<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended SEPTEMBER 30, 1997
/_ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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)
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
--- ---
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan by a court.
Yes No
--- ---
Applicable Only to Corporate Issuers
State the number of shares outstanding of each of the issuers classes of common
equity, as of latest practicable date:
As of September 30, 1997 there are 7,121,409 shares of common stock outstanding
and warrants to purchase 1,239,701 shares of common stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
--- ---
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VYREX CORPORATION
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION
Item 1 - Financial Information
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and 7
Analysis of Financial Condition
And Results of Operations
PART II OTHER INFORMATION 9
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of
Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYREX CORPORATION
(a development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 966,150 $3,187,906
Short-term investment, available-for-sale 1,946,647 1,893,830
Interest receivable 46,964 47,979
Prepaid assets 32,433 -
----------- -----------
Total current assets 2,992,194 5,129,715
Furniture and equipment, net of accumulated depreciation of
$66,931 in 1997 and $54,394 in 1996 77,448 54,256
Notes receivable from related parties 51,677 313,304
Patents, trademarks and copyrights, net of accumulated
amortization of $22,387 in 1997 and $16,201 in 1996 117,832 124,018
----------- -----------
Total assets $3,239,151 $5,621,293
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 310,502 $ 504,646
----------- -----------
Total current liabilities 310,502 504,646
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized;
none issued - -
Common stock, $.001 par value; 50,000,000 shares authorized;
7,121,409 issued and outstanding in 1997 and 7,121,209
issued and outstanding in 1996 7,121 7,121
Additional paid-in capital 10,339,939 10,338,339
Deficit accumulated during the development stage (7,418,411) (5,228,813)
----------- -----------
Total stockholders' equity 2,928,649 5,116,647
----------- -----------
Total liabilities and stockholders' equity $3,239,151 $5,621,293
----------- -----------
----------- -----------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
</TABLE>
See accompanying notes.
3
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VYREX CORPORATION
(a development stage enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, CUMULATIVE
------------------------ ------------------------ FROM
1997 1996 1997 1996 INCEPTION
------------------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue and licensing
agreement $ - $ - $ - $ - $ 310,000
Operating expenses:
Research and development 465,387 144,213 1,307,329 258,457 3,701,114
Marketing and selling 113,492 - 113,492 - 113,492
General and administrative 279,062 285,333 931,353 645,044 2,928,901
--------- --------- ----------- ----------- -----------
Total operating expenses 857,941 429,546 2,352,174 903,501 6,743,507
--------- --------- ----------- ----------- -----------
Loss from operations (857,941) (429,546) (2,352,174) (903,501) (6,433,507)
Other income (expense):
Interest income 45,884 74,804 162,576 120,154 364,996
Charge from issuance of
stock options for arranging
bridge financing costs - - - - (1,349,900)
--------- --------- ----------- ----------- -----------
Total other income (expense) 45,884 74,804 162,576 120,154 (984,904)
--------- --------- ----------- ----------- -----------
Net loss $(812,057) $ (354,742) $(2,189,598) $ (783,347) $(7,418,411)
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Net loss per common share $ (0.11) $ (0.06) $ (0.31) $ (0.14) $ (1.22)
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Shares used in per share
computations 7,121,290 6,345,700 7,121,246 5,486,925 6,076,851
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
SEE ACCOMPANYING NOTES.
</TABLE>
4
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VYREX CORPORATION
(a development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED CUMULATIVE
SEPTEMBER 30, SEPTEMBER 30, FROM
1997 1996 INCEPTION
---------------------------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,189,598) $ (783,347) $(7,418,411)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,723 13,058 89,033
Interest receivable 1,015 - (46,964)
Issuance of compensatory notes, stock and
stock options - - 1,561,052
Prepaid assets (32,433) - (32,433)
Accounts payable and accrued liabilities (194,143) 40,660 310,506
------------ ----------- ----------
Net cash used in operating activities (2,396,436) (729,629) (5,537,217)
------------ ----------- ----------
INVESTING ACTIVITIES
Purchase of short-term investments (3,499,227) (2,958,840) (8,440,444)
Sale of short-term investments 3,446,410 - 6,494,775
Purchases of furniture and equipment (35,730) (53,519) (144,379)
Cost of patent, trademarks and copyrights - (70,503) (133,519)
Other assets, including notes receivable from
related parties 261,627 - (52,373)
------------ ----------- ----------
Net cash provided by (used in) investing
activities 173,080 (3,082,862) (2,275,940)
------------ ----------- ----------
FINANCING ACTIVITIES
Proceeds (repayment) from note payable - (50,000) 400,000
Exercise of stock options and sale of option - - 950,100
Net proceeds from issuance of common stock 1,600 5,791,407 7,429,208
------------ ----------- ----------
Net cash provided by financing activities 1,600 5,741,407 8,779,308
------------ ----------- ----------
Net increase (decrease) in cash and cash
equivalents (2,221,756) 1,928,916 966,151
Cash and cash equivalents, beginning of the
period 3,187,906 65,995 -
------------ ----------- ----------
Cash and cash equivalents, end of the period $ 966,150 $1,994,911 $966,151
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
5
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VYREX CORPORATION
(A Development Stage Enterprise)
Notes To Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information. Certain information and disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the
opinion of the Company's management, the unaudited financial statements
contain all adjustments necessary (consisting of normal recurring accruals)
for a fair presentation of the financial position as of September 30, 1997,
and the results of operations for the three and nine month periods ended
September 30, 1997 and 1996. The results of operations for the periods
ended September 30, 1997 are not necessarily indicative of the results to
be expected for the full year. For further information, refer to the
financial statements and footnotes thereto included in Vyrex's
Form 10-K/A SB for the year ended December 31, 1996.
