UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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 June 30, 2005 or o
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission
file number: 000-25571 AXONYX INC.
(Exact name of registrant as specified in its charter) Nevada
  
  86-0883978(State or Other Jurisdiction of
  incorporation or organization)
  
  (IRS Employer Id. No.) 500 Seventh Avenue, 10th Floor,
New York, New York  10018(Address of Principal Executive Offices) Registrants
telephone number, including area code: (212) 645-7704 Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes x No
o. Indicate by 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 August 4, 2005, there were 53,665,518 shares of
the registrants $.001 par value Common Stock outstanding.    AXONYX INC.

INDEX

PART 1.
  FINANCIAL
  INFORMATIONItem 1.
  Financial StatementsCondensed Consolidated Balance Sheets as of June 30,
  2005 (unaudited) and December 31, 2004
  1Condensed Consolidated Statements of Operations
  (unaudited) for the three and six months ended June 30, 2005 and 2004
  2Condensed Consolidated Statement of Changes in
  Stockholders Equity (unaudited) for the six months ended June 30, 2005
  3Condensed Consolidated Statements of Cash Flows (unaudited)
  for the six months ended June 30, 2005 and 2004
  4Notes to Condensed Consolidated
  Financial Statements
  5Item 2.
  Managements Discussion and Analysis
  of Financial Condition and Results of Operations
  11Item 3.
  Quantitative and Qualitative
  Disclosures About Market Risk
  16Item 4.
  Controls and Procedures
  17PART II
  OTHER INFORMATION
  17Item 1.
  Legal Proceedings
  17Item 4.
  Submission of Matters to a Vote of
  Security Holders
  18Item 6.
  Exhibits
  19Signatures
  
  20PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL
STATEMENTS
AXONYX INC.
                  Condensed Consolidated Balance Sheets

June 30,
      2005
    
    December 31,
      2004ASSETS
    (unaudited)Current
      Assets:Cash
      and cash equivalents
    
    
    $
    70,305,000
    
    $
    90,591,000Accounts
      receivable
    
    
    
    
    
    
    229,000Stock
      subscriptions receivable
    
    
    
    
    
    
    2,250,000Inventories
    
    
    
    
    
    
    246,000Other
      current assets
    
    
    
    262,000
    
    
    141,000Total
      current assets
    
    
    
    70,567,000
    
    
    93,457,000Property,
      plant and equipment, net
    
    
    
    51,000
    
    
    116,000Investment
      in Oxis
    
    
    
    6,023,000Technology
      for developed products, net
    
    
    
    
    
    
    6,807,000Patents
      and patents pending, net
    
    
    
    
    
    
    995,000Security
      deposit
    
    
    
    18,000
    
    
    19,000$
    76,659,000
    
    $
    101,394,000LIABILITIESCurrent liabilities:Accounts
      payable
    
    
    $
    7,728,000
    
    $
    6,365,000Accrued
      expenses
    
    
    
    706,000
    
    
    2,386,000Note
      payable
    
    
    
    
    
    
    160,000Total
      liabilities
    
    
    
    8,434,000
    
    
    8,911,000Outside interest
      in Oxis
    
    
    
    
    
    
    5,945,000STOCKHOLDERS'
      EQUITYPreferred
      stock - $.001 par value, 15,000,000 shares authorized; none issuedCommon
      Stock - $.001 par value, 150,000,000 and 75,000,000 sharesauthorized in
      2005 and 2004 respectively; 53,665,518 and 53,645,518shares issued
      and outstanding in 2004 and 2003 respectively
    
    
    
    54,000
    
    
    54,000Additional
      paid-in capital
    
    
    
    149,371,000
    
    
    149,150,000Unearned
      compensation - stock options
    
    
    
    (80,000
    )
    
    (144,000
    )Accumulated
      comprehensive loss
    
    
    
    
    
    
    (14,000
    )Accumulated
      deficit
    
    
    
    (81,120,000
    )
    
    (62,508,000
    )Total
      stockholders' equity
    
    
    
