<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, 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 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, 1998, there are 7,423,455 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
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
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 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 9
</TABLE>
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,
1998 1997
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(Unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 375,064 $2,041,339
Short-term investments - 999,227
Accounts receivable - 100,000
Interest receivable 1,615 14,348
Prepaid assets 32,978 17,341
----------------------------
Total current assets 409,657 3,172,255
Furniture and equipment costs, net of
accumulated depreciation
of $106,720 in 1998 and $71,495 in 1997 102,876 105,810
Notes receivable from related party 39,636 49,506
Debt issuance cost - 119,147
Patents, trademarks and copyrights, net of
accumulated amortization of $30,635 in
1998 and $24,449 in 1997 109,584 115,770
----------------------------
Total assets $ 661,753 $3,562,488
----------------------------
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 244,109 $ 627,583
Deferred revenue - 100,000
----------------------------
Total current liabilities 244,109 727,583
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; 7,423,455 issued and
outstanding in 1998, and 7,121,409 issued
and outstanding at December 31, 1997 7,423 7,121
Additional paid-in capital 11,645,898 10,402,159
Deficit accumulated during the development
stage (11,235,677) (8,524,653)
----------------------------
Total stockholders' equity 417,644 1,884,627
----------------------------
Total liabilities and stockholders' equity $ 661,753 $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>
FROM
THREE MONTHS ENDED NINE MONTHS ENDED INCEPTION
SEPTEMBER 30, SEPTEMBER 30, (01/02/1991)
1998 1997 1998 1997 TO DATE
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<S> <C> <C> <C> <C> <C>
Revenue and licensing
agreement $ 1,600 $ - $ 1,600 $ - $ 311,600
Operating expenses:
Research and development 311,686 465,387 1,575,513 1,307,329 5,916,223
Marketing and selling 32,881 113,492 191,523 113,492 413,094
General and administrative 188,754 279,062 992,721 931,353 4,294,144
-----------------------------------------------------------------------------------------
Total operating expenses 533,321 857,941 2,759,757 2,352,174 10,623,461
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Loss from operations (531,721) (857,941) (2,758,157) (2,352,174) (10,311,861)
Other income (expense):
Interest income 7,811 45,884 63,463 162,576 461,921
Interest expense - - (16,330) - (35,837)
Charge from issuance of
stock options for arranging
bridge financing costs - - - - (1,349,900)
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Total other income (expense) 7,811 45,884 47,133 162,576 (923,816)
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Net loss $ (523,910) $ (812,057) $ (2,711,024) $ (2,189,598) $ (11,235,677)
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Net loss per common share -
basic and diluted $ (0.07) $ (0.11) $ (0.37) $ (0.31) $ (1.78)
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Shares used in per share
computations 7,423,455 7,121,290 7,334,887 7,121,246 6,301,605
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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>
NINE MONTHS ENDED SEPTEMBER 30, CUMULATIVE
1998 1997 FROM INCEPTION
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<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (2,711,024) $ (2,189,598) $ (11,235,677)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 41,411 18,723 137,067
Amortization of debt discount and debt
issuance cost - - 10,466
Accounts receivable and Interest receivable 112,734 1,015 107,427
Issuance of compensatory notes, stock and
stock options 386,401 - 1,947,453
Prepaid assets (15,637) (32,433) (32,978)
Accounts payable, accrued liabilities and deferred revenue (483,475) (194,143) 144,112
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Net cash used in operating activities (2,669,590) (2,396,436) (8,922,130)
-------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of short-term investments - (3,499,227) (8,440,442)
Sale of short-term investments 1,025,737 3,446,410 8,467,932
Purchases of property and equipment (32,291) (35,730) (209,596)
Patent and trademark costs - - (133,519)
Other assets, including Notes receivable
related parties 9,870 261,627 (40,332)
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Net cash provided by (used in) investing activities 1,003,316 173,080 (355,957)
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FINANCING ACTIVITIES
Proceeds (repayment) on Notes and
Debentures, net - - 1,273,844
Net proceeds from sale and exercise of
stock options - - 950,100
Net proceeds from issuance of common stock - 1,600 7,429,208
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Net cash provided by financing activities - 1,600 9,653,152
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Net increase (decrease) in cash (1,666,274) (2,221,756) 375,065
Cash and equivalents, beginning of period $ 2,041,339 $ 3,187,906 $ -
-------------------------------------------------------------------
Cash and equivalents, end of period $ 375,065 $ 966,150 $ 375,065
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</TABLE>
SEE ACCOMPANYING NOTES
5
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VYREX CORPORATION
(A Development Stage Enterprise)
Notes To Financial Statements
September 30, 1998
(unaudited)
NOTE 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, 1998, and the results of operations for the three- month
and nine-month periods ended September 30, 1998. The results of
operations for the periods ended September 30, 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 SB for the year ended
December 31, 1997.
NOTE 2. 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 accrues interest at 6%, is convertible
and or 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 had 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, subject to certain conditions, including
minimum trading volume, the existence of an effective registration
statement, a current NASDAQ listing and other conditions. The Company
was notified that it has been delisted from the NASDAQ Stock Market,
Inc., effective with the close of business October 21, 1998.
NOTE 3. DEVELOPMENT STAGE ENTERPRISE AND LIQUIDITY
From inception (January 2, 1991) through September 30, 1998, the
Company has not generated operating revenues, is classified as a
development stage enterprise and has incurred losses aggregating
$11,236,000.
As of September 30, 1998, the Company had working capital of $166,000,
which will enable the Company to fund its planned operations into the
fourth quarter of calendar 1998. As disclosed in Note 2 above, the
Company was delisted from the NASDAQ Stock Market, Inc., effective with
the close of business October 21, 1998. The Company is listed on the
Over-The-Counter Bulletin Board under the symbols VYRX and VYRXW.
Accordingly, additional capital will be required to continue operations
beyond the fourth quarter. Management is actively pursuing various
financing alternatives to adequately fund operations through 1999.
Over the longer term, successful completion of the Company's
development program and its transition, ultimately, to attaining
profitable operations, is dependent upon obtaining additional financing
adequate to fulfill its research and development activities, and
achieving a level of revenues adequate to support the Company's cost
structure.
6
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NOTE 4. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. Statement
128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. All net loss per share amounts for all
periods have been presented, and where necessary, restated to conform
to the Statement 128 requirements.
NOTE 5. NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130,
REPORTING COMPREHENSIVE INCOME ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). SFAS 130 requires
that all components of comprehensive income, including net income, be
reported in the financial statements in the period in which they are
recognized. Comprehensive income is defined as the change in equity
during a period from transactions and other events and circumstances
from non-owner sources. Net income and other comprehensive income,
including foreign currency translation adjustments, minimum pension
accrual, and unrealized gains and losses on investments, shall be
reported, net of their related tax effect, to arrive at comprehensive
income. The adoption of SFAS 130 did not affect results of operations
or financial position because the Company's only component of
comprehensive income is unrealized gains and losses on investments,
which is not significant. SFAS 131 establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas and
major customers. The adoption of SFAS 131 did not affect results of
operations or financial position and did not affect the disclosure of
segment information because SFAS 131 is not required to be applied to
interim financial statements in the initial year of adoption.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS REPORT AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" PRESENTED IN THE COMPANY'S 1997
ANNUAL REPORT ON FORM 10-KSB.
INTRODUCTORY NOTE
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934 and the
Company intends that such forward-looking statements be subject to the
safe harbors created thereby. These forward-looking statements relate
to, but are not limited to, (i) future research plans, expenditures and
results, (ii) potential collaborative arrangements, (iii) the potential
utility of the Company's proposed products and (iv) the need for, and
availability of, additional financing.
