<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, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11232
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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
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(Address of principal executive offices)
(303) 799-4499
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(Registrant's telephone number, including area code)
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(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
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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 March 31, 1997.
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VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1997 June 30, 1996
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $3,593 $155,229
Receivables
Trade 494 10,146
Note receivable - current 18,877
Prepaid expenses 5,184 16,376
Patented drug products 229,037
------- -------
9,721 429,665
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 (458,992) (440,242)
------- -------
Property and equipment - net 32,225 50,975
Other Assets
Notes receivable - long-term 16,123
Patents and trademarks, net of
accumulated amortization
of $249,267 and $232,581 160,776 161,173
------- -------
160,776 177,296
------- -------
Total $202,272 $657,936
------- -------
Liabilities and Stockholders'
Equity
Current liabilities
Checks written in excess of bank
balance $59,543
Accounts payable and other accruals 322,654 225,744
Accrued interest 359,270
Notes payable - stockholder (Note 4) 1,667,000
Notes payable - officers 31,000
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353,654 2,311,557
Long-term liabilities
Accrued salary and benefits payable,
net of current portion (Note 4) 2,207,823
---------
2,207,823
Commitments and contingencies
(Note 5)
Stockholders' Equity
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 10,199,755 5,495,017
Accumulated deficit (12,655,560) (11,641,792)
---------- ----------
151,382 (3,861,444)
------- ---------
Total $202,272 $657,936
-------- --------
</TABLE>
See notes to consolidated financial statement
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VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Nine For The Nine
Months Ending Months Ending
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues
Net sales 201,084
Contract income 27,658
Other Income 390 3,472
---- --------
$390 $232,214
Cost and Expenses
Cost of sales 135,163
General and administrative 661,318 827,530
Research and development 257,615 431,096
Operating 9,672
Marketing 2,544
Interest 95,222 90,502
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1,014,155 1,496,507
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Net Income (loss) ($1,013,765) ($1,264,293)
Income tax (benefits) ---- ----
Net Income (loss) $1,013,765 ($1,264,293)
---------- ------------
Net income (loss) per
common share (note 3) ($0.44) ($0.61)
Weighted average shares
outstanding 2,322,319 2,080,308
</TABLE>
See notes to consolidated financial statement
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VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Three For The Three
Months Ending Months Ending
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues
Net sales $44,322
Contract income 27,658
Other Income 10 392
-- ------
$10 $72,372
Cost and Expenses
Cost of sales 33,153
General and administrative 201,757 289,317
Research and development 159,049 34,219
Operating 3,188
Interest 24,518 28,757
------ ------
385,324 388,634
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Net Income (loss) ($385,314) ($316,262)
---------- ----------
Net income (loss) per common share (note 3) ($0.17) ($0.15)
Weighted average shares outstanding 2,322,319 2,080,308
</TABLE>
See notes to consolidated financial statement
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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, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash Flows from operating activities
Net income (loss) ($1,013,765) ($1,264,293)
Adjustments to reconcile net income
(loss) to net cash flow provided by
(used in) operating activities
Depreciation and amortization 35,436 39,188
Changes in certain assets & liabilities:
Patented drug products 229,037 42,214
Receivables 44,652 8,823
Inventory 10,425
Other assets 11,192 (48)
Accounts payable and other accruals 37,366 73,299
Accrued interest 95,221
Accrued salary and benefits payable 309,516 307,266
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Net cash provided by (used in) operating
activities ($251,345) ($783,126)
Cash flows from financing activities:
Proceed from note payable 65,000 748,601
Proceeds on note payable 51,000
Payments on note payable (11,436)
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Net cash provided by financing activities 116,000 737,165
Cash flows from investing activities:
Additions to property and equipment (18,698)
Additions to patents and trademarks (16,291) (44,322)
-------- --------
Net cash provided by (used in) investing
activities (16,291) (63,020)
-------- --------
Net increase (decrease) in cash and cash
equivalents (151,636) (108,981)
Cash and cash equivalents-beginning of period 155,229 140,766
-------- -------
Cash and cash equivalents-end of period $3,593 $31,785
------- -------
Supplemental cash flow information:
Cash flow information:
Cash paid for interest was $0 (1996) and
$5,782 (1995).
