SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1998
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 (IRS Employer Identification No.)
incorporation or organization)
340 Granite Street, Suite 200, Manchester, NH 03102-4004
- --------------------------------------------- ----------
(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 requiring 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. 9,736,659 shares of common
stock, par value $.01 per share as of April 30, 1998.
Transitional Small Business Disclosure Format (Check One) Yes ___ No _X_
<PAGE>
BIORELEASE CORP.
INDEX
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statement ------
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and June 30, 1997 3
Consolidated Statements of Operations for the Three Months
and the Nine Months ended March 31, 1998 (unaudited) and
1997 (unaudited), and from October 20, 1989 (inception) to
March 31, 1998 (unaudited) 4
onsolidated Statements of Cash Flows for the Nine Months
Ended March 31, 1998 (unaudited) and 1997 (unaudited), and
from October 20, 1989 (inception) to March 31, 1998
(unaudited) 5
Notes to Unaudited Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 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
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and June 30, 1997
March 31, June 30,
1998 1997
(Unaudited) (Unaudited)
----------- -----------
ASSETS
Cash $ 5,213 $ 15,278
Accounts receivable 195 8,099
Inventories 19,681 19,681
Other receivables - 194
Prepaid expenses and other current assets 180 180
--------- ---------
Total current assets $ 25,269 $ 43,432
Equipment and Leasehold improvements, net $ 11,787 $ 18,987
Intangible assets, net 17,047 32,347
Other noncurrent assets 698 698
--------- ---------
Total assets $ 54,801 $ 95,464
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 99,103 $ 116,397
Accrued expenses 108,263 114,561
Notes payable - stockholders, current 46,100 73,530
Loans payable - other 27,500
Deferred Revenue
Income taxes payable 1,549 1,549
Other current liabilities 1,500 -
--------- ---------
Total current liabilities $ 284,015 $ 353,537
Notes payable - stockholders, long term $ 14,955 $ -
Notes payable - other, long term 16,000 16,000
Other liabilities 87,734 87,734
--------- ---------
Total liabilities $ 402,704 $ 457,271
Stockholders' equity:
Common stock of $.01 par value $ 102,996 $ 99,216
50,000,000 shares authorized, 10,286,659 and
9,921,659 issued and 9,736,659 and 9,371,659
outstanding at March 31, 1998 and June 30, 1997.
Additional paid-in capital 9,133,767 9,110,297
Stock warrants outstanding - -
Development stage accumulated deficit (9,529,166) 9,515,820)
Stock subscription receivable (50,000) (50,000)
--------- ---------
$(342,403) $(356,307)
Less: Treasury stock $ (5,500) $ (5,500)
--------- ---------
Total stockholders' equity (deficit) $(347,903) $(361,807)
--------- ---------
Total liabilities and stockholders'
equity (deficiency) $ 54,801 $ 95,464
--------- ---------
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended March 31, 1998 and 1997
and the Cumulative Period from Inception to March 31, 1998
Three Months Ended Nine Months Ended Inception
March 31, March 31, (October 20, 1989)
1998 1997 1998 1997 to March 31, 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 13,558 $ 41,534 $ 53,558 $ 87,185 $ 549,954
Cost of Goods Sold - 3,772 - 4,313 (23,296)
----------------------------------------------------------------------------------------
Gross Profit 13,558 37,762 53,558 82,872 526,658
Operating Expenses:
Cell culture operations - - - - (601,116)
Research and development - - - - (2,558,041)
Purchased technology - - - - (690,000)
General and administrative (26,929) (57,927) (53,955) (135,634) (4,258,354)
Other - - - - -
----------------------------------------------------------------------------------------
Loss from operation $ (26,929) $ (20,165) (53,955) (52,762) (7,580,853)
----------------------------------------------------------------------------------------
Other costs:
Interest, net (9,725) (981) (12,949) (2,943) 67,494
Lease commitment cost - - - - (315,000)
Litigation costs - - - - (99,242)
Other income (costs) - - - - (23,024)
Gain (Loss) on sale of assets - - - - 62,616
Offering costs - - - (30,396) (334,946)
Option compensation - - - - (219,375)
Income recognized on settlements - - - - 293,596
Realized loss for decline in
investments - - - - (1,500,000)
----------------------------------------------------------------------------------------
Total Other Costs (9,725) (981) (12,949) (33,339) (2,067,881)
----------------------------------------------------------------------------------------
Income (Loss) before provision for
(benefit from) income taxes and
cumulative effect of change in
accounting principle (23,096) (21,146) (13,346) (86,101) (9,648,734)
Provision (credit) for income taxes 343,871
----------------------------------------------------------------------------------------
Income (Loss) before cumulative
effect of accounting principle (23,096) (21,146) (13,346) (86,101) (9,992,605)
Cumulative effect of change in
accounting principle 463,440
----------------------------------------------------------------------------------------
Net Income (Loss) (23,096) (21,146) (13,346) (86,101) (9,529,165)
----------------------------------------------------------------------------------------
Weighted average shares 9,669,992 9,471,659 9,444,992 9,476,159 5,913,866
Income (Loss) per share (0.01) (0.01) (0.001) (0.02) (1.61)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months and Nine Months Ended March 31, 1998 and 1997
and the Cumulative Period from Inception to March 31, 1998 (Unaudited)
Nine Months Ended Inception
March 31, (October 20, 1989)
1998 1997 to March 31, 1998
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (13,346) (86,101) (9,529,166)
Adjustments to reconcile net
loss to net cash - - -
used in development activities: - - -
Depreciation and amortization 22,500 22,637 258,516
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 purchased technology - - 605,000
Common stock issued in exchange
for services rendered 20,500 - 115,512
Common stock options issued in
exchange for services rendered 6,750 - 59,050
Amortization of unearned compensation - - 140,625
Repricing of A warrants - - 78,750
Changes in Current Assets: - - -
Cash - escrow - - -
Accounts receivable 8,099 (21,729) -
Other receivables - - (195)
Inventories - 4,313 (19,681)
Prepaid expenses and other current assets - 300 (180)
Deferred tax asset - - 463,440
Other non-current assets - (1) (698)
Changes in current liabilities:
Accounts payable (17,295) 32,532 99,103
Accrued expenses (6,298) 38,250 108,263
Deferred Revenue (20,000) - -
Other current liabilities 1,500 - 118,283
----------------------------------------------
Net cash used in operating activities $ 2,410 (9,799) (6,463,522)
----------------------------------------------
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 - (4,266) (105,205)
----------------------------------------------
Net cash used in investing
activities $ - (4,266) (248,650)
----------------------------------------------
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months and Nine Months Ended March 31, 1998 and 1997
and the Cumulative Period from Inception to March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Inception
March 31, (October 20, 1989)
1998 1997 to March 31, 1998
----------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities
Advances from stockholders - - 594,385
Payments of advances from stockholders - - (159,975)
Loans payable notes payable (12,475) 18,500 77,055
Issuance of common stock, net - - -
Purchase of investments in issuance
of common stock - 5,783 2,174,744
Notes receivable - - -
Recapitalization - - 4,031,176
----------------------------------------------
Net cash provided by investing
activities $(12,475) 24,283 6,717,385
----------------------------------------------
Net increase (decrease) in cash $(10,065) 10,218 5,213
- - -
Cash at beginning of period 15,278 1,200 -
----------------------------------------------
Cash at end of period 5,213 11,418 5,213
----------------------------------------------
Supplemental disclosure of
non-cash transactions:
Interest $ 12,949 1,962 $67,494
Marketable securities acquired
through issuance of common
stock - - -
Issuance of common stock for
subscription receivable - - 50,000
Liabilities repaid through
issuance of common stock $ 27,250 5,784 623,847
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Nine Months Ended March 31, 1998 and 1997
and the Cumulative Period from Inception to March 31, 1998
(Unaudited)
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 Item 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 nine months
ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1998.
2. On February 14, 1998, the Company came to agreement with Mr. George
Lofink regarding a note due stockholder, total amount of principal and
accrued interest due of $15,442. Payment in cash was made for $8,000
and 20,000 shares of common stock under Rule 144 will be issued in lieu
of the balance of $7,442 remaining. As of March 31, 1998 these stock
shares had not been issued.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1998 and 1997
For the three months ended March 31, 1998 the Company, including its
subsidiary Biorelease Technologies, Inc. ("the Subsidiary") had revenues of
$13,558 ($6,404 from Erythrogen sales and $7,154 from Baxter cooperative
agreement) cost of sales of zero, no expenses for cell culture operation, no
research and development expenses, no cost of purchase technology, general and
administrative expenses of $26,929 and interest expense of $9,725, resulting in
a net loss of $23,096. Compared with the three months ended March 31, 1997 the
Company, including its subsidiary Biorelease Technologies, Inc. ("the
Subsidiary") had revenues of $41,534 ($21,534 from Erythrogen TM and $20,000
from the Baxter cooperative agreement), cost of sales of $3,772, no expenses for
cell culture operation, no research and development expenses, no cost for
purchase technology, general and administration expenses of $57,927, and
interest expense of $981 resulting in a net loss of $21,146.
