|SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934


For the quarterly
period ended March 31, 2004


Commission file
number: 000-25571


AXONYX INC.
(Exact name of registrant as specified in its charter)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Nevada(State or Other Jurisdiction of Incorporation) | 86-0883978(IRS Employer Identification No.)
|---------------------------------------------------- | -------------------------------------------

|500 Seventh Avenue, 10th Floor, New York, New York(Address of Principal Executive Offices) | 10018(Zip Code)
|------------------------------------------------------------------------------------------ | ---------------

|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 |_|


Indicate by a check mark whether
the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|


As of May 13, 2004, there were
51,233,773 shares of the registrants common stock outstanding.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|AXONYX INC.


INDEX
|-------------------

|PART I.  |  |  | FINANCIAL INFORMATION                                                     |  |  |  |    | 
|-------- |  |  | ------------------------------------------------------------------------- |  |  |  | -- | 
|         |  |  |                                                                           |  |  |  |    | 
|Item 1.  |  |  | Condensed Consolidated Financial Statements                               |  |  |  |    | 
|         |  |  |                                                                           |  |  |  |    | 
|         |  |  | Condensed Consolidated Balance Sheets as of March 31, 2004 (unaudited)    |  |  |  |    | 
|         |  |  | and December 31, 2003                                                     |  |  |  | 1  | 
|         |  |  |                                                                           |  |  |  |    | 
|         |  |  | Condensed Consolidated Statements of Operations (unaudited) for the three |  |  |  |    | 
|         |  |  | months ended March 31, 2004 and 2003                                      |  |  |  | 2  | 
|         |  |  |                                                                           |  |  |  |    | 
|         |  |  | Condensed Consolidated Statements of Changes in Stockholders Equity      |  |  |  |    | 
|         |  |  | (unaudited) for the three months ended March 31, 2004                     |  |  |  | 3  | 
|         |  |  |                                                                           |  |  |  |    | 
|         |  |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the three |  |  |  |    | 
|         |  |  | months ended March 31, 2004 and 2003                                      |  |  |  | 4  | 
|         |  |  |                                                                           |  |  |  |    | 
|         |  |  | Notes to Condensed Consolidated Financial Statements                      |  |  |  | 5  | 
|         |  |  |                                                                           |  |  |  |    | 
|Item 2.  |  |  | Managements Discussion and Analysis of Financial Condition and           |  |  |  |    | 
|         |  |  | Results of Operations                                                     |  |  |  | 9  | 
|         |  |  |                                                                           |  |  |  |    | 
|Item 3.  |  |  | Quantitative and Qualitative Disclosures About Market Risk                |  |  |  | 16 | 
|         |  |  |                                                                           |  |  |  |    | 
|Item 4.  |  |  | Controls and Procedures                                                   |  |  |  | 17 | 
|         |  |  |                                                                           |  |  |  |    | 
|PART II. |  |  | OTHER INFORMATION                                                         |  |  |  | 18 | 
|         |  |  |                                                                           |  |  |  |    | 
|Item 6.  |  |  | Exhibits and Reports on Form 8-K                                          |  |  |  | 18 | 
|         |  |  |                                                                           |  |  |  |    | 
|         |  |  | Signatures                                                                |  |  |  | 20 | 

|
|

|PART I. | FINANCIAL
INFORMATION
|------- | ---------------------

|Item 1. | Consolidated
Financial Statements
|------- | ---------------------------------

|AXONYX INC.


Condensed
Consolidated Balance Sheets
|---------------------------------------------------

|                                                                             | March 31,2004 |  | December 31,2003 |            
|---------------------------------------------------------------------------- | ------------- |  | ---------------- | -----------
|
|ASSETS                                                                       |               |  |                  |            
|                                                                             |               | 
|Current Assets:                                                              |               | 
|Cash and cash equivalents                                                    |               |  | $                | 80,640,000 
|Accounts receivable                                                          |               |  |                  | 291,000    
|Inventories                                                                  |               |  |                  | 270,000    
|Other current assets                                                         |               |  |                  | 369,000    
|                                                                             |               |  |                  |            
|                                                                             |               | 
|Total current assets                                                         |               |  |                  | 81,570,000 
|                                                                             |               | 
|Equipment, net                                                               |               |  |                  | 58,000     
|                                                                             |               | 
|Technology for developed products, net                                       |               |  |                  | 7,432,000  
|Patents and patents pending, net                                             |               |  |                  | 816,000    
|Security deposit                                                             |               |  |                  | 18,000     
|                                                                             |               |  |                  |            
|                                                                             |               | 
|                                                                             |               |  | $                | 89,894,000 
|                                                                             |               |  |                  |            
|                                                                             |               | 
|LIABILITIES                                                                  |               | 
|Current liabilities:                                                         |               | 
|Accounts payable                                                             |               |  | $                | 2,941,000  
|Accrued expenses                                                             |               |  |                  | 1,266,000  
|Note payable                                                                 |               |  |                  | 160,000    
|Convertible bridge loans                                                     |               |  |                  | 119,000    
|                                                                             |               |  |                  |            
|Total liabilities                                                            |               |  |                  | 4,486,000  
|                                                                             |               | 
|Minority interest in subsidiary                                              |               |  |                  | 404,000    
|                                                                             |               | 
|STOCKHOLDERS EQUITY                                                         |               | 
|Preferred stock - $.001 par value, 15,000,000 shares authorized; none issued |               | 
|Common Stock - $.001 par value, 75,000,000 shares authorized; 47,978,540 and |               | 
|33,919,948 shares issued and outstanding in 2004 and 2003 respectively.      |               |  |                  | 48,000     
|Additional paid-in capital                                                   |               |  |                  | 124,917,000
|Unearned compensation - stock options                                        |               |  |                  | (242,000   
|Accumulated deficit                                                          |               |  |                  | (39,719,000
|                                                                             |               |  |                  |            
|                                                                             |               | 
|Total stockholders equity                                                   |               |  |                  | 85,004,000 
|                                                                             |               |  |                  |            
|                                                                             |               | 
|Total liabilities and stockholders equity                                   |               |  | $                | 89,894,000 
|                                                                             |               |  |                  |            

|See notes to condensed
consolidated financial statements.


1
|-------------------------------------------------------------

|AXONYX INC.


Condensed
Consolidated Statements of Operations(unaudited)
|------------------------------------------------------------------------

|                                                | Three months endedMarch 31, | 
|----------------------------------------------- | --------------------------- | 
|
|Revenue                                         |                             | 
|Cost of revenue                                 |                             | 
|                                                |                             | 
|Gross profit                                    |                             | 
|                                                |                             | 
|Costs and expenses:                             |                             | 
|Research and development                        |                             | 
|Sales, general and administrative               |                             | 
|                                                |                             | 
|                                                |                             | 
|                                                |                             | 
|                                                |                             | 
|Loss from operations                            |                             | 
|                                                |                             | 
|Other income (expense)                          |                             | 
|Interest income                                 |                             | 
|Foreign exchange                                |                             | 
|Financing fees                                  |                             | 
|Interest expense                                |                             | 
|                                                |                             | 
|Net loss before minority interest in subsidiary |                             | 
|                                                |                             | 
|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 Stockholders Equity(unaudited)
|---------------------------------------------------------------------------------------------

|                                                 | Common Stock |  |  |            | Unearned |  
|------------------------------------------------ | ------------ |  |  | ---------- | -------- | -
|
|Balance - December 31, 2003                      |              |  |  | 33,919,948 |          | $
|                                                 |              | 
|Issuance of
common stock and warrants - net      |              |  |  |            |          |  
|of
expenses                                      |              |  |  | 9,650,183  |          |  
|                                                 |              | 
|Issuance of
common stock for the acquisition of  |              | 
|53%
of Oxis International Inc.                   |              |  |  | 1,618,061  |          |  
|                                                 |              | 
|Issuance of
common stock options and warrants    |              |  |  |            |          |  
|for
consulting services                          |              |  |  |            |          |  
|                                                 |              | 
|Issuance of
common stock for consulting services |              |  |  | 25,000     |          |  
|                                                 |              | 
|Issuance of
common stock options                 |              |  |  |            |          |  
|                                                 |              | 
|Exercise of
common stock warrants and options    |              |  |  | 2,765,348  |          |  
|                                                 |              | 
|Amortization                                     |              |  |  |            |          |  
|                                                 |              | 
|Net loss                                         |              |  |  |           |          |  
|                                                 |              |  |  |            |          |  
|                                                 |              | 
|Balance
- March 31, 2004                         |              |  |  | 47,978,540 |          | $
|                                                 |              |  |  |            |          |  

|See notes to condensed consolidated financial statements.


3
|-------------------------------------------------------------

|AXONYX INC.


