-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KMh5Zbl6AEM2lbTrNYEfAjjBxANiQO9mseK4tKZpTTU/UaWkOh/d51skLLLsdu43 SObiz2woYsbWsskwO2ocgg== 0001169232-09-001779.txt : 20090331 0001169232-09-001779.hdr.sgml : 20090331 20090331170038 ACCESSION NUMBER: 0001169232-09-001779 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090331 DATE AS OF CHANGE: 20090331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOCORAL INC CENTRAL INDEX KEY: 0000919605 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510] IRS NUMBER: 330601504 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-34059 FILM NUMBER: 09719839 BUSINESS ADDRESS: STREET 1: 38 RUE ANATOLE FRANCE STREET 2: LEVALLOIS PERRET CEDEX CITY: LEVALLOIS PERRET STATE: I0 ZIP: 92594 BUSINESS PHONE: 01133147579843 MAIL ADDRESS: STREET 1: 38 RUE ANATOLE FRANCE STREET 2: LEVALLOIS PERRET CEDEX CITY: LEVALLOIS PERRET STATE: I0 ZIP: 92594 FORMER COMPANY: FORMER CONFORMED NAME: IMMO FINANCE CORP DATE OF NAME CHANGE: 19940420 FORMER COMPANY: FORMER CONFORMED NAME: HERMENEUTICS CORP DATE OF NAME CHANGE: 19940301 10-K 1 d76592_10k.txt ANNUAL REPORT United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Year Ended December 31, 2008 Commission File No. 0-23512 Biocoral, Inc. (Exact name of issuer as specified in its charter) Delaware 33-0601504 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 38 rue Anatole France, 92594 Levallois 011-331-4757-9843 N/A Perret Cedex France (Issuer's telephone (Zip Code) (Address of Issuer's principal executive number, including offices) area code) Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $.001 par value (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 |_| Indicate by check mark if disclosure of delinquent filers, in response to Item 405 of Regulation S-K, is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark 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 |_| Accelerated Filer |X| Non-Accelerated Filer |_| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The issuer's revenues for the year ended December 31, 2008 were $499,437. The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates as of June 30, 2008 was approximately $170,906,805. The number of outstanding shares of the registrant's common stock as of March 2, 2009 was 11,443,787. Documents Incorporated by Reference: None. TABLE OF CONTENTS
PART I Page Item 1. Description of Business..................................................................... 1 Item 1A. Risk Factors................................................................................ 9 Item 1B. Unresolved Staff Comments................................................................... 12 Item 2. Description of Property..................................................................... 12 Item 3. Legal Proceedings........................................................................... 12 Item 4. Submission of Matters to a Vote of Security Holders......................................... 12 PART II Item 5. Market for Common Equity and Related Stockholder Matters.................................... 12 Item 6. Selected Financial Data..................................................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 14 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 17-18 Item 8. Financial Statements and Supplementary Data................................................. F-1 - F-20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 19 Item 9A. Controls and Procedures..................................................................... 19 Item 9B. Other Information........................................................................... 19 PART III Item 10 Directors, Executive Officers, Promoters and Control Persons................................ 19 Item 11. Executive Compensation...................................................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 23 Item 13. Certain Relationships and Related Transactions.............................................. 24 Item 14 Principal Accountant Fees and Services...................................................... 24 PART IV Item 15. Exhibits and Reports on Form 8-K............................................................ 24 Signatures.................................................................................. 26
----------------------- This Registration Statement contains trademarks, service marks and registered marks of other companies, as indicated. Trademarks identified by (R) and (TM) are registered trademarks or trademarks that are the properties of their respective owners. ----------------------- PRELIMINARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Registration Statement contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. Specific forward-looking statements contained in this Registration Statement include, but are not limited to, our (i) expectations for marketing and sales opportunities in diverse markets; (ii) belief that we may require more capital; (iii) belief that alternative sources of financing are available if required; and (iv) anticipation that we will not pay a cash dividend on our common stock in the near future. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors, including the risks in Item 1A. Risk Factors, which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. PART I Item 1. Description of Business Background Biocoral, Inc., a Delaware corporation, is an international biomaterials "tissue-engineering" company specializing in the research, development and commercialization of patented high biotechnologies and biomaterials in the health care area. Through our subsidiaries, Biocoral, Inc. researches, develops, manufactures and commercializes bone graft substitutes and other high technology patented biomaterials in a number of countries outside the United States. We entered the biomaterials field in 1995 when we acquired Inoteb, SA, a French corporation from 10 individuals "the founders", all French citizens. The shares and bonds of Inoteb acquired in 1995 represented, at such time, 51.5% of the capital stock of Inoteb. We increased our ownership percentage through several additional investments in Inoteb common stock to 67% in 1997 and to 100% in 1998. Since 2005, we have conducted the production and marketing of our products through our wholly owned French subsidiary "Biocoral France" which was established in that year. The only remaining operations in Inoteb involve finalizing its previous programs of research and development. Our representative offices are located at 38 rue Anatole France, Levallois Perret Cedex, France consisting of approximately 2000 square feet of office space. Biocoral(R) Biocoral(R) our primary product, is a natural coral "carbonate calcium" derived wholly mineral bone graft substitute and is used by surgeons and practitioners because of its biocompatibility, resorbability, osseo conduction and safety. Certain chemical, physical and structural characteristics of coral are very similar to that of human bone tissue. Biocoral(R) is derived from three particular species of coral naturally present in abundance. Biocoral(R) is primarily (more than 98%) comprised of calcium carbonate. Porous and resorbable, Biocoral(R) is prepared in microgranules as well as in engineered shapes according to specific indication. Due to its similarity to bone tissue, Biocoral(R) is compatible, resorbed by the body as new bone growth invades the Biocoral(R) and is replaced by neoformed invasion. It is highly porous with numerous interconnected channels which allow a total migration to the center of the implant free of contamination risk. Because Biocoral(R) is resorbed, it can be combined with antimicrobials, anticancer agents or other pharmaceuticals for slow release into bone tissue, resulting in an advantage over autologous bone grafts. Since 2000 we have worked with an accredited European university research group on purification of our raw material, coral, in order to produce a natural wholly mineral product. After a long-term collaboration we have finalized the development of a method for purification of our raw material coral which will allow us to offer Biocoral(R) as a natural wholly mineral bone substitute. We have filed the various international patents for this method of purification and the final product issued using this method. This purification method will allow us to offer what we believe will be the only natural wholly mineral bone substitute. The French patent covering the purification of our raw material and its uses in France has been granted during July 2006 and the European Patent has been granted during April 2007. The Company believes that in the near future the company's patents covering this technology will receive approval in many other countries where the company has already filed its applications. The principal current alternative to Biocoral(R) is the utilization of autologous (from the patient's own body) bone grafts. The use of autologous bone grafts requires the patient to undergo one or more additional surgeries to harvest the bone graft material. This is not always feasible due to the condition of the patient or other contraindications, and must be shaped in a separate procedure to fit the graft area. According to our French subsidiary, Biocoral(R) has been used in approximately 500,000 patients in various countries, principally in Western Europe and Korea. Biocoral(R) was originally patented in France in 1979, with patents granted in the United States in 1982, and in Japan in 1989. Our French subsidiary acquired the patent rights to Biocoral(R) from "National Agency for Valorization of Research" (l'ANVAR), known currently as (OSEO) and "French National Center for Scientific Research" (CNRS), both French governmental agencies. Through our subsidiaries, we have developed twelve additional patent titles, in various countries in Europe, Switzerland, Canada, Japan, Australia and United States, for various applications and uses of our products, including, among others, osteoporosis remediation, autologous glue and combination with growth factor. As result of these twelve patent titles, we own, various patents covering our technologies which have been granted by various countries' official government patent office, including most European Union countries, Canada, and in the United States by the US Department of Commerce Patent and Trademark Office. We believe that our method for purification of our natural coral will reinforce our technologies and the uses of our product in the various indications over which we own patents. 1 Using proprietary manufacturing processes, our chief product, Biocoral(R), is a resorbable biomaterial derived from natural carbonate calcium wholly mineral in the metastable crystalline aragonite form in a natural condition that is ocean-generated coral. It is used as bone graft substitutes and has certain characteristics (including chemical composition, porosity, mineral content and bioactive properties) that permit its safe, contamination-free use. Its similarity to human bone facilitates its replacement by newly-formed bone. Substantially all of our revenue has been derived from sales of the first generation of our products. The second generation of products and their application after long years of research and development and success of several clinical applications now are ready for marketing. Our product application in the treatment of bone disease associated with natural bone demineralization, for example, such as in cases of osteoporosis fractures and their prevention, is based on technology that is protected by strong patents which have thus far been granted by various countries by their official government patent office, including most European Union countries, Canada, Australia, Japan and in the United States by the US Department of Commerce Patent and Trademark office. We have not yet begun to seek FDA approval for sale of our products in the United States but are preparing the documentation required for our product homologation application in the United States. We have identified the requirements for this application and approached a US medical supply distributor in order to access the US market. An accredited scientific team in the US has conducted human clinical studies with a five-year follow up to confirm bone reconstruction in oral application. This study confirmed the stability of the successful result and management believes that this study will facilitate FDA approval for our product used in this indication when we file for FDA approval. We anticipate submitting this application during 2009. Canadian approval of Biocoral(R) has been renewed in 2004 by the Canadian Health Care Authority "Sante Canada," and our products are already commercialized in the European Union and Asia. During 2005, we entered into a distribution agreement with a Canadian medical supply company in order to access the Canadian market. Clinical Applications Biocoral(R) has been used in various clinical applications. Current uses include the following: (a) orthopedic surgery uses include spinal surgery, tibial (shinbone) osteotomies, hip fractures, trephine (skull) hole replacement, fracture repair and filling of bone cavities particularly in bone fractures due to osteoporosis; (b) maxillocraniofacial surgery and plastic surgery uses include reconstructive and cosmetic surgery; (c) oral surgery uses include filling of bone defects due to loss of teeth or periodontal disease. Osteoporosis, "A Bone Disease Associated with Natural Bone Demineralization", Patented Application We have developed from 1994 and since successfully experimented with the application of our product Biocoral(R) for the treatment and prevention of osteoporotic and or low bone mass fracture. We developed and patented this application in most countries around the world which covers the use of our product and any other product based on the use of calcium salts. Osteoporosis and its bone complications including hip fractures have been are and will be in the future a public health problem for the major economies for the world. Because of the increased life expectancy of the population, each family had, has or will have a grandparent or close relative, fall victim to what the public health authorities do not hesitate to call as an epidemic. Osteoporosis is a bone disease due to natural bone demineralization in which bone density decreases combined with increased bone brittleness and porosity that causes the bones to become thin and weak. It occurs mostly in women after menopause. That's because the female hormone oestrogen helps women maintain bone strength. As oestrogen levels decline, bone is lost. Osteoporosis can also occur in men. Other risk factors include: delayed puberty, poor calcium intake, smoking, excess alcohol consumption or from medications such as glucocorticoids. As bones weaken, they are more likely to break (fracture). Hip, wrist and spine bones are at the greatest risk of breaking. The breaks in spine bones are known as vertebral compression fractures, or VCFs. Left untreated, they may lead to kyphosis, commonly referred to as "dowager's hump." Some statistics According to the International Osteoporosis Foundation (www.osteofound.org), 40% of all middle-aged women (8 out of 20) and 15% of middle-aged men (3 out of 20) in Europe will suffer one or more osteoporotic fractures during their remaining lifetime. In fact, someone in Europe has a fracture every 30 seconds as a result of osteoporosis. Furthermore, they estimate that the number of osteoporosis patients will double over the next 50 years with the projected increase in the aging population and as a result of lifestyle factors. However, despite the fact that the incidence of osteoporotic fractures is growing, the problem is under-recognized with only one in two osteoporotic spinal fractures being diagnosed. 2 The clinical trials conducted by our subsidiaries over the past twelve years have demonstrated the feasibility of this treatment to reduce the consequences of fractures caused by osteoporosis and to avoid the occurrence of fracture as well. We are developing several variants of our Biocoral(R) technology aimed at treatment of bone disease due to natural bone demineralization (such as osteoporosis), and Treatment and Prevention of Osteoporotic Fracture. Biocoral(R) offers a superior method of preventing and repair of bone fractures due to osteoporosis. It has the ability to help the skeletal system, reinforcing it where it is weak and fragile. Biocoral(R) can serve both to heal bones that are already fractured and to prevent bone fractures from occurring. Phase II clinical trials in Europe demonstrated the efficacy of Biocoral(R) for local osteoporosis treatment in rebuilding bone, particularly in combination with osteodensimatic screening. In 2000, we began Phase III multi-center clinical trials of our product, "Biocoral(R)", for the treatment of hip fractures due to osteoporosis, in 14 clinics (Military and Civilian) in Europe. The study has been covering 123 elderly persons suffering from hip fractures associated with natural bone demineralization and principally originating from Osteoporotic fractures. The study was monitored by an independent organization in France called Biomatech located in city of Lyon which has been chosen directly by the French government agency "National Agency for Valorization of Research" (l'ANVAR), known currently as (OSEO). Following the presentation of the prospective report in March 11, 2006 to the representatives of the participating hospital and clinic centres for review and comments, the additional analysis have been conducted by Biomatech which confirm the prospective report. During January 2007, we received the final report produced by independent monitoring and an independently directed investigation. The final report confirms the therapeutic benefit of our product Biocoral(R) in the treatment of such fractures which will permit better patient recovery, allowing patients faster mobility and return to a healthy state with a very low risk of refracture. The Company believes that the study is a unique and first in the world covering this area. The Company is currently preparing to launch the use of its products in this patented application. We are also working on the prevention of osteoporotic fractures and believe that for the first time, patients who already have osteoporosis or had already suffered from osteoprootic fracture will be able to be treated before either refracture or the occurrence of fractures in other locations. Our product in this application is intended to permit the regeneration of newly formed bone in the area which is susceptible to osteoporosis and has a low bone mass. The initial human clinical study has demonstrated and confirmed the result of regeneration of newly formed bone in the bone mass area. We own, through our wholly-owned subsidiary, various patents in the application of treatment of bone disease due to natural bone demineralization (such as osteoporosis) and "Treatment and Prevention of Osteoporotic Fractures." Our technology underlying this application is protected by strong patent applications in many countries around the world where patent applications were filed. Our patent applications in this application have thus far been filed and granted by various countries' official government patent offices, including 17 European Union countries, Japan, Australia, and in the United States by the US Department of Commerce Patent and Trademark Office. Our patent application in Canada was granted during 2005. Our patent covering technologies in this application in addition to protecting use of our Biocoral(R) product, also covers any other product based on calcium salts. Most of the bone substitutes in the market are based on calcium salts such as hydroxyapatite (phosphate of calcium). In fact because of validity and coverage of our patents in this particular application, our competitors cannot offer similar products composed of phosphate of calcium for use in this treatment to compete with Biocoral(R), even if a competitor were able to conduct successful clinical studies and demonstrate that its product could produce a satisfactory result, any attempt to manufacture or market the product would violate our patents. To the best of our knowledge, as of the date of this report, none of our competitors have attempted such a clinical study in this particular treatment. Autologous Fibrin Glue We have developed a medical device and a method for preparation of what management believes to be the world's first fully autologous fibrin glue. In 1993, our scientists began working on the development of this medical device and method for preparation of autologous fibrin glue. This autologous fibrin glue is prepared using the patient's own blood, in a closed system, thereby eliminating the risk of viral transmission, immunological problems and the risk of blood-borne disease transmission such as, for example, HIV and hepatitis. In contrast, all fibrin glues currently on the market (whether autologous or homologous) require foreign protein such as thrombin or antifibrinolitic. 3 Surgical glue represents a fast growing segment of the biotech industry. Clinical trials have been done especially for skin replacement and skin grafts eliminating the need for protein based skin grafts. Following the successful result of the phase III human clinical trial for specific indications, the product file has been approved by the appropriate French authorities Agence Francaise de Securite Sanitaires des Produits de Sante (AFSSAPS), the French equivalent of the Food and Drug Administration. On September 14, 2000, AFSSAPS granted to a blood bank the authorization to prepare, use and distribute the autologous fibrin glue that was developed by us and prepared by our patented medical device. Before we can commence commercialization of the autologous fibrin glue, AFSSAPS requires that the French blood bank known as Etablissement Francaise du Sang ("EFS"), the exclusive operator of blood transfusions in France, prepare a report following up on the progress of the first fifty (50) patients treated with the autologous fibrin glue. We have been coordinating the program to prepare the report with EFS and the blood bank of the French Army in Clamart, known as CTSA. The inclusion of patients began in April of 2002. Shortly thereafter, we were required to suspend the program after testing of nine preparations in which a technical problem with the testing materials was observed. Three of these nine preparations were successful and have been used by surgeons on patients with successful results. Other preparations could not be used by surgeons. However, the discovery of this problem with the materials could help us to ensure that the final product is safe for patients. The investigation and correction of the technical problem has provided us with additional information on how to properly prepare and use the final product. On the basis of this information, we believe that the complication which was discovered during the program was due to the quality of material used by the manufacturer in the production of the medical device and not with the autologous fibrin glue itself. The medical device we developed is manufactured by a third party pharmaceutical group called Macopharma. Having concluded our investigation of this problem, we determined that in order to restart the program required by AFSSAPS, we had to replace the manufacturer and the preparation materials used. We were in negotiations with several accredited medical device manufacturers which specialize in the type of blood bags needed for our medical device. However, these negotiations were unsuccessful, and we do not believe at this time that we will be able to complete the program successfully. Failure to successfully complete the program effectively prevents us from restarting the marketing of this product and could negatively affect our future financial prospects in that we will not realize additional revenues as a result of our inability to market the glue than we would have realized had we been able to market the glue. As a result of this loss, in December 2008, we filed a suit seeking approximately (euro)110,000,000 as damages which represent lost profits we would have realized from the marketing of the glue. Pursuant to our agreement and under a written proposal provided by us in 2001 and accepted by Macopharma, Macopharma who requested to be in charge of the manufacture of the product and distribute it under a worldwide license. As outlined in the proposal, projected revenue was estimated through 2015 (the year of the expiration of the patents covering our technology for the profit) at a minimum of (euro) 220,000,000. Under the proposal, Macopharma was to pay us a 50% royalty of the estimated projected revenue during the years of commercialization until the expiration of the patents for the product. Thus we are suing for the (euro)110,000,000 we would have realized through 2015. We also believe that Macopharma engaged unfair competition as it entered into an agreement with one of our competitors to produce a similar product. Our technology underlying this application is protected by strong patent titles owned by our wholly-owned subsidiary in many countries around the world where patents applications were filed. Thus far, most of these have been granted and issued by the official government patent offices in the countries where they were filed, including most European Union countries, Canada, and in the United States by the US Department of Commerce Patent and Trademark Office. During 2005, we entered into a collaboration agreement with TERUMO EUROPE N.V, a European Subsidiary of TERUMO CORPORATION a Japanese company which is active in healthcare area in order to conduct a test protocol to insure the feasibility of producing Thrombin from Therapeutic plasma in contact with our product, "Biocoral(R)". The test protocol has been conducted by both companies during 2005. The report of the study made by TERUMO EUROPE N.V. and countersigned by the company confirmed such feasibility of our Technology. In addition, at the same time, we entered into a letter of intent "letter of Intent" with TERUMO EUROPE N.V., pursuant to which TERUMO intends to obtain the right to manufacture and market medical devices covered by our patents and by the results of the laboratory test (including any future improvement patents covering this technology) of which Biocoral, Inc. is or will be the owner. By the same letter of Intent, Biocoral, Inc. commits itself to negotiate a possible cooperation agreement regarding the "Thrombin preparation from Therapeutic Plasma and Biocoral(R) with 4 TERUMO on an exclusive basis. These exclusive negotiations took place for a period of three (3) months. The company declined to extend the exclusivity period in order to be free to pursue any better proposal for development of its technology relative to which we have received indications of interest. Composite Biocoral(R) and Growth Factor For more than 19 years, studies have been undertaken to demonstrate that it is possible to accelerate the bone regeneration process and repair by combining growth factors with a support matrix such as Biocoral(R). Some scientific research has shown that Biocoral(R), as a biomaterial, represents a useful support for growth factors. European clinical trials conducted over the several years have had positive results confirming the acceleration of the bone regeneration process and process. We hold various patents covering the technology underlying this application (composite of Biocoral(R) and growth factors) owned by our wholly-owned subsidiary in many countries around the world where patent applications were filed. Our patent applications in this application to date have been granted by various countries' official government patent office, including most European Union countries, Canada, and in the United States by the US Department of Commerce Patent and Trademark Office. Raw Materials and Manufacturing The primary raw material used by us to manufacture Biocoral(R), is natural coral. The coral used in our products is presently sourced from New Caledonia, but is also found in abundance in wide areas of the Indian and Pacific Oceans. We believe that our existing inventory of coral, together with coral sources immediately available to us, are sufficient to meet our present and future needs. To date, coral prices have been stable but no assurance can be had that they will not rise. We are, however, unaware of any factors which are likely to have a material adverse effect on our ability to obtain coral at a competitive price. Since years 2000, the Company has collaborated with accredited scientists as well as with a special laboratory located at one of most prestigious European universities to develop a method of purification of its raw material "coral," in order to remove the trace amounts (between 0.016 to 0.026% depending upon the type of coral used) of amino acids which were present, without any change in chemical and crystalline structure of the coral. As a result of these efforts, the small percentage of amino acid can now be removed from our raw material. The purification of raw materials permits us to improve their performance and to offer what we believe to be the only natural wholly mineral bone substitute product in the world. We also filed a patent for this purification method including the final product issued from it. The patent will protect our main product for an additional 20 years from the initial date when the patent was filed. The patent was filed in France in 2003, with PCT extension in December 2004. Our new technology of purification of our natural coral will allow us to offer what we believe will be the only natural wholly mineral bone substitute. The French and European patents covering the purification of our raw material and its uses have been already been granted. Biocoral(R) has been marketed since the end of the 1980's and was the first bone substitute registered in France with TIPS (Tarifs Interministeriels des Prestation Sanitaires). Nevertheless within the framework of its registration, Biocoral(R) has been received approving opinion of Microbiological Committee of Health on July 05, 1995 referenced under the number 9600201B01. On December 30, 1996, Biocoral(R) received "EC certification" allowing it to be marketed in the European Union. This authorization has been renewed several times and it is currently in force. The Company's manufacturing facility is located in Saint-Gonnery in France, and is complied with ISO 13485: 2003 certification which allows the Company to continue offering and market its products in CANADA. In December 2007, the Company was audited by LNE (Laboratoire national de metrologie et d'essais) for the renewal of its EC certificate and ISO 13485: 2003 certification, which renewal was granted. The certificates are issued according to the rules of G-MED certification/LNE/G-MED Notified Body for Medical Devises. Additionally, we are audited annually by LNE to maintain our certifications. To continue certification, the Company met annual requirements in environmental policy, compliance, planning, management, structure and responsibility, training, communication, document control, operational control, emergency preparedness and response, record keeping and management review. In December 2008, the Company was audited by LNE as part of annual requirement and maintained its certifications. We believe this facility is adequate to service our present and medium-term future needs. 5 Competition Our Biocoral(R) product competes with (i) natural bone obtained from autograft procedures and allograft sources; and (ii) two other synthetic bone products, one marketed in the United States by Interpore International, Inc. a publicly-held company with significantly greater resources and distribution capabilities than ours, and another that was approved by the FDA in May 1993. In May 1993, a second bone graft substitute was approved by the FDA. This product consists of hydroxyapatite -calcium phosphate and bovine collagen, which must be mixed with the patient's own bone marrow. We believe that this three-part system is more difficult to use due to the mixing process and has inferior mechanical qualities. It also requires refrigeration, has a shorter shelf life and raises the risks of adverse reaction in patients allergic to bovine collagen, and poses risk of infection. In addition, many countries have prohibited the commercialization of products utilizing bovine collagen as a base. In October of 1998, Interpore introduced resorbable Pro Osteon(TM). Pro Osteon(TM) is harvested from marine coral exoskeletons that are hydrothermally converted to calcium phosphate, known as hydroxyapatite. Effective June 22, 2004, Interpore closed its merger with Biomet, Inc. pursuant to which Biomet acquired all of the outstanding shares of Interpore stock for cash at $14,50 per share with a 29% premium for a total amount of $259 million. Autograft and allograft bone have been used for graft material for a much longer period of time than Biocoral(R) and similar materials, and in order to increase our future sales of Biocoral(R), we have demonstrated, to the best of our ability, to the medical community the surgical and patient advantages, safety, efficacy, cost effectiveness and clinical results of Biocoral(R). Most of our competitors have substantially greater resources, larger market share and greater research and development capabilities than ours and may, therefore, be expected to compete aggressively and successfully in the markets for our products. We believe that Biocoral(R) provides an attractive alternative to autograft and allograft bone graft materials. In an autograft procedure, bone material is first harvested from another part of the patient's skeleton and then, in a second procedure, grafted to the site of the bone deficit. The harvesting procedure increases operating time and expense, and can lead to complications such as infection, excessive blood loss, chronic pain and deformity. When an autograft is not feasible or desirable, allograft bone, typically obtained from a cadaver, can be used. In order to maintain mechanical and biological properties, some allograft bone is not sufficiently secure to avoid all risks of disease transmission. Therefore, unlike Biocoral(R), which is a sterile and biocompatible material, allograft bone carries the risks of implant rejection and the transmission of infectious agents such as hepatitis and HIV. The use of Biocoral(R) entails none of these risks and provides clinical results comparable to those of autograft material in suitable condition for use. We believe Biocoral(R) is the only natural wholly mineral bone graft substitute actually available on the market. Biocoral(R) was originally patented in France in 1979, in the United States in 1982, and in Japan in 1989. Our French subsidiary acquired the patent rights for Biocoral(R) from "National Agency for Valorization of Research" (l'ANVAR), known currently as (OSEO) and, the "French National Center for Scientific Research" (CNRS), a French governmental agency. Through our subsidiaries, we have developed twelve additional patent titles, in various countries in Europe, Switzerland, Canada, Japan, Australia and United States, for various applications and uses of our products, including, among others, osteoporosis remediation, autologous glue and combination with growth factor. As result of these twelve patent titles, we own various patents covering our technologies which have been granted by various countries official government patent office, including most European Union countries, Canada, Australia, Japan and in the United States by the US Department of Commerce Patent and Trademark Office. Homologous fibrin sealant is biologically prepared from large plasma pools, with the addition of other biologicals such as thrombin and anti fibrinolytics products necessary for their activation. Even after a safety process has been implemented, there can be residual unexpected viral transmission or immunological problems. Safer autologous fibrin glue can be prepared by different processes, but are not standardized and need other biologicals such as thrombin and antifibrinolytics. The autologous fibrin glue prepared by our innovative medical device is standardized and truly safe due to the use of calcium as an activator, without the addition of any other biologicals such as thrombin or antifibrinolytics. In addition, the composition remains constant in terms of components and properties. Our technology underlying this application is protected by strong patent titles in many countries around the world where patent applications were filed. Thus far, most of these have been granted and issued by the official government 6 patent offices in the countries where they were filed, including most European Union countries, Canada and in the United States by the US Patent and Trademark Office. One of our patent titles covers technology called "method for preparation of biological adhesive enriched with platelet factors and application". Our patent applications in this application have thus far been filed and granted by the official government patent offices of various countries, including France and 15 European Union countries, Japan, and in the United States by the US Department of Commerce Patent and Trademark Office. However, our patent application covering this technology in Japan, after being granted in October 1999, received written opposition from Thermogensis Corp of California in June 2000. We were required to defend the patent against this opposition. The Japanese Patent Office rejected the opposition in May 2003, and our patent in Japan was reaffirmed. We have been able to compete in Europe against producers that also sell products in the United States. Despite their significantly greater resources, management believes that it will, once our products have been approved by the FDA, be able to be competitive with such companies because of the quality of our products. See "Business -- Government Regulation." Biocoral(R) has been used in European dental applications for approximately more than 20 years. These multiple uses, together with the scientific results of our in vivo use and clinical trials have demonstrated the efficacy of using Biocoral(R) for bone regeneration in dental applications. We compete with many businesses in the production and distribution of biomaterials for filling bone cavities before rehabilitation of partially and totally edentulous patients. These businesses compete primarily on the basis of product performance and price, as well as customer loyalty and service. Biocoral(R) also competes with bone grafts and bone graft substitutes. Companies selling competitive products sometimes also sell dental implants, so bundling these products is often a strategy. All of these businesses compete primarily on the basis of product performance and price, as well as on customer loyalty and service. Management believes that our products are superior to our competitors' products. We have identified the requirements for this application and approached a US medical supply distributor in order to access the US market. An accredited scientific team in the US has conducted human clinical studies with a 5 year follow up to confirm bone reconstruction in oral application. This study confirmed the stability of the successful result and management believes that this study will facilitate FDA approval for our product used in this indication when we file for FDA approval. We are focusing on increasing our European and other sales of our products and entering into joint ventures with key strategic partners for distribution of our products, research and development and the like. No assurance can be given that any such arrangements will be reached or that they will be profitable. We believe that in certain cases, some of our competitors are infringing on our patents. We are exploring various options for enforcing these patents where necessary. Bio Holdings, our wholly-owned subsidiary and the owner of all of our patents has sent a written warning to the infringing parties in France, England and Germany and has limited its focus to a few companies in order to abate the cost. The Company knows this type of litigation is costly in Europe and even more so in the US and will only pursue action against infringers in the US if it is able to obtain funding to cover the cost or if it can do so on a contingency basis in order not to have it impact the Company's financial condition. If the Company is unable to do either, it will not pursue such litigation. Governmental Regulation Biocoral(R) although marketed since the end of the 1980's, was the first bone substitute registered in France with TIPS (Tarifs Interministeriels des Prestation Sanitaires). Nevertheless within the framework of its registration, Biocoral(R) has been received approving opinion of Microbiological Committee of Health on July 05, 1995 referenced under the number 9600201B01. Biocoral(R) received the authorization to be marketed in the European countries "EC label" on December 30, 1996. Since, this authorization has been renewed several times and it is current. Biocoral(R) has been approved for marketing in Europe, Canada, many Asian countries, the Middle East and many other countries in the world. Biocoral(R) has been approved for reimbursement in France by French National Health Authority (Securite Sociale) and is listed on the "Liste des Produits et Prestations Remboursables" (LPPR) reimbursement by French National Health Authority. Our products are subject to significant government regulation in the United States and other countries. To test clinically, and to produce and mass market products for human diagnostic and therapeutic use in the United States, we must comply with mandatory procedures and safety standards established by the Food and Drug Administration ("FDA") and comparable state and foreign regulatory agencies. Typically, such standards require that products be approved by the government agency as safe and effective for their intended use before being marketed for human applications. 7 There are two principal methods by which we may obtain FDA approval to market regulated products in the United States. One method is to seek FDA approval under the 510(k) procedure. Section 510(k) of the Food, Drug and Cosmetic Act requires those device manufactures who must register to notify the FDA, at least 90 days in advance, of their intent to market a medical device. This is known as Premarket Notification - also called PMN or 510(k). It allows the FDA to determine whether the device is equivalent to a device already placed into one of the three classification categories. Thus, "new" devices (not in commercial distribution prior to May 28, 1976) that have not been classified can be properly identified. Specially, medical device manufacturers are required to submit a premarket notification if they intend to introduce a device into commercial distribution for the first time or reintroduce a device that will be significantly changed or modified to the extent that its safety or effectiveness could be affected. Such change or modification could relate to the design, material, chemical composition, energy source, manufacturing process, or intended use. In the past, we have had discussions with the FDA, which indicated that Biocoral(R) may be classified as a Class 3 Medical Device in the United States and may be considered equivalent to Pro Osteon(TM) (Pro Osteon) which is a bone graft substitute, already registered by the FDA. See "Competition." We believe that the 510(k) procedure should apply to Biocoral(R). If the 510(k) procedure were applied to Biocoral(R), an FDA audit would not be necessary before the homologation could be granted. To the best of our knowledge, the FDA can require an audit at any time. An accredited scientific team in the US has conducted human clinical studies with a five-year follow-up to confirm bone reconstruction in oral application. This study confirmed the stability of the successful result and management believes that this study will facilitate FDA approval of our product used in this indication when we file for such approval. The alternative method is to obtain premarket approval ("PMA") from the FDA. Under the PMA procedure, the applicant must obtain an Investigational Device Exemption (IDE) before beginning the substantial clinical testing required to determine the safety, efficacy and potential hazards of the products. The review period under the PMA procedure may last for several years. The FDA also imposes requirements on manufacturers and sellers of products under its jurisdiction, such as labeling, manufacturing practices, record keeping and reporting. Obtaining such approvals in the US could take some time and involve substantial expenditures. No clinical testing on humans may be undertaken in the United States without first obtaining an IDE from the FDA. Employees Except for our wholly-owned French subsidiary, we currently have no employees other than our officers and directors who devote as much time as they believe necessary to conduct our business and maintain our operations. Our French subsidiaries currently have nine employees, eight of whom are full time. In addition, we engage the services of various scientific and research consulting teams under consulting contracts, working on research and development projects in different laboratories and hospitals in France and other countries. Subsidiaries The Company conducts its operations in Europe via several subsidiaries, including its French (Biocoral France and Inoteb) and UK (Biocoral UK Limited) subsidiaries and Bio Holdings International Limited (see below). Bio Holdings International Limited Bio Holdings International Limited is one of the company's wholly-owned subsidiaries which was formed to hold and manage the principal patents of the company. We own all of Bio Holdings's outstanding shares, and cover all of Bio Holdings's expenses: - deposits and files all patents and follows up with the patent counsels and patent offices in each country where the patents are filed; - extends filing territory and works to protect our patents; and - looks after and maintains patents. 8 Additional Information We maintain a website, www.biocoral.com, which includes financial and other information for investors. We provide access to our SEC filings on our website, free of charge, through a link to the OTC Bulletin Board's website. Through that link, our filings are available as soon as reasonably practical after we file the documents. These filings are also available on the SEC's website at www.sec.gov. In addition, the public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Item 1A. Risk Factors AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K AND IN OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING OUR SUBSEQUENT REPORTS ON FORMS 10-Q AND 8-K, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK OR TO MAINTAIN OR INCREASE YOUR INVESTMENT IN SHARES OF OUR COMMON STOCK. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO AFFECT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS. IF ANY OF THE FOLLOWING RISKS, OR ANY OTHER RISKS NOT DESCRIBED BELOW, ACTUALLY OCCUR, IT IS LIKELY THAT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS COULD BE SERIOUSLY HARMED. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE PART OR ALL OF YOUR INVESTMENT. To date, we have generated only limited revenues from sales of our products and have an accumulated deficit. Until 2005, more than two-thirds of our business was in research and development with an emphasis on developing our technology in order to produce marketable products. We have completed most of our research program and are now ready to begin commercialization and marketing of our products in new applications and increase the commercialization efforts in actual products. However, to date, we have generated only limited revenues and have had to raise capital from investors through debt and equity offerings in order to sustain our research and development efforts. For the fiscal year ended December 31, 2008, we had net sales of approximately $499,437 an accumulated deficit of $22,268,045. We can provide no assurance of the successful and timely marketability of our products. Our success will depend on our ability to make out products commercially competitive products on a timely basis. The pre-marketing schedules for our products may be affected by a variety of factors, including difficulties, proprietary technology of others, and changes in governmental regulation, many of which will not be within our control. Any delay in the pre-marketing, introduction or marketing of our products could result either in such products being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors, there can be no assurance that we will be able to market our products successfully. We must comply with significant government regulations. The manufacture, pre-marketing and marketing of biotechnologies and biomaterials for use in health care are subject to regulation, primarily by the FDA in the United States and by comparable authorities in other countries. These national agencies and other federal, state, local and foreign entities regulate, among other things, research and development activities (including testing in animals and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including, delay in approving or refusal to approve product licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recall or seizure of products, injunctions against shipping products and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts. 9 We rely upon patents to protect our technology. We may be unable to protect our intellectual property rights. Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our technologies, including Biocoral(R) and its use in different applications. Through twelve patent title applications and as of the date of this report, we own various patents covering our technologies which have been granted by various countries' official government patent office, including most European Union countries, Canada, and in the United States by the US Department of Commerce Patent and Trademark Office. We depend upon confidentiality agreements with our officers, employees and contracting counterparties to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and others may independently develop technology similar to ours, otherwise avoid the confidentiality agreements, violate our patents or produce patents that would materially and adversely affect our business, prospects, financial condition, and results of operations. Such competitive events, technologies and patents may limit our ability to raise funds, prevent other companies from collaborating with us, and in certain cases prevent us from further developing our technology due to third party patent blocking right. We rely upon third parties for the manufacturing and distribution of some of our products. We manufacture our main product, Biocoral(R), through our wholly-owned manufacturing subsidiary. However, for manufacture of our medical device, which allows the preparation of our autologous glue, once the product is ready for marketing, we rely on third party manufacturers. Our reliance on third parties for the manufacture of our products creates a dependency that could severely disrupt our research and development, our clinical testing, and ultimately our sales and marketing efforts if the source of such supply proves to be unreliable or unavailable. If the contracted manufacturing source is unreliable or unavailable, we may not be able to manufacture or market our products. If we are unable to establish or manage strategic collaborations in the future, our revenue and product development may be limited. Our strategy includes substantial reliance upon strategic collaborations for development, marketing and commercialization of our products in particular in our patented application covering treatment of Osteoporosis fractures and their prevention. Establishing strategic collaborations is difficult and time-consuming. Our discussion with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. If we successfully establish new collaborations, these relationships may not result in the successful development or commercialization of our product candidates or the generation of sales revenue. To the extent that we enter into co-promotion or other collaborative arrangements, our product revenues are likely to be lower than if we directly marketed and sold any products that we may develop. If we enter into manufacturing and marketing collaborations, our success will in part depend on the performance of our collaborators. We will not directly control the amount or timing of resources devoted by our collaborators to activities related to our product candidates. Our corporate collaborators may not commit sufficient resources to our pre-marketing and manufacturing programs or the commercialization, marketing or distribution of our products. If any collaborator fails to commit sufficient resources, our pre-marketing and marketing programs related to this collaboration could be delayed or terminated. Also, our collaborators may pursue other existing or development-stage products or alternative technologies in preference to those being developed in collaboration with us. Finally, if we fail to observe our obligations in our agreements with them, our collaborators may have the right to terminate those agreements. We may incur substantial liabilities from any product liability claims if our insurance coverage for those claims is inadequate. We currently have product liability insurance which we believe adequately covers potential liability which may arise from our products. However, we cannot be certain that our insurance will be adequate to cover every claim we may face. We may face an inherent risk of product liability exposure related to the sale and use of our products. An individual may bring a liability claim against us if one of the products causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in decreased demand for our product candidates, injury to our reputation, withdrawal of clinical trial participants, costs of related litigation, substantial monetary awards to patients or other claimants, loss of revenues, the inability to commercialize product candidates, and increased difficulty in raising required additional funds in the private and public capital markets. We depend upon our senior management and key consultants and their loss or unavailability could put us at a competitive disadvantage. 10 We depend upon the efforts and abilities of our senior executive, Nasser Nassiri, and other members of our management team and scientific advisors. The loss or unavailability of the services of any of these individuals for any significant period of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We have not obtained, do not own, nor are we the beneficiary of, key-person life insurance. See "Management--Employment Agreements". The biotechnology and biomaterials industries are characterized by a high degree of competition. We may be unable to compete with more substantial enterprises. The biotechnology and biomaterials industries are characterized by a high degree of competition. Competition in the biomaterials industry is based significantly on scientific and technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain governmental approval for testing, manufacturing and marketing. We compete with specialized biotechnology firms in the United States, Europe, Japan and elsewhere, as well as pharmaceutical companies that are applying biotechnology to their operations. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on our ability to raise capital to fund the development and marketing of our products. We are aware of certain competitors who are attempting to utilize our technology and produce products similar to or competitive with ours. Our technologies are protected by strong patents in many countries around the world. Accordingly, we believe we can successfully challenge any misappropriation of our technology by our competitors. Our competition will be determined in part by the potential applications for which our products are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of our potential products or of competitors' products may be an important competitive factor. Accordingly, the relative speed with which we can develop products, complete pre-clinical testing, clinical trials and approval processes and supply commercial quantities to market are expected to be important competitive factors. We expect that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent position. (See "Item 1. Description of Business - -- Competition.") We may incur increased costs as a result of recently enacted and proposed changes in laws and regulations relating to corporate governance matters. Recently enacted and proposed changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted or proposed by the SEC and, will result in increased costs to us as we evaluate the implications of these laws and regulations and respond to their requirements. These laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers. We are continuously evaluating and monitoring developments with respect to these laws and regulations and cannot predict or estimate the amount or timing of additional costs we may incur to respond to their requirements. A limited public trading market may cause volatility in the price of our common stock and may cause it to be illiquid. Our common stock is quoted on the OTC Bulletin Board under the symbol BCRA. The quotation of our common stock on the OTC Bulletin Board does not assure that a meaningful, consistent and liquid trading market currently exists, and, in fact, in recent years the market for our stock has experienced extreme price fluctuations and traded in low volume. The illiquidity of our common stock could make it difficult for a stockholder to sell or otherwise dispose of shares. We do not intend to pay dividends. We do not expect to pay any cash dividends in the foreseeable future. 11 Item 1B. Unresolved Staff Comments. As part of a review by the staff of the Securities and Exchange Commission of our Annual Report on Form 10-K for the year ended December 31, 2007, we have received and responded to the staff's comments. As of the date of the filing of this Annual Report on Form 10-K, we believe that we have satisfactorily resolved all of the issues raised in the staff comments. However, we have not yet received a final confirmation of this from staff. The company believes that any further adjustments that result from the staff's review will not have a material effect on our financial statements. Item 2. Description of Property. Our French subsidiary currently leases its principal executive offices from an unrelated third party for an aggregate annual rent of approximately $68,000 (approximately (euro)51,000 euros). The lease has expired and we are currently in negotiation for its renewal. We previously leased our manufacturing facility in Saint Gonnery in the west of France until the year 2001. We now own the property which includes a reception area, laboratory-chemistry and bacteriology area, workshop maintenance area, stock F area, stock SM area, laboratory-prothes area, stock 1 area, room dresses, radio operator area, raw material area, a local conditioning and control, drying and washing area, management and accountancy area. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for Common Equity and Related Stockholder Matters. At December 31, 2008, there were 11,443,787 shares of our common stock issued and outstanding. Our common stock trades on the OTC Bulletin Board. The following table sets forth information regarding the high and low closing price per share for our common stock on the OTC Bulletin Board as reported by Yahoo.com(TM). Such prices do not necessarily reflect actual transactions and do not include retail mark-ups, mark-downs or commissions. - -------------------------------------------------------------------------------- Quarter Ended High Low - ------------- ---- --- - -------------------------------------------------------------------------------- December 31, 2008 $43.00 $23.00 - -------------------------------------------------------------------------------- September 30, 2008 $23.00 $ 8.00 - -------------------------------------------------------------------------------- June 30, 2008 $56.00 $15.00 - -------------------------------------------------------------------------------- March 31, 2008 $80.00 $40.00 - -------------------------------------------------------------------------------- December 31, 2007 $97.00 $60.00 - -------------------------------------------------------------------------------- September 30, 2007 $97.00 $27.50 - -------------------------------------------------------------------------------- June 30, 2007 $33.50 $28.00 - -------------------------------------------------------------------------------- March 31, 2007 $50.00 $28.40 - -------------------------------------------------------------------------------- December 31, 2006 $51.25 $39.40 - -------------------------------------------------------------------------------- September 30, 2006 $47.00 $30.00 - -------------------------------------------------------------------------------- June 30, 2006 $30.00 $14.00 - -------------------------------------------------------------------------------- March 31, 2006 $26.00 $19.00 - -------------------------------------------------------------------------------- Holders As of December 31, 2008, there were approximately 400 holders of record of the shares of our common stock including several European financial and portfolio institutions. 12 Dividends We have paid no cash dividends on our equity securities to date and do not anticipate the payment of cash dividends on our equity securities in the near future. We paid a dividend of one share of our common stock for each three shares owned on December 18, 1995 and paid, in December 1996, another stock dividend of one share for each three shares owned as of November 6, 1996. Recent Sales of Unregistered Securities During 2008, we issued 7% non-convertible promissory notes payable (the "7% Non- Convertible Promissory Notes") in the aggregate principal amount of $100,000. (See Note 9.) During 2008, the company also received short-term loans for the total amount of $128,500 from its "accredited investors". These short-term loans are expected to be converted into new 7% Non-Convertible Promissory Notes when the company's board of director approves the issuance of additional notes. (See Note 8.) During 2007, we received $200,000 in connection with the issuance of additional new 7% non-convertible promissory notes payable (the "7% Non- Convertible Promissory Notes"). (See Note 9.) During 2006, we received $400,000. Pursuant to an agreement dated December 20, 2006 with all of the note holders, the total of outstanding 7% convertible promissory notes payable and 6% convertible promissory note payable together with the $400,000 received during 2006 in the total aggregate principal amount of $2,700,000 were exchanged to 7% non-convertible promissory notes payable. In December 2006, we issued, the new 7% non-convertible promissory notes payable (the "7% Non- Convertible Promissory Notes") in the aggregate principal amount of $2,700,000. (See Note 9.) During January 2005, we received $300,000 in connection with the subscription of the 7% Notes sold on December 2004. During September 2005, we sold to an accredited investor an additional $200,000 of the 7% Notes. (See Note 9.) All Notes as described above were sold to "accredited investors" only in a private placement intended to be exempt from registration pursuant to the provisions of Regulation D of the Securities Act of 1933. 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 recipients of securities in each such transaction represented their intentions 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 such transactions. All recipients either received adequate information about us or had adequate access, through their relationships with us, to such information. Item 6. Selected Financial Data
- ------------------------------------------------------------------------------------------------------------------------------ Fiscal Year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------ 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Net sales $ 499,437 $ 464,225 $ 408,205 $ 316,200 $ 351,600 - ------------------------------------------------------------------------------------------------------------------------------ Operating loss 388,281 438,209 269,741 723,874 562,199 - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) (586,384) (630,685) (1,473,425) (997, 758) 198,216 - ------------------------------------------------------------------------------------------------------------------------------ Net income (loss) per common share $ (0.05) $ (0.06) $ (0.13) $ (0.09) $ 0.02 - ------------------------------------------------------------------------------------------------------------------------------ Weighted average common 11,421,842 11,353,787 11,353,817 11,353,816 11,299,267 shares outstanding Shares shares shares shares shares - ------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data: - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 1,414,803 $ 1,411,565 $ 1,324,618 $ 1,075,810 $ 950,308 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities 4,964,268 5,358,318 4,686,785 3,345,364 2,230,290 - ------------------------------------------------------------------------------------------------------------------------------ Stockholders' deficiency 3,549,465 3,946,753 3,362,167 2,269,554 1,279,982 - ------------------------------------------------------------------------------------------------------------------------------
13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in the financial statement contained elsewhere in this annual report. Introduction Patents and Product Development We are an international biomaterials "tissue-engineering" company specializing in the research, development and commercialization of patented high biotechnologies and biomaterials in the health care area. The Company's management is primarily focused on securing our existing patents, continuing the development, manufacture and commercialization of products under our patents and pursuing patent titles in additional countries and for additional applications. Biocoral(R), our primary product, is a natural coral "carbonate calcium" derived, wholly mineral bone graft substitute and is used by surgeons and practitioners because of its biocompatibility, resorbability, osseo conduction and safety. Since 2000, we have worked with an accredited European university research group on purification of our raw material, coral, in order to produce a natural wholly mineral product. After a long-term collaboration we have finalized the development of a method for purification of our raw material coral which will allow us to offer Biocoral(R) as a natural wholly mineral bone substitute. We have received patents for this purification method in France and the European Union and expect to receive additional patents on it in the near future. According to our French subsidiary, Biocoral(R) has been used in approximately 500,000 patients in various countries, principally in Europe, Asia and Canada. Through our subsidiaries, we have developed twelve additional patent titles, in various countries in Europe, Switzerland, Canada, Japan, Australia and United States, for various applications and uses of our products, including, among others, osteoporosis remediation and combination of Biocoral(R) with growth factor. As result of these twelve patent titles, we own, various patents covering our technologies which have been granted by various countries official government patent office, including most European Union countries, Canada, Australia, Japan and in the United States by the US Department of Commerce Patent and Trademark Office. We believe that the pursuit of additional patents and continuing to work toward commercialization of Biocoral(R) and related products presents our greatest opportunity for revenue generation. To a lesser extent we have devoted some resources to development of the additional application for our product in particular the treatment of bone disease associated with demineralization of bone such as osteoporosis fracture and their prevention. We have encountered challenges to our attempts to protect our patents and develop, manufacture and commercialize our products primarily from companies seeking to infringe our patents and also in our reliance on an outside manufacturer. We intend to defend our patents vigorously to the extent that our funding permits. In addition, where our reliance on an outside manufacturer to produce our autologous fibrin glue resulted in the failure of this product, we have now commenced a lawsuit against this manufacturer for approximately (euro)110,000,000 in lost profits which is based upon our written proposal, which was accepted by the manufacturer and which estimated profits during the commercialization period at approximately (euro)220,000,000. Under the proposal, we were to receive a royalty of 50% of this amount. 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 consolidated financial statements are set forth as significant accounting policies in Note 3 of the notes to the consolidated financial statements included in this annual 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 14 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. 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. Investment in Limited Partnership. We own an investment in a limited partnership, which is accounted for under the equity method of accounting. Under this method, the initial investment is recorded at cost. Subsequently, the investment is increased or decreased for our pro-rata share of the partnership's income and losses. No ready trading market exists for this partnership interest by which we can determine with any certainty its value. Moreover, because it is initially valued at cost, which in turn is based upon negotiations between us and the limited partnership, this initial valuation may or may not reflect the value which an independent third party would assign to the partnership interest. This investment is illiquid, and, should we determine to liquidate it, we may be unable to do so at a price that equals or approximates the valuation reflected on our balance sheet. Results of Operations As discussed below, our operations are conducted outside the United States of America, and as such, our functional currency is the Euro and not the US Dollar. In order to comply with accounting principles generally accepted in the United States of America, our financial statements, as well as the following discussion regarding our results of operations are in terms of U.S. dollars. Accordingly, part of the variance in revenues and expenses discussed below may partially differ as a result of the fluctuating exchange rates in addition to the other factors discussed. Fiscal 2008 vs. 2007 Net sales, which are solely attributable to our wholly owned European subsidiaries, totalled approximately $499,400 for the year ended December 31, 2008, an increase of approximately $35,200 or approximately 7.5% from approximately $464,200 for the year ended December 31, 2007. This increase is partially attributable to an increase in sales of products in the orthopaedic surgery area in export. Cost of sales was approximately $211,300 for the year ended December 31, 2008, a decrease of approximately $34,500 or approximately 14% from approximately $245,800 for the year ended December 31, 2007. The gross profit percentage for the year ended December 30, 2008 and 2007 was approximately $288,200 or 57% and $218,400 or 47%, respectively. The main factor contributing to this increase in gross profit was an increase in sales and a decrease in costs of sales. Operating expenses were approximately $676,400 during the year ended December 31, 2008, an increase of approximately $19,800 or approximately 3% from approximately $656,600 for the year ended December 31, 2007. This increase was primarily due to an increase in the company's depreciation and amortization, consulting and professional fees and research and development activities. Consulting and professional fees during the year ended December 31, 2008 were approximately $215,400 an increase of $4,800 or approximately 2% compared to approximately $210,600 during the year ended December 31, 2007. This increase is attributable to an increase in the fees needed during 2008 for the development of next generation of products. Other income (net of expenses) totalled approximately $(198,100) of expense for the year ended December 31, 2008 as compared to approximately $(192,500) of expense for the year ended December 31, 2007. This increase was primarily due to increase in interest expense on our short and long terms notes payables. As a result of the above, our net loss for the year ended December 31, 2008 totalled approximately $586,400 or $.05 per share compared to a net loss of approximately $630,700 or $.06 per share for the year ended December 31, 2007. These losses per share were based on weighted average common shares outstanding of 11,421,842 & 11,353,787 for the years ended December 31, 2008 and 2007 respectively. 