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, 1998
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 March 31, 1998, 192,724,748 shares of Biocontrol Technology, Inc.
common stock, par value $.10 were outstanding.
<PAGE>1
PART I FINANCIAL STATEMENTS
Item 1. Financial Statements
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Mar. 31, 1998 Dec. 31, 1997
(Unaudited) (Note)
------------- -------------
CURRENT ASSETS
Cash and equivalents $ 1,918,927 $ 2,759,067
Accounts receivable-net of allowance for
doubtful accounts 321,977 417,329
Inventory - net of valuation allowance 1,867,759 1,834,018
Notes receivable - related parties 35,000 35,000
Notes receivable 87,000 87,000
Interest receivable 2,393 2,134
Prepaid expenses 185,488 164,012
------------- -------------
TOTAL CURRENT ASSETS 4,418,544 5,298,560
PROPERTY, PLANT AND EQUIPMENT
Building 1,444,273 1,444,273
Land 246,250 246,250
Construction in process 1,505,372 1,465,152
Leasehold improvements 1,486,083 1,197,977
Machinery and equipment 5,406,491 5,042,736
Furniture, fixture & equipment 856,104 812,221
------------- -------------
Subtotal 10,944,573 10,208,609
Less accumulated depreciation 3,772,403 3,516,677
------------- -------------
7,172,170 6,691,932
OTHER ASSETS
Notes receivable - related parties 1,248,900 598,900
Interest receivable - related parties 89,716 75,343
Deposit on equipment 300,000 300,000
Goodwill 5,310,501 -
Patents, net of amortization 5,682 6,765
Other assets 18,343 9,800
------------- -------------
6,973,142 990,808
------------- -------------
TOTAL ASSETS $ 18,563,856 $ 12,981,300
============= =============
____________________________________________________________________________
Note: The Balance Sheet at December 31, 1997 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, 1998 Dec. 31, 1997
(Unaudited) (Note)
------------- -------------
CURRENT LIABILITIES
Accounts payable $ 503,670 $ 646,535
Current portion of long-term debt 3,123,061 18,765
Current portion of capital lease obligations 120,181 109,933
Debentures payable 3,900,000 3,301,280
Accrued liabilities 283,034 215,119
Escrow payable 2,700 2,700
Deferred revenue on contract billings 114,403 116,146
------------- ------------
TOTAL CURRENT LIABILITIES 8,047,049 4,410,478
LONG-TERM LIABILITIES
Capital lease obligations 2,652,273 2,688,293
Long-term debt 1,400,350 8,806
------------- ------------
4,052,623 2,697,099
UNRELATED INVESTORS' INTEREST
IN SUBSIDIARY 1,347,016 1,409,647
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share
authorized 300,000,000 shares, issued and
outstanding 192,724,748 at Mar. 31,1998 and
138,583,978 at Dec. 31, 1997 19,472,475 13,858,398
Additional paid-in capital 96,530,838 97,004,067
Notes receivable issued for
common stock - related party (25,000) (25,000)
Warrants 6,396,994 6,396,994
Accumulated deficit (117,258,139) (112,770,383)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 5,117,168 4,464,076
-------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 18,563,856 $ 12,981,300
============= ==============
____________________________________________________________________________
Note: The Balance Sheet at December 31, 1997 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, 1998 March 31, 1997
-------------- --------------
Revenues
Sales $ 457,705 $ 149,321
Interest income 45,478 40,219
------------- -------------
Total revenues 503,183 189,540
Costs and expenses
Cost of products sold 268,980 84,475
Research and development 2,653,534 1,915,832
Selling, general and administrative 1,790,246 2,642,754
Warrant extensions - subsidiary 0 3,715,000
Interest expense 92,807 78,836
------------- -------------
4,805,567 8,436,897
------------- -------------
Loss before unrelated investors' interest (4,302,384) (8,247,357)
Unrelated investors' interest in net loss of
subsidiary 64,628 1,911,630
------------- -------------
Net loss ($4,237,756) ($6,335,727)
============= =============
Loss per common share ($0.03) ($0.12)
============= =============
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, 1998 March 31,1997
-------------- -------------
Cash flows used by operating activities:
Net loss ($4,487,756) ($6,335,727)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 256,809 213,391
