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 September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1998 to September 30, 1998
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 (Internal
Revenue Service incorporation or organization) Employer Identification No.)
340 Granite St. Suite 200, Manchester, NH 03102
(Address of principal Executive offices Zip Code)
(603) 641-8443
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, 9,446,659 shares of common
stock, par value $.01 per share as of November 25, 1998.
- -----------------------------------------------------------------
Transitional Small Business Disclosure Format (Check One) Yes ____ No __X__
1 of 10
<PAGE>
BIORELEASE CORP.
INDEX
PART I. FINANCIAL INFORMATION Page
Number
Item 1 Financial Statements..............................................3
Consolidated balance sheets as of September 30, 1998
(unaudited) and June 30, 1998.....................................3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1998 (unaudited) and 1997
(unaudited), and from October 20, 1989 (inception) to
September 30, 1998 (unaudited)....................................4
Consolidated Statements of Cash Flows for the three
Months Ended September 30, 1998 (unaudited) and 1997
(unaudited), and from October 20, 1989 (inception)
to September 30, 1998 (unaudited).................................5
Notes to Unaudited Consolidated 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.................................................9
Item 2. Changes in Securities.............................................9
Item 3. Defaults Upon Senior Securities...................................9
Item 4. Submission of Matters to a Vote of Security Holders...............9
Item 5. Other Information.................................................9
Item 6. Exhibits and Reports on Form 8-K..................................9
2 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and June 30, 1998
September June 30,
30, 1998 1998
(Unaudited) --------
ASSETS -----------
Current Assets:
Cash $ 6,716 $ 1,320
Accounts receivable 4,130 8,455
Inventories 18,257 18,434
Other receivables 745 745
Prepaid expenses and other current assets - -
------------ -----------
Total current assets 29,848 28,954
------------ -----------
Equipment and leasehold improvements, net 8,865 10,971
------------ -----------
Other assets:
Intangible assets, net 17,823 20,449
Other noncurrent assets 300 300
------------ -----------
Total assets $ 56,836 $ 60,674
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCIES)
Current liabilities:
Notes payable $ 27,500 $ 27,500
Accounts payable 117,283 113,515
Accrued expenses 98,502 93,954
Notes payable stockholders,current 46,100 46,100
Deferred Income - -
Other current liabilities 1,549 1,549
------------ -----------
Total current liabilities 290,934 282,618
Notes payable stockholders, long term 14,955 14,955
Notes payable others, long term 16,000 16,000
Other liabilities 87,734 87,734
------------ -----------
Total liabilities 452,872 401,307
------------ -----------
Stockholders' equity (Deficiency): 409,623
Common stock of $.01 par value, 50,000,000
shares authorized, 10,286,659 and 9,921,659
issued and 9,736,659 and 9,371,659 Outstanding
at September 30, 1998 and June 30, 1998 102,867 102,867
Additional paid-in capital 9,140,088 9,140,088
Development stage accumulated deficit (9,540,242) (9,528,088)
Stock subscriptions receivable (50,000) (50,000)
------------ -----------
(347,287) (335,133)
Less: Treasury stock, at par (5,500) (5,500)
------------ -----------
Total Stockholder's Equity (Deficiencies) (352,787) (340,633)
------------ -----------
Total liabilities and stockholders' equity
(deficiencies) $ 56,836 $ 60,674
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3 of 10
<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS For
the Three Months Ended September 30, 1998 and 1997,
and the Cumulative Period from Inception to September 30, 1998
(Unaudited)
------------------------
<TABLE>
<CAPTION>
Three Months Ended Inception
September 30, (October 20,1989)
------------------ to September 30, 1998
1998 1997 ---------------------
---- ----
<S> <C> <C> <C>
Revenues $ 3,130 $ 20,000 $ 562,351
Cost of goods sold (177) (0) (25,514)
---------- --------- ----------
Gross profit 2,953 20,000 536,837
Costs and expenses:
Biotech selling expenses - - (601,116)
Research and development - - (2,558,041)
Purchased technology - - (690,000)
General and administrative (13,533) (12,673) (4,281,047)
---------- --------- ----------
Total costs and expenses (13,533) (12,673) (8,130,204)
---------- --------- ----------
(Loss)/Gain from operations (10,580) 7,327 (7,593,367)
---------- --------- ----------
Other Income (Costs):
Interest, net (1,728) (1,617) 70,279
Lease commitment costs - - (315,000)
Litigation costs - (99,242)
Offering costs - - (336,446)
Option compensation - - (219,375)
Other income (cost) - - (23,034)
Realized loss for decline in value of
Investment - - (1,500,000)
Gain on equipment sale - - 62,616
Income recognized on settlements 154 - 293,760
---------- --------- ----------
Total other income (cost) (1,574) (1,617) (2,066,442)
---------- --------- ----------
(Loss)/Gain before provision for
(benefit from) income taxes and
Cumulative effect of change in
Accounting principle (12,154) 5,710 (9,659,809)
Provision for income taxes - - 343,873
---------- --------- ----------
(Loss)/Gain before cumulative effect
Of change in accounting principle (12,154) 5,710 (10,003,682)
Cumulative effect of change in
Accounting principle - - 463,440
---------- --------- ----------
Net (loss)/gain ($12,154) $ 5,710 ($9,540,242)
========== ========= ==========
Weighted average shares 9,736,659 9,388,325 6,133,012
Basic and fully diluted loss per share ($0.00) ($0.00) ($1.56)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4 of 10
<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three Months Ended September, 1998 and 1997
and the Cumulative Period from Inception to September 30, 1998
(Unaudited)
----------------------
<TABLE>
<CAPTION>
Inception
Three Months Ended (October 20, 1989)
September 30, to September 30,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/Gain $ (12,154) $ 5,710 $(9,540,242)
Adjustments to reconcile net loss to net
cash used in development activities:
Depreciation and amortization 4,732 7,500 260,662
Cumulative effect of change in accounting
principle - - (463,440)
Recognized loss on investment - - 1,500,000
(Gain) Loss on sale of assets - - (38,704)
Loss on extinguishment of debt - - 42,000
Common Stock issued in exchange for
Purchased technologies - - 605,000
Common Stock issued in exchange for
services rendered - - 128,453
Common stock options issued in exchange of
services rendered - - 52,300
Amortization of unearned compensation - - 140,625
Re-pricing of A Warrants - - 78,750
(Increase) Decrease in current assets:
Accounts Receivable 4,325 (8,099) (4,130)
Inventories 177 - (18,257)
Other receivables - - (745)
Prepaid expenses and other current assets - - 360
Deferred tax asset - - 463,440
Other non-current assets - - (300)
Increase (Decrease) in current liabilities:
Accounts payable 3,768 (828) 188,234
Accrued expenses 4,548 2,500 105,970
Other current liabilities - - 1,549
Other liabilities - - 87,734
--------- ------- -----------
Net cash used in operating activities $ 5,396 $ 6,783 $(6,410,741)
========= ======= ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5 of 10
<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASH FLOWS For
the Three Months Ended September 30, 1998 and 1997
and the Cumulative Period from Inception to September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Inception
Three Months Ended (October 20, 1989)
September 30, To September 30,
1998 1997 1998
---- ---- ----
Cash flows from investing activities:
<S> <C> <C> <C>
Purchase of collateralized mortgage obligations - - (1,000,000)
Proceeds from collateralized mortgage obligations - - 1,000,000
Purchase of fixed assets - - (333,187)
Purchase of intangible assets - - (105,205)
Proceeds from sale of assets (-) (-) 189,742
------- -------- ----------
Net cash used in investing activities (-) (-) (248,650)
------- -------- ----------
Cash flows from financing activities:
Advances from and amounts due to
Stockholders - - 594,385
Payments of advances from stockholders - - (159,975)
Notes receivable - - -
Notes payable - (3,000) 104,555
Issuance of common stock, net - - 2,105,966
Purchase of treasury stock - - (10,000)
Re-capitalization - - 4,031,176
------- -------- ----------
Net cash provided by investing activities - (3,000) 6,666,107
------- -------- ----------
Net increase (decrease) in cash 5,396 16,909 6,712
Cash at beginning of period 1,320 15,277 -
------- -------- ----------
Cash at end of period $ 6,716 $ 32,186 $ 6,712
======= ======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
6 of 10
<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND CUMULATIVE FROM INCEPTION (OCTOBER 20, 1989) TO SEPTEMBER 30, 1998
ITEM 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, 1998. 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 three months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1999.
7 of 10
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition And Results
of Operations
Results of Operations
The following discussion includes the business of Biorelease Technologies,
Inc. (the "Subsidiary"), since the Company, prior to its acquisition of the
Subsidiary, had no operations other than raising capital and searching for an
acquisition candidate (i.e., the Subsidiary). Where relevant, all numbers
retroactively take into account the acquisition of the Subsidiary by the
Company.
Three Months Ended September 30, 1998 and 1997
For the three months ended September 30, 1998, the Company had revenues of
$3,130, costs of goods sold of $177, general and administrative expenses of
$13,533, interest expense of $1,728 and income recognized in settlements of $154
resulting in a net loss of $12,154 as compared to the three months ended
September 30, 1997 in which the Company had $20,000, costs of goods sold of $0,
general and administrative expenses of $12,673, interest expense of $1,617, no
litigation costs, no gain on sale of equipment of and no income taxes resulting
in a net profit of $5,710.
From October 20, 1989, the initial date of the Subsidiary's activity,
through September 30, 1998, the Company, including the Subsidiary, had revenues
of $562,351, cost of goods sold of $25,514, Cell culture operation expenses of
$601,116, research and developmental expenses of $2,558,041, purchased
technology costs of $690,000, general and administrative expenses of $4,281,047,
other costs in the aggregate of $2,066,442, income taxes of $343,873 and a
cumulative effect of change in accounting principle of $463,440 thereby yielding
an accumulated net loss of $9,540,242.
Liquidity and Capital Resources
From inception until the closing of the Reorganization, the Subsidiary's
primary source of funds has been the proceeds from private offerings of its
Common and Preferred Stock. Since the Reorganization, the primary source of
current capital is the Company's funds and revenues.
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.
8 of 10
<PAGE>
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 February 19, 1998, The Company announced that it had signed a
definitive agreement to acquire Xenix Resources, Inc. As a result of
adverse changes in Xenix's financial condition since that time, the
Company has discontinued its plan to acquire Xenix Resources. The
Company had not expended any significant funds in the pursuit of this
acquisition and does not expect this termination to affect the
financial results.
Item 6. Exhibits and Reports on form 8-K.
None
9 of 10
<PAGE>
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.
December 01, 1998 By: /s/ R. Bruce Reeves
--------------------------------------
R. Bruce Reeves, President and
Principal Financial Officer
10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000797662
<NAME> Biorelease Corp.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,716
<SECURITIES> 0
<RECEIVABLES> 4,130
<ALLOWANCES> 0
<INVENTORY> 18,257
<CURRENT-ASSETS> 29,848
<PP&E> 41,270
<DEPRECIATION> 32,405
<TOTAL-ASSETS> 56,836
<CURRENT-LIABILITIES> 290,934
<BONDS> 118,689
0
0
<COMMON> 102,867
<OTHER-SE> (455,654)
<TOTAL-LIABILITY-AND-EQUITY> 56,836
<SALES> 3,130
<TOTAL-REVENUES> 3,130
<CGS> 177
<TOTAL-COSTS> 177
<OTHER-EXPENSES> 13,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,728
<INCOME-PRETAX> (12,154)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,134)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
