<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
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 000-25571
AXONYX INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0883978
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
750 LEXINGTON AVENUE, SUITE 1400, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 688-4770
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 12,938,002 shares of
Common Stock as of November 1, 1999.
Transitional Small Business Disclosure Format (check one);
<PAGE>
AXONYX INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1999 (unaudited)
Statements of Operations (unaudited)
Statements of Cash Flows (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Plan of Operation
PART II. OTHER INFORMATION
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AXONYX INC.
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September, 30, December 31,
1999 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $4,224,000 $ 1,558,000
Stock subscription receivable 150,000 750,000
Other 14,000 4,000
--------------- ----------------
Total current assets 4,388,000 2,312,000
Equipment, net 15,000 1,000
Other assets 7,000 --
--------------- ----------------
$4,410,000 $ 2,313,000
--------------- ----------------
--------------- ----------------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 84,000 $ 119,000
Convertible notes payable and accrued interest -- 210,000
--------------- ----------------
Total liabilities 84,000 329,000
--------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common Stock - $.001 par value, 25,000,000 shares authorized;13,028,002
(including 100,000 shares held in escrow, and 24,000 shares subscribed)
and 12,210,002 issued and outstanding, respectively. 13,000 12,000
Additional paid-in capital 7,483,000 3,363,000
Unearned compensation - stock/options (258,000) (41,000)
Deficit accumulated during development stage (2,912,000) (1,350,000)
--------------- ----------------
Total stockholders' equity 4,326,000 1,984,000
--------------- ----------------
$4,410,000 $ 2,313,000
--------------- ----------------
--------------- ----------------
</TABLE>
See notes to financial statements
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
January 9,
1997
(inception)
Three Months ended Nine months ended through
September 30, September 30, September 30,
1999 1998 1999 1998 1999
---------------- ---------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $ 250,000 $ -- $ 250,000
Costs and expenses:
Research and development 169,000 83,000 447,000 263,000 1,282,000
General and administrative 514,000 58,000 1,387,000 169,000 1,892,000
---------------- ---------------- --------------- --------------- -----------------
683,000 141,000 1,834,000 432,000 3,174,000
---------------- ---------------- --------------- --------------- -----------------
Loss from operations (683,000) (141,000) (1,584,000) (432,000) (2,924,000)
Interest income/(expense)-net 9,000 (6,000) 27,000 (6,000) 17,000
---------------- ---------------- --------------- --------------- -----------------
Net loss $ (674,000) $ (147,000) $ (1,557,000) $ (438,000) $ (2,907,000)
---------------- ---------------- --------------- --------------- -----------------
---------------- ---------------- --------------- --------------- -----------------
Net loss per common share-
basic and diluted $ (0.05) $ (0.01) $ (0.13) $ (0.04)
Weighted average shares
basic and diluted 12,502,000 10,000,000 12,329,000 10,000,000
</TABLE>
See notes to the financial statements
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
January 9,
1997
(inception)
Nine months ended through
September 30, September 30,
1999 1998 1999
-------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,557,000) $(438,000) $(2,907,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization 672,000 89,000 878,000
Cost of services paid with common stock 19,000 -- 259,000
Depreciation 2,000 -- 3,000
Changes in:
other assets (17,000) -- (17,000)
accrued expenses and interest (45,000) 91,000 84,000
-------------- ------------- ---------------
Net cash used in operating activities (926,000) (258,000) (1,700,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (16,000) -- (18,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 200,000 200,000
Net proceeds from issuance of common stock and warrants 3,608,000 79,000 5,794,000
Cost of merger -- -- (52,000)
-------------- ------------- ---------------
Net cash provided by financing activities 3,608,000 279,000 5,942,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,666,000 21,000 4,224,000
Cash and cash equivalents at beginning of period 1,558,000 23,000 --
-------------- ------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,224,000 $ 44,000 $ 4,224,000
-------------- ------------- ---------------
-------------- ------------- ---------------
NONCASH TRANSACTIONS:
Note payable converted to common stock $ 200,000 $ -- $ 200,000
-------------- ------------- ---------------
-------------- ------------- ---------------
</TABLE>
See notes to the financial statements
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Axonyx Inc. (the "Company") herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the results of operations for the interim periods presented.
Certain information and footnote disclosure normally included in the
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such rules
and regulations. However, management believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements and notes thereto should be read in conjunction with the financial
statements and the notes thereto for the year ended December 31, 1998
included in the Company's Form 10-SB filing. The results for the interim
periods are not necessarily indicative of the results for the full fiscal
year.
