UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1996
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23512
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BIOCORAL INC.
-----------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
Delaware 33-0601504
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
c/o Societe Financiere du Seujet, 14 Quai du Seujet, Geneva, Switzerland
- --------------------------------------------------------------------------------
(Address of principal executive offices)
011-4122-908-1598
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the Issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock outstanding as of May 31, 1997 was
7,642,684.
<PAGE>
Item 1. Financial Statements. Attached.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations.
The Company's net loss during the six months ending June 30, 1996
("Stub 1996"), $22,240 was considerably less than for the six months ending June
30, 1995 ("Stub 1995"), $2,324,344. This was principally due to the one-time
write-off in Stub 1995 of the Company's interest in its Italian subsidiary,
Borgonuovo SIM, in the amount of $1,925,995. However, the Company's loss before
discontinued operations was significantly better in Stub 1996 ($22,240) than in
Stub 1995 ($398,349). This was due to a general decrease in almost all
categories of operating expenses, in particular a reduction of interest on
outstanding loans (the Company made a significant payment of principal and
interest on its investor notes during the second quarter of 1995, as further
described below). Additionally, there was no depreciation in Stub 1996 because
of a write-down of the value of the Company's investment in its Bensenville
property during the fourth quarter of 1995.
Financial Condition, Liquidity and Capital Resources.
There was significant change in the Company's financial condition as
of June 30, 1996 as opposed to December 31, 1995. Current liabilities decreased
from $2,735,840 to $1,401,710 while current assets decreased from $722,619 to
$554,248. The decrease in current assets was principally due to the paying down
of accounts payable. However, cash flows during Stub 1996 were significantly
better than in Stub 1995 principally due to sales of stock by the Company and
the conversion of certain of the company's preferred shares into common shares
which was accompanied by an infusion of cash.
In February 1997 the Company sold its property in Bensenville,
Illinois from which it received net cash proceeds of approximately $1,515,000.
Of that sum, approximately $430,000 was escrowed to secure certain minimum rent
guarantees made to the purchaser of the property. These proceeds have
significantly improved the Company's liquidity. Management believes that these
proceeds, together with operating revenues, should be sufficient to fund the
Company's operations through the end of 1997.
As previously disclosed, the Company borrowed approximately
$2,000,000 in short term notes in an exempt transaction under Regulation D in
1994. 80% of the principal balance of such notes was paid in April 1995. The
Company did not pay the interest on such note nor the remaining principal
balance thereof until June 1996, at which time all accrued interest (but no
principal) was paid. Payments had not been made to the noteholders due to
disputes between the Company and the primary guarantor of the notes. The
aggregate amount of principal and interest
<PAGE>
owed on the notes as of the date of this filing is approximately $600,000. The
Company intends to pay the noteholders in full during 1997 and has made
arrangements for such payment.
Current Plans of Registrant.
On August 2, 1995, the Company acquired 100% of the stock of 3H
Human Health High-Tech Public Limited Company, an Irish corporation which has
certain world-wide rights (exclusive of France) to certain products of Inoteb,
S.A., a French corporation ("Inoteb"). These products relate to the use of
coral-based or originated products in human bone regeneration. In addition, in
the third quarter of 1996, the Company acquired a controlling interest in the
capital stock of Inoteb.
As a result of these acquisitions, the Company's focus shifted from
real estate to involvement in the research, development and marketing of
Inoteb's products. This fundamental shift in focus makes discussion of the
Company's near, medium and long-term operations extremely difficult. Inoteb has
been selling its products, principally within the European Community, for
several years, but does not yet have approval for the sale of its products in
the United States, a significant market. Management believes that the U.S.
market, together with other as-yet-unserviced markets, presents a significant
opportunity for the Company's growth. Management is aware of a company in the
U.S. which is selling in the U.S. its own coral-based products for use in human
bone regeneration; however, Management believes that the Company's products are
superior to such competitor's products. The Company has made arrangements for
the commencement of clinical trials for certain of its products with a view
toward FDA approval thereof. In the interim, the Company will focus on
increasing its European and other sales of its products, streamlining its
operations, entering in to joint ventures with key strategic partners for
distribution of its products, research, development and the like. No assurance
can be had that any such arrangements will be reached or that they will be
profitable.
The Company will again consider its eligibility to have its shares
listed on the NASDAQ Small Cap Market after its audit for the year ended
December 31, 1996 is completed. Even if the Company's stock is so listed, there
can be no assurance that a market broader that the one which now exists will
develop. The Company does believe that such a listing would add to the liquidity
of the Company's shares.
PART II
Item 1. Legal Proceedings. There are no reportable events relating to this Item.
Item 2. Changes in Securities. There are no reportable events relating to this
Item.
Item 3. Defaults Upon Senior Securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition,
Liquidity and Capital Resources".
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders. There are no
reportable events relating to this Item.
Item 5. Other Information. There are no reportable events relating to this Item.
Item 6. Exhibits and Reports on Form 8-K.
A) Not applicable.
B) Current Report on Form 8-K, dated May 23, 1996.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BIOCORAL, INC.
Date: June 2, 1996 /s/ Riccardo Mortara
--------------------------
Riccardo Mortara, Chairman
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6/16
* * *
F-1
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
March December
ASSETS 31, 1996 31, 1995
------ ----------- -----------
(Unaudited) (Note 1)
Current assets:
Cash $ 554,320 $ 633,305
Prepaid expenses and other current assets 128,525 89,314
----------- -----------
Total current assets 682,845 722,619
Property and equipment, at estimated net
realizable value, net of accumulated
depreciation of $323,632 6,601,379 6,601,379
License fees, net of accumulated amortization
of $86,670 and $61,906 1,399,081 1,423,845
Investment in limited partnership, at equity 174,363 174,363
Investment in nonmarketable securities 600,000 600,000
Deferred charges, net of accumulated
amortization of $100,577 and $90,618 162,841 172,800
Other assets 1,435 1,542
----------- -----------
Totals $ 9,621,944 $ 9,696,548
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of mortgage payable $ 110,047 $ 107,700
Notes payable 517,500 517,500
Accounts payable and accrued liabilities 1,678,448 2,025,149
Payables to related party 51,835 85,491
----------- -----------
Total current liabilities 2,357,830 2,735,840
Tenant security deposits 50,654 50,654
Mortgage payable, net of current portion 4,738,446 4,766,852
----------- -----------
Total liabilities 7,146,930 7,553,346
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000
shares authorized; 1,000 shares issued
and outstanding, 1 1
Common stock, $.001 par value; 20,000,000
shares authorized; 4,412,082 and 5,913,316
shares issued and outstanding 4,412 5,913
Additional paid-in capital 9,785,521 9,394,020
Accumulated deficit (7,314,920) (7,256,732)
----------- -----------
Total stockholders' equity 2,475,014 2,143,202
----------- -----------
Totals $ 9,621,944 $ 9,696,548
=========== ===========
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
----------- -----------
Revenues:
Rental revenue $ 246,250 $ 286,381
Other income 40,917 1,294
----------- -----------
Totals 287,167 287,675
----------- -----------
Operating expenses:
Interest (including amortization of loan
fees) 133,187 243,028
Depreciation of property and equipment 46,019
Professional fees 72,305 97,555
Property taxes 35,514 36,225
Other operating expenses 104,349 108,916
----------- -----------
Totals 345,355 531,743
----------- -----------
Loss before discontinued operations (58,188) (244,068)
Discontinued brokerage operations - loss
on disposal (1,925,995)
Net loss $ (58,188) $(2,170,063)
=========== ===========
Loss per common share:
Loss from continuing operations $ (.01) $ (.12)
Loss from discontinued operations (.93)
----------- -----------
Net loss per common share $ (.01) $ (1.05)
=========== ===========
Weighted average common shares outstanding 4,815,745 2,073,599
=========== ===========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Number Number Additional Total
of of Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
---------- -------- --------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996 1,000 $ 1 5,913,316 $ 5,913 $9,394,020 $(7,256,732) $2,143,202
Proceeds from sale
of common stock 209,876 210 389,790 390,000
Cancellation of
common stock in
connection with
terminated acquisition (1,711,110) (1,711) 1,711
Net loss (58,188) (58,188)
---------- -------- --------- -------- ---------- ----------- ----------
Balance, March 31,
1996 1,000 $ 1 4,412,082 $ 4,412 $9,785,521 $(7,314,920) $2,475,014
========== ======== ========= ======== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
----------- -----------
Operating activities:
