SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996
Commission file number 0-10822
BIOCONTROL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
300 Indian Springs Road, Indiana, Pennsylvania 15701
(Address of principal executive offices) (Zip Code)
(412) 349-1811
Registrant's telephone number, including area code
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 September 30, 1996, 43,387,918 shares of Biocontrol Technology, Inc.
common stock, par value $.10 were outstanding.
<PAGE>
<TABLE>
PART I FINANCIAL STATEMENTS
Item 1. Financial Statements
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Sep 30, 1996 Dec. 31, 1995
(Unaudited) (Note)
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 2,918,584 $ 3,204,501
A/R - net of allowance for bad debt 112,790 202,526
Notes receivable - related parties 250,000 250,000
Notes receivable - net of
allowance for loan losses 12,000 12,000
Inventory - net of valuation allowance 3,148,635 1,660,139
Prepaid expenses 153,706 148,526
------------- ------------
TOTAL CURRENT ASSETS 6,595,715 5,477,692
PROPERTY, PLANT AND EQUIPMENT
Building 1,442,423 234,863
Land 246,250 0
Construction in Progress 1,212,405 0
Leasehold improvements 1,148,897 1,092,311
Furniture, fixtures & equipment 699,956 633,237
Machinery and equipment 4,240,478 3,558,964
------------- ------------
Subtotal 8,990,409 5,519,375
Less accumulated depreciation 2,461,773 2,087,032
------------- ------------
6,528,636 3,432,343
OTHER ASSETS
Notes receivable - related parties 125,900 95,900
Interest receivable - related parties 50,445 42,237
Patents, net of amortization 12,180 15,429
Other assets 13,513 11,068
------------- ------------
202,038 164,634
------------- ------------
TOTAL ASSETS $ 13,326,389 $ 9,074,669
============= ============
Note: The Balance Sheet at Decmeber 31, 1995 has been derived from audited
financial statements at that date.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Biocontrol Technology ,Inc. and Subsidiaries
Consolidated Balance Sheets
(CONTINUED)
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
(Unaudited) (Note)
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 769,833 $ 1,838,408
Current portion of long-term debt 53,597 28,404
Accrued liabilities 158,736 96,634
Capital lease payable 22,501 0
Debenture payable 2,000,000 0
Escrow payable 3,300 0
Deferred revenue on contract billings 214,800 326,000
------------- ------------
TOTAL CURRENT LIABILITIES 3,222,767 2,289,446
LONG-TERM LIABILITIES
Accrued liabilities 0 114,750
Capital lease 2,555,914 0
Long-term debt 156,190 60,580
------------- ------------
2,712,104 175,330
UNRELATED INVESTORS' INTEREST
IN SUBSIDIARY 2,058,591 2,562,543
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value $10 per share
authorized, 500,000 shares issuable in series
Series 1 - outstanding 0 at Sep. 30, 1996
and 3,790 at Dec. 31, 1995 0 37,900
Series A - outstanding 20,000 at Sep. 30, 1996
and 0 at Dec. 31, 1995 200,000 0
Common stock, par value $.10 per share, authorized
60,000,000 shares, issued and outstanding 43,387,918
at Sep. 30, 1996 and 37,021,118 at Dec. 31, 1995
4,338,792 3,702,112
Additional paid-in capital 76,427,435 59,849,875
Warrants 6,680,488 6,677,820
Accumulated deficit (82,313,788) (66,220,357)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,332,927 4,047,350
------------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,326,389 $ 9,074,669
============= ===========
Note: The Balance Sheet at December 31, 1995 has been derived from audited
financial statements at that date.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the nine months ended For the nine months ended
Sep. 30, 1996 Sep. 30, 1995 Sep. 30, 1996 Sep. 30, 1995
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 460,333 $ 445,043 $ 237,945 $ 220,692
Interest income 131,646 255,315 39,389 130,803
Other Income 2,657 8,067 0 4,317
------------ ----------- ----------- -----------
594,636 708,425 277,334 355,812
Costs and expenses
Cost of products sold 232,742 190,851 138,992 61,221
Research and development 6,754,378 4,964,869 2,014,075 1,797,473
General and administrative 6,432,168 7,271,201 2,646,883 2,567,211
Warrant extensions 2,668 7,595,655 2,668 0
Warrant extensions - Subsidiary 6,999,033 4,650,000 84,033 0
Interest expense 52,637 13,470 41,813 3,332
------------ ------------ ----------- -----------
20,473,626 24,686,046 4,928,464 4,429,237
------------ ------------ ----------- -----------
Loss before unrelated investors' interest (19,878,990) (23,977,621) (4,651,130) (4,073,425)
Unrelated investors' interest in net loss of
subsidiary 3,785,559 850,033 202,424 81,636
------------ ------------ ----------- -----------
Net loss ($16,093,431) ($23,127,588) ($4,448,706) ($3,991,789)
============= ============= ============ ============
Loss per common share ($0.39) ($0.68) ($.11) ($.12)
============= ============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the nine months ended For the three months ended
Sep. 30, 1996 Sep. 30, 1995 Sep. 30, 1996 Sep. 30, 1995
