-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BnL3iJR6DMI7ZdRHtqV3wRMRTLKeCBT2u26GhOUZ27NzFIk96zgIJWeWg+6GnZ8J o8A7/X9+cQbbOQ++7gC3Ig== 0000225211-98-000078.txt : 19981215 0000225211-98-000078.hdr.sgml : 19981215 ACCESSION NUMBER: 0000225211-98-000078 CONFORMED SUBMISSION TYPE: 10-Q/A CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOCONTROL TECHNOLOGY INC CENTRAL INDEX KEY: 0000225211 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 251229323 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-10822 FILM NUMBER: 00000000 BUSINESS ADDRESS: STREET 1: 300 INDIAN SPRINGS RD STREET 2: BLDG 2500 CITY: INDIANA STATE: PA ZIP: 15701 BUSINESS PHONE: 4123491811 MAIL ADDRESS: STREET 1: 300 INDIAN SPRINGS RD STREET 2: BLDG 2500 CITY: INDIANA STATE: PA ZIP: 15701 FORMER COMPANY: FORMER CONFORMED NAME: CORATOMIC INC DATE OF NAME CHANGE: 19861223 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 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 June 30, 1998, 316,226,240 shares of Biocontrol Technology, Inc. common stock, par value $.10 were outstanding. 1 PART I FINANCIAL STATEMENTS Item 1. Financial Statements BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Jun. 30, 1998 Dec. 31, 1997 ------------- ------------- CURRENT ASSETS Cash and equivalents $ 294,535 $ 2,759,067 Accounts receivable-net of allowance for doubtful accounts 103,108 417,329 Inventory - net of valuation allowance 1,864,959 1,834,018 Notes receivable - related parties 35,000 35,000 Notes receivable 826,050 87,000 Interest receivable 2,655 2,134 Prepaid expenses 180,845 164,012 ------------- ------------- TOTAL CURRENT ASSETS 3,307,152 5,298,560 PROPERTY, PLANT AND EQUIPMENT Building 1,444,273 1,444,273 Land 246,250 246,250 Construction in process 1,541,609 1,465,152 Leasehold improvements 1,486,083 1,197,977 Machinery and equipment 5,128,623 5,042,736 Furniture, fixture & equipment 880,154 812,221 ------------- ------------- Subtotal 10,726,992 10,208,609 Less accumulated depreciation 3,929,366 3,516,677 ------------- ------------- 6,797,626 6,691,932 OTHER ASSETS Notes receivable - related parties 1,273,900 598,900 Interest receivable - related parties 108,666 75,343 Deposit on equipment - 300,000 Goodwill, net of amortization 4,954,469 - Patents, net of amortization 4,599 6,765 Other assets 14,269 9,800 ------------- ------------- 6,355,903 990,808 ------------- ------------- TOTAL ASSETS $ 16,460,681 $ 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 2 BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) Jun. 30, 1998 Dec. 31, 1997 ------------- ------------- CURRENT LIABILITIES Accounts payable $ 1,345,352 $ 646,535 Current portion of long-term debt 2,976,715 18,765 Current portion of capital lease obligations 116,349 109,933 Debentures payable 1,949,300 3,301,280 Accrued liabilities 638,088 215,119 Escrow payable 2,700 2,700 Deferred revenue on contract billings 114,403 116,146 ------------- ------------ TOTAL CURRENT LIABILITIES 7,142,907 4,410,478 LONG-TERM LIABILITIES Capital lease obligations 2,650,625 2,688,293 Long-term debt 1,172,222 8,806 ------------- ------------ 3,822,847 2,697,099 UNRELATED INVESTORS' INTEREST IN SUBSIDIARY 1,273,387 1,409,647 STOCKHOLDERS' EQUITY Common stock, par value $.10 per share authorized 600,000,000 shares, issued and outstanding 316,226,240 at Jun. 30,1998 and 138,583,978 at Dec. 31, 1997 31,622,624 13,858,398 Additional paid-in capital 100,056,492 104,932,920 Note receivable issued for common stock - related party (25,000) (25,000) Warrants 6,396,994 6,396,994 Accumulated deficit (133,829,570) (120,699,236) -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 4,221,540 4,464,076 -------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,460,681 $ 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 3 BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the six months ended For the three months ended Jun. 30, Jun. 30, 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Revenues Sales $ 933,441 $ 515,884 $ 475,736 $ 366,563 Interest income 60,594 70,249 15,116 30,030 Other income - 3,980 - 3,980 -------------- -------------- -------------- -------------- 994,035 590,113 490,852 400,573 Costs and expenses Cost of products sold 498,860 323,050 229,880 238,575 Research and development 4,013,632 3,921,661 1,360,098 2,005,829 Selling, general and administrative 5,937,153 6,600,650 4,058,399 3,957,896 Warrant extensions - Subsidiary 1,870,000 4,014,375 1,870,000 299,375 Interest expense 205,658 143,402 112,851 64,566 Beneficial convertible debt feature 2,631,071 1,683,766 670,833 1,433,766 -------------- -------------- -------------- -------------- 15,156,374 16,686,904 8,302,061 8,000,007 -------------- -------------- -------------- -------------- Loss before unrelated investors' interest (14,162,339) (16,096,791) (7,811,209) (7,599,434) Unrelated investors' interest in net loss of subsidiary 1,032,005 2,147,649 967,377 236,019 -------------- -------------- -------------- -------------- Net loss ($13,130,334) ($13,949,142) ($6,843,832) ($7,363,415) ============== ============== ============== ============== Loss per common share ($0.06) ($0.24) ($0.03) ($0.13) ============== ============== ============== ============== See notes to consolidated financial statements.
