Attached files
| file | filename |
|---|---|
| EX-32 - EXHIBIT 32 - BIOCORAL INC | ex32.htm |
| EX-31 - EXHIBIT 31 - BIOCORAL INC | ex31.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 2010
OR
o 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 Registrant as specified in its charter)
|
Delaware
|
33-0601504
|
|
(State or other jurisdiction of incorporation or organization)
|
(IRS Employer I.D. No.)
|
12-14 rue Raymond Ridel, La Garenne Colombes, 92250 FRANCE
(Address of principal executive offices)
011-331-4757-9843
(Issuer's telephone number, including area code)
Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 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 xNo o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
o Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock outstanding as of November 8, 2010 was 11,443,787
BIOCORAL, INC. AND SUBSIDIARIES
CONTENTS
|
Page
|
|||
|
PART I
|
FINANCIAL INFORMATION
|
||
|
Item 1.
|
1
|
||
|
1
|
|||
|
2
|
|||
|
3
|
|||
|
4
|
|||
|
5-11
|
|||
|
Item 2.
|
12
|
||
|
Item 3.
|
15
|
||
|
Item 4.
|
15
|
||
|
PART II
|
OTHER INFORMATION
|
15
|
|
|
Item 1.
|
15
|
||
|
Item 1A.
|
15
|
||
|
Item 2.
|
15
|
||
|
Item 3.
|
16
|
||
|
Item 4.
|
16
|
||
|
Item 5.
|
16
|
||
|
Item 6.
|
16
|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
|
September 30, 2010
|
December 31, 2009
|
|||||||
|
(Unaudited)
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 28,095 | $ | 45,018 | ||||
|
Accounts receivable, net of allowance for doubtful accounts of $7,448 and $7,883, respectively
|
91,488 | 91,370 | ||||||
|
Inventories
|
536,654 | 491,960 | ||||||
|
Prepaid expenses and other current assets
|
11,997 | 17,782 | ||||||
|
Total Current Assets
|
668,234 | 646,130 | ||||||
|
Property and equipment, net
|
12,787 | 16,136 | ||||||
|
Patent costs, net of accumulated amortization
|
832,108 | 825,153 | ||||||
|
Other assets
|
8,796 | 9,203 | ||||||
|
Total Assets
|
$ | 1,521,925 | $ | 1,496,622 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
Current Liabilities:
|
||||||||
|
Accounts payable
|
$ | 707,020 | $ | 795,613 | ||||
|
Short-term bank borrowings
|
16,425 | 11,016 | ||||||
|
Short-term notes payable
|
532,500 | 308,100 | ||||||
|
Current portion due to officer
|
333,834 | 259,192 | ||||||
|
Accrued interest payable
|
1,037,772 | 857,495 | ||||||
|
Total Current Liabilities
|
2,627,551 | 2,231,416 | ||||||
|
Due to officer, net of current portion
|
412,500 | 300,000 | ||||||
|
Long-term notes payable
|
3,000,000 | 3,000,000 | ||||||
|
Deferred employee benefits
|
5,717 | 6,051 | ||||||
|
Total Liabilities
|
6,045,768 | 5,537,467 | ||||||
|
Commitments and contingencies
|
||||||||
|
Stockholders' Deficit:
|
||||||||
|
Preferred stock; par value $.001 per share; 1,000,000 shares authorized; none issued
|
- | - | ||||||
|
Common Stock; par value $.001 per share; 100,000,000 shares authorized;11,443,787 shares issued and outstanding September 30, 2010 and 11,443,787 shares issued and outstanding December 31, 2009
|
11,444 | 11,444 | ||||||
|
Additional paid-in capital
|
18,800,000 | 18,800,000 | ||||||
|
Accumulated other comprehensive loss
|
(129,073 | ) | (131,652 | ) | ||||
|
Accumulated deficit
|
(23,206,214 | ) | (22,720,637 | ) | ||||
|
Total Stockholders' Deficit
|
(4,523,843 | ) | (4,040,845 | ) | ||||
|
Total Liabilities and Stockholders' Deficit
|
$ | 1,521,925 | $ | 1,496,622 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
Net sales
|
$ | 212,079 | $ | 318,274 | $ | 64,234 | $ | 90,274 | ||||||||
|
Cost of sales
|
78,600 | 70,301 | 28,655 | 7,602 | ||||||||||||
|
Gross Profit
|
133,479 | 247,973 | 35,579 | 82,672 | ||||||||||||
|
Operating Expenses:
|
||||||||||||||||
|
Consulting and professional fees
|
165,893 | 157,352 | 50,268 | 51,666 | ||||||||||||
|
Depreciation and amortization
|
68,701 | 66,959 | 22,619 | 22,813 | ||||||||||||
|
Administrative expenses
|
194,620 | 254,251 | 59,563 | 87,915 | ||||||||||||
|
Total Operating Expenses
|
429,214 | 478,562 | 132,450 | 162,394 | ||||||||||||
|
Loss From Operations
|
(295,735 | ) | (230,589 | ) | (96,871 | ) | (79,722 | ) | ||||||||
|
Other Income (Expense):
|
||||||||||||||||
|
Interest, net
|