Condensed
Consolidated Statements of Cash Flows(unaudited)
|------------------------------------------------------------------------

|                                                                     | Three months endedMarch 31, | 
|-------------------------------------------------------------------- | --------------------------- | 
|
|Cash flows from operating activities:                                |                             | 
|Net Loss                                                             |                             | 
|Adjustments to reconcile net loss to cash used in                    |                             | 
|operating activities:                                                |                             | 
|Depreciation and amortization                                        |                             | 
|Minority interest in net loss of subsidiary                          |                             | 
|Compensation related to common stock issued for services             |                             | 
|Compensation related to options and warrants issued for services     |                             | 
|Changes in:                                                          |                             | 
|Accounts receivable                                                  |                             | 
|Inventory                                                            |                             | 
|Other current assets                                                 |                             | 
|Technology and patents                                               |                             | 
|Other assets                                                         |                             | 
|Accounts payable and accrued expenses                                |                             | 
|Accrued stock based compensation                                     |                             | 
|                                                                     |                             | 
|Net cash used in operating activities                                |                             | 
|                                                                     |                             | 
|Cash flows from investing activities:                                |                             | 
|Costs related to Oxis acquistion                                     |                             | 
|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                                             |                             | 
|Collection of stock subscriptions receivable and cash held in escrow |                             | 
|                                                                     |                             | 
|Net cash provided from financing activities                          |                             | 
|                                                                     |                             | 
|Net increase in cash and cash equivalents                            |                             | 
|Cash and cash equivalents at beginning of period                     |                             | 
|                                                                     |                             | 
|                                                                     |                             | 
|Cash and cash equivalents at end of period                           |                             | 
|                                                                     |                             | 
|                                                                     |                             | 
|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 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 (consisting only of normal
recurring accruals) necessary to present fairly the financial position at March
31, 2004 and the results of operations for the interim periods presented.
Certain information and footnote disclosure normally included in the 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, 2003 included
in the Companys Form 10-K filing. The results for the interim periods are
not necessarily indicative of the results for the full fiscal year.


The
condensed consolidated financial statements of Axonyx include the accounts of
OXIS International Inc. (OXIS) from the acquisition date of January
15, 2004. The minority interest in the condensed consolidated financial
statements represents the minority stockholders proportionate share of equity in
OXIS. All significant inter-company accounts and transactions have been
eliminated in consolidation.


(2) Acquisition of
OXIS International, Inc.


On
January 15, 2004 the Company entered into agreements to acquire approximately
53% 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. The Companys Chairman and Chief Executive Officer owns 1,161,532
shares of OXIS common stock, representing approximately 4% of the OXISs
voting stock. Those shares of OXISs common stock were not being 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  |  
| |  | 

|5
|-

| | (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 each of the quarters ended March 31, 2004 and 2003.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   | March 31, 2004 | March 31, 2003
|-------------------------------------------------- | -------------- | --------------
|Total revenues                                     | $567,000       | $549,000      
|Net loss including minority interest in subsidiary | (6,362,000)    | (1,907,000)   
|Net loss                                           | (6,067,000)    | (1,839,000)   
|Basic and diluted net loss per common share        | (0.13)         | (0.07)        

|(3) 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:


6
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | 3 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                               |                          | 
|                                                          |                          | 
|Minority interest in stock-based employee compensation    |                          | 
|determined under the fair value based method              |                          | 
|                                                          |                          | 
|Pro forma net loss attributable to common stockholders    |                          | 
|                                                          |                          | 
|                                                          |                          | 
|Loss per common share attributable to common stockholders |                          | 
|(basic and diluted):                                      |                          | 
|As reported                                               |                          | 
|                                                          |                          | 
|Pro forma                                                 |                          | 
|                                                          |                          | 

|(4) Private Placement


In
January 2004, we completed a private placement for $50 million of securities
through the sale of 9,650,183 shares of common stock at $5.15 per share with new
and existing institutional investors. This placement also involved the
acquisition by the investor group of five-year warrants to purchase an
additional 2,412,546 shares of the Companys stock at an exercise price of
$7.25 per share.


(5) Operating
Segments


The
Company is organized into two reportable segments: Axonyx and OXIS. OXIS then
has two reportable segments: health products and therapeutic development. The
two OXIS segments have different strategic goals and have been managed
separately since 1997. The health products segment manufactures and sells
diagnostic products, medical instruments, pharmaceutical forms of SOD and other
fine chemicals. The therapeutic development segment operates a drug discovery
business focused on development of new drugs to treat diseases associated with
tissue damage from free radicals and reactive oxygen species.


During
the quarter ended March 31, 2004, OXIS general corporate expenses were allocated
80% to the health products segment and 20% to the therapeutic development
segment. OXIS general corporate expenses were allocated equally to the health
products and therapeutic development segment in 2003.


7
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                    | Axonyx Inc. |  | OXISHealthProducts |            | OXISTherapeuticDevelopment |   | Total     |  
|----------------------------------- | ----------- |  | ------------------ | ---------- | -------------------------- | - | --------- | -
|Quarter ended March 31, 2004        |             |  |                    |            |                            |   |           |  
|Revenue including minority interest |             |  |                    |            |                            | $ | 478,000   |  
|Segment loss                        |             |  | $                  | (5,704,000 | )                          |   | (216,000  | )
|Segment assets including minority   |             | 
|interest at March 31, 2004          |             |  |                    | 87,926,000 |                            |   | 1,190,000 |  
|                                    |             | 
|Quarter ended March 31, 2003        |             | 
|Segment loss                        |             |  | $                  | (1,575,000 | )                          |   |           |  
|Segment assets at March 31, 2003    |             |  |                    | 5,758,000  |                            |   |           |  

|(6) Subsequent Event


On
May 3, 2004, the Company has entered into definitive agreements with new
institutional investors for a private placement of $20 million of securities
through the sale of 3,076,923 shares of common stock at $6.50 per share. This
placement also involved the acquisition by the investor group and a financial
advisor of the Company of five-year warrants to purchase an additional 953,846
shares of the Companys stock at an exercise price of $8.50 per share. The
Company will file a registration statement on Form S-3 with the SEC for the
resale of common stock within 30 days.


8
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 2. | Managements  Discussion  and Analysis of Financial  Condition and  Results of
Operations
|------- | -----------------------------------------------------------------------------------------

|THIS QUARTERLY REPORT ON
FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS, OTHER THAN
STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY REFERENCE INTO
THIS FORM 10-Q ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN THIS
DOCUMENT, THE WORDS ANTICIPATE, ESTIMATE,
PROJECT, AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS INCLUDING AMONG OTHERS, THE RISK
THAT OUR CLINICAL TRIALS WILL NOT PROVE SUCCESSFUL, THAT WE WILL NOT BE ABLE TO
OBTAIN FINANCING TO COMPLETE ANY FUTURE TRIALS, THAT THE FDA WILL NOT GRANT
MARKETING APPROVAL FOR PHENSERINE OR THAT, IF APPROVED, PHENSERINE WILL NOT
PROVE COMPETITVE IN THE MARKETS. THESE RISKS AND OTHERS ARE MORE FULLY DESCRIBED
IN OUR REPORT ON THIS FORM 10-Q AND IN OUR OTHER PUBLIC FILINGS, INCLUDING OUR
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003. SHOULD ONE OR MORE OF THESE
RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED
OR PROJECTED. ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS INCLUDED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GIVE ANY ASSURANCES THAT
THESE EXPECTATIONS WILL PROVE TO BE CORRECT. WE UNDERTAKE 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
are engaged in the business of acquiring and developing novel post-discovery
central nervous system drug candidates, primarily in areas of memory and
cognition. We acquire patent rights to central nervous system pharmaceutical
compounds we believe may have significant potential market impact and work to
advance the compounds through pre-clinical and clinical development towards
regulatory approval. 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.


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. We have entered into a License Agreement
with Applied Research Systems ARS Holding N.V. (ARS), a subsidiary of Serono
International, S.A. (Serono), a Swiss biopharmaceutical company, under which ARS
has the rights to conduct research and development on certain of our licensed
technologies. We received an up-front fee and a milestone payment, and may
receive future milestone payments and royalties, under the License Agreement. We
do not currently maintain any laboratory or research premises.


9
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Our
current business strategy is to concentrate our financial resources primarily on
the further development of our licensed compounds, and in particular,
Phenserine, an inhibitor of acetylcholinesterase, that 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. 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.


In
early June 2003, we initiated a Phase IIb clinical trial designed to evaluate
the effects of Phenserine on the levels of beta-amyloid precursor protein and
beta amyloid in the plasma and cerebrospinal fluid of AD patients. The beta
amyloid protein is one of more than a dozen types of amyloid proteins found in
the body. Beta amyloid is derived from the beta-amyloid precursor protein
normally present in the brain of healthy individuals in small quantities.
Beta-amyloid, derived from the beta-amyloid precursor protein, is over-produced
in AD and Downs Syndrome. In AD, the beta-amyloid protein undergoes a
conformational change, aggregates and is deposited as insoluble fibrils in
amyloid plaques in the brain. The beta-amyloid precursor protein is present in
the cell wall of numerous cells within the body including nerve cells of the
brain. Beta-amyloid protein is derived from this larger protein. In late June
2003 we also initiated a Phase III potentially pivotal clinical trial to further
examine the safety and efficacy of Phenserine on AD patients.


