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U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No.__)
AXONYX INC.
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(Name of small business issuer in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
2834
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(Primary Standard Industrial Classification Code Number)
86-0883978
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(I.R.S. Employer Identification No.)
825 THIRD AVENUE, 40TH FLOOR, NEW YORK, NEW YORK 10022
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(Address of Principal Executive Offices) (Zip Code)
(212) 688-4770 (PHONE) (212) 688-4843 (FAX)
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(Issuer's Telephone and Fax Number)
Marvin S. Hausman, M.D., President & Chief Executive Officer
825 Third Avenue
40th Floor
New York, New York 10022
(212) 688-4770
(Name, Address and Telephone Number of Agent for Service)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If this Form is a post-effective amendment filed pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering:
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Offering Aggregate Amount of
Class of Securities Amount to be Price per Offering Registration
to be Registered Registered Share(1) Price Fee
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<S> <C> <C> <C> <C>
common stock reserved for
issuance upon exercise of
warrants (2) 1,005,000 $13.10 $13,165,508 $3,475.69
common stock 55,000 $13.10 $ 720,500 $ 190.21
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Total 1,060,000 $13,886,000 $3,665.90
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933 based on the average of the closing bid and ask prices for our common
stock as reported on the Nasdaq SmallCap Market on April 27, 2000 for
1,060,000 shares of common stock.
(2) Under Rule 416, there are also being registered additional shares of common
stock that may be issuable under the anti-dilution provisions of the
warrants.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
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Subject to completion April 28, 2000
PROSPECTUS
AXONYX INC.
1,060,000 shares of common stock
This prospectus covers the offer and sale of up to 1,060,000 shares of
common stock of Axonyx Inc. by certain selling security holders. The shares
being offered include 1,005,000 shares reserved for issuance upon exercise of
warrants that we have issued to selling security holders.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"AXYX." On April 27, 2000, the closing bid price for our common stock was
$13 1/16 per share.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A LOSS OF YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is April 28, 2000.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 12
Price Range of Common Stock and Dividend Policy........................... 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 14
Description of Business................................................... 18
Glossary............................................................... 18
A. Background on Our Company..................................... 20
B. Axonyx Drug Discovery Programs................................ 21
C. The Industry and Market....................................... 25
D. FDA Regulatory Matters........................................ 25
E. Strategic Alliances........................................... 26
F. Manufacturing, Marketing and Sales............................ 28
G. Patents, Trademarks, and Copyrights........................... 28
H. Competition................................................... 30
I. Employees..................................................... 30
J. Description of Property....................................... 30
K. Legal Proceedings............................................. 31
Management................................................................ 31
Executive Compensation.................................................... 35
Principal Shareholders.................................................... 38
Certain Relationships and Related Transactions............................ 40
Description of Securities................................................. 43
Selling Security Holders.................................................. 45
Plan of Distribution...................................................... 49
Changes in and Disagreements With Accountants............................. 50
Legal Matters............................................................. 51
Experts................................................................... 51
Available Information..................................................... 51
Audited Financial Statements.............................................. F-1
</TABLE>
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information contained in this document may only be
accurate on the date of this document.
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3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information contained under the caption "Risk Factors",
"Description of Business" and "Financial Statements", including the notes
thereto, appearing elsewhere in this prospectus. Unless otherwise indicated
herein, the information in this prospectus does not give effect to the issuance
of up to 1,767,800 shares in the event of conversion of outstanding warrants,
1,380,651 shares in the event of conversion of outstanding options, and 810,300
shares issuable upon exercise of future options available for grant under our
Stock Option Plan. The information in this prospectus gives effect to a 2:1
forward stock split of our common stock which took place on February 23, 1999.
All information on outstanding securities of our company gives effect to this
stock split except where specifically noted.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. YOU ARE URGED TO READ THIS
PROSPECTUS CAREFULLY AND IN ITS ENTIRETY.
THE COMPANY
We are engaged in the business of identifying and acquiring novel central
nervous system drug candidates. We acquire patent rights to central nervous
system pharmaceutical compounds with significant potential market impact and
advance the compounds through clinical development towards regulatory approval.
We have acquired worldwide exclusive patent rights to three main classes of
therapeutic compounds designed for the treatment of Alzheimer's Disease, Mild
Cognitive Impairment, and related diseases. We licensed these patent rights from
New York University and, via a sublicense, from the National Institute on Aging.
We have an ongoing research and development relationship with both of these
licensors.
We are developing compounds under contract in laboratories at the New York
University School of Medicine and, through a research and development
collaboration, with the National Institute on Aging's laboratories and
elsewhere. We have entered into a Development Agreement and Right to License
with a subsidiary of Ares Serono, S.A., a Swiss pharmaceutical company for a one
year term ending May 17, 2000, renewable for a second year, with a right to
sublicense our patent rights to certain of our compounds. Under this license
Ares Serono is undertaking research on the covered compounds. In addition, we
are sponsoring the development of a diagnostic test for Alzheimer's Disease at
the University of Melbourne (Australia). We intend to develop other corporate
partnerships with established and well capitalized pharmaceutical companies for
the clinical development of some of our other compounds and for their
production, commercialization and marketing. We do not currently maintain any
proprietary laboratory or research premises.
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4
We have licensed a portfolio of drugs that covers three distinct
therapeutic approaches. These drugs have demonstrated activity in treating the
causes of Alzheimer's Disease in preclinical development. Each class of drug
compounds has a different target and represents a unique, innovative platform
for the development of pharmaceutical products for the diagnosis and treatment
of Alzheimer's Disease.
The treatment of people with Alzheimer's Disease is a multi billion-dollar
industry in the United States alone and constitutes an extremely large potential
market with an unmet therapeutic need. Currently there are only three approved
drugs that provide at best marginal symptomatic relief for one aspect of
Alzheimer's Disease. One of our compounds, Phenserine, an acetylcholinesterase
inhibitor, has shown in preclinical studies a potential therapeutic and safety
profile superior to the leading product currently on the market. Our two other
lead product candidates, Cymserine, a butyrylcholinesterase inhibitor, and the
Amyloid Inhibitory Peptides, attack the disease in other inventive and effective
ways, representing potentially new platform technologies for the treatment of
Alzheimer's Disease. The Development Agreement and Right to License with Ares
Serono includes the Amyloid Inhibitory Peptides. We expect to derive our
revenues from patent sub-licensing fees, royalties from pharmaceutical sales,
appropriate milestone payments, and research and development contracts.
THE OFFERING
common stock offered by
selling security holders 1,060,000 shares (1)
common stock outstanding:
prior to the offering 14,214,019 shares
after the offering 15,219,019 shares
Nasdaq trading symbol for common stock AXYX
Risk Factors This offering involves
a high degree of risk. See "Risk
Factors".
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(1) The selling security holders are offering up to 1,060,000 shares, including
1,005,000 shares of our common stock that are issuable to them upon the exercise
of warrants that they own, and 55,000 shares of common stock held by selling
security holders. The shares will be sold in brockerage transactions that may be
effected by them from time to time. We have not arranged for any underwriter to
sell the shares on behalf of the selling security holders.
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5
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE INVESTING IN
OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS
COULD BE HARMED. THIS COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE, AND YOU MAY
LOSE PART OR ALL OF YOUR INVESTMENT. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING STATEMENTS ABOUT
FUTURE PLANS, OBJECTIVES, INTENTIONS MATERIALLY FROM THOSE DISCUSSED IN ANY
FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO OUR BUSINESS
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND WE HAVE A LIMITED OPERATING HISTORY.
WE HAVE A LARGE ACCUMULATED DEFICIT AND MAY NEVER BECOME PROFITABLE.
We have a very limited operating history upon which investors may base an
evaluation of our likely future performance. Since we began operations in 1997
we have been engaged in organizational and start-up activities, including
developing our research programs, recruiting outside directors, employees and
key consultants, and consummating patent licensing agreements. To date, we have
not had any laboratory facilities in which to conduct any research and will not
have any operational laboratories of our own in the near future. We have had
only limited revenue from license fees to date, other than interest income. As
of December 31, 1999, we had an accumulated deficit of $6,352,000, and our
operating losses are continuing.
WE HAVE NO PRODUCTS AVAILABLE FOR SALE AND THERE CAN BE NO ASSURANCE THAT WE
WILL BE SUCCESSFUL IN DEVELOPING PRODUCTS SUITABLE FOR COMMERCIALIZATION.
- - We have no products available for sale and we do not expect to have any
products commercially available for several years, if at all.
- - Our research and development programs are at an early stage.
- - There can be no assurance that our research will lead to the discovery of
any therapeutic agents.
- - If any potential products are identified, they will require significant
additional research, development, preclinical and clinical testing,
regulatory approval and substantial additional investment prior to
commercialization.
- - Any potential products we identify may not be successfully developed, prove
to be safe and efficacious in clinical trials, meet applicable regulatory
standards, or be capable of being produced in commercial quantities at
acceptable costs or be successfully marketed.
THERE CAN BE NO ASSURANCE OF FUTURE REVENUE OR OPERATING PROFITS AND INVESTORS
COULD LOSE THEIR ENTIRE INVESTMENT.
We expect to incur substantial operating losses for at least the next
several years. We currently have limited sources of revenue other than interest
income, and we cannot
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6
assure you that we will be able to develop other revenue sources or that our
operations will become profitable, even if we are able to enter into joint
venture arrangements to commercialize any products. Other than interest income,
the only revenue that we have realized to date has been a modest fee paid by
Ares Serono, S.A. under the terms of the Development Agreement and Right to
License. If we do not generate significant increases in revenue, at some point
in the future we may not be in a position to continue operations and investors
could lose their entire investment.
IF WE FAIL TO COMPLY WITH THE TERMS OF OUR LICENSING AGREEMENTS OUR LICENSORS
MAY TERMINATE CERTAIN LICENSES TO PATENT RIGHTS, CAUSING US TO LOSE VALUABLE
INTELLECTUAL PROPERTY ASSETS.
Under the terms of its licensing agreements with each of our patent
licensors, New York University and, via a sublicense, the United States Public
Health Service (on behalf of the National Institute of Aging), our exclusive
license to our patent rights may be terminated if we fail to meet our
obligations to the licensors. We have not, as of the date of this prospectus,
received notice of default of any of our obligations. If we receive written
notice of our default or material breach of any of our obligations under the
licensing agreements we must cure the default within thirty or sixty days or the
relevant licensor may terminate the license. After such termination, we would
not be entitled to make any further use whatsoever of the licensed patent rights
or any technology we have derived from them. Such termination could also cause
us to lose some or all of our revenues under sublicensing agreements, if any.
The performance of our obligations to the licensors will require increasing
expenditures as the development of the licensed drug compounds proceed. There
can be no guarantee that we will be capable of raising the funds necessary to
meet our license obligations, sublicense part or all of our licensed drug
compounds to a third party capable of undertaking the obligations, or fulfill
additional licensing obligations.
WE DO NOT CURRENTLY HAVE THE CAPABILITY TO UNDERTAKE MANUFACTURING, MARKETING,
OR SALES OF ANY POTENTIAL PRODUCTS AND WE HAVE LIMITED PERSONNEL TO OVERSEE
CLINICAL TESTING AND THE REGULATORY APPROVAL PROCESS.
We have not invested in manufacturing, marketing or product sales
resources. There can be no assurance that we will be able to acquire such
resources. We will also need to hire additional personnel skilled in the
clinical testing and regulatory compliance process if we develop additional
products with commercial potential. We have no history of manufacturing or
marketing. There can be no assurance that we will successfully manufacture or
market any product we may develop, either independently or under manufacturing
or marketing arrangements, if any, with other companies. There can be no
assurance any arrangements with other companies can be successfully negotiated
or that such arrangements will be on commercially reasonable terms. To the
extent that we arrange with other companies to manufacture or market our
products, if any, the success of such products may depend on the efforts of
those other companies.
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WE WILL NEED SUBSTANTIAL ADDITIONAL FUNDS IN THE FUTURE TO MEET OUR FIXED
FINANCIAL COMMITMENTS.
The amounts and timing of our expenditures will depend on the progress of
our research and development and the cost and timing of regulatory approvals.
Based on our current research and product development programs, we anticipate
that the maximum net proceeds of this offering and interest income earned
thereon should be adequate to satisfy our capital and operational requirements
for at least twelve months from the date of this document. Our cash requirements
may vary materially from those now planned because of results of research and
development, results of clinical testing, relationships with possible strategic
partners, changes in the focus and direction of our research and development
programs, competitive and technological advances, the FDA regulatory process and
other factors. The proceeds of this offering will not be sufficient to fund our
operations up to the commercialization of our first product.
We have substantial fixed commitments under certain research and licensing
agreements and office leases. Our fixed commitments are currently in excess of
$400,000 per year and are likely to increase.
- - We will require substantial additional funding for our research and product
development programs, for operating expenses, and in pursuit of regulatory
clearances.
- - Additional funds for these purposes may not be available when needed or on
terms acceptable to us.
- - We may spend the proceeds of this offering without developing any
commercially viable product.
- - Insufficient funds may require us to delay, scale back or eliminate certain
of our research and development programs or to license third parties to
commercialize products or technologies that we would otherwise seek to
develop ourselves.
- - To the extent we raise additional capital by issuing securities, further
dilution to the investors in this offering may result.
- - We have no established banking arrangements for borrowing funds.
WE ARE DEPENDENT ON NON-EMPLOYEE SCIENTIFIC PERSONNEL AND EXECUTIVE OFFICERS WHO
DO NOT HAVE EMPLOYMENT CONTRACTS.
Because of the specialized scientific nature of our business, we are highly
dependent upon our ability to attract and retain qualified scientific and
management personnel. The loss of Dr. Hausman and/or other executive officers
would be detrimental to us. We do not currently have any written employment
agreements with our executive officers. We do not have employment agreements
with key scientific personnel who are doing research at New York University and
the National Institute of Aging under research and licensing agreements with
those institutions, and can have no assurance that such personnel will continue
to be employed in such research.
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8
There is intense competition for qualified personnel in the areas of our
activities, and there can be no assurance that we will be able to continue to
attract and retain qualified personnel necessary for the development of our
business. Loss of the services of or failure to recruit additional key
scientific and technical personnel would be detrimental to our research and
development programs and business.
Most members of our Scientific Advisory Board and our other scientific
consultants are employed by academic and research institutions, or are
self-employed. For this reason, our advisors and consultants will be able to
devote only a portion of their time to us. In addition, it is possible, in
certain circumstances, that inventions or processes discovered by them will not
become the property of our company but will be the property of their full-time
employers.
WE ARE CURRENTLY DEPENDENT FOR OUR REVENUES UPON A RIGHT TO LICENSE AGREEMENT
WHICH MAY NOT BE RENEWED.
The only revenue we have generated to date arose from our Development and
Right to License Agreement with a wholly owned subsidiary of Ares Serono, a
Swiss pharmaceutical company. There can be no assurance that Ares Serono will
either exercise its rights to license certain of our patent rights or will chose
to pay an additional fee to us to extend their right to license. If Ares Serono
chooses not to extend its right to license our business prospects will be
adversely affected and there can be no assurance that, in such an event, we will
be able to enter into other revenue producing licensing agreements covering the
same or other patent rights owned by us.
OUR BUSINESS COULD BE HARMED IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY.
We have licensed rights to certain patented and patent pending proprietary
technology from research institutions to which we are obligated to pay royalties
if we or our sublicensees develop products based upon the licensed technology.
Because of the substantial length of time and expense associated with bringing
new products through development and regulatory approval to the marketplace, the
pharmaceutical industry places considerable importance on patent and trade
secret protection for new technologies, products and processes. In addition to
the five issued patents, we and our licensors have filed three patent
applications in the United States. We plan to file patent applications in other
countries, and we may seek additional patents in the future. There can be no
assurance as to the breadth or the degree of protection that any such patents,
if issued, will afford us or that any patents based on the patent applications
will be issued at all. In addition, there can be no assurance that others will
not independently develop substantially equivalent proprietary information or
otherwise obtain access to our know-how or that others may not be issued patents
that may require licensing and the payment of significant fees or royalties by
us for the pursuit of our business.
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WE MIGHT FACE INTELLECTUAL PROPERTY CLAIMS THAT MAY BE COSTLY TO RESOLVE AND
COULD DIVERT MANAGEMENT ATTENTION.
We may from time to time be subject to claims of infringement of other
parties' proprietary rights. We could incur substantial costs in defending
ourselves in any suits brought against us claiming infringement of the patent
rights of others or in asserting our patent rights in a suit against another
company. Adverse determinations in any litigation could subject us to
significant liabilities to third parties, require us to seek costly licenses
from third parties and prevent us or our sublicencees from manufacturing and
selling our potential products. Despite the use of confidentiality agreements
and noncompete agreements, which themselves may be of limited effectiveness, it
will be difficult for us to protect our trade secrets.
WE ARE SIGNIFICANTLY CONTROLLED BY OUR MANAGEMENT.
Our executive officers comprise three of the five members of the Board of
Directors. As a result, our management has the ability to exercise influence
over our significant matters. This high level of influence may have a
significant effect in delaying, deferring or preventing a change of control of
our company.
RISKS RELATED TO OUR INDUSTRY
POTENTIAL TECHNOLOGICAL CHANGES IN OUR FIELD OF BUSINESS CREATE CONSIDERABLE
UNCERTAINTY.
We are engaged in the biopharmaceutical field, which is characterized by
extensive research efforts and rapid technological progress. New developments in
AD research are expected to continue at a rapid pace in both industry and
academia. There can be no assurance that research and discoveries by others will
not render some or all of our programs or products noncompetitive or obsolete.
Our business strategy is based in large part upon inhibition of amyloid
conformational change and amyloid precursor protein processing and the
application of these new and unproven technologies to the development of
biopharmaceutical products for the treatment of AD and other human diseases. No
assurance can be given that unforeseen problems will not develop with these
technologies or applications or that commercially feasible products will
ultimately be developed by us.
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10
THE MARKETS IN WHICH WE SEEK TO PARTICIPATE ARE INTENSELY COMPETITIVE AND WE ARE
A SMALL FACTOR.
There are many companies, both public and private, including well-known
pharmaceutical companies, engaged in developing synthetic pharmaceutical and
biotechnological products for human therapeutic applications in the Alzheimer's
Disease area. Many of these companies have substantially greater capital,
research and development and human resources and experience than us and
represent significant long-term competition for us. In addition, many of these
competitors have significantly greater experience than us in undertaking
preclinical testing and clinical trials of new pharmaceutical products and
obtaining FDA and other regulatory approvals. Furthermore, if we or a future
licensee is permitted to commence commercial sales of any product, we or our
licensee will also be competing with companies that have greater resources and
experience in manufacturing, marketing and sales. We have no experience in these
areas. Such companies may succeed in developing products that are more effective
or less costly than any that may be developed by our future licensee and may
also prove to be more successful than our future licensee in production and
marketing. Competition may increase further as a result of the potential
advances in the commercial applicability of peptide chemistry and greater
availability of capital for investment in these fields. Other companies are
engaged in research and product development based on amyloidogenesis and
acetylcholinesterase inhibition.
THERE CAN BE NO ASSURANCE OF FDA APPROVAL FOR OUR POTENTIAL PRODUCTS AND
GOVERNMENT REGULATION MAY IMPACT OUR DEVELOPMENT PLANS.
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing procedures and other costly
and time-consuming procedures. Satisfaction of these requirements typically
takes a number of years and varies substantially based upon the type, complexity
and novelty of the pharmaceutical compounds. All of our drug product candidates
are currently in various stages of pre-clinical development and consequently
significant regulatory hurdles remain before any application for regulatory
approval can be submitted. None of our drug product candidates have been tested
in human clinical trials and there can be no assurance that the drug candidates
will elicit similar results in human testing to the results in animal testing.