Unrelated investors' interest in subsidiary (64,628) (1,911,630)
Warrant extensions by subsidiary 0 3,715,000
Debenture interest converted to stock 18,865 0
Stock issued in exchange for services (25,187) 18,369
(Increase) in accounts receivable 95,352 (32,086)
(Increase) in inventories (33,741) (349,665)
(Increase) decrease in prepaid expenses (21,746) 8,628
Decrease (increase) in other assets (8,543) 20
(Decrease) in accounts payable (142,865) (64,821)
Increase (decrease) in other liabilities (66,172) 35,052
-------------- ------------
Net cash flow (used) by operating activities (4,479,612) (4,703,469)
-------------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (735,964) (329,240)
(Increase) in notes receivable (650,000) (83,000)
(Increase) in interest receivable (14,632) (7,294)
-------------- ------------
Net cash provided (used) by
investing activities (1,400,596) (419,534)
-------------- ------------
Cash flows from financing activities:
Net proceeds from sale of Preferred stock-
Series B 0 2,027,000
Proceeds from debentures payable 5,220,000 1,000,000
Payments on notes payable (154,160) (21,572)
Payments on capital lease obligations (25,772) 57,906
-------------- ------------
Net cash provided by financing activities 5,040,068 3,063,334
-------------- ------------
Increase (decrease) in cash and equivalents (840,140) (2,059,669)
-------------- ------------
Cash and equivalents, beginning of period 2,759,067 3,802,874
-------------- ------------
Cash and equivalents, end of period $1,918,927 $1,743,205
============== ============
See notes to consolidated financial statements.
<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., and its
58.4% owned subsidiary, ICTI, 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, 1997.
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, 1998, and
March 31, 1997, were 156,110,750 and 51,104,376, respectively.
NOTE C - Stockholders Equity
During the three months ended March 31, 1998, the Company
issued 4% Subordinate Convertible Debentures totaling
$5,220,000 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 45 days from issuance
(See "Management's Discussion and Analysis").
The Company's common stock is currently traded on the
NASDAQ Small-Cap Market. Revised requirements for this
market include a minimum trading price of $1.00 which will
limit the Company's option to continue to trade on NASDAQ.
NOTE D Stock Purchase Agreement
Effective March 4, 1998, pursuant to a Stock Purchase
Agreement dated February 20, 1998, the Company acquired 58.4%
of International Chemical Technologies, Inc. (ICTI) a
development stage corporation. ICTI commenced operations in
May 1997 and plans to engage in the business of manufacturing
and marketing, and licensing rights with respect to certain
corrosion/wear-resistant metal alloy coating compositions.
BIOCONTROL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS Continued
NOTE D Stock Purchase Agreement - Continued
The unaudited financial statements of ICTI as of December
31, 1997 present accumulated losses of $680,335, a working
capital deficiency of $457,164, and a net deficiency in assets
of $678,335.
Consideration for the purchase of the 58.4% interest in ICTI
included a cash payment of $1,030,000; a promissory note for
$3,350,000 at 8%; 2,000,000 shares of Biocontrol common stock
(fair market value of $250,000), a warrant to purchase
1,000,000 shares of Biocontrol stock for $2 per share anytime
through March 4, 2003; and the guarantee by Biocontrol of a
promissory note for $1,300,000 payable by ICTI to the seller.
The Biocontrol promissory note for $3,350,000 is payable in
monthly installments as follows; (i) on the first day of each
calendar month from April 1, 1998 through and including
September 1, 1998 a principal payment of $150,000 per month
plus accrued interest (ii) on October 1, 1998, a principal
payment of $1,100,000 plus accrued interest (iii) on the
first day of each calendar month from November 1, 1998 through
and including November 1, 1999 a principal payment of $100,000
per month plus accrued interest and (iv) on December 1, 1999
a final payment equal to the remaining outstanding principal
balance plus all accrued interest thereon. The note is
collateralized by shares of ICTI purchased by Biocontrol.
The ICTI promissory note, guaranteed by Biocontrol, is for
$1,300,000 at an annual interest rate of 9.5% and is
payable in monthly principal amounts of $36,111 plus
interest. This note is collateralized by all tangible and
intangible assets of ICTI.
In addition, Biocontrol has agreed to make nonscheduled
capital contributions totaling $3,000,000 to ICTI on or
before September 4, 1998.
NOTE E - Legal Proceedings
During the last quarter, the Company and its affiliates were
served with subpoenas by the U.S. Attorneys' office; the
Company is currently in the process of copying documents for
production in response to such subpoenas. The class action
suit which names the Company as a defendant remains in the pre-
trial pleading stage pursuant to consent of all the parties
<PAGE>
BIOCONTROL TECHNOLOGY, INC.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
- -------------------------------
Cash decreased from $2,759,067 at December 31, 1997 to
$1,918,927 at March 31,1998. This decrease was attributable to
the Company's $5,040,068 provided by financing activities
against $4,479,612 net operating expenditures which primarily
related to the research and development of the non invasive
glucose sensor (Sensor), Sensor related general and
administrative expenses and costs associated with the
acquisition of ICTI, Inc.. The Company also had net cash used
by investing activities of $1,400,596, which includes
equipment consolidated from ICTI, Inc. and the making of Notes
Payable to related parties.
Other assets include goodwill in the amount of $5.3
million which was recorded in accordance with GAAP as the
result of the ICTI Inc. transaction.
The Company continued to fund operations solely from
sales of convertible debentures. This aggregated $5,220,000
to the Company. Proceeds from the sales were primarily used
to continue to fund the Company's research and development
projects, payments due to the acquisition of ICTI, Inc. and to
provide working capital for the Company.
Results of Operations
- ---------------------
Sales during the first quarter increased from $149,321 in
1997 to $457,705 in 1998. The increase was primarily due to
the increase in sales of the Company's Functional Electrical
Stimulators.
Interest income increased during the first quarter from
$40,219 in 1997 to $45,478 in 1998. The increase was due to
the Company's having more cash to invest during the period
1998 than 1997.
Costs of Products Sold increased during the first quarter
from $84,475 in 1997 to $268,980 in 1998. 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 $1,915,832 in 1997 to $2,653,534 in 1998.
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 $2,642,754 in 1997 to $1,790,246
in 1998. The decrease was due to the Company's reorganization
of some manufacturing personnel to assist with development of
the Sensor and management's implementation of cost control
polices.
Interest expense increased during the first quarter from
$78,836 in 1997 to $92,807 in 1998. The increase was due to
the Company's continued efforts in acquiring capital through
4% convertible debentures and Notes Payable according to the
ICTI sales agreement (See Note D).
<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 March 31, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(2) A report on form 8-K dated April 03, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(3) A report on form 8-K dated April 08, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(4) A report on form 8-K dated April 23, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(5) A report on form 8-K dated April 29, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(6) A report on form 8-K dated April 30, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(7) A report on form 8-K dated May 04, 1998, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(8) A report on form 8-K dated May 12, 1998, 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 May, 1998.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
------------------------
Fred E. Cooper
CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,918,927
<SECURITIES> 0
<RECEIVABLES> 321,977
<ALLOWANCES> 0
<INVENTORY> 1,867,759
<CURRENT-ASSETS> 4,418,544
<PP&E> 10,994,573
<DEPRECIATION> 3,772,403
<TOTAL-ASSETS> 18,563,856
<CURRENT-LIABILITIES> 8,047,049
<BONDS> 0
0
0
<COMMON> 19,272,475
<OTHER-SE> (708,619)
<TOTAL-LIABILITY-AND-EQUITY> 18,563,856
<SALES> 457,705
<TOTAL-REVENUES> 503,183
<CGS> 268,980
<TOTAL-COSTS> 268,980
<OTHER-EXPENSES> 4,443,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,807
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,237,756)
<EPS-PRIMARY> (.03)
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