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ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25571
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AXONYX INC.
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(Exact name of small business issuer in its charter)
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<S> <C>
NEVADA 86-0883978
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
825 THIRD AVENUE, 40TH FLOOR, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 688-4770
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- --------------------------------- -----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK $0.001 PAR VALUE
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(Title of class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $146,000 .
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State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act). $83,287,898 ON 2/29/00
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 14,065,419 shares of
common stock as of March 8, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933.
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
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3
PART I
ITEM 1. 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 hence amplifies the natural action of
acetylcholine in the brains of AD 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.
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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 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 classical 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).
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5
TABLE OF CONTENTS
A. THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
B. BUSINESS STRATEGY
C. AXONYX DRUG DISCOVERY PROGRAMS
D. THE INDUSTRY AND MARKET
E. FDA MATTERS
F. STRATEGIC ALLIANCES
G. MARKETING AND SALES
H. PATENTS, TRADEMARKS, AND COPYRIGHTS
I. COMPETITION
J. EMPLOYEES
A. THE COMPANY - INTRODUCTION AND EXECUTIVE SUMMARY
(Axonyx Inc. undertook a two for one stock split with a record date of February
23, 1999 and a distribution date of March 5, 1999. All information on
outstanding securities of Axonyx gives effect to this stock split except where
specifically noted.)
GENERAL
Axonyx Inc. ("Axonyx" or the "Company") is engaged in the business of
identifying and acquiring novel post-discovery central nervous system (CNS) drug
candidates. Axonyx acquires patent rights to CNS pharmaceutical compounds with
significant potential market impact and advances the compounds through clinical
development towards regulatory approval. Axonyx has acquired worldwide exclusive
patent rights to three main classes of therapeutic compounds designed for the
treatment of Alzheimer's Disease (AD), Mild Cognitive Impairment (MCI), and
related diseases. Axonyx licensed these patent rights from New York University
(NYU) and, via a sublicense, from the National Institutes of Health\National
Institute on Aging (NIA) (the "Licensors"). Axonyx has an ongoing research and
development relationship with both Licensors.
Axonyx is developing its compounds under contract in laboratories at
the New York University School of Medicine and, through a research and
development collaboration, with the NIA's laboratories and elsewhere. Axonyx has
entered into a Development Agreement and Right to License with a subsidiary of
Ares Serono, S.A., a Swiss pharmaceutical company, under which Ares Serono is
undertaking research on certain of Axonyx's compounds for a one year term ending
May 17, 2000, renewable for a second year, with a right to sublicense Axonyx's
patent rights to such compounds. In addition, Axonyx is sponsoring the
development of a diagnostic test for AD at the University of Melbourne
(Australia). Axonyx intends to develop other corporate partnerships with
established and well capitalized pharmaceutical companies for the clinical
development of some of its other compounds and for their production,
commercialization and marketing. The Company itself does not currently maintain
any laboratory or research premises.
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6
Axonyx has licensed a portfolio of CNS drugs that covers three distinct
therapeutic approaches that have all demonstrated activity in treating the
causes of AD in preclinical development. Each class of compounds has a different
target and represents a unique, innovative platform for the development of
pharmaceutical products for the diagnosis and treatment of AD.
The treatment of people with AD 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 two approved drugs that
provide at best marginal symptomatic relief for one aspect of AD. One of the
Axonyx compounds, Phenserine, an acetylcholinesterase inhibitor, has shown in
preclinical studies a potential therapeutic and safety profile superior to the
products currently on the market. Axonyx's two other lead product candidates,
Cymserine, a butyrylcholinesterase inhibitor, and the Amyloid Inhibitory
Peptides (AIPs), attack the disease in other inventive and effective ways,
representing potentially new platform technologies for the treatment of AD. The
Development Agreement and Right to License with Ares Serono includes the AIPs.
Axonyx expects to derive its revenues from patent sub-licensing fees, royalties
from pharmaceutical sales, appropriate milestone payments, and research and
development contracts.
The Company's executive offices are located at 825 Third Avenue, 40th
Floor, New York, New York 10022, telephone number (212) 688-4770. It also
maintains offices at 1001 4th Avenue Plaza, Suite 3228, Seattle, Washington
98154, telephone number (206) 340-0211, and at 4041 State Highway 14, Stevenson,
Washington 98648, telephone number (509) 427-5132.
The Company's fiscal year end is December 31.
BACKGROUND
The pre-merger predecessor of the Company, also named Axonyx Inc.,
was incorporated in Delaware on September 16, 1996. Reference to Axonyx Inc.
herein refers to the historical Axonyx Inc., a Delaware company, unless the
context otherwise requires. On December 28, 1998 Axonyx Inc. merged with
Ionosphere, Inc., a Nevada corporation incorporated on July 29, 1997. While
the management of Ionosphere, Inc. ("Ionosphere") had developed a business
plan under which Ionosphere would provide marketing consulting services to
restaurants and nightclubs, and several such business opportunities were
actively pursued, Ionosphere did not perform any services for which it
generated revenue. 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, Inc. undertook a 1
for 2 reverse stock split on December 28, 1998. On a post merger basis, the
business of Axonyx Inc. became the business of the Company. The management and
board of directors of Axonyx Inc. became the management and directors of the
consolidated company and shareholders of Axonyx Inc. held 89.11% of the
outstanding shares of common stock of the consolidated company. See Item 5
Market for Common Equity and Related Stockholder Matters: Recent Sales of
Unregistered Securities; Use of Proceeds From Registered Securities for more
details on the merger transaction.
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B. BUSINESS STRATEGY
Axonyx's plan is to: (1) identify, acquire and exploit rights to new
technologies and compounds relating to AD and other neurological disorders; (2)
enhance the value of those assets through further research and clinical testing;
(3) perform clinical studies towards regulatory approval and market its drugs
through profitable licensing agreements with major pharmaceutical companies; and
(4) work to develop other promising compounds in-house and in collaboration with
third parties such as its current Licensors at NYU and the NIA and with
licensees such as Ares Serono.
The Company's long term goal is to become a partially integrated
pharmaceutical company with capabilities in research, drug development, clinical
investigation, and regulatory affairs. Currently the Company does not maintain
any research or laboratory premises, utilizing instead such facilities on a
contractual or collaborative basis at academic and research institutions, as
well as contract research organizations. Considering the commercialization
infrastructure necessary to effectively market its drug products, the Company
will seek joint ventures or collaborations with other pharmaceutical companies,
both domestically and outside the United States. The Company will seek corporate
partners, such as Ares Serono, who will be responsible for at least part of the
clinical development, regulatory approval, manufacturing and marketing of the
drug product. Under such an arrangement, the Company expects to receive certain
up-front and sub-licensing fees, ongoing research contracts, milestone payments,
and royalties on drug product sales.
C. AXONYX DRUG DISCOVERY PROGRAMS
Axonyx is pursuing three different types of products for the treatment
of AD and one for prion-related diseases. The AD targeted approaches include:
(1) Phenserine, a novel, long-acting and brain directed analog of the classical
drug physostigmine, is a potent inhibitor of acetylcholinesterase 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
addition they 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.
Axonyx is conducting research, in conjunction with Ares Serono, on the
diagnosis and treatment of prion related diseases such as Bovine Spongiform
Encephalopathy and Creutzfeldt-
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8
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, Axonyx is pursuing the development of a diagnostic test
for AD under the terms of a research and development arrangement with the
University of Melbourne in Australia.
Despite the fact that there can be no assurance that the technologies
and pharmaceutical compounds that Axonyx is developing will ultimately prove to
be profitable, Axonyx will be required to continue to spend substantial capital
on research and development in the foreseeable future in order to enhance its
proprietary pharmaceutical properties, and to develop new potential products.
New technologies and/or pharmaceutical compounds in the field of AD and prion
related diseases by other entities could adversely affect the future
marketability of Axonyx's proprietary products. Consequently, Axonyx is
compelled to continue its funding of research and development of new
technologies and pharmaceutical compounds in order to remain competitive. In
fiscal year 1997, Axonyx spent $482,000 on sponsored research and development of
its technologies and pharmaceutical compounds. In fiscal years 1998 and 1999
Axonyx spent $330,000 and $744,000, respectively, on sponsored research and
development.
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. The Company's 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 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 the amyloid plaques that apparently cause eventual 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 are being 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 symptomatic relief for the
cognitive changes.
