<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11232
---------
VEREX LABORATORIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-0850695
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14 Inverness Drive East, D-100 Englewood, Colorado 80112
- ------------------------------------------------------------------------
(Address of principal executive offices)
(303) 799-4499
----------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
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 requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The registrant had 2,157,975 shares of its no par value
common stock outstanding as of March 31, 1996.
<PAGE>
INDEX
Page No.
Consolidated Balance Sheets 2
Consolidated Statement of Operations 3,4
Consolidated Statement of Cash Flows 5
Cosolidated Notes to Financial Statements 6,7
Exhibits and Reports on Form 8-k 7
Signatures 8
Financial Data Schedule 9
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1996 June 30, 1995
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $31,785 $140,766
Receivables
Trade (net of allowance for doubtful
accounts of $2,000) 8,642 17,465
Inventory 8,912 19,337
Prepaid Expenses 16,007 15,959
Research and development 254,335 296,549
------- -------
319,681 490,076
Property and Equipment, at cost
Furniture and equipment 488,983 470,285
Leasehold improvements 11,358 11,358
Automobiles 2,932 2,932
------- -------
503,273 484,575
Less accumulated depreciation and amortization) (451,090) (430,066)
------- -------
52,183 54,509
Other Assets
Goodwill (net of accumulated amortization
of $31,803 and $26,188 43,054 48,668
Patents and trademarks, net of accumulated
amortization of $223,704 and $211,155 155,077 123,305
------- -------
198,131 171,973
------- -------
Total $569,995 $716,558
======== ========
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities
Accounts payable and other accruals 144,537 $157,876
Accrued Interest 302,403 215,765
Notes payable - stockholder 1,667,000 1,667,000
Current portion of long-term debt 30,623 40,998
Accrued salary and benefits payable -
current portion 446,287 446,287
--------- ---------
2,590,850 2,527,926
Long-term liabilities
Accrued salary and benefits payable,
net of current portion 1,674,562 1,367,296
Long-term debt, net of current portion 1,061
--------- ---------
1,674,562 1,368,357
Commitments and contingencies (Note 2)
Stockholder's equity
Common Stock, no par value, 100,000,000
shares authorized, 2,157,975 and
2,007,538 shares issued and outstanding 2,162,810 1,942,923
Additional paid in capital 5,200,418 4,671,704
Accumulated deficit (11,058,645) (9,794,352)
------------ -----------
(3,695,417) (3,179,725)
------------ -----------
Total $569,995 $716,558
============ ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement Of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Nine For The Nine
Months Ended Months Ended
March 31, 1996 March 31, 1995
<S> <C> <C>
Revenues
Net sales $201,084 $276,578
Contract Income 27,658
Licensing Income 1,200,000
Settlement of claim
Other Income 3,472 11,449
-------- ---------
$232,214 $1,488,027
Cost and Expenses
Cost of sales 135,163 200,427
General and administrative 827,530 759,503
Research and development 431,096 748,544
Operating 9,672 6,559
Marketing 2,544 1,026
Interest 90,502 93,612
--------- ---------
1,496,507 1,809,671
Income (loss) before income taxes ($1,264,293) ($321,644)
------------ ----------
Income tax (benefits) --- ---
Net Income (loss) ($1,264,293) ($321,644)
============ ==========
Net income (loss) per common
share (note 3) ($0.61) ($0.17)
------- -------
Weighted average shares outstanding 2,080,308 1,925,201
</TABLE>
See notes to consolidated financial statements
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement Of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Three For The Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Revenues
Net sales $44,322 $64,331
Contract Income 27,658
Licensing Income
Other Income 392 8,301
------- -------
$72,372 $72,632
Cost and Expenses
Cost of sales 33,153 32,730
General and administrative 289,317 239,152
Research and development 34,219 247,969
Operating 3,188 4,409
Marketing (844)
Interest 28,757 34,954
------- -------
388,634 558,370
------- -------
Net Income (loss) ($316,262) ($485,738)
---------- ----------
Net income (loss) per common share
(note 3) ($0.15) ($0.25)
------- -------
Weighted average shares outstanding 2,080,308 1,925,201
</TABLE>
See notes to consolidated financial statements
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Nine For The Nine
Months Ending Months Ending
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash Flows from operating activitites
Net income (loss) ($1,264,293 ($321,644)
Adjustments to reconcile net income
(loss) to net
cash flow provided by (used in)
operating activities
Depreciation and amortization 39,188 40,432
Changes in certain assets & liabilities:
Research & development 42,214 42,435
Receivables 8,823 38,066
Inventory 10,425 4,656
Other assets (48) (13,893)
Accounts payable and other accruals 73,299 (58,432)
Accrued salary and benefits payable 307,266 262,266
------- -------
Net cash provided by (used in)
operating activities ($783,126) ($6,114)
Cash flows from financing activities:
Proceeds from note payable 123,000
Payments on note payable (11,436) (35,181)
--------- -------
Net cash provided by (used in)
financing activities ($11,436) $87,819
Cash flows from investing activities:
Proceeds from sales of common stock 748,601 180,000
Additions to property and equipment (18,698) (13,785)
Additions to patents and trademarks (44,322) (10,366)
Deposits on Common Stock purchases 47,000
-------- --------
Net cash provided by (used in) investing
activities $685,581 $202,849
-------- --------
Net increase (decrease) in cash and cash
equivalents ($108,981) $284,554
Cash and cash equivalents-beginning of period 140,766 56,487
--------- -------
Cash and cash equivalents-end of period $31,785 $341,041
========= ========
Supplemental cash flow information:
Cash paid for interest was $5,275 (1996) and $5,782 (1995).
