<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, 1998
----------------
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)
---------------------------------------------------
(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 March 31, 1998.
1
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VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, 1998 June 30, 1997
(Unaudited) (Audited)
<S> <C> <C>
Current assets
Cash and cash equivalents $14,744 $13,915
Account receivable 19,884
Prepaid expenses 8,763 9,125
------ ------
43,391 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 (475,086) (464,334)
--------- ---------
Property and equipment - net 16,894 26,883
Other Assets
Patents and trademarks, net of accumulated
amortization of $271,056 and $254,836 147,604 156,541
-------- --------
Total $207,889 $206,464
-------- --------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and other accruals 210,052 217,329
Accrued salary and benefits payable 525,792 101,910
Current portion of long-term debt 19,213 51,913
------- -------
755,057 371,152
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 (13,301,110) (12,918,570)
------------ ------------
(664,574 (282,034)
-------- ---------
Total $207,889 $206,464
-------- --------
</TABLE>
See notes to consolidated financial statement
2
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Nine For The Nine
Months Ending Months Ending
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues
Licensing income 158,000
Net sales 56,495
Contract income 67,553
Other Income 144 390
-------- ----
$282,192 $390
Cost and Expenses
Cost of sales 55,206
General and administrative 559,697 661,318
Research and development 39,114 257,615
Marketing 10,654
Interest 95,222
------- ---------
664,671 1,014,155
------- ---------
Net Income (loss) ($382,479) ($1,013,765)
Income tax (benefits) ---- ----
Net Income (loss) ($382,479) ($1,013,765)
---------- ------------
Net income (loss) per common share (note 3) ($0.16) ($.044)
Weighted average shares outstanding 2,327,359 2,322,319
</TABLE>
See notes to consolidated financial statement
3
<PAGE>
VEREX LABORATORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For The Three For The Three
Months Ending Months Ending
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues
Licensing income 30,000
Net sales
Contract income 51,053
Other Income 1 10
------- --------
$81,054 $10
Cost and Expenses
Cost of sales
General and administrative 180,739 201,757
Research and development 1,144 159,049
Marketing 6,540
Interest 24,518
------- -------
188,423 385,324
------- -------
Net Income (loss) ($107,369) ($385,314)
---------- ----------
Net income (loss) per common share (note 3) ($0.04) ($0.17)
Weighted average shares outstanding 2,327,359 2,322,319
</TABLE>
See notes to consolidated financial statement
4
<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, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Cash Flows from operating activities
Net income (loss) ($382,479) ($1,013,765)
Adjustments to reconcile net income (loss) to
net cash flow provided by (used in) operating
activities
Depreciation and amortization 27,573 35,436
Changes in certain assets & liabilities:
Patented drug products 229,037
Receivables (19,884) 44,652
Other assets 362 11,19
Accounts payable and other accruals (7,277) 37,366
Accrued interest 95,221
Accrued salary and benefits payable 423,882 309,516
------- -------
Net cash provided by (used in) operating
activities $42,177 ($251,345)
Cash flows from financing activities:
Proceed from sales of common stock 65,000
Proceeds from note payable 51,000
Payments on note payable (32,700)
-------- -------
Net cash provided by financing activities (32,700) 116,000
Cash flows from investing activities:
Additions to property and equipmen (763)
Additions to patents and trademarks (7,885) (16,291)
Net cash provided by (used in) investing
activities (8,648) (16,291)
Net increase (decrease) in cash and cash
equivalents 829 (151,636)
Cash and cash equivalents-beginning of period 13,915 155,229
------- -------
Cash and cash equivalents-end of period $14,744 $3,593
------- -------
Supplemental disclosures:
Cash flow information:
Cash paid for interest was $0 (1997)
and $0 (1996)
</TABLE>
See notes to consolidated financial statements
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, 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 nine-month period ended March 31, 1998,
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, 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.
3. Net Income Per Common Share
- -------------------------------
Net income (loss) per common share for the nine-month periods ended March 31,
1998 and March 31, 1997 has been computed on the basis of the weighted number
of common shares outstanding of 2,327,359 and 2,322,319 at March 31, 1998 and
1997 respectively.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
Operations
----------
The first nine months of fiscal year 1998 ending March 31, 1998 resulted
in revenue of $282,192 from operations as compared to $390 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.
Financial Position
------------------
The Company went from a deficit shareholders' equity of $282,034 to a
negative shareholders' equity of $664,574 as a result of losses for the nine
months of $382,479.
6
<PAGE>
Liquidity and Capital Resources
-------------------------------
It is estimated that an additional $16,000 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 pursuing 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.
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 **
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,
1998.
EX-27 Financial Data Schedule
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) James M. Dunn, M.D.
(Date) May 20, 1998
(Name and Title) James M. Dunn, M.D.
President, Chief Executive Officer
and Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,744
<SECURITIES> 0
<RECEIVABLES> 19,884
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,391
<PP&E> 491,980
<DEPRECIATION> 475,086
<TOTAL-ASSETS> 207,889
<CURRENT-LIABILITIES> 755,057
<BONDS> 0
0
0
<COMMON> 2,327,359
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 207,889
<SALES> 0
<TOTAL-REVENUES> 81,054
<CGS> 0
<TOTAL-COSTS> 188,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (107,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,369)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