2. PER SHARE INFORMATION
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
the adoption of this statement is not expected to be material.
2. SUBSEQUENT EVENT
On November 6, 1997, the Company entered into two securities purchase
agreements (the "Debenture Agreements") with two investors (the "Debenture
Holders") and pursuant thereto, the Company issued each Debenture Holder a
debenture in the amount of $500,000 (the "Debentures"). Each Debenture is
a 6% interest accruing and deferred convertible debenture due November 15,
2000. The Debentures are convertible at the election of the holder at any
time commencing upon the earlier to occur of (i) the effective date of a
registration statement required to be filed by the Company to register the
shares underlying the Debentures and certain related securities, or (ii)
60 days following the date of issuance. The Debentures are convertible at
a conversion price equal to the lesser of:
(i) 130% of the average closing bid price of the common stock on the
five consecutive trading days preceding the initial issuance date
of the Debenture ("Market Price"); or
(ii) (a) beginning on the 60th day after the issuance date and
ending on the 90th day after the issuance date the conversion
rate shall be 84% of the Market Price;
(b) beginning on the 91st day after the issuance date and
ending on the 120th day after the issuance date the conversion
rate shall be 82% of the Market Price;
(c) beginning on the 121st day after the issuance date and
ending on the maturity date the conversion rate shall be 80% of
the Market Price.
No more than 33% of the principal amount of the Debentures may be
convertible during any thirty (30) calendar day period. The entire
unpaid balance and all accrued interest outstanding on the maturity date
automatically converts into common stock in accordance with the foregoing
conversion rate.
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In connection with the issuance of the Debentures, the Company issued
warrants to the two investors each exercisable for 8,500 shares of common
stock. The warrants have a term of three years and an exercise price per
share of the lesser of: (i) $8.38 (125% of the per share Market Price on
the date of issuance) or (ii) 125% of the per share Market Price on the
effective date of the registration statement.
Pursuant to the securities purchase agreements, the purchasers of the
Debentures have agreed to each purchase an additional $1,500,000 of
Debentures ("Additional Debentures") in multiple tranches during the 21
months following the effective date of the registration statement.
Each tranche will be between $100,000 and $225,000. Each tranche may be
completed at the election of the Company subject to the existence of
certain conditions. Each Additional Debenture shall be substantially
similar to the Debentures but shall have a term of 18 months and be
convertible into common stock at 86% of the Market Price on the date of
issuance.
In connection with each Additional Debenture, the Company shall issue the
purchaser a warrant to purchase shares of common stock at a rate of 17,000
of common stock for each one million dollars of Additional Debentures
purchased. The purchasers of the Debentures were also granted a five-day
right of first refusal to purchase any additional debt or equity
securities which the Company proposes to issue in any private placement
transaction during the 18 months following the date of the Debentures.
In connection with the execution of the Debenture Agreements and the
issuance of the Debentures the Company issued a placement agent 8,000
shares of its common stock and paid the placement agent a cash
commission equal to five percent of the amount of the Debentures. In
addition, the Company agreed to pay the placement agent five percent of
the amount of all Additional Debentures issued.
The Company also provided the purchasers of the Debentures and the
placement agent with certain registration rights, for the shares
underlying the Debentures, the warrants, the shares issued to the
placement agent, and the shares underlying any Additional Debentures.
