|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                             

|Commission file number: 000-25571
AXONYX INC.(Exact name of registrant as specified in its charter)
|---------------------------------------------------------------------------------------------------
|                                                                                                   

|Nevada                          | 86-0883978            
|------------------------------- | ----------------------
|(State or Other Jurisdiction of | (IRS Employer Id. No.)
|incorporation or organization)  |                       

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 a 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. Yes x No o.
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes x No o.
As of April 29, 2005, there were 53,665,518 shares of the registrants $.001 par value Common
Stock outstanding.

|
|



|AXONYX INC.
INDEX
|-----------------
|                 

|PART
      1. | FINANCIAL INFORMATION                                                                                                                  |  |    | 
|------------- | -------------------------------------------------------------------------------------------------------------------------------------- |  | -- | 
|Item
      1. | Financial
      Statements                                                                                                             |  |    | 
|              |                                                                                                                                        |  |    | 
|              | Condensed
      Consolidated Balance Sheets as of March 31, 2005
      (unaudited) and December 31, 2004                               |  | 1  | 
|              |                                                                                                                                        |  |    | 
|              | Condensed
      Consolidated Statements of Operations (unaudited)
      for the three months ended March 31, 2005 and 2004             |  | 2  | 
|              |                                                                                                                                        |  |    | 
|              | Condensed
      Consolidated Statements of Changes in Stockholders Equity
      (unaudited) for the three months ended March 31, 2005 |  | 3  | 
|              |                                                                                                                                        |  |    | 
|              | Condensed
      Consolidated Statements of Cash Flows (unaudited)
      for the three months ended March 31, 2005 and 2004             |  | 4  | 
|              |                                                                                                                                        |  |    | 
|              | Notes
      to Condensed Consolidated Financial Statements                                                                             |  | 4  | 
|              |                                                                                                                                        |  |    | 
|Item
      2. | Managements
      Discussion and Analysis of Financial Condition and 
      Results of Operations                                     |  | 9  | 
|              |                                                                                                                                        |  |    | 
|Item
      3. | Quantitative
      and Qualitative Disclosures About Market Risk                                                                       |  | 15 | 
|              |                                                                                                                                        |  |    | 
|Item
      4. | Controls
      and Procedures                                                                                                          |  | 15 | 
|              |                                                                                                                                        |  |    | 
|PART
      II | OTHER
      INFORMATION                                                                                                                |  | 16 | 
|              |                                                                                                                                        |  |    | 
|Item
      1. | Legal
      Proceedings                                                                                                                |  | 16 | 
|              |                                                                                                                                        |  |    | 
|Item
      6. | Exhibits                                                                                                                               |  | 16 | 
|              |                                                                                                                                        |  |    | 
|Signatures    |                                                                                                                                        |  | 17 | 

|
|



|PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AXONYX INC.
Condensed Consolidated Balance Sheets
|------------------------------------------------------------------------------------------------------------
|                                                                                                            

|                                                                                                                                                             |                       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------- | 
|                                                                                                                                                             | March 31, 
      2005 | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|ASSETS                                                                                                                                                       |                       | 
|Current assets:                                                                                                                                              |                       | 
|Cash and cash equivalents                                                                                                                                    |                       | 
|Accounts receivable                                                                                                                                          |                       | 
|Stock subscriptions receivable                                                                                                                               |                       | 
|Inventories                                                                                                                                                  |                       | 
|Other current assets                                                                                                                                         |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|Total current assets                                                                                                                                         |                       | 
|                                                                                                                                                             |                       | 
|Property, plant and equipment, net                                                                                                                           |                       | 
|Investment in OXIS                                                                                                                                           |                       | 
|Technology for developed products, net                                                                                                                       |                       | 
|Patents and patents pending, net                                                                                                                             |                       | 
|Security deposits                                                                                                                                            |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|LIABILITIES                                                                                                                                                  |                       | 
|Current liabilities:                                                                                                                                         |                       | 
|Accounts payable                                                                                                                                             |                       | 
|Accrued expenses                                                                                                                                             |                       | 
|Note payable                                                                                                                                                 |                       | 
|                                                                                                                                                             |                       | 
|Total current liabilities                                                                                                                                    |                       | 
|                                                                                                                                                             |                       | 
|Outside interest in OXIS                                                                                                                                     |                       | 
|                                                                                                                                                             |                       | 
|STOCKHOLDERS EQUITY                                                                                                                                         |                       | 
|                                                                                                                                                             |                       | 
|Preferred stock - $.001 par value, 15,000,000 shares authorized; none issued                                                                                 |                       | 
|Common stock - $.001 par value, 150,000,000 shares authorized;
    53,665,518 and 53,645,518 shares
    issued and outstanding in 2005 and 2004 respectively |                       | 
|Additional paid-in capital                                                                                                                                   |                       | 
|Unearned compensation - stock options                                                                                                                        |                       | 
|Accumulated comprehensive loss                                                                                                                               |                       | 
|Accumulated deficit                                                                                                                                          |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|Total stockholders equity                                                                                                                                   |                       | 
|                                                                                                                                                             |                       | 
|                                                                                                                                                             |                       | 
|Total liabilities and stockholders equity                                                                                                                   |                       | 
|                                                                                                                                                             |                       | 

|                                                         
|---------------------------------------------------------
|See notes to condensed consolidated financial statements.

