<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 JUNE 30, 1999
/ / 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)
(858) 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 June 30, 1999, there are 7,423,455 shares of common stock
outstanding and warrants to purchase 1,156,701 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 Statements
Balance Sheets............................................3
Statements of Operations..................................4
Statements of Cash Flows..................................5
Notes to Financial Statements.............................6
Item 2 - Management's Discussion and
Analysis of Financial Condition
And Results of Operations...................................6
PART II OTHER INFORMATION
Item 1 - Legal Proceedings...........................................8
Item 2 - Changes in Securities.......................................8
Item 3 - Defaults upon Senior Securities.............................8
Item 4 - Submission of Matters to a Vote of
Security Holders............................................8
Item 5 - Other Information...........................................9
Item 6 - Exhibits and Reports on Forms 8-K and 8-K/A.................9
Signatures..................................................................9
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYREX CORPORATION
(a development stage enterprise)
Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- -------------
(Unaudited) Note
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,884 $ 80,007
Other assets 5,286 24,979
-------------- -------------
Total current assets 9,170 104,986
Furniture and equipment costs, net
of accumulated depreciation of
$120,952 in 1999 and $107,037 in 1998 57,487 79,903
Note receivable from related party 32,117
-------------- -------------
Total assets $ 66,657 $ 217,006
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIT )
Current liabilities:
Accounts payable and accrued liabilities $ 566,673 $ 279,571
Deferred revenue 60,525 100,000
Notes payable 110,000 -
--------------- -------------
Total current liabilities 737,198 379,571
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 1999 and 1998
respectively 7,423 7,423
Additional paid-in capital 11,743,077 11,743,077
Deficit accumulated during the development stage (12,421,041) (11,913,065)
--------------- -------------
Total stockholders' equity(deficit) (670,541) (162,565)
--------------- -------------
Total liabilities and stockholders' equity $ 66,657 $ 217,006
=============== =============
</TABLE>
Note: The balance sheet at December 31, 1998 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 SIX MONTHS ENDED INCEPTION
JUNE 30, JUNE 30, (01/02/1991)
1999 1998 1999 1998 TO DATE
------------ -------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue and licensing
agreement $ 18,659 $ - $ 41,075 $ - $ 352,675
Operating expenses:
Research and development 63,664 804,122 216,687 1,263,882 6,336,406
Marketing and selling - 72,526 - 158,642 428,093
General and administrative 144,687 340,252 331,737 803,967 5,076,880
------------ -------------- ------------ ------------- ---------------
Total operating expenses 208,351 1,216,900 548,424 2,226,491 11,841,379
------------ -------------- ------------ ------------- ---------------
Loss from operations (189,692) (1,216,900) (507,349) (2,226,491) (11,488,704)
Other income (expense):
Interest income 15 27,466 320 55,652 464,526
Gain on sale of assets - - 1,875 - 1,875
Interest expense (2,575) - (2,822) (16,330) (48,838)
Charge from issuance of
stock options for arranging
bridge financing costs (1,349,900)
------------ -------------- ------------ ------------- ---------------
Total other income (expense) (2,560) 27,466 (627) 39,322 (932,337)
------------ -------------- ------------ ------------- ---------------
Net loss (192,252) (1,189,434) (507,976) (2,187,169) (12,421,041)
============ ============== ============ ============= ===============
Net loss per share - $ (0.03) $ (0.16) $ (0.07) $ (0.30) $ (1.94)
basic and diluted
============ ============== ============ ============= ===============
Shares used in per share
computations 7,423,455 7,402,877 7,423,455 7,289,869 6,413,544
============ ============== ============ ============= ===============
</TABLE>
SEE ACCOMPANYING NOTES.
4
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VYREX CORPORATION
(a development stage enterprise)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, CUMULATIVE
1999 1998 FROM INCEPTION
-------------- --------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (507,976) $(2,187,169) $ (12,421,041)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, amortization and impairment
Charges 20,291 28,214 287,015
Accounts receivable and interest receivable - 110,148 3,506
Gain on disposal of fixed assets (1,875) - 5,491
Issuance of compensatory notes, stock and
stock options - 386,401 2,044,632
Other assets 19,693 (32,262) 94,714
Accounts payable and accrued liabilities 287,102 (297,995) 566,676
Deferred revenue (39,475) - (39,475)
Accrued interest on convertible debentures - - 9,041
-------------- --------------- ----------------
Net cash used in operating activities (222,240) (1,992,663) (9,449,441)
-------------- --------------- ----------------
INVESTING ACTIVITIES
Purchases of short term investments - - (8,440,442)
Sale of short term investments - 1,025,737 8,467,931
Purchases of property and equipment - (32,291) (209,595)
Proceeds on sale of fixed assets 4,000 - 10,000
Patent, trademark and copyright costs - -
(133,519)
Other assets including notes receivable
from related parties 32,117 4,524 (4,202)
-------------- --------------- ----------------
Net cash provided by ( used in ) investing activities 36,117 997,970 (309,827)
-------------- --------------- ----------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock - - 7,429,208
Exercise of stock options and sale of options - - 950,100
Proceeds from short term loan 110,000 - 983,844
Proceeds from note payable - - 400,000
Advances from potential investors - - 100,000
Repayments of advances - - (100,000)
-------------- --------------- ----------------
Net cash provided by financing activities 110,000 - 9,763,152
-------------- --------------- ----------------
Net increase (decrease) in cash equivalents (76,123) (994,693) 3,884
Cash and equivalents, beginning of period 80,007 2,041,339 -
-------------- --------------- ----------------
Cash and equivalents, end of period $ 3,884 $ 1,046,646 $ 3,884
============== =============== ================
</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 June
30, 1999, and the results of operations for the six-month period ended
June 30, 1999. The results of operations for the period ended June 30,
1999, 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, 1998.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction
of its liabilities in the normal course of business. As of June 30,
1999, the Company had an accumulated deficit of $12,421,041, a net
capital deficiency of $670,541 and negative working capital of
$728,028. Due to the Company's recurring losses and net capital
deficiency, there can be no assurance that the Company will be able to
obtain additional operating capital, which may impact the Company's
ability to continue as a going concern. The accompanying financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
The Company is seeking collaborative or other arrangements with larger
pharmaceutical and nutraceutical companies, under which such companies
would provide additional capital to the Company in exchange for
exclusive or non-exclusive licensees or other rights to certain of the
technologies and products the Company is developing. Competition for
corporate partnering arrangements with major pharmaceutical and
nutraceutical companies is intense, with a large number of
biopharmaceutical companies attempting to arrive at such arrangements.
Accordingly, although the Company is presently engaged in discussions
with a number of candidate companies, there can be no assurance that an
agreement will arise from these discussions in a timely manner, or at
all, or that any agreement that may arise from these discussions will
successfully reduce the Company's short-term or long-term funding
requirements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Research and development expenses decreased $740,000 to $64,000 in the
three months ended June 30, 1999, compared to $804,000 for the same
period during 1998. Scale down of research work on Vantox, CD Tagging,
and Nutrition resulted in a reduction of $672,000. $25,000 of the
decrease is due to a reduction of salary expenses. The balance of the
decrease is related to the reduction in miscellaneous operating
expenses. General and administrative expenses decreased $196,000 to
$145,000, in the current period, compared to $340,000 for the same
period in 1998. The decrease is primarily due to lower expenses for
patents, salary, public relations, and general
6
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office expenses. No marketing expenses were incurred in the three
months ended June 30, 1999 compared to $73,000 during the same
period in 1998.
During the first quarter of the year, the Company reviewed its
scientific programs and made a decision to refocus its efforts into its
core anti-oxidant technologies, in both the pharmaceutical and
nutraceutical areas. The decision was based, in part, on the Company's
belief of the greater commercial and collaborative opportunities in
these areas. In 1998, the Company amended its collaboration with The
Immune Response Corporation to develop anti-oxidant drug candidates as
potential therapeutics for CNS trauma. As part of its plan, the Company
has made a strategic decision to discontinue its genomics program and
is terminating its licenses for Epitope Tagging and CD-Tagging
technologies. This decision is not expected to have any material effect
on its collaboration with the Immune Response Corporation or other
pharmaceutical and nutraceutical programs.
The Company further reduced its administrative expense during the
second quarter of 1999 as a result of reduction of executive
management. Martin Malk, Chief Financial Officer, and Carl M. Lewis,
Executive Vice President and General Counsel, resigned their respective
positions effective May 31, 1999. Mr. Malk entered into a consulting
arrangement with the Company through June 30, 1999, at which time the
consulting arrangement terminated. Mr. Lewis entered into a consulting
arrangement to provide continuing services as General Counsel to the
Company effective June 1, 1999, and continuing on a month-to-month
basis. The Company had previously implemented executive salary
reductions in September of 1998. Salaries were again reduced, and in
some cases suspended entirely, in October of 1998. Effective January 1,
1999, all executive salaries were suspended. As a result of the
Company's action, general administrative expense was significantly
reduced.
