<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to ____________
Commission file number 0-11232
VEREX LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0850695
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Bldg. D, Suite 100, 14 Inverness Dr. East, Englewood, CO 80112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 799-4499
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - No Par Value
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 12, 1994 was approximately $6,245,000.
The number of shares outstanding of the Registrant's no par value common
stock as of September 12, 1995, was 2,048,558 shares.
<PAGE>
PART I
ITEM 1. BUSINESS
Background
The Company was organized under the laws of the State of
Colorado on September 29, 1980. The Company is in the business of
acquiring, developing and marketing pharmaceutical and health care
products. The Company obtains formulae and patents when available,
selects trademarks, designs product packages and promotes and
markets, through licensing agreements, pharmaceutical and health
care products. The Company has two subsidiaries, Bear
Laboratories, Inc., incorporated in April 1991 for the purpose of
exploiting VERIN a drug formulation developed by the Company, and
The Colorado Nut Company, a distributor of snack items, acquired
during fiscal 1992.
During its initial years, the Company was principally involved
in marketing and licensing efforts with respect to its first
constant release rate products, an aspirin tablet with the trade
name Verin and an appetite control tablet with the trade name
Help . Direct Company sales of these products were limited since
the Company had limited resources to promote these products.
Efforts to obtain a licensing agreement with a substantial
marketing commitment were unsuccessful.
Going Concern Opinion
The Company's auditors have issued a report on August 28, 1995
stating, in effect, that there is substantial doubt as to the
Company's ability to continue as a going concern. See Financial
Statements.
Birklea, Ltd.
On January 6, 1993, the Company entered into a Stock purchase
Agreement (Agreement) with Birklea, Ltd., 28 Hardcourt Street,
Dublin 2, Republic of Ireland whereby Company sold 660,000 shares
of its restricted common stock to Birklea, Ltd. for $550,000. The
$550,000 was to be expended by the Company as agreed by Birklea,
Ltd. and the Company's President. The newly issued shares
represented 37% of the Company's outstanding common stock after
issuance thereof. Subsequent purchases of common stock have
increased Birklea, Ltd.'s holdings to 745,106 which represents
approximately 36% of the outstanding shares of Common Stock of the
Company.
The Agreement provided that Birklea, Ltd. had the right to
designate one director on management's slate of directors at the
next annual meeting of shareholders. Mark Banister of Westerham,
<PAGE>
Kent, England was designated by Birklea, Ltd. and at a meeting of
shareholders on May 4, 1993, was elected a director.
The Agreement also provided that Birklea, Ltd. has an option
through September 1, 1994 to acquire for $2,400,000 such additional
shares of common stock of the Company at a price per share to be
determined as will permit Birklea, Ltd. to hold 60% of the issued
and outstanding common stock of the Company. This option has been
extended on October 1, 1995 and may be extended beyond that date.
Birklea, Ltd. had an additional option through September 1, 1995 to
purchase common stock of the Company at $30.00 per share in such
quantity as would permit in Birklea, Ltd. to acquire an additional
5% of the issued and outstanding common stock of the Company. This
option has expired.
Credit Arrangements - Birklea, Ltd.
Effective November 30, 1993, the Company entered into a Credit
Agreement with Birklea, Ltd., a major shareholder of the Company,
whereby Birklea, Ltd. agreed to use its best efforts to provide up
to $10,000,000 in financing to the Company. Advances under the
arrangement bear interest at prime rate set by Morgan Guaranty
Bank, New York. The convertible promissory note thereunder is
secured by the Company's right, title and interest in patent
applications, patents, tradenames, know-how and trade secrets
relating to existing and future drug formulations relating to the
drug commonly known as AZT. At June 30, 1995, the balance on this
note was $1,667,000. Principal is payable July 15, 1996. Interest
is accruing at 9% per annum and was $215,000 at June 30, 1995.
The convertible promissory note grants Birklea, Ltd. the
option to convert the balance due under such note to common stock
of the Company on the same terms that Birklea, Ltd. may purchase
common stock of the Company under the Stock Purchase Agreement of
January 6, 1993 between the Company and Birklea, Ltd. See above.
Agreement With Burroughs Wellcome Co.
On November 30, 1994 the Company entered into an agreement
with Burroughs Wellcome Co. (Wellcome) of Research Triangle Park,
N.C. whereby the Company, for a $1,200,000 payment, granted
Wellcome an option to obtain an exclusive worldwide license to a
controlled release rate formulation of zidovudine (AZT), developed
by the Company under the name AZTEC . Under the agreement Wellcome
has the right to obtain all research and testing results on AZTEC
From the Company and cooperation in connection with review of such
information. In addition, Wellcome has the right of first refusal
to acquire a license to make, have made, use, sell and sublicense
AZTEC .
AZTEC has been studied in clinical trials at fifteen sites in
the United States involved in the treatment of persons diagnosed as
<PAGE>
having AIDS or being HIV positive. The trials are coordinated and
directed by Alan S. Hollister, M.D. Ph.D. University of Colorado
Health Sciences Center. The funds obtained from Wellcome have been
partially applied toward costs of these trials.
Licensing Activities
The Company has licensing agreements with several foreign-based
pharmaceutical companies covering the Company's patented
constant-release rate formulation of VEREXAMIL , as well as its
proprietary once daily delivery system for diltiazem, drugs used in
the treatment of heart disease and hypertension. These agreements
provide the licensee the exclusive right to manufacture and market
the formulations in a certain geographical area for a specified
period of time subject to the licensee maintaining high quality of
material and workmanship for the product and require an initial
licensing fee payable to the Company and a royalty to the Company
based on product sales or other arrangements.
The Company has not licensed its technology relating to other
sustained release prescription drugs. Licenses provide for the
Company to obtain health registration for the products as well as
manufacturing the finished dosage form.
The following table summarizes licensing agreements in
existence at June 30, 1995:
Licensee and
Year of License Territory Drug
Sanofi GmbH W. Germany Verapamil
(Formerly Labaz GmbH)
(1985)
Laevosan Austria Verapamil
(1987 & 1988)
Approved 8/93
Trimel Life Sciences Canada Verapamil
(Formerly Galen
Pharma, Inc.)
