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, 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.)
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, 1999, 581,369,005 shares of Biocontrol
Technology, Inc. common stock, par value $.10 were outstanding.
<PAGE>1
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 1,971,271 $ 125,745
Accounts receivable - net of allowance for doubtful accounts 61,543 55,959
Inventory - net of valuation allowance 69,638 74,515
Notes receivable - related parties 0 0
Notes receivable 0 0
Interest receivable 0 0
Prepaid expenses 125,491 170,544
------------ -------------
TOTAL CURRENT ASSETS 2,227,943 426,763
PROPERTY, PLANT AND EQUIPMENT
Building 1,207,610 1,429,906
Land 133,750 133,750
Construction in progress 0 0
Leasehold improvements 1,477,573 1,477,573
Machinery and equipment 5,015,563 5,014,103
Furniture, fixtures & equipment 802,044 794,740
------------- -------------
Subtotal 8,636,540 8,850,072
Less accumulated depreciation 4,372,297 4,244,650
------------- -------------
4,264,243 4,605,422
OTHER ASSETS
Related Party Receivables
Notes receivable - related parties 1,221,266 1,223,900
Interest receivable - related parties 170,646 155,628
Advances-Officers 111,848 90,779
------------- -------------
1,503,760 1,470,307
Allowance for related party receivables (1,251,351) (1,270,307)
------------- ------------
252,409 200,000
Notes receivable 142,493 142,493
Interest receivable 26,303 19,778
Goodwill, net of amortization 4,157,898 4,423,421
Deposit on equipment 32,809 0
Patents, net of amortization 1,350 2,433
Other assets 0 15,259
------------- -------------
4,360,853 4,803,384
------------- -------------
TOTAL ASSETS $ 11,105,448 $ 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>
Mar. 31, 1999 Mar. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 860,394 $ 1,750,188
Current portion of long-term debt 4,263,334 4,552,178
Current portion of capital lease obligations 85,784 99,061
Debentures payable 1,244,942 2,825,000
Accrued liabilities 942,290 1,096,644
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 7,399,444 10,325,771
LONG-TERM LIABILITIES
Capital lease obligations 1,391,764 1,412,880
------------- -------------
1,391,764 1,412,880
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY 0 24,162
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.10 per share,
authorized 600,000,000 shares, issued and
outstanding 581,369,005 at Mar. 31, 1999 and
420,773,568 at Dec. 31, 1998 58,136,901 42,077,357
Additional paid-in capital 85,162,470 92,725,285
Notes receivable issued for common stock - related party (25,000) (25,000)
Warrants 6,396,994 6,396,994
Accumulated deficit (147,357,125) (143,101,880)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 2,314,240 (1,927,244)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDER' EQUITY (DEFICIT) $ 11,105,448 $ 9,835,569
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>3
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
March 31, 1999 March 31, 1998
-------------- --------------
Revenues
Sales $ 27,320 $ 457,705
Interest income 26,706 45,478
Other income 6,767 0
------------- -------------
Total revenues 60,793 503,183
Costs and expenses
Cost of products sold 66,419 268,980
Research and development 743,845 2,653,534
Selling, general and administrative 2,443,443 1,878,754
Warrant extensions - subsidiary 0 0
Interest expense 140,763 92,807
Beneficial convertible debt feature 945,730 1,960,238
------------- -------------
4,340,200 6,854,313
------------- -------------
Loss before unrelated investors' interest (4,279,407) (6,351,130)
Unrelated investors' interest in net loss of
subsidiary 24,162 64,628
Net loss ($4,255,245) ($6,286,502)
============= =============
Loss per common share ($0.03) ($0.04)
============= =============
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, 1999 March 31, 1998
-------------- --------------
Cash flows used by operating activities:
Net loss ($4,255,245) ($6,585,727)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 441,549 213,391
Unrelated investors' interest in subsidiary (24,162) (1,911,630)
Warrant extensions by subsidiary 0 3,715,000
Beneficial convertible debt feature 945,730 250,000
Stock issued in exchange for services 64,463 18,369
(Increase) decrease in accounts receivable (5,584) (32,086)
(Increase) in inventories 4,877 (349,665)
(Increase) decrease in prepaid expenses 45,053 8,628
(Increase) decrease in other assets (5,810) 20
(Decrease) in accounts payable (805,773) (64,821)
Increase (decrease) in other liabilities (101,897) 35,052
(Decrease) increase in allowance for
