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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K SB
/ X / Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year ended DECEMBER 31, 1996
/_ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________.
Commission file number : 000-27866
VYREX CORPORATION
(Name of small business issuer as specified in its charter)
NEVADA 88-0271109
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2159 AVENIDA DE LA PLAYA, LA JOLLA, CALIFORNIA 92037
(Address of principal executive offices)
(619) 454-4446
(Issuer's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001
Warrants
(Title of Class)
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 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 there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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-K SB or any
amendment to this Form 10-K SB.
[X]
State issuers revenues for its most recent year: $0.00.
State the aggregate market value of the voting stock held by non affiliates of
the registrant computed by reference to the price at which the stock was sold,
or the average bid and ask prices of such stock, as of a date within the past
60 days: $20,977,254 as of March 11, 1997
State the number of shares outstanding of each of the issuers classes of common
equity, as of latest practicable date:
Common Stock -- 7,121,209 as of March 12, 1997 Warrants to purchase common
stock -- 1,239,701 as of March 12, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The issuer's definitive Proxy Statement for its Annual Meeting of
Shareholders to be submitted to the commission on or before April 30, 1997
and the Form 8-K dated July 11, 1996 are is incorporated by reference in Part
III of this Form 10-KSB to the extent stated herein.
Transitional Small Business Disclosure Format
Yes _____ No X
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PART I
ITEM 1. BUSINESS
GENERAL
Certain statements in this Form 10-KSB regarding future expectations and
financial performance may be regarded as "forward-looking statements" within
the meaning of the U.S. Securities Litigation Reform Act. They are subject to
various risks and uncertainties, such as those described in the Risk Factors
section, and elsewhere, in this Form 10-KSB, and in the Company's Securities
and Exchange Commission filings. Actual results may vary materially.
THE COMPANY
Vyrex Corporation is a research and development stage company seeking to
discover and develop biopharmaceuticals for the treatment and prevention of
various disorders and conditions including AIDS, cancer, aging, and
respiratory, cardiovascular and neurodegenerative diseases. Based on its
research efforts in biology, chemistry and medicine, Vyrex is currently
involved in the early stages of investigation and development of several
potential therapeutic products. Currently the Company's research focuses
mainly in the following five areas: targeted antioxidant therapeutics;
annotated genomics utilizing the Company's proprietary CD-tagging-TM- method;
therapeutic cyclodextrins; apoptosis-inducing cancer therapeutics and
nutraceuticals. The principal objective of the Company is to develop and
commercialize new therapeutic products which can safely and effectively
prevent and combat disease. The Company believes the synergy which may
result from its investigation into antioxidation, annotated genomics,
cyclodextrins, apoptosis-induction and nutraceuticals could accelerate the
discovery of new therapeutic products.
TARGETED ANTIOXIDANT THERAPEUTICS. There has been a substantial increase
in recent years in research into the toxicity of oxygen and species of oxygen
generally referred to as reactive oxygen species or free radicals. Vyrex
believes oxygen and free radicals play important roles in a wide variety of
diseases and conditions including infection, inflammation, AIDS, Alzheimer's
disease, atherosclerosis, arthritis, autoimmune diseases, brain trauma, asthma,
cancer, diabetes, hypertension, heart disease, neurologic disorders, ischemia
reperfusion injury and the aging process. Vyrex believes oxidative stress is a
basic mechanism underlying these pathogenic processes, and that oxidative
stress may be closely associated with the process of apoptosis or intrinsic
cell death. Vyrex's research in the area of antioxidant therapeutics focuses
primarily on the development of a range of potential therapeutic products that
may effectively treat or prevent oxidative damage and disease processes
believed to be caused or accelerated by oxidative stress, and is the basis for
the Company's potential antioxidant therapeutics, Panavir-R- and Vantox-R-.
ANNOTATED GENOMICS. A major goal of recent human biology research is to
decipher the human genome. With the gene databases rapidly filling, the
Company and others believe the next step is not only to discover the genes
but also to discover the genes' functions. The Company has recently acquired
an exclusive world-wide license to a novel gene research method, called
CD-Tagging-TM-. CD-Tagging-TM- is a proprietary functional genomics
technology that incorporates hereditary tags into genes, transcripts and
proteins via recombinational events at the DNA level. CD-Tagging-TM- can be
used to analyze known genes and gene products (proteins) and to identify and
characterize new genes and gene products. The Company believes that
CD-Tagging-TM- provides significant advantages over current methods by which
genes and proteins are discovered and characterized. These advantages
include rapid identification and analysis of genes and proteins in their
natural cellular and/or organismal environments, direct purification of
tagged proteins from tagged cells by immunoaffinity methods, direct
amplification of tagged proteins from tagged cells, and assessment of gene
function via modulation of gene expression in vivo. The Company intends to
use CD-Tagging-TM-, among other things, to identify genes whose proteins are
expected to serve as the basis for new diagnostic agents and therapeutic
drugs. The Company plans to
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develop CD-Tagging-TM- for its own drug discovery purposes, sublicense the
technology for both research and commercial purposes and enter other
collaborations.
THERAPEUTIC CYCLODEXTRINS. One of the Company's goals is the development
of certain therapeutic agents that address the basic incompatibility between
lipid or fat-like substances, and water or water based substances.
Cyclodextrins appear to be such agents. Cyclodextrins are water soluble
modified starches containing cavities which can hold hydrophobic molecules
(molecules that do not like to associate with water). Cyclodextrins have been
used in the delivery of hydrophobic drugs, cosmetics and food substances.
Vyrex is conducting research into the use of cyclodextrins for the removal of
lipids and other water insoluble substances from the body, when their presence
is considered to be the basis for certain disorders or conditions.
Cyclodextrins are the basis for the Company's potential therapeutic products
Cerex-TM- and Vyderm-TM-.
APOPTOSIS-INDUCING CANCER THERAPEUTICS. Recent cancer research has
indicated cancer cells may be resistant to apoptosis. Simply put, it appears
cancer cells may not "know" when to die, and therefore keep on growing and
invading the body, leading to the eventual death of the entire organism. Vyrex
is conducting research to discover apoptosis-inducing substances which can be
developed into potential therapeutic products for the treatment of cancer. The
Company also believes certain natural substances from the plant, fungal,
seaweed, bacterial and animal kingdoms may be important as apoptosis-inducing
agents. Some of the Company's scientists, as well as certain of its principal
scientific advisors, have what they regard as significant experience in the
chemistry, biology, and potential therapeutic uses of naturally occurring
substances from around the world. Vyrex is involved in a continuing
investigation directed toward the identification and development of natural
product-derived apoptosis-inducing agents, which could be developed into
potential therapeutic products.
NUTRACEUTICALS. Nutraceuticals are nutritional supplements which may play
important roles in the prevention and treatment of disease. The Company
believes the popularity of nutritional supplements appears to be increasing
with medical practitioners and health-conscious consumers. The Company
believes that this trend will continue and the market should grow. The Company
hopes to leverage its extensive knowledge of vitamins, minerals, phytochemicals
and other natural products in the development of nutritional supplements,
nutraceuticals and natural pharmaceuticals for the marketplace. The Company is
currently investigating such potential products. Such potential products may
include new chemical entities or new formulations of existing chemical
entities. Potential products may be developed internally or in-licensed.
Future proprietary positions, if any, may range from full patent protection to
non-proprietary products without protection.
CURRENT PRINCIPAL THERAPEUTICS AND POTENTIAL PRODUCTS
PANAVIR-R-. Panavir-R- is an antioxidant that the Company believes may
inhibit HIV proliferation and may target the events leading to the slow
progressive deterioration of the immune system. The Company believes
Panavir-R-directly inhibits HIV-1 replication in part by interfering with the
attachment of the virus to the infected cells and also by inhibiting the
syncytia-inducing strains of HIV-1. (It is believed that the most pathogenic
strains of HIV-1 are those which lead to the formation of multinucleated
giant cells called syncytia.) Panavir-R- may also prevent activation of HIV-1
in latently and chronically infected cells, which is an activity not shown by
any of the approved reverse transcriptase inhibitors or protease inhibitors.
The Company believes the inhibition of viral activation in latently infected
cells to be one of the most desirable attributes of an anti-HIV/AIDS drug.
The Company believes the activation of HIV infection from the latent state
is associated with increased intracellular levels of oxygen free radicals. The
antioxidant and free radical scavenging activity of Panavir-R- inhibited
activation of HIV-1 in latently infected cells. Chronic and inappropriate
activation of immune cells in HIV infection has been linked to abnormal
secretion of certain immunological hormone-like substances called cytokines.
Cytokines appear to be associated with increased production of oxygen free
radicals. Based on the results of the preliminary tests completed to date,
Panavir-R- appears to inhibit the activity of certain of these cytokines,
including interleukin-1 and tumor necrosis factor alpha. The Company hopes
that Panavir-R- will allow HIV positive individuals to remain healthy by
preventing latently
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infected cells from reactivating, as well as interfering with viral
replication and transmission to other cells when infected cells are activated
by certain processes.
In May of 1992, the Company received an Investigational New Drug allowance
from the FDA for a Phase I/II human clinical trial using Panavir-R- to treat
patients infected with the HIV virus. This phase of the Panavir-R- study began
in July of 1992 and was completed in October of 1995. This trial examined
safety, bioavailability and pharmacokinetics in a small group of patients.
Results indicated that Panavir-R- was well tolerated and achieved targeted serum
levels. CD4 counts, which normally decline in untreated AIDS patients, were
stabilized, but did not show a significant increase. During 1996, the Company
synthesized several new Panavir-R- analogs. These compounds have undergone
pharmacologic testing and exhibit potent antioxidant activity. Currently,
these compounds are undergoing additional testing in HIV activity assays,
mitochondrial protection assays and cytotoxicity assays.
The requirements for the study of anti-HIV drugs are in a continuing state
of evolution at the FDA and, as a result, the costs of such studies or the type
or size of the protocol that will be required by the FDA cannot be predicted.
Further trials may be required which will involve the treatment of at least
several hundred patients with Panavir-R- alone, or in combination with approved
drugs. There can be no assurance such requirements would not have a material
adverse impact on the Company's ability to develop Panavir-R- as a marketable
product. (See "Risk Factors -- Government Regulation.")
VANTOX-R-. Vantox-R- is a family of potential antioxidant drugs which the
Company believes may be useful for various indications including respiratory,
cardiovascular and neurodegenerative diseases. Vantox-R- I is a vaporizable drug
which the Company believes may protect the lungs against oxidative damage.
In preliminary experiments in rats, Vantox-R- I offered protection against
lung damage from exposure to 100% oxygen and injection of paraquat, both of
which are substances that appear to damage the lungs by free radical
processes. Based on these results, the Company believes Vantox-R- might offer
protection against environmental pollutants such as smoke and ozone that
appear to damage the lungs by free radical processes. However, no assurance
can be given that clinical trials will be allowed or undertaken, and if they
are, that the clinical trials will be successful, or such protection will be
confirmed. During 1996, the Company investigated clinical delivery methods
for Vantox-R- I and worked on identifying preclinical studies required for an
IND filing. Also in 1996, the Company synthesized several Vantox-R-
pro-drugs and analogs. These compounds may have uses in cardiovascular and
neurodegenerative diseases and may be delivered orally or parenterally.
Currently, these compounds are being tested in mitochondrial protection
assays and cytotoxicity assays.
Potential products and potential uses of Vantox-R- I include:
An inhaler for people in noxious or allergenic environments, (e.g., in heavy
motor vehicle traffic, in smoky or dusty areas, and in smoggy weather).
A treatment for asthma, bronchitis, emphysema and reactive airway diseases.
An inhalation treatment for patients receiving therapy with drugs known to
harm the lungs (e.g. bleomycin, an important anticancer drug).
A protectant for patients receiving hyperbaric or hyperoxic therapies, (e.g.
premature infants, asthmatics, emphysemics, and victims of adult
respiratory distress who have been placed on respirators or in chambers
in order to receive supplemental oxygen).
An additive in breathing systems, especially of workers in hazardous
environments, (e.g. firemen, divers, miners, painters, and industrial
workers).
A filter additive for tobacco products.
A treatment for upper respiratory tract disorders such as rhinitis and
rhinosinusitis.
CEREX-TM-. Cerex-TM- is a proposed treatment for the removal of cerumen
(ear wax) which was developed by the Company during its search for carrier
molecules which could hold and deliver highly lipophilic (oil-like) drugs.
The Company has evaluated the ability of these carrier molecules to remove
lipids from the skin and hair and, in particular, the ability of these
carriers to remove cerumen form the ear
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canal. Test tube experiments demonstrated some of these carrier molecules
appeared to be effective at softening and dispersing cerumen.
The active ingredient in Cerex-TM- (a cyclodextrin) is believed to be
non-toxic and is biodegradable. Its behavior is believed by Vyrex to be
unique in that it is a water solution that effectively disperses the waxy,
oily mixture of cerumen. During 1996, animal studies were conducted to
evaluate Cerex-TM-. Results indicated Cerex-TM- was well tolerated.
Currently, the Company is working on new formulations to optimize performance.
OTHER PROJECTS - During 1996 screening assays to identify potential
apoptosis inducing cancer therapeutics were initiated. Currently several
compounds are being evaluated using these assays.
LICENSING AGREEMENTS
As part of its strategy for developing and commercializing certain
potential products the Company has entered into research collaborations and
licensing agreements. There can be no assurance the Company will be able to
enter into additional collaborative agreements, or that its existing
licensing agreements will result in actual product development or successful
commercialization of any potential product. Three licensing arrangements
which the Company has entered into are summarized below:
POLLUFIL TRADING, S.A. In November, 1995, the Company entered into a
License Agreement with Pollufil Trading, S.A., Tobacco Division ("Pollufil
Agreement") pursuant to which the Company granted Pollufil Trading, S.A. an
exclusive world-wide license to commercialize certain Vantox-R- technology
for use as an antioxidant cigarette filter additive to scavenge free radicals
and/or to quench and/or chain terminate free radical reactions in cigarette
smoke. The license lasts for the term of the Company's patents on its
Vantox-R-technology. The Company received a fee of $10,000 on signing a
Letter of Intent to enter into the Pollufil Agreement. Under the Pollufil
Agreement, the Company is entitled to receive two additional payments
totaling $90,000 upon the achievement of certain milestone events with
respect to testing of the potential products sought to be developed using the
licensed technology. Unless the Pollufil Agreement is terminated and the
Company's technology is not utilized by Pollufil Trading, S.A., the Company
is also entitled to royalties in the amount of ten percent of the gross
proceeds received by Pollufil in connection with the licensed technology, and
minimum annual royalties commencing June 1, 1996 of $300,000 per year, paid
in arrears. Pursuant to the agreement Pollufil pays all costs of
development, and Vyrex provides technical assistance.
AMERICAN QUALEX INTERNATIONAL, INC. In December, 1995, the Company
entered into a License Agreement with American Qualex International, Inc.
("Qualex Agreement") pursuant to which the Company granted American Qualex
International, Inc. ("AQI") a three year exclusive world-wide license to
manufacture and market DNA molecules encoding one or more universal Epitopes,
antibodies to the universal epitopes, any kits containing the referenced
antibodies or DNA molecules, and any custom epitope-tagging services employing
the referenced antibodies or DNA molecules. Under the Qualex Agreement, the
Company is entitled to receive royalties in the amount of 50% of the gross
proceeds received from the sale of products manufactured and marketed by AQI
using the licensed technology. For distributorships and original equipment
manufacturer sales the parties have agreed to negotiate appropriate royalty
rates. The Company is responsible for certain costs and expenses in
connection with the manufacture and marketing of the licensed technology. If
the License Agreement is not renewed, it automatically converts to a non-
exclusive license, which may be bought out by Vyrex under certain conditions.
JONATHAN W. JARVIK, PH.D. In January, 1996, the Company entered into a
License Agreement with Jonathan W. Jarvik, Ph.D. ("Jarvik Agreement")
pursuant to which Dr. Jarvik granted the Company a 99 year exclusive
world-wide license to develop and market certain technology, processes and
potential products relating to a gene research method discovered by Dr.
Jarvik called CD-Tagging-TM-. Dr. Jarvik presently has a patent application
pending and a notice of allowance, concerning CD-Tagging-TM-. The Company is
responsible for all costs and expenses in connection with processing the
patent application
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and the future development of the licensed technology. Dr. Jarvik will
receive royalties in the amount of 4% of the gross proceeds received from the
sale by Vyrex of certain defined products developed by CD-Tagging-TM- not
including sales by sublicensees. Dr. Jarvik shall also receive royalties in
an amount equal to the lesser of: 7% of the gross proceeds received by each
sublicensee from products developed with the sublicensed technology; or 50%
of any royalty received by Vyrex from each sublicensee. In addition, Dr.
Jarvik shall receive 20% of any sublicense fees received by Vyrex. Dr.
Jarvik also is entitled to an annual maintenance fee in the amount of $35,000
less all other compensation paid to Dr. Jarvik as salary or similar
compensation. The License Agreement may be terminated by Dr. Jarvik or
converted to a non-exclusive license in the event Vyrex fails to comply with
certain obligations under the Agreement.
RESEARCH COLLABORATION
During 1997 the Company entered into research collaborations with two companies
to further development of its CD-Tagging-TM- technology.
SEQWRIGHT. SeqWright LLC is a gene sequencing company based in Houston,
Texas, and co-founded by Richard Gibbs, Ph.D., Director of Baylor University's
Human Genome Sequencing Center. The collaboration will focus on using Vyrex's
proprietary CD-Tagging-TM- technology to construct mouse and human genome
functional libraries. These efforts will include the tagging of human genomic
cosmids and the characterization of tagged DNA, proteins and clones. It is
hoped that the information obtained in the construction of such libraries will
assist in the discovery of therapeutic targets for drug development and
commercialization. Discoveries will be owned solely by Vyrex.
THE IMMUNE RESPONSE CORPORATION. The Immune Response Corporation is a
Carlsbad, California based biopharmaceutical company. This collaboration will
pair Vyrex's CD-Tagging-TM- technology, by way of an exclusive limited-scope
license, with Immune Response's extensive research capability, expertise in
molecular biology and gene therapy. The research will focus on the discovery
of proteins and small molecules which may lead to the development of drugs for
the treatment of central and peripheral nervous system injury. The companies
will share equally the ownership of proprietary discoveries within the scope of
the collaboration, while Vyrex will retain ownership of vectors and all
discoveries that fall outside the scope of the project.
SOURCES OF SUPPLY
The principal raw materials used in the Company's proposed products, have
been obtained from several large chemical suppliers. If and when the Company
begins production on a commercial scale, its use of raw materials will
significantly increase. The Company could experience raw material shortages
which, in turn, could affect its ability to produce products. The Company may,
from time to time, rely on a single supplier for one or more of the raw
materials and may represent a significant portion of any such supplier's total
output. Although the Company believes there are and will continue to be
alternative sources for each of its anticipated raw materials, there can be no
assurance this will be the case or that the qualification of additional vendors
will not delay the Company's ability to manufacture product. The Company does
not have any contracts with any suppliers of the raw materials used in the
development of its proposed products.
COMPETITION
The biotechnology and pharmaceutical industries are intensely competitive.
There are many pharmaceutical companies, biotechnology companies, public and
private universities and research organizations actively engaged in research
and development of pharmaceutical products. Most of the Company's existing or
potential competitors have substantially greater financial, human and other
resources than the Company and may be better equipped to develop, manufacture
and market products. In addition, many of these companies have extensive
experience in preclinical testing and human clinical trials. These companies
may develop and introduce products and processes competitive with or superior
to those of the Company, and many of these companies may be further along in
the product development and approval process for their potential products.
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The Company's competition will be determined in part by the potential
indications for which the Company's proposed products are developed and
ultimately approved, if at all, by regulatory authorities. For most, if not
all, of the Company's potential products, an important factor in competition
will be the timing of market introduction of competitive products.
Accordingly, the relative speed with which the Company can develop potential
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are expected to be
important competitive factors. The Company expects competition among products
approved for sale will be based, among other things, on product effectiveness,
safety, reliability, availability, price and the strength of the patents on
which such products are based.
The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection or otherwise
develop proprietary products or processes and secure sufficient capital
resources for the very substantial period between technological conception and
any commercial sales, which may develop. There can be no assurance the Company
will be able to compete successfully.
PATENTS AND PROPRIETARY TECHNOLOGY
A United States Patent was issued in 1991 for methods of inhibiting viral
and retroviral infections via the use of various antioxidants corresponding to
the formulae set forth in the subject patent. The patent has been assigned to
the Company and describes the primary proprietary technology underlying the
Company's proposed Panavir-R- products.
A United States Patent was issued in 1992 for methods of inhibiting viral
and retroviral replication and for treating viral and retroviral infections via
the administration of compositions containing tocopherol, or a tocopherol
derivative, or a pharmaceutically effective product thereof. The Company is
one of two assignees of this patent, with Biodor U.S. Holding.
A United States Patent was issued in 1994 directed to certain preparations
and methods for dilipidation of skin or hair through the use of cyclodextrin
and cyclodextrin derivative preparations such as hydroxypropyl cyclodextrin.
This patent also is directed to cerumen removal methods involving introduction
of cyclodextrin preparations to the ear canal, resulting in the removal of ear
wax and related substances. This patent has been assigned to the Company.
This patent describes the proprietary technology of the Company underlying its
proposed Cerex-TM- products.
A United States Patent was issued in 1994 involving airborne protectants
against oxidative tissue damage. This patent is directed to certain methods
for preventing free radical-induced oxidative damage and inflammatory
response in biological tissue through the use of vapor-phase, phenolic
antioxidants such as vaporized 2,6-diisopropylphenol. This patent has been
assigned to the Company and describes the technology underlying the Company's
proposed Vantox-R-products.
A United States Patent was issued in 1995 directed to certain methods
for delipidation of skin or hair through the use of cyclodextrin and
cyclodextrin derivative preparations such as hydroxypropyl cyclodextrin.
This patent is also directed to cerumen removal methods involving
introduction of cyclodextrins to the ear canal resulting in the removal of
ear wax and related substances. This patent has been assigned to the
Company. This patent describes the proprietary technology of the Company
underlying its proposed Cerex-TM- products.
A United States Patent was issued in 1995 directed to certain methods for
the prevention and treatment of poison ivy and poison oak dermatitis through
the use of cyclodextrins in applications to complex urushiols. This patent is
also directed to methods of desensitizing against urushiol - induced dermatitis
through cyclodextrin - urushiol complexes. This patent has been assigned to
the Company and describes the technology underlying the Company's proposed
Vyderm-TM- products.
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A United States Patent was issued in 1995 also involving airborne
protectants against oxidative tissue damage. This patent is also directed to
methods for preventing free radical-induced oxidative damage and inflammatory
response in biological tissue through vapor-phase, phenolic antioxidants,
such as vaporized 2,6-diisopropylphenol. This patent has been assigned to
the Company and describes the technology underlying the Company's proposed
Vantox-R- products.
A United States Patent was issued in 1996 directed to a certain delivery
formulation for Probucol, related to the Company's Panavir-R- product.
Two patents have been filed related to the Company's CD-Tagging-TM-
technology and a "Notice of Allowance" has been received from the United
States Patent office on the first filing.
The Company has patent applications pending in the United States and
there have been foreign counterparts filed for certain of the Company's
patent applications. One of the U.S. patent applications and certain foreign
patent filings are jointly owned by the Company and Biodor U.S. Holding.
Pursuant to the Jarvik Agreement the Company is also responsible for
processing the patent application pending in the name of Dr. Jarvik regarding
a CD Tagging-TM- method.
The protection of proprietary rights relating to the Company's proposed
products, processes and know-how is critical for the Company's business. The
Company intends to file patent applications to protect technology, inventions
and improvements that are considered important to the development of its
business. The Company also intends to rely on unpatented trade secrets for a
part of its intellectual property and property rights, and there can be no
assurance others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to any patented or unpatented technology.
Although the Company intends to seek patent protection for its proprietary
technology and potential products in the United States and in foreign
countries, the patent positions of biotechnology and pharmaceutical firms,
including that of the Company, are generally uncertain and involve complex
legal and factual questions. Consequently, the Company does not know whether
any of the patent applications pending, or the unfiled patent applications
which it is considering will result in the issuance of any patents, whether the
patents which it owns will provide significant proprietary protection, or
whether they will be circumvented or invalidated. Since patent applications in
the United States are maintained in secrecy until patents issue, and
publication of discoveries in the scientific or patent literature tend to lag
behind actual discoveries by several months, at the time of filing a patent
application or during the research phase prior to application the Company can
not be certain it will be deemed the first creator of inventions covered by any
future patent applications or that it will be deemed the first to file patent
applications for such inventions. There can be no assurance all United States
or foreign patents that may pose a risk of infringement can or will be
identified. If the Company is unable to obtain a license(s) where it may have
infringed on other patents, it could encounter delays in product market
introductions while it attempts to design around such intellectual property
rights, or could find that the development, manufacture or sale of potential
products requiring such licenses could be prevented. In addition, the Company
could incur substantial costs in defending against suits brought against it in
connection with such intellectual property rights or prosecuting suits which
the Company brings against other parties to protect its intellectual property
rights. Competitors or potential competitors may have filed applications for,
or have received patents and may obtain additional patents and proprietary
rights relating to, compounds or processes competitive with those of the
Company. See "Business -- Competition."
The Company will generally require all or certain of its employees,
consultants and advisors to execute a confidentiality agreement either upon the
commencement of an employment or consulting relationship with the Company or at
a later time. There can be no assurance these agreements will provide
meaningful protection for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
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The protection of intellectual properties owned by technology firms,
including the Company is subject to uncertainty and involves complex legal and
factual questions. The degree of future protection for the Company's
proprietary technology rights is therefore uncertain. There can be no
assurance the Company's efforts to protect its intellectual property will prove
to be adequate. See "Risk Factors -- Patents and Proprietary Rights."
TRADEMARKS
The Company owns trademarks registered with the United States Patent and
Trademark Office ("USPTO") for the names Panavir-R-, Vantox-R-, and its logo in
connection with the name Vyrex. Federally registered trademarks have a
perpetual life, as long as they are renewed on a timely basis, subject to the
rights of third parties to seek cancellation of the marks. The Company has
filed other trademark applications, may claim common law trade name rights as
to other potential products, and anticipates filing additional trademark
applications in the future.
GOVERNMENT REGULATION
The research and development, manufacture and marketing of the Company's
potential products are subject to extensive regulation by the FDA and by other
federal, state, local and foreign entities, which regulate, among other things,
research and development activities and the testing, manufacture, labeling,
storage, record keeping, safety, advertising and promotion of pharmaceutical
products. Governmental review of new drugs, devices or biologicals is an
uncertain, costly and lengthy process.
The Federal Food, Drug and Cosmetic Act, the Public Health Services Act,
the Controlled Substances Act and other federal statutes and regulations govern
or influence all aspects of the Company's business. Noncompliance with
applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunction actions and criminal
prosecutions. In addition, administrative remedies can involve voluntary
recall of products, and the total or partial suspension of products as well as
the refusal of the government to approve pending applications or supplements to
approved applications. The FDA also has the authority to withdraw approval of
drugs in accordance with statutory due process procedures.
Ongoing compliance with these requirements can require the expenditure of
substantial resources. Any failure by the Company, or possible licensees to
obtain, or any delay in obtaining, required regulatory approvals would
adversely affect the planned marketing of the Company's proposed products and
the Company's ability to derive product or royalty revenue.
The FDA's regulatory system requires an initial determination of whether a
subsequent filing by the Company for that product will be classified by the FDA
as a drug, device or biological. The FDA has different approval procedures for
drugs, devices and biologicals. The Company believes most, if not all, of its
currently proposed products will be classified as drugs, although the Company
may develop proposed new potential products or potential therapeutic agents in
the future which are considered devices or biologicals. If the Company is
required to submit any application to the FDA as a biological, or device, the
application process may be significantly longer, more expensive and certain
different compliance procedures would apply than those for a drug as described
below.
The steps required by the FDA before a new drug may be marketed in the
United States include: (a) preclinical studies; (b) submission to the FDA of a
request for authorization to conduct human clinical trials in an
Investigational New Drug (IND) application, which includes the test data of the
preclinical studies and the proposed protocols (study designs) for clinical
trials (an IND allows evaluation of the new drug in controlled clinical
studies); (c) adequate and well controlled human clinical trials to
establish the safety and effectiveness of the drug for its intended
use; (d) submission to the FDA of a New Drug Application ("NDA"); and
(e) review and approval of the NDA by the FDA before the drug may be shipped or
sold commercially.
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In addition to obtaining the FDA's approval of an NDA for each of a
Company's proposed products, each manufacturing establishment for new drugs
must receive some form of approval by the FDA. Among the conditions for such
approval is the requirement that the prospective manufacturer's quality control
and manufacturing procedures conform to the FDA's Good Manufacturing Practices
regulations, which must be followed at all times. In complying with standards
set forth in these regulations, manufacturers must continue to expend time,
monies and effort in the area of production and quality control to ensure full
technical compliance. Manufacturing establishments, both foreign and domestic,
also are subject to inspections by or under the authority of the FDA and by
other federal, state or local agencies.
In general, the clinical testing for new compounds required by the FDA is
an extremely costly, ongoing, multi-year project. The FDA itself estimates
clinical drug development time requirements average five years, but range from
two to ten years. Finally, the Company or the FDA may suspend clinical trials
at any time if it is felt that the subjects or patients are being exposed to an
unacceptable health risk. Other competitors of the Company have had their
proposed pharmaceutical clinical trials halted due to safety concerns.
The process of completing clinical testing and obtaining FDA approval of a
NDA is likely to take a number of years and require the expenditure of
substantial resources. If an application is submitted, there can be no
assurance the FDA will review and approve the NDA in a timely manner if at all.
Even after initial FDA approval of the NDA has been obtained, further studies,
including post-market studies, may be required to provide additional data on
safety or effectiveness and will be required to gain approval for the use of a
potential product as a treatment for clinical indications other than those for
which the potential product was initially tested. Also, the FDA will require
post-market reporting and may require surveillance programs to monitor the side
effects of the drug. Results of post-marketing programs may limit or expand
the further marketing of the potential products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process, labeling, or a change in manufacturing facility, an NDA supplement may
be required to be submitted to the FDA.
Whether or not FDA approval has been obtained, approval of a potential
product by regulatory authorities in foreign countries must be obtained prior
to the commencement of marketing of the product in such countries. The
requirements governing the conduct of clinical trials and product approvals
vary widely from country to country, and the time required for approval may be
longer or shorter than that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general, each
country at this time has its own procedures and requirements.
Establishments handling controlled substances must be licensed by the
United States Drug Enforcement Administration. In addition to the regulatory
framework for potential product approvals, the Company is and may be subject to
regulation under state and federal law, including requirements regarding
occupational safety, laboratory practices, environmental protection and
hazardous substance control, and may be subject to other present and possible
future local, state, federal and foreign regulation.
EMPLOYEES
On December 31, 1996, the Company employed ten individuals, two in executive
positions, five in scientific positions and three in administration. None of
its employees are currently represented by a union or any other form of
collective bargaining unit. The Company believes its relations with its
employees are excellent. The Company anticipates it will hire a currently
undetermined number of new employees over the next 12 to 24 months. The
Company's success will depend in large part upon its ability to retain its
current and secure additional employees to continue its research and
development activities.
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RISK FACTORS
EARLY STAGE OF DEVELOPMENT; ABSENCE OF PRODUCTS
The Company is a development stage company. It has not completed the
development of any product and, accordingly, has not begun to market or
generate revenues from operations. Most if not all of the Company's proposed
commercial products will require significant additional research and
development, including in the majority of cases extensive preclinical and
clinical testing, before the Company will be able to apply for FDA approval.
There can be no assurance the Company's research and development efforts will
be successful, that any of the Company's potential products under development
will prove to be safe and effective in clinical trials, that the Company will
be able to obtain FDA approval for any of its proposed products, that any such
proposed products can be manufactured at acceptable cost and with appropriate
quality, or that any such proposed products, if they do receive regulatory
approval, can be successfully marketed. The Company cannot predict when, if
ever, it will begin to market any proposed products which may not occur for a
number of years.
NO OPERATING REVENUES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES
The Company has experienced significant operating losses since its
inception in 1991. As of December 31, 1996 the Company had a deficit
accumulated in the development stage of $5,228,813 (see the Financial
Statements included herein). The Company expects to incur substantial
additional operating losses over the next several years and expects cumulative
losses to increase as the Company's research and development efforts and
clinical trials expand. The Company has generated no revenues from operations.
The development of the Company's proposed products will require the commitment
of substantial resources to prepare and submit applications to the FDA, and to
conduct research, preclinical and clinical trials, to either establish
commercial scale manufacturing processes and facilities or contract for such
manufacturing facilities, and to establish additional quality control,
regulatory, marketing, sales and administrative capabilities. There can be no
assurance the Company will be successful in these endeavors, especially in
light of the high failure rate of development stage pharmaceutical companies
with limited resources. There can be no assurance the Company will not incur
substantial and continuing net losses beyond the next several years or that the
Company will ever reach profitability. Furthermore, there can be no assurance
the Company will apply for or obtain regulatory approvals, enter into
arrangements with third parties for product development and commercialization,
or successfully market or license any products. To achieve profitable
operations, the Company, alone or with others, must successfully identify,
develop, manufacture and market its proprietary products or technologies. There
can be no assurance the Company will be able to accomplish these tasks.
Significant delays in any of these matters could materially adversely impact
the Company.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
Substantial expenditures will be required to enable the Company to conduct
existing and planned product research and development, continue the FDA
application process, including conducting preclinical studies and clinical
trials, and to manufacture and market its proposed products. The Company will
need to raise substantial additional funds to support its long-term proposed
product development and commercialization programs. The Company has no
established bank financing arrangements and it is not anticipated the Company
will secure any bank financing in the foreseeable future. Therefore, it is
likely the Company will need to seek additional financing through subsequent
future public or private sales of its securities, including equity securities.
The Company may also seek funding for the development and marketing of its
proposed products through strategic alliances and other arrangements with
corporate partners. There can be no assurance such collaborative arrangements
or additional funds will be available when needed, or on terms acceptable to
the Company, if at all. Any such additional financing may result in
significant dilution to existing stockholders. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its potential product development and drug discovery programs, halt
operations, or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, potential product candidates or potential products the Company
would not otherwise
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relinquish. The Company's future cash requirements will be affected by
results of research and development, preclinical studies and clinical trials,
relationships with corporate partners, changes in the focus and direction of
the Company's research and development programs, competitive and
technological advances, the regulatory approval process and other factors.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE
The Company is engaged in rapidly evolving and highly competitive fields
and competition is expected to increase. There are many companies, including
large pharmaceutical and chemical companies, engaged in developing,
manufacturing and marketing products similar to those proposed to be developed
by the Company, many of which have established a significant presence in the
markets which the Company=s proposed products are designed to address.
Virtually all of these companies have substantially greater capital resources,
research and development staffs, facilities and experience in obtaining
regulatory approvals, as well as in the manufacturing, marketing and
distribution of products, than the Company. There can be no assurance the
Company=s competitors will not succeed in developing technologies and products
that are more effective and less costly than any potential products under
research and development by the Company or which could render the Company=s
proposed products or technology obsolete.
DEPENDENCE UPON KEY PERSONNEL
The Company's success in developing marketable products and achieving a
competitive position will depend, in large part, on its ability to attract and
retain qualified scientific and management personnel and in particular, to
retain Dr. Sheldon S. Hendler, Dr. Robert A. Sanchez, and Dr. Jonathan W.
Jarvik who are all currently employed by the Company. The proprietary
technology which has been transferred to the Company was primarily developed by
Dr. Hendler, Dr. Sanchez, and Dr. Jarvik. The Company does not currently
maintain life insurance on any of these three individuals. Dr. Hendler is the
largest stockholder in the Company. Dr. Hendler, Dr. Sanchez and Dr. Jarvik
have entered into employment agreements. The loss of any of these individuals
would likely have a material adverse impact on the business and operations of
the Company. The Company will also need to hire additional management,
administrative and scientific personnel in the next year to meet its plans.
Competition for such personnel is intense, and no assurance can be given that
the Company will be able to hire and/or retain satisfactory personnel. The
Company's anticipated growth and expansion into areas and activities requiring
additional expertise, such as clinical trials, government approvals,
manufacturing, if appropriate, and marketing, if appropriate, are expected to
place increased demands on the Company's resources. These demands are expected
to require the addition of new management personnel and the development of
additional expertise by existing management personnel. The failure to acquire
such services or to develop such expertise could have a material adverse effect
on the Company's prospects for success. In addition, the Company relies on
consultants and advisors to assist the Company from time to time in reviewing
its research and development strategy. All of the Company's consultants and
advisors are employed by employers other than the Company, and may have
commitments to or consulting or advisory contracts with other entities that may
affect their ability to contribute to the Company.
RELIANCE ON COLLABORATIVE PARTNERS
Vyrex has relied in the past on certain established pharmaceutical
companies interested in its technology to fund a portion of its research and
development expenses. In February, 1993, the Company entered into an agreement
with Mylan Laboratories Incorporated whereby Mylan paid the Company $300,000
in consideration for access to information regarding certain technology the
Company was developing and for certain rights to license this technology. This
agreement lapsed at the end of 1993, and has not been renewed. The Company has
entered into a License Agreement with Pollufil, S.A. for testing, development
and commercialization of certain uses of the Company's potential Vantox-R-
product. The Company has also entered into license agreements with Dr. Jarvik
regarding his CD-Tagging-TM- technology and with American Qualex International
Inc.
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There can be no assurance the Company will be able to negotiate acceptable
collaborative arrangements in the future, or that any collaborative
arrangements will be successful. In addition, there can be no assurance the
Company's collaborative partners will not pursue alternative technologies or
develop alternative compounds either on their own or in collaboration with
others, including the Company's competitors, as a means of developing
treatments for the diseases targeted by the collaborative programs.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its ability to obtain
patent protection for its proposed products, both in the United States and
other countries. The patent position of biotechnology and pharmaceutical
companies is highly uncertain and involves complex legal and factual questions.
There is no consistent policy regarding the breadth of claims allowed in
biotechnology and pharmaceutical patents. The Company currently has eight
patents issued, and two patents allowed in the United States, and three patent
applications pending in the United States. There have been foreign
counterparts of certain of these applications filed in other countries on
behalf of the Company. The Company intends to file additional applications as
appropriate for patents covering both its proposed products and processes.
There can be no assurance patents will issue from any of the pending
applications, or for patents that have issued or may be issued, the claims
allowed will be sufficiently broad to protect the Company's technology. In
addition, there can be no assurance any patents issued to the Company will not
be challenged, invalidated or circumvented, or the rights granted thereunder
will provide proprietary protection to the Company. In addition, any patents
obtained by the Company will be of limited duration. All United States patents
issuing from patent applications applied for June 8, 1995 or thereafter will
have a term of 20 years from the date of filing. All United States patents in
force before June 8, 1995 will have a term of the longer of: (1) 17 years from
the date of issuance; or (2) 20 years from the date of filing. All United
States patents issuing from patent applications applied for before June 8, 1995
will have a term of the longer of (1) 17 years from the date of issuance; or
(2) 20 years from the date of filing. All of the Company=s patents to date,
were applied for before June 8, 1995. The commercial success of the Company
will also depend in part on Vyrex neither infringing patents issued to
competitors nor breaching the technology licenses upon which the Company's
proposed products might be based.
It may become necessary for the Company to obtain licenses of potential
products or other proprietary rights or trade secrets of other parties.
Failure by the Company to obtain such licenses may have a material adverse
impact on the Company. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of others' proprietary rights. In
addition, the Company may have to participate in interference proceedings
declared by the U.S. Patent and Trademark Office to determine the priority of
inventions which could result in substantial costs to the Company.
Vyrex also attempts to protect its proprietary technology and processes by
seeking to obtain confidentiality agreements with its contractors, consultants,
employees, potential collaborative partners, licensees, licensors and others.
There can be no assurance these agreements will adequately protect the Company,
that these agreements will not be breached, or the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by competitors. In addition the
Company does not generally require its principal scientific advisors to enter
into confidentiality agreements, and to the extent there is collaboration
between any of the scientific advisors and the Company, the aspects of such
collaboration will not necessarily remain the trade secrets of the Company.
This approach could increase the risk to the Company that it may not be able to
protect is proprietary information.
There can be no assurance others will not independently develop similar or
more advanced technologies or design around aspects of the Company's technology
which may be patented, or duplicate the Company's trade secrets. In some
cases, the Company may rely on trade secrets to protect its innovations. There
can be no assurance trade secrets will be established, or secrecy obligations
will be honored, or that others will not independently develop similar or
superior technology. To the extent consultants, key employees or other third
parties apply technological information independently developed
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by them or by others to Company projects, disputes may arise as to the
proprietary rights to such information which may not be resolved in favor of
the Company.
GOVERNMENTAL REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
The production and marketing of the Company's proposed products are
subject to strict regulation by federal and state governmental authorities in
the United States and in foreign countries where such potential products may be
produced and marketed. In the United States, the FDA regulates, where
applicable, development, testing, labeling, manufacturing, registration,
notification, clearance or approval, marketing, distribution, record keeping
and reporting requirements for human and animal drugs, medical devices,
biologies, cosmetics and food additives. Most, if not all of the Company's
proposed products, including its proposed Panavir-R-, Vantox-R-, and Cerex-TM-
products will require FDA clearance prior to marketing. The Federal
Environmental Protection Agency ("EPA") has regulations covering certain areas
for some of the Company's proposed products. Comparable state and local
agencies may have similar regulations. The FDA and EPA regulatory approval
processes may take a number of years and both FDA and EPA regulatory approval
may require the expenditure of substantial resources. There can be no
assurance the production and marketing of the Company's proposed products or
other potential products which may be developed by the Company in the future,
if any, will satisfy then current requirements of the FDA or EPA or comparable
state, local and foreign authorities. Delays in receiving or failure to
receive governmental approvals may have a material adverse impact on the
Company. In addition, there can be no assurance that government regulations
applicable to the Company or its proposed products or the interpretation
thereof will not change and thereby prevent the Company from marketing some or
all of its potential products for a period of time or permanently, or otherwise
materially and adversely affect the Company. Moreover, if regulatory approval
of a drug is granted, such approval may entail limitations on the indicated
uses for which the drug may be marketed. Even if such regulatory approval is
obtained, a marketed drug, its manufacturer and the facilities in which the
drug is manufactured are subject to continual review and periodic inspections.
Later discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the potential product from the market, product seizures, a halt
in operation and other materially adverse consequences. The Company is unable
to predict the extent of adverse governmental regulation which might arise from
future federal, state or foreign legislative or administrative action, or the
extent of the impact of such legislative changes on the business of the
Company.
DILUTIVE AND OTHER ADVERSE EFFECTS OF OUTSTANDING OPTIONS AND WARRANTS
Under the terms of the existing warrants, the underwriter's unit purchase
option, options issued under the Company's stock option plan and other
outstanding options and warrants, the holders thereof are given an opportunity
to profit from a rise in the market price of the Common Stock with a resulting
dilution in the interests of the other stockholders. The terms on which the
Company may obtain additional financing may be adversely affected by the
existence of such options and warrants. The holders of the warrants may
exercise them at a time when the Company might be able to obtain additional
capital through a new offering of securities on terms more favorable than those
provided by the warrants. In addition, holders of certain Common Stock of the
Company have registration rights, and the exercise of such rights may involve
substantial expense to the Company.
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK
The Company's Board of Directors is authorized to issue up to 10,000,000
shares of preferred stock. The Board of Directors has the power to establish
the dividend rates, liquidation preferences, voting rights, redemption and
conversion terms and privileges with respect to any series of preferred stock.
The issuance of any series of preferred stock having rights superior to those
of the Common Stock may result in a decrease in the value or market price of
the Common Stock and could further be used by the Board as a device to prevent
a change in control favorable to the Company. Holders of preferred stock to be
issued in the future may have the right to receive dividends and certain
preferences in liquidation and conversion rights. The issuance of such
preferred stock could make the possible takeover of the Company or the removal
of management of the Company more difficult, discourage hostile bids for
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control of the Company in which stockholders may receive premiums for their
Common Stock or Warrants and adversely affect the voting and other rights of
the holder of the Common Stock, or depress the market price of the Common Stock
or Warrants.
POSSIBLE VOLATILITY OF STOCK PRICE
Future announcements concerning the Company or its competitors, including
the results of testing, technological innovations or new commercial products,
government regulations, developments concerning proprietary rights, litigation
or public concern as to safety of potential products, developed by the Company
or others, may have a significant impact on the market price of the Company's
securities. See Item 5.
CONTROL BY PRESENT STOCKHOLDERS; POSSIBLE DEPRESSIVE EFFECT ON THE COMPANY'S
SECURITIES
The officers and directors will be able to elect all of the Company's
directors and otherwise control the Company's operations. This concentration
of ownership by the Company's officers and directors may discourage potential
acquirers from seeking control of the Company though the purchase of Common
Stock, and this possibility could have a depressive effect on the price of the
Company's securities.
In addition, Dr. Sheldon S. Hendler, President and a director of the
Company currently owns a significant percentage of the outstanding Common Stock
of the Company. As a result thereof Dr. Hendler alone may control, or exert
overwhelming influence over the Company's operations.
ANTI-TAKEOVER PROVISIONS - LIMITATION ON VOTING RIGHTS
The Company's Articles of Incorporation and Bylaws contain provisions that
may make it more difficult to acquire control of the Company by means of
tender offer, over-the-counter purchases, a proxy fight, or otherwise. The
Articles of Incorporation also include provisions restricting stockholder
voting rights. The Company's Articles of Incorporation include a provision
that requires that any action required by the stockholders may not be affected
by a written consent, and that special meetings of the stockholders may only be
called by the Board of Directors. This provision makes it difficult for
stockholders to pass any resolution not supported by the Board of Directors
except at a regularly called meeting. The Company's Articles of Incorporation
provide for a staggered term of the Board of Directors, thus eliminating the
ability to elect all of the directors in any one year. This provision may make
the implementation of a change in management a process requiring more than one
year even if supported by a majority of the stockholders. The Company's
Articles of Incorporation provide directors may only be removed for cause and a
vote of 70% of the shareholders. Certain provisions of the Articles of
Incorporation may only be amended by a vote of 70% of the stockholders. As a
result of the number of shares currently owned by management, this provision
may for some time have the effect of indirectly eliminating any possibility
stockholders could pass a resolution unless approved by management, in
connection with any question submitted or required to be submitted to a vote of
the stockholders. The Company's Articles of Incorporation also require that
stockholders give advance notice to the Company of any directorship nominations
or other business to be brought by the stockholders at any stockholder's
meeting. This provision makes it more difficult for stockholders to nominate
candidates for the Board of Directors who are not supported by management. In
addition, the Articles of Incorporation require advance notice for stockholder
proposals to be brought before the annual meeting. The requirements include
that the notice must specify certain information regarding the stockholder and
the meeting. This provision to implement stockholder proposals makes it more
difficult even if a majority of stockholders are in support thereof. Each of
these provisions may also have the effect of deterring hostile take-overs or
delaying changes in control or management of the Company. In addition, the
indemnification provisions of the Company's Bylaws and Articles of
Incorporation may represent a conflict of interest with the stockholders since
officers and directors may be indemnified prior to any judicial determinations
as to their conduct.
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LACK OF MARKETING EXPERIENCE; DEPENDENCE ON OUTSIDE PARTIES FOR MARKETING AND
DISTRIBUTION; UNCERTAINTY OF MARKET ACCEPTANCE OF PROPOSED PRODUCTS
If successfully developed and approved by applicable regulatory agencies,
the Company initially intends to market its proposed products currently under
development through contractual arrangements with others such as joint venture,
licensing or similar collaborative agreements or distribution agreements. This
may result in a lack of control by the Company over some or all of the
marketing and distribution of such potential products. There can be no
assurance that the Company will be able to enter into any marketing
arrangements on terms acceptable to the Company or that any marketing efforts
undertaken on behalf of the Company will be successful. The Company may, in
the future, determine to directly market certain of its proposed products. The
Company has no marketing experience and significant additional capital
expenditures and management resources would be required to develop a direct
sales force. In the event the Company elects to engage in direct marketing
activities, there can be no assurance the Company would be able to obtain the
requisite funds or attract and retain the human resources necessary to
successfully market any of its potential products.
The Company's future growth and profitability will depend, in large part,
on the success of its personnel and others conducting marketing efforts on
behalf of the Company in fostering acceptance among the various markets of the
use of the Company's potential products as an alternative to other available
products or otherwise. The Company's success in marketing its potential
products will be substantially dependent on educating its targeted markets as
to the distinctive characteristics and perceived benefits of the Company's
potential products. There can be no assurance that the Company's efforts or
the efforts of others will be successful or that any of the Company's proposed
products will be favorably accepted among the targeted markets.
LACK OF MANUFACTURING CAPABILITY; DEPENDENCE ON OUTSIDE PARTIES FOR
MANUFACTURING OF PROPOSED PRODUCTS
The Company has no manufacturing facilities or expertise, and does not
intend to manufacture any potential product or products. The Company initially
intends to enter into arrangements with others to manufacture its proposed
products. There can be no assurance the Company will be able to enter into
satisfactory arrangements for the manufacture of its proposed products with
manufacturers whose facilities and procedures comply with FDA or other
regulatory requirements, that the manufacturers will continue to comply with
such standards, or that such manufacturers will be able to adequately supply
the Company with its product needs. The Company's dependence on third parties
for manufacturing may adversely affect the Company's ability to develop and
deliver products on a timely and competitive basis. The Company may in the
future undertake to manufacture some or all of its proposed products directly.
The Company has no experience with the manufacture of any of its proposed
products under development. In the event the Company were to undertake to
manufacture any of its proposed products, the Company would be required to
finance considerable additional capital expenditures, attract and retain
experienced personnel, develop a manufacturing capability, and comply with
extensive government regulations with respect to its facilities, including
among others, FDA manufacturing requirements. The Company would not be able to
develop any reasonable manufacturing capability without obtaining significant
capital in excess of the funds anticipated from this offering. There can be no
assurance the Company would be able to successfully establish manufacturing
operations. See "Business - Sources of Supply."
DEPENDENCE ON SUPPLIERS
The materials used in the Company's potential products are currently
available only from a limited number of suppliers. The Company anticipates
there will continue to be a limited number of suppliers for its proposed
products. In the event the Company could not obtain adequate quantities of
necessary materials from its existing suppliers, there can be no assurance the
Company would be able to access alternative sources of supply within a
reasonable period of time or at commercially reasonable rates. Regulatory
requirements applicable to pharmaceutical products tend to make the
substitution of suppliers costly and time-consuming. The unavailability of
adequate commercial quantities, the inability to develop
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alternative sources, a reduction or interruption in supply or a significant
increase in the price of materials could have a material adverse effect on
the Company's ability to manufacture and market its proposed products. See
"Business - Sources of Supply."
PRODUCT LIABILITY; AVAILABILITY OF INSURANCE
The design, development and manufacture of the Company=s proposed
products involve an inherent risk of product liability claims and associated
adverse publicity. The Company obtained clinical trial product liability
insurance for its Panavir-R- Phase I human clinical trial and intends to
obtain insurance for future clinical trials of Panavir-R-, Vantox-TM-, and
other potential products under development, and for potential product
liability associated with the commercial sale of the Company=s proposed
products. There can be no assurance the Company will be able to obtain or
maintain insurance for any of its clinical trials or proposed commercial
products. Although the Company currently maintains liability insurance in
connection with its Panavir-R- trials, there can be no assurance the coverage
limits of the Company's insurance policies will be adequate. Such insurance
is expensive, difficult to obtain and may not be available in the future on
acceptable terms or at all. A successful claim brought against the Company
in excess of the Company's insurance coverage would have a material adverse
effect upon the Company.
HAZARDOUS MATERIAL; ENVIRONMENTAL MATTERS
The Company, at present, contracts with outside vendors for manufacture of
its proposed products. However, the Company's research and development
processes at times involve the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. In addition, various of
such materials, chemicals, viruses and compounds may be used by the Company in
the future to the extent Vyrex undertakes to perform its own manufacturing. To
the extent certain such materials, chemicals, viruses and compounds are or will
be used by the Company, Vyrex will be subject to federal, state and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of certain materials and waste products. Although the Company believes its
safety procedures for handling and disposing of materials would comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result, and any such liability could exceed the resources of the
Company. There can be no assurance the Company will not be required to incur
significant costs to comply with environmental laws and regulations in the
future, or that the operations, business or assets of the Company will not be
affected adversely or materially by current or future environmental laws or
regulations.
HEALTH CARE REFORM
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental changes. Reforms under
consideration may include mandated basic health care benefits, controls on
health care spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid spending, the creation of large
insurance purchasing groups and fundamental changes to the health care delivery
system. The Company anticipates Congress and certain state legislatures will
continue to review and assess alternative health care delivery systems and
payment methods and public debate of these issues will likely continue in the
future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the Company.
ITEM 2. PROPERTIES
Vyrex Corporation leases a 2,000 square foot administrative facility located in
La Jolla, California. Current monthly rental on the facility is approximately
$2,000.
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ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq Small Capitalization market under the symbol "VYRX". The Company's
Common Stock Warrants are traded in the over-the-counter market under the
symbol "VYRXW." The Company's Units sold as part of the initial public
offering were separated into Common Stock and Warrants on May 16, 1996. The
following table sets forth the range of high and low sales prices for the
Common Stock on the Nasdaq Small Capitalization Market for the periods
indicated since May 17, 1996.
HIGH LOW
May 17 - June 31, 1996 $7.00 $3.50
July 1 - September 30, 1996 $6.37 $2.37
October 1 - December 31, 1996 $12.87 $6.00
As of February 26, 1997, the Company's Common Stock was held by approximately
766 stockholders of record. The Company has never paid cash dividends and does
not anticipate paying any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND PLAN OF OPERATION
OVERVIEW
Since its inception in January 1991, the Company has devoted substantially all
of its efforts and resources to research and development related to the study
of biological oxidation, antioxidation, cyclodextrins and apoptosis-induction
directed to the development of potential therapeutic products for the treatment
of various diseases and conditions. Currently the Company's research focuses
mainly in the following areas: targeted antioxidant therapeutics; annotated
gene discovery utilizing the Company's proprietary CD-Tagging-TM- method;
therapeutic cyclodextrins; apoptosis-inducing cancer therapeutics and
nutraceuticals.
The Company is a development stage company, has never generated any revenue
from product sales and has relied primarily on equity financings, licensing
revenues, and bridge loans for its working capital. The Company has been
unprofitable since its inception, and expects to incur substantial additional
operating losses over at least the next several years. As of December 31,
1996, the Company's accumulated deficit was approximately $5,228,813.
17
<PAGE>
The Company's business is subject to significant risks, including the risks
inherent in its research and development efforts, uncertainties associated with
obtaining and enforcing patents, the lengthy and expensive regulatory approval
process and competition from other biotechnology companies. See "Risk
Factors."
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
No revenues were earned in 1996. In 1995, the Company earned a $10,000 license
fee for the sale of an option to license a potential product.
Research and Development expenses increased $574,859 to $869,812 in 1996
compared to $294,953 for 1995. The increased spending resulted primarily from
higher salary costs related to the hiring of scientific personnel, higher
consulting costs and increased spending on synthesis and patent preparation of
new Panavir and Vantox pro-drugs and analogs, as well as formulation and
preclinical work on Cerex.