(1988)
Trima Pharmaceutical Israel Verapamil,
(1993) Diltiazem
<PAGE>
Trimel Life Sciences Canada and Nifedipine,
(Formerly Galen United States Naproxen,
Pharma, Inc.) Indomethacin
(1988)
Trimel Pharmaceutical Israel Verapamil,
(1992) Diltiazem
Productos BiotyLDA Portugal Verapamil
(1988)
Royalties on the foregoing licensing agreements range from 5%
to 7.5% of invoice sales and there is no minimum sales requirements
pursuant to the agreements. Revenues from initial licensing fees
for the fiscal years ended June 30, 1995, 1994 and 1993 were $-0-,
$-0- and $20,000, respectively.
The Company intends to continue to pursue licensing
arrangements with respect to marketing and/or developing its drug
formulations and compounds. No such arrangements were entered into
during fiscal 1995, primarily due to research and clinical trials
on AZTEC .
AZT Formulation
The Company has developed a unique controlled release rate
formulation of zidovudine (AZT), the primary drug used in the
treatment of persons diagnosed as having Acquired Immunodeficiency
Syndrome (AIDS) or being HIV positive. The trademark name AZTEC
has been registered with the United States Patent and Trademark
Offices and a patent has been filed with authorities in the U.S.
and Europe. The Company's formulation has been the subject of a
clinical study at the University of Colorado Health Science Center
which concluded that the AZTEC formulation had fewer adverse side
effects, produces longer duration blood level curves, and higher
intercellular phosphorated AZT levels than the currently used AZT
drug (Retrovir ). Further, AZTEC is administered twice daily
compared to 5-6 a day dosages of Retrovir . During the fiscal year
ended June 30, 1995 clinical trials of AZTEC were conducted at
fifteen sites in the United States at a cost of approximately
$635,000. The Company has been dependent upon Birklea, Ltd. and
Wellcome (see Agreement With Burroughs Wellcome Co. above) for
funding for such trials. These trials are not completed and it is
expected that an additional $200,000 to $300,000 will be required
to complete them. The Company is currently attempting to locate
funding to complete the trials and there is no assurance that such
can be located. It is estimated that the trials are 90% complete.
<PAGE>
Nanospheres
The Company has developed (patent pending) a drug delivery
system that will enable oral administration of many drugs of
macromolecule size, particularly proteins, polypeptides and
polysaccharides, which have low or no bioavailability when given
orally. This technology involves the use of nanospheres which are
loaded with active drug. These nanospheres are biodegraded over
several days in the body and the active drug is released slowly.
So far, Verex researchers have been successful in developing
heparin nanospheres that, when given to animals as a single dose,
produced therapeutic levels for seven days. An article has been
published on this process, and patents and trademarks have been
filed.
Amantex
This is an antiviral compound, delivered in a controlled
release formulation, for the treatment of recurrent herpetic
lesions. The Company has received a trademark for this product.
Veraderm
Veraderm is a wound dressing, made from a proprietary
formulation of polymers that, when applied superficially to an open
wound, can enhance healing while diminishing the chances of
infection. Early testing has shown it to be particularly
beneficial in the treatment of decubitus ulcers. A trademark has
been received.
Psorex
The Company has discovered a treatment for psoriasis which it
believes is safe and effective with no side effects. Psoriasis is
a chronic inflammatory skin disease, characterized by skin scaling
and ulcerations, which affects about 2% of the population. The
formulation is a tablet, Psorex , which contains safe ingredients
and which the Company hopes to market over-the-counter after
independent studies are completed and in compliance with FDA
labeling requirements. The Company's preliminary studies indicate
that about 85% of patients show marked improvement when taking one
to three tablets daily at bed time. The Company has applied for a
trademark for Psorex and is preparing a patent application.
Government Regulation
Non-prescription drug products are regulated by various
federal, state, municipal and foreign regulatory agencies with
respect to safety, effectiveness, advertising and labeling. The
principal regulatory agency in the United States is the Food and
Drug Administration (FDA) which requires evidence of safety and
efficacy of a drug formulation before it can be marketed.
<PAGE>
Non-prescription or over-the-counter (OTC) drugs are
generally recognized by the FDA as safe and effective if they meet
certain conditions set forth in FDA regulations. These regulations
relate to such items as ingredient quantity and quality,
manufacturing practices, side effects, labeling, container
components, dosage instructions and warnings for misuse.
Independent advisory panels of qualified experts are appointed
under FDA regulations to review the safety and efficacy of certain
OTC drugs.
The Company has applied its constant release technologies to
certain drugs that are prescription items, including verapamil,
diltiazem, pseudoephedrine, erythromycin, quinidine, hydralazine,
propranolol and indomethacin. Approval of the FDA is required
before the Company or its licensees may market any of the foregoing
formulations in the U.S. FDA regulations can substantially affect
the cost and time involved in obtaining and maintaining approval to
market new drugs and existing drugs with new delivery systems. The
FDA requires scientific evidence of safety and efficacy before new
drugs can be marketed.
The Company's licensing agreements with foreign manufacturers
provided that the licenses of these respective drugs comply with
applicable foreign regulations prior to marketing such drugs.
Patents and Trademarks
The Company has developed proprietary technologies which
relate to the development of its drug formulations and business.
These technologies relate primarily to the constant release
characteristics of such formulations. The Company holds several
patents and has filed other patent applications relating to these
technologies.
The Company has obtained several U.S. Trademarks, including
one for its name and others for capsules and formulations which
have been utilized in products and formulations relating to
constant release rate delivery systems.
Competition and Markets
The Company's drug formulations face severe competition from
many companies which have far greater financial and technical
resources as well as an established reputation.
The Company has sought licensing arrangement for its
formulations rather than engage in significant marketing efforts of
its own. Its limited retail marketing efforts have been undertaken
primarily to enhance product licensing opportunities.
<PAGE>
The Colorado Nut Company, Inc.
On October 3, 1991 the Company acquired all of the issued and
outstanding common stock of The Colorado Nut Company, Inc. (name
changed from Half Crack Nut Company), a Colorado corporation, for
$24,000 from two non-affiliated individuals who owned such stock.
This company distributed snack items to retail establishments in
the Denver metro area prior to the acquisition and continued such
distribution and mail order snack sales thereafter. For the year
ended June 30, 1995 total sales for this wholly owned subsidiary
were $347,429 for a net loss of $(55,645).
The snack sales industry is marked by substantial competition
from many large, well capitalized entities with large advertising
budgets. The Company does not expect to compete head-to-head with
such entities but will attempt to find a niche in which to operate,
such as the mail order, holiday or gift market.
Employees
The Company has three full-time employees, one of whom is an
officer and one of whom is a director. Further, four persons work
for the Company's subsidiary, The Colorado Nut Company.
ITEM 2. PROPERTIES
The Company leases office and research facilities at 14
Inverness Drive East, Building D, Suite 100, Englewood, Colorado,
consisting of 6,789 square feet of space at $4,610 per month
pursuant to a two-year lease through March 31, 1997. The Company
sublets a portion of the premises at $1,900 per month to an officer
of the Company of which $15,200 remained unpaid at June 30, 1995.
For its snack distribution business, the Company leases
approximately 4,864 square feet for processing at 730 S. Jason
Street, Denver, Colorado pursuant to a five-year lease at $1,611.75
per month through July 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a
vote during the Company's fiscal fourth quarter.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's common stock is traded over-the-counter and its
quotations are carried in the Electronic Bulletin Board of the
National Association of Securities Dealers, Inc.
The following table sets forth the range of high and low bid
quotations for the Company's common stock for the periods indicated
from sources the Company deems reliable, however, no review of the
daily Pink Sheets for the periods indicated has been undertaken by
the Company.
__________________________________________________________________
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fourth Qtr. (Ended June 30, 1995) $ 9.00 $4.00
Third Qtr. (Ended March 31, 1995) $10.00 $6.00
Second Qtr. (Ended December 31, 1994) $11.25 $5.25
First Qtr. (Ended September 30, 1994) $ 5.25 $1.75
Fourth Qtr. (Ended June 30, 1994) $ 5.25 $2.50
Third Qtr. (Ended March 31, 1994) $ 5.50 $3.00
Second Qtr. (Ended December 31, 1993) $ 8.00 $3.50
First Qtr. (Ended September 30, 1993) $10.00 $5.00
</TABLE>
__________________________________________________________________
The foregoing quotations reflect inter-dealer prices without
retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
As of September 12, 1995, the Company had approximately 1,400
holders of record of its common stock and the closing bid price on
its common stock was $7.00.
The Company has not paid any dividends since its inception and
presently anticipates that all earnings will be retained for
development of the Company's business.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Following is a summary of selected financial data. See the
financial statements included herein for more complete information.
<TABLE>
<CAPTION> 6/30/95 6/30/94 6/30/93 6/30/92 6/30/91
and for the and for the and for the and for the and for the
Year Ended Year Ended Year Ended Year Ended Year Ended
6/30/95 6/30/94 6/30/93 6/30/92 6/30/91
<S> <C> <C> <C> <C> <C>
Working Capital $(2,037,850) $(1,187,055) $ 111,093 $ 4,606 $ 445,084
Total Assets 716,558 824,122 957,123 352,839 599,882
Total Liabilities 3,893,283 3,258,004 1,908,720 1,165,465 758,992
Long Term Debt 1,365,357 1,473,437 1,223,129 1,007,379 755,943
Shareholders'
Equity (3,179,725) (2,433,882) (951,597) (812,626) (159,110)
Revenues 1,561,099 827,038 902,974 458,127 588,850
Net Income (Loss) $(1,281,345) (1,872,285) (888,971) (653,516) (93,342)
Net Income
(Loss) Per Share (.65) (.99) (.60) (.60) (.10)
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1995 Compared to 1994
Revenues were up 89% from fiscal 1994 primarily due to the
revenues generated from the Wellcome Agreement on AZTEC . Sales at
the Company's snack food subsidiary were down 56%.
Costs and expenses increased for fiscal 1995 $146,121 due
primarily to the costs experienced relating to the clinical trials
on the Company's AZTEC formulation. See "BUSINESS - AZT
Formulation." These costs are included in research and development
which expense is approximately $178,000 higher for 1995. This item
contributes the most to the Company's operating loss for 1995.
AZTEC generates no revenues for the Company since it is still in
the clinical trial stage. There is no assurance this formulation
will become a revenue generating product.
The Company's pharmaceutical segment accounts for 96% of the
Company's $1,281,345 loss for 1995. This percentage is comparative
to the 1994 loss percentage for this segment on $1,872,285 in total
losses. Because of the relatively high costs of clinical trials
and related activities for new prescription drug formulations such
as for AZT and the lack of corresponding revenues pending action on
regulatory application, it can be expected that significant losses
for this segment will continue until there is corresponding revenue
from these new potential products, of which there is no assurance.
1994 as Compared to 1993
Revenues were down 8% from fiscal 1993 primarily due to lower
sales at the Company's snack food subsidiary. During the year this
subsidiary moved its packaging and sales facility from Wheat Ridge
to Denver, which in part may have affected sales. The Company's
contract and other income of $211,192 increased substantially
compared to 1993 when the Company only had $921 from these sources.
Costs and expenses increased for fiscal 1994 $907,400 due
primarily to the costs experienced relating to the clinical trials
on the Company's AZTEC formulation. See "BUSINESS - AZT
Formulation." These costs are included in research and development
which expense is nearly $1,000,000 higher for 1994. This item
contributes the most to the Company's operating loss for 1994.
AZTEC generates no revenues for the Company since it is still in
the clinical trial stage. There is no assurance this formulation
will become a revenue generating product.
The Company's pharmaceutical segment accounts for 96% of the
Company's $1,872,285 loss for 1994. This percentage is comparative
<PAGE>
to the 1993 loss percentage for this segment on $888,971 in total
losses. Because of the relatively high costs of clinical trials
and related activities for new prescription drug formulations such
as for AZT and the lack of corresponding revenues pending
regulatory application and action if the clinical trials are
positive, it can be expected that significant losses for this
segment will continue until there is corresponding revenue from
these new potential products, of which there is no assurance.
1993 as Compared to 1992
Revenues for 1993 nearly doubled over 1992, however cost of
sales and general and administrative expenses increased by 85% and
35%, respectively for the period. In addition, research and
development expense increased nearly threefold from $66,676 to
$180,947 relating primarily to development costs for the AZTEC
formulation. As a result, losses increased by $235,455 or 36% over
1992 losses. Since AZTEC is still in its development stage, this
formulation generated no revenues and there is no assurance that it
will do so in the future.
As indicated in Note 7 to the financial statements relating to
segment information, approximately 93% of the Company's $888,971 in
losses are attributable to the Company's pharmaceutical segment
which generated only $20,190 in sales. Whereas, the Company's
snack sales division accounted for nearly all revenues and only 7%
of the losses. Until such time as the Company obtains significant
revenues from drug formulation, of which there is no assurance, it
is expected that expenses related to development, testing and
regulatory applications will be funded from equity and/or debt
financing. The availability of such funding is not assured.
Liquidity and Capital Resources
At August 28, 1995 the Company's auditors express concern as
to the ability of the Company to continue in light of losses and
net capital deficiency. See Financial Statements.
At June 30, 1995 the Company had a working capital deficiency
of $2,037,850 compared to negative working capital of $1,114,977 at
June 30, 1994. The principal item contributing to the differences
is the loss of $1,281,345, accrued salary and benefits to the
Company's president of $446,287 and accrued interest of $215,765.
The Company has no capital commitments other than salaries of
the president and six other employees and the payment of rent on
its facilities lease and snack processing facility. Such
commitments are not satisfiable from current revenues. Further,
the Company has very limited cash resources to operate the Company
at its current level of expense through December 31, 1995 without
liquidity problems. In the past the Company has been dependent for
funding on Birklea, Ltd. which holds options to purchase common
<PAGE>
stock. More recently it has been able to fund its research,
clinical trials and administrative costs from funds obtained from
Wellcome and the sale of newly issued common stock. There is no
assurance that additional funding will be forthcoming.
During the year ended June 30, 1995 the Company also made
sales of 61,750 shares of common stock to foreign purchasers
pursuant to Regulation S under the Securities Act of 1995 raising
approximately $346,008 in total. Subsequent to fiscal year-end and
additional 65,417 shares of common stock were sold for $392,502.
The Company may continue to raise capital to fund operations
through this means in fiscal 1996.
Industry Trends
There is substantial competition with respect to delayed
release drug delivery products from major, highly recognized,
manufacturers with large advertising budgets. In addition, major
drug manufacturers currently market recognized prescription
formulations for verapamil, naproxen, indomethacin and AZT.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto are financial statements responsive to this
Item.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The By-laws of the Company provide that the affairs of the
Company shall be managed by its Board of Directors consisting of at
least three persons. There is a family relationship between the
directors. Dr. James M. Dunn and Mr. Jerry R. Dunn are brothers.
The following table sets forth information about each director of
the Company.
Name Age Occupation
James M. Dunn, M.D. (1) 58 President and a Director of the
Company (1980-Present);
Treasurer of the Company (1981-Present);
Chairman of the Board
of Directors and Chief Executive
Officer of the Company (1982-Present);
Assistant Professor,
School of Medicine, Louisiana
State University (1979-1981);
Vice-President-Medical Affairs,
Boots Pharmaceutical,
Inc. (1979-1980); Director of
Clinical Pharmacology and
Research, Wallace Laboratories
(1976-1979).
Jerry R. Dunn (1) 59 Director of the Company (1980-Present);
Vice President of the
Company (5/89-Present); Vice
President of Business Operations
(1992-Present); Secretary of the
Company (1981-5/89); Self-employed Attorney
(1965-Present); officer and director
of several closely-held
corporations and partner in
various partnerships involved in
real estate and real estate
related enterprises (1971-Present).
James B. Petre 42 Director of the Company January,
1993-Present). Owner of
Foremost Properties, Englewood,
Colorado a real estate
development and brokerage firm
(1989-present). Vice President
and a director of Previews,
Inc., Denver, Colorado, a real
estate brokerage firm (1984-1989).
Mr. Petre is licensed as
a real estate broker with the
Colorado Real Estate Commission.
Mark Banister 32 Private Investor (1991-Present).
United States Equities Trader
with Morgan Stanley
International, London, England
(1987-1991). Senior Dealer,
United States Equities for
County Securities Ltd., London,
England (1982-1986).
________________________
(1) Dr. James M. Dunn and Mr. Jerry R. Dunn are brothers and comprise all of
the executive officers of the Company.
The Board of Directors does not have Audit, Compensation or
Nominating Committees. During the period from July 1, 1994 to
<PAGE>
June 30, 1995, the Board of Directors met four times, and all
directors attended the meetings, either in person or by telephone.
ITEM 11. EXECUTIVE COMPENSATION
The following tabular information includes all plan and non-plan
compensation paid to the Company's President and to all other
executive officers whose total annual salary and bonus is $100,000
or more.
Summary Compensation
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
Other
Name Annual Restricted All other
Principal Compen- Stock LTIP Compen-
Salary Bonus saiton Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James M. 1995 338,000(1) 0 45,530(2) 0 0 0 0
Dunn, M.D. 1994 338,000(1) 0 39,268(2) 0 0 0 0
(President 1993 345,686(1) 0 55,406(2) 0 (3) 0 0
and Chairman
of the Board
<FN>
_________________________
1 Dr. Dunn was actually paid $125,000, $125,000 and $125,000 as salary for
the years ended June 30, 1995, 1994 and 1993, respectively. The annual
salaries set forth above are pursuant to Dr. Dunn's employment contract
discussed below. Certain amounts due to Dr. Dunn in excess of the amount
paid in the respective periods have been deferred through January 1, 1997
pursuant to an agreement with Dr. Dunn. At June 30, 1995, the total
deferred salary was $1,367,000.
2 Dr. Dunn actually received $27,957 in fiscal 1995, $25,774 in fiscal 1994
and $22,110 in fiscal 1993 in other forms of compensation comprised of
premiums paid on life insurance and automobile lease and maintenance
expense. He earned $17,573, $13,494 and $13,296 in vacation allowance
for fiscal 1995, 1994 and 1993, respectively and $3,000, $14,000 and
$20,000, respectively in product minimum royalties for fiscal 1995, 1994
and 1993, all of which he has agreed to defer along with accumulated
amounts through January 1, 1997. At June 30, 1995, deferred accumulated
royalty payments were $197,000 and $194,000, at June 30, 1995 and 1994,
respectively. Accumulated vacation allowance is included in the deferred
accumulated salary amount set forth in Note (1) above.
3 Pursuant to an option granted January 6, 1993, Dr. Dunn has the right
through October 1, 1995 to acquire such number of shares of common stock
<PAGE>
of the Company at $.80 per share to permit him to hold 25% of the
outstanding common stock of the Company.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Average
Options/SARs Options/SARs
at FY-End at FY-End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
James M. 0 0 (1) (3)
Dunn, M.D.
Jerry R. Dunn 0 0 (2) (3)
<FN>
__________
(1) For such number of shares, to be determined, as will permit holder
to acquire up to 25% of the outstanding common stock of the Company.
(2) For such number of shares, to be determined, as will permit holder
to acquire up to 3% of the outstanding common stock of the Company.
(3) At fiscal year end, the average closing bid price of the Company's
common stock was $9.00 per share as reported by the Electronic Bulletin Board.
Thus, the value of such options are $8.20 per share which is the difference
between exercise price and market price and which assumes that such shares
could be sold on exercise which is not possible.
</TABLE>
Employment Contract - James M. Dunn, M.D.
On November 30, 1993, the Company entered into a new
employment agreement with its President, James M. Dunn, M.D.
whereby Dr. Dunn agreed to serve as President of the Company until
he reaches the age of 65 (2003) and agreed to assign to the Company
all his right, title and interest in his inventions, discoveries,
innovations, concepts and know-how during the period of the
Agreement. Dr. Dunn is entitled to receive an annual salary of
$338,000, subject to annual adjustments, a $3,000,000 life
insurance policy, disability insurance equal to 80% of his gross
income, and health insurance. In addition, he is entitled to a 2%
royalty on the first $5,000,000 in net sale price of any Verex
patented product, a 1% royalty on net sales in excess of $5,000,000
and a 2% royalty on Verex licensed technology.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Based on certain reports filed with the Securities and
Exchange Commission, the table on the following page reflects
certain information as of September 12, 1995 as to beneficial
holders of more than 5% of the outstanding shares of Common Stock
of the Company and as to Common Stock beneficially owned by all
executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent of Shares
Name of of Beneficial of Common Stock
Beneficial Owner Ownership (1) Outstanding
<S> <C> <C>
James M. Dunn, M.D. 360,560 17.6%
Jerry R. Dunn 50,650 2.5%
Birklea Ltd.(2)(3) 745,106 36.4%
James Petre 0 0%
Mark Banister(3) 0 0%
Officers and Directors
as a Group (4 persons) 1,156,316(4) 56.4%
<FN>
____________________
(1) This table is based on 2,048,558 shares outstanding and does
not include presently exercisable options to purchase shares
of the Company's Common Stock held by each of the foregoing.
See "Certain Relationships and Related Transactions" below for
details. Beneficial ownership by any person includes direct
or indirect voting power and investment power with respect to
such shares of common stock of the Company.
(2) The Company is informed that the owner of all the voting and
investment power of Birklea, Ltd. is Peter Josse, c/o Birklea,
Ltd., P.O. Box 303, St. Helier, Jersey, Channel Islands, U.K..
(3) Mr. Banister holds a power of authority to vote the shares
held by Birklea, Ltd.
(4) Includes shares held by Birklea, Ltd.
</TABLE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases facilities at a monthly rate of $4,241 plus
a pro rata share of maintenance costs. A portion of the space is
subleased to Jerry R. Dunn, an officer of the Company at $1,900 per
month of which $15,200 remained unpaid at June 30, 1995.
Management believes the terms of the foregoing facilities sharing
are as fair to the Company as could be arranged with an independent
party.
Jerry R. Dunn, a non-salaried officer and director of the
Company, from time to time provides legal services to the Company.
For the year ended June 30, 1995 the Company paid a total of
$22,763 in fees for legal services to Jerry R. Dunn. Management
believes the terms on which these services are performed and
charged are as fair to the Company as could be obtained from an
independent lawyer.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) The following consolidated financial statements are
included in Part II, Item 8 of this Report:
Report of Independent Certified Public Accountants
Balance Sheets at June 30, 1995 and 1994
For the years ended June 30, 1995, 1994 and 1993
Statements of Operations
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(2) All schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown
in the financial statements or notes thereto.
(3) The following Exhibits were included as Exhibits to the
Form S-18, SEC File No. 2-82403-D filed March 11, 1983
and are incorporated herein by reference:
3.1 - Restated Articles of Incorporation
3.2 - Restated By-laws
The following Exhibits were included as Exhibits to the
Form 10-K, SEC File No. 0-011232 filed September 30,
1988:
10.13 - Licensing Agreement with Galen Pharma, Inc.
(Trimel)
10.14 - Licensing Agreement #2 with Galen Pharma, Inc.
(Trimel)
The following Exhibits were included as Exhibits to the
Form 8-K, SEC File No. o-11232, filed January 14, 1993:
10.26 - Stock Purchase Agreement - Birklea, Ltd.
10.27 - Stock Option - James M. Dunn, M.D.
10.28 - Stock Option - Jerry R. Dunn
<PAGE>
The following Exhibits were included as Exhibits to the
Form 10-K, SEC File No. 0-11232, filed October 13, 1994.
10.29 - Credit Agreement - Birklea, Ltd.
10.30 - Convertible Promissory Note - Birklea, Ltd.
10.31 - Security Agreement - Birklea, Ltd.
10.32 - Employment Agreement - James M. Dunn, M.D.
The following Exhibit was included as an Exhibit to the
Form 8-K, SEC File No. 0-11232, filed December 13, 1994.
10.33 - Option Agreement - Burroughs Wellcome Co.
The following Exhibit is attached hereto:
10.21 - Letter of James M. Dunn, M.D. re deferral of
certain compensation.
(b) No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VEREX LABORATORIES, INC.
Registrant
Date: September 27, 1995 By: /s/ James M. Dunn, M.D.
James M. Dunn, M.D.,
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
(DATE) September 27, 1995
BY (SIGNATURE) /s/ James M. Dunn, M.D.