    68,225,000
    
    
    86,538,000Total
      liabilities and stockholders' equity
    
    
    $
    76,659,000
    
    $
    101,394,000See notes to the condensed
consolidated financial statements


1

AXONYX INC.
  Condensed Consolidated Statements of Operations 
  (unaudited)

Three months
      ended June 30,
    
    Six months
      ended June 30,2005
    
    2004
    
    2005
    
    2004Product
      sales
    
    
    $
    
    
    $
    433,000
    
    $
    403,000
    
    $
    911,000Cost of product
      sales
    
    
    
    
    
    
    238,000
    
    
    210,000
    
    
    504,000195,000
    
    
    193,000
    
    
    407,000Costs and
      expenses:Research
      and development
    
    
    
    7,351,000
    
    
    5,782,000
    
    
    16,673,000
    
    
    9,834,000General
      and administrative
    
    
    
    1,213,000
    
    
    2,127,000
    
    
    2,876,000
    
    
    4,498,0008,564,000
    
    
    7,909,000
    
    
    19,549,000
    
    
    14,332,000Loss from
      operations
    
    
    
    (8,564,000
    )
    
    (7,714,000
    )
    
    (19,356,000
    )
    
    (13,925,000
    )Other income
      (expense)Interest
      income
    
    
    
    558,000
    
    
    241,000
    
    
    1,130,000
    
    
    426,000Interest
      expense
    
    
    
    
    
    
    (13,000
    )
    
    (2,000
    )
    
    (25,000
    )Gain
      (loss) on issuance of subsidiary stock
    
    
    
    11,000
    
    
    55,000
    
    
    (320,000
    )
    
    55,000Equity
      in loss of Oxis
    
    
    
    (128,000
    )
    
    
    
    
    (147,000
    )Financing
      fees
    
    
    
    
    
    
    (164,000
    )
    
    
    
    
    (300,000
    )Foreign
      exchange
    
    
    
    (56,000
    )
    
    34,000
    
    
    (81,000
    )
    
    (37,000
    )Total other
      income (expense)
    
    
    
    385,000
    
    
    153,000
    
    
    580,000
    
    
    119,000Net loss
      before minority interest in subsidiary
    
    
    
    (8,179,000
    )
    
    (7,561,000
    )
    
    (18,776,000
    )
    
    (13,806,000
    )Minority
      interest in loss of subsidiary
    
    
    
    
    
    
    429,000
    
    
    164,000
    
    
    683,000Net loss
    
    
    
    (8,179,000
    )
    
    (7,132,000
    )
    
    (18,612,000
    )
    
    (13,123,000
    )Foreign currency
      translation adjustment
    
    
    
    
    
    
    (34,000
    )
    
    
    
    
    (34,000
    )Comprehensive
      loss
    
    
    $
    (8,179,000
    )
    $
    (7,166,000
    )
    $
    (18,612,000
    )
    $
    (13,157,000
    )Net loss
      per common share
    
    
    $
    (0.15
    )
    $
    (0.14
    )
    $
    (0.35
    )
    $
    (0.28
    )Weighted
      average sharesbasic
      and diluted
    
    
    
    53,665,518
    
    
    50,056,812
    
    
    53,661,319
    
    
    47,586,535See notes to the condensed consolidated financial statements
  2
  AXONYX INC. (without Oxis)Condensed Consolidated Statements of Changes in Stockholders
Equity       
(unaudited)


Common Stock
    
    Additional
      Paid-in
      Capital
    
    Unearned
      Compensation
      Stock
      Options
    
    Accumulated
      Deficit
    
    Accumulated
      Other
      Comprehensive
      Loss
    
    Total
      Stockholders
      EquityNumber
      of
      Shares
    
    AmountBalance
      - December 31, 2004
    
    
    
    53,645,518
    
    $
    54,000
    
    $
    149,150,000
    
    $
    (144,000
    )
    $
    (62,508,000
    )
    $
    (14,000
    )
    $
    86,538,000Issuance
      of common stock options and warrants for consulting services
    
    
    
    
    
    
    
    
    
    181,000
    
    
    
    
    
    
    
    
    
    
    
    181,000Issuance
      of common stock options
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    20,000Exercise
      of common stock warrants and options
    
