10QSB 1 j1308_10qsb.htm 10QSB Prepared by MerrillDirect

United States
Securities and Exchange Commission
Washington D.C. 20549

Form 10-QSB

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period ended June 30, 2001

o 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 incorporation or organization) (IRS Employer Identification No.)
   
   
2159 Avenida de la Playa, La Jolla, California, 92037
(Address of principal executive offices)
 
(858) 454-4446
(Issuer’s telephone number including area code)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act  during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X              No _____

Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years

Check whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan by a court.

Yes _____       No _____

Applicable Only to Corporate Issuers

State the number of shares outstanding of each of the issuers classes of common equity, as of latest practicable date:

As of June 30, 2001, there are 8,342,867 shares of common stock outstanding and warrants to purchase 150,000 shares of common stock outstanding.

Transitional Small Business Disclosure Format

Yes  _____      No  X

PART I  Financial Information

Item 1. Financial Statements

Vyrex Corporation
(a development stage enterprise)
Condensed Balance Sheets

         
  Jun 30, 2001   Dec 31, 2000  
 
 
Assets Unaudited   (Note 1 )
Current asset - cash and cash equivalents $ 127,448   $ 238,817  
         
Furniture and equipment, net of accumulated depreciation of  $94,514 in 2001 and $146,679 in 2000 5,056   14,030  
 
 
Total assets $ 132,504   $ 252,847  
 
 
Liabilities and stockholders’ deficiency        
Current liabilities:        
  Accounts payable and accrued liabilities $ 220,155   $ 264,036  
  Deferred revenue 1,322   2,171  
  Notes payable to related parties 5,000   10,000  
   
 
Total current liabilities 226,477   276,207  
         
Notes payable 160,000   160,000  
 
 
Total liabilities 386,477   436,207  
 
 
         
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 issued and outstanding 8,343   8,343  
  Additional paid-in capital 12,845,397   12,845,397  
  Deficit accumulated during the development stage (13,107,713 ) (13,037,100 )
   
 
Total stockholders’ deficiency (253,973 ) (183,360 )
 
 
Total liabilities and stockholders’ deficiency $ 132,504   $ 252,847  
 
 

See accompanying notes.

Vyrex Corporation
(a development stage enterprise)

Condensed Statements of Operations
(Unaudited)

  Three Months Ended
June 30,		   Six Months Ended
June 30,		   Cumulative From  
  2001   2000   2001   2000   Inception  
 
 
Licensing and royalty revenue $ 125   $ 9,256   $ 849   $ 19,238   $ 441,878  
 
 
Operating expenses: 1,921   5,250   (37,201 ) 13,170   6,395,547  
  Research and development                    
  Marketing and selling 516   -   1,338   -   434,440  
  General and administrative 45,663   53,903   103,047   255,496   5,751,427  
   
 
Total operating expenses 48,100   59,153   67,184   268,666   12,581,414  
 
 
                     
Loss from operations (47,975 ) (49,897 ) (66,335 ) (249,428 ) (12,139,536 )
 
 
Other income (expense):                    
  Interest income 1,326   1,608   3,160   2,003   473,612  
  Loss on disposal of fixed assets -   -   -   (6,376 ) (12,605 )
  Interest expense (4,035 ) (4,453 ) (7,438 ) (8,935 ) (79,284 )
  Charge from issuance of stock options for arranging bridge financing costs -   -   -   -   (1,349,900 )
   
 
Total other income (expense) (2,709 ) (2,845 ) (4,278 ) (13,308 ) (968,177 )
 
 
Net loss $ (50,684 ) $ (52,742 ) $ (70,613 ) $ (262,736 ) $ (13,107,713 )
 
 
Net loss per share - basic and diluted $ (0.01 ) $ (0.01 ) $ (0.01 ) $ (0.03 ) $ (1.94 )
 
 
Shares used in per share computations 8,342,867   8,125,220   8,342,867   7,754,955   6,744,635  
 
 

See accompanying notes.

Vyrex Corporation
(a development stage enterprise)

Condensed Statements of Cash Flows
(Unaudited)

  Six Months ended   Cumulative  
  Jun 30, 2001   Jun 30, 2000   From
 Inception		  
 
 
Operating activities            
Net loss $ (70,613 ) $ (262,736 ) $ (13,107,713 )
Adjustments to reconcile net loss to net cash used in operating activities:            
  Depreciation, amortization and impairment charges 8,975   11,400   332,333  
  Interest receivable         3,506  
  Loss on sale of fixed assets     6,376   12,605  
  Issuance of compensatory notes, stock, stock options and warrants     148,000   2,229,712  
  Changes in operating assets and liabilities:            
  Other assets         100,000  
  Accounts payable and accrued liabilities (43,882 ) 5,666   642,717  
  Deferred revenue (849 ) (19,238 ) (98,678 )
  Accrued interest on convertible debentures         9,041  
   
 
Net cash used in operating activities (106,369 ) (110,532 ) (9,876,477 )
 
 
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         10,000  
Patent, trademark and copyright costs         (133,519 )
Other assets, including notes receivable from related parties         (4,202 )
 
 
Net cash used in investing activities         (309,827 )
 
 
Financing activities            
Net proceeds from issuance of common stock     270,000   7,889,808  
Exercise of stock options and sale of options     25,000   975,100  
Exercise of warrants     5,000   10,000  
Proceeds from short-term loan         867,730  
Proceeds from note payable     15,000   591,114  
Repayment of note payable (5,000 ) (15,000 ) (20,000 )
Advances from potential investors         100,000  
Repayment of advances         (100,000 )
 
 
Net cash provided by (used in) financing activities (5,000 ) 300,000   10,313,752  
 
 
             
Net increase (decrease) in cash and cash equivalents (111,369 ) 189,468   127,448  
             
Cash and cash equivalents, beginning of period 238,817   3,184      
 
 
Cash and cash equivalents, end of period $ 127,448   $ 192,652   $ 127,448  
 
 

See accompanying notes.

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 conformity with accounting principles generally accepted in the United States of America for interim financial information. Certain information and disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of the Company's management, the unaudited financial statements contain all adjustments necessary (consisting of normal recurring accruals) for a fair presentation of the financial position as of June 30, 2001, and its results of operations for the three and six months ended June 30, 2001 and 2000 and cash flows for the six months ended June 30, 2001 and 2000. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and notes thereto included in Vyrex’s Form 10-KSB for the year ended December 31, 2000.

The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern.  This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business.  As of June 30, 2001, the Company had an accumulated deficit of $13,107,713, a net capital deficiency of $253,973 and a working capital deficiency of $99,029.  Due to the Company’s recurring losses and 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 condensed 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 June 30, 2001 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) Stock option plan

The Company’s 1993 Stock Option Plan (the “Plan”) was adopted by the Board of Directors in February 1994. Pursuant to the Plan, the Company may grant both incentive stock options and nonqualified stock options. Incentive stock options may be granted only to the employees, while consultants, employees, officers and directors are eligible for the grant of nonqualified options.  During the annual shareholders’ meeting held June 11, 2001, the stockholders approved an increase in the number of shares reserved and available for grant under the plan to total 3,875,000 shares, an increase of 1,000,000 shares.

During the three months ended June 30, 2001, in accordance with the Plan, the Company issued options at or near fair market value to the Board of Directors and employees of the Company.  The exercise price was not lower than the closing bid price on the grant date.  The incentive options granted are exercisable for a total of 615,000 shares of common stock, at a weighted average exercise price of $0.38 per share.  The options were 100% vested at the date of grant and have expiration dates of five and ten years.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This report on Form 10-QSB contains 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.  This report should be read in conjunction with the Company’s report on Form 10-KSB for the year ended December 31, 2000.

