<PAGE>
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 June 30, 1999
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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
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AXONYX INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 86-0883978
- ------------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
750 LEXINGTON AVENUE, SUITE 1400, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 688-4770
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(Registrant's telephone number, including area code)
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(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 No X
--- ---
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:
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 12,566,002 shares of Common
Stock as of August 11, 1999.
AXONYX INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 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>
June 30, December 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,008,000 $1,558,000
Stock subscription receivable -- 750,000
Other 20,000 4,000
----------- -----------
Total current assets 2,028,000 2,312,000
Equipment, net 9,000 1,000
Other assets 7,000 --
----------- -----------
$2,044,000 $2,313,000
----------- -----------
----------- -----------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $121,000 $119,000
Convertible notes payable and accrued interest 219,000 210,000
----------- -----------
Total liabilities 340,000 329,000
----------- -----------
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common Stock - $.001 par value, 25,000,000 shares authorized; 12,366,002 12,000 12,000
and 12,210,002 shares issued and outstanding, respectively.
Additional paid-in capital 4,750,000 3,363,000
Unearned compensation - stock/options (381,000) (41,000)
Deficit accumulated during development stage (2,677,000) (1,350,000)
----------- -----------
Total stockholders' equity 1,704,000 1,984,000
----------- -----------
$2,044,000 $2,313,000
----------- -----------
----------- -----------
</TABLE>
See notes to the financial statements
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
January 9,
1997
(inception)
Three Months ended Six months ended through
June 30, 1999 June 30, 1999 June 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 250,000 $ 250,000 $ 250,000
Costs and expenses:
Research and development 157,000 $ 94,000 278,000 $ 180,000 1,113,000
General and administrative 504,000 51,000 873,000 111,000 1,378,000
------------ ------------ ------------ ------------ ------------
661,000 145,000 1,151,000 291,000 2,491,000
------------ ------------ ------------ ------------ ------------
Loss from operations (411,000) (145,000) (901,000) (291,000) (2,241,000)
Interest income/(expense)-net 9,000 -- 18,000 -- 8,000
------------ ------------ ------------ ------------ ------------
Net loss $ (402,000) $ (145,000) $ (883,000) $ (291,000) $(2,233,000)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net loss per common share $ (0.03) $ (0.01) $ (0.07) $ (0.03)
Weighted average shares
basic and diluted 12,252,135 10,000,000 12,241,069 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)
Six months ended through
June 30, June 30,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (883,000) $(291,000) $(2,233,000)
Adjustments to reconcile net loss to cash used in
operating activities:
Amortization 376,000 59,000 582,000
Cost of services paid with common stock 19,000 259,000
Depreciation 1,000 -- 2,000
Changes in:
other assets (23,000) (3,000) (23,000)
accrued expenses and interest 11,000 48,000 140,000
------------ ------------ ------------
Net cash used in operating activities (499,000) (187,000) (1,273,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (9,000) -- (11,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable 125,000 200,000
Net proceeds from issuance of common stock and warrants 958,000 70,000 3,144,000
Cost of merger -- -- (52,000)
------------ ------------ ------------
Net cash provided by financing activities 958,000 195,000 3,292,000
NET INCREASE IN CASH AND CASH EQUIVALENTS 450,000 8,000 2,008,000
Cash and cash equivalents at beginning of period 1,558,000 23,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,008,000 $ 31,000 $ 2,008,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to the financial statements
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 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>
(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 an d 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 June 30, 1999, the
Company had sold 8 units. Between June 30 and August 11, the Company sold an
additional 25 units.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q 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-Q, 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-Q 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 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 and one for prion-related diseases.
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 series of
selectively acting compounds, the best studied of which is Cymserine, and (3)
compounds called Amyloid Inhibitory Peptides (AlPs) 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
<PAGE>
prion diseases such as Bovine Spongiform Encephalopathy (also known as "Mad
Cow Disease") and the human form of the disease, Creutzfeldt Jakob
Disease, new variant.
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 through profitable licensing agreements with major pharmaceutical
companies such as Ares Serono; 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.
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.
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 three months ended June 30, 1999, the Company realized revenue
in the amount of $250,000 in the form of a fee from Ares Serono pursuant to
the Development Agreement and Right to License.
For the three months ended June 30, 1999 the Company incurred a loss
from operations of $411,000 compared to a loss from operations of $145,000
for the three months ended June 30, 1998. The Company incurred a loss from
operations of $901,000 for the six months ended June 30, 1999 compared to a
loss from operations of $291,000 for the six months ended June 30, 1998. The
increase is due to additional research and development activities and an
increase in
<PAGE>
general and administrative expenses. The Company expects to incur
additional losses for the foreseeable future.
For the three months ended June 30, 1999 the Company incurred research
and development costs of $157,000 compared to $94,000 for the three months
ended June 30, 1998. The Company incurred research and development costs of
$278,000 for the six month period ended June 30, 1999 compared to $180,000
for the six months ended June 30, 1998. The increase is due to an additional
scientist and consultants being engaged.
For the period ended June 30, 1999 the Company incurred general and
administrative costs of $504,000 compared to $51,000 for the three months
ended June 30, 1998. The Company incurred general and administrative costs of
$873,000 for the six months ended June 30, 1999 compared to $111,000 for
the six months ended June 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 and the Company's research and development
activities.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $2,008,000 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 through August 2000. The
Company is currently undertaking a $5 million equity placement of units
composed of shares of common stock and common stock purchase warrants, and is
pursuing sub-licensing and other collaborative arrangements that may generate
additional capital for the Company. However, there can be no assurance that
the Company will generate sufficient additional revenues, if any, to fund its
operations beyond this 12 month period ending August 2000, that the current
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.
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
intends to verify the compliance of its licensors and collaborating research
facilities by October 1, 1999. There can be no assurance that there will not
be a material adverse effect on the Company if third parties do not convert
their systems in a timely manner.
<PAGE>
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 a private placement of up to 200
units at $25,000 per unit to a limited number of accredited and otherwise
qualified investors based on their financial resources and knowledge of
investments. 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 August 11, 1999 the Company had sold 33 Units in the private
placement. The issuance of securities is exempt from the registration
requirements of the Securities Act pursuant to Regulation D, Rule 506 and
Regulation S of the Securities Act.
On June 16, 1999 the Company issued 4,000 shares of restricted common
stock to Craig Canfield, M.D., a consultant to the Company, in partial
compensation pursuant to a Consulting Agreement between the parties dated
January 1, 1998. Dr. Canfield has performed services for the Company
regarding the preparation and filing of an Investigational New Drug
application with the United States Food and Drug Administration for the
Company's drug compound Phenserine. The issuance of the securities was exempt
from the registration requirements of the Securities Act pursuant to the
exemption set forth in Section 4(2).
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 between the parties dated June 11, 1999 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 issuance of the securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2).
<PAGE>
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
A Form 8-K was filed on June 1, 1999 concerning the Ares Serono
Development Agreement.
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,008,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,028,000
<PP&E> 11,000
<DEPRECIATION> 2,000
<TOTAL-ASSETS> 2,044,000
<CURRENT-LIABILITIES> 121,000
<BONDS> 219,000
0
0
<COMMON> 12,000
<OTHER-SE> 1,692,000
<TOTAL-LIABILITY-AND-EQUITY> 2,044,000
<SALES> 0
<TOTAL-REVENUES> 250,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 278,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> (883,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 883,000
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
<FN>
<F1>Research and Development
</FN>
</TABLE>
