##### 



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 September 30, 2001

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

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

---

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 October 31, 2001, 8,276,766 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

|           |                                                                      |                                                                      |    |           
|---------- | -------------------------------------------------------------------- | -------------------------------------------------------------------- | -- | ----------
|           |                                                                      |                                                                      |    | PageNumber
|           |                                                                      |                                                                      |    |           
|PART I     | FINANCIAL INFORMATION                                                |                                                                      |   
|          
|           | Item 1 - Financial Statements:                                       |                                                                      |   
|          
|           |                                                                      | Consolidated Balance Sheets as of December 31, 2000                  |    |           
|           |                                                                      | and (Unaudited) September 30, 2001                                   |    | 3         
|          
|           |                                                                      | Consolidated (Unaudited) Statements of Income for the Three and Nine |    |           
|           |                                                                      | Months Ended September 30, 2000 and 2001                             |    | 4         
|          
|           |                                                                      | Consolidated (Unaudited) Statements of Cash Flows for the Nine       |    |           
|           |                                                                      | Months Ended September 30, 2000 and 2001                             |    | 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 |                                                                      | 19
|          
|PART II    | OTHER INFORMATION                                                    |                                                                      | 21
|          
|SIGNATURES |                                                                      |                                                                      |    | 22        

2



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##### 



BIORELIANCE CORPORATION

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

|                                             |                                                                 |                                                       |                            |                                            |    |              |        |             |    |               |        | 
|-------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------------- | -------------------------- | ------------------------------------------ | -- | ------------ | ------ | ----------- | -- | ------------- | ------ | 
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |             |    | September 30,
|                                             |                                                                 |                                                       |                            |                                            |    | December 31, |        | 2001       
|                                             |                                                                 |                                                       |                            |                                            |    | 2000         |        | (Unaudited)
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       |                            | Assets                                     |    |              |        |             |    |               |        | 
|Current assets:                              |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             | Cash and cash equivalents                                       |                                                       | $                          | 8,231                                      |    |              | $      | 21,819      |   
|                                             | Marketable securities                                           |                                                       |                            | 8,431                                      |    |              |        |            |   
|                                             | Accounts receivable, net                                        |                                                       |                            | 21,004                                     |    |              |        | 22,991      |   
|                                             | Other current assets                                            |                                                       |                            | 1,895                                      |    |              |        | 2,164       |   
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       | Total current assets       |                                            |    | 39,561       |        |             |    | 46,974        |       
|Property and equipment, net                  |                                                                 |                                                       | 39,668                     |                                            |    |              | 38,882 |            
|Deposits and other assets                    |                                                                 |                                                       | 245                        |                                            |    |              | 263    |            
|Deferred income taxes                        |                                                                 |                                                       | 200                        |                                            |    |              | 399    |            
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       |                            | Total assets                               |    | $            | 79,674 |             |    | $             | 86,518 | 
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       |                            | Liabilities and Stockholders Equity       |    |              |        |             |    |               |        | 
|Current liabilities:                         |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             | Current portion of long-term debt and capital lease obligations |                                                       | $                          | 1,083                                      |    |              | $      | 827         |   
|                                             | Accounts payable                                                |                                                       |                            | 2,301                                      |    |              |        | 2,020       |   
|                                             | Accrued employee compensation and benefits                      |                                                       |                            | 3,334                                      |    |              |        | 3,586       |   
|                                             | Other accrued liabilities                                       |                                                       |                            | 3,310                                      |    |              |        | 3,951       |   
|                                             | Customer advances                                               |                                                       |                            | 2,290                                      |    |              |        | 4,830       |   
|                                             | Deferred income taxes                                           |                                                       |                            | 2,033                                      |    |              |        | 2,695       |   
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       | Total current liabilities  |                                            |    | 14,351       |        |             |    | 17,909        |       
|Long-term debt and capital lease obligations |                                                                 |                                                       | 11,602                     |                                            |    |              | 10,940 |            
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       |                            | Total liabilities                          |    |              | 25,953 |             |    |               | 28,849 | 
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|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;     |                                                       |                            |                                            |    |              |        |             |   
|                                             |                                                                 | 8,190,166 and 8,256,547 shares issued and outstanding |                            |                                            | 82 |              |        |             | 83 |              
|                                             | Additional paid-in capital                                      |                                                       |                            | 53,157                                     |    |              |        | 53,617      |   
|                                             | Retained earnings                                               |                                                       |                            | 1,887                                      |    |              |        | 5,399       |   
|                                             | Accumulated other comprehensive income                          |                                                       |                            | (1,405                                     | )  |              |        | (1,430      | ) 
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       | Total stockholders equity |                                            |    | 53,721       |        |             |    | 57,669        |       
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            
|                                             |                                                                 |                                                       |                            | Total liabilities and stockholders equity |    | $            | 79,674 |             |    | $             | 86,518 | 
|                                             |                                                                 |                                                       |                            |                                            |    |              |        |            