Net loss $ (58,188) $(2,170,063)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation of property and equipment 46,019
Amortization of other assets 34,723 46,354
Loss from discontinued operations 1,925,995
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (39,211) (90,829)
Other assets 107 52,374
Accounts payable and accrued expenses (346,701) 77,892
----------- -----------
Net cash used in operating activities (409,270) (112,258)
----------- -----------
Investing activities:
Distribution from limited partnership 84,930
Advances from related party (33,656) (7,855)
----------- -----------
Net cash provided by (used in)
investigating activities (33,656) 77,075
----------- -----------
Financing activities:
Proceeds from sale of common stock 390,000 7
Net proceeds from short-term obligations 175,000
Principal payments on mortgage obligations (26,059) (23,907)
----------- -----------
Net cash provided by financing
activities 363,941 151,100
----------- -----------
Net increase (decrease) in cash (78,985) 115,917
Cash, beginning of period 633,305 99,529
----------- -----------
Cash, end of period $ 554,320 $ 215,446
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 112,896 $ 115,065
=========== ===========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies:
Business:
BioCoral, Inc. ("BioCoral") was originally incorporated under
the laws of the State of Delaware on May 4, 1992 as Hermeneutics
Corporation (it was also formerly named IMMO-Finance
Corporation). BioCoral was originally organized to be a "blind
pool" or "blank check company" for the purpose of either merging
with or acquiring an operating company. BioCoral was a
"development stage company" for accounting purposes until March
25, 1994 when it acquired all of the issued and outstanding
stock of Cabestan, Inc. ("Cabestan"), which concurrently
acquired commercial real estate properties from a commonly
controlled related party. As further explained below and in
Notes 4 and 14, the Company entered into an agreement to sell
its real estate properties in October 1996 and consummated the
sale in February 1997. The Company wrote down the carrying
values of the properties to their estimated net realizable
values as of December 31, 1995.
During 1994, BioCoral also purchased, from a related party, 51%
of the outstanding stock of Borgonuovo S.I.M. S.p.A. (the "SIM")
which is headquartered in Milan, Italy and operates a brokerage
business that is equivalent to the business conducted by brokers
and dealers in securities in the United States. The Company
effectively discontinued its brokerage operations and abandoned
its interest in the SIM as of January 1, 1995. Accordingly, the
results of brokerage operations have been shown separately as
discontinued operations in the accompanying consolidated
statements of operations.
During 1994, BioCoral also formed IMMO-Finance Distribution
Limited ("IMMO Limited"), an Irish corporation, which holds an
investment in nonmarketable securities of a related Canadian
financial advisory services company (see Notes 2 and 6).
During 1994, BioCoral filed a registration statement under the
Securities Exchange Act of 1934 (the "Exchange Act") and as a
result it became a "public company" that is required to file
periodic reports with the United States Securities and Exchange
Commission.
During 1995, BioCoral acquired 3H Human Health Hightech Public
Limited Company ("3H"), another Irish corporation, which intends
to develop biomaterials operations, whereby it will market bone
substitute materials made from coral and other orthopedic, oral
and maxillofacial products (see Note 2). Such products will be
marketed outside the United States. During 1995, 3H acquired the
worldwide licensing rights, exclusive of the rights in France,
for the marketing of certain bone substitute products under the
name BioCoral (see Notes 5 and 13). 3H has not generated any
significant amounts of revenues or expenses from biomaterials
operations.
F-6
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (continued):
Business (concluded):
BioCoral and its subsidiaries are referred to collectively
herein as the "Company."
Riccardo Mortara is the chairman of the Board of Directors and
chief executive officer of the Company. As of March 31, 1996,
Mr. Mortara controlled 100% of the outstanding shares of
preferred stock of the Company which comprised 60% of its voting
shares (see Note 12).
Capitalization:
In December 1995 and November 1996, the Board of Directors of
the Company declared four for three stock splits on the
Company's common stock effected in the form of stock dividends
which were paid on December 18, 1995 and December 16, 1996,
respectively. All common share and per share amounts have been
retroactively restated to reflect the effects of the four for
three stock splits.
