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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
-- Exchange Act of 1934
For the Quarterly Period ended SEPTEMBER 30, 2000
/_ / 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 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, 2000, there are 8,342,867 shares of common stock outstanding
and warrants to purchase 167,000 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>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed 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 10
Item 4 - Submission of Matters to a Vote of
Security Holders 10
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signature 10
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VYREX CORPORATION
(a development stage enterprise)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEP 30, 2000 DEC 31, 1999
-----------------------------------
Unaudited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 297,278 $ 3,184
-----------------------------------
Total current assets 297,278 3,184
Furniture and equipment, net of accumulated depreciation of
$141,787 in 2000 and $132,425 in 1999 18,921 41,591
-----------------------------------
Total assets $ 316,199 $ 44,775
===================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities $ 277,725 $ 713,183
Deferred revenue 3,340 28,910
Notes payable to related parties 10,000 16,114
-----------------------------------
Total current liabilities 291,065 758,207
Notes payable 160,000 160,000
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Total liabilities 451,065 918,207
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Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.001 par value; 10,000,000 shares authorized; none
issued - -
Common stock, $.001 par value; 50,000,000 shares authorized; 8,342,867
and 7,542,867 issued and outstanding in 2000 and 1999, respectively 8,343 7,543
Additional paid-in capital 12,697,397 11,820,638
Deficit accumulated during the development stage (12,840,606) (12,701,613)
-----------------------------------
Total stockholders' deficiency (134,866) (873,432)
-----------------------------------
Total liabilities and stockholders' deficiency $ 316,199 $ 44,775
====================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
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VYREX CORPORATION
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FROM
THREE MONTHS ENDED NINE MONTHS ENDED INCEPTION
SEPTEMBER 30, SEPTEMBER 30, (01/02/1991)
2000 1999 2000 1999 TO DATE
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<S> <C> <C> <C> <C> <C>
Licensing and royalty revenue $ 31,332 $ 23,085 $ 50,570 $ 64,159 $ 439,860
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Operating expenses:
Research and development 107 74,094 13,277 290,781 6,427,498
Marketing and selling - - - - 428,093
General and administrative 53,962 130,143 161,458 461,880 5,462,209
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Total operating expenses 54,069 204,237 174,735 752,661 12,317,800
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Loss from operations (22,737) (181,152) (124,165) (688,502) (11,877,940)
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Other income (expense):
Interest income 1,778 - 3,754 321 468,281
Dividend income 14 - 40 - 40
Gain (loss) on disposal
of fixed assets - - (6,376) 1,875 (12,605)
Interest expense (3,310) (3,101) (12,246) (5,923) (68,482)
Charge from issuance of
stock options for arranging
bridge financing costs (1,349,900)
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Total other expense (1,518) (3,101) (14,828) (3,727) (962,666)
----------------------------------------------------------------------------------
Net loss $ (24,255) $ (184,253) $ (138,993) $ (692,229) $ (12,840,606)
==================================================================================
Net loss per share - basic and
diluted $ (0.00) $ (0.02) $ (0.02) $ (0.09) $ (1.94)
==================================================================================
Shares used in per share
computations 8,292,242 7,423,455 7,934,473 7,423,455 6,608,030
==================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
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VYREX CORPORATION
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED CUMULATIVE
FROM
SEP 30, 2000 SEP 30,1999 INCEPTION
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<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (138,993) $ (692,229) $ (12,840,606)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and impairment
charges 16,294 27,975 318,467
Interest receivable 3,506
(Gain) loss on disposal of fixed assets 6,376 (1,875) 12,605
Issuance of compensatory notes, stock, stock
options and warrants 2,081,712
Changes in operating assets and liabilities:
Other assets 22,043 100,000
Accounts payable and accrued liabilities (12,899) 415,135 700,288
Deferred revenue (25,570) (62,559) (96,660)
Accrued interest on convertible debentures 9,041
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Net cash used in operating activities (154,792) (291,510) (9,711,647)
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INVESTING ACTIVITIES
Purchase of short-term investments (8,440,442)
Sale of short-term investments 8,467,931
Purchases of furniture and equipment (209,595)
Proceeds on sale of fixed assets 4,000 10,000
Patent, trademark and copyrights costs (133,519)
Other assets, including notes receivable from
related parties 32,117 (4,202)
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Net cash provided by (used in) investing 36,117 (309,827)
activities
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FINANCING ACTIVITIES
Net proceeds from issuance of common stock 420,000 40,600 7,889,808
Exercise of stock options and sale of options 25,000 975,100
Exercise of warrants 10,000 10,000
Proceeds from short-term loan (6,114) 136,114 867,730
Proceeds from repayment of note payable 15,000 591,114
Repayment of note payable (15,000) (15,000)
Advances from potential investors 100,000
Repayment of advances (100,000)
------------------------------------------------------
Net cash provided by financing activities 448,886 176,714 10,318,752
------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 294,094 (78,679) 297,278
Cash and cash equivalents, beginning of the
period 3,184 80,007
------------------------------------------------------
Cash and cash equivalents, end of the period $ 297,278 $ 1,328 $ 297,278
======================================================
</TABLE>
SEE ACCOMPANYING NOTES.