|1
|-



|AXONYX INC.
Condensed Consolidated Statements of Operations(unaudited)
|----------------------------------------------------------------------
|                                                                      

|                                                | Three months ended March 31, | 
|----------------------------------------------- | ---------------------------- | 
|                                                | 2005                         | 
|                                                |                              | 
|Revenue                                         |                              | 
|Product sales                                   |                              | 
|Cost of product sales                           |                              | 
|                                                |                              | 
|Gross profit                                    |                              | 
|                                                |                              | 
|Costs and expenses:                             |                              | 
|Research and development                        |                              | 
|Sales, general and administrative               |                              | 
|                                                |                              | 
|                                                |                              | 
|                                                |                              | 
|                                                |                              | 
|Loss from operations                            |                              | 
|                                                |                              | 
|Other income (expense)                          |                              | 
|Interest income                                 |                              | 
|Foreign exchange                                |                              | 
|Loss on issuance of subsidiary stock            |                              | 
|Equity in loss of Oxis                          |                              | 
|Financing fees                                  |                              | 
|Interest expense                                |                              | 
|                                                |                              | 
|                                                |                              | 
|Net loss before minority interest in subsidiary |                              | 
|                                                |                              | 
|Outside/minority interest in loss of subsidiary |                              | 
|                                                |                              | 
|                                                |                              | 
|Net Loss                                        |                              | 
|                                                |                              | 
|                                                |                              | 
|Net loss per common share                       |                              | 
|                                                |                              | 
|                                                |                              | 
|Weighted average shares-basic and diluted       |                              | 

|                                                         
|---------------------------------------------------------
|See notes to condensed consolidated financial statements.

|2
|-



|AXONYX INC.
Condensed Consolidated Statements of Changes in Stockholders Equity(unaudited)
|-------------------------------------------------------------------------------------------
|                                                                                           

|                                                                                  |  |              |            |                                         |   |                                                         | 
|--------------------------------------------------------------------------------- |  | ------------ | ---------- | --------------------------------------- | - | ------------------------------------------------------- | 
|                                                                                  |  | Common Stock |            | Additional
      Paid-in 
      Capital |   | Unearned 
      Compensation
      Stock 
      Options | 
|                                                                                 
|Number of
      Shares                                                            |  | Amount      
|                                                                                  |  |              |            |                                         |   |                                                         | 
|Balance - December 31, 2004                                                       |  |              | 53,645,518 |                                         | $ | 54,000                                                  | 
|                                                                                  |  |              |            |                                         |   |                                                         | 
|Issuance of common stock 
      options
    and warrants for 
    consulting fees |  |              |            |                                         |   |                                                         | 
|                                                                                  |  |              |            |                                         |   |                                                         | 
|Exercise of common 
      stock
    warrants and options                          |  |              | 20,000     |                                         |   |                                                         | 
|Amortization                                                                      |  |              |            |                                         |   |                                                         | 
|                                                                                  |  |              |            |                                         |   |                                                         | 
|Net loss                                                                          |  |              |           |                                         |   |                                                        | 
|                                                                                  |  |              |            |                                         |   |                                                         | 
|                                                                                  |  |              |            |                                         |   |                                                         | 
|Balance  March 31, 2005                                                          |  |              | 53,665,518 |                                         | $ | 54,000                                                  | 
|                                                                                  |  |              |            |                                         |   |                                                         | 

|                                                        
|--------------------------------------------------------
|See notes to condensed consolidated financial statements

|3
|-



|AXONYX INC.
Condensed Consolidated Statements of Cash Flows(unaudited)
|----------------------------------------------------------------------
|                                                                      