We cannot predict with any certainty when we may submit products, if any, for
FDA or other regulatory approval. Government regulation also affects the
manufacture and marketing of pharmaceutical products.
The effect of government regulation may be to delay marketing of our new
products for a considerable period of time, to impose costly procedures upon our
activities and to furnish a competitive advantage to larger companies that
compete with us. There can be no assurance that FDA or other regulatory approval
for any products developed by us will be granted on a timely basis, if at all.
Any such delay in obtaining, or failure to obtain, such approvals would
adversely affect the marketing of our products
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11
and the ability to generate product revenue. Government regulation may increase
at any time creating additional hurdles for us. The extent of potentially
adverse government regulation which might arise from future legislation or
administrative action cannot be predicted.
RISKS RELATED TO THIS OFFERING
WE DO NOT PAY CASH DIVIDENDS.
We have never paid dividends and does not presently intend to pay any
dividends in the foreseeable future. Instead, we intend to apply any earnings to
the expansion and development of our business.
THE ISSUANCE OF SHARES IN THIS OFFERING WILL CAUSE IMMEDIATE AND SUBSTANTIAL
DILUTION.
Purchasers in this offering will incur an immediate and substantial
dilution from the purchase price of their shares.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
There are currently 12,926,017 shares of our common stock outstanding which
are "restricted securities" as that term is defined by Rule 144 under the
Securities Act of 1933. Such shares will be eligible for public sale only if
registered under the Securities Act or if sold in accordance with Rule 144.
Under Rule 144, a person who has held restricted securities for a period of one
year may sell a limited number of shares to the public in ordinary brockerage
transactions. Sales under Rule 144 may cause the future market price of our
common stock to decline due to the potential increased number of publicly held
securities. The timing and amount of sales of common stock that are currently
restricted securities could have a depressive effect on the future market price
of our common stock.
THERE IS ONLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK AND IT IS POSSIBLE
THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES EASILY.
There is currently only a limited trading market for our common stock. Our
common stock trades on the Nasdaq SmallCap Market under the symbol "AXYX" with
very limited trading volume. There can be no assurance that a substantial
trading market will ever develop (or be sustained, if developed) for our common
stock upon completion of this offering, or that purchasers will be able to
resell their securities or otherwise liquidate their investment without delay.
Recent history relating to the market prices of newly public companies indicates
that, from time to time, there may be significant volatility in the market price
of our securities because of factors unrelated, as well as related, to our
operating performance. Factors such as announcements of technological
innovations or new products by us or our competitors, government regulatory
action, patent or proprietary rights developments and market conditions for
biotechnology stocks in general could have a significant impact on the future
market price of our common
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stock. In the period from April 1, 1999 to April 3, 2000, the price of our
common stock has ranged from $6.00 to $20.75.
THE FUTURE ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS AND STOCK OPTIONS
MAY DEPRESS THE PRICE OF OUR COMMON STOCK.
According to our 1998 Stock Option Plan, we may grant options to purchase
up to 2,000,000 shares of common stock as incentives to management, employees
and others. To date 1,189,700 stock options have been granted to our employees,
officers, directors, and consultants under our Option Plan.
In addition, we have granted options to purchase an aggregate of 100,000
shares of common stock outside of the 1998 Stock Option Plan to consultants and
others.
We have granted an aggregate of 1,767,800 warrants to purchase a like
number of shares of common stock to stockholders who purchased units in several
private placement offerings.
During the respective terms of the warrants and options granted or to be
granted under the 1998 Stock Option Plan or outside the Plan, the holders
thereof are given an opportunity to benefit from a rise in the market price of
the common stock, with a resultant dilution of the interests of exiting
stockholders. The existence of such options could make it more difficult for us
to obtain additional financing while such securities are outstanding. The
holders may be expected to exercise their rights to acquire common stock at a
time when we would, in all likelihood, be able to obtain needed capital through
a new offering of securities on terms more favorable than those provided by the
options.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
security holders. However, as this prospectus relates to the sale of up to
1,005,000 shares that may be issued in the event of exercise of certain
outstanding warrants held by selling security holders, if all such warrants are
exercised, we will receive gross proceeds of $3,768,750. Such proceeds, if
received by us, will be used for working capital.
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13
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has traded on the Nasdaq SmallCap Market under the symbol
"AXYX" since April 3, 2000. Prior to that date, our common stock traded on the
OTC Bulletin Board under the same symbol beginning January 4, 1999. Prior to our
1998 merger the common stock was quoted under the symbol "IONO" with trading
commencing beginning July 23, 1998. The following table sets forth the high and
low closing bid quotations for the common stock for the periods indicated. These
quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs, and commissions and may not necessarily represent actual
transactions. These bid quotations have been adjusted retroactively by the
pre-merger company Ionosphere, Inc.'s one for two reverse stock split in
conjunction with the merger on December 28, 1998 and by our two for one forward
stock split on February 23, 1999.
Period High Low
- ------ ---- ---
1998
Quarter ended 9/30/98 $3.00 $0.25
Quarter ended 12/31/98 $5.50 $0.25
1999
Quarter ended 3/31/99 $9.25 $2.50
Quarter ended 6/30/99 $11.00 $6.00
Quarter ended 9/30/99 $8.75 $6.75
Quarter ended 12/31/99 $8.375 $7.50
2000
Quarter ended 3/31/00 $20.25 $7.875
April 3 to April 27, 2000 $18 1/8 $11 5/8
Our transfer agent is Nevada Agency and Trust Company, 50 West Liberty
Street, Suite 880, Reno, Nevada 89501.
As of April 28, 2000 there were 14,214,019 shares of common stock issued
and outstanding and approximately 493 holders of record.
We have never paid cash dividends on our common stock. We presently intend
to retain future earnings, if any, to finance the expansion of our business and
we do not anticipate that any cash dividends will be paid in the foreseeable
future. The future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
Declaration and payment of future dividends, if any, will be at the sole
discretion of our Board of Directors.
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14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN THIS PROSPECTUS. ALL
STATEMENTS IN THIS PROSPECTUS RELATED TO OUR CHANGING FINANCIAL OPERATIONS AND
EXPECTED FUTURE GROWTH CONSTITUTE FORWARD-LOOKING STATEMENTS. THE ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED OR EXPRESSED IN THOSE STATEMENTS.
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended. All
statements, other than statements of historical facts, included in, or
incorporated by reference into this Prospectus, 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. Such forward-looking statements are subject to certain risks or
uncertainties and assumptions. 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 we believe that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove to have been correct.
Among the key factors that could cause actual results to differ materially
from expectations, estimates of costs, projected results or anticipated results
are the risk that we will be unable to obtain additional financing on favorable
terms, the risk that we will be unable to sublicense any of its patent rights on
acceptable terms, or if we do sublicense some or all of our patent rights, that
any products resulting from the research and development efforts of the
sublicensee will be unable to effectively penetrate their target markets for
Alzheimer's Disease, Moderate Cognitive Impairment, Bovine Spongiform
Encephalopathy, and Creutzfeldt Jakob Disease, the risk that any of the patent
applications covered by our patent rights are rejected by a regulatory authority
or granted on a limited basis, and the risk of unfavorable changes in economic
and industry conditions, as well as changes in regulatory requirements. All
written or oral forward-looking statements attributable to our company or
persons acting on its behalf are expressly qualified in their entirety by, but
not limited to, the factors described above.
A. GENERAL.
Our pre-merger predecessor Axonyx Inc. commenced operations in January
1997. We are in the development stage, and our efforts have been principally
devoted to research and development activities and organizational efforts,
including the development of pharmaceutical compounds and product candidates for
the diagnosis and treatment of Alzheimer's Disease, other forms of dementia,
Bovine Spongiform Encephalopathy and
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15
Creutzfeldt Jakob Disease, new variant, recruiting its scientific and management
personnel and advisors and raising capital.
Our current business strategy is to pursue the development of three
different types of pharmaceutical products for the treatment of AD, a diagnostic
test for AD, and a pharmaceutical product for prion-related diseases. The AD
targeted approaches include: (1) Phenserine, 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 (AIPs) which may
prevent and reverse the formation of amyloid plaques in AD and in diseases of
peripheral amyloidosis. We are sponsoring the development of a diagnostic test
for AD at the University of Melbourne (Australia). We are 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 known as "Mad Cow Disease") and the human form of the
disease, Creutzfeldt Jakob Disease, new variant.
Our 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 our current licensors at New York
University and the National Institute of Aging, 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 us in
May 1999. We intend to develop other corporate partnerships with established and
well capitalized pharmaceutical companies for the clinical development of our
compounds and for their production, commercialization and marketing. We expect
to derive its revenues from patent sub-licensing fees, royalties from
pharmaceutical sales, appropriate milestone payments, and research and
development contracts.
We generated some revenue from granting Ares Serono a right to license
under the Development Agreement with Ares Serono in 1999, and we may generate
additional revenues during its 2000 fiscal year from Ares Serono if Ares Serono
elects to extend the term of the Development Agreement and/or elects to exercise
its option to sublicense the covered patent rights and related intellectual
property. There can be no assurance that Ares Serono will make such an election
or that additional revenues from patent licensing or research and development
contracts will be generated.
Our plan of operation for the next 12 months will consist of research and
development and related activities aimed at:
(1) completing Phase I clinical trials and initiating Phase II clinical trials
on our lead acetylcholinesterase inhibitor, Phenserine. See Description of
Business - Axonyx
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16
Drug Discovery Programs - Program 1: Inhibitors of Acetylcholinesterase and
Beta-Amyloid Precursor Protein (Beta-APP) Formation.
(2) further preclinical development at the NIA of the other
acetylcholinesterase inhibitors, Tolserine and Thiatolserine, and continued
study of the activity of the Phenserine analogues.
(3) further preclinical development at the NIA of the butyrylcholinesterase
inhibitor, Cymserine and active analogues. See Description of Business -
Axonyx Drug Discovery Programs - Program 2: Inhibitors of
Butyrylcholinesterase and Beta-Amyloid Precursor Protein (Beta-APP)
Formation.
(4) further preclinical development of the Amyloid Inhibiting Peptides at NYU
and at Ares Serono, additional work at other facilities with IN VIVO
studies and development of a peptido-mimetic. See Description of Business -
Axonyx Drug Discovery Programs - Program 3: Amyloid Inhibitory Peptides
(AIPs).
(5) further preclinical development of the Prion Inhibiting Peptides at NYU and
at Ares Serono. See Description of Business - Axonyx Drug Discovery
Programs - Program 4: Prion Inhibitory Peptides (PIPs).
(6) further development of a diagnostic test for AD at the University of
Melbourne. See Description of Business - Axonyx Drug Discovery Programs -
Program 6: Alzheimer's Disease Diagnostic Development Program.
(7) seeking to establish additional strategic partnerships for the development,
marketing, sales and manufacturing of our proposed products.
Our actual research and development and related activities may vary
significantly from current plans depending on numerous factors, including
changes in the costs of such activities from current estimates, the results of
our research and development programs, the results of clinical studies, the
timing of regulatory submissions, technological advances, determinations as to
commercial viability and the status of competitive products. The focus and
direction of our operations will also be dependent on the establishment of our
collaborative arrangement with other companies, the availability of financing
and other factors.
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17
B. RESULTS OF OPERATIONS.
Since the commencement of operations of our pre-merger predecessor
corporation Axonyx Inc. in January 1997, our efforts have been principally
devoted to research and development of its licensed pharmaceutical compounds,
and raising capital.
For the year ended December 31, 1999, we recognized revenue in the amount
of $146,000, the 1999 portion of a $250,000 fee received from Ares Serono
pursuant to the Development Agreement and Right to License signed in June 1999,
which entitles Ares Serono to a one year right to license Axonyx's AIP and PIP
technology.
For the year ended December 31, 1999, we incurred a net loss from
operations of $5,002,000 compared to a net loss of $652,000 for the year ended
December 31, 1998.
For the year ended December 31, 1999 we incurred research and development
costs of $3,000,000 compared to $353,000 for the year ended December 31, 1998.
This increase is due mainly from the non-cash equity charge of $1,965,000
related to shares deemed issuable to New York University and two NYU scientists
pursuant to Stock Option Agreements entered into with those parties in April
1997. See Audited Financial Statements for December 31, 1999, Note I - Fourth
Quarter Adjustments for the adjustments to Axonyx's 1999 quarterly losses
reflecting the recognition of the non-cash equity charges resulting from the
Stock Option Agreements with NYU and the two NYU scientists. There were also
non-cash equity charges relating to the granting of options to consultants and
advisors in 1999, amounting to $300,000. During 1999 we commenced Phase I human
clinical trials on Phenserine and incurred expenses of $183,000. In addition, we
spent an aggregate of $152,000 on support payments to a researcher at the
National Institute on Aging, where preclinical research development is ongoing,
and to contract research organizations to conduct particular preclinical studies
on certain of its pharmaceutical compounds.
For the year ended December 31, 1999 we incurred general and administrative
costs of $2,206,000 compared to $289,000 for the year ended December 31, 1998.
The increase was due to the salary expenses from the hiring of six employees,
rent expenses for the New York and Seattle offices, and increased professional
and legal expenses, especially in the area of patent legal costs. Also during
1999, we issued 100,000 shares of common stock to Infusion Capital Investment
Corporation ("ICIC") for investor relations and corporate development services.
The shares issued to ICIC were valued at the market price on the date they were
granted, resulting in a non-cash equity charge in the amount of $825,000.
C. LIQUIDITY AND CAPITAL RESOURCES.
As of December 31, 1999, we had $5,409,000 in cash and cash equivalents. We
do not have any available lines of credit. Since inception we have financed our
<PAGE>
18
operations through loans from a shareholder, from private placements of equity
securities, and from right to license fees.
Pursuant to its present budget, we have determined that we will require
funding in the amount of approximately $2.6 million through December 31, 2000.
In order to satisfy this funding requirement, during the period between May 1999
and December 1999, we received gross proceeds of approximately $4.27 million
from the sale of 171 units, with each unit consisting of 4,000 shares of common
stock and common stock purchase warrants to purchase 2,000 shares of common
stock at an exercise price of $11.00, including a subscription receivable in the
amount of $150,000 that was received in February 2000. Between November 1, 1999
and December 31, 1999, we received gross proceeds of $850,000 from the sale of
34 units in a European private placement, each unit consisting of 4,000 shares
of common stock and common stock purchase warrants to purchase 2,000 shares of
common stock at an exercise price of $11.00. Additional proceeds in the amount
of approximately $3.9 million have been received by us in relation to the
issuance of additional units in the European private placement that terminated
on February 1, 2000. In October 1999, we received gross proceeds of $100,000
from a private placement of 20,000 shares of common stock and 20,000 common
stock purchase warrants to a German investor. In addition, we received $250,000
in June 1999 in the form of a fee from Ares Serono pursuant to the Development
Agreement and Right to License.
We believe that we have sufficient capital resources to finance our plan of
operation for at least the next 24 months ending December 2001. We are pursuing
sub-licensing and other collaborative arrangements that may generate additional
capital for us. However, there can be no assurance that we will generate
sufficient additional capital or revenues, if any, to fund our operations beyond
this 24 month period ended December 31, 2001, that any future equity financings
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.
DESCRIPTION OF BUSINESS
GLOSSARY
ACETYLCHOLINESTERASE - an enzyme that degrades the neurotransmitter
acetylcholine in the brain and other tissues of the body. Acetylcholine is a
chemical substance that sends signals between nerve cells (called
neurotransmission) and is therefore called a neurotransmitter. Neurotransmitters
are secreted by neurons (nerve cells) into the space between neurons called the
synapse. Unless degraded by an enzyme such as acetylcholinesterase in the
synapse, acetylcholine will transmit a nerve impulse across the synapse to
another neuron. Acetylcholine is a primary neurotransmitter in the brain, and is
associated with memory and cognition. Acetylcholinesterase inhibitors such as
Aricept(TM) or Phenserine are designed to prevent the degradation of
acetylcholine in the synapse by inhibiting the enzyme that performs that
function, acetylcholinesterase, and
<PAGE>
19
hence amplifies the natural action of acetylcholine in the brains of Alzheimer's
Disease patients.
ANALOG - one of a series of chemical substances of similar chemical structure
AMYLOID PLAQUE - amyloid proteins involved in Alzheimer's Disease and other
diseases of amyloidosis aggregate into insoluble fibrils that are deposited in
amyloid plaques in the brains of Alzheimer's patients.
BETA AMYLOID PRECURSOR PROTEIN - this protein (known as beta-APP) is encoded on
chromosome 21 and is found present in the cell wall of numerous cells within the
body including nerve cells of the brain. Beta-amyloid protein is derived from
this larger protein.
BETA-AMYLOID PROTEIN - one of more than a dozen types of amyloid proteins found
in the body, beta amyloid is normally present in the brain of healthy
individuals in small quantities. Beta-amyloid, derived from the beta-amyloid
precursor protein, is over-produced in Alzheimer's Disease and Downs Syndrome.
In Alzheimer's Disease, the beta-amyloid protein undergoes a chemical change,
aggregates and is deposited as insoluble fibrils in amyloid plaques in the
brain.
BETA-SHEET BREAKER PEPTIDE - a molecule composed of naturally occurring amino
acids, the building blocks of proteins, that is designed to bind to and prevent
the conversion of the normal form of protein to the misshapen form that forms
plaques.
BUTYRYLCHOLINESTERASE - an enzyme that is normally found in all tissues of the
body. Its function remains to be fully understood. Amongst other roles, it
degrades acetylcholine, a primary neurotransmitter in the brain.
Butyrylcholinesterase is found in high concentration in the plaques taken from
individuals who have died from Alzheimer's Disease. This enzyme also functions
to degrade a number of drugs and natural products and is involved in their
elimination from the body.
CHOLINERGIC SYSTEM - is also called the parasympathetic nervous system; it is
involved in nerve transmission related to memory and cognition, as well as the
functioning of major organs such as the heart, lungs and gastrointestinal
system.
CORTICALLY-PROJECTING NEURONS - these are the nerve cells that connect the
mid-brain to the cortical areas in the front part of the brain where nerve cells
involved in memory and cognition are concentrated. In Alzheimer's Disease, the
loss of these connecting nerve cells result in a reduction in the amount of the
neurotransmitter acetylcholine, and the loss of mental capacity or cognition.
NEUROBLASTOMA CELL CULTURES - these are a type of cell derived from the brain
that can be grown in containers in the lab (IN VITRO) where they are able to
reproduce and carry out many activities as if they were residing in the brain,
including the synthesis and secretion of proteins such as the beta-amyloid
peptide which, in the human brain, can cause
<PAGE>
20
plaques. A neuroblastoma cell culture is used to study brain cell function in a
simple IN VITRO system, which allows testing of the ability of drug compounds to
prevent the formation of the beta-amyloid precursor protein and peptide
production and secretion.
NEUROTOXIC PEPTIDE - refers to a small protein (called a peptide) that can be
toxic to neurons, and is another name for the beta-amyloid protein.
PERIPHERAL AMYLOIDOSIS - excessive production and deposition of various types of
amyloid protein can occur in other organs outside of the brain and cause damage
by interfering with important bodily functions, sometimes causing death.
PHYSOSTIGMINE - is a drug that is a classic, potent acetylcholinesterase
inhibitor but which causes unpleasant side effects that have prevented its
development as a treatment for Alzheimer's Disease.
PRESYNAPTIC NEURONS - this is the nerve cell that releases a given
neurotransmitter into the synapse for transmission of a nerve impulse to a
neighboring nerve cell.
PRION - is a contraction of the descriptive term, proteinaceous infectious
proteins. Prions, unlike viruses, bacteria and fungi, have no DNA and consist
only of protein and the infectious form can cause degenerative brain diseases.
PRION-RELATED DISEASES - these are degenerative diseases of the brain that are
thought to be caused by a misshapen infectious protein called a prion. Such
diseases include Creutzfeldt Jakob Disease, new variant (CJDnv) in humans,
Bovine Spongiform Encephalopathy (BSE or Mad Cow Disease) in cows, and Scrapies
disease in sheep.
TRANSDERMAL FORMULATION - a formulation refers to the mixture of chemical
substances used to promote the absorption of a drug. A formulation that promotes
the absorption of a drug from the skin is called a transdermal formulation (also
called a skin patch).
A. BACKGROUND ON OUR COMPANY
Our predecessor company, also named Axonyx Inc., was incorporated in
Delaware on September 16, 1996. Reference to Axonyx Inc. in this prospectus
refers to the historical Axonyx Inc., a Delaware company, unless the context
otherwise requires. On December 28, 1998 Axonyx Inc. merged with an inactive
corporation quoted on the OTC Bulletin Board named Ionosphere, Inc.
("Ionosphere"), a Nevada corporation incorporated on July 29, 1997. Ionosphere
had no employees and owned no patents, patent rights, trademarks or copyrights.
After the merger (which represented a recapitalization for accounting
purposes), Ionosphere, Inc., the surviving Nevada corporation, changed its name
to Axonyx Inc. In conjunction with the merger, Ionosphere undertook a 1 for 2
reverse stock split on December 28, 1998. After the merger, the business of
Axonyx Inc. became the business of our company. The management and board of
directors of Axonyx Inc. became the
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21
management and directors of our company and stockholders of Axonyx Inc. held
89.11% of the outstanding shares of common stock of our company immediately
after the merger.
B. AXONYX DRUG DISCOVERY PROGRAMS
We are pursuing three different types of products for the treatment of
Alzheimer's Disease (AD) and one for prion-related diseases. Our AD targeted
approaches include: (1) Phenserine, a novel, long-acting and brain directed
analog of the classical drug physostigmine, which is currently being tested in
Phase I human clinical trials, (2) a butyrylcholinesterase inhibitor which will
be chosen from a series of novel, selectively acting compounds, the best studied
of which is Cymserine, and (3) compounds named Amyloid Inhibitory Peptides
(AIPs) that may prevent and reverse the formation of amyloid plaques in AD and
in diseases of peripheral amyloidosis. Peripheral amyloidosis are types of
diseases involving excessive production and abnormal deposition of amyloid
proteins in organs outside of the brain, resulting in interference with
important bodily functions in those organs.
In addition to inhibiting key enzymes associated with neural transmission,
Phenserine and Cymserine appear to have the unique ability to inhibit the
formation of the beta-amyloid precursor protein and reduce levels of the
beta-amyloid peptide, the primary deposit in amyloid plaque formation. In
preclinical studies they have been shown to improve cognitive performance. The
beta-amyloid protein is an abnormal form of a protein normally found in the
brain that is over-produced in Alzheimer's Disease.
We are conducting research, in conjunction with Ares Serono, on the
diagnosis and treatment of prion related diseases such as Bovine Spongiform
Encephalopathy and Creutzfeldt-Jakob Disease, new variant, using a series of
Prion Inhibitory Peptides (PIPs) which prevent and reverse the formation of the
toxic form of prions.
In addition, we are pursuing the development of a diagnostic test for AD
under the terms of a research and development arrangement with the University of
Melbourne (Australia).
PROGRAM 1: INHIBITORS OF ACETYLCHOLINESTERASE AND BETA-AMYLOID PRECURSOR
PROTEIN (BETA-APP) FORMATION
Alzheimer's Disease is characterized by cognition impairments and partial
or total loss of memory. These impairments are caused by a loss of presynaptic
neurons of the cholinergic system of the brain and a loss of cortically-
projecting neurons that connect the mid-brain with the cortical areas in the
forebrain, particularly to brain areas associated with memory and learning.
The loss of neurons results in a decreased synthesis and availability of
acetylcholine, the neurotransmitter involved in mediating these memory and
learning functions. Our most advanced compound, Phenserine, is designed to
selectively inhibit acetylcholinesterase, the enzyme primarily responsible for
degrading acetylcholine at the synaptic gap between neurons, thus increasing the
availability of this neurotransmitter. Phenserine has been shown to be a potent
and selective inhibitor of this
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22
enzyme in the rat brain and has the ability to increase memory and learning over
a wide therapeutic range in aged rats without causing toxic side effects. The
compound readily enters the brain, has minimal peripheral activity outside the
brain, and has a long duration of action.
Phenserine also has the unusual ability to inhibit the formation of the
beta-amyloid precursor protein (beta-APP), the larger protein that is the source
of the neurotoxic peptide, beta amyloid, which is deposited in the brain as
amyloid plaques that eventually apparently cause neuronal cell death. These
studies were conducted in human neuroblastoma cell cultures and IN VIVO in
rodents. Studies in human neuroblastoma cell lines importantly show that the
compound reduces the formation of beta- amyloid peptide. Additional animal
studies will be conducted to confirm and extend these findings. These results
suggest that Phenserine may have the ability to slow the progression of AD in
addition to providing significant symptomatic relief for the cognitive changes.
In December 1999 we initiated Phase I human clinical trials for Phenserine
utilizing elderly human subjects at a U.S. FDA approved research center. These
Phase I safety and tolerance trials will continue into the third quarter of
2000.
We are assessing the properties of other Phenserine analogs which are also
potent inhibitors of acetylcholinesterase such as Tolserine, that may ultimately
prove to have certain additional advantages for use IN AD, and Thiatolserine, a
compound whose characteristics are suitable for development as a transdermal
agent that is absorbed through a patch placed on the skin.
PROGRAM 2: INHIBITORS OF BUTYRYLCHOLINESTERASE AND BETA-AMYLOID PRECURSOR
PROTEIN (BETA-APP) FORMATION
The function of butyrylcholinesterase, a sister and similar enzyme to
acetylcholinesterase, is not completely known. Recent research suggests that for
specific nerve pathways within the human brain butyrylcholinesterase is present
instead of acetylcholinesterase. Butyrylcholinesterase activity is elevated in
the brains of AD patients. Butyrylcholinesterase functions in plasma and certain
body tissues to degrade a number of drugs such as codeine. This enzyme was
identified as a target for inhibition in AD since it terminates the action of
the neurotransmitter acetylcholine in specific nerve pathways in regions of the
brain associated with AD and is found in high concentration in amyloid plaques
taken from the brains of AD patients.
We are currently characterizing a series of novel butyrylcholinesterase
inhibitors to select a drug candidate for development. The lead candidate,
Cymserine, has been studied extensively and has many of the characteristics
desirable for use in AD. Like Phenserine, it has a dual mechanism of action in
that in addition to inhibiting the butyrylcholinesterase enzyme it also inhibits
the formation of beta-APP in cell culture and in rats. Additional studies are
being conducted to confirm and extend these important findings. These findings
indicate that Cymserine may have an important role
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23
in preventing the formation of amyloid plaques in AD, in addition to its
inhibition of butyrylcholinesterase. Cymserine readily enters the brain, has a
long duration of action and is highly active in improving memory and learning in
the aged rat. Other properties that may help to reduce any potential side
effects with Cymserine are its high potency and its wide therapeutic dose range.
Cymserine has three potential uses: (1) as an inhibitor of
butyrylcholinesterase, (2) as an inhibitor of the production of beta-APP, thus
inhibiting the formation of amyloid plaques, and (3) as an early diagnostic
marker.
We appear to be the only company with a patent position and lead compounds
in this area of drug discovery and development. Other compounds in the Cymserine
series that we may pursue include Thiacymserine, an agent that may be suitable
for development in a transdermal (skin patch) formulation.
PROGRAM 3: AMYLOID INHIBITORY PEPTIDES (AIPS)
A key event in Alzheimer's Disease is the conversion of beta-amyloid
protein into beta-sheets that aggregate to form insoluble fibrous masses
(fibrils). These fibrils are deposited as part of the neurotoxic amyloid plaques
that appear to cause neuronal cell death. These changes play an important role
in the pathogenesis of the disease. Our Amyloid Inhibitory Peptides (AIPs) have
been designed to block the aggregation of beta-amyloid in a competitive manner
by binding to the beta-sheet form of the amyloid protein, thus preventing the
formation of amyloid plaques in the brain.
In experiments IN VITRO with one of the AIPs, the peptide inhibited the
formation of fibrils, caused disassembly of pre-formed fibrils and prevented
neuronal cell death in cell culture. In a rat model of amyloidosis an AIP
reduced beta-amyloid protein deposition and completely blocked the formation of
amyloid fibrils. In addition, one of the AIPs has been shown to cause a
significant reduction of established amyloid deposits in the brains of rats.
These results indicate the potential for an AIP based drug to prevent the
formation of the amyloid plaques, and to treat AD patients with existing amyloid
plaques. Current efforts are focused on identifying a compound suitable for
development for therapeutic use.
Ongoing preclinical development of the AIPs is being undertaken in
conjunction with Ares Serono at the Serono Pharmaceutical Research Institute in
Geneva, Switzerland and, under our sponsored research program, at the NYU School
of Medicine.
PROGRAM 4: PRION INHIBITORY PEPTIDES (PIPS)
There is increasing evidence to conclude that prions (proteinaceous
infectious particles) are the infectious agents that cause Bovine Spongiform
Encephalopathy (BSE), Creutzfeldt-Jakob Disease, new variant (CJDnv) and
possibly other transmissable spongiform encephalopathies. These diseases have
caused grave concern in Europe and the U.S. because of the potential for their
transmission to humans through the meat supply. These are fatal
neurodegenerative disorders that are characterized by spongiform degeneration of
the brain and, in many cases, by deposits of prions into plaques. The
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24
infectivity of prions is believed to be associated with an abnormal folding of
the prion protein. This folding involves a conversion of the alpha-helical form
to the beta-sheet form that can then form plaques in the brain.
We are developing a series of Prion Inhibitory Peptides (PIPs), also
referred to as beta-sheet breaker peptides, that interact IN VITRO with the
normal form of the prion to prevent its conversion to the abnormal form, and to
interact with the abnormal form to cause it to revert to a normal prion.
Incubation of the PIPs with toxic prions taken from BSE and CJDnv infected cows
caused a reversion of the toxic prions to the normal form. Experiments are in
progress to determine if the PIPs can eliminate toxic prions from infected
animals. These findings suggest a novel strategy for designing diagnostics and
therapeutic treatments for prion related diseases.
Ongoing preclinical development of the PIPs is being undertaken in
conjunction with Ares Serono at the Serono Pharmaceutical Research Institute in
Geneva, Switzerland and, under our sponsored research program, at the NYU School
of Medicine.
PROGRAM 5: TREATMENT OF MILD COGNITIVE IMPAIRMENT
The biological and safety profile of Phenserine suggests that this drug
could be considered for treatment of individuals with mild to moderate cognitive
impairment and for age related loss of memory. We intend to explore the
opportunities for developing Phenserine for these indications if the human
clinical results are consistent with the preclinical findings.
PROGRAM 6: DIAGNOSIS OF ALZHEIMER'S DISEASE
In October 1999 we entered into a joint development agreement with the
Department of Pathology at the University of Melbourne in Australia to develop
proprietary technology for a diagnostic test for Alzheimer's Disease. With the
development of new therapeutic approaches to the treatment of AD, such as our
AIPs and the butyrylcholineserase inhibitors, early and accurate diagnosis of
the disease is essential. Through our sponsored research at the University of
Melbourne we aim to develop a new diagnostic test that would help to accurately
discriminate AD from other dementias at an early stage and thereby ensure that
the optimal therapeutic strategy is used with particular patients.
To date, no conclusive diagnosis of AD can be made before the patient dies.
At present, the only way of diagnosing AD is through clinically examining
patients, using both neurological and non-neurological tests. This lengthy and
subjective examination can be a stressful and time-consuming approach and does
not necessarily distinguish AD from other dementia causing diseases. The
diagnostic test being developed at the University of Melbourne involves a
fingerprint-type analysis of certain chemical markers that have the potential to
change in patients with the familial propensity to develop AD.
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25
C. THE INDUSTRY AND MARKET
A number of the major pharmaceutical companies have programs to develop
drugs for the treatment of Alzheimer's Disease. Many of these drugs are
acetylcholinesterase inhibitors. Warner-Lambert (Tacrine) and Eisai/Pfizer
(Aricept) have marketed compounds of this type and they have recently been
joined by Novartis (Exelon). Tacrine was removed from the market in 1998 due to
severe side effects and Aricept currently dominates the market. Bayer is
developing an acetylcholinesterase inhibitor drug named ProMem for which it has
made an application for approval in both Europe and the U.S. The approval
application for ProMem is currently on hold pending further information about
side effects requested by the U.S. FDA. Janssen (a subsidiary of Johnson &
Johnson) and Shire have filed an application for approval of their
acetylcholinesterase inhibitor Reminyl (galantamine) in the U.S. and other
markets.
Two biotechnology companies (Praecis and Pharmaceutical Peptides, Inc.)
appear to be pursuing the amyloid inhibitory peptide approach similar in scope
and direction as that of our company. Elan Pharmaceuticals, the California based
subsidiary of the Elan Corporation of Dublin, Ireland, has developed a vaccine
designed to cause the immune system to mount antibodies against the amyloid
proteins that make up amyloid plaques. This vaccine has been reported to have
shown efficacy in genetically altered mice but has yet to be tested in humans.
To our knowledge at this time, no other company has a program to develop
butyrylcholinesterase inhibitors. In the field of prions, one company, Prionics,
A.G., of Zurich, Switzerland, is focusing on the development of diagnostic tests
for animal use but does not have a program in therapeutics for prion diseases.
We believe that our proprietary patent rights provide broad based
protection and cover superior pharmaceutical compounds based on unique
mechanisms.
D. FDA REGULATORY MATTERS
Regulation by governmental authorities in the United States and foreign
countries is an important factor in the development, manufacture and marketing
of our proposed products. It is expected that all of our products will require
regulatory approval by governmental agencies prior to their commercialization.
Human therapeutic products are subject to rigorous preclinical and clinical
testing and other approval procedures by the Food and Drug Administration
("FDA") and similar regulatory agencies in foreign countries.
Preclinical testing is generally conducted on animals in the laboratory to
evaluate the potential efficacy and the safety of a pharmaceutical product. The
results of these studies are submitted to the FDA as a part of an
Investigational New Drug (IND) application, which must be approved before
clinical testing in humans can begin. Typically, the clinical evaluation process
involves a three phase process. In Phase I, clinical trials are conducted with a
small number of human subjects to determine the early safety profile, the
pattern of drug distribution and metabolism. In Phase II, clinical trials
<PAGE>
26
are conducted with groups of patients afflicted with a specific disease to
determine preliminary efficacy, the optimal dosages, and more expansive evidence
of safety. In Phase III, large scale, multi-center, comparative clinical trials
are conducted with patients afflicted with a target disease in order to provide
enough data to demonstrate the efficacy and safety required by the FDA. The
results of the preclinical and clinical testing are submitted to the FDA in the
form of a New Drug Application (NDA) for approval to commence commercial sales.
In responding to an NDA, the FDA may grant marketing approval, request
additional information, or deny the application if the FDA determines that the
application does not satisfy its regulatory approval criteria. There can be no
assurance that approvals will be granted on a timely basis, if at all. Similar
regulatory procedures are in place in countries outside the United States.
In December 1999, we initiated Phase I human clinical trials for Phenserine
utilizing healthy elderly subjects at a U.S. research center. Cymserine is
approximately one and a half years behind Phenserine in preclinical development.
The AIPs must undergo approximately two more years of preclinical development
before an Investigational New Drug application can be filed with the FDA.
E. STRATEGIC ALLIANCES
On April 1, 1997 we entered into a Research and License Agreement with New
York University pursuant to which NYU granted us an exclusive worldwide license
to certain patent applications covering the AIPs, PIPs and related technology,
and any inventions that arise out of ongoing research funded by us. See "Section
G. Patents, Trademarks and Copyrights". The patent license terminates, on a
country-by-country basis, upon expiration of the last to expire of the licensed
patents or eight years from the date of first commercial sale of a licensed
product in such country, whichever is later. In addition to royalties on future
sales of products developed from the patented technologies, milestone payments
and patent filing and prosecution costs, we undertook to fund four years of
research at the NYU School of Medicine at Dr. Frangione's laboratory at a cost
of $300,000 per year. We have an exclusive license to all inventions in the
field arising from this research on the AIPs and PIPs.
The Research and License Agreement also contains a provision by which we
undertook to use our best efforts to raise an aggregate amount of $5 million
through private placements of equity securities prior to April 1, 1998. On
August 25, 1998, NYU signed a Capitalization Amendment with us by which the
deadline for realization of the capitalization requirement or its alternative
was extended to April 1, 1999. On March 19, 1999, we signed a Second Amendment
to the Research and License Agreement with NYU pursuant to which NYU, among
other provisions, granted us a release and waiver of the capitalization
requirement under the Research and License Agreement as amended by the
Capitalization Amendment.
On April 3, 1997, we also signed Stock Option agreements with NYU and Drs.
Frangione and Soto, the lead scientists involved in the sponsored research,
under which we issued an aggregate of 600,000 shares of common stock (adjusted
for stock splits) in
<PAGE>
27
October and November 1997 in partial consideration for the worldwide exclusive
patent rights. In January and February 2000, Axonyx issued an additional 150,944
shares to NYU and 75,473 shares to Dr. Frangione pursuant to exercise of
options under these agreements.
On May 19, 1999 we signed a Development Agreement and Right to License (the
"Development Agreement") between ourselves and Applied Research Systems ARS
Holding N.V., a wholly owned subsidiary of Ares Serono International S.A., a
Swiss pharmaceutical company ("Ares Serono"). Under the Development Agreement,
we granted an exclusive right to license our patent rights and know-how
regarding the AIPs to Ares Serono. Ares Serono paid us a fee for the right to
license of $250,000. The right to license has a one year term, renewable for an
additional one year period upon payment of a fee of $500,000. In addition Ares
Serono undertakes to conduct research on the AIP & PIP technologies during the
term of the Development Agreement. Any patent rights or know-how developed by
Ares Serono arising out of the conduct of the research shall revert to us if
Ares Serono elects not to exercise the right to license.
In conjunction with the Development Agreement between Axonyx and Ares
Serono, Ares Serono has entered into an employment agreement with Dr. Claudio
Soto, one of the lead scientists involved in the research on the AIPs and PIPs,
who performed professional services for us from February 1999 after his
departure from New York University School of Medicine in December 1998 until May
1999. Dr. Soto is continuing his work on development of the AIP & PIP
technologies at Ares Serono under the Development Agreement.
Research under our licensing agreement with CURE, LLC has continued at the
NIA, furthering the preclinical development of Phenserine, Cymserine, and
related compounds. We are currently sponsoring one of the researchers at the NIA
facilities involved in this field of research.
On October 1, 1999 we 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, we
have committed approximately $60,000 per year for each of the next three years
to fund research aimed at developing a diagnostic test for Alzheimer's Disease.
Both parties will own any resulting intellectual property as tenants in common
in equal shares. In addition, we have 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.
In order to facilitate the recruitment and enrollment of patients into
clinical trials of our pharmaceutical products, we have entered into preliminary
discussions with a number of institutions that operate centers for the treatment
of aged individuals. These institutions include the University of Washington,
Oregon Health Sciences, and the Aging and Dementia Center at New York
University, as well as a number of companies that operate senile dementia
centers providing long term residential care for elderly people suffering from
various forms of dementia including AD. It is contemplated that,
<PAGE>
28
subject to appropriate ethical protection, through these institutions we will
have access to large groups of subjects for the Phase II and Phase III testing
of its drugs, that are prerequisites to FDA approval.