(2) NEW AGREEMENTS:
Effective as of May 17, 1999, Axonyx Inc. entered into a Development
Agreement and Right to License (the "Development Agreement") with Applied
Research Systems ARS Holding N.V., a wholly owned subsidiary of Ares Serono
International, SA ("Ares Serono"). Under the Development Agreement, the
Company granted an exclusive right to license its patent rights and know-how
regarding its amyloid inhibitory peptide (AIP) and prion inhibitory peptide
(PIP) technology to Ares Serono. Ares Serono paid Axonyx a nonrefundable fee
for the right to license of $250,000. The right to license has a one year
term, renewable for an additional one-year term upon payment of an additional
$500,000. In addition Ares Serono undertakes to conduct research on the AIP
and PIP technology during the term of the Development Agreement. The parties
also agreed to the basic licensing terms that will form the basis for the
license agreement between the parties if Ares Serono exercises its right to
license.
On June 18, 1999 the Company issued 200,000 shares of restricted common stock
to Infusion Capital Investment Corporation ("ICIC") pursuant to a Consulting
Agreement under which ICIC and its affiliates undertook to perform certain
investor relations and corporate development services on behalf of the
Company. 100,000 shares out of the 200,000 shares of common stock issued to
ICIC were placed in an escrow account pursuant to an Escrow Agreement dated
June 11, 1999 by an between the Company, ICIC and Atlas, Pearlman, Trop &
Borkson, the escrow agent. The 100,000 shares of restricted common stock held
in the escrow account will be released to ICIC on December 11, 1999 unless
the Company decides not to extend ICIC's retention under the Consulting
Agreement for an additional six months. The shares issued to ICIC were valued
at fair value.
<PAGE>
On October 1, 1999 the Company entered into an agreement with the University
of Melbourne (Australia). In addition to the costs associated with the filing
and prosecution of any patent applications resulting from collaborative
research, the Company has committed approximately $60,000 per year for each
of the next three years to develop a diagnostic test for Alzheimer's Disease.
Both parties will own any resulting intellectual property as tenants in
common in equal shares. In addition, the Company has an option to acquire an
exclusive worldwide license to the intellectual property or patent resulting
from the research project, and to an existing patent application.
(3) PRIVATE PLACEMENT:
In May 1999 the Company commenced a private placement of up to 200 units for
$25,000 per unit. Each unit consists of 4,000 shares of common stock and
2,000 common stock purchase warrants to purchase one share of common stock at
a price of $11.00. The warrants expire August 1, 2004. Through September 30,
1999, the Company had sold 123.5 units. Between September 30 and October 25,
the termination date of the offering, the Company sold an additional 47.5
units for a total of 171 units.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS "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. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED
IN OR INCORPORATED BY REFERENCE INTO THIS FORM 10-QSB, ARE FORWARD-LOOKING
STATEMENTS. IN ADDITION, WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE,"
"ESTIMATE," "PROJECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS INCLUDING THOSE RISKS DESCRIBED
IN THE COMPANY'S REPORT ON THIS FORM 10-QSB SHOULD ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED,
ESTIMATED OR PROJECTED. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THE COMPANY
CANNOT GIVE ANY ASSURANCES THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT.
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
in Part I Item 1.
Axonyx Inc. ("Axonyx" or the "Company") is engaged in the business
of identifying and acquiring novel post-discovery central nervous system
(CNS) drug candidates to advance through clinical development towards
regulatory approval. The Company is engaged in the business of acquiring
patent rights and developing CNS pharmaceutical compounds and diagnostics
with significant potential market impact. The Company has acquired worldwide
exclusive patent rights to three main classes of therapeutic compounds
designed for the treatment of Alzheimer's Disease (AD), Moderate Cognitive
Impairment (MCI), and related diseases. The Company licensed these patent
rights from New York University (NYU) and, via a sublicense, from the
National Institutes of Health\National Institute on Aging (NIA) (the
"Licensors") and has an ongoing research and development relationship with
both Licensors.
The Company's current business strategy is to pursue three different
types of products for the treatment of AD, one for prion-related diseases,
and a diagnostic test for AD. The AD targeted approaches include: (1)
Phenserine, an analog of physostigmine and a potent inhibitor of
acetylcholinesterase, (2) a butyrylcholinesterase inhibitor which will be
chosen from a group of selectively acting compounds, the best studied of
which is Cymserine, and (3) compounds called Amyloid Inhibitory Peptides
(AIPs) which may prevent and reverse the formation of amyloid plaques in AD
and in diseases of peripheral amyloidosis. The Company is also conducting
research on compounds called Prion Inhibitory Peptides (PIPs) designed for
the diagnosis and treatment of prion diseases such as Bovine Spongiform
Encephalopathy (also
<PAGE>
known as "Mad Cow Disease") and the human form of the disease,
Creutzfeldt-Jakob Disease, new variant. In the area of diagnostics, the
Company has entered into an agreement with the University of Melbourne
(Australia) for collaborative research on the development of a diagnostic
test for AD.
Axonyx's plan is to: (1) identify, acquire and exploit rights to new
technologies and compounds relating to AD and other neurological disorders;
(2) enhance the value of those assets through further research and clinical
testing; (3) perform clinical studies towards regulatory approval and market
its drugs and diagnostic tests through profitable licensing agreements with
major pharmaceutical companies; and (4) work to develop other promising
compounds in-house and in collaboration with third parties such as its
current Licensors at NYU and the NIA, and through corporate joint ventures
with companies such as Ares Serono International, S.A., a subsidiary of which
signed a Development Agreement and Right to License Agreement with Axonyx in
May 1999. Axonyx intends to develop other corporate partnerships with
established and well capitalized pharmaceutical companies for the clinical
development of its compounds and for their production, commercialization and
marketing. The Company expects to derive its revenues from patent
sub-licensing fees, royalties from pharmaceutical sales, appropriate
milestone payments, and research and development contracts.
In May 1999, the Company entered into a Development Agreement and
Right to License with a wholly owned subsidiary of Ares Serono International,
S.A., a Swiss pharmaceutical company, ("Ares Serono"). Under the agreement
Ares Serono is undertaking research on the AIPs and PIPs for a one year term,
with a right to sublicense Axonyx's patent rights to the AIPs and the PIPs.
In addition to pursuing significant new research on the AIPs and PIPs, Ares
Serono has paid Axonyx an up front fee for the right to sublicense, and will
pay an additional fee if it exercises its option to extend that right and
undertakes an additional year of research.
On October 1, 1999 Axonyx Inc. signed a Sponsored Research Agreement
with the University of Melbourne (Australia). Under the Agreement, Axonyx
commits to fund a research project at the University of Melbourne to develop
a diagnostic test for Alzheimer's Disease. Axonyx undertakes to fund this
research for a three year period for approximately $60,000 per year. Each
party will own the resulting intellectual property as tenants in common in
equal shares. Axonyx also undertakes to pay the expenses associated with the
filing and prosecution of any patent applications covering the intellectual
property resulting from the research project. In addition, the University of
Melbourne granted Axonyx an option to acquire an exclusive worldwide license
to the intellectual property or patent resulting from the research project,
and to an existing patent application covering an Alzheimer's Disease
diagnostic test on basic licensing terms outlined in the Sponsored Research
Agreement.
While the Company has generated some revenue from its agreement with
Ares Serono, it does not anticipate additional revenues during its 1999
fiscal year. There can be no assurance that additional revenues from patent
licensing or research and development contracts will be generated.
<PAGE>
RESULTS OF OPERATIONS
Since the commencement of operations of its predecessor in January 1997,
the Company's efforts have been principally devoted to research and development
of its licensed pharmaceutical compounds, corporate consolidation, and raising
capital.
For the nine months ended September 30, 1999, the Company realized
revenue in the amount of $250,000 in the form of a non-refundable fee from
Ares Serono pursuant to the Development Agreement and Right to License.
For the three months ended September 30, 1999 the Company incurred a
loss from operations of $683,000 compared to a loss from operations of
$141,000 for the three months ended September 30, 1998. The Company incurred
a loss from operations of $1,584,000 for the nine months ended September 30,
1999 compared to a loss from operations of $432,000 for the nine months ended
September 30, 1998. The increase is due to additional research and
development activities and an increase in general and administrative
expenses. The Company expects to incur additional losses for the foreseeable
future.
For the three months ended September 30, 1999 the Company incurred
research and development costs of $169,000 compared to $83,000 for the three
months ended September 30, 1998. The Company incurred research and
development costs of $447,000 for the nine months ended September 30, 1999
compared to $263,000 for the nine months ended September 30, 1998. The
increase is due primarily to additional scientists and consultants being
engaged.
For the three months ended September 30, 1999 the Company incurred
general and administrative costs of $514,000 compared to $58,000 for the
three months ended September 30, 1998. The Company incurred general and
administrative costs of $1,387,000 for the nine months ended September 30,
1999 compared to $169,000 for the nine months ended September 30, 1998. The
increase is due to hiring employees, the recognition of fair value of options
issued to consultants and advisors, an overall increase in costs due to the
Company's activities associated with patent support and marketing the
Company's research and development activities.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $4,224,000 in cash and
cash equivalents. The Company does not have any available lines of credit.