|                                                                        |      | 
|----------------------------------------------------------------------- | ---- | 
|                                                                        |      | 
|                                                                        | 2005 | 
|                                                                        |      | 
|Cash flows from operating activities:                                   |      | 
|Net Loss                                                                |      | 
|Adjustments to reconcile net loss to cash used in operating activities: |      | 
|Depreciation and amortization                                           |      | 
|Outside/minority interest in net loss of subsidiary                     |      | 
|Compensation related to common stock issued for services                |      | 
|Compensation related to options and warrants issued for services        |      | 
|Loss on issuance of subsidiary stock                                    |      | 
|Change in equity investment in subsidiary                               |      | 
|Changes in:                                                             |      | 
|Accounts receivable                                                     |      | 
|Inventory                                                               |      | 
|Other current assets                                                    |      | 
|Technology and patents                                                  |      | 
|Other assets                                                            |      | 
|Accounts payable                                                        |      | 
|Accrued expenses and other                                              |      | 
|Accrued stock based compensation                                        |      | 
|                                                                        |      | 
|Net cash used in operating activities                                   |      | 
|                                                                        |      | 
|Cash flows from investing activities:                                   |      | 
|Reduction in cash due to deconsolidation of Oxis                        |      | 
|Costs related to Oxis acquisition                                       |      | 
|Additions to Patents                                                    |      | 
|Purchase of equipment                                                   |      | 
|                                                                        |      | 
|Net cash used in investing activities                                   |      | 
|                                                                        |      | 
|Cash flows from financing activities                                    |      | 
|Net proceeds from issuance of common stock and warrants                 |      | 
|Net proceeds from exercise of common stock options and warrants         |      | 
|Net bridge loan proceeds                                                |      | 
|Net proceeds from exercise of common stock options in Oxis              |      | 
|Collection of stock subscription receivable                             |      | 
|                                                                        |      | 
|Net cash provided from financing activities                             |      | 
|                                                                        |      | 
|Net increase (decrease) in cash and cash equivalents                    |      | 
|Cash and cash equivalents at beginning of period                        |      | 
|                                                                        |      | 
|Cash and cash equivalents at end of period                              |      | 
|                                                                        |      | 
|                                                                        |      | 
|Supplemental cash flow disclosures                                      |      | 
|Interest paid                                                           |      | 
|                                                                        |      | 
|Supplemental disclosures of non-cash financing activity                 |      | 
|Common stock issued in connection with acquisition                      |      | 
|Unearned compensation recorded for common stock options issued          |      | 
|Minority interest in subsidiary equity transactions                     |      | 

|                                            
|--------------------------------------------
|See notes to condensed 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 (consisting only of
normal recurring accruals) necessary to present fairly the financial position at March 31, 2005,
and the results of operations 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,
2004, 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.
Principles of consolidation:
The consolidated financial statements include the accounts of Axonyx Europe, B.V., a wholly owned subsidiary
organized in The Netherlands. The financial statements also include the accounts of OXIS International
Inc. (OXIS) from the acquisition date of January 15, 2004 when the company acquired approximately
52% of the common voting stock of OXIS. The Companys ownership in OXIS was reduced to 34% on
December 31, 2004 as the result of a third party financing by OXIS. Although the Company has less
than a majority ownership at December 31, 2004, the accounts of OXIS were consolidated as the Company
controlled the board of directors through a majority of the OXIS board seats. On February 28, 2005
OXIS announced that Mr. Steven T. Guillen had joined OXIS as President and Chief Executive Officer
and as a member of the OXIS Board of Directors. Consequently the Company no longer has a majority
of the seats on the OXIS Board, and because the Companys ownership interest now represents
34% of the OXIS shares outstanding, beginning March 1, 2005 OXIS is no longer consolidated but rather
accounted for using the equity method. As the Company controlled the OXIS board through February
28, 2005, the financial statements of OXIS have been consolidated for January and February 2005 and
equity accounting has been applied for the month of March 2005. All intercompany balances and transactions
have been eliminated in consolidation.
The outside interest on the balance sheet as of December 31, 2004 includes the approximately 66% of
OXIS that is not owned by the Company. The outside interest also includes a portion of the carrying
value of technology for developed patents, net attributable to the reduction in the Companys
ownership in OXIS from approximately 52% to approximately 34% as of December 31, 2004.
(2) Investment in OXIS International, Inc.
The Companys investment in OXIS at March 31, 2005 is determined under the equity method of accounting.
In moving from the full consolidation of OXIS at December 31, 2004 to the equity method at March
31, 2005 the Company determined that a correction was required in the calculation of the gain on
subsidiary stock under SEC Staff Accounting Bulletin No. 51. The gain resulted from the issuance
of shares by OXIS at December 31, 2004 in connection with a private placement financing. The correction
has been effected by a $398,000 reduction in the carrying value of the investment in OXIS at March
31, 2005 with a corresponding reduction in the loss on issuance of subsidiary stock for the period
then ended.
The correction has been reflected in the quarter ended March 31, 2005 in accordance with the provisions
of Accounting Principles Board Opinion No. 28, Interim Financial Reporting, as it is
not material to either the 2004 results of operations, the estimated full year 2005 results of operations
or to the trend of operations.
The Company owns approximately 14 million common shares of OXIS International Inc. with a carrying
value at March 31, 2005 of $6,247,000. Oxis is traded on the bulletin board (OXIS.OB) with relatively
little trading volume. At March 31, 2005, the market value of these shares was $0.35 per share ($4.9
million).
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5
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|(3) Acquisition of OXIS International, Inc.
On January 15, 2004, the Company entered into agreements to acquire approximately 52% of the outstanding
voting stock of OXIS. OXIS is a biopharmaceutical company engaged in the development of research
diagnostics, nutraceuticals and therapeutics in the field of oxidative stress. Under the terms of
separate agreements entered into with several holders of OXIS common stock, the Company acquired
an aggregate of approximately 14 million shares of OXIS stock, in consideration for the issuance
of an aggregate of approximately 1.6 million shares of our unregistered common stock, which the Company
registered in May 2004. Marvin S. Hausman, MD, the Companys Chairman and former Chief Executive
Officer, owns 1,162,532 shares of OXIS common stock, representing at the time of the acquisition
approximately 4% of OXIS voting stock. Those shares of OXISs common stock were not acquired.
The aggregate purchase price was $8,246,000, which includes the fair value of the Companys common
shares that were issued as consideration and transaction costs.
The allocation of the cost of the acquisition is a follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | Current assets                    |  | $ | 1,492,000  |   | 
| | --------------------------------- |  | - | ---------- | - | 
| | Equipment                         |  |   | 41,000     |   | 
| | Technology and developed products |  |   | 7,622,000  |   | 
| | Patents and other assets          |  |   | 765,000    |   | 
| | Current liabilities               |  |   | (1,039,000 | ) | 
| | Minority interest                 |  |   | (635,000   | ) | 
| | Deferred tax liability (1)        |  |   | (3,011,000 | ) | 
| | Deferred tax liability (2)        |  |   | 3,011,000  |   | 
| |                                   |  |   |            |  
| |                                   |  | $ | 8,246,000  |   | 
| |                                   |  |   |            |  

