ALPHARX, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2004 AND SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
June 30, | September 30, | |
2004 | 2003 | |
CURRENT ASSETS | ||
$ | $ | |
Cash | 12,707 | 24,520 |
Accounts Receivable | 17,283 | 27,662 |
Deferred financing costs | 184,999 | - |
Prepaid Expenses | 123,653 | 3,690 |
Inventory | 121,392 | 141,905 |
TOTAL CURRENT ASSETS | 460,034 | 197,777 |
PROPERTY, PLANT & EQUIPMENT, at cost | ||
Less accumulated deprecation of $110,476 | 222,962 | |
Less accumulated depreciation of $79,097 | 126,535 | |
OTHER ASSETS | ||
Licensing Rights | 1 | 230,000 |
TOTAL ASSETS | 682,997 | 554,312 |
See condensed notes to the consolidated financial statements
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ALPHARX, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2004 AND SEPTEMBER 30, 2003
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
June 30, | September 30, | |
2004 | 2003 | |
CURRENT LIABILITIES | ||
$ | $ | |
Accounts Payable and Accrued Liabilities | 527,964 | 254,724 |
Notes Payable | 1,475,810 | 474,837 |
Litigation Liabilities | 25,000 | 25,000 |
TOTAL CURRENT LIABILITIES | 2,028,774 | 754,561 |
SHAREHOLDERS' DEFICIENCY | ||
Common Stock, $ 0.0001 par value, | 1,703 | 1,692 |
Authorized 100,000,000 shares, issued and | ||
outstanding 17,020,082 shares (September | ||
30, 2003 - 16,920,082) | ||
Additional paid-in capital | 4,054,029 | 4,024,039 |
Deficit | (5,401,509) | (4,225,980) |
TOTAL SHAREHOLDERS' DEFICIENCY | (1,345,777) | (200,249) |
TOTAL LIABILITIES AND SHAREHOLDERS' | 682,997 | 554,312 |
DEFICIENCY |
See condensed notes to the consolidated financial statements
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ALPHARX, INC.
INTERIM CONSOLIDATEDSTATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 2004 and 2003
(UNAUDITED)
Nine Months Ended June 30, | 2004 | 2003 |
SALES | $ 371,694 | $ 3,739 |
COST OF SALES | 148,046 | 2,830 |
GROSS MARGIN | 223,648 | 909 |
GENERAL AND ADMINISTRATIVE, SALES AND | 975,381 | 804,524 |
MARKETING EXPENSES | ||
RESEARCH AND DEVELOPMENT EXPENSES | 162,568 | 183,569 |
DEPRECIATION | 31,301 | 20,990 |
LOSS FROM OPERATIONS | (945,602) | (1,008,174) |
OTHER INCOME AND EXPENSES | ||
Interest Income | 72 | 2 |
Other Income | - | 10,000 |
Write down of Licensing Rights | 229,999 | - |
LOSS BEFORE INCOME TAXES | (1,175,529) | (998,172) |
INCOME TAX | - | - |
NET LOSS | $ (1,175,529) | $ (998,172) |
NET LOSS PER COMMON SHARE, BASIC & | (0.07) | (0.06) |
DILUTED | ||
WEIGHTED AVERAGE NUMBER OF COMMON | 17,002,866 | 16,102,014 |
SHARES OUTSTANDING |
See condensed notes to the consolidated financial statements
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ALPHARX, INC.
INTERIM CONSOLIDATEDSTATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
Three Months Ended June 30, | 2004 | 2003 |
SALES | $ 9,084 | $ 1,241 |
COST OF SALES | 1,861 | 587 |
GROSS MARGIN | 7,223 | 654 |
GENERAL AND ADMINISTRATIVE, SALES AND | 377,394 | 161,562 |
MARKETING EXPENSES | ||
RESEARCH AND DEVELOPMENT EXPENSES | 122,323 | 28,281 |
DEPRECIATION | 11,739 | 8,858 |
LOSS FROM OPERATIONS | (504,233) | (198,047) |
OTHER INCOME AND EXPENSES | ||
Interest Income | 72 | - |
Other Income | - | 10,000 |
Write down of licensing rights | - | - |
LOSS BEFORE INCOME TAXES | (504,161) | (188,047) |
INCOME TAX | - | - |
NET LOSS | $ (504,161) | $ (188,047) |
NET LOSS PER COMMON SHARE, BASIC & | (0.03) | (0.01) |
DILUTED | ||
WEIGHTED AVERAGE NUMBER OF COMMON | 17,020,082 | 16,632,770 |
SHARES OUTSTANDING |
See condensed notes to the consolidated financial statements
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ALPHARX, INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
DEFICIENCY
(UNAUDITED)
Common Stock | Additional | Retained | Total | ||
Number of | Paid-in | Earnings | Shareholders' | ||
Shares | Amount | Capital | (Deficit) | Equity (Deficiency) | |
Balance as of | 15,327,341 | 1,533 | 2,897,277 | (2,811,383) | 87,427 |
September 30, | |||||
2002 | |||||
Issuances of | 1,592,741 | 159 | 846,168 | 846,327 | |
Common | |||||
Stock | |||||
Issuance of Stock | 280,594 | 280,594 | |||
Options for consulting services | |||||
Net loss for the | (1,414,597) | (1,414,597) | |||
Year ending | |||||
September 30, | |||||
2003 | |||||
Balance as of | 16,920,082 | 1,692 | 4,024,039 | (4,225,980) | (200,249) |
September 30, | |||||
2003 | |||||
Issuance of | |||||
Common Stock | 100,000 | 11 | 29,990 | 30,001 | |
Net loss for the | |||||
Nine month period | |||||
Ending June | |||||
30, 2004 | (1,175,529) | (1,175,529) | |||
Balance as of | |||||
June 30, 2004 | 17,020,082 | 1,703 | 4,054,029 | (5,401,509) | (1,345,777) |
See condensed notes to the consolidated financial statements
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ALPHARX, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
Nine months ended June 30, | 2004 | 2003 |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Loss | (1,175,529) | (998,172) |
Adjustments to reconcile net loss to net cash used in | ||
operating activities: | ||
Depreciation | 31,301 | 20,990 |
Write down of licensing rights | 229,999 | - |
Shares issued for services rendered | 30,001 | 273,436 |
Options issued for services rendered | 280,594 | |
Changes in assets and liabilities: | ||
(Increase) decrease in inventory | 20,513 | (67,948) |
(Increase) decrease in accounts receivable | 10,379 | (1,702) |
Increase in prepaid expenses | (119,963) | (12,017) |
Increase in deferred financing costs | (184,999) | - |
Increase (decrease) in accounts payable and accrued | 273,240 | 25,933 |
liabilities | ||
NET CASH USED IN OPERATING ACTIVITIES | (885,058) | (478,886) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of investments | - | (250,000) |
Purchase of property, plant & equipment | (127,728) | (17,992) |
NET CASH USED IN INVESTING ACTIVITIES | (127,728) | (267,992) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Issuance (repayment) of notes payable | 1,000,973 | 216,682 |
Proceeds from issuance of common stock | - | 572,891 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,000,973 | 789,573 |
NET INCREASE (DECREASE) IN CASH | (11,813) | 42,695 |
CASH (bank indebtedness), beginning of period | 24,520 | (9,202) |
CASH, end of period | 12,707 | 33,493 |
See condensed notes to the consolidated financial statements
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ALPHARX, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(UNAUDITED)
NOTE 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of all recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended September 30, 2004. Interim financial statements should be read in conjunction with the Company's annual audited financial statements.
NOTE 2. NATURE OF BUSINESS AND GOING CONCERN
ALPHARX, INC. (the Company) was incorporated under the laws of the State of Delaware on August 7, 1997. The company is an emerging pharmaceutical company specializing in the formulation of therapeutic products using proprietary drug delivery technologies. The company was formally known as LOGIC TECH INTERNATIONAL, INC., and had its corporate name changed during the fiscal year of 2000.
