U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-24496
GEN/RX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-2728666
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1776 BROADWAY, SUITE 1900, NEW YORK, NY 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212)581-5100
INDICATE BY CHECK (<check-mark>) WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES AND
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 FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES
<check-mark> No
18,813,745
Number of shares of Common Stock outstanding as of November 12, 1996
This is page 1 of 10 pages. The exhibit index is on page 10.
<PAGE>
GEN/Rx, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash 1
Accounts receivable, net of allowances
Inventories
Prepaid expenses and other current assets
Assets of discontinued operations AVP 1,059 1,059
Assets of AUSA 1,000
Total current assets 1,060 2,059
Property, plant and equipment
Deposits and other assets
$1,060 $2,059
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable--Apotex $105 $155
Accounts payable 59
Estimated liabilities of discontinued operations AVP 1,447 1,447
Total current liabilities 1,611 1,602
Shareholders' equity:
Common Stock 84 84
Additional capital 6,157 6,389
Accumulated deficit (6,792) (6,016)
Total shareholders' equity (551) 457
Total liabilities and equity (deficit) $1,060 $2,059
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
GEN/Rx, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION> NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
<C> <C>
<S>
Net sales
Cost of sales
Gross profit
Operating expenses:
Product development
Selling and distribution
General and administrative 209
Amortization of intangible assets 153
209 153
Operating income (loss) (209) (153)
Interest expense 19 92
Net income (loss) on continuing operations $(226) $(245)
Loss on Sale of AUSA (500)
Net income (loss) (776) (245)
(Loss) per share of
Common Stock:
Continuing Operations $(.01) $(.01)
Sale of AUSA (.03)
Net (Loss) (.04) (.01)
Weighted average number of
common shares outstanding 18,814 18,814
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
GEN/Rx, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net gain (loss) $(776) $(245)
Adjustments to reconcile net loss
to net cash (used) by operating
activities:
Depreciation and amortization 153
Other 92
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable
(Increase) Decrease in inventories
(Increase) Decrease in prepaid expenses
and other assets
Increase (Decrease) in accounts payable 9
and other current liabilities
Net cash provided (used) by operating activities (767) 0
Cash flows from financing activities:
Proceeds from notes payable - Apotex, USA 0 0
Reduction of Liability to Apotex USA from sale 1,000 Net
cash provided (used) by financing activities 1,000 0
Cash flows from investing activities:
Capital expenditures 0 0
Adjustment to Paid Capital (232)
Net cash (used) by investing activities (768) 0
Net increase (decrease) in cash 1 0
Cash at beginning of period -0 - - 0 -
Cash at end of period $1 -0-
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
GEN/Rx, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
The Company:
GEN/Rx, Inc. ("GEN/Rx" or the "Company"), is a holding company; the Company has
had three subsidiaries: AUSA, Inc., a Delaware corporation ("AUSA"), American
Veterinary Products, Inc., a Colorado corporation ("AVP"), and Collins
Laboratories, Inc., a Colorado corporation ("Collins").
The Company's Board of Directors has four seats, three of which are vacant.
The sole director currently in office is Jack Schramm, the Company's President.
Mr. Schramm is also President of AUSA. Mr. Schramm is also President of Apotex
USA, Inc. ("APOTEX USA").
In light of the Company's continuing operating losses and use of cash, in
February 1996, the Company retained the services of Hill Thompson Capital
Markets, Inc.("Hill Thompson"), an investment banking firm, to assist
management in its efforts to identify steps and strategies to reduce losses,
generate returns on the Company's assets and maximize shareholder values. Hill
Thompson Capital Markets, Inc. recommended the sale of AUSA.
AUSA is a development-stage, generic pharmaceutical company, which has selected
18 parenteral pharmaceutical products for development. Some products are
already off-patent, but most go off-patent over the next three years.
Hill Thompson identified potential purchasers for AUSA, prepared a confidential
descriptive memorandum and sought to solicit interest in AUSA on behalf of the
Company. Hill Thompson was not successful in soliciting any interested
parties.
The Company held an auction on June 28, 1996 to sell the 100 shares of AUSA
common stock outstanding; all of such shares were subject to a perfected
security interest in favor of Apotex USA, Inc. The auction was held at Hill
Thompson's office at 437 Madison Avenue, New York, NY 10022; the minimum price
was $1,000,000 for the AUSA shares.
At the auction Apotex USA bid $1,000,000 for the shares of AUSA. The Company
and Apotex USA consummated the purchase with an effective date of July 1, 1996,
promptly after the auction. Apotex USA was the only bidder at the auction.