| |     |                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Represents the tax effect of the excess of the financial statement basis over the tax basis for acquired
technology for developed products.                                                                                      
| |     |                                                                                                                                                                                                                                  
| | (2) | Represents the tax benefit of OXIS net operating loss carryfoward and deductible temporary differences
recognized as an offset against the deferred tax liability attributable to the acquired technology
for developed products.

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|The following proforma information gives effect to the acquisition as if it had occurred on the first
day of the quarter ended March 31, 2004.
|                                                                                                                                              

| | Three months ended
      March 31, 2004            |  |  
| | -------------------------------------------------- |  | -
|
| | Total revenues                                     |  | $
| | Net loss including minority interest in subsidiary |  |  
| | Net loss                                           |  |  
| | Basic and diluted net loss per common share        |  |  

|                                                                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4)   Stock-based Compensation
The
Company follows the intrinsic value based method in accounting for stock-based employee compensation
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to

|6
|-



|Employees, and related interpretations. The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting for Stock-Based CompensationTransition
and Disclosure. The Company follows the fair value based method for awards to non-employees.
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:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                                                                      | Three months ended March 31, |  
|------------------------------------------------------------------------------------- | ---------------------------- | -
|
|
|
|                                                                                      |                              |  
|Reported net loss attributable to common stockholders                                 |                              | $
|                                                                                      |                              |  
|Stock-based employee compensation included in net loss                                |                              |  
|                                                                                      |                              |  
|Stock-based employee compensation determined
       under the fair value based method |                              |  
|                                                                                      |                              |  
|                                                                                      |                              |  
|Pro forma net loss                                                                    |                              | $
|                                                                                      |                              |  
|                                                                                      |                              |  
|Loss per common share attributable to common
       stockholders (basic and diluted): |                              |  
|As reported                                                                           |                              | $
|                                                                                      |                              |  
|Pro forma                                                                             |                              | $
|                                                                                      |                              |  

|7
|-



|(5)   Operating Segments
The Company is organized into two reportable segments: Axonyx and OXIS. While OXIS has historically been organized into two reportable segments (health products and therapeutic development),Oxis currently manages its operations in one segment in order to better monitor and manage its basic
  business: the development of research diagnostics, nutraceutical and therapeutic products.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                        

| | The following table presents information about the Companys two operating segments:
| | ------------------------------------------------------------------------------------
| |                                                                                     

|                                    | Axonyx Inc. |   | Oxis
      Intl Inc. |   | Total |           
|----------------------------------- | ----------- | - | --------------------- | - | ----- | ----------
|
|Quarter ended March 31, 2005        |             |   |                       |   |       |           
|Revenue including minority interest |             |   |                       |   | $     | 403,000   
|Segment loss                        |             | $ | (10,233,000           | ) | $     | (200,000  
|                                    |             |   |                       |   |       |           
|Quarter ended March 31, 2004        |             |   |                       |   |       |           
|Revenue including minority interest |             |   |                       |   | $     | 478,000   
|Segment loss                        |             | $ | (5,704,000            | ) |       | (287,000  
|                                    |             |   |                       |   |       |           
|Segment assets at December 31, 2004 |             | $ | 85,991,000            |   | $     | 15,403,000