    
    
    20,000
    
    
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    20,000Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    64,000
    
    
    
    
    
    
    
    
    64,000Reduction
      from change from consoldiation of Oxis to equity method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,000
    
    
    14,000Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,612,000
    )
    
    
    
    
    (18,612,000
    )Balance
      - June 30, 2005
    
    
    
    53,665,518
    
    $
    54,000
    
    $
    149,371,000
    
    $
    (80,000
    )
    $
    (81,120,000
    )
    $
    
    
    $
    68,225,000See notes to the condensed consolidated financial statements
  3
  AXONYX INC.
               Condensed Consolidated Statements of Cash Flows(unaudited)
Six months
      ended
      June 30,2005
    
    2004Cash
      flows from operating activities:Net
      Loss
    
    
    $
    (18,612,000
    )
    $
    (13,123,000
    )Adjustments
      to reconcile net loss to cash used inoperating
      activities:Depreciation
      and amortization
    
    
    
    293,000
    
    
    443,000Amortization
      of deferred financing costs
    
    
    
    
    
    
    300,000Compensation
      related to common stock issued for services
    
    
    
    
    
    
    47,000Compensation
      related to options and warrants issued for services
    
    
    
    265,000
    
    
    1,411,000Minority
      interest in net loss of Oxis
    
    
    
    (164,000
    )
    
    (683,000
    )Loss
      (gain) on issuance of subsidiary stock
    
    
    
    320,000
    
    
    (55,000
    )Equity
      in loss of Oxis
    
    
    
    147,000Changes
      in:Accounts
      receivable
    
    
    
    (105,000
    )
    
    69,000Inventories
    
    
    
    (1,000
    )
    
    (23,000
    )Other
      current assets
    
    
    
    (229,000
    )
    
    (128,000
    )Other
      assets
    
    
    
    
    
    
    25,000Security
      deposits
    
    
    
    1,000Accounts
      payable
    
    
    
    1,682,000
    
    
    1,546,000Accrued
      expenses
    
    
    
    (886,000
    )
    
    456,000Accrued
      stock based compensation
    
    
    
    (344,000
    )
    
    (80,000
    )Net
      cash used in operating activities
    
    
    
    (17,633,000
    )
    
    (9,795,000
    )Cash flows
      from investing activities:Cash
      acquired in connection with Oxis acquisition
    
    
    
    
    
    
    714,000Purchase
      of equipment
    
    
    
    (1,000
    )
    
    (31,000
    )Additions
      to patents
    
    
    
    (48,000
    )
    
    (150,000
    )Reduction
      in cash due to deconsolidation of Oxis
    
    
    
    (4,907,000
    )Costs
      related to Oxis acquisition
    
    
    
    
    
    
    (52,000
    )Net
      cash (used in) provided by investing activities
    
    
    
    (4,956,000
    )
    
    481,000Cash flows
      from financing activities:Net
      proceeds from issuance of common stock and warrants
    
    
    
    20,000
    
    
    64,758,000Net
      proceeds from exercise of common stock options and warrants
    
    
    
    
    
    
    9,067,000Collection
      of stock subscription receivable - Oxis
    
    
    
    2,250,000Net
      proceeds from exercise of common stock options in Oxis
    
    
    
    33,000
    
    
    50,000Net
      cash provided by financing activities
    
    
    
    2,303,000
    
    
    73,875,000Net (decrease)
      increase in cash and cash equivalents
    
    
    
    (20,286,000
    )
    
    64,561,000Cash and
      cash equivalents at beginning of period
    
    
    
    90,591,000
    
    
    28,780,000Cash and
      cash equivalents at end of period
    
    
    $
    70,305,000
    
    $
    93,341,000Supplemental
      cash flow disclosuresInterest
      paid
    
    
    $
    2,000Supplemental
      disclosure of non-cash financing activity:Common
      stock issued in connection with acquisition
    
    
    
    
    
    $
    8,194,000Unearned
      compensation recorded for common stock options issued
    
    
    
    
    
    $
    387,000Minority
      interest in subsidiary equity transactions
    
    
    $
    22,000See notes to the condensed consolidated financial statements
  4
  Notes to Condensed Consolidated Financial Statements

(1) Financial Statement Presentation

The
unaudited condensed consolidated financial statements of Axonyx Inc. (the Company)
herein have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC) and, in the opinion of management, reflect all
adjustments necessary to present
fairly the financial position at June 30, 2005, and the results of operations
and cash flows for the quarterly and six month 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 through February 28, 2005. The Companys
ownership in OXIS was reduced to 34% on December 31, 2004 as the result of a
third party financing by OXIS, however, the accounts of OXIS continued to be
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
had a majority of the seats on the OXIS Board, and, beginning March 1, 2005,
OXIS is no longer consolidated but rather accounted for using the equity method.

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 products, 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 June 30, 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 beginning in March 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 in March 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 and the
results for the six months ended June 30, 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.

5


The
Company owns approximately 14 million common shares of OXIS International Inc.
with a carrying value at June 30, 2005 of $6,023,000. Oxis is traded on the
bulletin board (OXIS.OB) with relatively little trading volume. At June 30,
2005, the market value of these shares was $0.32 per share ($4.5 million).

(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, owned 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
  
  $
  1,492,000Equipment
  
  
  41,000Technology and developed products
  
  
  7,622,000Patents and other assets
  
  
  765,000Current 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 and six months ended June 30, 2004.

Three
  months ended 
  June 30, 2004
  
  Six months
  ended 
  June 30, 2004Total revenues
  
  
  $
  433,000
  
  
  
  $
  1,000,000Net loss including minority interest in subsidiary
  
  
  
  (7,561,000
  )
  
  
  
  (13,922,000
  )Net loss
  
  
  
  (7,132,000
  )
  
  
  
  (13,199,000
  )Basic and diluted net loss per common share
  
  
  
  (0.14
  )
  
  
  
  (0.28
  )6


(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 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 June 30,
  
  Six months
  ended June 30,2005
  
  2004
  
  2005
  
  2004Reported net
  loss attributable to common stockholders
  
  $
  (8,179,000
  )
  $
  (7,132,000
  )
  $
  (18,612,000
  )
  $
  (13,123,000
  )Stock-based
  employee compensation included in net loss
  
  
  52,000
  
  
  32,000
  
  
  84,000
  
  
  177,000Stock-based
  employee compensation determined under the fair value based method
  
  
  (735,000
  )
  
  (452,000
  )
  
  (1,310,000
  )
  
  (1,243,000
  )Pro forma net
  loss
  
  $
  (8,862,000
  )
  $
  (7,552,000
  )
  $
  (19,838,000
  )
  $
  (14,189,000
  )Loss per common
  share attributable to common stockholders (basic and diluted):As reported
  
  $
  (0.15
  )
  $
  (0.14
  )
  $
  (0.35
  )
  $
  (0.28
  )Pro forma
  
  $
  (0.17
  )
  $
  (0.15
  )
  $
  (0.37
  )
  $
  (0.30
  )7


The pro-forma stock-based
employee compensation determined under the fair value based method for the
periods included in the Companys December 31, 2004 Annual 10-K and
March 31, 2005 Quarterly Reports on Form 10-Q requires revision to
adjust the pro forma charge for a mathematical error summarizing the fair value
calculations for those reporting periods.  The changes to the stock-based
employee compensation determined under the fair value based method are shown
below.

As Previously 
  Reported
  
  As RestatedYear
  ended December 31, 2004Stock-based employee compensation determined
under the fair value
  based method
  
  $
  (2,000,000
  )
  $
  (3,207,000
  )Pro forma net loss
  
  
  (30,537,000
  )
  
  (31,744,000
  )Pro forma loss per common share (basic and
diluted)
  
  
  (0.61
  )
  
  (0.64
  )Increase in pro forma loss per common
share
  
  
  
  
  
  0.03Three
  months ended March 31, 2005Stock-based employee compensation determined
under the fair value
  based method
  
  
  (273,000
  )
  
  (575,000
  )Pro forma net loss
  
  
  (10,674,000
  )
  
  (10,976,000
  )Pro forma loss per common share (basic and
diluted)
  
  
  (0.20
  )
  
  (0.20
  )No change in pro
  forma loss per common share
  
  
  
  
  
  0.008


(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.
Beginning March 1, 2005, the Oxis segment reflects the Companys share
of Oxis losses under the equity method.