General and Administrative expenses increased $905,621 to $1,127,270 in 1996
compared to $221,649 for 1995. The increase in expenses was due to higher
professional expenses for patent and corporate development work, expenses
related to the proposed acquisition of Nutrition 21, salaries for new
administrative personnel and higher facility, maintenance and insurance costs.
Interest income increased $174,550 to $176,468 compared to $1,918 for 1995. The
increase resulted from higher cash balances as a result of the initial public
offering of Units and certain stock option exercises, offset by spending to
support operations.
Net loss decreased $33,970 to $1,820,614 in 1996 compared to $1,854,584 in
1995. Higher spending on operations in 1996 was offset by higher interest
income in 1996 and the lack of bridge financing costs as incurred in 1995. Net
loss per share decreased $0.02 to $0.28 in 1996 compared to $0.30 in 1995. The
decline in net loss per share was primarily due to the higher average shares
outstanding in 1996, as well as the decreased net loss mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operation since inception solely through the sale
of debt and equity securities. As of December 31, 1996, the Company had
working capital of $4,625,069 which includes $5,081,736 of cash, cash
equivalents and short term investments. This compares with a working capital
deficit of $356,387 at December 31, 1995. The increase in working capital is
the result of cash received from the Company's initial public offering, as well
as cash received for the sale and exercise of stock options, offset by spending
to support operations. The Company has sufficient funds to operate the
business at its current level for at least twelve months.
The Company believes that its current cash reserves will fund the business for
at least 12 months from the balance sheet date. The Company does not
anticipate having revenues in the foreseeable future and will be required to
raise additional funds to continue operations. There can be no assurance that
funds will be available through the public or private markets.
PLAN OF OPERATION
During the 12 month period following the balance sheet date, the Company
intends to focus substantially all of its efforts and resources on research and
development related to the study of targeted antioxidant therapeutics,
annotated gene discovery, therapeutic cyclodextrins, apoptosis-inducing cancer
therapeutics and nutraceuticals. Most of these efforts will involve
development of its potential products, and the remainder will involve other
current projects developed from its ongoing research. During such 12 month
18
<PAGE>
period, the Company expects to retain additional consultants and hire
additional employees in the areas of research, development, regulation,
marketing, sales and administration, and to lease additional facilities. The
Company will also continue discussions with potential collaborative partners
concerning development, manufacture and marketing of Cerex-TM-, Vantox-TM-,
Vyderm-TM-, Epitope Tagging, CD-Tagging-TM-, nutraceuticals and possibly
other potential products which may include joint ventures and acquisitions.
See "Business."
19
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Vyrex Corporation
(a development stage enterprise)
Index to Financial Statements
Report of Ernst & Young, LLP, Independent Auditors...... 20
Report of J.H. Cohn and Company, Independent Auditors... 21
Balance Sheets.......................................... 22
Statements of Operations................................ 23
Statements of Stockholders' Equity...................... 24
Statements of Cash Flows................................ 25
Notes to Financial Statements........................... 26
20
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Vyrex Corporation
We have audited the accompanying balance sheet of Vyrex Corporation
(a development stage enterprise) as of December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended, and for the period from January 2, 1991 (inception) through December 31,
1996. 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. The statement of operations for the period
from January 2, 1991 (inception) through December 31, 1995, was audited by
other auditors. The statement of operations for the period from January 2,
1991 (inception) through December 31, 1995 include total revenues and net loss
of $310,000 and $3,408,199, respectively. Our opinion on the statements of
operations, stockholders' equity and cash flows for the period from January 2,
1991 (inception) through December 31, 1995, insofar as it relates to amounts
for prior periods through December 31, 1995, is based solely on the report of
other auditors.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Vyrex Corporation (a development stage
enterprise) at December 31, 1996, and the results of its operations and its
cash flows for the year then ended and the period from January 2, 1991
(inception) through December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 3, 1997
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
Vyrex Corporation
We have audited the accompanying balance sheet of VYREX CORPORATION (A
Development Stage Enterprise) as of December 31, 1995 and the related
statements of operations, stockholders' equity (deficiency) and cash flows
for the year then ended. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in
all material respects, the financial position of Vyrex Corporation as of
December 31, 1995, and its results of operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.
The accompanying 1995 financial statements have been prepared assuming that
the Company will continue as a going conern. The Company has incurred
recurring operating losses and operating cash flow deficiencies and had
substantial working capital and stockholders' deficiencies as of December 31,
1995. These matters raise substantial doubt about its ability to continue as
a going conern. The 1995 financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
J.H. COHN LLP
San Diego, California
February 9, 1996
22
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,187,906 $ 65,995
Short-term investments, available-for-sale 1,893,830 -
Interest receivable 47,979 -
---------- ---------
Total current assets 5,129,715 65,995
Deferred offering costs - 98,640
Furniture and equipment, net of accumulated
depreciation of $54,394 in 1996 and $38,685 in 1995 54,256 8,391
Notes receivable from related parties 313,304 -
Patents, trademarks and copyrights, net of
accumulated amortization of $16,201 in 1996 and
$7,953 in 1995 124,018 132,266
---------- ---------
Total assets $5,621,293 $ 305,292
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued liabilities
(includes $35,820 payable to principal
stockholder in 1995) $ 504,646 $ 122,382
Notes payable - 300,000
---------- ---------
Total current liabilities 504,646 422,382
Commitments and contingencies
Stockholders' equity (Deficiency):
Preferred stock, $.001 par value; 10,000,000
shares authorized; none issued - -
Common stock, $.001 par value; 50,000,000 shares
authorized; 7,121,209 and 5,203,805 issued and
outstanding in 1996 and 1995, respectively 7,121 5,204
Additional paid-in capital 10,338,339 3,285,905
Deficit accumulated during the development stage (5,228,813) (3,408,199)
---------- ---------
Total stockholders' equity (Deficiency) 5,116,647 (117,090)
---------- ---------
Total liabilities and stockholders' equity
(Deficiency) $ 5,621,293 $ 305,292
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
23
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Statements of Operations
<TABLE>
<CAPTION>
CUMULATIVE
YEARS ENDED DECEMBER 31, FROM
1996 1995 INCEPTION
----------- --------- ----------
<S> <C> <C> <C>
Revenue and licensing agreement $ - $ 10,000 $ 310,000
Operating expenses:
Research and development (869,812) (294,953) (2,393,785)
General and administrative (1,127,270) (221,649) (1,997,548)
----------- ----------- -----------
Totals (1,997,082) (516,602) (4,391,333)
----------- ----------- -----------
Loss from operations (1,997,082) (506,602) (4,081,333)
Other income (expense):
Interest income 176,468 1,918 202,420
Charge from issuance of stock options for
arranging bridge financing costs - (1,349,900) (1,349,900)
----------- ----------- -----------
Totals 176,468 (1,347,982) (1,147,480)
----------- ----------- -----------
Net loss $(1,820,614) $(1,854,584) $(5,228,813)
=========== =========== ===========
Net loss per share $ (0.28) $ (0.30)
=========== ===========
Shares used in per share computations 6,514,324 6,137,020
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
24
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Statements of Stockholders' Equity
From inception to December 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE TOTAL
------------------- PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
------ ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance (at $.002 per share) for acquisition of
technology retroactively reduced for 150,000 shares
returned and retired on October 1, 1995 3,350,000 $3,350 $ 3,350 $ - $ 6,700
Issuance (at $.002 per share) for cash 500,000 500 500 1,000
Issuance (at $1.00 per share) for cash 800,000 800 799,200 - 800,000
Issuance as compensation (at $1.00 per share) 32,500 33 32,467 - 32,500
Issuance (at $2.00 per share) upon conversion of
note payable 100,000 100 199,900 - 200,000
Issuance (at $3.00 per share) for cash, net of issuance
costs of 4,086 33,000 33 94,881 - 94,914
Net loss - - - (1,085,932) (1,085,932)
--------- ------ ---------- ----------- -----------
Balance at December 31, 1993 4,815,500 4,816 1,130,298 (1,085,932) 49,182
Issuance (at $3.00 per share) for cash, net of issuance
costs of $21,000 99,000 99 275,901 - 276,000
Issuance (at $3.00 per share) in lieu of finder's fee 7,000 7 20,993 - 21,000
Issuance (at $3.00 per share) in lieu of finder's fee 5,000 5 14,995 - 15,000
Issuance (at $3.00 per share) for cash, net of issuance
costs of $41,844 24,990 25 33,101 - 33,126
Net loss - - - (467,683) (467,683)
--------- ------ ---------- ----------- -----------
Balance at December 31, 1994 4,951,490 4,952 1,475,288 (1,553,615) (73,375)
Issuance (at $3.00 per share) for cash, net of issuance
costs of $46,976 149,940 150 402,694 - 402,844
Issuance (at $3.00 per share) in settlement of account
payable 6,041 6 18,117 - 18,123
Issuance (at par value) as compensation for services
related to prior issuances of common stock 83,000 83 (83) - -
Issuance (at $3.00 per share) as compensation for services
related to offering 13,334 13 39,989 - 40,002
Issuance (at $3.00 per underlying share) of options for
450,000 shares as compensation for arranging bridge
financing - - 1,349,900 - 1,349,900
Net loss - - - (1,854,584) (1,854,584)
--------- ------ ---------- ----------- -----------
Balance at December 31, 1995 5,203,805 5,204 3,285,905 (3,408,199) (117,090)
Proceeds from initial public offering (at $6.50 per unit),
net of issuance costs of $1,135,453 1,057,097 1,057 5,734,620 - 5,735,677
Sale of option to purchase 300,000 shares at $3.00 per
share - - 50,000 - 50,000
Exercise of stock options (at $3.00 per share) for cash 300,000 300 899,700 - 900,000
Conversion of notes payable and related accrued interest
(at $3.00 per share) 86,015 86 257,959 - 258,045
Exercise of stock options (at $.00022 per share) for cash 450,000 450 (350) - 100
Issuance of units as compensation for legal services
(at $4.55 per share) 24,292 24 110,505 - 110,529
Net loss - - - (1,820,614) (1,820,614)
--------- ------ ---------- ----------- -----------
Balance at December 31, 1996 7,121,209 $7,121 $10,338,339 $(5,228,813) $ 5,116,647
========= ====== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
25
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
CUMULATIVE
YEARS ENDED DECEMBER 31, FROM
1996 1995 INCEPTION
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,820,614) $(1,854,584) $(5,228,813)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 23,957 9,533 70,310
Interest receivable (47,979) - (47,979)
Issuance of compensatory notes, stock and
stock options 110,529 1,418,023 1,561,052
Accounts payable and accrued liabilities 382,264 (9,849) 504,646
----------- ----------- -----------
Net cash used in operating activities (1,351,843) (436,877) (3,140,784)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of short-term investments (4,842,195) - (4,941,215)
Sale of short-term investments 2,948,365 - 3,048,365
Purchases of furniture and equipment (61,574) - (108,650)
Cost of patent, trademarks and copyrights - (47,803) (133,519)
Other assets, including notes receivable from
related parties (313,304) - (313,999)
----------- ----------- -----------
Net cash used in investing activities (2,268,708) (47,803) (2,449,018)
----------- ----------- -----------
FINANCING ACTIVITIES
Advances from potential investors - - 100,000
Repayments of advances - (100,000) (100,000)
Proceeds from (repayment of) note payable (50,000) 250,000 400,000
Deferred offering costs - (58,638) (58,638)
Exercise of stock options and sale of option 950,100 - 950,100
Net proceeds from issuance of common stock 5,842,362 402,844 7,486,246
----------- ----------- -----------
Net cash provided by financing activities 6,742,462 494,206 8,777,708
----------- ----------- -----------
Net increase in cash and cash equivalents 3,121,911 9,526 3,187,906
Cash and cash equivalents, beginning of the period 65,995 56,469 -
----------- ----------- -----------
Cash and cash equivalents, end of the period $ 3,187,906 $ 65,995 $ 3,187,906
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Conversion of notes payable and related
accrued interest $ 258,045 $ - $ -
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
26
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements
December 31, 1996
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Vyrex Corporation (the "Company") was incorporated on January 2, 1991 in the
State of Nevada. Effective that date, the Company obtained the technology it
is developing through the issuance of common stock to its founder and principal
stockholder. The Company's operations focus primarily on the discovery and
development of biopharmaceuticals for the treatment and prevention of various
disorders including AIDS, respiratory diseases, cancer and aging and it is
involved in various stages of the investigation and development of several
potential therapeutic products. The Company is using contractors for
manufacturing and testing of the products it is developing and is seeking stra
tegic partners to market and distribute them. Management expects the Company
to continue to use contractors and strategic partners until such time, if any,
that it has sufficient resources to conduct such activities on its own.