Although Apotex USA's acquisition of AUSA from the Company resulted in a
reduction of the Company's indebtedness in favor of Apotex's USA, approximately
$4 million of indebtedness remains outstanding after the sale of AUSA to Apotex
USA. Management does not know of any source of funds with which to repay such
indebtedness, but Management intends to pursue a strategy of creating value in
the Company.
Management discontinued the operations of AVP and laid-off substantially all
of its personnel at its factory located at 1413 Duff Drive, Fort Collins,
Colorado 80524 (the "Ft. Collins Property"). AVP's inventory of veterinary
products is negligible.
The Larimer County (Colorado) District Court has appointed a receiver for AVP,
including the Ft. Collins Property; Jack Roberts is currently acting as
receiver but a motion for his discharge has been granted subject to the
completion of the sale of AVP's personal property. Management estimates that
the sale of AVP's personal property will be completed prior to December 31,
1996. Management believes that Apotex USA is likely to institute a foreclosure
action under Apotex USA's interest under a deed of trust to which the Ft.
Collins property is subject. Management believes the amount of the Company's
debt in favor of Apotex USA' far exceeds the aggregate value that the Company
is likely to receive for the Ft. Collins Property in any foreclosure sale.
The receiver has liquidated approximately $200,000 of AVP's assets and is
continuing to liquidate the Company's assets located at three locations in or
near Ft. Collins, Colorado. The receiver has used such proceeds for disposal
of hazardous and other wastes at the Ft. Collins Property and for continued
care of AVP's inventory. None of the proceeds was paid to Apotex USA.
AUSA's products have been the source of almost all the revenue the consolidated
group of which the Company is a member received in 1996. The operations of AVP
are treated as discontinued operations.
The Company's financial information for December 31, 1995 and for the nine
month periods ended September 30, 1996 and September 30, 1995 have been
restated to reflect the sale of AUSA.
The Company expects to continue to be dependent on Apotex for financing of its
operations in the foreseeable future.
BASIS OF PREPARATION:
The accompanying financial statements as at September 30, 1996 and for the nine
month periods ended September 30, 1996 and September 30, 1995 are unaudited;
however, in the opinion of management of the Company such statements include
all adjustments (consisting of normal recurring accruals) necessary to a fair
statement of the information presented therein.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Accordingly,
these statements should be read in conjunction with the Company's most recent
annual financial statements.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for a full year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of GEN/Rx and
GEN/Rx's wholly-owned subsidiary, American Veterinary Products, Inc. ("AVP").
See "Company" above. References herein to the "Company" refer to GEN/Rx and
AVP, collectively.
Notes Payable- Apotex USA, Inc.:
On January 2, 1996, Apotex USA, the majority shareholder and primary creditor
of the Company, accelerated approximately $3,500,000 of the outstanding
indebtedness of the Company in favor of Apotex USA. The Company had failed to
pay Apotex USA approximately $1,000,000 of indebtedness when it was due on
December 22, and, as a result, after a 10-day grace period, the Company's
failure to pay that amount constituted an Event of Default under the existing
lending arrangements between the Company, as borrower, and Apotex USA.
The Company and Apotex USA had entered into these lending arrangements under a
Loan Agreement dated April 13, 1995 (the "Loan Agreement"). At that date,
Apotex USA agreed to lend to the Company $500,000 in the form of a term loan
and up to $2,000,000 in the form of a revolving loan. Both loans were
evidenced by promissory notes and would have matured April 13, 1998. The
Company has borrowed the entire line of credit, and the aggregate indebtedness
of $2,500,000 is outstanding. These loans bore interest at the rate of 1% over
prime. Interest was payable on the first business day of each March, June,
September and December, and the Company failed to pay certain accrued and
unpaid interest when due. The Company secured repayment of these amounts by
all of the assets of the Company, including AVP's plant in Fort Collins,
Colorado. As additional consideration for the loans, the Company had issued in
favor of Apotex USA, warrants to purchase the Company's common stock at a
purchase price of $1 per share at the rate of one share for each dollar of
loan advanced. The warrants are exercisable for a period of three years.
On November 29, 1995, the Company entered into an agreement with Apotex USA to
amend the Loan Agreement. As amended, the Loan Agreement permitted Apotex USA,
in its discretion, to advance sums in excess of the $2,500,000 original loan
amount, that were due December 22, 1995, but otherwise were treated as if they
had been advanced pursuant to the Loan Agreement. The Company requested
additional advances and Apotex USA advanced the Company approximately $325,000
through December 31, 1995. The Company also agreed that failure to repay the
amounts when due would constitute a default under the Loan Agreement. The
Company also issued to Apotex USA a warrant to purchase an additional 813,783
shares of the Company's common stock, par value $.004 per share, at an exercise
price of $.75 per share in connection with the amendment. The warrants have a
term of three years.