Results of Operations

Three months ended June 30, 2001 and June 30, 2000

The Company earned an insignificant amount in royalty income from the sale of four nutritional formulations by the Retired Persons Services Inc. (“RPS”) compared to $9,000 earned in the same period of 2000. The Company is entitled to a royalty of 15% on the sale of these formulations.  The Company was notified in September 2000 that RPS was relinquishing the product line.  The Company will continue to receive royalties on sales until the inventory is depleted.  Research and development expenses decreased $3,000 to $2,000 in the three months ended June 30, 2001 compared to $5,000 in the same period of 2000.  General and administrative expenses decreased $8,000 to $46,000 in the current period, compared to $54,000 for the same period in 2000. First quarter expenses were limited to maintenance of patents and general office expenses such as accounting fees, utility expenses, telephone expenses, rent and postage.  Marketing expenses amounted to $500 in the three months ended June 30, 2001.  There were no marketing expenses for the same period of 2000.

Net loss decreased $2,000 to $51,000, compared to $53,000 for the same period during 2000.  Basic and diluted loss per share remained the same at $0.01 for the three months period ended June 30, 2001 and 2000.

Six months ended June 30, 2001 and June 30, 2000

The Company earned $1,000 in royalty income from the sale of four nutritional formulations by the Retired Persons Services Inc. (“RPS”) compared to $19,000 earned in the same period of 2000. The Company is entitled to a royalty of 15% on the sale of these formulations.  The Company was notified in September 2000 that RPS was relinquishing the product line.  The Company will continue to receive royalties on sales until the inventory is depleted.  Research and development expenses decreased $50,000 to a credit balance of $37,000 in the six months ended June 30, 2001 compared to $13,000 in the same period of 2000. This decrease was due to funding constraints and the reversal of previously accrued, but contested purchased service liability of $40,000.  General and administrative expenses decreased $153,000 to $103,000 in the current period, compared to $256,000 for the same period in 2000. This decrease was due to the Company recognizing a large consulting expense in the first quarter of 2000, relating to services performed for the Company.  Expenses were limited to maintenance of patents and general office expenses such as accounting fees, utility expenses, telephone expenses, rent and postage.  Marketing expenses amounted to $1,000 in the six months ended June 30, 2001.  There were no marketing expenses for the same period of 2000.

Net loss decreased $192,000 to $71,000, compared to $263,000 for the same period during 2000.  Basic and diluted loss per share decreased $0.02 to $0.01 in the six months ended June 30, 2001 compared to $0.03 in the same period of 2000.  The lower net loss per common share is principally due to the decrease in the net loss.

The Company has been issued a patent dated July 3, 2001 from the U.S. Patent and Trademark Office for Water Soluble Pro-Drugs of Propofol.  These claims cover treatment of diseases, states or conditions associated with the nervous system, cardiovascular system and respiratory system, including but not limited to anesthesia, trauma of the nervous system, Parkinson’s disease, Alzheimer’s disease and migraine headache.  The Company and its collaborative partner, Immune Response Corporation, have expanded research activities to expedite the development of these claims.  Although these indications are promising, there is no assurance the Company and Immune Response Corporation will be successful in funding further development and commercialization of these compounds.

Liquidity and Capital Resources

The Company has financed its operations since inception solely through the sales of debt and equity securities. As of June 30, 2001, the Company had negative working capital of $99,000.  Net cash used in operating activities during the six months ended June 30, 2001 was $106,000, compared to $111,000 for the same period during 2000.

There can be no assurance that any further revenues will be realized in 2001 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 2001 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 December 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
   
  Not applicable
   
Item 3. Defaults upon Senior Securities
   
  Not applicable
   
Item 4. Submission of Matters to a Vote of Security Holders
   
  Not applicable
   
Item 5. Other Information
   
  Not applicable
   
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 June 30, 2001

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/
 
August 8, 2001 G. Dale Garlow,
  Chief Executive Officer