5
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, 1999
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.)
625 Kolter Drive, Indiana, Pennsylvania 15701
(Address of principal executive offices) (Zip Code)
(724) 349-9147
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, 1999, 884,970,214 shares of
Biocontrol Technology, Inc. common stock, par value $.10 were
outstanding.
<PAGE>1
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Sep. 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 19,357,189 $ 125,745
Accounts receivable - net of allowance for doubtful accounts 76,500 55,959
Inventory - net of valuation allowance 10,000 74,515
Prepaid expenses 372,177 170,544
------------ -------------
TOTAL CURRENT ASSETS 19,815,866 426,763
PROPERTY, PLANT AND EQUIPMENT
Building 1,207,610 1,429,906
Land 133,750 133,750
Leasehold improvements 1,590,740 1,477,573
Machinery and equipment 5,043,167 5,014,103
Furniture, fixtures & equipment 838,588 794,740
------------- -------------
Subtotal 8,813,855 8,850,072
Less accumulated depreciation 4,588,174 4,244,650
------------- -------------
4,225,681 4,605,422
OTHER ASSETS
Related Party Receivables
Notes receivable - related parties 1,571,495 1,223,900
Interest receivable - related parties 18,928 155,628
Advances-Officers - 90,779
------------- -------------
1,590,423 1,470,307
Allowance for related party receivables (1,247,905) (1,270,307)
------------- ------------
342,518 200,000
Notes receivable 12,000 142,493
Interest receivable 4,059 19,778
Goodwill, net of amortization 678,502 4,423,421
Patents, net of amortization - 2,433
Other assets 395,847 15,259
------------- -------------
1,090,408 4,603,384
------------- -------------
TOTAL ASSETS $ 25,474,473 $ 9,835,569
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>2
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
<CAPTION>
Sep. 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 525,287 $ 1,750,188
Current portion of long-term debt 4,093,730 4,552,178
Current portion of capital lease obligations 80,034 99,061
Debentures payable 8,469,000 2,825,000
Accrued liabilities 1,541,172 1,096,644
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 14,711,923 10,325,771
LONG-TERM LIABILITIES
Capital lease obligations 1,330,912 1,412,880
Notes payable 2,717 -
------------- -------------
1,333,629 1,412,880
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY - 24,162
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.10 per share,
authorized 975,000,000 shares, issued and
outstanding 884,970,214 at Sep. 30, 1999 and
420,773,568 at Dec. 31, 1998 88,497,021 42,077,357
Additional paid-in capital 88,115,407 92,725,285
Notes receivable issued for common stock - related party - (25,000)
Warrants 6,396,994 6,396,994
Accumulated deficit (173,580,501) (143,101,880)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 9,428,921 (1,927,244)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDER' EQUITY (DEFICIT) $ 25,474,473 $ 9,835,569
============= =============
The accompanying notes are an integral part of these 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,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 86,936 $ 1,019,520 $ 8,508 $ 86,079
Interest income 204,024 93,060 143,266 32,466
Other income 14,397 - - -
-------------- -------------- -------------- --------------
305,357 1,112,580 151,774 118,545
Costs and expenses
Cost of products sold 148,678 536,680 15,687 37,820
Research and development 3,456,384 5,167,106 1,301,625 1,153,474
Selling, general and administrative 19,643,437 8,780,862 11,511,161 2,843,709
Warrant extensions - Subsidiary - 1,870,000 - -
Interest expense 331,345 245,605 137,092 39,947
Beneficial convertible debt feature 7,228,296 3,617,914 3,221,772 986,842
-------------- -------------- -------------- --------------
30,808,140 20,218,167 16,187,337 5,061,792
-------------- -------------- -------------- --------------
Loss before unrelated investors' interest (30,502,783) (19,105,587) (16,035,563) (4,943,247)
Unrelated investors' interest in net loss
of subsidiary 24,162 1,109,390 21,848 77,385
-------------- -------------- -------------- --------------
Net loss ($30,478,621) ($17,996,197) ($16,013,715) ($4,865,862)
============== ============== ============== ==============
Loss per common share ($0.05) ($0.07) ($0.03) ($0.02)
============== ============== ============== ==============
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,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($30,478,621) ($17,996,197) ($16,013,715) ($4,865,862)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation and amortization 1,036,300 1,190,904 155,523 461,419
Reduction in goodwill 3,213,872 - 1,213,872 -
Unrelated investors' interest in subsidiary (24,162) (213,645) (21,848) (77,385)
Warrants granted by subsidiary 5,758,343 - 5,261,807 -
Warrant extensions by subsidiary - 974,270 - -
