UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2006 or oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 Commission file number: 000-25571 AXONYX INC. (Exact name of registrant as specified in its charter) Nevada

        

        86-0883978(State or Other Jurisdiction ofincorporation or
organization)

        

        (IRS Employer Id. No.)
 500 Seventh Avenue, 10th Floor, New York, New York 10018 (Address of Principal Executive Offices) Registrants telephone number, including area code:(212) 645-7704 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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. YesxNoo. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated
filer: Large accelerated filero

        Accelerated filerx

        Non-accelerated filero
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNox. As of May 9, 2006, there were 53,680,721 shares of the registrants $.001 par value Common Stock outstanding.        AXONYX INC. INDEX PART 1.

        FINANCIAL INFORMATIONItem 1.

        Financial StatementsCondensed Consolidated Balance Sheets as of  March 31, 2006
(unaudited) and December 31, 2005

        1Condensed Consolidated Statements of Operations (unaudited) for the three months
ended March 31, 2006 and 2005

        2Condensed Consolidated Statements of Changes in Stockholders
Equity (unaudited) for the three  months ended March 31, 2006

        3Condensed Consolidated Statements of Cash Flows (unaudited) for the three months
ended March 31, 2006 and 2005

        4Notes to Condensed Consolidated Financial Statements

        5Item 2.

        Managements Discussion and Analysis of Financial Condition
and Results of Operations

        7Item 3.

        Quantitative and Qualitative Disclosures About Market Risk

        14Item 4.

        Controls and Procedures

        14PART II

        OTHER INFORMATION

        15Item 1.

        Legal Proceedings

        15Item 6.

        Exhibits

        16Signatures

        

        17
     PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AXONYX INC. Condensed Consolidated Balance Sheets March 31, 2006

        

        December 31,2005ASSETS

        

        (unaudited)Current assets:Cash and cash equivalents

        

        $

        2,279,000

        

        $

        1,638,000Investments

        

        

        51,950,000

        

        

        56,700,000Other current assets

        

        

        495,000

        

        

        614,000Total current assets

        

        

        54,724,000

        

        

        58,952,000Property, plant and equipment, net

        

        

        45,000

        

        

        49,000Investment in OXIS

        

        

        4,593,000

        

        

        4,917,000Security deposits

        

        

        124,000

        

        

        124,000$

        59,486,000

        

        

        64,042,000LIABILITIESCurrent liabilities:Accounts payable

        

        $

        3,115,000

        

        $

        4,147,000Accrued expenses

        

        

        1,537,000

        

        

        1,512,000Total liabilities

        

        

        4,652,000

        

        

        5,659,000STOCKHOLDERS EQUITYPreferred stock - $.001 par value, 15,000,000 shares authorized; none issuedCommon Stock - $.001 par value, 150,000,000 authorized, 53,680,721 shares
issued and outstanding

        

        

        54,000

        

        

        54,000Additional paid-in capital

        

        

        149,919,000

        

        

        149,466,000Unearned compensation - stock options

        

        

        

        

        

        (15,000

        )Accumulated deficit

        

        

        (95,139,000

        )

        

        (91,122,000

        )Total stockholders equity

        

        

        54,834,000

        

        

        58,383,000Total liabilities and stockholders equity

        

        $

        59,486,000

        

        $

        64,042,000
 See notes to the condensed consolidated financial statements   1    AXONYX INC. Condensed Consolidated Statements of Operations (unaudited)  Three months

ended March 31,2006

        2005RevenueProduct Sales

        

        $

        

        $

        403,000Cost of product sales

        

        

        

        

        210,000193,000Costs and expenses:Research and development

        

        

        2,661,000

        

        9,322,000Sales, general and administrative

        

        

        1,870,000

        

        1,663,0004,531,000

        

        10,985,000Loss from operations

        

        

        (4,531,000

        )

        (10,792,000

        )Other income (expenses)Interest income

        

        

        707,000

        

        572,000Foreign exchange

        

        

        9,000

        

        (25,000

        )Gain (loss) on issuance of subsidiary stock

        

        

        32,000

        

        (331,000

        )Equity in loss of OXIS

        

        

        (234,000

        )

        (19,000

        )Interest expense

        

        

        

        

        (2,000

        )Net loss before outside interest in subsidiary

        

        

        (4,017,000

        )

        (10,597,000

        )Outside Interest in loss of subsidiary

        

        

        

        

        164,000Net loss

        

        $

        (4,017,000

        )

        (10,433,000

        )Net loss per common share

        

        $

        (.07

        )   $

        (.19

        )Weighted average shares - basic and diluted

        

        

        53,681,000

        

        53,657,000
 See notes to condensed consolidated financial statements  2    AXONYX INC. Condensed Consolidated Statements of Changes in Stockholders Equity   Common StockNumberofShares

        

        Amount

        

        AdditionalPaid-inCapital

        

        UnearnedCompensationStockOptions

        

        AccumulatedDeficit

        

        TotalStockholdersEquityBalance - December 31, 2005

        

        

        53,680,721

        

        $

        54,000

        

        $

        149,466,000

        

        $

        (15,000

        )

        $

        (91,122,000

        )

        $

        58,383,000Issuance of common stock options and warrants for consulting services

        

        

        

        

        

        

        

        

        18,000

        

        

        

        

        

        

        

        

        18,000Issuance of common stock options to employees and directors


        

        

        

        

        

        

        

        

        435,000

        

        

        

        

        

        

        

        

        435,000Amortization

        

        

        

        

        

        

        

        

        

        

        

        15,000

        

        

        

        

        

        15,000Net loss

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        (4,017,000)

        

        

        (4,017,000

        )Balance  March 31, 2006(unaudited)

        

        

        53,680,721

        

        $

        54,000

        

        $

        149,919,000

        

        $

        

        

        $

        (95,139,000

        )

        $

        54,834,000
 See notes to the condensed consolidated financial statements  3    AXONYX INC. Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31,2006

        

        2005Cash flows from operating activities:Net loss

        

        $

        (4,017,000

        )

        $

        (10,433,000

        )Adjustments to reconcile net loss to cash used in operating activities:Depreciation and amortization