In
addition to the Phenserine clinical program, we are sponsoring pre-clinical
research relating to an assay method for screening drug candidates for
Alzheimers disease. Pursuant to a sublicense agreement with ARS, ARS has
the rights to undertake research and development concerning the development of
(1) compounds called Amyloid Inhibitory Peptides (AIPs), which may
prevent and reverse the formation of amyloid plaques in AD, and (2) a
pharmaceutical compound for prion-related diseases. In Alzheimers disease
the conversion of beta-amyloid protein into insoluble beta-sheets that aggregate
to form insoluble fibrous masses (fibrils) is a key event that leads eventually
to neuronal cell death in the brains of AD patients. These fibrils are deposited
as part of the amyloid plaques that appear to be a cause of the death of neurons
in the brain. The AIPs, also referred to as beta-sheet breaker peptides, have
been designed to block the aggregation of beta-amyloidin a competitive
manner by binding to the beta-sheet form of the amyloid protein, thus preventing
the formation of amyloid plaques in the brain. The beta-sheet breaker peptide is
a molecule composed of naturally occurring amino acids, the building blocks of
proteins, which is designed to bind to and prevent the conversion of the normal
form of protein to the misshapen form that is found in amyloid plaques.


Given
sufficient financial resources, we may, in the future, sponsor further
pre-clinical development of Tolserine, another acetylcholinesterase inhibitor,
some of our butyrylcholinesterase inhibitors, and initiate pre-clinical
development of Posiphen, a compound that appears to decrease the formation of
the beta-amyloid precursor protein with potential applications in the treatment
of AD. Acetylcholinesterase inhibitors are drugs designed to selectively inhibit
acetylcholinesterase. Butyrylcholinesterase is an enzyme that is normally found
widely in the body. Its function in the central nervous system remains to be
fully understood. Amongst other roles, it degrades acetylcholine, a primary
neurotransmitter in the brain. Butyrylcholinesterase is found in high
concentration in the plaques taken from individuals who have died from AD. This
enzyme also functions to degrade a number of drugs and natural products and is
involved in their elimination from the body.


10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The AD targeted
approaches include:
|-----------------------------------

| | 1) | Phenserine,
an inhibitor of  acetylcholinesterase  and the beta-amyloid  precursor  protein,  our
lead drug  candidate,  and  Tolserine,  another  follow-on acetylcholinesterase inhibitor;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2) | a
butyrylcholinesterase  inhibitor which will be chosen from a series of  selectively
acting compounds;
| | -- | -------------------------------------------------------------------------------------------------------

| | 3) | Posiphen,
a compound  that  decreases  the  formation  of  beta-amyloid  precursor protein;
| | -- | -------------------------------------------------------------------------------------------

| | 4) | through
our  sublicense  with ARS, a  subsidiary  of  Serono,  which is  described in greater
detail below,  compounds called Amyloid  Inhibitory  Peptides  (AIPs) which may prevent
and reverse the  formation of amyloid  plaques in AD.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On
May 2, 2000, ARS, a subsidiary of Serono, exercised its right to license certain
of our patent rights under the Development Agreement and Right to License signed
with us in May of 1999. Under that agreement, ARS paid us a $250,000
non-refundable fee for the right to license. Pursuant to the resulting License
Agreement, which became effective on September 15, 2000, ARS acquired exclusive
worldwide patent rights to our AIP and Prion Inhibitory Peptide technologies,
called the Licensed Products. In conjunction with the signing of the License
Agreement with ARS, we generated $1.5 million of revenue in the form of an
up-front license fee. We received a milestone payment of $1 million in April
2003 from ARS in relation to the initiation of a Phase I clinical trial with a
licensed AIP compound. We may generate additional revenues from ARS if they
reach certain development milestones concerning the licensed compounds or other
products and related intellectual property, although additional milestone
payments did not occur in fiscal year 2003. The Company could receive milestone
payments from ARS in an aggregate amount of $13 million if the Licensed Product
involved is a patented product covered by the sub-licensed patents and patent
applications and it achieves certain developmental milestones up through health
registration approval. The amount of aggregate milestone payments through health
registration approval would be $7 million if the Licensed Product involved was
developed by Serono during the one year term of the Development Agreement we
entered into with ARS in May 1999. We cannot assure you that licensed compounds
or products will reach any particular stage of development requiring a milestone
payment, that licensed compounds or products will ever reach the market and give
rise to royalty payments, or that additional revenues from patent licensing will
be generated or that Serono will continue with any research and development
activities.


