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 March 31, 1997
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
<PAGE>1
PART I FINANCIAL STATEMENTS
Item 1. Financial Statements
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Mar. 31, 1997 Dec. 31, 1996
(Unaudited) (Note)
------------- -------------
CURRENT ASSETS
Cash and equivalents $ 1,743,205 $ 3,802,874
Accounts receivable-net of allowance for
doubtful accounts of $195,840 at Mar. 31,
1997 and Dec. 31, 1996 130,855 98,769
Notes receivable - related parties 383,000 300,000
Notes receivable 12,000 12,000
Inventory - net of valuation allowance 3,689,785 3,340,120
Prepaid expenses 268,781 277,409
------------- -------------
TOTAL CURRENT ASSETS 6,227,626 7,831,172
PROPERTY, PLANT AND EQUIPMENT
Building 1,442,423 1,442,423
Land 246,250 246,250
Construction in process 1,290,199 1,240,320
Leasehold improvements 1,176,994 1,157,239
Furniture, fixtures & equipment 789,389 735,962
Machinery and equipment 4,592,543 4,386,364
------------- -------------
Subtotal 9,537,798 9,208,558
Less accumulated depreciation 2,882,515 2,670,207
------------- -------------
6,655,283 6,538,351
OTHER ASSETS
Notes receivable - related parties 95,900 95,900
Interest receivable - related parties 61,252 53,958
Patents, net of amortization 10,014 11,097
Other assets 13,493 13,513
------------- -------------
180,659 174,468
------------- -------------
TOTAL ASSETS $ 13,063,568 $ 14,543,991
============= =============
____________________________________________________________________________
Note: The Balance Sheet at December 31, 1996 has been derived from audited
financial statements at that date.
- ----------------------------------------------------------------------------
See notes to consolidated financial statements
<PAGE>2
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
Mar. 31, 1997 Dec. 31, 1996
(Unaudited) (Note)
------------- -------------
CURRENT LIABILITIES
Accounts payable $ 970,350 $ 1,035,171
Current portion of long-term debt 24,535 30,478
Current portion of capital lease obligations 61,796 48,944
Debentures payable 1,790,000 4,600,000
Accrued liabilities 134,252 148,303
Escrow payable 2,700 2,700
Deferred revenue on contract billings 180,000 180,000
------------- ------------
TOTAL CURRENT LIABILITIES 3,163,633 6,045,596
LONG-TERM LIABILITIES
Capital lease obligations 2,705,784 2,660,730
Long-term debt 23,368 38,997
------------- -----------
2,729,152 2,699,727
UNRELATED INVESTORS' INTEREST
IN SUBSIDIARY 1,749,293 1,881,437
STOCKHOLDERS' EQUITY
Convertible preferred stock,
par value $10 per share, authorized
500,000 shares issuable in series -
Series B outstanding 22,000 at
Mar. 31, 1997 and 0 at Dec. 31, 1996 220,000 -
Common stock, par value $.10 per share
authorized 100,000,000 shares, issued and
outstanding 55,103,196 at Mar. 31, 1997 and
49,213,790 at Dec. 31, 1996 5,510,320 4,921,379
Additional paid-in capital 87,735,794 80,704,749
Warrants 6,907,162 6,907,162
Accumulated deficit (94,951,786) (88,616,059)
-------------- ------------
TOTAL STOCKHOLDERS' EQUITY 5,421,490 3,917,231
-------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,063,568 $ 14,543,991
============= ==============
____________________________________________________________________________
Note: The Balance Sheet at December 31, 1996 has been derived from audited
financial statements at that date.
- ----------------------------------------------------------------------------
See notes to consolidated financial statements
<PAGE>3
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
March 31, 1997 March 31, 1996
-------------- --------------
Revenues
Sales $ 149,321 $ 25,600
Interest income 40,219 52,242
------------- -------------
Total revenues 189,540 77,842
Costs and expenses
Cost of products sold 84,475 13,688
Research and development 1,915,832 1,420,518
Selling, general and administrative 2,642,754 2,814,065
Warrant extensions - subsidiary 3,715,000 3,459,000
Interest expense 78,836 4,690
------------- -------------
8,436,897 7,711,961
------------- -------------
Loss before unrelated investors' interest (8,247,357) (7,634,119)
Unrelated investors' interest in net loss of
subsidiary 1,911,630 1,765,725
------------- -------------
Net loss ($6,335,727) ($5,868,394)
============= =============
Loss per common share ($0.12) ($0.15)
See notes to consolidated financial statements.
<PAGE>4
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31, 1997 March 31,1996
-------------- -------------
Cash flows used by operating activities:
Net loss ($6,335,727) ($5,868,394)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 213,391 147,137
Unrelated investors' interest in subsidiary (1,911,630) (1,765,725)
Warrant extensions by subsidiary 3,715,000 3,459,000
Stock issued in exchange for services 18,369 7,000
(Increase) in accounts receivable (32,086) (8,470)
(Increase) in inventories (349,665) (908,793)
Increase (decrease) in prepaid expenses 8,628 (13,503)
Increase (decrease) in other assets 20 (2,279)
(Decrease) in accounts payable (64,821) (1,242,508)
Increase (decrease) in other liabilities 35,052 5,127
-------------- ------------
Net cash flow used by operating activities (4,703,469) (6,191,408)
-------------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (329,240) (98,595)
(Increase) in notes receivable (83,000) -
(Increase) in interest receivable (7,294) (3,440)
-------------- ------------
Net cash (used) by investing activities (419,534) (102,035)
-------------- ------------
Cash flows from financing activities:
Net proceeds from sale by subsidiaries of
its common stock - 160,072
Net proceeds from stock offering - 7,131,697
Net proceeds from sale of Preferred stock-
Series B 2,027,000 -
Payments on notes payable (21,572) (3,242)
Proceeds from debentures payable 1,000,000 -
Payments on capital lease obligations 57,906 -
-------------- ------------
Net cash provided by financing activities 3,063,334 7,288,527
-------------- ------------
Increase (decrease) in cash and equivalents (2,059,669) 995,084
-------------- ------------
Cash and equivalents, beginning of period 3,802,874 3,204,501
-------------- ------------
Cash and equivalents, end of period $1,743,205 $4,199,585
============== ============
See notes to consolidated financial statements.