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6)  Related Party Transaction
In June 2004, Axonyx Inc., which then had a controlling interest in OXIS International, Inc., loaned
OXIS $1.2 million, which was eliminated in consolidation as of December 31, 2004. Pursuant to its
terms, OXIS repaid the loan with accrued interest in January 2005.
(7)  Developments with SERONO International SA
Effective as of May 17, 1999, Axonyx Inc. entered into a Development Agreement and Right to License
(the Development Agreement) with Applied Research Systems ARS Holding N.V., a wholly
owned subsidiary of Serono International, SA (Serono). Under the Development Agreement,
the Company granted to Serono an exclusive right to license its patent rights and know-how regarding
its amyloid inhibitory peptide (AIP) and prion inhibitory peptide (PIP) technology.
In 2000, the Company and Serono finalized a definitive Licensing Agreement, pursuant to which the exclusive
worldwide patent rights to the Axonyxs AIP and PIP technology were granted to Serono. The Company
received a nonrefundable, noncreditable license fee of $1.5 million, which was recognized as revenue
since the Company is not responsible for any ongoing research and development activities or any other
services with respect to this arrangement and it represented the culmination of a separate earnings
process.
In April 2003, Axonyx received a milestone payment of $1,000,000 from Serono under the terms of the
license agreement, which was triggered when Serono initiated a Phase I clinical trial with a patented
product.
In July 2004, we signed a non-binding Memorandum of Understanding (MOU) for the research and joint
development of therapeutic compounds including the Amyloid Inhibitory and Prion Inhibitory Peptides,
and diagnostic technologies in the field of protein mis-folding disorders such as Parkinsons
Disease, Downs Syndrome, Diabetic disorders, Lou Gehrigs Disease, Alzheimers Disease,

|8
|-



|Transmissible Spongioform Encephalopathies (TSEs), i.e. Mad Cow Disease (BSE), and Creutzfeldt
Jakob Disease new variant (CJDnv).
Since the signing of the MOU, the parties have been negotiating the terms of definitive agreements.
As part of its business strategy going forward, Axonyx has now elected not to proceed with the proposed
joint venture and as it is the Companys current understanding that Serono will not be pursuing
development of the licensed technologies, Axonyx will endeavor to seek a return to Axonyx of all
patent rights and related know how that was licensed to Serono.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|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 candidate Phenserine, Axonyx cannot assure that the Phase IIb
and/or the other ongoing Phase III clinical trials, amendments thereto or others, if any, with Phenserine
will prove successful, that the safety and efficacy profile of Phenserine exhibited in the previous
small Phase II and Phase III trials will remain the same, be better or worse in future clinical trials,
if any, that the pre-clinical results related to the regulation of beta-APP will be substantiated
by the Phenserine Phase IIb clinical trial and that Phenserine will be able to slow the progression
of Alzheimers disease, that the Phase IIb clinical trial data will differentiate Phenserine
from the currently marketed drugs, that any efficacy and safety results of the Phase III trial program
if pursued, will prove pivotal, that Axonyx will obtain the necessary financing to complete the Phenserine
development program, that the Companys development work on Phenserine will support an NDA filing,
that the results of the Phase III trials will allow Phenserine to be approved by the FDA, that the
FDA will grant marketing approval for Phenserine, that if Phenserine is approved by the FDA, it will
prove competitive in the market, and that Axonyx will obtain licensing or corporate partnership agreements
that will enable acceleration of the development of and optimize marketing opportunities for, Phenserine,
or that Axonyx will be able to advance any of its other potential memory enhancing compounds toward
IND status. 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, 2004 filed with the SEC, where
these risks and others are more fully described.
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.

|9
|-



|We are a biopharmaceutical company, specializing in central nervous system (CNS) neurodegenerative
diseases, engaged in the business of acquiring the 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. 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 worldwide exclusive 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 separately from New York University and from the National Institutes of Health/National
Institute on Aging (via a sublicense). We also have co-inventorship rights to a patent application
regarding a therapeutic compound named Posiphen designed for the treatment of Alzheimers disease progression.
Our mission continues to be the leading biopharmaceutical company that develops products and technologies
to treat AD and other central nervous system disorders. Our current business strategy is to concentrate
our financial resources primarily on three compounds in development for Alzheimers disease.
These are:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |  | Phenserine  A symptomatic and disease progression treatment of mild to moderate AD.
| | - | ------------------------------------------------------------------------------------
| |   |                                                                                     
| |  | Posiphen  A disease progression treatment for AD                                  
| |   |                                                                                     
| |  | BisNorCymcerine (BNC)  A symptomatic treatment of severe AD.                       