Through
our  sublicense  with ARS,  Serono  has the  right to  conduct  research and development
work on compounds  called Prion  Inhibitory  Peptides  designed for the  diagnosis  and
treatment of prion  diseases  such as Bovine  Spongiform  Encephalopathy  (also known as
Mad Cow Disease) and the human form  of the disease, Creutzfeldt Jakob Disease, new
variant.


We
are also funding research at Monash University in Australia relating to the
development of an assay method for the rapid screening of potential drug
candidates for the treatment of Alzheimers disease. We have signed a
Research Agreement with the principal researcher, David Henry Small, Ph.D., to
fund this research over a three-year period ending in May 2005.


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 Operating Officer of Axonyx Inc., was appointed the President of
Axonyx Europe BV. The majority of our clinical development activities and a
significant amount of our preclinical development activities are carried out in
Europe. The Axonyx Europe BV office manages, directs, and controls these
activities. Axonyx Europe BV explores and pursues out-licensing opportunities
for The Companys licensed technologies in Europe and elsewhere, and
facilitates communication with The Companys European shareholders and
Serono.


11
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 2001, 2002, and
2003 were $8,144,000, $6,256,000 and $8,106,000 respectively. As of March 31,
2004, we had an accumulated deficit of $39,719,000 and our operating losses are
continuing. Except of 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.


On
January 15, 2004, we entered into agreements to acquire approximately 53% of the
outstanding voting stock of OXIS is a biopharmaceutical/diagnostic 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, we acquired
an aggregate of approximately 14 million shares of OXIS stock, in consideration
for our issuance of an aggregate of approximately 1.6 million shares of our
unregistered common stock. We filed a registration statement on Form S-3 to
register the shares of Axonyx common stock that were issued in the exchange.
Marvin S. Hausman, M.D., our Chairman and Chief Executive Officer, owns
1,161,532 shares of OXIS common stock, representing approximately 4% of
OXIS voting stock. Dr. Hausmans shares of OXIS common stock were not
subject to this exchange for our common stock.


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s revenues for the quarters ended March 31, 2004 and 2003 were
derived from its majority owned subsidiary, OXIS, as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2004 | 
| | ---- | 
| |      | 
| |      | 
| |      | 
| |      | 
| |      | 

|Costs of
Sales


The
Companys costs of sales were entirely related to its majority owned
subsidiary, OXIS. The percentage of cost of sales for the first quarter of 2004
was 56%.


Research
and Development


Research
and development expenses for the quarter ending March 31, 2004 were $4,053,000
compared to $1,027,000 for the first quarter of 2003. The increase is primarily
attributable to the ongoing Phase IIB and Phase III pivotal trials underway in
Europe. These trials commenced in June 2003. Addtionally, preclinical studies in
carcinogenicity and Absorption, Distribution, Metabolism and Excretion (ADME)
increased by $490,000 from the same quarter in 2003.


12
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Sales,
General and Administrative


Total
sales, general and administrative expenses for the first quarter of 2004 were
$2,371,000, compared to $573,000 in the first quarter of 2003. Non cash charges
relating to stock and options was $1,116,000 compared to $77,000 in the quarter
ended March 31, 2003. $495,000 of sales, general and administrative expenses
relate to OXIS.


Other
Income (Expense)


Interest
income for the quarter ending March 31, 2004 was $185,000 as compared to $22,000
for the first quarter of 2003. The increase reflects the higher cash and cash
equivalent balances in the first quarter of 2004.


Foreign
exchange for the first quarter of 2004 was a loss of $71,000 compared to a
foreign exchange gain of $3,000 for the first quarter of 2003. The loss reflects
the increased transactions in Euro denominated currency and the valuation
changes between the Euro and the U.S. dollar.


Financing
fees and interest expense reflect the cost of borrowing incurred by OXIS in
obtaining temporary short term financing.


