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 June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23512
-----------
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)
38 rue Anatole France, Levallois Perret, France
- --------------------------------------------------------------------------------
(Address of principal executive offices)
011-3314-757-9843
- --------------------------------------------------------------------------------
(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 |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock outstanding as of June 30, 1998 was
7,697,215.
<PAGE>
PART I
Item 1. Financial Statements. Attached.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
The Company experienced a net loss of $614,109 from continuing
operations during the six month period ended June 30, 1998 ("Stub 1998")
primarily due to operating losses in its Inoteb subsidiary. There were no losses
from discontinued operations in Stub 1998 whereas in the six month period ended
June 30, 1997 ("Stub 1997"), such losses from discontinued real estate
operations aggregated $188,058. The overall net loss for Stub 1998 was slightly
lower than for the Stub 1997 when the Company experienced a net loss of $
1,110,746. This decrease was due primarily to the cutting of operating expenses
(from $1,191,956 in Stub 1997 to $849,447 in Stub 1998) and the lack of losses
from discontinued operations. Total revenues for Stub 1998 were $235,338, a
slight decrease from $269,268 in Stub 1997. Similar decreases in revenues,
operating expenses and net losses are seen in the results of the three months
ended June 30, 1998 as opposed to the three months ended June 30, 1997. This
demonstrates the relative stability of both revenues and operating expenses
during such periods.
In February 1997 the Company sold its Bensenville properties to a third
party in a transaction in which the Company received net proceeds of
approximately $1,515,000 of which $430,000 was deposited in escrow to secure
certain minimum rent guarantees made to the purchaser and was relieved of its
mortgage indebtedness. Management has been utilizing the escrowed deposits to
fund operations. At June 30, 1998, there remained $255,319 in escrow.
Management believes that the balance of such proceeds, together with other
operating revenues and the funds sought to be raised described below, should be
sufficient to fund the Company's operations through June 30, 1999. See "Current
Plans of Registrant" below.
Financial Condition, Liquidity and Capital Resources.
Total assets decreased by $308,440 from December 31, 1997 to June 30,
1998, primarily due to funding the Company's losses during Stub 1998. Cash
decreased slightly, by $36,593 and total liabilities increased by 248,794,
primarily due to the borrowing of $250,000 in Stub 1998 from a third party.
There is an overall stockholder's deficiency of $791,282 at June 30, 1998.
Management anticipates an additional positive change in its cash
position to one of greater liquidity (I) if it successfully liquidates its
interest in the SIM and in PEMP, two written-down subsidiaries; and (ii) upon
the release of the funds escrowed in connection with the Bensenville sale
(approximately $255,319). Management has no timetable for the liquidation of its
interest in either SIM (a discontinued subsidiary) or PEMP (a written-down
investment). Proceeds of the sale of either of these two entities will be
utilized to fund the Company's operations, although no assurance can be had that
either of these can be sold or on prices and terms favorable to the
<PAGE>
Company. Management believes that the Company has sufficient cash flow to
sustain its activities through the end of fiscal 1998.
On August 1, 1998 and continuing through March 31,1999 (unless
extended), the Company began offering units of its securities to "accredited
investors" as defined in Regulation D under the Securities Act of 1933, as
amended. Each unit will consist of $25,000 of 8% callable convertible three year
promissory notes of the Company due December 31,2001. The Company seeks to sell
a minimum of 60 units or $1,500,000 up to a maximum of 200 units or $5,000,000.
The notes will be convertible at any time at the holder's option at the rate of
$3.50 per share. Interest on the notes will be payable annually either in cash
or shares of the Company's stock at the Company's option. As of August 13,1998,
the Company had received, in escrow, subscriptions for 50 units or $1,250,000.
However, Management cannot provide any assurance that it will be successful in
completing the private placement.
Current Plans of Registrant
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 US 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 US which is selling in the US its own coral-based products for
use in human bone regeneration which has FDA approval for its products and is
substantially better capitalized than the Company; however, management believes
that the Company's products are superior to such competitor's products. Inoteb
anticipates beginning Phase III clinical trials in Europe for products relating
to osteoporosis and fractures of the femur and hip. The Company has also made
arrangements for the commencement of clinical trials for certain other products
with a view toward FDA approval thereof although such trials have not yet
commenced. In the interim, the Company will focus on increasing its European and
other sales of its products, streamlining Inoteb's operations, entering into
joint ventures with key strategic partners for distribution of its products,
research and development and the like. No assurance can be had that any such
arrangements will be reached or that they will be profitable.
Statements contained herein regarding, among other things, the dates
upon which the Company anticipates commencing clinical trials for certain of its
products constitute forward-looking statements under the Federal securities
laws. Such statements are subject to certain risks and uncertainties that could
cause the actual timing of such clinical trials or other events to differ
materially from those projected. With respect to such dates, the Company's
management has made certain assumptions regarding, among other things, the
successful and timely completion of pre-clinical tests, obtaining certain
approvals of the clinical trials from the FDA, the availability of adequate
clinical supplies, the absence of delays in patient enrollment and the
availability of adequate capital resources necessary to complete the clinical
trials. The Company's ability to commence clinical trials on the dates
anticipated is subject to certain risks. Undue reliance should not be placed on
the dates on which the Company anticipates commencing clinical trials. These
estimates are based upon the current expectations of Company's management, which
may change in the future due to a large number of potential events, including
unanticipated future developments.
<PAGE>
PART II
Item 1. Legal Proceedings. On July 25, 1997, the United States Securities and
Exchange Commission ("Commission") filed a complaint in the United States
District Court for the District of Columbia against the Company alleging that
the Company had failed to file its Annual Report on Form 10-KSB for the year
ended December 31, 1996, two Quarterly Reports on Form 10-QSB for the fiscal
quarters ended September 30, 1996 and March 31, 1997, and five Notifications of
Late Filing with respect to its delinquent reports. The Commission sought to
compel the Company to file its delinquent periodic reports and to enjoin the
Company from any further violations of Section 13(a) of the Exchange Act and
Rules 12b-25, 13a-1 and 13a-13 thereunder. Simultaneously with the filing of the
Commission's complaint, the Company consented to the entry of a Final Judgment
granting the relief sought by the Commission and admitted that it had not filed
the periodic reports as described above. All delinquent filings were made by the
Company and it has been current in its filing obligations since late 1997.
Item 2. Changes in Securities. There are no reportable events relating to this
item.
Item 3. Defaults Upon Senior Securities. There are no reportable events relating
to this item.
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) None.
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997 F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1998 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6/15
* * *
F-1
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
June December
ASSETS 30, 1998 31, 1997
------------ ------------
(Unaudited) (See Note 1)
Current assets:
Cash $ 470,337 $ 506,930
Accounts receivable, net of allowance for
doubtful accounts of $190,200 and $245,900 78,900 104,600
Inventories 166,400 177,500
Net assets of discontinued operations 255,319 430,000
Other current assets 79,400 95,000
------------ ------------
Total current assets 1,050,356 1,314,030
Property and equipment, net of accumulated
depreciation of $177,300 and $149,500 59,755 109,053
Other assets 193,214 188,682
------------ ------------
Totals $ 1,303,325 $ 1,611,765
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 333,100 $ 352,825
Notes payable:
Related parties 428,811 428,811
Other 275,000 25,000
Accounts payable and accrued liabilities 634,396 591,302
------------ ------------
Total current liabilities 1,671,307 1,397,938
Long-term debt, net of current portion 423,300 447,875
------------ ------------
Total liabilities 2,094,607 1,845,813
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, par value $.001 per share;
1,000,000 shares authorized; none issued -- --
Common stock, par value $.001 per share;
20,000,000 shares authorized; 7,697,215
shares issued and outstanding 7,697 7,697
Additional paid-in capital 12,509,248 12,509,248
Accumulated deficit (12,910,102) (12,295,993)
Unearned compensation (398,125) (455,000)
------------ ------------
Total stockholders' deficiency (791,282) (234,048)
------------ ------------
Totals $ 1,303,325 $ 1,611,765
============ ============
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 234,000 $ 261,800 $ 91,000 $ 124,600
Other income 1,338 7,468 532 2,991
----------- ----------- ----------- -----------
Totals 235,338 269,268 91,532 127,591