related party recv. (18,956) 0
------------ ------------
Net cash flow (used) by operating activities (3,715,755) (4,703,469)
------------ ------------
Cash flows from investing activities:
Disposal of property, plant and equipment 175,000 0
Purchase of property, plant and equipment (8,764) (329,240)
(Increase) decrease in notes receivable 2,634 (83,000)
(Increase) in interest receivable (21,543) (7,294)
Deposit on equipment (32,809) 0
-------------- ------------
Net cash provided (used) by
investing activities 114,518 (419,534)
-------------- ------------
Cash flows from financing activities:
Net proceeds from sale of Preferred stock-
Series B 0 2,027,000
Proceeds from debentures payable 5,770,000 1,000,000
Payments on notes payable (288,844) (21,572)
Payments on capital lease obligations (34,393) 57,906
-------------- ------------
Net cash provided by financing activities 5,446,763 3,063,334
-------------- ------------
Increase (decrease) in cash and equivalents 1,845,526 (2,059,669)
Cash and equivalents, beginning of period 125,745 3,802,874
------------- -----------
Cash and equivalents, end of period $1,971,271 $1,743,205
============== ============
See notes to consolidated financial statements.
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,
1998.
The Company's consolidated net income (loss) is substantially
the same as comprehensive income required to be disclosed by
SFAS130.
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, 1999, and
March 31, 1998, were 487,994,207 and 156,110,750,
respectively.
NOTE C - Stockholders Equity
During the three months ended March 31, 1999, the Company
raised $5,770,000 in connection with its public offering.
(See "Management's Discussion and Analysis").
The Company's common stock is currently traded on the
NASDAQ electronic bulletion 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 has
determined a useful life of 5 years.
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. 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'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 $1,971,271
March 31, 1999 attributable to proceeds of $ 5,770,000 from the
Company's public offering and to the Company's $ 3,715,755 net
operating expenditures. The Company also had net cash provided
by investing activities of $ 114,518, which includes proceeds
from the sale of property.
Results of Operations
Sales during the first quarter decreased to $ 27,230 in 1999
from $ 457,705 in 1998. The decrease was due to the
discontinuation of sales of its Functional Electrical
Stimulators, which accounted for 51% of sales during the three-
month period ended March 31, 1998.
Interest income decreased during the first quarter to $ 26,706
in 1999 from $ 45,478 in 1998. The decrease was due to the
Company's decrease in cash available to invest.
Costs of Products Sold during the first quarter decreased to $
66,419 in 1999 from $268,980 in 1998. The fluctuations were
primarily due to the loss of orders for the Functional
Electrical Stimulators.
Research and Development expenses during the first quarter
decreased to $ 743,845 in 1999 from $ 2,653,534 in 1998. The
decrease was due to a reduction in research and development
expenditures, driven by the Company's cash flow problems and
reduction in personnel.
Selling, General and Administrative expenses during the first
quarter increased to $2,443,443 in 1999 from $ 1,878,754 in
1998. The increase was due to the Company's expenses in
connection with its public offering of securities.
Interest expense decreased during the first quarter to
$ 54,461 in 1999 from $ 92,807 in 1998. The decrease was due
to the Company's decreased use of convertible debentures as a
means to generate capital.
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 22, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(2) A report on form 8-K dated January 29, 1999,
with respect to Item 5 other events. and Item 7
(c), Exhibit.
(3) A report on form 8-K dated February 9, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(4) A report on form 8-K dated February 24, 1999,
with respect to Item 5 other events and Item 7
(c), Exhibit.
(5) A report on form 8-K dated March 22, 1999, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(6) A report on form 8-K dated March 29, 1999, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(7) A report on form 8-K dated April 1, 1999, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(8) A report on form 8-K dated April 19, 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
May, 1999.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO
