VYREX CORP
10QSB, 1999-11-15
PHARMACEUTICAL PREPARATIONS
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<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, 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 September 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
    ----             ----

<PAGE>


VYREX CORPORATION
                              INDEX TO FORM 10-QSB

<TABLE>

<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
                Analysis of Financial Condition
                And Results of Operations.................................6

PART II OTHER INFORMATION

       Item 1 - Legal Proceedings.........................................8

       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 Forms 8-K and 8-K/A...............9

Signatures................................................................9

</TABLE>


                                       2
<PAGE>





                          PART I FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

                                VYREX CORPORATION
                        (a development stage enterprise)
                                 Balance Sheets

<TABLE>
<CAPTION>

                                                                            SEPTEMBER 30,    DECEMBER 31,
                                                                                1999             1998
                                                                            -----------------------------
                                                                             (Unaudited)         Note
<S>                                                                         <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                  $   1,328          $ 80,007
   Other assets                                                                   2,935            24,979
                                                                            -----------------------------
Total current assets                                                              4,263           104,986

Furniture and equipment costs, net
of accumulated depreciation of
$128,636 in 1999 and $107,037 in 1998                                            49,804            79,903

Note receivable from related party                                                                 32,117
                                                                            -----------------------------
Total assets                                                                  $  54,067          $217,006
                                                                            -----------------------------
                                                                            -----------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIT )

Current liabilities:
   Accounts payable and accrued liabilities                                   $ 694,706          $279,571
   Deferred revenue                                                              37,441           100,000
   Note payable                                                                 136,114                 -
                                                                            -----------------------------
Total current liabilities                                                       868,261           379,571
                                                                            -----------------------------

Stockholders' equity (DEFICIT)
   Preferred stock, $.001 par value; 10,000,000 shares authorized;
     none issued                                                                      B                 B
   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                                                11,783,677        11,743,077
   Deficit accumulated during the development stage                         (12,605,294)      (11,913,065)
                                                                            -----------------------------
Total stockholders' equity(deficit)                                            (814,194)         (162,565)
                                                                            -----------------------------
Total liabilities and stockholders' equity (DEFICIT)                          $  54,067          $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
<PAGE>


                                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)
                                                  1999              1998            1999            1998        TO DATE
                                       ---------------------------------------------------------------------------------
<S>                                          <C>              <C>               <C>             <C>          <C>
Revenue and licensing
  agreement                                  $  23,085         $   1,600        $  64,159     $     1,600   $    375,759

Operating expenses:
  Research and development                      74,094           311,686          290,781       1,575,513      6,410,500
  Marketing and selling                              -            32,881                -         191,523        428,093
  General and administrative                   130,143           188,754          461,880         992,721      5,207,023
                                       ---------------------------------------------------------------------------------
Total operating expenses                       204,237           533,321          752,661       2,759,757     12,045,616
                                       ---------------------------------------------------------------------------------
Loss from operations                          (181,152)         (531,721)        (688,502)     (2,758,157)   (11,669,857)

Other income (expense):
  Interest income                                    -             7,811              321          63,463        464,527
  Gain on sale of assets                             -                 -            1,875               -          1,875
  Interest expense                              (3,101)                -           (5,923)        (16,330)       (51,939)
  Charge from issuance of
    stock options for arranging
    bridge financing costs                                                                                    (1,349,900)
                                       -----------------------------------------------------------------------------------
Total other income (expense)                    (3,101)            7,811           (3,727)         47,133       (935,437)
                                       -----------------------------------------------------------------------------------
Net loss                                     $(184,253)        $(523,910)       $(692,229)    $(2,711,024)  $(12,605,294)
                                       -----------------------------------------------------------------------------------
                                       -----------------------------------------------------------------------------------

Net loss per share -                         $  (0.02)         $   (0.07)       $  (0.09)     $     (0.37)  $      (1.97)
  basic and diluted
                                       -----------------------------------------------------------------------------------
                                       -----------------------------------------------------------------------------------

Shares used in per share
  computations                               7,423,455         7,423,455       7,423,455        7,334,887      6,413,544
                                       -----------------------------------------------------------------------------------
                                       -----------------------------------------------------------------------------------


</TABLE>

SEE ACCOMPANYING NOTES.


                                       4
<PAGE>


Vyrex Corporation
                        (a development stage enterprise)

                            Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          Nine Months ended Sep 30,      Cumulative
                                                                          1999                 1998    from Inception
                                                                 -------------------------------------------------------
<S>                                                              <C>                   <C>             <C>
Operating Activities
Net Loss                                                         $   (692,229)         $(2,711,024)    $    (12,605,294)
Adjustments to reconcile net loss to net
cash used in operating activities:
  Depreciation,  amortization and impairment
  Charges                                                               27,975               41,411             294,699
  Accounts receivable and interest receivable                                -              112,734               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                                                          22,043             (15,637)              97,064
  Accounts payable and accrued liabilities                             415,135            (483,475)             694,709
  Deferred revenue                                                    (62,559)                    -            (62,559)
  Accrued interest on convertible debentures                                 -                    -               9,041
                                                                 -------------------------------------------------------
Net cash used in operating activities                                (291,510)          (2,669,590)         (9,518,711)
                                                                 -------------------------------------------------------
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                9,870             (4,202)
                                                                 -------------------------------------------------------
Net cash provided by ( used in ) investing activities                   36,117            1,003,316           (309,827)
                                                                 -------------------------------------------------------
Financing Activities
Net proceeds from issuance of common stock                              40,600                    -           7,469,808
Exercise of stock options and sale of options                                -                    -             950,100
Proceeds from short term loan                                          136,114                    -           1,009,958
Proceeds from note payable                                                   -                    -             400,000
Advances from potential investors                                            -                    -             100,000
Repayments of advances                                                       -                    -           (100,000)
                                                                 -------------------------------------------------------
Net cash provided by financing activities                              176,714                    -           9,829,866
                                                                 -------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents                                                           (78,679)          (1,666,274)               1,328


Cash and equivalents, beginning of period                               80,007            2,041,339                   -
                                                                 -------------------------------------------------------
Cash and equivalents, end of period                                 $    1,328           $  375,065          $    1,328
                                                                 -------------------------------------------------------'
                                                                 -------------------------------------------------------

</TABLE>


SEE ACCOMPANYING NOTES

                                       5
<PAGE>


                                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
         September 30, 1999, and the results of operations for the nine-month
         period ended September 30, 1999. The results of operations for the
         period ended September 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, for which there
         is substantial uncertainty. 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 September 30,
         1999, the Company had an accumulated deficit of $12,605,294, a net
         capital deficiency of $814,194 and negative working capital of
         $863,998. 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 is likely to
         materially adversely 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 licenses 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 September 30, 1999 and September 30, 1998

         Research and development expenses decreased $238,000 to $74,000 in the
         three months ended September 30, 1999, compared to $312,000 for the
         same period during 1998. The decrease was the result of the scale down
         of research work on Vantox, CD Tagging, and Nutrition. $93,000 of the
         decrease was due to a reduction in salary expenses, $71,000 reduction
         in consulting fees, and $50,000 reduction in purchased services. The


                                       6
<PAGE>


         balance of the decrease is related to the reduction in miscellaneous
         operating expenses. General and administrative expenses decreased
         $59,000 to $130,000, in the current period, compared to $189,000 for
         the same period in 1998. The primary decrease was a reduction in
         salary expenses of $56,000. The remainder was related to reduced
         general office expenses. No marketing expenses were incurred in the
         three months ended September 30, 1999 compared to $33,000 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 potential 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 $340,000 to $184,000 in the current period, compared
         to $524,000 for the same period during 1998. The decrease in net loss
         was attributed to the scale down of research work on Vantox, CD
         Tagging, and Nutraceuticals.


         NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998

         The Company earned $63,000 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 $1,285,000 to $291,000 in
         the nine months ended September 30, 1999, compared to $1,576,000 for
         the same period during 1998. Decrease in expenses was due to a major
         scale down of research work on Vantox, CD Tagging, and Nutraceuticals.
         Salary expenses decreased $338,000, consulting fees decreased $230,000,
         and purchased services decreased $280,000. General and administrative
         expenses decreased $531,000 to $462,000 in the nine months ended
         September 30, 1999, compared to $993,000 for the same period ended
         September 30, 1998. Salaries decreased $173,000, patent expenses
         $128,000, financial expenses $77,000, and public relations $69,000. The
         balance was for general office expenses. No marketing expenses were
         incurred in the nine months ended September 30, 1999 compared to
         $191,000 during the same period in 1998.