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 |        | Nine Months Ended
|                           |                                     |                            |        | September 30,      |        | September 30,    
|                           |                                     |                            |        |                    |        |                  
|                           |                                     |                            |        | 2000               |        | 2001              |        | 2000   |        | 2001
|                           |                                     |                            |        |                    |        |                   |        |        |        |     
|Revenue                    |                                     | $                          | 14,349 |                    |        | $                 | 18,578 |        |        | $    | 41,601 |        |        | $ | 50,177 |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|Expenses:                  |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|                           | Cost of sales                       |                            |        | 9,679              |        |                   |        | 11,197 |        |      |        | 27,475 |        |   |        | 32,402 |       
|                           | Selling, general and administrative |                            |        | 3,527              |        |                   |        | 3,984  |        |      |        | 11,485 |        |   |        | 11,748 |       
|                           | Research and development            |                            |        | 341                |        |                   |        | 284    |        |      |        | 1,049  |        |   |        | 1,027  |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|                           |                                     | Total operating expenses   |        |                    | 13,547 |                   |        |        | 15,465 |      |        |        | 40,009 |   |        |        | 45,177 | 
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|Income from operations     |                                     |                            | 802    |                    |        |                   | 3,113  |        |        |      | 1,592  |        |        |   | 5,000  |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|Other (income) expense:    |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|                           | Interest income                     |                            |        | (292               | )      |                   |        | (196   | )      |      |        | (878   | )      |   |        | (682   | )     
|                           | Interest expense                    |                            |        | 252                |        |                   |        | 198    |        |      |        | 664    |        |   |        | 629    |       
|                           | Other expense                       |                            |        | 201                |        |                   |        | 22     |        |      |        | 378    |        |   |        | 293    |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|                           |                                     | Net other (income) expense |        |                    | 161    |                   |        |        | 24     |      |        |        | 164    |   |        |        | 240    | 
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|Income before income taxes |                                     |                            | 641    |                    |        |                   | 3,089  |        |        |      | 1,428  |        |        |   | 4,760  |       
|Income tax provision       |                                     |                            | 271    |                    |        |                   | 853    |        |        |      | 602    |        |        |   | 1,248  |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|Net income                 |                                     | $                          | 370    |                    |        | $                 | 2,236  |        |        | $    | 826    |        |        | $ | 3,512  |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|Net income per share:      |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|                           | Basic                               |                            | $      | 0.05               |        |                   | $      | 0.27   |        |      | $      | 0.10   |        |   | $      | 0.43   |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       
|                           | Diluted                             |                            | $      | 0.04               |        |                   | $      | 0.26   |        |      | $      | 0.10   |        |   | $      | 0.41   |       
|                           |                                     |                            |        |                    |        |                   |        |        |        |      |        |        |        |   |        |       

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)

|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |       |        |      |        |  
|------------------------------------------------------------ | -------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------- | ------- | ----------------- | ------ | ----- | ------ | ---- | ------ | -
|                                                             |                                                          |                                                       |                                                |                                                     |         | Nine Months Ended
|                                                             |                                                          |                                                       |                                                |                                                     |         | September 30,    
|                                                             |                                                          |                                                       |                                                |                                                     |         |                  
|                                                             |                                                          |                                                       |                                                |                                                     |         | 2000              |        | 2001 
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|Cash flows from operating activities:                        |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|                                                             | Net income                                               |                                                       | $                                              | 826                                                 |         |                   | $      | 3,512 |       
|                                                             | Adjustments to reconcile net income to net cash provided |                                                       |                                                |                                                     |         |                   |        |       |       
|                                                             |                                                          | by operating activities:                              |                                                |                                                     |         |                   |        |       |       
|                                                             |                                                          | Depreciation                                          |                                                |                                                     | 3,091   |                   |        |       | 3,361  |     
|                                                             |                                                          | Compensation element of options                       |                                                |                                                     |        |                   |        |       | 39     |     
|                                                             |                                                          | Amortization expense                                  |                                                |                                                     | 54      |                   |        |       | 37     |     
|                                                             |                                                          | Amortization of bond discounts                        |                                                |                                                     | (261    | )                 |        |       | (114   | )   
|                                                             |                                                          | Loss on disposal                                      |                                                |                                                     | 212     |                   |        |       | 94     |     
|                                                             |                                                          | Deferred income taxes, net                            |                                                |                                                     | 657     |                   |        |       | 463    |     
|                                                             |                                                          | Changes in current assets and liabilities:            |                                                |                                                     |         |                   |        |       |        |      |        |  
|                                                             |                                                          |                                                       |                                                | Accounts receivable, net                            |         |                   | (165   | )     |        |      | (1,960 | )
|                                                             |                                                          |                                                       |                                                | Other current assets                                |         |                   | (519   | )     |        |      | (276   | )
|                                                             |                                                          |                                                       |                                                | Accounts payable                                    |         |                   | (418   | )     |        |      | (281   | )
|                                                             |                                                          |                                                       |                                                | Accrued employee compensation and benefits          |         |                   | (181   | )     |        |      | 254    |  
|                                                             |                                                          |                                                       |                                                | Other accrued liabilities                           |         |                   | 1,366  |       |        |      | 637    |  
|                                                             |                                                          |                                                       |                                                | Customer advances                                   |         |                   | 1,238  |       |        |      | 2,504  |  
|                                                             |                                                          | Increase in deposits and other assets                 |                                                |                                                     | (111    | )                 |        |       | (80    | )   
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|                                                             |                                                          |                                                       |                                                | Net cash provided by operating activities           |         |                   | 5,789  |       |        |      | 8,190  |  
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|Cash flows from investing activities:                        |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|                                                             |                                                          | Purchases of marketable securities                    |                                                |                                                     | (19,208 | )                 |        |       | (2,455 | )   
|                                                             |                                                          | Proceeds from the maturities of marketable securities |                                                |                                                     | 19,500  |                   |        |       | 11,000 |     
|                                                             |                                                          | Purchases of property and equipment                   |                                                |                                                     | (5,740  | )                 |        |       | (2,770 | )   
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|                                                             |                                                          |                                                       |                                                | Net cash (used in) provided by investing activities |         |                   | (5,448 | )     |        |      | 5,775  |  
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|Cash flows from financing activities:                        |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|                                                             |                                                          |                                                       | Proceeds from exercise of stock options        |                                                     |         | 381               |        |       |        | 421  |       
|                                                             |                                                          |                                                       | Payments on debt and capital lease obligations |                                                     |         | (1,110            | )      |       |        | (918 | )     
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|                                                             |                                                          |                                                       |                                                | Net cash used in financing activities               |         |                   | (729   | )     |        |      | (497   | )
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|Effect of exchange rate changes on cash and cash equivalents |                                                          |                                                       | (630                                           | )                                                   |         |                   | 120    |      
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|Net (decrease) increase in cash and cash equivalents         |                                                          |                                                       | (1,018                                         | )                                                   |         |                   | 13,588 |      
|Cash and cash equivalents, beginning of period               |                                                          |                                                       | 12,273                                         |                                                     |         |                   | 8,231  |      
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      
|Cash and cash equivalents, end of period                     |                                                          | $                                                     | 11,255                                         |                                                     |         | $                 | 21,819 |      
|                                                             |                                                          |                                                       |                                                |                                                     |         |                   |        |      

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 nine-month periods ended September 30, 2000 and 2001
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 nine-month periods ended September 30, 2000 and 2001
are not necessarily indicative of the results for the entire year ending
December 31, 2001.

