SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended June 30, 2000 Commission File No. 33-43976
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Delaware 88-0218411
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
BIORELEASE CORP.
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(Exact name of Registrant as specified in its charter)
340 Granite Street, Suite 200, Manchester,
NH 03102 (Address of principal
executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 641-8443
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:Common Stock, Class A
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Common Stock Purchase Warrants
Indicate by check mark whether the registrant has: (1) 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 has (2) been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB ( X )
Yes X No
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The aggregate market value of the voting common stock held by non-affiliates (1)
of the registrant, based on the average of high bid ($0.10) and low bid ($ 0.10)
prices of the Company's Common Stock as of September 26, 2000, is approximately
$899,225. This is based upon an average of $0.10 multiplied by the number of
shares of registrant's Common Stock held by non-affiliates (8,992,254 shares).
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of September 26, 2000 is 12,124,238.
(1) "Affiliates" solely for purposes of this item refers to those persons who,
during the 3 months preceding the filing of this Form 10-KSB were officers,
directors and/or beneficial owners of 5% or more of the Company's outstanding
stock.
DOCUMENTS INCORPORATED BY REFERENCE
See Item 13.
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
BIORELEASE CORP
Form 10-KSB
Fiscal Year Ended June 30, 2000
Table of Contents
PART I
Item 1. Business: .................................................. 3
General ..................................................... 3
The Subsidiary (Biorelease Technologies, Inc.) .............. 4
Description of the Subsidiary's Technologies ................ 4
ErythrogenTM Cell Culture Product and Business Opportunity .. 4
ErythrogenTM Manufacturing, Sales and Marketing ............. 5
Competition ................................................. 5
Research and Development Policy ............................. 5
Patents and Proprietary Technology .......................... 5
Employees & Outside Consultants ............................. 5
Item 2. Properties: ................................................. 5
Item 3. Legal Proceedings ........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders ......... 6
PART II
Item 5. Market for Company's Common Equity and Related Stockholde
Matters .................................................. 6
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations: ..................... 7
Results of Operations ...................................... 7
General .................................................... 7
Year Ended June 30, 2000 compared to the Years Ended
June 30, 1999 ............................................ 7
Liquidity and Capital Resources ............................ 7
Dividend Policy ............................................ 8
Effect of Inflation ........................................ 8
Litigation and Related Matters ............................. 8
Item 7. Financial Statements ....................................... 8
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ..................... 9
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Exchange Act ......................................... 10
Compliance with Section 16(a) of The Securities Exchange
Act of 1934 .............................................. 11
Item 10. Executive Compensation .................................... 11
Item 11. Security Ownership of Certain Beneficial Owners
and Management .......................................... 13
Item 12. Certain Relationships and Related Transactions ............ 14
The Reorganization .......................................... 14
The Company ................................................. 15
The Subsidiary .............................................. 17
The Selling Securityholders' Offering ....................... 18
The Exchange Offering ....................................... 18
Terminated Public Offering .................................. 18
Item 13. Exhibits and Reports on form 8-K .......................... 18
Reports on form 8-K ......................................... 18
Exhibits .................................................... 19
Exhibits incorporated by reference .......................... 19
SIGNATURES ......................................................... 20
SUPPLEMENTAL INFORMATION AND EXHIBITS .............................. 21
<PAGE>
PART I
Item 1. Business
General
The Company, Biorelease Corp. ("BIO") including its biotechnology
subsidiary, Biorelease Technologies, Inc. (the "Subsidiary") is a development
stage company. The Subsidiary holds technology in the field of blood substitutes
and sustained release drug delivery technology based on chondroitin sulfate. Dr.
R. Bruce Reeves served as an officer and director of the Company from inception
in 1989 to October 4, 1996 after which he served as a consultant through a
family affiliate. Dr. Reeves was re-appointed on February 11, 1998 as President
to effectuate merger activity for the Company (See Item 5 -Stockholders
Matters). R T Robertson Consultants, Inc., a corporation wholly-owned by members
of Dr. Reeves' family, entered into a consulting agreement with the Company's
subsidiary to oversee the business activities of the Company's subsidiary from
April 1, 1996 through February 11, 1998.
The Subsidiary began its biotechnology activities in 1989 by acquiring
the hemoglobin stabilization and processing technologies of Oxygenetics, an
early stage California based company to allow Biorelease to become a participant
in the $3 to $5 billion synthetic blood business. The Subsidiary's founders
included Richard Schubert, the Company's present Chairman, past President of the
American Red Cross, Dr. R. Bruce Reeves and Dr. Paul Maybury, a Director until
September 30, 1997. The Subsidiary subsequently acquired sustained release drug
delivery technology based on chondroitin sulfate in order to expand its business
franchise into other therapeutic areas. Drug delivery has become one of the
fastest growing areas in the pharmaceutical industry with companies increasingly
turning to novel delivery systems to extend the patent life of existing drugs,
increase product portfolios, enhance safety and efficacy, reduce unwanted
side-effects, improve patient compliance and maintain product sales against
competition. Products utilizing novel drug delivery technologies have already
captured a significant share of several therapeutic markets and some systems may
be able to provide new therapies by modifying the activity of existing
compounds.
The Company became listed on NASDAQ (Small cap) in 1992 following a
business combination with the Subsidiary. The Company's stock was delisted in
April, of 1994 for failing to meet net asset requirements and its stock has
since been trading on the OTC Electronic Bulletin Board. During the fourth
quarter of fiscal year ended June 30, 1998, NASDAQ changed the Company's trading
symbol from BREL to BRLZ.
The Company has invested approximately nine million dollars ($9
million) in the Subsidiary's technologies including support and administrative
expenses. By mid 1994, following the delisting, it was clear that the Company's
ability to raise capital was insufficient to allow it to become a self-standing
synthetic blood producer in light of the large costs necessary to bring such a
product to market. For the past five fiscal years the Company has operated
without employees, using consultants and research affiliations to achieve
limited sales of the Subsidiary's cell culture product, Erythrogen(TM).
On October 8, 1996, the Company's Board of Directors announced it had
executed a letter of intent for the proposed acquisition of TheraMed Partners,
Inc. ("TheraMed"), a then recently formed, privately-held company focusing on
acquiring and consolidating late-stage biotechnology companies and
pharmaceutical synergistic technologies. The letter of intent provided the
general terms and conditions of a proposed acquisition of TheraMed by the
Company, whereby the management of TheraMed would receive a substantial interest
in BIO. When taken together with shares held by existing management and
directors of the Company, TheraMed stockholders and the Company's then existing
management and directors together would hold a controlling interest in BIO
following the acquisition. In February 1997, the Company terminated the Stock
Purchase Agreement with TheraMed. Under the terms of the termination, the
Company agreed to reimburse TheraMed for up to $27,500 advanced by TheraMed to
the Company.
The Subsidiary received notice from Baxter Healthcare Corp. that,
effective January 1, 1998, Baxter would not renew its exclusive licensing rights
to the Subsidiary's chondroitin sulfate technology for blood substitutes but
rather convert to a non-exclusive license. Following the loss of future Baxter
exclusivity payments and the lack of adequate working capital necessary to
exploit the Subsidiary's technology, the Company has limited its activities to
selling its cell culture product Erythrogen(TM) and seeking a strategic merger
or acquisition. On February 19, 1998, the Company announced that it had signed a
definitive agreement to acquire Xenix Resources, Inc., a privately owned Alabama
corporation, pursuant to which the Company would acquire Xenix in a reverse
acquisition. A Proxy Statement was prepared shortly thereafter describing this
transaction. On April 15, 1998, before this Proxy Statement was filed, Xenix
notified the Company that it had experienced material adverse change in its
financial condition. The Company did not file the Proxy Statement and withdrew
from the agreement on March 28, 1999.
On August 2, 1999 the Company announced the signing of a merger
agreement pursuant to which Biorelease agreed to merge with POLAR MOLECULAR
CORPORATION, a Utah corporation ("PMC"). On January 18, 2000 a Form S-4 was
filed with the Securities and Exchange Commission. The Sec has issued a comment
letter on that filing. The Company has deferred its response to these SEC
comments in order to complete year end 2000 financials for the Company and PMC.
On June 30, 2000 the Company and PMC amended and restated the agreement and plan
of reorganization to include updated audited financial statements of both
companies and to state that PMC shall have a net worth of at least $2,300,000.
The extension provided that PMC would make specific payments to the Company on
specific dates and that PMC would provide PMC's audited financials for inclusion
into the revised Form S-4 by August 31, 2000. PMC failed to make the payments
called for and has not released its audited financials to the Company.
Accordingly, the Company has provided notice of its intent to terminate the
merger agreement effective October 13, 2000. The Company is, however, in
discussions with PMC to reinstate the merger on substantially similar terms.
<PAGE>
The Subsidiary (Biorelease Technologies, Inc.)
Since acquisition by the Company in 1992, the Subsidiary has focused on
development and promotion of its proprietary hemoglobin based cell-culture
additive, ErythrogenTM, along with developing applications of its sustained
release drug technology. During fiscal year 1993, the Subsidiary began to
generate minimal revenues ($7,942) from the first sales of ErythrogenTM in
non-FDA regulated applications. ErythrogenTM sales were $4,200 and $11,630
during the years ended June 30, 2000 and 1999, respectively and $177,264 from
inception to June 30, 2000. The Subsidiary received $0 in fiscal 2000 and 1999
for licensing revenues inclusive of patent cost reimbursement from Baxter
Healthcare (see Next Paragraph) related to their use of chondroitin sulfate drug
delivery for blood substitutes. At this time, the Subsidiary has no products
approved by the FDA or in clinical trials and does not intend to conduct
clinical trials or to develop a pharmaceutical marketing unit.
The Subsidiary had invested substantially all of its development
resources into two core proprietary technologies: hemoglobin stabilization and
sustained drug release technology based on chondroitin sulfate. The Subsidiary's
cell culture additive, ErythrogenTM, uses hemoglobin stabilizing technology to
produce a proprietary cell culture additive. The Subsidiary has discontinued
direct promotion of ErythrogenTM to the research and laboratory markets because
of the high cost of promotion. Instead, the Subsidiary is focusing on industrial
applications. From August, 1994 to December, 1995 the Subsidiary received
financial support to demonstrate the benefit of its chondroitin sustained
release technology as applied to a blood substitute product under development by
Baxter Healthcare (Baxter). The Company was given notice that these exclusive
licensing rights held by Baxter Healthcare would not be renewed after December
31, 1997, instead converting into a non-exclusive license resulting in cessation
of future payments. Through June 30, 2000, the Company received $355,620 of
revenues under the Baxter agreement.
Since closing its research facilities in June 1995, the Subsidiary's
primary technical support activities were conducted at the University of New
Hampshire ("UNH") pursuant to a research agreement. Research at UNH has focused
on cell culture application development of ErythrogenTM.
Description of the Subsidiary's Technologies
CHONDROITIN SULFATE SUSTAINED DRUG RELEASE TECHNOLOGY
While the subsidiary was pursuing its own blood substitute product, it
acquired a sustained release drug delivery technology based on chondroitin
sulfate, a naturally occurring compound found in the cartilage tissue of all
cartilage containing animals (including humans). This technology, patented in
the U.S. and abroad, has been applied by the subsidiary to a number of drugs and
biological compounds with the effect of extending the drug's in vivo dwell time.
This technology has received development support from Baxter Healthcare and
resulted in an initial licensing agreement in April 1996 with Baxter for
Baxter's blood substitute application, such recently revised to become
non-exclusive. Chondroitin sulfate enjoys key advantages that differentiate it
within the drug delivery marketplace. Unlike a number of competitive drug
delivery technologies, chondroitin sulfate is naturally occurring in the body,
is highly biocompatible and is readily available from a number of natural
sources. The subsidiary has complexed chondroitin sulfate, derived from bovine
sources, to various drugs and proteins. Commercial applications could enable the
Subsidiary to participate, with corporate partners, in a new generation of
sustained-release drug delivery applications for the pharmaceutical industry
with emphasis on large dose and chronically used drugs, actively competing in a
drug delivery market that is currently estimated at tens of billions of dollars.