On May 4, 1992, the Company issued 711,111 shares of common
stock for $500. During 1993, the Company sold 43,733 shares of
common stock at $.0056 per share in cash to 28 accredited and 29
nonaccredited persons. These transactions did not involve a
public offering or an underwriter and, accordingly, were exempt
from the registration requirements of the Securities Act of 1933
(the "Securities Act"). On March 25, 1994, the Company canceled
533,333 of the 711,111 shares initially issued.
The Company sold 1,733,866 and 471,514 shares of common stock
outside the United States and received net proceeds of
$7,022,160 and $2,369,600 in 1994 and 1995, respectively,
through an offering that was exempt pursuant to Regulation S of
the Securities Act. The Company sold 36 units and 3.5 units in
1994 and 1995, respectively, through an offering that was exempt
pursuant to Regulation D of the Securities Act. Each unit
consisted of a six month, 12% note (the "Regulation D note") in
the principal amount of $50,000 and 2,223 shares of common
stock. As a result, the Company received net proceeds of
$1,800,000 and $175,000 and issued 112,000 and 12,444 shares of
common stock in 1994 and 1995, respectively.
On March 23, 1994, the Company used a portion of such net
proceeds and the net proceeds from a short-term renewable loan
to purchase common stock from and a 100% interest in Cabestan,
which concurrently used the funds it received from the Company
to purchase commercial real estate properties from a commonly
controlled related party (see Note 2).
F-7
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (continued):
Capitalization (concluded):
On September 12, 1994, the Company used a portion of the net
proceeds from the Regulation S and Regulation D offerings as
part of the consideration for the purchase of its 51% interest
in the brokerage operations.
In November 1995, the Company agreed to sell 266,667 shares of
common stock to an affiliate for total cash consideration of
$1,080,000 (or $4.05 per share), of which $460,000 was paid for
113,580 shares in 1995, $390,000 was paid for 96,296 shares in
the three months ended March 31, 1996 and $230,000 was paid for
56,791 shares subsequent to March 31, 1996 (the Company recorded
the issuance of the 209,876 shares related to the first two
installments during the three months ended March 31, 1996).
Basis of presentation:
The Company incurred significant losses from continuing and
discontinued operations in the first quarter of 1996 and the
years ended December 31, 1995 and 1994. As a result, the Company
had a working capital deficiency of $1,674,985 and an
accumulated deficit of $7,314,920 at March 31, 1996. The Company
will need additional working capital to develop profitable
biomaterials operations. In the absence of mitigating
circumstances, these matters would raise substantial doubts
about the Company's ability to continue as a going concern.
Subsequent to March 31, 1996, the Company received the final
installment of $230,000 from the sale of shares to its affiliate
described above and $700,000 in connection with the issuance of
933,333 shares of common stock to the Company's principal
stockholder and the cancellation of 700 shares of preferred
stock (see Notes 12 and 14). The Company also received net
unrestricted proceeds of approximately $1,515,000 from the sale
of its real estate properties in February 1997 (see Note 14), of
which $430,000 was deposited in escrow to secure certain minimum
rent guarantees made to the purchaser. As a result, management
believes that the Company will be able to continue to operate
through at least March 31, 1997; however, management believes
that the Company probably will need to raise additional funds
for working capital and other purposes through additional debt
or equity financing to sustain and expand its operations
thereafter. Management cannot assure that such financing will be
available.
F-8
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (continued):
Basis of presentation (concluded):
In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of the Company as of March 31,
1996, and its results of operations and cash flows for the three
months ended March 31, 1996 and 1995. Information included in
the consolidated balance sheet as of December 31, 1995 has been
derived from the audited balance sheet in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995 (the
"10-KSB") filed with the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read
in conjunction with the financial statements, notes to financial
statements and the other information in the 10-KSB.
Principles of consolidation:
The consolidated financial statements include the accounts of
BioCoral and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Cash:
At March 31, 1996 and December 31, 1995, substantially all of
the Company's cash was held in foreign banks.
Property and equipment:
Property and equipment, substantially all of which is used in
the Company's real estate operations, was initially recorded at
cost. Depreciation was computed using the straight-line method
over the estimated useful lives of the assets (39 years for
commercial properties and three to ten years for equipment).
Effective as of December 31, 1995, the carrying value of
property and equipment was reduced to estimated net realizable
value, pursuant to Statement of Financial Accounting Standards
No. 121, based on the terms of a 1996 contract for the sale of
the property and equipment, and depreciation was discontinued
(see Notes 4, 7 and 14).
License fees:
License fees were recorded at cost and are being amortized using
the straight-line method over 15 years.
F-9
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (concluded):
Deferred charges:
Deferred charges consist principally of loan fees which are
amortized to interest expense using the straight-line method
(which does not differ materially from the interest method) over
the terms of the related loans.
Investment in limited partnership:
The Company accounts for its investment in a limited partnership
using the equity method and, accordingly, the investment is
carried at cost adjusted for the Company's proportionate share
of the partnership's undistributed earnings or losses. Such
proportionate earnings or losses were not material in the three
months ended March 31, 1996 and 1995.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were not
material in the three months ended March 31, 1996 and 1995.
Income taxes:
The Company accounts for income tax pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities to be computed annually for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the temporary 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. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Net loss per common share:
Net loss per common share is computed based on the net income or
loss applicable to common stock divided by the weighted average
number of common shares outstanding during each period. No stock
options or other common stock equivalents were outstanding
during the three months ended March 31, 1996 and 1995.
Reclassifications:
Certain accounts in the 1995 consolidated financial statements
have been reclassified to conform to 1996 presentations.
F-10
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Acquisitions and newly formed entities:
Cabestan was formed in February 1994 for the purpose of owning
and operating commercial real estate. On March 25, 1994,
Cabestan purchased land, two buildings and a 9.3% interest in a
limited partnership that owns undeveloped land from Bensenville
Industrial Park, L.P ("BIPLP"), a commonly controlled company,
for the payment of $5,544,000 in cash and the assumption of a
$4,875,998 mortgage note on the acquired buildings. Mr. Mortara,
the controlling stockholder of the Company, is an executive
officer and sole director of BIPA, Inc., the general partner of
BIPLP.
The acquisition was accounted for as a purchase and,
accordingly, the results of operations of Cabestan have been
included in the consolidated totals from the date of
acquisition. The purchase price of $9,858,237 exceeded BIPLP's
historical cost of the properties by $1,562,275 which was,
effectively, a distribution to a related party for financial
accounting purposes and, therefore, charged directly to
stockholders' equity.
On September 12, 1994, the Company completed the acquisition of
51% of the SIM in a business combination accounted for as a
purchase (see Note 1). The purchase price was $2,043,026 which
exceeded the fair value of the net assets acquired by
$1,281,018. The assets acquired included a cash balance of
$1,107,799. The Company discontinued its brokerage operations,
abandoned the related assets and recognized a loss on such
disposal of $1,925,995 effective as of January 1, 1995 (see Note
15).
During 1996, the Company entered into a contract to sell the
land and buildings that Cabestan had acquired from a related
party in 1994. The Company recorded a loss of $1,626,186 in 1995
in connection with the sale (see Notes 4 and 13).
On August 2, 1995, the Company issued 1,422,223 shares of common
stock to acquire all of the outstanding common shares of 3H.
Prior to the exchange, 3H's only activity was the acquisition of
an option issued by Inoteb SA for the purchase of a license that
would give 3H the exclusive right to distribute BioCoral outside
of France. 3H exercised the option in 1995 (see Note 5). Since
neither the shares issued by the Company nor the rights acquired
by 3H had an objectively determinable value at the date of the
exchange, the Company valued the shares issued and the rights
initially acquired on the basis of the par value of the shares
issued of $1,422.
F-11
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Income taxes:
As of March 31, 1996, the Company had net operating loss
carryforwards of approximately $1,490,000 available to reduce
future Federal taxable income which, if not used, will expire at
various dates through March 31, 2011. Due to changes in the
ownership of the Company, the utilization of these loss
carryforwards may be subject to substantial annual limitations.
The Company also has net operating loss carryforwards available
for state income tax purposes.
Deferred income tax assets attributable to these carryforwards
and the related valuation allowance consists of the following at
March 31, 1996 and December 31, 1995:
March December
31, 1996 31, 1995
Federal $1,273,246 $1,237,759
State 348,270 338,563
---------- ----------
Totals 1,621,516 1,576,322
Less valuation allowance 1,621,516 1,576,322
---------- ----------
Totals $ -- $ --
========== ==========
The Company has offset the deferred tax asset of $1,621,516
attributable to the potential benefits from such net operating
loss carryforwards as of March 31, 1996 by an equivalent
valuation allowance due to the uncertainties related to the
extent and timing of its future taxable income. There were no
other material temporary differences as of that date.
Note 4 - Property and equipment:
Property and equipment, substantially all of which is used in
the Company's real estate operations, consisted of the following
at both March 31, 1996 and December 31, 1995:
Land $1,373,253
Buildings and improvements 7,175,701
Office equipment 2,243
----------
8,551,197
Less accumulated depreciation 323,632
----------
8,227,565
Less effect of write-down of
property and equipment to
estimated net realizable value 1,626,186
----------
Total $6,601,379
==========
F-12
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Property and equipment (concluded):
During 1996, the Company entered into a contract to sell the
buildings, equipment and land owned by Cabestan (see Note 14).
In connection with the sale, the Company determined that the
carrying value of such assets exceeded their estimated net
realizable value. Accordingly, a loss of $1,626,186, which
represents the excess of the net carrying value of $8,227,565
over the estimated net realizable value of $6,601,379, was
charged to results of operations in 1995 and depreciation was
discontinued.
Note 5 - Licensing fees:
3H entered into a 15 year licensing agreement in 1995 for the
worldwide marketing rights, outside of France, for certain
medical products produced by Inoteb SA, a French corporation.
The agreement requires 3H to pay aggregate licensing fees of
$1,485,751. As of March 31, 1996, the Company had paid $841,932
to Inoteb SA. The remaining installments of $643,819 were
included in accounts payable as of and paid subsequent to March
31, 1996.
Note 6 - Investment in nonmarketable securities:
In September 1994, IMMO Limited invested $600,000 in PEMP, Inc.
("PEMP"). The investment was in the form of a loan at December
31, 1994. It was converted into nonmarketable preferred shares
during 1995 which are entitled to an annual cumulative 10%
dividend. PEMP is a Canadian financial advisory firm and an
affiliate of PEMP Investment Advisors, Inc., a beneficial owner
of shares of the Company's common stock.
Note 7 - Leases:
The Company was leasing the commercial space in the real estate
properties that were subject to the sales contract (see Notes 1,
4 and 14) under operating leases with terms of up to six years.
Most of the leases contain clauses for reimbursement of real
estate taxes, maintenance, insurance and certain other operating
expenses of the properties. Income from leases is recognized on
a straight-line basis regardless of when payment is due.
Future minimum rents under those leases in each of the years
subsequent to March 31, 1996 are as follows:
F-13
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Leases (concluded):
Year Ending
March 31, Amount
--------- ----------
1997 $ 571,746
1998 418,923
1999 380,762
2000 216,065
----------
Total $1,587,496
==========
Note 8 - Commitments and contingencies:
The Company had an agreement with Trammell Crow to manage the
two buildings owned by Cabestan (see Note 14). The agreement
provided for Trammell Crow to manage, maintain and provide all
operational matters with regard to Cabestan's properties. In
return, Trammell Crow was compensated with a commission of 2.6%
of the gross rental receipts as a management fee. The Company
also had to pay a leasing commission to Trammell Crow for all
existing lease tenants in the amount of 2% of gross receipts per
year, and 7% in the first year for any new leases acquired. The
Company was required to reimburse Trammell Crow for the ordinary
expenditures it incurs in managing the properties.
Note 9 - Short-term borrowings:
As of December 31, 1994, the outstanding principal balance of
the Regulation D notes was $1,800,000. As of April 4, 1995, the
Company defaulted with respect to the payment of Regulation D
notes with a principal balance of $1,775,000 and accrued but
unpaid interest of $53,250 and, accordingly, such notes became
due and payable. In August 1995, the Company paid 80% of the
principal balance and was able to negotiate an extension of the
due date.
As of March 31, 1996, the outstanding principal balance of the
Regulation D notes was $517,500. The due date for substantially
all of the Regulation D notes was subsequently extended to
December 31, 1996. Management intends to continue to negotiate
for a further extension; however, as of April 30, 1997, the
Company had not received an extension and management cannot
assure that such negotiations will be successful.
F-14
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Long-term debt:
Long-term debt consists of a mortgage note with a principal
balance of $4,848,493 at March 31, 1996, bearing interest at
8.66%, which is payable in monthly installments of $43,802
through April 1999. The mortgage note is secured by buildings
with a net carrying value of approximately $6,600,000 at March
31, 1996.
The mortgage was assumed on February 18, 1997 by the purchaser
of the buildings (see Note 14).
Note 11 - Stock option plan:
On May 4, 1992, the Company adopted a stock option plan (the
"Plan") pursuant to which options to purchase an aggregate of up
to 2,000,000 shares of common stock may be issued. There were no
outstanding options at March 31, 1996, and no shares were issued
under the Plan through March 31, 1996.
Note 12 - Preferred stock:
The 1,000 shares of nonconvertible, Series A preferred stock
outstanding at March 31, 1996 were owned by Dremer Holding, Ltd.
which is controlled by Mr. Mortara. Holders of the Series A
preferred stock have the right to elect 60% of the members of
the Company's Board of Directors. In all other respects, the
holders of the shares of the Series A preferred stock have the
same rights and preferences as holders of the common stock. A
total of 700 Series A preferred shares were canceled subsequent
to March 31, 1996 (see Note 14).
Note 13 - Terminated acquisition:
The Company had issued 1,955,556 common shares in 1995 in
connection with a proposed acquisition of a new subsidiary. The
acquisition proposal was terminated and 1,711,110 of the shares
were canceled as of March 31, 1996. The remaining shares issued
will be canceled as soon as administratively feasible.
Note 14 - Subsequent events:
Subsequent to March 31, 1996, a total of 700 of the 1,000 shares
of Series A preferred stock outstanding at March 31, 1996 were
canceled and 933,333 shares of common stock were sold to the
holder for $700,000. In addition, the holder agreed to purchase
an additional 400,000 shares of common stock for $300,000.
F-15
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Subsequent events (concluded):
In connection with the acquisition of the rights to market
certain biomedical materials in 1995 (see Note 5), the Company
also obtained an option to acquire a controlling interest in the
licensor, Inoteb SA, which is a French medical products
manufacturer and developer. In July 1996, the Company acquired
51.5% of the common stock of Inoteb SA, and bonds that are
convertible into another 4.5% of its common stock, in exchange
for 1,840,516 shares of common stock of the Company. The Company
has requested the conversion of the bonds. The Company also
agreed to reinvest after tax profits, if any, up to a specified
maximum amount, in and use its best efforts to raise additional
capital for the operations of Inoteb SA.
In October 1996, the Company entered into an agreement to sell
the real estate owned by Cabestan for approximately $6,800,000
before costs directly related to the sale. Such sale was
consummated and the mortgage note on the property was repaid on
February 18, 1997 (see Notes 1, 4, 7 and 10).
Note 15 - Discontinued brokerage operations:
The assets and liabilities of the brokerage operations that were
discontinued effective as of January 1, 1995 consisted of the
following:
Cash $ 7,088
Marketable securities 2,495,026
Accounts receivable and prepaid expenses 365,091
Loans receivable 722,744
Income tax refund receivable 332,266
Related party receivable 879,607
Property and equipment 371,487
Goodwill 1,271,366
Other assets 27,361
Accounts payable and accrued liabilities (3,049,374)
Other liabilities (316,139)
Loans payable (476,141)
Minority interest (704,387)
----------
Total $1,925,995
==========
* * *
F-16
<PAGE>
INSERT #1-1
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of the Company as of March 31,
1996, and its results of operations and cash flows for the three
months ended March 31, 1996 and 1995. Information included in
the consolidated balance sheet as of December 31, 1995 has been
derived from the audited balance sheet in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995 (the
"10-KSB") filed with the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read
in conjunction with the financial statements, notes to financial
statements and the other information in the 10-KSB.
F-17
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 554,320
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 682,845
<PP&E> 6,834,011
<DEPRECIATION> 323,632
<TOTAL-ASSETS> 9,621,944
<CURRENT-LIABILITIES> 2,357,830
<BONDS> 517,500
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<COMMON> 4,412
<OTHER-SE> 2,470,601
<TOTAL-LIABILITY-AND-EQUITY> 9,621,944
<SALES> 0
<TOTAL-REVENUES> 287,167
<CGS> 0
<TOTAL-COSTS> 345,355
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (58,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (58,188)
<EPS-PRIMARY> (.01)
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