U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A-2
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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, NY 11598
(Address of principal executive offices) (Zip Code)
(516) 569-3800
(Registrant's telephone number, including area code)
1776 Broadway, Suite 1900, New York, NY 10019
Former Name, Former Address and Former Fiscal Year, if Changed since last Report
Indicate by check 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 |_| 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
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 3. Defaults Upon Senior Securities 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
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GEN/Rx, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
ASSETS
Current assets:
Cash $ 15
Accounts receivable, net of allowances 539
Inventories 24
Prepaid expenses and other current assets 4
Assets of discontinued operations AVP $ 201 1,059
Assets of AUSA
Total current assets 1,641
Property, plant and equipment 352
Deposits and other assets 63
--------- --------
$ 201 $ 2,056
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - Apotex $ 4,321 $ 3,563
Accounts payable 887
Accrued Expenses 480
Estimated liabilities of discontinued
operations - AVP 714 1,447
--------- --------
Total current liabilities 5,035 6,377
Shareholders' equity (capital deficiency):
Common Stock 84 84
Additional capital 8,502 7,889
Accumulated deficit (13,420) (12,294)
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Total capital deficiency (4,384) (4,321)
--------- --------
Total liabilities and equity (deficit) $ 201 $ 2,056
========= ========
The accompanying notes are an integral part of these statements.
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GEN/Rx, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except per Share Amounts)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1996 1995
-------- --------
Loss from discontinued operations until suspension of
operating activities $ (976) $ (111)
Estimated loss on disposition (150)
-------- --------
Net (loss) $ (1,126) $ (111)
======== ========
Net (loss) per share of Common Stock from
discontinued operations $ (.05) $ (.01)
Net (loss) per share of Common Stock $ (.05) $ (.01)
Weighted average number of
common shares outstanding 20,879 18,814
The accompanying notes are an integral part of these statements.
3
GEN/RX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1996 1995
------- -----
Cash flows from operating activities:
Net (loss) $(1,126) $(111)
Adjustments to reconcile net loss to net cash
used in discontinued operations:
Estimated loss on disposition 150 111
Changes in assets and estimated liabilities of
discontinued operations (1,670)
------- -----
Net cash provided (used) by operating activities (2,646) 0
------- -----
Cash flows from financing activities:
Proceeds from advances - Apotex, USA $ 2,631 0
-------
Net cash provided (used) by financing activities 2,631 0
-------
Net (decrease) in cash (15) 0
-------
Cash at beginning of period 15 -0-
-------
Cash at end of period $ 0 -0-
======= =====
The accompanying notes are an integral part of these statements.
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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 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").
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. 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 (See "Management Discussion and Analysis"
below).
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
$4,000,000 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. All of the operations of AVP and AUSA are
treated as discontinued operations.
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BASIS OF PREPARATION:
The accompanying financial statements as at June 30, 1996 and for the six month
periods ended June 30, 1996 and June 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 AUSA, its parent
GEN/Rx and GEN/Rx's other wholly-owned subsidiary, American Veterinary Products,
Inc. ("AVP"). See "Company" above. References herein to the "Company" refer to
AUSA, 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. 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.
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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. 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. The
Company continues to receive additional advances from Apotex USA. At June 30,
1996 the Company was indebted to Apotex USA for an aggregate of $ 5,296,659
(before the sale of AUSA) including accounts payable converted to notes pursuant
to the amendment of the loan agreement of $ 747,423.
LEGAL PROCEEDINGS:
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 (See "Notes Payable-Apotex USA" above). 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 filed and is scheduled
to be heard in late August 1996; there can be no assurance of the disposition of
that motion.
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. None of the proceeds was paid to Apotex USA.
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
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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, $4,296,659 of
indebtedness remains outstanding after the sale of AUSA 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. All of the operations of AVP and AUSA
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.
FINANCING
The Company's current level of liquidity and capital resources is not sufficient
to fund operations.
The Company and Apotex USA had entered into lending arrangements under a Loan
Agreement dated April 13, 1995 (the "Loan Agreement"). Apotex USA 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
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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 June 30, 1996
equaled $5,296,659 (before the sale of AUSA) 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS:
See "Legal Proceedings" above.
The receiver caused AVP to commence an action against John DeTemple, former
president and director of the Company and AVP, in the U.S. District Court for
the Eastern District of New York. The suit sought payment of invoices in an
aggregate amount of approximately $105,000 for orders placed with AVP by J.D.T.,
Inc. d/b/a American Veterinary Pharmaceuticals, an entity which management
believes to be owned by Mr. DeTemple.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
NOTES PAYABLE - APOTEX USA:
The Company has been in default on its indebtedness in favor of Apotex USA since
at least January 2, 1996. The entire amount of indebtedness is due and payable.
At June 30, 1996 the Company was indebted to Apotex USA for an aggregate of
$5,296,659 (before the sale of AUSA) 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:
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The Company filed a current report on Form 8-K dated July 10, 1996
reporting under Item 2, "Acquisition or Disposition of Assets".
10
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)
/S/ JACK MARGARETEN
--------------------------------
May 22, 2003 JACK MARGARETEN, CHIEF FINANCIAL
OFFICER
CERTIFICATIONS
I, Jack Margareten, certify that:
1. I have review 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
Officer and Chief Financial Officer
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