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, 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 September 30, 1997, 95,754,826 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>
Sep. 30, 1997 Dec. 31, 1996
(Unaudited) (Note)
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 8,184,498 $ 3,802,874
Accounts receivable-net of allowance for doubtful accounts
of $0 at Sep. 30, 1997 and $195,840 Dec. 31, 1996 266,946 98,769
Notes receivable-related parties 408,000 300,000
Notes receivable 12,000 12,000
Interest receivable 7,069 0
Inventory-net of valuation allowance 3,942,658 3,340,120
Prepaid expenses 200,441 277,409
------------- -------------
TOTAL CURRENT ASSETS 13,021,612 7,831,172
PROPERTY, PLANT AND EQUIPMENT
Building 1,442,423 1,442,423
Land 246,250 246,250
Construction in process 1,350,635 1,240,320
Leasehold improvements 1,194,374 1,157,239
Furniture, fixtures and equipment 797,211 735,962
Machinery and equipment 5,227,693 4,386,364
------------- -------------
Subtotal 10,258,586 9,208,558
Less accumulated depreciation 3,314,089 2,670,207
------------- -------------
6,944,497 6,538,351
OTHER ASSETS
Notes receivable - related parties 145,900 95,900
Interest receivable - related parties 63,323 53,958
Patents, net of amortization 7,848 11,097
Other assets 11,426 13,513
------------- -------------
228,497 174,468
------------- -------------
TOTAL ASSETS $ 20,194,606 $ 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>
Sep. 30, 1997 Dec. 31, 1996
(Unaudited) (Note)
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 512,502 $ 1,035,171
Current portion of long-term debt 20,864 30,478
Current portion of capital lease obligations 66,667 48,944
Debentures payable 9,260,000 4,600,000
Accrued liabilities 214,021 148,303
Escrow payable 2,700 2,700
Deferred revenue on contract billings 105,000 180,000
------------- -------------
TOTAL CURRENT LIABILITIES 10,181,754 6,045,596
LONG-TERM LIABILITIES
Capital lease obligations 2,667,036 2,660,730
Long-term debt 13,652 38,997
------------- -------------
2,680,688 2,699,727
UNRELATED INVESTORS' INTEREST IN SUBSIDIARY 1,478,110 1,881,437
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share,
authorized 150,000,000 shares, issued and
outstanding 95,754,826 at Sep. 30, 1997 and
49,213,790 at Dec. 31, 1996 9,575,483 4,921,379
Additional paid-in capital 95,514,773 80,704,749
Warrants 6,396,994 6,907,162
Accumulated deficit (105,633,196) (88,616,059)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 5,854,054 3,917,231
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,194,606 $ 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 nine months ended For the three months ended
Sep. 30, Sep. 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 720,074 $ 460,333 $ 204,190 $ 237,945
Interest income 93,846 131,646 23,597 39,389
Other income 4,119 2,657 139 0
-------------- -------------- -------------- --------------
818,039 594,636 227,926 277,334
Costs and expenses
Cost of products sold 443,320 232,742 120,270 138,992
Research and development 5,463,301 6,754,378 1,541,640 2,014,075
Selling, general and administrative 10,009,346 6,432,168 3,408,696 2,646,883
Warrant extensions 0 2,668 0 2,668
Warrant extensions - Subsidiary 4,014,375 6,999,033 0 84,033
Interest expense 231,047 52,637 87,645 41,813
-------------- -------------- -------------- --------------
20,161,389 20,473,626 5,158,251 4,928,464
-------------- -------------- -------------- --------------
Loss before unrelated investors' interest (19,343,350) (19,878,990) (4,930,325) (4,651,130)
Unrelated investors' interest in net loss
of subsidiary 2,326,213 3,785,559 178,564 202,424
-------------- -------------- -------------- --------------
Net loss ($17,017,137) ($16,093,431) ($4,751,761) ($4,448,706)
============== ============== ============== ==============
Loss per common share ($0.27) ($0.39) ($0.08) ($0.11)
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
<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, Sep. 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($17,017,137) ($16,093,431) ($4,751,761) ($4,448,706)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation and amortization 647,131 374,741 227,062 180,052
Unrelated investors' interest in subsidiary (2,326,213) (3,785,559) (178,564) (202,424)
Warrant extensions 0 2,668 0 2,668
Warrant extensions by subsidiary 4,014,375 6,999,033 0 84,033
Stock issued in exchange for services 888,710 17,200 24,145 0
Stock issued in exchange for services by subsidiary 600 7,000 0 0
(Increase) decrease in receivables (168,177) 89,736 (71,271) 518,906
(Increase) in inventories (602,538) (1,488,496) (147,654) (371,903)
(Increase) decrease in prepaid expenses 76,968 (5,180) 21,669 45,129
Decrease in other assets 2,087 0 600 0
(Decrease) increase in accounts payable (522,667) (1,068,574) (404,980) 213,244
Decrease (increase) in other liabilities 193,677 (52,648) (140,950) (51,110)
Decrease in deferred revenue on contract billings (75,000) (111,200) 0 (111,200)
-------------- -------------- -------------- --------------
Net cash flow used by operating activities (14,888,184) (15,114,710) (5,421,704) (4,141,311)
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,050,028) (3,471,034) (338,659) (2,989,395)
(Increase) in notes receivable (158,000) (25,000) (75,000) (25,000)
(Increase) in interest receivable (16,434) (7,404) (3,666) (1,710)
-------------- -------------- -------------- --------------
Net cash provided (used) by investing activities (1,224,462) (3,503,438) (417,325) (3,016,105)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Net proceeds from sale by subsidiaries of
its common stock 0 (77,815) 0 19,611
Proceeds from stock offering 0 11,850,528 0 319,288
Net proceeds from sale of Preferred stock-Series A 0 1,840,000 0 1,840,000
Net proceeds from sale of Preferred stock-Series B 2,027,000 0 0 0
Cash redemption at par - Preferred stock 0 (7,300) 0 (7,300)
Proceeds from warrants exercised 38,200 25,600 0 0
Proceeds from warrants exercised-subsidiary 0 2,000 0 0
Net (decrease) increase in notes payable (34,959) 120,803 (6,780) 119,404
Proceeds from debentures payable 18,440,000 2,000,000 12,640,000 2,000,000
Net (decrease) increase on capital lease obligations 24,029 2,578,415 (15,086) 2,578,415
-------------- -------------- -------------- --------------
Net cash provided by financing activities 20,494,270 18,332,231 12,618,134 6,869,418
-------------- -------------- -------------- --------------
Increase (decrease) in cash and equivalents 4,381,624 (285,917) 6,779,105 (287,998)
-------------- -------------- -------------- --------------
Cash and equivalents, beginning of period 3,802,874 3,204,501 1,405,393 3,206,582
-------------- -------------- -------------- --------------
Cash and equivalents, end of period $8,184,498 $2,918,584 $8,184,498 $2,918,584
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>5
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 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 September 30, 1997,
and September 30, 1996, were 62,461,671 and 41,131,277,
respectively.