(180,277 | ) | (173,588 | ) | (61,368 | ) | (57,226 | ) | ||||||||
|
Other
|
(9,565 | ) | 13,591 | 25 | 10,966 | |||||||||||
|
Total Other Income (Expense)
|
(189,842 | ) | (159,997 | ) | (61,343 | ) | (46,260 | ) | ||||||||
| Loss from Continuing Operations before Provision for Income Taxes | (485,577 | ) | (390,586 | ) | (158,214 | ) | (125,982 | ) | ||||||||
|
Provision for Income Taxes
|
- | - | - | - | ||||||||||||
|
Net Loss from Continuing Operations
|
(485,577 | ) | (390,586 | ) | (158,214 | ) | (125,982 | ) | ||||||||
|
Discontinued Operations
|
||||||||||||||||
|
Loss of discontinued subsidiary
|
- | (20,285 | ) | - | (2,542 | ) | ||||||||||
|
Net Loss
|
(485,577 | ) | (410,871 | ) | (158,214 | ) | (128,524 | ) | ||||||||
|
Other Comprehensive Income (Loss):
|
||||||||||||||||
|
Foreign translation adjustment
|
2,579 | (24,943 | ) | 6,010 | (15,217 | ) | ||||||||||
|
Comprehensive Loss
|
$ | (482,998 | ) | $ | (435,814 | ) | $ | (152,204 | ) | $ | (143,741 | ) | ||||
|
Basic and diluted net loss per common share:
|
||||||||||||||||
|
Continuing operations
|
$ | (0.04 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
|
Discontinued subsidiary
|
- | (0.01 | ) | - | (0.00 | ) | ||||||||||
|
Net loss
|
$ | (0.04 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
|
|
||||||||||||||||
|
Basic and diluted weighted average number of common shares outstanding
|
11,443,787 | 11,443,787 | 11,443,787 | 11,443,787 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BIOCORAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED) AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
Common Stock
|
Additional Paid-in
|
Accumulated Other Comprehensive |
Accumulated
|
Total Stockholders' | ||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Loss
|
Deficit
|
Deficit
|
|||||||||||||||||||
|
Balance, January 1, 2008
|
11,353,787 | $ | 11,354 | $ | 17,900,090 | $ | (176,536 | ) | $ | (21,681,661 | ) | $ | (3,946,753 | ) | ||||||||||
|
Other comprehensive income (loss) - foreign currency translation adjustment
|
- | - | - | 83,672 | - | 83,672 | ||||||||||||||||||
|
Exercise of stock options
|
90,000 | 90 | 899,910 | - | - | 900,000 | ||||||||||||||||||
|
Net loss
|
- | - | - | - | (586,384 | ) | (586,384 | ) | ||||||||||||||||
|
Balance, December 31, 2008
|
11,443,787 | 11,444 | 18,800,000 | (92,864 | ) | (22,268,045 | ) | (3,549,465 | ) | |||||||||||||||
|
Other comprehensive income (loss) - foreign currency translation adjustment
|
- | - | - | (38,788 | ) | - | (38,788 | ) | ||||||||||||||||
|
Net loss
|
- | - | - | - | (452,592 | ) | (452,592 | ) | ||||||||||||||||
|
Balance, December 31, 2009
|
11,443,787 | 11,444 | 18,800,000 | (131,652 | ) | (22,720,637 | ) | (4,040,845 | ) | |||||||||||||||
|
Other comprehensive income (loss) - foreign currency translation adjustment
|
- | - | - | 2,579 | - | 2,579 | ||||||||||||||||||
|
Net loss
|
- | - | - | - | (485,577 | ) | (485,577 | ) | ||||||||||||||||
|
Balance, September 30, 2010
|
11,443,787 | $ | 11,444 | $ | 18,800,000 | $ | (129,073 | ) | $ | (23,206,214 | ) | $ | (4,523,843 | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
BIOCORAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Nine Months Ended September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
(Unaudited)
|
||||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$ | (485,577 | ) | $ | (410,871 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||
|
Depreciation and amortization
|
68,701 | 66,959 | ||||||
|
Change in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(118 | ) | 38,319 | |||||
|
Inventories
|
(44,694 | ) | (146,666 | ) | ||||
|
Prepaid expenses and other current assets
|
5,785 | 17,939 | ||||||
|
Cash held in escrow
|
- | 9,512 | ||||||
|
Other assets
|
407 | (10,235 | ) | |||||
|
Accounts payable
|
(88,593 | ) | 142,780 | |||||
|
Short-term bank borrowings
|
5,409 | 134 | ||||||
|
Current portion due to officer
|
74,642 | 27,000 | ||||||
|
Accrued interest payable
|
180,277 | 167,344 | ||||||
|
Due to officer, net of current portion
|
112,500 | 112,500 | ||||||
|
Deferred employee benefits
|
(334 | ) | 305 | |||||
|
Net cash provided by (used in) operating activities
|
(171,595 | ) | 15,020 | |||||
|
Cash flows from investing activities:
|
||||||||
|
Purchase of property and equipment
|
- | (2,636 | ) | |||||
|
Patent costs incured
|
(72,307 | ) | (108,723 | ) | ||||
|
Net cash provided by (used in) investing activities
|
(72,307 | ) | (111,359 | ) | ||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from short-term notes payable
|
224,400 | 148,000 | ||||||
|
Net cash provided by (used in) financing activities
|
224,400 | 148,000 | ||||||
|
Effects of changes in exchange rates on cash
|
2,579 | (24,943 | ) | |||||
|
Increase (decrease) in cash
|
(16,923 | ) | 26,718 | |||||
|
Cash, beginning of period
|
45,018 | 17,797 | ||||||
|
Cash, end of period
|
$ | 28,095 | $ | 44,515 | ||||
|
Supplemental Disclosures of Cash Flow Information:
|
||||||||
|
Cash paid during the year for:
|
||||||||
| Interest | $ | - | $ | - | ||||
|
Income taxes
|
$ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
BIOCORAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 (UNAUDITED)
Note 1 – Description of Business
Biocoral, Inc. (“Biocoral”) was incorporated under the laws of the State of Delaware on May 4, 1992. Biocoral is a holding company that conducts its operations primarily through its wholly-owned European subsidiaries. Biocoral, Inc., together with its subsidiaries, are referred to collectively herein as the “Company.”
The Company’s operations consist primarily of development and manufacturing and marketing of patented high technology biomaterials, bone substitute materials made from coral, and other orthopedic, oral and maxillo-facial products, including products marketed under the trade name of Biocoral. Most of the Company’s operations are conducted from Europe. The Company has obtained regulatory approvals to market its products throughout Europe, Canada and certain other countries. The Company owns various patents for its products which have been registered and issued in the United States, Canada, Japan, Australia and various countries throughout Europe. However, the Company has not applied for the regulatory approvals needed to market its products in the United States.
Note 2 – Liquidity
The Company had net losses of approximately $485,600 and $410,900 for the nine months ended September 30, 2010 and 2009, respectively. The Company had a working capital deficiency of approximately $1,959,300 and $1,585,300 at September 30, 2010 and December 31, 2009, respectively. The Company also had a stockholders' deficiency of approximately $4,523,800 and $4,040,800 at September 30, 2010 and December 31, 2009, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company will need additional working capital and plans to pursue strategic alliances with well capitalized entities to improve its financial condition. Also the Company will seek additional financing from prospective investors as it has successfully done in years 2009, 2008 and 2007 and prior years. However, there is no assurance that it will be successful in accomplishing these objectives. In January 2010, the Company received a written confirmation from an “accredited investor” indicating the investor's intent to provide the Company with funds of up to $200,000. In addition to $200,000 funds related to this written commitment, the Company also received during the third quarters of 2010 the additional funds of $24,400 from “accredited investors (See Note 7). Management believes that these funds, together with the funds to be raised from the efforts described above, will provide sufficient working capital to operate through 2010.
Note 3 - Summary of Significant Accounting Policies
(A) Basis of Presentation
The accompanying consolidated financial statements are presented in United States dollars under accounting principles generally accepted in the United States of America.
(B) Principles of Consolidation
The accompanying condensed consolidated financial statements include all of the accounts of Biocoral, Inc. and its wholly-owned subsidiaries as of September 30, 2010 and December 31, 2009 and for the periods ended September 30, 2010 and 2009. All material intercompany balances and transactions have been eliminated in consolidation.
