10QSB 1 a76938e10qsb.htm FORM 10QSB QUARTER ENDED SEPTEMBER 30, 2001

Vyrex Corporation Form 10QSB

Table of Contents

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, 2001

[   ]  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 September 30, 2001, there are 8,342,867 shares of common stock outstanding.

Transitional Small Business Disclosure Format

Yes   [   ]     No   [X]

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TABLE OF CONTENTS

PART I Financial Information

Item 1. Financial Statements

Condensed Balance Sheets

Condensed Statements of Operations

Condensed Statements of Cash Flows

Notes To Condensed Financial Statements

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

PART II Other Information

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

Table of Contents

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 Analysis of Financial Condition and Results of Operations				7
Part II   Other Information					9
	Item 1 - Legal Proceedings				9
	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 Form 8-K				9
Signatures					9

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PART I   Financial Information

Item 1.     Financial Statements

Vyrex Corporation
(a development stage enterprise)

Condensed Balance Sheets

			Sep 30, 2001				Dec 31, 2000
			(Unaudited)				(Note 1)
Assets
Current asset — cash and cash equivalents			$	83,268			$	238,817
Furniture and equipment, net				2,846				14,030
Total assets			$	86,114			$	252,847
Liabilities and stockholders’ deficiency
Current liabilities:
	Accounts payable and accrued liabilities		$	224,966			$	264,036
	Deferred revenue							2,171
	Notes payable to related parties			5,000				10,000
Total current liabilities				229,966				276,207
Notes payable				160,000				160,000
Total liabilities				389,966				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			(13,157,592	)			(13,037,100	)
Total stockholders’ deficiency				(303,852	)			(183,360	)
Total liabilities and stockholders’ deficiency			$	86,114			$	252,847

See accompanying notes.

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Vyrex Corporation
(a development stage enterprise)

Condensed Statements of Operations
(Unaudited)

			Three Months Ended								Nine Months Ended								Cumulative
			September 30,								September 30,								From
			2001				2000				2001				2000				Inception
Licensing and royalty revenue			$	1,322			$	31,332			$	2,171			$	50,570			$	443,200
Operating expenses:
	Research and development			(23	)			107				(37,223	)			13,277				6,395,525
	Marketing and selling			2,182				—				3,521				—				436,623
	General and administrative			41,475				53,962				144,522				309,458				5,792,902
Total operating expenses				43,634				54,069				110,820				322,735				12,625,050
Loss from operations				(42,312	)			(22,737	)			(108,649	)			(272,165	)			(12,181,850	)
Other income (expense):
	Interest income			722				1,792				3,883				3,794				474,335
	Loss on disposal of fixed assets			—				—				—				(6,376	)			(12,605	)
	Interest expense			(8,288	)			(3,310	)			(15,726	)			(12,246	)			(87,572	)
	Charge from issuance of stock options for arranging bridge financing costs			—				—				—				—				(1,349,900	)
Total other income (expense)				(7,566	)			(1,518	)			(11,843	)			(14,828	)			(975,742	)
Net loss			$	(49,878	)		$	(24,255	)		$	(120,492	)		$	(286,993	)		$	(13,157,592	)
Net loss per share — basic and diluted			$	(0.01	)		$	(0.00	)		$	(0.01	)		$	(0.04	)		$	(1.95	)
Shares used in per share computations				8,342,867				8,292,242				8,342,867				7,934,473				6,744,635

See accompanying notes.

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Vyrex Corporation
(a development stage enterprise)

Condensed Statements of Cash Flows
(Unaudited)

												Cumulative
				Nine Months ended								From
				Sep 30, 2001				Sep 30, 2000				Inception
Operating activities
Net loss				$	(120,492	)		$	(286,993	)		$	(13,157,592	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation, amortization and impairment charges				11,184				16,294				334,542
	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			(39,070	)			(12,899	)			647,529
		Deferred revenue			(2,171	)			(25,570	)			(100,000	)
		Accrued interest on convertible debentures											9,041
Net cash used in operating activities					(150,549	)			(154,792	)			(9,920,657	)
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									420,000				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	)			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	)			448,886				10,313,752
Net increase (decrease) in cash and cash equivalents					(155,549	)			294,094				83,268
Cash and cash equivalents, beginning of period					238,817				3,184				—
Cash and cash equivalents, end of period				$	83,268			$	297,278			$	83,268

See accompanying notes.