5
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VYREX CORPORATION
(A Development Stage Enterprise)
Notes To Condensed Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed 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 complete 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, 2000, and its results of
operations for the nine month and three month periods ended September
30, 2000 and 1999, and cash flows for the nine month period ended
September 30, 2000 and 1999. The results of operations for the nine
month and three month periods ended September 30, 2000 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-KSB for the year ended
December 31, 1999.
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 September
30, 2000, the Company had an accumulated deficit of $12,840,606, a net
capital deficiency of $134,866 and working capital of $6,213. 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 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, there can be no assurance that an agreement will arise in
a timely manner, or at all, or that any agreement that may arise will
successfully reduce the Company's short-term or long-term funding
requirements.
The Company's major activities through September 30, 2000 have been
limited to raising funds for conducting research and development on its
proposed products. These activities have not generated any significant
revenues; accordingly, the Company has been in the development stage
since its inception. 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 revenue adequate to support the Company's cost structure. There can
be no assurance that the Company will be successful in these areas. To
supplement its existing resources, the Company will require additional
capital through the sale of debt or equity. There can be no assurance
that such capital will be available on favorable terms, or at all, and
if additional funds are raised by issuing equity securities, dilution
to existing stockholders is likely to result.
(2) FORGIVENESS OF ACCRUED COMPENSATION
During the nine months ended September 30, 2000, three officers of the
Company forgave previously accrued compensation totaling $422,559. This
amount has been treated as a contribution to the Company and,
accordingly, added to additional paid-in capital in the accompanying
2000 condensed balance sheet.
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(3) NOTES PAYABLE
During the nine months ended September 30, 2000, the Company borrowed
$15,000 under a bridge loan agreement that bears interest at 10% per
annum and is due in February 2001. The loan was repaid during the nine
months ended September 30, 2000. The bridge loan agreement from August
1999 in the amount of $6,114 was also repaid during the nine months
ended September 30, 2000.
(4) COMMON STOCK
During the nine month period ended September 30, 2000, the Company sold
450,000 shares of common stock in private placements exempt from
registration for $420,000 .
During the nine months ended September 30, 2000, the Company issued
250,000 shares of common stock upon the exercise of stock options for
$25,000, and 100,000 shares of common stock upon the exercise of
warrants for $10,000, respectively.
(5) LICENSE FEE
During the nine months ended September 30, 2000, the Company entered
into a licensing agreement with a food and nutritional products company
to produce and market certain patented nutraceutical products. Initial
licensing fee received was $25,000.
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 FORM 10-QSB
AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" PRESENTED IN THE COMPANY'S 1999 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. 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 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
The Company continues to be classified as a development stage company as its
planned principal operations (consisting of generating revenue from the sale or
licensing of pharmaceutical and nutraceutical products have not commenced). To
date, revenues have consisted primarily of minor amounts generated from
royalties earned on certain nutraceutical formulations. The Company recently
negotiated a contract with a food and nutritional products company to produce
and market certain Company patented nutraceutical products. To date, a partial
licensing fee of $25,000 has been received. The Company shall
7
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receive a Supplemental License-Issue Fee of $75,000 upon attaining $75,000 in
initial sales of Licensed Products. The Licensee shall pay the Company a total
gross royalty of 30% of Gross Revenue. Of the 30% gross royalty, Licensee shall
credit and allocate 5% to research and development and the
distribution/publication of the results of that research and development of
Licensed Product and pay the remaining 25% to the Company.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
The Company earned $6,000 in royalty income from the sale of four
nutritional formulations by the Retired Persons Services Inc. compared
to $23,000 earned in the same period of 1999. This decrease was due to
a direct decline in sales after the initial marketing promotion in
1999. The Company is entitled to a royalty of 15% on the sale of these
formulations. A partial licensing fee of $25,000 was received from Van
Drunen Farms Futureceuticals, Inc. to produce and market certain
Company patented nutraceutical products.
Research and development expenses decreased $74,000 to zero expenses in
the three months ended September 30, 2000. This decrease was due to
funding constraints that caused a reduction in personnel and R&D
expenditures. General and administrative expenses decreased $80,000 to
$50,000 compared to $130,000 for the same period during 1999. Again,
this decrease was due to funding constraints that caused a reduction in
personnel and elimination of payroll expenses and employee benefits.