(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 |       | Nine Months Ended
|                                   |  | September 30,      |       | September 30,    
|                                   |  |                    |       |                  
|                                   |  | 2000               |       | 2001              |  | 2000 |       | 2001
|                                   |  |                    |       |                   |  |      |       |     
|Weighted average common stock      |  |                    |       |                   |  |      |       |      |  |  |       |  |  |  |       | 
|outstanding                        |  |                    | 8,124 |                   |  |      | 8,225 |      |  |  | 8,033 |  |  |  | 8,208 | 
|Stock options, as if converted     |  |                    | 247   |                   |  |      | 322   |      |  |  | 190   |  |  |  | 349   | 
|                                   |  |                    |      
|Weighted average common and common |  |                    |       |                   |  |      |       |      |  |  |       |  |  |  |       | 
|equivalent shares outstanding      |  |                    | 8,371 |                   |  |      | 8,547 |      |  |  | 8,223 |  |  |  | 8,557 | 
|                                   |  |                    |      

6



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##### 



(4)    Segment Information

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

|              |                         |  |       |        |   |                     |        |                     |   |       |        |        |   |        |        |        |   |        |        | 
|------------- | ----------------------- |  | ----- | ------ | - | ------------------- | ------ | ------------------- | - | ----- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | 
|              |                         |  |       |        |   | Three Months        |        | Nine Months        
|              |                         |  |       |        |   | Ended September 30, |        | Ended September 30,
|              |                         |  |       |        |   |                     |        |                    
|              |                         |  |       |        |   | 2000                |        | 2001                |   | 2000  |        | 2001  
|              |                         |  |       |        |   |                     |        |                     |   |       |        |       
|Revenue:      |                         |  |       |        |   |                     |        |                     |   |       |        |        |   |        |        |       
|              | Testing and Development |  | $     | 13,297 |   |                     | $      | 15,777              |   |       | $      | 37,403 |   |        | $      | 42,737 |  
|              | Manufacturing           |  |       | 1,052  |   |                     |        | 2,801               |   |       |        | 4,198  |   |        |        | 7,440  |  
|              |                         |  |      
|              |                         |  | Total |        |   | $                   | 14,349 |                     |   | $     | 18,578 |        |   | $      | 41,601 |        |   | $      | 50,177 | 
|              |                         |  |      
|Gross Profit: |                         |  |       |        |   |                     |        |                     |   |       |        |        |   |        |        |       
|              | Testing and Development |  | $     | 5,651  |   |                     | $      | 7,688               |   |       | $      | 15,346 |   |        | $      | 18,984 |  
|              | Manufacturing           |  |       | (981   | ) |                     |        | (307                | ) |       |        | (1,220 | ) |        |        | (1,209 | )
|              |                         |  |      
|              |                         |  | Total |        | $ | 4,670               |        |                     | $ | 7,381 |        |        | $ | 14,126 |        |        | $ | 17,775 |       
|              |                         |  |      

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

|              |               |  |       |        |   |                     |   |                     |   |        |   |        |   |        |   |        |   |        |  | 
|------------- | ------------- |  | ----- | ------ | - | ------------------- | - | ------------------- | - | ------ | - | ------ | - | ------ | - | ------ | - | ------ |  | 
|              |               |  |       |        |   | Three Months        |   | Nine Months        
|              |               |  |       |        |   | Ended September 30, |   | Ended September 30,
|              |               |  |       |        |   |                     |   |                    
|              |               |  |       |        |   | 2000                |   | 2001                |   | 2000   |   | 2001  
|              |               |  |       |        |   |                     |   |                     |   |        |   |       
|Revenue:      |               |  |       |        |   |                     |   |                     |   |        |   |        |   |        |   |       
|              | United States |  | $     | 12,255 |   |                     | $ | 15,624              |   |        | $ | 35,561 |   |        | $ | 41,949 |  
|              | Europe        |  |       | 2,094  |   |                     |   | 2,954               |   |        |   | 6,040  |   |        |   | 8,228  |  
|              |               |  |       |       
|              |               |  | Total |        | $ | 14,349              |   |                     | $ | 18,578 |   |        | $ | 41,601 |   |        | $ | 50,177 | 
|              |               |  |       |       
|Gross Profit: |               |  |       |        |   |                     |   |                     |   |        |   |        |   |        |   |       
|              | United States |  | $     | 3,817  |   |                     | $ | 6,060               |   |        | $ | 11,728 |   |        | $ | 13,909 |  
|              | Europe        |  |       | 853    |   |                     |   | 1,321               |   |        |   | 2,398  |   |        |   | 3,866  |  
|              |               |  |       |       
|              |               |  | Total |        | $ | 4,670               |   |                     | $ | 7,381  |   |        | $ | 14,126 |   |        | $ | 17,775 | 
|              |               |  |       |       

(5)    New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 141, Business
Combinations (FAS 141) and FAS No. 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

7



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##### 



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 is required to adopt FAS 141 and FAS
142 on a prospective basis as of January 1, 2002; however, certain provisions
of these new standards may also apply to any acquisitions concluded subsequent
to June 30, 2001. The initial adoption of this guidance is not anticipated to
have a material impact on the Corporations results of operations or financial
position; however, the guidance may impact the way in which the corporation
would account for future transactions. No such future transactions are
contemplated at this time.

In October 2001, the FASB issued FAS No. 144 Accounting for the Impairment of
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
Option No. 30, Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business. FAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
initial adoption of this guidance is not anticipated to have a material impact
on the Corporations results of operations or financial position.

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 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 involve risks and uncertainties that 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 Securities and Exchange Commission, including in its Forms
10-K, and include, but are not limited to, the following:



| |  | general economic and market conditions in the United States and in other countries in which the Corporation currently does
business;                                     
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the size and growth of the overall markets for biopharmaceuticals, including the amounts spent on research and development
by biotechnology and pharmaceutical companies;
| 
| |  | the specific contractual outcomes of governmental initiatives in response to the terrorist events of September 11, 2001;                                                 
| 
| |  | technological advances by the Corporation or its competitors;                                                                                                            
| 
| |  | changes in laws and regulations in the United States and in other countries in which the Corporation currently does
business;                                            
| 
| |  | the size, timing and mix of contracts for the Corporations products and services;                                                                                       
| 
| |  | the success of the Corporations new contracts and whether they will contribute to revenue growth;                                                                       
| 
| |  | the Corporations ability to increase revenues in its testing and development, and manufacturing segments;                                                               
| 
| |  | the ability of the Corporation to attract and retain qualified technical and management personnel;                                                                       
| 
| |  | seasonal demand for the Corporations products and services;                                                                                                             
| 
| |  | fluctuations and difficulty in forecasting operating results;                                                                                                            
| 
| |  | changes in exchange rates in one or more of the Corporations geographic segments;                                                                                       
| 
| |  | the ability of the Corporation to sustain, manage or forecast its growth and utilize its facilities, particularly its U.S.
manufacturing facility;                       
| 
| |  | the loss of significant contracts or customers; and                                                                                                                      
| 
| |  | business disruptions and other factors referenced in the above reports.                                                                                                  

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.

9



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##### 



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.

Results of Operations(Dollars in tables are in thousands)

Revenue by Segment

The Corporations two operational segments are testing and development,
and manufacturing. The following table shows a comparison of revenue by
operational segment for the three months and nine months ended September 30,
2000 and 2001:

|                        |  |                    |        |                   |  |          |        |      |  |      |     |          |  |   |        |  |  |   |        |  |  |  |    |  
|----------------------- |  | ------------------ | ------ | ----------------- |  | -------- | ------ | ---- |  | ---- | --- | -------- |  | - | ------ |  |  | - | ------ |  |  |  | -- | -
|                        |  | Three Months Ended |        | Nine Months Ended
|                        |  | September 30,      |        | September 30,    
|                        |  |                    |        |                  
|                        |  | 2000               |        | 2001              |  | % Change |        | 2000 |  | 2001 |     | % Change
|                        |  |                    |        |                   |  |          |        |      |  |      |     |         
|Testing and Development |  | $                  | 13,297 |                   |  | $        | 15,777 |      |  |      | 19  | %        |  | $ | 37,403 |  |  | $ | 42,737 |  |  |  | 14 | %
|Manufacturing           |  |                    | 1,052  |                   |  |          | 2,801  |      |  |      | 166 | %        |  |   | 4,198  |  |  |   | 7,440  |  |  |  | 77 | %
|                        |  |                    |       
|Total                   |  | $                  | 14,349 |                   |  | $        | 18,578 |      |  |      | 29  | %        |  | $ | 41,601 |  |  | $ | 50,177 |  |  |  | 21 | %
|                        |  |                    |       

The increases in testing and development revenue for the three months and
nine months ended September 30, 2001 are primarily due to the continued
strengthening in the rates of new orders, both in the U.S. and Europe. The
increase in U.S. testing and development revenue resulted from increases in
biosafety testing services and toxicology services, partially offset by a
decrease in revenue generated by analytical 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 nine
months ended September 30, 2001 are primarily attributable to increases in
European and U.S. Phase III (large scale) manufacturing revenue, partially
offset by a decrease in U.S. Phase I/II (small scale) revenue. The increase in
Phase III manufacturing revenue resulted from an increase in the rate of new
manufacturing orders and performance under certain key contracts. Some
project delays resulting from requirements for additional process development
and other client and regulatory decisions, prior to the completion of work,
continued to adversely affect U.S. manufacturing revenue in the first nine
months of 2001. Only a portion of U.S. manufacturing revenue for the three
months and nine months ended September 30, 2001 resulted from work performed
under the Corporations major smallpox vaccine contracts. Management expects
these contracts to contribute to the Corporations revenue more significantly
in the fourth quarter of 2001 and in future years. Work under these contracts
is subject to government and prime contractor-issued task orders, contract
amendments and potential expansion and acceleration; thus, the related revenues
cannot be predicted with certainty. As with all U.S. government contracts,
these contracts are subject to termination by the government at any time.

10



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##### 



Revenue by Geographic Region

The Corporation operates in two geographic regions  the United States and
Europe. The following table shows a comparison of revenue by geographic region
for the three months and nine months ended September 30, 2000 and 2001:

|              |  |                    |        |                   |  |          |        |      |  |      |    |          |  |   |        |  |  |   |        |  |  |  |    |  
|------------- |  | ------------------ | ------ | ----------------- |  | -------- | ------ | ---- |  | ---- | -- | -------- |  | - | ------ |  |  | - | ------ |  |  |  | -- | -
|              |  | Three Months Ended |        | Nine Months Ended
|              |  | September 30,      |        | September 30,    
|              |  |                    |        |                  
|              |  | 2000               |        | 2001              |  | % Change |        | 2000 |  | 2001 |    | % Change
|              |  |                    |        |                   |  |          |        |      |  |      |    |         
|United States |  | $                  | 12,255 |                   |  | $        | 15,624 |      |  |      | 27 | %        |  | $ | 35,561 |  |  | $ | 41,949 |  |  |  | 18 | %
|Europe        |  |                    | 2,094  |                   |  |          | 2,954  |      |  |      | 41 | %        |  |   | 6,040  |  |  |   | 8,228  |  |  |  | 36 | %
|              |  |                    |       
|Total         |  | $                  | 14,349 |                   |  | $        | 18,578 |      |  |      | 29 | %        |  | $ | 41,601 |  |  | $ | 50,177 |  |  |  | 21 | %
|              |  |                    |       

The increases in revenue generated in the United States for the three
months and nine months ended September 30, 2001 resulted from increases in
orders, which fueled increased revenue for both the testing and development and
manufacturing segments, specifically Phase III manufacturing revenue discussed
above.

