SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 0-15260
Biorelease Corp.
(Exact name of small business issuer as specified in its charter)
Delaware 88-0218411
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 Chestnut Drive #D Bedford, NH 03110
(Address of principal Executive offices) (Zip Code)
(603) 471-1255
Issuer's telephone number, including area code
Former name, former address and formal 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
filing requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date. 9,471,659 shares of common
stock, par value $.01 per share as of February 12, 1997.
Transitional Small Business Disclosure Format (Check One)
Yes _____ No __X__
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<PAGE>
BIORELEASE CORP.
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated balance sheets as of December 31, 1996
(unaudited) and June 30, 1996 .................................. 3
Consolidated Statements of Operations for the three
months and six months ended December 31, 1996
(unaudited) and 1995 (unaudited), and from October
20, 1989 (inception) to December 31, 1996 (unaudited) ........... 4
Consolidated Statements of Cash Flows for the six
Months Ended December 31, 1996 (unaudited) and
1995 (unaudited), and from October 20, 1989 (inception)
to December 31, 1996 (unaudited) ................................ 5
Notes to Unaudited Financial Statements ......................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operation ................. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................... 10
Item 2. Changes in Securities ................................. 10
Item 3. Defaults Upon Senior Securities ....................... 10
Item 4. Submission of Matters to a Vote of Security Holders ... 10
Item 5. Other Information ..................................... 10
Item 6. Exhibits and Reports on Form 8-K ...................... 10
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 30, 1996
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1996 1996
------ ----- --------
(Unaudited)
<S> <C> <C>
Cash ........................................ $ 71,175 $ 1,200
Accounts receivable ......................... 28,163 563
Inventories ................................. 27,138 27,679
Other receivables ........................... 1,015 --
Prepaid expenses and other current assets ... 1,470 1,679
-------- --------
Total current assets ............... $128,961 $ 31,121
Equipment and leasehold improvements, net .. 24,316 30,040
Intangible assets, net ..................... 33,621 38,947
Other noncurrent assets .................... 698 699
-------- --------
Total assets ............................... $187,596 $110,807
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ........................... $130,213 $ 90,637
Accrued expenses ........................... 108,029 70,642
Notes payable - stockholders, current ...... 55,600 85,530
Loans payable - other ...................... 75,000 --
Income taxes payable ....................... 1,549 1,549
Other current liabilities .................. 1,500 1,500
-------- --------
Total current liabilities .................. 371,891 249,858
Notes payable - stockholders,long term ..... 23,930 --
Notes payable - other, long term ........... 16,000 16,000
Other liabilities .......................... 87,734 87,734
-------- --------
Total liabilities .......................... 499,555 353,592
Stockholders' equity:
Common stock of $.01 par value,
50,000,000 shares authorized,
9,921,659 shares issued and 9,471,659
outstanding at December 31, 1996 and
9,880,354 issued and 9,430,354
outstanding at June 30, 1996 99,217 98,803
Additional paid-in capital 9,119,296 9,113,927
Stock warrants outstanding -- --
Development stage accumulated deficit(9,475,972)(9,411,015)
Stock subscription receivable ( 50,000)( 50,000)
---------- ---------
( 307,459)( 248,285)
Less: Treasury stock ( 4,500)( 4,500)
---------- ---------
Total stockholders' equity (deficit) ( 311,959)( 252,785)
---------- ---------
Total liabilities and stockholders' equity
(deficiency) $ 187,596 $ 110,016
=========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended December 31, 1996 and 1995,
and the Cumulative Period from Inception to December 31, 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, Inception (October
20, 1989 to
1996 1995 1996 1995 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ 32,960 $ 48,374 $ 45,651 $ 62,483 $ 432,763
Cost of Goods Sold ............ (541) (3,067) (541) (3,073) (15,838)
----------- ----------- ------- ------- ----------
Gross Profit ............... 32,419 45,307 45,110 59,410 416,925
Operating expenses:
Cell culture operations ...... (--) (--) (--) (--) (601,116)
Research and development ..... (--) (12,500) (--) (25,000) (2,558,041)
Purchased Technologies ....... -- -- -- -- (690,000)
General and administrative ... (33,390) (59,929) (77,707) (120,713) (4,113,339)
Other ........................ 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Loss from operations .......... (971) (27,122) (32,597) (86,303) (7,545,571)
----------- ----------- ----------- ----------- -----------
Other costs:
Interest, net ................ (981) (1,212) (1,962) (2,405) 85,389
Lease commitment cost ........ -- -- -- -- (315,000)
Litigation costs ............. (--) (650) (--) (5,474) (99,242)
Other income (costs) ......... -- -- -- -- (23,024)
Gain(Loss) on sale of assets . -- (--) -- 1,100 62,616
Offering costs ............... (30,396) -- (30,396) -- (321,830)
Option compensation .......... -- -- -- -- (219,375)
Income on settlements ........ -- 29,361 -- 29,361 280,500
Realized loss for decline
in value of investment ...... (--) (--) (--) (--) (1,500,000)
----------- ----------- ------- ------- ----------
Total other costs ........ (31,377) (31,377) (32,358) (22,582) (2,049,966)
----------- ----------- ------- ------- ----------
Income (loss) before provision
for (benefit from income
taxes cumulative effect of
change in accounting principle (32,348) 377 (64,955) (63,721) (9,595,537)
Provision for income taxes .... -- -- -- -- (343,873)
----------- ----------- ------- ------- ----------
Income (loss) before cumulative
effect of accounting principle (32,348) 377 (64,955) (63,721) (9,939,410)
Cumulative effect of change in
accounting principle ......... -- -- -- -- 463,440
----------- ----------- ------- ------- ----------
Net income (loss) ............. $ (32,348) $ 377 $ (64,955) $ (63,721) $(9,475,970)
=========== =========== =========== =========== ===========
Weighted average shares ....... 9,471,659 8,962,263 9,471,659 5,962,263 5,316,606
Income (Loss) per share ....... (.01) .01 (.01) (.01) (1.78)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
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BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended December 31, 1996 and 1995
and the Cumulative Period from Inception to December 31,1996
(Unaudited)
<TABLE>
<CAPTION>
Inception
Six Months Ended (October 20, 1989)
December 31, to December 31,
1996 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from
operating
activities:
Net loss ............................ $ (64,957) $ (63,721) $(9,475,972)
Adjustments to reconcile
net loss to net cash used in
development activities:
Depreciation and
amortization .................. 12,816 13,081 222,246
Cumulative effect of change
in accounting principle ....... -- -- (463,440)
(Gain) Loss on sale of
assets ........................ (--) -- (38,704)
Recognized loss on
investment ..................... -- -- 1,500,000
Loss on extinguishment
of debt ....................... -- -- 42,000
Common stock issued
in exchange for pur-
chased technology ............. -- -- 605,000
Common stock issued
in exchange for
services rendered ............. -- -- 52,300
Common stock options issued
in exchange of services
rendered ...................... -- -- 89,228
Amortization of unearned
compensation .................... -- -- 140,625
Repricing of A warrants ........... -- -- 78,750
Changes in current assets:
Cash - escrow ................... -- -- --
Accounts receivable ............. (27,600) 35,731 (28,163)
Other receivables ............... (1,015) 3,073 (1,015)
Inventories ..................... 541 -- (27,138)
Prepaid expenses and
other current assets .......... 210 95 (1,469)
Deferred tax asset .............. -- -- 463,440
Other non-current assets ........ (1) 403 (698)
Changes in current liabilities:
Accounts payable ................ 39,576 403 201,164
Accrued expenses ................ 37,387 (19,186) 115,857
Other current liabilities ......... (--) (--) 90,781
----------- ----------- -----------
Net cash used in
operating
activities .................. (3,043) (31,185) (6,435,208)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of government backed
securities ...................... -- 1,594 (1,000,000)
Proceeds from collateralized
mortgage obligations ............ -- 1,210 1,000,000
Purchase of fixed assets .......... (--) (244) (331,587)
Proceeds from sale of assets ...... -- -- 189,742
Purchase of intangible
assets .......................... (2,726) (13,297) (84,752)
----------- ----------- -----------
Net cash used in
investing activities ........ (4,096) 10,737 (226,597)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
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<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended December 31, 1996 and 1995 and the Cumulative
Period from Inception to December 31, 1996
<TABLE>
<CAPTION>
Inception
Six Months Ended (October 20, 1989)
December 31, to December 31,
1996 1995 1996
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from
financing activities:
Advances from
stockholders ............... -- -- 594,385
Payments of advances
from stockholders .......... -- -- (159,975)
Loans payable ................ 75,000 -- 75,000
Notes payable ................ (6,000) (--) 95,530
Issuance of common stock,net . 5,784 18,835 3,611,750
Purchase of investments in
issuance of common stock .... -- -- (1,500,000)
Notes receivable ............... -- -- --
Recapitalization ............... 0 0 4,031,176
----------- ----------- -----------
Net cash provided
by investing
activities ............... 74,784 18,835 6,747,866
----------- ----------- -----------
Net increase (decrease)
in cash ...................... 69,975 (100,088) 71,175
Cash at beginning
of period .................... 1,200 103,975 0
----------- ----------- -----------
Cash at end of period .......... $ 71,175 $ 3,887 $ 71,175
=========== =========== ===========
Supplemental disclosure of
non-cash transactions:
Interest ..................... 1,962 2,405 85,389
Marketable securities acquired
through issuance of common
stock ........................ -- -- 1,500,000
Issuance of common stock
for subscription receivable . (--) (125,000) 50,000
Liabilities repaid through
issuance of common stock ..... 5,784 31,950 582,773
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
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BIORELEASE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
AND CUMULATIVE FROM INCEPTION (OCTOBER 20, 1989) TO
DECEMBER 31,1996
1. Basis of presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Rule 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements and should be
read in conjunction with the Company's audited consolidated financial
statements at and for the fiscal year ended June 30, 1996. In the opinion
of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ended June 30, 1997.
2. Loan payable
A Private Placement was undertaken by the Company to raise up to $500,000
in the form of unsecured notes from accredited individuals relating to a
then pending business combination between the Company and TheraMed
Partners, Inc.. At December 31, 1996 $75,000 in unsecured notes had been
subscribed for. An additional $12,500 was subscribed for in January 1997
for an aggregate of $87,500. The Subscription Notes are payable on demand
with no interest costs. [SEE Part II Item 5. Other Information].
3. Subsequent Events
On February 12, 1997 the Company announced that TheraMed Partners and the
Company had terminated their previously announced agreement to undertake
the business combination and a related spin-off of the Subsidiary to the
Company's stockholders. As a result of the termination, the Company plans
to offer recision rights to the holders of the Subscription Notes. Further,
on February 12, 1997 the Company announced that Dr. Leon Gauci had assumed
the role of President of the Subsidiary (Biorelease Technologies, Inc.).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Three Months Ended December 31, 1996 and 1995
For the three months ended December 31, 1996, the Company, including its
subsidiary Biorelease Technologies, Inc. ("the Subsidiary") had revenues of
$32,960 consisting of $28,420 of continuing revenues relating to licensing
rights to its chondroitin sulfate technology, $0 of grant research revenues and
$4,540 from product sales, cost of goods sold of $541, expenses of its cell
culture operations of $0, research and development expenses of $0, costs for
purchased technology of $0, general and administrative operation costs of
$33,390, interest expense of $981, costs related to the terminated business
combination and offering costs of $30,396 resulting in a net loss of $32,348
compared to the three months ended December 31, 1995 in which the Company had
revenues of $48,374 consisting of $12,778 of continuing chondroitin sulfate
licensing revenues, $12,500 of grant research revenues, $21,596 from cell
culture product sales and $1,500 of equipment rental income, cost of goods sold
of $3,067, expenses of its cell culture operations of $0, research and
development expenses of $12,500, no costs for purchased technology, general and
administrative operation costs of $59,929, interest expense of $1,212,
litigation costs of $650, income from the sale of assets of $0, no costs related
to public offerings, no option compensation charges, income recognized on
settlements of $29,361 and income taxes of $0, resulting in a net income of
$377. The increase in net loss was attributed to a decrease in product sales and
a decrease in research and development and administrative costs. Also, $30,396
related to Private Placement offering costs and costs associated with a
terminated business combination were charged to the three months ended December
31, 1996 as compared to $0 in the quarter ended December 31, 1995.
Six Months Ended December 31, 1996 and 1995
For the six months ended December 31, 1996, the Company had revenues of
$32,960, cost of goods sold of $541, no cell culture costs, no research and
development costs, no purchased technology costs, general and administrative
costs of $33,390, interest of $981, offering and termination costs of $30,396
and no income taxes resulting in a net loss of $32,348 of as compared to the six
months ended December 31, 1995 in which the Company had revenues of $62,483,
cost of goods sold of $3,073, cell culture operation costs of $0, research and
development costs of $25,000, no purchased technology costs, general and
administrative operational costs of $120,713, interest expense of $2,405,
litigation costs of $5,474, gain on sale of assets of $1,100, costs related to
public offerings of $0, option compensation expense of $0, income recognized on
settlements of $29,361 and income taxes of $0 resulting in a net loss of
$63,721. The decrease in net loss over the previous fiscal year's six months
resulted primarily from the reduction of administrative costs.
Inception (October 20, 1989) to December 31, 1996
From October 20, 1989, the date of the Subsidiary's initial activity,
through December 31, 1996, the Company had revenues of $432,763, cost of goods
sold of $15,838, cell culture expenses of $601,116, research and developmental
expenses of $2,558,041, purchased technology costs of $690,000, general and
administrative expenses of $4,113,339, interest income of $85,389, lease
commitment cost of $315,000, litigation costs of $99,242, other costs of
$23,024, gain on sale of assets of $62,616, offering cost of $321,830, Option
Compensation of $219,375, income recognized on settlements of $280,500, realized
loss for decline in value of investment of $1,500,000, income tax expense of
$343,873 and a cumulative effect of change in accounting principle of $463,440
thereby resulting in an accumulated net loss of $9,475,970.
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Liquidity and Capital Resources
From inception until the date on which the subsidiary was combined with the
Company (the Reorganization), the Subsidiary's primary source of funds was the
proceeds from private offerings of its Common Stock and Stock in the Subsidiary.
Since the Reorganization, the primary source of capital has been the Company's
funds and revenues.
At December 31, 1996, the Company had negative working capital of $242,930
as compared with the Company's negative working capital of $218,737 at June 30,
1996. The change in the Company's working capital between June 30, 1996 and
December 31, 1996 is attributable to operating expenses in excess of revenues
net of settlements.
With the termination of the TheraMed business combination, the Company expects
to operate within the limited cash flow generated by its product sales and its
licensing revenue for the remainder of this fiscal year. In this scaled back
configuration, the Company will focus on prepaid research at the University of
New Hampshire and limited outside research funded by its limited cash. Depending
in large part on results of this limited research, the Company may be in a
position to raise additional funds within the next several quarters.
Dividend Policy
The Company has not declared or paid any dividends on its common stock
since its inception and does not anticipate the declaration or payment of cash
dividends in the foreseeable future. The Company intends to retain earnings, if
any, to finance the development and expansion of its business. Future dividend
policy will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions, and other factors. Therefore,
there can be no assurance that dividends of any kind will ever be paid.
Effect of Inflation
Management believes that inflation has not had a material effect on its
operations for the periods presented.
9 of 10
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
On October 8, 1996 the Company announced it had agreed in principle to
enter into a reorganization with TheraMed Partners, Inc. Between
November, 1996 and January, 1997 the Company placed $87,500 in
Subscription Notes under a Private Placement related to this
reorganization. On February 12, 1997 the Company announced it had
terminated this agreement and planned to offer recision to the Private
Placement investors.
Item 6. Exhibits and Reports of Form 8-K.
None
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIORELEASE CORP.
February 19, 1997 By: /s/ Richard F. Schubert
-------------------------
Richard F. Schubert, Chairman and
Principal Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 71,175
<SECURITIES> 0
<RECEIVABLES> 28,163
<ALLOWANCES> 0
<INVENTORY> 27,138
<CURRENT-ASSETS> 128,961
<PP&E> 24,316
<DEPRECIATION> 0
<TOTAL-ASSETS> 187,596
<CURRENT-LIABILITIES> 371,891
<BONDS> 0
0
0
<COMMON> 99,217
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 187,596
<SALES> 32,960
<TOTAL-REVENUES> 32,960
<CGS> 541
<TOTAL-COSTS> 541
<OTHER-EXPENSES> 33,390
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (981)
<INCOME-PRETAX> (32,348)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 30,396
<CHANGES> 0
<NET-INCOME> (32,348)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