Because of the limited working capital position of the Company, the Subsidiary
will seek either a buyer for this technology or find a partner willing to
provide the resources to develop this technology further. During fiscal year
ending June 30, 1999 the Subsidiary allowed its remaining patents to expire.
ErythrogenTM Cell Culture Product and Business Opportunity
The Subsidiary's focus, in the non-regulated biologics industry, has
been to develop a cell culture product based on its blood technology for the
cell culture additive market. Cell culture is the process by which living cells
(bacterial, plant, yeast, insect, and mammal) are propagated in a controlled
environment (medium). Cell culture is maintained at the proper bath temperature
and supplemented with nutrients and salts, and is utilized by the pharmaceutical
and biotechnology industries to generate recombinant products. Agents that
enhance the efficiency and productivity of cell culture can be developed for
markets that are both sizable and independent of FDA clinical trials. Fetal
bovine serum (FBS), the serum component of blood obtained from calf fetuses, is
the cell culture additive used most commonly (represents approximately 50% of
the additive market) to provide nutrition and enhance the growth of cells. Cells
grown in culture can be used to produce biological materials including
antibiotics, antibodies, biopesticides, and genetically engineered proteins and
viruses.
In academic and industrial laboratories, cells are propagated in
vessels ranging from plastic flasks to large stainless steel bioreactors. Cells
can be maintained more easily in flasks in research laboratories. Scale-up of
cell cultures into large volume spinner/shaker flasks and bioreactors has
encountered difficulty in supplying oxygen uniformly to high-density cell
cultures. No method has been wholly satisfactory in addressing this problem.
Biorelease has developed purified, stabilized tetrameric hemoglobin that
utilizes hemoglobin's oxygen carrying capability to increase the oxygen delivery
to cells contained in the media. ErythrogenTM enhances the growth of cultured
cells, especially those of high-density cultures and reduces the amount of
nutrients that must be added. Most importantly, ErythrogenTM significantly
increases protein expression and production.
<PAGE>
The Subsidiary introduced its first cell culture additive,
ErythrogenTM, in late 1993. ErythrogenTM has been sold to a number of research
laboratories, including the NIH, as well as to a number of biotechnology and
pharmaceutical companies for incorporation into their experimental cell culture
media. The Subsidiary recently developed new applications data under a
University of New Hampshire cooperative research grant and expects to publish
some of this data.
ErythrogenTM Manufacturing, Sales and Marketing
The Subsidiary engaged a small unaffiliated manufacturer of biological
products to perform specific manufacturing and product development activities
for the Subsidiary. Manufacturing and product development was conducted pursuant
to periodic work orders. The Subsidiary owns the primary equipment used to
manufacture ErythrogenTM. This manufacturer has not manufactured ErythrogenTM
for the Subsidiary for several years because the Subsidiary currently has a
sufficient inventory of ErythrogenTM. Based upon the Subsidiary's experience to
date, management believes that the manufacturer has the ability to manufacture
ErythrogenTM within the product specifications established for the utilization
of ErythrogenTM as a cell culture additive. Since June 1995, the Subsidiary has
employed no sales or marketing staff.
Competition
(a) ErythrogenTM's initial testing indicates that ErythrogenTM
increases cell densities and reduces cell doubling time and increases protein
production when added to insect and mammalian cell culture media. Management
believes that these results stem, in part, from ErythrogenTM 's ability to
increase the amount of available oxygen for cell utilization and, possibly,
decrease the level needed of certain additives such as FBS. ErythrogenTM
technically does not compete with FBS because it is a supplement to and not a
replacement for FBS. The Subsidiary knows of no other commercially available
cell culture additives that provide oxygenation to culture media; however, a
number of biotech companies have the capability to produce similar products.
Most of the Subsidiary's competitors have greater financial and personnel
resources than the Subsidiary. In the event that a competitor produces a
comparable product, no assurance can be given that the Subsidiary will be able
to successfully compete.
Research and Development Policy
The Subsidiary is no longer actively pursuing research on its
technologies. Research at University of New Hampshire was the only work
undertaken during the past two fiscal years (2000 and 1999). From October 1989
to June 30, 2000, the Subsidiary spent $2,558,041 on research and development
(not including $690,000 to purchase these two technologies).
Pursuant to an earlier agreement with the University of New Hampshire,
UNH conducted research on the application development of ErythrogenTM for
mammalian cells. Pursuant to the UNH Cooperative Agreement, which commenced
December 19, 1994 and ran through December 31, 1997, the Subsidiary contributed
$175,000 of "in kind" matching expenditures plus contributing $34,000 of
equipment to UNH for research. The Agreement also called for funding, to the
level of $50,000 contributed by the state of New Hampshire. The agreement ended
December 31, 1997.
Until June 1995, the Subsidiary had been utilizing its own in-house
laboratory at its former facilities. However, as a part of the Subsidiary's 1995
reorganization and downsizing, this laboratory facility was closed and
laboratory employees terminated. See "Item 2. Properties". All work in
development of application data for ErythrogenTM was conducted under the UNH
Cooperative Agreement.
Patents and Proprietary Technology
The Company's working capital deficiency has impacted the Company's
ability to pursue and maintain its patents. During fiscal year ending June 30,
1999, the Subsidiary elected to allow its remaining patents to lapse.
Employees & Outside Consultants
From August 1994 until March 31, 1996, the Company had one full-time
employee, Dr. R. Bruce Reeves, the Company's President (see Part iii, item 10
and 11). Effective April 1, 1996 the Board of Directors retained R T Robertson
Consultants, Inc. as consultants to the Company, including the services of Dr.
Reeves. Dr. Reeves continued to serve through October 4, 1996 as a Director and
President of the Company. R T Robertson Consultants, Inc. agreed to consult for
the Subsidiary for up to six months through June 1997. On February 11, 1998 the
Company appointed Dr. Reeves as President of the Company until a successor is
elected and qualified. Due to the Company's current financial position and lack
of significant revenues, the Company expects to continue this mode of operation
for the near future.
Item 2. Properties
Since October 20, 1997 the principal offices are located at 340 Granite
Street, Suite 200, Manchester, NH, 03102, (603) 641-8443. This location, in an
in-town multi-tenant office building, allows R T Robertson Consultants, Inc. to
provide, on a contract basis, the administrative functions of the Company and
the Subsidiary and technical support and shipping for the ErythrogenTM product
line. The Company has no laboratory facilities at present, instead utilizing
facilities at the University of New Hampshire on an as needed basis. The Company
does not pay Robertson for the allocated portion of the facilities used. From
June 1995 through October 1997 the Company rented office facilities at 10
Chestnut Drive, Unit D, Bedford, NH 03110. The Company relocated from its former
laboratory facilities at 8A Industrial Way, Salem, New Hampshire 03079 in June
of 1995.
<PAGE>
Item 3. Legal Proceedings
On May 17, 1994, Mr. Lofink, a shareholder and former employee of the
Subsidiary, filed a law suit in Superior Court in California to recover certain,
then remaining, sums due (approximately $40,000), relating to his former
employment. In April, 1995 the Company entered into a court approved settlement
with Mr. Lofink in the amount of $43,475 calling for payment of $5,000 upon
signing and $1,000 monthly until December, 1996 when any remaining balance was
to become due. This agreement was further amended in fiscal 1996 to provide for
an extension in the due date to December 1997 by the Subsidiary continuing to
pay $1,000 monthly through this extended period. In February 1998 the Company
paid $8,000 and agreed to issue 20,000 of its shares in final settlement of this
obligation. The Company had $1,000 accrued on its financial statements to
reflect this stock issuance. At June 30, 2000 the 20,000 shares were included as
authorized and outstanding and in transit (see Item 7 - Notes to Financial
Statements). Except as set forth herein, the Company is not presently a party to
any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
During the past five fiscal years no matters were submitted to a vote
of security holders through the solicitation of proxies or otherwise. The
transaction with Polar Molecular Corporation, as described earlier (see Item
1Business), will be voted on by the Company's stockholders following the filing
by PMC and effectiveness of a Form S-4.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
(a) Market Information -- The principal U.S. market in which the
Company's common shares are traded (all of which are of one class, $.01 par
value Common Stock) is the Over-the-Counter market. In August 1986, the Company
completed its initial public offering. In April 1991, the Company issued 450,000
Class A common stock purchase warrants, 400,000 of which have been exercised.
The Class A common stock purchase warrants was exercisable at $1.375 per Share
and expired July 5, 1995. The Common Stock was listed for trading on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the symbol "BREL" until April 27, 1994 (excluding from February 28, 1994
through March 17, 1994), at which time it was delisted. The Company's common
Stock is now traded in the Over-the-Counter market and is listed on the OTC
Bulletin Board. In July 1997 NASDAQ assigned the Company a new symbol "BRLZ". On
September 18, 2000, the average between the high and low reported bid price of
the Common Stock on the OTC Bulletin Board was $0.10 per Share. The following
table sets forth the range of quoted high and low bid prices of the Company's
Common Stock on a quarterly basis for the fiscal years ended June 30, 2000 and
1999 as published on commercial web sites. These quotes reflect inter-dealer
prices without retail mark-up, markdown or commission and may not necessarily
represent actual transactions.
<TABLE>
Bid Price Bid Price
Fiscal 2000 Low High Fiscal 1999 Low High
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<S> <C> <C> <C> <C> <C>
First Quarter, First Quarter
Ended September 30, 1999 $ .05 $ .11 Ended September 30, 1998 $ .01 $ .0125
Second Quarter, Second Quarter
Ended December 31, 1999 $ .11 $ .11 Ended December 31, 1998 $ .01 $ .01
Third Quarter Third Quarter
Ended March 31, 2000 $ .20 $ .39 Ended March 31, 1999 $ .005 $ .01
Fourth Quarter Fourth Quarter
Ended June 30, 2000 $ .08 $ .10 Ended June 30, 1999 $ .01 $ .015
</TABLE>
(b) Holders -- The number of record holders of the Company's Common
Stock as of June 30, 2000 was 1,687 inclusive of those brokerage firms and/or
clearing houses holding the Company's common shares for their clientele (with
each such brokerage house and/or clearing house being considered as one holder).
Effective June 30, 1999 1,447,200 shares were issued upon exercise of a like
number of options, 263,879 shares were issued in trust for the benefit of the
minority-interest holders and 550,000 shares previously held in treasury were
issued. The aggregate number of shares of Common Stock outstanding was
12,124,238 shares of common stock as of June 30, 2000.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations1
Results of Operations
General
In April, 1994, following a failed financing and delisting by NASDAQ
for falling below required asset levels, the Company experienced a severe cash
flow shortage and had to severely curtail its funding of research on the
Subsidiary's technologies. In May 1994, the Company terminated substantially all
remaining laboratory personnel, professional staff and administrative personnel
except for one remaining research scientist and Dr. Reeves. Late in June 1995
the Company moved to facilities in Bedford, NH. In October 1997 the Company
moved to its current location in Manchester, NH. As a part of this
consolidation, the Subsidiary sold all non-essential equipment, destroyed all
non-essential inventory of Erythrogen(TM) and settled its outstanding lease
obligations with both its equipment and facilities lessors. The Subsidiary also
reached settlement with a number of the Subsidiary's creditors by issuing stock
in the Company in exchange for creditor releases (see Financial Statements at
Note 6). Currently, the Subsidiary continues to maintain inventory of
Erythrogen(TM), its cell culture additive product, in order to provide for
supply of the product to existing and new customers. For the past several years,
the Company and the Subsidiary have focused primarily on ErythrogenTM sales
activities. All other operating activities have now ceased. Other than possible
licensing opportunities, therapeutic products which could have been derived from
the Subsidiary's technologies are years away from market introduction and would
require significant additional research and development, including extensive
preclinical and clinical testing and regulatory approval and additional
resources the Subsidiary presently does not possess. See "Item 1. Business."
