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, 2000
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.)
2275 Swallow Hill Road, Bldg.2500, Pittsburgh, PA 15220
(Address of principal executive offices) (Zip Code)
(412) 429-0673
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, 2000, 960,514,996 shares of Biocontrol
Technology, Inc. common stock, par value $.10 were
outstanding.
<PAGE>1
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
(Unaudited)
Mar. 31, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 17,521,694 $ 10,827,631
Accounts receivable - net of allowance for doubtful accounts
of $63,679 at Mar. 31, 2000 and $63,679 at Dec. 31, 1999 42,760 27,263
Inventory - net of valuation allowance 2,801 10,308
Notes receivable 55,000 200,000
Interest receivable 0 2,701
Prepaid expenses 271,441 192,246
Advances - Officers 125,290 125,290
Other assets 500,000 0
------------ -------------
TOTAL CURRENT ASSETS 18,518,986 11,385,439
PROPERTY, PLANT AND EQUIPMENT
Building 1,207,610 1,207,610
Land 133,750 133,750
Leasehold improvements 1,496,979 1,435,319
Machinery and equipment 4,774,028 4,676,330
Furniture, fixtures & equipment 891,383 841,308
------------- -------------
Subtotal 8,503,750 8,294,317
Less accumulated depreciation 4,844,499 4,704,539
------------- -------------
3,659,251 3,589,778
OTHER ASSETS
Related Party Receivables
Notes receivable 1,455,976 1,491,261
Interest receivable 22,773 22,023
------------- -------------
1,478,749 1,513,284
Allowance for related party receivables (1,329,398) (1,340,560)
------------- ------------
149,351 172,724
Notes receivable 212,000 12,000
Interest receivable 4,496 4,235
Investment in unconsolidated subsidiaries 1,623,111 485,284
Other assets 36,626 36,376
------------- -------------
2,025,584 710,619
------------- -------------
TOTAL ASSETS $ 24,203,821 $ 15,685,836
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>2
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
<CAPTION>
(Unaudited)
Mar.31, 2000 Dec.31, 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 764,681 $ 759,733
Current portion of long-term debt 4,122,270 4,159,684
Current portion of capital lease obligations 87,337 76,017
Debentures payable 9,850,000 0
Accrued liabilities 1,309,656 1,794,370
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 16,136,644 6,792,504
LONG-TERM LIABILITIES
Capital lease obligations 1,304,493 1,336,147
Long - term debt 1,748 2,240
------------- -------------
1,306,241 1,338,387
COMMITMENTS AND CONTIGENCIES
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY 228,824 0
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share,
authorized 1,700,000,000 shares, issued and
outstanding 960,514,996 at Mar. 31, 2000 and
956,100,496 at Dec. 31, 1999 96,051,500 95,610,050
Series F 4% convertible preferred stock, par value $10
per share, authorized 500,000 shares issuable in
series, shares issued and outstanding 452,000 at
March 31, 2000 and 72,000 at December 31, 1999. 4,520,000 720,000
Additional paid-in capital 89,592,738 85,608,192
Warrants 6,673,878 6,791,161
Accumulated deficit (190,306,004) (181,174,458)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 6,532,112 7,554,945
TOTAL LIABILITIES AND ------------- -------------
STOCKHOLDER' EQUITY $ 24,203,821 $ 15,685,836
============= =============
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, 2000 March 31, 1999
-------------- --------------
Revenues
Sales $ 18,998 $ 27,320
Interest income 164,318 26,706
Other income 0 6,767
------------- -------------
183,316 60,793
Costs and expenses
Cost of products sold 30,660 66,419
Research and development 2,150,323 743,845
Selling, general and administrative 4,282,048 2,443,443
Interest expense 151,757 140,763
Loss on unconsolidated subsidiary 8,750 0
Beneficial convertible debt feature 2,462,500 945,730
------------- -------------
9,086,038 4,340,200
------------- -------------
Loss before unrelated investors' interest (8,902,722) (4,279,407)
Unrelated investors' interest in net (income)
loss of subsidiary (228,824) 24,162
-------------- -------------
Net loss ($9,131,546) ($4,255,245)
============= =============
Loss per common share ($0.01) ($0.03)
============= =============
The accompanying notes are an integral part of these statements.