At December 31, 1995, the Company was indebted to Apotex USA for an aggregate
of $3,563,000 including accounts payable converted to notes pursuant to the
amendment of the loan agreement of $447,000. The Company continues to receive
additional advances from Apotex USA. The Company's defaults constituted Events
of Default under the Loan Agreement and Apotex USA accelerated the entire
amount of indebtedness of the Company and its subsidiaries, which are jointly
and severally liable for the debt, by a letter dated January 2, 1996, which
required the Company to turn over to Apotex USA all of the collateral on
January 5, 1996. September 30, 1996 the Company was indebted to Apotex USA for
an aggregate of $ 4,401,659 including accounts payable converted to notes
pursuant to the amendment of the loan agreement of $ 747,423.
Apotex USA sought and received the appointment of a receiver for AVP's plant in
a proceeding in Larimer County, Colorado, on January 4, 1996. The order
permits the receiver to exercise control over AVP's bank accounts, accounts
receivable and inventory. As a result of the November 29 letter amendment to
the Loan Agreement and the appointment of a receiver, AVP is not receiving any
cash proceeds.
Legal Proceedings:
On January 4, 1996, in connection with the default by the Company on the Loan
Agreement, as amended (See "Notes Payable-Apotex USA" above), a receiver was
appointed by the District Court of Larimer County, Colorado. The Court's order
permits the receiver to exercise control over the bank accounts, accounts
receivable and inventory of AVP. The cash proceeds from the sale of goods are
being held in trust by the receiver on behalf of Apotex USA pursuant to the
terms of the Loan Agreement, as amended. In addition, the Company is a
defendant in certain actions arising in the normal course of business.
Jack Roberts is currently acting as receiver but a motion for his discharge has
been granted subject to the completion of the sale of AVP's personal property.
AVP has begun a voluntary recall of Atropine Sulfate injection 1/120 solution
with the concurrence of the Federal Food & Drug Administration. but Management
believes the impact of the recall will not be material. AVP manufactured and
shipped the solution that has been recalled in May and June, 1995.
In the opinion of management, the appointment of the receiver is expected to
have a material effect on the financial condition and results of operations of
the Company. The ultimate disposition of the certain actions occurring in the
normal course of business matters is not expected to have a material effect on
the financial condition or results of operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In June 1995, the Company made a determination to suspend the operations of
American Veterinary Products, Inc. indefinitely after concluding that the time,
cost and other resources required to address certain regulatory problems set
forth in a warning letter issued by the US Food, Drug and Cosmetic Act ("FDA"),
continue production activities and prepare for a possible upgrade to the
facility and equipment would be too great for it to pursue. In December 1995,
management decided to discontinue the operations of AVP and is currently
exploring its alternatives with respect to disposition of the remaining assets
of such business, including by sale or otherwise. In connection with the
decision during the fourth quarter to dispose of AVP, the Company laid-off
substantially all of its personnel at this facility.
The Company held an auction on June 28, 1996 to sell the 100 shares of AUSA
common stock outstanding; all of such shares were subject to a perfected
security interest in favor of Apotex USA, Inc. The auction was held at Hill
Thompson's office at 437 Madison Avenue, New York, NY 10022; the minimum price
was $1,000,000 for the AUSA shares.
At the auction Apotex USA bid $1,000,000 for the shares of AUSA. The Company
and Apotex USA consummated the purchase with an effective date of July 1, 1996,
promptly after the auction. Apotex USA was the only bidder at the auction.
Although Apotex USA's acquisition of AUSA from the Company resulted in a
reduction of the Company's indebtedness in favor of Apotex's USA, approximately
$4 million of indebtedness remains outstanding after the sale of AUSA to Apotex
USA. Management does not know of any source of funds with which to repay such
indebtedness, but Management intends to pursue a strategy of creating value in
the Company.
AUSA's products have been the source of almost all the revenue the consolidated
group of which the Company is a member received in 1996. The operations of AVP
are treated as discontinued operations.
The following should be read in conjunction with the Company's financial
statements and the related notes thereto included elsewhere herein.
Liquidity and Capital Resources
The Company is dependent on continued financing from Apotex USA, (see
"Financing" below).
Financing
The Company's current level of liquidity and capital resources is not
sufficient to fund current operations and growth of the Company's business.