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Phenserine is an inhibitor of acetylcholinesterase, and is our lead drug candidate for the treatment
of AD. Acetylcholinesterase is an enzyme in the 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.
Posiphen is a compound that appears to decrease the formation of the beta-amyloid precursor protein
(beta-APP) with potential applications in the treatment of AD. 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 beta amyloid levels, in preclinical animal models, are reduced.
BisNorCymcerine is one of our butyrylcholinesterase inhibitors. 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. Therefore inhibition of the enzyme may prove valuable
in the treatment of severe AD.
The Companys lead drug, Phenserine, is a third generation acetylcholinesterase inhibitor, which
has progressed to late stage clinical trials. The results of the 1st Phase III trial were announced on February 7, 2005 and the interim results from the Phase IIb trial
were announced on March 11, 2005.
Overall, the results from each trial did not show statistically significant improvements over placebo
for the protocols primary endpoints following 26 weeks of treatment. We have evaluated the
results, and following recommendations from our Scientific Advisory Board and Safety Steering Committee,
and we have modified the planned Phenserine clinical program going forward. The Phenserine results
to date demonstrate a consistent positive trend on all primary and secondary domains in the symptomatic
management of Alzheimers disease. However, there was no statistically significant efficacy
in cognition, global function and activities of daily living, that may in part have been caused by