The increases in revenue generated in Europe for the three months and nine
months ended September 30, 2001 reflect ratable increases in revenue generated
from all sectors: U.K. testing and development services, U.K. manufacturing
services and German manufacturing services.

The Corporation expects that testing and development revenue will continue
to increase incrementally in the foreseeable future, and it expects that
manufacturing revenue in the U.S. will increase with the Corporations new
vaccine contracts, but there can be no assurance that such expectations will
prove to be correct. The Company is planning for laboratory expansions that
would become available to meet anticipated growth in the U.S. and the U.K.
German manufacturing service is currently running near its capacity and,
therefore, further revenue growth in that sector will likely be modest (if any
at all) for the remainder of the year. These expectations for growth in
revenue and capacity expansion could be adversely affected by the cautionary
statements on page 9.

11



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Gross Profit and Margin by Segment

The following table compares gross profit and gross margin by operational
segment for the three months and nine months ended September 30, 2000 and 2001:

|                        |                     |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |   |  |   |        |   |  |  |    |  
|----------------------- | ------------------- |  | ------------------ | ----- | ----------------- |  | -------- | ----- | ---- |  | ---- | -- | -------- |  | - | ------ | - |  | - | ------ | - |  |  | -- | -
|                        |                     |  | Three Months Ended |       | Nine Months Ended
|                        |                     |  | September 30,      |       | September 30,    
|                        |                     |  |                    |       |                  
|                        |                     |  | 2000               |       | 2001              |  | % Change |       | 2000 |  | 2001 |    | % Change
|                        |                     |  |                    |       |                   |  |          |       |      |  |      |    |         
|Testing and Development |                     |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |   |  |   |        |   |  |  |   
|                        | Gross Profit        |  | $                  | 5,651 |                   |  | $        | 7,688 |      |  |      | 36 | %        |  | $ | 15,346 |   |  | $ | 18,984 |   |  |  | 24 | %
|                        | Gross Margin        |  |                    | 42%   |                   |  |          | 49%   |      |  |      |    |          |  |   | 41%    |   |  |   | 40%    |   |  |  |    |  
|                       
|Manufacturing           |                     |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |   |  |   |        |   |  |  |   
|                        | Gross Profit (Loss) |  |                    | (981  | )                 |  |          | (307  | )    |  |      | 69 | %        |  |   | (1,220 | ) |  |   | (1,209 | ) |  |  | 1  | %
|                        | Gross Margin        |  |                    | (93%  | )                 |  |          | (11%  | )    |  |      |    |          |  |   | (29%   | ) |  |   | (16%   | ) |  |  |    |  
|                        |                     |  |                   
|Total                   |                     |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |   |  |   |        |   |  |  |   
|                        | Gross Profit        |  | $                  | 4,670 |                   |  | $        | 7,381 |      |  |      | 58 | %        |  | $ | 14,126 |   |  | $ | 17,775 |   |  |  | 26 | %
|                        | Gross Margin        |  |                    | 33%   |                   |  |          | 40%   |      |  |      |    |          |  |   | 34%    |   |  |   | 35%    |   |  |  |    |  
|                        |                     |  |                   

The increases in testing and development gross margins for the three
months and nine months ended September 30, 2001 were driven by increased gross
profit in both the U.S and the U.K. Increased revenue was only partially
offset by an increase in cost of sales relating to labor, fringe benefits,
direct materials and depreciation.

The improvement in manufacturing gross margins for the three months ended
September 30, 2001 is related to a decrease in gross losses generated in the
U.S. and an increase in the gross profit generated in Europe. The loss
generated in the U.S. decreased due to an increase in revenue, only partially
offset by increased costs for labor, fringe benefits, direct materials and
capacity costs related to the U.S. manufacturing facility. The improvement in
manufacturing gross margins for the nine months ended September 30, 2001 is
related to an increase in the gross profit generated in Europe, partially
offset by an increase in losses generated in the U.S. The loss generated in
the U.S. increased due to recognition of expenses for the U.S. manufacturing
facility for nine months in 2001 and only three months for 2000. These
increased expenses were partially offset by an increase in revenue. Costs
related to the U.S. manufacturing facility are expected to increase at a lesser
rate than the expected rate of increase in the related revenues, but there can
be no assurance of this outcome. Without the results of operations of this
facility, consolidated gross margins would have been 46% and 43% for the three
and nine months ended September 30, 2001, respectively, as compared to 38% and
37%, respectively, for the comparable margins and periods of 2000.

12



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Gross Profit and Margin by Geographic Region

The following table compares gross profit and gross margin by geographic
region for the three months and nine months ended September 30, 2000 and 2001:

|              |              |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |  |  |   |        |  |  |  |    |  
|------------- | ------------ |  | ------------------ | ----- | ----------------- |  | -------- | ----- | ---- |  | ---- | -- | -------- |  | - | ------ |  |  | - | ------ |  |  |  | -- | -
|              |              |  | Three Months Ended |       | Nine Months Ended
|              |              |  | September 30,      |       | September 30,    
|              |              |  |                    |       |                  
|              |              |  | 2000               |       | 2001              |  | % Change |       | 2000 |  | 2001 |    | % Change
|              |              |  |                    |       |                   |  |          |       |      |  |      |    |         
|United States |              |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |  |  |   |        |  |  |  |   
|              | Gross Profit |  | $                  | 3,817 |                   |  | $        | 6,060 |      |  |      | 59 | %        |  | $ | 11,728 |  |  | $ | 13,909 |  |  |  | 19 | %
|              | Gross Margin |  |                    | 31%   |                   |  |          | 39%   |      |  |      |    |          |  |   | 33%    |  |  |   | 33%    |  |  |  |    |  
|             
|Europe        |              |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |  |  |   |        |  |  |  |   
|              | Gross Profit |  |                    | 853   |                   |  |          | 1,321 |      |  |      | 55 | %        |  |   | 2,398  |  |  |   | 3,866  |  |  |  | 61 | %
|              | Gross Margin |  |                    | 41%   |                   |  |          | 45%   |      |  |      |    |          |  |   | 40%    |  |  |   | 47%    |  |  |  |    |  
|              |              |  |                   
|Totals        |              |  |                    |       |                   |  |          |       |      |  |      |    |          |  |   |        |  |  |   |        |  |  |  |   
|              | Gross Profit |  | $                  | 4,670 |                   |  | $        | 7,381 |      |  |      | 58 | %        |  | $ | 14,126 |  |  | $ | 17,775 |  |  |  | 26 | %
|              | Gross Margin |  |                    | 33%   |                   |  |          | 40%   |      |  |      |    |          |  |   | 34%    |  |  |   | 35%    |  |  |  |    |  
|              |              |  |                   

The increase in the U.S. margins for the three months ended September 30,
2001 resulted from increased revenue in both testing and development and
manufacturing, only partially offset by increased cost of sales attributed
largely to the factors related to manufacturing discussed above. U.S. margins
remained constant for the nine months ended September 30, 2001 as testing and
development margin improvements were offset by manufacturing. Margin declines
were due to the factors discussed above. The improvements in the European
margins for the three months and nine months ended September 30, 2001 are
primarily attributed to increased profit generated from both operating segments
in Europe, resulting from continued efficient utilization of capacity and
higher revenue. Without the results of operations of the U.S. manufacturing
facility, U.S. gross margins would have been 46% and 42% for the three and nine
months ended September 30, 2001, respectively, as compared to 40% and 43%,
respectively, for the comparable margins and periods of 2000.

The Corporation expects margins in testing and development, both in the
U.S. and Europe, to remain the same or improve with economies of scale in the
foreseeable future, and expects manufacturing margins in the U.S. to improve as
additional capacity is utilized. These projected improvements could be
adversely affected by factors noted in the cautionary statements on page 9.

13



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Other Operating Expenses

The following table shows a comparison of operating expenses, other than
cost of sales, for the three months and nine months ended September 30, 2000
and 2001:

|                         |  |                    |       |                   |  |          |       |      |  |      |     |          |  |   |        |  |  |   |        |  |  |  |    |   
|------------------------ |  | ------------------ | ----- | ----------------- |  | -------- | ----- | ---- |  | ---- | --- | -------- |  | - | ------ |  |  | - | ------ |  |  |  | -- | --
|                         |  | Three Months Ended |       | Nine Months Ended
|                         |  | September 30,      |       | September 30,    
|                         |  |                    |       |                  
|                         |  | 2000               |       | 2001              |  | % Change |       | 2000 |  | 2001 |     | % Change
|                         |  |                    |       |                   |  |          |       |      |  |      |     |         
|Selling, General and     |  |                    |       |                   |  |          |       |      |  |      |     |          |  |   |        |  |  |   |        |  |  |  |    |   
|Administrative           |  | $                  | 3,527 |                   |  | $        | 3,984 |      |  |      | 13  | %        |  | $ | 11,485 |  |  | $ | 11,748 |  |  |  | 2  | % 
|Research and Development |  |                    | 341   |                   |  |          | 284   |      |  |      | (17 | %)       |  |   | 1,049  |  |  |   | 1,027  |  |  |  | (2 | %)
|                         |  |                    |      
|Total                    |  | $                  | 3,868 |                   |  | $        | 4,268 |      |  |      | 10  | %        |  | $ | 12,534 |  |  | $ | 12,775 |  |  |  | 2  | % 
|                         |  |                    |      

Selling, general and administrative expenses increased for the three
months and nine months ended September 30, 2001, due primarily to an increase
in labor and fringe costs, partially offset by a decrease in bad debt expense.
Labor and fringe costs were impacted by the filling of administrative positions
and higher expense for compensation programs based on Corporate and divisional
unit performances. For the nine month periods, the third quarter increases
were largely offset by favorable adjustments to administrative expenses in the
first six months which are not expected to recur. Also, selling, general and
administrative expenses for the nine months ended September 30, 2000 included
restructuring expenses and consulting fees to two members of the Board of
Directors. In addition, in 2001 the decrease in the bad debt expense is
attributable to an improvement in accounts receivable collections. Selling,
general and administrative expenses are expected to increase as the Corporation
hires additional administrative staff, implements additional client-oriented
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% and 23% for the three months and nine months ended September
30, 2001, respectively, from 25% and 28% for the three months and nine months
ended September 30, 2000, respectively. This decrease is attributable to the
success of the Corporations cost management and efficiency programs and the
factors noted above.

Research and development expenses represent the investment of internal
resources to develop new methods and tests to support the Corporations
services. These expenses have not changed significantly in the periods
presented. The Corporation expects these expenses to decrease incrementally as
the Corporation has re-prioritized certain projects, the results of which are
expected to result in greater efficiency in future periods.