<PAGE>4
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31, 2000 March 31, 1999
-------------- --------------
Cash flows used by operating activities:
Net loss ($9,131,546) ($4,255,245)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 157,056 441,549
Amortization 77,207 0
Loss on disposal of assets 15,874 0
Loss on unconsolidated subsidiary 8,750 0
Unrelated investors' interest in subsidiary 228,824 (24,162)
Stock issued in exchange for services 0 64,463
Beneficial convertible debt feature 2,462,500 945,730
Warrants granted 190,298 0
Warrants and warrant extensions by subsidiaries 281,493 0
Allowance for related party note receivable (11,162) (18,956)
(Increase) decrease in accounts receivable (15,497) (5,584)
(Increase) decrease in inventories 821,880 4,877
Increase (decrease) in inventory
valuation allowance (814,373) 0
(Increase) decrease in prepaid expenses (79,195) 45,053
(Increase) decrease in other assets (500,250) (5,810)
Increase (decrease) in accounts payable 4,948 (805,773)
Increase (decrease) in other liabilities (484,714) (101,897)
------------ ------------
Net cash flow used by operating activities (6,787,907) (3,715,755)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (242,401) (8,764)
Disposal of property, plant and equipment 0 175,000
(Increase) decrease in notes receivable (55,000) 2,634
Payments received on notes receivable 35,285 0
Deposit on equipment 0 (32,809)
(Increase) decrease in interest receivable 1,690 (21,543)
Acquisition of unconsolidated subsidiary
interests (1,223,784) 0
-------------- ------------
Net cash provided (used) by
investing activities (1,484,210) 114,518
-------------- ------------
Cash flows from financing activities:
Proceeds from warrants exercised 899,420 900,000
Proceeds from sale of Preferred stock-Series F 4,275,000 0
Proceeds from debentures payable 9,850,000 4,870,000
Payments on notes payable (37,906) (288,844)
Payments on capital lease obligations (20,334) (34,393)
-------------- ------------
Net cash provided by financing activities 14,966,180 5,446,763
-------------- ------------
Net increase (decrease) in cash 6,694,063 1,845,526
Cash and cash equivalents, beginning of year 10,827,631 125,745
------------- -----------
Cash and cash equivalents, end of year $17,521,694 $1,971,271
============== ============
The accompanying notes are an integral part of these 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, 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,
1999.
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, 2000, and
March 31, 1999, were 957,411,668 and 156,110,750,
respectively.
NOTE C - Subordinated Convertible Debentures
During the three months ended March 31, 2000, the Company
issued subordinated 4% convertible debentures totaling
$9,850,000. Such convertible debentures were issued pursuant
to Regulation D, and /or Section 4(2), and have a one-year
maturity and are not saleable or convertible for a minimum of
90 days from issuance. A $2,462,500 expense was recognized
for the beneficial conversion feature of these debentures.
NOTE D - Stockholders Equity
During the three months ended March 31, 2000, the Company
raised $4,275,000 through sales of its Series F-Preferred
Stock and $899,420 from warrants exercised.
The Company's common stock is currently traded on the
electronic bulletin board under the trading symbol "BICO".
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 - Investments in Unconsolidated Subsidiaries
In January 2000, the company acquired a twenty-five
percent (25%) interest in Insight Data Link.com, Inc. for
$100,000. Insight is a Pennsylvania corporation formed to
engage in the business of acting as an internet clearinghouse
for persons seeking to acquire, and persons having available,
shopping mall space, as well as software development for
related projects.
In January 2000, Diasensor.com, acquired a ten percent
(10%) interest in MicroIslet, Inc. for an investment of
$500,000. MicroIslet is a California company, which has
licensed several diabetes research technologies from Duke
University with a specific focus on optimizing
microencapsulated islets for transplantation.
Also, during the quarter ended March 31, 2000 the Company
invested an additional $123,000 in American Inter-Metallics,
Inc. ("AIM") an unconsolidated subsidiary interest initially
acquired during 1999. AIM has its operations in Rhode Island,
and is developing a product that enhances performance in
rockets and other machinery by increasing the burn rate of
propellants.
In March 2000, Diasensor.com, acquired an equity interest
in Diabecore Medical, Inc., a Toronto-based company working to
develop a new insulin for the treatment of diabetes, for
$500,784. With this initial investment, the Company owns 12%
of Diabecore.
These investments are being reported on the equity basis
and differences in the investment and the underlying net
assets of the unconsolidated subsidiaries are being amortized
as goodwill over a 5 year period.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Cash increased to $17, 521,694 as of March 31, 2000 from
$10,827,631 as of December 31, 1999. The increase was
generated from sales of the Company's securities, including:
$9,850,000 from sales of subordinated convertible debentures;
$4,275,000 from sales of Series F preferred stock; and
$899,420 from warrants exercised. The Company's Series F
Convertible Preferred Stock is not secured by any assets, and
it is convertible by its holders beginning 120 days from
issuance. The preferred stock can be converted to our common
stock at a price that is determined by computing 75% of the
average closing bid price for the four days prior to and the
day of conversion - or a 25% discount to a five-day average
trading price. There is no minimum conversion price. The
subordinated convertible debentures are not secured by any
assets, and are subordinate to corporate debt, except for
related party debt. The debentures are convertible beginning
90 days from issuance. They can be converted to common stock
at a price that is determined by computing 80% of the average
closing bid price for the four days prior to and the day of
conversion - or a 20% discount to a five-day average trading
price. There is no minimum conversion price.
