of, termination of Optionee’s “Continuous Service” (as defined in Section 3 below), but this Option shall continue to be exercisable in accordance with Section 3 hereof with respect to that number of shares that have vested as of the date of termination of Optionee’s Continuous Service.

3. Term of Option. Optionee’s right to exercise this Option shall terminate upon the first to occur of the following:

(a) the expiration of ten years from the date of this Agreement;

(b) the expiration of three months from the date of termination of Optionee’s Continuous Service if such termination occurs for any reason other than permanent disability or death; provided, however, that if Optionee dies during such three-month period the provisions of Section 3(d) below shall apply;

(c) the expiration of one year from the date of termination of Optionee’s Continuous Service if such termination is due to permanent disability of Optionee (as defined in Section 22(e)(3) of the Code); or

(d) the expiration of one year from the date of termination of Optionee’s Continuous Service if such termination is due to Optionee’s death or if death occurs during the period following termination of Optionee’s Continuous Service pursuant to Section 3(b) above;

(e) the consummation of a “Change in Control” (as defined in Section 8 below) unless otherwise provided pursuant to Section 8 hereof.

As used herein, the term “Continuous Service” means (i) employment by either the Company or any parent or subsidiary corporation of the Company, or by a corporation or a parent or subsidiary of a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, which is uninterrupted except for vacations, illness (except for permanent disability, as defined in Section 22(e)(3) of the Code), or leaves of absence which are approved in writing by the Company or any of such other employer corporations, if applicable, (ii) service as a member of the Board of Directors of the Company until Optionee resigns, is removed from office, or Optionee’s term of office expires and he or she is not reelected, or (iii) so long as Optionee is engaged as a consultant or service provider to the Company or other corporation referred to in clause (i) above.

4. Exercise of Option.

(a) Prior to termination of this Option in accordance with Section 3 above, this Option may be exercised in whole or in part by Optionee (or, after his or her death, by the person designated in Section 5 below) upon delivery of the following to the Company at its principal executive offices:

(i) a written notice of exercise that identifies this Agreement and states the number of Shares then being purchased (but no fractional Shares may be purchased);

(ii) a check or cash in the amount of the Exercise Price (or payment of the Exercise Price in such other form of lawful consideration as the “Administrator” (as defined in Section 12 below) may approve from time to time); and

(iii) a check or cash in the amount reasonably requested by the Company to satisfy the Company’s withholding obligations under federal, state or other applicable tax laws with respect to the taxable income, if any, recognized by Optionee in connection with the exercise of this Option (unless the Company and Optionee shall have made other arrangements for deductions or withholding from Optionee’s wages, bonus or other compensation payable to Optionee, provided such arrangements satisfy the requirements of applicable tax laws in the opinion of the Company’s tax advisors).

(b) The Company may require Optionee, or any “Successor” as defined in Section 5 below, as a condition of exercising this Option, (i) to give written

assurances satisfactory to the Company as to Optionee’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the Shares subject to the Option for such person’s own account and not with any present intention of selling or otherwise distributing the Shares. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (A) the issuance of the Shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws.

(c) Notwithstanding anything to the contrary contained herein, this Option may not be exercised unless the Shares issuable upon exercise of this Option are then registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act.

5. Death of Optionee; No Assignment. The rights of Optionee under this Agreement may not be assigned or transferred except by will or by the laws of descent and distribution, and may be exercised during the lifetime of Optionee only by such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option in contravention of this Agreement shall be void and shall have no effect. If Optionee’s Continuous Service terminates as a result of his or her death, and provided Optionee’s rights hereunder shall have vested pursuant to Section 2 hereof, Optionee’s legal representative, his or her legatee, or the person who acquired the right to exercise this Option by reason of the death of Optionee (individually, a “Successor”) shall succeed to Optionee’s rights and obligations under this Agreement. After the death of Optionee, only a Successor may exercise this Option.

6. Limitation of Company’s Liability for Nonissuance. The Company agrees to use its reasonable best efforts to obtain from any applicable regulatory agency such authority or approval as may be required in order to issue and sell the Shares to Optionee pursuant to this Option. Inability of the Company to obtain, from any such regulatory agency, authority or approval deemed by the Company’s counsel to be necessary for the lawful issuance and sale of the Shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares as to which such requisite authority or approval shall not have been obtained.

7. Adjustments Upon Changes in Capital Structure. In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other

securities of the Company by reason of a recapitalization, stock split, combination of shares, reclassification, stock dividend or other change in the capital structure of the Company, then appropriate adjustments shall be made by the Administrator to the number of Shares subject to the unexercised portion of this Option and to the Exercise Price per share, in order to preserve, as nearly as practical, but not to increase, the benefits of Optionee under this Option.