14



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##### 



Non-Operating Expenses

The following table shows a comparison of non-operating expenses for the
three months and nine months ended September 30, 2000 and 2001:

|                               |                |   |                    |     |                   |   |          |     |      |  |      |     |          |   |     |     |  |   |     |       |  |  |    |     |  
|------------------------------ | -------------- | - | ------------------ | --- | ----------------- | - | -------- | --- | ---- |  | ---- | --- | -------- | - | --- | --- |  | - | --- | ----- |  |  | -- | --- | -
|                               |                |   | Three Months Ended |     | Nine Months Ended
|                               |                |   | September 30,      |     | September 30,    
|                               |                |   |                    |     |                  
|                               |                |   | 2000               |     | 2001              |   | % Change |     | 2000 |  | 2001 |     | % Change
|                               |                |   |                    |     |                   |   |          |     |      |  |      |     |         
|Net Interest and Other Expense |                | $ | 161                |     |                   | $ | 24       |     |      |  | (85  | %)  |          | $ | 164 |     |  | $ | 240 |       |  |  | 46 | %  
|                               |                |   |                   
|Income Taxes                   |                |   |                    |     |                   |   |          |     |      |  |      |     |          |   |     |     |  |   |     |       |  |  |    |    
|                               | Provision      |   | $                  | 271 |                   |   | $        | 853 |      |  |      | 215 | %        |   | $   | 602 |  |   | $   | 1,248 |  |  |    | 107 | %
|                               | Effective Rate |   |                    | 42% |                   |   |          | 28% |      |  |      |     |          |   |     | 42% |  |   |     | 26%   |  |  |    |     |  
|                               |                |   |                   

The decrease in net interest and other expense for the three months ended
September 30, 2001 reflects decreases in interest expense and other expense,
partially offset by a decrease in interest income. The increase in net
interest and other expense for the nine months ended September 30, 2001
reflects a decrease in interest income, only partially offset by a decrease in
interest expense and other expenses. The decrease in interest income is a
result of the decrease in interest rates. The decrease in interest expense for
the three and nine months ended September 30, 2001 resulted from a decrease in
the Corporations capital lease obligations and a decrease in interest rates.
The decrease in interest expense for the nine months was partially offset by
increased interest expense resulting from the discontinuation of the
capitalization of interest related to the U.S. Manufacturing facility in 2000.
The decrease in other expense is primarily attributable to a decrease in
foreign currency losses related to intercompany transactions denominated in a
currency other than the functional currency.

The decrease in the effective tax rate for the three months and nine
months ended September 30, 2001 is a result of tax credits and carryforwards,
which the Corporation has planned and is utilizing in 2001. The Corporation
expects tax rates to remain at or slightly above current levels for 2001 and
then revert to levels less than but more in line with the Corporations
historical rates in the approximate range of 38%-39%. 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 and the
change in estimated annual income.

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 September 30,
2001, the Corporation had cash, cash equivalents and marketable securities of
$21.8 million, compared to $16.7 million at December 31, 2000.

The Corporation generated cash flows from operations of $8.2 million for
the nine months ended September 30, 2001, compared to $5.8 million for the nine
months ended September 30, 2000. This increase is due primarily to an increase
in net income and unearned customer advances, partially offset by an increase
in accounts receivables in the first nine months of 2001. Net income, as
adjusted for depreciation, amortization, compensation element of

15



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##### 



options, loss on disposal and deferred income taxes, provided $7.4 million and $4.6 million
for the nine months ended September 30, 2001 and 2000, respectively. Changes in
other assets and liabilities provided cash of $0.8 million for the nine months
ended September 30, 2001, primarily due to increases in customer advances,
other accrued liabilities and accrued employee compensation and benefits
partially offset by increases in accounts receivable and other current assets
and a decrease in accounts payable. Changes in other assets and liabilities
provided cash of $1.2 million for the nine months ended September 30, 2000,
primarily due to increases in customer advances and other current liabilities,
partially offset by increases in accounts receivable and other current assets
and decreases in accounts payable and accrued employee compensation and
benefits.

The Corporation leases facilities and equipment under leases that expire
at various dates through 2017, which require the Corporation to make
noncancelable lease payments totaling approximately $27.5 million.

The Corporations manufacturing facility in Rockville, Maryland became
operational in the second quarter of 2000. In April 1998, the Corporation
entered into third-party leasing and subleasing arrangements related to this
facility. These arrangements require the Corporation to make noncancelable
lease payments totaling approximately $10.3 million through 2019 and guarantee
indebtedness of approximately $4.5 million as of September 30, 2001. A portion
of the lease payments is equivalent to the interest and principal due on the
indebtedness. In February 2001, the Corporation entered into an interest rate
swap with respect to one of those leases whereby 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. The
Corporation accounts for the leases and subleases of the manufacturing facility
as capital leases. The assets underlying the capital leases are included with
the Corporations owned property and equipment at September 30, 2001. Property
and equipment, net of accumulated depreciation and amortization at September
30, 2001 included approximately $7.2 million related to these capital leases.
The related lease obligation is included in the Corporations liabilities at
September 30, 2001.

The build-out and validation of the U.S. manufacturing facility has
demanded and will continue to demand considerable time and resources. The
Corporation is currently utilizing substantially less than full capacity in
this building. This operation will likely constrain earnings for the
Corporation at least through the fourth quarter of 2001.

During the nine months ended September 30, 2001 and 2000, the Corporation
invested $2.8 million and $5.7 million, respectively, for capital expenditures.
These capital expenditures were primarily for additional equipment related to
the U.S. manufacturing facility.

At September 30, 2001, the Corporation had commitments to spend
approximately $0.4 million in capital expenditures for leasehold improvements
and laboratory equipment, which the Corporation expects to recur on a quarterly
basis without regard to the expansion of the manufacturing facility.

The Corporation expects to continue expanding its operations through
internal growth and possible strategic acquisitions. The Corporation expects
to fund its growth from existing cash, cash flows from operations, bank
borrowings and lease financings. Although the

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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.

Based on its current operating plan, the Corporation believes that
available resources and potential capital opportunities are sufficient to meet
its foreseeable cash needs.

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 (the Mortgage Loan) 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 September 30, 2001, the applicable interest rate on
the Mortgage Loan was 4.81% and the LIBOR Rate Option was 2.15%. At September
30, 2001, approximately $2.3 million was outstanding on the Mortgage Loan.

In February 2001, the Corporation entered into an interest rate swap
whereby 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 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 Mortgage Loan.
The Corporation believes that the effect of the interest rate swap on interest
expense was not material for the three and nine months ended June 30, 2001.