(NAME AND TITLE) James M. Dunn, M.D., Chief, Executive Officer, Chief
Financial Officer and Director
(DATE) September 27, 1995
BY (SIGNATURE) /s/ Jerry R. Dunn
(NAME AND TITLE) Jerry R. Dunn, Director
(DATE) September 27, 1995
BY (SIGNATURE) /s/ James Petre
(NAME AND TITLE) James Petre, Director
(DATE) September 27, 1995
BY (SIGNATURE) /s/ Mark Banister
(NAME AND TITLE) Mark Banister, Director
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
F - 1
Table of Contents
Page
Independent Auditors' Report F - 2
Financial Statements
Consolidated Balance Sheets - June 30, 1995 and 1994 F - 3
Consolidated Statements of Operations -
For the Years Ended June 30, 1995, 1994 and 1993 F - 4
Consolidated Statements of Stockholders' Deficit -
For the Years Ended June 30, 1995, 1994 and 1993 F - 5
Consolidated Statements of Cash Flows -
For the Years Ended June 30, 1995, 1994 and 1993 F - 6
Notes to Consolidated Financial Statements F - 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Verex Laboratories, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Verex
Laboratories, Inc. and Subsidiaries as of June 30, 1995 and 1994 and
the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period
ended June 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Verex Laboratories, Inc. and Subsidiaries at June 30,
1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1995,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Verex Laboratories and Subsidiary (the Company) will
continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raise
substantial doubt about the entity's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not
include any adjustments that might result from this uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
August 28, 1995
Denver, Colorado
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
1995 1994
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $140,766 $ 56,487
Receivables (Note 6)
Trade - (net of allowance for doubtful 17,465 40,960
accounts of $2,000)
Other (Note 5) - 15,200
Inventory (Note 6) 19,337 30,600
Prepaid expenses 15,959 6,888
Patented drug products 296,549 447,377
490,076 597,512
Property and equipment, at cost (Note 6)
Furniture and equipment 470,285 455,925
Leasehold improvements 11,358 11,358
Automobiles 2,932 2,932
484,575 470.215
Less accumulated depreciation and
amortization (430,066) (400,175) )
Property and equipment - net 54,509 70,040
Other assets
Goodwill - net of accumulated
amortization of $26,188 (1995) and
$18,700 (1994) 48,668 56,156
Patents and trademarks, net of
accumulated amortization of $211,155
(1995) and $191,944 (1994) 123,305 100,414
171,973 156,570
Total $716,558 $824,122
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and other accruals $ 157,876 $ 95,210
Accrued interest 215,765 72,078
Notes payable - stockholder (Note 6) 1,667,000 1,555,000
Current portion of long-term debt (Note 6) 40,998 62,279
Accrued salary and benefits payable - 446,287 -
current portion (Note 4) 2,527,926 1,784,567
Long-term liabilities
Accrued salary and benefits payable,
net of current portion (Note 4) 1,367,296 1,463,227
Long-term debt, net of current portion
(Note 6) 1,061 10,227
1,365,357 1,463,227
Commitments and contingencies (Notes 4 and 5)
Stockholders' deficit (Note 2)
Common stock, no par value, 100,000,000
shares authorized, 2,007,538 (1995) and
1,914,371 (1994) shares issued and
outstanding 1,942,923 1,758,631
Additional paid-in capital 4,671,704 4,293,494
Accumulated deficit (9,794,352) (8,513,007)
(3,179,725) (2,433,882)
Total $ 716,558 $ 824,122
</TABLE>
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Revenues
Net sales $ 347,429 $ 615,846 $ 882,053
Licensing income 1,200,000 - 20,000
Contract income - 150,000 -
Interest income 13,264 - -
Other 406 61,192 921
1,561,099 827,038 902,974
Costs and expenses
Cost of sales 265,559 494,488 699,632
General and administrative 1,045,057 900,670 880,462
Research and development 1,353,550 1,175,875 180,947
Operating 12,974 13,734 10,883
Marketing 16,179 42,478 20,021
Interest 149,125 72,078 -
2,842,444 2,699,323 1,791,945
Net loss $(1,281,345) $(1,872,285) $ (888,971)
Net loss per common share (Note $ (.65) $ (.99) $ (.60)
</TABLE>
<PAGE>
Consolidated Statements of Stockholders' Deficit
For the Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balances -
June 30, 1992 11,205,000 $1,450,770 $3,488,355 $(5,751,751)
Reverse stock
split 1:10 (10,984,500) - - -
Stock issuance
($.83 per share) 660,000 161,552 388,448 -
Stock issuance
($2.35 per share) 85,121 58,746 141,254 -
Net loss for the year - - - (888,971)
Balances - 1,865,621 1,671,068 4,018,057 (6,640,722)
June 30, 1993
Stock issuance
($2.35 per share) 48,750 114,563 275,437 -
Net loss for the year - - - (1,872,285)
Balances -
June 30,1995 1,914,371 1,785,631 4,293,494 (8,513,007)
Stock issuance
($4.00 per share) 11,750 13,805 33,195 -
Stock issuance
($6.00 per share) 81,417 143,487 345,015 -
Net loss for the year - - - (1,281,345)
Balances -
June 30, 1995 2,007,538 $1,942,923 $4,671,704 $(9,794,352)
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating
activities
Net loss $(1,281,345) $(1,872,285) $(888,971)
Adjustments to reconcile
net loss to net cash
used by operating activities
Amortization 26,699 25,235 33,629
Depreciation 29,891 30,302 19,660
Gain on sale of assets - (140) -
Change in certain assets and
liabilities
Patented drug products 150,828 42,623 (490,000)
Receivables 38,695 19,285 (1,855)
Inventory 11,263 12,135 (23,483)
Prepaid expenses (9,071) 10,328 -
Other assets - 498 (3,946)
Accounts payable and other 62,666 (5,523) (3,049)
accruals
Accrued interest 143,687 72,078 -
Accrued salary and benefits 350,356 240,098 253,982
payable
805,014 446,919 (215,062)
Net cash used by operating (476,331) (1,425,366) (1,104,033)
activities
Cash flows from investing
activities
Proceeds from sale of common 535,502 390,000 750,000
stock
Additions to property and (14,360) (37,014) (26,300)
equipment
Additions to goodwill, patents (42,102) (62,098) (20,230)
and trademarks
Net cash provided by 479,040 290.888 703,470
investing activities
Cash flows from financing
activities
Proceeds from note payable 123,000 1,098,000 547,000
Payments on note payable (41,430) (55,369) (54,678)
Net cash provided by 81,570 1,042,631 492,322
financing activities
Net increase (decrease) in cash 84,279 (91,847) 91,759
and cash equivalents
Cash and cash equivalents - 56,487 148,334 56,575
beginning of year
Cash and cash equivalents - end $140,766 $ 56,487 $148,334
of year
</TABLE>
Supplemental cash flow information:
Cash paid for interest was $5,438 (1995), $5,850 (1994) and
$3,335 (1993).
<PAGE>
Note 1 - Summary of Significant Accounting Policies
Verex Laboratories, Inc. (the "Company") was incorporated in Colorado
on September 29, 1980 and began developmental activities in July
1981. The Company was primarily engaged in the business of
developing and marketing non-prescription and prescription drug
products utilizing constant release rate drug delivery systems. The
Company had limited sales and marketing operations until October 3,
1991, when it acquired 100% of the outstanding stock of the Colorado
Nut Company, Inc. The Colorado Nut Company assembles and sells snack
food items. Bear Laboratories, Inc., a wholly-owned subsidiary of
the Company, was incorporated and began operations in April 1991.
Bear Laboratories, Inc. was formed to market one of the Company's
products through a national advertising campaign.
Going Concern
The Company and its subsidiaries incurred a loss of $1,281,345 for
the year ended June 30, 1995 and continues to experience a net
capital deficiency. The Company has entered into a credit agreement
with a Stockholder where the Stockholder will advance the Company up
to $10,000,000 at the Stockholder's discretion. There is no
assurance these plans will be sufficient to sustain operations.
Principles of Consolidation
The consolidated financial statements include the accounts of its
wholly-owned subsidiaries Bear Laboratories, Inc. and the Colorado
Nut Company. All intercompany accounts and transactions have been
eliminated in consolidation.
Inventory
Inventory consists of snack food products and are recorded at the
lower of cost or market on a first-in, first-out basis (FIFO) basis.
Patented Drug Products
Patented drug products include costs incurred to produce products to
be used in clinical tests and are carried at the lower of cost or
market on a specific identification basis.
Property and Equipment
Property and equipment is depreciated over the estimated useful lives
(three to seven years) of the asset using various methods. Leasehold
improvements are amortized on a straight-line basis over the remain
ing term of the office lease.
Goodwill, Patents and Trademarks
Goodwill, patents and trademarks are stated at cost and are amortized
on a straight-line basis over a period of ten years.
<PAGE>
Note 1 - Summary of Significant Accounting Policies (continued)
License Income
The Company has entered into licensing agreements with several
pharmaceutical companies to manufacture and exclusively market two of
the Company's patented drug products, a constant-release rate for
mulation of Verapamil and Aztec products in an established geographic
area.. The agreements generally require an initial non-refundable
licensing fee to be paid to the Company and future royalty payments
based on subsequent product sales. Licensing income is recognized
when earned.
Research and Development Costs
The Company expenses all research and product development costs as
incurred.
Cash Equivalents
The Company considers investments that are purchased within three
months of their date of maturity to be cash equivalents. Cash
equivalents consist of certificates of deposit. At June 30, 1995,
the Company had approximately $60,000 in excess of federally insured
amounts.
Income Taxes
Deferred tax liabilities and assets are determined based on the
difference between the financial statements and tax basis of assets
and liabilities using the enacted tax rates in effect for the year in
which the differences are expected to occur. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any
tax benefits that, based on available evidence, are not expected to
be realized.
Reclassification
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
Note 2 - Common Stock
Reverse Stock Split
In 1993, the Company effected a one-for-ten reverse stock split. All
references to the number of common shares and per common share
amounts have been restated to reflect the split.
<PAGE>
Note 2 - Common Stock (continued)
Stock Purchase Agreement
On January 6, 1993, the Company entered into a Stock Purchase
Agreement (Agreement) with Birklea, Ltd., whereby the Company sold
660,000 shares of its restricted common stock to Birklea, Ltd. for
$550,000. The newly issued shares represented 37% of the Company's
outstanding common stock after issuance thereof. Subsequent
purchases of common stock have increased Birklea, Ltd.'s holdings to
745,106 shares which represents approximately 40% of the outstanding
shares of Common Stock of the Company.
The Agreement also provided that Birklea, Ltd. has an option through
October 1, 1995 to acquire for $2,400,000 such additional shares of
restricted common stock of the Company at a price per share to be
determined as will permit Birklea, Ltd. to hold 60% of the issued and
outstanding common stock of the Company. Birklea, Ltd. had an
additional option through September 1, 1995 to purchase common stock
of the Company at $30 per share in such quantity as will permit in
Birklea, Ltd. to acquire an additional 5% of the issued and
outstanding common stock of the Company. This option has expired.
Stock Options
The President of the Company has the right through October 1, 1995 to
acquire such number of shares of common stock of the Company at $.80
per share to permit him to hold 25% of the outstanding common stock
of the Company.
Net Loss Per Common Share
Net loss per common share for the years ended June 30, 1995, 1994,
and 1993 has been computed on the basis of the weighted average
number of common shares outstanding of 1,949,122, 1,890,847, and
1,471,780.
Note 3 - Income Taxes
The Company has long-term deferred tax assets as a result of its net
operating losses and deferred salary (assumed a tax rate of 34%) that
is fully impaired due to uncertainty as to their utilization.
Accordingly, there is no net deferred tax asset reflected in the
accompanying financial statements.
<PAGE>
Note 3 - Income Taxes (continued)
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Long-term deferred tax assets:
Operating losses $ (2,274,622) $(2,186,954)
Deferred salary (189,449) (522,004)
Total long-term deferred assets (2,464,071) (2,708,958)
Valuation allowance 2,464,071 2,708,958
Net long-term deferred tax assets $ - $ -
</TABLE>
At June 30, 1995, the Company has approximately $7,250,000 of net
operating loss carryforwards for income tax purposes that expire
between June 30, 1999 and June 30, 2009 and approximately $24,000 of
investment tax credit carryforwards that expire between June 30, 1997
and June 30, 2001.