F. MANUFACTURING, MARKETING AND SALES
We do not intend to manufacture or market any products it may develop. We
intend to license to, or enter into strategic alliances with, larger
pharmaceutical and veterinary companies that are equipped to manufacture and/or
market our products through their well developed distribution networks. We may
license some or all of our worldwide patent rights to more than one company to
achieve the fullest development, marketing and distribution of our products. It
is necessary for us to obtain limited quantities of our drug compounds for
research and clinical testing purposes. The raw materials necessary for
formulation of our drug compounds for this purpose are readily available at a
reasonable cost to us.
G. PATENTS, TRADEMARKS, AND COPYRIGHTS
We have obtained exclusive worldwide licenses to five patents issued by the
United States Patent and Trademark Office, and to one patent application pending
in the United States. We are the co-owner of one application, and sole owner of
one additional application pending in the United States. Associated foreign
patent applications have been filed. We will continue to seek to obtain
additional licenses from universities and other research institutions.
On February 11, 1997, we obtained an exclusive worldwide license from the
NIH's parent agency, the Public Health Service ("PHS"), to patents and patent
applications relating to Phenserine, Cymserine, their analogs and related
acetylcholinesterase and butyrylcholinesterase inhibitory compounds from the
laboratory of Dr. Nigel Greig and his collaborators via a sublicense with CURE,
LLC. Under the license agreement, we agreed to pay royalties to CURE, LLC on
future sales of products developed from the patented technologies, as well as an
up front fee, milestone payments and patent filing and prosecution costs. Four
patents have been issued in the United States. Certain pass through provisions
from the License Agreement between CURE, LLC and the PHS are contained in our
License Agreement with CURE, LLC. Those provisions cover certain reserved
government rights to the licensed patents, obligations to meet certain
benchmarks and perform a commercial development plan, as well as
indemnification, termination and modification of rights. The license terminates
upon the last to expire of the licensed patents or the term of the agreement
between CURE, LLC and the PHS, whichever occurs first. Patent applications
corresponding to the patents and application have been filed in Europe, Japan,
Australia, and Canada.
A pending patent application directed to highly selective
butyrylcholinesterase inhibitors resulting from a collaboration between Dr.
Hausman of Axonyx and Dr. Greig of the NIH and others has also been filed. This
patent application is jointly owned by us and the NIH. A corresponding
International Application has also been filed.
<PAGE>
29
We obtained an exclusive worldwide license from New York University to one
U.S. patent and one pending continuation application thereof from the laboratory
of Dr. Blas Frangione at the NYU School of Medicine. The NYU patent and
application relate to the AIPs and PIPs. Associated foreign patent applications
have been filed in Europe, Japan, Australia, and Canada. In addition, we have an
exclusive license to all inventions in the field arising from ongoing research.
Additionally, we have sole ownership of one pending provisional application
in the United States relating to peptide mimetics.
We have not filed for any copyright or trademark protection to date. The
following is a breakdown of the issued and pending patents we have acquired
rights to.
ISSUED PATENTS
U.S. Patent 5,171,750 issued December 15, 1992 for "Substituted Phenserines as
Specific Inhibitors of Acetylcholinesterase".
U.S. Patent 5,378,723 issued January 3, 1995 for "Carbamate Analogs of
Thiaphysovenine and Method for Inhibiting Cholinesterases".
U.S. Patent 5,409,948 issued April 25, 1995 for "Method for Treating Cognitive
Disorders with Phenserine".
U.S. Patent 5,998,460 issued December 7, 1999 for "Phenylcarbamates of
(-)-Eseroline, (-)-N1-Noreseroline and (-)-N1-Benzylnoreseroline: Selective
Inhibitors of Acetyl and Butyrylcholinesterase, Pharmaceutical Compositions and
Method of Use Thereof."
U.S. Patent 5,948,763 issued September 7, 1999 for "Peptides and Pharmaceutical
Compositions thereof for Treatment of Disorders or Diseases Associated with
Abnormal Protein Folding into Amyloid or Amyloid-like Deposits"
PATENTS PENDING
Note that there can be no assurance that corresponding patents will be
issued or that the scope of the coverage claimed in the following patent
applications will not be significantly reduced prior to any patent being issued.
We have a pending application co-owned with the NIH relating to certain
butyrylcholinesterase inhibitor compounds and their use in the early diagnosis
and treatment of AD and related conditions.
We have a pending U.S. application licensed from NYU relating to peptides
that inhibit formation of amyloid or amyloid-like deposits.
<PAGE>
30
We also have a pending U.S. application relating to peptide mimetics that
inhibit formation of amyloid or amyloid-like deposits.
H. COMPETITION
We compete with many large pharmaceutical companies that are developing
drug compounds similar to those being developed by us, especially in the area of
acetylcholinesterase inhibitors. For further information see Section B: Industry
and Market above. Many large pharmaceutical companies and smaller biotechnology
companies have well funded research departments concentrating on therapeutic
approaches to AD. We expect to encounter substantial competition for many of the
principal pharmaceutical products it is developing, especially in the area of
acetylcholinesterase inhibitors. However, we are not aware of any other
commercial research programs in the area of butyrylcholinesterase inhibitors,
and we believe that our patent protection covering the AIPs, if approved by the
U.S. Patent Office, will offer broad based protection and will provide us with a
significant competitive advantage to our competitors in that area.
In the intense competitive environment that is the pharmaceutical industry,
those companies that complete clinical trials, obtain regulatory approval and
commercialize their drug products first will enjoy competitive advantages. We
believe that the compounds covered by our patent rights have unique
characteristics that may enable them, if fully developed, to have a substantial
market impact.
I. EMPLOYEES
We currently have six full time employees, five of whom are in
administration/management and one of which is in research and development. In
February 1999, we came to an oral agreement with Linda Strascina under which Ms.
Strascina serves as Director of Corporate Communications and Investor
Relations for an annual salary of $40,000, with a performance based bonus. Ms.
Strascina is not an officer or director of our company. On November 10, 1999, we
came to an agreement with Robert G. Burford, Ph.D. under which Dr. Burford
became an employee of our Company. On December 3, 1999 Dr. Burford was elected
as the Vice President, Product Development. See the Executive Compensation
section for information on our employment arrangements with certain of its
officers and directors.
J. DESCRIPTION OF PROPERTY
Our operations are conducted from its offices in New York, New York,
Seattle, Washington and Stevenson, Washington. The Stevenson, Washington
facilities have been provided to us without charge on a temporary basis by an
officer. We have leased 144 square feet of office space in Seattle on a three
month renewable basis at a rental rate of $900.00 per month. We have leased
2,000 square feet of office space in New York for a three year period at a
rental rate of $9,000 per month.
<PAGE>
31
We do not currently own and we have not made any investments in real
estate, including real estate mortgages, and we do not intend to make such
investments in the near future.
K. LEGAL PROCEEDINGS
We are not involved in any legal proceedings, and there are no material
pending legal proceedings of which we are aware.
MANAGEMENT
Our current executive officers, directors and significant employees are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C>
Marvin S. Hausman, M.D. 58 President & Chief Executive
Officer, Director
Albert D. Angel 62 Chairman of the Board
of Directors
Michael M. Strage 40 Vice President, Treasurer,
Director
Michael R. Espey 37 Vice President, Secretary,
Director
Christopher Wetherhill 51 Director
Robert G. Burford, Ph.D., F.A.C.A. 61 Vice President of Product
Development
</TABLE>
Each director is elected to hold office for a one year term or until the
next annual meeting of stockholders and until his successor is elected and
qualified. Our officers serve at the pleasure of our Board of Directors.
The following sets forth certain biographical information with respect to
our directors and executive officers.
MARVIN S. HAUSMAN, M.D. Marvin Hausman has served as a Director and President &
CEO of our company since January 1999, and as a Director and President & CEO of
the predecessor company, Axonyx Inc., from January 1997 to December 1998. At the
1999 Annual Meeting of Stockholders held on September 17, 1999 Dr. Hausman was
reelected as a director of Axonyx to serve until the 2000 Annual Meeting of
Stockholders. At a Board Meeting on September 17, 1999, Dr. Hausman was
reelected as President and
<PAGE>
32
Chief Executive Officer of Axonyx to serve until the Board of Directors meeting
to be held as soon as possible after the 2000 Annual Meeting of Stockholders.
Dr. Hausman was a founder of Medco Research Inc., a pharmaceutical biotechnology
company specializing in adenosine products. He has thirty years experience in
drug development and clinical care. Dr. Hausman received his medical degree from
New York University School of Medicine in 1967 and has done residencies in
General Surgery at Mt. Sinai Hospital in New York, and in Urological Surgery at
U.C.L.A. Medical Center in Los Angeles. He also worked as a Research Associate
at the National Institutes of Health, Bethesda, Maryland. He has been a
Lecturer, Clinical Instructor and Attending Surgeon at the U.C.L.A. Medical
Center Division of Urology and Cedars-Sinai Medical Center, Los Angeles. He has
been a Consultant on Clinical/Pharmaceutical Research to various pharmaceutical
companies, including Bristol-Meyers International, Mead-Johnson Pharmaceutical
Company, Medco Research, Inc., and E.R. Squibb. Since October 1995 Dr. Hausman
has been the President of Northwest Medical Research Partners, Inc., a medical
technology and transfer company. He was a member of the board of directors of
Medco Research, Inc. from May 1996 to July 1998. Dr Hausman has been a member of
the board of directors of Regent Assisted Living, Inc., a company specializing
in building assisted living centers including care of senile dementia residents,
since March 1996.
ALBERT D. ANGEL, ESQ. Albert Angel has served as Chairman of the Board of
Directors of our company since January 1999 and served as Chairman of the Board
of Directors of the predecessor company, Axonyx Inc., from April 1997 to
December 1998. At the 1999 Annual Meeting of Stockholders held on September 17,
1999 Mr. Angel was reelected as a director of Axonyx to serve until the 2000
Annual Meeting of Stockholders. Mr. Angel has more than 30 years of experience
in the pharmaceutical and biotechnology fields, primarily at Merck & Co., Inc.
Mr. Angel received his law degree from Yale Law School in 1960 and, after army
service, was with the firm of Hughes Hubbard Blair & Reed until 1967. Mr. Angel
joined Merck in 1967 as Latin American attorney and served successively as
European Counsel and International Counsel until 1977 when he relocated to
London as Vice-President of Merck Sharp & Dohme (Europe), Inc. During the next 8
years he served first as Regional Director responsible for Merck's Scandinavian
businesses and then as Chairman and Managing Director of Merck Sharp & Dohme
Limited responsible for business activities in the United Kingdom, Ireland and
Anglophone Africa. From 1985 to 1993 Mr. Angel served as Vice-President, Public
Affairs for Merck & Co., Inc. Since 1993 Albert Angel has been President of
Angel Consulting and since November 1994 Mr. Angel has been a partner in Naimark
& Associates, both of which provide management, marketing, planning and public
affairs advice to pharmaceutical and biotechnology companies. He is also
vice-chair of the National Board of Trustees of the National Jewish Medical and
Research Center (Denver, Colorado). Mr. Angel intends to devote at least 30% of
his time to the Company.
CHRISTOPHER WETHERHILL Christopher Wetherhill has served as a Director of our
company since January 1999 and served as a Director of the predecessor company,
Axonyx Inc., from August 1997 to December 1998. At the 1999 Annual Meeting of
Stockholders held on September 17, 1999 Mr. Wetherhill was reelected as a
director of Axonyx to serve until the 2000 Annual Meeting of Stockholders. From
1971 until 1977
<PAGE>
33
he was the manager of the accounting and management services department at
Arthur Young & Co., now Ernst & Young, Bermuda. From 1977 to 1981, he was a
director and financial controller of Offshore Contractors (Bermuda) Limited, a
Bermuda company involved in offshore oil platform construction and shipping. He
is a Fellow of the Institute of Chartered Accountants in England and Wales, a
member of the Bermudian and Canadian Institutes of Chartered Accountants, and a
Fellow of the Institute of Directors and Freeman of the City of London. Since
September 21, 1994, Mr. Wetherhill has been the managing director of Boundary
Bay Investments Limited, a major shareholder of the Company. Mr. Wetherhill is a
chartered accountant and from September 1981 to June 1996, he was the President
and Chief Executive Officer of Hemisphere Management Limited of Bermuda, a
corporate management company. From June 1996 to the present Mr. Wetherhill has
been President & CEO of MRM Financial Services Ltd. (the parent company of
Hemisphere Management Limited).
MICHAEL M. STRAGE, ESQ. Mr. Strage has been a Director, Vice President and
Treasurer of the Company since January 1999 and was a Director and Vice
President of the predecessor company, Axonyx Inc., from January 1997 to December
1998. He served as Axonyx Inc.'s Secretary from January 1997 until September
1998, and as Treasurer until the merger in December 1998. At the 1999 Annual
Meeting of Stockholders held on September 17, 1999 Mr. Strage was reelected as a
director of Axonyx to serve until the 2000 Annual Meeting of Stockholders. At a
Board Meeting on September 17, 1999, Mr. Strage was reelected as Vice President,
Treasurer and Chief Administrative Officer of Axonyx to serve until the Board of
Directors meeting to be held as soon as possible after the 2000 Annual Meeting
of Stockholders. Michael Strage is an attorney with experience in corporate
transactions, commercial and securities law, and litigation. From August 1986 to
March 1991 Mr. Strage was an assistant district attorney at the Manhattan
District Attorney's office. From April 1991 until March 1996, Mr. Strage was an
associate at the Los Angeles law firm of Hancock, Rothert & Bunschoft. From
April 1996 to August 1998 Mr. Strage was an employee at Espey & Associates,
Inc., a New York firm, where he was involved in structuring several
transnational securities placements.
MICHAEL R. ESPEY, ESQ. Mr. Espey has been a Director, Vice President and
Secretary of the Company since January 1999 and was a Director and Vice
President of the predecessor company, Axonyx Inc., since January 1997. He served
as Axonyx Inc.'s Treasurer from January 1997 until September 1998, and as
Secretary until the merger in December 1998. At the 1999 Annual Meeting of
Stockholders held on September 17, 1999 Mr. Espey was reelected as a director of
Axonyx to serve until the 2000 Annual Meeting of Stockholders. At a Board
Meeting on September 17, 1999, Mr. Espey was reelected as Vice President and
Secretary of Axonyx to serve until the Board of Directors meeting to be held as
soon as possible after the 2000 Annual Meeting of Stockholders. Michael Espey is
an attorney based in Seattle, Washington with extensive experience in securities
law and investment banking. From October 1994 to December 1995 Mr. Espey served
as General Counsel for the securities firms of Lee, Van Dyk, Zivarts, Pingree &
Co. and Financial Services International Corp. in Seattle. From January 1996 to
March 1996 Mr. Espey was a self-employed attorney practicing corporate and
securities law.
<PAGE>
34
From April 1996 to August 1998 Mr. Espey worked at Espey & Associates, Inc. a
New York firm where he was involved in structuring several transnational
securities placements.
ROBERT G. BURFORD, PH.D., F.A.C.A. On December 3, 1999, the Board of Directors
of Axonyx elected Dr Burford as Vice President for Product Development, to serve
until the Board of Directors meeting to be held as soon as possible after the
2000 Annual Meeting of Stockholders. Dr. Burford has 32 years of experience in
pharmaceutical development, having successfully managed drug development
programs for G.D. Searle and Co., Biovail Corporation International, and other
major pharmaceutical companies. Most recently he successfully directed the
clinical development of Tiazac(TM), a drug for the treatment of hypertension
that was launched by Forest Laboratories, and now commands 15% of the market.
Michael Strage is married to Michael Espey's sister. There are no other
family relationships between any of the officers and directors.
BOARD COMMITTEES
During the year ended December 31, 1999, the Board of Directors met on
seven occasions. Christopher Wetherhill, a director of our company attended less
than 75% of the meetings of the Board and those committees on which the director
served.
The Board of Directors created the Compensation, Audit and Nominating
Committees at the Board Meeting on January 13, 1999. Prior to that neither our
company nor its predecessors had any Board Committees.
The Compensation Committee of the Board of Directors, currently consisting
of Messrs. Albert Angel, Marvin Hausman and Christopher Wetherhill, administers
our 1998 Stock Option Plan, and makes proposals to the full Board for officer
compensation programs, including salaries, option grants and other forms of
compensation.
The Audit Committee of the Board of Directors, currently consisting of
Messrs. Christopher Wetherhill and Albert Angel, recommends the firm to be
employed as our independent public accountants, and oversees our audit
activities and certain financial matters to protect against improper and unsound
practices and to furnish adequate protection to all assets and records.
The Nominating Committee of the Board of Directors, currently consisting of
Messrs. Marvin Hausman and Albert Angel, makes proposals to the full Board
concerning the hiring or engagement of directors, officers and certain employee
positions.
<PAGE>
35
EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
In our pre-merger period during fiscal year 1998, we did not pay any cash
compensation to our executive officers.
Below is the aggregate annual remuneration of each of the highest paid
persons who were executive officers of our company and our pre-merger
predecessor, during our last two fiscal years ended December 31, 1998 and
December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------------------------------------------------------------
Awards Payouts
---------------------------------
Other Restricted Securities
Name and principal annual stock underlying LTIP All
position Year Salary Bonus compen- award(s) Options/ payouts other
($) ($) sation ($) SARs (#) ($) compensation
($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin S. Hausman
Dir., Pres. & CEO 1999 $125,000 $150,000 $0 $0 200,000 $0 $0
---------------------------------------------------------------------------------------
1998 $0 $0 $0 $0 0 $0 $0
- ---------------------------------------------------------------------------------------------------------------
Michael M. Strage
Dir., V.P., Treas. (1) 1999 $100,000 $45,000 $0 $0 40,000 $0 $28,000
---------------------------------------------------------------------------------------
1998 $0 $0 $0 $0 0 $0 $0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Column (i): Michael M. Strage received a consulting fee of $7,000 per month
for four months in 1998.
B. OPTION/SAR GRANTS IN FISCAL YEAR 1999
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Individual Grants
- -------------------------------------------------------------------------------------------------------
Name Number of securities Percent of total Exercise or Expiration date
underlying Options/ options/SARs granted base price
SARs granted (#) to employees in fiscal ($/Sh)
year
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marvin S. Hausman (1) 200,000 55.10% $3.11 1/1/04
- -------------------------------------------------------------------------------------------------------
Michael M. Strage (2) 40,000 11.02% $2.88 1/1/09
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) On January 13, 1999, we granted 200,000 Incentive Stock Options exercisable
at $3.11 per share to Marvin S. Hausman, President & CEO, with 50,000
options vesting immediately, 50,000 vesting on January 1, 2000, 50,000
vesting on January 1, 2001, and 50,000 vesting on January 1, 2002.
(2) On January 13, 1999, we granted 40,000 Incentive Stock Options exercisable
at $2.88 per share to Michael M. Strage, Vice President & Treasurer, with
10,000 options vesting immediately, 10,000
<PAGE>
36
vesting on January 1, 2000, 10,000 vesting on January 1, 2001, and 10,000
vesting on January 1, 2002.
We did not grant any free standing Stock Appreciation Rights ("SARs") to
any executive officers in fiscal year 1999.
C. OPTION/SAR EXERCISES AND FISCAL 1999 YEAR END OPTION/SAR VALUES
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Shares acquired Value Number of Value of
on exercise (#) realized ($) securities unexercised
underlying in-the-money
unexercised options/SARs
options/SARs at at fiscal
fiscal year end year end ($)
(#)
----------------------------------
Name Exercisable/ Exercisable/
unexercisable unexercisable
(a) (b) (c) (d) (e)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Marvin S. Hausman, M.D., Pres. & CEO 0 $0 50,000/ $257,000/
150,000 $771,000
--------------------------------------------------------------
Michael M. Strage, V.P. & Treasurer 0 $0 10,000 $53,700/
30,000 $161,100
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
There were no exercises of options by any executive officers in the fiscal
year 1999.
D. LONG TERM INCENTIVE PLAN
We do not have a Long-Term Incentive Plan (LTIP) and therefore did not
award any LTIPs in the fiscal year 1999.
E. COMPENSATION OF DIRECTORS
We pay our non-employee directors (Mssrs. Angel, and Wetherhill) $500.00
for each Board Meeting attended in person and $250.00 for each Board Meeting
attended by telephone. Directors are also reimbursed for their out-of-pocket
expenses incurred to attend meetings. Directors were not compensated in any
manner during the fiscal year 1998.
Our non-employee directors were granted stock options in fiscal year 1999
under our 1998 Stock Option Plan.
On January 13, 1999, we granted 300,000 Non-Statutory Stock Options
exercisable at $2.88 per share to Albert D. Angel, Chairman of the Board,
with 75,000 vesting immediately, 75,000
<PAGE>
37
vesting on January 1, 2000, 75,000 vesting on January 1, 2001, and 75,000
vesting on January 1, 2002. On January 13, 1999, Mr. Angel transferred all
right, title and interest in these options to the Angel Brothers Partnership,
a partnership consisting of Mr. Angel's adult sons. On January 10, 2000, we
granted Albert Angel 100,000 Non-Statutory Stock Options exercisable at
$11.50 per share, with 25,000 options vesting immediately, 25,000 options
vesting on January 10, 2001, 25,000 options vesting on January 10, 2002, and
25,000 options vesting on January 10, 2003. On January 12, 2000 Albert Angel
transferred all right, title and interest in these options to the Angel
Brothers Partnership, a partnership consisting of Mr. Angel's adult sons.
Albert Angel disclaims any beneficial ownership of the options.
We granted 40,000 Non-Statutory Stock Options exercisable at $2.88 per
share to Christopher Wetherhill, a director, with 10,000 options vesting
immediately, 10,000 vesting on January 1, 2000, 10,000 vesting on January 1,
2001, and 10,000 vesting on January 1, 2002.
F. EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Marvin S. Hausman, M.D., President & CEO. In January 1999, we came to an
oral agreement with Marvin Hausman whereby Dr. Hausman agreed to serve as
President & CEO of our company and as a Director for an annual salary of
$125,000. In December 1999, the Board of Directors, upon the recommendation of
the Compensation Committee, awarded Dr. Hausman a bonus for the year 1999 in the
amount of $150,000, and increased Dr. Hausman's salary for the year 2000 to
$190,000 per year. On January 13, 1999, the Board of Directors, upon the
recommendation of the Compensation Committee, granted Dr. Hausman 200,000
Incentive Stock Options exercisable at $3.11 per share, with 50,000 options
vesting immediately, 50,000 vesting on January 1, 2000, 50,000 vesting on
January 1, 2001, and 50,000 vesting on January 1, 2002. On January 10, 2000 Dr.
Hausman was granted 100,000 Non-Statutory Stock Options exercisable at $11.50
per share, with 25,000 options vesting immediately, 25,000 vesting on January
10, 2001, 25,000 vesting on January 10, 2002, and 25,000 vesting on January 10,
2003.
Michael M. Strage, Vice President & Treasurer. In January 1999, we came to
an oral agreement with Michael Strage whereby Mr. Strage agreed to serve as Vice
President & Treasurer of our company and as a Director for an annual salary of
$100,000. In July 1999, Michael Strage was awarded a merit bonus of $25,000. In
December 1999, Mr. Strage was awarded a year-end bonus for the year 1999 in the
amount of $20,000. On March 24, 2000, upon the recommendation of the
Compensation Committee, Michael Strage's salary for the year 2000 was increased
from $100,000 to $150,000 per year. On January 13, 1999, Michael Strage was
granted 40,000 Incentive Stock Options exercisable at $2.88 per share, with
10,000 options vesting immediately, 10,000 vesting on January 1, 2000, 10,000
vesting on January 1, 2001, and 10,000 vesting on January 1, 2002. On January
10, 2000, Michael Strage was granted 24,000 Incentive Stock Options exercisable
at $11.50, with 6,000 stock options vesting immediately, 6,000 stock options
vesting on January 10, 2001, 6,000 stock options vesting on January 10, 2002,
and 6,000 stock options vesting on January 10, 2003. On the same date Michael M.
Strage was granted 16,000 Non-Statutory Stock Options exercisable at $11.50,
with 4,000 stock options vesting immediately, 4,000 stock options vesting on
January 10, 2001, 4,000 stock options vesting on January 10, 2002, and 4,000
stock options vesting on January 10, 2003.
<PAGE>
38
We do not have any arrangements with our executive officers triggered by
termination of employment or change in control other than the following. All
options granted under the 1998 Stock Option Plan, including those to its
executive officers, provide for accelerated vesting upon a change in control,
among other events, unless the options are either assumed by the successor
corporation or are replaced by a comparable cash incentive program of the
successor corporation based on the value of the option upon the change in
control event.
G. OPTION EXERCISES AND HOLDINGS
No options to purchase shares of our common stock or our corporate
predecessors were exercised during the fiscal year ended December 31, 1999. The
number of unexercised options held as of the end of April 28, 2000 were
1,380,651.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of April 28, 2000 by:
- - each person known to us to own beneficially 5% or more of any class of our
securities, including those shares subject to outstanding options
- - each of our officers and directors
- - all of our officers and directors as a group.
Under the securities laws, a person is considered to be the beneficial
owner of securities that can be acquired by him within 60 days from the date of
this prospectus upon the exercise of options, warrants or convertible
securities. We determine the beneficial owner's percentage ownership by assuming
that options, warrants or convertible securities that are held by him/her, but
not those held by any other person which are exercisable within 60 days of the
date of this prospectus, have been exercised or converted. As of April 28, 2000
there were 14,214,019 shares of our common stock issued and outstanding. This
does not include the 1,767,800 shares of our common stock issuable in the event
of conversion of outstanding warrants, and 1,380,651 shares issuable in the
event of conversion of outstanding options.
<PAGE>
39
Unless otherwise indicated, the address of each of the listed beneficial
owners identified above is 825 Third Avenue, 40th Floor, New York, NY 10022.
Unless otherwise noted, we believe that all persons named in the table have sole
voting and investment power with respect to all the shares beneficially owned by
them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENT OF CLASS
- ---------------- ---------------- ----------------
<S> <C> <C>
Marvin S. Hausman, M.D. (1) 2,113,500 14.74%
Christopher Wetherhill (2) 1,159,000 8.13%
Albert D. Angel (3) 524,000 3.68%
Michael M. Strage (4) 280,000 1.97%
Michael R. Espey (5) 280,000 1.97%
Robert G. Burford, Ph.D. (6) 22,500 0.16%
--------- ------
All directors and executive
officers (six persons) as a group 4,379,000 30.57%
--------- ------
Steven C. Espey (7) 2,050,000 14.42%
Boundary Bay Investments Ltd. (8) 1,008,000 7.08%
</TABLE>
- ----------
(1) Marvin S. Hausman, M.D. was one of our founders and currently serves as our
President and Chief Executive Officer. The number of shares owned by Marvin
Hausman includes: 1,988,500 shares owned by Dr. Hausman and 125,000 shares
under vested options. Does not include 30,000 shares gifted to Dr.
Hausman's three adult children, with 10,000 to each in November 1999, 250
shares gifted to Roberta Matta in November 1999, and 175,000 shares under
unvested options.
(2) Christopher Wetherhill is a Director of our company. Includes 107,500
shares held in Mr. Wetherhill's name and 1,008,000 shares held by Boundary
Bay Investments Ltd. ("BBI"). Mr. Wetherhill holds a controlling position
as the Managing Director of BBI and is the sole beneficial owner. Also
includes 24,000 shares that may be issued upon exercise of warrants held by
BBI, and 20,000 shares under vested options held in Mr. Wetherhill's name.
Does not include 20,000 shares under unvested options. Mr. Wetherhill's
address is 9 Church Street, Hamilton HM 11, Bermuda.
(3) Albert D. Angel is the Chairman of the Board of Directors of our company.
All shares are owned by Mr. Angel. Includes 516,000 shares owned by
Mr. Angel,
<PAGE>
40
and 8,000 shares that may be issued upon exercise of warrants. Does not
include 300,000 options granted to Mr. Angel on January 13, 1999 that he
transferred to the Angel Brothers Partnership on the same day, including
75,000 vested but unexercised options, and 100,000 options granted to
Mr. Angel on January 10, 2000 that he transferred to the Angel Brothers
Partnership on January 12, 2000, including 25,000 vested but unexercised
options. The Angel Brothers Partnership is a partnership consisting of
Mr. Angel's adult sons. Mr. Angel disclaims any beneficial ownership in
the Angel Brothers Partnership. Mr. Angel's address is 4 Rocky Way
Llewellyn Park, West Orange, N.J. 07052.
(4) Michael M. Strage was a co-founder of our company and currently serves as
Vice President and Treasurer. Includes 250,000 shares owned by Mr. Strage,
and 30,000 shares under vested options. Does not include 50,000 shares
under unvested options.
(5) Michael R. Espey was a co-founder of our company and currently serves as
Vice President and Secretary. Includes 250,000 shares owned by Mr. Espey,
and 30,000 shares under vested options. Does not include 30,000 shares
under unvested options. Michael Espey's address is 1001 4th Avenue Plaza,
Suite 3228, Seattle, WA 98154.
(6) Robert G. Burford, Ph.D. serves as our Vice President, Product Development.
The number of shares for Dr. Burford includes shares under vested options.
Does not include 87,500 unvested options.
(7) Steven C. Espey was a founder of our company. Steven Espey is Michael
Espey's stepfather. All shares are owned by Mr. S. Espey. Mr. Espey's
address is 358 East 69th Street, New York, NY 10021.
(8) Boundary Bay Investments Ltd. is a Cayman Islands corporation beneficially
owned by Christopher Wetherhill, a director of our company. Includes
1,008,000 shares issued in the name of BBI, and 24,000 shares that may be
issued upon exercise of warrants. The address of BBI is 3rd Floor Harbour
Centre, George Town, Grand Cayman, Cayman Islands, B.W.I.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(Numbers for Ionosphere, Inc. shares issued prior to the merger are adjusted
retroactively to reflect the 1 for 2 reverse split on December 28, 1998 unless
otherwise indicated.)
The following section describes transactions since inception to which our
company or its predecessor corporations were a party and in which any of our
officers, directors, director nominees, or principal shareholder had a direct or
indirect interest.
<PAGE>
41
During 1997 and up to March 1, 1999, Steven Espey has provided Axonyx with
the use of office space in New York. There was no specific charge for such use
of office space, although issuance of common stock to Steven Espey at the time
of our company's founding was designed, in part, to reflect this anticipated
contribution. The President of one of our predecessor companies, Ionosphere,
Inc. provided Ionosphere with office space without charge from August 1997 to
December 1998.
Marvin S. Hausman, M.D. provided services as President & CEO to our
predecessor company Axonyx Inc. from the time it began operations in January
1997 without cash remuneration from Axonyx Inc. Michael Strage and Michael Espey
provided services to our predecessor company Axonyx Inc. as officers since it
began operations in January 1997 until September 1998 without cash remuneration.
J.T. Jesky provided services as President to our predecessor company
Ionosphere, Inc. from the time it began operations in July 1997 until December
1998 without compensation from Ionosphere, Inc. Skyelan Rose provided services
as Secretary and Ann Reihl provided services as Treasurer to our predecessor
company Ionosphere, Inc. from the time it began operations in July 1997 until
December 1998.
On March 5, 1997, Axonyx Inc. issued 4,300,000 shares of common stock to
Boundary Bay Investments Ltd. Of these shares, 3,300,000 shares of common stock
were issued upon assignment of option rights to certain exclusive patent rights,
and 1,000,000 shares of common stock were issued for the commitment of an
investment of $400,000 pursuant to an Investment Agreement dated February 18,
1997. We received $400,000 over a one year period between March 7, 1997 and
February 4, 1998.
On August 27, 1997, Axonyx granted Albert D. Angel, Chairman of the Board
of Directors, 500,000 shares of common stock subject to a two year vesting
schedule in consideration of services rendered and to be rendered to Axonyx
under a Vesting Agreement.
On August 28, 1997, Ionosphere, Inc. issued 3,000,000 shares of common
stock, par value $0.001 to Ionosphere, LLC for cash of $4,200.00 and a note
receivable for $45,000.00 due August 28, 1999, with interest at 8% per annum.
T.J. Jesky, the President and CEO of Ionosphere, Inc. was the sole managing
member of Ionosphere, LLC. The note receivable was paid off on May 19, 1998.
On April 27, 1998,we issued a Nine Percent Convertible Note to Boundary Bay
Investments Ltd. (BBI) in the amount of $125,000, evidencing a loan from BBI in
that amount. This loan is convertible at $4.00 per share of common stock
(pre-split). The loan bears interest at 9% per annum, with interest payments due
annually. The Note matures May 1, 2000.
Michael R. Espey, Vice President and Secretary and Michael M. Strage, Vice
President and Treasurer, were each paid consultant fees in the amount of $28,000
by our predecessor company in return for their services rendered in 1998.
<PAGE>
42
On May 19, 1998 Ionosphere, Inc. issued 215,000 shares of common stock to
its founding shareholder, T.J. Jesky in consideration for the following: (1)
forgiveness of loans to Ionosphere, Inc. in the amount of $4,645, (2) a Note
Receivable issued on August 28, 1997 for $45,000.00 was paid off, (3) accrued
interest on the Note Receivable in the amount of $2,604.00 was paid off, and (4)
a Deed of Trust for $260,000.00.
On September 1, 1998, Axonyx Inc. issued a Nine Percent Convertible Note to
Boundary Bay Investments Ltd. in the amount of $75,000.00, evidencing a loan
from BBI in that amount. This loan was convertible at $4.00 per share of common
stock (pre-split). The Note bore interest at 9% per annum, with interest
payments paid annually. The Note was subsequently converted into shares of
common stock (see below).
On December 9, 1998, eight of the beneficial owners of Boundary Bay
Investments Ltd. ("BBI") requested that shares of common stock of Axonyx be
transferred into their respective and direct ownership positions. Certificates
representing shares of common stock in their respective shareholdings in BBI
were issued to the transferee shareholders of BBI. In addition, on the same date
107,500 shares were transferred to Christopher Wetherhill, the managing director
of BBI, reflecting a portion of his shareholdings in BBI. Other than Christopher
Wetherhill, none of the transferees were affiliates of our company. 860,000
shares of common stock were retained by BBI. Christopher Wetherhill is the sole
beneficial owner of BBI.
On September 22, 1999 Boundary Bay Investments Ltd. 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 post split conversion price of $2.00
per share. We issued 100,000 shares to BBI on September 27, 1999.
On September 29, 1999 Albert D. Angel, our Chairman of the Board, purchased
four units in our private placement offering. Mr. Angel was issued 16,000 shares
of common stock and 8,000 common stock purchase warrants exercisable at $11.00
per share.
On September 30, 1999 BBI purchased twelve units in our private placement
offering. BBI was issued 48,000 shares of common stock and 24,000 common stock
purchase warrants exercisable at $11.00 per share.
<PAGE>
43
DESCRIPTION OF SECURITIES
We are currently authorized to issue up to 25,000,000 shares of common
stock, $0.001 par value. On April 28, 2000 14,214,019 shares of common stock
were issued and outstanding. We are authorized to issue up to 5,000,000 shares
of preferred stock, $0.001 par value of which no shares are issued and
outstanding. Also as of that date, there are warrants to purchase 1,728,000
shares of common stock outstanding.
COMMON STOCK
We are authorized to issue 25,000,000 shares of common stock, of which, as
of the date of this prospectus, 14,214,019 shares are outstanding and held by at
least 493 holders of record. All outstanding shares are validly authorized and
issued, fully paid and non-assessable.
The holders of shares of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. Holders
of common stock do not have cumulative voting rights. Holders of common stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of our company, holders of the shares
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of the shares have no preemptive rights and have no rights
to convert their shares into any other securities.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock. We
have not designated any classes of preferred stock. As of the date of this
prospectus no shares of preferred stock are issued and outstanding.
WARRANTS
On April 28, 2000, there were warrants to purchase an aggregate of
1,767,800 shares of common stock outstanding. Those warrants were issued under
terms and conditions as described below.
In connection with our private offering of certain of our securities over
the period August 24, 1998 to December 28, 1998, we issued warrants to purchase
1,030,000 shares of common stock. These 1998 warrants are exercisable at $3.75
per share on or prior to October 1, 2001, the expiration date of the 1998
warrants. We may call the 1998 warrants for exercise if the average closing bid
price for our common stock is equal to or greater than $7.50 per share of common
stock for any consecutive period of thirty days. Based on the historical price
of our common stock, these warrants are currently callable. Depending on market
conditions we may decide to call these warrants in the near term.
<PAGE>
44
As of April 28, 2000, warrants to purchase 25,000 shares of common stock have
been exercised by warrant holders.
In connection with our private offering of certain of our securities over
the period from May 20, 1999 to February 1, 2000, we have issued warrants to
purchase 723,000 shares of common stock. These 1999 warrants are exercisable at
$11.00 per share on or prior to August 1, 2004, the expiration date of the 1999
warrants. We may call the 1999 warrants for exercise if the average closing bid
price for our common stock is equal to or greater than $20.00 per share of
common stock for any consecutive period of thirty days.
On April 20, 2000, we issued an aggregate of warrants to purchase 19,800
shares of common stock to three non-U.S. firms, and an individual in the U.S.
under the terms of Finder's Agreements in relation to the November 1999
Offering. Each warrant entitles the holder to purchase one share at a price of
$11.00 until their expiration on August 1, 2004 under the same terms as the 1999
warrants.
Except where indicated the following rights and obligations apply to both
the 1998 and 1999 warrants. Warrant holders do not have any voting or any other
rights as stockholders. The exercise price and the number of shares of common
stock issuable on exercise of the warrants are subject to adjustment in certain
circumstances against dilution, including reorganization, consolidation, merger,
sale or conveyance of all or substantially all of its assets, or if we shall by
subdivision, combination or reclassification of securities, change the warrant
stock into the same or a different number of securities. The warrants may be
exercised upon the surrender of the warrant certificate on or prior to the
expiration date (or earlier redemption date) of such warrant at the offices of
our transfer agent, with the form of a Notice of Exercise, completed and
executed, accompanied by payment of the full exercise price (by certified or
bank check, payable to the order of Axonyx), for the number of shares with
respect to which the warrant is being exercised. Pursuant to Registration Rights
Agreements, certain piggy-back registration rights apply respectively to the
warrant stock issuable upon exercise of the 1998 and 1999 warrants. We are not
required to issue fractional shares upon the exercise of the warrants.
OPTIONS.
As of April 28, 2000, we had options outstanding to purchase an aggregate
of approximately 1,380,651 shares of our common stock at prices ranging from
$0.001 to $3.11 per share and for exercise periods ranging from 12/1/2000 to
1/1/2009, except for the 90,951 outstanding options granted to NYU, Dr. Blas
Frangione and Dr. Claudio Soto that have exercise periods pegged to the dates on
which we achieve certain equity capitalization milestones.
<PAGE>
45
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, 14,214,019 shares of our common stock
are outstanding of which 12,926,017 shares are "restricted securities" as such
term is defined under the Securities Act of 1933, exclusive of the shares to be
sold pursuant to the registration statement.
In general, Rule 144 permits a shareholder who has beneficially owned
restricted shares of common stock for at least one year to sell without
registration, within any three-month period, that number of shares not exceeding
the greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume over a defined period of time, assuming our compliance
with certain reporting requirements of Rule 144. Furthermore, if the restricted
shares of common stock are held for at least two years by a person not
affiliated with our company (in general, a person who is not an executive
officer, director or principal shareholder during the three month period prior
to resale), those restricted shares can be sold without any volume limitation.