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


Axonyx Inc.
  
  Oxis
  Intl Inc.
  
  TotalQuarter ended June 30, 2005Segment Loss
  
  $
  (8,050,000
  )
  $
  (129,000
  )
  $
  (8,179,000
  )Quarter ended June 30, 2004Revenue including minority
  interest
  
  
  
  
  
  433,000
  
  
  433,000Segment Loss
  
  $
  (6,402,000
  )
  $
  (730,000
  )
  $
  (7,132,000
  )Six months ended June 30, 2005Revenue including minority
  interest
  
  
  
  
  $
  403,000
  
  $
  403,000Segment loss
  
  $
  (18,286,000
  )
  
  (326,000
  )
  $
  (18,612,000
  )Six months ended June 30, 2004Revenue including minority
  interest
  
  
  
  
  $
  911,000
  
  $
  911,000Segment Loss
  
  $
  (12,105,000
  )
  $
  (1,018,000
  )
  $
  (13,123,000
  )Segment assets including minority interest at June 30,
2004
  
  $
  99,581,000
  
  $
  2,758,000
  
  $
  102,339,000(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.

9


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,
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 had 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 is in discussions to seek a return to Axonyx
of all patent rights and related know how that was licensed to Serono.

(8) Shareholder Rights Plan

The
Company adopted a shareholder rights plan on May 16, 2005. The shareholder rights plan is designed to
protect shareholders in realizing fair value and equal treatment in the event
of an attempted takeover of the Corporation and to protect the Corporation and
its shareholders against coercive takeover tactics. The plan was not adopted as
a result of any existing or proposed potential takeover threat.

Under
the terms of the plan, Axonyx distributed one purchase right for each share of
common stock outstanding to shareholders at the close of business on May 27,
2005. Axonyx will not issue a separate certificate for the rights unless and
until they become exercisable.

Each
right entitles the holder to purchase from the Corporation one one-thousandth
of a share of a new series of participating preferred stock at an initial
purchase price of $15. The rights will become exercisable and will detach from
the common stock for a specified period after any person or group, without the
approval of the Corporations board of directors, has become the beneficial
owner of, or commences a tender offer or exchange offer for, 15% or more of the
then outstanding shares of Axonyx common stock (subject to certain exceptions).

(9) Subsequent Events

The
Company announced a second interim analysis of the Phase IIb trial on July 26,
2005 with respect to its lead drug, Phenserine. Overall, the results from each trial to date did not show
statistically significant improvements over placebo for the protocols primary
endpoints following 26 weeks of treatment.
While the second interim analysis appeared to again to confirm that
Phenserine may have an impact on the levels of beta amyloid, there is still
insufficient evidence due to the variability of the data to draw definitive
conclusions. Further detailed analysis
as well as additional laboratory bio assay activities are being undertaken by
the Company, its scientific advisors and bio-statisticians to investigate the
variability of the data.

10


Item 2.
  Managements Discussion and Analysis of Financial
  Condition and Results of OperationsThis
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 and/or
other development programs, 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 Posiphen,
BisNorCymcerine and any of its
other potential memory enhancing compounds toward and beyond 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.

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

11


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 beta amyloid trial were announced on March
11, 2005. The Company announced a
second interim analysis of the Phase IIb trial on July 26, 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, 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 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
March 11, 2005 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. While the second
interim analysis announced on July 26, 2005 appeared again to confirm that
Phenserine may have an impact on the levels of beta amyloid, there is still
insufficient evidence due to the variability of the data to draw definitive
conclusions.  Further detailed analysis
as well as additional laboratory bio assay activities are being undertaken by
the Company, its scientific advisors and bio- statisticians to investigate the
variability in the data.  Mean while,
the enrollment in the phase IIb trial will continue at the 15mg dose level and
placebo with a target of 150 patients.