</TABLE>
<PAGE>
VEREX LABORATORIES, INC. and SUBSIDIARIES
Consolidated Notes to Financial Statements
(Unaudited)
1. Financial Statements
--------------------
These unaudited financial statements should be read in conjunction
with the Company's financial statements as of June 30, 1995, included
in the Annual Report on Form 10-K. In the opinion of the Company, the
accompanying consolidated financial statements contain all adjustments
(consisting of normal recurring items) necessary to present fairly the
consolidated financial position and results of operations for the
periods presented. The results of operations for the nine-month
period ended March 31, 1996, are not necessarily indicative of the
results to be expected for the full year. The Company's consolidated
financial statements include the accounts of its wholly-owned
subsidiaries, Colorado Nut Company, Inc. and Bear Laboratories, Inc.
2. Commitments
-----------
Office Lease:
- -------------
The Company is obligated under an office lease commencing April
1, 1995 and ending on March 31, 1997, to pay $4,610.56 in monthly
installments.
Clinical Trials:
- ----------------
The Company is continuing with clinical trials on its AIDS drug,
Aztec, and has made commitments for ongoing patient and
laboratory work totaling $242,000, part of which has been
completed.
3. Net Loss Per Common Share
-------------------------
Net income (loss) per common share for the nine-month periods
ended March 31, 1996 and March 31, 1995 has been computed on the
basis of the weighted number of common shares outstanding of
2,080,308 and 1,925,201 at March 31, 1996 and 1995 respectively.
4. 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, trade names, know-how and trade
secrets relating to existing and future drug formulations
relating to the drug commonly known as AZT. At March 31, 1996,
the Company had drawn down $1,667,000 pursuant to the Credit
Agreement. Subject to the Company having sufficient cash
resources or alternative borrowing resources, principal is
payable July 15, 1996 and interest is payable quarterly
commencing March 31, 1994. No interest has been paid on this
note.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
During the first nine months of fiscal year 1996, current assets
decreased by $170,395 to $319,681, which was due to the loss for
the period of $1,264,293.
<PAGE>
Operations
----------
Comparison of the nine-month periods ended March 31, 1996 and March 31, 1995
- ------------------------------------------------------------------------------
Net sales decreased for the period by 27% from the prior
corresponding period and relate to snack items. Cost of sales is
down for the period, reflective of the lower sales. Research and
development costs are down $317,400 from the corresponding 1995
period.
The net loss for the nine months increased $942,649 from the
prior year, due to a reduction in licensing income.
The Company continues to seek industry partners, both U.S. and
international, for licensing agreements for the Company's
research products. In addition, the Company continues to seek
opportunities to perform research with respect to drug
formulations on a contract basis.
Liquidity and Capital Resources
-------------------------------
During the past several months the Company has been dependent
upon the sale of common stock pursuant to Regulation S under the
Securities Act of 1933 to fund administration expenses and to pay
for ongoing clinical trials. It is estimated that an additional
$145,000 during the next three months will be required for the
Phase III Aztec clinical trials. The Company is currently
seeking funding from outside sources, including licensing
arrangements. There is no assurance such funding will be
available, or if available, on terms favorable or acceptable to
the Company. During February and March, 1996 the Company sold
63,637 shares of common stock for a total of $175,001 pursuant to
Regulation S under the Securities Act of 1993 to a non-resident
of the U.S. These funds were to pay for clinical trials and
general and administrative expenses.
Except as indicated above, there are no planned expenditures
outside the normal operating costs of the Company which will
cause the Company to make any extraordinary plans for handling
any cash requirements within the foreseeable future.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3.1 Restated Articles of Incorporation*
Exhibit 3.2 Restated By-Laws*
Stock Purchase Agreement - Birklea, Ltd. **
Stock Option - James M. Dunn, M.D. **
Stock Option - Jerry R. Dunn **
* Incorporated by reference to SEC File No. 2-82403-D filed
September 30, 1983
** Incorporated by reference to SEC File No. 0-11232, Form 8-K
January 14, 1993
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
Financial Data Schedule
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant had duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
(REGISTRANT) VEREX LABORATORIES, INC.
BY (Signature) /s/James M. Dunn, M.D.
(DATE) May 10, 1996
(NAME AND TITLE James M. Dunn, M.D President, Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 31,785
<SECURITIES> 0
<RECEIVABLES> 10,642
<ALLOWANCES> 2,000
<INVENTORY> 8,912
<CURRENT-ASSETS> 319,681
<PP&E> 503,273
<DEPRECIATION> 451,090
<TOTAL-ASSETS> 569,995
<CURRENT-LIABILITIES> 2,590,850
<BONDS> 0
<COMMON> 2,157,975
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 569,995
<SALES> 201,084
<TOTAL-REVENUES> 232,214
<CGS> 135,163
<TOTAL-COSTS> 1,496,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,502
<INCOME-PRETAX> (1,264,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,264,293)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
