FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 ------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-11232 -------------- VEREX LABORATORIES, INC. ---------------------------------------------------- (Exact name of Registrant as specified in its charter) Colorado 84-0850695 ------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14 Inverness Drive East, D-100 Englewood, Colorado 80112 -------------------------------------------------------------------------- (Address of principal executive offices) (303) 799-4499 -------------------------------------------------- (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes No X ---- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The registrant had 2,327,359 shares of its no par value common stock outstanding as of March 31, 2000. 1 VEREX LABORATORIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets

Assets ~~December~~March 31, ~~1999~~2000 June 30, 1999 (Unaudited) (Audited) --------------~~---~~ ------------- Current assets Cash and cash equivalents $ 13(21,~~332~~790) $ 31,371 ~~Accounts receivable 22,300~~ Prepaid expenses 7,367 7,659 Note receivable 25,300 0 ------------- ------------ 4210,~~999~~877 39,030 Property and Equipment, at cost Furniture and equipment 496,874 494,548 Leasehold improvements 1,317 1,317 ------------- ------------ 498,191 495,865 Less accumulated depreciation and amortization (~~491~~492,~~146~~353) (488,730) -------------- ------------- Property and equipment - net 75,~~045~~838 7,135 Other Assets Patents and trademarks, net of accumulated amortization of $~~269~~278,~~435~~306 and $259,163 ~~138~~129,~~734~~863 134,307 ------------- ---------~~---~~ Total $~~188~~ 146,~~778~~578 $ 180,472 ~~------------- ------------~~ Liabilities and Stockholders' Equity Current liabilities Accounts payable and other accruals ~~312~~375,~~083~~200 269,777 Royalties due related parties 32,500 32,500 Notes payable - related parties 24,938 24,~~938~~998 Accrued salaries current ~~773~~(Note4) 180,~~434~~000 493,200 Revolving credit line, shareholder 3080,~~000~~280 - ------------ ------------ ~~Total current liabilities 1~~692,~~172,954~~917 820,415 Long-term liabilities Accrued salary and benefits payable, net of current portion 1(Note 4) 429,~~273,822~~593 1,238,153 ------------ ------------ Total Liabilities 21,~~446~~122,~~776~~510 2,058,568 Commitments and contingencies (Note 2) Stockholders' Equity Common Stock, no par value, 100,000,000 shares authorized 2,327,359 and 2,301,359 shares issued and outstanding 2,304,422 2,304,422 Additional paid in capital 1011,~~391~~420,~~364~~990 10,391,364 Accumulated deficit (14,~~953~~701,~~784~~343) (14,573,882) ------------ ------------ (2975,~~257,998~~932) (1,878,096) ------------ ------------ Total $ ~~188~~146,~~778~~578 $ 180,472 ~~------------ ------------~~

See notes to consolidated financial statement 2 VEREX LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended ~~Six~~Nine Months Ended ------------------~~---------~~ -----------------~~------~~ ~~December~~March 31, ~~December~~March 31, --------------~~-----~~ --------------~~-----~~ 2000 1999 ~~1998~~2000 1999 ~~1998~~ ------ ------ ------ ------ Revenues: Contract income 14,~~565~~092 8,(100) 1630,~~898~~990 17,~~300~~200 Licensing income Miscellaneous 711 21 7273 34 ------------- ----------- ---------- --------- Total revenues 14,~~636~~093 ~~8,102~~(99) 1631,~~970~~063 17,~~303~~204 ~~------------ ---------- ---------- ---------~~ Cost and expenses: General and administrative ~~224~~(244,~~879~~689) ~~223~~235,~~173~~409 ~~396~~151,~~585~~896 ~~433~~669,~~875~~284 Research and development 0 1,~~221~~344 20 3,~~157~~501 Marketing 600 0 ~~628~~600 3,111 Interest expense ~~287~~5,741 ~~287~~0 6,028 ------------ ---------- ---------- --------- Total costs and expenses ~~225~~(238,~~166~~348) ~~225~~236,~~022~~753 ~~396~~158,~~872~~524 ~~439~~675,~~143~~896 ------------- --------~~---~~ ----------- ---------- Net income (loss) ~~(210~~252,~~530)~~441 (~~216~~236,~~920~~852) (~~379~~127,~~902~~461) (~~421~~658,~~840~~692) ~~============= =========== =========== ==========~~ Net income (loss) per common share (0.~~09)~~11 (0.0910) (0.1605) (0.1828) ~~============= =========== =========== ==========~~ Weighted average shares outstanding 2,327,359 2,327,359 2,327,359 2,327,359

See notes to consolidated financial statement 3 VEREX LABORATORIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

