##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to ______________

Commission File Number 0-22879

BIORELIANCE CORPORATION(Exact name of the registrant as specified in its charter)

|                                                                                  |  |                                                
|--------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)           |  | 52-1541583
(I.R.S. Employer
Identification No.)
|                                                                                 
|14920 Broschart Road
Rockville, Maryland
(Address of principal executive offices) |  | 20850
(Zip code)                               

Registrants telephone number, including area code:(301) 738-1000



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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

As of July 31, 2002, 8,442,790 shares of registrants common stock, par value
$.01 per share, were outstanding.



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1



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##### 



BIORELIANCE CORPORATION

TABLE OF CONTENTS

|                                      |                                                                                                |  |                                                                                                         |    |        |   | 
|------------------------------------- | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- | -- | ------ | - | 
|                                      |                                                                                                |  |                                                                                                         |    | Page  
|                                      |                                                                                                |  |                                                                                                         |    | Number
|                                      |                                                                                                |  |                                                                                                         |    |       
|PART I          FINANCIAL INFORMATION |                                                                                                |  |                                                                                                         |   
|                                     
|                                      | Item 1  Financial Statements:                                                                 |  |                                                                                                         |    |       
|                                     
|                                      |                                                                                                |  | Consolidated Balance Sheets as of December 31, 2001
and June 30, 2002 (Unaudited)                       |    |        | 3 | 
|                                     
|                                      |                                                                                                |  | Consolidated (Unaudited) Statements of Income for the Three and Six
Months Ended June 30, 2001 and 2002 |    |        | 4 | 
|                                     
|                                      |                                                                                                |  | Consolidated (Unaudited) Statements of Cash Flows for the Six
Months Ended June 30, 2001 and 2002       |    |        | 5 | 
|                                     
|                                      |                                                                                                |  | Notes to Consolidated (Unaudited) Financial Statements                                                  |    |        | 6 | 
|                                     
|                                      | Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                         | 9  |       
|                                     
|                                      | Item 3  Quantitative and Qualitative Disclosures About Market Risks                           |  |                                                                                                         | 20 |       
|                                     
|PART II         OTHER INFORMATION     |                                                                                                |  | 21                                                                                                      |   
|                                     
|SIGNATURES                            |                                                                                                |  | 23                                                                                                      |   
|                                     
|EXHIBIT INDEX                         |                                                                                                |  | 24                                                                                                      |   

2



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##### 



BIORELIANCE CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |          |        | 
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  | ------ | ------------ | ------ | ----------- | ------ | -------- | ------ | 
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        | June 30,
|                                             |                                                                                                                   |                                            |  |  |  |  |        | December 31, |        | 2002       
|                                             |                                                                                                                   |                                            |  |  |  |  |        | 2001         |        | (Unaudited)
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |            
|Assets                                      
|Current assets:                              |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             | Cash and cash equivalents                                                                                         |                                            |  |  |  |  | $      | 27,536       |        |             | $      | 34,359   |       
|                                             | Accounts receivable, net                                                                                          |                                            |  |  |  |  |        | 22,335       |        |             |        | 21,563   |       
|                                             | Other current assets                                                                                              |                                            |  |  |  |  |        | 1,747        |        |             |        | 2,507    |       
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             |                                                                                                                   | Total current assets                       |  |  |  |  |        |              | 51,618 |             |        |          | 58,429 | 
|Property and equipment, net                  |                                                                                                                   |                                            |  |  |  |  | 39,177 |              |        |             | 40,244 |         
|Deposits and other assets                    |                                                                                                                   |                                            |  |  |  |  | 280    |              |        |             | 233    |         
|Deferred income taxes                        |                                                                                                                   |                                            |  |  |  |  | 1,062  |              |        |             | 918    |         
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             |                                                                                                                   | Total assets                               |  |  |  |  |        | $            | 92,137 |             |        | $        | 99,824 | 
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|Liabilities and Stockholders' Equity        
|Current liabilities:                         |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             | Current portion of long-term debt and capital lease obligations                                                   |                                            |  |  |  |  | $      | 919          |        |             | $      | 918      |       
|                                             | Accounts payable                                                                                                  |                                            |  |  |  |  |        | 2,312        |        |             |        | 2,287    |       
|                                             | Accrued employee compensation and benefits                                                                        |                                            |  |  |  |  |        | 5,323        |        |             |        | 3,619    |       
|                                             | Other accrued liabilities                                                                                         |                                            |  |  |  |  |        | 2,544        |        |             |        | 4,690    |       
|                                             | Customer advances                                                                                                 |                                            |  |  |  |  |        | 4,972        |        |             |        | 6,245    |       
|                                             | Deferred income taxes                                                                                             |                                            |  |  |  |  |        | 4,102        |        |             |        | 4,522    |       
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             |                                                                                                                   | Total current liabilities                  |  |  |  |  |        |              | 20,172 |             |        |          | 22,281 | 
|Long-term debt and capital lease obligations |                                                                                                                   |                                            |  |  |  |  | 10,977 |              |        |             | 10,685 |         
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             |                                                                                                                   | Total liabilities                          |  |  |  |  |        |              | 31,149 |             |        |          | 32,966 | 
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|Stockholders equity:                        |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             | Preferred stock, $.01 par value: 6,900,000 shares authorized;
no shares issued and outstanding                    |                                            |  |  |  |  |        |             |        |             |        |         |       
|                                             | Common stock, $.01 par value: 15,000,000 shares authorized;
8,362,040 and 8,442,268 shares issued and outstanding |                                            |  |  |  |  |        | 84           |        |             |        | 84       |       
|                                             | Additional paid-in capital                                                                                        |                                            |  |  |  |  |        | 55,018       |        |             |        | 55,532   |       
|                                             | Retained earnings                                                                                                 |                                            |  |  |  |  |        | 7,782        |        |             |        | 12,682   |       
|                                             | Accumulated other comprehensive income                                                                            |                                            |  |  |  |  |        | (1,896       | )      |             |        | (1,440   | )     
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             |                                                                                                                   | Total stockholders equity                 |  |  |  |  |        |              | 60,988 |             |        |          | 66,858 | 
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         
|                                             |                                                                                                                   | Total liabilities and stockholders equity |  |  |  |  |        | $            | 92,137 |             |        | $        | 99,824 | 
|                                             |                                                                                                                   |                                            |  |  |  |  |        |              |        |             |        |         

The accompanying notes are an integral part of these consolidated financial statements.

3



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##### 



BIORELIANCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |        |        | 
|-------------------------- | ----------------------------------- | -------------------------- | ------ | ------------------ | ------ | ---------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                           |                                     |                            |        | Three Months Ended |        | Six Months Ended
|                           |                                     |                            |        | June 30,           |        | June 30,        
|                           |                                     |                            |        |                    |        |                 
|                           |                                     |                            |        | 2001               |        | 2002             |        | 2001   |        | 2002
|                           |                                     |                            |        |                    |        |                  |        |        |        |     
|Revenue                    |                                     | $                          | 16,331 |                    |        | $                | 20,733 |        |        | $    | 31,599 |        |        | $ | 39,746 |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|Expenses:                  |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                           | Cost of sales                       |                            |        | 10,692             |        |                  |        | 11,971 |        |      |        | 21,205 |        |   |        | 22,993 |       
|                           | Selling, general and administrative |                            |        | 4,006              |        |                  |        | 4,332  |        |      |        | 7,764  |        |   |        | 8,521  |       
|                           | Research and development            |                            |        | 362                |        |                  |        | 194    |        |      |        | 743    |        |   |        | 456    |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                           |                                     | Total operating expenses   |        |                    | 15,060 |                  |        |        | 16,497 |      |        |        | 29,712 |   |        |        | 31,970 | 
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|Income from operations     |                                     |                            | 1,271  |                    |        |                  | 4,236  |        |        |      | 1,887  |        |        |   | 7,776  |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|Other (income) expense:    |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                           | Interest income                     |                            |        | (228               | )      |                  |        | (187   | )      |      |        | (486   | )      |   |        | (317   | )     
|                           | Interest expense                    |                            |        | 203                |        |                  |        | 268    |        |      |        | 431    |        |   |        | 422    |       
|                           | Other (income) expense              |                            |        | 113                |        |                  |        | (259   | )      |      |        | 271    |        |   |        | (50    | )     
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                           |                                     | Net other (income) expense |        |                    | 88     |                  |        |        | (178   | )    |        |        | 216    |   |        |        | 55     | 
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|Income before income taxes |                                     |                            | 1,183  |                    |        |                  | 4,414  |        |        |      | 1,671  |        |        |   | 7,721  |       
|Income tax provision       |                                     |                            | 295    |                    |        |                  | 1,608  |        |        |      | 395    |        |        |   | 2,818  |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|Net income                 |                                     | $                          | 888    |                    |        | $                | 2,806  |        |        | $    | 1,276  |        |        | $ | 4,903  |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|Net income per share:      |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                          
|                           | Basic                               |                            | $      | 0.11               |        |                  | $      | 0.33   |        |      | $      | 0.16   |        |   | $      | 0.58   |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       
|                           | Diluted                             |                            | $      | 0.10               |        |                  | $      | 0.31   |        |      | $      | 0.15   |        |   | $      | 0.55   |       
|                           |                                     |                            |        |                    |        |                  |        |        |        |      |        |        |        |   |        |       

The accompanying notes are an integral part of these consolidated financial statements.

4



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BIORELIANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |       |        |      |        |  
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------- | ------ | ---------------- | ------ | ----- | ------ | ---- | ------ | -
|                                                             |                                                                                   |                                                       |                                                |                                                     |        | Six Months Ended
|                                                             |                                                                                   |                                                       |                                                |                                                     |        | June 30,        
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                 
|                                                             |                                                                                   |                                                       |                                                |                                                     |        | 2001             |        | 2002 
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|Cash flows from operating activities:                        |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|                                                             | Net income                                                                        |                                                       | $                                              | 1,276                                               |        |                  | $      | 4,903 |       
|                                                             | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                       |                                                |                                                     |        |                  |        |       |       
|                                                             |                                                                                   |                                                       |                                                | Depreciation                                        |        |                  | 2,225  |       |        |      | 2,300  |  
|                                                             |                                                                                   |                                                       |                                                | Compensation element of options                     |        |                  | 39     |       |        |      |       |  
|                                                             |                                                                                   |                                                       |                                                | Amortization expense                                |        |                  | 28     |       |        |      |       |  
|                                                             |                                                                                   |                                                       |                                                | Amortization of bond discounts                      |        |                  | (114   | )     |        |      |       |  
|                                                             |                                                                                   |                                                       |                                                | Loss on disposal                                    |        |                  | 19     |       |        |      | 128    |  
|                                                             |                                                                                   |                                                       |                                                | Deferred income taxes, net                          |        |                  | (200   | )     |        |      | 564    |  
|                                                             |                                                                                   |                                                       |                                                | Changes in current assets and liabilities:          |        |                  |        |       |        |      |        |  
|                                                             |                                                                                   |                                                       |                                                | Accounts receivable, net                            |        |                  | 1,635  |       |        |      | 964    |  
|                                                             |                                                                                   |                                                       |                                                | Other current assets                                |        |                  | (519   | )     |        |      | (728   | )
|                                                             |                                                                                   |                                                       |                                                | Accounts payable                                    |        |                  | (135   | )     |        |      | (164   | )
|                                                             |                                                                                   |                                                       |                                                | Accrued employee compensation and benefits          |        |                  | (212   | )     |        |      | (1,721 | )
|                                                             |                                                                                   |                                                       |                                                | Other accrued liabilities                           |        |                  | (66    | )     |        |      | 2,119  |  
|                                                             |                                                                                   |                                                       |                                                | Customer advances                                   |        |                  | 728    |       |        |      | 991    |  
|                                                             |                                                                                   |                                                       |                                                | (Increase) decrease in deposits and other assets    |        |                  | (129   | )     |        |      | 126    |  
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|                                                             |                                                                                   |                                                       |                                                | Net cash provided by operating activities           |        |                  | 4,575  |       |        |      | 9,482  |  
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|Cash flows from investing activities:                        |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|                                                             |                                                                                   | Purchases of marketable securities                    |                                                |                                                     | (2,455 | )                |        |       |       |     
|                                                             |                                                                                   | Proceeds from the maturities of marketable securities |                                                |                                                     | 11,000 |                  |        |       |       |     
|                                                             |                                                                                   | Purchases of property and equipment                   |                                                |                                                     | (1,517 | )                |        |       | (3,608 | )   
|                                                             |                                                                                   | Proceeds from the sale of property and equipment      |                                                |                                                     |       |                  |        |       | 70     |     
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|                                                             |                                                                                   |                                                       |                                                | Net cash provided by (used in) investing activities |        |                  | 7,028  |       |        |      | (3,538 | )
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|Cash flows from financing activities:                        |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|                                                             |                                                                                   |                                                       | Proceeds from exercise of stock options        |                                                     |        | 98               |        |       |        | 514  |       
|                                                             |                                                                                   |                                                       | Payments on debt and capital lease obligations |                                                     |        | (607             | )      |       |        | (464 | )     
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|                                                             |                                                                                   |                                                       |                                                | Net cash used in financing activities               |        |                  | (509   | )     |        |      | 50     |  
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                       | (210                                           | )                                                   |        |                  | 829    |      
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|Net increase in cash and cash equivalents                    |                                                                                   |                                                       | 10,884                                         |                                                     |        |                  | 6,823  |      
|Cash and cash equivalents, beginning of period               |                                                                                   |                                                       | 8,231                                          |                                                     |        |                  | 27,536 |      
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      
|Cash and cash equivalents, end of period                     |                                                                                   | $                                                     | 19,115                                         |                                                     |        | $                | 34,359 |      
|                                                             |                                                                                   |                                                       |                                                |                                                     |        |                  |        |      

The accompanying notes are an integral part of these consolidated financial statements.

5



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BIORELIANCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Description of the Business

BioReliance Corporation (the Corporation) is a contract service
organization that provides testing and development, and manufacturing services
for biologics and other biomedical products to biotechnology and pharmaceutical
companies worldwide.

(2) Interim Financial Statements Presentation

The accompanying interim financial statements are unaudited and have been
prepared by the Corporation pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements,
and therefore these consolidated financial statements should be read in
conjunction with the audited consolidated financial statements, and related
notes thereto, included in the Corporations Annual Report on Form 10-K. In
the opinion of management, the unaudited consolidated financial statements for
the three-month and six-month periods ended June 30, 2001 and 2002 include all
normal and recurring adjustments that are necessary for a fair presentation of
the results of the interim period. The results of operations for the
three-month and six-month periods ended June 30, 2001 and 2002 are not
necessarily indicative of the results for the entire year ending December 31,
2002.

(3) Net Income Per Share

The Corporation calculates earnings per share (EPS) on both a basic and
diluted basis. Dilutive securities are excluded from the computation in
periods in which they have an anti-dilutive effect. Net income available to
common stockholders and common equivalent stockholders is equal to net income
for all periods presented.

The following table represents reconciliations between the weighted
average common stock outstanding used in basic EPS and the weighted average
common and common equivalent shares outstanding used in diluted EPS for each of
the periods presented (in thousands):

|                                                                 |  |                             |       |                           |  |      |       |      |  |  |       |  |  |  |       | 
|---------------------------------------------------------------- |  | --------------------------- | ----- | ------------------------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                                                                 |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                                                 |  |                             |       |                          
|                                                                 |  | 2001                        |       | 2002                      |  | 2001 |       | 2002
|                                                                 |  |                             |       |                           |  |      |       |     
|Weighted average common stock
outstanding                        |  |                             | 8,204 |                           |  |      | 8,430 |      |  |  | 8,199 |  |  |  | 8,415 | 
|Stock options, as if converted                                   |  |                             | 363   |                           |  |      | 488   |      |  |  | 369   |  |  |  | 490   | 
|                                                                 |  |                             |       |                           |  |      |       |      |  |  |       |  |  |  |       | 
|Weighted average common and
common equivalent shares
outstanding |  |                             | 8,567 |                           |  |      | 8,918 |      |  |  | 8,568 |  |  |  | 8,905 | 
|                                                                 |  |                             |       |                           |  |      |       |      |  |  |       |  |  |  |       | 

6



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##### 



(4) Segment Information

Summarized financial information concerning the Corporations reportable
segments for the three months and six months ended June 30 is shown in the
following table (in thousands):

|              |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |        |   |        |        | 
|------------- | ----------------------- |  | ----- | ------ | - | -------------- | ------ | -------------- | - | ----- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | 
|              |                         |  |       |        |   | Three Months   |        | Six Months    
|              |                         |  |       |        |   | Ended June 30, |        | Ended June 30,
|              |                         |  |       |        |   |                |        |               
|              |                         |  |       |        |   | 2001           |        | 2002           |   | 2001  |        | 2002  
|              |                         |  |       |        |   |                |        |                |   |       |        |       
|Revenue:      |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |       
|              | Testing and Development |  | $     | 13,753 |   |                | $      | 17,575         |   |       | $      | 26,961 |   |        | $      | 33,346 |  
|              | Manufacturing           |  |       | 2,578  |   |                |        | 3,158          |   |       |        | 4,638  |   |        |        | 6,400  |  
|              |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |       
|              |                         |  |       | Total  |   | $              | 16,331 |                |   | $     | 20,733 |        |   | $      | 31,599 |        |   | $      | 39,746 | 
|              |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |       
|Gross Profit: |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |       
|              | Testing and Development |  | $     | 5,979  |   |                | $      | 8,897          |   |       | $      | 11,295 |   |        | $      | 16,602 |  
|              | Manufacturing           |  |       | (340   | ) |                |        | (135           | ) |       |        | (901   | ) |        |        | 151    |  
|              |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |       
|              |                         |  | Total |        | $ | 5,639          |        |                | $ | 8,762 |        |        | $ | 10,394 |        |        | $ | 16,753 |       
|              |                         |  |       |        |   |                |        |                |   |       |        |        |   |        |        |       

Summarized financial information concerning the Corporations revenue and
gross profit by geographic region for the three months and six months ended
June 30 is shown in the following table (in thousands):

|              |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |        |   |        |        | 
|------------- | ------------- |  | ----- | ------ | - | -------------- | ----- | -------------- | - | ------ | ----- | ------ | - | ------ | ------ | ------ | - | ------ | ------ | 
|              |               |  |       |        |   | Three Months   |       | Six Months    
|              |               |  |       |        |   | Ended June 30, |       | Ended June 30,
|              |               |  |       |        |   |                |       |               
|              |               |  |       |        |   | 2001           |       | 2002           |   | 2001   |       | 2002  
|              |               |  |       |        |   |                |       |                |   |        |       |       
|Revenue:      |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |       
|              | United States |  | $     | 13,484 |   |                | $     | 17,079         |   |        | $     | 26,325 |   |        | $      | 32,746 |  
|              | Europe        |  |       | 2,847  |   |                |       | 3,654          |   |        |       | 5,274  |   |        |        | 7,000  |  
|              |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |       
|              |               |  | Total |        | $ | 16,331         |       |                | $ | 20,733 |       |        | $ | 31,599 |        |        | $ | 39,746 |       
|              |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |       
|Gross Profit: |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |       
|              | United States |  | $     | 4,253  |   |                | $     | 6,803          |   |        | $     | 7,849  |   |        | $      | 12,995 |  
|              | Europe        |  |       | 1,386  |   |                |       | 1,959          |   |        |       | 2,545  |   |        |        | 3,758  |  
|              |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |       
|              |               |  |       | Total  |   | $              | 5,639 |                |   | $      | 8,762 |        |   | $      | 10,394 |        |   | $      | 16,753 | 
|              |               |  |       |        |   |                |       |                |   |        |       |        |   |        |        |       

(5) New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. (FAS) 141, Business
Combinations (FAS 141) and FAS 142, Goodwill and Other Intangible Assets
(FAS 142). FAS 141 addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. FAS
142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination, whether acquired individually or
with a group of other assets, and the accounting and reporting for goodwill and
other intangibles subsequent to their acquisition. These standards require all
future business combinations to be accounted for using the purchase method of
accounting. Goodwill will no longer be amortized but instead will be subject
to impairment tests at least annually. The Corporation was required
to adopt FAS 141 and FAS 142 on a prospective basis as of January 1, 2002;
however, certain provisions

7



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##### 



of these new standards may also apply to any
acquisitions concluded after June 30, 2001. The initial adoption of this
guidance did not have a material impact on the Corporations results of
operations or financial position. The guidance may impact the way in which the
Corporation will account for future transactions.

In October 2001, the FASB issued FAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (FAS 144). FAS 144 supercedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. FAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30, Reporting Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business. The Corporation adopted FAS
144 on January 1, 2002. The initial adoption of this guidance has not had a
material impact on the Corporations results of operations or financial
position.

In April 2002, the FASB issued FAS No. 145 Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (FAS 145). FAS 145 rescinds FAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that statement, FAS
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
FAS No. 145 also rescinds FAS No. 44, Accounting for Intangible Assets of
Motor Carriers and amends FAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. FAS 45 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The Corporation does not believe that adoption of FAS No. 145 will
have a material impact on its results of operations or financial position.

In June 2002, the Financial Accounting Standards Board issued FAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (FAS 146).
FAS 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The provisions of this Statement are effective for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged. The Corporation does not expect application of this
Statement to have a material impact on the Corporations financial statements.

8



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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Certain statements made in this Report on Form 10-Q are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any statement
that may predict, forecast, indicate, or imply future results, performance, or
achievements, which generally are not historical in nature, and may contain the
words believe, anticipate, expect, estimate, project, will be,
will continue, will likely result, or similar words or phrases.
Forward-looking statements in this Report on Form 10-Q include, among others,
statements regarding:



| |  |  | the anticipated growth of revenue and improvement in profit
margins,                                                                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Corporations ability to use additional capacity in its
manufacturing facility and the effect on earnings of underutilization
of this facility,                           
|
| |  |  | the Corporations plans to expand capacity in both its testing and
development and manufacturing business segments, including the timing
and completion of any such expansion,
|
| |  |  | the anticipated increase in selling, general and administrative
expenses and the hiring of new employees,                                                                     
|
| |  |  | plans to improve the Corporations information systems and sales and marketing infrastructure,                                                                                
|
| |  |  | the anticipated leveling off of research and development expenses,                                                                                                            
|
| |  |  | the amount and impact of a change in tax rates,                                                                                                                               
|
| |  |  | the Corporations ability to fund its operations with existing
cash, cash flows from operations and its line of credit, and                                                   
|
| |  |  | the impact of foreign currency exchange rate fluctuations on the
Corporation.                                                                                                 

Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from the forward-looking statements. The
risks and uncertainties are detailed from time to time in reports filed by
BioReliance with the SEC, including in its Forms 10-K.

As and when made, management believes that these forward-looking
statements are reasonable. The Corporation undertakes no obligation to revise
or publicly release the results of any revision to these forward-looking
statements. Therefore, readers are cautioned not to place undue reliance on
these forward-looking statements since new risk factors emerge from time to
time and it is not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on the Corporations
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.

The following discussion and analysis of the Corporations financial
condition and results of operations should be read in conjunction with the
Corporations consolidated financial statements and related notes thereto
included elsewhere in this Form 10-Q.

9



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##### 



Results of Operations
(Dollars in tables are in thousands)

For the three months ended June 30, 2002, the Corporation had gross
revenue of $20.7 million, an increase of 27% over gross revenue of $16.3
million for the three months ended June 30, 2001. Earnings per share for the
three months ended June 30, 2002 were $0.31 (diluted) compared with $0.10
(diluted) for the three months ended June 30, 2001.

For the six months ended June 30, 2002, the Corporation had gross revenue
of $39.8 million, an increase of 26% over gross revenue of $31.6 million for
the six months ended June 30, 2001. Earnings per share for the six months
ended June 30, 2002 were $0.55 (diluted) compared with $0.15 (diluted) for the
six months ended June 30, 2001.

Gross Revenue by Segment

The following table shows a comparison of revenue by operational segment
for the three months and six months ended June 30, 2001 and 2002:

|                        |  |                    |        |                  |  |            |        |      |  |      |    |            |  |   |        |  |  |   |        |      |  |  |    |  
|----------------------- |  | ------------------ | ------ | ---------------- |  | ---------- | ------ | ---- |  | ---- | -- | ---------- |  | - | ------ |  |  | - | ------ | ---- |  |  | -- | -
|                        |  | Three Months Ended |        | Six Months Ended
|                        |  | June 30,           |        | June 30,        
|                        |  |                    |        |                 
|                        |  |                    |        |                  |  |            |        |      |  | Fav. |    |            |  |   |        |  |  |   |        | Fav.
|                        |  | 2001               |        | 2002             |  | (Unfav.) % |        | 2001 |  | 2002 |    | (Unfav.) %
|                        |  |                    |        |                  |  |            |        |      |  |      |    |           
|                       
|Testing and Development |  | $                  | 13,753 |                  |  | $          | 17,575 |      |  |      | 28 | %          |  | $ | 26,961 |  |  | $ | 33,346 |      |  |  | 24 | %
|                       
|Manufacturing           |  |                    | 2,578  |                  |  |            | 3,158  |      |  |      | 22 | %          |  |   | 4,638  |  |  |   | 6,400  |      |  |  | 38 | %
|                        |  |                    |        |                  |  |            |        |      |  |      |    |            |  |   |        |  |  |   |        |      |  |  |    |  
|                       
|Total                   |  | $                  | 16,331 |                  |  | $          | 20,733 |      |  |      | 27 | %          |  | $ | 31,599 |  |  | $ | 39,746 |      |  |  | 26 | %
|                        |  |                    |        |                  |  |            |        |      |  |      |    |            |  |   |        |  |  |   |        |      |  |  |    |  

The increases in testing and development revenue for the three months and
six months ended June 30, 2002 are due primarily to the continued increases in
the rates of new orders, both in the U.S. and Europe. The increase in U.S.
testing and development revenue results from increases in both biologics
testing services and toxicology services. The increase in European testing and
development revenue was driven by increases in revenue generated in all major
service areas.

The increases in manufacturing revenues for the three months and six
months ended June 30, 2002 are primarily attributable to increases in U.S.
Phase III (large scale) manufacturing revenue, partially offset by modest
decreases in U.S. Phase I/II and European manufacturing revenue. The increase
in U.S. Phase III manufacturing revenue is a result of the continued ramp-up of
the Corporations U.S. manufacturing facility. However, project delays
resulting from client requests for additional process development and client
regulatory issues offset some of the increase in U.S. manufacturing revenue for
the three months and six months ended June 30, 2002.

Price increases provided a relatively minor portion of the revenue
increases in both of the Corporations business segments for the three months
and six months ended June 30, 2002.

10



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##### 



Approximately 5% and 6% of the Corporations total revenue for the three
months and six months ended June 30, 2002, respectively, resulted from work
performed under the Corporations smallpox vaccine contracts. Approximately
17% and 21% of the Corporations manufacturing revenue for the three months and
six months ended June 30, 2002, respectively, resulted from work performed
under these smallpox vaccine contracts. Work under these contracts is subject
to government prime contractor-issued task orders, contract amendments and
potential expansion and acceleration; thus, the future revenue related to these
contracts cannot be predicted with certainty. As with all government
contracts, these contracts are subject to termination by the government at any
time.

Gross Revenue by Geographic Region

The following table shows a comparison of revenue by geographic region for
the three months and six months ended June 30, 2001 and 2002:

|              |  |                    |        |                  |  |            |        |      |  |      |    |            |  |   |        |  |  |   |        |      |  |  |    |  
|------------- |  | ------------------ | ------ | ---------------- |  | ---------- | ------ | ---- |  | ---- | -- | ---------- |  | - | ------ |  |  | - | ------ | ---- |  |  | -- | -
|              |  | Three Months Ended |        | Six Months Ended
|              |  | June 30,           |        | June 30,        
|              |  |                    |        |                 
|              |  |                    |        |                  |  |            |        |      |  | Fav. |    |            |  |   |        |  |  |   |        | Fav.
|              |  | 2001               |        | 2002             |  | (Unfav.) % |        | 2001 |  | 2002 |    | (Unfav.) %
|              |  |                    |        |                  |  |            |        |      |  |      |    |           
|             
|United States |  | $                  | 13,484 |                  |  | $          | 17,079 |      |  |      | 27 | %          |  | $ | 26,325 |  |  | $ | 32,746 |      |  |  | 24 | %
|             
|Europe        |  |                    | 2,847  |                  |  |            | 3,654  |      |  |      | 28 | %          |  |   | 5,274  |  |  |   | 7,000  |      |  |  | 33 | %
|              |  |                    |        |                  |  |            |        |      |  |      |    |            |  |   |        |  |  |   |        |      |  |  |    |  
|             
|Total         |  | $                  | 16,331 |                  |  | $          | 20,733 |      |  |      | 27 | %          |  | $ | 31,599 |  |  | $ | 39,746 |      |  |  | 26 | %
|              |  |                    |        |                  |  |            |        |      |  |      |    |            |  |   |        |  |  |   |        |      |  |  |    |  

The increases in revenue generated in the United States for the three
months and six months ended June 30, 2002 resulted from increases in orders,
which fueled increased revenue from both the testing and development and
manufacturing segments.

The increases in revenue generated in Europe for the three months and six
months ended June 30, 2002 reflect an increase in revenue generated in the
U.K., partially offset by a modest decrease in revenue generated from the
Corporations German manufacturing facility.

The Corporation expects that testing and development revenue will continue
to increase in the foreseeable future, and it expects that manufacturing
revenue in the U.S. will increase with the Corporations smallpox vaccine and
other commercial contracts, and the ramp-up of other projects in the U.S.
manufacturing facility, but there can be no assurance that any such expectations
will prove to be correct. The Corporation is planning for laboratory
expansions that would become available to meet anticipated growth in the U.S.
and Europe over a two-to-three year period. The Corporations German
manufacturing facility continues to run near capacity, and, therefore, further
revenue growth in that facility will likely be modest, if at all, for the
remainder of 2002. Management is considering expansion of German manufacturing
capacity in 2003 and 2004, but cannot expect revenue increases, if any, from
the expansion until after those periods.