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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 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 September 30, 2001, and its results of operations for the three and nine months ended September 30, 2001 and 2000 and cash flows for the nine months ended September 30, 2001 and 2000. The results of operations for the three and nine months ended September 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 September 30, 2001, the Company had an accumulated deficit of $13,157,592, a stockholders’ deficiency of $303,852 and a working capital deficiency of $146,698. Due to the Company’s recurring losses and working 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 September 30, 2001 have been limited to raising funds for conducting research and development of its novel technology, and developing new patents to add to the estate of patents that the Company holds. 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.

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(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.

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 September 30, 2001 and September 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 $6,000 earned in the same period of 2000. The Company was notified in September 2000 that RPS was relinquishing the product line; however, sales would continue until the inventory was depleted. The inventory has been depleted and the Company will no longer earn royalty income from RPS. There were no expenses for research and development in the three months ended September 30, 2001 and September 30, 2000. General and administrative expenses decreased $13,000 to $41,000 in the current period, compared to $54,000 for the same period in 2000. Third quarter expenses were limited to maintenance of existing patents, obtaining new patents and general office expenses such as accounting fees, utility expenses, telephone expenses, rent and postage. Marketing expenses amounted to $2,000 in the three months ended September 30, 2001. There were no marketing expenses for the same period of 2000.

Net loss increased $26,000 to $50,000, compared to $24,000 for the same period during 2000. Basic and diluted loss per share decreased $0.01 to ($0.01) for the three months period ended September 30, 2001 compared to $0.00 in the same period of 2000.

Nine months ended September 30, 2001 and September 30, 2000

The Company earned $2,000 in royalty income from the sale of four nutritional formulations by the Retired Persons Services Inc. (“RPS”) compared to $25,000 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, however, sales would continue until the inventory was depleted. The inventory has been depleted and the Company will no longer earn royalty income from RPS. Research and development expenses decreased $50,000 to a credit balance of $37,000 in the nine months ended September 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 $164,000 to $145,000 in the current period, compared to $309,000 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, obtaining new patents, ongoing efforts to seek licensees and or collaborative partners needed to develop its intellectual property and general office expenses. Marketing expenses

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amounted to $4,000 in the nine months ended September 30, 2001. There were no marketing expenses for the same period of 2000.

Net loss decreased $167,000 to $120,000, compared to $287,000 for the same period during 2000. Basic and diluted loss per share decreased $0.03 to ($0.01) in the nine months ended September 30, 2001 compared to ($0.04) in the same period of 2000.

The Company has been issued a patent dated July 3, 2001, U.S. Patent Number 6,254,853 BI from the U.S. Patent and Trademark Office for Water Soluble Pro-Drugs of Propofol. The claims cover the 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 this indication is promising, there is no assurance the Company and Immune Response Corporation will be successful in funding further development and commercialization of this novel application .

On October 16, 2001 the Company received a notice of allowance from the U.S. Patent and Trademark Office for Water Soluble Pro-Drugs of Propofol for the Treatment of Migraine. This patent is specific to the treatment of migraine, which is often a disabling condition. The patent is an addition to the estate of patents that the Company holds on water-soluble derivatives of propofol as well as propofol itself. The development of this technology falls under the strategic alliance with The Immune Response Corporation. 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 this compound.

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, 2001, the Company had negative working capital of $147,000 . Net cash used in operating activities during the nine months ended September 30, 2001 was $151,000 compared to $155,000 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 the first quarter of 2002. 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.

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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

November 8, 2001 G. Dale Garlow,
Chief Executive Officer

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