~~Six~~Nine Months Ended ~~December~~March 31, --------------~~-----~~ 2000 1999 ~~1998~~ ------ ------ Cash flows from operating activities: Net loss (~~379~~127,~~902~~461) (~~421~~658,~~840~~692) Adjustments to reconcile net loss to net cash used by operating activities Depreciation and amortization 1222,~~688~~766 1624,~~416~~624 Changes in assets and liabilities ~~Receivables (1,100)~~ Other assets ~~292~~438 Prepaid expenses 292 Accounts payable and other accruals 56120,~~966~~083 (813,~~424)~~435 Accrued expenses (14,660) Accrued salary and benefits payable ~~296~~(1,~~603~~141,060) ~~356~~539,~~672~~542 Accrued royalties 0 0 ~~------------~~Deferred ~~------------~~rent 0 10,875 Net cash used by operating activities (281,~~013~~140,040) (5769,~~984~~778) Cash flows from investing activities: Additions to property and equipment (2,325) (520) Additions to patents and trademarks (14,699) (1,950) ~~------------ ------------~~ Net cash used in investing activities (17,024) (2,470) Cash flows from financing activities: Proceeds from paid-in capital 01,029,626 Deposit on sale of common stock ~~0 51~~59,~~750~~250 Payment received on notes receivable 0 Issuance of notes receivable (36,000) Proceeds from notes payable 3080,~~000~~280 68,~~500~~700 Payments on notes payable ~~0 ------------ ------------~~ Net cash provided by financing activities 271,~~000~~103,906 5867,~~250~~950 Net increase in cash (1853,~~037~~158) (24,~~204~~298) Cash at beginning of period 31,371 4,428 Cash at end of period 13(21,~~334~~787) ~~2,224~~130 ~~============ ============~~ Supplemental disclosure of cash flow information: Interest paid ~~287~~6,028 0 Deferred compensation converted to paid in capital 01,029,626 0

4 VEREX LABORATORIES, INC. and SUBSIDIARIES Consolidated Notes to Financial Statements (Unaudited) 1. Financial Statements ------------------------- These unaudited financial statements should be read in conjunction with the Company's financial statements as of June 30, 1999, included in the Annual Report on Form 10-K. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (consisting of normal recurring items) necessary to present fairly the consolidated financial position and results of operations for the periods presented. The results of operations for the nine-month period ended March 31, 2000, are not necessarily indicative of the results to be expected for the full year. The Company's consolidated financial statements include the accounts of its wholly-owned subsidiary Bear Laboratories, Inc. 2. Commitments ---------------- Office Lease: ------------- The Company is obligated under an office lease commencing April 1, 1997 and ending on March 31, 2000, to pay $6,826.54 in monthly installments for its general office and research facility, which contains 8,623 sq. ft. of space. A portion of this space is subleased to others. A new lease arrangement for this lease is being negotiated. 3. Net Income Per Common Share -------------------------------- Income (loss) per common share for the nine-month periods ended March 31, 2000 and March 31, 1999 has been computed on the basis of the weighted number of common shares outstanding of 2,327,359. 4. Deletion of Deferred Compensation -------------------------------------- On March 31, 2000 the Company's President forgave a total of $1,029,626 of deferred compensation and accrued vacation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ---------------------------------------------------------- Operations ---------- The first nine months of fiscal year 2000 ending March 31, 2000 resulted in revenue of $31,053 from operations as compared to $17,204 for the corresponding fiscal 1999 period. The revenues are from contract research projects. Financial Position ------------------ The Company went from a deficit shareholders' equity of $1,878,096 to a negative shareholders' equity of $2,304,422 as a result of losses for the nine months of $127,461. 5 Liquidity and Capital Resources ------------------------------- Other than facilities rent and salaries, there are no other commitments. The Company is currently pursuing additional licensing and contract formulation arrangements, however there is no assurance such will be obtained. Except as indicated above, there are no planned expenditures outside the normal operating costs of the Company which will cause the Company to make any extraordinary plans for handling any cash requirements within the foreseeable future. On March 22, 2000 the Company entered into a credit facility with PR Pharmaceuticals, Inc. of Fort Collins, Colorado, whereby PR agreed to loan the Company up to $1,000,000 at 15.78% interest pursuant to a Master Loan Agreement, so long as the Company is complying with the terms of that Agreement. As of March 31, 2000 the Company had drawn $80,200 under this Agreement. PR acquired 53% of the outstanding share of common stock of the Company on March 31, 2000. On April 12, 2000 the company entered in an agreement with PR whereby it is to provide administrative services to the Company for a fee not to exceed $5,000 per month. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibit 3.1 Restated Articles of Incorporation* Exhibit 3.2 Restated By-Laws* * Incorporated by reference to SEC File No. 2-82403-D filed September 30, 1983 Exhibit 10.34 Exhibit 10.35 Exhibit 10.36 Exhibit 10.37 Exhibit 10.38 (b) A report on Form 8-K was filed on March 31, 2000. 6 SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) VEREX LABORATORIES, INC. BY)Signature) /s/James M. Dunn, M.D. Date) February 23, 2001 (Name and Title) James M. Dunn, M.D. President, Chief Executive Officer and Chief Financial Officer 7

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