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 June 30, 1997
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Commission file number 0-10822
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BIOCONTROL TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
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(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
300 Indian Springs Road, Indiana, Pennsylvania 15701
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(Address of principal executive offices) ( Zip Code)
(412) 349-1811
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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 June 30, 1997, 71,695,466 shares of Biocontrol Technology, Inc.
common stock, par value $.10 were outstanding.
<PAGE>1
<TABLE>
PART I FINANCIAL STATEMENTS
Item 1. Financial Statements
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Jun. 30, 1997 Dec. 31, 1996
(Unaudited) (Note)
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 1,405,393 $ 3,802,874
Accounts receivable-net of allowance for doubtful accounts
of $195,840 at Jun. 30, 1997 and Dec. 31, 1996 195,675 98,769
Notes Receivable-related parties 333,000 300,000
Notes receivable 12,000 12,000
Interest receivable 6,979 0
Inventory-net of valuation allowance 3,795,004 3,340,120
Prepaid expenses 222,110 227,409
------------- -------------
TOTAL CURRENT ASSETS 5,970,161 7,831,172
PROPERTY, PLANT AND EQUIPMENT
Building 1,442,423 1,442,423
Land 246,250 246,250
Construction in process 1,323,067 1,240,320
Leasehold improvements 1,192,855 1,157,239
Furniture, fixtures and equipment 797,100 735,962
Machinery and equipment 4,918,232 4,386,364
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Subtotal 9,919,927 9,208,558
Less accumulated depreciation 3,088,110 2,670,207
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6,831,817 6,538,351
OTHER ASSETS
Notes receivable - related parties 145,900 95,900
Interest receivable - related parties 59,747 53,958
Patents, net of amortization 8,931 11,097
Other assets 12,026 13,513
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226,604 174,468
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TOTAL ASSETS $ 13,028,582 $ 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.
</TABLE>
<PAGE>2
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<CAPTION>
Jun. 30, 1997 Dec. 31, 1996
(Unaudited) (Note)
------------- -------------
<S> <C> <C>
Current Liabilites
Accounts payable $ 917,484 $ 1,035,171
Current portion of long-term debt 22,530 30,478
Current portion of capital lease obligations 64,172 48,944
Debentures payable 3,800,000 4,600,000
Accrued liabilities 396,481 148,303
Escrow payable 2,700 2,700
Deferred revenue on contract billings 105,000 180,000
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TOTAL CURRENT LIABILITIES 5,308,367 6,045,596
LONG-TERM LIABILITIES
Capital lease obligations 2,684,617 2,660,730
Long-term debt 18,766 38,997
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2,703,383 2,699,727
UNRELATED INVESTORS' INTEREST IN SUBSIDIARY 1,656,674 1,881,437
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share,
authorized 100,000,000 shares, issued and
outstanding 71,695,466 at Jun. 30, 1997 and
49,213,790 at Dec. 31, 1996 7,169,546 4,921,379
Additional paid-in capital 90,171,749 80,704,749
Warrants 6,900,298 6,907,162
Accumulated deficit (100,881,435) (88,616,059)
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TOTAL STOCKHOLDERS' EQUITY 3,360,158 3,917,231
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,028,582 $ 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.
</TABLE>
<PAGE>3
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the six months ended For the three months ended
Jun. 30, Jun. 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 515,884 $ 222,388 $ 366,563 $ 196,788
Interest income 70,249 92,257 30,030 40,015
Other income 3,980 2,657 3,980 2,657
-------------- -------------- -------------- --------------
590,113 317,302 400,573 239,460
Costs and expenses
Cost of products sold 323,050 93,750 238,575 80,062
Research and development 3,921,661 4,740,303 2,005,829 3,319,785
Selling, general and administrative 6,600,650 3,787,716 3,957,896 973,651
Warrant extensions - Subsidiary 4,014,375 6,915,000 299,375 3,456,000
Interest expense 143,402 10,824 64,566 6,134
-------------- -------------- -------------- --------------
15,003,138 15,547,593 6,566,241 7,835,632
-------------- -------------- -------------- --------------
Loss before unrelated investors' interest (14,413,025) (15,230,291) (6,165,668) (7,596,172)
Unrelated investors' interest in net loss
of subsidiary 2,147,649 3,583,135 236,019 1,817,410
-------------- -------------- -------------- --------------
Net loss ($12,265,376) ($11,647,156) ($5,929,649) ($5,778,762)
============== ============== ============== ==============
Loss per common share ($0.21) ($0.29) ($0.10) ($0.14)
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months ended For the three months ended
Jun. 30, Jun. 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($12,265,376) ($11,647,156) ($5,929,649) ($5,778,762)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation and amortization 420,069 300,623 206,678 153,486
Unrelated investors' interest in subsidiary (2,147,649) (3,583,135) (236,019) (1,817,410)
Warrant extensions by subsidiary 4,014,375 6,915,000 299,375 3,456,000
Stock issued in exchange for services 864,565 17,200 846,196 17,200
Stock issued in exchange for services by subsidiary 600 7,000 600 0
(Increase) in receivables (96,906) (434,170) (64,820) (425,700)
(Increase) in inventories (454,884) (1,116,593) (105,219) (207,800)
(Increase) decrease in prepaid expenses 55,299 (50,309) 46,671 (36,806)
Decrease in other assets 1,487 0 1,467 2,279
(Decrease) in accounts payable (117,687) (1,281,818) (52,866) (39,310)
(Decrease) increase in other liabilities 334,627 (1,538) 299,575 (6,665)
(Decrease) in deferred revenue on contract billing (75,000) 0 (75,000) 0
-------------- -------------- -------------- --------------
Net cash flow used by operating activities (9,466,480) (10,874,896) (4,763,011) (4,683,488)
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment (711,369) (587,573) (382,129) (488,978)
(Increase) in notes receivable (83,000) 0 0 0
(Increase) in interest receivable (12,768) 0 (5,474) 0
(Increase) in other assets 0 (5,694) 0 0
-------------- -------------- -------------- --------------
Net cash provided (used) by investing activities (807,137) (593,267) (387,603) (491,232)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Net proceeds from sale by subsidiaries of
its common stock 0 (97,427) 0 (257,499)
Proceeds from stock offering 0 11,533,672 0 4,401,975
Net proceeds from sales of Preferred stock-Series B 2,027,000 0 0 0
Proceeds from warrants exercised 38,200 30,600 38,200 30,600
Proceeds from warrants exercised-subsidiary 0 2,000 0 2,000
Net (decrease) increase in notes payable (28,179) 1,399 (6,607) 4,641
Proceeds from debentures payable 5,800,000 0 4,800,000 0
Payments on capital lease obligations 39,115 0 (18,791) 0
-------------- -------------- -------------- --------------
Net cash provided by financing activities 7,876,136 11,470,244 4,812,802 4,181,717
-------------- -------------- -------------- --------------
Increase (decrease) in cash and equivalents (2,397,481) 2,081 (337,812) (993,003)
-------------- -------------- -------------- --------------
Cash and equivalents, beginning of period 3,802,874 3,204,501 1,743,205 4,199,585
-------------- -------------- -------------- --------------
Cash and equivalents, end of period $1,405,393 $3,206,582 $1,405,393 $3,206,582
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<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 99.4% 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 June 30,
1997, and June 30, 1996, were 57,253,388 and 40,044,567 ,
respectively.
NOTE C - Stockholders Equity
During the three months ended June 30, 1997, the
Company sold $4,800,000 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. In addition, warrants were exercised to purchase
152,800 shares of common stock and 1,429,000 shares were
granted for services rendered. (See "Management's
Discussion and Analysis").
NOTE D - Stockholders Equity - Subsidiary
During the period ending June 30, 1997, the Company's
subsidiary, Diasense Inc., extended the exercise date of
warrants to purchase 119,750 shares of common stock to
certain directors and employees. 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 $299,375 expense for the difference
between the fair market value and the warrant price times
the number of shares.
<PAGE>6
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
$1,405,393 at June 30, 1997. This decrease was attributable
to the Company's $7,876,136 provided by financing activities
against $9,466,480 net operating expenditures which
primarily related to the research and development of the non
invasive glucose sensor (Sensor) and general and
administrative expenses. The Company also had net cash used
by investing activities of $807,137, which includes
capitalized leases on manufacturing facilities for the
Sensor.