Sales from ErythrogenTM for the year ended June 30, 2000 and 1999, were
$4,200 and $11,630, respectively. During year end June 30, 1995 the Subsidiary
ceased promoting direct sales to research and laboratory markets because of the
extremely high promotion costs necessary to access these markets. Instead, the
Subsidiary has focused on supplying a single industrial client, which
incorporates ErythrogenTM in a proprietary media sold to biotechnology
companies.
In 1995, the Subsidiary obtained its first significant sponsored
research revenues. This revenue amounted to $0 in 2000 and 1999. Chondroitin
sulfate sales were $0 in 2000 and 1999. Total revenues were $4,200 in 2000
compared to $11,630 for the year ended June 30, 1999. Because of the closing of
the Subsidiary's laboratory facilities, it is unlikely sponsored research will
continue until the Subsidiary re-establishes new laboratory facilities, if ever.
Following its restructuring and consolidation, the Subsidiary has and will
continue to focus on industrial ErythrogenTM sales and continue to pursue
licensing and/or sale of its chondroitin sulfate therapeutic sustained release
drug technology. The Company expects to spin-off or otherwise dispose of the
respective technologies as part of the proposed Polar Molecular transaction if
and when such is concluded and seek acquisition or strategic alliance with
another company.
Year Ended June 30, 2000 compared to the Year Ended June 30, 1999
For the year ended June 30, 2000 the Company, including the Subsidiary
had revenues of $4,200, cost of revenues of $398, general and administrative
expenses of 43,527, other income of $44,447 from PMC to offset administrative
costs, a cost of $640 recognized on indemnified liabilities and a loss on
recognized settlements of $821 as compared to the year ended June 30, 1999 in
which the Company, including the Subsidiary, had revenues of $11,630, cost of
revenues of $2,818, research and development costs of $0, purchased technology
costs of $0, general and administrative costs of $22,794, interest expense of
$5,183, other income of $9,869, a loss on the sale of assets of $1, income
recognized on indemnified liabilities of $242,276, Income recognized on
settlements of $79,770 and no income taxes. This resulted in a net income of
$3,261 for the year ended June 30, 2000 as compared with the year ended June 30,
1999 in which the Company, including the Subsidiary had a net income of
$312,749. The income for year ended June 30, 2000 was from minimal
Erythrogen(TM) revenues and other income from PMC to reimburse the Company for
general and administrative expenses. The income for year ended June 30, 1999 was
primarily as a result of income recognized on indemnified liabilities ($242,276)
and income recognized on settlements ($79,770).
Other non-operational income in fiscal year ended June 30, 2000 in the
aggregate of $44,447 resulted from reimbursements of administrative costs by
POLAR MOLECULAR CORPORATION under the PMC merger agreement.
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 Stock and Stock in the Subsidiary. Since the
Reorganization, the primary source of capital has been the Company's funds.
At June 30, 2000, the Company had working capital of $9,169 as compared
with the Company's working capital of $10,778 at June 30, 1999. The change in
the Company's working capital between June 30, 2000 and June 30, 1999 is
primarily attributable to net revenues from Erythrogen(TM) sales plus
reimbursements from PMC.
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1 The primary focus of the following discussion is on the business of Biorelease
Technologies, Inc. (the "Subsidiary"), as 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.
<PAGE>
During fiscal years 1998 and 1997, the Company benefited from the
exclusive licensing agreement relating to research revenues from the Company's
sustained release technology sponsored by Baxter Healthcare. This exclusive
agreement ended December 31, 1997. The Company has announced it expects to
spin-off the Subsidiary or it's technologies as a part of the transaction with
Polar Molecular Corporation. The Company can give no assurance that these
activities will be consummated.
The drastic restructuring of its operations during the past five years
has allowed the Company to operate at significantly lower expense levels than
those of the previous years. Revenues from ErythrogenTM sales have exceeded
direct costs for the last five fiscal years, but they are not sufficient, to
carry all other expenses not relating to ErythrogenTM.
Dividend Policy
The Company made a dividend distribution of shares of Vegas Chips, Inc.
in January 1992. However, the Company has not declared any cash dividends since
inception, and has no present intention of paying any cash dividends on its
Common Stock in the foreseeable future, as it intends to use earnings, if any,
to generate increased growth. The Company has announced, as part of the Polar
Molecular transaction, that it shall spin-off its interest in the Subsidiary to
its stockholders. The Board of Directors has not established a date of record
for this proposed spin-off. Otherwise, the Company has not declared or paid any
dividends on its commons 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, it is unlikely 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.
Litigation and Related Matters
See "Item 3. Legal Proceedings." There are no other matters pending
against the Company as of the date of this report.
<PAGE>
Item 7. Financial Statements
The following financial statements have been prepared in accordance
with the requirements of Item 310(a) of Regulation S-B.
INDEX Page Number
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 2000 and 1999 F-2
Consolidated statements of Operations
Two years ended June 30, 2000 and for the cumulative
period from Inception to June 30, 2000 F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the two years ended June 30, 2000
And the cumulative period from inception to June 30, 2000 F-4
Consolidated Statements of Cash Flows
Two years ended June 30, 2000 and for the
cumulative period from inception to June 30, 2000 F-5
Notes to Consolidated Financial Statements F-6
All other schedules have been omitted because they are
inapplicable or not required, or the Information is included elsewhere in the
financial statements or notes thereto.
<PAGE>
BIORELEASE CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
With Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Biorelease Corp.
We have audited the accompanying consolidated balance sheets of Biorelease Corp.
and Subsidiary (a development stage enterprise) as of June 30, 2000 and 1999,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Biorelease Corp. and
Subsidiary as of June 30, 2000a and 1999 and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company is a development stage enterprise that, since its inception, has
incurred operating losses, and the Company does not have sufficient working
capital to support its future operations on an ongoing basis. Because of these
factors, there is substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are discussed in Note 1.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The consolidated financial statements of Biorelease Corp. and Subsidiary, for
the period from inception to June 30, 2000 have been audited by us and other
auditors. Those reports expressed an unqualified opinion on those statements,
with an explanatory paragraph regarding the uncertainty of the entity's ability
to continue as a going concern.
----------------------------------
/s/ Ferarri & Associates, P. C.
Manchester, New Hampshire
October 13, 2000
F-1
<PAGE>
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Balance Sheets
June 30, 2000 and 1999
ASSETS
2000 1999
----------- -----------
Current assets
Cash $ 502 $ 12,232
Due from merger candidate 29,447 -
Inventory 16,012 16,366
----------- -----------
Total current assets 45,961 28,598
----------- -----------
Equipment, net 1,734 5,055
=========== ===========
Total assets $ 47,695 $ 33,653
========== ===========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
2000 1999
----------- ----------
Current liabilities
Accounts payable $ 14,792 $ 1,820
Accrued expenses 17,000 16,000
Other current liabilities 5,000 -
----------- ----------
Total current liabilities 36,792 17,820
----------- ----------
Other liabilities - related party 1,000 7,200
----------- ----------
Total liabilities 37,792 25,020
----------- ----------
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock of $.01 par value;
50,000,000 shares Authorized,
12,124,238 and 11,997,738 shares
issued and 12,124,238 and 11,997,738
shares outstanding as of
June 30, 2000 and 1999, respectively 121,242 119,977
Additional paid-in capital 9,114,115 9,112,069
Development stage accumulated deficit (9,212,078) (9,215,339)
Stock subscriptions receivable on
exercise of stock options (-) (8,074)
----------- -----------
23,279 8,633
Deferred offering costs (13,376) -
----------- -----------
Total stockholders' equity 9,903 8,633
----------- -----------
Total liabilities and
stockholders' equity $ 47,695 $ 33,653
=========== ===========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Statements of Operations
Years Ended June 30, 2000 and 1999 and
the Cumulative Period from Inception to June 30, 2000
<TABLE>
Period From
For the Year Ended June 30, Inception to
2000 1999 June 30, 2000
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Sales ............................................................. $ 4,200 $ 11,630 $ 177,264
Sponsored research ................................................ -- -- 355,620
Grant revenues .................................................... -- -- 33,117
Other income ...................................................... -- -- 8,500
----------- ----------- -----------
Total revenues ............................................... 4,200 11,630 574,501
Cost of revenues ..................................................... 398 2,818 28,553
Gross profit ................................................. 3,802 8,812 545,948
----------- ----------- -----------
Costs and expenses
Research and development .......................................... -- -- 2,558,041
Purchased technology .............................................. -- -- 690,000
General and administrative ........................................ 43,527 22,794 4,333,835
Cell culture operations ........................................... -- -- 601,116
----------- ----------- -----------
Total costs and expenses ..................................... 43,527 (22,794) 8,182,992
----------- ----------- -----------
Loss from operations ......................................... (39,725) (13,982) (7,637,044)
----------- ----------- -----------
Other income (expense)
Interest, net ..................................................... -- (5,183) 66,824
Litigation costs .................................................. -- -- (99,242)
Offering costs .................................................... -- -- (336,446)
Option compensation ............................................... -- -- (219,375)
Other income (expense) ............................................ 44,447 9,869 31,832
Accelerated lease commitment cost ................................. -- -- (315,000)
Recognized loss for decline in value of investment ................ -- -- (1,500,000)
Gain (loss) on sale of equipment .................................. -- (1) 62,615
Income (loss) recognized on indemnified liabilities ............... (640) 242,276 241,636
Income (loss) recognized on settlements ........................... (821) 79,770 372,555
----------- ----------- -----------
Other expense, net ........................................... 42,986 326,731 (1,694,601)
----------- ----------- -----------
Income (loss) before provision for income taxes
and cumulative effect of change in
accounting principle ..................................... 3,261 312,749 (9,331,645)
Provision for income taxes ........................................... -- -- 343,873
----------- ----------- -----------
Income (loss) before cumulative effect of
change in accounting principle ............................ 3,261 312,749 (9,675,518)
Cumulative effect of change in accounting principle .................. -- -- 463,440
----------- ----------- -----------
Net Income (loss) .................................................... $ 3,261 $ 312,749 $(9,212,078)
=========== =========== ===========
Weighted average shares .............................................. 12,103,15 9,925,082 6,931,467
=========== =========== ===========
Basic and diluted profit (loss) per share ............................ $ 0.00 $ 0.03 $ (1.33)
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
<PAGE>
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended June 30, 2000 and 1999
Common Stock
---------------------- Development Stock-
Number Additional Stage Stock Deferred holders'
of Capital Paid-in Accumulated Subscription Treasury Offering Equity
Issued Shares Amount Capital Deficit Receivable Stock Costs (Deficit)
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 10,286,659 102,867 9,140,088 (9,528,088) (50,000) (5,500) -- (340,633)
Issuance of treasury
stock for:
Settlement of liabilities . -- -- (5,500) -- -- 5,500 --
Cancellation of stock
subscription ............... (50,000) 50,000 --
Issuance of common stock to
minority interest holders... 263,879 2,638 (2,638) -- -- -- --
Issuance of common stock upon
exercise of stock options... 397,611 3,976 4,098 -- (8,074) --
Issuance of common stock upon
exercise of options in
settlement of liabilities... 1,049,589 10,496 26,021 -- -- -- 36,517
Net income .................... -- -- -- 312,749 -- -- -- 312,749
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 ........... 11,997,738 119,977 9,112,069 (9,215,339) (8,074) -- -- 8,633
Issuance of common stock on
exchange options .............. 126,500 1,265 2,046 8,074 11,385
Deferred offering costs .......... (13,376) (13,376)
Net income ....................... -- -- -- 3,261 -- -- -- 3,261
---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Balance, June 30, 2000 ........... 12,124,238 $ 121,242 $9,114,115 $(9,212,078) $ -- -- $ (13,376) $ 9,903
========== ========== ========== =========== ========== ========== ========== ==========
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
- 4 -
<PAGE>
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Years Ended June 30, 2000 and 1999
the Cumulative Period From Inception to June 30, 2000
Period From
For the Year Ended June 30, Inception to
2000 1999 June 30, 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ............................................................ $ 3,261 $ 312,749 $(9,212,078)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities
Depreciation and amortization ............................... 3,321 26,364 285,615
Cumulative effect of change in accounting principle ......... -- -- (463,440)
Recognized loss on investment ............................... -- -- 1,500,000
Gain (loss) on sale of assets ............................... -- 1 (38,703)
Loss on extinguishment of debt .............................. -- -- 42,000
Common stock issued in exchange for
Purchased technology ................................... -- -- 605,000
Services rendered ...................................... -- -- 128,453
Common stock options issued in exchange for services rendered -- -- 52,300
Amortization of unearned compensation ....................... -- -- 140,625
Repricing of A warrants ..................................... -- -- 78,750
(Increase) decrease in
Accounts receivable .................................... -- 8,455 --
Inventory .............................................. 354 2,068 (16,012)
Prepaid expenses and other current assets .............. -- -- 360
Other receivables ...................................... (29,447) 745 (29,447)
Other assets ........................................... -- 300 --
Deferred tax assets .................................... -- -- 463,440
Increase (decrease) in
Accounts payable ....................................... 12,972 (111,695) 85,743
Accrued expenses ....................................... 1,000 (77,954) 24,468
Other current liabilities .............................. 5,000 (1,549) 5,000
Deferred income ........................................ -- -- --
Other liabilities ...................................... (6,200) (80,534) 1,000
----------- ----------- -----------
Net cash provided (used) by operating activities ... (9,739) 78,950 (6,346,926)
----------- ----------- -----------
Cash flows from investing activities
Purchase of collateralized mortgage obligation ...................... -- -- (1,000,000)
Proceeds from collateralized mortgage obligation .................... -- -- 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 by investing activities -- -- (248,650)
----------- ----------- -----------
Cash flows from financing activities
Advance from and amounts due to stockholders ........................ -- -- 594,385
Repayment of advances ............................................... -- -- (159,975)
Notes payable ....................................................... -- (104,555) --
Issuance of common stock ............................................ 11,385 36,517 2,153,868
Deferred offering costs ............................................. (13,376) -- (13,376)
Treasury stock acquisition .......................................... -- -- (10,000)
Re-capitalization ................................................... -- -- 4,031,176
----------- ----------- -----------
Net cash provided (used) by financing activities (1,991) (68,038) 6,596,078
----------- ----------- -----------
Net increase (decrease) in cash .................... (11,730) 10,912 502
Cash, beginning of year ................................................ 12,232 1,320 --
----------- ----------- -----------
Cash, end of year ...................................................... $ 502 $ 12,232 $ 502
=========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
- 5 -
<PAGE>
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
Organization
Biorelease Corp. (the Company) and Biorelease Technologies, Inc. (Subsidiary)
are being presented as a development stage enterprise engaged in facilitating
the development, licensing, and marketing of biotech product lines.
