<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, 1997
-----------------
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.
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(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
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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
----
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, 1997.
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VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets December 31, 1997 June 30, 1997
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $4,978 $13,915
Accounts receivable 16,500
Prepaid expenses 8,217 9,125
------ ------
29,695 23,040
Property and Equipment, at cost
Furniture and equipment 490,663 489,900
Leasehold improvements 1,317 1,317
------- -------
491,980 491,217
Less accumulated depreciation and amortization (471,502) (464,334)
--------- ---------
Property and equipment - net 20,478 26,883
Other Assets
Patents and trademarks, net of accumulated
amortization of $266,049 and $254,836 153,211 156,541
Total $203,384 $206,464
-------- --------
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities
Accounts payable and other accruals 230,274 217,329
Accrued salary and benefits payable 384,498 101,910
Current portion of long-term debt 28,413 51,913
------- -------
643,185 371,152
Long-term liabilities
Accrued salary and benefits payable, net of
current portion 117,406 117,406
Commitments and contingencies (Note 4)
Stockholders' Equity
Common Stock, no par value, 100,000,000
shares authorized 2,327,359 and 2,301,359
shares issued and outstanding 2,304,422 2,304,422
Additional paid in capital 10,332,114 10,332,114
Accumulated deficit (13,193,763) (12,918,570)
------------ ------------
(557,207) (282,034)
------------ ------------
Total $203,384 $206,464
------------ ------------
</TABLE>
See notes to consolidated financial statement
<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, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues
Licensing income 128,000
Contract projects 16,500
Net Sale 56,495
Other income 143 380
-------- ----
$201,138 $380
Cost and Expenses
Cost of sales 55,206
General and administrative 378,958 459,561
Research and development 37,970 98,566
Marketing 4,114
Interest 70,704
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476,248 628,831
------- -------
Net Income (loss) ($275,110) ($628,451)
---------- ----------
Net income (loss) per common share (note 3) ($0.12) ($0.27)
Weighted average shares outstanding 2,327,359 2,319,799
</TABLE>
See notes to consolidated financial statement
<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, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Revenues
Licensing income 30,000
Contract projects 16,500
Net sales 56,495
Other Income 142 30
-------- ---
$103,137 $30
Cost and Expenses
Cost of sales 55,206
General and administrative 186,658 224,846
Research and development 34,373 28,133
Marketing 3,635
Interest 35,558
------- -------
279,872 288,537
------- -------
Net Income (loss) ($176,735) ($288,507)
---------- ----------
Net income (loss) per common share
(note 3) ($0.08) ($0.12)
Weighted average shares outstanding 2,327,359 2,319,799
</TABLE>
See notes to consolidated financial statement
<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, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Cash Flows from operating activities
Net income (loss) ($275,110) ($628,451)
Adjustments to reconcile net income (loss)
to net cash flow provided by (used in)
operating activities
Depreciation and amortization 18,382 23,624
Changes in certain assets & liabilities:
Patented drug products 40,913
Receivables (16,500) 44,650
Other assets 905 5,331
Accounts payable and other accruals 12,945 9,214
Accrued interest 70,704
Accrued salary and benefits payable 282,588 206,344
------- -------
Net cash provided by (used in) operating
activities $23,210 ($227,671)
Cash flows from financing activities:
Proceeds from note payable 29,000
Payments on note payable (23,500)
-------- ------
Net cash provided by financing activities (23,500) 29,000
Cash flows from investing activities:
Proceeds from sale of common stock 65,000
Additions to property and equipment (763)
Additions to patents and trademarks (7,884) (12,052)
------- --------
Net cash provided by (used in) investing
activities (8,647) 52,948
------- --------
Net increase (decrease) in cash and cash
equivalents (8,937) (145,723)
Cash and cash equivalents-beginning of period 13,915 155,229
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Cash and cash equivalents-end of period $4,978 $9,506
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Supplemental disclosures:
Cash flow information:
Cash paid for interest was $0 (1997) and $0 (1996)
</TABLE>
See notes to consolidated financial statements
<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, 1997, 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, 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 Laboritories, Inc.
2. Commitments
-----------
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 space is subleased to others.
3. Net Income Per Common Share
---------------------------
Income (loss) per common share for the six-month periods ended December 31,
1997 and December 31, 1996 has been computed on the basis of the weighted
number of common shares outstanding of 2,327,359 and 2,319,799 at December
31, 1997 and 1996 respectively.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Operations
- ----------
The first six months of fiscal year 1998 ending December 31, 1997 resulted
in revenue of $201,138 from operations as compared to $380 for the
corresponding fiscal 1997 period. The revenues are from licensing Company
drug formulations and from product sales and contract research projects.
General and administrative expense and research and development expense are
substantially less than in 1997 due to general belt tightening. Interest
expense has been eliminated as a result of the cancellation of the Birklea
loan.
Financial Position
- ------------------
The Company went from a deficit shareholders' equity of $282,034 to a
negative shareholders' equity of $557,207 as a result of losses for the six
months of $275,110, which is down by $353,000 compared to the corresponding
six month period for last fiscal year.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
It is estimated that an additional $24,000 during the next three months
will be required to fund completion or the Phase III Aztec clinical trials.
Other than facilities rent and salaries, there are no other commitments.
The Company is currently seeking additional licensing and contract formulation
arrangements; however there is no assurance such will be obtained. During
the past several months the Company has undertaken a licensing arrangement
on a nutritional supplement and contracts for formulation services for
certain botanical products. These contracts have provided monthly revenue
of approximately $40,000.
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 very limited cash resources and is not now
seeking funding through securities sales. It is seeking a licensing
agreement for Aztec(r), as well as license and supply agreements which are
pending regulatory approval in three countries. The Company is also trying
to obtain funding through a variety of other sources, including industry
partners and possibly other means. The Company is currently deferring
salaries of some of its employees.
<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 December
31, 1997.
<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) February 6, 1998
(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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 4,978
<SECURITIES> 0
<RECEIVABLES> 16,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,695
<PP&E> 491,980
<DEPRECIATION> 471,502
<TOTAL-ASSETS> 203,384
<CURRENT-LIABILITIES> 643,185
<BONDS> 0
0
0
<COMMON> 2,327,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 203,384
<SALES> 56,495
<TOTAL-REVENUES> 103,137
<CGS> 55,206
<TOTAL-COSTS> 279,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (176,735)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,735)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