(C) Interim Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements and related footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, read the audited consolidated financial statements
Note 3 - Summary of Significant Accounting Policies - continued
and the related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 filed on March 31, 2010. The results of operations for the nine months ended September 30, 2010 are not necessarily indicative of the operating results that may be expected for the full year.
(D) Patent Costs, Net
Patent costs, net, are stated at cost less accumulated amortization. Amortization is computed using the straight line method over the shorter of the life of the patent or the estimated useful life of the technology, which ranges from 10 to 20 years.
The Company reviews long-lived assets, including patent costs, for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. In such circumstances, the Company will estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the Company will recognize an impairment loss to adjust to the fair value of the asset.
(E) Stock Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation–Stock Compensation”, which requires us to estimate the fair value of stock-based awards exchanged for employee services and recognize compensation cost based on this fair value over the requisite service period.
With respect to stock-based compensation granted to non-employees, the Company records an expense equal to the fair value of the security on the measurement date, which is the earlier of the date at which a commitment for performance is reached or the date at which the service is complete.
(F) Use of Estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
(G) Per Share Data
Basic and diluted net loss per common share for all periods presented is computed based on the weighted average number of common shares outstanding as defined by ASC 260, “Earnings Per Share”. For the nine months ended September 30, 2009, the 110,000 stock options outstanding were excluded from the diluted net loss per share computation as the effect of their inclusion would be anti-dilutive.
(H) Recent Accounting Pronouncements
In June 2009, the FASB issued ASC Topic No. 105, “Generally Accepted Accounting Principles” (“FASB Codification”). FASB Codification is effective for interim and annual periods ending after September 15, 2009 and became the single official source of authoritative, non-governmental U.S. GAAP, other than guidance issued by the Securities and Exchange Commission. All other literature will become non-authoritative. The standard did not have a material impact on our consolidated financial statements and notes.
In June 2009, the FASB issued ASC Topic No. 810, a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under ASC No. 810 determining whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. ASC 810 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The adoption of ASC No. 810 has not had a material effect on the Company’s financial position, results of operations or cash flows.
In June 2009, the FASB issued ASC Topic No. 860, a revision to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which requires more information about transferred financial assets and where companies have continuing exposure to the risks related to transferred financial assets. ASC No. 860 is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The adoption of SFAS No. 140 has not had a material effect on the Company’s financial position, results of operations or cash flows.
Note 3 - Summary of Significant Accounting Policies - continued
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management will have, a material impact on the Company's present or future consolidated financial statements.
(I) Reclassifications
Certain reclassifications have been made to the 2009 financial statements to conform to the 2010 presentation.
Note 4 – Inventories
Inventories consist of:
|
September 30, 2010
(Unaudited)
|
December 31, 2009
|
|||||||
|
Raw materials
|
$ | 56,268 | $ | 60,655 | ||||
|
Work in process
|
83,199 | 73,815 | ||||||
|
Finished goods
|
397,187 | 357,490 | ||||||
|
Total
|
$ | 536,654 | $ | 491,960 | ||||
Note 5 - Property and Equipment
Property and equipment consists of:
|
September 30, 2010
(Unaudited)
|
December 31, 2009
|
|||||||
|
Land
|
$ | 12,160 | $ | 12,160 | ||||
|
Buildings and improvements
|
108,982 | 108,982 | ||||||
|
Equipment and furnishings
|
229,366 | 229,366 | ||||||
|
Total
|
350,508 | 350,508 | ||||||
|
Less: Accumulated depreciation and amortization
|
(337,721 | ) | (334,372 | ) | ||||
|
Net
|
$ | 12,787 | $ | 16,136 | ||||
Depreciation and amortization of property and equipment expense was $3,349 and $5,776 for the nine months ended September 30, 2010 and 2009, respectively.
Note 6 – Patent Costs, Net
Patent costs , net, consist of:
|
September 30, 2010
(Unaudited)
|
December 31, 2009
|
|||||||
|
Patent costs
|
$ | 1,187,605 | $ | 1,115,298 | ||||
|
Less accumulated amortization
|
(355,497 | ) | (290,145 | ) | ||||
|
Patent costs, Net
|
$ | 832,108 | $ | 825,153 | ||||
Amortization of patent costs expense was $65,352 and $61,183 for the nine months ended September 30, 2010 and 2009, respectively.
Expected amortization of patent costs expense for the succeeding years ending September 30, 2011, 2012, 2013, 2014 and 2015 is approximately $ 85,000 for each of these years.
Note 7 – Short-Term Notes Payable
The Company received short-term loans totaling $179,600 and $128,500 in 2009 and 2008, respectively, from “accredited investors”.
During the first nine months of 2010, the Company received additional short-term loans totaling $224,400 from “accredited investors”, increasing the outstanding amount of short-term loans from $308,100 to $532,500. These short-term loans are expected to be converted into new 7% Non-Convertible Promissory Notes when the Company’s board of directors approves the issuance of additional notes. The short-term notes payable bear interest at 7%, are unsecured and classified by the Company as due on demand. However, at the time of funding, the Company informed the investors that the advances would be converted into new long term 7% Non-Convertible notes on terms and conditions to be determined.
Note 8 - Long-Term Notes Payable
The long-term notes payable are due to “accredited investors”, bear interest at 7% per annum, are unsecured, and are due in full on December 31, 2012.
In December 2006, the Company issued $2,700,000 (of the $3,000,000 total long-term non-convertible notes outstanding at September 30, 2010 and December 31, 2009) in exchange for the retirement of $700,000 of 6% convertible promissory notes payable, $1,600,000 of 7% convertible promissory notes payable, and $400,000 of notes payable.
During 2007, the Company issued additional 7% non-convertible promissory notes payable in the aggregate principal amount of $200,000 to "accredited investors" through a private placement intended to be exempt from registration pursuant to the provisions of Regulation D of the Securities Act of 1933 increasing the outstanding amount of new 7% non-convertible promissory notes payable to $2,900,000.
During 2008, the company issued additional 7% non-convertible promissory notes payable in the aggregate principal amount of $100,000 to “accredited investor” through a private placement intended to be exempt from registrant pursuant to the provision of Regulation D of the Securities Act of 1933 increasing the outstanding amount of new 7% non-convertible promissory notes payable from $2,900,000 to $3,000,000.
At the request of the Company, on February 20, 2009, the holders of the 7% non-convertible notes payable agreed to extend the due date of the notes from December 31, 2009 to December 31, 2012.
The maturities of long-term debt at September 30, 2010 are as follows:
|
Year Ending December 31,
|
|||
|
2010
|
$ | -- | |
|
2011
|
-- | ||
|
2012
|
3,000,000 | ||
|
Total
|
$ | 3,000,000 | |
Note 9 – Due to Officer
Due to officer represents amounts due the Company’s chief executive officer and consists of the following;
|
September 30, 2010
(Unaudited)
|
December 31, 2009
|
|||||||
|
Unpaid consulting fees pursuant to the Consulting Agreement
|
$ | 412,500 | $ | 300,000 | ||||
|
Unreimbursed travel and other expenses
|
286,192 | 259,192 | ||||||
|
Advance to subsidiary (Note 14)
|
47,642 | -- - | ||||||
|
Total
|
746,334 | 559,192 | ||||||
|
Current portion
|
(333,834 | ) | (259,192 | ) | ||||
|
Non-current portion
|
$ | 412,500 | $ | 300,000 | ||||
The Company has a consulting agreement with its chief executive officer that provides for annual compensation of $150,000 per annum, reimbursement of certain expenses and for a payment of two years' compensation thereunder in the event of a change in control of the Company. The term of the agreement, which originally was three years from September 01, 1997 to August 31, 2000, was renewed, on the same terms, in 2000 for an additional two years until August 30, 2002. In 2002, it was again renewed for an additional three years to August 2005 and, in August 2005, for an additional three years to August 2008 and in September 2008 for an additional three years to August 2011 on the same terms. On March 31, 2008, the chief executive officer exercised 90,000 (of the 100,000 granted to him on December 21, 2004) stock options at a price of $10.00 per share, or $900,000 total, in exchange for a $900,000 reduction of unpaid consulting fees due to officer. Regarding the unpaid consulting fees, the chief executive officer has advised the Company that he will not seek payment until after September 30, 2011.
Note 10 - Stock Option Plan
A summary of the Company's stock option activity is as follows for the years ended December 31, 2009 and 2008:
|
Common Stock
|
||||||||
|
Shares
|
Weighted average
Exercise Price
|
|||||||
|
Outstanding, January 01, 2008
|
200,000 | $ | 10.00 | |||||
|
Granted
|
-- | |||||||
|
Exercised
|
(90,000 | ) | 10.00 | |||||
|
Outstanding, December 31, 2008
|
110,000 | 10.00 | ||||||
|
Granted
|
-- | |||||||
|
Exercised
|
-- | |||||||
|
Expired, December 21, 2009
|
(110,000 | ) | ||||||
|
Outstanding, December 31, 2009
|
- | -- | ||||||
For the nine months ended September 30, 2010, no stock options were granted and there are none outstanding at September 30, 2010.