Any sales of shares by shareholders pursuant to Rule 144 may have a depressive
effect on the price of our common stock.
SELLING SECURITY HOLDERS
We have listed below:
- - the name of each selling security holder
- - the number of shares of common stock beneficially owned by the selling
security holder as of the date of this prospectus
- - we give effect to the exercise of the selling security holders' warrants
into shares of our common stock
- - the number of shares being offered by each of them
After the offering, assuming all shares offered hereby are sold, none of
the selling security holders will own one percent or more of the outstanding
shares of our common stock.
Except as otherwise noted below, during the last three years no selling
security holder has been an officer, director or affiliate of our company, nor
has any selling security solder had any material relationship with our company
during that period.
The shares being offered hereby are being registered to permit public
secondary trading, and the selling security holders are under no obligation to
either (a) exercise the selling security holders' warrants, or (b) if exercised,
to sell all or any portion of their
<PAGE>
46
shares of common stock immediately after this prospectus. The warrants are
currently callable and we may call the warrants for exercise. Because the
selling security holders may exercise all or a portion of their warrants and
sell all or a portion of the shares issuable upon such exercise, no estimate can
be given as to the number of shares of common stock that will be held by any
selling security holder upon termination of this offering. Accordingly, the
following table assumes (i) the exercise of all of the selling security holders'
warrants, and (ii) the sale of all shares issuable upon the exercise of warrants
by the selling security holders immediately following the date of this
prospectus.
<TABLE>
<CAPTION>
Shares Owned Shares Available Shares
Prior to this Pursuant to Owned After
Selling Security Holder Offering This Prospectus Offering
- ----------------------- -------- --------------- --------
<S> <C> <C> <C>
Alexander & Judith Angerman
Family Trust 103,000 80,000 23,000
Andiman Family Trust 20,000 10,000 10,000
Anka Consultants, Ltd. 80,000 40,000 40,000
Gary Ballen 64,200 15,000 49,200
Steve Boom 40,000 20,000 20,000
Walter Bowen 26,000 10,000 16,000
Elizabeth Bowen Trust 13,000 5,000 8,000
Jonathan Bowen Trust 13,000 5,000 8,000
Joyce Bronow
& Judith Goldman 10,000 5,000 5,000
Andrew Burg 20,000 10,000 10,000
Charles Schwab & Co., Inc.
FBO William F. Mills IRA 10,000 5,000 5,000
Louis Cornacchia 16,000 10,000 6,000
Dain Rauscher
FBO Drew Pettus IRA 20,000 10,000 10,000
Daniel and Ruth De Palma 40,000 20,000 20,000
Dean Witter Reynolds
FBO Melvin Reiter IRA 20,000 10,000 10,000
Dubin Ltd. LLC 40,000 20,000 20,000
Everen Clearing Corp
FBO Jeremy Rothstein IRA 20,000 10,000 10,000
<PAGE>
47
Everen Clearing Corp
FBO Rosalin Rothstein IRA 10,000 5,000 5,000
Richard Fedder, M.D. 80,000 40,000 40,000
Mike and Christine Feves 52,000 20,000 32,000
Stanley and Leslie Friedman 44,000 20,000 24,000
Glen Leopold Trustee of
Frightwriter Retirement Trust 20,000 10,000 20,000
Stephen Glick 10,000 5,000 5,000
Stephen and Maureen Graham 20,000 10,000 10,000
Great Bay A.V.V. 104,000 50,000 54,000
Brian Heffernan 10,000 10,000 0
Jeffrey Helfenstein 20,000 10,000 10,000
Sanford Hillsberg 5,000 5,000 0
Donald Iodice 20,000 10,000 10,000
Intertrend Management Ltd. 82,000 30,000 52,000
Carl and Beverly Jacobs 20,000 10,000 10,000
Aaron Jacoby 20,000 10,000 10,000
Gary and Susan Kaplan 61,000 20,000 41,000
Lisa Kline 5,000 5,000 0
Elena Konstat 32,000 10,000 22,000
Fred and Barbara Kumetz 10,000 5,000 5,000
Tracy Lamonica 17,000 5,000 12,000
Lawrence M. Richman M.D. Inc.,
Profit Sharing Plan FBO
Lawrence Richman 20,000 10,000 10,000
Esther Fedder Lifshutz 46,000 20,000 26,000
Lincoln Trust
FBO Manuel Graiwer 55,000 20,000 35,000
David Lokey 60,000 30,000 30,000
Dennis Lowry 20,000 10,000 10,000
Stephen Markus, M.D. 20,000 10,000 10,000
<PAGE>
48
Mark Mellick 10,000 5,000 5,000
Richard Memsic 30,000 15,000 15,000
Michael and Lisa Levey
Revocable Trust 56,000 15,000 31,000
William and Elaine Mills 20,000 10,000 10,000
Norman Nemoy M.D. 30,000 15,000 15,000
Kent and Laurie Pfeiffer 37,000 20,000 17,000
Arthur and Dee Piculell 20,000 10,000 10,000
Wendy Feldman Purner 10,000 10,000 0
Justin and Virginia Rattner 60,000 30,000 30,000
Sidney Richlin 9,000 5,000 4,000
Ronald and Cynthia Rosen 20,000 10,000 10,000
Kenneth Rowen 52,000 20,000 32,000
Kenneth Rowen Pension Trust 46,000 20,000 26,000
Richard Salit 10,000 5,000 5,000
Elliot and Jennifer Shelton 20,000 10,000 10,000
Philip and Debra Sobol 32,000 20,000 12,000
Thomas and Michele Somers 26,000 10,000 16,000
Stanley Joseph Living Trust 80,000 40,000 40,000
The Solomon Family Trust 20,000 10,000 10,000
Umbria Limited 40,000 20,000 20,000
Voorschoten 76 N.V. 25,000 10,000 15,000
Edward Wachtel 16,000 5,000 11,000
Edward and Ann Weston 26,000 10,000 16,000
William & Anna Tenenblatt Trust 60,000 30,000 30,000
Moises Wittemberg 42,000 20,000 22,000
Jan Zakowski 26,000 10,000 16,000
</TABLE>
<PAGE>
49
The information contained in the foregoing table is derived from our books and
records, as well as from our transfer agent. Of the 1,060,000 shares, 1,005,000
are issuable upon the exercise of outstanding warrants and 55,000 shares are
currently held by selling security holders.
We have undertaken to maintain the registration current for a period of
not less than nine months from the effective date of the registration statement
of which this prospectus is a part in order that sales of shares may be made by
the selling security holders. We have agreed to pay for all costs and expenses
incident to the issuance, offer, sale and delivery of the shares, including, but
not limited to, all expenses and fees of preparing, filing and printing the
registration statement and prospectus and related exhibits, amendments and
supplements thereto and mailing of such items. We will not pay selling
commissions and expenses associated with any sales by the selling security
holders. We have agreed to indemnify the selling security holders against civil
liabilities including liabilities under the Securities Act of 1933. The selling
security holders have advised us that sales of their shares may be made from
time to time by or for the accounts of the selling security holders in one or
more transactions in the over-the-counter market, in negotiated transactions or
otherwise, at prices related to the prevailing market prices or at negotiated
prices.
PLAN OF DISTRIBUTION
The shares offered hereby by the selling security holders may be sold
from time to time by the selling security holders, or by pledgees, donees,
transferees or other successors in interest. The distribution of the securities
by the selling security holders may be effected in one or more transactions that
may take place on the over-the-counter market, including ordinary broker's
transactions or through sales to one or more broker-dealers for resale of the
shares as principals, at market prices prevailing at the time of sale, at prices
related to the prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated brockerage fees or commissions may be paid
by the selling security holders in connection with the sales of securities. The
shares offered by the selling security holders may be sold by one or more of the
following methods, including without limitation: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principals to facilitate the
transaction; (b) purchasers by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to the prospectus; (c) ordinary
brockerage transactions and transactions in which the broker may solicit
purchases, and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
selling security holders and intermediaries through whom the securities are sold
may be deemed "underwriters" within the meaning of the Securities Act with
respect to the shares offered, and any profits realized or commission received
may be deemed underwriting compensation.
At the time a particular offer of the securities is made by or on behalf
of a selling security holder, to the extent required, a prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name
<PAGE>
50
or names of any underwriters, dealers or agents, if any, the purchase price paid
by any underwriter for the shares purchased from the selling security holders
and any discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.
Whenever we are notified by the selling security holders that any
material arrangement has been entered into with a broker-dealer, agent or
underwriter for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a
broker-dealer, agent or underwriter, we will file a supplemented prospectus, if
required, pursuant to Rule 424(c) under the Act. The supplemental prospectus
will disclose (a) the name of each broker-dealer, agent or underwriter, (b) the
number of shares involved, (c) the price at which the shares were sold, (d) the
commissions paid or discounts or concessions allowed to broker-dealer(s),
agent(s) or underwriter(s) or other items constituting compensation or
indemnification arrangements with respect to particular offerings, where
applicable, (e) that the broker-dealer(s), agent(s) or underwriter(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, as supplemented, and (f) other facts material to
the transaction.
We have informed the selling security holders that the anti-manipulative
rules under the Exchange Act, including Regulation M thereunder, may apply to
their sales in the market and has furnished each of the selling security holders
with a copy of these rules. We have also informed the selling security holders
of the need for delivery of copies of this prospectus in connection with any
sale of securities registered hereunder.
Sales of shares by the selling security holders or even the potential of
such sales would likely have an adverse effect on the market price of the shares
offered hereby.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Pursuant to our merger with Ionosphere, Inc., our management decided, on
a post merger basis, to retain Richard A. Eisner & Company, LLC ("RAE") as our
independent auditors. RAE had audited the financial statements of Axonyx Inc.
for the fiscal year ended December 31, 1997. Our Board of Directors appointed
RAE as its accountants on December 1, 1998 to audit its financial statements for
the year ending December 31, 1998. This decision was ratified at a Special
Meeting of Stockholders of Axonyx Inc. on December 28, 1998 concurrent with the
consummation of the merger.
Barry L. Friedman, CPA of 1582 Tulita Drive, Las Vegas, NV 89123 audited
the financial statements of Ionosphere, Inc. for various periods from July 29,
1997 (inception) to May 21, 1998. During the engagement of Mr. Friedman as
independent auditors of Ionosphere, Inc., there were no disagreements with
either auditor on any matter accounting principles or practices, financial
statement disclosure or auditing scope or procedure. Mr. Friedman noted
Ionosphere, Inc.'s lack of operations and revenue and its need for additional
capital. These factors raised substantial doubt about Ionosphere, Inc.'s ability
to continue as a going concern. Mr. Friedman services as Ionosphere, Inc.'s
<PAGE>
51
independent auditor was ended on December 6, 1998 by Board of Directors
resolution, the date on which James E. Slayton, CPA, was appointed as
Ionosphere, Inc.'s interim independent auditor. The change of independent
auditors was made on the basis of the relative fees charged by each individual
and the time constraints imposed by the pending merger.
James E. Slayton, CPA of 3867 West Market St., Suite 208, Akron, OH 44333
audited the balance sheet of Ionosphere, Inc. as of November 30, 1998 and the
statements of operations, stockholder's equity and cash flows for the period
January 1, 1998 to November 30, 1998. During the engagement of Mr. Slayton as
the independent auditor of Ionosphere, Inc., there were no disagreements with
Mr. Slayton on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. Mr. Slayton noted
Ionosphere, Inc.'s lack of revenue and its need for additional capital. These
factors raised substantial doubt about Ionosphere, Inc.'s ability to continue as
a going concern.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale,
Florida.
EXPERTS
Our financial statements appearing in this prospectus have been audited
by Richard A. Eisner & Company, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report appearing herein,
which are included herein in reliance upon such report, given upon the authority
of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the United States Securities and Exchange Commission (the
"SEC"). You may read and copy any documents we file at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also publicly available through the SEC's
web site on the Internet at http://www.sec.gov.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits thereto. Descriptions of any contract or
other document referred to in this prospectus are not necessarily complete, and
in each instance reference is made to the copy of the contract or other document
filed as an exhibit to the registration statement for a more complete
description of the matter involved, each statement being qualified in its
entirety by such reference. At your written or telephonic request, we will
provide you, without charge, a copy of any of the information that is
<PAGE>
52
incorporated by reference herein (excluding exhibits to the information that is
incorporated by reference unless the exhibits are themselves specifically
incorporated by reference). Direct your request to us at Axonyx Inc., 825 Third
Ave., 40th Floor, New York, New York 10022, Attention: Michael Strage, Vice
President & Treasurer, telephone (212) 688-4770.
<PAGE>
AXONYX INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
AXONYX INC.
(a development stage company)
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS
Independent auditors' report F-1
Balance sheet as of December 31, 1999 F-2
Statements of operations for the years ended December 31, 1999, 1998 and for the period
January 9, 1997 (commencement of operations) through December 31, 1999 F-3
Statements of changes in stockholders' equity for the years ended December 31, 1999, 1998
and for the period January 9, 1997 (commencement of operations) through December 31, 1997 F-4
Statements of cash flows for the years ended December 31, 1999, 1998 and for the period
January 9, 1997 (commencement of operations) through December 31, 1999 F-5
Notes to financial statements F-6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Axonyx Inc.
We have audited the accompanying balance sheet of Axonyx Inc. (a development
stage company) as of December 31, 1999 and the related statements of operations,
changes in stockholders' equity and cash flows for each of the years ended
December 31, 1999 and 1998 and for the period January 9, 1997 (commencement of
operations) through December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Axonyx Inc. as of December 31,
1999, and the results of its operations and its cash flows for each of the years
ended December 31, 1999 and 1998 and for the period January 9, 1997
(commencement of operations) through December 31, 1999 in accordance with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 9, 2000
<PAGE>
AXONYX INC.
(a development stage company)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,409,000
Stock subscriptions receivable (collected in January and February 2000) 298,000
Other assets 22,000
------------
Total current assets 5,729,000
Equipment, net of accumulated depreciation of $3,000 15,000
------------
$ 5,744,000
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 353,000
Deferred revenue 104,000
------------
Total current liabilities 457,000
------------
Commitments
STOCKHOLDERS' EQUITY (Note A)
Preferred stock - $.001 par value, 5,000,000 shares authorized; none issued
Common stock - $.001 par value, 25,000,000 shares authorized; 13,579,076 shares
issued and outstanding (including 305,074 shares issuable) 13,000
Additional paid-in capital 11,655,000
Unearned compensation - stock/options (29,000)
Deficit accumulated during the development stage (6,352,000)
------------
Total stockholders' equity 5,287,000
------------
$ 5,744,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-2
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 9,
1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
------------------------------- DECEMBER 31,
1999 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 146,000 $ 146,000
------------ ------------
Costs and expenses:
Research and development (including equity related
charges of $2,256,000 in 1999 and $23,000 in 1998) 3,000,000 $ 353,000 3,835,000
General and administrative (including equity related charges
of $849,000 in 1999 and $95,000 in 1998) 2,206,000 289,000 2,711,000
------------ ------------ ------------
5,206,000 642,000 6,546,000
------------ ------------ ------------
Loss from operations (5,060,000) (642,000) (6,400,000)
Interest expense (13,000) (10,000) (23,000)
Interest income 71,000 71,000
------------ ------------ ------------
NET LOSS/COMPREHENSIVE LOSS $ (5,002,000) $ (652,000) $ (6,352,000)
============ ============ ============
NET LOSS PER COMMON SHARE -- BASIC AND DILUTED $(.39) $(.07)
============ ============
WEIGHTED AVERAGE SHARES -- BASIC AND DILUTED 12,668,000 9,886,000
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-3
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Note A)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
NUMBER ADDITIONAL
OF PAID-IN
SHARES AMOUNT CAPITAL
------------ -------------- ------------
<S> <C> <C> <C>
Issuance of founders' common stock at $.001 per share 7,900,000 $ 8,000 $ (6,000)
Issuance of common stock -- March 5, 1997 at $.40 per share 1,000,000 1,000 399,000
Issuance of common stock to New York University and
scientists at $.40 per share for services -- April 1, 1997 600,000 1,000 239,000
Common stock issued to Director -- August 27, 1997 500,000 190,000
Stock options granted 57,000
Amortization
Net loss
------------ -------------- ------------
BALANCE -- DECEMBER 31, 1997 10,000,000 10,000 879,000
Issuance of common stock and warrants (net of expenses of
$16,000) -- October 9, 1998 to December 31, 1998 at
$25,000 per unit 1,020,000 1,000 2,533,000
Shares deemed issued to stockholders (net of costs of $52,000) --
December 28, 1998 1,200,002 1,000 (49,000)
Amortization
Net loss
------------ -------------- ------------
BALANCE -- DECEMBER 31, 1998 12,220,002 12,000 3,363,000
Issuance of common stock and warrants (net of expenses of
$5,000) -- January 1999 10,000 20,000
Issuance of common stock and warrants -- October 1999 20,000 100,000
Issuance of common stock and warrants (net of expenses of
$243,000) -- May 24, 1999 to December 31, 1999 820,000 1,000 4,879,000
Issuance of stock for services -- June 1999 104,000 858,000
Stock options granted 270,000
Common stock issued on conversion of notes -- September 1999 100,000 200,000
Shares issuable to New York University and scientists 305,074 1,965,000
Amortization
Net loss
------------ -------------- ------------
BALANCE -- DECEMBER 31, 1999 13,579,076 $ 13,000 $ 11,668,000
============ ============== ============
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
UNEARNED ACCUMULATED
COMPENSATION - DURING THE TOTAL
STOCK/ DEVELOPMENT STOCKHOLDERS'
OPTIONS STAGE EQUITY
-------------- -------------- -----------
<S> <C> <C> <C>
Issuance of founders' common stock at $.001 per share $ 2,000
Issuance of common stock -- March 5, 1997 at $.40 per share 400,000
Issuance of common stock to New York University and
scientists at $.40 per share for services -- April 1, 1997 240,000
Common stock issued to Director -- August 27, 1997 $ (190,000) 0
Stock options granted (57,000) 0
Amortization 88,000 88,000
Net loss (698,000)
-------------- -------------- -----------
BALANCE -- DECEMBER 31, 1997 (159,000) (698,000) 32,000
Issuance of common stock and warrants (net of expenses of
$16,000) -- October 9, 1998 to December 31, 1998 at
$25,000 per unit 2,534,000
Shares deemed issued to stockholders (net of costs of $52,000) --
December 28, 1998 (48,000)
Amortization 118,000 118,000
Net loss (652,000) (652,000)
-------------- -------------- -----------
BALANCE -- DECEMBER 31, 1998 (41,000) (1,350,000) 1,984,000
Issuance of common stock and warrants (net of expenses of
$5,000) -- January 1999 20,000
Issuance of common stock and warrants -- October 1999 100,000
Issuance of common stock and warrants (net of expenses of
$230,000) -- May 24, 1999 to December 31, 1999 4,880,000
Issuance of stock for services -- June 1999 858,000
Stock options granted (270,000) 0
Common stock issued on conversion of notes -- September 1999 200,000
Shares issuable to New York University and scientists 1,965,000
Amortization 282,000 282,000
Net loss (5,002,000) (5,002,000)
-------------- -------------- -----------
BALANCE -- DECEMBER 31, 1999 $ (29,000) $ (6,352,000) $ 5,319,000
============== ============== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-4
<PAGE>
AXONYX INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 9,
1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, THROUGH
----------------------------- DECEMBER 31,
1999 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,002,000) $ (652,000) $(6,352,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 284,000 118,000 491,000
Stock and options for services 2,823,000 3,063,000
Changes in:
Other current assets (18,000) (18,000)
Accrued expenses and deferred revenue 328,000 67,000 457,000
----------- ----------- -----------
Net cash used in operating activities (1,585,000) (467,000) (2,359,000)
----------- ----------- -----------
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 5,452,000 1,854,000 7,638,000
Cost of merger (52,000) (52,000)
----------- ----------- -----------
Net cash provided by financing activities 5,452,000 2,002,000 7,786,000
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,851,000 1,535,000 5,409,000
Cash and cash equivalents at beginning of period 1,558,000 23,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,409,000 $ 1,558,000 $ 5,409,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 23,000 $ 23,000
NONCASH FINANCING ACTIVITIES:
Notes converted into common shares $ 200,000 $ 200,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS F-5
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A - THE COMPANY
Ionosphere, Inc. ("Ionosphere"), an inactive corporation, was incorporated in
the State of Nevada on July 29, 1997. Effective December 28, 1998, Axonyx Inc.
("Axonyx" or the "Company"), a Delaware corporation (formed September 1996),
merged into Ionosphere. The merger was consummated through an exchange of shares
that resulted in the former Axonyx stockholders receiving control of Ionosphere.
The merger has been treated as a capital transaction for accounting purposes. In
connection therewith, Axonyx's historic capital accounts were retroactively
adjusted to reflect the equivalent number of shares issued by Ionosphere in the
transaction while Axonyx's historical accumulated deficit was carried forward.
The operations reflect those of Axonyx from the commencement of its operations
(January 9, 1997). On December 28, 1998, Ionosphere changed its name to Axonyx
Inc. The Company's efforts are devoted to the discovery, development and
acquisition of proprietary pharmaceutical compounds and new technologies useful
for the treatment of cognitive disorders including Alzheimer's Disease.
The Company is subject to those risks associated with development stage
companies. The Company has sustained recurring losses since inception and
additional financing will be required by the Company to fund its research and
development activities and to support operations beyond December 31, 2000.
However, there is no assurance that the Company will develop a commercial
product, and that the Food and Drug Administration will grant approval to the
Company's products or that profitable operations can be attained.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
[1] CASH EQUIVALENTS:
The Company considers all money market accounts and time deposits with
a maturity of three months or less at the time of purchase to be cash
equivalents.
[2] EQUIPMENT:
Equipment is carried at cost less an allowance for depreciation.
Depreciation is recorded using the straight-line method over its
estimated useful life of five years.
[3] RESEARCH, DEVELOPMENT AND PATENT:
Research and development costs including certain costs related to
patent applications are charged to operations as incurred.
[4] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
[5] REVENUE RECOGNITION:
The Company defers recognition of revenue from up-front fees unless
they represent the culmination of a separate earnings process. Such
fees are recognized in income over the term of the arrangement.
F-6
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] STOCK-BASED COMPENSATION:
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123). The
provisions of SFAS No. 123 allow companies to either expense the
estimated fair value of stock options or to apply the intrinsic value
method set forth in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") but disclose the
pro forma effects on net income (loss) had the fair value of the
options been expensed. The Company has elected to apply APB 25 in
accounting for its employees' stock options.
[7] NET LOSS PER COMMON SHARE:
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128") requires the reporting of basic and diluted
earnings/loss per share. Basic loss per share is calculated by dividing
net loss by the weighted average number of outstanding common shares
during the year. As all potential common shares are anti-dilutive, the
effects of options, warrants and convertible securities are not
included in the calculation of diluted loss per share, except certain
anti-dilution options which are exercisable for nominal consideration
under the terms of the agreements with certain stockholders (see
Note F[6]).
[8] COMPREHENSIVE LOSS:
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the reporting of all changes in equity
of an enterprise that result from recognized transactions and other
economic events of the period other than transactions with owners in
their capacity as owners. The Company had no such other comprehensive
items to report.
[9] CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents. The Company primarily holds its cash and cash equivalents
in two United States banks. Deposits in excess of federally insured
limits were approximately $3,300,000 at December 31, 1999. In addition,
the Company maintains approximately $1,100,000 in foreign bank accounts
($1,000,000 of which is United States dollar denominated).
NOTE C - DEVELOPMENT AND LICENSING AGREEMENTS
[1] AGREEMENT WITH NEW YORK UNIVERSITY ("NYU")
In April 1997, the Company entered into a research and license
agreement with NYU, as amended to provide funding and sponsor the
research relating to the diagnosis and treatment of Alzheimer's Disease
and other amyloidosis disorders, in exchange for a payment of $25,000
upon signing of the agreement, sixteen consecutive quarterly payments
of $75,000 beginning on April 1, 1997, and 600,000 shares of common
stock with a fair value of $240,000 (issued to NYU and its scientists,
collectively "NYU stockholders"). The agreement also provides for
payments to NYU aggregating $175,000 upon achieving certain clinical
and regulatory milestones. In addition, the Company has agreed to pay
NYU royalties of up to 4% of net product sales under the agreement with
minimum royalty payments of $150,000 beginning January 1, 2003 through
the expiration or termination of the agreement, as defined.
Through December 31, 1999, the Company has paid $850,000 to NYU under
the agreement.
F-7
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE C - DEVELOPMENT AND LICENSING AGREEMENTS (CONTINUED)
[2] AGREEMENT WITH CURE, L.L.C. ("CURE")
On February 27, 1997, the Company entered into a sub-license agreement
("CURE Agreement") with CURE where the Company would receive the rights
covering the patents that CURE obtained through the "PHS Patent License
Agreement-Exclusive" it entered into with the Public Health Service.
The CURE Agreement provided for a payment of $15,000 upon signing of
the agreement and a payment of $10,000 six months after the signing of
the agreement. The CURE Agreement also provides for payments to CURE
aggregating $600,000 when certain clinical and regulatory milestones
are achieved. In addition, the Company has agreed to pay CURE royalties
of up to 3% of net product sales and sub-license royalties as defined
under the agreement, with minimum annual royalty payments of $10,000
beginning on January 31, 2000 increasing to $25,000 per annum on
commencement of sales of the product until the expiration or
termination of the agreement. Any royalty payments made to CURE shall
be credited against the minimum payments.
Through December 31, 1999, the Company has paid $25,000 to CURE under
the agreement.
[3] AGREEMENT WITH APPLIED RESEARCH SYSTEMS ARS HOLDING N.V.:
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. The Company is amortizing the nonrefundable fee over the right
to license term of one year. Accordingly, during the year ended
December 31, 1999, revenues of $146,000 were recognized under this
agreement and the balance of $104,000 is reflected as deferred revenue.
[4] AGREEMENT WITH THE UNIVERSITY OF MELBOURNE (AUSTRALIA):
On October 1, 1999, the Company entered into an agreement with the
University of Melbourne (Australia). Under the Agreement, the Company
committed to fund a research project at the University of Melbourne to
develop a diagnostic test for Alzheimer's disease. In addition to the
costs associated with the filing and prosecution of any patent
applications, 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 for $25,000 each, an exclusive worldwide
license for each intellectual property or patent resulting from the
research project, and to an existing patent application.
[5] AGREEMENT WITH NORTHWEST KINETICS, L.L.C.:
In December 1999, the Company entered into a clinical research
agreement with Northwest Kinetics, L.L.C. ("Northwest") to conduct a
study. The Company has agreed to pay approximately $407,000 under the
agreement. As of December 31, 1998 the Company has paid approximately
$183,000 under the agreement.
F-8
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE D - INCOME TAXES
At December 31, 1999, the Company has available for federal income tax purposes
a net operating loss carryforward of approximately $3,077,000, expiring through
2019, that may be used to offset future taxable income. Approximately $46,000 of
such net operating loss carryforward is subject to annual limitation as a result
of merger referred to in Note A.
The deferred tax consequences of temporary differences in reporting items for
tax and financial accounting purposes at December 31, 1999 resulted primarily
from certain expenses, aggregating $3,525,000 relating principally to research
and development which is not currently deductible. At December 31, 1999 and
1998, the Company has deferred tax assets of approximately $2,971,000 and
$466,000, respectively. The Company has not recorded a benefit from its net
operating loss carryforward or expenses not currently deductible because
realization of the benefit is uncertain and, therefore, a valuation allowance
of $2,971,000 has been provided for the deferred tax asset.
NOTE E - RELATED PARTY TRANSACTIONS
During 1998 and 1997, a stockholder provided the Company the use of facilities.
There was no charge for such utilization of space. In addition, other
stockholders provided administrative support services to the Company without
remuneration. Such transactions were not material for the year ended December
31, 1998 and for the period from January 9, 1997 to December 31, 1997.
In April and September of 1998, the Company issued convertible notes for an
aggregate of $200,000 to a stockholder of the Company. The notes were due in
2000, bore interest at 9% and were convertible into common stock at $2 per
share. During September 1999, the holder converted the notes into 100,000 shares
of common stock.
In September 1998, the Company entered into agreements with two executive
officers/stockholders for consulting services to be rendered to the Company.
Such arrangement provides for a base compensation of $7,000 each per month
through December 31, 1998.
NOTE F - STOCKHOLDERS' EQUITY
[1] STOCKHOLDERS' AGREEMENT:
Pursuant to a stockholders' agreement between NYU stockholders and
certain founding stockholders ("Founders"), such Founders may not
transfer any shares without written notice to NYU. In addition,
Founders shall not be granted registration rights unless NYU
stockholders are granted such rights on the same terms and conditions.
Such agreement terminates on an initial public offering.
F-9
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[2] PRIVATE PLACEMENTS:
During 1998 and 1999, the Company sold 103 units in a private placement
yielding net proceeds of $2,534,000 and $20,000 respectively. Each unit
consisted of 10,000 shares of common stock and 10,000 warrants
exercisable to purchase common stock at $3.75 per share.
In October 1999 the Company received $100,000 on the sale of 20,000
shares of common stock and 20,000 warrants exercisable to purchase
common stock at $11.00 per share.
During 1999, the Company sold 205 units in a private placement yielding
net proceeds of $4,880,000. Each unit consisted of 4,000 shares of
common stock and 2,000 warrants to purchase common stock at $11.00 per
share.
[3] WARRANTS:
At December 31, 1999, outstanding warrants to acquire shares of the
Company's common stock are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE EXPIRATION CALL
RESERVED PRICE DATE PRICE
-------- ----- ---- -----
<S> <C> <C> <C>
1,030,000 $ 3.75 October 1, 2001 $ 7.50
430,000 $ 11.00 August 1, 2004 $ 20.00
</TABLE>
The warrants are subject to call by the Company if the average closing
bid price of the Company's common stock is equal to or greater than the
call price for any consecutive thirty days.
At December 31, 1999 the weighted average exercise price of the
warrants was $5.92 and the weighted average remaining contractual life
of the warrants was 2.63 years.
[4] COMMON STOCK:
In August 1997, the Company awarded a Director 500,000 shares of common
stock of which 250,000 shares vest through March 1, 1998 and thereafter
on a monthly basis through March 1, 1999. The Company valued and
expensed these shares at $190,000 which was recognized over the vesting
period.
On June 11, 1999 the Company issued 200,000 shares of restricted common
stock to Infusion Capital Investment Corporation ("ICIC") pursuant to a
one year Consulting Agreement under which ICIC and its affiliates
undertook to perform investor relations and corporate development
services on behalf of the Company. 100,000 of those shares were placed
in escrow. Pursuant to the terms of the arrangement, if the Company
exercises its right of termination after six months such shares would
be returned to the Company. The Company terminated the arrangement and
the escrow shares were returned and cancelled. The shares issued to
ICIC were valued and expensed at $825,000, the market value at the date
granted.
F-10
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[5] STOCK SPLIT:
Effective February 23, 1999, the Company approved a 2 for 1 stock split
of its common stock. All share amounts in the accompanying financial
statements have been retroactively adjusted to reflect the stock split.
[6] STOCK OPTIONS:
The Company applies APB 25 and related interpretations in accounting
for its employee stock options. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") requires the Company to elect either fair-value expense
recognition or the disclosure-only alternative for stock-based employee
compensation. The expense recognition provision encouraged by SFAS 123
would require fair-value based financial accounting to recognize
compensation expense for the employee stock compensation plans. The
Company has elected the disclosure-only alternative.
During 1998, the Board of Directors and the stockholders of the Company
approved a Stock Option Plan ("1998 Plan") which provides for the
granting of options to purchase up to 2,000,000 shares of common stock,
pursuant to which officers, directors, advisors and consultants are
eligible to receive incentive and/or nonstatutory stock options.
Options granted under the 1998 Plan are exercisable for a period of up
to 10 years from date of grant at an exercise price which is not less
than the fair value on date of grant, except that the exercise period
of options granted to a stockholder owning more than 10% of the
outstanding capital stock may not exceed five years and their exercise
price shall be granted at an option price not less than 110% of the
fair value of the common stock at date of grant. Vesting of 1998 Plan
options varies from fully vested at the date of grant to multiple year
apportionment of vesting as determined by the Board of Directors.
During the year ended December 31, 1997, Axonyx issued 150,000 options
at an exercise price below the fair value of the stock to a consultant.
Axonyx fair valued these options at $.38 each, representing the
difference between the fair value of the common stock and the option
exercise price, which was expensed. In connection with the merger in
1998, these options were exchanged for options under the 1998 Plan with
the same terms.
During the year ended December 31, 1999, the Company granted 47,100
options (25,500 options issued below fair market value) to consultants.
In connection therewith the Company fair valued these options at
$270,000 which was substantially expensed in 1999.
Disclosures required under SFAS 123 for employee stock options granted
as of December 31, 1999 and 1998 using the Black-Scholes option pricing
model prescribed by SFAS 123 are provided below.
The assumptions used during 1999 and the weighted average information
is as follows:
<TABLE>
<S> <C>
Risk-free interest rate 4.75% - 5.40%
Expected dividend yield 0%
Expected life 5 - 10 years
Expected volatility .30
Weighted average grant-date fair value of options
granted during the period $2.22
</TABLE>
F-11
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK OPTIONS: (CONTINUED)
Had the Company elected to recognize compensation cost based on the
fair value of the options at the date of grant as prescribed by SFAS
No. 123, the Company's net loss would have been as presented in the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net loss:
As reported $(4,983,000) $(652,000)
Pro forma (5,301,000) (652,000)
Loss per share:
As reported $(.39) $(.07)
Pro forma $(.42) $(.07)
Weighted average fair value of options granted $2.22 $.38
</TABLE>
Stock option activity under the 1998 Plan is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1999 1998
-------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Options at beginning of year 150,000 $.02 $.02
Options exchanged 150,000 .02
Options issued 750,100 3.98
------- -------
Options at end of year 900,100 3.32 150,000 .02
======= =======
Options exercisable at end of year 351,550 2.22 105,000 .02
======= =======
</TABLE>
As of December 31, 1999, 1,099,900 options are available for future
grant under the 1998 Plan.
F-12
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE F - STOCKHOLDERS' EQUITY (CONTINUED)
[6] STOCK OPTIONS: (CONTINUED)
In connection with the merger transaction in 1988 (see Note A) the
Company granted a consultant 30,000 stock options outside the 1998
Plan. These options are exercisable at $1.25 per share through January
5, 2001. In addition, the options have certain piggyback registration
rights.
Additional information with respect to option activity is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------
OPTIONS OUTSTANDING* OPTIONS EXERCISABLE*
--------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUALLY EXERCISE EXERCISE
EXERCISE PRICES SHARES (IN YEARS) PRICE SHARES PRICE
--------------- ------ ---------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$.02 150,000 2.67 $.02 150,000 $.02
$1.25 30,000 1.00 1.25 30,000 1.25
$2.87 - $3.11 596,600 8.93 2.95 161,300 2.95
$4.70 7,500 4.77 4.70 7,500 4.70
$7.20 - $8.50 146,000 9.68 8.15 32,750 8.13
---------- -------------
930,100 7.74 3.26 381,550 2.14
========== =============
</TABLE>
*Excludes NYU options (see below)
In addition, in connection with the agreements entered into with NYU
and its scientists, the Company granted certain options to purchase
additional shares of the Company pursuant to certain antidilution
provisions at a purchase price of $.001 per share ("NYU options"). The
option agreements provide for the purchase of additional shares based
on a formula of the Company's capital raising of up to $5,000,000 and
$10,000,000.
During the fourth quarter, in connection with the NYU options the
Company recorded a charge of approximately $1,965,000 representing the
305,074 shares deemed issuable for nominal consideration under the
agreement, based on the market prices at the option measurement dates.
The Company has recognized this expense after a series of extensive
communications with representatives of NYU and its scientists as to
interpretating the calculations required under the agreements.
NOTE G - COMMITMENTS AND OTHER MATTERS
[1] CONSULTING AGREEMENTS:
In January 1998, the Company entered into a consulting agreement which
required a $5,000 payment upon signing and $5,000 plus the issuance of
up to 4,000 shares of common stock upon the achievement of certain
milestones relating to Phenserine. During 1998, $10,000 was paid to
this consultant. In addition, during 1999 the milestone was achieved
and 4,000 shares of common stock was issued and valued at fair market
value at date of grant of $33,000.
In February 1998, the Company contracted with an institution to provide
certain pharmaceutical services at a cost of $13,500. Through December
31, 1999 such amount was paid.
F-13
<PAGE>
AXONYX INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE G - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[2] LEASE:
The Company occupies office space under a sublease expiring February
2003. Minimum future annual rental payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000 $ 108,000
2001 108,000
2002 108,000
2003 18,000
------------
$ 342,000
</TABLE>
Rent expense was approximately $45,000 and $0 for the years ended
December 31, 1999 and 1998, respectively.
NOTE H - SUBSEQUENT EVENT
Through January 27, 2000, the Company sold an additional 156.5 units in a
private placement. Each unit consists of 4,000 shares of common stock and 2,000
warrants to purchase common stock at $11.00 per share.
NOTE I - FOURTH QUARTER ADJUSTMENT (UNAUDITED)
In connection with the Company's expense recognition for the NYU options
exercisable under certain antidilution provisions, the Company recorded a charge
of $1,965,000 in 1999 (see Note F[6]). The interim 1999 financial statements did
not reflect such expense. The effects of such adjustment for such expense
recognition is to increase the losses in each of the first three quarters of
1999 as follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
--------------------------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999
------------------------- ------------------------ ------------------------
AS AS AS
ORIGINALLY AS ORIGINALLY AS ORIGINALLY AS
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Equity related research
and development
charge under anti-
dilution agreement $ 399,000 $ 37,000 $ 776,000
=========== ============ =============
Net loss $ (481,000) $ (880,000) $ (402,000) $ (439,000) $ (674,000) $ (1,450,000)
============ =========== ============ ============ ============ =============
Net loss per share -
basic and diluted $(.04) $(.07) $(.03) $(.04) $(.05) $(.11)
===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX-MONTHS NINE-MONTHS
ENDED ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------------------- ------------------------
AS AS
ORIGINALLY AS ORIGINALLY AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity related research
and development
charge under anti-
dilution agreement 436,000 1,212,000
=========== ============
Net loss (883,000) (1,319,000) (1,557,000) (2,769,000)
============ =========== ============ ============
Net loss per share -
basic and diluted $(.07) $(.11) $(.13) $(.22)
===== ===== ===== =====
</TABLE>
F-14
<PAGE>
i
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law allows us to indemnify our officers and
directors from liability incurred by reason of the fact that he or she is or was
an officer or director of the corporation. We may authorize such indemnification
if we determine that it is proper under the circumstances. This determination
can be authorized based on a vote of our stockholders, by a majority vote of a
quorum of directors who were not parties to the relevant legal action, or under
certain circumstances, by independent legal counsel in a written OPINION. The
indemnification can include, but is not limited to, reimbursement of all fees,
including amounts paid in settlement and attorney's fees actually and reasonably
incurred, in connection with the defense or settlement of any action or suit by
the officer or director.