Nine Months Ended March 31, 1998, and 1997
For the nine months ended March 31, 1998 the Company, including its
subsidiary Biorelease Technologies, Inc. ("the Subsidiary") had revenues of
$53,558 ($6,404 from Erythrogen sales and $47,154 from Baxter cooperative
agreement) cost of sales of zero, no expenses for cell culture operations, no
research and development expenses, no cost of purchased technology, general and
administrative expenses of $53,955 and interest expense of $12,949, resulting in
a net loss of $13,346. Compared with the nine months ended March 31, 1997, the
Company had revenues of $87,185, cost of goods sold of $4,313, no cell culture
costs, no research and development costs, no purchased technology costs, general
and administrative costs of $135,634, interest of $2,943, offering costs of
$30,396 and no income taxes resulting in a net loss of $86,101.
Capital Resources
The Company expects to operate within the limited cash flow generated
by its product sales. In this scaled back configuration, the Company will focus
on prepaid research at the University of New Hampshire and limited outside
research to available cash. Depending 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 condition 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.
<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 12, 1998, the Company announced it had signed a definitive agreement
with XENIX Resources, Inc. (XENIX) for an exchange of shares, pursuant to which
Biorelease Corp. (OTC-BRLZ) will acquire XENIX in a reverse acquisition. If the
agreement is consummated, the currently outstanding BRLZ shares are proposed to
be reverse split approximately 1 for 27, resulting in 356,000 post-reverse split
shares, and BRLZ will then issue a total of 8,724,000 post-reverse split shares
to XENIX's shareholders and others. Prior to closing, BRLZ will sell or spin off
its biotechnology assets to benefit shareholders of record as of the record date
to be set for approval of the XENIX acquisition. XENIX's management will assume
control of the Company, which will change its corporate name to XENIX RESOURCES,
INC. XENIX, headquartered in Birmingham, Alabama, is a leading supplier of
high-grade metallurgical coal for industrial use and also produces steam coal
for electric generation, for sale to utilities in the southern United States.
XENIX's customers, in addition to numerous privately owned coking and industrial
cement companies, include Alabama Electric Cooperative, Seminole Electric
Cooperative, Gulf Power Company, and Mississippi Power Company. Historically,
approximately 70% of XENIX's revenues have been generated from sale of its
coking coal used in the production of high-grade steel for use in foundries and
for the construction of buildings, bridges, etc. Derrell J. Chamblee, a 30-year
veteran of the coal industry, founded XENIX, via its wholly owned subsidiaries,
in 1989. As of and for the nine months ended September 30, 1997, XENIX had total
assets of $19.4 million, a net worth of $4.2 million, and nine month revenues
and net income of $14.6 million and $1.04 million, respectively (audited).
Additional audited financial statements for XENIX have not been received by the
Company. Completion of the reverse merger is subject to, among other things,
shareholder approval by both the Company and XENIX, and the filing with the
Securities and Exchange Commission and effectiveness of a proxy
statement/prospectus. If and when the reverse merger is completed as agreed and
subject to meeting all listing requirements therefore, the newly-reorganized
company intends to file for a listing on the NASDAQ. XENIX has reported to the
Company that XENIX's recent financial results are below expectations. The
Company is in discussions with XENIX as to the possibility of modifying or
terminating the definitive agreement. The Board of Directors of the Company has
named Dr. Bruce Reeves, who was the Company's president from 1992 until December
1996, as interim President pending completion of the reverse merger.
Item 6. Exhibits and Reports of Form 8-K
None
<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.
May 13, 1998 By: /s/ Richard F. Schubert
------------------------------------------------
Richard F. Schubert, Chairman and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000797662
<NAME> Biorelease Corp.
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 5213
<SECURITIES> 0
<RECEIVABLES> 195
<ALLOWANCES> 0
<INVENTORY> 19681
<CURRENT-ASSETS> 25269
<PP&E> 80701
<DEPRECIATION> 68914
<TOTAL-ASSETS> 54801
<CURRENT-LIABILITIES> 284015
<BONDS> 0
0
0
<COMMON> 102996
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 54801
<SALES> 53558
<TOTAL-REVENUES> 53558
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 53955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12949
<INCOME-PRETAX> 0
<INCOME-TAX> (13346)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13346)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