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the parent, Biorelease Corp. and its
subsidiary, Biorelease Technologies, Inc., which is approximately 90%
owned by Biorelease Corp., are presented on a consolidated basis. All
inter-company balances and transactions have been eliminated in the
accompanying consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Future Operations
These consolidated financial statements have been presented on the basis
that the Company is a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As a development stage enterprise, the Company currently does
not have sufficient available funds to support its technology development
and related marketing efforts over any extended period of time. Because
the Company has limited working capital, there is substantial doubt about
its ability to continue as a going concern without additional capital and
attainment of profitable operations.
On July 26, 1999 the Company signed a definitive agreement under which
Biorelease will merge with Polar Molecular Corporation, a Utah
corporation ("PMC"). This agreement was amended and restated on December
20, 1999 and further amended as of June 30, 2000 to extend to a date not
later than March 31, 2001. (See Note 3) The agreement contains certain
performance criteria which PMC has not adhered to. As of October 13, 2000
the Company has provided notice of its intent to terminate the merger
agreement. The Company is, however, in discussions with PMC to reinstate
the merger on substantially similar terms.
Revenues
Revenues from product sales are recorded when shipped.
- 6 -
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Management has recently re-tested each batch of biotech product in
inventory and estimates the shelf life of its inventory to remain potent
through June 30, 2002. The shelf life of the product beyond June 30, 2002
will be evaluated at that time, with the potential for an obsolescence
write-down of inventory due to loss of biological activity.
Equipment
Equipment is stated at cost. Depreciation and amortization are provided
using an accelerated method over the estimated useful lives of five to
seven years. Repairs and maintenance are charged to expense when
incurred. Any gain or loss resulting from the disposal of equipment is
included in operations and the cost and related accumulated depreciation
are removed from the respective account balances.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
Income (Loss) Per Common Share
Income (loss) per common share is computed using the weighted-average
number of common shares outstanding during each period. For all net loss
fiscal years presented, common stock options are not included in the
Company's computation of diluted net loss per share, as the inclusion of
these shares would be anti-dilutive; therefore, diluted loss per share is
equal to basic loss per share.
- 7 -
<PAGE>
1. Summary of Significant Accounting Policies (Concluded)
As of June 30, the net income (loss) per share was calculated as follows:
Period from
inception to
2000 1999 June 30, 2000
----------- ----------- ------------
Net income(loss).............. $ 3,261 $ 317,749 $(9,212,078)
Shares ....................... 12,103,155 9,925,082 6,931,467
----------- ----------- -----------
Per share amount.............. $ 0.00 $ 0.03 $ (1.33)
=========== =========== ===========
2. Equipment
Equipment consisted of the following as of June 30:
2000 1999
------- -------
Equipment ............................... $80,201 $80,701
Less accumulated depreciation ........... 78,467 75,146
======= =======
$ 1,734 $ 5,055
Depreciation expense for the years ended June 30, 2000 and 1999 was
$3,321 and $5,915, respectively.
3. Commitments and Contingencies
On July 26, 1999 the Company signed a definitive agreement under which
Biorelease will merge with Polar Molecular Corporation, a Utah
corporation ("PMC"). The proposed merger will be accounted for as a
reverse merger, using the purchase method of accounting. As a result of
the proposed merger, if completed, the name of Biorelease will be changed
to "Polar Molecular Corporation" and the current management team of
Biorelease will resign and be replaced by PMC's management team. The
merger agreement provides, among other things, that Biorelease is to
reverse split its outstanding common shares on a one-for-25 basis and is
to spin-off or otherwise dispose of its wholly-owned subsidiary (and only
operating company) Biorelease Technologies, Inc. To acquire PMC,
Biorelease has agreed to issue to the PMC shareholders 13,620,000
post-reverse split shares. After the reverse stock split and upon the
issuance of common shares to the shareholders of PMC, Biorelease will
have approximately 14,880,000 shares of common stock issued and
- 8 -
<PAGE>
outstanding, of which approximately 91.5% will be owned by the current
shareholders of PMC and approximately 8.5% will be owned by the then
current shareholders of Biorelease. The completion of the proposed
transaction is subject to, among other things, PMC filing a Form S-4
registration statement with the Securities and Exchange Commission,
approval by the shareholders of both companies, the completion of a
private offering pursuant to which PMC is to raise at least $2,000,000
before closing, and other matters. The registration statement was
originally filed on January 18, 2000. Since then the Securities and
Exchange Commission has requested certain clarifications and the
inclusion of current annual audited financial statements of both
Biorelease and Polar for the filing to become effective. The registration
will be re-filed with the inclusion of this financial statement and the
audited financial statements of Polar Molecular Corporation when
completed.
Since July 1, 1997, the Company has had no leased premises. Office rental
space has been provided by a related party without charge (see Note 10).
During 1994, a note holder had brought suit against the Company for
repayment of $40,000 of principal and costs of collection. Under the
terms of the note, at the Company's option, the note could be satisfied
by the note holder receiving Company stock of equivalent value. The note
holder is a stockholder of the Company. A court-approved settlement was
reached during 1995 in the amount of $43,475. The Company agreed to pay a
monthly amount of $1,000 through December 1996 where upon the remaining
balance is due. Interest on late payments is accrued at the rate of 10%.
In February 1998, the Company paid $8,000 and agreed to issue 20,000
shares of the Company's common stock in final settlement of this
obligation. The Company has accrued $1,000 for the remaining obligation
under this settlement, which is accounted for as common stock in transit
at June 30, 2000.
The Company does not carry product liability insurance.
4. Income Taxes
The Company has not filed federal or state tax returns for the years
ended December 31, 1993, 1994, 1995, 1996, 1997 and 1998 and 1999. There
will be no federal tax liability for the years then ended. $4,700 of
state business tax liabilities recorded as of June 30, 1998 were
indemnified as part of the related party agreement entered into as of
June 30, 1999. (See Note 10)
- 9 -
<PAGE>
For income tax filing purposes, the Company's subsidiary recognizes
revenue and expenses on a cash basis and the Company and its Subsidiary
have a tax year-end of December 31.
The net current and long-term deferred taxes consisted of the following
components as of June 30:
<TABLE>
2000 Tax Effect
----------------------------------------------------------------------
Asset Liability
-------------------------- ------------------------
Item Total Current Long-Term Current Long-Term
----- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accrual to cash adjustment . $ (2,321) $ (4,417) $ -- $ 2,096 $ --
Net operating loss deduction 1,113,171 -- 1,113,171 -- --
----------- ----------- ----------- ---------- ----------
1,110,850 (4,417) 1,113,171 2,096 --
Valuation allowance ........ (1,110,850) 4,417 (1,113,171) (2,096) --
----------- ----------- ----------- ---------- ----------
$ -- $ -- $ -- $ -- $ --
=========== =========== =========== ========== ==========
1999 Tax Effect
----------------------------------------------------------------------
Asset Liability
-------------------------- ------------------------
Item Total Current Long-Term Current Long-Term
----- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accrual to cash adjustment . $ (27,179) $ 1,268 $ -- $ (28,447) $ --
Net operating loss deduction 1,113,621 -- 1,113,621 -- --
----------- ----------- ----------- ---------- ----------
1,086,442 1,268 1,113,621 (28,447) --
Valuation allowance .... (1,086,442) (1,268) (1,113,621) (28,447) --
----------- ----------- ----------- ---------- ----------
$ -- $ -- $ -- $ -- $ --
</TABLE>
Valuation
Allowance
Balance June 30, 1998 .......... $ 1,123,700
Net decrease ............... (32,258)
----------
Balance June, 30, 1999 ......... 1,086,442
Net increase .............. 24,408
----------
Balance June 30, 2000 ......... $1,110,850
==========
- 10 -
<PAGE>
A valuation allowance equivalent to 100% of the deferred tax asset has
been established since it is more probable than not that the Company will
not be able to recognize a tax benefit for the asset.
6. Equity
Effective June 30, 1992, the Company acquired substantially all of the
outstanding common and preferred stock of FLS Acquisition Corp. (FLSA) in
exchange for common stock of OIA. This reorganization was accounted for
as a reverse acquisition of OIA by FLSA under the purchase method of
accounting, as the shareholders of FLSA controlled the consolidated
entity immediately following the reorganization. Subsequent to the
transaction, the Company changed its name to Biorelease Corp. and FLSA
changed its name to Biorelease Technologies, Inc.
The terms of the reorganization agreement between the Company and the
Subsidiary called for the issuance of 2,845,436 shares of OIA, Inc.
common stock in exchange for 5,014,780 shares of FLSA common stock,
representing all of FLSA common stock issued and outstanding at the date
of the reorganization. Currently, all but 433,105 shares of FLSA have
been acquired. A certificate for 263,879 shares reflecting the Company's
remaining obligations under the reorganization agreement has been issued
to a trustee for the benefit of the minority Subsidiary shareholders. The
reorganization agreement also called for the issuance of up to 1,022,130
additional shares of the Company's common stock, subject to the
achievement of certain operating results in future years. The Company did
not meet the requirements. No accounting recognition has been given to
the minority ownership interest in the subsidiary because the subsidiary
is a deficit corporation and the minority shareholders have no obligation
to fund their share of such deficit.
Effective September 1, 1992, the Board of Directors adopted the 1992
Directors' Stock Option Plan (Directors' Plan) and the 1992 Stock Option
Plan (Option Plan). Under the Directors' Plan, a maximum number of
100,000 shares are reserved for option grants. The option price per share
will be its market price at the date of grant, provided however, that at
no time will the option price be less than $6.00 per share. Options
granted under this Plan vest immediately and expire 10 years from the
date of grant. The Plan was modified by a proxy vote during 1994. The
maximum number of shares pursuant to this Plan has been increased to
250,000 shares, and the requirement that the minimum exercise price be
$6.00 per share has been removed.
Under the Option Plan, a maximum number of 500,000 shares are reserved
for option grants. The option price per share will be its market value at
the date of grant, provided however, that at no time will the option
price be less than $6.00 per share. Vesting and expiration dates will
vary based upon individual agreement with the option holder. The Plan was
modified by a proxy vote during 1994. The maximum number of shares
pursuant to this Plan has been increased to 10% of the issued and
outstanding shares of the Company, not to exceed 1,000,000 shares, and
the requirement that the minimum exercise price be $6.00 per share has
been removed. Under the Plan, an incentive stock option plan benefiting
its President provides for an option to purchase up to 200,000 shares of
common stock at $1.40 exercise price if certain operational criteria are
met.
- 11 -
<PAGE>
A summary of the Company's stock option plans as of June 30, 2000 and
1999 and changes during the year are presented below:
<TABLE>
Options Granted to
Director Plan Service Providers
-------------------- ----------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
------- ------- --------- -------
<S> <C> <C> <C> <C>
Options outstanding, June 30, 1998 .. 157,500 2.75 3,244,320 0.69
Options Granted September 30, 1998 .. 40,000 0.03 --
Options exercised June 30, 1999 ..... (80,000) (1,347,200)
Options expired June 30, 1999 ....... -- (357,500)
------- ---------
Options outstanding June 30, 1999 117,500 1,539,620
Options Granted September 30, 1999 .. 20,000 .05 --
------- ------ ---------
Options outstanding, June 30, 2000 .. 137,500 2.75 1,539,620 0.69
======= ====== ========= ======
Currently exercisable ............... 137,500 1,539,620 0.69
======= ====== ========= ======
</TABLE>
The range of exercise prices is $.03 to $7.50 as of June 30, 2000 and
1999, respectively.
The weighted average fair value of the options granted during the years
ended June 30, 2000 and 1999 is presented below:
2000 1999
----------- -----------
Director Plan ......................... $0.05 $.03
Option Plan ............................ Non Granted Non Granted
Options granted to service providers Non Granted Non Granted
The Company applies APB Opinion 25 and related interpretations in
accounting for certain options granted. Accordingly, no compensation cost
has been recognized for those options. Had compensation cost for the
Company plans been determined based on the fair value at the grant dates,
consistent with the method of FASB Statement 123, the Company's net
income or loss would not have been affected for the years ended June 30,
2000 and 1999, and there would have been no impact on the profit or loss
per share for those years.
- 12 -
<PAGE>
5. Equity (Continued)
Due to the immateriality of the options granted in fiscal years
ended June 30, 2000 and 1999, the fair market value of the options was assumed
to be the fair market value of the stock at the grant date. In addition, no
compensation costs were recorded by the Company as a result of the immateriality
of the options granted.
6. Investment
The Company acquired 150,000 shares of 6% cumulative, convertible
preferred stock of Genesis Farms, Inc. (Genesis) on March 31, 1994 in
consideration for issuing 1,500,000 shares of the Company's common stock.
The preferred stock can be converted into common stock at a ratio of 10
shares of common stock for each share of the preferred. On March 31,
1994, the Company's stock had a fair market value of $1. In accordance
with generally accepted accounting principles (the cost method of
accounting for non-marketable investments), the Company recorded the
investment in Genesis at $1,500,000. Management believes the value of
Genesis stock has been permanently impaired and has reduced the carried
value of its investment in the Genesis preferred stock to $-0- as of June
30, 999. As mentioned in the next paragraph, as of June 30, 2000, the
company no longer owns the stock.
In fiscal year ended June 30, 2000 a related party litigated the return
of 1,400,000 shares of the 1,500,000 shares of the Company's common
stock. These shares were awarded to that party in partial consideration
of the sale of certain assets and the settlement and indemnity of
liabilities of the Company. (See Related Party Transactions. Note 10).
7. Cash Flow Information
Period From
For the Year Inception
Ended June 30, to
--------------- June 30,
2000 1999 2000
------ ------ ----------
Cash paid for interest ......................... $ 0 $ 0 $ 7,752
Non-cash investing and financing activities
were as follows:
Liabilities repaid through issuance
of common stock ................... 0 36,517 652,731
Issuance of common stock for
subscription receivable ........... -- -- 50,000
Non-marketable security acquired
through the issuance of common
stock ............................. -- -- 1,500,000
- 13 -
<PAGE>
8. Related Party Transactions
On October 4, 1996, R. Bruce Reeves resigned as a member of the Board of
Directors, President, and Chief Executive Officer of the Company.
Effective April 1, 1996, the Company engaged a consulting firm,
controlled by a Reeves' family member, to perform the executive duties of
the Company. In fiscal year end June 30, 2000, the Company accrued
$11,200 in contractual fees for these services as compared to fiscal year
ended June 30, 1999, wherein the Company paid $7,200 for these services.
In February 1998, the Company's Board of Directors appointed Mr. Reeves
as acting President to manage ongoing business activities of the Company.
As of June 30, 1998, the Company was indebted $87,734 to this related
party. The indebtedness bore no interest and had been deferred for a
period of three years. The Company had incurred $16,827 of additional
accrued expenses payable to the related party as of June 30, 1998. As of
June 30, 1999 the Company and this related party reached agreement under
which the related party, on behalf of itself and other creditors of the
Company, received 625,000 shares of the Company's stock, the Genesis
preferred shares held by the Company, all rights to recover 1,400,000 of
the shares previously issued to Genesis Capital in the March 31, 1994
exchange transaction along with an option for one year to acquire up to
60% of the Subsidiary at the then book value in exchange for (i)
forgiving $67,918 in debt owed by the Company and the Subsidiary to the
related party and other creditors, (ii) indemnification by the related
party for an additional $242,276 in liabilities plus (iii) rights to
offset exercise price against outstanding indebtedness for certain
outstanding options.
11. Disclosure About Fair Value of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables, and long-term debt. The carrying value of all
instruments approximates their fair value.
- 14 -
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
The Company's directors appointed Ferrari & Associates, P.C. to perform
the audit for the most recently completed fiscal periods ending June 30, 2000
and 1999, terminating the previous auditors, Berry Dunn McNeil & Parker. Except
as set forth below, there have been no changes in or disagreements with
accountants with respect to accounting and/or financial disclosure. On September
26, 1994, the Company terminated Coopers & Lybrand ("Coopers") as its certified
public accountant and retained Smith, Batchelder & Rugg. Until June 30, 1998,
Smith Batchelder & Rugg, now affiliated with Berry, Dunn, McNeil and Parker,
have expressed their opinion on the Company's Financial Statements.
In connection with the audits of the financial statements of the
Company, for the fiscal years ended June 30, 1992 and 1993 and during the period
commencing July 1, 1993 through the date of this report, there were no
disagreements with Coopers on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Coopers, would have caused
them to make reference to the subject matter of the disagreement in their
report.
Except for an explanatory paragraph concerning the Company's ability to
continue as a going concern, none of the Company's accountants reports on the
Company's financial statements contained an adverse opinion or disclaimer of
opinion, nor was it qualified as to uncertainty, audit scope or accounting
principles. However, there were certain reportable events in the Company's
Annual report for the year ended June 30, 1993 as follows:
(i) The Company's Annual report on Form 10-KSB for the year ended June
30, 1993 ("1993 Form 10-KSB") was filed with the Commission on September 28,
1993. Coopers' report on the financial statements contained therein contained an
explanatory paragraph relating to uncertainty concerning the Company's ability
to continue as a going concern which situation was further discussed in a
footnote to the financial statements. During the period of preparation of these
financial statements, the Company was engaged in a "best efforts" public
offering to raise additional capital.
Two unsigned draft reports and associated footnotes were prepared by
Coopers, one without a going concern explanatory paragraph to be used if the
offering was completed before Coopers' report was released, the other with a
going concern explanatory paragraph if the offering was not completed. By the
release date of Coopers' report, the offering had been terminated and Coopers
released their signed report with the going concern explanatory paragraph. As
noted above, the Company's 1993 Form 10-KSB contained the explanatory paragraph
and related footnote disclosure.
Sometime later, the Company's annual report to shareholders (the
"Annual Report") was printed and, on or about January 4, 1994 was sent to
shareholders. Through an administrative oversight, a disk containing a report
(unsigned) which did not include a going concern explanatory paragraph and
financial statements which did not contain related footnote disclosure was
released to the printer. The oversight was discovered by the Company during the
preparation of the 1994 Financial Statements, in reviewing its past Annual
Report with its then newly retained auditors, Smith Bachelder & Rugg.
The Company immediately notified Coopers who, in turn, advised the
Company that, in their opinion, the Company should inform the Commission and
anyone who may be relying on the Annual Report of this situation. The Company
informed the former accountant that, due to the length of time since the
distribution of Annual Reports to shareholders, the filing with the Commission
of the correct information in the Company's 1993 Form 10-KSB and subsequent
filings with the Commission, the Company was of the opinion that no one could
reasonably still be relying on the Annual Report. Accordingly, the Company
informed the Commission and shareholders of this situation in connection with
the filing and distribution to shareholders of this Annual Report on Form 10-KSB
for the year ended June 30, 1994.
(ii) In connection with consultations with Coopers concerning the
Company's March 1994 purchase of preferred stock of Genesis Capital Corporation
(now Genesis Farms, Inc.) (See "Item 12. Certain Relationships and Related
Transactions - The Company"), Coopers informed the Company that the value
assigned to the Company's holding of that stock as presented in the Form 10-QSB
for the quarter ended March 31, 1994 would need to be evaluated in connection
with an audit of the Company's financial statements and that additional
documentation might be necessary concerning the value assigned to that
investment if the Company's existing documentation proved to be inadequate.
Neither of the above two issues was considered in the Company's
decision to terminate Coopers. The decision to change accountants was approved
by the Board of Directors of the Company.
On July 28, 1992, the Company had engaged Coopers to be its certifying
accountant in place of Bradshaw, Smith & Co. ("former accountant"), who was
dismissed effective July 28, 1992.
During the fiscal years ended June 30, 1991 and 1990 (periods for which
the former accountant audited the Company's financial statements) and during the
period from July 1, 1991 through the date hereof, there were no disagreements
with the former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of the former accountant,
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports.
- 15 -
<PAGE>
The former accountant's report on the Company's financial statements
for either of the two fiscal years ended June 30, 1991 and 1990 did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified as to
uncertainty, audit scope or accounting principles.
The decision to engage Coopers as set forth above and to dismiss the
former accountant was made by the new Board of Directors of the Company
subsequent to the June 1992 reorganization of the Company and the Subsidiary.
Cooper's was the Subsidiary's independent auditors.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table delineates certain information concerning the
directors and executive officers of the Company:
<TABLE>
Positions with Positions with
Name Age the Company the Subsidiary
---------------- ---- ---------------------------- -------------------
<S> <C> <C> <C>
Richard Schubert 63 Chairman, Board of Directors Director
R. Bruce Reeves 60 President, Principal Financial President & Director
Officer (1)
Kevin T. McGuire 50 Treasurer (2) Treasurer (2)
Richard Whitney 61 Director
</TABLE>
(1) Dr. Reeves served as President, CEO and Director until October 4, 1996.
He was re-appointed as acting President of the Company on February 11,
1998 until a successor is duly qualified and elected.
(2) Kevin T. McGuire served as the Company's and Subsidiaries full time
Treasurer from June 1992 until April 1994. Since April 1994, Mr.
McGuire has served without compensation on an as needed and as
available basis
Directors are elected by the stockholders to serve until the next
annual meeting of stockholders or until their successors have been elected and
have duly qualified. Officers are appointed to serve until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
their successors have been elected and have qualified. Richard Whitney was
appointed a Director of the Company following the Reorganization in accordance
with the provisions of an investment agreement between the Subsidiary and The
Venture Fund of Washington (see "Item 12. Certain Relationships and Related
Transactions-The Subsidiary").