Third quarter expenses were minimal and were comprised of patent fees,
financial reporting fees, accounting fees, rents, utilities and general
office expenses.
Net loss decreased $160,000 to $24,000, compared to $184,000 for the
same period during 1999. The decrease in net loss was attributed to the
reduction in personnel and R&D expenditures. Net loss per common share
decreased $.02 to ($.00) compared to ($.02) for the same period during
1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
The Company earned $25,000 in royalty income from the sale of four
nutritional formulations by the Retired Persons Services Inc. compared
to $63,000 earned in the same period of 1999. This decrease was due to
a direct decline in sales after the initial marketing promotion in
1999. The Company is entitled to a royalty of 15% on the sale of these
formulations. A partial licensing fee of $25,000 was received from Van
Drunen Farms Futureceuticals, Inc. to produce and market certain
Company patented nutraceutical products.
Research and development expenses decreased $278,000 to $13,000 in the
nine months ended September 30, 2000, compared to $291,000 for the same
period during 1999. This decrease was due to funding constraints that
caused a reduction in personnel and R&D expenditures. General and
administrative expenses decreased $300,000 to $162,000 compared to
$462,000 for the same period during 1999. This decrease was due to
funding constraints that caused a reduction in personnel. Overhead
expenses such as consulting agreements, payroll expenses and employee
benefits were eliminated. Expenses were minimal and were comprised of
patent fees, financial reporting fees, accounting fees, rents,
utilities and general office expenses. No marketing expenses were
incurred in the nine months ended September 30, 2000.
Net loss decreased $553,000 to $139,000, compared to $692,000 for the
same period during 1999. The decrease in net loss was attributed to the
reduction in personnel and R&D expenditures, and the elimination of
payroll expenses and employee benefits.. Net loss per common share
decreased $.07 to ($.02) compared to ($.09) for the same period during
1999.
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, 2000, the
Company had a working capital of $6,000 which included $297,000 of cash
and cash equivalents. Net cash used in operating activities during the
nine months ended September 30, 2000 was $155,000, compared to $292,000
for the same period during 1999. The Company generated $449,000 from
financing activities during the current period. This consists of
$420,000 from the sale of common stock; $25,000 from the exercise of
stock options; and, $10,000 from the exercise of warrants net of
repayment of $6,000 on short-term loans.
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There can be no assurance that any revenues will be realized in 2000 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 2000 to continue its operations, or that
funds will be available through the public or private markets.
The Company believes that its current cash reserves and other resources
will fund the business through the spring of 2001. The Company does not
anticipate having significant revenues in the foreseeable future and
will likely be required to raise additional funds to continue
operations. There can be no assurance that additional funds will be
available.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
During the period ending March 31, 2000, the Company sold 250,000
shares of its common stock to five investors, which shares were not
registered under the Securities Act of 1933. The sales were exempt from
such registration under Section 4(2) of the Securities Act. Each sale
was negotiated individually and each purchaser was an accredited
investor as defined in Rule 501(a) of Regulation D. The total offering
price for these securities was $225,000.
During the period ending June 30, 2000, the Company sold 50,000 shares
of its common stock to one investor, which shares were not registered
under the Securities Act of 1933. The sale was exempt from such
registration under Section 4(2) of the Securities Act. The sale was
negotiated with one individual and the purchaser was an accredited
investor as defined in Rule 501(a) of Regulation D. The total offering
price for these securities was $45,000.
During the period ending June 30, 2000, the Company sold 250,000 shares
of its common stock to one investor who exercised stock options and
50,000 shares of its common stock to one investor who exercised
warrants. These sales were exempt from registration under the
Securities Act of 1933 by reason of Section 4(2) thereof. The total
exercise price for these transactions were $25,000 and $5,000,
respectively.
During the period ending September 30, 2000, the Company sold 150,000
shares of its common stock to one investor, which shares were not
registered under the Securities Act of 1933. The sale was exempt from
such registration under Section 4(2) of the Securities Act. The sale
was negotiated with one individual and the purchaser was an accredited
investor as defined in Rule 501(a) of Regulation D. The total offering
price for these securities was $150,000.
During the period ending September 30, 2000, the Company sold 50,000
shares of its common stock to one investor who exercised warrants. This
sale was exempt from registration under the Securities Act of 1933 by
reason of Section 4(2) thereof. The exercise price for this transaction
was $5,000.
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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, 2000.
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/ G. DALE GARLOW
----------------------------------
G. Dale Garlow,
Director
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