Noncash financing transaction:
Forgivness of debt by shareholders $4,658,830
</TABLE>
See notes to consolidated financial statements
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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 nine-month period ended March 31, 1997,
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
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Office Lease:
The Company is obligated under an office lease commencing April 1, 1997 and
ending on March 31, 2000, to pay $6,826.54 in monthly installments for its
general office and research facility, which contains 8,623 sq. ft. of space.
A portion of this is subleased to others.
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
$195,000, part of which has been completed.
3. Net Income Per Common Share
- --------------------------------
Net income (loss) per common share for the nine-month periods ended March 31,
1997 and March 31, 1996 has been computed on the basis of the weighted number
of common shares outstanding of 2,322,319 and 2,080,308 at March 31, 1997 and
1996 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
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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
December 31, 1996, the Company had drawn down $1,687,000 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. Effective March 31, 1997 Birklea Ltd.
agreed to forgive its debt of $2,325,000 and release the lien on the Company's
AZT formulation and Dr. Dunn agreed to forgive a debt of $2,517,239 relating
to accrued compensation.
5. Commitments and Contingencies
- -----------------------------------
In order to improve the Company's financial position and reduce indebtedness
of approximately $4,842,000 due to the Company's two principal shareholders,
the Company entered into an agreement with those shareholders, Dr. Dunn and
Birklea Ltd., whereby they forgave their respective indebtedness in
consideration for the right to receive 25% each respectively of any licensing
fees, advance royalties, royalties or any other source of income from the
Company's AZT formulation, Aztecr until they have received $5,034,678 and
$4,650,000 each respectively. In addition, the Company agreed to divide 10%
among Dr. Dunn and Birklea Ltd. of all income through licensing fees, advance
royalties, royalties and any other sources from the Company's formulations of
Verinr, C-R naproxen, C-R niacin and C-R dipyridamole up to the amount of the
respective indebtedness from the Company which they have forgiven.
Item 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Operations
----------
The first nine months of the fiscal year and the three months ending
March 31, 1997 resulted in very little revenue from operations
Financial Position
------------------
The Company went from a deficit shareholders' equity of $3,861,444 to a
positive shareholders' equity of $151,382 primarily as a result of debt
forgiveness of $4,658,830. See Notes 4 and 5 to the financial statements
for details of this matter.
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 $85,000 during the next three months
will be required to fund 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
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available, on terms favorable or acceptable to the Company. The Company has
had success in recent years in obtaining capital, in the form of private
placement of common stock, from investors outside the U.S. Specifically, it
has sold more than $2,175,000 worth of stock since 1993 pursuant to Regulation
S under the Securities Act of 1993. These funds were used 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.
The Company currently has no cash resources and expects no further
funding through Birklea Ltd. It is seeking funding through a variety of other
sources, including private investors, industry partners, licensing arrangements
and possibly other means. The Company is currently deferring salaries of some
of its employees and is unable to pay some other overhead items. Unless it is
able to find funding by August 31, 1997, it may be forced to either merge with
another company or discontinue further operations.
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<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 **
Exhibit 10 - Agreement - Birklea Ltd. and Dr. James M. 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,
1997.
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<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.
(Dated) July 10, 1997
BY:(Signature) /s/ James M. Dunn, M.D.
(Name and Title) James M. Dunn, M.D.
President, Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,593
<SECURITIES> 0
<RECEIVABLES> 494
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,271
<PP&E> 491,217
<DEPRECIATION> 458,992
<TOTAL-ASSETS> 202,272
<CURRENT-LIABILITIES> 353,654
<BONDS> 0
0
0
<COMMON> 2,327,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 202,272
<SALES> 0
<TOTAL-REVENUES> 10
<CGS> 0
<TOTAL-COSTS> 385,324
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,518
<INCOME-PRETAX> (385,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385,314)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