|10
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|the fact that there was minimal decline over the 26 weeks in the placebo group. Our conclusion from
analyzing the data is that we need to investigate the reformulation of Phenserine to a sustained
or extended release formulation rather than the immediate release formulation used in the recently
completed trials. The reformulation should reduce the pharmacokinetic peak experienced with the immediate
release formulation and enable more drug to work longer over the dosing interval in the patients.
Therefore, we have halted additional patient recruitment to our second and third Phase III clinical
trials that were commenced in June 2004 and September 2004 respectively. Those patients already enrolled
in the trial will receive 12 weeks of treatment.
The interim statistical analysis of the results from our Phase IIb beta amyloid trial, while not meant
to show significance, showed a consistent trend towards beta amyloid reduction with the 15mg doses.
Therefore we plan to continue enrollment in this trial with a target of 150 patients. Results may
be available in early 2006.
Posiphen has been shown to lower beta-amyloid precursor protein (beta-APP) 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. Posiphen is currently in full pre IND development and we plan an IND submission
in second quarter 2005 followed by the initiation of Phase I clinical studies in third quarter 2005.
BisNorCymcerine (BNC) is a highly selective butyrylcholinesterase inhibiter. 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 Alzheimers disease 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 fourth quarter 2005
followed by the initiation of Phase I clinical studies in first quarter 2006.
We out-source all of our pre-clinical and clinical research and development, utilizing contract research
organizations, or CROs, and sponsored research arrangements. We have contracted with several CROs
to undertake the pre-clinical and clinical development of Phenserine.
In December 2000, The Company incorporated Axonyx Europe BV, a wholly owned subsidiary, in the Netherlands.
Gosse Bruinsma, M.D., currently the President and Chief Executive Officer of Axonyx Inc., is also
the President of Axonyx Europe BV. The majority of our clinical development activities and a significant
amount of our pre-clinical development activities are carried out in Europe. The Axonyx Europe BV
office manages, directs, and controls these activities. Axonyx Europe BV explores and pursues in-licensing
and out-licensing opportunities for The Companys licensed technologies and facilitates communication
with the Companys European shareholders and Serono.
We have incurred negative cash flows from operations since the inception of the Company in 1997. Our
net losses for the three fiscal years ended 2002, 2003 and 2004 were $6,256,000, $8,106,000 and $28,780,000
respectively, and our net loss for the quarter ended March 31, 2005 was $10,433,000. Except for OXIS,
we have no products available for sale and we do not expect to have any products commercially available
for several years, if at all.
Axonyx Inc. was incorporated in Nevada on July 29, 1997. Our principal executive offices are located
at 500 Seventh Avenue, 10th Floor, New York, New York 10018, and our telephone number is (212) 645-7704.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|RESULTS OF OPERATIONS
Revenues
The
Company had revenue of $403,000 and $478,000 for the three months ended March 31, 2005 and 2004 respectively.
Revenue in 2005 and 2004 was derived from the sale of research assays and fine chemicals at OXIS.
Costs of Sales
The Companys costs of sales were entirely related to its subsidiary, OXIS. The percentage of
cost of sales for the quarters ended March 31, 2005 and 2004 were 52% and 56% respectively.
Research and Development
Research
and development expenses were $9,322,000 and $4,053,000 for the quarters ended March 31, 2005 and
2004, respectively. In the first quarter 2004, the Company was conducting both a Phase IIb and Phase
III trial for Phenserine, its lead drug compound. In the first quarter 2005, two additional Phase
III trials were underway, as well as continuing costs associated with the earlier two trials. This
accounts for the majority of the increase in research and development expenses. Additionally, preclinical
studies in carcinogenicity and Absorption, Distribution, Metabolism and Excretion (ADME) increased
by $386,000 from the same three month period in 2004. Posiphen preclinical costs increased by $476,000
over the prior year period as the Company advances Posiphen preclinical testing.
Sales, General and Administrative
Sales,
general and administrative expenses were $1,663,000 and $2,371,000 for the quarters ended March 31,
2005 and 2004, respectively. Non-cash charges relating to stock option grants to consultants were
$1,115,000 lower in the quarter ended March 31, 2005 than the quarter ended March 31, 2004. Professional
fees were $987,000 compared to $291,000 in the three months ended March 31, 2005 and 2004, respectively.
The increase in professional fees is primarily attributed to utilization of additional outside council,
patent filing costs, legal costs related to class action securities litigation, Sarbanes Oxley compliance
and board member fees. $415,000 of sales, general and administrative expenses relate to OXIS.
Other Income (Expense)
Interest income was $572,000 and $185,000 for the quarters ending March 31, 2005 and 2004, respectively.
The increase reflects the higher cash and cash equivalent balances held in 2005 resulting from the
private placements completed in 2004 and a rise in short term yields.
Foreign exchange for the three months ended March 31, 2005 was a loss of $25,000 compared to a foreign
exchange loss of $71,000 for the three months ended March 31, 2004. The reduced loss reflects a
more stable exchange rate between the US dollar and the Euro in the first quarter of 2005.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Loss on issuance of subsidiary stock was $331,000 net for the three months ended March 31, 2005. This
net loss on issuance of subsidiary stock results from common stock equity transactions in OXIS and
the adjustment discussed in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Equity in loss of OXIS of $19,000 reflects the Companys proportional share of OXIS losses for
March 2005 under the equity method of accounting.
Interest expense reflects the cost of borrowing incurred by OXIS in obtaining temporary short term
financing.
Net Loss
The Company experienced net losses of $10,433,000 ($0.19 per share-basic and diluted) and $5,991,000
($0.13 per share-basic and diluted) for the quarters ended March 31, 2005 and 2004, respectively.
The increase in the net loss is primarily due to the expense of the ongoing Phase IIB and Phase III
clinical trials for Phenserine, initiation of the 2nd Phase III clinical trial, an increase in the
non-cash stock and option charges and our share of the net loss of OXIS.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005 we had $75,941,000 in cash and cash equivalents, and $69,979,000 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, 2005 was $11,998,000 resulting
primarily from a net loss of $10,433,000, a decrease in accounts payable of $2,204,000 and an increase
in accrued expenses of $908,000.
Net cash used from investing activities was $4,955,000 for the three months ended March 31, 2005. The
reduction in cash due to the deconsolidation of OXIS of $4,907,000 and additions to patents of $48,000
account for the change.
Net cash from financing activities for the three months ended March 31, 2005 was $2,303,000. In January
2005 OXIS received $2,250,000 of stock subscriptions receivable from a December 31, 2004 private
placement.
We plan to finance our needs principally from the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  | our existing capital resources and interest earned on that capital;
| | - | -------------------------------------------------------------------
| |   |                                                                    
| |  | 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, 2006. 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 the Phenserine Phase III clinical trials, 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, 2006, that any future equity financings will be successful, or
that