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In December 1999, Axonyx initiated Phase I human clinical trials for
Phenserine utilizing healthy elderly patients at a U.S. FDA approved research
center. These Phase I safety and tolerance trials will continue into the second
quarter of 2000.
The Company is 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, remains largely unknown. 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 is additionally found in all
tissues of the body and functions to degrade a number of drugs such as codeine.
This enzyme was identified as a target for inhibition in AD since it also
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.
The Company is 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 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.
Axonyx appears to be the only company with a patent position and
lead compounds in this area of drug discovery and development. Other
butyrylcholinesterase inhibitory compounds in the Cymserine series that
Axonyx may pursue include Phenethylcymserine which may be more selective or
more potent than Cymserine, and Thiacymserine, an agent that may be suitable
for development in a transdermal (skin patch) formulation.
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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 the death of neurons in the brain. These changes play an
important role in the pathogenesis of the disease. The Company's 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 drug compound
inhibited the formation of amyloid fibrils, caused disassembly of preformed
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 who
already have amyloid plaques. Current efforts are focused on identifying an
AIP-based drug 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 Axonyx's sponsored research program, at the NYU
School of Medicine.
PROGRAM 4: PRION INHIBITORY PEPTIDES (PIPS)
There is increasing evidence 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 fatal
neurodegenerative disorders are characterized by spongiform degeneration of
the brain and, in many cases, by deposits of prions into plaques. The
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.
The Company is 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.
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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 Axonyx's 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
compound should be considered for treatment of individuals with mild to moderate
cognitive impairment and for age related loss of memory. The Company intends to
explore the opportunities for developing Phenserine for these indications if the
ongoing human clinical trials generate results that are consistent with the
preclinical findings.
PROGRAM 6: ALZHEIMER'S DISEASE DIAGNOSTIC DEVELOPMENT PROGRAM
In October 1999 Axonyx 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 Axonyx's AIPs and the butyrylcholinesterase inhibitors, early
and accurate diagnosis of the disease is essential. Axonyx's sponsored
research at the University of Melbourne aims 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.
D. 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 may soon
be 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. Johnson & Johnson
has an acetylcholinesterase inhibitor drug named Reminyl in Phase II clinical
studies which it may seek to apply for FDA approval in the year 2000.
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
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12
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 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.
Axonyx believes that its proprietary patent rights provide broad based
protection and cover superior pharmaceutical compounds based on unique
mechanisms.
E. FDA MATTERS
Regulation by governmental authorities in the United States and foreign
countries is an important factor in the development, manufacture and marketing
of the Company's proposed products. It is expected that all of the Company's
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 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, Axonyx 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.
<PAGE>
13
F. STRATEGIC ALLIANCES
On April 1, 1997 the Company entered into a Research and License
Agreement with New York University pursuant to which NYU granted the Company 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 the Company. See "Section H. 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, Axonyx Inc. 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. The
Company has 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
Axonyx Inc. undertook to use its 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 and Axonyx signed a Capitalization Amendment by which
the deadline for realization of the capitalization requirement or its
alternative was extended to April 1, 1999. On March 19, 1999, Axonyx signed a
Second Amendment to the Research and License Agreement with NYU pursuant to
which NYU, among other provisions, granted Axonyx a release and waiver of the
capitalization requirement under the Research and License Agreement as amended
by the Capitalization Amendment.
On April 3, 1997, Axonyx Inc. also signed Stock Option agreements with
NYU and Drs. Frangione and Soto, the lead scientists involved in the sponsored
research, under which Axonyx Inc. issued an aggregate of 600,000 shares of
common stock (adjusted for stock splits) in October and November 1997 in partial
consideration for the worldwide exclusive patent rights.
On May 19, 1999 Axonyx signed a Development Agreement and Right to
License (the "Development Agreement") between itself 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, the Company granted an exclusive right to license its
patent rights and know-how regarding the the AIPs to Ares Serono. Ares Serono
paid Axonyx 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 and 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 Axonyx 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
<PAGE>
14
Axonyx from February 1999 after his departure from New York University School
of Medicine in December 1998 until May 1999. Dr. Soto will be continuing his
work on development of the AIP and PIP technologies at Ares Serono under the
Development Agreement.
Research under the Company's licensing agreement with CURE, LLC has
continued at the NIA, furthering the preclinical development of Phenserine,
Cymserine, and related compounds. The Company is currently sponsoring one of the
researchers at the NIA facilities involved in this field of research.
On October 1, 1999 the Company entered into an agreement with the
University of Melbourne (Australia). In addition to the costs associated with
the filing and prosecution of any patent applications resulting from
collaborative research, the Company has committed approximately $60,000 per year
for each of the next three years to 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, the
Company has an option to acquire an exclusive worldwide license to the
intellectual property or patent resulting from the research project, and to an
existing patent application.
In order to facilitate the recruitment and enrollment of patients into
clinical trials of the Company's pharmaceutical products, Axonyx has 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, subject to
appropriate ethical protection, through these institutions Axonyx 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.
G. MARKETING AND SALES
The Company does not intend to manufacture or market any products it
may develop. The Company intends to license to, or enter into strategic
alliances with, larger pharmaceutical and veterinary companies that are equipped
to manufacture and/or market the Company's products through their well developed
distribution networks. The Company may license some or all of its worldwide
patent rights to more than one company to achieve the fullest development,
marketing and distribution of its products.
H. PATENTS, TRADEMARKS, AND COPYRIGHTS
The Company has 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. The Company is co-owner of one
application, and sole owner of one additional application pending in the United
States. Associated foreign patent applications have been filed. The Company will
continue to seek to obtain additional licenses from universities and other
research institutions.
<PAGE>
15
On February 11, 1997, Axonyx Inc. 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, Axonyx Inc. 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 the Company's 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 has also been filed. This patent
application is jointly owned by the Company and the NIH. A corresponding
International Application has also been filed.
The Company 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, the Company has an exclusive license to all inventions in the field
arising from ongoing research.
Additionally, the Company has sole ownership of one pending provisional
application in the United States relating to peptide mimetics.
The Company has not filed for any copyright or trademark protection to
date. The following is a breakdown of the issued and pending patents the Company
has 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".
<PAGE>
16
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.
The Company has 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.
The Company has a pending U.S. application licensed from NYU relating
to peptides that inhibit formation of amyloid or amyloid-like deposits.
The Company also has a pending U.S. application relating to peptide
mimetics that inhibit formation of amyloid or amyloid-like deposits.
I. COMPETITION
The Company competes with many large pharmaceutical companies that are
developing drug compounds similar to those being developed by the Company,
especially in the area of acetylcholinesterase inhibitors. Many large
pharmaceutical companies and smaller biotechnology companies have well funded
research departments concentrating on therapeutic approaches to AD. The Company
expects to encounter substantial competition for many of the principal
pharmaceutical products it is developing, especially in the area of
acetylcholinesterase inhibitors. However, the Company is not aware of any other
commercial research programs in the area of butyrylcholinesterase inhibitors,
and it believes that its patent protection covering the AIPs as approved by the
U.S. Patent Office offers broad based protection that will provide the Company
with a significant competitive advantage to its competitors.
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. The Company believes that the compounds covered by its patent rights
have unique characteristics that may enable them, if fully developed, to have a
substantial market impact.
<PAGE>
17
J. EMPLOYEES
Axonyx currently has six full time employees, five of whom are in
administration/management and one of which is in research and development. In
February 1999, Axonyx came to an oral agreement with Linda Strascina under which
Ms. Strascina will serve 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 the Company. On November 10, 1999,
Axonyx came to an agreement with Robert G. Burford, Ph.D. under which Dr.
Burford became an employee of the Company. On December 3, 1999 Dr. Burford was
elected as the Vice President, Product Development. See Item 10. Executive
Compensation for information on the Company's employment arrangements with
certain of its officers and directors. The Company does not have any current
plans to hire more employees in 2000.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's operations are conducted from its offices in New York,
New York, Seattle, Washington and Stevenson, Washington. The Stevenson,
Washington facilities have been provided to the Company without charge on a
temporary basis by an officer of the Company. The Company has leased 144 square
feet of office space in Seattle on a three month renewable basis at a rental
rate of $900.00 per month. The Company has 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.
The Company does not currently own and the Company has not made any
investments in real estate, including real estate mortgages, and the Company
does not intend to make such investments in the near future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any legal proceedings, and there are no
material pending legal proceedings of which the Company is aware.
<PAGE>
18
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Axonyx did not submit any matters to a vote of its stockholders in the
fourth quarter of 1999.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the OTC Bulletin Board under
the symbol "AXYX" and commenced its trading under that symbol on January 4,
1999. Prior to the 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 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 the Company's two for
one forward stock split of February 23, 1999.
<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
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
</TABLE>
The transfer agent of the Company is Nevada Agency and Trust Company,
50 West Liberty Street, Suite 880, Reno, Nevada 89501.
As of March 8, 2000 there were approximately 472 holders of record of
the Company's common stock, of which 14,065,419 were issued and outstanding.
The Company has never paid cash dividends on its common stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
<PAGE>
19
RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED
SECURITIES
On October 26, 1999 Axonyx sold 20,000 shares of common stock and
20,000 common stock purchase warrants to an individual German investor. Each
warrant entitled the holder to purchase one Share at a price of $11.00 until
their expiration on August 1, 2004. Axonyx received $100,000 in gross proceeds
from this private placement. 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 1, 1999, Axonyx initiated a private placement offering of
up to 200 units to non-U.S. persons, and accredited or otherwise
qualified investors based on their financial resources and knowledge of
investments (the "European Offering"). In addition, each of the investors was
provided with information and had access to relevant information about Axonyx.
Accordingly, the issuance of the securities are 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
consists of 4,000 shares of common stock, par value $0.001 (the "Shares"), and
2,000 common stock purchase warrants (the "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 Axonyx, in its discretion, accepted some
subscriptions for one half units. As of December 31, 1999, Axonyx had received
subscriptions for 34 units (136,000 Shares, 68,000 Warrants). The European
Offering was terminated on February 1, 2000. As of the termination date Axonyx
had received subscriptions for 190.5 units (762,000 Shares and 381,000
Warrants). Axonyx has received $4.7 million in gross proceeds from the
European Offering.
<PAGE>
20
ITEM 6. 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 THE NOTES THERETO INCLUDED IN ITEM 7 OF THIS
ANNUAL REPORT. ALL STATEMENTS IN THIS ANNUAL REPORT RELATED TO AXONYX'S CHANGING
FINANCIAL OPERATIONS AND EXPECTED FUTURE GROWTH CONSTITUTE FORWARD-LOOKING
STATEMENTS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED OR
EXPRESSED IN SUCH STATEMENTS.
A. GENERAL.
The Company's pre-merger predecessor Axonyx Inc. commenced operations
in January 1997. The Company is in the development stage, and its 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 Creutzfeldt Jakob
Disease, new variant, recruiting its scientific and management personnel and
advisors and raising capital.
The Company's 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. Axonyx is sponsoring the development of a diagnostic
test for AD at the University of Melbourne (Australia). The Company is also
conducting research on compounds called Prion Inhibitory Peptides (PIPs)
designed for the diagnosis and treatment of prion diseases such as Bovine
Spongiform Encephalopathy (also known as "Mad Cow Disease") and the human form
of the disease, Creutzfeldt Jakob Disease, new variant.
Axonyx's plan is to: (1) identify, acquire and exploit rights to new
technologies and compounds relating to AD and other neurological disorders; (2)
enhance the value of those assets through further research and clinical testing;
(3) perform clinical studies towards regulatory approval and market its drugs
through profitable licensing agreements with major pharmaceutical companies such
as Ares Serono; and (4) work to develop other promising compounds in-house and
in collaboration with third parties such as its current Licensors at 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 Axonyx
in May 1999. Axonyx intends to develop other corporate partnerships with
established and well capitalized pharmaceutical companies for the clinical
development of its compounds and for their production, commercialization and
marketing. The Company expects to derive its revenues from patent sub-
<PAGE>
21
licensing fees, royalties from pharmaceutical sales, appropriate milestone
payments, and research and development contracts.
Axonyx generated some revenue from granting Ares Serono right to
license under the Development Agreement with Ares Serono in 1999, and it 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.
The Company's 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 its lead acetylcholinesterase inhibitor, Phenserine. See Part
I. Item 1. Description of Business -- Axonyx 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 Part I. Item 1.
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 Part I. Item 1.
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 Ares Serono. See Part I. Item 1. 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 Part I. Item 1. 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 the Company's
proposed products. See Part I. Item 1. Description of Business --
Business Strategy.
The actual research and development and related activities of the
Company may vary significantly from current plans depending on numerous factors,
including changes in the costs
<PAGE>
22
of such activities from current estimates, the results of the Company's 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 the
Company's operations will also be dependent on the establishment of the
Company's collaborative arrangement with other companies, the availability of
financing and other factors.
B. RESULTS OF OPERATIONS.
Since the commencement of operations of its pre-merger predecessor
corporation Axonyx Inc. in January 1997, the Company's efforts have been
principally devoted to research and development of its licensed pharmaceutical
compounds, and raising capital.
For the year ended December 31, 1999, the Company 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, the Company incurred a net
loss 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 the Company 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 Item 5. Market for Common Equity and Related Stockholder
Matters. See also the Audited Financial Statements, Note I -- Fourth Quarter
Adjustments at page F-14 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 Axonyx commenced Phase I
human clinical trials on Phenserine and incurred expenses of $183,000. In
addition, Axonyx 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 the Company 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, Axonyx issued 100,000 shares of common
stock to Infusion Capital Investment Corporation ("ICIC") for investor
relations and
<PAGE>
23
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, the Company had $5,409,000 in cash and cash
equivalents. The Company does not have any available lines of credit. Since
inception the Company has financed its operations through loans from a
shareholder, from private placements of equity securities, and from right to
license fees.
Pursuant to its present budget, the Company has determined that it
will require approximately $2.6 million to sustain operations through
December 31, 2000. In order to satisfy this funding requirement, during the
period between May 1999 and December 1999, the Company 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, the Company 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 the Company in
relation to the issuance of additional units in the European private
placement that terminated on February 1, 2000. In October 1999, Axonyx
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, Axonyx received $250,000 in June 1999 in the form of a
fee from Ares Serono pursuant to the Development Agreement and Right to
License.
The Company believes that it has sufficient capital resources to
finance the Company's plan of operation for at least the next 12 months
ending December 2000. The Company is pursuing sub-licensing and other
collaborative arrangements that may generate additional capital for the
Company. However, there can be no assurance that the Company will generate
sufficient additional capital or revenues, if any, to fund its operations
beyond this 12 month period ending December 31, 2000, 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.
<PAGE>
24
ITEM 7. AUDITED FINANCIAL STATEMENTS.
The Audited Financial Statements for this Form 10-KSB appears on
pages F-1 through F-14 following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Pursuant to the merger between Ionosphere, Inc. and Axonyx Inc., the
management of the Company decided, on a post merger basis, to retain Richard A.
Eisner & Company, LLC ("RAE") as independent auditors of the Company. RAE had
audited the financial statements of Axonyx Inc. for the fiscal year ended
December 31, 1997. The Board of Directors of Axonyx Inc. appointed RAE as
accountants for the Company on December 1, 1998 to audit the financial
statements of the Company for the year ending December 31, 1998. This decision
was ratified at a Special Meeting of Shareholders 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 the periods from July
29, 1997 (inception) to August 31, 1997, from inception to December 31, 1997,
from inception to March 3, 1998, and from January 1, 1998 to May 21, 1998.
During the engagement of Mr. Friedman as independent auditors of Ionosphere,
Inc., there were no disagreements between the Company and 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 was dismissed as Ionosphere, Inc.'s independent auditor 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 6711 West Alexander, Suite 102, Las Vegas,
Nevada 89108 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 between the Company and 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.
<PAGE>
25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
A. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The current executive officers, directors and significant employees of
the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <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. The officers of the Company serve at the pleasure of the Company's
Board of Directors (the "Board").
The following sets forth certain biographical information with respect
to the directors and executive officers of the Company.
MARVIN S. HAUSMAN, M.D. Marvin Hausman has served as a Director and President &
CEO of the 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 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
<PAGE>
26
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 the 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 the
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 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
<PAGE>
27
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 firm of Lee, Van Dyk, Zivarts, Pingree &
Co. in Seattle. From January 1996 to March 1996 Mr. Espey was a self-employed
attorney practicing corporate and securities law. 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
<PAGE>
28
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.
The Company has constituted Audit, Nominating and Compensation
Committees. The Audit Committee consists of Messrs. Christopher Wetherhill and
Albert Angel, who are both outside directors. The Nominating Committee consists
of Messrs. Marvin Hausman and Albert Angel. The Compensation Committee consists
of Messrs. Albert Angel, Marvin Hausman and Christopher Wetherhill.
The Audit Committee oversees the Company's audit activities to protect
against improper and unsound practices and to furnish adequate protection to all
assets and records. The Board of Directors of Axonyx is considering the adoption
of a written Charter for its Audit Committee, but has not yet formally adopted a
written Charter. The Nominating Committee makes proposals to the full Board
concerning the hiring or engagement of directors, officers and certain employee
positions. The Compensation Committee makes proposals to the full Board for
officer compensation programs, including salaries, option grants and other forms
of compensation. It is expected that these committees will meet periodically on
an informal basis
B. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
The following reporting persons subject to Section 16(a) failed to file
reports on a timely basis. Robert G. Burford, Ph.D., Vice President, Product
Development, failed to file a required Form 3 upon his election as an officer of
the Company on a timely basis. Albert D. Angel, Chairman of the Board of
Directors, failed to file the required Form 4 on a timely basis, in relation to
his purchase of four units in a private placement, consisting of shares of
common stock and common stock purchase warrants of the Company. Christopher
Wetherhill, a director of the Company, failed to file a required Form 4 on a
timely basis, in relation to two transactions, purchase of shares of common
stock and common stock purchase warrants of the Company and conversion of a
convertible note into shares of common stock of the Company.
<PAGE>
29
ITEM 10. EXECUTIVE COMPENSATION.
A. SUMMARY COMPENSATION TABLE
The Company, in its pre-merger period during fiscal year 1998, did not
pay any cash compensation to its executive officers.
Below is the aggregate annual remuneration of each of the highest paid
persons who were executive officers of Axonyx Inc., the Company's pre-merger
predecessor, during Axonyx Inc.'s 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 (#) ($) compen
sation
($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------------- ------- ---------- ----------- ---------- ----------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin S. Hausman
Dir., Pres. & CEO 1998 $ 0 $ 0 $0 $0 0 $0 $ 0
------- ---------- ----------- ---------- ----------- ------------ -------- ---------
1999 $125,000 $150,000 $0 $0 200,000 $0 $ 0
------- ---------- ----------- ---------- ----------- ------------ -------- ---------
Michael M. Strage
Dir., V.P., Treas. (2) 1998 $ 0 $ 0 $0 $0 0 $0 $28,000
------- ---------- ----------- ---------- ----------- ------------ -------- ---------
1999 $100,000 $45,000 $0 $0 40,000 $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, the Company granted 200,000 Incentive Stock
Options exercisable at $3.11 per share to Marvin S. Hausman, President
& CEO of the Company, 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, the Company granted 40,000 Incentive Stock Options
exercisable at $2.88 per share to Michael M. Strage, Vice President &
Treasurer of the Company, with 10,000 options vesting immediately,
10,000 vesting on January 1, 2000, 10,000 vesting on January 1, 2001,
and 10,000 vesting on January 1, 2002.
<PAGE>
30
No free standing Stock Appreciation Rights ("SARs") were granted to any
executive officers in fiscal year 1999.
C. OPTION/SAR EXERCISES AND FISCAL 1999 YEAR END OPTION/SAR VALUES
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Shares acquired Value Number of Value of
on exercise (#) realized ($) 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
Axonyx does not have a Long-Term Incentive Plan (LTIP) and therefore
did not award any LTIPs in the fiscal year 1999.
E. COMPENSATION OF DIRECTORS
The Company pays its 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.
The non-employee directors of Axonyx were granted stock options in
fiscal year 1999 under the Axonyx 1998 Stock Option Plan.
The Company 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 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. Albert Angel
disclaims any beneficial ownership of the options.
<PAGE>
31
The Company granted 40,000 Non-Statutory Stock Options exercisable at
$2.88 per share to Christopher Wetherhill, a director of the Company, 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, the Company
came to an oral agreement with Marvin Hausman whereby Dr. Hausman agreed to
serve as President & CEO of the Company and as a Director of the Company 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.
Michael M. Strage, Vice President & Treasurer. In January 1999, the
Company came to an oral agreement with Michael Strage whereby Mr. Strage agreed
to serve as Vice President & Treasurer of the Company and as a Director of the
Company 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 January 13, 1999,
the Board of Directors, upon the recommendation of the Compensation Committee,
granted Michael Strage 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.
Axonyx does not have any arrangements with its 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.
<PAGE>
32
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding
beneficial ownership of the Company's shares of common stock as of March 8,
2000 (a) by each person known to the Company to own beneficially 5% or more of
any class of the Company's securities, including those shares subject to
outstanding options, (b) by each of the Company's officers and directors and
(c) by all officers and directors of the Company as a group. As of March 8,
2000 there were 14,065,419 shares of common stock of the Company issued and
outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENT OF CLASS
- ---------------- -------- ----------------
<S> <C> <C>
Marvin S. Hausman, M.D. (2) 2,113,500 14.89%
Christopher Wetherhill (3) 1,159,000 8.21%
Albert D. Angel (4) 524,000 3.72%
Michael M. Strage (5) 280,000 1.99%
Michael R. Espey (6) 280,000 1.99%
Robert G. Burford, Ph.D. (7) 22,500 0.16%
All directors and executive --------- ------------
officers (six persons) as a group 4,379,000 30.57%
--------- ------------
Steven C. Espey (8) 2,050,000 14.58%
Boundary Bay Investments Ltd. (9) 1,008,000 7.15%
</TABLE>
- --------------------------------
(1) 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, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all the Shares beneficially owned by them.
(2) Marvin S. Hausman, M.D. was a founder of the Company and currently
serves as the President and Chief Executive Officer. Includes: (i)
1,988,500 shares owned by Dr. Hausman; (ii) 100,000 vested but
unexercised options exercisable at $3.11 per share granted on January
13, 1999, and (iii) 25,000 vested but unexercised options exercisable
at $11.50 per share granted on January 10, 2000. Does not include (i)
30,000 shares gifted to Dr. Hausman's three adult children, with
10,000 to each in November 1999, (ii) 250 shares gifted to Roberta
Matta in November 1999, (iii) 100,000 unvested options exercisable
at $3.11 per share granted on January 13, 1999 and (iv) 75,000
unvested options exercisable at $11.50 per share granted on granted
on January 10, 2000.
(3) Christopher Wetherhill is a Director of the Company. Includes (i)
107,500 shares held in Mr. Wetherhill's name; (ii) 1,008,000 shares
held by Boundary Bay Investments Ltd.
<PAGE>
33
("BBI"). Mr. Wetherhill holds a controlling position as the Managing
Director of BBI and is the sole beneficial owner; (iii) 24,000 common
stock purchase warrants exercisable at $11.00 per share held by BBI;
and (iv) 20,000 vested but unexercised options exercisable at $2.88
per share granted on January 13, 1999 held in Mr. Wetherhill's name.
Does not include 20,000 unvested options exercisable at $2.88 per
share granted on January 13, 1999. Mr. Wetherhill's address is 9
Church Street, Hamilton HM 11, Bermuda.
(4) Albert D. Angel is the Chairman of the Board of Directors of the
Company. All shares are owned by Mr. Angel. Includes (i) 516,000 shares
owned by Mr. Angel, and (ii) 8,000 common stock purchase warrants
exercisable at $11.00 per share purchased in a private placement on
September 28, 1999. Does not include: (i) 300,000 non-statutory stock
options exercisable at $2.88 per share 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 (ii)
100,000 non-statutory stock options exercisable at $11.50 per share
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.
(5) Michael M. Strage was a co-founder of the Company and currently serves
as Vice President and Treasurer. Includes (i) 250,000 shares owned by
Mr. Strage; (ii) 20,000 vested but unexercised options exercisable at
$2.88 per share granted on January 13, 1999, (iii) 10,000 vested but
unexercised options exercisable at $11.50 per share. Does not include:
(i) 20,000 unvested options exercisable at $2.88 per share granted on
January 13, 1999, and (ii) 30,000 unvested options exercisable at
$11.50 per share granted on January 10, 2000.