Pursuant to the Debenture Agreements the Company must elect to require
the Debenture Holders to purchase an aggregate of no less than
$1,325,000 in Additional Debentures or the Company must provide each of
the Debenture Holders a warrant to purchase an additional 10,000 shares
of its common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Research and development expenses increased $321,174, to $465,387 in the
three months ended September 30, 1997, compared to $144,213 for the same
period during 1996. The increase is primarily due to higher salary
expense of approximately $100,000 as the Company built up its research
organization, as well as $60,000 for CD-Tagging lab supplies, $50,000
for preclinical studies and laboratory work for Vantox and other
antioxidant compounds and $40,000 for nutritional product development
work. General and administrative expenses decreased $6,271, to $279,062
in the current period, compared to $285,333 for the same period in 1996
as higher accounting and investor relations spending was offset by lower
legal expenses. The Company incurred its initial marketing expenses of
$113,492 in the three months ended September 30, 1997. Marketing expense
includes $70,000 for salaries and services related to the launch of the
Company's nutraceutical products, including the advanced nutritional
formulas designed for Retired Persons Services, Inc
7
<PAGE>
which administers the AARP Pharmacy Service, and $40,000 for new
business development efforts for the Company's gene discovery and
antioxidant compound product lines.
Net loss increased $457,315, to $812,057 in the current period, compared
to $354,742 for the same period during 1996 as the Company built up its
research, marketing and administrative efforts. Net loss per common
share increased $0.05 to $0.11, compared to $0.06 for the same period
during 1996. Higher operating expenses were partially offset by higher
average shares outstanding during the period.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Research and development expenses increased $1,048,872, to $1,307,329 in
the nine months ended September 30, 1997, compared to $258,457 for the
same period during 1996. The increase is due to approximately $250,000
in higher expenses for supplies and services supporting CD-Tagging -TM-
development, $150,000 in higher salary expense for both CD-Tagging -TM-
and antioxidant research, $80,000 in preclinical studies on antioxidant
compounds and $40,000 for nutrition related research and development.
General and administrative expenses increased $286,309, to $931,353 in
the nine months ended September 30, 1997, compared to $645,044 for the
same period during 1996. The increase is primarily due to higher salary
expense of approximately $250,000, as well as $35,000 in higher legal
and investor relations expenses.
Net loss increased $1,406,251, to $2,189,598 in the nine months ended
September 30, 1997, compared to $783,347 for the same period during 1996
as the Company built up its research and administrative areas. Net loss
per common share increased $0.17 to $0.31, compared to $0.14 per share
for the same period during 1996. Higher operating expenses were
partially offset by higher average shares outstanding during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed it operations since inception solely through
the sales of debt and equity securities. As of September 30, 1997, the
Company had working capital of $2,681,692 which includes $2,912,797 of
cash, cash equivalents and short-term investments. Net cash used in
operating activities during the nine months ended September 30, 1997 was
$2,396,436, compared to $729,629 for the same period during 1996. The
increase in cash used was primarily related to the net loss from
operations as the Company accelerated its research and marketing
activities. The Company generated $173,080 of cash in investing
activities during the current period which includes the proceeds from
repayment of a loan to a former officer of approximately $260,000,
partially offset by capital spending of $35,000 for laboratory and
computer equipment. This compares to a use of cash in investing
activities of $3,082,862 for the same period during 1996, as proceeds
from the initial public offering during the first half of 1996 were
invested in short-term investments with maturities greater than three
months.
On November 6, 1997 the Company entered into agreement with two parties
which allows the Company the ability to borrow up to $4.0 million
through the issuance of convertible debentures, subject to certain
conditions which the Company expects to meet. On November 6, 1997, the
Company issued $1.0 million of its debentures which resulted in net
proceeds of $947,500 before expenses are deducted. The Company can
borrow the remaining $3 million by the issuance of additional debentures
only if certain conditions are met, including minimum daily trading
volume of its common stock, the existence of an effective registration
statement covering the common stock underlying the debentures and other
conditions.
The Company believes that its current cash reserves and other resources
will fund the business for at least the next twelve months from the
balance sheet date. The Company does not anticipate having
8
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significant revenues in the foreseeable future and will likely be
required to raise additional funds to continue operations. There can be
no assurance that additional funds will be available.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1997.
9
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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/STEVEN J. KEMPER
-------------------
Steven J. Kemper,
Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 966,150
<SECURITIES> 1,946,647
<RECEIVABLES> 46,964
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,992,194
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,239,151
<CURRENT-LIABILITIES> 310,502
<BONDS> 0
0
0
<COMMON> 7,121
<OTHER-SE> 10,339,939
<TOTAL-LIABILITY-AND-EQUITY> 10,657,562
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 857,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (45,884)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (812,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (812,057)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
