10QSB 1 a2030425z10qsb.txt 10QSB 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 ----- ----- VYREX CORPORATION INDEX TO FORM 10-QSB 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
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VYREX CORPORATION (a development stage enterprise) CONDENSED BALANCE SHEETS
SEP 30, 2000 DEC 31, 1999 ----------------------------------- Unaudited 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 ----------------------------------- Total liabilities 451,065 918,207 ----------------------------------- 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 ====================================
SEE ACCOMPANYING NOTES. 3 VYREX CORPORATION (a development stage enterprise) CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
FROM THREE MONTHS ENDED NINE MONTHS ENDED INCEPTION SEPTEMBER 30, SEPTEMBER 30, (01/02/1991) 2000 1999 2000 1999 TO DATE ---------------------------------------------------------------------------------- Licensing and royalty revenue $ 31,332 $ 23,085 $ 50,570 $ 64,159 $ 439,860 ---------------------------------------------------------------------------------- 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 ---------------------------------------------------------------------------------- Total operating expenses 54,069 204,237 174,735 752,661 12,317,800 ---------------------------------------------------------------------------------- Loss from operations (22,737) (181,152) (124,165) (688,502) (11,877,940) ---------------------------------------------------------------------------------- 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) ---------------------------------------------------------------------------------- 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 ==================================================================================
SEE ACCOMPANYING NOTES. 4 VYREX CORPORATION (a development stage enterprise) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED CUMULATIVE FROM SEP 30, 2000 SEP 30,1999 INCEPTION ------------------------------------------------------ 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 ------------------------------------------------------ Net cash used in operating activities (154,792) (291,510) (9,711,647) ------------------------------------------------------ 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) ------------------------------------------------------ Net cash provided by (used in) investing 36,117 (309,827) activities ------------------------------------------------------ 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 ======================================================
SEE ACCOMPANYING NOTES. 5 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. 6 (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 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. 8 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. 9 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 10