        

        

        126,000

        

        

        171,000Compensation related to options and warrants issued for services

        

        

        468,000

        

        

        170,000Minority interest in net loss of OXIS

        

        

        

        

        

        (164,000

        )(Gain) on issuance of subsidiary stock

        

        

        (32,000

        )

        

        331,000Equity in loss of OXIS

        

        

        234,000

        

        

        19,000Changes in:Accounts receivable

        

        

        

        

        

        (105,000

        )Inventories

        

        

        

        

        

        (1,000

        )Other current assets

        

        

        119,000

        

        

        (354,000

        )Security deposits and other assets

        

        

        

        

        

        1,000Accounts payable

        

        

        (1,032,000

        )

        

        (2,204,000

        )Accrued expenses

        

        

        37,000

        

        

        908,000Accrued stock based compensation

        

        

        (12,000

        )

        

        (337,000

        )Net cash used in operating activities

        

        

        (4,109,000

        )

        

        (11,998,000

        )Cash flows from investing activities:Additions to patents

        

        

        

        

        

        (48,000

        )Reduction in cash due to deconsolidation of OXIS

        

        

        

        

        

        (4,907,000

        )Purchases of investments

        

        

        (12,100,000

        )

        

        (27,200,000

        )Proceeds from sales and maturities of investments

        

        

        16,850,000

        

        

        36,500,000Net cash provided by investing activities

        

        

        4,750,000

        

        

        4,345,000Cash flows from financing activities:Net proceeds from issuance of common stock and warrants

        

        

        

        

        

        20,000Collection of stock subscription receivable - OXIS

        

        

        

        

        

        2,250,000Net proceeds from exercise of common stock options in OXIS

        

        

        

        

        

        33,000Net cash provided by financing activities

        

        

        

        

        

        2,303,000Net increase (decrease) in cash and cash equivalents

        

        

        641,000

        

        

        (5,350,000

        )Cash and cash equivalents at beginning of period

        

        

        1,638,000

        

        

        10,091,000Cash and cash equivalents at end of period

        

        $

        2,279,000

        

        $

        4,741,000Supplemental cash flow disclosuresInterest paid

        

        

        

        

        $

        2,000Supplemental disclosure of non-cash financing activity:Minority interest in subsidiary equity transactions

        

        

        

        

        $

        22,000
 See notes to the condensed consolidated financial statements  4    Notes to Condensed Consolidated Financial Statements (1) Financial Statement Presentation The unaudited condensed consolidated financial statements of Axonyx Inc. (the Company)
herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments necessary to
present fairly the financial position at March 31, 2006, and the results of operations and cash flows for the quarterly periods presented. Certain information and footnote disclosure normally
included in financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and
regulations. However, management believes that the disclosures are adequate to make the information presented not misleading. These financial statements and notes thereto should be read in
conjunction with the financial

statements and the notes thereto for the year ended December 31, 2005, included in the Companys Form 10-K filing. The results for the interim periods are not necessarily indicative of the
results for the full fiscal year. The consolidated financial statements include the accounts of Axonyx Europe, B.V., a wholly owned subsidiary organized
in Holland. (2) Investment in OXIS International, Inc. The Company consolidated the financial statements of OXIS International Inc.
from the date of acquisition of 52% of the outstanding voting stock of OXIS
(January 15, 2004) through February 28, 2005, when it no longer controlled the
board of OXIS or directed its day-to-day management activities. The
Companys ownership in OXIS was reduced from 52% to 34% on December 31,
2004 as a result of a third party financing. However, as the Company continued
to control the board of OXIS and continued to direct the day-to-day management
activities consolidation of OXIS continued through February 28, 2005. Beginning
March 1, 2005, the Company accounts for its investment in OXIS under the equity
method of accounting, as prescribed by Accounting Principals Board Opinion No.
18 The Equity Method of Accounting for Investments in Common Stock. The Company owns approximately 14 million common shares of OXIS International Inc. with a carrying
value at March 31, 2006 of $4,593,000.  OXIS is traded on the bulletin board (OXIS.OB) with relatively little trading volume. At March 31, 2006, the market value of these shares was $0.34 per share
($4,760,000). (3)
    Investments The
    Company invests in auction-rate securities (ARS) that are held as investments
    available for sale. After the initial issuance of these securities, the interest
    rate is reset periodically. The Company invests in ARS that reset as to interest
    rate every 28 days. From an economic viewpoint, these securities are priced
    and traded as short-term investments because of the interest reset feature. (4)
    Stock-based Compensation In 2000, the
Board of Directors and the stockholders of the Company approved a Stock Option Plan (2000 Plan) which, as amended, provides for the granting of options to purchase up to 2,000,000 shares
of common stock and pursuant to which officers, directors, advisors and consultants are eligible to receive incentive and/or non-statutory stock options. Incentive stock options granted under the
2000 Plan are exercisable for a period of up to 10 years from date of grant at an exercise price which is not less than the fair value on date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the outstanding stock may not exceed five years and their exercise price may not be less than 110% of the fair value of the common stock at date of
grant. Vesting

of 2000 Plan options varies from fully vested at the date of grant to multiple year apportionment of vesting as determined by the Board of Directors. Pursuant to the 2000 stock option plan as
amended, 750,000 options were added to the share reserve effective January 1, 2003 and January 1, 2004. On March 30, 2004, the Company amended the 2000 Plan to increase the aggregate number
of shares from 3,500,000 to 7,500,000. Stockholder approval for the increase was received in June 2004. Commencing January 1, 2006 the Company adopted Statement of Financial Accounting Standard No. 123R,
Share Based Payment (SFAS 123R), which requires all share-based payments, including grants of stock options, to be recognized in the statement of operations as an operating expense,
based on fair values. Prior to adopting SFS 123R, the Company accounted for stock-based employee compensation under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.  The Company has applied the modified prospective method in adopting SFAS 123R.  Accordingly, periods
prior to adoption have not been restated. The following table illustrates the effect on net loss and loss per share if the fair value based method had been
applied to all awards for the three months ended March 31, 2005 when APB opinion No. 25 was followed.  5     Three Months Ended March 31, 2005Reported net loss attributable to common stockholders