Note 11 - Segment and Geographic Information
Information about the Company's assets and its operations in different geographic locations is shown below pursuant to the provisions of ASC 280, “Segment Reporting”.
|
Nine Months Ended
September 30, 2010
(Unaudited)
|
Nine Months Ended
September 30, 2009
(Unaudited)
|
|||||||
|
Net Sales (rounded):
|
||||||||
|
France
|
$ | 111,000 | $ | 136,400 | ||||
|
Other European countries
|
83,050 | 134,000 | ||||||
|
Others
|
18,050 | 47,900 | ||||||
|
Total net sales
|
$ | 212,100 | $ | 318,300 | ||||
|
Total Assets:
|
||||||||
|
September 30, 2010
(Unaudited)
|
December 31, 2009
|
|||||||
|
North America
|
$ | 859,322 | $ | 832,327 | ||||
|
France
|
662,603 | 664,295 | ||||||
|
Total
|
$ | 1,521,925 | $ | 1,496,622 | ||||
Note 12 – Commitments and Contingencies
Leases
In July 2009, the Company entered into a rental agreement for its new office, which is located in La Garenne-Colombes (near Paris). The operating lease expires on June 30, 2012 with an option to renew with the same terms and conditions for two additional periods of three years. Under the term of the lease, the annual rent is approximately $27,905 (€20,500 Euros). This agreement is transferable and can be cancelled with six months notice before each of the renewal dates. At September 30, 2010, total minimum rentals under this operating lease with an initial or remaining term lease of one year or more is as follows,
|
Year Ending December 31:
|
||||
|
2010
|
$ | 7,120 | ||
|
2011
|
28,500 | |||
|
2012
|
14,250 | |||
|
Total
|
$ | 49,870 | ||
Legal Proceedings
Our French subsidiaries are parties to several legal proceedings that arise in the normal course of business. We accrue for these items as losses become probable and can be reasonably estimated. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on the Company’s consolidated results of operations or financial position.
Note 13 - Discontinued Operations
One of the Company’s subsidiaries ceased its research and development activities a few years ago which was considered as its major activity. On June 29, 2009 during the subsidiary’s shareholders meeting, it was decided to discontinue all its operations.
Note 14 – Related Party Transaction
During March 2010, the Company’s chief executive officer advanced a total of €35,000 or approximately $47,642 to one of the Company’s subsidiaries, which is included in current portion due to officer in the accompanying consolidated balance sheet at September 30, 2010.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
In this quarterly report, we include some forward-looking statements that involve substantial risks and uncertainties and other factors that may cause our operational and financial activity and results to differ from those expressed or implied by these forward-looking statements. In many cases, you can identify these statements by forward-looking words such as "may," "expect," "anticipate," "believe," "estimate," "plan," "intend" and "continue," or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition, or state other "forward-looking" information.
You should not place undue reliance on these forward-looking statements. The section captioned "Management's Discussion and Analysis of Financial Condition and Plan of Operations," as well as any cautionary language in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from our expectations.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Because of the risks and uncertainties, the forward-looking events and circumstances discussed in this quarterly report might not occur.
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report and in conjunction with our discussion and analysis in our audited annual report on Form 10-K for the year ended December 31, 2009 which we filed on March 31, 2010.
Summary of Significant Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to accounts receivable, property and equipment, stock based compensation and contingencies. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The assumptions and bases for estimates used in preparing our condensed consolidated financial statements are set forth as significant accounting policies in Note 3 of the notes to the condensed consolidated financial statements included in this quarterly report and are summarized below:
Intangible Assets. Intangible assets consist primarily of developed technology and patents (developed and purchased), trademarks, trade names and customer relationships. Intangible assets with an indefinite life, including certain trademarks and trade names, are not amortized. The useful life of indefinite life intangible assets is assessed annually to determine whether events and circumstances continue to support an indefinite life. Amortization is computed using the straight-line method over the estimated period of benefit. The valuation of these intangible assets is based upon estimates as to the current value of each patent and the period of benefit and such estimates are subject to fluctuations. The value of a particular patent could fluctuate based upon factors, such as competing technology or the creation of new applications, which are not accounted for in making, but could affect, the estimates used.
We own through our wholly-owned subsidiary twelve additional patent titles, covering our technologies which have been granted by various countries official government patent office, including most European Union countries, Canada, Australia, and Japan and in the United States by the US Department of Commerce Patent and Trademark Office. The cost of acquisition, expenses incurred on most of our approved patents and on the successful defenses of most of these patents are fully amortized in our subsidiary financial statement and are not included in Intangible Assets in our financial statement.