A summary of the business experience of each current officer and
director of the Company and the Subsidiary is as follows:
RICHARD SCHUBERT has been Chairman of the Board of Directors of the
Company since July 1992. Mr. Schubert is currently a business consultant. From
December 1990 through September 1995, Mr. Schubert was the President of The
Points of Light Foundation, a foundation created to encourage Americans to
become directly involved in consequential community service in respect of
critical social issues. From June 1989 to December 1990 he was a business
consultant. He served as President of the American Red Cross (1983-1989) and was
a former Vice Chairman and President of Bethlehem Steel until 1982. Mr. Schubert
has extensive experience in law, business and government. During his career with
Bethlehem Steel, which began in 1961, he was appointed to serve in the public
sector as Assistant to the Under Secretary of Labor (1970) Solicitor of the
Department of Labor (1971) and Under Secretary of Labor (1973). Mr. Schubert is
a member of the Council of Foreign Relations and he serves as a director of a
number of philanthropic and business organizations. Mr. Schubert graduated Cum
Laude from Eastern Nazarene College in Quincy, Massachusetts with a Bachelor of
Arts degree, and from Yale Law School with a Bachelor of Law degree. Mr.
Schubert, along with Dr. Reeves, serves as an officer of NCPI, Inc., a
non-profit subsidiary of Eastern Nazarene College.
R BRUCE REEVES, Ph.D., has been the President and Chief Executive
Officer of the Company since May 1993. He has been Secretary and a Director of
the Company since July 1992 and Chief Executive Officer, Secretary and a
Director of the Subsidiary until June 1995 when operations of the Subsidiary
were curtailed. In August 1995 Dr. Reeves agreed to serve part time as an
Officer and Director of NCPI, Inc., an affiliate of Eastern Nazarene College of
which Dr. Reeves is an alumnus. Dr. Reeves has over twenty-five years of
experience in start-up ventures, and has spent over ten years in high-tech
- 16 -
<PAGE>
business and product development, including five years (1964-1969) with General
Electric Company on several business development operations. From 1969 to 1979
Dr. Reeves was a Principal in a high tech start up company and several
syndicated real estate partnerships. From 1979 to 1989 he served as Chairman and
CEO of Monadnock Partners, Inc., a family owned real estate management and
development entity involved in hotels, commercial office buildings and
multi-tenant industrial projects. Dr. Reeves, along with a corporate affiliate,
was a principal in a number of real estate ventures including four hotel
projects in the Northeast. Dr. Reeves oversaw three of these hotel partnerships
through bankruptcy proceedings in the New Hampshire and Connecticut Districts.
As a result of related litigation and personal guarantees for these
partnerships, Dr. Reeves filed for personal bankruptcy protection in the New
Hampshire District in May 1989. From 1989 to 1996, Dr. Reeves devoted his full
time to the business of the Company, its predecessor, Fluid Life Systems, Inc.
("FLS") and the Subsidiary. Dr. Reeves is currently an officer of RT Robertson
Consultants, Inc., a family owned consulting firm which provides management
services to a number of companies, including the Company, on an as needed basis.
KEVIN T MCGUIRE has been the Company's and Subsidiary's Treasurer since
June 1992. Since April 1994 he has served without compensation on a part time
basis. The Company contracts for accounting and tax services through an
accounting firm owned by the spouse of Mr. McGuire that has assisted the Company
to maintain compliance with accounting activities and Securities and Exchange
Commission reporting for the Company. Both Mr. McGuire and his spouse, Vivian L.
McGuire, are graduates of Bentley College. Mr. McGuire has 28 years of business
experience including 16 years with public accounting firms. Mrs. McGuire has
owned and operated a small business tax and audit practice since 1988.
RICHARD WHITNEY has been a Director of the Company since July 1992. He
is currently a Principal in a Snelling & Snelling franchise located in
Washington D.C. Formerly Mr. Whitney served as a general partner of The Venture
Fund of Washington (the "Fund") from 1989 until August of 1994. The Fund has
investments that include pension funds, insurance companies, banks, and
corporations. It has, as a corporate general partner, ICF International that is
a consulting and engineering firm based in Washington, DC. Mr. Whitney has
managed venture funds since 1972, beginning with direct responsibility for the
management of the Direct Investment Fund at Overseas Private Investment
Corporation. In the mid-1970's, he served as Executive Vice President of
Narragansett Capital. In 1977, with others, Mr. Whitney purchased a controlling
interest in Columbia Ventures, Inc., an SBIC located in Washington, DC. Mr.
Whitney has served as President and a Director of that company since 1978. Mr.
Whitney is a past director of the Alumni Association and Sports Foundation of
Brown University.
Compliance with Section 16(a) of The Securities Exchange Act of 1934
Based solely on a review of such materials, as required by the
Securities and Exchange Commission, the Company has no knowledge that any
officer, director or beneficial holder of more than ten percent of the Company's
issued and outstanding shares of Common Stock failed to file, with the
Securities and Exchange Commission, any form or report required to be so filed
pursuant to Section 16(a) of the Securities Exchange Act of 1934 during the
fiscal year ended June 30, 1999.
Item 10. Executive Compensation
The following table shows all the cash compensation paid or to be paid
by the Company or any of its subsidiaries, as well as certain other compensation
paid or accrued, during the fiscal years indicated, to the Chief Executive
Officer for such period in all capacities in which he served. No other Executive
Officer received total annual salary and bonus in excess of $100,000 during the
fiscal years ended June 30, 1995 and 1994. Through June 30, 1997 Dr. Gauci
received compensation totaling $30,000 as President of the Subsidiary. Dr. Gauci
passed away in 1998.
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Bonus Compen- Stock Compen-
Name and Principal Payouts sation Award LTIP sation
Position Year Salary ($) ($) ($) SAR's ($) ($)
------------------ ---- ------ ------ --- -------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Bruce Reeves 2000 -0- -0- -0- -0- -0- -0- -0-
President and 1999 -0- -0- -0- -0- -0- -0- -0-
Former Chief 1998 -0- -0- -0- -0- -0- -0- -0-
Executive Officer 1997(1) 10,000 -0- (2) -0- -0- -0- -0-
1996 90,000 -0- (2) -0- 913,200(1) -0- -0-
1995 120,000 50,000 (2) -0- -0- -0- -0-
1994 120,000 -0- (1) -0- 200,000(3) -0- -0-
1993 117,000 20,000 (1) -0- -0- -0- -0-
1992 86,000 10,000 -0- -0- -0- -0- -0-
</TABLE>
- 17 -
<PAGE>
(1) On April 1, 1996 the direct employment of R. Bruce Reeves, then
President/CEO of the Company ceased. All of Reeves' contractual rights
were terminated. New contractual agreements were negotiated with R T
Robertson Consultants, Inc., a Reeves family affiliate to provide
consulting services including the services of Dr. Reeves. In fiscal
years ended June 30, 2000 and 1999, respectively R T Robertson
Consultants, Inc. charged the Company $11,280 and $8,700 for executive
oversight of the Company and its Subsidiary. Between April 1 and June
30, 1996 R. T. Robertson billed the Company $33,300, including expense
reimbursements, for executive oversight of the Corporations. Under the
terms of the R T Robertson Consultants, Inc. agreement with the
Company, Dr. Reeves, an employee of R T Robertson Consultants, Inc.
serves as President/CEO of the Company. During this period, RT
Robertson was awarded by the Company options for 913,200 shares at
exercise prices from $0.02 to $0.045 per share.
(2) Value of benefits and other perquisites are less than 10% of the total
annual salary and bonus.
(3) Effective October 4, 1996 these 200,000 options have been forfeited by
Dr. Reeves.
The following table sets forth information with respect to the
Chief Executive Officer concerning the grants of options and Stock Appreciation
Rights ("SAR") during the past fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
(a) (b) (c) (d) (e)
Options/SARs
Options/ Granted to
SARs Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/Sh) Date
---------------------- --------- ------------ ----------------- -------------
Chief Executive Officer -0- -0- 0%
--------------------
The following table sets forth information with respect to the Chief
Executive Officer concerning exercise of options during the last fiscal year and
unexercised options and SARs held as of the end of the fiscal year:
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
<TABLE>
(a) (b) (c) (d) (e)
--- --- --- --- ---
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-end (#) at FY-end (#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
----------------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Chief Executive Officer -0- -0- -0- -0-
The following table sets forth information with respect to the
Chief Executive Officer concerning awards under long term incentive plans during
the last fiscal year:
- 18 -
<PAGE>
Estimated Future Payouts under Non-Stock Price-Based Plans
(a) (b) (c) (d) (e) (f)
Performance
Number of or other
Shares, units Period Until
Or Other Maturation or Threshold Target Maximum
Name Rights (#) Payout ($ or #) ($ or #) ($ or #)
--------- ------------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Chief Executive Officer -0- -0- -0- -0- -0-
</TABLE>
Directors are not compensated for acting in their capacity as
Directors except for options granted pursuant to the 1992 Directors Option Plan.
Directors are reimbursed for their expenses incurred in attending meetings and
conducting their duties. In April 1995, the Directors, Messrs. Schubert, Maybury
and Whitney were awarded 129,000 options exercisable into 129,000 shares of
common stock at $.08 per share. In September 1995, Directors Messrs. Schubert,
Maybury and Whitney were awarded an additional 50,000 options exercisable into
50,000 shares of common stock at $.17 per share. These options were for
consulting services unrelated to their position as directors. The options
originally were to expire on December 31, 1997 and December 31, 1999,
respectively. On February 11, 1997 the exercise period of these and all other
issued and non-exercised options were extended by three additional years.
Though March 31, 1996 R. Bruce Reeves, President and Chief Executive
Officer had an employment agreement with the Company. Pursuant to the agreement,
Dr. Reeves received an annual salary of $120,000. Pursuant to the Agreement, Dr.
Reeves also received options to purchase 200,000 shares of the Company (see the
"Option/SAR Grants in Last Fiscal Year" table above). These 200,000 option
shares were voluntarily forfeited by Dr. Bruce Reeves effective October 4, 1996
on which date he resigned as President and CEO. The Company entered into a
consulting agreement with R T Robertson Consultants, Inc. to provide consulting
services including the services of Dr. Reeves through the end of the fiscal year
ending June 30, 1997. Robertson consulted for the Company through the end of
fiscal year June 30, 1997 and, on an as needed basis, from July 1997 to present.
On February 11, 1998, Dr. Reeves was appointed by the board of Directors to act
as President of the Company until a successor is duly qualified and elected. Dr.
Reeves serves without compensation. During this consulting period, RT Robertson
received options to acquire 913,200 shares at a conversion price ranging from
$0.06 to $0.15 per share.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners -- The persons set
forth on the charts below are known to the Company to be the
beneficial owners of more than 5% of the Company's outstanding
voting Common Stock as of the date hereof.
Genesis Farms, Inc. (Formerly Genesis Capital, Inc), 507 North Belt
East, Suite 240, Houston, TX 77060 was issued 1.5 million shares of Rule 144
stock in March 1994. The Company initiated an agreement with R. T. Robertson
Consultants, Inc., 340 Granite Street, Manchester, NH 03102 to recover these
shares. R. T. Robertson Consultants, Inc. recovered 1.4 million of these shares
and the Company, under terms of the Asset Agreement has assigned these shares,
to Robertson (see page 19 - The Asset Agreement effective June 30, 1999). This
recovery activity does not involve the Company in any litigation related to this
transaction. R. T. Robertson Consultants, Inc. owns 1,250,000 shares, net of
legal consideration, which represents 10.3% of issued shares and 10.3% of issued
shares plus exercisable options for named security owners.