4 BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended For the three months ended Jun. 30, Jun. 30, 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Cash flows used by operating activities: Net loss ($13,130,334) ($13,949,142) ($6,843,832) ($7,363,415) Adjustments to reconcile net loss to net cash used by operating activities : Depreciation and amortization 768,884 420,069 423,567 206,678 Unrelated investors' interest in subsidiary (1,032,005) (2,147,649) (967,377) (236,019) Warrant extensions by subsidiary 1,870,000 4,014,375 1,870,000 299,375 Debenture interest converted to stock 72,665 - 53,800 - Premium for extention on debenture 680,500 - 680,500 - Beneficial convertible debt feature 2,631,071 1,683,766 670,833 1,433,766 Acquistion of ICTI 621,517 - 871,517 - Stock issued in exchange for services (17,688) 864,565 7,499 846,196 Stock issued in exchange for services by subsidiary - 600 - 600 (Increase) in receivables 314,221 (96,906) 218,869 (64,820) (Increase) in inventories (30,941) (454,884) 2,800 (105,219) (Increase) decrease in prepaid expenses (16,833) 55,299 4,913 46,671 (Increase) decrease in other assets (4,469) 1,487 4,074 1,467 (Decrease) increase in accounts payable 698,817 (117,687) 841,682 (52,866) Increase in other liabilities 422,969 334,627 489,141 299,575 (Decrease) in deferred revenue on contract billing (1,743) (75,000) (1,743) (75,000) -------------- -------------- -------------- -------------- Net cash flow (used) by operating activities (6,153,369) (9,466,480) (1,673,757) (4,763,011) -------------- -------------- -------------- -------------- Cash flows from investing activities: Purchase of property, plant and equipment (784,082) (711,369) (48,118) (382,129) (Increase) in notes receivable (825,050) (83,000) (175,050) - (Increase) in interest receivable (33,844) (12,768) (19,212) (5,474) Acquisition of ICTI (1,030,000) - (1,030,000) - -------------- -------------- -------------- -------------- Net cash provided (used) by investing activities (2,672,976) (807,137) (1,272,380) (387,603) -------------- -------------- -------------- -------------- Cash flows from financing activities: Net proceeds from sales of Preferred stock-Series B - 2,027,000 - - Proceeds from warrants exercised - 38,200 - 38,200 Proceeds from debentures payable 6,945,000 5,800,000 1,725,000 4,800,000 Payments on notes payable (528,634) (28,179) (374,474) (6,607) Payments on capital lease obligations (54,553) 39,115 (28,781) (18,791) -------------- -------------- -------------- -------------- Net cash provided by financing activities 6,361,813 7,876,136 1,321,745 4,812,802 -------------- -------------- -------------- -------------- Decrease in cash and equivalents (2,464,532) (2,397,481) (1,624,392) (337,812) -------------- -------------- -------------- -------------- Cash and equivalents, beginning of period 2,759,067 3,802,874 1,918,927 1,743,205 -------------- -------------- -------------- -------------- Cash and equivalents, end of period $ 294,535 $1,405,393 $ 294,535 $1,405,393 ============== ============== ============== ============== 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, 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 June 30, 1998, and June 30, 1997, were 202,083,593 and 57,253,388, respectively. NOTE C - Stockholders Equity During the three months ended June 30, 1998, the Company issued 4% Subordinate Convertible Debentures totaling $1,725,000 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. During the period ending June 30, 1998, Diasense Inc., extended the exercise date of warrants to purchase 748,000 shares of common stock to certain directors, consultants and employees. The warrants were originally granted at an exercise price of $.50 per share and extended at the same price. The assigned value of the stock when the extensions were granted was $3.50. Diasense Inc. recorded a $1,870,000 expense for the difference between the assigned value and the warrant price times the number of shares. 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 has provided documents in response to such requests. The class action lawsuit which names the Company and certain officers and directors as defendants is pending in the U.S. District Court for the Western District of Pennsylvania. The action has been certified as a class action, and remains in the pre-trial pleading stage pursuant to consent of all the parties. 