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($16,093,431) ($23,127,588) ($4,448,706) ($3,991,789)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 374,741 322,226 180,052 119,326
Unrelated investors' interest in subsidiary (3,785,559) (850,033) (202,424) (81,636)
Stock issued in exchange for services 17,200 73,623 0 0
Stock issued in exchange for services
by subsidiary 7,000 61,250 0 14,000
Warrant extensions 2,668 7,595,655 2,668 0
Warrant extensions by subsidiary 6,999,033 4,650,000 84,033 0
(Increase) decrease in accounts receivable 89,736 (202,501) 518,906 (115,011)
(Increase) in inventories (1,488,496) (485,902) (371,903) (517,746)
(Increase) decrease in prepaid expenses (5,180) 123,499 45,129 8,949
(Decrease) in other assets 0 82,721 0 71,408
(Decrease) increase in accounts payable (1,068,574) (271,836) 213,244 113,645
(Decrease) in other liabilities (52,648) (29,667) (51,110) (27,355)
(Decrease) in partial billings on contract (111,200) 0 (111,200) 0
---------- ---------- ---------- ----------
Net cash flow used by operating activities (15,114,710) (12,058,553) (4,141,311) (4,406,209)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,471,034) (998,038) (2,989,395) (385,992)
(Increase) in notes receivable (25,000) (1,105,450) (25,000) (577,500)
(Increase) in interest receivable (7,404) (34,961) (1,710) (19,839)
---------- ---------- ---------- ----------
Net cash used by investing activities (3,503,438) (2,138,449) (3,016,105) (983,331)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from sale by subsidiaries of
its common stock (77,815) 1,636,232 19,611 156,969
Proceeds from stock offering 11,850,528 16,220,789 319,288 (150,000)
Proceeds from warrants exercised 25,600 200,725 0 44,550
Proceeds from warrants exercised-subsidiary 2,000 6,200 0 3,300
Proceeds from sale of Preferred stock-Series A 1,840,000 0 1,840,000 0
Cash redemption at par-Preferred stock (7,300) 0 (7,300) 0
Net increase in notes payable 120,803 28,974 119,404 47,705
Increase in debenture payable 2,000,000 0 2,000,000 0
Net increase under capital lease obligation 2,578,415 0 2,578,415 0
---------- ---------- ---------- ----------
Net cash provided by financing activities 18,332,231 18,092,920 6,869,418 102,524
---------- ---------- ---------- ----------
Net increase (decrease) in cash and equivalents (285,917) 3,895,918 (287,998) (5,287,016)
---------- ---------- ---------- ----------
Cash and equivalents, beginning of period 3,204,501 3,315,846 3,206,582 12,498,780
---------- ---------- ---------- ----------
Cash and equivalents, end of period $2,918,584 $7,211,764 $2,918,584 $7,211,764
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
BIOCONTROL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying consolidated financial statements of Biocontrol
Technology, Inc. (the "Company") and its 89.9% owned subsidiary, Coraflex,
Inc., and its 52% owned subsidiary, Diasense, Inc., and its 67% owned subsidiary
, Petrol Rem, Inc., and its 99.1% owned subsidiary, IDT, Inc., and its wholly
owned subsidiary, Barnacle Ban Inc. have been prepared in accordance with
generally accepted accounting principles for interim financial information,
and with the instructions to Form 10-Q and Rule 10-O Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K
for the year ended December 31, 1995.
NOTE B - Net Loss Per Common Share
Net loss per common share is based on the average number of outstanding
common shares. The loss per share does not include common stock equivalents
since the effect would be anti-dilutive. The weighted average shares used to
calculate the loss per share for the period ending September 30, 1996, and
September 30, 1995, were 41,131,277 and 34,178,335, respectively.
NOTE C Stockholders Equity
During the three months ended September 30, 1996, the Company sold
400,000 shares of its common stock, $2,000,000 of its Series A Convertible
Preferred, and $2,000,000 in Subordinate Convertible Debentures all to Non U.S.
residents pursuant to regulation S (See "Management's Discussion and Analysis).
During the period ending September 30, 1996, the Company extended the
exercise date of warrants to purchase 1,482 shares of common stock to a
consultant. The warrants were originally granted at an exercise price ranging
from $.45 per share and extended at the same price. The fair market value of
the stock when the extensions were granted was $2.25. The Company recorded a
$2,668 expense for the difference between the fair market value and the warrant
price times the number of shares.
<PAGE>
NOTE D Stockholders Equity - Subsidiary
During the period ending September 30, 1996, the Company's subsidiary,
Diasense Inc., extended the exercise date of warrants to purchase 36,213 shares
of common stock to certain officers, directors, employees and consultants. The
warrants were originally granted at an exercise price ranging from $.50 to
$1.00 per share and extended at the same price. The fair market value of the
stock when the extensions were granted was $3.50. Diasense, Inc. recorded a
$84,033 expense for the difference between the fair market value and the
warrant price times the number of shares.
