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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, 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 (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. There was 9,736,659
shares of common stock, par value $.01 per share, as of February 11, 1999.
- ----------------------------------------------------------------------------
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
Consolidated balance sheets as of December 31, 1998
(unaudited) and June 30, 1998 . . . . . . . 3
Consolidated Statements of Operations for the three
months and six months ended December 31, 1998
(unaudited) and 1997 (unaudited), and from October 20,
1989 (inception) to December 31, 1998 (unaudited). . . 4
Consolidated Statements of Cash Flows for the six
months ended December 31, 1998 (unaudited) and 1997
(unaudited), and from October 20, 1989 (inception) to
December 31, 1998 (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
2 of 10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statement
BIORELEASE CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and June 30, 1998
--------
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Cash ...................................................... $ 1,832 $ 1,320
Accounts receivable ....................................... 195 8,455
Inventories ............................................... 18,257 18,434
Other receivables ......................................... -- 745
Prepaid expenses and other current assets ................. -- --
----------- -----------
Total current assets ............................. $ 20,284 $ 28,954
Equipment and leasehold improvements, net ................. 6,260 10,971
Intangible assets, net .................................... 15,197 20,449
Other noncurrent assets ................................... 300 300
----------- -----------
Total assets ..................................... $ 42,041 $ 60,674
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable ............................................. $ 27,500 $ 27,500
Accounts payable .......................................... 122,771 113,515
Accrued expenses .......................................... 92,462 93,954
Notes payable - stockholders, current ..................... 46,100 46,100
Income taxes payable ...................................... 1,549 1,549
Other current liabilities ................................. -- --
----------- -----------
Total current liabilities ........................ 290,382 282,618
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 ................................ 409,071 401,307
----------- -----------
Stockholders' equity:
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
December 31, 1998 and June 30, 1998
102,867 102,867
Additional paid-in capital ....................... 9,140,088 9,140,088
Stock warrants outstanding ....................... -- --
Development stage accumulated deficit ............ (9,554,485) (9,528,088)
Stock subscription receivable ....................... ( 50,000) ( 50,000)
----------- -----------
( 361,530) ( 335,133)
Less: Treasury stock .............................. 5,500 5,500
----------- -----------
Total stockholders' equity (deficit) ..... ( 367,030) ( 340,633)
----------- -----------
Total liabilities and stockholders'
equity (deficiency) .................................... $ 42,041 $ 60,674
=========== ===========
</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 STATEMENTS OF OPERATIONS For
the Three Months and Six Months Ended December 31, 1998 and 1997, and the
Cumulative Period from Inception to December 31, 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Inception
December 31, December 31, (October 20, 1989)
----------------------------- -------------------------- To
1998 1997 1998 1997 December 31, 1998
---- ---- ---- ---- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $( 1,524) $ 20,000 $ 1,606 $ 40,000 $ 560,827
Cost of Goods Sold - - ( 177) - ( 25,514)
--------- --------- ---------- ---------- -----------
Gross Profit ( 1,524) 20,000 1,429 40,000 535,313
Operating expenses:
Cell culture operations - - - - (601,116)
Research and development - - - - (2,558,041)
Purchased technologies - - - - ( 690,000)
General and administrative ( 10,492) ( 14,352) ( 24,025) ( 27,025) ( 4,291,539)
Other - - - - -
---------- ---------- ----------- ---------- -----------
(Loss)/Gain from operations ( 12,016) 5,648 ( 22,596) 12,975 ( 7,605,383)
---------- ---------- ----------- ---------- -----------
Other costs:
Interest, net ( 1,728) ( 1,607) ( 3,455) ( 3,224) 68,552
Lease commitment cost - - - - ( 315,000)
Litigation costs - - - - (99,242)
Other income (costs) - - - - ( 23,034)
Gain (Loss) on sale of assets ( 500) - ( 500) - 62,116
Offering costs - - - - ( 336,446)
Option compensation - - - - ( 219,375)
Income on settlements - - 154 - 293,761
Realized loss for decline
in value of investment - - - - (1,500,000)
---------- ---------- ----------- --------- -----------
Total other costs ( 2,228) ( 1,607) ( 3,801) ( 3,224) ( 2,068,668)
----------- ---------- ------------ --------- -----------
Income (loss) before provision for (benefit from) income taxes
and cumulative effect of change in accounting
principle ( 14,244) 4,041 ( 26,397) 9,751 ( 9,674,051)
Provision for income taxes - - - - ( 343,873)
---------- ---------- ----------- --------- ------------
Income (loss) before cumulative effect of
accounting principle ( 14,244) 4,041 ( 26,397) 9,751 (10,017,924)
Cumulative effect of change in
accounting principle - - - - 463,440
---------- ---------- ----------- ---------- -----------
Net income (loss) $( 14,244) $ 4,041 $( 26,397) $ 9,751 $(9,554,484)
========== ========== =========== ========== ===========
Weighted average shares 9,736,659 9,426,659 9,736,659 9,399,159 6,225,948
Basic and fully diluted
(Loss) per share $ .00 $ .00 $ .00 $ .00 $ ( 1.53)
</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 Six Months Ended December 31, 1998 and 1997
and the Cumulative Period from Inception to December 31,1998
(Unaudited)
<TABLE>
<CAPTION>
Inception
Six Months Ended (October 20, 1989)
December 31, to December 31,
1998 1997 1998
------------ ----------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (Loss)/Gain ............................. $ (26,397) $ 9,751 $ ($9,554,485)
Adjustments to reconcile
net loss to net cash used in
development activities:
Depreciation and
amortization .......................... 9,463 15,000 265,393
Cumulative effect of change
in accounting principle ............... -- -- ( 463,440)
(Gain) loss on sale of
assets ................................ 500 -- ( 38,204)
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 ..................... -- -- 52,300
Common stock options issued
in exchange of services
rendered .............................. -- -- 128,453
Amortization of unearned
compensation ............................ -- -- 140,625
Repricing of Class A warrants ............. -- -- 78,750
(Increase) decrease in current assets:
Cash - escrow ........................... -- -- --
Accounts receivable ..................... 8,260 8,099 ( 195)
Other receivables ....................... 745 -- --
Inventories ............................. 177 -- ( 18,257)
Prepaid expenses and
other current assets .................. -- -- 360
Deferred tax asset ...................... -- -- 463,440
Other non-current assets ................ -- -- (300)
Increase (decrease) in current liabilities:
Accounts payable ........................ 9,256 (18,517) 193,722
Deferred revenue ........................ -- (20,000) --
Accrued expenses ........................ ( 1,492) 8,224 99,930
Other current liabilities ............... -- -- 1,549
Other liabilities ......................... -- -- 87,734
---------- ----------- -----------
Net cash provided (used)
In operating activities
512 2,557 (6,415,625)
---------- ----------- -----------
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 .................................. -- -- ( 105,205)
---------- ----------- -----------
Net cash used in
investing activities ................ -- -- ( 248,650)
---------- ----------- -----------
</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 Six Months Ended December 31, 1998 and 1997
and the Cumulative Period from Inception to December 31, 1998
<TABLE>
<CAPTION>
Inception
Six Months Ended (October 20, 1989)
December 31, to December 31,
1998 1997 1998
(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 - - -
Notes payable (paid) - ( 5,000) 104,555
Issuance of common stock, net - - 2,105,966
Purchase of investments in
issuance of common stock - - ( 10,000)
Notes receivable - - -
Recapitalization 0 0 4,031,176
----------- ------------ -------------
Net cash provided
by investing
activities - ( 5,000) 6,666,107
----------- ------------ -------------
Net increase (decrease)
in cash 512 ( 2,443) 1,832
Cash at beginning
of period 1,320 15,277 -
----------- ------------ -------------
Cash at end of period $ 1,832 $ 12,834 $ 1,832
=========== ============ =============
Supplemental disclosure of non-cash transactions:
Cash paid for interest - - 7,752
Marketable securities acquired
through issuance of common
stock - - -
Issuance of common stock
for subscription receivable - - 50,000
Liabilities repaid through
issuance of common stock - - 616,214
Non-marketable security acquired
through the issuance of
common stock - - 1,500,000
</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 SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
AND CUMULATIVE FROM INCEPTION (OCTOBER 20, 1989) TO
DECEMBER 31,1998
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 six months ended December 31,
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
Three Months Ended December 31, 1998 and 1997
For the three months ended December 31, 1998, the Company, including
it's subsidiary, Biorelease Technologies, Inc., ("the Subsidiary") had negative
revenues of $1,524, 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 $10,492,
interest expense of $1,728, loss on sale of assets of $500, resulting in a net
loss of $14,244, compared to the three months ended December 31, 1997 in which
the Company had revenues of $20,000, no costs of goods sold, $0 expenses from
cell culture, 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,
litigation costs of $0, income from the sale of assets of $0, costs related to
terminated business combination and offering costs of $0, no option compensation
charges, income recognized on settlements of $0 and income taxes of $0,
resulting in a net gain of $4,041. The loss for the current quarter, as compared
to income in the same period last year, was attributed to the discontinuation of
research grant revenues.
Six Months Ended December 31, 1998 and 1997
For the six months ended December 31, 1998, the Company had revenues of
$1,606, cost of goods sold of $177, $0 costs of it's cell culture operations, $0
costs of research and development, $0 costs of purchased technologies, $24,025
of general and administrative costs, $3,455 of interest expense, $500 loss on
sale of assets, $154 of income on settlements, and $0 income taxes, resulting in
a loss for the six month period of $26,397 as compared to the six months ended
December 31, 1997, in which 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 expense of $3,224, offering costs of $0 and no income taxes resulting
in a net gain of $9,751. The net loss compared to the net income from the
previous fiscal year's six months resulted primarily from the discontinuation of
grant research revenues.
Inception (October 20, 1989) to December 31, 1998
From October 20, 1989, the date of the Subsidiary's initial activity,
through December 31, 1998, the Company had revenues of $560,827 cost of goods
sold of $25,514, 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 $4,291,539, interest income of $68,552, lease
commitment cost of $315,000, litigation costs of $99,242, other costs of
$23,034, gain on sale of assets of $62,116, offering cost of $336,446, Option
Compensation of $219,375, income recognized on settlements of $293,761, 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 $9,554,484.
8 of 10
<PAGE>
Liquidity and Capital Resources
From inception until the date on which the subsidiary was combined with
the Company (the Reorganization), the Subsidiary's primary sources 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.
9 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.
None
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 11, 1999 By: /s/ Richard F. Schubert
-------------------------
Richard F. Schubert, Chairman and
Principal Financial Officer
F:\bio\sec\10q\1999\10q1298.doc
10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000797662
<NAME> Biorelease Corp.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,832
<SECURITIES> 0
<RECEIVABLES> 195
<ALLOWANCES> 0
<INVENTORY> 18,257
<CURRENT-ASSETS> 20,284
<PP&E> 80,201
<DEPRECIATION> 73,941
<TOTAL-ASSETS> 42,041
<CURRENT-LIABILITIES> 290,382
<BONDS> 0
0
0
<COMMON> 102,867
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,041
<SALES> 1,606
<TOTAL-REVENUES> 1,606
<CGS> 177
<TOTAL-COSTS> 177
<OTHER-EXPENSES> 24,525
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,455
<INCOME-PRETAX> (26,397)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 154
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,397)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