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

12


result in slowing AD progression. The initial
pre-clinical side effect rates potentially allow for higher clinical doses. On
August 1, 2005 the Company announced that the US Food and Drug Administration
(FDA) has approved its investigational new drug (IND) application allowing
phase I clinical testing of Posiphen. 
The first Phase I clinical study is expected to begin shortly and will
primarily evaluate the safety of Posiphen in healthy volunteers.

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.
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.

In
June 2005, the Company appointed Paul Feuerman as its General Counsel.  Mr.
Feuerman is a founding member of Pharm Advisors LLC, a consulting firm serving
pharmaceutical and biopharmaceutical companies. Formerly, he was Executive
Vice President and General Counsel of Schein Pharmaceutical Inc., a New York
Stock Exchange listed specialty pharma/generics company.

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 six months ended June 30,
2005 was $18,612,000.  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.
RESULTS
OF OPERATIONS
Revenues
The
Company had no revenue for the quarter ended June 30, 2005 and $433,000 for the
quarter ended June 30, 2004. The Company had revenue of $403,000 and $911,000
for the six months ended June 30, 2005 and 2004, respectively. Revenue in 2005
and 2004 was derived from the sale of research assays and fine chemicals at
OXIS. The reduction in revenue for the quarter and six months ended June 30,
2005 from prior year levels results from the fact that OXIS operations are no
longer being consolidated with our results effective March 1, 2005 as discussed
in Note 1 to the condensed consolidated financial statements.
Costs of Sales
The
Companys costs of sales were entirely related to its subsidiary, OXIS. The
percentage of cost of sales for the quarter and six months ended June 30, 2005
were 55% and 52% respectively.
13

Research and Development
Research
and development expenses were $7,351,000 and $5,782,000 for the quarters ended
June 30, 2005 and 2004, respectively. 
Research and development expenses were $16,673,000 and $9,834,000 for
the six months ended June 30, 2005 and 2004 respectively.  In 2004, the Company was conducting both a
Phase IIb and Phase III trial for Phenserine, its lead drug compound.  In 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 $195,000 from the
same six month period in 2004. Posiphen preclinical costs increased by
$1,024,000 over the prior six month period as the Company advances Posiphen
preclinical testing.  The six month
period also includes costs incurred with the Companys third compound,
Bisnorcymserine.
Sales, General and Administrative
Sales,
general and administrative expenses were $1,213,000 and $2,127,000 for the
quarters ended June 30, 2005 and 2004, respectively.  Sales, general and administrative expenses were $2,876,000 and
$4,498,000 for the six months ended June 30, 2005 and 2004, respectively.
Non-cash charges relating to stock option grants to consultants were $1,399,000
lower in the six months ended June 30, 2005 than the six months ended June 30,
2004.   Professional fees were
$1,585,000 compared to $601,000 in the six months ended June 30, 2005 and 2004,
respectively.  The increase in
professional fees is primarily attributed to utilization of additional outside
counsel, patent filing costs, legal costs related to class action securities
litigation, Sarbanes Oxley compliance and board member fees.   The reduction in sales, general and
administrative expenses for the quarter and six months ended June 30, 2005 from
prior year levels results from the fact that OXIS operations are no longer
consolidated with our results effective March 1, 2005 as discussed in Note 1 to
the condensed consolidated financial statements.
Other Income (Expense)
Interest
income was $558,000 and $241,000 for the quarters ending June 30, 2005 and
2004, respectively. Interest income was $1,130,000 and $426,000 for the six
months ended June 30, 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 quarter ended June 30, 2005 was a loss of $56,000 compared to
a foreign exchange gain of $34,000 for the quarter ended June 30, 2004.  Foreign exchange losses of $81,000 and
$37,000 were incurred for the six months ended June 30, 2005 and 2004
respectively.  The loss in 2005 reflects
the strength of the Euro against the US dollar in 2005.
Loss
on issuance of subsidiary stock was $320,000 net for the six months ended June
30, 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 $147,000 reflects the Companys proportional share of OXIS
losses from March 1, 2005 forward 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 $8,179,000 ($0.15 per share-basic and diluted) and
$7,132,000 ($0.14 per share-basic and diluted) for the quarters ended June 30,
2005 and 2004, respectively. The Company experienced net losses of $18,612,000
($0.35 per share-basic and diluted) and $13,123,000 ($0.28 per share-basic and
diluted) for the six months ended June 30, 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 and an increase in the non-cash stock and option charges.
14