The Company's major activities through December 31, 1996 have been limited to
conducting research and development related to its proposed products and
raising funds for such activities. These activities have not generated any
recurring revenues; accordingly, the Company has been in the development stage
since its inception.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost less accumulated depreciation.
Depreciation of furniture and equipment is provided using accelerated and
straight-line methods over the estimated useful lives of the assets which range
from 3 to 7 years.
PATENTS, TRADEMARKS AND COPYRIGHTS
Certain costs of filing for patents, trademarks and copyrights are capitalized
as incurred. Such costs are being amortized on a straight-line basis over the
lesser of their statutory lives or estimated useful lives commencing on the
date of issuance.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", effective January 1, 1996. SFAS No. 121 requires
impairment losses to be
27
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed of. There was no effect on the Company's financial statements
from the adoption of SFAS No. 121.
NET LOSS PER COMMON SHARE
For periods subsequent to the completion of the Company's initial public
offering (IPO) in March 1996, net loss per share was computed by dividing the
net loss by the weighted average number of common shares outstanding. Common
stock equivalents resulting from outstanding stock options and warrants are
antidilutive. For periods prior to the IPO, net loss per share is computed
pursuant to the rules of the Securities and Exchange Commision which require
that common stock issued during a period of at least twelve months immediately
preceding the IPO, plus the equivalent of common shares granted or issued during
the same period be included in the calculation of shares used in computing net
loss per share as if these shares were outstanding for all periods presented
(using the treasury stock method).
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consists of cash and highly liquid U.S. government
securities with remaining maturities, when acquired, of three months or less.
Included in cash and cash equivalents at December 31, 1996 was approximately
$1.5 million invested in U.S. Treasury bills.
Short-term investments consist of U.S. Treasury bills maturing in May and
November of 1997 and are classified as available-for-sale and carried at
amounts which approximate fair value, with unrealized gains and losses, net of
tax, reported in a separate component of stockholders' equity. As of December
31, 1996, the difference between amortized cost and the estimated fair value of
investments was not material. Realized gains and losses and declines in value
judged to be other-than temporary, if any, in available-for-sale securities are
included in investment income. The cost of securities is based on the specific
identification method.
28
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
3. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
DECEMBER 31,
1996 1995
------- -------
Office furniture and equipment $92,366 $30,792
Laboratory equipment 16,284 16,284
------- -------
108,650 47,076
Less accumulated depreciation 54,394 38,685
------- -------
Total $54,256 $ 8,391
Depreciation expense was $15,709 and $6,505 for the years ended December 31,
1996 and 1995, respectively.
4. RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
On October 25, 1996, the Company loaned $260,000 to the Company's former
President and Chief Operating Officer in the form of a demand note with 7%
interest, principal and interest is payable on demand. The note is secured by
a second trust deed. On December 23, 1996, the Company also loaned $50,000 to
its Vice President, Chemistry. The loan was in the form of a secured note
carrying 7% interest, whose principal and interest is payable on demand.
EMPLOYMENT AGREEMENT
Dr. Sheldon Hendler, the Company's Chairman and CEO entered into a one year
employment agreement on October 1, 1995. The agreement automatically renews on
the anniversary date for an additional year unless previously terminated by the
Company. Dr. Hendler's salary under the agreement is set by the Board of
Directors and is currently $205,000 per year. The Company has the right to
terminate Dr. Hendler's employment agreement for cause or as a result of death
or permanent disability. In certain events relating primarily to merger or
reorganization and similar changes in the nature of the Company, Dr. Hendler is
entitled to continue his employment or voluntarily terminate the agreement and
receive a severance payment of 2.99 times his annual salary and fringe benefits
during the five years preceding the date of termination.
29
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
OTHER
The Company had a month-to-month agreement with the Company's Chairman and CEO
whereby it paid him for the use of office space, equipment and certain clerical
costs. The agreement was ended in April of 1996. Under the agreement, the
Company paid Dr. Hendler $16,000 in 1996 and $60,000 in 1995.
5. TECHNOLOGY LICENSE AND CLINICAL STUDY AGREEMENTS
Effective as of January 2, 1991, the Company issued 3,500,000 shares of common
stock to The Hendler Group (of which Dr. S. Hendler, the Company's Chairman, is
the principal member) in exchange for all of The Hendler Group's rights in
certain antiviral technologies and subject to certain rights and obligations
under an agreement between Dr. S. Hendler and Biodor U.S. Holding ("Biodor").
For accounting purposes, the technology acquired and the shares issued to the
Company's founder and principal stockholder were valued at $7,000 based on a
$.002 per share price of a concurrent sale of shares for cash. On October 1,
1995, Dr. Hendler returned 150,000 of the 3,500,000 shares initially issued to
him (see Note 8). For accounting purposes, the Company has retroactively
reversed the initial issuance by reducing the cost of the technology and
stockholders' equity by $300 based on the original value of $.002 per share.
In 1992, the Company entered into a clinical study agreement with the Long
Beach Memorial Medical Center (the "Center") whereby the Center was to perform
a "Phase I/II" trial (the "Trial") of the efficacy, safety and bioavailability
of Panavir, a drug the technology for which is owned by the Company, in HIV-
infected patients. The Center was paid a total of $182,891 for the Trial.
In February 1993, the Company entered into an agreement with Mylan
Laboratories, Inc. ("Mylan") under which Mylan paid the Company $300,000, which
the Company reflected as revenue, in exchange for Mylan's access to certain
proprietary information concerning ongoing research and development projects
conducted by the Company and an option to acquire specified rights to
technology. Mylan did not choose to acquire the rights to any technology prior
to the expiration of the agreement on December 31, 1993.
In September 1995, the Company received a fee of $10,000 on signing a letter of
intent to enter into an exclusive worldwide license agreement with Pollufil
Trading, S.A. Tobacco Division ("Pollufil") to commercialize certain Company
technology. In November 1995, the Company entered into a license agreement
(the "Pollufil Agreement") pursuant to which the Company granted Pollufil an
exclusive world-wide license to commercialize certain Company technology for
use as an antioxidant cigarette filter additive. Under the Pollufil Agreement,
the Company is entitled to receive two payments totaling $90,000
30
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
5. TECHNOLOGY LICENSE AND CLINICAL STUDY AGREEMENTS (CONTINUED)
upon the achievement of certain milestone events with respect to testing of
the potential products sought to be developed using the licensed technology.
Unless the Pollufil agreement is terminated and the Company's technology is
not utilized by Pollufil, the Company is also entitled to royalties in the
amount of 10% of the gross proceeds received by Pollufil in connection with
the licensed technology, and minimum royalties commencing June 1, 1996 of
$300,000 per year, payable one year in arrears.
6. NOTES PAYABLE
At December 31, 1995, notes payable consisted of the following:
Bridge loans, with interest at 7% per annum, principal and
interest convertible at the sole election of the Company
into shares of common stock at the rate of $3.00 per share $250,000
Non-interest bearing note payable to former director 50,000
--------
Total $300,000
========
In 1996, the non-interest bearing loan was repaid and the bridge loans,
including related accrued interest of $8,045, were converted into 86,015 shares
of common stock.
During 1995, the Company granted an option to purchase common stock to an
individual who assisted in obtaining financing for the Company. Based on the
estimated fair value of the option, the Company recorded a charge of $1,349,900
in the accompanying 1995 statement of operations.
7. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards
available to reduce future taxable income, if any, of approximately $9,238,000
and $4,520,000 for federal and California income tax purposes, respectively.
These net operating losses begin to expire in 2007 and 2000 for federal and
California purposes, respectively. The difference between the federal and
California tax loss carryforwards is primarily related to the 50% limitation on
California loss carryforwards. The Company also had research and development
credit carryforwards of approximately $147,000 and $60,000 for federal and
state income tax reporting purposes, respectively.
31
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Temporary differences (the loss and tax credit carryforwards described above)
give rise to the Company's deferred income taxes. The components of the
Company's deferred tax assets as of December 31, 1996 and 1995 are as follows:
1996 1995
----------- ---------
Net operating loss carryforwards $ 3,505,000 $ 688,000
Research and development credit carryforwards 207,000 163,000
----------- ---------
3,712,000 851,000
Valuation allowance (3,712,000) (851,000)
----------- ---------
$ - $ -
=========== =========
The deferred tax assets have been offset by a valuation allowance in the same
amount because the ultimate realization of these assets is uncertain.
8. STOCKHOLDERS' EQUITY
Pursuant to a private placement memorandum dated November 18, 1994 (the "PPM"),
the Company commenced an offering of up to 60 units at a price of $49,980 per
unit. Each unit consisted of 16,660 shares of common stock and one common
stock warrant. Each warrant entitles the holder to purchase 5,000 shares of
common stock at $8.00 per share, subject to anti-dilution adjustments. The
warrants may be exercised in whole or in part during the three-year period
following the date of issuance, although the Company may, under certain
conditions, accelerate the termination of the exercise period.
In December 1994, the Company issued 24,990 shares of common stock and warrants
to purchase 7,500 shares of common stock upon the sale of 1.5 units offered
pursuant to the PPM. Gross proceeds from the sale of the units totaled $74,970
(or $3.00 per share based on the number of shares issued). Commissions
applicable to the units sold and costs related to the private offering totaling
$41,844 were charged against additional paid-in capital in 1994.
During 1995, the Company issued 149,940 shares of common stock and warrants to
purchase 45,000 shares of common stock upon the sale of nine units offered
pursuant to the PPM. Gross proceeds from the sale of the units totaled
$449,820 (or $3.00 per share based on the number of shares issued).
Commissions applicable to the units sold and costs related to the private
offering totaling $46,976 were charged against additional paid-in capital.