Allowance for Doubtful Accounts. We estimate uncollectibility of trade accounts receivable by analyzing historical bad debts, customer concentrations, customer creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. We consider these factors to be the best available indicators of the likelihood of collection of trade accounts receivable. However, they are subject to uncertainty, and collectibility cannot be precisely determined.
Results of Operations for the Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009.
As discussed below, our operations are conducted outside the United States of America. The functional currency of our French subsidiaries is the Euro and not the US Dollar. However, our financial statements, as well as the following discussion regarding our results of operations are expressed in U.S. dollars. Accordingly, part of the variance in revenues and expenses discussed below is due to the fluctuating exchange rates in addition to the other factors discussed.
Net sales, which are solely attributable to our wholly-owned French subsidiary, totalled approximately $212,100 for the Nine months ended September 30, 2010, a decrease of approximately $106,200, or 33% from approximately $318,300 for the Nine months ended September 30, 2009, This decrease is attributable to a decrease in sales of products in general and particular in export and is partially due to the fluctuating exchange rates between the Euro and US Dollar.
Cost of sales was approximately $78,600 for the Nine months ended September 30, 2010, an increase of approximately $8,300, or 12%, from approximately $70,300 for the Nine months ended September 30, 2009. The gross profit percentage for the Nine months ended September, 2010, and 2009 was approximately $133,500 or 63% and $248,000, or 78%, respectively. The decrease in our gross margin during the Nine months ended September 30, 2010, compared to the Nine months ended September 30, 2009 was primarily due to lower absorption of fixed manufacturing overhead as a result of lower sales during the Nine months ended September 30, 2010 compared to the Nine months ended September 30, 2009.
Consulting and professional fees were approximately $165,900 for the Nine months ended September 30, 2010, an increase of approximately $8,500, or 5% from approximately $157,400 for the Nine months ended September 30, 2009. This increase is principally due to an increase in consulting and professional fees in connection with our patent maintenance.
Administrative expenses were approximately $194,600 for the Nine months ended September 30, 2010, a decrease of approximately $59,700, or 23%, from approximately $254,300 for the Nine months ended September 30, 2009. This decrease is principally due to reduced rent expense resulting from relocation of the Company’s administrative office in 2009.
Total other income (expense) was an expense of approximately $(189,800) for the Nine months ended September 30, 2010, an increase of approximately $29,800, or 19% from an expense of approximately $(160,000) for the Nine months ended September 30, 2009. This increase resulted primarily from an increase in interest expense and other expenses.
As a result of the above, our net loss for the Nine months ended September 30, 2010 totalled approximately $485,600, or $.04 per share compared to a net loss of approximately $410,900, or $.04 per share for the Nine months ended September 30, 2009. These losses per share were based on weighted average common shares outstanding of 11,443,787 for both Nine months ended September 30, 2010 and 2009 respectively.
Results of Operations for the Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009.
Net sales, which are solely attributable to our wholly-owned French subsidiary, totalled approximately $64,200 for the three months ended September 30, 2010, a decrease of approximately $26,100, or 29%, from approximately $90,300 for the three months ended September 30, 2009. This decrease is mainly attributable to a decrease in sales of products in general and particular in export during the third quarter 2010 and is partially due to the fluctuating exchange rates between the Euro and the US Dollar.
Cost of sales was approximately $28,700 for the three months ended September 30, 2010, an increase of approximately $21,100, or 278%, from approximately $7,600 for the three months ended September 30, 2009. The gross profit percentage for the three months ended September 30, 2010 and 2009 was approximately $35,600 or 55% and $82,700 or 92%, respectively. The decrease in our gross margin during the three months ended September 30, 2010 compared to the three months ended September 30, 2009 was primarily due to the sale of lower margin products in 2010 compared to 2009.
Consulting and professional fees were approximately $50,300 for the three months ended September 30, 2010, a decrease of approximately $1,400, or 3%, from approximately $51,700 for the three months ended September 30, 2009. This decrease is principally due to a decrease in various professional fees.
Administrative expenses were approximately $59,600 for the three months ended September 30, 2010, a decrease of approximately $28,300, or 32%, from approximately $87,900 for the three months ended September 30, 2009. This decrease was primarily due to reduced rent expense resulting from relocation of the Company’s administrative office in 2009 and secondly due to the fluctuating exchange rates between Euro and US Dollar.