        $(10,433,000)Stock-based employee compensation includedin net loss

        32,000Stock-based employee compensation determinedunder the fair value based method

        (575,000)Pro forma net loss

        $(10,976,000)Loss per common share attributable to commonstockholders (basic and diluted):As reported

        $(0.19)Pro forma

        $(0.20)
 As of March 31, 2006, there was $1,935,426 of total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under existing stock option plans.  This cost is expected to be recognized over a weighted-average period of 3 years.  The total measurement fair value of shares
vested during the three months ended March 31, 2006 was $456,000. We use the Black-Scholes option pricing model to determine the weighted average fair value of options.  The fair value of
options at date of grant and the assumptions utilized to determine are indicated in the following table:  Three Months Ended

March 31 ,2006

        2005Weighted average fair value at date of grant for

Options granted during the period

        $ 1.00

        No grants during periodRisk-free interest rates

        4.57%Expected option life in years

        10Expected stock price volatility

        .93Expected dividend yield

        -0-
 Under SFAS 123R forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period.
This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.  Under SFAS 123 and APB 25, the Company elected
to account for forfeitures when awards were actually forfeited, at which time all previous pro-forma expense was reversed to reduce pro- forma expense for the period.  As of March 31, 2006, the
Company anticipates all outstanding options will vest. The following summarizes the activity of the Companys stock options for the three months ended March 31, 2006. Shares

        

        WeightedAverageExercisePrice

        

        WeightedAverageRemaining

          Contractual
            
            Term 
            (Years)
        

        AggregateIntrinsicValueOutstanding at December 31, 2005

        

        5,321,000

        

        $

        3.97

        

        

        5.95Granted

        

        75,000

        

        

        1.13

        

        

        9.90ExercisedCanceled or expiredOutstanding at March 31, 2006

        

        5,396,000

        

        $

        3.93

        

        

        5.76
        

        $

        146,000Exercisable at March 31, 2006

        

        4,493,000

        

        $

        4.14

        

        

        5.11
        

        $

        118,000
  The
following summarizes the activity of the Company's non-vested stock options for
the three months ended March 31, 2006. Shares
     Weighted
AverageFair ValueNonvested at December 31, 2005
     
     1,034,000
        
     $2.88Granted
     75,000
        
     1.13Vested
     (206,000
        )
     2.08Nonvested at March 31, 2006
     903,000
        
     2.91   6     (5)
    Operating Segments Beginning March 1, 2005, the OXIS segment reflects the Companys share of
OXIS losses under the equity method. Prior to that date, the Company was
organized into two reportable segments: Axonyx and OXIS.  The following table presents information about the Companys two operating segments for the
quarter ended March 31, 2005: Axonyx Inc.

        

        OXISIntl Inc.

        

        TotalQuarter ended March 31, 2005Revenue including minority interest

        

        

        

        

        $

        403,000

        

        $

        403,000Segment loss

        

        $

        (10,233,000

        )

        

        (200,000

        )

        

        (10,433,000

        )
 (6)
    Developments with SERONO International SA Under a License Agreement with Applied Research Systems ARS Holding N.V. (ARS), a wholly owned
subsidiary of Serono International, S.A. (Serono) effective September 15, 2000, the Company granted to ARS a sublicense of our patent rights and know-how regarding the development and marketing of
the Amyloid Inhibitory Peptide (AIPs) and the Prion Inhibitory Peptide (PIPs) technology which had been licensed to us under a Research and  License Agreement with New York University.  The Company
is negotiating a re-acquisition of those rights from ARS and an option to license, on a non-exclusive basis, certain Serono patents, technology and know-how related to AIPs and PIPs.  If the Company
exercises this option and acquires the license, it would be obligated to pay to Serono an upfront payment and under certain circumstances additional milestone payments and royalties would be due. (7) Legal Proceedings Several lawsuits were filed against the Company in February 2005 in the U.S. District Court for the Southern District of New York asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder on behalf of a class of purchasers of the Company's common stock during the period from June 26, 2003, through and including February 4, 2005 (the "Class Period").  Dr. M. Hausman (a director and former CEO of Axonyx), and Dr. G. Bruinsma (Axonyx CEO) were also named as defendants in the lawsuits. These actions were consolidated into a single class action lawsuit in January 2006. On April 10, 2006 Plaintiff filed an amended consolidated complaint.  The Company anticipates filing its answer to that complaint on or before May 26, 2006. The class action plaintiffs allege generally that Axonyx's Phase III Phenserine development program was subject to alleged errors of design and execution which resulted in the failure of the first Phase III Phenserine trial to show efficacy. Plaintiffs allege the defendants' failure to disclose the alleged defects resulted in the artificial inflation of the price of the Company's shares during the Class Period. There is also a shareholder derivative suit pending in New York Supreme Court (New York County) against current and former directors and officers of Axonyx. The named defendants are Marvin S. Hausman, Gosse B. Bruinsma, S. Colin Neill, Louis G. Cornacchia, Steven H. Ferris, Gerald J. Vlak, Ralph Snyderman and Michael A. Griffith. Defendants are alleged to have breached their duties to the Company and misused inside information regarding clinical trials of Phenserine. This action has been stayed pending further developments in the federal class action. The complaints seek unspecified damages. The Company believes the complaints are without merit and intends to defend these lawsuits vigorously.  However, the Company cannot make assurances that it will prevail in these actions, and, if the outcome is unfavorable to Axonyx, its reputation, operations and share price could be adversely affected. Item 2.

        Managements Discussion and Analysis of Financial Condition and Results of
Operations
 This Form 10-Q contains forward-looking statements, as defined in the Private
Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections. Statements that are not historical facts, including statements about our beliefs and
expectations, are forward-looking statements. These statements involve potential risks and uncertainties; therefore, actual results may differ materially. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date on which they were made. We do not undertake any obligation to update any forward-looking statements, whether as a result
of new information, future events or otherwise.  Specifically, with respect to our drug candidates Phenserine, Posiphen and Bisnorcymserine,
Axonyx cannot assure that: any preclinical studies or clinical trials, whether ongoing or conducted in the future, will prove successful, and if successful, that the results can be replicated; safety
and efficacy profiles of any of its drug candidates will be established, or if established, will remain the same, be better or worse in future clinical trials, if any; pre-clinical results related to
cognition and the regulation of beta-APP will be substantiated by ongoing or future clinical trials, if any, or that any of its drug candidates will be able to improve the signs or symptoms of their
respective clinical indication or slow the progression of Alzheimers disease; any of its drug candidates will support an NDA filing, will be approved by the FDA or its equivalent, or if

approved, will prove competitive in the market; or that Axonyx will have or obtain the necessary financing to support its drug development programs. Axonyx cannot assure that it will be successful
with regard to identifying a (sub-)licensing partner for any of  its compounds, or that any such partner will successfully develop or commercialize any of such  compounds. Axonyx
undertakes no obligation to publicly release the result of any revisions to such forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.  We refer you to our report on form 10-K for the year ended December 31, 2005 filed with the SEC,
where these risks and others are more fully described.  7    We do not undertake to discuss matters relating to our ongoing clinical trials or our regulatory
strategies beyond those which have already been made public or discussed herein. Overview of our Company We are a biopharmaceutical company, specializing in central nervous system (CNS) neurodegenerative
diseases, engaged in the business of acquiring patent rights to clinical stage compounds, compounds with strong proof of concept data and compounds ready for proof of concept validation with
convincing scientific rationale, or potentially another company with similar rights. We further develop and add value to these compounds and then seek to out-license or partner them when we believe
it business prudent. We have acquired patent rights to three main classes of therapeutic compounds designed for the treatment of Alzheimers disease (AD), Mild Cognitive Impairment, and related
diseases. We have acquired patent rights to a class of potential therapeutic compounds designed for the treatment of prion related diseases, which are degenerative diseases of the brain that are
thought to be

caused by an infectious form of a protein called a prion. Prions, unlike viruses, bacteria and fungi, have no DNA and consist only of protein. Such diseases include Creutzfeldt Jakob Disease, new
variant in humans, Bovine Spongiform Encephalopathy (BSE or Mad Cow Disease) in cows, and Scrapies disease in sheep. We have licensed these patent rights from New York University. We also have
co-ownership rights to patent applications regarding the therapeutic compound named Posiphen designed for the treatment of AD progression and Bisnorcymserine (BNC) in development for the
treatment of severe AD. Our mission is to be a leading biopharmaceutical company that develops products and technologies to
treat central nervous system disorders. Our initial business strategy has been focused primarily on three compounds in development for AD. These are: 

        Phenserine  A symptomatic and disease progression treatment of mild to
moderate AD
 

        Posiphen  A disease progression treatment for AD
 

        Bisnorcymserine (BNC)  A symptomatic treatment of severe AD
 Our current business strategy includes identifying and seeking to in-license potential compounds or
partner with companies to expand our product development portfolio. Partnering may take the form of a business combination in which we merge with, acquire, or are acquired by, another company. Phenserine is an inhibitor of acetylcholinesterase for the potential treatment of mild to moderate
AD. Acetylcholinesterase is an enzyme active in the nerve synapse that degrades the neurotransmitter acetylcholine in the brain and other tissues of the body. Acetylcholinesterase inhibitors are
drugs designed to selectively inhibit acetylcholinesterase. Acetylcholine is a chemical substance that sends signals between nerve cells, called neurotransmission, and is therefore called a
neurotransmitter. Neurotransmitters are secreted by neurons, or nerve cells, into the space between neurons called the synapse. Acetylcholine is a primary neurotransmitter in the brain, and is
associated with memory and cognition.  Inhibition of its breakdown in AD patients has been shown to improve memory and cognition. Posiphen is a compound that appears to decrease the formation of the beta amyloid precursor
protein (beta-APP) and amyloid with potential applications in the treatment of AD progression. Posiphen is the positive isomer of Phenserine. As such, it appears to affect the messenger RNA of
beta-APP as well as inhibit beta secretase whereby levels of neurotoxic beta amyloid, in preclinical animal models, are reduced. Bisnorcymserine is a butyrylcholinesterase inhibitor. Butyrylcholinesterase is found in high
concentration in the plaques taken from individuals who have died from AD. Butyrylcholinesterase is an enzyme that is normally found widely in the body and butyrylcholine appears to play a relatively
increasingly important role in advancing AD.  Inhibition of the enzyme may prove valuable in the treatment of severe AD. The Phenserine Development Program Our most advanced compound, Phenserine, selectively inhibits acetylcholinesterase, the enzyme
primarily responsible for degrading acetylcholine at the synaptic gap between neurons, thus increasing the availability of this neurotransmitter. Phenserine has been shown to be a potent and
selective inhibitor of this enzyme in the rat brain and increases memory and learning over a wide therapeutic dosage range in aged rats without causing toxic side effects. The compound readily enters
the brain, has minimal activity in other organs outside the  8    brain, and has a long duration of action. In pre-clinical studies, Phenserine was shown to have a brain to blood ratio of 10:1. Increasing
the concentration of the active drug agent in the brain versus the rest of the body potentially maximizes the effects of the drug while potentially reducing peripherally mediated side effects. Phenserine also has been shown to have the ability to inhibit the formation of the beta-amyloid
precursor protein (beta-APP), a large protein that is the source of the neurotoxic peptide,beta amyloid. By inhibiting the formation of beta-APP,
Phenserine can decrease the presence of the soluble beta amyloid protein that is potentially deposited in the brain as amyloid plaques, apparently causing eventual neuronal cell death. These studies
were conducted at laboratories at the National Institute of Aging (NIA) in human neuroblastoma cell cultures andin vivoin rodents. Studies in human
neuroblastoma cell lines showed that the compound reduces the formation of beta-amyloid peptide. Neuroblastoma cell cultures are a type of cell derived from the human brain that can be grown in
containers in the