Net Loss


The
Company experienced a loss in the first quarter of 2004 of $5,991,000 ($0.13 per
share-basic and diluted) compared to a net loss of $1,575,000 ($0.07 per
share-basic and diluted) net loss for the first quarter of 2003. The increase in
the net loss is primarily due to the expense of the ongoing Phase IIB and Phase
III clinical trials for Phenserine, 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, 2004, we had $80,640,000 in cash and cash equivalents, and
$77,084,000 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 quarter ended March 31, 2004 was
$4,029,000 resulting from a net loss of $5,991,000, offset in part by an
increase in accounts payable and accrued expenses of $1,052,000, and stock and
option based compensation of $1,176,000 and depreciation expense of $165,000.
Net cash used in operating activities for the quarter ended March 31, 2003 was
$2,311,000 resulting from a net loss of $1,575,000 and a decrease in accounts
payable and accrued expenses of $758,000.


Net
cash used in investing activities was $53,000 for the quarter ended March 31,
2004 primarily from the costs related to the acquisition of OXIS.


Net
cash from financing activities for the quarter ended March 31, 2004 was
$55,228,000. In January we received net proceeds of $46,394,000 from a private
placement of $50,000,000 of securities through the sale of 9,650,183 shares of
common stock and warrants. Additionally, we received $8,715,000 during the
quarter from the exercise of stock options and warrants and $119,000 from a
bridge loan at the OXIS subsidiary. Net cash from financing activities was
$4,868,000 for the quarter ended March 31, 2003 from the collection of stock
subscriptions receivable held in escrow.


13
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We
currently have contracts with JSW Research of Austria, to undertake the ongoing
Phenserine Phase IIb and Phase III clinical trials. We also have contracts with
other CROs to provide services relating to Phenserine research and development
activities including completing pre-clinical tests on the final drug formulation
of Phenserine, undertaking carcinogenicity studies, bio-assays of blood plasma
samples, and finalizing drug stability studies. We are currently finalizing a
contract with a large CRO to conduct a second pivotal cognition Phase III trial
for Phenserine. This contract is expected to be in the range of $20 million,
depending upon the number of patients to be included in the trial. It is
expected to commence mid 2004 and run for 18 to 24 months. Finally, under our
Research Agreement we are funding a two year research program at the laboratory
of Dr. David Small at Monash University in Australia concerning an assay method
that is designed to screen potential drug compounds for Alzheimers disease
that have an effect on beta-amyloid. This project is anticipated to cost
approximately $75,000 in 2003, and an additional $75,000 in 2004. Under our
Research and License Agreement with New York University, we must pay minimum
annual royalty payments of $150,000 per year beginning in 2004 through the
expiration or termination of that agreement. Our current real estate leases are
all on a short-term basis.


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 for
at least the next twenty-four months. 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, among others.


We
are regularly seeking potential equity financing, sub-licensing and other
collaborative arrangements that may generate additional capital for us if the
FDA requires us to enroll more patients or to conduct one or more additional
pivotal Phase III clinical trials. We cannot assure you that we will generate
sufficient additional capital or revenues, if any, to fund our operations beyond
the 24 month period ending May 31, 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.


The
Companys liquidity and capital resources position is currently adequate to
support its own development plans for at least the next 24 months. However, the
liquidity and capital resource position of the Companys majority owned
subsidiary, OXIS, standing alone, is not adequate to support its ongoing
operations without additional capital. OXIS working capital deficit
increased during the first quarter of 2004 to $50,000, from a deficit of $36,000
at December 31, 2003 and cash and cash equivalent decreased to $308,000 at March
31, 2004 from $372,000 at December 31, 2003.


OXIS
expects to incur operating losses for the foreseeable future. There can be no
assurance that OXIS will ever achieve profitable operations. The report of the
OXIS independent auditors on the companys financial statements for
the period ended December 31, 2003, includes an explanatory paragraph referring
to OXIS ability to continue as a going concern.


14
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|OXIS
needs to raise additional capital for continuing operations of the health
products segment and to complete its contemplated drug development programs and
no assurances can be given that OXIS will be able to raise such capital on
favorable terms. As the majority stockholder and an interested
person under Delaware law, the Company is limited in the ways in which it
can provide financial assistance to OXIS. The unavailability of additional
capital could cause OXIS to cease or curtail its operations and/or delay or
prevent the development and marketing of the Companys existing and
potential products.


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 Form 10-K for the year ended December
31, 2003. Our critical accounting policies are:


Inventories:
Inventories  are  stated at the  lower of cost or  market.  Cost has been determined by
using the first-in, first-out method.


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.
Rights 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.


OXIS
manufactures, or has manufactured on a contract basis, products that are sold to
customers. OXIS recognizes product sales upon shipment of the product to the
customer. OXIS also develops and acquires technology that is used in its
operations or sold, licensed or assigned to third parties. OXIS recognizes
revenue upon the sale or assignment of technology to third parties.


