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, 1997
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)
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. 9,536,659 shares of common
stock, par value $.01 per share as of February 2, 1998.
--------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check One)
Yes _____ No __X__
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BIORELEASE CORP.
INDEX
PART I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements
Consolidated balance sheets as of December 31,
1997 (unaudited) and June 30, 1997 . . . . . . . . 3
Consolidated Statements of Operations for the
three months and six months ended December 31,
1997 (unaudited) and 1996 (unaudited), and from
October 20, 1989 (inception) to December 31, 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the six
months ended December 31, 1997 (unaudited) and 1996
(unaudited), and from October 20, 1989 (inception)
to December 31, 1997 (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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PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and June 30, 1997
--------
December 31, June 30,
ASSETS 1997 1997
------ ----------- ---------
(Unaudited)
Cash $ 12,834 $ 15,277
Accounts receivable 0 8,099
Inventories 19,681 19,681
Other receivables 195 195
Prepaid expenses and other current assets 180 180
---------- ---------
Total current assets $ 32,890 $ 43,432
Equipment and leasehold improvements, net 14,187 18,987
Intangible assets, net 22,147 32,347
Other noncurrent assets 698 699
----------- ----------
Total assets $ 69,922 $ 95,465
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 99,103 $ 116,397
Deferred Revenue - 20,000
Accrued expenses 148,244 141,243
Notes payable - stockholders, current 53,575 58,575
Income taxes payable 1,549 1,549
Other current liabilities 818 818
----------- ---------
Total current liabilities 303,289 338,582
Notes payable - stockholder, long term 14,955 14,955
Notes payable - other, long term 16,000 16,000
Other liabilities 87,734 87,734
----------- ---------
Total liabilities 421,978 457,271
----------- ---------
Stockholders' equity:
Common stock of $.01 par value,
50,000,000 shares authorized, 10,086,659
and 9,880,354 issued and 9,536,659 and
9,430,354 outstanding at December 31,
1997 and June 30, 1997 99,381 99,216
Additional paid-in capital 9,110,133 9,110,298
Stock warrants outstanding - -
Development stage accumulated deficit ( 9,506,070) (9,515,820)
Stock subscription receivable ( 50,000) ( 50,000)
------------ -----------
( 346,556) ( 356,306)
Less: Treasury stock ( 5,500) ( 5,500)
------------ -----------
Total stockholders' equity (deficit) ( 352,056) ( 361,806)
------------ -----------
Total liabilities and stockholders' equity
(deficiency) $ 69,922 $ 95,465
============ ===========
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, 1997 and 1996,
and the Cumulative Period from Inception to December 31, 1997
--------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31, Inception (October
------------------ ---------------- 20, 1989 to
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ 20,000 $ 32,960 $ 40,000 $ 45,651 $ 536,396
Cost of Goods Sold - ( 541) - ( 541) ( 23,296)
---------- ---------- ---------- ---------- -------------
Gross Profit 20,000 32,419 40,000 45,110 513,100
Operating expenses:
Cell culture operations - - - - ( 601,116)
Research and development - - - - ( 2,558,041)
Purchased Technologies - - - - ( 690,000)
General and administrative ( 14,352) ( 33,390) ( 27,025) ( 77,707) ( 4,231,422)
Other - - - - -
----------- ----------- ---------- --------- -------------
(Loss)/Gain from operations 5,648 ( 971) 12,975 ( 32,597) ( 7,567,479)
----------- ----------- ---------- ---------- -------------
Other costs:
Interest, net ( 1,607) ( 981) ( 3,224) ( 1,962) 77,218
Lease commitment cost - - - - ( 315,000)
Litigation costs - - - - ( 99,242)
Other income (costs) - - - - ( 23,034)
Gain(Loss) on sale of assets - - - - 62,616
Offering costs - ( 30,396) - - ( 334,946)
Option compensation - - - ( 30,396) ( 219,375)
Income on settlements - - - - 293,606
Realized loss for decline
in value of investment - - - - ( 1,500,000)
----------- ---------- ------------ ---------- -------------
Total other costs ( 1,607) ( 31,377) ( 3,224) ( 32,358) ( 2,058,157)
----------- ---------- ------------ ---------- -------------
Income (loss) before provision for (benefit from) income taxes and cumulative
effect of change in accounting
principle 4,041 ( 32,348) 9,751 ( 64,955) ( 9,625,636)
Provision for income taxes - - - - ( 343,873)
----------- --------- ------------ ---------- -------------
Income (loss) before cumulative effect of
accounting principle 4,041 ( 32,348) 9,751 ( 64,955) ( 9,969,509)
Cumulative effect of change in
accounting principle - - - - 463,440
----------- ---------- ------------ ---------- ------------
Net income (loss) $ 4,041 ($ 32,348) $ 9,751 ($ 64,955) ($ 9,506,070)
================= =========== ========== ========== ========== =============
Weighted average shares 9,426,659 9,471,659 9,399,159 9,471,659 5,805,044
Income (Loss) per share .00 (.01) .00 (.01) (1.64)
</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, 1997 and 1996
and the Cumulative Period from Inception to December 31,1997
(Unaudited)
---------------
Inception
Six Months Ended (October 20, 1989)
December 31, to December 31,
1997 1996 1997
---------- ---------- ----------
Cash flows from
operating
activities:
Net (Loss)/Gain $ 9,751 ($ 64,957) ($9,506,070)
Adjustments to reconcile
net loss to net cash used in
development activities:
Depreciation and
amortization 15,000 12,816 251,016
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 - - 95,012
Amortization of unearned
compensation - - 140,625
Repricing of A warrants - - 78,750
Changes in current assets:
Cash - escrow - - -
Accounts receivable 8,099 ( 27,600) -
Other receivables - ( 1,015) ( 195)
Inventories - 541 ( 19,681)
Prepaid expenses and
other current assets - 210 180
Deferred tax asset - - 463,440
Other non-current assets - ( 1) ( 698)
Changes in current liabilities:
Accounts payable ( 18,517) 39,576 168,831
Deferred Revenue ( 20,000) - -
Accrued expenses 8,224 37,387 156,935
Other current liabilities - - 90,101
---------- ---------- -------------
Net cash provided (used)
In operating activities
2,557 ( 3,043) ( 6,384,598)
---------- ---------- -------------
Cash flows from investing activities:
Purchase of government backed
securities - - ( 1,000,000)
Proceeds from collateralized
mortgage obligations - - 1,000,000
Purchase of fixed assets - - ( 333,187)
Proceeds from sale of assets - - 189,742
Purchase of intangible
assets - ( 1,766) ( 105,205)
---------- ---------- -------------
Net cash used in
investing activities - ( 1,766) ( 248,650)
---------- ---------- -------------
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, 1997 and 1996
and the Cumulative Period from Inception to December 31, 1997
--------
Inception
Six Months Ended (October 20, 1989)
December 31, to December 31,
1997 1996 1997
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
Cash flows from financing activities:
Advances from
stockholders - - 594,385
Payments of advances
from stockholders - - ( 159,975)
Loans payable - 75,000 -
Notes payable (paid) ( 5,000) ( 6,000) 84,530
Issuance of common stock, net - 5,784 2,095,966
Purchase of investments in
issuance of common stock - - -
Notes receivable - - -
Recapitalization - - 4,031,176
--------- --------- -----------
Net cash provided
by investing
activities ( 5,000) 74,784 6,646,082
--------- --------- -----------
Net increase (decrease)
in cash ( 2,443) 69,975 12,834
Cash at beginning
of period 15,277 1,200 -
--------- --------- -----------
Cash at end of period $ 12,834 $ 71,175 $ 12,834
========= ========= ===========
Supplemental disclosure of non-cash transactions:
Interest 3,224 1,962 77,218
Marketable securities acquired
through issuance of common
stock - - -
Issuance of common stock
for subscription receivable - - 50,000
Liabilities repaid through
issuance of common stock - 5,784 582,773
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, 1997 AND 1996
AND CUMULATIVE FROM INCEPTION (OCTOBER 20, 1989) TO
DECEMBER 31,1997
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, 1997. 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, 1997 are not
necessarily indicative of the results that may be expected for the year
ended June 30, 1998.