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, 2002,
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 nine months
of 2001, 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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 September 30, 2001, the Corporation was in compliance with all
covenants under its loan agreements.

On July 1, 1999, the Corporation received the proceeds of 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 over the next six years.
The current interest rate is 0.0%. The terms of the loan contain annual
reporting requirements, including the reporting of employment data. At
September 30, 2001, approximately $2.0 million was outstanding on the loan.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 141, Business
Combinations (FAS 141) and FAS No. 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 is required to adopt
FAS 141 and FAS 142 on a prospective basis as of January 1, 2002; however,
certain provisions of these new standards may also apply to any acquisitions
concluded subsequent to June 30, 2001. The initial adoption of this guidance
is not anticipated to have a material impact on the Corporations results of
operations of financial position; however, the guidance may impact the way in
which the corporation would account for future transactions. No such future
transactions are contemplated at this time.

In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment of
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
Option No. 30, Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business. FAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
initial adoption of this guidance is not anticipated to have a material impact
on the Corporations results of operations or financial position.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 short-term marketable securities and cash equivalents and its
debt agreements. The Corporations investment policy calls for investment in
short-term, low risk instruments. A rise in interest rates would have an
adverse impact on the fair market value of fixed rate securities. If interest
rates fall, floating rate securities may generate less interest income. At
September 30, 2001, the Corporation did not have any investments in government
and governmental agency securities and commercial paper. The Corporation
manages its exposure to interest rate risks through investing in securities
with maturities of one year or less.

Additionally, the Corporation is exposed to risk from changes in interest
rates as a result of its borrowing activities. At September 30, 2001, the
Corporation had total debt, primarily capital lease obligations, of $11.8
million. The Corporations debt consists of a mortgage loan with approximately
$2.3 million outstanding, a State of Maryland loan with approximately $2.0
million outstanding, and capital lease obligations of approximately $7.5
million outstanding.

The Corporation partially manages its exposure to losses through interest
rate swaps. In February 2001, the Corporation entered into an interest rate
swap, whereby the variable interest rate portion of the Mortgage Loan was
effectively converted into debt with a fixed rate of 6.14% per annum. The
Corporation also entered into a separate interest rate swap whereby the
variable interest rate portion, but not the total rate, of the indebtedness
relating to a capital lease for the new manufacturing facility was also
converted into debt with a fixed 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 accounts of the Corporations international
subsidiaries are measured using each 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 such 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.

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The Corporation recorded a net foreign exchange gain as a separate
component of equity of $ 0.3 million and a net foreign exchange loss of $ 0.2
million for the three months ended
September 30, 2001 and 2000, respectively, and net foreign exchange losses
of $25,000 and $ 0.6 million for the nine months ended September 30, 2001 and
2000, respectively. Management does not believe that the Corporations
exposure to foreign currency rate fluctuations is material.

Since the revenues and expenses of the Corporations international
operations generally are denominated in local currencies, exchange rate
fluctuations between these 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
associated with international operations. The Corporation is also subject to
the effects of having a majority of its U.K. revenue denominated in Euros and a
majority of the related expense denominated in Pounds Sterling. In addition,
the Corporation may be subject to currency risk when its service contracts are
denominated in a currency other than the currency in which the Corporation
incurs expenses related to such contracts.

The Corporation derived approximately 16% and 15% of its revenue for the
three months and nine months ended September 30, 2001 and 2000, respectively,
from services performed outside of the United States.

There can be no assurance that the Corporation will not experience
fluctuations in financial results from the Corporations operations outside the
United States, and there can be no assurance the Corporation will 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 related functional currencies.
However, there can be no assurance that the Corporation will not use such
financial instruments in the future or that any such use will be successful in
managing or controlling foreign currency risk. Management does not believe
that the Corporations exposure to foreign currency rate fluctuations is
material.

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. On or before July 1, 2002, the
participating countries are planned 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 it 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.

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PART II  OTHER INFORMATION

|        |  |                                                                                                                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                          
|       
|        |  | None                                                                                                                                                                                                                                                                                                                                       
|       
|Item 2. |  | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                  
|       
|        |  | As of September 30, 2001, the Corporation had used approximately $17.9
million of the net proceeds from its initial public offering toward debt
repayment and purchases of laboratory equipment, information systems
hardware and software, and interior construction and furnishings of the
Corporations new U.S. manufacturing facility.
|       
|        |  | At September 30, 2001, the balance of the net proceeds of the initial
public offering was invested in money market funds, pending the purchase
of investment grade securities, or in other operating accounts of the
Corporation.                                                                                                          
|       
|Item 3. |  | Defaults upon Senior Securities                                                                                                                                                                                                                                                                                                            
|       
|        |  | None                                                                                                                                                                                                                                                                                                                                       
|       
|Item 4. |  | Submission of Matters to Vote of Security Holders                                                                                                                                                                                                                                                                                          
|       
|        |  | None                                                                                                                                                                                                                                                                                                                                       
|       
|Item 5. |  | Other Information                                                                                                                                                                                                                                                                                                                          
|       
|        |  | None                                                                                                                                                                                                                                                                                                                                       
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                           
|       

| |  |     |                     |     
| |  | --- | ------------------- | ----
| |  | (a) | Exhibits           
|
| |  |     |                     | None
|
| |  | (b) | Reports on Form 8-K
|
| |  |     |                     | None

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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:    November 14, 2001 |  |                                                                                                                                                        
|                           
|                            |  | BioReliance Corporation
    (Registrant)                                                                                                               
|                           
|                            |  | By                                                                                                                                                      | /s/ Capers W. McDonald
|                           
|                            |  | Capers W. McDonald
President and Chief Executive Officer                                                                                               
|                           
|                           
|                           
|                           
|                            |  | By                                                                                                                                                      | /s/ John L. Coker     
|                           
|                            |  | John L. Coker
Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)

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