(6) Michael R. Espey was a co-founder of the Company and currently serves
as Vice President and Secretary. Includes (i) 250,000 shares owned by
Mr. Espey; (ii) 20,000 vested but unexercised options exercisable at
$8.50 per share granted on June 7, 1999, and (iii) 10,000 vested but
unexercised options exercisable at $11.50 per share granted on January
10, 2000. Does not include 30,000 unvested options exercisable at
$11.50 granted on January 10, 2000. Michael Espey's address is 1001 4th
Avenue Plaza, Suite 3228, Seattle, WA 98154.
(7) Robert G. Burford, Ph.D. serves as Axonyx's Vice President, Product
Development. Includes (i) 2,500 vested by unexercised options
exercisable at $4.70 granted on March 25, 1999, (ii) 7,500 vested by
unexercised options exercisable at $7.20 granted on October 1, 1999 and
(iii) 12,500 vested but unexercised options exercisable at $8.125 per
share granted on November 1, 1999. Does not include 87,5000 unvested
options exercisable at $8.125 on November 1, 1999.
<PAGE>
34
(8) Steven C. Espey was a founder of the 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.
(9) Boundary Bay Investments Ltd. is a Cayman Islands corporation
beneficially owned by Christopher Wetherhill, a director of the
Company. Includes (i) 1,008,000 shares issued in the name of BBI; and
(ii) and 24,000 common stock Purchase Warrants exercisable at $11.00
per share. The address of BBI is 3rd Floor Harbour Centre, George Town,
Grand Cayman, Cayman Islands, B.W.I.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On April 27, 1998, the Company 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 bore interest at 9% per annum, with interest
payments due annually. The Note was subsequently converted into shares of common
stock (see below).
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 May 20, 1999, the Company initiated an equity offering of units to a
limited number of accredited and otherwise qualified investors based on their
financial resources and knowledge of investments, with each unit priced at
$25,000 per unit. Each unit ("Unit") consisted of 4,000 shares of common stock,
par value $0.001 (the "Shares"), and 2,000 common stock purchase warrants (the
"Warrants") at a price of $25,000 per Unit. Each Warrant entitles the holder to
purchase one Share at a price of $11.00 until their expiration on August 1,
2004. As of October 25, 1999, the termination date of the private offering, the
Company had sold 171 Units. On September 28, 1999, Albert D. Angel, the Chairman
of the Board of Directors of Axonyx purchased 4 Units in this private placement
and was issued 16,000 Shares and 8,000 Warrants. On September 30, 1999, Boundary
Bay Investments Ltd., a major shareholder of Axonyx beneficially owned by
Christopher Wetherhill, a director of Axonyx, purchased 12 Units in this private
placement, and was issued 48,000 Shares and 24,000 Warrants.
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. The Company issued 100,000 shares to BBI on September 27,
1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The Exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report on Form 10-KSB.
<PAGE>
35
REPORTS ON FORM 8-K.
No reports on Form 8-K during the three months ending December 31,
1999.
<PAGE>
AXONYX INC.
INDEX TO EXHIBITS
Exhibits Description of Document
- -------- -----------------------
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
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.
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.
<PAGE>
37
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
27.1 Financial Data Schedule
- -------------------
* 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 (File no. 000-25571).
*** 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.
<PAGE>
38
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as
amended, the registrant caused this Annual Report on Form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Stevenson, Washington on this 9th of March, 2000.
AXONYX INC.
By: /S/ MARVIN S. HAUSMAN, M.D.
--------------------------------------
Marvin S. Hausman, M.D.
President & Chief Executive Officer
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as
amended, this Annual Report on Form 10-KSB to be signed below by the following
persons in the capacities indicated below on this 9th of March, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ MARVIN S. HAUSMAN, M.D. Director, President & Chief Executive
-------------------------------------- Officer (Principal Executive Officer)
Marvin S. Hausman, M.D.
/S/ MICHAEL M. STRAGE Director, Vice President & Chief
-------------------------------------- Administrative Officer, Treasurer
Michael M. Strage (Principal Financial Officer)
/S/ MICHAEL R. ESPEY Director, Vice President & Secretary
--------------------------------------
Michael R. Espey
</TABLE>
<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
lonosphere, Inc. ("lonosphere"), 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>
Exhibit 4.1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION, OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND LAWS, SUCH COMPLIANCE, AT THE OPTION OF THE CORPORATION, TO BE
EVIDENCED BY AN OPINION OF THE WARRANT HOLDER'S COUNSEL, IN FORM ACCEPTABLE TO
THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT
FROM ANY PROPOSED TRANSFER OR ASSIGNMENT.
COMMON STOCK PURCHASE WARRANT
AXONYX INC.
THIS CERTIFIES that for good and valuable consideration received,
_________________________ or a registered assignee (the "Holder") is entitled,
upon the terms and subject to the conditions hereinafter set forth, to acquire
from Axonyx Inc., a Nevada corporation (the "Corporation") up to
____________________ fully paid and nonassessable shares of common stock, par
value $0.001, of the Corporation ("Warrant Stock") at a purchase price per share
(the "Exercise Price") of $11.00 (the "Warrant").
1. TERM OF WARRANT.
Subject to the terms and conditions set forth herein, this Warrant
shall be exercisable, in whole or in part, at any time on or after the date
hereof and at or prior to 11:59 p.m., Eastern Standard Time, on August 1, 2004
(the "Expiration Time"). Notwithstanding the foregoing, the Corporation shall
have the right, except as may be limited by law, other agreements or herein, to
call this Warrant for exercise, in whole or in part, by mailing written notice
by United States mail to the registered Holder hereof if the average closing bid
price for the Corporation's common stock, as quoted by the Nasdaq Market or any
other established over-the-counter quotation service, is equal to or greater
than $20.00 per share, as adjusted pursuant to Section 11 hereof, for any
consecutive period of thirty days. In such event, this Warrant shall expire and
cease to be exercisable at 11:59 p.m. Pacific Standard Time, of the twenty-first
day after the date of mailing of the notice. Notwithstanding the foregoing, the
Corporation may not call this Warrant unless there is a current registration
statement covering the Warrant or the Warrant Stock.
1
<PAGE>
2. EXERCISE OF WARRANT.
The purchase rights represented by this Warrant are exercisable by the
registered Holder hereof, in whole or in part, at any time and from time to time
at or prior to the Expiration Time by the surrender of this Warrant and the
Notice of Exercise form attached hereto duly executed to the office of the
Corporation at 750 Lexington Avenue, Suite 1400, New York, New York 10022 (or
such other office or agency of the Corporation as it may designate by notice in
writing to the registered Holder hereof at the address of such Holder appearing
on the books of the Corporation), and upon payment of the Exercise Price for the
shares thereby purchased (by cash or by check or bank draft payable to the order
of the Corporation or by cancellation of indebtedness of the Corporation to the
Holder hereof, if any, at the time of exercise in an amount equal to the
purchase price of the shares thereby purchased); whereupon the Holder of this
Warrant shall be entitled to receive from the Corporation a stock certificate in
proper form representing the number of shares of Warrant Stock so purchased.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OF SCRIP.
Certificates for shares purchased hereunder shall be delivered to the
Holder hereof by the Corporation's transfer agent at the Corporation's expense
within a reasonable time after the date on which this Warrant shall have been
exercised in accordance with the terms hereof. Each certificate so delivered
shall be in such denominations as may be requested by the Holder hereof and
shall be registered in the name of such Holder or, subject to applicable laws,
such other name as shall be requested by the Holder. If, upon exercise of this
Warrant, fewer than all of the shares of Warrant Stock evidenced by this Warrant
are purchased prior to the Expiration Time, one or more new warrants
substantially in the form of, and on the terms in, this Warrant will be issued
for the remaining number of shares of Warrant Stock not purchased upon exercise
of this Warrant. The Corporation hereby represents and warrants that all shares
of Warrant Stock which may be issued upon the exercise of this Warrant will,
upon such exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
Holder of the Warrant Stock). The Corporation agrees that the shares so issued
shall be and will be deemed to be issued to such Holder as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered for exercise in accordance with the terms hereof. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. With respect to any fraction of a share called for
upon the exercise of this Warrant, an amount equal to such fraction multiplied
by the then current price at which each share may be purchased hereunder shall
be paid in cash to the Holder of this Warrant.
2
<PAGE>
4. LOCK UP, REGISTRATION RIGHTS.
Pursuant to the terms of the Registration Rights Agreement signed in
conjunction with this Warrant, certain piggy-back registration rights apply to
the Warrant Stock with regard to any registration statement filed by the
Corporation. The Corporation may, at the request of an underwriter, if any,
limit or exclude such Warrant Stock from a registration statement in connection
with a public offering, or impose on each Holder a so-called "lock up" period in
connection with a public offering, which lock-up period will not exceed 12
months from the effective date of the registration statement for such public
offering. In addition, the Company may exclude the Warrant Stock from
registration statements filed pursuant to an acquisition, merger or under Form
S-8, and, if such registration statement includes registrable securities of
certain selling stockholders who purchased such registrable securities in a
previous private placement, the Company may exclude the Warrant Stock from such
registration statement. See the Registration Rights Agreement for a full
description of the piggy-back registration rights applicable to the Warrant
Stock and the limitations on such rights.
5. CHARGES, TAXES AND EXPENSES.
Issuance of certificates for shares of Warrant Stock upon the exercise
of this Warrant shall be made without charge to the Holder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Corporation,
and such certificates shall be issued in the name of the Holder of this Warrant
or in such name or names as may be directed by the Holder of this Warrant;
provided, however, that in the event certificates for shares of Warrant Stock
are to be issued in a name other than the name of the Holder of this Warrant,
this Warrant when surrendered for exercise shall be accompanied by an Assignment
Form to be provided by the Company duly executed by the Holder hereof.
6. NO RIGHTS AS SHAREHOLDERS.
This Warrant does not entitle the Holder hereof to any voting rights or
other rights as a shareholder of the Corporation prior to the exercise hereof.
7. EXCHANGE AND REGISTRY OF WARRANT.
This Warrant is exchangeable, upon the surrender hereof by the
registered Holder at the above mentioned office or agency of the Corporation,
for a new Warrant of like tenor and dated as of such exchange. The Corporation
shall maintain at the above-mentioned office or agency a registry showing the
name and address of the registered Holder of this Warrant. This Warrant may be
surrendered for exchange, transfer or exercise, in accordance with its terms, at
such office or agency of the Corporation, and the Corporation shall be entitled
to rely in all respects, prior to written notice to the contrary, upon such
registry.
3
<PAGE>
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT.
Upon receipt by the Corporation of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant and in case of
loss, theft or destruction of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Corporation of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Corporation will make and deliver a new Warrant of like tenor and
dated as of such cancellation, in lieu of this Warrant.
9. SATURDAYS, SUNDAYS AND HOLIDAYS.
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or a
Sunday or that is a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding day not a Saturday, Sunday or legal
holiday.
10. MERGER, SALE OF ASSETS, ETC.
If at any time the Corporation proposes to merge or consolidate with or
into any other corporation, effect any reorganization, or sell or convey all or
substantially all of its assets to any other entity, then, as a condition of
such reorganization, consolidation, merger, sale or conveyance, the Corporation
or its successor, as the case may be, shall enter into a supplemental agreement
to make lawful and adequate provision whereby the Holder shall have the right to
receive, upon exercise of the Warrant, the kind and amount of equity securities
which would have been received upon such reorganization, consolidation, merger,
sale or conveyance by a Holder of a number of shares of common stock equal to
the number of shares issuable upon exercise of the Warrant immediately prior to
such reorganization, consolidation, merger, sale or conveyance. If the property
to be received upon such reorganization, consolidation, merger, sale or
conveyance is not equity securities, the Corporation shall give the Holder of
this Warrant ten (10) business days prior written notice of the proposed
effective date of such transaction, and if this Warrant has not been exercised
by or on the effective date of such transaction, it shall terminate.
11. SUBDIVISION, COMBINATION, RECLASSIFICATION, CONVERSION, ETC.
If the Corporation at any time shall by subdivision, combination,
reclassification of securities or otherwise, change the Warrant Stock into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter entitle the Holder to acquire such number and kind of
securities as would have been issuable in respect of the Warrant Stock (or other
securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change) as the result of such change if this Warrant had been exercised in full
for cash
4
<PAGE>
immediately prior to such change. The Exercise Price hereunder shall be adjusted
if and to the extent necessary to reflect such change. If the Warrant Stock or
other securities issuable upon exercise hereof are subdivided or combined into a
greater or smaller number of shares of such security, the number of shares
issuable hereunder shall be proportionately increased or decreased, as the case
may be, and the Exercise Price shall be proportionately reduced or increased, as
the case may be, in both cases according to the ratio which the total number of
shares of such security to be outstanding immediately after such event bears to
the total number of shares of such security outstanding immediately prior to
such event. The Corporation shall give the Holder prompt written notice of any
change in the type of securities issuable hereunder, any adjustment of the
Exercise Price for the securities issuable hereunder, and any increase or
decrease in the number of shares issuable hereunder.
12. TRANSFERABILITY; COMPLIANCE WITH SECURITIES LAWS.
(a) This Warrant may not be transferred or assigned in whole or in part
without compliance with all applicable federal and state securities laws by the
transferor and transferee (including the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Corporation, if
requested by the Corporation). Subject to such restrictions, prior to the
Expiration Time, this Warrant and all rights hereunder are transferable by the
Holder hereof, in whole or in part, at the office or agency of the Corporation
referred to in Section 2 hereof. Any such transfer shall be made in person or by
the Holder's duly authorized attorney, upon surrender of this Warrant together
with the Assignment Form attached hereto properly endorsed.
(b) The Holder of this Warrant, by acceptance hereof, acknowledges that
this Warrant and the Warrant Stock issuable upon exercise hereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Warrant Stock to be issued upon
exercise hereof except under circumstances that will not result in a violation
of the Securities Act of 1933, as amended, or any state securities laws. Upon
exercise of this Warrant, the Holder shall, if requested by the Corporation,
confirm in writing, in a form satisfactory to the Corporation, that the shares
of Warrant Stock so purchased are being acquired solely for Holder's own account
and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale.
(c) The Warrant Stock has not been and will not be registered under the
Securities Act of 1933, as amended, and this Warrant may not be exercised except
by (i) the original purchaser of this Warrant from the Corporation or (ii) an
"accredited investor" as defined in Rule 501(a) under the Securities Act of
1933, as amended. Each certificate representing the Warrant Stock or other
securities issued in respect of the Warrant Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall be
stamped or otherwise imprinted with a legend
5
<PAGE>
substantially in the following form (in addition to any legend required under
applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.
13. REPRESENTATIONS AND WARRANTIES.
The Corporation hereby represents and warrants to the Holder hereof
that:
(a) during the period this Warrant is outstanding, the Corporation will
reserve from its authorized and unissued common stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise of this
Warrant;
(b) the issuance of this Warrant shall constitute full authority to the
Corporation's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the shares of
Warrant Stock issuable upon exercise of this Warrant;
(c) the Corporation has all requisite legal and corporate power to
execute and deliver this Warrant, to sell and issue the Warrant Stock hereunder,
and to carry out and perform its obligations under the terms of this Warrant;
and
(d) all corporate action on the part of the Corporation, its directors
and stockholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Corporation, the authorization, sale,
issuance and delivery of the Warrant Stock, the grant of registration rights as
provided herein and the performance of the Corporation's obligations hereunder
has been taken;
(e) the Warrant Stock, when issued in compliance with the provisions of
this Warrant and the Corporation's Articles of Incorporation (as they may be
amended from time to time), will be validly issued, fully paid and
nonassessable, and free of all taxes, liens or encumbrances with respect to the
issue thereof, and will be issued in compliance with all applicable federal and
state securities laws; and
(d) the issuance of the Warrant Stock will not be subject to any
preemptive rights, rights of first refusal or similar rights.
6
<PAGE>
14. CORPORATION GOOD FAITH.
The Corporation will not, by amendment of its Articles of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Corporation, but will at all times
in good faith assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of the Warrant against impairment.
15. GOVERNING LAW.
This Warrant shall be governed by and construed in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by its duly authorized officers.
Dated:
AXONYX INC.