         Net loss decreased $2,019,000 to $692,000 in the current period,
         compared to $2,711,000 for the same period during 1998. The decrease in
         net loss was attributed to the scale down of research work on Vantox,
         CD Tagging, and Nutraceuticals.


                                       7
<PAGE>

         Net loss per common share decreased $0.28 to $0.09, compared to
         $0.37 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.

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,
         1999, the Company had a working capital deficit of ($864,000) which
         included $4,000 of cash and cash equivalents.  Net cash used in
         operating activities during the nine months ended September 30, 1999
         was $292,000, compared to $2,670,000 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 $1,003,000 of cash provided by investing activities
         during the same period in 1998.  The Company generated $136,000 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 with the applicable provisions of the Uniform Commercial
         Code and an additional $10,000 loan payable with interest in June
         2000 or convertible, at the option of the holder, into common stock
         of the Company.  On August 17, 1999, the Company entered into an
         amendment to the security agreement executed as of March 22, 1999,
         allowing the Company to borrow up to an additional $150,000.00.  The
         Company also borrowed an additional $6114.00 pursuant to three (3)
         promissory notes in the amount of $2038.00 bearing interest at the
         rate of 10% per annum with principal and interest due and payable on
         December 31, 1999, each in favor of Sheldon S. Hendler, M.D., Ph.D.,
         Dennis J. Carlo, Ph.D., and Nolan E. Penn, Ph.D., all of who are
         members of the Board of Directors 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.

         On October 20, 1999, the Company received $5000 pursuant to a letter
         of intent granting a first right to license the Company's
         proprietary Cerex  product for specific applications.  By the terms
         of the Letter of Intent, the parties have until February 17, 2000 to
         elect to negotiate a license agreement.

         There can be no assurance that any revenues will be realized in 1999
         or that they will be significant and therefore without additional
         financing the Company may be unable to 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. To date the Company has no prospects for merger or
         acquisition.  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 significant
         revenues during 1999, or that funds will be available through the
         public or private markets.

         It is anticipated that the Company's potential loan facility of up
         to $150,000 and its other financing options may enable the Company
         to continue operating through December 1999.  If, by December 31,
         1999, the Company is unable to raise significant additional
         financing and/or is unable to raise additional funds through
         strategic collaborations or other means, which appears likely,  the
         Company will be unable to maintain its reporting status and  its
         securites may cease to be publicly traded.  If the Company is unable
         to raise additional funds to continue operations by December
         31,1999, and the Company does not believe it will be able to raise
         any additional funds, it will have a material adverse impact on the
         business and operations of the Company, it is likely the Company
         will declare bankruptcy immediately after such date and discontinue
         all operations.

                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Not applicable

                                       8
<PAGE>

ITEM 2.  CHANGES IN SECURITIES

         The Company issued 101,500 shares of common stock to an accredited
         investor for $40,600 in July 1999.  The Company relied upon the
         exemptions provided by Section 4(2) of the Securities Act of 1933
         and appropriate legends were placed on the certificate.

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 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:
                                            -----------------------------------
                                            Sheldon S. Hendler, M.D., Ph.D.
                                            Chief Executive Officer





                                       9

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             JUL-01-1999
<PERIOD-END>                               SEP-30-1999
<CASH>                                           1,328
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                 4,263
<PP&E>                                         178,449
<DEPRECIATION>                                 128,636
<TOTAL-ASSETS>                                  54,067
<CURRENT-LIABILITIES>                          868,261
<BONDS>                                              0
                                0
                                          0
<COMMON>                                         7,423
<OTHER-SE>                                   (821,617)
<TOTAL-LIABILITY-AND-EQUITY>                    54,067
<SALES>                                         23,085
<TOTAL-REVENUES>                                23,085
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                               204,237
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             (3,101)
<INCOME-PRETAX>                              (184,253)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 (184,253)
<EPS-BASIC>                                     (0.02)
<EPS-DILUTED>                                   (0.02)


</TABLE>


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