Research,
development costs:Research and development costs are expensed as incurred.


15
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 $71,000 for the quarter ended March 31, 2004 and a gain
of $3,000 for the quarter ended March 31, 2003. If the foreign currency rates
were to fluctuate by 10% from rates at March 31, 2004 and 2003, 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.


16
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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-14(c) and 15d-14(c)
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.


17
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II | OTHER
INFORMATION
|------- | -----------------

|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------

| | (a) | Exhibits
| | --- | --------

| | 10(a) * | Securities
Purchase  Agreement dated as of January 8, 2004 between Axonyx Inc. and certain investors
(incorporated by reference to Exhibit 4.1 in the current  report on Form 8-K previously
filed by Axonyx Inc. on January 12, 2004);
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(b) * | Registration
Rights Agreement dated as of January 8, 2004 between Axonyx Inc. and certain  investors
(incorporated by reference to Exhibit 4.2 in the current  report on Form 8-K previously
filed by Axonyx Inc. on January 12, 2004);
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(c) * | Share
Exchange  Agreement  dated as of January 15, 2004 between Axonyx Inc. and Oxis
International,  Inc.,  (incorporated  by reference to Exhibit 10.1 in the  current report
on Form 8-K previously filed by Axonyx Inc. on January 20, 2004);
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(d) * | Change
of Control  Agreement  dated as of March 30, 2004 between  Axonyx and Marvin S. Hausman
(incorporated  by reference to Exhibit  10.32 of Axonyx  Inc.s  Annual Report on
Form 10-K for the fiscal year ended December 31, 2003);
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(e) * | Change
of Control  Agreement  dated as of March 30, 2004 between  Axonyx Inc. and Gosse
Bruinsma  (incorporated  by reference to Exhibit  10.33 of Axonyx Inc.  Inc.s
Annual Report on Form 10-K for the fiscal year ended December 31, 2003);
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(f) * | Change
of Control  Agreement  dated as of March 30, 2004 between  Axonyx Inc. and S. Colin Neill
(incorporated  by reference to Exhibit 10.34 of Axonyx Inc.s  Annual Report on Form
10-K for the fiscal year ended December 31, 2003);
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(g) * | Securities
Purchase  Agreement  dated as of May 3, 2004 between  Axonyx Inc. and certain  investors
(incorporated  by reference to Exhibit 4.1 in the current  report on Form 8-K previously
filed by Axonyx Inc. on May 5, 2004);
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10(h) * | Registration
Rights  Agreement  dated as of May 3, 2004 between  Axonyx Inc. and certain  investors
(incorporated  by reference to Exhibit 4.2 in the current  report on Form 8-K previously
filed by Axonyx Inc. on May 5, 2004);
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
|--

| | 31(a) | Rule
13a-14(a) Certification by Chief Executive Officer;
| | ----- | --------------------------------------------------------

| | 31(b) | Rule
13a-14(a) Certification by Chief Financial Officer;
| | ----- | --------------------------------------------------------

| | 32(a) | Section
1350 Certification by Chief Executive Officer;
| | ----- | ------------------------------------------------------

| | 32(b) | Section
1350 Certification by Chief Financial Officer.
| | ----- | ------------------------------------------------------

| | *
Previously filed
| | ------------------

| | (b) | Reports
on Form 8-K
| | --- | -------------------

| | 1. | We
filed a Current Report on Form 8-K (item 5) with the Securities and Exchange Commission
on  January 12, 2004, reporting our press release, Axonyx Announces $50 Million
Private Placement of  Common Stock and Warrants.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | We
filed a Current Report on Form 8-K (items 2 and 7) with the Securities and Exchange
Commission  on January 20, 2004, reporting our press release, Axonyx Inc. today
announced that it has entered  into agreements to acquire approximately 53% of the
outstanding voting stock of OXIS. We filed a  Form 8-K/A amending such form on
March 30, 2004, to include Item 7(a) Financial Statements of  Business Acquired and Item
7(b) Pro Forma Financial Information.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | We
filed a Current Report on Form 8-K (item 5) with the Securities and Exchange Commission
on May  5, 2004, reporting our press release, Axonyx Announces $20 million Private
Placement of Common  Stock and Warrants.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 May 14, 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | AXONYX INC.
By: /s/ Marvin S. Hausman, M.D.

Marvin S. Hausman, M.D.
Chairman and Chief Executive Officer
| |  | -----------------------------------------------------------------------------------------------------------------------

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

|20
|--