U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-Q/A-1
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 (checkmark) 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 <checkmark> No
18,813,745
Number of shares of Common Stock outstanding as of May 14, 1996
This is page 1 of 12 pages. The exhibit index is on page 11.
GEN/Rx, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash 54 $ 15
Accounts receivable, net of allowances 130 539
Inventories 191 24
Prepaid expenses and other current assets 5 4
Assets of discontinued operations 1,059 1,059
Total current assets 1,439 1,641
Property, plant and equipment 392 352
Deposits and other assets 51 63
$1,882 $2,056
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable--Apotex $4,425 $3,563
Accounts payable 481 887
Accrued expenses and other current liabilities 531 480
Estimated liabilities of discontinued operations 1,447 1,447
Total current liabilities 6,884 6,377
Shareholders' equity:
Common Stock 84 84
Additional capital 7,889 7,889
Accumulated deficit (12,975) (12,294)
Total shareholders' equity (5,002) (4,321)
Total liabilities and equity (deficit) $1,882 $2,056
</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)
THREE MONTHS ENDED MARCH 31,
1996 1995
Net sales $471 $1,382
Cost of sales 33 365
Gross profit 438 1,017
Operating expenses:
Product development 577 7
Selling and distribution 291 619
General and administrative 158 101
1,026 727
Operating income (loss) (588) 290
Interest expense 93
Net income (loss) $(681) $290
Net (loss) per share of
Common Stock $(.04) $.02
Weighted average number of
common shares outstanding 18,814 18,814
The accompanying notes are an integral part of these statements.
<PAGE>
GEN/RX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net gain (loss) $(681) $290
Adjustments to reconcile net loss
to net cash (used) by operating
activities:
Depreciation and amortization 11
Other 2
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable 409 (876)
(Increase) Decrease in inventories (167) (213)
(Increase) Decrease in prepaid expenses
and other assets 11 (128)
Increase (Decrease) in accounts payable
and other current liabilities (355) 194
Net cash provided (used) by operating activities (772) (733)
Cash flows from financing activities:
Proceeds from notes payable - Apotex, USA 862 730
Net cash provided (used) by financing activities 862 730
Cash flows from investing activities:
Capital expenditures (51) (1)
Net cash (used) by investing activities (51) (1)
Net increase (decrease) in cash 39 (4)
Cash at beginning of period -15 - - 4 -
Cash at end of period $54 -0-
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
GEN/RX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
THE COMPANY:
GEN/Rx, Inc. ("GEN/Rx" or the "Company"), is a holding company which, through
its subsidiaries, is in the business of developing and distributing
generic injectable drugs. GEN/Rx has three wholly-owned subsidiaries,
AUSA, Inc. ("AUSA"), which markets generic injectable prescription
drug products for human use, American Veterinary Products, Inc. ("AVP"),
which markets prescription and non-prescription generic injectable drug
products for animal use (see "Management's Discussion and Analysis of
Financial Condition and results of Operations" below), and Collins
Laboratories, Inc. ("Collins"), which has been inactive since its inception.
Unless the context requires otherwise, references to the "Company" shall be
deemed to include collectively GEN/Rx and all of its subsidiaries.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced
significant operating losses since its inception, resulting in a deficit equity
position. The Company's financial position and operating results raise
substantial doubt about its ability to continue as a going concern. While
management intends to dispose of one of its subsidiaries that has incurred
significant operating losses,(see "Management's Discussion and Analysis of
Financial Condition and results of Operations" below) it does not expect
proceeds from such disposition to be sufficient to fund continuing operations.
As a result, the Company is seeking to obtain additional financing from its
majority shareholder and primary creditor Apotex USA Inc. ("Apotex") during
1996 sufficient to fund its future activities. There is no assurance, however,
that such financing will be secured and obtained. It is unlikely that any
other financing will be available to the Company. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The Company expects to continue to be dependent on Apotex for financing of its
operations in the foreseeable future.
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., 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. The Company expects Hill
Thompson Capital Markets, Inc. to conclude its evaluation and submit their
recommendations in May 1996.
BUSINESS COMBINATION:
On April 13, 1995, a merger (the "Merger") of GEN/Rx, Acquisition Subsidiary
Inc., a wholly owned subsidiary of the company formed for the purpose of
completing the merger with and into AUSA was consummated. Pursuant to the
Merger, GEN/Rx acquired all the assets of AUSA which commenced operations as
Yorpharm, a division of Apotex, in July 1994. In April 1995, prior to the
Merger, the net assets of Yorpharm were transferred to the newly formed
corporation, AUSA a subsidiary of Apotex. As part of the Merger transaction,
GEN/Rx issued to Apotex (the former shareholder of AUSA) 13,288,874 shares of
its Common Stock and is obligated to issue to Apotex, an additional 2,064,966
shares as soon as practicable following an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
common stock. After issuance of the additional shares, Apotex will own
approximately seventy four (74%) percent of the outstanding Common Stock of
GEN/Rx. In addition, warrants to purchase 270,000 shares of common stock of
GEN/Rx for $1.50 per share were issued to various individuals in connection
with the Merger.
Since, after issuance of the additional 2,064,966 shares upon amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares, the former shareholders of AUSA will own 74% of GEN/Rx, the transaction
was accounted for as if AUSA acquired the net assets of GEN/Rx for the
previously issued and outstanding shares of GEN/Rx. Accordingly, the financial
statements presented herewith are those of AUSA. The merger was accounted for
as a purchase of GEN/Rx for $5,711,000. The excess of the fair value of the
previously issued and outstanding stock of GEN/Rx, Inc. over the fair value of
its assets of $5,036,000 was recorded as goodwill. See " Discontinued
Operations" below.
In addition, in connection with the merger and pursuant to a Loan Agreement
dated April 13, 1995, as amended on November 29, 1995 between the Company and
Apotex, Apotex agreed to make loans to the Company. See " Notes
Payable-Apotex" below.
BASIS OF PREPARATION:
The accompanying financial statements as at March 31, 1996 and for the three
month periods ended March 31, 1996 and March 31, 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 AUSA, and from
April 13, 1995, its parent GEN/Rx and GEN/Rx's other wholly-owned subsidiary,
American Veterinary Products, Inc. ("AVP"). See "Discontinued Operations"
below. References herein to the "Company" refer to AUSA, GEN/Rx and AVP,
collectively.
INVENTORIES:
Inventories relating to continuing operations at March 31, 1996 and December
31, 1995 consist of finished goods. They are stated at the lower of cost
(first-in, first-out) or market value.
NOTES PAYABLE-APOTEX:
On January 2, 1996, Apotex, 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. The Company had failed to pay
Apotex 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.
The Company and Apotex had entered into these lending arrangements under a Loan
Agreement dated April 13, 1995 (the "Loan Agreement"). At that date, Apotex
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, 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 to
amend the Loan Agreement. As amended, the Loan Agreement permitted Apotex, 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 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 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 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. 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 all of the collateral on January 5,
1996. As a result, all of the borrowing pursuant to the Loan Agreement, as
amended, is classified as current on the balance sheet as at March 31, 1996.
31, 1995. At March 31, 1996 the Company was indebted to Apotex for an
aggregate of $4,425,000 including accounts payable converted to notes pursuant
to the amendment of the loan agreement of $675,000.
Apotex 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" 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 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.
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 following should be read in conjunction with the Company's financial
statements and the related notes thereto included elsewhere herein.
RESULTS OF OPERATIONS:
NET SALES:
Net sales for the three month periods ended March 31, 1996 and March 31, 1995
were $471,000 and $1,382,000, respectively.
The Company's current injectable product line for human use is purchased for
resale from unrelated manufacturers and consists of six drugs representing
approximately sixteen products.
While management expects future sales to increase from current levels, any
increase is dependent on the Company's ability to (i) raise sufficient levels
of capital, (ii) broaden the product line and (iii) expand its customer base.
The Company is currently taking steps to address these issues, however, there
can be no assurance that such efforts will be successful. See "Financial
Condition-Liquidity and Capital Resources and Financing" below.
OPERATING EXPENSES:
SELLING AND DISTRIBUTION:
As a result of the Company's current financial difficulties in January 1996,
the Company laid-off a substantial number of its employees in the sales
department . As a result, management expects selling and distribution costs to
decrease from current levels in the future.
GENERAL AND ADMINISTRATIVE:
Management expects general and administrative costs to decrease from current
levels in the future as a result of decreases in personnel costs.
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a working capital deficiency of $5,825,000.
The Company is dependent on continued financing from Apotex, (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 to
amend the Loan Agreement. As amended, the Loan Agreement permitted Apotex, 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 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 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 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, which required the Company to turn over to Apotex all of
the collateral on January 5, 1996.
Apotex sought and received the appointment of a receiver for the Ft. Collins
plant in a proceeding in Larimer County, Colorado, on January 4, 1996. The
order permits the receiver to exercise control over the Company's bank
accounts, accounts receivable and inventory. As a result of the November 29,
1995 letter amendment to the Loan Agreement and the appointment of a receiver,
AVP is not receiving any cash proceeds. In addition, pursuant to the Loan
Agreement, as amended, accounts receivable of AUSA has been assigned to Apotex
and collections thereof are being deposited into the bank accounts of Apotex.
The Company, at present, lacks the liquidity needed to carry on its business.
There can be no assurance that Apotex will continue to finance the Company nor
that alternative sources of financing will be available to the Company.
<PAGE>
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" 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 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.
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:
On January 2, 1996, Apotex, 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. The Company had failed to pay
Apotex 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.
The Company and Apotex had entered into these lending arrangements under a Loan
Agreement dated April 13, 1995 (the "Loan Agreement"). At that date, Apotex
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, 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 to
amend the Loan Agreement. As amended, the Loan Agreement permitted Apotex, 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 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 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 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. 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 all of the collateral on January 5,
1996. As a result, all of the borrowing pursuant to the Loan Agreement, as
amended, is classified as current on the balance sheet as at March 31, 1996.
31, 1995. At March 31, 1996 the Company was indebted to Apotex for an
aggregate of $4,425,000 including accounts payable converted to notes pursuant
to the amendment of the loan agreement of $675,000.
Apotex 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.
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 January
11, 1996 reporting under Item 5, "Other Events".
<PAGE>
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.
/S/ JACK MARGARETEN
__________________________________
JANUARY 31, 1997 JACK MARGARETEN, CHIEF FINANCIAL OFFICER
