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 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. 1 Biocontrol Technology, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) Mar. 31, 2000 Dec. 31, 1999 ------------- ------------- 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. 2 Biocontrol Technology, Inc. and Subsidiaries Consolidated Balance Sheets (Continued) (Unaudited) Mar.31, 2000 Dec.31, 1999 ------------- ------------- 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. 3,418,259 720,000 Additional paid-in capital 90,694,479 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. F-3 BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended March 31, 2000 1999 (Unaudited) (Unaudited) ---------- ----------- Revenues Net Sales $ 18,998 $ 27,320 Other income - 6,767 ---------- ----------- 18,998 34,087 Costs and expenses Cost of products sold 30,660 66,419 Research and development 2,150,323 743,845 General and administrative 4,188,967 2,443,443 Amortization of goodwill 77,207 - ---------- ----------- 6,447,157 3,253,707 ---------- ----------- Loss from operations (6,428,159) (3,219,620) Other income Interest 164,318 26,706 Other expense Beneficial convertible debt feature 2,462,500 945,730 Interest expense 151,757 140,763 Loss on unconsolidated subsidiary 8,750 - Loss on disposal of assets 15,874 - ---------- ----------- 2,638,881 1,086,493 ---------- ----------- Loss before unrelated investors' interest (8,902,722) (4,279,407) Unrelated investors' interest in net loss of subsidiary (228,824) 24,162 ---------- ----------- Net loss $(9,131,546) $(4,255,245) ========== =========== Loss per common share - Basic: Net Loss $ (0.01) $ (0.03) Less: Preferred stock dividends (0.00) (0.00) ---------- ----------- Net loss attributable to common stockholders $ (0.01) $ (0.03) ========== =========== Loss per common share - Diluted: Net Loss $ (0.01) $ (0.03) Less: Preferred stock dividends (0.00) (0.00) ---------- ----------- Net loss attributable to common stockholders $ (0.01) $ (0.03) ========== =========== The accompanying notes are an integral part of these statements. 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. The net loss attributable to common shareholders for the quarter ended March 31, 2000, was $9,913,138. This was determined by increasing the net loss of $9,131,546 by a $781,592 constructive dividend to preferred stockholders as discussed in Note G. 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. NOTE G - Beneficial Conversion Feature of Preferred Stock As of March 31, 2000 the Company had issued 452,000 shares of its Series F 4% convertible preferred stock which include a beneficial conversion feature providing the preferred stockholder a discount of 25% upon conversion to the Company's common stock after 120 days. The value of this beneficial conversion feature is determined by reducing the market price of the Company's common stock by the discounted conversion price on the date of commitment. This discount is recognized as a reduction in the preferred stock recorded at par and is amortized as constructive dividends to the preferred stockholders over the 120 day period using the effective interest method. The total valuation discount of this beneficial conversion feature on the 452,000 shares of preferred stock outstanding at March 31, 2000, was $1,883,333. Total amortization recognized as constructive dividends that were charged to Additional Paid in Capital in the quarter ended March 31, 2000 was $781,592. NOTE H - Restatement The accompanying consolidated financial statements include the effect of reclassifications which were made to consolidated financial statements previously issued by the Company and to the disclosures included in those consolidated financial statements. There was no change to the previously reported consolidated financial position or results of consolidated operations of the Company. Management's Discussion and Analysis of Financial Condition and Cash Flows Liquidity and Capital Resources For the Quarter ended March 31, 2000 Our 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 our securities, including: $9,850,000 from sales of our subordinated convertible debentures; $4,275,000 from sales of our Series F preferred stock; and $899,420 from warrants exercised. Our Series F Convertible Preferred Stock is not secured by any of our assets, and it is convertible by its holders beginning 120 days from when it's issued. Our 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. Our Subordinated convertible debentures are not secured by any assets, and are subordinate to our corporate debt, except for debt to any related parties. Our debentures are convertible beginning 90 days from when we issue them. 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 our net cash flow used by operating activities was ($6,787,907). During the same quarter, our net cash flow used by investing activities was ($1,484,210) due primarily to our investments in the following unconsolidated subsidiaries: Insight Data Link.com, Inc., American Inter-Metallics, Inc., MicroIslet, Inc., and Diabecore Medical, Inc., which we discuss in the following three paragraphs. During the first quarter of 2000, we made investments in unconsolidated subsidiaries. In January, BICO acquired a 25% interest in Insight Data Link.com, Inc. for $100,000. Insight is a start-up corporation with a software program and website business that acts as an internet clearinghouse for the rental of shopping mall space. Insight also plans to develop additional software for related projects. We also invested an additional $123,000 in American Inter-Metallics, bringing our total investment in AIM's rocket propulsion project to $648,000. We made these investments because our management believes they will generate revenue. Our subsidiary, Diasensor.com, Inc. also made investments in unconsolidated subsidiaries. In January 2000, Diasensor.com initiated an alliance with MicroIslet, Inc.; in return for its initial equity investment of $500,000, Diasensor.com received a 10% stake with an option to purchase an additional 10% in the future. MicroIslet is developing several diabetes research technologies with Duke University that focus on optimizing microencapsulated islets for transplantation. The project is in the research and development phase. Diasensor.com also invested in Diabecore Medical, Inc. Diabecore is a company in Toronto working with other