Management's Discussion and Analysis of Financial Condition and Cash Flows
Liquidity and Capital Resources
Cash decreased from $3,204,501 at December 31, 1995, to $2,918,584 at
September 30, 1996. This decrease was attributable to the Company's
$18,333,231 provided by financing activities against $15,114,710 net operating
expenditures which primarily related to the research and development of the non
invasive glucose sensor (Sensor) and Sensor related General and Administrative
expenses. The Company also had net cash used by investing activities of
$3,503,438, which includes capitalized leases on manufacturing facilities for
the Sensor.
During the third quarter, the Company used $4,141,311 for operating
activities and $3,016,105 for investing activities. The Company provided
$6,869,418 of financing activities to fund its operating and investing
activities. The financing activities consisted primarily of selling its common
stock, convertible preferred stock and convertible debentures. This aggregated
$4,019,288 net to the Company. Proceeds from the sales were used to continue
primarily to fund the Company's research and development of the Sensor and to
provide working capital for the Company.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Cash Flows
Continued
Results of Operations
Sales during the third quarter increased from $220,692 in 1995 to
$237,945 in 1996 and from $445,043 for the nine month period ended September
30, 1995 to $460,333 for the nine month period ended September 30, 1996. The
increase was primarily due to increase sales of its Funcional Electrical
Stimulators.
Interst income decreased during the third quarter from $130,803 in
1995 to $39,389 in 1996 and from $255,315 for the nine month period ended
September 30, 1995 to $131,646 for the nine month period ended September 30,
1996. The decrease was due to the Company's having less cash to invest
during 1996 than 1995.
Costs of Products Sold increased during the third quarter from $61,221
in 1995 to $138,992 in 1996 and from $190,851 for the nine month period ended
September 30, 1995 to $232,742 for the nine month period ended September 30,
1996. The increase was due to increase sales of its Functional Electrical
Stimulators.
Research and Development expenses increased during the third quarter
from $1,797,473 in 1995 to $2,014,075 in 1996 and from $4,964,869 for the
nine month period ended September 30, 1995 to $6,754,378 for the nine month
period ended September 30, 1996. The increase was due to the Company's
increased Sensor research and development activities, which includes patient
testing.
General and Administrative expenses increased during the third quarter
from $2,567,211 in 1995 to $2,646,883 in 1996 and decreased from $7,271,201
for the nine month period ended September 30, 1995 to $6,432,168 for the nine
month period ended September 30, 1996. The third quarter increase is
attributable to the Company's increase in payroll expenses as a result of the
recruitment and hiring of new employees, primarily for the purpose of
manufacturing and promoting the glucose sensor. The nine month decrease was
due to the Company's reorganization of some manufacturing personnel to assist
with development of the Sensor.
Interest expense increased during the third quarter from $3,332 in
1995 to $41,813 in 1996 and from $13,470 for the nine month period ended
September 30, 1995 to $52,637 for the nine month period ended September 30,
1996. The increase is the result of the Company's capital leases on
manufacturing facilities for the Sensor.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(B) Reports on Form 8-K
(1) A report on form 8-K dated August 26, 1996, with
respect to Item 5 other events.
(2) A report on form 8-K dated September 20, 1996, with
respect to Item 5 other events.
(3) A report on form 8-K dated September 20, 1996 with
respect to Item 5 other events.
(4) A report on form 8-K dated September 27, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit
(5) A report on form 8-K dated October 1, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit.
(6) A report on form 8-K dated October 2, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit.
(7) A report on form 8-K dated October 11, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit.
<PAGE>
PART II - OTHER INFORMATION Continued
Item 6. Exhibits and Reports on Form 8-K Continued
(B) Reports on Form 8-K Continued
(8) A report on form 8-K dated October 17, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit.
(9) A report on form 8-K dated Octrober 25, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit.
(10) A report on form 8-K dated November 11, 1996, with
respect to Item 5 other events and Item 7 (c), Exhibit.
(11) A report on form 8-K dated November 14, 1996, with
respect to item 5 other events and Item 7 (c), Exhibit.
<PAGE>
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 on
this 15th day of November, 1996
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO and Director (principal financial
officer and principal accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,918,584
<SECURITIES> 0
<RECEIVABLES> 1,620,630
<ALLOWANCES> (1,245,840)
<INVENTORY> 3,148,635
<CURRENT-ASSETS> 6,595,715
<PP&E> 8,990,409
<DEPRECIATION> 2,461,773
<TOTAL-ASSETS> 13,326,389
<CURRENT-LIABILITIES> 3,222,767
<BONDS> 0
0
200,000
<COMMON> 4,338,792
<OTHER-SE> 794,135
<TOTAL-LIABILITY-AND-EQUITY> 13,326,389
<SALES> 460,333
<TOTAL-REVENUES> 594,636
<CGS> 232,742
<TOTAL-COSTS> 232,742
<OTHER-EXPENSES> 20,188,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,637
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,093,431)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> 0
</TABLE>