<PAGE>5
NOTES TO FINANCIAL STATEMENTS
BIOCONTROL TECHNOLOGY, INC.
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 99.6% 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, 1996.
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
March 31, 1997, and March 31, 1996, were 51,104,376 and 38,828,656,
respectively.
NOTE C - Stockholders Equity
During the three months ended March 31, 1997, the Company sold
22,000 shares of its Series B Convertible Preferred stock aggregating
$2,027,000 and $1,000,000 in Subordinate Convertible Debentures to entities
which are not a U.S. person as that term is defined in Rule 902(O) of
Regulation S and were not saleable or convertible for a minimum of 90 days
from issuance. (See "Management's Discussion and Analysis").
NOTE D - Stockholders Equity - Subsidiary
During the period ending March 31, 1997, the Company's subsidiary,
Diasense Inc., extended the exercise date of warrants to purchase
1,486,000 shares of common stock to certain officers, directors, employees
and consultants. The warrants were originally granted at an exercise price
of $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 $3,715,000 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 $3,802,874 at December 31, 1996 to $1,743,205 at
March 31, 1997. This decrease was attributable to the Company's $3,063,334
provided by financing activities against $4,703,469 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 $419,534, which includes capitalized leases on
manufacturing facilities for the Sensor.
The Company continued to fund operations solely from sales of its
preferred stock and convertible debentures. This aggregated $3,027,000 net
to the Company. Proceeds from the sales were primarily used to continue to
fund the Company's research and development projects and to provide working
capital for the Company.
Results of Operations
Sales during the first quarter increased from $25,600 in 1996 to
$149,321 in 1997. The increase was primarily due to the increase in sales
of the Company's Functional Electrical Stimulators.
Interest income decreased during the first quarter from $52,242 in 1996
to $40,219 in 1997. The decrease was due to the Company's having less cash
to invest during 1997 than 1996.
Costs of Products Sold increased during the first quarter from
$13,688 in 1996 to $84,475 in 1997. The increase was primarily due to
the increase in sales of the Company's Functional Electrical Stimulators.
Research and Development expenses increased during the first quarter
from $1,420,518 in 1996 to $1,915,832 in 1997. The increase was due to the
Company's increased Sensor research and development activities, which
includes patient testing.
Selling, General and Administrative expenses decreased during the
first quarter from $2,814,065 in 1996 to $2,642,754 in 1997. The
decrease was due to the Company's reorganization of some manufacturing
personnel to assist with development of the Sensor.
Interest expense increased during the first quarter from $4,690 in
1996 to $78,836 in 1997. The increase was due to the Company's capital leases
on manufacturing facilities and equipment 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 January 23, 1997,
with respect to Item 5 other events and Item
7 (c), Exhibit.
(2) A report on form 8-K dated January 31, 1997,
with respect to Item 5 other events and Item
7 (c), Exhibit.
(3) A report on form 8-K dated, February 3, 1997
with respect to Item 5 other events and Item
7 (c), Exhibit.
(4) A report on form 8-K dated February 5, 1997,
with respect to Item 5 other events and Item
7 (c), Exhibit.
(5) A report on form 8-K dated February 5, 1997,
with respect to Item 5 other events and Item
7 (c), Exhibit.
(6) A report on form 8-K dated February 18, 1997,
with respect to Item 5 other events and Item
7 (c), Exhibit.
(7) A report on form 8-K dated February 20, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(8) A report on form 8-K dated February 21, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
<PAGE>
PART II - OTHER INFORMATION-Continued
(B) Reports on Form 8-K-Continued
(9) A report on form 8-K dated March 20, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(10) A report on form 8-K dated March 26,1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(11) A report on form 8-K dated April 7, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(12) A report on form 8-K dated April 14, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(13) A report on form 8-K dated April 24, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(14) A report on form 8-K dated May 2, 1997,
with respect to Item 5 other events and Item
6, 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 15 day of May, 1997
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO and Director (principal financial
officer and principal accounting officer)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,743,205
<SECURITIES> 0
<RECEIVABLES> 721,695
<ALLOWANCES> (195,840)
<INVENTORY> 3,689,785
<CURRENT-ASSETS> 6,227,626
<PP&E> 9,537,798
<DEPRECIATION> 2,882,515
<TOTAL-ASSETS> 13,063,568
<CURRENT-LIABILITIES> 3,163,633
<BONDS> 0
0
220,000
<COMMON> 5,510,320
<OTHER-SE> (308,830)
<TOTAL-LIABILITY-AND-EQUITY> 13,063,568
<SALES> 149,321
<TOTAL-REVENUES> 189,540
<CGS> 84,475
<TOTAL-COSTS> 84,475
<OTHER-EXPENSES> 8,273,586
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,836
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,335,727)
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