Net Loss decreased $997,000 to $192,000 in the current period, compared
to $1,189,000 for the same period during 1998. The decrease in net loss
was attributed to lower salary expenses and scale down of research
work.
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
The Company earned $39,000 in royalty income from the sale of four
nutritional formulations by the Retired Persons Services Inc. The
Company is entitled to a royalty of 15% on the sale of these
formulations. In addition, the Company earned $1,600 in license fees.
Research and development expenses decreased $1,047,000 to $217,000 in
the six months ended June 30, 1999, compared to $1,264,000 for the same
period during 1998. Decrease in expenses is primarily due to reduction
of salaries and scale down of research work. General and administrative
expenses decreased $472,000 to $332,000 in the six months ended June
30, 1999, compared to $804,000 for the same period ended June 30, 1998.
The decrease is due to reductions in financial expenses of $84,000,
decrease of $97,000 in patent expenses, salary reductions of $81,000,
reduction of $58,000 for public relations expenses and the balance in
general office expenses. No marketing expenses were incurred in the six
months ended June 30, 1999 compared to $159,000 during the same period
in 1998.
Net loss decreased $1,679,000 to $508,000 in the current period,
compared to $2,187,000 for the same period during 1998. The decrease in
net loss was attributed to lower salary expenses and scale down of
research work.
Net loss per common share decreased $0.23 to $0.07, compared to $0.30
for the same period during 1998. The lower net loss per common share
was decreased following a higher number of average shares outstanding
during the period.
7
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception solely through
the sales of debt and equity securities. As of June 30, 1999, the
Company had a working capital deficit of ($728,000) which included
$4,000 of cash and cash equivalents. Net cash used in operating
activities during the six months ended June 30, 1999 was $222,000,
compared to $1,993,000 for the same period during 1998. The decrease in
cash used was primarily related to the lower net loss from operations
as the Company scaled back its operating activities in order to
conserve cash. The Company generated $36,000 of cash in investing
activities during the current period, which consists of $4,000 from the
sale of equipment and $32,000 from the repayment of a loan made to a
former employee of the company. This compares to $998,000 of cash
provided by investing activities during the same period in 1998. The
Company generated $110,000 from financing activities. This consists of
a $100,000 short-term loan repayable in full with interest in March
2000. The loan carries interest at 10% and is secured by a general
pledge of the assets of the Company within the applicable provisions of
the Uniform Commercial Code. An additional $10,000 loan was secured
from Anne Roth, a related party, payable with interest in June 2000 or
convertible, at the option of the holder, into common stock of the
company.
On July 29, 1999, the Company entered into an agreement for a private
placement of Common Stock in the amount of $40,600. The stock was
priced at $.34 per share.
It is uncertain whether the Company can continue as a going concern.
The Company is actively pursuing collaborations with potential partners
in both the pharmaceutical and nutraceutical divisions with the
objective of raising financing to enable the Company to continue
operations. To date the Company does not have any commitments for
financing. If the Company is unable to raise additional funds to
continue operations, the Company will have to consider a sale of
assets, liquidation, bankruptcy or other manner of ceasing operation.
The Company does not have any lease or other commitments. The Company
does not have an existing bank line of credit or other form of
revolving or renewable credit facility. There can be no assurance the
Company will generate any additional revenues or that funds will be
available from any source to allow it to continue operations.
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
8
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K AND 8-K/A
The Company filed Forms 8-K, and 8-K/A reports on April 27th and May
5th respectively following a change in the Company's auditors.
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, M.D., Ph.D.
Chief Executive Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,884
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,170
<PP&E> 178,439
<DEPRECIATION> 120,952
<TOTAL-ASSETS> 66,657
<CURRENT-LIABILITIES> 737,198
<BONDS> 0
0
0
<COMMON> 7,423
<OTHER-SE> (677,964)
<TOTAL-LIABILITY-AND-EQUITY> 66,657
<SALES> 18,659
<TOTAL-REVENUES> 18,674
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 208,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,575)
<INCOME-PRETAX> (192,252)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (192,252)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>