By:
------------------------------------------------
Marvin S. Hausman, M.D. President & CEO
7
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT, dated as of the ___ day of , 1999, between
the person whose name and address appears on the signature page
(individually, a "Holder" or, collectively with the holders of the securities
issued in the Offering, each as defined below, the "Holders"), and AXONYX
INC., with its principal executive offices at 750 Lexington Avenue, Suite
1400, New York, New York 10022 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Holder is purchasing from the Company (the "Offering") ________
units (the "Units"), each Unit consisting of 4,000 shares (the "Shares") of
Common Stock, $0.001 par value (the "Common Stock") of the Company and 2,000
Warrants to purchase shares of Common Stock (the "Warrant Shares").
WHEREAS, the Company desires to grant to the Holder the registration
rights set forth herein with respect to the Warrant Shares issuable upon
exercise of the Warrants;
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. REGISTRABLE SECURITIES. As used herein the term "Registrable
Security" means each of the Warrant Shares; provided, however, that with respect
to any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the
"Securities Act") and disposed of pursuant thereto, or (ii) registration under
the Securities Act is no longer required for the immediate public distribution
of such Registrable Security. In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution or
enlargement of the rights granted pursuant to this Section 1. For purposes
hereof, Registrable Securities does not include the Shares.
2. PIGGYBACK REGISTRATION. If, during the term of the Warrants, the
Company proposes to prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering equity or debt securities
of the Company, or any such securities of the Company held by its shareholders
or the security holders of the Company (in any such case, other than in
connection with a merger, acquisition or pursuant to Form S-8 or successor form)
(for purposes of this Section 2, collectively, a "Registration Statement"), it
will give written notice of its intention to do so by registered mail
("Notice"), at least thirty (30) days prior to the filing of each such
Registration Statement, to all Holders of the Registrable Securities. Upon the
written request of such a Holder (a "Requesting Holder"), made within twenty
(20) days after receipt of the Notice, that the Company include any of the
Requesting Holder's
1
<PAGE>
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use its best efforts to effect the
registration under the Securities Act of the Registrable Securities which it has
been so requested to register ("Piggyback Registration"), at the Company's sole
cost and expense and at no cost or expense to the Requesting Holders except as
provided in Section 4(b) hereof.
3. DEFERRAL OR LIMITATION OF REGISTRATION, LOCK UP. Notwithstanding the
provisions of Section 2 above, (i) the Company shall have the right at any time
after it shall have given written notice pursuant to Section 2 (irrespective of
whether any written request for inclusion of such securities shall have already
been made) to elect not to file any such proposed Registration Statement, or to
withdraw the same after the filing but prior to the effective date thereof; or
(ii) if an underwriter of an offering for which a Registration Statement is
filed so requests in writing, the Registrable Securities shall not be offered or
sold until the expiration of a date not to exceed 12 months from the effective
date of the Registration Statement that gave rise to the Piggyback Registration
("Lock Up"); (iii) if such underwriter of an offering for which a Registration
Statement is filed so requests in writing, the Company may exclude the
Registrable Securities from such registration statement; or (iv) in the event of
a Registration Statement filed by the Company with respect to an offering for
its own account, which Registration Statement includes the resale of securities
of selling stockholders who hold securities registrable pursuant to a
registration rights agreement with the Company and who acquired such registrable
securities in a private placement prior to the Holders, the Company may limit,
defer or exclude the Registrable Securities from such registration statement.
4. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
The Company covenants and agrees as follows:
(a) In connection with any registration filed pursuant hereto,
the Company shall use its best efforts to cause the Registration Statement to
become effective as promptly as possible and, if any stop order shall be issued
by the Commission in connection therewith, to use its reasonable efforts to
obtain the removal of such order. Following the effective date of a Registration
Statement, the Company shall, upon the request of the Holder, forthwith supply
such reasonable number of copies of the Registration Statement, preliminary
prospectus and prospectus meeting the requirements of the Securities Act, and
other documents necessary or incidental to the public offering of the
Registrable Securities, as shall be reasonably requested by the Holder to permit
the Holder to make a public distribution of the Holder's Registrable Securities.
The obligations of the Company hereunder with respect to the Holder's
Registrable Securities are subject to the Holder's furnishing to the Company
such appropriate information concerning the Holder, the Holder's Registrable
Securities and the terms of the Holder's offering of such Registrable Securities
as the Company may reasonably request in writing.
2
<PAGE>
(b) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Section 2 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses; provided, however, that the Holder
shall be solely responsible for the fees of any counsel retained by the Holder
in connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Registrable Securities sold by
the Holder pursuant thereto.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in a Registration
Statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the Holders of such securities, provided
that the Company shall not be obligated to execute or file any general consent
to service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(d) The Company will take all necessary action required to keep any
Registration Statement filed pursuant to Section 2 hereof current during the
term of the Warrants.
5. ADDITIONAL TERMS.
(a) The Company shall indemnify and hold harmless the Holder
and each underwriter, within the meaning of the Securities Act, who may purchase
from or sell for the Holder, any Registrable Securities, from and against any
and all losses, claims, damages and liabilities caused by any untrue statement
of a material fact contained in the Registration Statement, any other
registration statement filed by the Company under the Securities Act with
respect to the registration of the Registrable Securities, any post-effective
amendment to such registration statements, or any prospectus included therein or
caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission based upon information furnished or required to be
furnished in writing to the Company by the Holder expressly for use therein,
which indemnification shall include each person, if any, who controls either the
Holder within the meaning of the Securities Act and each officer, director,
employee and agent of the Holder; provided, however, that the indemnification in
this Section 5(a) with respect to any prospectus shall not inure to the benefit
of the Holder (or to the benefit of any person controlling the Holder) on
account of any such loss, claim, damage or liability arising from the sale of
Registrable Securities by the Holder, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to the Holder by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by the Holder to the purchaser
prior to such sale and provided further, that the Company shall not be obligated
to so indemnify the Holder or other person referred to above unless the Holder
or other person, as the case may be, shall at the same time indemnify the
Company, its directors, each officer signing the Registration Statement and
3
<PAGE>
each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in the
Registration Statement, or any prospectus required to be filed or furnished by
reason of this Agreement or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission based upon information furnished in
writing to the Company by the Holder or underwriter expressly for use therein.
(b) If for any reason the indemnification provided for in the
preceding section is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, claim, damage, liability or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
(c) Neither the filing of a Registration Statement by the
Company pursuant to this Agreement nor the making of any request for
prospectuses by the Holder shall impose upon the Holder any obligation to sell
the Holder's Registrable Securities.
(d) The Holder, upon receipt of notice from the Company that
an event has occurred which requires a post-effective amendment to the
Registration Statement or a supplement to the prospectus included therein, shall
promptly discontinue the sale of Registrable Securities until the Holder
receives a copy of a supplemented or amended prospectus from the Company, which
the Company shall provide as soon as practicable after such notice.
(e) If the Company fails to keep the Registration Statement
referred to above continuously effective during the requisite period, then the
Company shall, promptly upon the request of the Holders of at least a majority
of the unsold Registrable Securities, use its best efforts to update the
Registration Statement or file a new registration statement covering the
Registrable Securities remaining unsold, subject to the terms and provisions
hereof.
(f) The Holder agrees to provide the Company with any
information or undertakings reasonably requested by the Company in order for the
Company to include any appropriate information concerning the Holder in the
Registration Statement or in order to promote compliance by the Company or the
Holders with the Securities Act.
6. GOVERNING LAW. The Registrable Securities will be, if and when
issued, delivered in New York. This Agreement shall be deemed to have been made
and
4
<PAGE>
delivered in the State of New York and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
substantive laws of the State of New York, without giving effect to the choice
of law rules thereof.
7. AMENDMENT. This Agreement may only be amended by a written
instrument executed by the Company and the Holder.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
10. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or mailed by registered or certified mail, postage prepaid, return receipt
requested, as follows: if to the Holder, to his, her or its address set forth on
the signature page of the Subscription Agreement or in the Purchaser
Questionnaire. If to the Company, to the address set forth on the first page of
this Agreement.
11. BINDING EFFECT BENEFITS. The Holder may assign his, her or its
rights hereunder. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, legal representatives and
successors. Nothing herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their respective heirs, legal
representatives and successors, any rights or remedies under or by reason of
this Agreement.
12. HEADINGS. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
13. SEVERABILILY. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdictions shall be, as to such jurisdictions, ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
AXONYX INC.
By:
-------------------------------------------
Marvin S. Hausman, M.D., President, CEO
HOLDER
----------------------------------------------
Signature
----------------------------------------------
Print or Type Name
Number of Units Subscribed For:
----------------------
6
<PAGE>
Exhibit 10.10
THE GARNET GROUP, INC.
825 THIRD AVENUE
NEW YORK, NEW YORK 10022
December 14, 1999
J.A. Bernstein & Co., Inc.
750 Lexington Avenue
New York, New York 10022
Axonyx, Inc.
750 Lexington Avenue
New York, New York 10022
Re: Occupancy of Space on the 40th Floor in the Building known by
the Street Address 825 Third Avenue, New York, New York
-------------------------------------------------------
Gentlemen:
This letter sets forth the terms governing your occupancy of a
designated portion of the premises under Lease to us pursuant to Lease dated as
of August 25, 1989 made between The Durst Buildings Corporation (whose interest
has been succeeded to by Advance Magazine Publishers, Inc.) (the "Landlord"),
and the undersigned, as Tenant, as amended by the First Amendment of Lease dated
as of November 30, 1999 (said Lease dated as of August 25, 1989 as amended
November 30, 1999, is hereinafter referred to as the "Lease"). The specific
portion of space to be occupied by you (the "Designated Area") is outlined in
the drawing annexed to this letter.
1. TERM. The term of your occupancy shall begin on December 15, 1999
and end on February 27, 2003, unless sooner terminated as
hereinafter provided ("Occupancy Term").
2. OCCUPANCY FEE. You agree to pay the undersigned $168,000 per
annum, payable $14,000 monthly in advance on the first day of
each month during the Occupancy Term as payment for occupancy by
you of the Designated Area. Payment shall be made by you to the
undersigned at its offices at 825 Third Avenue, New York, New
York. You shall be entitled to the use of electricity available
at the premises, provided such usage by you is consistent with
the terms and provisions of the Lease. Additionally, you will be
responsible for the payment of New York City Commercial Rent Tax
with respect to your occupancy of the Designated Area.
3. SECURITY DEPOSIT. Concurrently herewith, you have provided us
with a security deposit of $42,000, which we will deposit in an
interest-bearing account and such sum will be applied to pay any
charges due to the
<PAGE>
undersigned upon termination of your occupancy. The undersigned
shall be entitled to recover as its administrative costs one
percent (1%) of the Security Deposit. The balance of the security
deposit, if any, will be repaid to you with interest within 20
days after the end of the Occupancy Term.
4. NUMBER OF OCCUPANTS. You shall be entitled, other than for
occasional vistors or business guests, to have eight people (in
the aggregate) occupy the Designated Area.
5. SERVICES. Except as hereinafter provided, the undersigned shall
not be obligated to provide you with any services whatsoever. You
will provide your own computers, typing and printing equipment.
However, you shall be entitled to use of the existing furniture
and furnishings located in the Designated Area. Further, you
shall be entitled to use of the existing telephone equipment in
the Designated Area. Upon your vacating the Designated Area, such
furniture, furnishings and equipment shall be in good order,
reasonable wear and tear excepted. Further, you shall be entitled
to use of the conference room located in the premises occupied by
the undersigned, when available, on reasonable prior notice.
6. AS IS. You have inspected the Designated Area and accept it in
its present condition "as is".
7. SUBJECT AND SUBORDINATE. You acknowledge and agree that your
occupancy of the Designated Area is subject and subordinate to
the terms and provisions of the Lease and acknowledge that you
are familiar with the terms and provisions of the Lease.
8. GENERAL CONDITIONS.
a. During the Occupancy Term, you shall have exclusive use of
the Designated Area. The Designated Area will be used by you
solely for office purposes.
b. You will maintain the Designated Area in a clean and orderly
condition and assume full responsibility for the safety and
security of the Designated Area and any personal property
you may locate therein.
c. Upon the termination of your occupancy, the Designated Area
shall be left "broom clean".
d. You agree not to make any alterations, decorations or
modifications to the Designated Area.
e. You agree to indemnify and hold the undersigned harmless
from and against any and all costs and expenses arising from
claims of any
<PAGE>
nature for personal injuries and/or property damage which
may be asserted against the undersigned arising from or in
connection with your occupancy by you of the Designated
Area, except if any such injuries or damage is a result of
the negligence of the undersigned or the Landlord. In
furtherance of the foregoing, you shall obtain and keep in
full force and effect during the Occupancy Term, at your own
cost and expense, naming the Landlord, Landlord's agents,
any superior lessor, superior mortgagee and the undersigned
as insureds, public liability insurance to afford protection
against any and all claims for personal injury, death or
property damage occurring in, upon, adjacent to or connected
with the Designated Area, or any part thereof in an amount
of not less than $3,000,000 for injury or death arising out
of any one occurrence or in any increased amount reasonably
required by Landlord.
f. You will not hold yourself out in any way as an agent,
partner, joint venturer or business associate of the
undersigned and you will at all times conduct your business
without reference to the undersigned. The undersigned agrees
not to hold itself out in any way as your agent, partner,
joint venturer or business associate and shall not make
reference to you in the conduct of its business.
g. You will not at any time use or occupy the Designated Area
in violation of the terms and provisions of the Lease or any
applicable law (Federal, State or local).
h. You cannot assign or sublet your right of occupancy in whole
or in part.
i. You shall be entitled to access the Designated Area during
the Occupancy Term to the same extent the undersigned is
entitled to occupancy of its premises, pursuant to the
Lease. The undersigned shall provide you with keys enabling
you to access the Designated Area.
9. REMEDIES. If you default in fulfilling any of the terms set forth in
this letter, including, without limitation, the payment of rent on the
first of the month during the term hereof, the undersigned shall be
entitled on three days written notice addressed to you at the
Designated Area to terminate the term of you occupancy. Upon such
termination, you consent to the remedy of eviction by summary
proceedings or otherwise, for holding over and waive any rights to any
further notice to terminate your occupancy; and further, waive any
other rights, laws and/or regulations which may be applicable and
agree further in the event you fail to vacate the Designated Area on
the date designated in such notice of termination, you shall be liable
to the undersigned as and for
<PAGE>
liquidated damages, and not as a penalty, at the rate of $1,000 per
day through the date that you vacate the Designated Area.
If you are in agreement with the foregoing, please sing and return a copy
of this letter together with a check in the amount of $14,000 representing
payment of the first month's rent and an additional check in the amount of
$42,000 for security.
Very truly yours,
THE GARNET GROUP, INC.
By:/s/ Joseph Cohen
------------------------------
Joseph Cohen
ACCEPTED AND AGREED:
J.A. BERNSTEIN & CO., INC.
By:/s/ Jay Bernstein
-----------------------------
Jay Bernstein
AXONYX INC.
By:/s/ Michael Strage
-----------------------------
Michael Strage
<PAGE>
Exhibit 10.11
WEINER & BIBLO, LLP
ATTORNEYS AT LAW
555 BROADHOLLOW RD., SUITE 274
MELVILLE, N.Y. 11747
Telephone (516) 752-4040
Facsimile (516) 752-4049
December 9, 1999
J.A. Bernstein & Co., Inc. Axonyx, Inc.
825 Third Avenue 825 Third Avenue
New York, New York 10022 New York, NY 10022
Attn: Jay Bernstein Attn: Michael Strage
Re: 825 Third Avenue, New York, New York
Dear Jay & Michael;
The following is agreed to by the undersigned parties:
1. The parties hereto agree that they are not partners, but rather
have merely agreed to share space in the building located at 825
Third Avenue, New York, New York.
2. J.A. Bernstein & Co., Inc. shall pay $5,000.00 per month for rent
and Axonyx, Inc. shall pay $9,000.00 each month.
3. Each party agrees to indemnify and hold harmless the other party
for their share of the rent and for any damages, costs, and
expenses arising from their use and occupancy of the premises.
4. Each party agrees to perform all provisions of the Occupancy
Agreement.
5. Each party shall have the exclusive right to use the rooms as
designated on the attached drawing.
6. J.A. Bernstein shall be solely responsible for the 1%
administrative cost in paragraph 3 of the Occupancy Agreement.
Please confirm your agreement with the above by signing where
indicated.
Very truly yours,
/s/ Laryy Biblo
------------------------
Larry Biblo
J.A. Bernstein & Co., Inc. Axonyx, Inc.
By: /s/ Jay Bernstein By: /s/ Michael M. Strage
-------------------------- -----------------------------
Jay Bernstein Michael M. Strage
<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>