NOTE C - Stockholders Equity
During the three months ended September 30, 1997, the
Company sold $12,640,000 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, 62,000 shares of common stock were granted for
services rendered. (See "Management's Discussion and
Analysis").
<PAGE>6
BIOCONTROL TECHNOLOGY, INC.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Cash increased from $3,802,874 at December 31, 1996, to
$8,184,498 at September 30, 1997. This increase was primarily
attributable to the Company's sale of $18,440,000 in
Subordinate Convertible Debentures. During the period ended
September 30, 1997, the Company had $14,888,184 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 $1,224,462, 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 $11,264,875 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 third quarter decreased from $237,945 in
1996 to $204,190 in 1997 and increased from $460,333 for the
nine month period ended September 30, 1996 to $720,074 for the
nine month period ended September 30, 1997. The decrease and
increase were primarily due to that period's fluctuation in
sales of its Functional Electrical Stimulators.
Interest income decreased during the third quarter from
$39,389 in 1996 to $23,597 in 1997 and from $131,646 for the
nine month period ended September 30, 1996 to $93,846 for the
nine month period ended September 30, 1997. The decrease was
due to the Company's having less cash to invest during 1997
than 1996.
Costs of Products Sold decreased during the third quarter
from $138,992 in 1996 to $120,270 in 1997 and increased from
$232,742 for the nine month period ended September 30, 1996 to
$443,320 for the nine month period ended September 30, 1997.
The decrease and increase were primarily due to that period's
fluctuation in sales of its Functional Electrical Stimulators.
Research and Development expenses decreased during the
third quarter from $2,014,075 in 1996 to $1,541,640 in 1997
and from $6,754,378 for the nine month period ended September
30, 1996 to $5,463,301 for the nine month period ended
September 30, 1997. The decrease was primarily due to the
Company's decrease of expenditures related to Sensor research
and development.
<PAGE>7
Management's Discussion and Analysis of Financial Condition
and Cash Flows - Continued
Results of Operations continued
General and Administrative expenses increased during the
third quarter from $2,646,883 in 1996 to $3,408,696 in 1997
and from $6,432,168 for the nine month period ended September
30, 1996 to $10,009,346 for the nine month period ended
September 30, 1997. The increase was primarily due to
approximately $1,025,000 in international marketing efforts
and approximately $2,000,000 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 third quarter from
$41,813 in 1996 to $87,645 in 1997 and from $52,637 for the
nine month period ended September 30, 1996 to $231,047 for the
nine month period ended September 30, 1997. The increase was
primarily due to the Company's increased use in convertible
debentures as a means to generate capital.
<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 July 15, 1997, with
respect to Item 5 other events.
(2) A report on form 8-K dated July 17, 1997, with
respect to Item 5 other events.
(3) A report on form 8-K dated July 23, 1997, with
respect to Item 5 other events.
(4) A report on form 8-K dated July 24, 1997, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(5) A report on form 8-K dated August 12, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(6) A report on form 8-K dated August 19, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(7) A report on form 8-K dated August 26, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
<PAGE>9
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 September 11, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(9) A report on form 8-K dated September 15, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(10) A report on form 8-K dated September 22, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(11) A report on form 8-K dated September 30, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(12) A report on form 8-K dated October 31, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(13) A report on form 8-K dated October 31, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(14) A report on form 8-K dated November 3, 1997,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(15) A report on form 8-K dated November 4, 1997,
with respect to Item 5 other events 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 14th day of November, 1997.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO
<PAGE>11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,184,498
<SECURITIES> 0
<RECEIVABLES> 903,238
<ALLOWANCES> 0
<INVENTORY> 3,942,658
<CURRENT-ASSETS> 13,021,612
<PP&E> 10,258,586
<DEPRECIATION> 3,314,089
<TOTAL-ASSETS> 20,194,606
<CURRENT-LIABILITIES> 10,181,754
<BONDS> 0
0
0
<COMMON> 9,575,483
<OTHER-SE> (3,721,429)
<TOTAL-LIABILITY-AND-EQUITY> 20,194,606
<SALES> 720,074
<TOTAL-REVENUES> 818,039
<CGS> 443,320
<TOTAL-COSTS> 443,320
<OTHER-EXPENSES> 19,487,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,047
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,017,137)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> 0
</TABLE>
