<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 December 31, 1996
------------------
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
- ---------------------------------------------------------------------------
(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 December 31, 1996.
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets December 31, 1996 June 30, 1996
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $9,506 $155,229
Receivables
Trade 496 10,146
Note receivable - current 18,877
Prepaid expenses 11,045 16,376
Patented drug products 188,124 229,037
------- -------
209,171 429,665
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 (452,742) (440,242)
--------- ---------
Property and equipment - net 38,475 50,975
Other Assets
Notes receivable - long-term 16,123
Patents and trademarks, net of
accumulated amortization
of $243,785 and $232,581 162,102 161,173
------- -------
162,102 177,296
------- -------
Total $409,748 $657,936
-------- --------
<CAPTION>
Liabilities and Stockholders' Deficit
<S> <C> <C>
Current liabilities
Checks written in excess of bank balance $59,543
Accounts payable and other accruals 294,502 225,744
Accrued interest 429,974 359,270
Notes payable - stockholder 1.687,000 1,667,000
Notes payable - officers 9,000
--------- ----------
2,420,476 2,311,557
Long-term liabilities
Accrued salary and benefits payable,
net of current portion 2,414,167 2,207,823
--------- ---------
2,414,167 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 (12,270,243) (11,641,792)
------------ ------------
(4,424,895) (3,861,444)
------------ ------------
Total $409,748 $657,936
</TABLE>
See notes to consolidated financial statement
Page 2
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Six For The Six
Months Ending Months Ending
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Revenues
Net sales $156,762
Other Income 380 3,080
---- --------
$380 $159,842
Cost and Expenses
Cost of sales 102,010
General and administrative 459,561 538,213
Research and development 98,566 396,877
Operating 6,484
Marketing 2,544
Interest 70,704 61,745
------- ---------
628,831 1,107,873
------- ---------
Net Income (loss) ($628,451) ($948,031)
Net income (loss) per common
share (note 3) ($0.27) ($0.46)
Weighted average shares outstanding 2,319,799 2,058,123
</TABLE>
See notes to consolidated financial statement
Page 3
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Three For The Three
Months Ending Months Ending
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Revenues
Net sales $83,190
Other Income 30 1,716
--- -------
$30 $84,906
Cost and Expenses
Cost of sales 52,839
General and administrative 224,846 298,792
Research and development 28,133 330,735
Operating 3,756
Marketing 2,379
Interest 35,558 30,283
------- -------
288,537 718,784
Net Income (loss) ($288,507) ($633,878)
Net income (loss) per common share
(note 3) ($0.12) ($0.31)
Weighted average shares outstanding 2,319,799 2,058,123
</TABLE>
See notes to consolidated financial statement
Page 4
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Six For The Six
Months Ending Months Ending
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Cash Flows from operating activities
Net income (loss) ($628,451) ($948,031)
Adjustments to reconcile net income
(loss) to net
cash flow provided by (used in)
operating activities
Depreciation and amortization 23,624 25,800
Changes in certain assets & liabilities:
Patented drug products 40,913 42,214
Receivables 44,650 4,838
Inventory 8,764
Other assets 5,331 2,539
Accounts payable and other accruals 9,214 75,133
Accrued interest 70,704 58,344
Accrued salary and benefits payable 206,344 146,500
------- -------
Net cash provided by (used in) operating
activities ($227,671) ($583,899)
Cash flows from financing activities:
Proceeds from note payable 29,000
Payments on note payable (9,305)
------ -------
Net cash provided by financing activities 29,000 (9,305)
Cash flows from investing activities:
Proceeds from sales of common stock 65,000 573,600
Additions to property and equipment (18,698)
Additions to patents and trademarks (12,052) (28,680)
-------- --------
Net cash provided by (used in) investing
activities 52,948 526,222
------ -------
Net increase (decrease) in cash and
cash equivalents (145,723) (66,982)
Cash and cash equivalents-beginning of
period 155,229 140,766
------- -------
Cash and cash equivalents-end of period $9,506 $73,784
------- -------
</TABLE>
Supplemental cash flow information:
Cash paid for interest was $0 (1996) and $5,691 (1995).
See notes to consolidated financial statements
Page 5
<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 six-month period ended December 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 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 $6,213.31 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
$220,000, part of which has been completed.
3. Net Loss Per Common Share
-------------------------
Net income (loss) per common share for the six-month periods ended
December 31, 1996 and December 31, 1995 has been computed on the basis of the
weighted number of common shares outstanding of 2,319,799 and 2,058,123 at
December 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. AtDecember 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.
Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
During the first six months of fiscal year 1997, current assets decreased by
$220,494 to $209,171, which was due to the loss for the period of $628,451.
Operations
----------
Comparison of the six-month periods ended December 31, 1996 and December
------------------------------------------------------------------------
31, 1995
- --------
The net loss for the six months decreased $319,580 from the prior year,
due to the reduction of expenses.
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 $125,000 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.
The Company as 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. It is the
Company's intention to continue such stock sales as capital needs dictate.
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.
Page 7
<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.
EX-27 Financial Data Schedule
Page 8
<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.
(Name and Title) James M. Dunn, M.D.
President, Chief Executive Officer
and Chief Financial Officer
(Date) February 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 9,506
<SECURITIES> 0
<RECEIVABLES> 496
<ALLOWANCES> 0
<INVENTORY> 188,124
<CURRENT-ASSETS> 209,171
<PP&E> 491,217
<DEPRECIATION> 452,742
<TOTAL-ASSETS> 409,748
<CURRENT-LIABILITIES> 2,420,476
<BONDS> 0
0
0
<COMMON> 2,327,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 409,748
<SALES> 30
<TOTAL-REVENUES> 30
<CGS> 0
<TOTAL-COSTS> 288,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,558
<INCOME-PRETAX> (288,507)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288,507)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