research institutions to develop a new insulin to treat diabetes. Diasensor.com invested $500,784 in Diabecore and received a 12% ownership interest. This project is also in the research and development phase. Diasensor.com made these investments because management believes that these diabetes research organizations and the institutions they affiliate with will bring strength and support to our own diabetes research and development projects. As a result of those investments in Insight Data Link.com, American Inter-Metallics, MicroIslet and Diabecore Medical, our overall investment in unconsolidated subsidiaries increased from $485,284 as of December 31, 1999 to $1,623,111 at March 31,2000. The money we spent investing in those four companies came from stock and debenture sales during 1999. All the investments were our initial investments in those companies, except American-Inter- Metallics - we've invested a total of $648,000 in AIM as of March 31, 2000. Our 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 we made during the first quarter on a transaction that we later cancelled; we expect to have the deposit returned during the third quarter of 2000. Leasehold improvements increased by $61,660; machinery and equipment increased by $97,698; and furniture, fixtures and equipment increased $50,075 during the first quarter due to purchases we made in connection with our 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-term asset. Debentures payable of $9,850,000 were incurred because we sold 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 we paid employees accrued bonuses during the first quarter. Results of Operations Our 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 our various products. Our costs decreased due to our overall reduced sales. Our overall sales decreased because we have not been able to successfully market our products. For example, we had sales of the Diasensor totaling $9000 in the first quarter of 1999, and no sales of the Diasensor during the first quarter of 2000, because we haven't been able to successfully sell the device in Europe. We're not sure why we were only able to sell a few sensors in 1999, and none in 2000. We've hired marketing consultants to help us figure out why, and to help us learn how to sell more. We had minor sales totaling $3500 of other biomedical products, primarily leftover parts from previous models of the Diasensor, during the first quarter of 1999, but we sold all of them in 1999 and had no similar sales in 2000. Our other product sales increased, but not significantly. Bioremediation product sales totaled $9200 during the first quarter of 1999, with a slight increase to $9400 during the first quarter of 2000. During the first quarters of 1999 and 2000, sales of $3100 and $5400, respectively, were from sales of our theraPORT, an implantable device used by patients who have to have repeated injections of drugs. The theraPORT is implanted in the patient's chest, and provides a fixed port for catheters used to deliver the drugs the patient needs. Those sales increased because we were able to convince more doctors to use the product in 2000 than we were in 1999. We also had sales of our metal-coating products totaling $2400 during the first quarter of 1999 and $4150 during the first quarter of 2000. The increase was due to repeat customers who sent us more work once they were satisfied with our earlier performance. Until we have significant sales, we can't predict any trends for future revenues. Interest income increased during the first quarter to $164,318 in 2000 from $26,706 in 1999. The increase occurred because we 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 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 increased spending on our noninvasive glucose sensor project, made possible due to the availability of additional funds. We used those additional funds to replace scientists and engineers who left during 1998 when we had serious cash flow problems, and to work on future versions of the noninvasive glucose sensor. Selling, General and Administrative expenses during the first quarter increased to $4,188,967 in 2000 from $2,443,443 in 1999. The increase primarily due to additional expenses in the following areas: a $635,000 increase in salaries; a $398,000 increase in commissions on sales of our debentures and preferred stock; and a $190,000 increase in expenses recognized for warrants granted. Results of Operations We had a loss in unconsolidated subsidiary during the first quarter of $8,750. This loss resulted because we absorbed part of a loss incurred by an unconsolidated subsidiary. Our share of the loss is determined by applying our ownership percentage to the total loss incurred, and we get to deduct the portion of the loss allocated to the unrelated investors from our total net loss. Beneficial conversion terms included in our convertible debentures are recognized as expense and credited to additional paid in capital at the time the associated debentures are issued. We recognized $2,462,500 of expense in connection with its issuance of our subordinated convertible debentures in the first quarter of 2000 compared to $945,730 for the same period in 1999. The amount increased primarily because we issued more debentures this year compared to last year. Similarly, we recognized a beneficial conversion feature for our preferred stock during the first quarter of 2000. As of March 31, 2000, we issued 452,000 shares of our Series F preferred stock. The preferred stock is convertible into our common stock at a discount of 25% after 120 days. Based on accounting rules, the value of the beneficial conversion feature of the preferred stock is calculated as the difference between the market price and the discounted price for the corresponding common stock on the date the preferred stock was purchased. The total discount of $1,883,333 is recognized as a constructive dividend on our preferred stock over 120 days. The amount of the constructive dividend recognized in the first quarter of 2000 totaled $781,592 - or $1.73 per preferred share. We charged the $781,592 to additional paid- in capital. We did not have any of these charges or constructive dividends during the first quarter of 1999 because we had not yet issued our preferred stock. 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 10th day of August, 2000. BIOCONTROL TECHNOLOGY, INC. By /s/ Fred E. Cooper Fred E. Cooper CEO