11



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##### 



Gross Profit by Operating Segment

The following table compares gross profit and gross margin by operational
segment for the three months and six months ended June 30, 2001 and 2002:

| |                         |                     |  |                    |       |                  |  |            |       |      |  |      |    |            |                       |   |        |    |  |   |        |      |  |  |      |  
| | ----------------------- | ------------------- |  | ------------------ | ----- | ---------------- |  | ---------- | ----- | ---- |  | ---- | -- | ---------- | --------------------- | - | ------ | -- |  | - | ------ | ---- |  |  | ---- | -
| |                         |                     |  | Three Months Ended |       | Six Months Ended
| |                         |                     |  | June 30,           |       | June 30,        
| |                         |                     |  |                    |       |                 
| |                         |                     |  |                    |       |                  |  |            |       |      |  | Fav. |    |            |                       |   |        |    |  |   |        | Fav.
| |                         |                     |  | 2001               |       | 2002             |  | (Unfav.) % |       | 2001 |  | 2002 |    | (Unfav.) %
| |                         |                     |  |                    |       |                  |  |            |       |      |  |      |    |           
|
| | Testing and Development |                     |  |                    |       |                  |  |            |       |      |  |      |    |            |                       |   |        |    |  |   |        |      |  |  |     
| |                         | Gross Profit        |  | $                  | 5,979 |                  |  | $          | 8,897 |      |  |      | 49 | %          |                       | $ | 11,295 |    |  | $ | 16,602 |      |  |  | 47   | %
| |                         | Gross Margin        |  |                    | 43    | %                |  |            | 51    | %    |  |      |    |            |                       |   | 42     | %  |  |   | 50     | %    |  |  |      |  
|
| | Manufacturing           |                     |  |                    |       |                  |  |            |       |      |  |      |    |            |                       |   |        |    |  |   |        |      |  |  |     
| |                         | Gross Profit (Loss) |  |                    | (340  | )                |  |            | (135  | )    |  |      | 60 | %          |                       |   | (901   | )  |  |   | 151    |      |  |  | N.M. |  
| |                         | Gross Margin        |  |                    | (13   | %)               |  |            | (4    | %)   |  |      |    |            |                       |   | (19    | %) |  |   | 2      | %    |  |  |      |  
| |                         |                     |  |                    |       |                  |  |            |       |      |  |      |    |            |                       |   |        |    |  |   |        |      |  | 
|
| | Totals                  |                     |  |                    |       |                  |  |            |       |      |  |      |    |            |                       |   |        |    |  |   |        |      |  |  |     
| |                         | Gross Profit        |  | $                  | 5,639 |                  |  | $          | 8,762 |      |  |      | 55 | %          |                       | $ | 10,394 |    |  | $ | 16,753 |      |  |  | 61   | %
| |                         | Gross Margin        |  |                    | 35    | %                |  |            | 42    | %    |  |      |    |            |                       |   | 33     | %  |  |   | 42     | %    |  |  |      |  
| |                         |                     |  |                    |       |                  |  |            |       |      |  |      |    |            |                       |   |        |    |  |   |        |      |  | 
| |                         |                     |  |                    |       |                  |  |            |       |      |  |      |    |            | N.M. = Not Meaningful

The increases in testing and development gross margins for the three
months and six months ended June 30, 2002 were driven by
increased gross profits
generated in both the U.S. and the U.K. Increased revenue was only partially
offset by an increase in variable costs relating to labor, direct materials,
and subcontracted work.

The improvement in manufacturing gross margins for the three months and
six months ended June 30, 2002 is due to a significant decrease
in the losses
generated in the U.S., offset slightly by a relatively small decrease in gross
profits from European manufacturing operations. The losses generated in the
U.S. decreased due to increases in revenue, which were partially offset by
variable costs relating to labor and direct materials.

The Corporation expects future revenue growth to exceed cost increases
related to its U.S. manufacturing facility, thereby improving gross margins.
However, the build-out and validation of this facility has demanded and will
continue to demand considerable time and resources, and there are high fixed
costs related to the facility. The Corporation continues to utilize
substantially less than full capacity in this facility. This facility will
likely constrain earnings for the Corporation at least for the foreseeable
future. Management cannot predict when, if ever, the facility will generate
profits. Without the results of operations of this facility, the Corporations
total gross margins would have been 49% and 48%, respectively for the three
months and six months ended June 30, 2002, as compared to 43% and 41%
respectively, for the three months and six months ended June 30, 2001.

12



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Gross Profit by Geographic Region

The following table compares gross profit and gross margin by geographic
region for the three months and six months ended June 30, 2001 and 2002:

|              |              |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |        |   |  |   |        |      |  |  |    |  
|------------- | ------------ |  | ------------------ | ----- | ---------------- |  | ---------- | ----- | ---- |  | ---- | -- | ---------- |  | - | ------ | - |  | - | ------ | ---- |  |  | -- | -
|              |              |  | Three Months Ended |       | Six Months Ended
|              |              |  | June 30,           |       | June 30,        
|              |              |  |                    |       |                 
|              |              |  |                    |       |                  |  |            |       |      |  | Fav. |    |            |  |   |        |   |  |   |        | Fav.
|              |              |  | 2001               |       | 2002             |  | (Unfav.) % |       | 2001 |  | 2002 |    | (Unfav.) %
|              |              |  |                    |       |                  |  |            |       |      |  |      |    |           
|             
|United States |              |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |        |   |  |   |        |      |  |  |   
|              | Gross Profit |  | $                  | 4,253 |                  |  | $          | 6,802 |      |  |      | 60 | %          |  | $ | 7,849  |   |  | $ | 12,994 |      |  |  | 66 | %
|              | Gross Margin |  |                    | 32    | %                |  |            | 40    | %    |  |      |    |            |  |   | 30     | % |  |   | 40     | %    |  |  |    |  
|             
|Europe        |              |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |        |   |  |   |        |      |  |  |   
|              | Gross Profit |  |                    | 1,386 |                  |  |            | 1,960 |      |  |      | 41 | %          |  |   | 2,545  |   |  |   | 3,759  |      |  |  | 48 | %
|              | Gross Margin |  |                    | 49    | %                |  |            | 54    | %    |  |      |    |            |  |   | 48     | % |  |   | 54     | %    |  |  |    |  
|             
|Totals        |              |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |        |   |  |   |        |      |  |  |   
|              |              |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |        |   |  |   |        |      |  |  |   
|              | Gross Profit |  | $                  | 5,639 |                  |  | $          | 8,762 |      |  |      | 55 | %          |  | $ | 10,394 |   |  | $ | 16,753 |      |  |  | 61 | %
|              | Gross Margin |  |                    | 35    | %                |  |            | 42    | %    |  |      |    |            |  |   | 33     | % |  |   | 42     | %    |  |  |    |  
|              |              |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |        |   |  |   |        |      |  |  |    |  

The increase in U.S. gross margins for the three months and six months
ended June 30, 2002 resulted from increased revenue in both the testing and
development and manufacturing segments, partially offset by increased variable
costs relating to labor, direct materials, and subcontracted work. Without
the results of operations of the U.S. manufacturing facility, U.S. gross
margins would have been 48% and 47%, respectively for the three months and six
months ended June 30, 2002, as compared to 41% and 39% respectively, for the
three months and six months ended June 30, 2001.

The improvement in European gross margins for the three months and six
months ended June 30, 2002 is primarily attributable to increased profit in the
testing and development segment resulting from continued efficient utilization
of capacity, higher revenue, and a more favorable product mix. This
improvement was partially offset by a decreased gross margin in the European
manufacturing segment.

The Corporation expects margins in the testing and development segment,
both in the U.S. and Europe, to improve moderately with economies of scale in the
foreseeable future. The rate of improvement is expected to be impacted by
expenditures related to planned additions to capacity beginning in 2003.

13



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Operating Expenses

The following table shows a comparison of operating expenses, other than
cost of sales, for the three months and six months ended June 30, 2001 and
2002:

|                                    |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |       |  |  |   |       |      |  |  |     |   
|----------------------------------- |  | ------------------ | ----- | ---------------- |  | ---------- | ----- | ---- |  | ---- | -- | ---------- |  | - | ----- |  |  | - | ----- | ---- |  |  | --- | --
|                                    |  | Three Months Ended |       | Six Months Ended
|                                    |  | June 30,           |       | June 30,        
|                                    |  |                    |       |                 
|                                    |  |                    |       |                  |  |            |       |      |  | Fav. |    |            |  |   |       |  |  |   |       | Fav.
|                                    |  | 2001               |       | 2002             |  | (Unfav.) % |       | 2001 |  | 2002 |    | (Unfav.) %
|                                    |  |                    |       |                  |  |            |       |      |  |      |    |           
|Selling, General and
Administrative |  | $                  | 4,006 |                  |  | $          | 4,332 |      |  |      | (8 | %)         |  | $ | 7,764 |  |  | $ | 8,521 |      |  |  | (10 | %)
|Research and Development            |  |                    | 362   |                  |  |            | 194   |      |  |      | 46 | %          |  |   | 743   |  |  |   | 456   |      |  |  | 39  | % 
|                                    |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |       |  |  |   |       |      |  |  |     |   
|Total                               |  | $                  | 4,368 |                  |  | $          | 4,526 |      |  |      | (4 | %)         |  | $ | 8,507 |  |  | $ | 8,977 |      |  |  | (6  | %)
|                                    |  |                    |       |                  |  |            |       |      |  |      |    |            |  |   |       |  |  |   |       |      |  |  |     |   

Selling, general and administrative expenses increased for the three
months and six months ended June 30, 2002 primarily due to increases in
professional fees associated with non-continuing projects and labor and fringe
costs. Selling, general and administrative expenses are expected to increase as
the Corporation hires additional administrative staff, implements additional
applications for its information systems and makes additional investments for
technical sales support and its marketing infrastructure. As a percentage of
revenue, selling, general and administrative expenses decreased to 21% for the
three months and six months ended June 30, 2002 from 25% for the three months
and six months ended June 30, 2001. The decrease can be attributed principally
to increased revenues, on-going expense controls, and the successful
integration of past enhancements and expansion in sales, marketing and
information systems. In June 2002, the Corporation accrued expenses in the
amount of $50,000 for professional fees for services provided by related
parties.

Research and development expenses represent the investment of internal
resources to develop new methods and tests to support the Corporations
services. The decrease in these expenses is related to a shift in the
corporate priorities from undertaking long-term research projects to the
development of tests that can be delivered to the clients in a relatively
shorter period. The Corporation expects these expenses to remain near these
levels for the foreseeable future.

14



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##### 



Non-Operating Expenses

The following table shows a comparison of non-operating expenses for the
three months and six months ended June 30, 2001 and 2002:

|                       |                |   |                       |     |                  |   |            |       |      |  |      |      |            |   |     |     |   |   |    |       |      |  |    |      |   
|---------------------- | -------------- | - | --------------------- | --- | ---------------- | - | ---------- | ----- | ---- |  | ---- | ---- | ---------- | - | --- | --- | - | - | -- | ----- | ---- |  | -- | ---- | --
|                       |                |   | Three Months Ended    |     | Six Months Ended
|                       |                |   | June 30,              |     | June 30,        
|                       |                |   |                       |     |                 
|                       |                |   |                       |     |                  |   |            |       |      |  | Fav. |      |            |   |     |     |   |   |    |       | Fav.
|                       |                |   | 2001                  |     | 2002             |   | (Unfav.) % |       | 2001 |  | 2002 |      | (Unfav.) %
|                       |                |   |                       |     |                  |   |            |       |      |  |      |      |           
|                      
|Other Expense (Income) |                | $ | 88                    |     |                  | $ | (178       | )     |      |  | N.M  |      |            | $ | 216 |     |   | $ | 55 |       |      |  | 75 | %   
|                       |                |   |                       |     |                  |   |            |       |      |  |      |      |            |   |     |     |   |   |    |       |      |  |    |     
|                      
|Income Taxes           |                |   |                       |     |                  |   |            |       |      |  |      |      |            |   |     |     |   |   |    |       |      |  |    |     
|                       | Provision      |   | $                     | 295 |                  |   | $          | 1,608 |      |  |      | (445 | %)         |   | $   | 395 |   |   | $  | 2,818 |      |  |    | (613 | %)
|                       | Effective Rate |   |                       | 25  | %                |   |            | 36    | %    |  |      |      |            |   |     | 24  | % |   |    | 36    | %    |  |    |      |   
|                       |                |   |                       |     |                  |   |            |       |      |  |      |      |            |   |     |     |   |   |    |       |      |  |    |     
|                       |                |   | N.M. = not meaningful |     |                  |   |            |       |      | 

The
Corporations net other expense (income) improved for the three
months and six months ended June 30, 2002 compared to
corresponding amounts for the three months and six months ended
June 30, 2001. The changes were primarily due
to foreign currency translation gains and business tax refunds, partially
offset by increased losses on the disposal of fixed assets and increased net
interest expense (income) due to lower interest rates on the Corporations money market
investments.

The increase in the effective tax rate for the three months and six months
ended June 30, 2002 is the result of the Corporations reversion in 2002 to a
tax rate more in line with the Corporations long-term historical rates. The
lower tax rate for the three months and six months ended June 30, 2001 resulted
from the utilization of tax credits and carry forwards in 2001. The
Corporation expects tax rates to remain at current levels for the remainder of
2002. Since the Corporation has international operations, its effective tax
rate may vary from quarter to quarter due to changes in the distribution of its
pre-tax earnings, among other factors.

Liquidity and Capital Resources

The Corporation has funded its business through existing cash, cash flows
from operations, long-term bank loans and capital leases. At June 30, 2002,
the Corporation had cash, cash equivalents and marketable securities of $34.4
million, compared to $27.5 million at December 31, 2001.

The Corporation generated cash flows from operations of $9.5 million for
the six months ended June 30, 2002, compared to $4.6 million for the six months
ended June 30, 2001. Net income as adjusted for depreciation, amortization,
compensation element of options, loss on disposal and deferred income taxes,
provided $7.9 million and $3.3 million for the six months ended June 30, 2002
and 2001, respectively. Changes in other assets and liabilities provided cash
of $1.6 million for the six months ended June 30, 2002, primarily due to
decreases in accounts receivable and increases in other accrued liabilities and
customer advances, only partially offset by increases in other current assets
and decreases in accounts payable and accrued employees compensation and
benefits. Changes in other assets and liabilities provided cash of $1.3
million for the six months ended June 30, 2001, primarily due to decreases in
accounts receivable and increases in customer advances, only partially offset
by increases in other current assets and decreases in various liability
accounts.

15



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Foreign currency exchange fluctuations provided cash of $0.8 million for
the six months ended June 30, 2002 as a result of the euro strengthening
against the dollar as compared to using cash of $0.2 million for the six months
ended June 30, 2001.

Working capital increased to $36.0 million at June 30, 2002 from $31.4
million at December 31, 2001. This increase was due to an increase in current
assets, partially offset by an increase in current liabilities. The increase
in current assets was due to increases in cash and cash equivalents and other
current assets, partially offset by a decrease in accounts receivable. The
increase in current liabilities was primarily due to an increase in other
current liabilities, customer advances and deferred income taxes, partially
offset by decreases in accounts payable and accrued employee compensation and
benefits.

The Corporation believes that its existing cash and cash equivalents of
$34.4 million at June 30, 2002, cash flows from operations for 2002, and
available borrowings of $2.0 million under its revolving loan agreement will
provide sufficient liquidity to meet the Corporations operating plan, planned
capital expenditures, and interest and principal payments on the Corporations
debt for 2002. The Corporation had previously announced plans to repay on an
accelerated basis substantial portions of its debt, capital lease and related
interest rate swap obligations. The Corporation has postponed this action, as
a result of changes in the economy and the financial markets.

A decrease in demand for the Corporations services could reduce operating
cash flows, which in turn would impact liquidity. The key factors that could
affect the Corporations sources of cash include the following:



| |  |  | the Corporations ability to generate orders for new contracts;                                        
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | the ability of the Corporation to utilize its facilities,
particularly the U.S. manufacturing facility;
|
| |  |  | the size and growth of the overall markets for biopharmaceuticals; and,                                
|
| |  |  | the economy in the U.S. and Europe                                                                     

Additionally, a significant deterioration in the Corporations financial
performance and ratios could accelerate the maturity of principal outstanding
under the Corporations loans.

Capital Leases

The Corporations U.S. manufacturing facility in Rockville, Maryland
became operational in the second quarter of 2000. The Corporation leases this
facility under three capital leases that require it to make net noncancelable
lease payments totaling approximately $11.7 million through 2019. The
Corporation has also guaranteed indebtedness related to the construction of
this facility of approximately $4.3 million at June 30, 2002. A portion of the
lease payments is equivalent to the interest and principal due on the
indebtedness.

Under an interest rate swap with respect to one of these capital leases,
the variable interest rate portion of the indebtedness was effectively
converted into debt with a fixed rate of 6.14% per annum. This swap expires on
November 1, 2009. Amounts paid or received under the interest rate swap are
recognized as interest income or expense in the periods in which they accrued
and are recorded in the same category as that arising from the indebtedness.
As a result of a decrease in the variable interest rate, for the three months
and six months ended June 30, 2002, the Corporation recorded $51,000 and
$97,000, respectively, of additional interest expense related to this interest
rate swap. In accordance with the Statement of Financial Accounting Standard
(FAS) 133, the Corporation adjusted the liability for the change in the fair
value of this swap from $232,000 at December 31, 2001 to $350,000 at June 30,
2002. The corresponding amount is reflected in other comprehensive expense, as
the Corporation has met the

16



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##### 



criteria of FAS 133 to record the contract as a cash flow hedge. This
hedge will be extinguished with the lease obligation to which it pertains.

The Corporation accounts for the leases and subleases of its U.S.
manufacturing facility as capital leases. The assets underlying the capital
leases are included with the Corporations owned property and equipment at June
30, 2002. Property and equipment at June 30, 2002 included approximately $7.1
million, net of accumulated depreciation and amortization, related to these
capital leases. The related obligation is included in the Corporations
liabilities at June 30, 2002.

Capital Expenditures

During the six months ended June 30, 2002 and 2001, the Corporation
invested $3.6 million and $1.5 million, respectively, for capital expenditures.
These capital expenditures were for additional equipment related to the
Corporations U.S. manufacturing facility and other operating needs.

Estimated capital expenditures of $8.0 million for the remainder of 2002
include capacity expansions in U.S. biologics testing, U.S. manufacturing and
German manufacturing. The Corporations plans also include additional
investments in information systems, as well as normal replacements.

The Corporation expects to continue expanding its operations through
internal growth, and expansion of capacity in most or all of its operating
facilities. The Corporation expects to fund its growth and its planned capital
expenditures from existing cash, cash flows from operations, bank borrowings
and lease or other financing to the extent that funds are available on
favorable terms and conditions. While the Corporation remains confident that
expansion of its capacity will contribute to growth, there can be no assurance
that such expansion will be fully utilized or that funding for the plans will
meet with the Corporations expectations.

Although the Corporation has no agreements or arrangements in place with
respect to any future acquisition, there may be acquisition or other growth
opportunities that require additional external financing, and the Corporation
may, from time to time, seek to obtain funds from public or private issuances
of equity or debt securities on a strategic basis. There can be no assurances
that such financing will be available on terms acceptable to the Corporation.

Borrowings and Credit Facilities

The Corporation has a mortgage loan of $4.3 million from Bank of America
with a maturity date of November 30, 2009 that was used to finance the
construction of one of its facilities in Rockville, Maryland. In addition to a
principal payment of $10,576 per month, the mortgage loan bears interest at the
London Inter-Bank Offering Rate (LIBOR) plus the applicable LIBOR Rate
Additional Percentage (LIBOR Rate Option). The LIBOR Rate Option ranges from
1.0% to 2.15% depending on the Corporation achieving certain funded debt to
EBITDA ratios. At June 30, 2002, the applicable interest rate on the mortgage
loan was 1.84% and the LIBOR Rate Option was 1.40%. At June 30, 2002,
approximately $2.2 million was outstanding on the mortgage loan.

Under an interest rate swap, the variable interest rate portion of the
mortgage loan was effectively converted into debt with a fixed rate of 6.14%
per annum. This swap expires November 1, 2009. Amounts paid or received under
the interest rate swap are recognized as interest income or expensed in the
periods in which they accrued and are recorded in the same category as that
arising from the mortgage loan. As a result of a decrease in the variable
interest rate, for the three months and six months ended June 30, 2002, the
Corporation recorded $26,000 and $49,000, respectively, of additional interest
expense related to the interest rate swap. In accordance with FAS 133, the
Corporation adjusted

17



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##### 



the liability for the change in the fair value of this swap from $116,000
at December 31, 2001 to $168,000 at June 30, 2002. The corresponding amount is
reflected in other comprehensive expense, as the Corporation has met the
criteria of FAS 133 to record the contract as a cash flow hedge. This hedge
will be extinguished with the mortgage loan to which it pertains.

The Corporation has available borrowings up to $2.0 million under a
revolving loan agreement with Bank of America. The revolving loan agreement
requires monthly interest payments on the unpaid principal. The unpaid
principal and all unpaid accrued interest is payable in full on May 31, 2003,
and the line of credit expires at that time. Amounts borrowed under the
revolving loan agreement bear interest at the LIBOR rate plus the applicable
LIBOR Rate Option that ranges from 0.85% to 2.0% depending on the Corporation
achieving certain funded debt to EBITDA ratios. During the first six months of
2002, no amounts were borrowed under this revolving loan agreement.

All of the Corporations agreements with Bank of America are cross
collateralized and are secured by a deed of trust on one of the Corporations
laboratory facilities in Rockville, Maryland. The agreements require the
Corporation to comply with financial and restrictive covenants, including fixed
charge coverage and funded debt to EBITDA ratios. Specifically:



| |  |  | Maintain a ratio of total funded indebtedness to EBITDA not
greater than 3.50 to 1.00 as of the end of each fiscal quarter,
calculated on the preceding four-quarter period. EBITDA is defined
as earnings before interest, taxes, depreciation and amortization.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Maintain a fixed charge coverage ratio as of the end of each
quarter of at least 1.25 to 1.00. This ratio is determined by
dividing EBITDA by the sum of interest expense and
current-maturities of long-term debt and capital leases.                           

At June 30, 2002, the Corporation was in compliance with all covenants
under its loan agreements.

The Corporation has a $3.0 million loan from the Department of Business
and Economic Development, a department of the State of Maryland. The
Corporation was required to use the proceeds to expand and relocate its
activities in Rockville, Maryland. The loan requires quarterly principal
payments of $107,143 plus accrued interest and matures on June 30, 2006. The
loan bears interest at rates from 0.0% to 7.5% based on the Corporations
achieving specific employment levels through 2005. The current interest rate
is 0.0%. The terms of the loan contain annual reporting requirements,
including the reporting of employment data. At June 30, 2002, approximately
$1.7 million was outstanding on the loan.

Foreign Currency

The accounts of the Corporations international subsidiaries are measured
using local currency as the functional currency. Assets and liabilities of
these subsidiaries are translated into United States dollars at period-end
exchange rates, and revenue and expense accounts are translated at average
monthly exchange rates. Net exchange gains and losses resulting from these
translations are excluded from net income and are accumulated in a separate
component of stockholders equity. Translation gains and losses that arise
from some intercompany transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred. The
Corporation recorded net exchange gains of $0.7 million for the three months
ended June 30, 2002. Net exchange losses were minimal for the three months
ended June 30, 2001. The Corporation recorded net exchange gains of $0.6
million for the six months ended June 30, 2002 compared to net exchange losses
of $0.3 million for the six months ended June 30, 2001.

18



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##### 



Since the revenues and expenses of the Corporations international
operations generally are denominated in local currencies, exchange rate
fluctuations between such local currencies and the United States dollar will
subject the Corporation to currency translation risk with respect to the
reported results of its international operations as well as to other risks
sometimes associated with international operations. The Corporation derived
17.6% and 17.4% of its revenue for the three months ended June 30, 2002 and
2001, respectively, and 17.6% and 16.7% of its revenue for the six months ended
June 30, 2002 and June 30, 2001, respectively, from services performed in the
United Kingdom and Germany. In addition, the Corporation may be subject to
currency risk when the Corporations service contracts are denominated in a
currency other than the currency in which the Corporation incurs expenses
related to such contracts.

The Corporation may experience fluctuations in financial results from the
Corporations operations outside the United States, and the Corporation may not
be able, contractually or otherwise, to reduce the currency risks associated
with its operations. At the present time, the Corporation does not use
derivative financial instruments to manage or control foreign currency risk
because most of its revenue and related expenses are in the same functional
currencies. While the Corporation may use such financial instruments in the
future, or these financial instruments may not be successful in managing or
controlling foreign currency risk.

European Monetary Union

Within Europe, the European Economic and Monetary Union (the EMU)
introduced a new currency, the euro, on January 1, 1999. The new currency is
in response to the EMUs policy of economic convergence to harmonize trade
policy, eliminate business costs associated with currency exchange and to
promote the free flow of capital, goods and services.

On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non cash (banking) transactions. As of July 1, 2002, the participating
countries were scheduled to withdraw all legacy currency and use the euro
exclusively. The introduction of the euro has not had a material adverse effect
on the Corporation, and the Corporation does not anticipate any material
adverse effects as other currencies are phased out. However, unforeseen
legislation, changes in commercial cross-border practices or a significant
devaluation of the Euro could have an adverse effect on the future results of
operations and financial position of the Corporation.

19



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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Corporation is exposed to market risk from adverse changes in interest
rates and foreign currency exchange rates.

Interest Rate Risks

The Corporation is exposed to interest rate risk primarily through its
investments in cash equivalents. The Corporations investment policy
stipulates investment in short-term, low-risk instruments. At June 30, 2002,
the Corporation did not have any investments in government securities,
governmental agency securities, or commercial paper. At June 30, 2002, the
Corporation had $34.4 million in cash and cash equivalents. If interest rates
fall, floating rate securities may generate less interest income. The
Corporation manages its exposure to interest rate risks through investing in
securities with maturities of one year or less.

At June 30, 2002, the Corporation had total debt of $11.6 million. The
Corporations debt consists of a mortgage loan with approximately $2.2 million
outstanding; a State of Maryland loan with approximately $1.7 million
outstanding; capital lease obligations of approximately $7.2 million; and a
$0.5 million liability associated with an interest rate swap agreement to which
the Corporation is a party. Through this interest rate swap agreement, the
variable interest rate portion of the Corporations mortgage loan was
effectively converted into debt with a fixed rate of 6.14% per annum. The
Corporation is also a party to a separate interest rate swap whereby the
variable interest rate portion of the indebtedness relating to a capital lease
for its U.S. manufacturing facility was also effectively converted into debt
with a fixed annual rate of 6.14%. Both agreements expire on November 1, 2009.

Foreign Currency Exchange Risk

The Corporations international operations are subject to foreign exchange
rate fluctuations. The Corporation derived 17.6% of its revenue for the three
months and six months ended June 30, 2002 from services performed in the United
Kingdom and Germany. The Corporation does not hedge its foreign currency
exposure. Management does not believe that the Corporations exposure to
foreign currency rate fluctuations is material. See Foreign Currency in
Managements Discussion and Analysis of Financial Condition and Results of
Operation for a more detailed discussion of our foreign currency risks and
exposures.

20



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##### 



PART II  OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities and Use of Proceeds

As of June 30, 2002, the Corporation had used approximately $17.9 million
of the net proceeds from its initial public offering toward planning and
construction for manufacturing expansion, purchases of laboratory equipment and
information systems hardware and software, and debt repayments.

At June 30, 2002, approximately $14.3 million of the net proceeds of the
initial public offering were invested in money market funds.

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to Vote of Security Holders



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | At the Annual Meeting of Shareholders held on June 10, 2002, the
following proposals were adopted by the margins indicated:



| | 1. |  | To reelect Dr. Leonard Scherlis and Ms. Victoria Hamilton
as directors of the Corporation to terms expiring in 2005.
| | -- |  | --------------------------------------------------------------------------------------------------------------------

|                                         |  |     |                     |          |  |  |             | 
|---------------------------------------- |  | --- | ------------------- | -------- |  |  | ----------- | 
|                                         |  |     | Number of Shares   
|                                         |  | For |                     | Withheld
|Leonard Scherlis, M.D.
Victoria Hamilton |  |     | 7,050,944
7,050,944 |          |  |  | 5,323
5,323 | 



| | 2. |  | To ratify the appointment of PricewaterhouseCoopers LLP as
the Corporations auditors for the fiscal year ending December 31,
2002.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------

|                    |  |  |                       | 
|------------------- |  |  | --------------------- | 
|For
Against
Abstain |  |  | 6,320,256
735,528
483 | 



| | 3. |  | To approve the Amended and Restate BioReliance 1997
Incentive Plan, which includes a 200,000 increase in the shares
available for awards under the plan and annual limits on the
compensation that may be paid to participants under the plan to
comply with Section 162(m) of the Internal Revenue Code.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |  |                           | 
|------------------- |  |  | ------------------------- | 
|For
Against
Abstain |  |  | 5,943,963
950,529
161,775 | 

21



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##### 





| | 4. |  | To approve the BioReliance Employee Stock Purchase Plan.
| | -- |  | --------------------------------------------------------

|                    |  |  |                          | 
|------------------- |  |  | ------------------------ | 
|For
Against
Abstain |  |  | 6,843,924
50,169
162,174 | 

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits



| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The documents required to be filed as exhibits to this report under
Item 601 of Regulation S-K are listed in the Exhibit Index included
elsewhere in this report, which list is incorporated herein by
reference.

(b)  Reports on Form 8-K



| |     
| | ----
| | None

22



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##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: August 14, 2002

| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | BioReliance Corporation
        (Registrant)                                                                                                          
|
| | By    /s/ Capers W. McDonald                                                                                                                          
|
| | Capers W. McDonald
President and Chief Executive Officer                                                                                              
|
| | By    /s/ John L. Coker                                                                                                                               
|
| | John L. CokerVice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)

23



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##### 



EXHIBIT INDEX

|            |  |                                                 
|----------- |  | ------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                     
|           
|99.1        |  | Officer Certification of Chief Executive Officer
|           
|99.2        |  | Officer Certification of Chief Financial Officer

24