We have purchased and maintained insurance covering our officers and
directors for the purpose of covering indemnification expenses.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of our company as to which indemnification
is being sought.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that we will need to pay the following expenses in connection
with the distribution of the securities being registered:
<TABLE>
<S> <C>
SEC Registration and Filing Fee.................................................$3,665.90
Legal Fees and Expenses*........................................................$5,000.00
Accounting Fees and Expenses*...................................................$3,000.00
Printing*.......................................................................$2,000.00
Transfer Agent Fees*............................................................$1,000.00
Blue Sky Fees and Expenses*.....................................................$1,000.00
Miscellaneous*..................................................................$ 334.10
TOTAL..................................................................$16,000.00
</TABLE>
*Estimated.
None of the foregoing expenses are being paid by the selling security holders.
<PAGE>
ii
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
(Numbers for Ionosphere, Inc. shares issued prior to the merger are adjusted
retroactively to reflect the 1 for 2 reverse split on December 28, 1998.)
On March 5, 1997, our predecessor company Axonyx Inc. issued 4,300,000
shares of common stock to Boundary Bay Investments Ltd. Of these shares,
3,300,000 shares of common stock were issued upon assignment of option rights to
certain exclusive patent rights, and 1,000,000 shares of common stock were
issued for the commitment of an investment of $400,000 pursuant to an Investment
Agreement dated February 18, 1997. Axonyx Inc. received $400,000 over a one year
period between March 7, 1997 and February 4, 1998. 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 April 3, 1997, our predecessor company Axonyx Inc. signed a Stock Option
Agreement with NYU under which NYU was granted non-statutory options to receive
that number of shares our common stock that would bring NYU's shareholdings in
our common stock to 1.25% of the outstanding shares as of the date that our paid
in capital is $5,000,000, and was granted non-statutory options to receive that
number of shares of our common stock that would bring NYU's shareholdings in our
common stock to 1.75% of the outstanding shares as of the date that our paid in
capital is $10,000,000. On October 15, 1997 our predecessor company Axonyx Inc.
issued 300,000 shares of common stock to NYU pursuant to this agreement. These
options were issued outside of the 1997 Stock Option Plan. 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 April 3, 1997, our predecessor company Axonyx Inc. signed a Stock Option
Agreement with Dr. Blas Frangione under which Dr. Frangione was granted
non-statutory options to receive that number of shares of our common stock that
would bring Dr. Frangione's shareholdings in our common stock to 0.625% of the
outstanding shares as of the date that our paid in capital is $5,000,000, and
was granted non-statutory options to receive that number of shares of our common
stock that would bring Dr. Frangione's shareholdings in our common stock to
0.875% of the outstanding shares as of the date that our paid in capital is
$10,000,000. On November 3, 1997, Axonyx Inc. issued 150,000 shares of common
stock. These options were issued outside of the 1997 Stock Option Plan. 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 April 3, 1997, our predecessor company Axonyx Inc. signed a Stock Option
Agreement with Dr. Claudio Soto under which Dr. Soto was granted non-statutory
options to receive that number of shares of our common stock that would bring
Dr. Soto's shareholdings in our common stock to 0.625% of the outstanding shares
as of the date that our paid in capital is $5,000,000, and was granted
non-statutory options to receive that number of shares of our common stock that
would bring Dr. Soto's shareholdings in
<PAGE>
iii
our common stock to 0.875% of the outstanding shares as of the date that our
paid in capital is $10,000,000. On October 1, 1997, Axonyx Inc. issued 150,000
shares of common stock. These options were issued outside of the 1997 Stock
Option Plan. 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 August 27, 1997, our predecessor company Axonyx granted a director
500,000 shares of common stock subject to a two year vesting schedule in
consideration of services rendered and to be rendered under a Vesting Agreement
dated August 27, 1997. 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).
Between October 15, 1997 and March 3, 1998 Ionosphere, Inc. issued 750,000
shares of common stock par value $0.001 at a price of $0.05 per share to 29
investors in a private offering registered with the State of Nevada pursuant to
N.R.S. 90.490. Ionosphere, Inc. received gross cash proceeds of $37,500 in this
offering. The issuance of the shares was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) and Regulation D, Rule 504 of the Securities Act.
On April 27, 1998, our predecessor company Axonyx Inc. issued a Nine
Percent Convertible Note to Boundary Bay Investments Ltd. (BBI) in the amount of
$125,000, evidencing a loan from BBI in that amount. This loan was convertible
at $2.00 per share of common stock. This Note was converted into shares of our
common stock in September 1999. The loan bore interest at 9% per annum, with
interest payments due annually. The Note would have matured on May 1, 2000. 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 November 16, 1998, Ionosphere, Inc. completed a private stock offering
that was registered with the State of Nevada pursuant to N.R.S. 90.490 and was
exempt from federal registration requirements pursuant to Regulation D, Rule 504
of the Securities Act. Ionosphere, Inc. issued 350,000 shares of common stock to
two accredited investors at a price of $0.10 per share for total cash proceeds
of $35,000.00.
Pursuant to a private offering of certain of our predecessor company Axonyx
Inc.'s securities between August 24, 1998 and December 28, 1998 (the August 1998
Offering), Axonyx Inc. issued an aggregate of 103 units at $25,000 per unit to
66 accredited and otherwise qualified investors based on their financial
resources and knowledge of investments. In addition, each of the investors was
provided with information and had access to relevant information about Axonyx
Inc. Accordingly, 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) and Regulation D, Rule 506 of the Securities Act. Each
unit consisted of 10,000 shares of common stock, and 10,000 warrants at a price
of $25,000 per unit. Each warrant entitled the holder to purchase one share at a
price of $3.75 until their expiration on October 1, 2001. The minimum
<PAGE>
iv
investment was one unit or $25,000, although Axonyx Inc., in its discretion,
accepted subscriptions for one half units from some investors. Axonyx Inc.
received gross cash proceeds of $2,550,000 in the August 1998 Offering.
On September 1, 1998, our predecessor company Axonyx Inc. issued a Nine
Percent Convertible Note to Boundary Bay Investments Ltd. in the amount of
$75,000.00, evidencing a loan from BBI in that amount. This loan was convertible
at $2.00 per share of common stock. This Note was converted into shares of our
common stock in September 1999. The Note bore interest at 9% per annum, with
interest payments due annually. The Note was to mature on September 1, 2000. 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 December 28, 1998 an Agreement of Merger between Axonyx Inc., a Delaware
corporation, and Ionosphere, Inc., a Nevada corporation, became effective.
Ionosphere, Inc. was the surviving corporation in the merger (which represented
a recapitalization for accounting purposes). The merger was consummated upon the
issuance of 11,030,000 shares of common stock and 1,030,000 common stock
purchase warrants of Ionosphere, Inc. to Axonyx Inc. shareholders in exchange
for their shares and warrants outstanding on the date of the merger. Pursuant to
the merger, the pre-merger shareholders of Ionosphere retained a total of
600,001 shares of common stock (1,200,002 shares with application of the
February 1999 2:1 forward stock split). As of January 1, 1999, our company had
12,220,002 shares of common stock issued and outstanding (11,030,000 shares held
by Axonyx Inc. shareholders and 1,200,002 shares held by Ionosphere
shareholders), and 1,030,000 common stock purchase warrants issued to Axonyx
Inc. shareholders. 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).
Pursuant to a private offering of certain of our securities between May 20,
1999 and October 25, 1999 (the May 1999 Offering), we issued an aggregate of 171
units at $25,000 per unit to 95 accredited, to otherwise qualified investors
based on their financial resources and knowledge of investments and to non-U.S.
persons. In addition, each of the investors was provided with information and
had access to relevant information about our company. Accordingly, 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), Regulation
D, Rule 506 of the Securities Act and Regulation S, Rule 904 of the Securities
Act. Each unit consisted of 4,000 shares of common stock, and 2,000 warrants at
a price of $25,000 per unit. Each warrant entitled the holder to purchase one
share of our common stock at a price of $11.00 until their expiration on August
1, 2004. The minimum investment was one unit or $25,000, although we accepted
some subscriptions for one half units.
On June 18, 1999 we 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
<PAGE>
v
corporate development services. We placed 100,000 shares out of the 200,000
shares of common stock issued to ICIC in an escrow account under the terms of an
Escrow Agreement dated June 11, 1999 by an between our company, ICIC and Atlas,
Pearlman, Trop & Borkson, the escrow agent. The 100,000 shares of restricted
common stock held in the escrow account were to be released to ICIC on December
11, 1999 unless we decided not to extend ICIC's retention under the Consulting
Agreement for an additional six months. In December 1999 we decided not to
extend the Consulting Agreement and returned the 100,000 shares held in escrow
to our treasury.
On September 22, 1999 Boundary Bay Investments Ltd., a major stockholder of
Axonyx, elected to convert its two Nine Percent Convertible Notes in an
aggregate principal amount of $200,000, into 100,000 shares of our common stock
at a conversion price of $2.00 per share. We issued 100,000 shares to BBI on
September 27, 1999.
On January 22, 2000 Dr. Blas Frangione exercised certain options granted
under an Option Agreement with our company. We issued 75,473 shares of common
stock to Dr. Frangione upon exercise of the options. 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).
Pursuant to a private offering of certain of our securities between
November 1, 1999 and February 1, 2000 (the November 1999 Offering), we issued an
aggregate of 190.5 units at $25,000 per unit to 118 accredited, to otherwise
qualified investors based on their financial resources and knowledge of
investments and to non-U.S. persons. In addition, each of the investors was
provided with information and had access to relevant information about our
company. Accordingly, 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), Regulation D, Rule 506 of the Securities Act. Each unit
consisted of 4,000 shares of common stock, and 2,000 warrants at a price of
$25,000 per unit. Each warrant entitled the holder to purchase one share at a
price of $11.00 until their expiration on August 1, 2004. The minimum investment
was one unit or $25,000, although we accepted, in our discretion, some
subscriptions for one half units.
On February 10, 2000, New York University exercised certain options granted
under an Option Agreement with our company. We issued 150,944 shares of common
stock to NYU upon exercise of the options. 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 April 1, 2000 we issued 5,000 shares of common stock to a warrant holder
upon exercise of warrants issued to the holder in the 1998 private placement
offering. 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 April 20, 2000, we issued 20,000 shares of common stock to a warrant
holder upon exercise of warrants issued to the holder in the 1998 private
placement offering.
<PAGE>
vi
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 April 20, 2000, we issued an aggregate of 36,800 shares of common stock
and warrants to purchase 18,400 shares of common stock to three non-U.S. firms,
Esbe Holdings Ltd., The Three Dolphins Ltd., and Voorschoten 76 N.V., each a
corporation based in the Netherlands Antilles. The securities were issued to
these firms pursuant to Finder's Agreements with each firm in relation to the
November 1999 Offering. Each warrant entitles the holder to purchase one share
at a price of $11.00 until their expiration on August 1, 2004. 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 April 20, 2000, we issued 2,800 shares of common stock and warrants to
purchase 1,400 shares of common stock to an individual pursuant to a Finder's
Agreement in relation to the November 1999 Offering. Each warrant entitles the
holder to purchase one share at a price of $11.00 until its expiration on August
1, 2004. 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 April 27, 2000, we issued 30,000 shares of common stock to Intertrend
Management Ltd. upon exercise of options granted to Intertrend pursuant to a
Stock Option Agreement dated January 5, 1999. 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).
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibits Description of Document
- -------- -----------------------
<S> <C>
2.1* Agreement of Merger between Axonyx Inc. and Ionosphere, Inc. dated December
23, 1998
2.2* Articles of Merger (Delaware) dated December 28, 1998 and Certificate of
Correction dated March 10, 1999
2.3* Articles of Merger (Nevada) dated December 28, 1998
3.1* Restated Articles of Incorporation dated January 26, 1999
3.2* By-Laws
4.1* Form of Common Stock Purchase Warrant AXW
4.2* Form of Registration Rights Agreement 1998
4.3+ Form of Common Stock Purchase Warrant AXB
<PAGE>
vii
4.4+ Form of Registration Rights Agreement 1999
4.5* Nine Percent Convertible Note issued by Axonyx Inc. to Boundary Bay
Investments Ltd. dated April 27, 1998 in the amount of $125,000.
4.6* Nine Percent Convertible Note issued by Axonyx Inc. to Boundary Bay
Investments Ltd. dated September 1, 1998 in the amount of $75,000.
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. dated May 1, 2000.
10.1* 1998 Stock Option Plan
10.2** Patent License Agreement- Exclusive between the Public Health Service and
CURE, LLC dated January 31, 1997
10.3* License Agreement between the Axonyx Inc. and CURE, LLC dated February 27, 1997
10.4* Research and License Agreement between the Axonyx Inc. and New York University
dated April 1, 1997
10.5* Amendment to Research and License Agreement between Axonyx Inc. and New York
University dated August 25, 1998
10.6**** Second Amendment to Research and License Agreement between Axonyx Inc. and New
York University dated March 19, 1999.
10.7** Financial Consulting Agreement between Axonyx Inc. and Intertrend Management,
Ltd. dated November 6, 1998.
10.8*** Development Agreement and Right to License between Axonyx Inc. and Applied
Research Systems ARS Holding N.V. dated May 19, 1999.
10.9* Lease Agreement between Axonyx Inc. and Business Service Center of Seattle
dated January 28, 1999
10.10+ Occupancy Agreement between Axonyx Inc., J.A. Bernstein & Co. and The Garnet
Group, Inc. dated December 14, 1999.
10.11+ Letter Agreement between Axonyx Inc. and J.A. Bernstein & Co. dated December
9, 1999.
16.1** Letter from Barry L. Friedman, P.C. dated July 28, 1999
16.2** Letter from James E. Slayton, CPA dated August 9, 1999
<PAGE>
viii
23.1 Consent of Richard A. Eisner & Co., LLP
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in the firm's
opinion filed as exhibit 5.1)
27.1 Financial Data Schedule
</TABLE>
- ----------
* Incorporated by reference to the corresponding exhibits in the
Registration Statement on Form 10-SB previously filed by the Company on
March 17, 1999 (File no. 000-25571).
** Incorporated by reference to the corresponding exhibits in the
Registration Statement on Form 10-SB, Amendment No. 1, previously filed
by the Company on August 10, 1999
*** Incorporated by reference to Form 8-K previously filed by the Company on
June 1, 1999.
**** Incorporated by reference to Form 10-Q previously filed by the Company on
June 30, 1999.
+ Incorporated by reference to Form 10-KSB previously filed by the Company
on March 13, 2000.
<PAGE>
ix
UNDERTAKINGS
(1) We hereby undertake:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events after the
effective date of the registration statement (or the most
recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability under the Act ,
each post-effective amendment shall be deemed as a new
registration statement relating to the securities offered therein,
and the offering of securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the termination of the
offering.
(2) Insofar as indemnification for liabilities arising under the Act, may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforeceable. In the event
that a claim for indemnification against such liabilities (other than our
payment of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding) is asserted
by our directors, officers or controlling persons in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether indemnification is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
We also undertake that we will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A
<PAGE>
x
and contained in a form of prospectus filed by us under the Rule 424(b)(1), or
(4) or 497(h) under the Act as part of this registration statement as of the
time the Securities and Exchange Commission declared it effective.
(2) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering of the
securities at that time as the bona fide offering of those securities.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
we certify that we have reasonable grounds to believe that our company meets all
of the requirements for filling on Form SB-2 and we have authorized this
registration statement to be signed on our behalf by the undersigned, thereunto
duly authorized, in New York, New York, on April 28, 2000.
AXONYX INC.
By: /s/ MARVIN S. HAUSMAN, M.D.
-------------------------------------
Marvin S. Hausman, M.D.
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Albert D. Angel Chairman of the Board 4/28/00
- --------------------------
Albert D. Angel
/s/ Marvin S. Hausman, M.D. Principal Executive Officer 4/28/00
- -------------------------- and Director
Marvin S. Hausman, M.D.
/s/ Michael M. Strage Vice President, Treasurer, 4/28/00
- -------------------------- Principal Financial & Accounting Officer
Michael M. Strage and Director
/s/ Michael R. Espey Vice President, Secretary, 4/28/00
- -------------------------- General Counsel and Director
Michael R. Espey
/s/ Christopher Wetherhill Director 5/1/00
- --------------------------
Christopher Wetherhill
<PAGE>
EXHIBIT 5.1
ATLAS PEARLMAN
TROP & BORKSON
P.A.
ATTORNEYS AT LAW
Jan Douglas Atlas Joel D. Mayersohn Of Counsel
Michael W. Baker Matthew W. Miller Jon A. Sale
Alan H. Baseman William Nortman Benedict P. Kuehne
Stephen W. Bazinsky Brian A. Pearlman
Roxanne K. Beilly Charles H. Pearlman
Elliot P. Borkson Jonathan S. Robbins
Deborah Ann Byles James M. Schneider
Robin Corwin Campbell Wayne H. Schwartz Director of
Rebecca G. DiStefano Douglas Paul Solomon Marketing and Development
Michael Greenwald Samantha Nicole Tesser Scott I. Cowan*
April I. Hale Michelle I. Trop
Kip O. Lassner Steven I. Weinberger
Eric Lee Kenneth P. Wurtenberger
Andrew Lockwood *not licensed to practice law
May 1, 2000
Axonyx Inc.
825 Third Avenue, 40th Floor
New York, NY 10022
Re: Registration Statement on Form SB-2; Axonyx Inc.
("Axonyx"), 1,060,000 Shares of Common Stock
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the registration of Axonyx of
1,060,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"), to be sold by the Selling Security Holders designated in the
Registration Statement. The shares of Common Stock to be sold consist of up to
55,000 shares of Common Stock currently outstanding and up to 1,005,000 shares
of Common Stock to be issued upon exercise of warrants.
In our capacity as counsel to Axonyx, we have examined the original,
certified, conformed, photostat or other copies of Axonyx' Certificate of
Incorporation (as Amended), By-Laws, instruments, agreements, exhibits and
corporate minutes provided to us by Axonyx. In all such examinations we have
assumed the genuineness of all signatures on original documents, and the
conformity to originals or certified documents of all copies submitted to us as
conformed, photostat or other copies. In passing upon certain corporate records
and documents of Axonyx, we have necessarily assumed the correctness and
completeness of the statements made or included therein by Axonyx, and we
express no opinion thereon.
Suite 1700, 350 East Las Olas Boulevard, Fort Lauderdale, Florida 33301
<PAGE>
Based upon and in reliance of the foregoing, we are of the opinion that the
outstanding shares of Common Stock are validly issued, fully paid and
non-assessable, and the Common Stock to be issued upon the exercise of the
warrants (assuming payment of the respective exercise prices therefor), when
issued in accordance with terms of the warrants, will be validly issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion in the Registration Statement
on Form SB-2 to be filed with the Commission.
Very truly yours,
ATLAS PEARLMAN, P.A.
/s/ Atlas Pearlman, P.A.
---------------------------------
JMS/bb
Suite 1700, 350 East Las Olas Boulevard, Fort Lauderdale, Florida 33301
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 9, 2000 in the registration statement on Form
SB-2 of Axonyx Inc.
/s/ Richard A. Eisner & Company, LLP
New York, New York
April 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements and notes to the Financial Statements for the year ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001070698
<NAME> AXONYX INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,409
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,729
<PP&E> 18
<DEPRECIATION> 3
<TOTAL-ASSETS> 5,744
<CURRENT-LIABILITIES> 457
<BONDS> 0
0
0
<COMMON> 11,668
<OTHER-SE> 6,362
<TOTAL-LIABILITY-AND-EQUITY> 5,744
<SALES> 0
<TOTAL-REVENUES> 146
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> (5,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,002)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
</TABLE>
