<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>