Total other income (expense) was a net expense of approximately $(61,300) for the three months ended September 30, 2010, an increase in expenses of approximately $15,000 or 32%, from an expense of approximately $(46,300) for the three months ended September 30, 2009. This increase is mainly due to a decrease of the French subsidiary’s other income during the three months ended September 30, 2010 compared to the three months ended September 30, 2009.
As a result of the above, our net loss for the three months ended September 30, 2010 totalled approximately $158,200 or $.01 per share, compared to a net loss of approximately $128,500 or $.01 per share for the three months ended September 30, 2009. These losses per share were based on weighted average common shares outstanding of 11,443,787 for the three months ended September 30, 2010 and 2009.
Financial Condition, Liquidity and Capital Resources
As shown in the accompanying condensed consolidated financial statements, we had net losses of approximately $485,600 and $ 410,900 for the Nine months ended September 30, 2010 and 2009, respectively. Management believes that it is likely that we will continue to incur net losses through the end of 2010. We had a working capital deficiency of approximately $1,959,300 and $1,585,600 at September 30, 2010 and 2009 respectively. We also had a stockholders' deficiency of approximately $4,523,800 and $3,985,300 at September 30, 2010 and 2009 respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company will need additional working capital and plans to pursue strategic alliances with well capitalized entities to improve its financial condition. Also the Company will seek additional financing from prospective investors as it has successfully done in years 2009, 2008, 2007 and prior years. However, there is no assurance that it will be successful in accomplishing these objectives. In January 2010, the Company received a written confirmation from an “accredited investor” indicating the investor's intent to provide the Company with funds of up to $200,000. In addition to $200,000 funds related to this written commitment, the Company also received during the third quarters of 2010 the additional funds of $24,400 from “accredited investors (See Note 7). Management believes that these funds, together with the funds to be raised from the efforts described above, will provide sufficient working capital to operate through 2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, operations of the Company are exposed to fluctuations in interest rates and foreign currencies. These fluctuations can vary the cost of financing, investment yields and operations of the Company.
The Company does not have any investments that would be classified as trading securities under generally accepted accounting principles.
The Company’s foreign currency risk exposure results from fluctuating currency exchange rates, primarily the U.S. dollar against the European currencies. The Company faces transactional currency exposures that arise when its foreign subsidiaries (or the Company itself) enter into transactions, denominated in currencies other than their local currency. The Company also faces currency exposure that arises from translating the results of its global operations to the U.S. dollar at exchange rates that have fluctuated from the beginning of the period. The Company has not used financial derivatives to hedge against fluctuations in currency exchange rates. Based on the Company’s overall exposure for foreign currency at September 30, 2010, a hypothetical 10 percent change in foreign currency rates would not have a material impact on the Company’s balance sheet, net sales, net income or cash flows over a one-year period.
We conduct much of our business operations (and incur substantially all of our operating costs other than professional and consulting fees) through our European subsidiaries in Euros and, as such, are exposed to risk resulting from the fluctuation of exchange rates between the Euro and the US Dollar. We do not engage in any hedging or other transactions for the purpose of minimizing this risk. (See “Item 2 -- Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the effect of Euro/Dollar fluctuations on our results of operations.)
Marketable Securities
We do not have any investments in marketable securities that would be classified as trading securities under generally accepted accounting principles.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
There are no material changes to the risk factors disclosed under Item 1A to Part I of our Form 10-K for the year ended December 31, 2009 which we filed on March 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the third quarter of 2010, the Company received additional short-term loans totaling approximately $60,000 from “accredited investors”, increasing the outstanding amount of short-term loans from approximately $472,500 to $532,500. These short-term loans are expected to be converted into new 7% Non-Convertible Promissory Notes when the Company’s board of directors approves the issuance of additional notes. The short-term notes payable bear interest at 7%, are unsecured and classified by the company as on demand. However, at the time of funding, the Company informed the investors that the advance would be converted into new long term 7% Non-Convertible notes on terms and conditions to be determined. The board of directors is working out the terms for the new long term notes (See Note 7 to the Financial Statements).
We believe that the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act of 1933, as amended, or Regulation D promulgated thereunder. The recipient of securities in these transactions represented its intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments representing such securities issued in these transactions. The recipient either received adequate information about us or had adequate access, through its relationships with us, to such information.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
|
(a)
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
(b)
|
Reports on Form 8-K:
|
|
|
During the third quarter of 2010, we filed no current reports on Form 8-K.
|
SIGNATURES
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.
Date: November 9, 2010
|
BIOCORAL, INC.
|
||
|
/s/ Nasser Nassiri
|
||
|
Nasser Nassiri, Chairman, CEO
|
||
|
and Principal Accounting Officer
|
||
16