Since inception the Company has financed its operations through loans from a
shareholder and from private placements of equity securities.
The Company estimates that it currently has sufficient capital
resources to meet its budgetary needs for the next twelve months. The Company
received $4.27 million total gross proceeds from its equity private offering
of units that terminated on October 25, 1999. The Company is currently
preparing to undertake a $5 million equity placement of units composed of
shares of common stock and common stock purchase warrants, and is pursuing
sub-licensing and
<PAGE>
other collaborative arrangements that may generate additional capital for the
Company. However, there can be no assurance that the Company will generate
additional revenues, that the planned equity financing will be successful, or
that other potential financings through bank borrowings, debt or equity
offerings, or otherwise, will be available on acceptable terms or at all.
SUBSEQUENT EVENTS
On October 28, 1999, the Company was informed by the U.S. Food &
Drug Administration that it is authorized to commence Phase I clinical trials
on its drug Phenserine. It is the Company's intention to initiate Phase I
human clinical studies on Phenserine within the next two months.
IMPACT OF THE YEAR 2000 ON COMPANY RESEARCH AND DEVELOPMENT
Computers, software and other equipment utilizing microprocessors
that use only two digits to identify a year in a date field may be unable to
process accurately certain date-based information at or after the year 2000.
The Company recognizes the need to insure that its operations will not be
adversely affected by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a recognized risk, and the Company is addressing this issue on
several different fronts. The Company is in contact with its licensors and
collaborating research facilities to assess their compliance. The Company has
verified the compliance of its licensors and collaborating research
facilities as of October 1, 1999. There can be no assurance that there will
not be a material adverse effect on the Company if other third parties do not
convert their systems in a timely manner.
YEAR 2000 IMPACT ON INTERNAL BUSINESS OPERATIONS
The Company uses computer software programs and operating systems in
its internal operations, largely word processing and spreadsheet applications
used in various administrative functions. The Company has verified that these
software programs and operating systems are year 2000 compliant with
operating ranges well beyond that date.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 20, 1999, the Company initiated an equity offering of units
to a limited number of accredited and otherwise qualified investors based on
their financial resources and knowledge of investments, with each unit priced
at $25,000 per unit. Each unit ("Unit") consists of 4,000 shares of Common
Stock, par value $0.001 (the "Shares"), and 2,000 Stock Purchase Warrants
(the "Warrants") at a price of $25,000 per Unit. Each Warrant entitles the
holder to purchase one Share at a price of $11.00 until their expiration on
August 1, 2004. As of October 25, 1999, the termination date of the private
offering, the Company had sold 171 Units. The issuance of securities in this
private offering is exempt from the registration requirements of the
Securities Act pursuant to Regulation D, Rule 506 and Regulation S of the
Securities Act.
<PAGE>
On September 22, 1999 Boundary Bay Investments Ltd., a major
stockholder of the Company, elected to convert its two Nine Percent
Convertible Notes in an aggregate principal amount of $200,000, into 100,000
shares of common stock at a conversion price of $2.00 per share. The Company
issued 100,000 shares to BBI on September 27, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Axonyx Inc. held its 1999 Annual Meeting of Stockholders on
September 17, 1999. At the meeting each of the five incumbent directors of
the Company were re-elected and the appointment of Richard A. Eisner & Co.,
LLP, independent certified public accountants, as the Company's auditors was
ratified. Each director received 8,618,375 votes for out of 12,621,002
outstanding shares entitled to vote at the meeting with no votes against or
abstentions. The ratification of the auditors was approved by a vote of
8,618,375 votes for, with no votes against or abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K.
The following exhibits are filed as part of this report:
27.1 Financial Data Schedule
(b) Reports on 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXONYX INC.
By: /s/ Marvin S. Hausman, M.D.
---------------------------------------
Marvin S. Hausman, M.D.
President and Chief Executive Officer
By: /s/ Michael M. Strage
---------------------------------------
Michael M. Strage
Treasurer and Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 4,224,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,388,000
<PP&E> 18,000
<DEPRECIATION> 3,000
<TOTAL-ASSETS> 4,410,000
<CURRENT-LIABILITIES> 84,000
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 4,313,000
<TOTAL-LIABILITY-AND-EQUITY> 4,410,000
<SALES> 250,000
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 447,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (1,557,000)
<INCOME-TAX> 0
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<EPS-BASIC> (.13)
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<FN>
<F1>Research and Development
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</TABLE>