LIQUIDITY
AND CAPITAL RESOURCES
As
of June 30, 2005 we had $70,305,000 in cash and cash equivalents, and
$62,133,000 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 six months ended June 30, 2005 was
$17,633,000 resulting primarily from a net loss of $18,612,000 and an increase
in accounts payable of $1,682,000 partially offset by a decrease in accrued
expenses of $886,000.

Net
cash used in investing activities was $4,956,000 for the six months ended June
30, 2005 resulting principally from the deconsolidation of OXIS of $4,907,000.

Net
cash provided by financing activities for the six months ended June 30, 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 September 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 large later stage
clinical trials with our three compounds under development, the potential cost
of developing compounds that we may license in, regulatory delays, patent costs
for filing, prosecuting, maintaining and defending our patent rights, and
defending our current class action securities litigation, among others.

We
may be periodically seeking potential equity financing, sub-licensing and other
collaborative arrangements that may generate additional capital for us in order
to support our research and development activities. We cannot assure you that
we will generate sufficient additional capital or revenues, if any, to fund our
operations beyond September 30, 2006, that any future equity financings will be
successful, or that  other potential
financings through bank borrowings, debt or equity offerings, or otherwise,
will be available on acceptable terms or at all.

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

15


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 continued to be 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  through
February 28, 2005 and equity method accounting has been applied beginning March
1, 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:Beginning March 1, 2005, the Company
accounts for its investment in OXIS under the equity method of accounting, as
prescribed by Accounting Principals Board Opinion No. 18 The Equity Method of
Accounting for Investments in Common Stock.  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.

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 $81,000 for the six months ended June 30, 2005 and a
loss of $37,000 for the six months ended June 30, 2004.  If the foreign currency rates were to
fluctuate by 10% from rates at June 30, 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.

16


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.

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
commencing in February 2005 alleging violations of federal securities laws, one
of which has been voluntarily dismissed. 
Eight of those lawsuits remain 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.  Axonyx and the other defendants
have not yet
filed their responses to these purported class actions.

17

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. On July 29, 2005, we and the other
named defendants moved to dismiss the shareholder derivative suit with
prejudice.

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 4.
  Submission of Matters to a Vote of
  Security HoldersAt
the Companys 2005 Annual Meeting of Shareholders held on June 16, 2005, the
Companys shareholders voted on the following matters:

a)     Election
of the following directors

Director
  
  
  For
  
  WithheldMarvin S. Hausman, MD
  
  38,493,726
  
  3,222,615Gosse B. Bruinsma, MD
  
  38,547,266
  
  3,169,125Louis G. Cornacchia
  
  37,854,333
  
  3,862,058Steven H. Ferris
  
  37,836,377
  
  3,880,014Steven B. Ratoff
  
  41,018,911
  
  697,480Ralph Snyderman, MD
  
  38,594,411
  
  3,121,980b)     Ratification
of the selection of independent auditors

For
  
  Against
  
  Abstain
  
  Broker Non-votes41,249,771
  
  325,395
  
  141,225
  
  018


Item 6.
  Exhibits.Number
  
  Exhibits31.1
  
  Certification of Chief
  Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
  
  Certification of Chief
  Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
  
  Certification of Chief
  Executive Officer pursuant to 18 U.S.C Section 1350, adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.32.2
  
  Certification of Chief Financial
  Officer pursuant to 18 U.S.C Section 1350, adopted pursuant to Section 906 of
  the Sarbanes-Oxley Act of 2002.19


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 August 8, 2005.AXONYX INC.By: /s/ Gosse B. Bruinsma, M.D.Gosse B. Bruinsma, M.D.President and Chief Executive OfficerBy: /s/ S. Colin NeillS. Colin NeillChief Financial Officer,Secretary and Treasurer(Principal Financial and Accounting Officer)20