Note 4 - Related Party Transactions
Employment and Royalty Agreements
On November 30, 1993, the Company entered into a new 8-year
employment contract with its President. The contract may be extended
by the President. Under the terms of the contract, the President re
ceives an annual base salary of $338,000 and an annual cost of living
adjustment plus 8%.
The contract also provides for certain insurance and employee
benefits and entitles the President to participate in retirement and
management incentive plans that the Company is required to establish.
Such plans have not yet been established. As of June 30, 1995 and
1994, the Company owes approximately $1,616,000 and $1,269,000,
respectively, of vacation pay and salary increases to its President
under terms of the employment contract.
In addition, the President receives certain royalties on the net
sales from the Company's products, and minimum annual royalties of
$10,000 per product through November 30, 1994 and $1,000 thereafter.
Such royalties amounted to $3,000, $14,000, and $20,000 for the years
ended June 30, 1995, 1994 and 1993. The amount owed to the President
for such royalties was approximately $197,000, and $194,000 at June
30, 1995 and 1994, respectively. In return for this compensation,
the President is obligated to assign all title and ownership of his
inventions, formulations and products to the Company.
<PAGE>
Note 4 - Related Party Transactions (continued)
Employment and Royalty Agreements (continued)
In the event that the Company terminates the President's employment
prior to expiration of the contract, the Company is obligated to
provide the President the specified annual salary for the remaining
term of the agreement, and pay certain insurance benefits for a
period of three years. The President would continue to be entitled
to royalties on net sales of the Company's products.
The Company entered into an agreement with its President deferring
payment of vacation pay, salary increases and royalties accrued as of
June 30, 1995 until January 1, 1997. As of June 30, 1995 and 1994,
$1,367,000 and $1,463,000, respectively, were accrued as a long-term
liability.
Legal Fees
Legal fees were incurred by the Company for legal services provided
by an officer of the Company. Such fees were $53,251, $19,028, and
$10,872 for 1995, 1994 and 1993, respectively.
See Notes 2, 5 and 6 for additional discussion of related party
transactions.
Note 5 - Leases
Office
Currently, the Company occupies space under various lease agreements
requiring monthly payments of $4,610 and $1,237 plus a share of
building maintenance costs. The lease commitments expire March 31,
1997 and July 31, 1998, respectively, with options to renew. The
Company sub-lets a portion of its office space to the officer
described in Note 4 (under legal fees) for $1,900 per month, of which
$15,200 remained unpaid at June 30, 1994.
Rent expense, net of sublease income was $45,333, $45,930, and
$39,080 for the years ended June 30, 1995, 1994 and 1993,
respectively.
Vehicle
The Company has two operating leases for Company vehicles. The two
and three year leases require monthly lease payments of $500 and
$474, respectively. Lease expense is $3,896, $0 and $0 for the years
ended June 30, 1995, 1994 and 1993, respectively.
<PAGE>
Note 5 - Leases (continued)
Vehicle (continued)
<TABLE>
<CAPTON>
The minimum annual lease payments through expiration of the leases
are as follows:
<S> <C>
1996 $ 83,033
1997 80,531
1998 20,045
1999 1,399
$185,008
</TABLE>
Note 6 - Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C>
Note Payable Stockholder
$10,000,000 credit agreement with a
stockholder; interest accrues at bank
prime, 9% at June 30, 1995; principal and
interest are due upon 120 day written
notice or July 15, 1996. Convertible
into common stock under the same terms as
the Stockholder (Birklea, Ltd.) may
purchase common stock as described in
Note 2. Collateralized by patents, $1,667,000 $1,555,000
tradenames, know-how and trade secrets
relating to certain drug formulations.
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Long-Term Debt
Note payable to bank, due July 15,1996,
payable in monthly principal and interest
installments of $1,062 plus accrued
interest at 2.5% over bank's prime rate,
interest at June 30, 1995 was 10.55%. $10,060 $22,954
Collateralized by receivables, inventory
and property and equipment.
<PAGE>
Note 6 - Notes Payable and Long-Term Debt (continued)
<CAPTION>
June 30.
1995 1994
<S> <C> <C>
Long-Term Debt (continued)
Note payable to a bank, due August 1995,
payable in monthly interest installments.
Interest at 1.5% over banks prime rate,
interest at June 30, 1995 was 11%. 32,000 49,535
Collateralized by inventory and property
and equipment.
42,060 72,489
Less current maturities (40,998) (62,279)
$ 1,062 $10,210
</TABLE>
Note 7 - Segment Information
During 1993, with the acquisition of the Colorado Nut Company, the
Company now operates in principally two industry segments, developing
and marketing drug products (Verex) and assembling and selling snack
food items (Colorado Nut). Information concerning the Company's
business segments is as follows:
<TABLE>
<CAPTION>
Verex Colorado Nut
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $1,213,670 $ 208,006 $347,429 $619,032)
Operating loss (1,225,700) (1,792,569) (55,645) (79,716)
Identifiable 672,306 739,941 44,252 84,181
assets
Depreciation and
amortization 53,513 51,680 3,077 3,857
Capital expenditures 14,360 24,807 - 12,558
</TABLE>
Note 8 - Subsequent Event
Subsequent to June 30, 1995, the Company sold an additional 34,000
shares of common stock for $203,008.
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
FINANTIAL DATA SCHEDULE
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 140,766
<SECURITIES> 0
<RECEIVABLES> 19,465
<ALLOWANCES> 12,000
<INVENTORY> 19,337
<CURRENT-ASSETS> 490,076
<PP&E> 484,575
<DEPRECIATION> 430,066
<TOTAL-ASSETS> 716,558
<CURRENT-LIABILITIES> 2,527,926
<BONDS> 0
<COMMON> 1,942,923
0
0
<OTHER-SE> (3,179,729)
<TOTAL-LIABILITY-AND-EQUITY> 716,558
<SALES> 347,429
<TOTAL-REVENUES> 1,561,099
<CGS> 265,559
<TOTAL-COSTS> 2,842,444
<OTHER-EXPENSES> 2,576,885
<LOSS-PROVISION> 1,281,345
<INTEREST-EXPENSE> 149,125
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,281,345)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
