<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 September 30, 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 2,327,359 shares of its no par value common stock
outstanding as of September 30, 1996.
-1-
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Assets September 30, 1996 June 30, 1996
(Unaudited) (Audited)
Current assets
<TABLE>
<CAPTION>
<S> <C> <C>
Cash and cash equivalents $ 2,580 $ 155,229
Receivables
Trade 2,633 10,146
Note receivable - current 18,877 18,877
Prepaid expenses 20,192 16,376
Patented drug products 196,274 229,037
-------- --------
240,556 429,665
Property and Equipment,
at cost
Furniture and equipment 489,900 489,900
Leasehold improvements 1,317 1,317
-------- --------
491,217 491,217
Less accumulated depreciation
and amortization (446,492) (440,242)
-------- -------
Property and equipment - net 44,725 50,975
Other Assets
Notes receivable -
long-term 16,123 16,123
Patents and trademarks, net
of accumulated amortization
of $238,143 and $232,581 161,618 161,173
-------- --------
177,741 177,296
-------- --------
Total $463,022 $657,936
======== ========
</TABLE>
Liabilities and Stockholders' Deficit
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities
Checks written in excess
of bank balance $ 2,810 $ 59,543
Accounts payable and other
accruals 224,189 225,744
Accrued interest 394,416 359,270
Notes payable - stockholder 1,667,000 1,667,000
--------- ---------
2,288,415 2,311,557
========= =========
Long-term liabilities
Accrued salary and benefits
payable, net of current portion 2,310,995 2,207,823
--------- ---------
2,310,995 2,207,823
Commitments and contingencies
(Note 4)
Stockholders' Deficit
Common Stock, no par value,
100,000,000 shares authorized
2,327,359 and 2,301,359 shares
issued and outstanding 2,304,423 2,285,331
Additional paid in capital 5,540,925 5,495,017
Accumulated deficit (11,981,736) (11,641,792)
---------- ----------
(4,136,388) (3,861,444)
---------- ----------
Total $463,022 $657,936
========== ==========
</TABLE>
See notes to consolidated financial statement
-2-
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(unaudited)
For The For The
3 Months Ending 3 Months Ending
September 30, 1995 September 30, 1995
------------------ ------------------
Revenues
<TABLE>
<CAPTION>
<S> <C> <C>
Net sales $ 73,572
Miscellaneous 350 1,364
----------- -----------
350 74,936
Cost and Expenses
Cost of sales 49,171
General and administrative 234,715 239,421
Research and development 70,433 66,142
Operating 2,728
Marketing 165
Interest 35,146 31,462
---------- ----------
340,294 389,089
Net Income (loss) ($339,944) ($314,153)
---------- ----------
Net income (loss) per common
share (note 3) ($0.15) ($0.15)
Weighted average shares
outstanding 2,312,239 2,033,038
</TABLE>
See notes to consolidated financial statement
-3-
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(unaudited)
For The For The
3 Months Ending 3 Months Ending
September 30, 1996 September 30, 1995
------------------ ------------------
Cash Flows from operating activities
<TABLE>
<CAPTION>
<S> <C> <C>
Net income (loss) ($339,944) ($314,153)
Adjustments to reconcile
net income (loss) to net
cash flow provided by
(used in) operating activities
Depreciation and amortization 11,812 12,420
Changes in certain assets &
liabilities:
Patented drug products 32,763
Receivables 7,513 (4,959)
Inventory 6,219
Other assets (3,816) (2,706)
Accounts payable and other
accruals (58,288) (88,531)
Accrued interest 35,146
Accrued salary and benefits
payable 103,172 102,422
--------- ---------
Net cash provided by (used in)
operating activities ($211,642) ($289,288)
Cash flows from financing
activities:
Proceeds from note payable
Payments on note payable (3,061)
Net cash provided by ------
financing activities (3,061)
Cash flows from investing
activities:
Proceeds from sale of
common stock 65,000 204,000
Additions to property
and equipment (9,146)
Additions to patents
and trademarks (6,007) (8,799)
Net cash provided by (used-
in) investing activities 58,993 186,055
--------- --------
Net increase (decrease) in
cash and cash equivalents (152,649) (106,294)
Cash and cash equivalents-
beginning of period 155,229 140,766
Cash and cash equivalents- -------- --------
end of period $2,580 $34,472
======== ========
</TABLE>
Supplemental cash flow information:
Cash paid for interest was $0 (1996) and $2,290 (1995).
See notes to consolidated financial statements
-4-
<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, 1996, 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 three-month period ended September 30, 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 subsidiary 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, Aztec7, and
has made commitments for ongoing patient and laboratory work totaling
$210,000, part of which has been completed.
3. Net Loss Per Common Share
-------------------------
Net income (loss) per common share for the three-month periods ended
September 30, 1996 and September 30, 1995 has been computed on the basis of
the weighted number of common shares outstanding of 2,312,239 and 2,033,038
at September 30, 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
September 30, 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 and interest are due
upon 120 day notice or July 15, 1997.
-5-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
During the first three months of fiscal year 1997, current assets decreased
by $189,109 to $240,556, which was due to the loss for the period of $339,944.
Operations
----------
Comparison of the three-month periods ended September 30, 1996 and
September 30, 1995
The net loss for the three months increased $25,791 from the prior year, due
to the reduction of sales of snack items. On June 28, 1996 the Company sold
its snack food subsidiary which accounted for most of its revenues during the
quarter ended September 30, 1995.
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
-------------------------------
The Company in the past was dependent upon Birklea, Ltd., an Irish
corporation, and other outside sources to provide equity and/or debt
financing to the Company to fund its research and development and other
administrative costs. It is estimated that an additional $115,000 during the
next three months will be required to fund the Phase III Aztec7 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 August and September 1996 the Company sold 26,000 shares of common
stock for a total of $65,000 pursuant to Regulation S under the Securities
Act of 1993 to three non-residents of the U.S. These funds are to pay for
clinical trials and general and administrative expenses. Subsequent to the
end of the quarter the Company obtained an additional $15,000 from the sale
of common stock under Regulation S and a $20,000 advance from Birklea which
has not been designated as a loan or a stock purchase.
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.
-6-
<PAGE>
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 September 30,
1996.
-7-
<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.
VEREX LABORATORIES, INC.
by: /s/ James M. Dunn, M.D.
________________________________
James M. Dunn, M.D.
President, Chief Executive Officer
and Chief Financial Officer
November 11, 1996
-------------------------------
Date
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,580
<SECURITIES> 0
<RECEIVABLES> 2,633
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 240,556
<PP&E> 489,900
<DEPRECIATION> 446,492
<TOTAL-ASSETS> 463,022
<CURRENT-LIABILITIES> 2,288,415
<BONDS> 0
2,327,359
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 463,022
<SALES> 350
<TOTAL-REVENUES> 350
<CGS> 0
<TOTAL-COSTS> 340,294
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,146
<INCOME-PRETAX> (339,944)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (339,944)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