Debebture interest converted to stock 129,789 96,697 107,719 24,033
Premium for extensions by subsidiary - 680,500 - -
Beneficial convertible debt feature 7,228,296 3,617,914 3,221,772 986,842
Stock issued in exchange for services 64,463 (23,937) - (6,250)
(Increase) decrease in receivables (20,541) 262,923 (71) (59,880)
(Increase) decrase in inventories 105,344 83,135 31,399 106,581
(Increase) decrease in prepaid expenses (206,633) (51,197) (227,736) (35,551)
Decrease in other assets (356,110) 35,269 (300) 1684
(Decrease) increase in accounts payable (1,100,003) 443,747 (3,913) (229,541)
(Decrease) increase in other liabilities 496,985 430,975 963,038 45,837
(Decrease) increase in allowance for related party recv. (22,402) - (2,599) -
(Decrease) increase in inventory allowance (40,829) - (40,829) -
Impairment loss 283,208 - - -
-------------- -------------- -------------- -------------
Net cash flow used by operating activities (13,932,701) (10,468,642) (5,355,881) (3,648,073)
-------------- -------------- -------------- -------------
Cash flows from investing activities:
Disposal of property & Equipment 175,000 - - -
Purchase of property, plant and equipment (475,079) (162,766) (354,041) (22,583)
(Increase) in notes receivable (89,341) (82,050) (40,000) 743,000
Payments on notes receivable 41,154 - 41,154 -
(Increase) in interest receivable (21,734) (59,709) 611 (25,865)
Deposit on equipment (45,547) - - -
Acquistion of ICTI - (1,030,000) - -
-------------- -------------- -------------- --------------
Net cash provided (used) by investing activities (415,547) (1,334,525) (352,276) 694,552
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from public offering 34,136,418 10,070,000 14,775,000 3,125,000
Payments on notes payable (452,563) (539,354) (9,005) (10,720)
Increase in notes payable - 250,000 - 250,000 -
Payments on capital lease obligations (104,163) (67,678) (36,679) (36,426)
-------------- -------------- -------------- --------------
Net cash provided by financing activities 33,579,692 9,712,968 14,729,316 3,327,854
-------------- -------------- -------------- --------------
(Decrease) increase in cash and equivalents 19,231,444 (2,090,199) 9,021,159 374,333
-------------- -------------- -------------- --------------
Cash and equivalents, beginning of period 125,745 2,759,067 10,336,030 294,535
-------------- -------------- -------------- --------------
Cash and equivalents, end of period $ 19,357,189 $ 668,868 $ 19,357,189 $ 668,868
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
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, Diasensor.com, Inc., and its 67% owned subsidiary,
Petrol Rem, Inc., and its 99.1% owned subsidiary, IDT, 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, 1998.
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, 1998,
and September 30, 1999, were 241,246,805 and 615,701,092,
respectively.
NOTE C - Stockholders Equity
During the three months ended September 30, 1999, the Company
raised $14,775,000 in connection with its public offering.
The Company's common stock is currently traded on the
electronic bulletin board.
NOTE D -Goodwill
The company recognized $5,310,501 of goodwill in connection
with a Stock Purchase Agreement dated February 20, 1998 to
acquire 58.4% of International Chemical Technologies, Inc.
For purposes of amortizing this goodwill, Management
determined a useful life of 5 years. In the quarter ended
June 30, 1999, management recorded a charge of $ 2,000,000
based upon a reevaluation of goodwill. In the quarter ended
September 30, 1999, management recorded a charge of $948,348
based upon the reevaluation of goodwill.
NOTE E - Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
subpoenas requested certain corporate, financial and
scientific documents and the Company continues to provide
documents in response to such requests.
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology,etal., has been certified as a class action, and is
pending in the U.S. District Court for the Western District of
Pennsylvania. The suit alleges misleading disclosures in
connection with the Noninvasive Glucose Sensor and other
related activities. By mutual agreement of the parties, the
suit remains in the pre-trial pleading stage, and the Company
is unable to determine the outcome or its impact upon the
Company at this time.
NOTE F Year 2000 Issue
The Company is currently working to resolve the potential
impact of the Year 2000 on the processing of date-sensitive
information. The Year 2000 Issue is the result of computer
programs being written using two digits (rather than four) to
define the applicable year. Programs which are susceptible to
problems after December 31, 1999 are those which recognize a
date using "00" as the year 1900 rather than the year 2000,
which could result in miscalculations or system failures.