Sandra J. Reeves, 754 Straw Hill, Manchester, NH 03104 owns 1,513,984
shares individually and/or beneficially including 621,880 derived from RT
Robertson options for a like number of shares that were exercised at June 30,
1999. It does not include 725,000 shares issued to R. T. Robertson Consultants,
Inc Trustee under the Asset Agreement of June 30, 1999. Mrs. Reeves is a
stockholder in RT Robertson Consultants, Inc. and controls ninety percent (90%)
of the shares of R T Robertson Consultants Inc.'s common stock. Mrs. Reeves is
the spouse of Dr. R. Bruce Reeves, President of the Company. The shares that
Mrs. Reeves owns directly or beneficially, plus the shares held by RT Robertson
Consultants as Trustee for certain creditors, represent 26.4% of issued shares
(26.3% of issued shares plus exercisable options) for named security owners.
(b) Security Ownership of Management -- Information concerning the
number and percentage of shares of voting Common Stock of the Company owned of
record and beneficially by management, is set forth on the charts below.
- 19 -
<PAGE>
<TABLE>
Name and Number of Shares Percent of
Address of Beneficially Common Stock
Beneficial Owner Owned* Outstanding**
---------------- ------ --------------
<S> <C> <C>
R. Bruce Reeves 245,393(1)(6) 2.0%
754 Straw Hill
Manchester, NH 03104
Richard Schubert 362,639(1)(5) 3.0%
7811 Old Dominion Drive
McLean, VA 22102
Kevin T. McGuire 205,539(1)(3) 1.7%
148 Robinson Road
Hudson, NH 03051
Richard Whitney 239,771(1)(2)(4) 1.9%
1612 K St. N.W. #308
Washington, DC 20006
All Officers and
Directors as a Group
(3 Persons) 1,053,342 (1)(2)(3)(4)(5) 8.6%
---------------------------
</TABLE>
* Except as indicated in the footnotes below, each person has sole
voting and dispositive power over the Shares indicated.
** Based upon 12,124,238 shares issued and outstanding and 65,000
exercisable options for the above named persons, as of the date hereof.
Notes:
(1) Excludes possible subsequent issuance of additional Shares based upon
performance criteria (see "Item 12. Certain Relationships and Related
Transactions-The Reorganization").
(2) Includes 50,000 shares each for Mr. Whitney that are issued at June 30,
1999 upon exercise of a like number of options that are pursuant to
consulting agreements with this individual.
(3) Includes 154,539 shares that are held by Mr. and Mrs. McGuire jointly
with rights of survivorship.
(4) All Shares are owned by The Venture Fund of Washington, a limited
partnership. Mr. Whitney is a limited partner owning approximately 19%
of the limited partnership.
(5) Includes 22,500 and 42,500 options currently exercisable under the
Company's Directors' Stock Option Plan to Mr. Schubert and Mr. Whitney,
respectively.
(6) Excludes 725,000 shares held by R T Robertson Consultants, Inc. as
Trustee for certain creditors under terms of the Asset Agreement and
1,513,984 shares owned by Mrs. Reeves. Dr. Reeves disclaims beneficial
ownership and personal interest in shares held by these related
parties.
Item 12. Certain Relationships and Related Transactions
The Reorganization
By Agreements dated June 3, 1992 (collectively, the "Agreement"), the
Company agreed to acquire up to 100% of the then issued and outstanding shares
of Common and Preferred Stock of the Subsidiary in exchange for approximately
3,030,149 Shares of Common Stock (the "Reorganization"), plus certain contingent
Shares. The Agreement has been filed with the Commission as an Exhibit to the
Registration Statement (of which this Prospectus is a part) and is incorporated
herein by this reference. In August 1992, the Subsidiary, a California
Corporation, then named FLS Acquisition Corp (FLS) reincorporated in Delaware
and changed the name to Biorelease Technologies, Inc. (BTI).
- 20 -
<PAGE>
The purpose of the Reorganization was to provide the Company with
substantive operations and to provide the Subsidiary funds to commence
substantive operations.
Effective June 30, 1992, pursuant to the terms of the Agreement, the
Subsidiary stockholders owning an aggregate of 4,342,037 shares of Subsidiary
Common and/or Preferred Stock, exchanged these Shares for an aggregate of
2,463,711 Shares of Company Common Stock. The "Exchange Ratio" was one Share of
Subsidiary Common or Preferred Stock for .56741 Company Shares of Common Stock.
An additional 240,085 Subsidiary Shares were subsequently exchanged for 136,225
Company Shares (now representing 26.7% of the Company's issued and outstanding
Shares when aggregated with the other Shares issued in the Reorganization). The
remaining Subsidiary stock (including Common shares issuable upon the exercise
of certain options and warrants) were not exchanged because such additional
exchange would have deprived the Company of the exemption from registration
relied upon to effect the initial exchanges (Rule 506 of Regulation D under the
Act).
Although the Exchange Ratio is the same for all the Subsidiary Stock,
there are two categories of Subsidiary stockholders, each category having
different registration rights. The first category holders have registration
rights with regards to 10% of their shares. Further and, pro rata, they are
entitled to a percentage of an aggregate of up to an additional 1,022,130 Shares
of restricted Common Stock (the "Contingent Shares"), the actual aggregate
number of Contingent Shares to be determined based upon formulas related to
annual gross revenues or profits. The rights to the Contingent Shares are not
transferable. These Contingent Share rights have been expired.
None of the shares with registration rights were registered (see "The
Selling Security holders' Offering" below) and all of the shares have been held
in excess of three years making them eligible for resale, subject to certain
limitations, under Rule 144.
Temporary Reduction in Option Exercise Price
Effective June 30, 1999, the Directors of the Company approved a
temporary reduction in the exercise price per share of all stock options then
held in the Company by former employees, directors and consultants. Under the
terms of the temporary reduction, the strike price was reduced to 30% of the
then existing strike price on all respective issued options for a period ending
August 31, 1999. This action had the effect to move the exercise price of
certain issued options into the then current trading range for the Company's
stock. During this temporary reduction period 1,553,700 of the then outstanding
3,084,320 options shares were converted for $ 11,999 in cash and $ 35,517 in
exchange for liabilities of the Company or Subsidiary.
The Company
On January 17, 1992, the Company distributed a majority of its shares
of Vegas Chips, Inc., to the Company's stockholders of record on a pro rata
basis as a dividend. The dividend was distributed at the rate of .6 (6/10) share
of Vegas Chips, Inc.'s Common Stock for each one Share of Company Common Stock
owned.
On April 20, 1992, the Company sold 591,600 Shares of its restricted
Common Stock at $2.50 per Share for gross proceeds of $1,479,000 (net proceeds
of $1,304,000) in a private offering. These Shares were to be registered for
sale to the public; however, none of the shares were registered (see "The
Selling Security holders' Offering" below) and all of the shares have been held
in excess of three years making them eligible for resale, subject to certain
limitations, under Rule 144. Union Equity Partners ("UEP") holds 2,400 options,
each option entitling the holder to purchase one Share at a price of $6.00 per
Share through January 20, 1999. UEP was a broker involved in the April 1992
private offering. The Company has agreed to notify the holders of these options
anytime it intends to file a registration statement under the Act and, if
requested by such holders, to register the Shares issuable upon exercise of
these options in such registration statement.
In May and July 1994, the Company issued options to purchase an
aggregate of 1,202,250 shares to current and former officers and consultants in
lieu of cash, including 200,000 options to Grayson (see next paragraph) and
496,500 options to R. Bruce Reeves (see "Item 10. Executive Compensation").
In July 1994, the Company engaged Gerald Grayson and F. J. Daugherty
d/b/a Grayson & Associates ("Grayson") of Denver, Colorado to assist the Company
in corporate development activities, on an exclusive basis. Their services
include finding one or more corporate partners or others to provide funding or
otherwise assist in the further development, commercialization or distribution
of the Company's products and technologies. Grayson, founded in 1986,
specializes in assisting merging growth and development stage companies in the
healthcare industry. For its first year of services, Grayson received options to
purchase up to 200,000 shares of Company Common Stock at an exercise price of
$.20 per share. The agreement initially ran for one year and is continuing on a
month to month basis under an informal extension without compensation. The
agreement can be terminated on one month's prior notice. Under the terms of the
agreement, when Grayson secures financing or provides introductions that lead to
other business transactions, Grayson will be entitled to a finder's fee. The
finders fee is based upon 8% of the first $1,000,000 of financing secured, and,
thereafter descending 1% per $1,000,000 for the next $2,000,000 and 5% of each
$1,000,000 thereafter. Other business transactions carry a fee of 5% of the
first $2,000,000 in transaction value, descending 1% per $2,000,000 for the next
$6,000,000 and 1% of amounts in excess of $8,000,000.
- 21 -
<PAGE>
On March 31, 1994, the company acquired 150,000 shares of 6%
cumulative, convertible preferred stock of Genesis Farms, Inc. (then Genesis
Capital Corporation) ("Genesis") in consideration for issuing 1,500,000 shares
of the Company's Common Stock. On March 31, 1994, the Company's stock had a fair
market value of one dollar. In accordance with generally accepted accounting
principles (the cost method of accounting for non-marketable investments), the
Company recorded the investment in Genesis at $1,500,000. Management believes
the value of Genesis stock has been permanently impaired and has reduced the
basis of the Genesis preferred stock to $180,000 at June 30, 1995. Due to
further impairment, the asset was written down to $0 at June 30, 1996, the value
of which remains unchanged at June 30, 1997 through June 30, 2000. The amount of
the permanent impairment was determined by reviewing recent trading price of
Genesis common stock and relating such via the conversion rights of the
Preferred stock since the underlying common stock will be salable under Rule 144
within six months (as required by SFAS No. 115). The value differs significantly
from its historical cost value. See Note 11 to the Consolidated Financial
Statements. On September 16, 1996, the company entered into an agreement to
advance $10,000 in legal fees to a party claiming to have an interest in the
shares exchanged by the Company for the Genesis shares. Under this agreement, if
the Company were successful, it would recover 1.4 million of its own shares.
These recovery rights were assigned under the Asset Agreement (see Page 19. -The
Asset Agreement effective June 30, 1999.
In May 1994, the Company borrowed $12,000 from a Director/Stockholder
for one year at 9% interest secured by 3,600 shares of Genesis preferred stock.
At June 30, 1996 the Company owed R T Robertson Consultants, Inc. $87,734).
Robertson and Mr. Schubert agreed to defer payment of these amounts, without
interest, for a period of up to three years ending 12/31/99. This indebtedness
was eliminated effective June 30, 1999 by conversion of options held by Schubert
and RT Robertson and through terms of the Asset Agreement.
In December 1996, the Company was advanced $27,500 from TheraMed
partners, Inc. that was settled under terms of the Asset Agreement.
Between December 1997 and January 1998 the Company issued an aggregate
of 365,000 shares of it's common stock in settlement of $33,441 of the Company's
and the Subsidiary's liabilities.
Proposed merger with Polar Molecular Corporation
On August 2, 1999, the Company announced it had entered into a
definitive agreement to merge with Polar Molecular Corporation subject to
certain conditions being met by both companies. Under the terms of the
definitive agreement, the Company will change its name to Polar Molecular
Corporation, split back its shares 25 to one, authorize the issuance of
preferred stock and the current officers and directors will resign and be
replaced by the Polar management and directors. After the merger and reverse
stock split, the Company will have approximately 14,880,000 common shares issued
of which 8 1/2 % will be owned by the then current pre merger Company
stockholders. The Company expects to spin-off its interest in the Subsidiary if
and when it completes the Polar Molecular transaction. On June 30, 2000 the
Company and PMC amended and restated the agreement and plan of reorganization to
include updated audited financial statements of both companies and to state that
PMC shall have a net worth of at least $2,300,000. The extension provided that
PMC would make specific payments to the Company on specific dates and that PMC
would provide PMC's audited financials for inclusion into the revised Form S-4
by August 31, 2000. PMC failed to make the payments called for and has not
released its audited financials to the Company. Accordingly, the Company has
provided notice of its intent to terminate the merger agreement effective
October 13, 2000. The Company is, however, in discussions with PMC to reinstate
the merger on substantially similar terms.
- 22 -
<PAGE>
The Asset Agreement effective June 30, 1999
On April 1, 1999 and effective June 30, 1999, the Company entered into
an Asset Agreement with R T Robertson Consultants, Inc. acting on behalf of
itself and other creditors of the Company and the Subsidiary under which
Robertson would acquire certain listed assets of the Company including the
150,000 Genesis preferred shares held by the Company, 550,000 restricted Company
common shares held in treasury, 175,000 restricted shares of reissued Company
stock originally issued to creditors but not released, all rights to recovery
from Genesis Capital, and an option to acquire up to 60% of the interest held by
the Company in the Subsidiary at the then book value in exchange for forgiveness
of $67,918 in debt owed by the Company and the Subsidiary plus an indemnity in
the amount of $167,749 for outstanding trade creditors of the Company and the
Subsidiary. The bid price of the Company's shares on April 1, 1999 was $0.01 per
share. As a result of the terms of this Asset Agreement, the Company was able to
eliminate $242,276 in liabilities that will allow it to comply with the terms of
the proposed Polar Molecular transaction.
The Subsidiary
Effective June 1991, the Subsidiary acquired the assets Fluid Life
Systems, Inc. (FLS) including the Subsidiary Technologies in exchange for
approximately $595,000 in payments of cash to and/or on behalf of FLS and the
assumption of specific FLS' liabilities. In addition, the Subsidiary issued
57,437 shares of its Common Stock directly to certain FLS creditors.
The hemoglobin stabilization technology was acquired by FLS, without
warranty, from the Trustee in Bankruptcy of Pacific Brotherhood Investment Corp.
("PBIC"). George Lofink, president and CEO of FLS, was an officer, director and
principal stockholder of PBIC. The PBIC technology was acquired in exchange for
$50,000 and the assumption of the costs (approximately $115,000 of funding
PBIC's litigation against certain parties previously affiliated with PBIC ("the
Erythro Litigation"). The Erythro litigation was settled in December 1991.
Pursuant to the settlement and subsequent negotiations, the plaintiffs therein
relinquished any and all claims to the technology in return for $47,000, all of
which has been paid.
The drug release technology rights were initially licensed by FLS from
Valcor Scientific Ltd. ("Valcor") in exchange for future royalty payments. In
April 1992, Norman Eisner, Valcor's successor, agreed to cancel all future
royalty payments and to assign to the Company the Valcor patents and technology
for 327,500 shares of the Subsidiary's Common Stock. In addition, Mr. Eisner
accepted 82,073 additional shares of the Subsidiary's Common Stock in lieu of
$265,000 of the $350,000 minimum royalty payment called for under the license
agreement. The remaining $85,000 was paid in July 1992, at which time title to
the drug release technology rights was assigned to the Company. A percentage of
the above discussed shares and funds were given to a former Valcor research
consultant.
In connection with the transfer of the certain Technologies to the
Subsidiary and, in settlement of the FLS' employment agreements with its then
president, George Lofink, and its then Secretary, Linda Carter, the Company has
paid approximately $91,582 to Mr. Lofink and has paid approximately $2,500 to
Ms. Carter. In addition, the Company has delivered notes to Mr. Lofink and Ms.
Carter. The combined balance due on these notes at June 30, 1995 was $38,975.
(see "Item 3. Legal Proceedings" for further discussion regarding these notes).
The Subsidiary also paid $131,386 and 1,200 Shares in legal fees incurred by Mr.
Lofink in his defense of the Erythro litigation.
Prior to the Reorganization the Subsidiary owed to its predecessor, FLS
approximately $173,314 (consisting of $116,852 in loans and $31,355 for services
from its predecessor and $25,107 in loans to present and former officers and/or
directors of the Subsidiary and/or officers and/or directors of the Company).
With the exception of $1,260, all of these liabilities were canceled prior to
the reorganization in exchange for the issuance of an aggregate of 62,565 shares
of the Subsidiary's Common Stock. All of these 62,565 Subsidiary shares were
exchanged for 35,500 Shares of the Company's Common Stock in the Reorganization
and were to be registered in the Selling Security holders' Offering. None of the
shares were registered (see "The Selling Security holders' Offering" below) and
all of the shares have been held in excess of two years making them eligible for
resale, subject to certain limitations, under Rule 144.
In December 1991, the Subsidiary issued 751,000 shares of Preferred
Stock for gross proceeds of $375,500 in a private offering to investors who are
accredited.
In March 1992, the Subsidiary issued 171,430 shares of its Common Stock
for gross proceeds of $250,000 to The Venture Fund of Washington (the "Fund").
Pursuant to the terms of the investment agreement between the Subsidiary and the
Fund, the Subsidiary agreed to nominate two Fund designees to the Board of
Directors of the Subsidiary and any of its successors. In addition, each
Subsidiary Director agreed to vote in favor of the appointment of the two Fund
designees. In accordance with the investment agreement, Richard Whitney and
Walter Flamenbaum, M.D., the two Fund designees, were appointed Directors of the
Company following the reorganization which appointments were confirmed by
stockholders at the Company's October 29, 1992 annual meeting. Dr. Flamenbaum
resigned from the Board in June 1993.
- 23 -
<PAGE>
In April 1992, the Subsidiary issued 6,858 shares of its Common Stock
for gross proceeds of $10,000 to an unaffiliated accredited investor.
The shares issued to the Fund and to the unaffiliated investor were
exchanged for Shares of Common Stock of the Company in the Reorganization and
were to be registered in the Selling Security holders' Offering. None of these
shares were registered (see "The Selling Security holders' Offering" below) and
all of the shares have been held in excess of two years making them eligible for
resale, subject to certain limitations, under Rule 144.
In June 1992, the Subsidiary issued Common Stock purchase warrants to
purchase up to 153,313 shares of the Subsidiary's Common Stock at an exercise
price of $1.40 per share (the price equivalent to the Company's Common Stock
offering price in its April 1992 private offering). These warrants were issued
to Paul Calvin Maybury, Richard F. Schubert, R. Bruce Reeves, Glen Urquhart,
Richard Whitney and Walter Flamenbaum, as a group. These warrants have expired.
In August 1992, the Subsidiary changed its name to "BIORELEASE
Technologies, Inc." and its state of incorporation by merging into a newly
formed Delaware corporation.
In June 1996, the Company issued 509,396 shares of its Common Stock
(inclusive of 41,305 shares that were issued effective July, 1996) in settlement
of, $5,783 in 1997, $29,366 in 1996 and $286,283 in 1995 of the Company's and
the Subsidiary's liabilities.
The Selling Securityholders' Offering
The Company had filed a registration statement to register 1,093,973
Shares on behalf of certain Selling Security holders for sale to the public. Of
the 1,093,973 shares 462,373 shares were being registered pursuant to the
Company's commitments under the Reorganization Agreement and certain creditors
(see "The Reorganization" above). 40,000 shares were registered pursuant to the
settlement of the Raab litigation (see "Item 3. Legal Proceedings"). The
remaining 591,600 Shares were registered pursuant to the Company's commitment
under the terms of a private offering conducted in April 1992 prior to the
consummation of the Reorganization (see "The Company" above). In addition, the
Company was registering 250,000 shares issuable upon exercise of 250,000
options. In June 1994, the Company determined not to proceed with the Selling
Security holders' offering because all of the shares being registered on behalf
of Selling Security holders therein became eligible for resale under Rule 144
and all of the options (exercisable into the other shares registered therein)
had expired.
The Exchange Offering
As noted above, in "The Reorganization," 4,582,122 shares of the
Subsidiary were exchanged for 2,599,936 Shares of the Company. In order to
acquire the remaining 767,071 shares of the Subsidiary's Common Stock (including
shares issuable upon exercise of certain options and warrants), the Company had
filed a registration statement to register 435,244 Shares for issuance to the
remaining Subsidiary Stockholders in exchange for their Subsidiary shares. The
Company believes this exchange of shares will be postponed indefinitely because
the Company believes it cannot meet State and Federal securities regulations
related to this exchange.
Terminated Public Offering
In July 1993, the Company registered 160,000 Units for sale to the
public at a price of $15.00 per Unit on a "40,000 Unit-or-none best efforts"
basis. Each Unit consisted of five shares of Common Stock and three Class B
Common Stock to Purchase Warrants. During the offering period, prior to sale of
the minimum offering, there was a decline in the bid price of the Company's
Common Stock. As a result, the Company and the Underwriter terminated the
offering in September 1993.
- 24 -
<PAGE>
PART IV
Item 13. Exhibits and Reports on form 8-K.
Reports on Form 8-K
The Company has filed the following Reports on Form 8-K during the year
ended June 30, 1995 with the principal office of the Securities and Exchange
Commission in Washington, DC. Form 8-K filed with the Securities and Exchange
Commission on September 29, 1994; Amendment No. 1 thereto (Form 8-K/A) filed
with the Securities and Exchange Commission on November 3, 1994. Form 8-K filed
with the Securities and Exchange Commission on September 20, 1999. Form 8-K
filed with the Securities and Exchange Commission on March 14, 2000 and July 26,
2000.
Exhibits
NONE
Exhibits incorporated by reference
3a Certificate of Incorporation of Company (1)
3b Amendment to Certificate of Incorporation of
Company (1)
3c By-Laws of the Company (1)
10c Stock Reorganization Agreement between the Company
and the Subsidiary (2)
10d 1992 Stock Option Plan (3)
10e 1992 Directors' Stock Option Plan (3)
10f Patent-Chondroitin Drug Complexes (4)
10g Patent-Stabilization of Proteins and Peptides by
Chemical Binding with Chondroitin (4)
10i Consulting Agreement with Wall Street Consultants
(4)
10j Options with USA, Wall Street Consultants and
Union Equity Partners (4)
10l TSI Agreement (4)
10m Cell Trends Agreement (4)
10n Dr. Reeves' Employment Agreement (5)
10o Chestnut Drive lease
14a Canadian patent for "Method for Protein
Stabilization"(4)
14b European patent for "Continuous Processes for
Modifying Biologically Active Materials and the
Products Therefrom"(4)
16a Accountants' Letter (6)(7)
22c Subsidiaries (see "Item 1. Business")
---------------------------
(1) Previously filed with the Commission as an Exhibit to the Registration
Statement on Form S-1, as amended, file No. 33-43976 and, by this
reference, incorporated herein.
(2) Previously filed as an exhibit to the Company's Form 8-K filed with the
Commission June 8, 1992, file No. 0-15260, and, by this reference,
incorporated herein.
(3) Previously filed as an Exhibit to the Company's Form 10-K for the year
ended June 30, 1992 filed with the Commission on September 28, 1992,
file No. 0-15260, and, by this reference, incorporated herein.
(4) Previously filed with the Commission as an Exhibit to the Registration
Statement on Form S-1, as amended, file No. 33-59902 and, by this
reference, incorporated herein.
(5) Previously filed with the Commission as an Exhibit to the Company's
Form 10-KSB for the year ended June 30, 1993 filed with the Commission
on September 28, 1994, file no. 33-43976, and, by this reference,
incorporated herein.
(6) Previously filed as an exhibit to the Company's Form 8-K filed with the
Commission July 30, 1992, file No. 0-15260, and, by this reference,
incorporated herein.
(7) Previously filed as an exhibit to the Company's Form 8-K/A filed with
the Commission November 3, 1994, file No. 0-15260, and, by this
reference, incorporated herein.
- 25 -
<PAGE>
[
Statements contained in this Form 10-KSB as to the contents of any
agreement or other document referred to are not complete. Where such agreement
or other document is an exhibit to the Report or is included in the forms
indicated above, each such statement is deemed amplified and qualified in all
respects by such provisions.
- 26 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BIORELEASE CORP
Dated: September 30, 1999 By /s/Richard F. Schubert
-----------------------
Richard F. Schubert, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------------------- ------------------- ------------------
/s/Richard F. Schubert Chairman, September 29, 1999
---------------------- Director
Richard F. Schubert
/s/R. Bruce Reeves President September 29, 1999
------------------ Principal Financial
R. Bruce Reeves Officer
<PAGE>
SUPPLEMENTAL INFORMATION AND EXHIBITS
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
Does not apply.