32
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
On April 13, 1995, the Company issued 6,041 shares of common stock and a
warrant for the purchase of 1,812 shares as payment (at $3.00 per share issued)
for $18,123 of legal services previously rendered. The warrant is exercisable
at $8.00 per share during the three year period from the date of issuance.
In September 1995, the Company issued 58,000 shares of common stock to selling
agents for services in connection with the units sold pursuant to the PPM and
25,000 shares to other individuals for services in connection with other
issuances of equity securities.
On October 1, 1995, the Company issued 13,334 shares of common stock and a
warrant for the purchase of 4,000 shares as a payment (at $3.00 per share
issued) for $40,002 of legal services rendered in connection with the IPO. The
warrant is exercisable at $8.00 per share during the three-year period from the
date of issuance.
On October 1, 1995, the Company granted an option for the purchase of 450,000
shares of its common stock at an aggregate exercise price of $100 (or $.00022
per share) as part of the consideration for the recipient's agreement to assist
in arranging certain bridge financing for the Company (see Note 6). Management
estimated that the aggregate fair value of the options was $1,350,000 based on
the fair value of $3.00 per underlying share at date of grant. Accordingly,
the Company charged the difference between the estimated aggregate fair value
and the aggregate exercise price of the options of $1,349,900 to expense in
1995. This option was exercised on April 1, 1996. The Company also agreed to
sell options for the purchase of 300,000 shares of its common stock exercisable
at $3.00 per share for $50,000, and on February 22, 1996, the Company completed
the transaction. On December 19, 1996, the option was exercised.
On March 21, 1996, the Company completed its initial public offering for the
sale of 1,000,000 Units for $6.50 per Unit, which resulted in net proceeds of
$5,411,866. Each Unit entitles the purchaser to acquire one share of common
stock and one warrant to purchase one share of common stock at an exercise
price of $8.00, subject to certain anti-dilutive adjustments.
On April 1, 1996, the Company issued 86,015 shares at $3.00 per share for
conversion into common stock, the principal and accrued interest on a bridge
loan. (see Note 6).
On May 10, 1996, the Company sold an additional 57,097 Units as a result of a
partial exercise of the Underwriters overallotment option granted as part of
the initial public offering, and received net proceeds of $323,811.
33
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
8. STOCKHOLDERS' EQUITY (CONTINUED)
On July 1, 1996, the Company issued 24,292 Units as partial consideration for
legal services performed in preparation of the Company's initial public
offering.
9. WARRANTS
As of December 31, 1996, the Company had outstanding warrants to purchase
1,239,701 shares of common stock. 58,312 of the warrants are exercisable for
three years from the date of issuance, and will expire in October, 1998. The
exercise price of all these warrants is $8.00 per share, subject to adjustment
in the event of stock splits, stock dividends and similar events. If at any
time the common stock of the Company trades on the NASDAQ market for $12 per
share for 20 out of 30 consecutive trading days, the Company has the right to
accelerate the three year exercise period for these warrants by providing ten
days prior written notice to the warrant holder, granting the warrant holder 45
days after the last day of the 30 day trading period to exercise the warrant.
The Company must have an effective registration statement covering all of the
shares of common stock underlying the warrants before it can provide notice to
shorten the exercise period. The Company must also use its best efforts to
keep the registration statement effective for a minimum period of six months
after the termination of the shortened exercise period. The holders of the
warrants are entitled to certain "piggy back" registration rights with respect
to the warrants.
On March 21, 1996, 1,057,097 warrants were issued and are outstanding as part
of the initial public offering of Units. Each warrant entitles the holder upon
payment of the exercise price of $8.00 to purchase one share of common stock.
The warrants are exercisable at any time after June 21, 1996, provided that at
such time a current prospectus relating to the common stock is in effect and
the common stock is qualified for sale or exempt from qualification under
applicable state securities laws. The Company may, at its option, accelerate
the expiration of the warrants upon not less than 30 days prior notice to the
registered holders of the warrants, in the event that: (i) there exists a
current prospectus relating to the common stock issuable upon exercise of the
warrants under an effective registration statement filed with the Securities
and Exchange Commission and the issuance of the common stock upon exercise of
the warrants has been qualified for sale or exempt from qualification under
applicable state securities laws; and (ii) the shares of common stock of the
Company have had a closing bid price of not less than $10.00 for a period of
ten consecutive trading days ending not more than ten calendar days immediately
prior to the date of the notice. Holders of warrants will automatically
forfeit their rights to purchase the shares of common stock issuable upon
exercise of such warrants unless the warrants are exercised before the close of
business on
34
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
9. WARRANTS (CONTINUED)
the business day immediately prior to the final date set for exercise. All
of the outstanding warrants may be affected. A notice of any acceleration of
the final exercise date is required to be mailed to each of the registered
holders of the warrants by first class mail, postage prepaid, 30 days before
the date fixed for acceleration of the final exercise date, and is required
to be published in THE WALL STREET JOURNAL and at least one other newspaper
of general circulation in San Diego and in New York City. The notice of
acceleration of the final exercise date is required to specify the date fixed
for exercise, the place where the warrant certificates shall be delivered and
that the right to exercise the warrants shall terminate at 5:00 p.m. (Los
Angeles time) on the final exercise date.
The Company issued 100,000 warrants pursuant to the Underwriter's Purchase
Option granted as part of the initial public offering. These warrants are
exercisable at $11.20 per share at any time between March 21, 1997 and March
21, 1998. The warrants expire on March 21, 1998.
10. STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "Plan") was adopted by the Board of
Directors in February 1994. Pursuant to the Plan, the Company may grant both
incentive stock options and nonstatutory stock options. Incentive stock
options may be granted only to employees, while consultants, employees,
officers and directors are eligible for the grant of nonstatutory options. The
total number of shares of common stock of the Company reserved and available
for grant under the Plan is 2,875,000 shares.
The maximum term of stock options granted under the Plan is ten years, but if
the optionee at the time of the grant has voting power over more than 10% of
the Company's outstanding capital stock, the maximum term is five years. The
exercise price of incentive stock options granted under the Plan must be at
least equal to the fair market value of such shares on the date of grant. The
exercise price of nonstatutory stock options granted under the Plan must be at
least 85%, or 110% with respect to holders of 10% of the voting power of the
Company's outstanding capital stock, of the fair market value of the stock
subject to the option on the date of the grant.
Subject to the Plan's change in control provisions, in the event of the sale of
substantially all of the assets of the Company or the merger of the Company
with or into another corporation, each outstanding option may be assumed or
substituted by such successor corporation or parent or subsidiary of such
successor corporation, or in some circumstances a cash payment in approximately
the amount of the equity held in the share award or option may be made to the
holder.
35
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
10. STOCK OPTION PLAN (CONTINUED)
Activity with respect to the stock option plan is summarized as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE STOCK OPTION AVERAGE
FOR OPTIONS EXERCISE EXERCISE
GRANT OUTSTANDING PRICE PRICE
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 2,875,000 - - -
Granted (868,000) 868,000 $3.00 - $4.55 $3.04
Exercised - - - -
Canceled - - - -
----------- ---------
Balance at December 31, 1995 2,007,000 868,000 $3.00 - $4.55 $3.04
Granted (1,121,900) 1,121,900 $3.00 - $7.50 $3.01
Exercised - - - -
Canceled 31,091 (31,091) $3.00 - $4.55 $3.96
----------- ---------
Balance at December 31, 1996 916,191 1,958,809 $3.00 - $7.50 $3.01
=========== =========
</TABLE>
Options for 843,359 shares are exercisable at December 31, 1996 and the
weighted-average contractual life of options outstanding at that date is
approximately five years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized. Pro forma information regarding net
loss and loss per share is required by Statement 123, and has been determined
as if the Company had accounted for its employee stock options under the fair
value method of Statement 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate of 6.0%;
dividend yield of 0%; the volatility factor of the expected market price of
the Company's common stock of 78%, and a weighted-average expected life of the
options of 64 months.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock
36
<PAGE>
Vyrex Corporation
(a development stage enterprise)
Notes to Financial Statements (continued)
10. STOCK OPTION PLAN (CONTINUED)
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The Company's pro forma information
follows (in thousands except for earnings per share information).
1996 1995
---- ----
Pro forma net loss $(1,853,412) $(3,790,462)
Pro forma net loss per share $(0.28) $(0.62)
The weighted-average fair value of options granted in 1996 and 1995 is $2.03
and $2.33, respectively.
The pro forma effect on net loss for 1996 and 1995 is not representative of the
pro forma effect on net loss in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
37
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
The information required by Item 8 of Form 10-KSB is incorporated by reference
to the information contained in the registrant's Form 8-K dated July 11, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by Item 9 of Form 10-KSB is incorporated by reference
to the information contained in the section captioned "Election of Directors"
and "Compliance with Section 16(a) of the Exchange Act" in the Registrants
definitive proxy statement for the Annual Meeting of Shareholders ("Proxy
Statement") to be filed with the Commission on or before April 30, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 of Form 10-KSB is incorporated by reference
to the information contained in the section captioned "Executive Compensation"
in the Proxy Statement to be filed with the Commission on or before April 30,
1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 of Form 10-KSB is incorporated by reference
to the information contained in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement to be filed
with the Commission on or before April 30, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 of Form 10-KSB is incorporated by reference
to the information contained in the section captioned "Certain Relationships
and Related Transactions" in the Proxy Statement to be filed with the
Commission on or before April 30, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 11 Statement regarding Computation of per share earnings for 1995
required by Item 13(a) of Form 10-KSB is incorporated by reference to the
information contained in Exhibit 11.1 of the Company's registration statement
on Form SB-2 dated March 21, 1996.
The information required by Item 13 of Form 10-KSB is incorporated by reference
to the information contained in the registrant's Form 8-K dated July 11, 1996.
38
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VYREX CORPORATION
Registrant
By: /s/SHELDON S. HENDLER
---------------------
Sheldon S. Hendler,
President, Chief Executive Officer,
and Chairman of the Board
By: /s/STEVEN J. KEMPER
-------------------
Steven J. Kemper,
Chief Financial Officer
Date: March 14, 1997
In accordance with the Exchange Act, this Report has been SIGNED by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/SHELDON S. HENDLER President, Chief Executive Officer, March 14, 1997
- --------------------- and Chairman of the Board
Sheldon S. Hendler
/s/CARL M. LEWIS General Counsel, Secretary March 14, 1997
- --------------------- and Director
Carl M. Lewis
/s/JOYCE M. HENDLER Director March 14, 1997
- ---------------------
Joyce M. Hendler
/s/DENNIS J. CARLO Director March 14, 1997
- ---------------------
Dennis J. Carlo
/s/NOLAN E. PENN Director March 14, 1997
- ---------------------
Nolan E. Penn
/s/GREGORY F. GILBERT Director March 14, 1997
- ---------------------
Gregory F. Gilbert
39
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,187,906
<SECURITIES> 1,893,830
<RECEIVABLES> 47,979
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,129,715
<PP&E> 108,650
<DEPRECIATION> (54,394)
<TOTAL-ASSETS> 5,621,293
<CURRENT-LIABILITIES> 504,646
<BONDS> 0
0
0
<COMMON> 7,121
<OTHER-SE> 5,109,526
<TOTAL-LIABILITY-AND-EQUITY> 5,621,293
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,997,082)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,820,614)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,820,614)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,820,614)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