Effective July 1, 2003 the Company acquired all of the shares of AlphaRx Canada Limited for nominal value of $1. AlphaRx Canada Limited was dormant until this time. AlphaRx Canada Limited was incorporated under the laws of Ontario in order to streamline sales of the Company's products in the Canadian market. Prior to this time AlphaRx Canada Limited had no material assets or any liabilities and was wholly owned by the President & CEO of the Company. The consolidated financial statements reflect the activities of the Company and of AlphaRx Canada Limited - its wholly owned subsidiary. All material inter-company accounts and transactions have been eliminated.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, they do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the company be unable to continue as a going concern. Continuance of the company as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors.
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NOTE 3 PROMISSORY NOTES AND DEFERRED FINANCING COSTS
The Company issued senior secured convertible promissory notes to 10 investors during February and March, 2004 in the aggregate amount of $861,000. These promissory notes are subject to voluntary conversion into common stock at any time at a price of $0.15 (fifteen cents) per share. Under certain circumstances the promissory notes are convertible into common stock at a lesser conversion price. In addition, holders of the promissory notes are entitled to warrants, exercisable up to 3 years from conversion date, to acquire an additional number of shares of common stock varying from 50% of the common stock acquired upon conversion and up to 300% of the common stock acquired upon conversion. These promissory notes are secured by a lien on substantially all of the assets of the Company. See also subsequent event below.
In connection with the promissory notes for $861,000, and any funds raised in the future, the Company is liable for a fee to its placement agent equal to 10% of the gross proceeds. Accordingly, $86,100 has been recorded as deferred financing costs with respect to funds raised to date.
During April, 2004 the Company issued an aggregate of $300,000 of unsecured promissory notes under terms and conditions substantially the same as those described above, but such promissory notes are unsecured and have an interest rate of 5%. The fees payable to our placement agent in connection with these promissory notes are equal to 10% of the gross proceeds received and are payable at the election of the placement agent in cash or units consisting of one share of common stock and a warrant to purchase an additional share of common stock at a stipulated value of $0.15 per unit of common stock, together with warrants exercisable at $0.15 per share for a number of shares of common stock equal to 10% of the shares of common stock issued upon the conversion of such promissory notes. See also subsequent event below.
The remainder of the deferred financing costs relate to legal fees, and escrow fees in connection with the private placement completed in July, 2004. See subsequent events note below for further detail.
NOTE 4. LICENSING RIGHTS
The Company acquired world-wide exclusive commercialization rights for VT-1 from Select Therapeutics Inc. in January 2003 with the intention of commercializing this drug. Subsequent to this acquisition the Company successfully launched Flexogan in Canada, and shifted focus on drug delivery products, and related sales and marketing. Having unsuccessfully attempted to resell these commercialization rights, they have been written down to a nominal value due primarily to prohibitive development costs, and the fact that there is no market for these rights.
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NOTE 5. LITIGATION LIABILITY
The Company is a defendant in a lawsuit filed by a prospective investor alleging breach of contract, which seeks damages totalling $25,000. The Company believes the suit is without merit; however, to remain conservative, the entire claim has been accrued in the financial statements.
NOTE 6. SUBSEQUENT EVENTS
On July 21, 2004 the Company issued 20,000,700 shares of Common Stock at $0.15 per share for gross proceeds of $3,000,105. The Company also issued, in connection with the private placement, warrants to purchase 20,000,700 shares of Common Stock at $0.30 per share. The warrants have an expiry date of July 21, 2007. The Warrant is subject to mandatory redemption at a price of $0.01 per underlying share of Common Stock if the Common Stock trades for 10 consecutive days at a price at or above $0.90 per share.
On July 21, 2004, in connection with the private placement mentioned above, certain convertible promissory note holders elected to convert their promissory notes into shares of Common Stock and warrants to purchase shares of Common Stock at $0.30 per share. Promissory Notes plus accrued interest totalling $375,234 were converted into 3,752,340 shares of Common Stock plus warrants to purchase 7,504,678 shares of Common Stock. It is anticipated that all remaining convertible promissory note holders, other than those mentioned below, will convert their notes into Common Stock plus warrants to purchase shares of Common Stock. There remains outstanding $500,000 in convertible promissory notes plus accrued interest as at July 21, 2004.
During July, 2004, unsecured promissory notes plus accrued interest totalling $304,708 were repaid from the proceeds of the private placement of Common Stock mentioned above.
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