During the three month period, the Company continued to
fund operations solely from sales of its convertible
debentures. This aggregated $4,295,949 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 second quarter increased from $196,788
in 1996 to $366,563 in 1997 and increased from $222,388 for
the six month period ended June 30, 1996 to $515,884 for the
six month period ended June 30, 1997. The increase was
primarily due to the sales of the Company's Functional
Electrical Stimulators.
Interest income decreased during the second quarter
from $40,015 in 1996 to $30,030 in 1997 and from $92,257 for
the six month period ended June 30, 1996 to $70,249 for the
six month period ended June 30, 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 second
quarter from $80,062 in 1996 to $238,575 in 1997 and
increased from $93,750 for the six month period ended June
30, 1996 to $323,050 for the six month period ended June 30,
1997. The increase was primarily due to the Company's sales
of the Functional Electrical Stimulators.
Research and Development expenses decreased during the
second quarter from $3,319,785 in 1996 to $2,005,829 in 1997
and from $4,740,303 for the six month period ended June 30,
1996 to $3,921,661 for the six month period ended June 30,
1997. The decrease was primarily due to the Company's
decrease of purchased equipment related to Sensor research
and development.
<PAGE>7
Management's Discussion and Analysis of Financial Condition
and Cash Flows-Continued
Results of Operations - Continued
Selling, General and Administrative expenses increased
during the second quarter from $973,651 in 1996 to
$3,957,896 in 1997 and from $3,787,716 for the six month
period ended June 30, 1996 to $6,600,650 for the six month
period ended June 30, 1997. The increase was primarily due
to approximately $1,025,000 in international marketing
efforts and $570,000 in commissions relating to the cost of
acquiring additional capital. Also, the Company's
subsidiaries, Petrol Rem and Barnacle Ban increased their
sales and marketing efforts by hiring additional sales
personnel and the Company experienced startup costs and
redistribution of labor due to the new $1,210,000 contract
with NeuroControl.
Interest expense increased during the second quarter
from $6,134 in 1996 to $64,566 in 1997 and from $10,824 for
the six month period ended June 30, 1996 to $143,402 for the
six month period ended June 30, 1997. The increase was
primarily due to the Company's average increase in
convertible debentures.
<PAGE>8
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 April 7, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit.
(2) 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.
(3) 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.
(4) 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.
(5) A report on form 8-K dated May 8, 1997, with
respect to Item 5 other events and Item 6,
and Item 7 (c), Exhibit.
(6) A report on form 8-K dated May 14, 1997, with
respect to Item 5 other events and Item 6,
and Item 7 (c), Exhibit.
(7) A report on form 8-K dated May 21, 1997, with
respect to Item 5 other events and Item 6,
and Item 7 (c), Exhibit.
(8) A report on form 8-K dated June 3, 1997, with
respect to Item 5 other events and Item 6,
and Item 7 (c), Exhibit.
<PAGE>9
PART II - OTHER INFORMATION- Continued
(B) Reports on Form 8-K
(9) A report on form 8-K dated June 18, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit
(10) A report on form 8-K dated July 15, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit
(11) A report on form 8-K dated July 17, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit
(12) A report on form 8-K dated July 23, 1997,
with respect to Item 5 other events and Item
6, and Item 7 (c), Exhibit
<PAGE>10
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 August, 1997.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO and Director (principal financial
officer and principal accounting
officer)
<PAGE>11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,405,393
<SECURITIES> 0
<RECEIVABLES> 743,494
<ALLOWANCES> (195,840)
<INVENTORY> 3,795,004
<CURRENT-ASSETS> 5,970,161
<PP&E> 9,919,927
<DEPRECIATION> 3,088,110
<TOTAL-ASSETS> 13,028,582
<CURRENT-LIABILITIES> 5,308,367
<BONDS> 0
0
0
<COMMON> 7,169,546
<OTHER-SE> (3,809,388)
<TOTAL-LIABILITY-AND-EQUITY> 13,028,582
<SALES> 515,884
<TOTAL-REVENUES> 590,113
<CGS> 323,050
<TOTAL-COSTS> 323,050
<OTHER-EXPENSES> 14,536,686
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,402
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,265,376)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> 0
</TABLE>
