UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A-1
QUARTERLY REPORT PURSUANT TO 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.)
600 Woodmere Boulevard, Woodmere, New York 11598
(Address of principal executive offices) (Zip Code)
(516) 569-3800
(Registrant's telephone number)
Indicate by check 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 filing
requirements for the past 90 days. Yes |_| No |X|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes |_| 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:
Class Outstanding at May 22, 2003
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Common Stock, par value $0.004 20,878,711 shares
GEN/RX, INC.
FORM 10-Q
CONTENTS
PART I -- FINANCIAL INFORMATION Page
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Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 1
Consolidated Statement of Operations 2
Consolidated Statement of Cash Flows 3
Consolidated Statement of Net Assets (liquidation basis) 4
Consolidated Statement of Changes in Net Assets (liquidation basis) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 3. Defaults Upon Senior Securities 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
i
GEN/RX, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS December 31, 1995
-----------------
Current assets:
Cash 15
Accounts receivable, net of allowances 539
Inventories 24
Prepaid expenses and other current assets 4
Assets of discontinued operations AVP 1,059
--------
Total current assets 1,641
Property, plant and equipment 352
Deposits and other assets 63
$ 2,056
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- Apotex $ 3,563
Accounts payable and accrued expenses 1,327
Estimated liabilities of discontinued operations AVP $ 1,447
Total current liabilities 6,337
Shareholders' equity:
Common Stock 84
Additional capital 7,889
Accumulated deficit (12,294)
Total shareholders' equity 4,321
Total liabilities and equity (deficit) $ 2,056
The accompanying notes are an integral part of these statements.
1
GEN/RX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per share Amounts)
(Unaudited)
Nine Months ended
Net Sales September 30, 1995
------------------
Cost of sales
Gross profit
Operating expenses:
Amortization of intangible assets 153
153
Operating income (loss) (153)
Interest expense 92
Net income (loss) on continuing operations $ (245)
Net income (loss) (245)
(Loss) per share of Common Stock:
Continuing Operations $ (.01)
Net (Loss) (.01)
Weighted average number of
common shares outstanding 18,814
The accompanying notes are an integral part of these statements.
2
GEN/RX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30, 1995
------------------
Cash flows from operating activities:
Net gain (loss) $(245)
Adjustments to reconcile net loss
to net cash (used) by operating
activities:
Depreciation and amortization 153 Other changes in assets and
liabilities:
(Increase) Decrease in accounts receivable 92
Net cash provided (used) by operating activities 0
Net increase (decrease) in cash 0
Cash at beginning of period -0-
Cash at end of period -0-
The accompanying notes are an integral part of these statements.
3
GEN/RX, INC.
Consolidated Statement of Net Assets
(liquidation basis)
September 30, 1996
(in thousands, except shares and per share amounts)
ASSETS
Cash $106
Accounts receivable 41
Fixed assets held for sale at net realizable value 51
----
198
LIABILITIES
Accrued expenses and taxes 198
----
Commitments and contingencies
Net assets in liquidation $ 0
====
Net assets in liquidation per common share
(based on 20,878,711 common shares outstanding) $ 0
====
See Notes to Financial Statements
4
GEN/RX, INC.
Consolidated Statement of Changes in Net Assets
(liquidation basis)
For the Period from July 1, 1996 Through September 30, 1996
(in thousands, except shares and per share amounts)
Net assets - beginning of period $0
------
Net assets in liquidation - end of period $0
======
See Notes to Financial Statements
5
GEN/Rx, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
The Company:
GEN/Rx, Inc. ("GEN/Rx" or the "Company"), was a holding company; the Company 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").
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 was a development-stage, generic pharmaceutical company.
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. ("APOTEX USA"). 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 remained outstanding after the sale of AUSA to Apotex
USA.
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 appointed a receiver for AVP,
including the Ft. Collins Property; Jack Roberts acted as receiver.
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
period ended September 30, 1995 has been restated to reflect the sale of AUSA.
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FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited, consolidated,
condensed financial statements contain all adjustments necessary to present
fairly the financial position of the Company and its results of operations and
cash flows for the interim periods presented. Such financial statements have
been condensed in accordance with the applicable regulations of the Securities
and Exchange Commission ("SEC") and therefore, do not include all disclosures
required by generally accepted accounting principles. These financial statements
should be read in conjunction with the Company's audited financial statements
for the year ended December 31, 1995 included in the Company's annual report
filed on Form 10-K.
The results of operations for the three and nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the entire
fiscal year.
BASIS OF PRESENTATION:
On July 1, 1996, the Company adopted the liquidation basis of accounting.
Accordingly, the net assets of the Company are stated at liquidation value,
whereby assets are stated at their estimated net realizable values and
liabilities, which include estimated liquidation expenses to be incurred through
the date of final dissolution of the Company, are stated at their anticipated
settlement amounts.
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
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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 continued 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 were
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 was a defendant in
certain actions arising in the normal course of business.
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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. 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
9
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 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.
10
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.
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. 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".
11
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GEN/RX, INC.
------------
(Registrant)
Date: May 22, 2003 By: /s/ Jack Margareten
--------------------
Jack Margareten
Chief Financial Officer
CERTIFICATIONS
I, Jack Margareten, certify that:
1. I have reviewed this quarterly report on Form 10-Q of GEN/Rx, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
Dated: May 22, 2003 /s/ Jack Margareten
---------------------------------
Jack Margareten
Acting President, Chief Executive
and Chief Financial Officer
12