15 Fiscal 2007 vs. 2006 Net sales, which are solely attributable to our wholly owned European subsidiaries, totalled approximately $464,200 for the year ended December 31, 2007, an increase of approximately $56,000 or approximately 14% from approximately $408,200 for the year ended December 31, 2006. This increase is partially attributable to an increase in sales of products in the maxillocraniofacial surgery area in France and the dental market area in export. Cost of sales was approximately $245,800 for the year ended December 31, 2007, an increase of approximately $124,600 or approximately 103% from approximately $121,200 for the year ended December 31, 2006. The gross profit percentage for the year ended December 30, 2007 and 2006 was approximately $218,400 or 47% and $287,000 or 70%, respectively. The main factor contributing to this increase was an increase in costs to acquire part of current inventory. Operating expenses were approximately $656,600 during the year ended December 31, 2007, an increase of approximately $99,900 or approximately 18% from approximately $556,700 for the year ended December 31, 2006. This increase was primarily due to an increase in the company's research and development activities and in administrative expenses in general. Consulting and professional fees during the year ended December 31, 2007 were approximately $210,600, a decrease of $11,400 or approximately 5% compared to approximately $222,000 during the year ended December 31, 2006. This decrease is attributable to a decrease in the fees needed during 2007 for the development of next generation of products. Other income (net of expenses) totalled approximately $(192,500) of expense for the year ended December 31, 2007 as compared to approximately $(1,203,700) of expense for the year ended December 31, 2006. This increase was primarily due to the sale of all of the available for sale securities during December 2006 and we realized a loss of approximately $433,500 and the increase in the loss on the embedded derivative in our long term debt that was called in December 2006 of approximately $582,400. As a result of the above, our net loss for the year ended December 31, 2007 totalled approximately $630,700 or $.06 per share compared to a net loss of approximately $1,473,400 or $.13 per share for the year ended December 31, 2006. These losses per share were based on weighted average common shares outstanding of 11,353,787 & 11,353,817 for the years ended December 31, 2007 and 2006 respectively. Financial Condition, Liquidity and Capital Resources Fiscal 2008 vs. 2007 As shown in the accompanying consolidated financial statements, we had net losses of approximately $586,400 and $630,700 in 2008 and 2007, respectively. Management believes that it is likely that we will continue to incur net losses through at least 2009. We had a working capital deficiency of approximately $1,217,500 and $898,400 at December 31, 2008 and 2007 respectively. We also had a stockholders' deficiency of approximately $3,549,500 and $3,946,800 at December 31, 2008 and 2007, respectively. We had a negative cash flow from operating activities of approximately $251,500 and $195,500 at December 31, 2008 and 2007 respectively. We also had cash provided by financing activities of $178,500 and $250,000 at December 31, 2008 and 2007 respectively. Our net loss of approximately $586,400 and $630,700 increased our accumulated deficit to approximately $22,268,000 and $21,682,000 at December 31, 2008 and 2007 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 2008, 2007, 2006 and prior years. However, there is no assurance that it will be successful in accomplishing these objectives. In March 2008, the Company received a commitment from an "accredited investor" to provide the company with funds up to $250,000, of which the Company received $128,500 in 2008 (See Note 8), and has $121,500 available for use in 2009. 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 2009. 16 In additional, during 2008, we issued additional 7% non-convertible promissory notes payable (the "7% Non- Convertible Promissory Notes") in the original principal amount of $100,000. Fiscal 2007 vs. 2006 As shown in the accompanying consolidated financial statements, we had net losses of approximately $630,700 and 1,473,000 in 2007 and 2006, respectively. We had a working capital deficiency of approximately $898,400 and $495,200 at December 31, 2007 and 2006 respectively. We also had a stockholders' deficiency of approximately $3,946,800 and $3,362,200 at December 31, 2007 and 2006, respectively. We had a negative cash flow from operating activities of approximately $195,500 and $212,000 at December 31, 2007 and 2006 respectively. We also had cash provided by financing activities of $250,000 and $400,000 at December 31, 2007 and 2006 respectively. Our net loss of approximately $630,700 and $1,473,000 increased our accumulated deficit to approximately $21,682,000 and $21,051,000 at December 31, 2007 and 2006 respectively. During 2007, we received $200,000 in connection with the additional subscription of the new 7% non-convertible promissory notes payable. We also received during 2006, the total amount of $400,000 of additional funds which were converted on December 31, 2006 to 7% non-convertible notes payable. In addition, during 2006, we received proceeds of approximately $210,000 from the sale of marketable securities. Long-term Debt As described in the notes to our financial statements and under Financial Condition, Liquidity and Capital Resources above, our long-term debt consists entirely of 7% promissory notes. As of December 31, 2008, the outstanding balance of principal due on such notes was $3,000,000. Such notes mature in December 2012 at which time we will have the option of either paying the balance of principal and interest on the notes in cash or in shares of our common stock. Forward-Looking Statements In this annual 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. Statements relating to restarting of clinical trials for certain of its products or receiving certain revenues or proceeds 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 revenues, clinical trials or other events to differ materially from those projected. 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 annual 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 annual report might not occur. Item 7A. 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. 17 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, generally on an intercompany basis, 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 December 31, 2008, 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. Marketable Securities A portion of our Euro/Dollar exchange rate exposure arises from our investment in marketable securities. Prior to 2006, we classified our investments in marketable securities as available for sale, and those that we intend to hold for more than one year as non-current. Unrealized holding gains and losses are reported as a separate component of stockholders' deficiency, as part of accumulated other comprehensive income (loss), until realized. During December 2006, the company sold all available for sale securities and recorded a loss of approximately $433,000. Since that date, the Company has held no marketable securities available-for-sale. 18 Item 8. Financial Statements and Supplementary Data Biocoral, Inc. and Subsidiaries Index to Consolidated Financial Statements and Schedule. Financial Statements: Management's Report on Internal Control over Financial Reporting F-2 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting F-3 Report of Independent Registered Public Accounting Firm F-4 Report of Independent Registered Public Accounting Firm F-5 Consolidated Balance Sheets as of December 31, 2007, 2007 and 2006 (Restated) F-6 Consolidated Statements of Operation and Comprehensive loss for the years ended December 31, 2008, 2007 and 2006 (Restated) F-7 Consolidated Statements of Changes in Stockholders' Deficiency for the years ended December 31, 2008, 2007 and 2006 (Restated) F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 (Restated) F-9 Notes to Consolidated Financial Statements F-10 - F-20
F-1 Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America and includes those policies and procedures that: o Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; o Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and o Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in this Internal Control-Integrated Framework. Based on our assessment, we concluded that the Company's maintains effective internal control over financial reporting as of December 31, 2008, based on criteria established in "Internal Control - Integrated Framework" issued by the COSO. Michael T. Studer CPA P.C., our independent registered public accounting firm, has issued an audit report, on our internal control over financial reporting which is included in page F-3. F-2 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting To the Board of Directors and Stockholders of Biocoral, Inc. I have audited the internal control over financial reporting of Biocoral, Inc. and subsidiaries (the "Company") as of December 31, 2008, based on criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. My responsibility is to express an opinion on the Company's internal control over financial reporting based on my audit. I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. My audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as I considered necessary in the circumstances. I believe that my audit provides a reasonable basis for my opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In my opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). I have also audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the Company's consolidated financial statements as of December 31, 2008 and for the year then ended and my report dated March 27, 2009 expressed an unqualified opinion thereon. /s/ Michael T. Studer CPA P.C. ------------------------------ Freeport, New York March 27, 2009 F-3 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Biocoral, Inc. I have audited the accompanying consolidated balance sheet of Biocoral, Inc. and subsidiaries (the "Company") as of December 31, 2008 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficiency, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. The consolidated financial statements of Biocoral, Inc. and subsidiaries as of December 31, 2007 and 2006 were audited by another auditor whose report dated March 28, 2008 expressed an unqualified opinion on those statements. I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biocoral, Inc. and subsidiaries as of December 31, 2008 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company's present financial condition raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. I have also audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the Company's internal control over financial reporting as of December 31, 2008, based on the criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and my report dated March 27, 2009 expressed an unqualified opinion thereon. /s/ Michael T. Studer CPA P.C. ------------------------------ Freeport, New York March 27, 2009 F-4 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Biocoral, Inc.: We have audited the accompanying consolidated balance sheets of Biocoral, Inc. and subsidiaries (the "Company") as of December 31, 2007 and 2006 (restated), and the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Biocoral France SAS and Inoteb SAS, wholly-owned subsidiaries, as of December 31, 2007 and 2006 (restated), and the related statements of operations and comprehensive loss, changes in stockholders' deficiency, and cash flows for each of the two years in the period ended December 31, 2007, which statements reflect total assets and revenues constituting 54.11 percent and 100 percent, and 54.56 percent and 100 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Biocoral France SAS and Inoteb SAS, is based solely on the reports of the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biocoral, Inc. and subsidiaries at December 31, 2007 and 2006 (restated), and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. /s/ Moore & Associates, Chartered Moore & Associates, Chartered Las Vegas, Nevada March 28, 2008 F-5 BIOCORAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS December 31, December 31, December 31, 2008 2007 2006 ------------ ------------ ------------ (Restated) Current Assets: Cash $ 17,797 $ 147,681 $ 287,773 Accounts receivable, net of allowance for doubtful accounts 147,085 138,144 175,900 Inventories 402,376 335,775 244,675 Prepaid expenses and other current assets 23,707 32,104 27,744 ------------ ------------ ------------ Total Current Assets 590,965 653,704 736,092 Property and equipment, net 21,597 26,748 25,279 Restricted cash held in escrow 9,512 11,049 11,049 Investment in limited partnership -- -- 4,162 Intangible assets, net 774,081 705,496 527,879 Other assets 18,648 14,568 20,157 ------------ ------------ ------------ Total Assets $ 1,414,803 $ 1,411,565 $ 1,324,618 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable $ 810,510 $ 893,231 $ 726,555 Short-term bank borrowings 13,777 -- -- Short-term notes payable 128,500 50,000 -- Current portion due to officer 223,192 187,192 190,937 Accrued interest payable 632,444 421,712 313,762 ------------ ------------ ------------ Total Current Liabilities 1,808,423 1,552,135 1,231,254 Due to officer, net of current portion 150,000 900,000 750,000 Long-term notes payable 3,000,000 2,900,000 2,700,000 Deferred employee benefits 5,845 6,183 5,531 ------------ ------------ ------------ Total Liabilities 4,964,268 5,358,318 4,686,785 ------------ ------------ ------------ Commitments and contingencies Stockholders' Deficiency: Preferred stock, par value $.001 per share; 1,000,000 shares authorized; none issued -- -- -- Common Stock; $.001 par value; 100,000,000 shares authorized; 11,443,787 shares issued and outstanding December 31, 2008 11,353,787 shares issued and outstanding December 31, 2007 11,353,817 shares issued and outstanding December 31, 2006 11,444 11,354 11,354 Additional paid-in capital 18,800,000 17,900,090 17,900,090 Accumulated other comprehensive loss (92,864) (176,536) (222,635) Accumulated deficiency (22,268,045) (21,681,661) (21,050,976) ------------ ------------ ------------ Total Stockholders' Deficiency (3,549,465) (3,946,753) (3,362,167) ------------ ------------ ------------ Total Liabilities and Stockholders' Deficiency $ 1,414,803 $ 1,411,565 $ 1,324,618 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-6 BIOCORAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Year ended December 31, 2008 2007 2006 ------------ ------------ ------------ (Restated) Net sales $ 499,437 $ 464,225 $ 408,205 Cost of sales 211,276 245,832 121,244 ------------ ------------ ------------ Gross Profit 288,161 218,393 286,961 ------------ ------------ ------------ Operating Expenses: Research and development 63,889 59,695 49,892 Consulting and professional fees 215,356 210,556 222,075 Depreciation and amortization 77,096 61,646 52,454 Administrative expenses 320,101 324,705 232,281 ------------ ------------ ------------ Total Operating Expenses 676,442 656,602 556,702 ------------ ------------ ------------ Loss From Operations (388,281) (438,209) (269,741) ------------ ------------ ------------ Other Income (Expense): Interest, net (215,883) (191,705) (186,645) Equity in loss on sale of marketable securities -- -- (6,282) Realized loss on sale of marketable securities -- -- (433,446) Loss on embedded derivatives -- -- (582,395) Dividend income -- -- 3,878 Other 17,780 (771) 1,206 ------------ ------------ ------------ Total Other Income (Expense) (198,103) (192,476) (1,203,684) ------------ ------------ ------------ Loss before provision for income taxes (586,384) (630,685) (1,473,425) Provision For Income Taxes -- -- -- ------------ ------------ ------------ Net Loss (586,384) (630,685) (1,473,425) Other Comprehensive Income (Loss): Foreign translation gain (loss) 83,672 46,099 (71,463) Unrealized gain (loss) on marketable securities -- -- 452,275 ------------ ------------ ------------ Comprehensive Loss $ (502,712) $ (584,586) $ (1,092,613) ============ ============ ============ Basic and diluted net loss per common share $ (0.05) $ (0.06) $ (0.13) ============ ============ ============ Basic and diluted weighted average number of common shares outstanding 11,421,842 11,353,787 11,353,817 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-7 BIOCORAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006 (RESTATED ONLY)
Accumulated Common Stock Other -------------------------- Additional Comprehensive Shares Amount Paid-in Capital Loss ----------- ---------- --------------- ------------- Balance, January 1, 2006 11,353,816 11,354 17,900,090 $ (603,447) Other comprehensive income (loss) - foreign currency translation loss -- -- -- (71,463) Other comprehensive income (loss) - unrealized gain on marketable securities -- -- -- 452,275 Other 1 -- -- -- Net loss -- -- -- -- ----------- ------ --------------- ------------- Balance, December 31, 2006 11,353,817 11,354 17,900,090 (222,635) Other comprehensive income (loss) - foreign currency translation gain -- -- -- 46,099 Adjustment for redemption of fractional shares (30) -- -- -- Net loss -- -- -- -- ----------- ------ --------------- ------------- Balance, December 31, 2007 11,353,787 11,354 17,900,090 (176,536) Other comprehensive income (loss) - foreign currency translation gain -- -- -- 83,672 Exercise of stock options 90,000 90 899,910 -- Net loss -- -- -- -- ----------- ------ --------------- ------------- Balance, December 31, 2008 11,443,787 11,444 $ 18,800,000 $ (92,864) =========== ====== =============== ============= Total Accumulated Stockholders' Deficiency Deficiency ------------ ------------- Balance, January 1, 2006 $(19,577,551) $ (2,269,554) Other comprehensive income (loss) - foreign currency translation loss -- (71,463) Other comprehensive income (loss) - unrealized gain on marketable securities -- 452,275 Other -- -- Net loss (1,473,425) (1,473,425) ------------ ------------- Balance, December 31, 2006 (21,050,976) (3,362,167) Other comprehensive income (loss) - foreign currency translation gain -- 46,099 Adjustment for redemption of fractional shares -- -- Net loss (630,685) (630,685) ------------ ------------- Balance, December 31, 2007 (21,681,661) (3,946,753) Other comprehensive income (loss) - foreign currency translation gain -- 83,672 Exercise of stock options -- 900,000 Net loss (586,384) (586,384) ------------ ------------- Balance, December 31, 2008 $(22,268,045) $ (3,549,465) ============ =============
The accompanying notes are an integral part of these consolidated financial statements. F-8 BIOCORAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 2008 2007 2006 ----------- ----------- ----------- (Restated) Cash flows from operating activities: Net loss $ (586,384) $ (630,685) $(1,473,425) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 77,096 61,646 52,454 Equity loss of partnership -- 4,162 6,282 Provision for doubtful accounts -- -- (2,300) Realized loss on sale of securities -- -- 433,446 Loss on embedded deritivtives -- -- 582,395 Change in operating assets and liabilities: Accounts receivable (8,941) 37,756 (37,524) Inventories (66,601) (91,100) (119,575) Prepaid expenses and other current assets 8,397 (4,360) (5,237) Other assets (2,543) 5,589 (7,524) Accounts payable (82,721) 166,676 176,493 Short-term bank borrowings 13,777 -- -- Current portion due to officer 36,000 (3,745) 32,002 Accrued interest payable 210,732 107,950 -- Due to officer, net of current portion 150,000 150,000 150,000 Deferred employee benefits (338) 652 531 ----------- ----------- ----------- Net cash (used in) provided by operating activities (251,527) (195,459) (211,982) ----------- ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (6,309) (8,888) (15,312) Capitalization of intangible assets (134,220) (231,844) (153,292) Proceeds from sale of marketable securities -- -- 212,611 ----------- ----------- ----------- Net cash provided by (used in) investing activities (140,529) (240,732) 44,007 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from short-term notes payable 78,500 50,000 -- Proceeds from long-term notes payable 100,000 200,000 400,000 ----------- ----------- ----------- Net cash provided by (used in) financing activities 178,500 250,000 400,000 ----------- ----------- ----------- Effects of changes in exchange rates on cash 83,672 46,099 (71,463) ----------- ----------- ----------- Increase (decrease) in cash (129,884) (140,092) 160,562 Cash, beginning of period 147,681 287,773 127,211 ----------- ----------- ----------- Cash, end of period $ 17,797 $ 147,681 $ 287,773 =========== =========== =========== Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ -- $ -- $ -- =========== =========== =========== Income taxes $ -- $ -- $ -- =========== =========== =========== Non-cash financing activities: Exercise of stock options in exchange for reduction of due to officer $ 900,000 $ -- $ -- =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-9 BIOCORAL, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 research and 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 $586,400, $630,700 and $1,473,400 in 2008, 2007 and 2006, respectively. Management believes that it is likely that the Company will continue to incur net losses through at least 2009. The Company had a working capital deficiency of approximately $1,217,500, $898,400 and $495,200 at December 31, 2008, 2007 and 2006, respectively. The Company also had a stockholders' deficiency of approximately $3,549,500, $3,946,800 and $3,362,000 at December 31, 2008, 2007 and 2006, 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 2008, 2007, 2006 and prior years. However, there is no assurance that it will be successful in accomplishing these objectives. In March 2008, the Company received a commitment from an "accredited investor" to provide the company with funds up to $250,000, of which the Company received $128,500 in 2008 (See Note 8), and has $121,500 available for use in 2009. 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 2009. 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 consolidated financial statements include all of the accounts of Biocoral, Inc. and its wholly-owned subsidiaries as of and for the years ended December 31, 2008, 2007 and 2006. All material intercompany balances and transactions have been eliminated in consolidation. (C) Cash and Cash Equivalents The Company considers cash on hand, cash in banks, certificates of deposit, time deposits and other short term securities with maturities of three months or less when purchased as cash and cash equivalents. There were no cash equivalents held by the Company at December 31, 2008, 2007 and 2006. (D) Concentration of Credit Risk Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across geographic areas around the world. However, all trade accounts receivable are concentrated in the health care sector. The Company does not currently see a concentrated credit risk associated with these receivables, even though repayment is dependent upon the financial stability of this industry and the respective country's national economies. F-10 Note 3 - Summary of Significant Accounting Policies - continued (E) Allowance for Doubtful Accounts The Company estimates uncollectibility of trade accounts receivable by analyzing historical bad debts, customer concentrations, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. (F) Investments in Marketable Securities Prior to 2006, the Company invested in European common stocks. Available-for-sale securities are carried at fair market value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' deficiency. In determining realized gains and losses, the cost of the securities sold is based upon the specific identification method. The Company reviews each marketable security to determine whether a decline in fair market value is other than temporary. If the decline is deemed other than temporary, the cost basis of the individual security is written down to the fair value as a new cost basis and the amount written down is included in operations as a realized loss. (G) Inventories Inventories are stated at the lower of cost or market, with cost determined on the first-in, first-out ("FIFO") method. (H) Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are 25 years for building and building improvements, two to twelve years for equipment and furnishings and one year for computer software. Normal maintenance and repairs of property and equipment are expensed as incurred, while renewals, betterments and major repairs that materially extend the useful live of the property and equipment are capitalized. (I) Investment in Limited Partnership The Company owns an approximately 9.3% interest in Bensenville Associates Ltd., a limited partnership, which is accounted for under the equity method of accounting. Under this method, the initial investment is recorded at cost. Subsequently, the investment is increased or decreased for the Company's pro-rata share of the partnership's income and losses. The Company's share of the loss in the partnership for the years ended December 31, 2008, 2007 and 2006 was approximately $7,700, $7,400 and $6,300, respectively, and the book value of the investment at December 31, 2008, 2007 and 2006 was $0, $0 and $4,162, respectively. However, we are not responsible for the losses in excess of our investment and therefore only approximately $0, $4,100 and $6,300 of the losses for the years ended December 31, 2008, 2007 and 2006 are included in the consolidated financial statements. (J) Intangible Assets Intangible assets consist of legal fees paid to various patent attorneys related to world-wide patent applications or litigation on existing patents. The patent costs are amortized over the shorter of the life of the patent or the estimated useful life of the technology, which ranges from 10 to 20 years, using the straight line method. Amortization of the intangible assets for the next five years is expected as follows: 2009 $68,300 2010 $68,300 2011 $68,300 2012 $68,300 2013 $68,300 Thereafter $432,581 F-11 Note 3 - Summary of Significant Accounting Policies - continued (J) Intangible Assets - continued The components of intangible assets and costs capitalized in 2008, 2007 and 2006 are as follows: -------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------- Beginning Intangible Assets $ 849,141 $ 617,297 $ 454,273 -------------------------------------------------------------------- Add: Capitalized Costs 134,221 231,844 163,024 -------------------------------------------------------------------- Less: Accumulated Amortization (209,281) (143,645) (89,418) -------------------------------------------------------------------- Net Intangible Assets $ 774,081 $ 705,496 $ 527,879 -------------------------------------------------------------------- (K) Impairment of Long-Lived Assets In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company reviews long-lived assets 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. Management believes that there are no impaired long-lived assets at December 31, 2008, 2007 and 2006. (L) Income Taxes The Company accounts for deferred taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. (M) Revenue Recognition Sales are recognized when the earnings process is complete and collectability is reasonably assured, which is usually when the goods are shipped to customers. Amounts billed related to shipping and handling are included in revenue. (N) Shipping and Handling Costs Shipping and handling costs are included in cost of sales in accordance with guidance established by the Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Costs." During 2008, 2007 and 2006, there were no material shipping and handling costs. (O) Research and Development The Company expenses all research and development costs as incurred. (P) Stock Based Compensation Effective January 1, 2006 the Company adopted SFAS No. 123(R), "Share-Based Payment" ("SFAS 123R"). This statement 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. F-12 Note 3 - Summary of Significant Accounting Policies - continued (P) Stock Based Compensation- continued With respect to stock based compensation granted to non employees, the Company records an expense equal to the fair value of the option 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. (Q) Computation of Net Loss per Share The Company presents basic and diluted net loss per share pursuant to the provisions of SFAS No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128 basic net loss per share is computed by dividing the net loss for the year by the weighted average number of shares outstanding during the year. Diluted net loss per share is computed by dividing the net earnings for the year by the weighted average number of common shares and common share equivalents outstanding during the year. Common share equivalents include stock options and other convertible securities. For the years ended December 31, 2008, 2007 and 2006, the common share equivalents were not included in the diluted net loss per share computation as the effect is anti-dilutive. (R) Foreign Currency Translation and Transactions Assets and liabilities of the foreign subsidiaries are translated at current exchange rates and related revenues and expenses are translated at average exchange rates in effect during the year. Resulting translation adjustments are recorded as accumulated other comprehensive loss which is a separate component of stockholders' deficiency. The change in cumulative translation adjustments during the years ended December 31, 2008, 2007 and 2006 was as follows:
--------------------------------------------------------------------------------------- 2008 2007 2006 --------------------------------------------------------------------------------------- Beginning accumulated translation adjustments $(176,536) $(222,635) $(151,172) --------------------------------------------------------------------------------------- Translation adjustments for the period then ended 83,672 46,099 (71,463) --------------------------------------------------------------------------------------- Ending accumulated translation adjustments $ (92,864) $(176,536) $(222,635) ---------------------------------------------------------------------------------------
(S) Comprehensive Loss The foreign currency translation gains (losses) resulting from the translation of the financial statements of the Company's subsidiaries expressed in Euros to United States dollars are reported as other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. The unrealized gains (losses), net of tax, resulting from the valuation of available-for sale securities at their fair market value at year end are reported as other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. The change in accumulated unrealized gain (loss) on investments in marketable securities during the year ended December 31, 2008, 2007 and 2006 was as follows:
----------------------------------------------------------------------------------- 2008 2007 2006 ----------------------------------------------------------------------------------- Beginning accumulated unrealized gain (loss) on $ -- $ -- $(452,274) marketable securities ----------------------------------------------------------------------------------- Unrealized gain (loss) arising during the year -- -- 452,274 ----------------------------------------------------------------------------------- Ending accumulated unrealized gain (loss) on $ -- $ -- $ -- marketable securities -----------------------------------------------------------------------------------
F-13 Note 3 - Summary of Significant Accounting Policies - continued (T) Fair Value of Financial Instruments The Financial Accounting Standards Board ("FASB") issued SFAS No. 107, "Disclosure about Fair Value of Financial Instruments", which requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued interest payable, approximate fair value at December 31, 2008, 2007 and 2006, due to the relatively short maturity of the instruments. The investment in limited partnership is recorded using the equity method and it is not practical to estimate the fair value of this investment without incurring excessive cost, as this investment is not publicly traded. Short-term and long-term notes payable approximates fair value based upon debt terms available for entities under similar terms. (U) Use of Estimates The preparation of 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. (V) Recent Accounting Pronouncements In December 2007 the FASB issued SFAS No. 141R "Business Combinations". FAS 141R amends and replaces FAS 141 in order to improve the relevance, representational faithfulness, and comparability of information that an entity provides in its financial reports about business combinations and its effects. This statement applies to business combinations for acquisitions with an effective date for the first fiscal period after December 15, 2008. The Company has not yet determined what the effect will be, if any, on its future financial statements. In December 2007 the FASB issued SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statements". FAS 160 seeks to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. This statement is effective for fiscal years beginning after December 15, 2008. The Company has not yet determined what the effect will be, if any, on its future financial statements. In March 2008 the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities--an amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities". This Statement requires enhanced disclosures about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not expect adoption of this statement to have a material effect on future financial statements. Management does not believe that any other recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on future financial statements. (W) Reclassifications Certain reclassifications have been made to the 2007 financial statements to conform to the 2008 presentation. Note 4 - Investments in Marketable Securities In 2008 and 2007, the Company had no investments in marketable securities. During 2006, the Company classified its investments in marketable securities as available for sale, and those intended to be held for more than one year as non-current. Unrealized holding gains and losses are reported as a separate component of stockholders' deficiency as part of accumulated other comprehensive income (loss) until realized. In December, 2006, the Company sold all available for sale securities and recorded an actual loss of approximately $433,000. Since that date, the Company has held no marketable securities available for sale. F-14 Note 5- Inventories Inventories consist of the following at December 31: ---------------------------------------------------------- 2008 2007 2006 ---------------------------------------------------------- Raw materials $ 45,814 $ 50,417 $ 27,100 ---------------------------------------------------------- Work in process 92,039 58,749 54,700 ---------------------------------------------------------- Finished goods 264,523 226,609 162,900 ------- ------- ------- ---------------------------------------------------------- Total $402,376 $335,775 $244,700 ---------------------------------------------------------- Note 6 - Property and Equipment Property and equipment consists of the following at December 31:
-------------------------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------------------------- Land $ 12,160 $ 12,160 $ 12,160 -------------------------------------------------------------------------------------- Buildings and improvements 185,000 185,000 185,000 -------------------------------------------------------------------------------------- Equipment and furnishings 231,772 232,228 223,340 --------- --------- --------- -------------------------------------------------------------------------------------- Total 428,932 429,388 420,500 -------------------------------------------------------------------------------------- Less: Accumulated depreciation and amortization (407,335) (402,640) (395,220) --------- --------- --------- -------------------------------------------------------------------------------------- Net $ 21,597 $ 26,748 $ 25,280 --------------------------------------------------------------------------------------
Note 7 - Intangible Assets Intangible assets consist of the following at December 31: -------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------- Patent costs $ 983,362 $ 849,141 $ 617,297 -------------------------------------------------------------------- Less: Accumulated amortization (209,281) (143,645) (89,418) --------- --------- --------- -------------------------------------------------------------------- Intangible assets, net $ 774,081 $ 705,496 $ 527,879 -------------------------------------------------------------------- Note 8 - Short-Term Notes Payable During 2008, the company received short-term loans totaling $128,500 from "accredited investors". 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 are due on demand. Note 9 - Long-Term Notes Payable The long-term notes payable are due to "accredited investors", bear interest at 7%, 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 payable at December 31, 2008) 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. F-15 Note 9 - Long-Term Notes Payable - continued 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 aggregate maturities of long-term debt at December 31, 2008 are as follows: December 31, ----------- 2009 $ -- ---- ---------- 2010 $ -- ---- ---------- 2011 $ -- ---- ---------- 2012 $3,000,000 ---- ---------- Total $3,000,000 ---- ---------- The 7% convertible notes described above, exchanged in December 2006, contained a feature that permitted the Company to pay the note with either cash or unregistered shares of the Company's common stock. In the case of payment in shares of common stock, the conversion of debt to equity was to be determined based on the average closing sale price of such shares for the 20 trading days immediately preceding notice. That feature constitutes an embedded derivative that is substantially equivalent to a "put" option. Such a derivative is required to be accounted for at fair value on the balance sheet, with changes in fair value included in earnings. In 2006, the Company recognized a $582,395 loss on embedded derivatives as a result of changes in fair value. The 2006 financial statements have been restated to give effect to this loss. The following table summarizes the components of long-term notes payable based on this accounting treatment:
2008 2007 2006 ------------------------------------- 6% convertible promissory notes payable: $ -- $ -- $ 700,000 ----------------------- ----------- 7% convertible promissory notes payable: Intrinsic value portion -- -- 813,548 Fair value portion -- -- 1,321,195 ----------------------- ----------- 2,134,743 ----------------------- ----------- Total -- -- 2,834,743 Conversion to 7% non-convertible promissory notes payable (see table below) -- -- (2,834,743) 7% non-convertible promissory notes payable 3,000,000 2,900,000 2,700,000 ----------------------- ----------- Total $3,000,000 $2,900,000 $ 2,700,000 ========== ========== ===========
F-16 Note 9 - Long-Term Notes Payable - continued The unrealized gain or (loss) attributable to changes in the fair value portion occurred as follows:
2008 2007 2006 ----------------------- ----------- Quarter ended March 31 $ -- $ -- $ 3,897 Quarter ended June 30 -- -- (245,542) Quarter ended September 30 -- -- (436,519) Quarter ended December 31 -- -- (38,975) ----------------------- ----------- Total annual unrealized gain (loss) -- -- (717,138) Cumulative unrealized gain (loss) -- -- (134,743) ----------------------- ----------- Net unrealized and realized gain (loss) included in earnings $ -- $ -- $ (582,395) ========== ========== ===========
The cumulative unrealized loss of $134,743 was written off as of December 31, 2006 upon conversion of the 6% and 7% convertible notes to 7% non-convertible notes Note 10 - Due to Officer Due to officer represents amounts due the Company's chief executive officer and consists of the following at December 31:
2008 2007 2006 --------- ----------- --------- Unpaid consulting fees pursuant to the Consulting Agreement $ 150,000 $ 900,000 $ 750,000 Unreimbursed travel and other expenses 223,192 187,192 190,937 --------- ----------- --------- Total 373,192 1,087,192 940,937 Current portion (223,192) (187,192) (190,937) Non-current portion $ 150,000 $ 900,000 $ 750,000 ========= =========== =========
The Consulting Agreement between the Company and the Company's chief executive office provides for annual compensation of $150,000 and reimbursement of out-of-pocket expenses. The term of the agreement, which originally was three years from September 1, 1997 to August 31, 2000, has been extended to August 31, 2011. On March 31, 2008, the chief executive office 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. Note 11 - Income Taxes At December 31, 2008, the Company had net operating loss carry forwards of approximately $12,700,000 available to reduce future Federal taxable income, which, if not used, will expire at various dates through December 31, 2028. These net operating loss carry forwards create a deferred tax asset of approximately $4,400,000. There are no other material differences between amounts used for financial reporting purposes and tax reporting purposes. Since it is more likely than not that the Company will not realize a benefit from these net operating loss carry forwards, a 100% valuation allowance has been recorded to reduce the deferred tax asset to its net realizable value. F-17 Note 11 - Income Taxes - continued One of the Company's European wholly owned subsidiaries has a net operating loss carry forward of approximately $5,000,000 under French tax regulations. Prior to January 1, 2004 these net operating losses could be carried forward five years to offset future taxable income but since January 1, 2004 these net operating loss carry forwards can be carried forward indefinitely to offset future taxable income. This net operating loss creates a deferred tax asset of approximately $1,700,000. There are no other material differences between amounts used for financial reporting purposes and tax reporting purposes. Since it is more likely than not that the subsidiary will not realize a benefit from these net operating loss carry forwards, a 100% valuation allowance has been recorded to reduce the deferred tax asset to its net realizable value. Income taxes differ from the statutory rate due to the following at December 31: ------------------------------------------------------------------ 2008 2007 2006 ------------------------------------------------------------------ Income tax benefit at 35% $(205,000) $(220,000) $(515,000) ------------------------------------------------------------------- Change in valuation allowance 205,000 220,000 515,000 ------------------------------------------------------------------- Provision for income taxes $ -- $ -- $ -- ------------------------------------------------------------------- Note 12 - Stock Option Plan A summary of the Company's stock option activity is as follows for the years ended December 31, 2008, 2007 and 2006: -------------------------------------------------------------------------- Common Stock -------------------------------------------------------------------------- Weighted average Shares Exercise Price -------------------------------------------------------------------------- Outstanding, January 01, 2006 200,000 $ 10.00 -------------------------------------------------------------------------- Granted -- -------------------------------------------------------------------------- Exercised -- -------------------------------------------------------------------------- Outstanding, December 31, 2006 200,000 $ 10.00 -------------------------------------------------------------------------- Granted -- -------------------------------------------------------------------------- Exercised -- -------------------------------------------------------------------------- Outstanding, December 31, 2007 200,000 $ 10.00 -------------------------------------------------------------------------- Granted -- -------------------------------------------------------------------------- Exercised (90,000) -------------------------------------------------------------------------- Outstanding, December 31, 2008 110,000 $ 10.00 -------------------------------------------------------------------------- The fair value of the option grant was estimated on the date of grant using the Black-Scholes option-pricing model. A summary of the Company's stock options outstanding is as follows:
----------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable ----------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Number Remaining Contractual Exercise Number Exercise Exercise Price Outstanding Life Price Exercisable Price ----------------------------------------------------------------------------------------------------------- $10.00 110,000 1.00 $10.00 110,000 $10.00 -----------------------------------------------------------------------------------------------------------
The 110,000 options expire on December 21, 2009. Note 13 - Segment and Geographic Information Information about the Company's assets and its operations in different geographic locations at December 31, 2008, 2007 and 2006 is shown below pursuant to the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." F-18 Note 13 - Segment and Geographic Information - continued The following shows information about the Company's foreign operations at December 31, 2008, 2007 and 2006: ------------------------------------------------------------------------ 2008 2007 2006 ------------------------------------------------------------------------ Net Sales: ------------------------------------------------------------------------ France $ 219,800 $ 222,900 $ 182,800 ------------------------------------------------------------------------ Other European countries 248,800 181,500 139,500 ------------------------------------------------------------------------ Others 30,837 59,825 85,905 ------------------------------------------------------------------------ Total net sales $ 499,437 $ 464,225 $ 408,205 ------------------------------------------------------------------------ Total Assets: ------------------------------------------------------------------------ United States $ 814,719 $ 759,467 $ 905,418 ------------------------------------------------------------------------ France 600,084 652,098 419,200 ------------------------------------------------------------------------ Total $1,414,803 $1,411,565 $1,324,618 ------------------------------------------------------------------------ Note 14 - Commitments and Contingencies The Company rents certain office space in Levallois (Paris region), France on a quarter to quarter basis. Rent expense for the years ended December 31, 2008, 2007 and 2006 were approximately $68,700*, $64,500* and $59,400*, respectively. *The Euro to Dollar conversions are based upon an average conversion rate of $1.47 to (euro)1.00 for 2008, $1.38 to (euro)1.00 for 2007 and $1.27 to (euro)1.00 for 2006. This is an average estimated over the periods indicated and is subject to fluctuation during such periods. Note 15 - Selected Quarterly Financial Data - (Unaudited) The results of operations by quarter for the years ended December 31, 2008, 2007 and 2006 (Restated) are presented below (unaudited):
Three Months Three Months Three Months Three Months Ended Ended Ended Ended March 31, 2008 June 30, 2008 September 30, 2008 December 31, 2008 -------------- -------------- ------------------ ------------------ Net sales $ 149,236 $ 173,422 $ 84,833 $ 91,946 Cost of sales 116,377 94,438 61,949 (61,488) Gross Profit 32,859 78,984 22,884 153,434 -------------- -------------- ------------------ ------------------ Total Operating Expenses 188,906 173,397 148,419 165,720 -------------- -------------- ------------------ ------------------ Loss From Operations (156,047) (94,413) (125,535) (12,286) -------------- -------------- ------------------ ------------------ Total Other Income (Expense) (55,136) (54,746) (54,651) (33,570) -------------- -------------- ------------------ ------------------ Net (Loss) Income (211,183) (149,159) (180,186) (45,856) Other Comprehensive Income (Loss): Foreign translation gain (loss) 80,189 7,275 23,305 (27,097) -------------- -------------- ------------------ ------------------ Comprehensive (Loss) Income $ (130,994) $ (141,884) $ (156,881) $ (72,953) ============== ============== ================== ==================
F-19 Note 15 - Selected Quarterly Financial Data - (Unaudited) -continued
Three Months Three Months Three Months Three Months Ended Ended Ended Ended March 31, 2007 June 30, 2007 September 30, 2007 December 31, 2007 -------------- -------------- ------------------ ------------------ Net sales $ 149,500 $ 93,276 $ 105,124 $ 116,325 Cost of sales 60,400 64,489 40,374 80,569 Gross Profit 89,100 28,787 64,750 35,756 -------------- -------------- ------------------ ------------------ Total Operating Expenses 146,462 161,303 169,145 179,692 -------------- -------------- ------------------ ------------------ Loss From Operations (57,362) (132,516) (104,395) (143,936) -------------- -------------- ------------------ ------------------ Total Other Income (Expense) (44,102) (52,306) (58,314) (37,754) -------------- -------------- ------------------ ------------------ Net (Loss) Income (101,464) (184,822) (162,709) (181,690) Other Comprehensive Income (Loss): Foreign translation gain (loss) 4,983 (1,865) 17,977 25,004 -------------- -------------- ------------------ ------------------ Comprehensive (Loss) Income $ (96,481) $ (186,687) $ (144,732) $ (156,686) ============== ============== ================== ==================
Three Months Three Months Three Months Three Months Ended Ended Ended Ended March 31, 2006 June 30, 2006 September 30, 2006 December 31, 2006 (Restated) (Restated) (Restated) (Restated) -------------- -------------- ------------------ ------------------ Net sales $ 70,900 $ 91,800 $ 88,800 $ 156,705 Cost of sales 47,800 64,200 75,100 (65,856) Gross Profit 23,100 27,600 13,700 222,561 -------------- -------------- ------------------ ------------------ Total Operating Expenses 165,910 149,491 145,236 96,065 -------------- -------------- ------------------ ------------------ Loss From Operations (142,810) (121,891) (131,536) 126,496 -------------- -------------- ------------------ ------------------ Total Other Income (Expense) (47,711) (296,070) (480,634) (379,269) -------------- -------------- ------------------ ------------------ Net (Loss) Income (190,521) (417,961) (612,170) (252,773) Other Comprehensive Income (Loss): Foreign translation gain (loss) 27,517 (9,184) 1,223 (91,019) Unrealized gain (loss) on marketable securities 8,765 (25,935) 39,286 430,159 -------------- -------------- ------------------ ------------------ Comprehensive (Loss) Income $ (154,.239) $ (453,080) $ (571,661) $ 86,367 ============== ============== ================== ==================
F-20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures a) Evaluation of Disclosure Controls and Procedures. We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures," as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2008 at the reasonable assurance level. (b) Management's Report on Internal Control over Financial Reporting. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted pursuant thereto, the Company included a report of management's assessment of the effectiveness of its internal control over financial reporting as of December 31, 2007 as part of this report. The Company's independent registered public accounting firm also attested to, and reported on, management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2008. Management's report and the independent registered public accounting firm's attestation report are included in Item 8 hereof, of this report and are incorporated herein by reference. (c) Changes in Internal Control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers, Promoters and Control Persons Directors and Executive Officers The following persons are our executive officers and directors: Name Age Positions with our Company - ---- --- -------------------------- Nasser Nassiri 45 President, Chief Executive Officer and Chairman of the Board Yuhko Grossman 44 Secretary, Treasurer and Director Jean Darondel 66 Director Mr. Nasser Nassiri has been the President, Chief Executive Officer and Chairman of the Board of our company since 1997. Mr. Nassiri is a Europe-based financier. Since 1990, he has been a private investor and financial advisor to several European financial and portfolio institutions, as well as group investment companies and pharmaceutical businesses in the Middle East. From 1983 to 1987, Mr. Nassiri was a director of Prak Management, a privately-held Middle East-based oil and gas holding company. Ms. Yuhko Grossman has been our Secretary, Treasurer and a director since 1999. Ms. Grossman has spent over ten years working with the largest retail pharmaceutical chain in Canada, where her responsibilities included the restructuring and implementation of new management and information systems following corporate buy-outs. Prior to 2004 Ms. Grossmann was serving as independent consultant to various portfolios in Europe. Ms. Grossmann then earned her MBA in finance in Monaco. Since 2008, Ms. Grossmann has been Vice President, Investment Banking of Haywood Securities (UK) Limited. 19 Dr. Jean Dardonel is a member of our board of directors. Dr. Jean Darondel was co-founder of Inoteb and was its President General until March 18, 2003. He is an active member of different scientific committees. Dr. Darondel is known for his research in the field of veterinary medicine and business development in the medical/pharmaceutical fields. Board of Directors All of our directors serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. All of our officers serve at the discretion of the board of directors. There are no family relationships among the directors and executive officers. Scientific Advisory Board We also have a scientific advisory board to aid us in the strategic development of our products. The following are the members of the scientific advisory board: Dr. Yves Cirotteau is an orthopedic and traumatologic surgeon. Dr. Yves Cirotteau is Medical Scientific Director of our French subsidiary. He is a member of the SOFCOT (French Orthopaedic and Traumatologic Society), Hip and Knee Society and AAAS (American Association for Advancement of Science). Dr. Cirotteau is the principal inventor of Biocoral(R) applications in curative and preventive treatments of osteoporotic fractures and is involved in its development. Professor L'Hocine Yahia is a full professor at the mechanical department of engineering of the polytechnic school of Montreal (l'Ecole Polytechnique de Montreal) where he is in charge of research group of biomechanics and biomaterials (Groupe de recherche en biomecanique et biomateriaux "GRBB"). He is also the professor associated with the hospital complex with Montreal (Centre Hospitalier de Montreal "CHUM"). Professor Yahia has a distinguished track record in tissue engineering and advanced biomaterials "Intelligent Materials, Polymers and Ceramics". Prof. Jean-Pierre Ouhayoun is a doctor of dental surgery and Professor and ex-Chairman of the Department of Periodontology at the University Of Paris School Of Dentistry. He is also Chief of the dental clinic at Garanciere Hotel Dieu, and is in charge of the research unit at the Orthopedic Research Laboratory in Paris specializing in bone regeneration. Dr. Alberto Jussman is a specialist in post-menopausal medicine and the prevention of osteoporosis and is a consultant to the Laboratoires pour la Pharmacie et les Devices Medical and teaches at the CHU Bichat-Claude Bernard in Paris. Dr. Jean Darondel, a director of our company, is also a member of the scientific advisory board. Mr. Roland Schmitthauesler is currently part of the National Center of Blood Transfusion in France. He is the former Chief of the Laboratory of the Plasma Unit at the CRTS in Strasburg. Mr. Roland Schmitthauesler has been associated with the development of the Company's autologous glue since 1991. Dr. Genevieve Guillemin is a scientist and one of the directors of "French National Center of Scientific Research" (CNRS). Dr. Guillemin is a co-founder of the original 1979 patent for Biocoral(R) and still participates in the development of Biocoral(R). Prof. Yann Le Petitcorps is a professor at the University of Bordeaux where he holds a chair in material sciences and heads a research group focused on engineering and material science which, among other areas, includes metallic and ceramic structural biomaterials. Prof. Le Petitcorps received his PhD in material science from the University of Bordeaux in 1985 and, in 2003, received the Prize of Metallurgy from the French Academy of Science. Prof. Le Petitcorp supervises a laboratory belonging to the French National Center for Scientific Research, and conducts research in the field of materials for structural or biomaterial applications in collaboration with several industrial (dental and orthopaedic) companies. 20 Limitation on Liability of Directors As permitted by Delaware law, our certificate of incorporation includes a provision which provides that a director shall not be personally liable to us or our stockholders for monetary damages for a breach of fiduciary duty as a director, except (i) for any breach of the director's duty of loyalty to us or our stockholders, (ii) under Section 174 of the General Corporation Law of the State of Delaware, which prohibits the unlawful payment of dividends or the unlawful repurchase or redemption of stock, or (iii) for any transaction from which the director derives an improper personal benefit. This provision is intended to afford directors protection against and to limit their potential liability for, monetary damages resulting from suits alleging a breach of duty of care by a director. As a consequence of this provision, our stockholders will be unable to recover monetary damages against directors for action taken by them which may constitute negligence or gross negligence in performance of their duties unless such conduct falls within one of the foregoing exceptions. The provision, however, does not alter the applicable standards governing a director's fiduciary duty and does not eliminate or limit our right, or the right of any stockholder, to obtain an injunction or any other type of non-monetary relief in the event of a breach of fiduciary duty. We believe this provision will assist in securing and retaining qualified persons to serve as directors. Compliance With Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our Common Stock. Officers, directors and ten-percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. During the fiscal year ended December 31, 2007, no such reports were submitted to us for review and, based upon this, to our knowledge, all Section 16(a) filing requirements applicable to our officers and directors have been complied. Code of Ethics We have not yet adopted a code of ethics for our company because our management team currently consists of only three individuals, each of whom is a director and two of whom are executive officers. Because our management team is small, we have determined that a formal code is unnecessary at this time. Audit Committee/Audit Committee Financial Expert We have not yet formed an audit committee of our board of directors since we are not required to do so under the rules of the OTC Bulletin Board and we have only one non-executive director on our board. In addition, we currently do not have an audit committee financial expert because we do not believe that the cost of retaining such an expert outweighs the benefit of having one given the size of our company and the simplicity of our operations. Item 11. Executive Compensation Compensation Discussion and Analysis Our management compensation consists primarily stock options and, to a lesser extent, cash. We believe that through issuance of options, we are able to retain our management without using our limited cash resources. Presently, none of our executive officers receive any salary. However, on September 1, 1997, we entered into a Consulting Agreement with Nasser Nassiri, our President, CEO and Chairman, pursuant to which Mr. Nassiri serves as such. The agreement, which was originally for a three year term, provided for base 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 agreement 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 year to August 2008. In the year ended December 31, 2008, to help the Company's cash position, the president has deferred receipt of any cash compensation for 2008 pursuant to his consulting agreement. In 2008, Mr. Nassiri applied amounts from prior years' deferred cash compensation to the exercise of his then-outstanding options to purchase 90,000 share of our common stock. Under our compensation structure, Mr. Nassiri is entitled to significantly more compensation than our Secretary/Treasurer and our other non-executive director. This compensation difference reflects the fact that Mr. Nassiri devotes significantly more time to the affairs of the company than do the other directors. Also, prior to the exercise of his options for share of our common stock Mr. Nassiri had not received the majority of this amount for the 21 past seven years. Mr. Nassiri is also the President and CEO of Biocoral France, our wholly-owned subsidiary through which we conduct most of our operations including all product sales. He is also the President of Bio Holdings our wholly-owned subsidiary which holds all of our patents. Mr. Nassiri conducts these activities on behalf of the company and does not receive any additional compensation for this work. The following table lists amounts due to Mr. Nassiri at December 31:
------------------------------------------------------------------------------------------- 2008 2007 2006 ------------------------------------------------------------------------------------------- Unpaid consulting fees pursuant to the $ 150,000 $ 900,000 $ 750,000 Consulting Agreement ------------------------------------------------------------------------------------------- Unreimbursed travel and other expenses 223,192 187,192 190,937 -------------------------------------- ------- ------- ------- ------------------------------------------------------------------------------------------- Total 373,192 1,087,192 940,937 ------------------------------------------------------------------------------------------- Current portion $ (223,192) $ (187,192) $ (190,937) ------------------------------------------------------------------------------------------- Non-current portion $ 150,000 $ 900,000 $ 750,000 -------------------------------------------------------------------------------------------
The Consulting Agreement between the company and Mr. Nassiri provides for annual compensation of $150,000 and reimbursement of out-of-pocket expenses. The term of the agreement, which originally was three years from September 1, 1997 to August 31, 2000, has been extended to August 31, 2011. On March 31, 2008, Mr. Nassiri exercised 90,000 of the 100,000 stock options granted to him on December 21, 2004 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. Stock Option Plan On May 4, 1992, we adopted a stock option plan which originally authorized the granting of options to purchase up to 2,000,000 shares of common stock. On April 16, 2001, this was increased to 20,000,000 shares. As of December 21, 2004, we cancelled all of the outstanding options and replaced them with options having substantially similar terms and conditions, but with an exercise price of $10.00 per share, in the following amounts: Nasser Nassiri 100,000 Jean Darondel 50,000 Yuhko Grossman 50,000 On March 31, 2008, Mr. Nassiri exercised 90,000 of the 100,000 stock options granted to him on December 21, 2004. Aggregate Option Exercises and Fiscal Year-End Option Values The following table lists the number of securities underlying unexercised options at December 31, 2008.
- ------------------------------------------------------------------------------------------------------------------ NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT SHARES AT FY-END FY-END ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ---- ----------- -------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------ Nasser Nassiri................... 90,000 -- 10,000/ -- 400,000/ -- - ------------------------------------------------------------------------------------------------------------------ Jean Darondel.................... -- -- 50,000/ -- 2,000,000/ -- - ------------------------------------------------------------------------------------------------------------------ Yuhko Grossman................... -- -- 50,000/ -- 2,000,000/ -- - ------------------------------------------------------------------------------------------------------------------
Director Compensation Our directors do not receive cash compensation for their services as directors, but are reimbursed for travel and all reasonable out-of-pocket expenses incurred in connection with each board meeting attended or other company services. 22 The following table lists the amount and type of compensation received by each of our directors for the fiscal year ended December 31, 2008:
- ---------------------------------------------------------------------------------------------------------------------------- Director Compensation - ---------------------------------------------------------------------------------------------------------------------------- Change in Pension Value and Non-Equity Nonqualified Fees Earned Incentive Deferred All or Paid in Stock Option Plan Compensation Other Name Cash Awards Awards Compensation Earnings Compensation Total - ---------------------------------------------------------------------------------------------------------------------------- Nasser Nassiri...... $150,000 -- -- -- -- -- $150,000 - ---------------------------------------------------------------------------------------------------------------------------- Jean Darondel....... -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Yuhko Grossman...... -- -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of March 2, 2009 by: o all persons who are beneficial owners of five percent (5%) or more of our common stock; o each of our directors; o each of our named executive officers; and o all current directors and executive officers as a group. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 2, 2009 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
- ----------------------------------------------------------------------------------------------------------------------- AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP AS OF PERCENT OF NAME AND ADDRESS OF BENEFICIAL March 2, SHARES IN OUTSTANDING OWNER TITLE OF CLASS 2009 CLASS(5) - ----------------- -------------- ---- -------- - ----------------------------------------------------------------------------------------------------------------------- Jean Darondel................................ Common Stock 50,000(1) * 38 rue Anatole France, 92594 Levallois Perret Cedex, France - ----------------------------------------------------------------------------------------------------------------------- Yuhko Grossman............................... Common Stock 50,000(2) * 38 rue Anatole France, 92594 Levallois Perret Cedex, France - ----------------------------------------------------------------------------------------------------------------------- Nasser Nassiri............................... Common Stock 100,000(3) * 38 rue Anatole France, 92594 Levallois Perret Cedex, France - ----------------------------------------------------------------------------------------------------------------------- All officers and directors Common Stock 200,000(4) * as a group - -----------------------------------------------------------------------------------------------------------------------
*- Indicates less than 1% 23 (1) Includes for Mr. Darondel options to purchase 50,000 shares of common stock, which are exercisable at $10 per share. (2) Includes for Ms. Grossman, options to purchase 50,000 shares of common stock, which are exercisable at $10 per share. (3) Includes for Mr. Nassiri, options to purchase 10,000 shares of common stock, which are exercisable at $10 per share. (4) The issuance of options to the officers and directors were not approved by our shareholders. (5) Based upon 11,443,787 shares of common stock outstanding. Securities Authorized for Issuance Under Equity Compensation Plans Other than those listed on the table above, we do not have any equity securities outstanding or authorized for issuance pursuant to any equity compensation plans. Item 13. Certain Relationships and Related Transactions None. Item 14. Principal Accountant Fees and Services. Audit Fees for 2008 Our principal accountant for year ended December 31, 2008 is Michael T. Studer CPA P.C. We have not yet been billed for their services rendered in connection with the audit of our 2008 consolidated financial statements. However, as of the date of this report, we have paid them $9,750 as a retainer fee. Our principal accountant during 2008 was Moore & Associates, Chartered. For services rendered in connection with the review of our unaudited consolidated financial statements for filing with our Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 2008, June 30, 2008 and September 30, 2008, we have paid them $9,000. Audit Fees for 2007 Our principal accountant for year ended December 31, 2007 was Moore & Associates, Chartered. For services rendered in connection with the audit of our 2007 consolidated financial statements, we have paid them $12,500. We also paid Moore & Associates, Chartered, approximately $7,500 for services in connection with the review of our unaudited consolidated financial statements for filing with our Quarterly Reports on Form 10-Q for the three-month periods ended March 31, June 30, and September 30, 2007. PART IV Item 15. Exhibits and Reports on Form 8-K. (a) Unless otherwise indicated, the following is a list of exhibits filed as a part of this annual report:
- ---------------------------------------------------------------------------------------------------------------------- Exhibit Number Description of Document - ---------------------------------------------------------------------------------------------------------------------- 3.1 Certificate of Incorporation, as amended(1)(2) - ---------------------------------------------------------------------------------------------------------------------- 3.2 By-laws (1) - ---------------------------------------------------------------------------------------------------------------------- 3.3 Certificate of Amendment to Certificate of Incorporation(4) - ----------------------------------------------------------------------------------------------------------------------
24 3.4 Certificate of Amendment to Certificate of Incorporation(4) - ---------------------------------------------------------------------------------------------------------------------- 4.1 Form of Company's 3 year 7% Convertible Redeemable Debenture due December 31, 2006(4) - ---------------------------------------------------------------------------------------------------------------------- 4.2 Form of Option Agreement(3)(4) - ---------------------------------------------------------------------------------------------------------------------- 4.3 Form of Company's 3 Year 7 Percent Non-Convertible Promissory Note Due December 31, 2009(5) - ---------------------------------------------------------------------------------------------------------------------- 10.1 Consulting Agreement between the Company and Mr. Nasser Nassiri(6) - ---------------------------------------------------------------------------------------------------------------------- 31 Certification of Nasser Nassiri pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ---------------------------------------------------------------------------------------------------------------------- 32 Certification of Nasser Nassiri pursuant to Rule 13a-14(a) - ----------------------------------------------------------------------------------------------------------------------
(1) Incorporated by reference to Exhibit 3.1 to the Company's Form 10-SB Registration Statement filed with the Commission on February 25, 1994, as amended. (2) Incorporated by reference from Amendment No.1 to the Company's Form 10-SB filed with the Commission on April 18, 1994. (3) Incorporated by reference to the Company's Annual Report on Form 10-KSB filed April 17, 1998. (4) Incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-KSB/A filed May 19, 2005. (5) Incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K filed March 30, 2007. (6) Incorporated by reference to Exhibit No. 10.30 to Form 10-KSB for the year ended December 31, 1997, filed on April 17, 1998. (a) During the fourth quarter of 2008, we filed no current reports on Form 8-K. On January 26, 2009, we filed a report on Form 8-K in connection to Item 4.01 Changes in Registrant's Certifying Accountant. On February 17, 2009, we filed a report on Form 8-K in connection to Item 4.01 Changes in Registrant's Certifying Accountant. 25 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized, on March 31, 2009. BIOCORAL, INC By: /s/ Nasser Nassiri ------------------- Nasser Nassiri President, Chief Executive Officer and Principal Accounting Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.
- ----------------------------------------------------------------------------------------------------- Signature Title Date - ----------------------------------------------------------------------------------------------------- /s/ Nasser Nassiri President, Chief Executive Officer March 31, 2009 - ------------------ and Chairman of the Board of Directors Nasser Nassiri (Principal Executive Officer and Principal Accounting Officer) - ----------------------------------------------------------------------------------------------------- /s/ Yuhko Grossman Secretary, Treasurer and Director March 31, 2009 - ------------------ Yuhko Grossman - ----------------------------------------------------------------------------------------------------- /s/ Jean Darondel Director March 31, 2009 - ------------------ Jean Darondel - -----------------------------------------------------------------------------------------------------
26 EX-31 2 d76592_ex31.txt RULE 13A-14(A)/15D-14(A) CERTIFICATIONS Exhibit 31 RULE 13a-14(a) CERTIFICATIONS IN ACCORDANCE WITH SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Nasser Nassiri, certify that: 1. I have reviewed this Annual Report on Form 10-K of Biocoral, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the regi internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 31, 2009 /s/ Nasser Nassiri ------------------ Nasser Nassiri President, CEO, Chairman of the Board and Principal Accounting Officer EX-32 3 d76592_ex32.txt SECTION 1350 CERTIFICATIONS Exhibit 32 BIOCORAL, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Biocoral, Inc. (the "Company") on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Nasser Nassiri, the President, CEO, Chairman of the Board of the Company and the Principal Accounting Officer, hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Nasser Nassiri ------------------ Nasser Nassiri President, CEO, Chairman of the Board and Principal Accounting Officer Date: March 31, 2009 -----END PRIVACY-ENHANCED MESSAGE-----