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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, 1997 and 1996
For the three months ended December 31, 1997, the Company, including its
subsidiary Biorelease Technologies, Inc. ("the Subsidiary") had revenues of
$20,000. Cost of goods sold of $0, 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 $14,352, interest expense of
$1,607, resulting in a net gain of $4,041, compared to the three months ended
December 31, 1996 in which the Company had revenues of $32,960 consisting of
$28,420 of continuing chondroitin sulfate licensing revenues, zero from grant
research revenues, $4,540 from cell culture and cost of goods sold of $541,
expenses of its cell culture operations of $0, research and development expenses
of $0, no costs for purchased technology, general and administrative operation
costs of $33,390, interest expense of $981, litigation costs of $0, income from
the sale of assets of $0, costs related to terminated business combination and
offering costs of $30,396, no option compensation charges, income recognized on
settlements of $0 and income taxes of $0, resulting in a net loss of $32,348.
The gain was attributed to 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, 1997.
Six Months Ended December 31, 1997 and 1996
For the six months ended December 31, 1997, the Company had revenues of
$40,000, cost of goods sold of $0, no cell culture costs, no research and
development costs, no purchased technology costs, general and administrative
costs of $27,025, interest of $3,224, offering and termination costs of $0 and
no income taxes resulting in a net gain of $9,751, as compared to the six months
ended December 31, 1996 in which the Company had revenues of $45,651, cost of
goods sold of $541, cell culture operation costs of $0, no research and
development costs, no purchased technology costs, general and administrative
operational costs of $77,707 interest expense of $1,962, litigation costs of $0,
gain on sale of assets of $0, costs related to terminated business combination
and offering costs of $30,396, option compensation expense of $0, income
recognized on settlements of $0 and income taxes of $0 resulting in a net loss
of $64,955. The net gain compared to the net loss the previous fiscal year's six
months resulted primarily from the reduction of administrative costs and $30,396
related to Private Placement offering costs and costs associated with a
terminated business combination charged to the six months ended December 31,
1996.
Inception (October 20, 1989) to December 31, 1997
From October 20, 1989, the date of the Subsidiary's initial activity,
through December 31, 1997, the Company had revenues of $536,396 cost of goods
sold of $23,296, 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 $4,231,422, interest income of $77,218, lease
commitment cost of $315,000, litigation costs of $99,242, other costs of
$23,034, gain on sale of assets of $62,616, offering cost of $334,946, Option
Compensation of $219,375, income recognized on settlements of $293,606, 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 $9,506,070.
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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 were 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. The Company continues to seek a company to combine with to
increase its liquidity and asset levels and/or to contribute to the development
of the Company's technologies.
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.
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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.
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 12, 1998 By: /s/ Richard F. Schubert
------------------------
Richard F. Schubert, Chairman and
Principal Financial Officer
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FINANCIAL DATA SCHEDULE
BIORELEASE, CORP.
CURRENCY US
FISCAL YEAR END JUN-30-1998
PERIOD START OCT-1-1997
PERIOD END DEC 31-1997
CASH 12,834
SECURITIES -
RECEIVABLES 185
ALLOWANCE -
INVENTORY 19,681
CURRENT ASSETS 32,890
PP & E 80,700
DEPRECIATION 66,514
TOTAL ASSETS 69,922
CURRENT LIABILITIES 303,289
BONDS -
PREFERRED-MANDATORY -
PREFERRED -
COMMON 99,216
OTHER SECURITIES -
TOTAL LIABILITY AND EQUITY 69,922
SALES 40,000
TOTAL REVENUES 40,000
CGS 0
TOTAL COSTS 0
OTHER EXPENSES 27,025
LOSS PROVISION -
INTEREST EXPENSE 3,224
INCOME TAX -
INCOME - PRETAX 9,751
INCOME - CONTINUING -
DISCONTINUED -
EXTRAORDINARY -
CHANGES -
NET INCOME 9,751
EPS-PRIMARY -
EPS-DILUTED -