In connection with the business combination, the Company and Apotex had
entered into lending arrangements under a Loan Agreement dated April 13, 1995
(the "Loan Agreement"). Apotex lent the Company $500,000 in the form of a
term loan and $2,000,000 in the form of a revolving loan. Both loans were
evidenced by promissory notes and would have matured April 13, 1998. The
Company has borrowed the entire line of credit, and the aggregate indebtedness
of $2,500,000 is outstanding. These loans bear interest at the rate of 1% over
prime. Interest was payable on the first business day of each March, June,
September and December, and the Company failed to pay certain accrued and
unpaid interest when due. The Company secured repayment of these amounts by
all of the assets of the Company and its subsidiaries, including AVP's plant in
Fort Collins, Colorado. As additional consideration for the loans, the Company
had issued in favor of Apotex, warrants to purchase the Company's common stock
at a purchase price of $1 per share at the rate of one share for each dollar of
loan advanced. The warrants have a term of three years.
On November 29, 1995, the Company entered into an agreement with Apotex USA to
amend the Loan Agreement. As amended, the Loan Agreement permitted Apotex USA,
in its discretion, to advance sums in excess of the $2,500,000, original loan
amount, that were due December 22, 1995, but otherwise were treated as if they
had been advanced pursuant to the Loan Agreement. The Company requested
additional advances and Apotex USA advanced the Company approximately $325,000
through December 31, 1995. The Company agreed that failure to repay the
amounts when due would constitute a default under the Loan Agreement. The
Company also issued to Apotex USA a warrant to purchase an additional 813,783
shares of the Company's common stock, at an exercise price of $.75 per share in
connection with the amendment. The warrants have a term of three years.
The Company's failure to pay the amounts due December 22, 1995 constituted an
Event of Default under the Loan Agreement and Apotex USA accelerated the entire
amount of indebtedness (approximately $3,500,000) of the Company and its
subsidiaries, which are jointly and severally liable for the debt, by a letter
dated January 2, 1996. The entire amount of the indebtedness on September 30,
1996 equaled $4,401,659 all of which is due and payable.
In addition, pursuant to the Loan Agreement, as amended, accounts receivable of
AUSA has been assigned to Apotex USA and collections thereof are being
deposited into the bank accounts of Apotex USA. The Company lacks the
liquidity needed to carry on any ongoing business.
Each of AUSA, Gen/Rx and AVP is jointly and severally liable for the entire
amount of the indebtedness in favor of Apotex USA. The sale of AUSA reduced
the outstanding amount of the debt owed by the Company but did not forgive it.
Management believes that Apotex USA will not continue to fund the Company.
There can be assurance that alternative sources of financing will be available
to the Company.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceeding
Legal Proceedings:
On January 4, 1996, in connection with the default by the Company on the Loan
Agreement, as amended (See "Notes Payable-Apotex USA" above), a receiver was
appointed by the District Court of Larimer County, Colorado. The Court's order
permits the receiver to exercise control over the bank accounts, accounts
receivable and inventory of AVP. The cash proceeds from the sale of goods are
being held in trust by the receiver on behalf of Apotex USA pursuant to the
terms of the Loan Agreement, as amended. In addition, the Company is a
defendant in certain actions arising in the normal course of business.
A motion for discharge of the receiver has been granted subject to the
completion of the sale of AVP's personal property.
In the opinion of management, the appointment of the receiver is expected to
have a material effect on the financial condition and results of operations of
the Company. The ultimate disposition of the certain actions occurring in the
normal course of business matters is not expected to have a material effect on
the financial condition or results of operations of the Company.
ITEM 3 Default Upon Senior Securities
Notes Payable-Apotex USA:
The Company has been in default on it's indebtedness in favor of Apotex USA
since at least January 2, 1996. The entire amount of indebtedness is due and
payable. At September 30, 1996 the Company was indebted to Apotex USA for an
aggregate of $4,401,659 including accounts payable converted to notes pursuant
to the amendment of the loan agreement of $????747,423. The company is jointly
and severally liable for the entire amount, with AUSA and AVP.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K dated July 10,
1996 reporting under Item 2, "Acquisition or Disposition of
Assets".
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GEN/RX, INC.
(Registrant)
November 14, 1996 /S/ JACK H. SCHRAMM
--------------------------
Jack H. Schramm, President
/S/ JACK MARGARETEN
--------------------------
November 14, 1996 Jack Margareten, Chief Financial
Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
GEN/RX, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,060
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,060
<CURRENT-LIABILITIES> 1,611
<BONDS> 0
<COMMON> 84
0
0
<OTHER-SE> (635)
<TOTAL-LIABILITY-AND-EQUITY> (1,060)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (226)
<INCOME-TAX> 732
<INCOME-CONTINUING> (226)
<DISCONTINUED> (500)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (776)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