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|other potential financings through bank borrowings, debt or equity offerings, or otherwise, will be
available on acceptable terms or at all.
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 accounting principles generally accepted in 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, 2004. Our critical accounting policies are:
Principles of consolidation: The consolidated financial statements include the accounts of Axonyx Europe, B.V., a wholly owned
subsidiary organized in The Netherlands. The financial statements also include the accounts of OXIS
from the acquisition date of January 15, 2004 when the company acquired approximately 52% of the
common voting stock of OXIS. The Companys ownership in OXIS was reduced to 34% on December
31, 2004 as the result of a third party financing by OXIS. Although the Company has less than a majority
ownership at December 31, 2004, the accounts of OXIS are consolidated as the Company then controlled
the board of directors of OXIS. Effective March 1, 2005 the Company no longer controls the OXIS board.
Thus the financial statements of OXIS have been consolidated for January and February 2005 and equity
accounting has been applied for the month of March 2005. All intercompany balances and transactions
have been eliminated in consolidation.
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 are 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:  We account for stock-based employee compensation under the intrinsic value method prescribed
by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. We have adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure, which was released in December 2002 as an amendment of SFAS No. 123. We follow
the fair value based method of accounting for awards to non-employees.
**Accounting for Investment in OXIS:** 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. Pursuant to APB No. 18 a loss in value of an investment which is other than
a temporary decline should be recognized the same as a loss in value of other long-term assets.
Accounting for stock sales by subsidiary:
The Company accounts for stock sales by a subsidiary (OXIS) in accordance with SEC Staff Accounting
Bulletin No. 51. Sales of shares by OXIS result in a change in the carrying value of the investment
in OXIS.
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|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 loss of $25,000 for the three months ended
March 31, 2005 and a loss of $71,000 for the three months ended March 31, 2004. If the foreign currency
rates were to fluctuate by 10% from rates at March 31, 2005 and 2004, 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, we will be exposed to
some currency exchange risks. The majority of our ongoing clinical trials are being conducted in Europe.
We consider our investments in money market accounts, short term commercial paper and time deposits
as cash and cash equivalents. The carrying values of these investments approximate fair value because
of the short maturities (three months or less) of these instruments and accounts. 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Our
  management, with the participation of our principal executive officer and principal financial officer,
  has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as
  defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as
  of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation,
  our principal executive officer and principal financial officer concluded that these disclosure controls
  and procedures are effective and designed to ensure that the information required to be disclosed
  in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed,
  summarized and reported within the requisite time periods.                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Our
  management, including our Chief Executive Officer and Chief Financial Officer, does not expect that
  our disclosure controls and procedures or internal control over financial reporting will prevent
  all errors and all fraud. A control system, no matter how well conceived and operated, can provide
  only reasonable, not absolute, assurance that the objectives of the system are met and cannot detect
  all deviations. Because of the inherent limitations in all control systems, no evaluation of controls
  can provide absolute assurance that all control issues and instances of fraud or deviations, if any
  within the company have been detected. While we believe that our disclosure controls and procedures
  have been effective, in light of the foregoing, we intend to continue to examine and refine our disclosure
  control and procedures to monitor ongoing developments in this area.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|15
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|PART
II            OTHER INFORMATIONItem 1.               Legal
Proceedings.
          Axonyx, Dr. M.
            Hausman, Dr. G. Bruinsma and Mr. S. Colin Neill have been
            named as defendants in nine purported shareholder class action lawsuits
            filed in February 2005 alleging violations of federal securities laws.
            Eight of those lawsuits are pending in the U.S. District Court for
            the Southern District of New York and assert 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). The complaints allege generally
            that the defendants knowingly or recklessly made false or misleading
            statements during the Class Period regarding the prospects of a trial
            regarding the effectiveness of Phenserine in treating mild to moderate
            Alzheimers disease, which had the effect of, among other things,
            artificially inflating the price of our shares. The complaints seek
            unspecified damages. In addition to the federal securities cases,
            a purported shareholder derivative lawsuit was filed in New York State
            Supreme Court in March 2005 against Marvin S. Hausman, Gosse B. Bruinsma,
            S. Colin Neill, Louis G. Cornacchia, Steven H. Ferris, Gerard J. Vlak,
            Ralph Snyderman, Michael A. Griffith and Axonyx (as a nominal defendant).
            The plaintiff in the derivative action alleges, among other things,
            that the defendants named in that case breached their fiduciary duties,
            wasted corporate assets and were unjustly enriched. The allegations
            in the derivative action arise from the same and related purported
            facts as those alleged in the federal securities actions. 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
      Item
        6.             Exhibits.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | Number | Exhibits                                                                                                                                                             
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                      
| |        |                                                                                                                                                                      
| | 31.1   | 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 Executive Officer pursuant to 18 U.S.C Section 1350, adopted pursuant to Section

906 of the Sarbanes-Oxley Act of 2002.                      

|16
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|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, 2005.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                       

| | AXONYX INC.                                                        
| | -------------------------------------------------------------------
| |                                                                    
| | By: /s/ Gosse B. Bruinsma, M.D.                                    
| |                                                                    
| |                                                                    
| | Gosse B. Bruinsma, M.D.  
    President and Chief Executive Officer
| |                                                                    
| |                                                                    

| | By: /s/ S. Colin Neill                                                                                                    
| | --------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                           
| |                                                                                                                           
| | S. Colin Neill
    Chief Financial Officer, 
    Secretary and Treasurer 
    (Principal Financial and Accounting Officer)

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