lab (in vitro) where they are able to reproduce and carry out many activities as if they were residing in the brain, including the synthesis and
secretion of proteins such as the beta-amyloid protein which, in the human brain, can form plaques. A neuroblastoma cell culture is used to study brain cell function in a simplein vitrosystem, which allows testing of the ability of drugs to prevent the formation of the beta-amyloid precursor protein and secretion of beta amyloid.
Additional animal studies using the transgenic mouse have confirmed these findings. The transgenic mouse is a bio-engineered animal that mimics hallmark pathologic changes that occur in the human AD
brain. These results suggest that Phenserine may have the ability to slow the progression of AD in addition to providing symptomatic relief for the cognitive changes. In December 1999, we initiated Phase I human clinical trials for Phenserine utilizing healthy
elderly patients at a U.S. research center. These Phase I safety and tolerance trials involving both single and multiple ascending doses were successfully completed in September 2000. In October 2001, we completed a Phase II proof-of-concept double-blind placebo-controlled clinical
trial with Phenserine in AD patients. This Phase II proof-of-concept trial was designed to determine the drugs safety and possibly a trend toward efficacy in patients exhibiting mild to
moderate AD. The trial included 72 patients, with 48 patients receiving two daily doses of Phenserine 10mg and 24 patients received a placebo. The safety results from the trial substantiated Phase I
results indicating that the drug is safe and well tolerated.  Although the trial was not of the duration necessary and did not include the number of patients required to detect statistically
significant clinical improvement in efficacy, nevertheless certain memory tests showed statistically significant results while other tests showed a trend towards statistical significance.  To date, we have conducted the following Phase III clinical trials with Phenserine: AX-CL-06/06e,
AX-CL-09, AX-CL-010, as well as a Phase IIb trial, AX-CL-06a.  Protocol AX-CL-06 was a double-blind, placebo controlled trial initiated in June 2003 comparing the
efficacy and tolerability of Phenserine 10mg or 15mg twice daily doses with twice daily placebo in patients who met the diagnostic criteria for probable mild to moderate AD.  Two different regimens,
10mg twice daily and 15mg twice daily, were compared with placebo in this trial.  The randomization was 1:2:2 for placebo: 10mg twice daily: 15mg twice daily respectively.  Patients randomized to
active treatment were started on a 5mg twice daily regimen for the first month of treatment.  This was increased to 10mg twice daily for the second month of treatment.  The dose was then increased to
15mg twice daily during the third through sixth month for those patients randomized to the highest dose regimen.  Once a patient reached his or her target dose, it was maintained for a total
treatment

duration of 26 weeks.  Patients who could not tolerate their target dose were discontinued.  Discontinued patients were not replaced.  A total of 384 patients were enrolled in the study.  Of these,
377 received treatment.  The remaining 7 never received drug treatment so they were excluded from the data analyses.  The primary efficacy variables were the ADAS-Cog and CIBIC+.  The Phenserine groups showed
consistently greater improvement in ADAS-Cog and CIBIC+ scores than the placebo group although the differences did not achieve statistical significance.  Protocol AX-CL-06a was a double-blind placebo controlled study of the effect of Phenserine 10- or
15mg twice daily on cerebrospinal and plasma amyloid peptides from baseline and, at 26 weeks, initiated in June 2003. Both doses of Phenserine tended to lower the plasma levels of beta-amyloid
peptides more than placebo, while beta- amyloid levels in the CSF declined in those patients treated with placebo.  This decline of amyloid levels in the CSF of untreated AD patients is consistent
with historical and epidemiological data. None of the differences achieved statistical significance.  9     Protocol AX-CL-06e was an open-label extension to studies AX-CL-06 and AX-CL-06a that allowed all
patients who had successfully completed either trial to continue on Phenserine 15mg twice daily dose for up to an additional six months.  This extension was to gather additional safety data on
Phenserine treatment.  Protocol AX-Cl-09/010, initiated in the second half of 2004, was originally initiated as two
identical 26-week placebo controlled trials of 450 AD patients each.  During the implementation of the studies, results of Protocol AX-CL-06 became available.  The results of this earlier study
showed a numerical benefit of Phenserine treatment relative to placebo but failed to achieve statistical significance.  Based on these results, enrollment in the two ongoing studies was halted at 255
patients in total, and the primary endpoint analysis was shortened to 12 weeks.  Because the individual curtailed studies were underpowered, their data were combined and analyzed as a single trial.
This was a randomized, multinational, multicenter placebo-controlled parallel-group study.  Because the study was curtailed, many patients did not reach the originally scheduled 26-week end of
treatment.   However,

all patients were allowed to complete at least 12 weeks of therapy.  Patients were screened within 21 days of entry and randomly assigned to receive 10 or 15 mg of Phenserine twice daily or placebo.
A titration schedule was used so that patients randomized to active treatment received 5mg twice daily for the first 4 weeks of the study followed by 10mg twice daily for 4 weeks.  Patients
randomized to 15mg twice daily received this dose starting in the ninth week.  Treatment at the assigned doses was continued for up to 26 weeks.  At the 12-week visit, patients randomized to 10mg
twice daily had received this dose for approximately 8 weeks.  Patients randomized to receive 15mg twice daily had received this dose for approximately 4 weeks.  Although the study did not achieve statistical significance in its primary endpoints, a subgroup of
patients, who received Phenserine 15mg twice daily,  demonstrated a statistically significant benefit over placebo as measured by the Alzheimers Disease Assessment Scale-cognitive subscale
(ADAS-cog), when treated for more than 12 weeks.  Additionally, this subgroup showed a positive trend towards improvement in the Clinical Interview Based Impression of Change (CIBIC+) test, which
approached statistical significance. There were no unexpected safety or tolerability concerns associated with Phenserine treatment.  We have comprehensive data sets on Phenserine having completed extensive manufacturing scale-up,
preclinical studies and taken the drug into three Phase III clinical trials for mild to moderate AD.  The remaining work to be done prior to an NDA submission for Phenserine is the completion of two
pivotal Phase III trials.  The Company has determined that it will not commit further resources to these Phase III trials, and is seeking to identify strategic partners that are able and willing to
commit the necessary financial resources to Phenserines further development and marketing approval.  On January 4, 2006, we announced that we had granted to Daewoong Pharmaceutical Company Ltd.
(Daewoong) an exclusive license for the use of Phenserine in the South Korean market.  Under the terms of the agreement Daewoong, at its own costs, undertakes to pursue the product development and
regulatory work necessary for a New Drug Application (NDA) (or its equivalent) in South Korea with respect to Phenserine for the treatment of AD. The financial terms of the deal include royalty
payments to us based on sales of Phenserine by Daewoong in the South Korean market. On January 31, 2006, we announced that three presentations of data on our drug development candidate,
Phenserine, and one presentation of data on its drug development candidate, Posiphen, would be made at the 9th International Geneva/Springfield Symposium on Advances in Alzheimer Therapy in
Geneva, Switzerland, being held April 19-22, 2006. Phenserine has been in development by the Company for the treatment of mild to moderate Alzheimers disease (AD) and Posiphen is
currently in clinical development for the treatment of AD progression.  On February 14, 2006, we reported a statistically significant reduction in the plasma levels of
beta-amyloid 1-42 (Aß-42) in healthy human subjects treated with Phenserine for 35 days in a previously conducted Phase I study.  On April 19, 2006 we reported an analysis of results suggesting stabilization of total brain volume
and brain parenchymal fraction of mild-to-moderate Alzheimers disease (AD) patients treated with Phenserine 10mg or 15mg twice daily (BID) for 26-weeks. The data was presented in its entirety
as a poster in Geneva on Thursday, April 20, 2006 at the 9th International Geneva/Springfield Symposium on Advances in Alzheimer Therapy.  10     On April 20, 2006 we reported on data showing an increase in brain glucose metabolism and reduction
of brain amyloid levels in the memory and cognition areas in brains of mild-to-moderate Alzheimers disease (AD) patients treated with Phenserine 15mg twice daily (BID) for 13-weeks. The data
was included in an oral presentation by Prof. Dr. Agneta Nordberg, MD, PhD of the Karolinska Institute, Stockholm, Sweden, on Friday, April 21st, 2006 at the 9th International
Geneva/Springfield Symposium on Advances in Alzheimer Therapy. The Posiphen Development Program Posiphen is the positive isomer of Phenserine.  It appears to decrease the formation of
beta-amyloid with potential application in the treatment of AD progression.  Posiphens mechanism of action is potentially through RNA translational inhibition as well as beta secretase
inhibition.  Posiphen has been shown to lower beta amyloid precursor protein (beta-APP) and beta-amyloid levels in pre-clinical studies. The primary mechanism of action results in a dose
dependent reduction of beta-amyloid, which may result in slowing AD progression. The initial pre-clinical side effect rates potentially allow for higher clinical doses. On August 1, 2005 we announced
that the US Food and Drug Administration (FDA) approved our investigational new drug (IND) application allowing Phase I clinical testing of Posiphen. The first Phase I single ascending dose
clinical study commenced in

August 2005 and evaluated the safety of Posiphen in healthy volunteers. In January 2006, we completed a single ascending dose Phase I trial with Posiphen.  This
double-blind, placebo controlled study of Posiphen in healthy men and women sought to establish well tolerated doses. Posiphen appears to be well tolerated at single doses up to and
including 80mg. Blood levels of Posiphen associated with this study were higher than those associated with beneficial effects on beta-amyloid metabolism in animal models. The build-up of
beta-amyloid (Aß) is generally believed to be causative of the dementia of AD.  No serious adverse events were reported at any dose level. We initiated a Phase I multiple ascending dose study in the
first quarter of 2006.  On April 24, 2006, we announced the results of an independent research study showing that Posiphen
increased the ability of transplanted human neuronal stem cells (HNSC) to differentiate into neurons in APP transgenic mice, a model of Alzheimers disease (AD) in humans. The Bisnorcymserine Development Program Our butyrylcholinesterase inhibitor compounds are designed to selectively inhibit
butyrylcholinesterase, an enzyme similar to acetylcholinesterase. Normally these two enzymes coexist throughout the body, with acetylcholinesterase predominating in degrading acetylcholine. In the
brain of AD patients, as acetylcholinesterase levels gradually fall, there appears to be a concomitant increase in butyrylcholinesterase levels in specific nerve pathways within the cortex and the
hippocampus, areas associated with AD. Like acetylcholinesterase, butyrylcholinesterase degrades acetylcholine at the synaptic gap between neurons, decreasing the availability of this key
neurotransmitter. This enzyme was identified as a target for inhibition in AD as it also terminates the action of the neurotransmitter acetylcholine in specific nerve pathways in regions of the brain
associated with AD and is found in

high concentration in amyloid plaques in the brains of AD patients. Our butyrylcholinesterase inhibitor compounds act to counter butyrylcholinesterase, thus enhancing the availability of
acetylcholine, potentially improving memory and cognition. Inhibition of butyrylcholinesterase may also reduce any increased toxicity of beta-amyloid caused by the presence of butyrylcholinesterase
in amyloid plaques. Several butyrylcholinesterase inhibitor drug candidates, including Bisnorcymserine, have been
studied extensively in pre-clinical studies and have been found to have many of the characteristics desirable for use in AD. Like Phenserine, these compounds have a dual mechanism of action in that,
in addition to inhibiting the butyrylcholinesterase enzyme, they also inhibit the formation of beta-APP in cell culture, and in rats. These pre-clinical findings indicate that these
butyrylcholinesterase inhibitor compounds may have an important role in preventing the formation of amyloid plaques in AD, in addition to its inhibition of butyrylcholinesterase. The compounds
readily enter the brain, they have a long duration of action and are highly active in improving memory and learning in the aged rat. Currently it appears that Bisnorcymserine has several advantages
over the other compounds in pre-clinical results. Bisnorcymserine appears to be the most potent butyrylcholinesterase inhibitor in our
patent portfolio. It has a 100-fold selectivity over acetylcholinesterase.  Behavioral work shows it to improve memory in rodent models, and it reduces beta-APP in tissue cultures. Bisnorcymserine
has three potential uses: (1) as an inhibitor of butyrylcholinesterase, (2) as an inhibitor of the production of beta-APP, thus inhibiting the formation of amyloid plaques, and (3) as an early
diagnostic marker.  11    Bisnorcymserine (BNC) is a highly selective butyrylcholinesterase inhibitor. Butyrylcholinesterase
is found in high concentration in the plaques taken from individuals who have died from AD. Butyrylcholinesterase appears to have an increasing role with advancing AD and its primary mechanism of
action results in a dose dependent reduction of acetylcholine. The initial pre-clinical side effect rate potentially allows higher clinical doses. A secondary mechanism of action is associated with
dose dependent reductions of beta APP and amyloid beta. BNC, the lead compound from our butyrylcholinesterase family, is currently in full pre-IND development and we plan an IND submission in second
quarter 2006 followed by the potential to initiate Phase I clinical trials thereafter. A recently published article in the Proceedings of the National Academy of Science describes the underlying
mechanism, in

vitro and cognition results in animal models. RESULTS OF OPERATIONS Revenues The Company had no revenue for the quarter ended March 31, 2006 and $403,000 in
revenue for the quarter ended March 31, 2005. Revenue in 2005 was derived
exclusively from the sale of research assays and fine chemicals at OXIS. The
reduction in revenue for the quarter March 31, 2006 from prior year levels
results from the fact that OXIS operations are no longer being consolidated with
our results effective March 1, 2005 as discussed in Note 2 to the condensed
consolidated financial statements.  Costs of Sales The Companys costs of sales were entirely related to its subsidiary, OXIS.
The percentage of cost of sales for the three months ended March 31, 2005 was
52%. Research and Development  Research and development expenses were $2,661,000 and $9,322,000 for the quarters ended March 31,
2006 and 2005, respectively. Research and development costs declined by $6,661,000 from prior years level.  This reduction reflects a decline in Phenserine program expenditures of $7,046,000
due to the completion/curtailment of the Phenserine trials in late 2005.  This reduction is offset, in part, by increased expenditures of $68,000 in the Posiphen program and $793,000 in the
Bisnorcymserine program.  In 2006 Posiphen was in clinical Phase I studies and Bisnorcymserine was in pre-clinical development towards filing an investigational new drug application (IND).
Additional research and development expense reductions include travel costs, consultants and salary expenses. Sales, General and Administrative  Sales, general and administrative expenses were $1,870,000 and $1,663,000 for the quarters ended
March 31, 2006 and 2005, respectively. Sales, general and administrative expenses increased $207,000 over prior year levels.  This increase is attributed to a $400,000 increase in patent acquisition
costs, a $361,000 increase in non-cash charges related to stock option grants to consultants and employees.  These increases are offset in part by a $234,000 reduction in professional fees and a
$332,000 reduction in OXIS expenses which are no longer consolidated with our results effective March 1, 2005 as discussed in Note 2 to the condensed consolidated financial statements. Other Income (Expense) Interest income was $707,000 and $572,000 for the quarters ending March 31, 2006 and 2005,
respectively. Interest income reflects the decline in cash and investment balances offset by a rise in short term interest rates. Foreign exchange (gain) loss for the quarters ended March 31, 2006 and 2005 were $9,000 and
$(25,000), respectively.  The decline in foreign exchange losses reflects more stable exchange rates and a decline in the volume of Euro denominated transactions which reflects the completion of
Phenserine trials occurring in Europe in late 2005. Gain on issuance of subsidiary stock was $32,000 net for the three months ended March 31, 2006. This
gain on issuance of subsidiary stock results from common stock equity transactions in OXIS. Equity in loss of OXIS of $234,000 reflects the Companys proportional share of OXIS losses for
the quarter ended March 31, 2006 under the equity method of accounting.  12    Net Loss The Company experienced net losses of $4,017,000 ($0.07 per share-basic and diluted) and $10,433,000
($0.19 per share-basic and diluted) for the quarters ended March 31, 2006 and 2005, respectively. The decline in loss primarily reflects reduced expenditures in 2006 due to the completion of the
Phenserine development program in late 2005.  LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2006 we had $54,229,000 in cash, cash equivalents and investments, and $50,072,000 in
working capital. We do not have any available lines of credit. Since inception we have financed our operations from private placements of equity securities, the exercise of common stock purchase
warrants, license fees, interest income and loans from a shareholder.  Net cash used in operating activities for the three months ended March 31, 2006 was $4,109,000 resulting
from a net loss of $4,017,000 and a decline of $1,032,000 in accounts payable.  These declines are offset in part by increases of $126,000 in depreciation and amortization, $468,000 in compensation
related to options and warrants issued for services, $234,000 in equity in loss of Oxis and $119,000 in other current assets.  Net cash provided by investing activities for the quarter ended March 31, 2006 resulted from investment
sales and maturities in excess of investment purchases. We plan to finance our needs principally from the following: 

        our existing capital resources and interest earned on that capital; and
 

        future private placement financing or other equity financings.
 We believe that we have sufficient capital resources to finance our plan of operation at least
through June 30, 2007. However, as this is a forward-looking statement, and there may be changes that could consume available resources significantly before such time. Our long term capital
requirements and the adequacy of our available funds will depend on many factors, including the eventual contract costs of undertaking large later stage clinical trials with any of our compounds
under development, the potential cost of acquiring or developing compounds that we may license in, regulatory delays, patent costs for filing, prosecuting, maintaining and defending our patent
rights, and defending our current class action securities litigation, among others. We may be periodically seeking potential equity financing, sub-licensing and other collaborative
arrangements that may generate additional capital for us in order to support our research and development activities. We cannot assure you that we will generate sufficient additional capital or
revenues, if any, to fund our operations beyond June 30, 2007, that any future equity financings will be successful, or that other potential financings through bank borrowings, debt or equity
offerings, or otherwise, will be available on acceptable terms or at all. Our current business strategy includes identifying and seeking to in-license potential compounds or
partner with companies to expand our product development portfolio. Partnering may take the form of a business combination in which we merge with, acquire, or are acquired by, another company. Critical Accounting Policies and Estimates This discussion and analysis of our financial condition and results of operations are based on our
financial statements that have been prepared under generally accepted accounting principles (GAAP) of the United States of America. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially
differ from those estimates. We have disclosed all significant accounting policies in note B to the financial statements included in our annual report on Form 10-K for the year ended December 31, 2005. Our critical
accounting policies are: Principles of consolidation:Our consolidated financial statements include the accounts of
Axonyx Europe, B.V., a wholly owned subsidiary organized in The Netherlands.  13    Revenue recognition:We defer recognition of revenue from fees received in advance unless
they represent the culmination of a separate earnings process. Such deferred fees are recognized as revenue over the term of the arrangement as they are earned, in accordance with the agreement.
License fees represent the culmination of a separate earnings process if they are sold separately without obligating us to perform research and development activities or other services. Right to
license fees is recognized over the term of the arrangement. Nonrefundable, non-creditable license fees that represent the culmination of a separate earnings process are recognized upon execution of
the license agreement. Revenue from the achievement of milestone events stipulated in the agreements will be recognized when the milestone is achieved. Royalties will be recognized as revenue when
the amounts

earned become fixed and determinable. Research, development costs:Research and development costs are expensed as incurred. Stock-based compensation:Commencing January 1, 2006 we adopted Statement of Financial
Accounting Standard No. 123R, Share Based Payment (SFAS 123R), which requires all share-based payments, including grants of stock options, to be recognized in the statement of
operations as an operating expense, based on fair values on grant date. Prior to adopting SFS 123R, we accounted for stock-based employee compensation under Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees.  We have applied the modified prospective method in adopting SFAS 123R.  Accordingly, periods prior to adoption have not been restated. Accounting for Investment in OXIS:Beginning March 1, 2005, the Company accounts for its
investment in OXIS under the equity method of accounting, as prescribed by Accounting Principals Board Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock. (See
Note 2 to Condensed Consolidated Financial Statements)  Item 3.

        Quantitative and Qualitative Disclosures about Market Risk
 We have foreign currency accounts that are exposed to currency exchange risk. These foreign currency
accounts have been utilized to fund the operations of our wholly owned subsidiary, Axonyx Europe, based in The Netherlands. We had a net foreign exchange gain of $9,000 for the three months ended
March 31, 2006 and a loss of $25,000 for the three months ended March 31, 2005. If the foreign currency rates were to fluctuate by 10% from rates at March 31, 2005, the effect on our financial
statements would not be material. However, there can be no assurance there will not be a material impact in the future. During 2003, we adopted a policy to limit the purchase of foreign currencies to
the amounts necessary to cover firm contractual commitments in foreign currencies for the forward six months. However, as long as we continue to fund our foreign operations and activities, we will be
exposed to

some currency exchange risks. The majority of our ongoing clinical trials are/were being conducted in Europe. We consider our investments in money market accounts and time deposits as cash and
cash equivalents that have original maturities of three months or less at inception. The carrying values of these investments approximate fair value because of the nature of these instruments and
accounts.  We classify our investments in auction rate securities as short-term investments.  The carrying value of these securities approximates fair value because of the liquidity they are traded
as short term investments due to the interest reset feature. Therefore, changes in the markets interest rates do not affect the value of the investments as recorded by us. We do not enter into or trade derivatives or other financial instruments or conduct any hedging
activities.  Item 4.

        Controls and Procedures
 Evaluation of Disclosure Controls and Procedures  The Company's management, under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2006. Disclosure controls and
procedures are defined in the Securities Exchange Act as controls and other procedures of the Company designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and include controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits to the SEC is accumulated and communicated to the Company's management, including the CEO and CFO, to allow timely decisions regarding
required disclosure. Based on its review and  14    evaluation, the Company's management has concluded that the Company's disclosure controls and procedures were effective as of March 31, 2006. Changes in Internal Controls There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended) identified in connection with the evaluation of our internal control performed during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II OTHER INFORMATION Item 1. Legal Proceedings  Several lawsuits were filed against us in February 2005 in the U.S. District Court for the Southern
District of New York asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder on behalf of a class of purchasers of our common stock during the
period from June 26, 2003, through and including February 4, 2005 (the Class Period).  Dr. M. Hausman (a director and former CEO of Axonyx), and Dr. G. Bruinsma (Axonyx CEO) were also
named as defendants in the lawsuits. These actions were consolidated into a single class action lawsuit in January 2006. On April 10, 2006 Plaintiff filed an amended consolidated complaint.  We
anticipate filing our answer to that complaint on or before May 26, 2006.  The class action plaintiffs allege generally that Axonyxs Phase III Phenserine development
program was subject to alleged errors of design and execution which resulted in the failure of the first Phase III Phenserine trial to show efficacy. Plaintiffs allege the defendants failure to
disclose the alleged defects resulted in the artificial inflation of the price of our shares during the Class Period.  There is also a shareholder derivative suit pending in New York Supreme Court (New York County)
against current and former directors and officers of Axonyx. The named defendants are Marvin S. Hausman, Gosse B. Bruinsma, S. Colin Neill, Louis G. Cornacchia, Steven H. Ferris, Gerald J. Vlak,
Ralph Snyderman and Michael A. Griffith. Defendants are alleged to have breached their duties to us and misused inside information regarding clinical trials of Phenserine. This action has been stayed
pending further developments in the federal class action.  The complaints seek unspecified damages. We believe the complaints are without merit and intend to
defend these lawsuits vigorously.  However, we cannot assure you that we will prevail in these actions, and, if the outcome is unfavorable to Axonyx, our reputation, operations and share price could
be adversely affected.  15     Item 6.Exhibits. Number

        

        Exhibits31.1

        

        Certification of Chief Executive Officer pursuant to Exchange
Act Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

        

        Certification of Chief Financial Officer pursuant to Exchange
Act Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

        

        Certification of Chief Executive Officer pursuant to 18 U.S.C
Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

        

        Certification of Chief Financial Officer pursuant to 18 U.S.C
Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   16    SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated
            May 10, 2006.AXONYX INC.By: /s/ Gosse B. Bruinsma, M.D.Gosse B. Bruinsma, M.D.President and Chief Executive
OfficerBy: /s/ S. Colin NeillS. Colin NeillChief Financial Officer,Secretary and Treasurer(Principal Financial and Accounting Officer)
   17