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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 MARCH 31, 1998
/_ / 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
incorporation or organization) Identification No.)
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 March 31, 1998, there are 7,356,631 shares of common stock outstanding
and warrants to purchase 1,256,701 shares of common stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
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VYREX CORPORATION
INDEX TO FORM 10-QSB
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2 - Management's Discussion and 6
Analysis of Financial Condition
And Results of Operations
PART II OTHER INFORMATION 7
Item 1 - Legal Proceedings 7
Item 2 - Changes in Securities 7
Item 3 - Defaults upon Senior Securities 7
Item 4 - Submission of Matters to a Vote of
Security Holders 7
Item 5 - Other Information 8
Item 6 - Exhibits and Reports on Form 8-K 8
Signatures 8
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2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYREX CORPORATION
(a development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,901,669 $ 2,041,339
Short-term investment, available-for-sale - 1,013,575
Other current assets 72,783 117,341
----------- -----------
Total current assets 1,974,452 3,172,255
Property, plant and equipment, net of accumulated
depreciation of $82,729 in 1998 and $71,495 in 1997 101,033 105,810
Notes receivable from related party 47,266 49,506
Debt issuance cost - 119,147
Patents, trademarks and copyrights, net of accumulated
amortization of $26,511 in 1998 and $24,449 in 1997 113,708 115,770
----------- -----------
Total assets $ 2,236,459 $ 3,562,488
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 391,926 $ 627,583
Deferred revenue 100,000 100,000
----------- -----------
Total current liabilities 491,926 727,583
Convertible debentures, net, including accrued interest - 950,278
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares
authorized; none issued - -
Common stock, $.001 par value; 50,000,000 shares authorized;
7,356,631 outstanding at March 31, 1998, and 7,121,409
issued and outstanding in 1997 7,357 7,121
Additional paid-in capital 11,259,564 10,402,159
Deficit accumulated during the development stage (9,522,388) (8,524,653)
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Total stockholders' equity 1,744,533 1,884,627
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Total liabilities and stockholders' equity $ 2,236,459 $ 3,562,488
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Note: The balance sheet at December 31, 1997 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.
SEE ACCOMPANYING NOTES.
3
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VYREX CORPORATION
(a development stage enterprise)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, CUMULATIVE FROM
1998 1997 INCEPTION
----------- --------- ---------------
<S> <C> <C> <C>
Revenue and licensing
agreement $ - $ - $ 310,000
Operating expenses:
Research and development 459,760 404,130 4,800,470
Marketing and selling 86,117 - 307,687
General and administrative 463,714 340,900 3,765,138
----------- -------- -----------
Total operating expenses 1,009,591 745,030 8,873,295
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Loss from operations (1,009,591) (745,030) (8,563,295)
Other income (expense)
Interest income 38,365 60,941 436,823
Interest expense (26,509) - (46,016)
Charge from issuance of stock
options for arranging bridge
financing costs - - (1,349,900)
----------- -------- -----------
Total other income (expense) 11,856 60,941 (959,093)
----------- -------- -----------
Net loss (997,735) (684,089) (9,522,388)
Net loss per common share (0.14) (0.10) (1.54)
----------- -------- -----------
----------- -------- -----------
Shares used in per share
computations 7,314,894 7,121,209 6,198,655
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</TABLE>
SEE ACCOMPANYING NOTES.
4
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VYREX CORPORATION
(a development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, CUMULATIVE FROM
1998 1997 FROM INCEPTION
------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (997,735) $ (684,089) $(9,522,388)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 13,359 5,342 109,015
Amortization of debt discount and debt
issuance cost - - 10,466
Accounts Receivable and Interest Receivable 110,423 (25,168) 105,116
Issuance of compensatory notes, stock and
stock options as compensation - - 1,561,052
Prepaid and other current assets (51,517) - (68,858)
Accounts payable and accrued liabilities (235,657) (48,375) 391,930
------------ ----------- -----------
Net cash used in operating activities (1,161,127) (752,290) (7,413,667)
------------ ----------- -----------
INVESTING ACTIVITIES
Purchases of short term investments - (1,460,210) (8,440,442)
Sale of short term investments 1,025,737 - 8,467,932
Purchases of property and equipment (6,520) (8,421) (183,825)
Patent, trademark and copyright costs - - (133,519)
Other assets including Notes Receivable
related parties 2,240 204,859 (47,962)
------------ ----------- -----------
Net cash used in investing activities 1,021,457 (1,263,772) (337,816)
------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds (repayment) on Notes and Debentures - - 1,273,844
Net proceeds from sale and exercise of stock options - - 950,100
Net proceeds from issuance of common stock - - 7,429,208
Net cash provided by financing activities - - 9,653,152
Net increase (decrease) in cash (139,670) (2,016,062) 1,901,669
Cash and equivalents, beginning of period 2,041,339 3,187,906 -
------------ ----------- -----------
Cash and equivalents, end of period 1,901,669 1,171,844 1,901,669
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
5
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VYREX CORPORATION
(A Development Stage Enterprise)
Notes To Financial Statements
(Unaudited)
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 March
31, 1998, and the results of operations for the three month period ended
March 31, 1998. The results of operations for the periods ended March
31, 1998, 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, 1997.
DEBENTURES
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. All outstanding debentures
were converted into 227,222 shares of stock during the first quarter of
1998.
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, which
was January 26, 1998.
Each tranche will be between $100,000 and $225,000 per investor. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
Research and development expenses increased $56,000, to $460,000, in the
three months ended March 31, 1998, compared to $404,000 for the same
period during 1997. The increase is primarily due to higher spending on
nutrition product development as well as research on the Company's
spinal cord treatment project. General and administrative expenses
increased $123,000, to $464,000, in the current period, compared to
$341,000 for the same period in 1997. The increase is primarily due to
$60,000 in higher legal spending, mainly for patents, as well as higher
investment banking and insurance costs. The Company incurred $86,000 of
marketing expenses in the three months ended March 31, 1998, compared to
zero during the previous period. Marketing expense is primarily related
6
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to salaries and services related to the launch of the Company's
nutraceutical products, as well as $14,000 for new business development
efforts for the Company's gene discovery and antioxidant compound
product lines.
Net loss increased $314,000, to $998,000 in the current period, compared
to $684,000 for the same period during 1997 as the Company built up its
research, marketing and administrative efforts. Net loss per common
share increased $0.04 to $0.14, compared to $0.10 for the same period
during 1997. Higher operating expenses were partially offset by higher
average shares outstanding during the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception solely through
the sales of debt and equity securities. As of March 31, 1998, the
Company had working capital of $1,483,000 which includes $1,902,000 of
cash and cash equivalents. Net cash used in operating activities during
the three months ended March 31, 1998 was $1,161,000, compared to
$752,000 for the same period during 1997. 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
$1,021,000 of cash in investing activities during the current period,
which was primarily related to the sale of maturing short-term
investments. This compares to a use of cash of $1,264,000 during the
previous period when cash was invested in short-term investments.
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 were 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. During the first quarter of 1998, all outstanding
debentures were converted in 227,222 shares of stock.
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 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
7
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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 March 31, 1998.
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)
8
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,901,669
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,974,452
<PP&E> 183,762
<DEPRECIATION> 82,729
<TOTAL-ASSETS> 2,236,459
<CURRENT-LIABILITIES> 491,926
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<COMMON> 7,357
<OTHER-SE> 1,737,176
<TOTAL-LIABILITY-AND-EQUITY> 2,236,459
<SALES> 0
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<OTHER-EXPENSES> 1,009,591
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<INCOME-PRETAX> 997,735
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