During the quarter ended March 31, 2000 the Company's net cash
flow used by operating activities was ($6,787,907). During
the same quarter, the Company had net cash flow used by
investing activities of ($1,484,210) due primarily to the
investments described in Note F.
Net inventory decreased from $10,308 as of December 31, 1999
to $2,801 as of March 31, 2000 as a result of certain
evaluations and write-offs of existing inventory. Current
(short-term) notes receivable increased by $55,000 due to a
note to one individual that is being repaid currently, with a
full payoff by August 1, 2000, and decreased by $200,000 when
a short-term note was reclassified as a long-term note.
Interest receivable decreased from $2,701 as of December 31,
1999 to zero at March 31,2000 due to timing of interest
payments on certain debt. Prepaid expenses increased from
$192,246 at December 31, 1999 to $271,441 as of March 31, 2000
due to expenses incurred in the ordinary course of business.
Other current assets of $500,000 resulted from a deposit made
during the first quarter on a transaction that was later
cancelled; the Company expects to have the deposit returned
during the second quarter of 2000. Leasehold improvements
increased by $61,660; machinery and equipment increased by
$97,688; and furniture, fixtures and equipment increased
$50,075 during the first quarter due to purchases made in
connection with the noninvasive glucose sensor project.
Related party receivables decreased by $35,285 during the
first quarter due to scheduled repayments on related party
debt. Notes receivable increased by $200,000 when a note
previously carried as a current asset was reclassified as a
long-tem asset.
Investment in unconsolidated subsidiaries increased from
$485,284 as of December 31, 1999 to $1,623,111 at March
31,2000 primarily as a result of the following investments:
$100,000 in Insight Data Link.com, Inc; $500,000 in
MicroIslet, Inc.; $500,784 in Diabecore Medical, Inc.; and
$123,000 in American Inter-Metallics, Inc. All the
investments were initial investments by the Company, with the
exception of American-Inter-Metallics, in which the Company
has invested an aggregate of $648,000 as of March 31, 2000
(See Note F).
Debenture payable of $9,850,000 were incurred because the
Company sold its convertible subordinated debentures during
the first quarter to raise capital to fund operations.
Accrued liabilities decreased from $1,794,370 to $1,309,656
when accrued bonuses were paid to employees during the first
quarter.
Results of Operations
Sales and corresponding costs of products sold during the
first quarter decreased to $18,998 and $30,660 respectively in
2000 from $27,230 and $66,419 in 1999. The decreases were
due to fluctuations in sales of the Company's various
products.
Interest income increased during the first quarter to $164,318
in 2000 from $26,706 in 1999. The increase occurred because
the Company's had more funds to invest.
Other Income decreased from $6,767 during the first quarter of
1999 to zero during the first quarter of 2000. The decrease
was due to the loss of certain rental income.
Research and Development expenses during the first quarter
increased to $2,150,323 in 2000 from $743,845 in 1999. The
increase was due to an additional activity in connection with
the Noninvasive Glucose Sensor project, made possible due to
the availability of additional funds.
Selling, General and Administrative expenses during the first
quarter increased to $4,282,048 in 2000 from $2,443,443 in
1999. The increase was due to the Company's expenses in
connection with its sales of securities, increases in
salaries, and expenses recognized for warrants granted.
The Company incurred a loss on unconsolidated subsidiary
during the first quarter of $8,750. This loss resulted form
the Company absorbing a part of a loss incurred by an
unconsolidated subsidiary; the Company's share of the loss is
determined by applying the Company's ownership percentage to
the total loss incurred.
Beneficial conversion terms included in the Company's
convertible debentures are recognized as expense and credited
to additional paid in capital at the time the associated
debentures are issued. The Company recognized $2,462,500 of
expense in connection with its issuance of Subordinated
Convertible Debentures in the first quarter of 2000 compared
to $945,730 for the same period in 1999. This increase in
2000 was primarily the result of a greater amount of
debentures being issued.
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) The Company filed a Form 8-K report on March
17, 2000, for the event dated March 14, 2000.
The item listed was Item 5, Other Events; and
Item 7(c), Exhibits.
(2) The Company filed a Form 8-K report on April 4,
2000, for the event dated March 28, 2000. The
item listed was Item 5, Other Events; and Item
7(c), Exhibits.
(3) The Company filed a Form 8-K report on April 5,
2000, for the event dated March 30, 2000. The
item listed was Item 5, Other Events; and Item
7(c), Exhibits.
(4) The Company filed a Form 8-K report on April
18, 2000, for the event dated April 11, 2000.
The item listed was Item 5, Other Events; and
Item 7(c), Exhibits.
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, 2000.
.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO
