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 September 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 September 30, 1998 was
7,869,548.
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1998 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6/16
* * *
F-1
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
September December
30, 1998 31, 1997
------------ ------------
(Unaudited) (See Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 307,727 $ 506,930
Cash held in escrow 1,202,473
Accounts receivable, net of allowance for doubtful
accounts of $206,400 and $245,900 91,500 104,600
Inventories 183,300 177,500
Net assets of discontinued operations 230,639 430,000
Other current assets 130,300 95,000
------------ ------------
Total current assets 2,145,939 1,314,030
Property and equipment, net of accumulated depreciation
of $195,300 and $149,500 74,355 109,053
Other assets 194,801 188,682
------------ ------------
Totals $ 2,415,095 $ 1,611,765
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 481,900 $ 352,825
Notes payable:
Related parties 428,811 428,811
Other 25,000 25,000
Accounts payable and accrued liabilities 554,784 591,302
------------ ------------
Total current liabilities 1,490,495 1,397,938
Long-term debt, net of current portion 1,832,700 447,875
------------ ------------
Total liabilities 3,323,195 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; 7,869,548 and 7,697,215 shares
issued and outstanding 7,869 7,697
Additional paid-in capital 12,681,409 12,509,248
Accumulated deficit (13,227,690) (12,295,993)
Unearned compensation (369,688) (455,000)
------------ ------------
Total stockholders' deficiency (908,100) (234,048)
------------ ------------
Totals $ 2,415,095 $ 1,611,765
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 332,700 $ 352,300 $ 98,700 $ 90,500
Other income 1,782 29,112 444 21,644
----------- ----------- ----------- -----------
Totals 334,482 381,412 99,144 112,144
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales 107,200 300,500 35,100 67,500
Research and development, net
of subsidies 370,233 73,400 128,394 (57,500)
Interest 64,641 52,922 22,413 17,774
Depreciation of property and
equipment 45,800 34,200 18,000 10,300
Amortization of other assets 98,289 32,763
Amortization of unearned com-
pensation 85,312 654,063 28,437 540,313
Consulting and professional fees 307,701 510,518 101,395 161,163
Other operating expenses 285,292 503,036 82,993 262,659
----------- ----------- ----------- -----------
Totals 1,266,179 2,226,928 416,732 1,034,972
----------- ----------- ----------- -----------
Loss from continuing operations (931,697) (1,845,516) (317,588) (922,828)
Discontinued real estate operations -
loss on disposal (188,058)
----------- ----------- ----------- -----------
Net loss $ (931,697) $(2,033,574) $ (317,588) $ (922,828)
=========== =========== =========== ===========
Loss per common share:
Loss from continuing operations -
basic $ (.12) $ (.24) $ (.04) $ (.12)
Loss from discontinued operations -
basic (.03)
----------- ----------- ----------- -----------
Net loss per common share -
basic $ (.12) $ (.27) $ (.04) $ (.12)
=========== =========== =========== ===========
Weighted average common shares
outstanding 7,750,872 7,610,488 7,856,436 7,642,722
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 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)
Issuance of common stock
to pay accrued liabilities 172,333 172 172,161 172,333
Amortization of unearned
compensation 85,312 85,312
Net loss (931,697) (931,697)
--- ---- --------- ------- ------------ ------------ ---------- ----------
Balance, September 30, 1998 -- $ -- 7,869,548 $ 7,869 $ 12,681,409 $(13,227,690) $ (369,688) $ (908,100)
=== ==== ========= ======= ============ ============ ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (931,697) $(2,033,574)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation of property and equipment 45,800 34,200
(Gain) loss on disposal of property and equipment (8,702) 83,541
Effect of governmental subsidies on research
and development expenses (118,000)
Amortization of other assets 98,289
Amortization of unearned compensation 85,312 654,063
Loss from discontinued operations 188,058
Changes in operating assets and liabilities:
Accounts receivable 13,100 47,300
Inventories (5,800) 175,900
Other current assets (35,300) 19,809
Other assets (6,119) 3,000
Accounts payable and accrued liabilities 135,815 14,708
----------- -----------
Net cash used in operating activities (707,591) (832,706)
----------- -----------
Investing activities:
Capital expenditures (2,400)
Net proceeds from disposal of discontinued
real estate operations 199,361 1,085,000
----------- -----------
Net cash provided by investing activities 196,961 1,085,000
----------- -----------
Financing activities:
Proceeds from note payable to related party 260,000
Principal payments on other short-term obligations (274,438)
Proceeds from long-term obligations, net of
amounts held in escrow 382,227 60,300
Principal payments on long-term obligations (70,800) (162,600)
Proceeds from sales of common stock 300,000
----------- -----------
Net cash provided by financing activities 311,427 183,262
----------- -----------
Net increase (decrease) in cash (199,203) 435,556
Cash, beginning of period 506,930 9,142
----------- -----------
Cash, end of period $ 307,727 $ 444,698
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 20,688 $ 59,292
=========== ===========
Supplemental schedule of noncash financing activities:
During the nine months ended September 30, 1998, the Company issued 172,333
shares of common stock to pay accrued liabilities of $172,333 and issued
long-term obligations with an aggregate principal balance of $250,000 for
outstanding short-term notes payable with an equivalent carrying value.
</TABLE>
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."
As of September 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 maxillo-facial 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.
F-6
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and basis of presentation (continued):
Business (concluded):
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 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 $931,697 and $3,378,564 for the nine months ended
September 30, 1998 and the year ended December 31, 1997,
respectively. As a result, the Company had an accumulated
deficit of $13,227,690 and a total stockholders' deficiency of
$908,100 at September 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.
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.
F-7
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and basis of presentation (concluded):
Basis of presentation (concluded):
During the period from August 1, 1998 to September 30, 1998,
the Company sold convertible notes maturing December 31, 2001
at their aggregate principal amount of $1,500,000 (including
$250,000 that were exchanged for previously outstanding
short-term notes payable) through an offering intended to be
exempt from registration under the Securities Act of 1933 (the
"Act"), as further explained in Note 7 herein. As a result,
management believes, but cannot assure, that the Company will
have sufficient resources to finance its operations through at
least October 1, 1999. Management plans to continue to seek
additional resources for the Company through additional sales
of convertible notes, sales of common stock and/or agreements
with 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 September
30, 1998, its results of operations for the nine and three
months ended September 30, 1998 and 1997 and its cash flows
for the nine months ended September 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.
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 September 30, 1998 and for the nine and three
months then ended.
Reclassifications:
Certain accounts in the 1997 consolidated financial statements
have been reclassified to conform to the 1998 presentations.
F-8
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 requires the
presentation of "primary" and "diluted" earnings (loss) per
common share, as further explained in Note 1 in the 10-KSB.
Since the Company had losses for the nine and three months
ended September 30, 1998 and 1997, the assumed effects of the
exercise of outstanding stock options and conversion of notes
payable 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 and weighted average share amounts
presented in the accompanying consolidated statements of
operations for the nine and three months ended September 30,
1997 which were computed in accordance with SFAS 128 do not
differ from those computed under previously promulgated
accounting standards.
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 nine months
ended September 30, 1998 and 1997 included approximately
$147,000 and $216,000, 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
September 30, 1998, if any, will be allocated entirely to the
Company until such time as the Company recovers excess losses
of approximately $542,000 that could not be charged to the
minority interest.
F-9
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 nine months ended
September 30, 1998, a total of $199,361 was released from
escrow. The escrow account balances of $230,639 and $430,000
were the only remaining assets attributable to discontinued
real estate operations as of September 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 nine months ended
September 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 nine months ended September 30,
1997.
Note 5 - Income taxes:
As of September 30, 1998, the Company had net operating loss
carryforwards of approximately $6,900,000 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 $2,346,000 and $2,109,000
attributable to the potential benefits from such net operating
loss carryforwards as of September 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.
F-10
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Short-term notes payable:
Related parties:
At September 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
$33,000 and $11,000 for the nine and three months ended
September 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 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 September 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 7 - Long-term debt:
Long-term debt at September 30, 1998 and December 31, 1997 consisted
of the following:
September 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) $ 384,900 $ 397,600
Noninterest bearing advances initially
scheduled to be paid in monthly
installments through 2003 (B) 429,700 403,100
8% callable convertible promissory
notes payable (C) 1,500,000
---------- ----------
2,314,600 800,700
Less current portion 481,900 352,825
---------- ----------
Long-term debt $1,832,700 $ 447,875
========== ==========
(A) The loans were secured by equipment with a net carrying value
of approximately $74,000 at September 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.
(C) On August 1, 1998, the Company commenced a private offering
(the "Offering") to "accredited investors" of units of the 8%
callable convertible promissory notes payable that are due on
December 31, 2001 (the "8% Notes"). The Offering will expire
on March 31, 1999 (unless extended by the Company for up to 30
days) and is intended to be exempt from registration pursuant
to the provisions of Regulation D of the Act. The 8% Notes are
convertible at any time at the holder's option at the rate of
$3.50 per share. Interest on the 8% Notes is payable annually,
at the Company's option, either in cash or shares of the
Company's common stock. Each unit subject to the Offering
consists of 8% Notes in the principal amount of $25,000. The
Company initially offered a minimum of 60 units, with an
aggregate principal balance of $1,500,000, and a maximum of
200 units, with an aggregate principal balance of $5,000,000.
F-12
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Long-term debt (concluded):
During the period from August 1, 1998 to September 30, 1998,
the Company sold 60 units, the minimum number of units it was
required to sell in order to at least partially complete the
Offering, of which 50 units, with a principal amount of
$1,250,000, were sold for cash and 10 units, with a principal
amount of $250,000, were exchanged for previously outstanding
short-term notes payable. Proceeds from the 50 units sold for
cash were initially held in an escrow account. Proceeds of
$50,000 were released from escrow prior to September 30, 1998
and the remaining proceeds of $1,200,000 plus accrued interest
were released from escrow on October 5, 1998.
Principal payment requirements on long-term obligations in each of
the years subsequent to September 30, 1998 are as follows:
Year Ending
September 30, Amount
------------- ------
1999 $ 481,900
2000 116,200
2001 1,609,800
2002 106,700
Management of the Company believes that the term loans, the
noninterest bearing advances and the 8% Notes had carrying values
that approximated their fair values as of September 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.
F-13
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Common stock issued or issuable to consultants, advisors and others:
On October 1, 1997, the Company formed a Scientific Advisory Board
("SAB") with four members who 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 each of the two years in the period ending October
1, 1999. Accordingly, the Company charged $58,500 and $19,500 to
consulting and professional fees for the compensation to be paid to
the members of the SAB for the nine months and three months ended
September 30, 1998, respectively.
During July 1998, the Company issued 39,000 shares with a fair
market value of $39,000, or $1.00 per share, at the effective date
of issuance as a partial payment of the amounts it is accruing in
connection with the services provided by the members of the SAB. As
of September 30, 1998, the Company had a remaining accrual of
$39,000 for compensation in connection with such services; based on
a fair market value of $1.625 per share as of that date, the Company
would have had to issue 24,000 shares to the members of the SAB to
pay the total accrued liability.
During the three months ended September 30, 1998, the Company also
issued 133,333 shares of common stock with a fair market value of
$133,333, or $1.00 per share, at the effective dates of issuance as
payments of amounts it had accrued in connection with services
provided by other consultants, executive officers and professionals.
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 September 30, 1998.
Accordingly, as of September 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-14
<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 nine months ended September 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 nine and three months ended September 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.
F-15
<PAGE>
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11- Segment and geographic information (concluded):
Information about the Company's assets and operations in different
geographic locations as of September 30, 1998 and December 31, 1997
and for the nine months ended September 30, 1998 and 1997 is shown
below:
<TABLE>
<CAPTION>
United
States France Ireland Consolidated
---------- -------- ------- ------------
<S> <C> <C> <C> <C>
1998
Identifiable assets $1,904,240 $ 510,855 $2,415,095
Net sales 332,700 332,700
Loss from continuing
operations (456,685) (444,900) $(30,112) (931,697)
1997
Identifiable assets 676,801 929,653 5,311 1,611,765
Net sales 352,300 352,300
Loss from continuing
operations (1,273,569) (481,700) (90,247) (1,845,516)
</TABLE>
* * *
F-16
<PAGE>
PART I
Item 1. Financial Statements. Attached.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis of the Company's results of
operations, liquidity and financial condition should be read in conjunction with
the consolidated financial statements of the Company and notes thereto appearing
elsewhere in this Report.
Results of Operations
The Company experienced a net loss of approximately $932,000 from
continuing operations during the nine month period ended September 30, 1998
("Stub 1998") due principally to operating losses in its Inoteb subsidiary
($445,000) and at the corporate level ($447,000). The net loss for this period
was significantly less than that for the nine months ended September 30, 1997
("Stub 1997") when the Company experienced a net loss from continuing operations
of approximately $1,846,000. Such loss consisted principally of a comparable
loss from operations at Inoteb ($482,000) and a larger loss at the corporate
level ($1,274,000). The loss at the corporate level for Stub 1997 was due to
amortization of unearned compensation ($654,000 in Stub 1997 versus $85,000 in
Stub 1998) and professional and consulting fees ($511,000 in Stub 1997 versus
$308,000 in Stub 1998). Total revenues for Stub 1998 were approximately
$334,000, a decrease of approximately $47,000 over the same period the year
before. This reflected a slight decline in Inoteb's sales. The net effect of the
above resulted in the loss per share from continuing operations being reduced
from ($0.24) per share to ($0.12) per share. On a quarter to quarter basis,
revenues were similar (approximately $99,000 for 1998 versus approximately
$112,000 for 1997), but operating expenses decreased significantly, from
approximately $1,035,000 in 1997 to approximately $417,000 in 1998, due
primarily to reduction of expenses in most categories.
During 1998, the Company conducted a private placement of units
(the"Units") of its securities from which it has received, thus far, net
proceeds of $1,500,000 (the offering is to continue into 1999 up to a maximum of
$5,000,000). Each Unit consists of $25,000 of principal amount 8% callable
convertible three year debentures. Management believes that the proceeds it has
received thus far from such offering, together with operating revenues from
Inoteb, should be sufficient to fund the Company's operations through at least
September 1999.
Financial Condition, Liquidity and Capital Resources.
Total assets increased by approximately $803,000 from December 31, 1997 to
September 30, 1998, primarily due to receipt of the proceeds of the private
placement. Cash (including cash in escrow) increased significantly, from
$507,000 to $1,510,200 also due to the private placement. Total liabilities
increased significantly, from $1,845,813 to $3,323,195, primarily due to the
private placement.
<PAGE>
As mentioned above, the Company's liquidity was greatly improved by the
sale in 1998 of the Units and also by the issuance of an aggregate of 172,333
shares of its stock to certain consultants in lieu of cash payments. Management
anticipates an additional positive change in its cash position to one of greater
liquidity (i) if it raises additional funds in the private placement; and (ii)
upon the release of the remaining funds escrowed in connection with the
Company's sale of its Bensenville properties in 1997 (approximately $231,000).
Management believes that the Company has sufficient cash flow to sustain its
activities through at least September 1999. Beyond then, the Company will have
need of significant additional capital to continue funding its operations and
those of its subsidiary Inoteb. The Company will attempt to meet its cash needs
by additional sales of securities, either debt or equity, and by seeking
government funding for joint ventures. No assurance can be had that any such
additional capital will be received.
Current Plans of Registrant; "Y2K" Problem; Inflation
The Company's focus during the past two years has been primarily on
research and development of Inoteb's products (primarily on development of the
autologous glue and on osteporosis applications for its coralline implant
products), continuing its marketing efforts in Europe (where its sales have been
relatively stable, if small) and seeking strategic alliances regarding same. The
Company expects to begin next month European Phase II clinical trials for its
autologous glue product at two European-based blood transfusion centers. In
addition, the Company expects to begin, in January 1999, European Phase III
clinical trials for osteoporosis applications of its coralline products at 14
European medical centers. Inoteb has been selling its products, principally
within the European Community, for several years, but does not have approval for
the sale of its products in the United States, a significant market. Moreover,
sales of Inoteb's products at present levels are not sufficient to fund the
Company's operations.
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. The Company has made arrangements for the
commencement of clinical trials for its products with a view toward FDA approval
thereof . In the interim, the Company will focus on increasing non-US sales of
its products, entering into joint ventures or similar alliances with key
strategic partners for distribution of its products, funding research and
development (or arranging for the funding thereof via grants, etc.) and the
like. No assurance can be had that any such arrangements will be reached or that
they will be profitable.
The Company is less computer reliant than many companies of similar size.
The Company has recently begun to review its computer systems to identify those
which could be affected by the "Y2K" problem. The Company believes that with
minor modifications to its existing hardware and software, the "Y2K" problem
will not pose significant operational difficulties for the Company's computer
systems as so modified. No such modification or conversion has or will require
material expenditures.
<PAGE>
The Company has not been significantly affected by inflation during the
past fiscal year.
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.
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 later in 1997 and the Company has been current in its filing obligations
since then.
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>
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: November 13, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 307,727
<SECURITIES> 0
<RECEIVABLES> 297,900
<ALLOWANCES> 206,400
<INVENTORY> 183,300
<CURRENT-ASSETS> 2,145,939
<PP&E> 269,655
<DEPRECIATION> 195,300
<TOTAL-ASSETS> 2,415,095
<CURRENT-LIABILITIES> 1,490,495
<BONDS> 2,768,411
0
0
<COMMON> 7,869
<OTHER-SE> (915,969)
<TOTAL-LIABILITY-AND-EQUITY> 2,415,095
<SALES> 332,700
<TOTAL-REVENUES> 334,482
<CGS> 107,200
<TOTAL-COSTS> 107,200
<OTHER-EXPENSES> 1,094,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,641
<INCOME-PRETAX> (931,697)
<INCOME-TAX> 0
<INCOME-CONTINUING> (931,697)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (931,697)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