8. Change in Control. In the event of a Change in Control (as defined below) of the Company, the Administrator in its discretion may take one or more of the following actions: (a) provide for the purchase of this Option for an amount of cash or other property that could have been received upon the exercise of this Option had this Option been currently exercisable, (b) adjust the terms of this Option in a manner determined by the Administrator to reflect the Change in Control, (c) cause the Option to be continued or assumed, or new rights substituted therefor, by the surviving or another entity, through the continuance or assumption of this Option, or the substitution for this Option of a new option of comparable value covering shares of a successor corporation, with appropriate adjustments as to the number and kind of shares and Exercise Price, in which event this Option, or the new option shall continue in the manner and under terms so provided or (d) make such other provision as the Administrator may consider equitable. If the Administrator does not take any of the forgoing actions, this Option shall terminate upon the consummation of the Change in Control and the Administrator shall cause written notice of the proposed transaction to be given to Optionee not less than fifteen (15) days prior to the anticipated effective date of the proposed transaction, provided however that whether or not provision is made for continuance, assumption or substitution of outstanding Options, then concurrent with the effective date of the Change of Control, all Options not previously terminated shall be accelerated and concurrent with such date, the holders of such Options shall have the right to exercise such Options in respect to any or all shares subject thereto.

For purposes of this Agreement, the term “Change in Control” shall mean (i) the acquisition, directly or indirectly, by any person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the beneficial ownership of more than fifty percent (50%) of the outstanding securities of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated; (iii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; (iv) a complete liquidation or dissolution of the Company; or (v) any reverse merger in which the Company is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such merger.

9. No Employment Contract Created. Neither the granting of this Option nor the exercise hereof shall be construed as granting to Optionee any right with respect to continuance of employment by the Company or any of its subsidiaries. The right of the

Company or any of its subsidiaries to terminate at will Optionee’s employment at any time (whether by dismissal, discharge or otherwise), with or without cause, is specifically reserved.

10. Rights as Stockholder. Optionee (or transferee of this option by will or by the laws of descent and distribution) shall have no rights as a stockholder with respect to any Shares covered by this Option until such Option has been duly exercised and certificates representing shares purchased upon such exercise have been issued to such person.

11. “Market Stand-Off” Agreement. Optionee agrees that, if requested by the Company or the managing underwriter of any proposed public offering of the Company’s securities, Optionee will not sell or otherwise transfer or dispose of any Shares held by Optionee without the prior written consent of the Company or such underwriter, as the case may be, during such period of time, not to exceed 180 days following the effective date of the registration statement filed by the Company with respect to such offering, as the Company or the underwriter may specify.

12. Interpretation. The Administrator shall interpret and construe this Option and any action, decision, interpretation or determination made in good faith by the Administrator shall be final and binding on the Company and Optionee. As used in this Agreement, the term “Administrator” shall refer to the committee of the Board of Directors of the Company appointed to administer the Option, and if no such committee has been appointed, the term Administrator shall mean the Board of Directors.

13. Notices. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed given when delivered personally or three days after being deposited in the United States mail, as certified or registered mail, with postage prepaid and addressed, if to the Company, at its principal place of business, Attention: Chief Financial Officer, and if to Optionee, at his or her most recent address as shown in the employment or stock records of the Company.

14. Annual and Other Periodic Reports. During the term of this Agreement, the Company will furnish to Optionee copies of all annual and other periodic financial and informational reports that the Company distributes generally to its stockholders.

15. Governing Law. The validity, construction, interpretation and effect of this Option shall be governed by and determined in accordance with the laws of the State of Delaware.

16. Severability. Should any provision or portion of this Agreement be held to be unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding.

17. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be deemed one instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

CORTEX PHARMACEUTICALS, INC., a Delaware corporation		“OPTIONEE” Mark A. Varney
By:	/s/ Maria S. Messinger		/s/ Mark A. Varney
Its:	VP and CFO		Signature

EX-31.1

EXHIBIT 31.1

CEO CERTIFICATION

I, Roger G. Stoll, Ph.D., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cortex Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2006

/s/ Roger G. Stoll

Roger G. Stoll, Ph.D.

Chairman, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CFO CERTIFICATION

I, Maria S. Messinger, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cortex Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2006

/s/ Maria S. Messinger

Maria S. Messinger

Vice President, Chief Financial Officer and Secretary

EX-32

EXHIBIT 32

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of

the Sarbanes-Oxley Act of 2002

Roger G. Stoll, Ph.D., President and Chief Executive Officer of Cortex Pharmaceuticals, Inc. (the “Company”), and Maria S. Messinger, Chief Financial Officer of the Company, each certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1) the Quarterly Report on Form 10-Q of the Company for the three months ended March 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 9, 2006	/s/ Roger G. Stoll
	Roger G. Stoll, Ph.D.
	Chairman, President and Chief Executive Officer
Dated:  May 9, 2006	/s/ Maria S. Messinger
	Maria S. Messinger
	Vice President, Chief Financial Officer and Secretary