The forward-looking statements included herein are based on current
expectations, which involve a number of risks, uncertainties and
assumptions regarding the Company's business and technology. These
assumptions involve judgments with respect to, among other things,
future scientific, economic and competitive conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking statements will be realized and
actual results may differ materially. In light of the significant
uncertainties inherent in the forward-looking information included
herein, the
7
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inclusion of such information should not be regarded as a representation
by the Company or any other person that the objectives or plans of the
Company will be achieved.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Research and development expenses decreased $154,000, to $312,000, in
the three months ended September 30, 1998, compared to $465,000 for the
same period during 1997. The decrease is attributable to reductions in
payroll and laboratory expenses following completion of certain studies
in the second quarter. General and administrative expenses decreased
$90,000, to $189,000, in the current period, compared to $279,000 for
the same period in 1997. The reduction is attributable to lower
consulting, salary and administrative expenses. Marketing expenses
decreased $81,000 to $33,000 in the three months ended September 30,
1998, compared to $113,000 for the three months ended September 30,
1997. Reductions in consulting fees and public relations expenses
accounted for the expense reduction.
Net loss decreased $288,000, to $524,000 in the current period,
compared to $812,000 for the same period during 1997. Lower payroll,
consulting and administration expenses make up the bulk of the expense
savings. Net loss per common share decreased $0.04 to $0.07, compared
to $0.11 for the same period during 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Research and development expenses increased $269,000, to $1,576,000, in
the nine months ended September 30, 1998, compared to $1,307,000 for
the same period during 1997. A significant part of the increase in
expenses was for payroll and consulting fees. The increase was reduced
by expense savings of $154,000 for the three months ended September 30,
1998, the details of which are explained above. General and
administrative expenses increased $61,000 to $992,000 for the first
nine months of this year, compared to $931,000 for the same period
during 1997. The additional expenses, which were offset by expense
savings of $90,000 for the three months ended September 30, 1998,
consisted primarily of payroll costs and legal costs for patents.
Marketing expense increased $78,000 to $192,000 for the nine months
ended September 30, 1998, compared to $113,000 for the same period in
1997. Marketing expenses consist mainly of payroll expense. The
increase in marketing expense was reduced by a savings of $81,000 in
the three months ended September 30, 1998.
Net loss increased $521,000 to $2,711,000 in the nine months ended
September 30, 1998, compared to $2,352,000 for the same period in 1997.
Net loss per common share increased $0.06 to $0.37 compared to $0.31
for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The company has financed its operations since inception solely through
the sales of debt and equity securities. As of September 30, 1998,
the Company had working capital of $166,000 which includes $375,000 of
cash and equivalents which will enable the company to fund its
operations through December 31, 1998. Net cash used in operating
activities during the nine months ended September 30, 1998, was
$2,670,000 compared to $2,396,000 for the same period during 1997. The
net increase in cash used for the nine months ended September 30, 1998,
of $274,000 consists of an increase in cash used for the first six
months of the year of $402,000 and a reduction in cash used for the
third quarter of 1998 of $128,000.
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. On November 6, 1997, the Company issued $1.0 million of its
8
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debentures which resulted in net proceeds of $947,500 after expenses
were deducted. The remaining $3 million is no longer available to the
Company as one of the provisions in the term sheet required that the
Company be listed on the NASDAQ stock market. During the first quarter
of 1998, all outstanding debentures were converted into 227,222 shares
of stock.
The Company does not anticipate having significant revenues in the
foreseeable future and will 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, 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/ MARTIN MALK/
--------------------------------
Martin Malk,
Chief Financial Officer
(Principal Financial Officer)
9
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 375,064
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 409,657
<PP&E> 209,596
<DEPRECIATION> 106,720
<TOTAL-ASSETS> 661,753
<CURRENT-LIABILITIES> 244,109
<BONDS> 0
0
0
<COMMON> 7,423
<OTHER-SE> 410,221
<TOTAL-LIABILITY-AND-EQUITY> 661,753
<SALES> 1,600
<TOTAL-REVENUES> 1,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 533,321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,811)
<INCOME-PRETAX> 523,910
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
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<NET-INCOME> 523,910
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