Based upon a review of its own internal programs and software,
the Company currently believes that the Year 2000 will not
pose significant operational problems to its information
systems, because such systems are already compliant or will be
made compliant with minor adjustments. In addition,
ChaseMellon Shareholder Services, the Company's transfer
agent, has disclosed that it will be Year 2000 compliant and
that no interruptions in service will occur. The Company is
also conducting an investigation of its major suppliers,
vendors and other parties to determine their respective plans
for the Year 2000 compliance. The Company's common stock
currently trades on the Nasdaq electronic bulletin board;
Nasdaq and its parent, the NASD, have analyzed its products
and systems; are addressing their Year 2000 issues; and are
implementing a plan to test their systems and to remediate any
Year 2000 problems. As of this date, Nasdaq has not made a
definitive statement regarding when it will be compliant, but
has stated that it is making all necessary changes to its
trading systems. The Company's current estimates indicate
that the costs of addressing potential problems are not
expected to have a material impact upon the Company's
financial position, results of operations or cash flows in
future periods. There can be no assurance, however, that
modifications to information systems which impact the Company
and which are required to remediate year 2000 issues will be
made on a timely basis and that they will not adversely affect
the Company's systems or operations.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Cash increased from $125,745 at December 31, 1998 to
$19,357,189 at September 30, 1999. This increase was
attributable to proceeds of $34,136,418 from the Company's
public offering and to the Company's $13,932,701 net cash flow
used by operating activities during the nine months ended
September 30, 1999.
Notes Receivable from Related Parties increased from
$1,223,900 to $1,571,495 during the nine months ended
September 30, 1999. The increase was due to $100,000 of loans
to a company which is 66% owned by Fred E. Cooper, the
Company's CEO and a director, and the consolidation of accrued
interest receivable and miscellaneous advances into notes
receivable.
Results of Operations
Sales during the third quarter decreased from $86,079 in 1998
to $8,508 in 1999 and decreased for the nine month period from
$1,019,520 in 1998 to $86,936 in 1999. The decreases were due
to the discontinuation of the Company's FES project.
Interest income increased during the third quarter from
$32,466 in 1998 to $143,266 in 1999 and increased for the nine
month period from $93,060 in 1998 to $204,024 in 1999. The
increase occurred because the Company had more funds to
invest.
Costs of Products Sold during the third quarter decreased from
$37,820 in 1998 to $15,687 in 1999 and decreased for nine
month period from $536,680 in 1998 to $148,678 in 1999. The
overall decrease is primarily due to the suspension of FES
activities.
Research and Development expenses during the third quarter
increased from $1,153,474 in 1998 to $1,301,625 in 1999 and
decreased for the nine month period from $5,167,106 in 1998 to
$3,456,384 in 1999. The third quarter increase was due to
additional activity in connection with the sensor project,
made possible due to the availability of additional funds.
Selling, General and Administrative expenses during the third
quarter increased from $2,843,709 in 1998 to $11,511,161 in
1999 and increased for the nine month period from $8,780,862
in 1998 to $19,643,437 in 1999. The increase from 1998 to
1999 was due to goodwill expenses related to the ICTI
acquisition of $948,348; accrued bonuses of $1,025,000, and an
overall staff increase on the Sensor project following the cut
backs in 1998.
During 1999, the Company revisited its ICTI operations and
determined that the product may not exhibit all of the
properties needed for commercial success. In connection with
such analysis, the Company discovered a different metal-
coating process which may have the potential to succeed, and
is pursuing the feasibility of manufacturing and selling that
product. As a result, the Company has written down the
goodwill associated with the ICTI purchase.
Interest expense during the third quarter increased from
$39,947 in 1998 to $137,092 in 1999 and increased for the nine
month period from $245,605 in 1998 to $331,345 in 1999. The
increases were due to the Company's efforts in acquiring
capital through 4% convertible debentures and to Notes Payable
in connection with the acquisition of ICTI.
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 17, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(2) A report on form 8-K dated September 09, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(3) A report on form 8-K dated September 14, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(4) A report on form 8-K dated September 16, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(5) A report on form 8-K dated September 22, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(6) A report on form 8-K dated September 24, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(7) A report on form 8-K dated October 6, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(8) A report on form 8-K dated October 12, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
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 1999.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO