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 72,100 233,000 40,500 110,200
Research and development 241,839 130,900 125,039 90,600
Interest 42,228 35,148 22,833 18,365
Depreciation of property
and equipment 27,800 23,900 14,200 14,000
Amortization of other
assets 65,526 32,763
Amortization of unearned
compensation 56,875 113,750 28,438 56,875
Consulting and profes-
sional fees 206,306 349,355 100,802 243,307
Other operating ex-
penses 202,299 240,377 90,906 43,059
----------- ----------- ----------- -----------
Totals 849,447 1,191,956 422,718 609,169
----------- ----------- ----------- -----------
Loss from continuing
operations (614,109) (922,688) (331,186) (481,578)
Discontinued real estate
operations - loss on
disposal (188,058)
----------- ----------- ----------- -----------
Net loss $ (614,109) $(1,110,746) $ (331,186) $ (481,578)
=========== =========== =========== ===========
Loss per common share:
Loss from continuing
operations - basic $ (.08) $ (.12) $ (.04) $ (.06)
Loss from discontinued
operations - basic (.02)
----------- ----------- ----------- -----------
Net loss per common
share - basic $ (.08) $ (.14) $ (.04) $ (.06)
=========== =========== =========== ===========
Weighted average common
shares outstanding 7,697,215 7,594,103 7,697,215 7,642,722
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Number Number Additional Total
of of Paid-in Accumulated Unearned Stockholders'
Shares Amount Shares Amount Capital Deficit Compensation Deficiency
------ ------ ------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1998 -- $ -- 7,697,215 $ 7,697 $ 12,509,248 $(12,295,993) $(455,000) $(234,048)
Amortization of un-
earned compensation 56,875 56,875
Net loss (614,109) (614,109)
---- ---- --------- ------- ------------ ------------ --------- ---------
Balance, June 30,
1998 -- $ -- 7,697,215 $ 7,697 $ 12,509,248 $(12,910,102) $(398,125) $(791,282)
==== ==== ========= ======= ============ ============ ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
--------- -----------
Operating activities:
Net loss $(614,109) $(1,110,746)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation of property and equipment 27,800 23,900
Loss on disposal of property and equipment 22,097 83,641
Amortization of other assets 65,526
Amortization of unearned compensation 56,875 113,750
Loss from discontinued operations 188,058
Changes in operating assets and liabilities:
Accounts receivable 25,700 (9,800)
Inventories 11,100 69,000
Other current assets 15,600 (176,191)
Other assets (4,532) (3,800)
Accounts payable and accrued liabilities 31,694 142,796
--------- -----------
Net cash used in operating activities (427,775) (613,866)
--------- -----------
Investing activities:
Capital expenditures (599)
Net proceeds from disposal of discontinued
real estate operations 174,681 1,085,000
--------- -----------
Net cash provided by investing activities 174,082 1,085,000
--------- -----------
Financing activities:
Proceeds from note payable to related party 11,400
Proceeds from other short-term obligations 250,000
Principal payments on other short-term obliga-
tions (250,000)
Proceeds from long-term obligations 60,300
Principal payments on long-term obligations (44,300) (118,100)
Proceeds from sales of common stock 300,000
--------- -----------
Net cash provided by (used in) financing
activities 217,100 (7,800)
--------- -----------
Net increase (decrease) in cash (36,593) 463,334
Cash, beginning of period 506,930 9,142
--------- -----------
Cash, end of period $ 470,337 $ 472,476
========= ===========
Supplemental disclosure of cash flow data:
Interest paid $ 42,228 $ 35,148
========= ===========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and basis of presentation:
Business:
BioCoral, Inc. ("BioCoral") was incorporated under the laws of
the State of Delaware on May 4, 1992 and originally organized
as 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
in Note 2 of the notes to the consolidated financial
statements in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997 (the "10-KSB") previously
filed with the United States Securities and Exchange
Commission and in Note 4 herein, Cabestan entered into an
agreement to sell its real estate properties in October 1996
and consummated the sale in February 1997. Accordingly, the
results of the real estate operations have been shown
separately as discontinued operations in the accompanying
consolidated statements of operations. The net assets of the
discontinued real estate operations have also been
reclassified and shown separately in the accompanying
consolidated balance sheets.
During 1995, BioCoral acquired 3H Human Health Hightech Public
Limited Company ("3H"), an Irish corporation, for the purpose
of commencing and developing commercial biomaterials
operations. 3H's only significant activity prior to being
acquired by BioCoral was the acquisition of an option for the
purchase of a license from Inoteb SA ("Inoteb"), a French
corporation, that would give 3H the exclusive right to
distribute, anywhere outside of France, the medical products
developed and manufactured by Inoteb. During 1995, BioCoral
also exercised its option for the purchase of the license from
Inoteb (see Note 2 in the 10-KSB), and it acquired an option
to purchase a controlling interest in Inoteb. During July
1996, BioCoral exercised its option for the purchase of the
controlling interest in Inoteb (see Note 2 in the 10-KSB).
BioCoral, Inoteb, 3H, Cabestan and BioCoral's other
subsidiaries are referred to collectively herein as the
"Company."
F-6
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and basis of presentation (continued):
Business (concluded):
As of June 30, 1998, substantially all of the Company's
continuing operations were biomaterials operations conducted
through Inoteb, which was 66.95%-owned as of that date. Such
operations consist primarily of developing, manufacturing and
marketing bone substitute materials made from coral and other
orthopedic, oral and maxillofacial products, including
products marketed under the trade name of BioCoral. The
Company has not received the regulatory approvals needed to
market its products in the United States. Obtaining such
approvals could take a long time and involve substantial
expenditures.
The Company has generated limited amounts of revenues from its
biomaterials operations and, as a result, on December 31, 1997
it wrote off all of the costs of goodwill and licensing fees
that it had incurred and capitalized in the development of its
biomaterials operations.
During 1994, BioCoral filed a registration statement under the
Securities Exchange Act of 1934 (the "Exchange Act") and, as a
result, it is required to file periodic reports with the
United States Securities and Exchange Commission.
Basis of presentation:
The accompanying consolidated financial statements have been
prepared based on the assumption that the Company will
continue as a going concern. However, the Company has
generated limited amounts of revenues from its biomaterials
operations and has incurred significant recurring losses from
its continuing and discontinued operations, including net
losses of $614,109 and $3,378,564 for the six months ended
June 30, 1998 and the year ended December 31, 1997,
respectively. As a result, the Company had a working capital
deficiency of $620,951 and an accumulated deficit of
$12,910,102 at June 30, 1998. Inoteb, the Company's principal
operating subsidiary, also had a working capital deficiency
and an accumulated deficit. These conditions, among others,
raise substantial doubts about the ability of the Company to
continue as a going concern.
F-7
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and basis of presentation (continued):
Basis of presentation (concluded):
Management believes that the Company's commercial success and
ability to ultimately generate profitable biomaterials
operations and continue as a going concern will depend to a
significant extent on the Company's ability to obtain from
regulatory authorities, such as the Food and Drug
Administration, the approvals that will be necessary to enable
it to sell its products in the United States and certain other
countries. Management expects that the approval process is
likely to be very costly and time consuming, and that the
Company will need substantial additional amounts of working
capital to fund operations while it further develops its
technology and obtains the regulatory approvals.
Management believes that the Company will need a minimum of
approximately $700,000 to finance its operations through at
least July 1, 1999. Management plans to obtain such resources
through the private placement of notes (see Note 12) or loans
from, or sales of capital stock to, related and/or other
unrelated parties. Management believes that if the Company
cannot obtain such resources from other parties, the Company's
chairman of the board of directors and chief executive officer
is committed to and will provide the funds through loans or
the purchase of the Company's capital stock. Management will
also seek such funds from joint venture or other strategic
partners. However, management cannot provide any assurances
that the Company will be successful in obtaining such
financing and regulatory approvals, or that even if it does
obtain such financing and regulatory approvals it will be able
to generate profitable operations on a sustained basis. The
accompanying consolidated financial statements do not include
any adjustments that might be necessary should the Company be
unable to continue as a going concern.
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 June 30,
1998, its results of operations for the six and three months
ended June 30, 1998 and 1997 and its cash flows for the six
months ended June 30, 1998 and 1997. Information included in
the consolidated balance sheet as of December 31, 1997 has
been derived from the audited balance sheet in the 10-KSB.
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-8
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and basis of presentation (concluded):
Foreign currency translation and transactions:
Assets and liabilities of Inoteb are translated at current
exchange rates and related revenues and expenses are
translated at average exchange rates in effect during the
period. Resulting translation adjustments, which are recorded
as a separate component of stockholders' deficiency, and
foreign currency transaction gains and losses, which are
included in net income or loss in each period, were not
material as of June 30, 1998 and for the six and three months
then ended.
Reclassifications:
Certain accounts in the 1997 consolidated financial statements
have been reclassified to conform to the 1998 presentations.
Note 2 - Loss per common share:
Effective December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No.
128, Earnings per Share ("SFAS 128"), which replaces the
presentation of "primary" and "fully-diluted" income (loss)
per common share required under previously promulgated
accounting standards with the presentation of "basic" and
"diluted" income (loss) per common share.
Basic net income (loss) per common share is calculated by
dividing net income or loss for each period by the weighted
average number of common shares outstanding during the period.
The calculation of diluted net income (loss) per common share
is similar to that of basic net income (loss) per common
share, except that the denominator is increased to include the
number of additional common shares that would have been
outstanding if all potentially dilutive common shares,
principally those issuable upon the exercise of stock options,
were issued during the period.
Since the Company had losses for the six and three months
ended June 30, 1998 and 1997, the assumed effects of the
exercise of outstanding stock options were anti-dilutive and,
accordingly, diluted per share amounts have not been presented
in the accompanying consolidated statements of operations. In
addition, the basic loss per common share amounts presented in
the accompanying consolidated statements of operations for the
six and three months ended June 30, 1997 which were computed
in accordance with SFAS 128 do not differ from those computed
under previously promulgated accounting standards.
F-9
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Minority interest in Inoteb:
As further explained in Note 2 in the 10-KSB, as a result of
losses incurred by Inoteb during and prior to 1997, the
minority interest in Inoteb had been eliminated as of January
1, 1998 and 1997. The Company's net losses for the six months
ended June 30, 1998 and 1997 included approximately $91,000
and $144,000, respectively, of Inoteb's net losses that could
not be allocated due to the prior elimination of the minority
interest. Income earned by Inoteb subsequent to June 30, 1998,
if any, will be allocated entirely to the Company until such
time as the Company recovers excess losses of approximately
$486,000 that could not be charged to the minority interest.
Note 4 - Sale of discontinued real estate operations:
As further explained in Note 2 in the 10-KSB, in October 1996,
the Company decided to discontinue its real estate operations
and entered into an agreement to sell the commercial real
estate owned by Cabestan for total consideration of
approximately $6,800,000 before costs directly related to the
sale. The sale was consummated on February 18, 1997. During
the period from February 18, 1997 to December 31, 1997, the
purchaser paid approximately $4,748,000 by assuming a mortgage
note on the properties and paying $1,945,000 in cash at
various dates. Of the total cash payments, approximately
$1,515,000 was remitted to the Company and $430,000 was
initially deposited in escrow to secure certain minimum rent
guarantees made to the purchaser. During the six months ended
June 30, 1998, a total of $174,681 was released from escrow.
The escrow account balances of $255,319 and $430,000 were the
only remaining assets attributable to discontinued real estate
operations as of June 30, 1998 and December 31, 1997,
respectively; there were no remaining liabilities
attributable to discontinued real estate operations as of
either of those dates.
The loss from discontinued real estate operations includes
charges for interest of $38,764 for the six months ended June
30, 1997. Depreciation was discontinued when the property and
equipment was written down to net realizable value in 1995
and, accordingly, there was no charge for depreciation expense
for the six months ended June 30, 1997.
F-10
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Income taxes:
As of June 30, 1998, the Company had net operating loss
carryforwards of approximately $6,750,000 available to reduce
future Federal taxable income which, if not used, will expire
at various dates through 2013. Due to changes in the ownership
of the Company, the utilization of these loss carryforwards
may be subject to substantial annual limitations.
Deferred tax assets of approximately $2,300,000 and $2,109,000
attributable to the potential benefits from such net operating
loss carryforwards as of June 30, 1998 and December 31, 1997,
respectively, were offset by equivalent valuation allowances
due to the uncertainties related to the extent and timing of
the Company's future taxable income. There were no other
material temporary differences as of these dates.
Note 6 - Short-term notes payable:
Related parties:
At June 30, 1998, the Company had outstanding notes payable to
related parties with a principal balance of $428,811 that are
due on demand and bear interest at 10%. The notes are secured
by 12,298 shares of Inoteb's common stock. The noteholders
have the option to convert the notes at any time into a total
of 500,000 shares of common stock of the Company (which is
equivalent to a conversion rate of $.8576 per share). Interest
on such borrowings totaled approximately $22,000 and $11,000
for the six and three months ended June 30, 1998,
respectively.
Other:
The Company sold six month, 12% notes (the "Regulation D
notes") in the principal amount of $1,975,000 in 1994 and 1995
through an offering that was exempt pursuant to Regulation D
of the Securities Act. As of April 4, 1995, the Company was in
default 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 1995, the Company made payments that reduced
the principal balance to $517,500 and negotiated an extension
of the due date. During the period from February 18, 1997 to
December 31, 1997, the Company used a portion of the proceeds
from the sale of its commercial real estate (see Note 4) to
make principal payments on the notes totaling $492,500. As a
result, the outstanding principal balance of the Regulation D
notes was $25,000 at June 30, 1998 and December 31, 1997.
Management anticipates that the Company will repay the
remaining balance as soon as it can locate the remaining
noteholder.
F-11
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Short-term notes payable (concluded):
At June 30, 1998, the Company also had notes payable to unrelated
parties with a principal balance of $250,000 that are due on demand
and bear interest at 8%. Interest on such borrowings totaled
approximately $1,700 for the six and three months ended June 30,
1998.
Note 7 - Long-term debt:
Long-term debt at June 30, 1998 and December 31, 1997 consisted of
the following:
June December
30, 1998 31, 1997
-------- --------
Term loans payable monthly in
varying installments, including
interest at rates ranging from
6.95% to 9.5%, through December
2001 (A) $360,500 $397,600
Noninterest bearing advances in-
itially scheduled to be paid
in monthly installments through
2003 (B) 395,900 403,100
-------- --------
756,400 800,700
Less current portion 333,100 352,825
-------- --------
Long-term debt $423,300 $447,875
======== ========
(A) The loans were secured by equipment with a net carrying
value of approximately $59,755 at June 30, 1998.
(B) The advances were made to Inoteb by an agency of the
French government that finances or subsidizes certain
research and development projects. If the research does
not result in a commercially feasible product and
certain other conditions are met, Inoteb will not have
to pay some or all of the advances.
Principal payment requirements on long-term obligations in each of
the five years subsequent to June 30, 1998 are as follows:
Year Ending
June 30, Amount
----------- --------
1999 $333,100
2000 131,500
2001 104,200
2002 89,300
2003 98,300
F-12
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Long-term debt (concluded):
Management of the Company believes that the term loans and the
noninterest bearing advances had carrying values that approximated
their fair values as of June 30, 1998 because the interest rates and
other relevant terms of such financial instruments were the
equivalent of those that the Company could have obtained for new
loans as of that date.
Note 8 - Common stock issued or issuable to consultants and advisors:
On October 1, 1997, the Company formed a Scientific Advisory Board
("SAB") with four members who will advise the Company on scientific
and medical developments relating to its products. Although the
Company is not contractually obligated to compensate the members of
the SAB, management intends to issue shares of the Company's common
stock with a fair value of $78,000 to them to compensate them for
their services during the year ending October 1, 1998. No shares had
been issued as of June 30, 1998. Accordingly, the Company accrued a
liability of $58,500 for such compensation as of June 30, 1998,
which, based on the fair market value of the Company's common
shares, will be paid through the issuance of approximately 42,500
common shares.
Note 9 - Stock option plan
As further explained in Note 9 in the 10-KSB, 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. As of December 31, 1997, the Company had
granted options for the purchase of 1,758,334 shares of common stock
all of which were exercisable at exercise prices ranging from $2.375
to $5.81 per share. The weighted average exercise price of those
options was $3.56 per share.
On February 3, 1998, the Company granted options for the purchase of
200,000 shares of common stock exercisable at $3.25 per share, the
fair market value of the shares on the date of grant. These options,
which are exercisable for a five year period from the date of
issuance, remained outstanding at June 30, 1998.
Accordingly, as of June 30, 1998, the Company had granted options
for the purchase of 1,958,334 shares of common stock all of which
were exercisable at exercise prices ranging from $2.375 to $5.81 per
share. The weighted average exercise price of those options was
$3.52 per share. A total of 41,666 shares remained available for
grant.
F-13
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Stock option plan (concluded):
Since, as also explained in Note 9 in the 10-KSB, the Company has
elected to continue to use the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, in
accounting for its stock options and the exercise price for the
options granted during the six months ended June 30, 1998
approximated the fair value of the underlying stock at the date of
grant, the Company did not recognize any compensation costs in
connection with the options granted on February 3, 1998 for the
purchase of 200,000 shares of common stock.
The compensation cost, pro forma loss and loss per common share from
continuing operations and net loss and net loss per common share for
the six and three months ended June 30, 1998 and 1997, determined
using a fair value based method of accounting as required by SFAS
123 for the stock options granted by the Company, have not been
presented since such amounts do not differ materially from the
corresponding historical amounts.
Note 10- Preferred stock:
At January 1, 1997, there were 300 shares of nonconvertible, Series
A preferred stock outstanding, all of which were owned by a company
controlled by Riccardo Mortara, a principal stockholder of the
Company (see Notes 2 and 10 in the 10-KSB). During January 1997, the
remaining 300 shares of preferred stock outstanding were canceled
and 400,000 shares of common stock were sold to the holder for
$300,000.
Note 11- Segment and geographic information:
The Company operates principally in one industry segment which
includes the development, manufacture and sale of biomedical
materials used in medical products. The Company conducts operations
outside of the United States, principally in France and Ireland.
Information about the Company's operations in different geographic
locations as of June 30, 1998 and December 31, 1997 and for the six
months ended June 30, 1998 and 1997 is shown below:
United
States France Ireland Consolidated
-------- -------- --------- --------------
1998
----
Net sales $ 234,000 $ 234,000
Loss from
continuing
operations $ (318,311) (276,200) $(19,598) (614,109)
Identifiable
assets 736,083 567,242 1,303,325
F-14
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11- Segment and geographic information (concluded):
United
States France Ireland Consolidated
-------- -------- --------- --------------
1997
----
Net sales $261,800 $ 261,800
Loss from
continuing
operations $(540,246) (328,300) $(54,142) (922,688)
Identifiable
assets 676,801 929,653 5,311 1,611,765
Note 12- Subsequent private offering of notes:
On August 1, 1998, the Company commenced a private offering (the
"Offering") to "accredited investors" of units of 8% callable
convertible promissory notes due December 31, 2001 (the "8% Notes")
that is intended to be exempt from registration under the Securities
Act of 1933 (the "Act") pursuant to the provisions of Regulation D
of the Act. Each unit will consist of 8% Notes in the principal
amount of $25,000. The Company is offering no less than 60 units,
which would have an aggregate initial principal balance of
$1,500,000, and no more than 200 units, which would have an
aggregate initial principal balance of $5,000,000. The notes will be
convertible at any time at the holder's option at the rate of $3.50
per share. Interest on the notes will be payable annually, at the
Company's option, either in cash or shares of the Company's common
stock. The Offering will expire on March 31, 1999, unless extended
by the Company for up to 30 days. As of August 13, 1998, the Company
had received subscriptions for 50 units, which would have an
aggregate initial principal balance of $1,250,000, which is less
than the minimum number of units being offered. Management cannot
provide any assurance that the Company will be successful in
completing all or any portion of the Offering.
* * *
F-15
<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: August 18, 1998 /s/ Nasser Nassiri
----------------------------------------
Nasser Nassiri, Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Biocoral
Inc. and subsidiaries and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 470,337
<SECURITIES> 0
<RECEIVABLES> 269,100
<ALLOWANCES> 190,200
<INVENTORY> 166,400
<CURRENT-ASSETS> 1,050,356
<PP&E> 237,055
<DEPRECIATION> 177,300
<TOTAL-ASSETS> 1,303,325
<CURRENT-LIABILITIES> 1,671,307
<BONDS> 1,460,211
0
0
<COMMON> 7,697
<OTHER-SE> (798,979)
<TOTAL-LIABILITY-AND-EQUITY> 1,303,325
<SALES> 234,000
<TOTAL-REVENUES> 235,338
<CGS> 72,100
<TOTAL-COSTS> 72,100
<OTHER-EXPENSES> 735,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,228
<INCOME-PRETAX> (614,109)
<INCOME-TAX> 0
<INCOME-CONTINUING> (614,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614,109)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>