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 Small-Cap Market, 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. NOTE G - RESTATEMENT The accompanying financial statements include the effect of adjustments which were made to financial statements previously issued by the Company. Subsequent to the issuance of its consolidated financial statements for the quarter ended June 30, 1998, the Company determined that beneficial conversion terms included in its convertible debentures issued in 1996, 1997, and 1998 should be reflected in its financial statements as expense and as additional paid-in capital. The amount of expense charged to operations as a result of this adjustment was $1,650,000 in 1996; $6,278,853 in 1997; $2,631,071 for the six months ended June 30, 1998; $1,683,766 for the six months ended June 30, 1997; $670,833 for the three months ended June 30, 1998; and $1,433,766 for the three months ended June 30, 1997. Corresponding amounts were recognized as additional paid-in capital and there was no effect to the total Stockholders Equity as a result of these adjustments. The Company has also revised its previously issued financial statements to reflect a reduction in the amorization period for goodwill associated with its acquisition of ICTI from 20 years to 5 years. The additional amortization expense for the quarter and six months ended June 30, 1998 was $197,436 and $285,944 respectively. 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 $294,535 at June 30, 1998. This decrease was attributable to the Company's $6,153,369 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 $2,672,976, which includes equipment consolidated from ICTI, Inc. and the making of Notes Receivable to related parties. Furthermore, the Company had net cash provided by financing activities of $6,361,813 of which $6,945,000 was provided from debentures sold pursuant to regulation S. Net cash provided by financing activities was primarily used to continue to fund the Company's research and development projects, payments in connection with the acquisition of ICTI, Inc. and to provide working capital for the Company. Results of Operations Sales during the second quarter increased to $475,736 in 1998 from $366,563 in 1997 and increased for the six month period to $933,441 in 1998 from $515,884 in 1997. The increase was primarily due to increased sales of the Functional Electrical Stimulators, the sales of which have been suspended. Interest income decreased during the second quarter to $15,116 in 1998 from $30,030 in 1997 and decreased for the six month period to $60,594 in 1998 from $70,249 in 1997. The decrease was due to the Company's having less cash to invest during the periods in 1998 than in 1997. Costs of Products Sold during the second quarter decreased to $229,880 in 1998 from $238,575 in 1997 and increased for the six month period to $498,860 in 1998 from $323,050 in 1997. The fluctuations were primarily due to varying orders for the Functional Electrical Stimulators. Research and Development expenses during the second quarter decreased to $1,360,098 in 1998 from $2,005,829 in 1997 and increased for the six month period to $4,013,632 in 1998 from $3,921,661 in 1997 The second quarter decrease was due to a reduction in research and development expenditures. Selling, General and Administrative expenses during the second quarter increased to $4,058,399 in 1998 from $3,957,896 in 1997 and decreased for the six month period to $5,651,209 in 1998 from $6,600,650 in 1997. The overall decrease was due to the Company's reduction in personnel and expenditures. The increase from 1997 to 1998 was due to goodwill expenses related to the ICTI acquisition. Interest expense during the second quarter increased to $112,851 in 1998 from $64,566 in 1997 and increased for the six month period to $205,658 in 1998 from $143,402 in 1997. The increase was due to the Company's continued efforts in acquiring capital through 4% convertible debentures and to Notes Payable in connection with the acquisition of ICTI. The Company's cash flow problems resulted in a reduction in personnel during the quarter ended June 30,1998. In addition, such problems resulted in the Company's inability to meet its full payroll during June, 1998. 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 02, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (2) A report on form 8-K dated July 06, 1998, with respect to Item 5 other events. and Item 7 (c), Exhibit. (3) A report on form 8-K dated July 07, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (4) A report on form 8-K dated July 15, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (5) A report on form 8-K dated July 16, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (6) A report on form 8-K dated August 04, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (7) A report on form 8-K dated August 05, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (8) A report on form 8-K dated August 07, 1998, with respect to Item 5 other events and Item 7 (c), Exhibit. (9) A report on form 8-K dated August 07, 1998, 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 14th day of August, 1998. BIOCONTROL TECHNOLOGY, INC. By /s/ Fred E. Cooper Fred E. Cooper CEO -----END PRIVACY-ENHANCED MESSAGE-----