As filed with the Securities and Exchange Commission on February 21, 2002
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-1
under
THE SECURITIES ACT OF 1933
BICO, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 3841 25-1229323
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
2275 Swallow Hill Road, Bldg. 2500
Pittsburgh, Pennsylvania 15220 (412) 429-0673
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices and principal
place of business)
___________________________________________
Fred E. Cooper, Chief Executive Officer
BICO, Inc.
2275 Swallow Hill Road, Building 2500, Pittsburgh, Pennsylvania 15220
(412) 429-0673
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
___________________________________________
Copy to:
Sweeney & Associates P.C.
7300 Penn Avenue, Pittsburgh, Pennsylvania 15208
(412) 731-1000
_____________________________________________________
Approximate date of commencement of proposed sale to the public:
As soon as possible after this registration statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 check the following box. [X]
CALCULATION OF REGISTRATION FEE
Title of Each Amount to Proposed Proposed Amount of
Class of be Maximum Maximum Registration
Securities to be Registered Offering Aggregate Fee
Registered Price Per Offering
Share Price
Common Stock
issuable upon
the Conversion
of Preferred 350,000,000(1) $0.02(2) $ 7,000,000 $ 644.00
Stock, Series G(1)
Common Stock
issuable upon
the Conversion 62,500,000(1) $0.02(2) $ 1,250,000 $ 115.00
Of Preferred
Stock, Series H(1)
Common Stock
issuable upon
the Conversion 137,500,000(1) $0.02(2) $ 2,750,000 $ 253.00
of Preferred
Stock, Series I(1)
Common Stock
issuable upon
the Conversion 40,000,000(1) $0.02(2) $ 800,000 $ 73.60
of Preferred
Stock, Series J(1)
Common Stock
issuable upon
the Conversion 660,000,000(1) $0.02(2) $13,200,000 $1,214,40
of Preferred
Stock, Series K(1)
Total Common Stock 1,250,000,000
Total Registration Fee $2,300.00(3)
(1)These shares are registered on behalf of selling stockholders.
(2) Estimated SOLELY for purposes of calculating the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, and based on the average of the high and low sales prices
of the common stock of Registrant on the electronic bulletin board
on February 19, 2002
(3) A filing fee of $2,300 for these shares was paid on February 21, 2002
_____________________
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the Commission acting pursuant to
Section 8(a) may determine.
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall
become effective on such date as the Commission acting pursuant to
Section 8(a) may determine.
_____________________
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
[INSIDE FRONT COVER]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED February 21, 2002
PRELIMINARY PROSPECTUS
1,250,000,000 shares
BICO, INC.
Common Stock
This prospectus is for an offering of shares of BICO, Inc.
common stock on behalf of certain selling stockholders. Some of
these selling stockholders bought preferred stock from us that are
convertible into common stock. We are registering that common
stock for sale on behalf of those preferred stockholders under
this prospectus. Of the total shares registered, the following
are being registered for each class of preferred stock:
350 million shares issuable on conversion of our Series G
preferred stock
62.5 million shares issuable on conversion of our Series H
preferred stock
137.5 million shares issuable on conversion of our Series I
preferred stock
40 million shares issuable on conversion of our Series J
preferred stock
660 million shares issuable on conversion of our Series K
preferred stock
We estimated the number of shares we'll need to cover the
conversions of our preferred stock depending on our stock price at
the time of conversion, we may need to issue fewer shares or more
shares. You should review the Selling Stockholders and Plan of
Distribution sections for more information.
Our common stock trades on the electronic bulletin board
under the trading symbol "BIKO".
We will not receive any of the money from selling the 1.25
billion shares of stock we are offering on behalf of the selling
stockholders. They will receive the proceeds from any sales. We
will receive money when we issue our Series K preferred stock
after this registration statement is declared effective. We will
use that money to continue our operations, including funding our
projects and executive salaries. You need to review our Use of
Proceeds section beginning on page 14 before you decide whether to
buy our common stock.
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU NEED TO REVIEW
THESE RISKS BEFORE YOU CONSIDER BUYING OUR COMMON STOCK. THESE
RISKS ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON
PAGE 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. If anyone tells you otherwise, it's a criminal offense.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND
SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
THE INFORMATION IN THIS PROSPECTUS ISN'T COMPLETE. IT MIGHT
CHANGE. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS
PROSPECTUS UNTIL THE REGISTRATION STATEMENT WE HAVE FILED WITH THE
SEC BECOMES EFFECTIVE. THIS PROSPECTUS ISN'T AN OFFER TO SELL OUR
COMMON STOCK, AND WE ARE NOT SOLICITING OFFERS TO BUY OUR COMMON
STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT ALLOWED.
FEBRUARY 21, 2002
PROSPECTUS SUMMARY
THE FOLLOWING SECTION IS ONLY A SUMMARY. YOU SHOULD CAREFULLY
READ THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING OUR FINANCIAL INFORMATION. OUR BUSINESS INVOLVES
SIGNIFICANT RISKS - READ MORE ABOUT THEM IN THE SECTION CAPTIONED
RISK FACTORS WHICH BEGINS ON PAGE 5
ABOUT BICO
BICO, Inc. was incorporated in the Commonwealth of
Pennsylvania in 1972 as Coratomic, Inc. Our manufacturing,
research & development operations are located at 625 Kolter Drive
in Indiana, Pennsylvania, 15701, and our administrative offices
are located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania,
15220.
Our primary business is the development of new devices,
which include models of a noninvasive glucose sensor, procedures
relating to the use of regional extracorporeal hyperthermia in
the treatment of cancer, and environmental products, which help
to clean up oil spills. Our noninvasive glucose sensor helps
diabetics measure their glucose without pricking their fingers or
having to draw blood. Regional extracorporeal hyperthermia is a
system that circulates fluid in a specific area of the body after
the fluid has been heated outside the body. The circulated
fluid's higher temperature helps treat certain diseases by
inducing an artificial fever that kills targeted cells. In 2001,
we acquired the marketing rights to a rapid HIV test that can be
used outside the laboratory to provide accurate and fast results.
We have several subsidiaries that specialize in those
different projects. Diasense, Inc. manages the noninvasive
glucose sensor project. ViaCirq, Inc. handles the hyperthermia
project, a technology called the ThermoChem System. Petrol
Rem, Inc. handles our environmental products PRP, BIOSOK and
BIOBOOM that help clean up oil spills and other pollutants in
water. Our Biocontrol Technology division focuses on our
biomedical projects and on contract manufacturing. Our Rapid HIV
Detection Corp. subsidiary markets the family of rapid HIV tests.
RISK FACTORS
If you invest in our stock, you will be placing your money
at a significant risk. Our projects are in the research and
development phase, and none of our current products has produced
any significant revenue to date. You should not invest money you
are not prepared to lose - and you should carefully review the
section captioned Risk Factors that begins on page 5 before you
decide whether to invest in our stock.
THE OFFERING
Common stock to be issued upon conversion of
our Series G preferred stock 350 million shares
Common stock to be issued upon conversion of
our Series H preferred stock 62.5 million shares
Common stock to be issued upon conversion of
our Series I preferred stock 137.5 million shares
Common stock to be issued upon conversion of
our Series J preferred stock 40 million shares
Common stock to be issued upon conversion of
our Series K preferred stock 660 million shares
Common stock outstanding after this offering,
if all shares are sold 3.7 billion shares
Our Trading Symbol BIKO - we currently
trade on the electronic
bulletin board
The common stock outstanding after this offering, if all shares
are sold, is based upon the number of shares we had outstanding
as of December 31, 2001, which was 2,450,631,119.
OUR PREFERRED STOCK
We have five classes of convertible preferred stock. We've
already sold and issued our Series G, H, I and J preferred stock.
In February 2002, we received and accepted a commitment to
purchase $25 million of our Series K preferred stock, contingent
on this registration statement being declared effective by the
SEC. This means that we've already received funds totaling $6.64
million from selling our preferred stock, and that we will
receive more money by delivering our Series K preferred stock
later.
All of our preferred stock is convertible at a price that is
based on a discount to market price and none of our preferred
stock has any minimum conversion price. This means that the
lower our stock price is, the lower the conversion price will be,
and the more common stock we will have to issue. You should
review our Selling Stockholders and Plan of Distribution
sections, as well as our Risk Factors, for more detailed
information.
SUMMARY CONSOLIDATED FINANCIAL DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 2000
9/30/2001 12/31/00
Total Assets $20,409,788 $21,930,070
Long-Term
Obligations $ 2,146,931 $ 2,211,537
Working Capital ($ 7,824,187) $ 754,368
(Deficit)
Preferred Stock $ 0 $ 0
Net Sales $ 2,869,611 $ 340,327
TOTAL REVENUES $ 2,879,108 $ 345,874
Warrant Extensions $ 0 $ 5,233,529
Benefit (Provision) $ 0 $ 0
for Income Taxes
Net Loss ($25,581,120) ($42,546,303)
Net Loss Per
Common Share
Basic ($.015) ($.04)
Diluted ($.015) ($.04)
Cash Dividends
Per Share:
Preferred $0 $0
Common $0 $0
Constructive
Dividend per $0 $0
Preferred Share
FOR THE YEARS ENDED DECEMBER 31st
2000 1999 1998 1997 1996
Total Assets $21,930,070 $15,685,836 $ 9,835,569 $ 12,981,300 $14,543,991
Long-Term
Obligations $ 2,211,537 $ 1,338,387 $ 1,412,880 $ 2,697,099 $ 2,669,727
Working
Capital $ 754,368 $ 4,592,935 ($ 9,899,008)$ 888,082 $ 1,785,576
(Deficit)
Preferred $ 0 $ 720,000 $ 0 $ 0 $ 0
Stock
Net Sales $ 340,327 $ 112,354 $ 1,145,968 $ 1,155,907 $ 597,592
TOTAL $ 345,874 $ 165,251 $ 1,196,180 $ 1,260,157 $ 600,249
REVENUES
Warrant $ 5,233,529 $ 4,669,483 $ 0 $ 4,046,875 $ 9,175,375
Extensions
Benefit
(Provision) $ 0 $ 0 $ 0 $ 0 $ 0
for
Income Taxes
Net Loss ($42,546,303)($38,072,578)($22,402,644)($30,433,177) ($24,045,702)
Net Loss Per
Common Share
Basic ($.04) ($.05) ($.08) ($.43) ($.57)
Diluted ($.04) ($.05) ($.08) ($.43) ($.57)
Cash
Dividends Per
Share:
$0 $0 $0 $0 $0
Preferred
Common $0 $0 $0 $0 $0
For more detailed information, you should review our financial
statements and notes that are included in this prospectus. You
can also get copies of our Form 10-K for the year ended December
31, 2000, and our Form 10-Q for the quarter ended September 30,
2001, as well as our other filings, all of which are available at
www.sec.gov or from us at the address listed in the section of
this prospectus captioned "Where You Can Get More Information".
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED IN THIS
SECTION BEFORE MAKING THE DECISION TO INVEST IN OUR STOCK. YOU
SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS PROSPECTUS
INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE
CURRENTLY BELIEVE MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL
RISKS AND UNCERTAINTIES THAT WE ARE UNAWARE OF OR THAT WE
CURRENTLY CONSIDER IMMATERIAL ALSO MAY BECOME IMPORTANT FACTORS
THAT AFFECT US. AN INVESTMENT IN OUR STOCK IS A HIGH RISK
INVESTMENT, AND YOU SHOULD BE PREPARED TO SUFFER A LOSS OF YOUR
ENTIRE INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE RISKS
FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, WE EXPECT THAT LOSSES WILL CONTINUE
TO INCREASE FOR THE FORSEEABLE FUTURE - AT LEAST THE NEXT SEVERAL
YEARS - AND OUR INDEPENDENT ACCOUNTANTS HAVE EXPRESSED
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
We have lost money in every period since we started our
current research and development projects - we had an accumulated
deficit of $249.3 million as of September 30, 2001 and $223.7
million as of December 31, 2000. We plan to invest heavily to
continue to develop our biomedical and environmental products and
to set up manufacturing and marketing of those products. We've
also made investments in other companies because we thought they
would help us generate revenue - so far none have produced
revenue except for INTCO. As a result, we expect to continue
to lose money for the foreseeable future - at least for the next
several years - and we expect that the losses will continue to
increase. We cannot assure you that we will ever achieve or
sustain profitability or that our operating losses will not
increase in the future. We have received a report from our
independent accountants containing an explanatory paragraph
stating that our historical losses and negative cash flows from
operations raise substantial doubt about our ability to continue
as a going concern.
WE HAVE A LIMITED OPERATING HISTORY, NO SIGNIFICANT REVENUES AND
LIMITED EXPERIENCE IN MARKETING THAT MAKES AN EVALUATION OF OUR
BUSINESS DIFFICULT.
Although we have been in business for years, we have never
generated any material revenue. Our revenues have increased
during 2001, but not enough to make any significant difference.
The majority of our activities have been related to the research
and development of products. Our current management team has
limited experience in manufacturing and marketing biomedical and
environmental products. Therefore, our historical financial
information is of limited value in evaluating our future
operating results.
Our target markets - the health care and environmental
markets - change rapidly, and we may not have the experience
necessary to successfully market our products.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR
OPERATIONS AND THAT ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO
US.
We won't receive any money if you buy the stock offered in
this prospectus - we are registering the stock for our selling
stockholders, and they will get the money if you buy this stock.
Because we don't generate enough money from selling our products
or manufacturing products for other companies, we will need to
sell more securities - either convertible securities like the
preferred stock we discuss in this prospectus, or regular common
stock - in order to continue our business. Even if we can sell
stock, and we can't assure you that we'll be successful, it may
not be enough to fund our operations until - and unless - we
become profitable. We cannot quantify the specific amounts we
will need, since the research and development process is subject
to continuous change. We will need to raise more capital to fund
our operations and our research and development projects, and we
may not be able to find financing when we need it. If that
happens, we will not be able to continue operations long enough
to bring our products to market, or to market them long enough to
become profitable, and we will have to close some, or all, of our
projects. Every time we raise money by selling our securities it
causes our existing investors to experience additional dilution.
WE CANNOT BE SURE HOW LONG IT WILL TAKE TO BRING OUR PRODUCTS TO
MARKET OR WHETHER THEY WILL EVER BECOME PROFITABLE. WE HAVE
ALREADY INVESTED OVER $45 MILLION ON PROJECTS, OTHER THAN OUR
NONINVASIVE GLUCOSE SENSOR, THAT STILL HAVEN'T GENERATED ANY
REVENUE.
Our biomedical products, specifically the noninvasive
glucose sensor and the hyperthermia treatment device, are new
products that are not established in any market. Although we
have started to market the sensor in Europe, our revenues to date
have been minimal - only about $35,000. We cannot market the
sensor in the U.S. until we receive FDA approval - and we don't
know how much longer that will take. Our hyperthermia treatment
device is being used in over a dozen health care institutions,
but we won't be able to sell the device until we begin
manufacturing. Even when we are able to manufacture and sell
these devices, we don't know how long it will be before they
become profitable.
So far, we have already invested over $45 million in various
projects, other than our noninvasive glucose sensor, including
the ViaCirq hyperthermia project, the Petrol Rem environmental
products, the American Inter-Metallics propellant enhancement
project, and a metal-coating project - and we still don't have
any material revenues from any of those projects. The only
material revenue we generated at all has been from the Petrol Rem
products. Although Petrol Rem had gross revenues of $2.4 million
through the first three quarters of 2001, those Petrol Rem
revenues were primarily from INTCO - a subsidiary we acquired at
the end of 2000 for a total investment of approximately $1.25
million. We borrowed money from INTCO's minority shareholder
during the 4th quarter of 2001, and that loan is secured by our
stock in INTCO. If we cannot repay the $700,000 loan when it's
due in March and April 2002, we could lose our INTCO stock.
WE FACE SERIOUS COMPETITION, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY. IF SOMEONE ELSE DEVELOPS A BETTER PRODUCT BEFORE WE
DO, WE WON'T BE ABLE TO SELL OUR PRODUCTS OR MAKE ANY MONEY.
The medical device industry and the environmental industry
are very competitive. Other companies are developing
technologies and devices that will compete with ours. These
other companies may be further along in their research and
development may be better capitalized, have more sophisticated
equipment and expertise and various other competitive advantages
compared to us. These other companies may be able to bring their
products to market before we are able to enter the market, which
would have a serious negative impact on our ability to succeed.
Many of the large biomedical companies are funding research
into noninvasive glucose measurement, and one of them might beat
us to the market. Our sensor will also compete against existing
finger-prick technology, which is already well established. If
we cannot convince diabetics that our device is superior, we will
not be able to sell our sensor. Our hyperthermia device is a new
technology, which will compete against other, well-established
forms of cancer treatment. If we cannot convince the medical
community that our product offers superior alternatives, we will
not succeed with that device.
OUR PRODUCTS ARE THE TYPE THAT CAN BECOME OBSOLETE, AND NO LONGER
COMPETITIVE. IF THEY BECOME OBSOLETE, WE CAN'T SELL THEM.
Both the medical device and environmental industries are
subject to rapid technological innovation and change. Although
we are not currently aware of any new product or technology that
would make our products obsolete, it is always possible. Future
technological developments could make our products significantly
less competitive or even no longer marketable.
OUR PATENTS ARE IMPORTANT TO US - IF OUR PATENTS ARE CHALLENGED
OR INFRINGED UPON, WE MIGHT NOT BE ABLE TO AFFORD TO FIGHT FOR
THEM. IF WE CAN'T PROTECT OUR PATENTS, WE WON'T BE ABLE TO SELL
OUR PRODUCTS SUCCESSFULLY.
We hold patents on many of our products, as well as
trademarks on the names of our products and procedures. We try
to file patent applications when we believe they are necessary,
both in the U.S. and in foreign countries where we seek to do
business. However, we cannot assure you that future patents will
be granted, or that our existing patents will not be challenged
or circumvented by a competitor. If any of our critical patents
are challenged, or if someone accuses us of infringing upon their
patents, it would be expensive and time-consuming to defend those
charges, and our projects could be delayed. Similarly, if
someone else infringes upon one of our patents, it would be
expensive and distracting for us to challenge them.
If our patents are challenged or infringed upon, we might
not be able to enter the market without a long legal battle to
determine which patent has priority. This type of delay and
expense would hurt our ability to successfully market our
products.
WE ARE DEPENDENT UPON HEALTH INSURANCE REIMBURSEMENT FOR OUR
BIOMEDICAL DEVICES, AND WE MAY NOT BE ABLE TO OBTAIN THAT
REIMBURSEMENT.
Our biomedical products are subject to the reimbursement
policies of insurance companies and Medicare. The doctors and
patients who want to use our devices will not be able to pay for
them without reimbursement from their health insurance providers.
If we are not able to convince those insurance providers that our
devices are eligible for reimbursement, we will not succeed.
WE HAVE ACQUIRED COMPANIES THAT ARE NOT PROFITABLE OR WORTH WHAT
WE ORIGINALLY ESTIMATED.
Our officers and directors have discretion in how to spend
the money we raise. One of the ways they have used part of the
money is to acquire interests in other companies. So far, none
of our investments in other companies have helped generate
revenue, except for INTCO. We have also acquired companies that
do not generate revenue, even though we project that they will.
In the past, we have invested in companies that are not worth
what we paid for them, and we have lost our investment.
For example, we purchased a majority interest in a metal-
coating company in 1998 - because it did not perform the way we
expected, we had to write-off our entire investment, including a
$4.4 million write down in 1999. You should carefully review our
financial statements for more detailed information on the
investment and the write-downs. We cannot guarantee that we
will not make the same mistake in the future.
WE MAY BE DISTRACTED OR SUFFER LOSSES DUE TO LEGAL PROCEEDINGS.
We are involved in several legal proceedings. Although we
cannot project how they will be resolved, you should know that we
might suffer losses depending upon the outcome. Both the
Pennsylvania Securities Commission and the U.S. Attorneys' office
are investigating us, and we have provided them with the
information they requested. We don't know how much longer these
investigations will last, and we don't know how they will be
resolved. If either one of these investigations results in
findings that we, or someone we're responsible for, violated the
law, we could suffer significant monetary damages, harm to our
reputation, or the loss of the services of key employees. We
don't know what those damages might be, but they could include
fines or restrictions on how we are allowed to do business in the
future.
These legal proceedings cost us money, mostly in legal fees,
that we could be using for our projects. Even if we don't have
to pay any money or suffer any other damages as a direct result
of these proceedings, you should be aware that we might be
distracted from our other responsibilities while we deal with
these legal matters, and that distraction could also hurt us.
We settled our class action lawsuit for a total of $3.675 million
to settle that action. We have paid all but $425,000 of that settlement.
WHEN WE SELL STOCK OR CONVERTIBLE SECURITES LIKE OUR PREFERRED
STOCK, IT DILUTES OUR EXISTING STOCKHOLDERS. WE HAVE ALREADY
SUFFERED SIGNIFICANT DILUTION AND WE KNOW THAT IT WILL CONTINUE.
Each time we sell and issue stock, it dilutes the holdings
of our existing stockholders. Since 1989, and through December
2001, we, along with Diasense, have raised over $190 million in
private and public offerings. We have already issued over 1.5
billion shares of stock and we plan to issue more, since that's
the only way we can survive until - and if - our product sales
can support our operations. Dilution occurs when more shares are
issued to own the same company - it means that when we issue more
stock, our previous stockholders own a smaller piece of our
company than they did before the new shares were issued. When we
sell stock, or we sell convertible securities like preferred
stock or debentures, we have to issue more shares of stock upon
the sale or the conversion. We plan to raise more money by
selling more stock. You should know that your ownership in our
company will continue to be diluted - significantly - each time
we sell and issue more stock.
For example, this chart shows the money we've raised by
selling stock and other securities, like debentures, during the
last three years, along with the total number of shares
outstanding at the end of each year:
YEAR FUNDS NUMBER OF SHARES
RAISED OUTSTANDING
AT YEAR END
1999 $30.7 million 956,100,496
2000 $29.9 million 1,383,714,167
2001 $24.5 million 2,450,631,119
You can see that, as we raise more money, the total number
of our shares outstanding increases dramatically. As long as we
continue to raise money by selling stock - and that is our
intention - this dilution will continue.
WE WILL NEED TO AUTHORIZE MORE STOCK, AND THAT WILL CAUSE MORE
DILUTION.
Our stock has been recently trading at prices around $.02
per share. If our stock price does not increase, and we have no
way of knowing whether it will, we will need to authorize more
stock so we can sell it to raise money. We received a commitment
to purchase $25 million of our Series K preferred stock, and at
our stock's current price, we know we will need to ask our
shareholders to authorize more shares of stock just to cover
those conversions. This also means that the shares included in
this prospectus to cover our Series K conversions won't be
enough, and we'll have to file another registration statement
after we get more stock approved. Taking these steps - having a
meeting to ask for more shares, and filing a new registration
statement - will take time, and will delay our access to money
from our Series K preferred stock. If our shareholders don't
approve the additional stock, and we can't find other ways to
raise money, we may not be able to continue to operate.
WHEN WE ISSUE CONVERTIBLE SECURITIES LIKE OUR PREFERRED STOCK,
THE NUMBER OF SHARES WE ISSUE UPON CONVERSION IS SIGNIFICANTLY
DISCOUNTED FROM THE MARKET PRICE.
One way we raise money is by selling convertible securities,
like convertible debentures or convertible preferred stock. Our
convertible securities have no minimum conversion price, so if
our stock price is low when they are converted, we have to issue
more stock than if our stock price was higher. Sometimes, our
stock price is rising, so that when the securities are converted,
the market price is higher than when we sold the securities - but
if our stock price falls, the conversion price is lower than the
stock price when we sold the securities.
Our Series G, H and J preferred stock have minimum holding
periods from 30 to 75 days, and are convertible into our common
stock at discounts to our market price of 20% to 24%.
The following table shows the total amount of our $5,265,000
Series G preferred stock, which is convertible at a 24% discount,
and our $1 million Series H and $375,000 Series J preferred
stock, both of which are convertible at a 20% discount, plus
examples of how many shares of stock we'd have to issue upon
conversion depending on the discount and our stock's market
price.
Discount 5-day Number of
Amount to Avg. Shares
Market Market Conversion Issued Upon
Price Price Price Conversion
$1,375,000 20% $.05 $.04 34,375,000
$1,375,000 20% $.01 $.008 171,875,000
$5,265,000 24% $.05 $.038 138,552,631
$5,265,000 24% $.01 $.007 752,142,857
You should know that the lower our stock price, the more
shares we have to issue to raise money, and the more shares we
have to issue, the more diluted your ownership will become.
This prospectus also includes common stock to cover
conversions of our Series I preferred stock. The Series I
preferred stock is convertible into common stock based on a 5-day
average market price with no discount. The following table
shows the total amount of our $2 million Series I preferred stock
and examples of how many shares of stock we'd have to issue
depending on our stock's market price.
5-day Number of
Avg. Shares
Market Conversion Issued Upon
Amount Price Price Conversion
$2,000,000 $.05 $.05 40,000,000
$2,000,000 $.01 $.01 200,000,000
Our Series K convertible preferred stock is convertible into
our common stock at a 10% discount to an average market price of
our common stock over the previous 22 days. Our Series K
preferred will be issued in various amounts up to approximately
$3 million per month. The following table shows examples of the
number of shares we'd have to issue based on dollar amounts of $1
million to $3 million at different average market prices.
Discount 22-day Number of
Amount to Avg. Shares
Market Market Conversion Issued Upon
Price Price Price Conversion
$1,000,000 10% $.05 $.045 22,222,222
$1,000,000 10% $.01 $.009 111,111,111
$2,000,000 10% $.05 $.045 44,444,444
$2,000,000 10% $.01 $.009 222,222,222
$3,000,000 10% $.05 $.045 66,666,666
$3,000,000 10% $.01 $.009 333,333,333
BECAUSE WE HAVE SOLD CONVERTIBLE PREFERRED STOCK, IT COULD HAVE A
NEGATIVE IMPACT ON OUR STOCK PRICE.
In addition, the potential dilution that occurs when we sell
convertible securities can have other negative effects on our stock.
If all of the preferred stock is converted at the same time, the supply
of stock for sale would increase dramatically. Without a
corresponding increase in the demand for our stock, our stock
price would fall. As the table in the previous risk factor also
illustrates, the lower the price, the more shares we have to
issue upon conversions. There is no limit on the number of
shares to be issued for preferred stock conversions.
None of our preferred stock has been converted as of the
date of this prospectus
Several factors - the timing of conversions; the downward
pressure on our stock price; and the additional number of shares
needed for conversions with no limit, could separately or in
combination cause our stock price to fall significantly - and we
don't have any control over them. If we have funds available,
our only option might be to redeem some of the preferred stock,
but we may not be able to do so, or we might not be able to
redeem enough in time to make a difference.
OUR COMPANY AND ITS AFFILIATES ARE SUBJECT TO CONFLICTS OF
INTEREST.
Fred E. Cooper, Anthony J. Feola, Glenn Keeling and Michael
P. Thompson are employed by BICO, and are also officers and/or
directors of our affiliates and subsidiaries, Diasense, Inc.,
Petrol Rem, Inc., ViaCirq, Inc., and Rapid HIV Detection Corp.
These people are subject to competing demands and may face
conflicts of interest. The good faith and integrity of these
members of management is of utmost importance to our business and
operations.
BICO owns 52% of Diasense; 75% of Petrol Rem, 99% of
ViaCirq; and 75% of Rapid HIV Detection Corp. All of these
officers own stock or warrants in Diasense, Petrol Rem or
ViaCirq:
Diasense - Mr. Cooper owns 22,000 shares of stock and
warrants to purchase 1,680,045 shares at $.50 to $1 per share;
Mr. Feola owns 20,000 shares of stock and warrants to purchase 1
million shares at $.50 per share; Mr. Keeling owns 100,000 shares
of stock and warrants to purchase 300,000 shares at $.50 per
share; and Mr. Thompson owns warrants to purchase 200,000 shares
at $.50 per share.
Petrol Rem - Mssrs. Cooper and Feola own warrants to
purchase 1 million shares of stock at $.10 per share; Mr.
Keeling owns warrants to purchase 500,000 shares of stock at $.10
per share; and Mr. Thompson owns warrants to purchase 200,000
shares at $.10 per share.
ViaCirq - Mr. Cooper owns warrants to purchase 1.25 million
shares of stock at $.10 per share; Mr. Feola owns warrants to
purchase 750,000 shares of stock at $.10 per share; Mr. Keeling
owns warrants to purchase 1.25 million shares of stock at $.10
per share; and Mr. Thompson owns warrants to purchase 100,000
shares of stock at $.10 per share. ViaCirq also has an Incentive
Stock Option Plan; although the options have been authorized, the
exercise price has not yet been set. Mr. Cooper owns options to
purchase 100,000 shares of stock; Mr. Keeling owns options to
purchase 125,000 shares of stock; and Mr. Thompson owns options
to purchase 10,000 shares of stock.
Conflicts of interest could arise if one or more of our
officers act in a way that benefits them and hurts BICO or
another one of our subsidiaries. To protect ourselves, we
require that any action that benefits any individual executive
officer or director of any of our companies has to be approved by
a majority of the disinterested directors. We also make sure
that each of our boards of directors includes outside directors -
people who are not employees - and those outside directors must
approve any action that might present a conflict. For example,
if BICO issues warrants or loans money to Mssrs. Cooper, Feola or
Keeling, who are BICO directors, BICO's other disinterested
directors, including the outside directors, must approve the
warrants or loans first. The same policy applies to Diasense,
Petrol Rem and ViaCirq. We believe this policy helps avoid
conflicts that could hurt us.
WE DEPEND ON OUR KEY OFFICERS, AND WE WOULD SUFFER IF THEY LEFT.
We are dependent upon our key officers: Fred E. Cooper, our
CEO; Anthony J. Feola, our COO, Michael P. Thompson, our CFO, and
Glenn Keeling, the CEO of ViaCirq. We do not have any key-man
life insurance on these men, and our business would suffer if
they left for any reason.
WE ARE DEPENDENT UPON EMPLOYEES AND INDEPENDENT CONTRACTORS WHO
ARE DIFFICULT TO REPLACE.
Because we are developing new technologies, devices and
engineering methods, we depend on certain employees and
independent contractors who may not devote their full-time
efforts to our operations. We depend on some of our employees
who have a specific expertise that is not common. We also need
independent contractors to assist us in areas where our employees
do not have the necessary expertise. If we lose the services of
any of these employees or independent contractors and are unable
to replace them, our business could suffer.
WE SOMETIMES NEED SUPPLIERS AND PARTS THAT ARE DIFFICULT TO FIND.
Our products involve designs that are new, and we often need
to have component parts fabricated especially for our
experimentation, testing and development. Suppliers for these
parts are not always readily available, or available at all, so
we have to create the parts in-house. This can result in delays
in our development - so far, these delays have not been material
- - but we cannot assure you that they won't be material in the
future. If we are unable to obtain a supplier or create the
necessary parts ourselves, we have to redesign the product, which
also results in significant delays. Although we try to minimize
our dependence on custom parts when we design products,
unforeseeable problems can arise which negatively affect our
operations.
WE HAVE LIMITED COMMERCIAL MANUFACTURING EXPERIENCE, WHICH MAKES
IT HARDER FOR US TO COMPETE WITH MORE EXPERIENCED MANUFACTURERS.
We have a contractual duty to manufacture our medical
devices. We have leased space, which has been modified, for our
manufacturing needs, but our current management team has limited
experience with large-scale commercial manufacturing. If we are
not able to hire the right people, or to provide manufacturing
expertise ourselves, we will not be able to successfully
manufacture our biomedical devices, even if they are approved for
sale in the U.S., or even if we are able to make sales.
WE CANNOT SELL PRODUCTS WITHOUT GOVERNMENT APPROVAL. WE HAVE
BEEN, AND CONTINUE TO BE, INVOLVED IN A LONG, EXPENSIVE
GOVERNMENTAL APPROVAL PROCESS THAT WE MUST COMPLETE BEFORE WE CAN
SELL OUR NONINVASIVE GLUCOSE SENSOR.
The Food and Drug Administration and other federal and state
agencies control many of our products. FDA approval is necessary
to market our biomedical products in the U.S. If we do not get
approval, we cannot sell our products in the U.S.
We are currently conducting clinical trials for our
noninvasive glucose sensor - these trials will continue through
2002, and we hope to have FDA approval once the trials are
completed and the results are submitted. We have suffered
significant delays in the FDA approval in the past - those delays
occurred for several reasons, including the following. The FDA
did not give us a decision on the 510(k) Notification we
submitted in 1994 until 1996. In 1996, after the FDA's panel
refused to approve our submission, the FDA told us to make a
different filing, on a PreMarket Approval Application - known as
a PMA. Rather than immediately pursue the PMA, we decided to
focus on getting certification to sell our sensor in Europe,
which we completed in June 1998. We had serious cash flow
problems in 1998, and it delayed all of our projects further.
Late in 1998 and early 1999, we started the PMA process. We
filed the first module of our PMA in May 1999 and the second
module in May 2000. The FDA asked for more information in
September 1999, and we responded. Then, in November 1999, the
FDA asked for additional information. We finished compiling all
that additional information, and in July 2000 we submitted an
Investigational Device Exemption to the FDA that included the
protocol for our clinical trials. An Investigational Device
Exemption is a request to the FDA for approval to conduct
clinical trials on a device that is not FDA-approved. Once the
FDA approved the protocol for our clinical trials, those trials
began in 2000.
Once we complete our clinical trials, we will submit the
data to the FDA. We are working with outside biomedical
consultants to help us obtain FDA approval following these
clinical trials; however, we cannot assure you when or if that
will happen.
TERRORISM AND OTHER INTERNATIONAL TRAGEDIES
The tragedy of September 11, 2001 had a profound impact on
everything, including the stock market. In addition to the risks
we all face of death and property destruction due to acts of
terrorism, we also face economic risks as a company. There is no
way of knowing whether additional terrorist acts will occur,
whether those acts will result in the closing of stock markets
and the decline in overall market values, or what those impacts
might mean to us.
IF WE ARE HIT WITH PRODUCT LIABILITY CLAIMS THAT EXCEED OUR
INSURANCE, WE WILL HAVE TO PAY THE EXCESS.
We don't have any current product liability claims against
us, but we are engaged in activities that involve testing and
selling biomedical devices. These kinds of activities expose us
to product liability claims. We currently have $10,000,000 in
product liability insurance. If a claim against us is successful
and exceeds that amount, we could be liable for the balance.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK MAY BE VOLITILE, WE DO NOT TRADE ON AN
ESTABLISHED STOCK EXCHANGE, AND YOU MAY NOT BE ABLE TO SELL YOUR
STOCK AT OR ABOVE YOUR PURCHASE PRICE.
Our stock currently trades on the electronic bulletin board,
which is not a formal stock exchange. As a result, it may be
more difficult to obtain trading information than if our stock
still traded on the Nasdaq. Because our stock price did not meet
the Nasdaq Small-Cap market requirements implemented in 1998, we
were delisted and we're no longer able to trade there. Although
we have maintained acceptable trading volume since we left
Nasdaq, we cannot assure you that our trading volume will
continue. As a result, you may be unable to sell your stock when
you want to sell it. In addition, our stock price has fluctuated
significantly, and you may not be able to sell your stock at or
above your purchase price when you are ready to sell
OUR STOCK IS CONSIDERED PENNY STOCK, SO IT'S SUBJECT TO
REGULATIONS THAT COULD MAKE IT MORE DIFFICULT FOR YOU TO SELL
YOUR STOCK.
Our stock is considered penny stock because of its low price.
The penny stock low-priced securities regulations could affect
the way you sell your stock, and the way our stock is sold. These
regulations require broker-dealers to disclose the risk
associated with buying penny stocks and to disclose their
compensation for selling the stock.
The regulations may have the effect of discouraging brokers
from trading our stock. For example, brokers selling our
stock have to obtain a written agreement from the purchaser and
determine that our stock is a suitable investment for that
purchaser. Many brokers will not want to bother with those
requirements, so they won't sell our stock, and that could reduce
the level of trading activity, making it more difficult for you
to sell your stock.
THE VOLATILITY OF OUR COMMON STOCK COULD EXPOSE US TO SECURITIES
LITIGATION.
In the past, following periods of volatility in the market
price of a company's securities, securities class action suits
have been filed. Due to the historic volatility of our common
stock, we may be particularly susceptible to this kind of
litigation. If it were to happen to us, the litigation would be
expensive and would divert our management's attention from
business operations. Any litigation that resulted in a finding
of liability against us would adversely affect our business,
prospects and financial condition, along with the price of our
stock. We have already been the subject of one class action
lawsuit, which was filed in 1996. We settled that lawsuit in
2000 for a total of $3,675,000,and we are still making payments
to pay that amount. We have paid all but $425,000 of that
settlement.
INVESTORS WILL INCUR IMMEDIATE DILUTION.
If you buy our stock from one of our selling shareholders,
in this offering, you may suffer an immediate and substantial
dilution in the net tangible book value per share from the price
you pay for the stock. Each time our preferred stock is
converted, we have to issue more shares, and that dilutes the
interests of our stockholders. We also have a large number of
outstanding warrants to purchase our common stock, and some of
those warrants have prices below the market price of our stock.
When we issue that additional stock, and to the extent those
warrants are exercised, additional dilution will occur.
THE WAY WE SELL AND ISSUE STOCK COULD HAVE AN ANTI-TAKEOVER
EFFECT.
We sold convertible preferred stock and we intend to
continue to sell stock to raise money to fund our operations.
When we issue those additional shares of common stock, either
from conversions of preferred stock , or from sales of stock, the
stock could be used to oppose or delay a hostile takeover attempt
or delay or prevent changes in control or in our management. For
example, without further stockholder approval, our board of
directors could strategically sell stock to purchasers who would
oppose a takeover or a change in our management. Although our
sales of stock are based on our business and financial needs, and
not on the threat of a takeover, you should be aware that it
could have an anti-takeover effect. We are not aware of any
takeover attempts, but if a takeover was proposed, it could mean
you might be offered a premium for your stock over the market
price - but the way we issue and sell our stock could discourage
a takeover attempt.
WHERE YOU CAN FIND MORE INFORMATION
The securities laws require us to file reports and other
information. All of our reports can be reviewed at the SEC's
web site, at www.sec.gov through the SEC's EDGAR database. You
can also review and copy any report we file with the SEC at the
SEC's Public Reference Room, which is located at 450 Fifth
Street, N.W., Washington, D.C., or at the SEC's regional offices,
including the ones located at 601 Walnut Street, Curtis Center,
Suite 1005E, Philadelphia, PA 19106-3432; and 75 Park Place, New
York, NY. You can also order copies for a fee from the SEC's
Public Reference section, at 450 Fifth Street, N.W. Washington,
D.C. 20549. Our stock trades on the electronic bulletin board.
We will send you a copy of our SEC filings if you ask for
them. If you want to receive copies, please contact our
Shareholder Relations department at: Shareholder Relations
Department, BICO, Inc., 2275 Swallow Hill Road, Building 2500,
2nd Floor, Pittsburgh, PA 15220, by telephone at 412-429-0673 or
by fax at 412-279-1367.
Until 90 days after the effective date of this prospectus,
all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
USE OF PROCEEDS
We will not receive any proceeds from this offering for
shares. We are registering our common stock on behalf of the
selling stockholders, who bought our convertible preferred stock.
If and when the preferred stockholders sell their stock, they
will receive the proceeds.
Once this registration statement is declared effective by
the SEC, which should not be confused with any kind of SEC
approval, we will issue our Series K convertible preferred stock.
J.P. Carey Asset Management has made a commitment to purchase $25
million of our Series K preferred stock. Once this registration
statement is declared effective, approximately once per month, we
can request funds, up to $3 million, based on the following
formula. Based on that formula, we could have requested about
$1.5 million this month. If our stock price and/or our trading
volume decrease, we would have to request less.
First, compute the daily trading value for our stock: the
closing bid price times that days' volume
Second, compute that daily trading value for the 22 trading
days prior to conversion
Third, take the average of those 22 days trading value
Finally, multiply that 22-day average by 6
We have been having cash flow problems, and you should
review our Supplemental Financial Information section for more
information on our current position and our plans. We plan to
use this J.P. Carey commitment to obtain loans to help us
continue our operations until we can begin receiving money from
our Series K preferred stock.
Once we begin receiving those funds, we will use them to pay
our liabilities and continue funding our various projects. In
the past, we have invested in companies because our board of
directors and our management believed they would generate
revenues. We have discontinued those types of investments and
plan to stay focused on our core products: medical technology and
environmental projects.
Part of any proceeds we receive from our Series K preferred
will also be used for general and administrative expenses,
including salaries and bonuses. In 2001, we paid our executive
officers and directors a total of approximately $3.6 million,
which includes all payments from not only BICO, but also all of
our subsidiaries. In the first quarter of 2001, we had to pay
David L. Purdy approximately $900,000 when he left BICO. We've
replaced him with someone who earns less than Mr. Purdy.
DIVIDEND POLICY
We have not paid cash dividends on our common stock or our
preferred stock since our inception, and cash dividends are not
presently contemplated at any time in the foreseeable future. In
accordance with our Articles of Incorporation, cash dividends are
restricted under certain circumstances.
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2001 and December 31, 2000. The September 30, 2001
information is taken from our unaudited financial statements,
which are included in this prospectus. The December 31, 2000
information is taken from our audited financial statements, which
are also included in this prospectus.
September 30 ,2001 December 31, 2000
(1) (1)
Stockholders' Equity
Common Stock, par value
$.10 per share; authorized
2.5 billion; shares issued
and outstanding:2,450,631,119 $245,063,111 $138,370,417
at September 30, 2001 and
1,383,704,167 at December
31, 2000
Additional paid-in capital 2,482,952 87,035,096
Warrants 6,221,655 6,204,235
Accumulated Deficit (249,301,881) (223,720,761)
============= =============
Total Capitalization $4,465,837 $7,888,987
============= =============
NOTE: Our shareholders authorized an increase of the number of
our authorized shares of common stock to 4 billion at a special
meeting held November 30, 2001.
September 30, 2001 December 31, 2000
(1) Does not include the
effects of the following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.016 to $3.20 per share,
expiring through 2006. 95,086,560 31,378,160
The following table sets forth our capitalization as of
December 31, 1999 and 2000, and is made up of the figures taken
from our audited financial statements, which are included in this
prospectus and included a qualification regarding our ability to
continue as a going concern.
December 31, 1999 December 31, 2000
(1) (1)
Stockholders' Equity
Common Stock, par value
$.10 per share; authorized
1,700,000,000 shares;
shares issued and $95,610,050 $138,370,417
outstanding:956,100,496
at December 31, 1999 and
1,383,704,167 at December
31, 2000
Series F 4% convertible
preferred stock,
par value $10 per
share, issued and 720,000 0
outstanding 72,000 at
December 31, 1999 and
none at December 31, 2000
Additional paid-in capital 85,608,192 87,035,096
Warrants 6,791,161 6,204,235
Accumulated Deficit (181,174,458) (223,720,761)
============= =============
Total Capitalization $ 7,554,945 $ 7,888,987
============= =============
December 31, 1999 December 31, 2000
(1) Does not include the effects
of the following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.05 to $4.03 per share,
expiring 1999 through 2005. 29,896,662 31,378,160
MARKET PRICE FOR COMMON STOCK
Our common stock trades on the electronic bulletin board
under the symbol "BIKO". On February 19, 2002,9, the closing bid
price for the common stock was $.14.$.02. The following table
sets forth the high and low bid prices for our common stock
during the calendar periods indicated, through December 31, 2001.
Because our stock trades on the electronic bulletin board, you
should know that these stock price quotations reflect inter-
dealer prices, without retail mark-up, markdown or commission,
and they may not necessarily represent actual transactions.
Calendar Year High Low
and Quarter
1999 First Quarter $ .084 $ .049
Second Quarter $ .340 $ .048
Third Quarter $ .125 $ .070
Fourth Quarter $ .099 $ .050
2000 First Quarter $1.050 $.051
Second Quarter $.400 $.160
Third Quarter $.184 $.12
Fourth Quarter $.122 $.049
2001 First Quarter $.1355 $.05
Second Quarter $.072 $.037
Third Quarter $.057 $.01
Fourth Quarter $.049 $.02
We have approximately 135,000 holders, including those who hold
in street name, of our common stock, and 41 holders of our
preferred stock.
DESCRIPTION OF SECURITIES
Our authorized capital currently consists of 4 billion shares
of common stock, par value $.10 per share and 500,000 shares of
cumulative preferred stock, par value $10.00 per share.
Preferred Stock
Our Articles of Incorporation authorize the issuance of a
maximum of 500,000 shares of cumulative convertible preferred
stock, and authorize our board of directors to define the terms
of each series of preferred stock. In 2001 and 2002, our board
of directors authorized the creation of five new series of
convertible preferred stock - series G, H, I, J and K. The
certificates of designation for each series - the corporate
document that defines the terms of those series of preferred
stock - are all filed as exhibits to this registration statement.
As of February 19, 2002 we had a total of 27,810 shares of our
preferred stock outstanding, as follows:
10,530 shares of Series G
12,530 shares of Series H
4,000 shares of Series I
750 shares of Series J
None of our convertible preferred stock is secured by any of
our assets. Each share of our preferred stock has a designated
value of $500 per share. There is no minimum conversion price,
so the lower the bid price of our stock, the more shares we will
need to issue when our preferred stock is converted - there is no
limit on the number of shares of our common stock that our
preferred stock can be converted into. This means that, if our
stock price is low, the preferred stockholders could own a large
percentage of our outstanding common stock - except that they
have each agreed not to own more than 5% of our common stock at
any one time. We only sold our preferred stock to accredited
investors. We can redeem our preferred stock. This prospectus
includes common stock that we will issue when our preferred stock
is converted. You should carefully review our Risk Factors
section for more risks associated with our preferred stock, and
the impact of conversions on your stock.
Each series of preferred stock has its own minimum holding
period and each series defines its conversion price. Copies of
our preferred stock documents are attached to this prospectus as
exhibits.
Our series G preferred stock has a minimum holding period of
the earlier of: 60 days from issuance or the date this
registration statement is declared effective by the SEC. The
series G preferred is convertible into our common stock at a 24%
discount to the 5-day average of our closing bid price
immediately prior to conversion.
Our series H preferred stock has a minimum holding period of
the earlier of: 75 days from issuance or 35 days after the date
this registration statement is declared effective by the SEC.
The series H is convertible into our common stock at a 20%
discount to the 5-day average of our closing bid price
immediately prior to conversion.
Our Series J preferred stock has a minimum holding period of
30 days from issuance and is convertible into our common stock at
a 20% discount to the 5-day average of our closing bid price
immediately prior to conversion.
We raised a total of $6,640,000 from selling our series G, H
and J preferred stock.
We issued 4,000 shares of our series I preferred stock to Mr.
and Mrs. Farrell Jones as part of a renegotiation and settlement
of amounts due in connection with our purchase of ICTI back in
1998. Even though we wrote off that entire investment, we still
owed the Joneses a total of $5,450,348. In December 2001, we
finalized an agreement with the Joneses to decrease the amount
owed to a total of $2,887,500. Of that total, $2 million was
applied when we issued them the 4,000 shares of series I
preferred stock. The series I preferred is convertible at any
time into our common stock based on the 5-day average of our
closing bid price immediately prior to conversion. None of the
series I has been converted to date. We don't have any other
relationship with the Joneses other than these remaining issues
from the ICTI transaction. You should review our management's
discussion and analysis section for more information on the
settlement with the Joneses.
In February 2002, we accepted a commitment to purchase $25
million of our Series K convertible preferred stock from J.P.
Carey Asset Management, LLC, a Georgia corporation. J.P. Carey
Asset Management has committed to buy our Series K preferred, and
will begin paying for it once this registration statement is
declared effective by the SEC. We agreed to register the
underlying common stock for them, and that stock is included in
this prospectus. They will pay for it as we request funds, based
on the following formula. Based on that formula, we could have
requested about $1.5 million in mid-February 2002. If our stock
price and/or our trading volume decrease, we would have to
request less.
First, compute the daily trading value for our stock: the
closing bid price times that days' volume
Second, compute that daily trading value for the 22 trading
days prior to conversion
Third, take the average of those 22 days trading value
Finally, multiply that 22-day average by 6.
The conversion price for the Series K preferred is based on a
10% discount to the average of the lowest 3 consecutive closing
bid prices during the 22 days prior to conversion. For example,
if conversion had occurred on February 19, 2002, it would have
been at a 10% discount to the average closing bid prices on
February 13, 14 and 15, 2002. That price, after the discount,
would be $0.1656 per share. If our stock price drops, the
conversion price per share will also drop.
We know, and so does J.P. Carey Asset Management, that if our
stock price does not go up - and we have no way of knowing
whether it will or not - we will not have enough shares in this
prospectus to cover conversions of all $25 million of our Series
K preferred. We agreed to ask our shareholders to authorize more
shares if we need to, and to file another registration statement
to cover those new shares. It will take time to get more shares
authorized and to file another registration statement, and that
will delay our ability to request funds from J.P. Carey Asset
Management.
We entered into securities purchase, registration rights and
escrow agreements with J.P. Carey Asset Management on February
15, 2002, and copies of those agreements are attached to this
registration statement as exhibits.
All of the stock included in this prospectus is for our
selling stockholders who purchased or committed to purchase our
convertible preferred stock. When they convert their preferred
stock and get our common stock, they may want to sell it, and you
need to carefully review this prospectus before you decide
whether to buy it from them.
Common Stock
Holders of our common stock are entitled to one vote per
share for each share held of record on all matters submitted to a
vote of stockholders. Holders of our common stock do not have
cumulative voting rights, and therefore the holders of a majority
of the shares of common stock voting for the election of
directors may elect all of the directors, and the holders of the
remaining common stock would not be able to elect any of the
directors. Subject to preferences that may be applicable to the
holders of our preferred stock, if any, the holders of our common
stock are entitled to receive dividends that may be declared by
our board of directors.
In the event of a liquidation, dissolution or winding up of
our operations, whether voluntary or involuntary, and subject to
the rights of any preferred stockholders, the holders of our
common stock would be entitled to receive, on a pro rata basis,
all of our remaining assets available for distribution to our
stockholders. The holders of our common stock have no
preemptive, redemption, conversion or subscription rights. As of
December 31, 2001, we had 2,450,631,119 shares of our common
stock outstanding.
Dividends
We have not paid cash dividends on our common stock, with the
exception of 1983, since our inception. We do not anticipate
paying any dividends at any time in the foreseeable future. We
expect to use any excess funds generated from our operations for
working capital and to continue to fund our various projects.
Our Articles of Incorporation restrict our ability to pay cash
dividends under certain circumstances. For example, our board
can only declare dividends subject to any prior right of our
preferred stockholders to receive any accrued but unpaid
dividends. In addition, our board can only declare a dividend to
our common stockholders from net assets that exceed any
liquidation preference on any outstanding preferred stock.
Employment Agreement Provisions Related to Changes in Control
We have employment agreements with change in control
provisions with the following officers: Fred E. Cooper, Anthony
J. Feola, Glenn Keeling and Michael P. Thompson. The agreements
provide that in the event of a "change of control," we must:
issue to Mr. Cooper shares of common stock equal to 5%; issue to
Mr. Feola 4%; issue to Mr. Keeling 3%; and issue to Mr. Thompson
2% each of our outstanding shares of common stock. For purposes
of these agreements, a change of control is deemed to occur: when
20% or more of our outstanding voting stock is acquired by any
person; or when 1/3 or more of our directors are not continuing
directors, as defined in the agreements; or when a controlling
influence over our management or policies is exercised by any
person or by persons acting as a group within the meaning of the
federal securities laws.
Warrants
As of December 31, 2001, we had outstanding warrants - most
of which are not currently exercisable - to purchase 96,136,560
shares of our common stock. These warrants have exercise prices
ranging from $.015 to $3.20 per share and expiration dates
through December 4, 2006, and are held by members of our
scientific advisory board, certain employees, officers,
directors, loan guarantors, and consultants. As of December 31,
2001, many of our outstanding warrants were not currently
exercisable - 86,996,898 warrants were subject to a lock-up
arrangement where the warrant holders agreed not to exercise them
until August 2002.
Holders of warrants are not entitled to vote, to receive
dividends or to exercise any of the rights of the holders of
shares of our common stock for any purpose until the warrant
holder properly exercises the warrant and pays the exercise
price.
Transfer Agent
Mellon Investor Services in New York, New York acts as our
Registrar and Transfer Agent for our common stock. We act as our
own registrar and transfer agent for our preferred stock and
warrants.
SELLING STOCKHOLDERS
This prospectus covers the shares of common stock that may
be offered by the selling stockholders set forth below. The
selling shareholders listed are our preferred stock holders, and
we've divided them into groups based on each series of preferred
stock.
None of the selling stockholders who own preferred stock
have had a material relationship with us within the last three
years, and they are not affiliated with us other than through
their ownership interest in our preferred stock. Except as
noted, none of the selling stockholders are affiliated with each
other. Some stockholders listed are companies or investment
funds, rather than individuals. Unless the investors who own
those funds are numerous, we've listed the individual owners. We
prepared the table below based on the information provided to us
by the selling stockholders. You should know that, based on the
agreements our selling stockholders signed when they bought our
preferred stock, they are not permitted to own 5% or more of our
stock, except for our Series K preferred stockholders.
We calculated the number of shares for each selling
stockholder using a good faith estimate. We based our estimate
on our recent stock price, as well as our historical prices. If
our stock price stays at around $.02, where it has been trading
for the past month or so, we will not need to issue as many
shares as we've included; if our stock price goes down we may
have to issue more.
Any or all of the shares listed below may be offered for
sale by the selling stockholders from time to time and,
therefore, we can't give an estimate as to the number of shares
that will be held by the selling stockholders when we terminate
this offering. Unless we indicate otherwise, the selling
stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
The third column in the table shows the percentage share
ownership each selling shareholder would have, IF they converted
all of their preferred stock when compared to the 2,450,631,119
shares we had outstanding as of December 31, 2001. As of the
date of this prospectus, none of the selling shareholders had
converted any of their preferred stock, so the figures in the
column are for illustrative purposes only.
The last column in the table shows the percentage of
ownership of each selling shareholder assuming all shares
registered in this prospectus are sold, when compared to the
total number of shares of our common stock outstanding as of
December 31, 2001. An asterisk - * - indicates less than one
percent.
Selling Stockholders Number of Beneficial Beneficial
Shares Ownership Ownership
Offered Prior to After Sale
Sale
PREFERRED STOCKHOLDERS
Series G Preferred
Cache Capital (USA) 99,717,860 4% *
L.P.
Quines Financial, SR 6,647,600 * *
John C. Canouse (1) 13,295,200 * *
01144 Ltd. 13,295,200 * *
Emuna Trust 19,942,800 * *
Yokin Asset Management 39,885,600 1.6% *
Arab Commerce Bank 6,647,600 * *
Jara Group, owned by
Michael and Rose 3,323,800 * *
Koretsky (2)
Michael Koretsky (2) 3,323,800 * *
Mark Garfunkkel 5,318,080 * *
Leon Kahn 1,661,900 * *
Kurt Fichthorn 6,647,600 * *
Jaime Radusky (3) 3,323,800 * *
Rina Sugarman 3,323,800 * *
Starling Corporation 6,647,600 * *
Lawrence Abrams 9,971,400 * *
Ted Liebowitz 33,238,000 1.4% *
Joseph McGuire and W.C. 6,647,600 * *
Rossi
Chava Scharf 3,323,800 * *
Yosef Davis 26,590,400 1% *
Jacqueline Balough 1,661,900 * *
Grahame Harding 9,971,400 * *
Mark Barash 1,661,900 * *
Michael Drescher 1,661,900 * *
Claire Brook, IRA 7,977,120 * *
Henry Radusky (3) 3,323,800 * *
Stanley S. Raphael 1,661,900 * *
Trust
Miriam Hoffman (4) 1,661,900 * *
Peter Hoffman (4) 1,661,900 * *
Colin Broad 2,659,040 * *
Jody Eisenman, IRA 1,661,900 * *
Christopher Jacobsen 1,661,900 * *
Series H Preferred
Mendy Chmuel 6,250,000 * *
Eli Itzinger 6,250,000 * *
GPS America Fund 50,000,000 2% *
Series I Preferred
Farrell B. and Brenda 137,500,000 5.6% *
K. Jones
Series J Preferred
Cache Capital 21,666,660 * *
Atlantis Capital Fund 6,666,660 * *
Arab Commerce Bank 6,666,660 * *
Yokin Asset Management 3,333,350 * *
BlueFin Partners 1,666,670 * *
Series K Preferred
J.P. Carey Asset 660,000,000 (5) *
Management (1)
(1) These selling stockholders are affiliated with each other
through their ownership in entities other than us.
(2) These selling stockholders are affiliated with each other
through their ownership in entities other than us.
(3) These selling stockholders are related
(4) These selling shareholders are related
(5) J.P. Carey Asset Management has committed to purchase our
Series K preferred once this registration statement is declared
effective.
The following table shows, for our convertible preferred
stock, certain information that might be helpful in making your
investment decision. We listed the preferred stock investments
in chronological order. As you can see, none of the preferred
stock has been converted so far. The stock price listed is the
closing bid price of our stock on the date listed. When we use a
range of dates, we computed the stock price based on the average
closing bid price for each day in the range. The most current
information in the table is as of February 19, 2002, when our
closing bid price was $.02.
Type and Amount Number Issue Stock Number Number
amount of Converted of Date Price on of of
Investment Through Shares Issue Shares Shares
1/02 Issued Date/Range if if
on Converted Converted
Conversion on on 2/19/02
Issue Date
Series G 0 0 10/24/01- $.038 138,552,631 263,250,000
Preferred Stock 10/25/01
$5,265,000
Series H 0 0 11/15/01- $.026 38,461,538 50,000,000
Preferred Stock 11/21/01
$1,000,000
Series I 0 0 11/28/01 $.025 80,000,000 100,000,000
Preferred Stock
$2,000,000
Series J 0 0 12/18/01- $.025 15,000,000 18,750,000
Preferred Stock 1/28/01
$375,000
You should review our risk factors that begin "When we sell our
stock or convertible securities like our debentures or preferred
stock, it dilutes our existing stockholders."; "When we issue
convertible securities like our debentures or preferred stock,
the number of shares we issue upon conversion is significantly
discounted from the market price"; and "Because we have sold
convertible debentures and preferred stock, it could have a
negative impact on our stock price on pages 9 and 10 for related
information.
PLAN OF DISTRIBUTION
The shares of stock in this prospectus will be sold by the
selling stockholders, and will not be underwritten. They may sell
the shares of common stock from time to time in one or more
transactions. The offering price will fluctuate with the market
price for our stock, so they will sell the stock at various
prices. They may sell this stock directly, or they may hire
brokers or other licensed agents to sell it for them, in which
case the selling stockholder will give those brokers or agents
some consideration, which could take the form of a commission or
other payment.
Selling stockholders and any broker-dealers participating in
the sale of our stock may be considered underwriters within the
meaning of section 2(11) the Securities Act of 1933.
Particularly if they act as principals, any commissions or
profits received by broker-dealers or selling stockholders from
the sale of our stock may be considered underwriting compensation
under the Securities Act. If anyone who participates in this
offering is deemed to be an underwriter, then any consideration
received may be deemed to be underwriting discounts or
commissions under the federal securities laws.
If any selling stockholder makes a particular offer that
triggers certain securities law filing requirements, they have an
obligation to tell us, and we will file a supplement to this
prospectus that sets forth the number of shares being offered and
the terms of the offering, including the name or names of any
underwriters, dealers, brokers or agents, the purchase price paid
by any underwriter for the shares and any discounts, commissions
or concessions allowed or reallowed to dealers, including the
proposed selling price to the public.
In order to comply with the securities laws of certain
jurisdictions, the selling stockholders may be required to sell
stock only through registered or licensed brokers or dealers. In
addition, they may not be able to sell any stock in certain
states unless we register the stock in those states on their
behalf or otherwise comply with applicable state securities laws
by exemption, qualification or otherwise.
STOCK ELIGIBLE FOR FUTURE SALE
As long as this registration statement remains effective with
the SEC and we remain current in our SEC filings, the stock will
be freely transferable without restriction or further
registration unless the stock is acquired by one of our
affiliates. Affiliates generally include our officers and
directors and any other person or entity that controls, is
controlled by, or is under common control of BICO. Any
affiliates who acquire stock from this offering will continue to
be subject to the volume restrictions of Rule 144, as we describe
below.
In general, under Rule 144 as currently in effect, our
affiliates and any person, or persons whose stock is aggregated,
who has beneficially owned restricted stock for at least two
years would be entitled to sell within any three-month period a
number of shares of stock which does not exceed the greater of:
1% of the then outstanding shares of our common stock; or the
average weekly trading volume of our common stock during the four
calendar weeks preceding such sale. Rule 144 also requires those
sales to be placed through a broker or with a market maker on an
unsolicited basis and requires that there be adequate current
public information available concerning our company. A person who
is deemed not to have been our affiliate at any time during the
three months preceding a sale, and who has beneficially owned
restricted stock for at least one year, would be entitled to sell
the stock under Rule 144(k) without regard to any of the
limitations discussed above. Restricted stock properly sold in
reliance on Rule 144 are thereafter freely tradable without
restriction or registration, unless the stock is later held by an
affiliate.
We can't make any predictions as to the effect that sales of
our common stock or the availability of stock for sale will have
on the market price of our common stock. Nevertheless, sales of
any substantial amounts of common stock in the public market will
probably adversely affect the prevailing market price.
SELECTED FINANCIAL DATA
FOR THE QUARTER ENDED SEPTEMBER 30, 2001 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 2000
9/30/2001 12/31/2000
Total Assets $20,409,788 $21,930,070
Long-Term
Obligations $ 2,146,931 $ 2,211,537
Working Capital ($ 7,824,187) $ 754,368
(Deficit)
Preferred Stock $ 0 $ 0
Net Sales $ 1,514,136 $ 340,327
TOTAL REVENUES $ 1,515,070 $ 345,874
Warrant $ 0 $ 5,233,529
Extensions
Benefit (Provision)
for Income Taxes $ 0 $ 0
Net Loss ($ 7,294,284) ($42,546,303)
Net Loss Per
Common Share
Basic ($.003) ($.04)
Diluted ($.003) ($.04)
Cash Dividends
Per Share:
Preferred $0 $0
Common $0 $0
Constructive
Dividend per $0 $0
Preferred Share
YEARS ENDED DECEMBER 31st
2000 1999 1998 1997 1996
Total $21,930,070 $15,685,836 $ 9,835,569 $12,981,300 $14,543,991
Assets
Long-Term $ 2,211,537 $ 1,338,387 $ 1,412,880 $ 2,697,099 $ 2,669,727
Obligations
Working $ 754,368 $ 4,592,935 ($ 9,899,008) $ 888,082 $ 1,785,576
Capital
Preferred $ 0 $ 720,000 $ 0 $ 0 $ 0
Stock
Net $ 340,327 $ 112,354 $ 1,145,968 $ 1,155,907 $ 597,592
Sales
TOTAL
REVENUES $ 345,874 $ 165,251 $ 1,196,180 $ 1,260,157 $ 600,249
Other $ 589,529 $ 1,031,560 $ 182,000 $ 165,977 $ 176,478
Income
Warrant
Extensions$ 5,233,529 $ 4,669,483 $ 0 $ 4,046,875 $ 9,175,375
Benefit
(Provision)$ 0 $ 0 $ 0 $ 0 $ 0
for Income
Taxes
Net Loss ($42,545,303)($38,072,578)($22,402,644)($30,433,177)($24,045,702)
Net Loss
per Common
Share:
Basic ($.04) ($.05) ($.08) ($.43) ($.57)
Diluted ($.04) ($.05) ($.08) ($.43) ($.57)
Cash
Dividends
per share:
Preferred $0 $0 $0 $0 $0
Common $0 $0 $0 $0 $0
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is a summary of the more detailed information
in our financial statements. You should carefully review those
financial statements before you decide whether to invest in our
stock.
Forward-Looking Statements
This section contains forward-looking statements. We discussed
these kinds of statements on page 29, and you should review that
section.
Liquidity and Capital Resources
For the Nine months ended September 30, 2001
We continue to be dependent on security sales as our primary
source of working capital. As of November 15, 2001, we had total
authorized common stock of 2,500,000,000 shares of which
2,450,631,119 shares were issued and outstanding. We had a
stockholders' meeting on November 30, 2001 and our stockholders
authorized an additional 1,500,000,000 shares.
Once the new shares were approved, we began selling convertible
preferred stock in a private offering, as we have done in the
past. Those new convertible securities will not be and have not
been registered under the federal securities laws and may not be
offered or sold in the United States without registration or an
applicable exemption from registration requirements. The
convertible preferred stock is convertible into common stock
after a period of time ranging from approximately 35 days to 75
days at a 20-24% discount to our stock's market price at the time
of conversion with no minimum price. The terms of the deal
require us to file a registration statement covering the common
stock with the Securities and Exchange Commission within 90 days.
The convertible preferred stock is not secured and we have the
right to redeem them. When we sell these convertible securities,
it could cause our stock price to fall significantly, and we
don't have any control over that. Factors including the timing
of conversions and the additional number of shares needed for
conversion with no limit contribute to the downward pressure on
our stock price. In addition, although the purchasers of our
convertible preferred stock agree not to sell our stock short, if
other investors sell short, it will further contribute to the
decline of our stock price. In the past few years, we've sold
both convertible securities and common stock in various
offerings, all of which were on a best-efforts basis:
We registered 800 million shares of common stock in the
third quarter of 2001;
We registered approximately 431 million shares in the third
quarter of 2000, which included both common stock and conversion
shares for convertible preferred stock and convertible
debentures;
We registered 375 million shares of common stock in the
second quarter of 1999; and
We registered 200 million shares of common stock in the last
quarter of 1998.
Selling more of these convertible securities will further dilute
ownership of existing stockholders but, until we find another way
of raising significant funds, we must continue to sell our stock.
Our cash decreased to $1,349,907 as of September 30, 2001 from
$7,844,807 as of December 31, 2000 primarily due to the factors
discussed below.
During the nine months ended September 30, 2001 our net cash flow
used by operating activities was ($21,729,245). During the same
period, our net cash flow used by investing activities was
($4,629,879) due primarily to the acquisition of property, plant
and equipment, additional loans made to Practical Environmental
Solutions, a company involved in the acquisition and management
of environmental entities, loans to GAIFAR, the company which
manufactures the HIV diagnostic tests which we are marketing, and
additional investments in unconsolidated subsidiaries which we
discuss in the following paragraphs. We made all of these
investments because we believe that they will either generate
revenue or will help us with our diabetes-related projects.
During the first nine months of 2001, we made additional
investments in unconsolidated subsidiaries. We invested an
additional $190,000 in American Inter-Metallics, bringing our
total investment in AIM's rocket propulsion project to
$1,000,000. In addition, we loaned $110,000 to Anthony J.
Delvicario, the president of American Inter-Metallics, Inc. and a
member of Diasense's board of directors to help fund a
transaction involving the creation of a distribution system in
Europe to sell AIM's products which we believe will generate
revenue. The original demand note was secured by 110,000 shares
of American Inter-Metallics, Inc. common stock and bore interest
at prime rate plus two percent. In November 2001, we converted
the original note into a new note for $114,000 to reflect accrued
interest. The new note is secured by an unconditional guaranty
by American Inter-Metallics and all of American Inter-Metallics'
assets, including all of its equipment. AIM informed us that they
are in the final stage of closing the transaction, and they
expect to repay the loan . We also increased our total
investment in Insight Data Link.com, Inc. to $110,000 by
investing an additional $10,000. We increased our investment in
AIM and Insight Data Link because our management believes they
will generate earnings. However, AIM has not yet generated any
revenue, and Insight Data Link has only generated minimal
revenues of approximately $2,000 to date.
Our subsidiary, Diasense, Inc. also made investments in
unconsolidated subsidiaries during the first nine months of 2001.
Diasense invested an additional $600,000 in MicroIslet, Inc., a
company working with Duke University on several diabetes research
technologies that focus on optimizing microencapsulated islets
for transplantation. The project is in the research and
development phase. As of September 30, 2001, Diasense had
invested $1,600,000 in MicroIslet and owned approximately 20.2%
of this company. Diasense also increased its investment in
Diabecore Medical, Inc. Diabecore is a company in Toronto
working with other research institutions to develop a new insulin
to treat diabetes. In the first nine months of 2001, Diasense
invested $293,948 in Diabecore increasing the total amount
invested to $987,468 and its ownership in this company to
approximately 24%. This project is also in the research and
development phase. Diasense increased 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 additional investments in American Inter-
Metallics, Insight Data Link.com, MicroIslet and Diabecore
Medical, our overall investment in unconsolidated subsidiaries
increased from $2,061,439 as of December 31, 2000 to $2,507,865
at September 30, 2001.
During the nine months ended September 30, 2001, our subsidiary,
Petrol Rem, advanced an additional $1,169,341 to Practical
Environmental Solutions, a Pennsylvania company that acquired
technology used to safely convert municipal sludge to recyclables
that comply with state and federal environmental laws. Petrol
Rem has loaned a total of $3,083,704 to Practical Environmental
as of September 30, 2001. Practical Environmental has made
interest payments on the amount due. The loan, which was
originally due on August 31, 2001 has been extended until May 31,
2002; no principal payments have been made to date. The loan is
classified as a non-current asset as of September 30, 2001
because our management is considering whether to convert all or
part of that loan to an equity investment - they are making that
decision because Practical Environmental is willing to make that
conversion and because Practical Environmental has been
generating revenues since January 2001. As of September 30,
2001, although they are still operating at a loss, Practical
Environmental's internal financial information shows revenues of
$426,000. We may consider making additional loans or investments
in Practical Environmental if those loans or investments could
help increase earnings.
During the nine months ended September 30, 2001 Petrol Rem also
invested an additional $99,060 in Tireless LLC, which is another
part of our Petrol Rem operations, bringing our total equity
investment to $455,000. Tireless is a company that shreds and
helps recycle tires, addressing some significant environmental
issues that arise from large piles of used tires. We also loaned
Tireless $461,610 during the nine months ended September 30,
2001, which was used primarily to purchase a mobile tire-
shredding machine that is being used to fulfill a contract in
Ohio. As of September 30, 2001, Tireless has not generated any
revenues.
In 2001, we formed Rapid HIV Detection Corp. to market rapid HIV
tests. Those rapid HIV tests include:
InstantScreen, which is the initial test for HIV;
InstantConfirm, which is used to verify all positive
results; and
InstantDifferentiate, which indicates whether the patient
has HIV-1 or HIV-2. HIV-1 is the most common form of HIV;
HIV-2 is a less aggressive form found in some parts of the
world, including West Africa.
The InstantScreen test takes 30 seconds to produce results. Only
a few drops of blood are needed, and the blood is drawn with a
finger prick, rather than intravenously with a needle and vial of
blood. No additional material or special knowledge is needed to
administer the test, and only elementary level reading skills are
required. The test can be produced in different formats,
depending upon whether it will be used in a doctor's office,
hospital or in the field. The InstantConfirm test takes about 8
minutes to perform and is the first rapid HIV test to use the
Western-Blot type HIV confirmation technology. The Western-Blot
is recognized as the gold standard of HIV confirmation. This
phase of the test is critical, since false-positive results have
been a significant historical problem with HIV testing. The
InstantDifferentiate is used if the patient tests positive for
HIV, in order to determine whether the patient is infected with
HIV-1 or HIV-2. HIV-2 is a less aggressive form of HIV that
causes AIDs after a longer period of time than HIV-1, and is
prevalent in certain parts of the world, including West Africa.
In order to acquire the exclusive, world-wide marketing rights to
the rapid HIV tests, we entered into a marketing agreement with
GAIFAR, a German company which owned all the rights to the tests,
and Dr. Heinrich Repke, the man who developed the tests. The
marketing rights were assigned to Rapid HIV Detection Corp - we
own 75% and GAIFAR owns 25% of Rapid HIV's common stock. GAIFAR
retained the manufacturing rights for the tests. We entered
into the agreement in June 2001 and acquired the marketing rights
at that time. The initial terms of the agreement allowed us a
due diligence period of 8 weeks to withdraw from the agreement,
but in July, all the parties agreed to extend that date until
October 15, 2001. The parties also agreed that we would need to
provide a copy of a resolution signed by our board of directors
approving the contract. In October, we completed our due
diligence period and our board provided their unanimous
resolution, making the marketing agreement fully effective, which
means that we no longer have a right to withdraw. The marketing
agreement, which we filed as an exhibit to a Form 8-K filed
October 15, 2001, has a minimum ten-year term and calls for total
payments of $7,000,000 through the 3rd quarter of 2002. When the
marketing agreement became effective in October 2001, $1 million
of the funds previously loaned were applied to the total $7
million consideration. The original agreement called for a loan
in the amount of $500,000 to the owner of the rapid HIV tests and
technology, but we agreed to loan another $125,000 during the 2nd
quarter while we continued our due diligence, so the total loans
were $625,000 as of June 30, 2001. During the 3rd quarter of
2001, we loaned an additional $400,000 while we completed our due
diligence; the total loan amount applied to the $7 million total
due was $1 million. The remaining $25,000 loan will either be
repaid or applied to a future payment obligation. The loan was
made part of the consideration we paid to acquire the exclusive
worldwide marketing rights to the rapid HIV tests and technology,
and is now part of our investment in Rapid HIV. Therefore, the
loan is classified as a non-current asset. The remaining $6
million in payments are due from October 20, 2001 through August
20, 2002. We made the $125,000 payment due in October, and the
remaining payments include a range of $125,000 per month for
November and December 2001 to $1 million per month for the 4
months from April - July of 2002. The original marketing
agreement provided for payments through the 2nd quarter of 2002,
and we renegotiated for a longer payment period in October 2001.
We made our investment in Rapid HIV because we believe Rapid HIV
will generate earnings.
The money we spent investing in these companies came from notes
payable, debentures payable and stock sales during 2000 and 2001.
In July 2001, we announced that ViaCirq entered into a Memorandum
of Understanding with Phoenix Hospital Mangagement to pursue a
joint venture to market and sell ViaCirq products in China. In
August we announced that negotiations were continuing. The
tragic events of September 11, 2001 further delayed the travel
and communication necessary to continue meaningful work on or to
finalize the transaction. As of the date of this filing, due
primarily to the international economic and trading instability
resulting from the terrorist attacks and the military response to
those attacks, we no longer believe this transaction is feasible
and have discontinued negotiations. We may re-open negotiations
in the future, but at this point, we do not believe the joint
venture will occur.
Accounts receivable, net of allowance for doubtful accounts,
increased from $400,950 as of December 31, 2000 to $1,273,100 as
of September 30, 2001. The increase is primarily attributable to
the increase in revenues for INTCO, a consolidated subsidiary of
Petrol Rem, and the timing of billings and collections related to
these revenues.
Our net inventory increased from $805,224 as of December 31, 2000
to $1,575,373 as of September 30, 2001. The increase was
primarily due to an inventory build-up for the ThermoChem
hyperthermia products and for other manufacturing projects being
completed at our Indiana, PA facility.
Current related party receivables increased during the nine-month
period ended September 30, 2001 due to the $110,000 loan made to
Anthony Delvicario (a member of Diasense's board of directors)
which was previously discussed. This addition to current related
party receivables was partially offset by repayments on other
related party notes.
Acquisitions of property, plant and equipment included increases
of machinery and equipment of $1,130,359 for the nine months
ended September 30, 2001 primarily due to additions of
hyperthermia equipment for our ViaCirq subsidiary and the
purchase of tire-shredding equipment for Petrol Rem's subsidiary,
Tireless. Leasehold improvements increased by $170,342
primarily due to renovations made to the Indiana, PA facility.
Accounts payable increased by $1,467,006 during the nine months
ended September 30, 2001 due to the timing of payments that were
slower than normal due to our shortage of working capital.
Accrued liabilities increased by $446,530 during the same period
due to accrued interest on notes payable and increased
liabilities for accrued payroll and vacation. We also accrued an
additional $225,000 for extending the due dates on the payments
due on our class action settlement.
Notes payable increased from zero at December 31, 2000 to
$3,414,336 at September 30, 2001 due to $9,825,000 of notes
payable issued in order to fund operations and investing
activities and borrowings of $39,336 under a $50,000 line of
credit agreement. In July 2001, $6,450,000 of the notes payable
were repaid with proceeds from the sale of common stock
subscriptions.
Our current portion of long-term debt, decreased by $960,408
during the nine months ended September 30, 2001 primarily due to
payments of $850,000 on a note payable related to Petrol Rem's
acquisition of 51% interest in INTCO, Inc. and payments of
monthly installments on debt related to commercial insurance
premiums partially offset by additional debt of $117,235 acquired
related to commercial insurance premiums.
As of September 30, 2001, our current portion of long-term debt
included $4,091,667 and our accrued liabilities included
$1,261,683 in accrued interest, all of which is due in connection
with ICTI.
On October 11, 2001, Petrol Rem borrowed $500,000 from the
minority owner of its subsidiary, INTCO, Inc., under a promissory
note that bears interest at 7% per year and is due in April 2002.
To secure payment of the note, Petrol Rem pledged all of its
shares in INTCO, Inc.
Debentures payable decreased by $2,400,000 during the nine months
ended September 30, 2001 due to the conversion of $10,655,659 of
debentures into common stock partially offset by the sale of
$8,255,659 of convertible subordinated debentures to raise
capital to fund operations.
In July and August, the Company raised $11,164,000 through the
sale of common stock subscriptions. As of September 30, 2001,
769,410,099 shares of stock had been issued to satisfy $9,900,000
of these subscriptions. In addition, the Company repurchased
subscriptions totaling $1,264,000 for $1,453,600. As a result of
the conversion of debentures and the issuance of common stock to
satisfy stock subscriptions, our common stock balance increased
to $245,063,111 as of September 30, 2001 compared to $138,370,417
as of December 31, 2000. Because the common stock was issued at
prices below par value, our additional paid in capital decreased
from $87,035,096 at December 31, 2000 to $2,482,952 at September
30, 2001.
For the year ended December 31, 2000
Our working capital was $754,368 at December 31, 2000 as compared
to $4,592,935 at December 31, 1999 and as compared to a working
capital deficiency of ($9,899,008) at December 31, 1998. Working
capital fluctuations occur primarily because we raise different
amounts of money from year to year. We raised approximately
$29,900,000 in 2000, $30,816,000 in 1999, and $10,720,000 in
1998. Accounts receivable increased to $400,950 at December 31,
2000 from $27,263 at December 31, 1999 and $55,950 at December
31, 1998 primarily from our acquisition of INTCO. Changes in net
inventory and accounts payable also affect working capital - our
net inventory increased to $805,224 as of December 31, 2000 from
$10,308 as of December 31, 1999 and $74,515 as of December 31,
1998 because inventory previously provided for in our valuation
allowance was disposed of and replaced with inventory currently
being used to manufacture our noninvasive glucose sensors as well
as our hyperthermia systems. Our accounts payable decreased from
$1,750,188 at December 31, 1998 to $759,733 at December 31, 1999
to $578,520 at December 31, 2000. The $1 million decrease from
1998 to 1999 occurred because our cash flow problems in 1998 were
corrected in 1999, and the decrease from 1999 to 2000 was due to
payments in the ordinary course of business. Accrued liabilities
increased at December 31, 2000 primarily because of the $1.3
million class action settlement payment due to be paid in 2001.
Our cash decreased to $7,844,807 as of December 31, 2000
from $10,827,631 as of December 31, 1999. The decrease was
partially due to different amounts generated from sales of our
securities. In 2000, our securities sales included:
approximately $18.6 million from our public offering of common
stock; approximately $4.3 million from sales of our Series F
preferred stock; $6.4 million from sales of our subordinated
convertible debentures, after redemptions; and approximately
$616,000 from warrants exercised. Our Series F convertible
preferred stock, which was all converted to common stock during
2000, was not secured by any of our assets, and was convertible
by its holders beginning 120 days from when it was issued.
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. We sold
convertible debentures at different times during 2000. All of
the debentures issued during the first quarter of 2000 were
converted. We also sold convertible debentures beginning in
December 2000, and those $2,400,000 in debentures are still
outstanding.
During 2000, 1999 and 1998, our cash flows used by operating
activities totaled $26,681,873; $18,411,002; and $11,855,294,
respectively. During 1998, those activities included a $ .8
million increase in inventory reserves. During 1998, we spent
cash and other resources when we purchased a majority interest in
a metal-coating company. Because that investment did not
perform as we anticipated, we had to write down assets, including
goodwill, in 1999. In addition, we recorded an $11.2 million
charge against operations due to warrant grants and extensions by
our subsidiaries in 2000, with a similar charge of $5.9 million
in 1999.
During 2000, our net cash flow used by investing activities
was $6,455,166, compared to $1,213,099 in 1999 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 2000, we made investments in unconsolidated
subsidiaries. In January 2001, we 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 $285,000 in
American Inter-Metallics, bringing our total investment in AIM's
rocket propulsion project to $810,000, which represents a 16.2%
ownership in AIM - we plan to invest additional funds to increase
our total ownership to 20% during 2001. We made these
investments because our management believes they will generate
revenue.
Our subsidiary, Diasense, Inc. also made investments in
unconsolidated subsidiaries. In January 2000, Diasense initiated
an alliance with MicroIslet, Inc.; in return for its initial
equity investment of $500,000, Diasense received a 10% stake with
an option to purchase an additional 10% in the future. As of
December 31, 2000, Diasense had invested a total of $1,000,000 in
MicroIslet, and owned 15% - Diasensor plans to invest additional
funds during 2001 to increase its ownership to 20%. 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. Diasense 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. During
2000, Diasense invested $693,520 in Diabecore and received a
20.8% ownership interest. This project is also in the research
and development phase. Diasense 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 $2,061,439 at December 31,
2000. The money we spent investing in those four companies came
from stock and debenture sales during 1999 and 2000. All the
investments were our initial investments in those companies,
except American-Inter-Metallics. We invested a total of $810,000
in American Inter-Metallics, a company that is developing
products designed to enhance rocket propulsion performance. We
carry the AIM investment on our balance sheet as a $663,916
investment in an unconsolidated subsidiary. The difference
between the actual investment and the balance sheet amount is due
to certain accounting rules known as the equity basis of
reporting.
Our investing activities also included the acquisition of
additional property, plant and equipment in connection with the
expansion of our manufacturing facilities and advances made under
a line of credit by Petrol Rem to a company involved in the
acquisition of other environmental companies. In connection with
this line of credit, current - short-term - notes receivable
increased by $1,726,363.
Our other assets increased from $710,619 at year-end 1999 to
$3,119,167 at the end of 2000. Approximately $200,000 of that
increase was due to a 1999 short-term note that was reclassified
as a long-term note in 2000; approximately $700,000 was from an
increase in goodwill related to our investments in our
subsidiaries; and the balance was primarily due to our increased
investments in unconsolidated subsidiaries. During 2000, we
converted loans totaling $55,256 to B-A-Champ.com, to an equity
interest in that company; we also invested an additional
$400,000, and we now own 51% and Fred E. Cooper, our CEO, owns
30%.
Related party receivables decreased by about $316,000 during
2000 due to scheduled repayments on related party debt.
Our current liabilities increased by $4.6 million from 1999
to 2000, from $6,792,504 as of December 31, 1999 to $11,394,556
as of December 31, 2000. The increase was primarily due to $2.4
million in debentures payable that we sold in December 2000, and
a $1 million increase in our current portion of long-term debt;
we also accrued $1.3 million for the remaining payments left on
our class action settlement.
We incurred debentures payable of $2.4 million because we
sold convertible subordinated debentures during 2000 to raise
capital to fund operations. Accrued liabilities increased to
$3,131,765 from $1,794,370 due to a $440,000 increase in accrued
interest, a $653,000 decrease in accrued payroll, and a
$1,529,000 increase in other accrued liabilities, which included
the $1,300,000 balance due in July 2001 for our class action
settlement.
We continued to fund operations mostly by selling our
securities. During 2000, we raised approximately $29,900,000,
including $4,275,000 from sales of preferred stock; $6,400,000
from sales of convertible debentures, and $18,604,650 from sales
of stock in our public offering. During 1999, we raised
approximately $30,816,000 from the sales of securities, including
$810,000 from sales of our Series F preferred stock. During 1998
and 1999 we issued $10,720,000 and $29,020,000, respectively, of
our subordinated convertible debentures. All of our debentures
have one-year terms, minimum holding periods prior to conversion
and mandatory conversion provisions. When those debentures were
converted, we issued 280,134,590; 515,013,737; and 56,679,610
shares of stock, respectively during 1998, 1999 and 2000. During
1999 and 2000, we redeemed $4,130,000 and $5,850,000 in
debentures - we still had the money from selling the debentures,
and we used some to buy some debentures back so we wouldn't have
to issue more stock.
As of December 31, 1998 and 2000, the conversion price of
our outstanding debentures would have been approximately $.059
and $.0421 per share, respectively, based upon a formula that
applies a discount to the average market price for the previous
week and determined by the length of the holding period. As of
December 31, 1998 and 2000, the number of shares to be issued
upon conversion of all outstanding debentures was approximately
60.1 million and 57 million shares, respectively, which would
have reflected discounts of approximately 23% and 20%,
respectively. No debentures were outstanding as of December 31,
1999.
Due to our current limited sources of revenue, we will have
to find additional financing that we'll use to finance
development of, and to proceed to manufacture, our noninvasive
glucose sensor and to complete the development of our other
projects. We can't assure you that we'll be able to find that
additional financing.
Our products are at various stages of development and we'll
need more money to complete them. We may decide to discontinue
any of our projects at any time if research and development
efforts dictate that's the best thing to do.
We currently have commitments for capital leases on certain
equipment and we'll have to commit to other capital leases so we
can continue to develop and manufacture our products.
Our financial statements contain a going concern opinion
from our auditors. Our auditors issued that opinion because we
have a history of losses and no revenue to support our
operations. We get money to fund our operations by selling
securities - and we don't know if we'll be able to continue to
raise enough money that way. Because we're not sure - and our
auditors are not sure - how long we can continue, our financial
statements include the auditor's opinion that we may not be able
to continue operating as a going concern. We have a history of
successful capital-raising efforts; since 1989, and through
December 2000, we, along with Diasense, have raised over
$166,000,000 in private and public offerings alone.
In prior years, we met a portion of our short-term working
capital needs through development contracts with other
organizations and through manufacturing for other companies on a
contractual basis. During 1997 and 1998, we received contracts
by the Department of Veteran's Affairs Medical Center for Case
Western Reserve University, Shriners Hospital - Philadelphia
Unit, and Austin Hospital to manufacture FES products. Functional
electrical stimulators, known as FES products, are implanted
under the skin of patients who are disabled as a result of spinal
cord injury, stroke, head injury or other neurological disorder.
The FES uses low levels of electrical stimulation to activate
nerves and muscles to assist the patient with grasping, arm
movement or standing. Those contracts generated revenues of
$584,026 in 1998. During 1998, the other parties canceled the
orders and those contracts. As a result, we terminated FES
project activities for the present, and we don't anticipate any
additional material revenue from those activities in the future.
Given our expenses and the other factors we discussed, as
compared to our sources of funds, we estimate that we will be
able to meet our funding needs for at least a year from December
31, 2000. We make that estimate based in part because we are not
aware of any extraordinary technological, regulatory or legal
problems. If any of those problems, which could include
unanticipated delays resulting from new developmental hurdles in
product development, FDA requirements, or the loss of a key
employee, arise, we would have to reevaluate our position. We
can't assure you that, despite our good-faith efforts, our
estimates will be correct.
We think that our long-term liquidity needs will include
working capital to fund manufacturing expenses for our products
and continued research and development expenses for existing and
future projects. If our projects are delayed, we will need more
money. We believe we will be able to continue selling our stock
and other securities in order to raise funds, but we can't assure
you we will be successful. If we can't raise enough money to
fund our projects and operations, we will not be able to
continue. We don't have any other sources of funds, such as bank
lines of credit. We believe that, at some point, we will be able
to sell our products to generate revenue, but we can't assure you
when, or if, that will happen.
Results of Operations
For the nine months ended September 30, 2001
Our sales and corresponding costs of products sold during the
nine months increased to $2,869,611 and $2,082,021 respectively
in 2001 from $98,831 and $132,644 in 2000. The increase was
primarily due to sales of $2,419,659 by Petrol Rem's subsidiary,
INTCO, which was acquired in the fourth quarter of 2000 and,
therefore, not included in the first nine months of 2000
operations. Petrol Rem's increase also included an increase in
bioremediation product sales to $75,801 during the first nine
months of 2001 compared to $25,982 during the same period in
2000. Although we had anticipated revenue of $1.67 million from
Petrol Rem during the 3rd quarter of 2001, actual revenues were
approximately $1.33 million. During the 3rd quarter, Petrol Rem
received a distribution agreement for approximately $125,000 per
year from an Alaskan oil spill clean-up company called F.R.O.G.
to distribute Petrol Rem products. The contract has an initial
term of one year, with automatic renewals on a yearly basis. Due
to recent international events, including the September 11th
tragedy, the Alaskan company has been focused on other matters,
and they've told us that they hope to begin selling our products
soon. Through Tireless, LLC, we received a sub-contract to help
clean up tire piles in Ohio. We began that project at the
beginning of October, and we recently began billing for our
services. We believe the Tireless sub-contract could generate
revenue of at least $500,000 over the next year based on our
equipment's capacity to shred tires over the one-year period of
the contract.
In addition, for the first nine months of 2001, we recognized
sales of $208,284 from our hyperthermia products, which produced
sales of $35,808 during the first nine months of 2000. The
increase was due to placements and installations of ViaCirq's
ThermoChemHT system and corresponding sales of disposables in
several hospitals.
Other product sales increased in total, but not significantly.
We received $80,405 from CCTI's metal coating products compared
with $28,098 in the first nine months of 2000. The increase in
sales of metal coating products was due primarily to the
introduction of a product line for sharpeners used for knives and
other tools in the professional culinary field, for sportsmen's
knives and fish hooks, for professional woodworkers and for
household use. CCTI also continues to receive work from repeat
customers who sent us more work once they were satisfied with our
earlier performance. During the first nine months of 2001, we
recognized sales of $49,403 for our theraPORT, an implantable
device used by patients who 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. We also recognized sales of $36,000 for HIV tests
marketed by Rapid HIV Corporation. Until we have significant and
consistent sales, we can't predict any trends for future
revenues. Our costs of products sold increased due to the
increase in sales of our various products.
During the 3rd quarter of 2001, our manufacturing division in
Indiana, PA received contracts, which we anticipate will begin
generating revenue during late 2001 and early 2002. Our
Biocontrol Technology division received a $1.5 million
manufacturing contract from the U.S. Army, and $238,000
manufacturing contract from a private company. We began work on
the U.S. Army contract, which we believe will generate $1.5
million in revenue during the first year, beginning in the 4th
quarter of 2001, with additional revenue for two additional
years; we filed a copy of that contract as an exhibit to our Form
8-K/A filed October 15, 2001.
Other income increased from zero during the first nine months of
2000 to $9,497 during the first nine months of 2001. The
increase was primarily due to rental income.
Research and Development expenses during the first nine months
increased to $5,142,507 in 2001 from $5,082,319 in 2000. The
increase was due to expenses incurred for the Diasensor clinical
trials partially offset by reduced research activities on our
hyperthermia products and the redeployment of resources from
research activities to production of hyperthermia products.
General and administrative expenses increased a total of
approximately $4.3 million for the first nine months of 2001 as
compared to 2000. Approximately $3.4 million of the increase is
attributable to additional salaries, which include a $912,727
payment to David L. Purdy in connection with his resignation from
the Company and its affiliates and new hiring at ViaCirq and
Petrol Rem (including INTCO and Tireless, LLC). $1.3 million of
the increase represents increased outside professional fees,
approximately $500,000 of which was incurred in connection with
ViaCirq's sales and marketing efforts for the ThermoChem system.
Approximately $500,000 of the increase is due to increased travel
expenses, primarily for ViaCirq's and Petrol Rem's increased
marketing efforts. The above increases were partially offset by
a decrease of approximately $600,000 in expense recognized in
connection with the granting of warrants for services.
Amortization of goodwill increased from $279,681 to $579,671 for
the first nine months of 2000 to 2001. The increase is due to
additional investments in unconsolidated subsidiaries as of
September 30, 2001 compared with September 30, 2000. A portion
of these investments is recognized as goodwill and amortized over
a five-year period. Our loss in unconsolidated subsidiaries
decreased to $221,407 for the first nine months of 2001 compared
to $493,925 for the same period in 2000. This loss results
because we absorb part of losses incurred by unconsolidated
subsidiaries. Our share of the loss is determined by applying
our ownership percentage to the total loss incurred.
Debt issue costs increased from $985,000 to $1,741,886 for the
first nine months of 2000 to 2001. The increase is due to
additional debentures and notes payable during the first nine
months of 2001 compared to the same period in 2000.
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 $2,063,915 of expense in connection with the
issuance of our subordinated convertible debentures in the first
nine months of 2001 compared to $2,462,500 for the same period in
2000. The amount decreased primarily because we issued fewer
debentures this year compared to last year.
For the year ended December 31, 2000
The following seven paragraphs discuss the Results of Operations
of our entire company based on our consolidated financial
statements. We discuss our business segments at the end of this
section.
Our sales and corresponding costs of products sold during 2000
increased to $340,327 and $354,511, respectively in 2000 from
$112,354 and $147,971 in 1999 and $1,145,968 and $587,821 in
1998. The changes from year to year were due to fluctuations in
sales of our various products. Our costs increased and decreased
due to our overall increase and decrease in sales. The increase
from 1999 to 2000 was due primarily to an increase in sales: a
$191,000 increase in bioremediation sales and initial sales of
our ThermoChem system. The decrease from 1998 to 1999 was
primarily due to the loss of our FES contracts. We had sales of
the Diasensor totaling $427,603 in 1998; $47,500 in 1999, and
none in 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. During 1998, 1999 and 2000, sales of
$16,855; $31,060; and $20,068, 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 had minor sales totaling $3,496
and $2,028 of other biomedical products, primarily leftover parts
from previous models of the Diasensor, during 1999, and 2000.
Our other product sales increased. Bioremediation product sales
totaled $45,382 in 1998 and $26,693 during 1999, with an increase
to $217,722 during 2000. We also had sales of our metal-coating
products beginning in 1999 of $3,605, which increased to $40,593
in 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. We had sales of $69,605 from our ThermoChem
hyperthermia system for the first time in 2000.
In 2000, 1999 and 1998, we received interest income in the amount
of $589,529; $1,031,560; and $182,033 respectively. The
fluctuations are due to the varying amounts of money - which came
mostly from our securities sales - we had to invest. Our other
income decreased to $5,547 in 2000 as compared to $52,897 in 1999
and $50,212 in 1998. The decrease was due to the loss of rental
income.
Research and Development expenses during 2000 increased to
$6,651,471 from $4,430,819 in 1999, a decrease from $6,340,676 in
1998. The increase from 1999 to 2000 was due to increased
spending on our noninvasive glucose sensor project, and our
hyperthermia 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. We also hired new personnel to work
on ViaCirq's hyperthermia project following the FDA approval in
January 2000.
Selling, General and Administrative expenses increased to
$21,407,472 in 2000 from $12,884,237 in 1999 and $10,673,265 in
1998. The increase from 1999 to 2000 was primarily due to the
following factors: a $4.9 million increase in warrants granted
by BICO and our subsidiaries; a $1.27 million increase in
salaries; a $2.4 million decrease in commissions paid on our
securities sales; a $1.16 million increase in legal fees; a $1.2
million increase in consulting fees; and a $1 million expense to
reflect a write-off of inventory we couldn't sell. The increase
from 1998 to 1999 was due primarily to the following factors: a
$1.6 million increase in salaries; a $2.2 million increase in
commissions paid on our securities sales; an $800,000 increase in
consulting fees; and a $700,000 charge in 1998 for ViaCirq
manufacturing rights that was not incurred in any other year.
Beginning in 2000, we had a loss on unconsolidated subsidiaries
of $158,183 that reflects our ownership share of the losses
incurred by American Inter-Metallics, MicroIslet, Diabecore, and
Insight Data Link.
In 2000, we had an unusual item expense totaling $3,450,000 to
settle our class action lawsuit. Even though we don't believe
any violations of the securities laws occurred, we agreed to
settle the lawsuit. We paid $2,150,000 in 2000, and an
additional $1,300,000 payment is due in July 2001 - we also
included that amount as an accrued liability on our balance
sheet.
During 1999, we reevaluated our investment in the metal-coating
project and determined that an impairment charge of $5,060,951
was necessary in addition to a $39,716 write-down of goodwill.
We recognized these charges because we determined we would not be
able to recover our investment. We had no similar charges in
1998 or 2000.
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 $3,062,500 of
expense in connection with the issuance of our subordinated
convertible debentures in 2000 compared to $7,228,296 in 1999 and
$3,799,727 in 1998. The amount decreased primarily because we
issued fewer debentures this year compared to last year.
Similarly, we recognized a beneficial conversion feature for our
preferred stock during 2000. During 2000, we issued 452,000
shares of our Series F preferred stock. The preferred stock was
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 or $.17 per
preferred share was recognized as a constructive dividend on our
preferred stock during 2000. We charged the $1,883,333 to
additional paid-in capital. We did not have any of these charges
or constructive dividends during 1999 or 1998 because we had not
yet issued our preferred stock.
During 1999 our subsidiary, Diasense, extended warrants
originally granted to certain officers, directors, employees and
consultants. In addition, our subsidiary ViaCirq also extended
warrants in 2000. Because the exercise price of some of those
warrants - $.25 to $3.50 for Diasense and $.10 for ViaCirq - was
lower than the market price of the common stock at the time of
the extensions, $4,669,483 and $5,233,529 were charged to
operations during 1999 and 2000, respectively. For more detailed
information, you should read Note L to our financial statements.
Interest expense on our outstanding debt was $1,924,873 in 2000,
compared to $1,373,404 in 1999 and $481,025 in 1998. The increase
was due to an increase in capital leases and interest payments on
our subordinated debentures.
In 2000, unrelated investors' interest in net loss of subsidiary
increased to $280,997 from $24,164 in 1999, a decrease from
$1,385,485 in 1998. Unrelated investors' interest is an entry on
our statement of operations that is different from income or
expense entries. It represents the total amount of our
subsidiaries' losses that is allocated to other owners. When our
subsidiaries lose money, we, as majority owner, have to take a
charge for our share of those losses, but we are allowed to
deduct the portion of the losses that are allocated to the other
owners - called the unrelated investors. This means that the
entry for the unrelated investors' share of the losses actually
decreases our total net loss, because it gives us credit for the
part of the loss allocated to the unrelated investors. The
significant decrease from 1998 to 1999 is due to the declining
net worth of Diasense, our 52% owned subsidiary. In 1998,
Diasense's losses were less than the interest of its unrelated
investors. Therefore, those unrelated investors shared in the
losses to the extent of their ownership - 48%, and we were able
to deduct their share of the loss, which was ($1,385,485). In
1999, Diasense's losses were more than the interest of its
unrelated investors, which was $24,164. Therefore, accounting
rules require that we - as majority owner - take full
responsibility for all of Diasense's 1999 losses that exceeded
that $24,164, and only deduct that small amount from our losses.
There was no unrelated investors' interest in the net loss of
Diasense in 2000 due to the continued decline in the net worth of
Diasense. The increase from 1999 to 2000 is primarily due to the
increased net worth of ViaCirq, our 99%-owned subsidiary. In
1999 and 1998, ViaCirq's losses exceeded the interest of
unrelated investors and we - as majority owner - were required to
take full responsibility for ViaCirq's losses. In 2000,
ViaCirq's net worth increased due to the conversion of debt to
common stock. ViaCirq's losses were less than the interest of
its unrelated investors and those unrelated investors shared in
the losses to the extent of their ownership of 1%. Therefore, we
were able to deduct their share of ViaCirq's loss, which was
($146,708). Our acquisitions also contributed to the increase
from 1999 to 2000. Petrol Rem acquired a majority of INTCO and
Tireless, and we acquired a majority of B-A-Champ.com. In 2000,
the unrelated investors' interest in the net losses of INTCO,
Tireless and B-A-Champ were $9,827, $52,729, and $71,733,
respectively. There were no similar amounts in 1999 or 1998
because we didn't acquire them until 2000.
Segment Discussion
For purposes of accounting disclosure, we provide the following
discussion regarding two business segments: Biomedical devices,
which includes the operations of our Biocontrol Technology
division, Diasense, Inc., and ViaCirq, Inc.; and Bioremediation,
which includes the operations of Petrol Rem, Inc. More complete
financial information on these segments is set forth in Note H to
our accompanying financial statements.
Biomedical Device Segment. During the year ended December 31,
2000, sales to external customers decreased to $81,954 from
$82,056 in 1999, a decrease from $1,028,484 in 1998. The overall
decrease was primarily due to sales of the functional electrical
stimulators, which have been discontinued. Corresponding
fluctuations in costs of products goods sold occurred for the
same reason, from $483,388 in 1998 to $133,288 in 1999 and
$47,862 in 2000.
Bioremediation Segment. During the year ended December 31, 2000,
sales to external customers increased to $217,722 as compared to
$26,693 in 1999 and $45,382 in 1998. The increase from 1999 to
2000 was due to our increased efforts to effectively penetrate
the market with products other than the BioSok. The reasons for
the decline from 1998 to 1999 are as follows: due to cash flow
problems in 1998, Petrol Rem stopped funding its sales efforts
and lost employees. In 1999, Petrol Rem restructured its
management, operations and pricing structure - during that time,
sales efforts slowed until the new management and funding was in
place. Costs of products sold fluctuated due to the same factors
that impacted sales, from $33,061 in 1998 to $14,683 in 1999 and
to $179,446 in 2000.
Income Taxes
Due to our net operating loss carried forward from previous years
and our current year losses, no federal or state income taxes
were required to be paid for the years 1987 through 2000. As of
December 31, 2000, we and our subsidiaries, except for Diasense
and Petrol Rem, had available net operating loss carry forwards
for federal income tax purposes of approximately $132,500,000,
which expire during the years 2001 through 2021.
Supplemental Financial Information
In February 2002, we accepted a commitment from J.P. Carey
Asset Management to purchase $25 million of our Series K
preferred stock. The commitment requires that we first have an
effective registration statement covering the underlying shares
of common stock before we will receive funding from that
commitment. In addition, from October 2001 through January 2002,
we raised funds aggregating approximately $6.64 million by
selling our convertible preferred stock. This prospectus covers
the common stock our preferred stockholders will receive when
they convert their preferred stock. We discuss the specific
terms of our classes of preferred stock in the Description of
Securities section beginning on page 17 of this prospectus.
Generally, the preferred stock is not secured by any assets and
can be converted into common stock at prices ranging from 76-90%
of our stock's average closing bid prices. There is no minimum
conversion price.
We are working to obtain bridge financing in the form of
loans to help us meet our cash flow needs until this registration
statement is declared effective and we begin receiving funding
from J.P. Carey Asset Management.
We filed a Form S-8 in December 2001 that included 125
million shares. The Form S-8 allows us to issue freely tradable
stock to non-executive employees under our Equity Compensation
plan and to certain consultants in lieu of paying them in cash.
As of February 21, 2002, we've issued approximately 81.2 million
shares of our common stock from the Form S-8.
During the 4th quarter of 2001, we had significant cash flow
problems. We believe those problems are in large part due to the
overall economic recession, which was aggravated by the tragedies
of September 11, 2001. The stock market's resulting decline and
other factors beyond our control made it difficult for us to
raise money by selling our preferred stock. We only raised $6.64
million, which is much less than we expected. As a result, our
payroll and our accounts payable are seriously past due. In
addition, we borrowed over $700,000 from the minority owner of
INTCO, our Louisiana oil-spill clean-up company, and we secured
that loan with our 51% ownership in INTCO. If we are unable to
repay that loan when it's due in March and April 2002, we may
lose our ownership interest in INTCO. We also have other serious
obligations that are past due. We still owe $425,000 in
connection with our class action settlement. Although we are
working with the class action counsel to make payments on the
amount due, we can't assure you how long they will continue to
work with us. They could obtain an order from the judge
demanding that we pay the balance, and if we can't, they could
enter a judgment against us. We have not been able to make
payments when due under our Rapid HIV Marketing Agreement. So
far, the other parties to that agreement have not given us notice
that we are in default. If they do, we will have 60 days to make
the required payments, or we will lose our marketing rights.
Now that we've received the funding commitment, we believe
we can obtain bridge financing in the form of loans to help us
bring our payroll and accounts payable more current, and to make
the class action, loan and contract payments we need to make to
avoid losing our INTCO stock and our Rapid HIV marketing rights.
However, we can't assure you if that will happen, or if it will
happen soon enough to avoid lawsuits against us.
BICO's BUSINESS
General Development of Business
BICO, Inc. was incorporated in the Commonwealth of Pennsylvania
in 1972 as Coratomic, Inc. In June 2000, we changed our
corporate name from Biocontrol Technology, Inc. to BICO, Inc.
Our research, development and manufacturing operations are
located at 625 Kolter Drive in Indiana, Pennsylvania, 15701, and
our administrative offices are located at 2275 Swallow Hill Road,
Pittsburgh, Pennsylvania, 15220.
Our primary business is the development and manufacture of new
devices, which include models of a noninvasive glucose sensor,
procedures relating to the use of regional extracorporeal
hyperthermia in the treatment of cancer, a quick and accurate
test for HIV, and environmental products, which help to clean up
oil spills. Regional extracorporeal hyperthermia is a system
that circulates fluid in a specific area of the body after the
fluid has been heated outside the body. The recirculated fluid's
higher temperature helps treat certain diseases by inducing an
artificial fever that kills targeted cells. The rapid HIV test
is can be used to accurately test for HIV outside of a
laboratory. Our noninvasive glucose sensor helps diabetics
measure their glucose without pricking their fingers or having to
draw blood.
We have several subsidiaries that specialize in those different
projects. Diasense, Inc. manages the noninvasive glucose sensor
project. ViaCirq, Inc. handles the hyperthermia project, a
technology called the ThermoChem Systemr. Rapid HIV Detection
Corp. owns the marketing rights to the rapid HIV tests. Petrol
Rem, Inc. handles our environmental products PRPr, BIOSOKr and
BIOBOOM r that help clean up oil spills and other pollutants in
water.
Forward-Looking Statements
From time to time, we may publish forward-looking statements
relating to such matters as anticipated financial performance,
business prospects, technological developments, new products,
research and development activities, the regulatory approval
process, specifically in connection with the FDA marketing
approval process, and similar matters. You need to know that a
variety of factors could cause our actual results to differ
materially from the anticipated results or other expectations we
expressed in our forward-looking statements. The risks and
uncertainties that may affect our operations, performance,
research and development and results include the following:
additional delays in the research, development and FDA marketing
approval of the noninvasive glucose sensor; delays in the
manufacture or marketing of our other products and medical
devices; our future capital needs and the uncertainty of
additional funding; competition and the risk that the noninvasive
glucose sensor or our other products may become obsolete; our
continued operating losses, negative net worth and uncertainty of
future profitability; potential conflicts of interest; the status
and risk to our patents, trademarks and licenses; the uncertainty
of third-party payor reimbursement for the sensor and other
medical devices and the general uncertainty of the health care
industry; our limited sales, marketing and manufacturing
experience; the amount of time or funds required to complete or
continue any of our various products or projects; the attraction
and retention of key employees; the risk of product liability;
the uncertain outcome and consequences of any claims pending
against us; our ability to maintain a trading market for our
common stock; and the dilution of our common stock.
Description of Business
ViaCirq's Extracorporeal Hyperthermia Project
CURRENT STATUS OF OUR EXTRACORPOREAL HYPERTHERMIA PROJECT
Our subsidiary, ViaCirq, is the developer and marketer of the
ThermoChem HT System which received FDA clearance to market in
January 2000. The Thermochem HT System heats and circulates
sterile solution through inlet catheters with temperature probes
placed in the upper region of the abdominal cavity with the
sterile solution returning to the ThermoChem through outlet
catheters placed in the lower region of the abdominal cavity.
The continuous circulation of heated sterile solution raises the
core temperature of the abdominal cavity to the range of 41C
(105.8F) to 42C (107.6F). This procedure is known as
intraperitoneal hyperthermia (IPH). Before intraperitoneal
hyperthermia is administered in a surgical procedure, the surgeon
performs a midline abdominal incision to expose the entire
abdominal cavity. Tumors within the abdominal cavity are
surgically removed to the extent as possible. Inlet and outlet
catheters are placed and then intraperitoneal hyperthermia is
administered with the ThermoChem HT System for 2 hours. At the
surgeons choice, chemotherapy may be administered in the
abdominal cavity during the intraperitoneal hyperthermia. The
combination of cytoreductive surgery, chemotherapy, along with
the synergism of heat, has been used to treat patients with
advanced stages of gastric cancer, colorectal cancer, appendiceal
cancer, ovarian cancer and mesothelioma that has spread to the
lining of the abdominal cavity with positive surgical and quality
of life outcomes. These results have been published in numerous
medical journals including The American Surgeon, The American
College of Surgeons and the European Journal of Surgical
Oncology. This combined procedure was pioneered at institutions
like Wake Forest University School of Medicine and is now offered
as a standard-of-care for these advanced cancers.
During 2001, we focused on marketing the system to health care
institutions and to creating a working management team. In March
2001, we presented our technology at the annual Cancer Symposium
Meeting of the Society of Surgical Oncologists in Washington,
D.C. We also have created a management team including a chief
operating officer, and vice presidents of marketing and sales.
We have entered into long-term agreements with Wake Forest
University Medical Center in Winston-Salem, NC; Zale Lipshy
University Hospital at Southwestern Medical Center in Dallas, TX;
University of Pittsburgh Medical Center in Pittsburgh, PA; Baylor
University Medical Center in Dallas, TX; and Sharp Memorial
Hospital in San Diego, CA to use the ThermoChem HT System to
administer intraperitoneal hyperthermia as part of their surgical
oncology program. We have entered into evaluation agreements in
which the Company is paid on a per IPH procedure to evaluate the
program. These institutions include; Veterans Affairs Medical
Center in Pittsburgh, PA; Veterans Affairs Medical Center in
Cincinnati, OH; Greenville Memorial Hospital in Greenville, SC;
St. Agnes Healthcare in Baltimore, MD; Dekalb Medical Center in
Atlanta, GA; Kettering Medical Center in Dayton, OH; the
University of Washington Medical Center in Seattle, WA; and the
University of Maryland Medical Center in Bethesda, Maryland.
In 2001, ViaCirq's Board of Directors, along with their
stockholders, including BICO, decided to split the two
hyperthermia treatments into two separate companies. ViaCirq
continues to develop, market and sell the regional hyperthermia
equipment and products, and the newly-created ViaTherm will focus
on the whole-body hyperthermia.
Although we had hoped to enter into an agreement with a hospital
group in China, the tragic events of September 11, 2001 and
their impact on international travel, trade, and communications
made such an arrangement impossible at this time.
HISTORY AND DEVELOPMENT OF THE THERMOCHEM-HT SYSTEM
ViaCirq was incorporated on October 23, 1992 as IDT, Inc.
ViaCirq focused on the research and development of the
ThermoChem technology and associated disposables as a delivery
system for perfusion induced systemic hyperthermia, known as
PISH, a form of whole body hyperthermia and regional hyperthermia
in the treatment of certain types of cancers and AIDS/HIV.
Perfusion induced hyperthermia is the elevation of the body's
temperature, which is like inducing an artificial fever.
Perfusion-induced hyperthermia can be used to raise the
temperature of a regional part of the body - called regional
hyperthermia; and can raise the temperature of the entire body -
called systemic hyperthermia. Extracorporeal means outside the
body - so extracorporeal hyperthermia uses a device to circulate
blood outside the body and return it to the patient to raise the
patient's temperature. Perfusion involves circulating blood.
Perfusion-induced extracoroporeal hyperthermia heats blood
outside the body then circulates the blood back through the body
to raise the body's temperature.
In 1993, ViaCirq formed an alliance with HemoCleanse, Inc.
located in Lafayette, Indiana. HemoCleanse, Inc., founded in
1989, designs, manufacturers and markets medical devices and
disposables for the treatment of blood outside the body.
HemoCleanse's core product was the BioLogic System, which
consists of a sophisticated, computer controlled multi-treatment
device and a series of single-use disposable treatment kits.
HemoCleanse's unique technology is based on special chemical
sorbents that selectively remove toxins from the blood while
balancing critical blood chemistries. The BioLogic System
received clearance by the FDA in 1994 as a detoxifier for
treatment of drug overdose; in 1996 the BioLogic SystemT received
FDA clearance for use in treating patients with liver failure.
We believed that HemoCleanse's core technology was essential in
developing a safe delivery system for whole body hyperthermia.
In 1993, we entered into a license agreement with HemoCleanse to
develop the ThermoChem technology for delivering extracorporeal
hyperthermia. Under the license agreement, we received worldwide
rights to market the ThermoChem technology and disposables while
HemoCleanse retained worldwide manufacturing rights for
ThermoChem technology and disposables. We funded HemoCleanse's
development of a prototype of the ThermoChem System for PISH.
The prototype was used in pre-clinical trials and subsequently in
the first ever FDA approved clinical trial.
The ThermoChem System consists of two components: ThermoChem-HT
System and ThermoChem-SB System that are necessary for
delivering PISH, a form of whole body hyperthermia.
ThermoChem-HT System is a fully integrated system that
heats, circulates and maintains desired blood/fluid temperatures
in delivery of whole body hyperthermia or regional hyperthermia.
ThermoChem-SB System is used in conjunction with the
ThermoChem-HT System to deliver whole body hyperthermia by
balancing blood chemistries on a real-time basis while removing
toxins.
It is common knowledge that higher temperatures of the body, like
natural fevers, can serve to control infections. Using this
concept, the ThermoChem System induces an artificial fever to
107.6 F, which is hyperthermia. During hyperthermia, however,
blood chemistries shift potentially causing severe organ damage
and possibly death.
The ThermoChem System is a unique system that incorporates the
features of the ThermoChem-HT, but also automatically balances
electrolytes and important nutrients using the chemical exchange
characteristics of the ThermoChem-SB, while simultaneously
removing many small toxins. The electrolytes and nutrients flow
from the sorbent to the blood until equilibrium is reached.
Unbound toxins flow freely from the blood and bind to the
charcoal of the suspension.
There are many methods for inducing whole body hyperthermia
including radiant heat chambers, microwave heat chambers, water
blankets and perfusion induced systemic hyperthermia PISH. We
believe that PISH allows for a more uniform heating of the body
and a higher sustained body temperature.
Perfusion Induced Systemic Hyperthermia Utilizing the ThermoChem
System
Perfusion induced systemic hyperthermia, known as PISH, is
achieved through extracorporeal blood heating which involves
heating the patient's blood outside the body to a maximum of
118.4 F and returning it back to the body, thus raising the
body's core temperature to the desired treatment temperature up
to a current maximum of 108.4 F for 2 hours. Catheters are
placed in two venous access sites and attached to the disposable
tubing of the ThermoChem-HT. Blood passes a roller pump that
sends it onward to the heat exchanger where indirect heating of
the blood occurs, raising the outside blood temperature to a
maximum of 118.4 F. A portion of the blood passes through a T-
connection to the ThermoChem-SB, located between the roller pump
and the heat exchanger, where it is chemically balanced on a real-
time basis and then returned to the blood flow path before it
reaches the heat exchanger. Continually circulating blood is
returned to the patient at approximately 114.8 F, gradually
raising the patient's core body temperature to the desired
temperature, which is measured by various temperature probes
throughout the body.
Intraperitoneal Hyperthermia Utilizing the ThermoChem-HT System
In a surgical procedure cancerous growths are surgically removed
from the patient's abdomen and pelvis; while all spaces and
lining surfaces are opened, inlet and outlet catheters are
placed. The ThermoChem-HT System raises the temperature of the
abdominal cavity to a target temperature of up to 43.5C
(110.3F) by continuously circulating sterile solution throughout
the abdominal cavity.
The ThermoChem-HT is a system of specially integrated subsystems
and devices for fluid control and precise temperature
maintenance. All operating parameters of the system are
monitored by a computer and displayed and managed through an
interactive video touch screen display. The operator can access
all system controls and operations, in-put all necessary patient
data, and define and adjust treatment parameters with just a
touch of a finger.
Intraperitoneal hyperthermia offers a new choice to combat
peritoneal cancers arising from gastrointestinal, pancreatic,
ovarian and other metastatic tumors.
Physicians have known that cancer cells are sensitive to heat,
but only recently have the mechanisms of hyperthermia on cancer
cells been understood. The vascular structure in tumors
restricts blood supply so a tumor will retain heat, which
destroys cellular components essential for a tumor to exist.
Heat also makes cancer cell membranes more permeable to certain
chemotherapeutic drugs while certain chemotherapeutic drugs are
strengthened by heat.
Beginning in 1994, the safety and efficacy of hyperthermia
utilizing the ThermoChem technology was evaluated in the
following FDA institutional review board clinical and pre-
clinical approved trials.
St. Elizabeth Hospital - Lafayette, Indiana
1. Phase I completed under protocol entitled "Evaluation of
Whole-Body Hyperthermia Utilizing the ThermoChem technology in
the Treatment of Kaposi's Sarcoma with AIDS." This was the first
FDA approved whole body hyperthermia study and was published in
The Journal of Acquired Immunodeficiency Syndrome and Human
Retrovirology.
2. Phase II trial completed under protocol entitled
"Extracorporeal Whole-Body Hyperthermia Treatments for HIV
Infections and AIDS" with results published in American Society
for Artificial Internal Organs (ASAIO) Journal.
The University of Texas M.D. Anderson Cancer Center
Pre-clinical studies in preparation for a Phase I trial involving
thermo chemotherapy of patients with lower extremity cancers of
different types has been completed at the University of Texas
M.D. Anderson Cancer Center. These animal studies were used to
develop the surgical techniques necessary for a clinical trial on
humans and to train and familiarize the center's staff in the use
of ThermoChem technology.
University of Texas Medical Branch at Galveston
Human trials are ongoing under an Investigational Device
Exemption utilizing the ThermoChem System and disposables to
deliver perfusion induced systemic hyperthermia for patients with
non-small cell lung cancer. Non-small cell lung cancer remains a
major cause of cancer morbidity and mortality in the United
States and Europe. In February 2000, the FDA approved a
continued clinical trial to include stage IIIb patients with non-
small cell lung cancer.
One of the objectives of this trial is to evaluate the
ThermoChem technology for treatment of metastatic non-small cell
lung cancer with regard to patient selection, tumor response,
patient performance status, and patient survival. The follow-up
of the patients is patterned after the Southwest Oncology
protocols, which are considered state-of-the-art to follow
response of cancer to the therapy. Results of this study have
been accepted for publication in Annals of Thoracic Surgery;
Perfusion; and American Society of Artificial Organs.
Wake Forest University School of Medicine
In May 1998, the FDA approved an Investigational Device Exemption
to allow human clinical trials utilizing the ThermoChem-HT and
related disposables for intraperitoneal hyperthermia.
Intraperitoneal hyperthermia is used as an adjunctive therapy
with surgery and chemotherapy.
In a surgical procedure all cancerous growths are surgically
removed from the patient's abdomen and pelvis; while all spaces
and lining surfaces are opened, the abdomen is perfused utilizing
the ThermoChem-HT System with a heated physiologic solution
circulating for a 2 hour period.
ViaCirq and the surgeons at Wake Forest believe that the
ThermoChem-HT System can make the technique more effective with
better temperature monitoring and control. This procedure is
offered as a standard-of-care for treatment of patients with
advanced ovarian and gastrointestinal cancers.
In November 2000, we began a study with Wake Forest using the
ThermoChem-HT System and disposables to deliver intraperitoneal
hyperthermia in combination with surgery and chemotherapy as a
primary treatment of ovarian cancer. The study will involve the
use of hyperthermia as an adjunct to chemotherapy following a
hysterectomy and surgery to remove as much of the cancer as
possible, and the hyperthermia will be repeated 6 months later
during second-look surgery if the patient has no residual
disease.
MEDICAL ADVISORY BOARD
ViaCirq has a medical and scientific advisory board that is made
up of these professionals. Advisory Board members do not receive
a fee for serving on the board, but are reimbursed for expenses
incurred. Brian Loggie, MD is under a separate consultant
agreement with ViaCirq that has been approved by the University
of Texas Southwest to help expand the use of intraperitoneal
hyperthermia with the ThermoChem-HT System.
B. Loggie, M.D. Surgical Oncology; University of
Texas Southwestern
Intraperitoneal hyperthermia focus
S. Tomasovic, Ph.D. Tumor Biology; UT/M.D. Anderson
Cancer biology focus
R. Fleming, Ph.D. Pharmacology
Hematology/oncology focus
S. Ash, M.D. Internal Medicine; Nephrology; St.
Elizabeth Hospital
Extracorporeal blood therapy systems focus
C. Steinhart, M.D., Ph.D. Internal Medicine;Immunology;Mercy Hospital
HIV specialty
M. Yatvin, Ph.D. Radiation;Thermal Biology; Oregon
Health Sciences University (Retired)
HIV Specialty
In January 1998, ViaCirq and HemoCleanse modified their original
license agreement whereby ViaCirq would acquire the manufacturing
rights to the ThermoChem-HT System and related disposables for
use in regional hyperthermia.
The ThermoChem-HT System and ThermoChem-SB work together to
perform whole body hyperthermia with all commands originating
from the ThermoChem-HT System. In order for the ThermoChem-HT
System to be used in regional hyperthermia, the ThermoChem-HT
had to be reconfigured to operate independently of the
ThermoChem-SB System since blood chemistry balancing is not
necessary in regional hyperthermia.
ViaCirq contracted with our Biocontrol Technology division, to
develop and manufacture the ThermoChem-HT System to operate
independently from the ThermoChem-SB System for regional
hyperthermia.
In March 1999, ViaCirq entered into a license agreement with Wake
Forest University in which ViaCirq licensed all proprietary
developments, data and information owned by Wake Forest relating
to a method of heated perfusion of chemotherapy drug in treatment
of intraperitoneal and other cancers.
In April 1999, a study was completed at Wake Forest University
School of Medicine utilizing the ThermoChem-HT System for
intraperitoneal hyperthermia in combination with surgery and
chemotherapy in patients with advanced ovarian and
gastrointestinal cancer.
In January 2000, HemoCleanse and ViaCirq received FDA clearance
to market the ThermoChem-HT System and related disposables,
which are used to raise the core temperature of the abdominal
cavity to the desired temperature in the 41 C (105.8 F) to 42 C
(107.6 F) range by continuously bathing the abdominal cavity with
circulating sterile solution.
ViaCirq progressed during 1999 and 2000 from product development
and clinical trials to an operational company that will market
the ThermoChem-HT System and related disposables.
In June 2000, ViaCirq amended the license agreement with
HemoCleanse whereby HemoCleanse granted ViaCirq a limited,
exclusive worldwide, fully paid-up, irrevocable, perpetual
license limited to the relevant field of use in hyperthermia to
manufacture the ThermoChem-SB and SB treatment kits. All
patents and patent applications in whole body hyperthermia owned
by HemoCleanse were assigned to ViaCirq, the consideration for
the above was 1,042,253 shares of HemoCleanse common stock.
Since 1994, we invested $2,460,065 in HemoCleanse stock. Of the
$2,460,065 invested in HemoCleanse common stock, approximately
$1,018,750 was invested in 1994; $1,310,822 in 1995; and $130,493
in 1998. These investments were considered speculative
throughout the term of the investment because HemoCleanse was
continually operating at a deficit due to its research and
development activities. Throughout those periods, HemoCleanse
incurred net losses, accumulated deficiencies in assets, and no
net tangible assets. Our management considered all HemoCleanse
funding to be research and development expenditures and did not
recognize any goodwill due to the absence of a proven technology.
Due to HemoCleanse's financial condition and the absence of a
fair market value for the HemoCleanse common stock, all amounts
invested in HemoCleanse were expensed when the investments were
made.
In August 2000, ViaCirq entered into a 3-year agreement with
North Carolina Baptist Hospitals to provide our ThermoChem-HT
System and disposables to Wake Forest University Baptist Medical
Center. In November 2000, ViaCirq entered into a contract to
provide our ThermoChem-HT System and disposables to Zale Lipshy
University Hospital.
We've spent approximately $18.7 on this project through September
30, 2001. We have been funding this project since 1992 with
money we raised selling our securities, including our stock or
convertible debentures.
Petrol Rem's Environmental Projects
BIOREMEDIATION AND OIL SPILL CLEAN UP
We are involved in the field of biological remediation, or
bioremediation, development. Bioremediation technology uses
naturally occurring microorganisms or bacteria to convert various
types of contamination, like oil spills, to carbon dioxide and
water. The product, PRP, which stands for Petroleum Remediation
Product, is designed as an environmental microbial microcapsule,
which is used to collect, contain and separate oil-type products
in or from water. The product's purpose is to convert the
contaminant, with no leftover residue in need of disposal. When
the PRP comes in contact with the petroleum substances like oil
spills, the oil spills become bound or attached to the PRP, and
they stay afloat. Because the product contains the necessary
nutrients and microorganisms, the bioremediation process begins
immediately, which limits secondary contamination of the air or
surrounding wildlife. Eventually, the product will break down
both the petroleum and itself, leaving nothing but carbon dioxide
and water.
In late 2000, Petrol Rem acquired 51% of INTCO, a Louisiana
company that specializes in regional oil spill clean-ups,
primarily on the Gulf coast of southeast Louisiana, for an
investment of approximately $1.25 million, all of which was paid
during 2001. INTCO has been using Petrol Rem's oil spill clean-up
products in clean up projects. INTCO was generating income when
we acquired our interest in 2000, and its revenues have helped
Petrol Rem's revenue flow.
Petrol Rem's revenues increased significantly during the first
three quarters of 2001, due primarily to INTCO's revenues.
Petrol Rem's total revenues for the first three quarters of 2001
were approximately $2.475 million. Of that, approximately $2.4
million was from INTCO and $75,000 was from bioremediation
products.
Petrol Rem received a distribution agreement for approximately
$125,000 per year from Alaskan oil spill clean-up company called
F.R.O.G. to distribute Petrol Rem products. The contract has an
initial term of one year, with automatic renewals on a yearly
basis. Due to the September 11th tragedy, the Alaskan company
was initially focused on other matters, and they placed their
first order in November 2001. Due to the extreme winter weather
in Alaska, we expect additional orders to begin in the spring.
Part of Petrol Rem's initial research and development involved
field-testing supervised by the National Environmental Technology
Applications Corporation. That group, which is known as NETAC, is
endorsed by the Environmental Protection Agency to determine
whether products are effective. As a result of their testing,
NETAC reported positive results regarding the effectiveness of
the product.
PRP is now being manufactured and marketed for use in water and
on solid surfaces in the form of Petrol Rem's OIL BUSTER
product, which is used for small oil cleanups on hard surfaces
such as the floors of manufacturing facilities, garages and
machine shops, or as a container for heavy petroleum sludges.
The product is listed on the EPA's National Contingency Plan
Product Schedule, and is available in free-flowing powder or
absorbent socks. In 1995, the EPA required that all products
previously listed on the National Contingency Plan Product
Schedule be submitted to additional testing. Because PRPr
successfully passed the test conducted by NETAC, the product was
requalified for listing on the EPA's product schedule. In
addition, PRP was one of only fourteen products listed after the
1996 Alternative Response Tool Evaluation System was implemented.
In April 1993, Petrol Rem entered into a lease for a facility in
the Pittsburgh, Pennsylvania area, which is used to manufacture
PRP. The current lease has a renewable three-year term, with
monthly rental payments of $4,661 plus utilities and applicable
business privilege taxes. Petrol Rem purchased equipment, which
has the capability to produce PRPr in quantities of 2,000 pounds
per day, and has built an adequate inventory.
Petrol Rem also completed development of a new spray applicator
for its PRP product. The new applicator is a lightweight,
portable unit, which provides a more continuous flow of product.
The lighter weight and smaller size will allow easier access to
remote sites, which were impossible to reach with the previous
applicator.
In addition to PRP, Petrol Rem also developed other products.
In order to address water pollution issues at marinas, Petrol Rem
introduced the BIOSOK, which is PRP contained in a 10" fabric
tube, and is designed and used to aid in the cleaning of boat
bilges. Bilges are commonly cleaned out with detergents and
other chemicals, which cause the oil pumped out of the bilge to
sink to the bottom of the water, where it is harmful to marine
life, and becomes difficult to collect. In addition, it is
illegal to dump oil or fuel into the water. The BIOSOK, when
placed in the bilge, absorbs and biodegrades the oil or fuel on
contact, which significantly reduces or eliminates the pollution;
then the product biodegrades itself. As a result, BIOSOK helps
to keep waters clear. In addition, BIOSOK helps eliminate the
chore of bilge cleanup, and helps users such as boaters and
marinas to avoid fines for pumping oil and fuel into the
waterways, which is prohibited. The U.S. Coast Guard is using
the BIOSOK in certain regions on their vessels and maintains a
sufficient supply to provide continuing availability.
Petrol Rem's BIOBOOM product is used in water clean-up
projects. The product is a 3" x 10' fabric tube which is filled
with PRPr, and is used to both contain and biodegrade
contaminants in water. BIOBOOM is a superior product to most
containment products because, in addition to containing the oil
or fuel spill, or restricting the spread of an anticipated spill,
it also biodegrades the contaminant, and then biodegrades itself.
These features act to virtually eliminate secondary contaminants,
thereby reducing disposal and clean-up costs.
Petrol Rem markets the BIOSOK and BIOBOOM at wholesale prices
ranging from $11-$13, and $110-$130, respectively, depending on
the quantity purchased.
Petrol Rem is marketing PRP through trade shows, magazines,
direct mail advertising, and direct contacts with companies and
consultants specializing in petroleum clean-up, as well as
marketing directly to municipalities and corporations with needs
for the product. Petrol Rem also has an international market,
with its primary customers in Indonesia and Europe.
We believe that we have spent all of the funds necessary to
complete the development of its bioremediation products, and to
build up sufficient inventory pending additional orders. We
expect that our expenses going forward will be for marketing and
sales. We spent approximately $16.8 million on this project
through September 30, 2001. We have been funding this project
since 1992 with money we raised by selling our securities,
including our stock or convertible debentures.
TIRE PILE CLEANUP AND OTHER PROJECTS
In 2000, Petrol Rem formed a joint venture called Tireless, LLC,
which was formed to handle the environmental and business
concerns arising from scrap and discarded tires. In 2001,
Tireless obtained a portable tire shredder, which allows
Tireless to go directly to the tire pile sites to coordinate
shredding and recycling. In September 2001, Tireless received a
sub-contract to remediate discarded tires at one of the nation's
largest tire piles near Upper Sandusky, Ohio. Tireless is now
shredding tires at that site, and we began billing during the
third quarter of 2001. We believe the Tireless sub-contract
could generate revenue of at least $500,000 over the next year
based on our equipment's capacity to shred tires over the one-
year period of the contract.
During 2001, through our subsidiary Petrol Rem, we've also loaned
money to Practical Environmental Solutions, Inc., a Pennsylvania
company that acquired technology used to safely convert municipal
sludge to recyclables that comply with state and federal
environmental laws. Petrol Rem has loaned a total of $3.1
million to Practical Environmental as of September 30, 2001.
Practical Environmental has made interest payments on the amount
due. The loan, which was originally due on August 31, 2001 has
been extended until May 31, 2002; no principal payments have been
made to date. Our management is considering whether to convert
all or part of that loan to an equity investment - they are
making that decision because Practical Environmental is willing
to make that conversion and because Practical Environmental has
been generating revenues since January 2001. As of September 30,
2001, Practical Environmental's internal financial information
shows revenues of $426,000; they are still operating at a loss.
We don't currently intend to make any additional loans or
investments in Practical Environmental, except for the possible
conversion of the existing loan to equity.
Rapid HIV Detection Corp.'s HIV Test Project
In 2001, we formed Rapid HIV Detection Corp. to market
rapid HIV tests. Those rapid HIV tests include:
InstantScreen, which is the initial test for HIV;
InstantConfirm, which is used to verify all positive
results; and
InstantDifferentiate, which indicates whether the patient
has HIV-1 or HIV-2. HIV-1 is the most common form of HIV;
HIV-2 is a less aggressive form found in some parts of the
world, including West Africa.
The InstantScreen test takes 30 seconds to produce results.
Only a few drops of blood are needed, and the blood is drawn with
a finger prick, rather than intravenously with a needle and vial
of blood. No additional material or special knowledge is needed
to administer the test, and only elementary level reading skills
are required. The test can be produced in different formats,
depending upon whether it will be used in a doctor's office,
hospital or in the field.
The InstantConfirm test takes about 8 minutes to perform and
is the first rapid HIV test to use the Western-Blot type HIV
confirmation technology. The Western-Blot is recognized as the
gold standard of HIV confirmation. This phase of the test is
critical, since false-positive results have been a significant
historical problem with HIV testing.
The InstantDifferentiate is used if the patient tests
positive for HIV, in order to determine whether the patient is
infected with HIV-1 or HIV-2. HIV-2 is a less aggressive form of
HIV that causes AIDs after a longer period of time than HIV-1,
and is prevalent in certain parts of the world, including West
Africa.
In order to acquire the exclusive, world-wide marketing
rights to the rapid HIV tests, we entered into a marketing
agreement with GAIFAR, a German company which owned all the
rights to the tests, and Dr. Heinrich Repke, the man who
developed the tests. The marketing rights were assigned to Rapid
HIV Detection Corp - we own 75% and GAIFAR owns 25% of Rapid
HIV's common stock. GAIFAR retained the manufacturing rights for
the tests. We entered into the agreement in June 2001 and
acquired the marketing rights at that time. The initial terms of
the agreement allowed us a due diligence period of 8 weeks to
withdraw from the agreement, but in July, all the parties agreed
to extend that date until October 15, 2001. The parties also
agreed that we would need to provide a copy of a resolution
signed by our board of directors approving the contract. In
October, we completed our due diligence period and our board
provided their unanimous resolution, making the marketing
agreement fully effective, which means that we no longer have a
right to withdraw. The marketing agreement, which we filed as
an exhibit to a Form 8-K filed October 15, 2001, has a minimum
ten-year term and calls for total payments of $7,000,000 through
the 3rd quarter of 2002. When the marketing agreement became
effective in October 2001, all funds previously loaned were
applied to the total $7 million consideration. The original
agreement called for a loan in the amount of $500,000 to the
owner of the rapid HIV tests and technology, but we agreed to
loan another $125,000 during the 2nd quarter while we continued
our due diligence, so the total loans were $625,000 as of June
30, 2001. During the 3rd quarter of 2001, we loaned an
additional $375,000 while we completed our due diligence;
therefore, the total loan amount applied to the $7 million total
due was $1 million. That loan was made part of the
consideration we paid to acquire the exclusive worldwide
marketing rights to the rapid HIV tests and technology, and is
now part of our investment in Rapid HIV. The remaining $6
million in payments are due from October 20, 2001 through August
20, 2002. The payments include a range of $125,000 per month for
the 3 months from October- December 2001 to $1 million per month
for the 4 months from April - July of 2002. The original
marketing agreement provided for payments through the 2nd quarter
of 2002, and we renegotiated for a longer payment period in
October 2001.
If we fail to make the payments when they are due, we will
lose the marketing rights. Our management entered into the
Marketing Agreement and plans to spend that money because they
believe that the tests are superior, and that we will be able to
sell them to generate revenue. The tests are priced according to
the quantities purchased and the purchaser's intended use. For
example, InstantScreen tests are priced at $5 or less - we plan
to charge a research facility, like Walter Reed, less than $5,
and charge commercial users closer to $5, depending upon the
quantity. The InstantConfirm and InstantDifferentiate tests will
probably be sold together, and we plan to charge between $12-15
for that package.
Based on studies conducted by various health institutions,
which are summarized in the next two bullet points, our
management believes investing in Rapid HIV is in the best
interest of our company:
In approximately 200 tests performed by the Noguchi Memorial
Institute for Medical Research in Ghana, as well as 250 samples
in an evaluation by the World Health Organization, and 150
samples evaluated by the National Institute for Virology in South
Africa, our rapid HIV test performed with 100% accuracy.
Walter Reed Army Institute of Research completed its own
evaluation of the our rapid HIV test - in nearly 600 samples, our
rapid HIV test showed perfect results - 100% sensitivity and 100%
specificity.
Our management also believes that investing in Rapid HIV is a
good use of our company's funds because they believe that our
rapid HIV tests are superior overall to other available tests,
including Determine, Oraquick and Medmira:
One significant problem with other tests is that they have
not performed as well in the field as they have in a laboratory.
Our Rapid HIV tests can be used anywhere. This enables us to
take the tests directly to the people who need it, rather than
trying to convince them to travel distances to laboratories or
hospitals.
Another significant problem with HIV testing on a massive
scale is time - only a rapid HIV test will work. The speed of
our tests allows each patient to receive results immediately,
without leaving the test site. Tests that require the patient to
leave samples and return for them later not only jeopardize
confidentiality - but those tests are also susceptible to an
alarming but common occurrence - patients who never return for
their test results.
Our test does not require refrigeration and contains
compounds that destroy the HIV cells and other infectious cells
contained in test sample. Those cells are destroyed by one of
the chemical agents included in the test solution for that
purpose - those chemical agents can only destroy the cells in the
test sample, and cannot help to cure HIV. This means our tests
can be discarded without further sterilization or the need for
toxic waste treatment.
The result of our test can be permanently attached to the
patients' file, allowing the patient to provide his HIV status at
any time.
Our tests are affordable - we plan to charge $5 or less in
most instances for the InstantScreen test.
Although our initial focus is marketing our rapid HIV tests
outside the United States, we are also pursuing FDA approval to
sell the test in the U.S. GAIFAR and Dr. Repke began the FDA
process in November 2000 and we are currently working with GAIFAR
to design the trials needed for a full submission. Our past
experience with the FDA indicates that it will not be a quick or
easy process. We began trying to obtain FDA approval for our
noninvasive glucose sensor in 1994, and we still don't have FDA
approval. We've conducted several sets of clinical trials in our
effort to obtain FDA approval for our noninvasive glucose sensor,
and the trials we began in October 2000 are continuing. We have
not received any revenue from our noninvasive glucose sensor
since 1999.
Biocontrol Technology's Manufacturing Projects
In 2001, our Biocontrol Technology division increased its efforts
to obtain manufacturing contracts to utilize our manufacturing
facility in Indiana, PA., while we are waiting for the clinical
trials on the Diasensor to proceed. The division received a $1.5
million manufacturing contract from the U.S. Army, and $238,000
manufacturing contract from a private company. We believe the
U.S. Army contract will generate $1.5 million in revenue during
the first year, beginning in the 4th quarter of 2001, with
additional revenue for two additional years.
Diasense's Noninvasive Glucose Sensor Project
CURRENT STATUS OF THE NONIVASIVE GLUCOSE SENSOR
In August 1999, we hired Joslin Diabetes Center to help us with
our FDA submission. Joslin Diabetes Center designed and is
conducting the clinical trials the FDA requires before they will
give us approval to market the sensor.
Our contract with Joslin calls for Joslin's representatives to
conduct a clinical study on the effectiveness of the Diasensor
2000. The FDA approved Joslin's protocol for the clinical study
in August 2000. In the Joslin contract, we agreed to pay for the
study, and Joslin agreed to provide us with a report on the data
gathered. Joslin also has the right, subject to confidentiality
provisions, to publish the results of the clinical trials. The
Joslin contract requires us to pay fees for their services -
those fees are being paid as the clinical trials continue.
In February 1999 we submitted a PMA shell to the FDA for the
Diasensor. The PMA shell is part of a revised FDA procedure,
which divides submissions into modules, or parts. These modules,
which were designed to facilitate and expedite FDA review,
contain different pieces of the full PMA submission. However,
from both our own experience and by observing other module
submissions, we do not believe that the FDA intends to "approve"
the PMA one module at a time. Rather, we have had meetings with
the FDA, including the October 1999 meeting, where requirements
for the "next step" in the process have been discussed without a
specific FDA finding on prior submissions.
In May 1999, we submitted the first module, which covered
manufacturing methods and procedures for the Diasensor 2000. The
FDA asked for additional information in September 1999, and we
responded. We filed the second module in May 2000. The second
module contained information regarding electrical and mechanical
standards for the FDA's requirements on safety and effectiveness,
and a description of how our noninvasive glucose sensor will be
used by patients. Future modules will include raw data and
laboratory study methods and test results. We'll make the final
PMA submission when our clinical trials are completed, and that
submission will include human clinical results and a summary of
safety and effectiveness data.
Clinical trials began in October 2000 at Joslin Diabetes Center
in Boston. The trials are designed for a total of 200 diabetics,
all of whom will participate for nine months. Trials will also be
conducted at eight other sites: St. Luke's-Roosevelt Hospital
Center in New York City; SUNY Health Science Center in Syracuse,
New York; Hershey Medical Center in Hershey, Pennsylvania; Dr.
David Huffman in Chattanooga, Tennessee; New Britain General
Hospital in New Britain, Connecticut; Tulane Medical Center in
New Orleans, Louisiana; and University of North Carolina in
Chapel Hill, North Carolina; and the University of Maryland in
Baltimore, Maryland. We are also working with Amarex, LLC, an
independent research organization headquartered in Washington,
D.C., which has experience in conducting clinical trials, to
monitor our clinical trials. Amarex is collecting data, and
providing training, data and site management, including
statistics and report writing, at all nine sites. Working with
Joslin and Amarex, we plan to submit data to the FDA when the
trials are completed. As of November 2001, we have over 100
patients involved in the trials, and the trials are continuing.
We can't report on our progress in the trials until they're
completed, so we can't tell you how well they are going, or when
we expect that they will be completed. We also plan to work with
outside biomedical consultants to help us obtain FDA approval
following these clinical trials; however, we can't assure you
when or if that will happen.
The Diasensor 2000 will be used as part of a system of care that
includes home use of the Diasensor with regular evaluation of the
patient's blood glucose trends as determined by the device. The
Diasensor also contains a telemedicine feature that can be used
with our DataCONN service to store and group the patient's
glucose measurements over time.
As with all other FDA-related activities, we cannot provide any
assurances as to the date when we'll complete our studies, when
we'll submit our next PMA module, or when the FDA will complete
its review of our submission.
Although our research and development team continues to have
discussions with the FDA, due to the complex, technical nature of
the information being evaluated by the FDA, it is impossible for
us to estimate how much longer the FDA approval process will
take.
FDA approval is necessary to market the Diasensor in the United
States. In 1999, we also focused additional effort on the
European market; since no material sales have occurred, we've
discontinued our European marketing efforts.
Based on contracts between BICO and Diasense, BICO has the
exclusive right to manufacture the noninvasive glucose sensor.
Diasense will pay BICO for manufacturing, and that's how BICO
will make money if we ever successfully market and sell the
noninvasive glucose sensor.
Diasense is responsible for the marketing and sales of the
noninvasive glucose sensor. Diasense plans to market the
noninvasive glucose sensor and the telemedicine program directly
to diabetics, through their doctors' orders. We may set our
prices too high, which will limit our sales, unless we can
convince health insurance companies to pay for them. Because the
health insurance industry is in a constant state of change, we
can't predict whether - when - or if - we will convince them to
pay for our noninvasive glucose sensor or the telemedicine
program. We have estimated, based on information from the
American Diabetes Association, that there are about 15.7 million
diabetics in the United States, but not all diabetics will be
suitable users of our noninvasive glucose sensor. Those diabetics
who require and benefit from frequent glucose monitoring and
whose physicians adjust their insulin dosages based on glucose
averages over time make up the potential market for our sensor,
and we can't accurately estimate the size of that market at this
time.
HISTORY AND DEVELOPMENT OF THE NONINVASIVE GLUCOSE SENSOR
Along with Diasense, we've been working to develop a noninvasive
glucose sensor for diabetics that is able to measure glucose
without having to draw blood. Most currently available glucose
monitors require the drawing of blood by means of a finger prick.
Our initial research and development with insulin pumps led to a
theory by which blood glucose levels could be detected
noninvasively by correlating points on the infrared spectrum that
are reflected by electromagnetic energy through the skin. We
studied this method in 1986 and 1987 using laboratory instruments
and working with consultants at Battelle Memorial Institute in
Columbus, Ohio. The results of the studies provided information
regarding the use of infrared light in the noninvasive
measurement of glucose. The information from the studies, along
with later additional work, led to a patent application by our
research team in 1990. A patent covering the method was granted
to our research team and assigned to Diasense in December 1991.
Diasense purchased those patent rights from us under a purchase
agreement. We filed a second patent application in December
1992, which was granted in January 1995. That second filing
contained new claims, which extended the coverage of the patent
based on additional discoveries and data obtained since the
original patent was filed. We assigned the rights to that patent
to Diasense. We developed additional concepts to improve the
capability of the instrument to recognize blood glucose, and, in
May 1993, filed corresponding patent applications. As of
November 2001, a total of 14 U.S. patents and two foreign patents
have been issued, with additional patent applications pending.
We have the right to develop and manufacture sensors based on
contracts with us.
Our research team advanced this technology base through the
development of several research prototypes, which were tested in
human clinical trials. We conducted a trial on 110 human
subjects in March 1992. In that trial, we recorded spectral,
blood and chemical data for analysis in order to develop
calibration data for the noninvasive glucose sensor. We
conducted a second trial on 40 human subjects in July 1992 that
indicated that the device did not have a satisfactory signal-to-
noise ratio to allow for sufficient accuracy to be acceptable for
patient use. Signal-to-noise ratio is determined by the
relationship of the signal, which is the glucose level, and the
noise, which are the random interferences, such as differences in
skin surfaces. We conducted other trials at several testing
sites under the guidance of the sites' Institutional Review Board
using prototypes, which addressed the signal -to-noise problem.
We designed and constructed those prototypes to simulate
production models.
On January 6, 1994, we submitted the initial 510(k) Notification
to the Food and Drug Administration for approval to market the
production model, the Diasensorr1000. A 510(k) Notification is a
type of FDA filing used to ask the FDA to approve a device for
sale in the U.S. We based the submission on data obtained from
the advanced research prototypes, since we believed that the
production model would be identical to the advanced prototypes.
In February 1996, the FDA convened a panel of advisors to make a
recommendation regarding our 510(k) Notification. The majority
of the panel members recommended that we conduct additional
testing and clinical trials of a production model prior to
marketing the Diasensor 1000. We, along with Diasense, announced
that we would remain committed to bringing the Diasensor 1000 to
diabetics, and that additional research, development and testing
would continue.
Due to continued delays in the FDA approval process, and while
continuing to work with the FDA and conduct its mandated testing,
we turned our focus to other markets for the Diasensor 1000
besides the U.S.
In 1998, we were awarded International Organization for
Standardization certification by TUV Rheinland, a German company
authorized to conduct such audits, which was contracted to
perform an audit of our quality system. We were awarded ISO
Certification to the 9001 standard, which is evidence that we
have, in place, a total quality system for the design,
development and manufacture of our products. We were also
awarded EN46001 Certification, indicating we meet European
standards for medical devices. Once the ISO 9001 certification
was approved, and a technical file was submitted and approved by
TUV Rheinland, we received approval to apply a CE mark to the
device. Much like an Underwriters Laboratory "UL" mark, the CE
mark is provided by the regulatory bodies of the European
Community, or by authorized private bodies, such as TUV
Rheinland, to indicate that the device adheres to "quality
systems" of the ISO and the European Committee for
Standardization. The CE mark permits us to sell the Diasensor in
Europe, although we have discontinued our marketing efforts in
Europe.
With regard to marketing the device within the United States, we
continued to work with the FDA to obtain approval. After
discussions with the FDA, we submitted a revised 510(k)
Notification in October 1996, which was followed by continued
discussions with the FDA. During 1997 and 1998, we continued to
meet with the FDA, and established a protocol for in-home testing
of the Diasensor 1000. Due to our cash flow problems during
1998, testing did not proceed at the pace originally anticipated,
and completion of the testing was delayed.
We continued various aspects of the Diasensor development, which
resulted in a method that will allow the patient to transmit the
readings generated by the noninvasive glucose sensor to the
patient's clinic or physician. Following an in-depth marketing
study, we determined that the machines with this capability are
more attractive to the patient, since there is the possibility of
selling a telemedicine service which includes the machine, the
patient, and his or her physician. This model of the Diasensor
has been named the Diasensor 2000 to differentiate between the
earlier models. Based on advice from the FDA, we decided it was
in our best interest to submit a PreMarket Approval Application
to the FDA, rather than continue with the 510(k) Notification
process, in order to seek FDA approval for the Diasensor 2000.
In 1999 the FDA implemented a new PMA system. Under the new
system, individual modules - or parts - of a PMA submission could
be made as they were ready. We discuss our PMA submissions in
the "Current Status of the Noninvasive Glucose Sensor" section,
which follows.
The Diasensor is a spectrophotometer, which is a machine capable
of illuminating a small area of skin on a patient's arm with
infrared light, and then making measurements from the infrared
light that is reflected back into the device. The device then
displays the measurement in a window on the top of the device for
the user to read. The Diasensor uses internal mathematical
calculations and customized software to calculate a glucose
measurement.
Since the Diasensor will be calibrated individually, each
instrument will be sold in the U.S. by prescription only and will
be calibrated in the patient's home. This feature may limit the
marketability of the Diasensor, and if the device is unable to
qualify for third-party reimbursement - which means if the health
insurance companies won't pay for it -we will have a hard time
marketing and selling the device.
Other Projects
Implantable Technology
In April 1996, we received FDA approval to market our theraPORTr
Vascular Access System. The approval was granted in response to
our 510(k) Notification filed in January 1996. The device is
made up of a reservoir, which is implanted beneath the skin in
the chest region with a catheter inserted in a vein and provides
a delivery system for patients who require continual injections.
Because such repeated injections can cause veins to shut down and
collapse, the theraPORTr offers an improved delivery system by
eliminating that trauma. If necessary to accommodate multiple
drug therapy with incompatible drugs, dual ports can be
implanted. Such devices are frequently used in cancer drug
therapy. We began selling the standard ports during the second
quarter of 1997. A second device with a low profile was
developed for pediatric use, and a 510(k) was submitted to the
FDA in November 1997 for marketing approval. In early February
1998, we submitted a supplement to the FDA in response to a
request for additional information, and the FDA granted its
approval that same month. We are currently developing a dual
port device and plan to submit another 510(k) for that device;
however, our biomedical efforts continue to be focused on the
Diasensor, so it is impossible for us to estimate when that
submission might occur.
Through our subsidiary, Coraflex Inc., we are engaged in the
development of a polyurethane heart valve, which we believe may
not have the disadvantages of the mechanical and other synthetic
valves currently being marketed. The Coraflexr valve, which
resembles the human heart's aortic valve, is made by means of a
proprietary manufacturing process. We believe that the
polyurethane we use to make our heart valve is stronger and more
resistant to fatigue compared to other valves. In vitro testing,
some of which has been performed through the Children's Hospital
of Pittsburgh, of the Coraflexr valve to date has demonstrated
that our valve has superior fatigue resistance and flow
characteristics compared to other devices. We must conduct
additional development and testing before we can submit our valve
to the FDA to begin testing it on humans. We'll need additional
funding to do that, and we don't know when, or if, and FDA
submission or testing will occur.
We also developed technology for other implantable devices, such
as hemodialysis ports, implantable insulin dispensers and
rate-adaptive pacemakers. Because we decided to focus most of
our resources on the noninvasive glucose sensor, we haven't made
any real progress on these other projects, so they are all in
very preliminary stages of development.
DataCONN
In March 2001, Diasense launched its DataCONN service. Diasense
has been developing this service as our telemedicine system to
be used in combination with our Diasensor, but it can also be
used currently by diabetics who monitor their blood glucose
levels using an invasive device. Doctors and other professional
caregivers can also have access to the information to make
treatment decisions for their diabetic patients.
The DataCONN service is available to anyone who has a touchtone
telephone or access to the internet for a yearly subscription of
$59. The patient enters blood glucose levels and the service
includes a software program that automatically transmits the
patient's glucose measurements to a secure website via the
internet, where they can be viewed and evaluated by the patient
and his or her health care provider. The data can be graphed and
displayed in a variety of ways and for a variety of time periods
as needed. This use of historical readings is critical in the
patient's analysis of trends in glucose levels, an important tool
in both the treatment of diabetes and the use of insulin.
Diabecore Medical, Inc.
During fiscal 2000 and 2001, through Diasense, we invested in
Diabecore Medical, Inc., a Canadian company that is conducting
research and working with other research institutions to develop
a new type of insulin to treat diabetes. In preliminary studies,
this new insulin has demonstrated effectiveness in controlling
hyperglycemia without risk of severe hypoglycemia. Laboratory
tests indicate that this new insulin, when administered in large
doses, extends the duration of insulin action for improved
control of glucose levels, rather than producing hypoglycemia.
Those tests also have shown the new insulin to be 3 to 4 times
less hypoglycemic when compared to presently available insulin.
William D. Lougheed and Kusiel Perlman, M.D. are developing
Diabecore's insulin with the support of the Research Institute of
the Hospital for Sick Children in Toronto, where insulin was
discovered, and the Loyal True Blue and Orange Research Institute
in Richmond Hill, Ontario. We have invested a total of
approximately $987,500 in Diabecore, and Diasense owns
approximately 24% of Diabecore's stock. We currently have no
plans to make additional investments in Diabecore
MicroIslet, Inc.
During fiscal 2000 and 2001, through Diasense, we also invested
in MicroIslet, Inc. MicroIslet is a California company that is
developing several diabetes research technologies with Duke
University that focus on optimizing microencapsulated islets for
transplantation. The current research involves the use of
microencapsulated pancreatic cells, which are transplanted into
diabetic animals. The initial trial on a non-human primate
continues to provide very encouraging results. The diabetic
animal achieved and maintained normal glucose readings for over
one year following the transplant. MicroIslet believes that
there are several benefits to using the microencapsulated islets
for transplants, rather than transplanting human pancreatic
cells. One benefit is the supply; the only source of human cells
is from deceased organ donors, and more than one donor is needed
for each transplant. In addition, human transplants involve a
serious course of immuno-suppression therapy so the human
recipient does not reject the transplanted cells. Dr. Emmanuel
Opara, Ph.D. is the director of islet transplantation research at
Duke University Medical Center, and he is heading up the research
team. Dr. Opara's team is replicating the testing on 3 more
primates to obtain additional data to support a planned request
to the FDA to conduct human trials. We have invested a total of
approximately $1.6 million in MicroIslet and Diasense owns
approximately 20.2% of MicroIslet's stock. We currently have no
plans to make additional investments in MicroIslet.
Metal-Plating and Coating Technology
CCTI, which stands for Ceramic Coatings Technologies, Inc., is a
Florida company that developed a ceramic coating used for metal
components. CCTI then developed a product line for sharpeners
used for knives and other tools in the professional culinary
field, for sportsmen's knives and fish hooks, for professional
woodworkers and for household use. Although we've begun to
receive revenues from CCTI, which aggregated approximately
$80,000 for the first nine months of 2001, we have decided to
sell CCTI and are in active negotiations with a buyer.
In March 1998, we acquired an interest in a metal-plating
company, because we estimated that the product would generate
revenue and profit. We were wrong - the actual results were very
different from our original estimates. The project did not
generate any revenue during 1998 or 1999. Our early estimates
were based upon our assessment not only of the marketability of
the product, but on our ability to penetrate the metal finishing
market using the features of the product. Our actual experience
shows that it is much more difficult to exploit the existing
market, regardless of whether or not the product has superior
features. As a result, we discontinued operations and made the
appropriate adjustments to our financial statements to reduce the
value of this investment, which totaled $4.6 million - we funded
that investment through sales of our securities including our
debentures. In 2001, we reached an agreement with the people
who sold us the interest - we still owed them money from the
purchase. They agreed to restructure the total $5,450,348 due to
them and to reduce the amount to $2,887,500. As of December 31,
2001, we had made payments totaling $387,500, and issued them $2
million of our series I convertible preferred stock. The common
stock underlying that preferred stock is included in this
prospectus.
Internet Business Services
We made investments in a company called B-A-Champ.com. That
company evolved from an internet card-trading company to an
internet business service provider and became TruePoints, Inc.
TruePoints provides internet marketing retention and promotional
services for businesses. You should visit TruePoints website at
www.truepoints.com to see how TruePoints operates and the type of
promotional and customer retention programs they provide. Fred
Cooper, our CEO, owned stock in B-A-Champ but during 2001, he
gave that stock to BICO. As of September 30, 2001, we had
invested a total of $971,000 in the project since the beginning
of 2000.
American Inter-Metallics
During 1999, we made our initial investment in American Inter-
Metallics, Inc. AIM has its operations in Rhode Island, and is
developing a product that enhances the performance of
propellants. AIM is developing specialized equipment and a
process for producing a product, which AIM believes will increase
the burn rates of current propellant formulas. AIM believes
that, by increasing the burn rate of propellants, its product
will improve the performance of rockets and other machinery.
During 2000, AIM completed its prototype and is now testing the
equipment. We invested $525,000 in AIM during 1999, and made
additional investments of $285,000 during 2000 and $190,000 in
2001 for a total investment of $1 million, or 20% of AIM.
AIM's product is in the research and development phase; we can't
give any assurances that it will be successful or profitable.
All this information regarding our projects is in summary form,
and the status of each project is subject to constant change. We
can't assure that any of our projects will be completed or
successful.
RESEARCH AND DEVELOPMENT
We continue to be actively engaged in the research and
development of new products. Our major emphasis has been the
development of a noninvasive glucose sensor. In order to raise
funds for the research and development of new products, we sell
our stock and convertible securities.
MARKETING AND DISTRIBUTION
Petrol Rem began marketing of its bioremediation product, PRPr,
in mid-1993, and is now sold in quality marine supply stores in
the coastal areas of the United States, Canada, Europe and South
East Asia.
ViaCirq received FDA approval to market its ThermoChem-HT SystemT
and related disposables used for regional cancer treatment.
None of our current projects have generated any meaningful sales
or revenue, although ICTI is generating revenue by providing
environmental clean-up services by using our PRP products.
PATENTS, TRADEMARKS AND LICENSES
We own patents on certain products and we file applications to
obtain patents on new inventions when practical. Additionally,
we try to obtain licenses from others when we think it's
necessary to conduct our business.
We rely on trade secret protection for our confidential and
proprietary information. Although we and our affiliates,
Diasense, ViaCirq and Petrol Rem, take all reasonable steps to
protect such information, including the use of confidentiality
agreements and similar provisions, we can't assure that others
will not independently develop substantially equivalent
proprietary information or techniques, otherwise gain access to
our trade secrets, disclose such technology, or we can
meaningfully protect its trade secrets.
Noninvasive Glucose Sensor
Diasense owns a patent entitled "Non-Invasive Determination of
Glucose Concentration in Body of Patients" which covers certain
aspects of a process for measuring blood glucose levels
noninvasively. That patent was awarded to BICO's research team in
December 1991 and was sold to Diasense under a purchase agreement
dated November 18, 1991. The patent will expire, if all
maintenance fees are paid, no earlier than the year 2008. If
clinical testing or regulatory review delays marketing of a
product made under the patent, we may be able to obtain an
extension of the term of the patent. Our patent relates only to
noninvasive sensing of glucose but not to other blood
constituents. We have filed corresponding patent applications in
a number of foreign countries.
As of November 2001, a total of 14 U.S. and two foreign patents
have been issued, all of which have been assigned to Diasense,
and additional patents are pending. Corresponding patent
applications have been filed in foreign countries where we
anticipate marketing the noninvasive glucose sensor.
Our research team continues to file patent applications,
provisional patent applications, some of which are being
converted into PCTs - Patent Cooperative Treaty - that reflect
the continued research and development and additional refinements
to the noninvasive glucose sensor.
We or Diasense may file applications in the United States and
other countries, as appropriate, for additional patents directed
to other features of the noninvasive glucose sensor and related
processes.
We know that competitors currently developing non-invasive
glucose sensors own patents directed to various devices and
processes related to the non-invasive monitoring of
concentrations of glucose and other blood constituents. It is
possible that those patents may require us to alter any model of
the noninvasive glucose sensor or the underlying processes
relating to the noninvasive glucose sensor, to obtain licenses,
or to cease certain activities.
We also rely upon trade secret protection for our confidential
and proprietary information. Although we, along with Diasense,
take all reasonable steps to protect such information, including
the use of confidentiality agreements and similar provisions,
there can be no assurance that others will not independently
develop substantially equivalent proprietary information or
techniques, otherwise gain access to the our trade secrets,
disclose such technology, or that we can meaningfully protect our
trade secrets.
We have registered our trademark "Diasensor ", which is intended
for use in connection with the Diasensor models. We intend to
apply, at the appropriate time, for registrations of other
trademarks as to any future products.
Extracorporeal Hyperthermia
In September 1992, a research team funded by us applied for a
domestic patent in connection with the use of perfusion-induced
extracorporeal hyperthermia and the treatment of HIV-positive
patients; the patent has been assigned to ViaCirq. In October
1994, ViaCirq received notification that the patent application
for its specialized method for whole-body hyperthermia has been
issued.
The patent entitled "Specialized Perfusion Protocol for Whole-
Body Hyperthermia" contains seventeen claims for the hyperthermia
procedure, including the method of heating all of the blood in
the extracorporeal blood circuit to raise the patient's core
temperature to approximately 42 degrees centigrade. A
continuation in part, which was filed by ViaCirq and included the
ThermoChemT System, was allowed in July 1995 and was issued in
December 1995.
In May 1999 and early 2000, ViaCirq filed provisional patents for
its use of the ThermoChemT-HT System and related disposables, and
for use of the device for regional hyperthermia procedures.
In June 2000, HemoCleanse assigned all patents and patent
applications to ViaCirq relating to the ThermoChemT technology in
hyperthermia. One of those patents was issued in December 2000,
and another was allowed in January 2001.
Implantable Technology
During 1995, we renewed our U.S. trademark registration for the
name Coraflexr, which was originally granted in 1988. We also
obtained trademark registration for the name theraPORTr.
In October 1996, we obtained a patent for our heart valve
product.
Bioremediation
In 1992 and 1993, Petrol Rem applied for patents in connection
with its bioremediation product, all of which are still pending.
Petrol Rem received trademark authorization for the use of the
product names PRPr, BIO-SOKr, BIO-BOOMr, and Oil Busterr.
WARRANTIES AND PRODUCT LIABILITY
Our current product liability insurance coverage is $1,000,000 in
the aggregate, and we believe that's sufficient due to our
discontinuance of sales of certain products, including our former
pacemaker line and our functional electrical stimulators, as well
as our potential exposure to liability.
SOURCE OF SUPPLY
In connection with the manufacture the noninvasive glucose sensor
and the ThermoChem System, we will be dependent upon suppliers
for some of the components required to manufacture the device.
We plan to assemble the devices, but will need to purchase
components, including some components that will be custom made
for us by certain suppliers. These components will not be
generally available, and we may become dependent upon those
suppliers, which do provide such specialized products.
If we successfully develop other new products, and receive
regulatory approvals to manufacture such products, we may become
dependent on certain suppliers for custom parts.
COMPETITION
Noninvasive Glucose Sensor
With the rapid progress of medical technology, and in spite of
continuing research and development programs, our developmental
products are always subject to the risk of obsolescence if some
other company introduces a better product or technique. We are
aware that other research groups have developed noninvasive
glucose sensors, and that others are still in the research &
development phase, but we have limited knowledge about the actual
technology or the stage of development for most of our
competitors. We face the risk that some other group will
complete the development of their device and penetrate the market
before we do. If that happens, there is a significant chance
that even if we receive FDA approval, our sensor will not be
successful because our marketing efforts started too late. We
don't believe there is any other company currently producing or
marketing noninvasive sensors for the measurement of blood
glucose that use the same technology as we do. Competitive
success in the medical device field is dependent upon product
characteristics including performance, reliability, and design
innovations.
Our noninvasive glucose sensor will compete with existing
invasive glucose sensors. Although we believe that the features
of our noninvasive glucose sensor, particularly its convenience
and the fact that no blood samples are required, will compete
favorably with existing invasive glucose sensors, we can't assure
that it will succeed. Most currently available invasive glucose
sensors yield accuracy levels of plus or minus 25% to 30%, range
in price from $80 to $200, not including monthly costs for
disposable supplies and accessories, and are produced and
marketed by eight to ten sizable companies. Those companies
include Bayer, Inc., Boehringer Mannheim Diagnostics, and
Lifescan, an affiliate of Johnson & Johnson. In addition,
Abbott Laboratories introduced a new test in 2001 that allows
diabetics to draw blood from areas other than their fingers, such
as from their arms. Abbott's Sof-Tac test is part of their
MediSense product line.
Those companies have established marketing and sales forces, and
represent established entities in the industry. Certain
competitors, including their corporate or joint venture partners
or affiliates, currently marketing invasive glucose sensors have
substantially greater financial, technical, marketing and other
resources and expertise than we do, and may have other
competitive advantages over us, based on any one or more
competitive factors such as accuracy, convenience, features,
price or brand loyalty. Additionally, competitors marketing
existing invasive glucose sensors may from time to time improve
or refine their products, or otherwise make them more price
competitive, so as to enhance their marketing competitiveness
over our noninvasive glucose sensor. As a result, we can't make
any guarantees that our sensor will be able to compete
successfully.
We face more direct competition from other companies who are
currently researching and developing noninvasive glucose sensors.
We have very limited knowledge as to the stage of development of
these other devices; however, if another company successfully
develops a noninvasive glucose sensor, obtains FDA approval, and
reaches the market before we do, we would suffer.
During 2001, Cygnus of Redwood, California received various FDA
approvals, including for assembly and manufacturing for its
GlucoWatch Biographer system that draws glucose through the skin
through an electric current. The glucose triggers a reaction in
a disposable pad. Although Cygnus claims that its device is
noninvasive, the fact remains that, in addition to the use of
electrical charges to draw fluid through the skin, each person
must use finger prick technology to set and use the device. The
device is being sold in the U.K., and Cygnus plans to launch
their device in the U.S. in early 2002. We believe that the
device does not work for everyone, especially those who perspire,
and produces side effects including skin rashes that make regular
use difficult for some patients. We were interested to learn
that the FDA panel accepted Cygnus' use of the same error grid
data analysis - a specific method for displaying data - that the
FDA rejected when we used it for our own panel review. At this
point, we can't determine what effect, if any, the GlucoWatch
Biographer will have on our marketing or sales potential, because
we don't know how successful it will be.
Among the companies investigating infrared technology to measure
blood glucose levels noninvasively is CME Telemetrix in Waterloo,
Ontario, Canada. CME is reportedly conducting tests with a
device called a GlucoNIR via funding from Motorola, Inc. that
uses one type of infrared wavelengths. CME Telemetrix recently
reported that they were working to achieve acceptable accuracy
levels before beginning human trials. OptiScan Biomedical in
Alameda, California is developing a device that uses another type
of infrared wavelengths; they are still in clinical trials and
have not yet made an FDA submission. Johnson & Johnson's LifeScan
division has an agreement with InLight Solutions, an Albuquerque
company working on a device that uses near-infrared light to
measure blood glucose. In November 2001, Johnson & Johnson also
acquired diabetes technology from Inverness Medical Technology.
Inverness is selling an electro-chemical glucose meter and is
also in the test strip business. Rio Grande Medical
Technologies of Albuquerque, New Mexico is designing a photo-
based device. We believe Rio Grande is still being funded by
Johnson & Johnson.
Other companies claim that they are designing systems that are
semi-invasive. SpectRx in Norcross, Georgia is using a laser to
create small holes in the skin without the invasive penetration
of a metal needle or lancet. SpectRx is also using the device to
do optical scans. The device, called the Accu-Chek D-Tector,
then gives a glucose reading from the fluid collected from the
holes in the skin. SpectRx has partnered with Roche Diagnostics.
In addition, SpectRx recently received additional funding from
Abbott Laboratories and a third grant from the U.S. Centers for
Disease Control to focus on research to use the device for
children and the elderly. Last year, SpectRx reported that they
had received expedited review status from the FDA for a three-
module premarket approval filing for their diabetes detection
device; and that clinical trials are underway. Cell Robotics
International, Inc. in Albuquerque, New Mexico is also using a
laser device that pierces the skin. Called the Lasette, a laser
makes a small hole in the fingertip to draw blood for glucose
testing. A continuous glucose monitoring system from MiniMed,
Inc. in Sylmar, California received FDA approval in June 1999.
The device includes a tube with a small sensor at its tip that is
inserted through the skin, sending readings via a small wire to a
sensor. A new sensor must be reinserted under the skin every two
to three days. In November 2000, MiniMed also announced that it
had started human clinical trials of a long-term implantable
glucose sensor developed by a company called MRG. In August
2001, Medtronic bought MiniMed and changed its name to Medtronic
MiniMed.
Certain organizations are also researching and developing
technologies that may regulate the use or production of insulin
or otherwise affect or cure the underlying causes of diabetes.
We are not aware of any new or anticipated technology that would
effectively render our noninvasive glucose sensor obsolete or
otherwise not marketable. However, future technological
developments or products could make our noninvasive glucose
sensor significantly less competitive or, in the case of the
discovery of a cure for diabetes, even obsolete.
Bioremediation
Although our bioremediation products compete with other oil-spill
clean-up products, there is no direct competition for the type of
product we produce. The EPA recently created a separate
category for its NCP listing, for enzyme additives, and PRP is
the only product listed in that category.
GOVERNMENT REGULATIONS
Since most of our products are medical devices as defined by the
Federal Food, Drug and Cosmetic Act, as amended, they are subject
to the regulatory authority of the FDA. The FDA regulates the
testing, marketing and registration of new medical devices, in
addition to regulating manufacturing practices, labeling and
record keeping procedures. The FDA can inspect our facilities
and operations and may also audit our record keeping procedures
at any time. The FDA's Quality System Regulation specifies
various requirements for our manufacturing processes and the way
we must maintain certain records.
In 1997, Congress passed legislation that addresses the
regulation of pharmaceutical and medical devices. Although the
impact of the FDA Administration Modernization Act of 1997 was
expected to reduce the quantity of information a company must
submit for approval of devices that has not been our experience.
Noninvasive Glucose Sensor
Since our noninvasive glucose sensor is a medical device as
defined by the Federal Food, Drug and Cosmetic Act, as amended,
it is subject to the regulatory authority of the FDA. The FDA
regulates the testing, marketing and registration of new medical
devices, in addition to regulating manufacturing practices,
labeling and record keeping procedures. The FDA can inspect our
facilities and operations and may also audit our record keeping
procedures at any time. The FDA's Quality System Regulation
specifies various requirements for our manufacturing processes
and the way we must maintain certain records.
In 1997, Congress passed legislation that addresses the
regulation of pharmaceutical and medical devices. Although the
impact of the FDA Administration Modernization Act of 1997 was
expected to reduce the quantity of information a company must
submit for approval of devices that has not been our experience.
Because the FDA regulates our noninvasive glucose sensor, we have
to meet all FDA requirements before we can market and sell our
device in the United States. These requirements include clinical
testing, which must be supervised by the chosen hospitals.
During 1999, the FDA recommended we file a Pre-Market Application
and conduct an additional clinical study. We are in the process
of submitting a modular PMA, which allows us to submit parts of
the submission to the FDA over a period of time. This modular
PMA is a new method of submitting information to the FDA, and
resulted from the passage of FDA legislation in 1997. We have
submitted the first two parts of the PMA and we began our
clinical trials in October 2000, after the FDA approved our
submission that included the testing protocol. We will not be
making another FDA submission until our clinical trials are
finished, and we don't know how much longer that will take.
We don't know how long it will take for the FDA to accept our
filings or approve our device, if ever.
In June of 1998, the FDA instituted a new Quality System
Regulation that took the place of Good Manufacturing Practices.
These regulations align closely with similar guidelines required
by the European Union and have added control of the design
process as well as the manufacturing process.
There are different requirements for selling our device in
Europe. On January 14, 1998, we received certification to ISO
9001 and to EN46001 for medical devices, and on June 23, 1998, we
received the CE mark. The CE mark and the ISO certification are
provided by the regulatory bodies or other approved companies of
the European Union. The CE mark indicates that the device
adheres to quality systems guidelines. Rigorous audits were
conducted at our Indiana, Pennsylvania facility to certify that
our development and manufacturing procedures, as well as the
Diasensor 1000r itself met the international standards laid down
by Europe's medical device directive. In order to maintain our
approval to ship the device into the European Union, we must be
vigilant in our adherence to our quality system. We will also be
subject to annual audits to be sure that we continue to meet the
required standards. Although we are not currently marketing our
device in Europe, we will maintain our ISO certification status
because we believe it provides a positive message regarding our
facility and operations and in case we decide to market outside
the U.S. in the future.
Any changes in FDA or European procedures or requirements will
require corresponding changes in our obligations in order to
maintain compliance those standards. Those changes may result in
additional delays or increased expenses. Depending on which
other countries we target, our products may also be subject to
additional foreign regulatory approval before we can sell our
devices.
Extracorporeal Hyperthermia
In January 2000, HemoCleanse and ViaCirq received FDA
approval to market the ThermoChem-HT System and related
disposables, which are used to raise the core temperature of the
abdominal cavity to the desired temperature in the 41 C (105.8 F)
to 42 C (107.6 F) range by continuously bathing the abdominal
cavity with circulating sterile solution. In addition, in
February 2000, the FDA approved continued clinical trials at the
University of Texas Medical Branch using the ThermoChem
technology in whole-body hyperthermia to treat patients with
certain types of end-stage lung cancer.
Bioremediation
The EPA and the Pennsylvania Department of Environmental
Resources regulate our bioremediation products. In addition,
each state in which the bioremediation products are used has its
own environmental regulations. Regional response teams
consisting of representatives from the National Oceanic and
Atmospheric Administration, the U.S. Coast Guard and the EPA
govern our oil spill clean-up products.
Human Resources
As of December 31, 2001, we had 119 full-time employees who
were located primarily in either our Indiana or Pittsburgh
locations. In addition, ViaCirq had 13 employees; and Petrol Rem
had 30 employees, including 17 INTCO employees, as of December
31, 2001.
We have employment contracts with some of our non-officer
employees, most of whom are scientists and engineers employed in
our research and development operations. Those contracts are
typically for terms of five years and contain confidentiality
provisions. We also employ consultants as needed; some of the
consultants are employed based on consulting contracts, which
contain confidentiality provisions.
PROPERTY
Due to cash flow problems, Diasense sold its office
condominium in 1999, and they now lease the same space for
administrative offices. We, along with our subsidiaries, continue
to lease a portion of that office at a monthly rental amount of
$5,175 plus one-half of the utilities.
Prior to 1999, our research and development operations were
located in a 20,000 square foot one-story building at 300 Indian
Springs Road, Indiana, PA. We leased that building from the 300
Indian Springs Road Real Estate Partnership, which was owned in
part by some of our current and former officers and directors.
Of the eight members of the partnership, two are currently
officers or directors - Fred E. Cooper and Glenn Keeling. Each
member of the partnership personally guaranteed the payment of
lease obligations to the bank providing the funding, and in
return received warrants to buy 100,000 shares of our stock at
$.33 per share. In addition to rent, we paid all taxes,
utilities, insurance, and other expenses related to our
operations at that location. In 1999, after all our Indiana, PA
operations were moved out of 300 Indian Springs Road location to
Kolter Drive, the property was put up for sale. The property was
sold in October 2000 for $475,000, and each of the partners
received $12,698, after the mortgage was paid.
In September 1992, we entered into a ten-year lease
agreement with the Indiana County Board of Commissioners for
35,000 square feet of space on Kolter Drive that we reconfigured
to our manufacturing specifications. During 1998 and 1999, we
moved the balance of our Indiana, Pennsylvania operations to this
space. During 2000, we obtained an additional 33,000 square
feet of manufacturing space, which is being completed for
manufacturing. That space, which was originally obtained in
1995, was vacated in 1998 in return for the lessor's agreement
not to pursue legal action against us for nonpayment of rent. In
2000, we settled all the pending legal issues with the lessor
when we reacquired the space. This facility contains sufficient
additional space to accommodate our projected Indiana operations
through 2001.
As of February 2001, Diasense has an office in London,
England for the purpose of taking orders for the Diasensor 1000.
We believe that our existing facilities will be sufficient
to meet our needs through 2002. If we require additional space,
we believe such space will be available at reasonable commercial
rates.
LEGAL PROCEEDINGS
In May 1996, we, along with Diasense and our current and
former individual directors, including David Purdy, Fred Cooper,
and Anthony J. Feola, who are also current and former Diasense
officers and directors, were served with a federal class action
lawsuit based on alleged misrepresentations and violations of
federal securities laws. In 2000, even though we don't believe
any violations of the securities laws occurred, we agreed to
settle the lawsuit. The parties reached a settlement, and we
have paid an aggregate of $3,250,000 toward the settlement to
date. During the 3rd quarter of 2001, the parties agreed to
extend the payments on the remaining balance. A balance of
$425,000 is due, including $225,000 for extending the due dates.
Although we don't know whether the class action plaintiffs have
been formally notified of the settlement, or if they have
accepted its terms, we believe the existing settlement agreement
will end this matter.
In April 1998, we, along with our corporate affiliates, were
served with subpoenas requesting documents in connection with an
investigation by the U.S. Attorneys' office for the U.S. District
Court for the Western District of Pennsylvania. We continue to
submit various scientific, financial and contractual documents in
response to their requests.
In April 1996, the Pennsylvania Securities Commission
commenced a private investigation into sales of Diasense common
stock in a public offering in an effort to determine whether any
sales were made improperly to Pennsylvania residents. We
cooperated fully with the state and provided all of the
information requested. As of the date of this filing, no
determinations had been made, and no orders have been issued.
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Director Position
Since
Fred E. Cooper 56 1989 Chief Executive Officer,
Executive Vice President,
Director
Anthony J. Feola 53 1990 Chief Operating Officer,
Director
Michael P. Thompson 51 Chief Financial Officer
Glenn Keeling 50 1991 Senior Vice President,
Director
Ben Johnson 57 Executive Vice President
Stan Cottrell 58 1998 Director
Paul W. Stagg 54 1998 Director
FRED E. COOPER, 56, is our chief executive officer, executive
vice president and a director; he devotes approximately 60% of
his time to BICO, and 40% to Diasense. Prior to joining us, Mr.
Cooper co-founded Equitable Financial Management, Inc. of
Pittsburgh, PA, where he was the executive vice president until
he left in August 1990. Our board of directors appointed him
chief executive officer in January 1990. He is also an officer
and director of Diasense and Rapid HIV Detection Corp., and a
director of Petrol Rem and Coraflex.
ANTHONY J. FEOLA, 53, is our chief operating officer; he rejoined
BICO in April 1994, after serving as Diasense's vice president of
marketing and sales from January 1992 until April 1994. Prior to
January 1992, he was our vice president of marketing and sales.
Prior to joining us in November 1989, Mr. Feola was vice
president and chief operating officer with Gateway Broadcasting
in Pittsburgh in 1989, and national sales manager for
Westinghouse Corporation, also in Pittsburgh, from 1980 until
1989. He was elected a director in February 1990, and also
serves as the secretary of Rapid HIV Detection Corp. and a
director of Diasense, Coraflex, and Petrol Rem.
MICHAEL P. THOMPSON, 51, joined BICO as our interim chief
financial officer in August 2000, and was elected our chief
financial officer by our board of directors in January 2001.
Prior to joining us, he was a partner in Thompson Dugan, P.C.,
the CPA firm that served as our outside auditors until August
2000, when Mr. Thompson joined us as interim CFO. He has been a
CPA for over 25 years. He is also the chief financial officer for
Diasense and Petrol Rem, and a director of ViaCirq.
GLENN KEELING, 50, joined our board of directors in April 1991.
Mr. Keeling currently is a full-time employee of BICO in the
position of senior vice president; his primary responsibilities
are to manage our ViaCirq operations. From 1976 through 1991, he
was a vice president in charge of new business development at
Equitable Financial Management, Inc., a regional equipment
lessor. His responsibilities included initial contacts with
banks and investment firms to open new lines of business
referrals in connection with financing large equipment
transactions. He is also president and a director of ViaCirq.
BEN JOHNSON, 57, joined BICO in 2001 as our executive vice
president and the director of our Washington, DC office. Prior
to joining us, he spent from 1993-2001 on the staff for the
President of the United States. From 1999-2001, he was the
assistant to the President and director of the President's
Initiative for One America, the first freestanding White House
office in history to focus on closing the opportunity gap that
exists for minorities in the U.S. From 1997-1999, he was deputy
assistant to the President and deputy director of public liaison.
From 1993-1997, he served as special assistant to the President
and associate director of public liaison, the primary liaison to
the national African-American community. He also serves as an
officer and director of Rapid HIV Detection Corp.
STAN COTTRELL, 58, was appointed to our board of directors in
1998. Mr. Cottrell is the chairman and founder of Cottrell
Associates International, Inc., which provides international
business development, brokerage, specialty marketing and
promotional services. He is a former director of marketing for
Inhalation Therapy Services and was employed by Boehringer
Ingelheim, Ltd. as a national product manager. Mr. Cottrell is a
world ultra-distance runner and the author of several books.
PAUL W. STAGG, 54, was appointed to our board of directors in
1998. Mr. Stagg is the owner of P.C. Stagg, LLC. Prior to his
current position, he was the marketing manager for the Wholesale
Division of First Financial Resources, Inc., where he was
responsible for marketing, underwriting, sorting and coordinating
various types of financing for institutional investors. Prior to
his current position, he was district distributor of marketing
for Ginger Mae, a division of United Companies of Baton Rouge,
LA.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We share common officers and directors with our
subsidiaries. In addition, BICO and Diasense have entered into
several intercompany agreements including a purchase agreement, a
research and development agreement and a manufacturing agreement,
which we describe later in this section. Our management believes
that it was in our best interest to enter into those agreements
and that the transactions were based upon terms as fair as those
which may have been available in comparable transactions with
third parties. However, we did not hire any unaffiliated third
party to determine independently the fairness of those
transactions. Our policy concerning related party transactions
requires the approval of a majority of the disinterested
directors of both the corporations involved, if applicable.
Employment Relationships
Our board of directors approved employment agreements on
November 1, 1994 for our current officers, Fred E. Cooper,
Anthony J. Feola and Glenn Keeling, and approved an employment
agreement for Michael P. Thompson in August 2000.
Fred E. Cooper, chief executive officer, executive vice
president and a director, is a director of Diasense, Petrol Rem,
and Rapid HIV Detection Corp. He is also the CEO of Rapid HIV
Detection Corp and the president of Diasense. Mr. Cooper devotes
approximately 60% of his time to BICO and 40% to Diasense.
Anthony J. Feola, chief operating officer and a director, is also
the secretary of Rapid HIV Detection Corp, and a director of
Diasense, and Petrol Rem. Glenn Keeling is our senior vice
president and a director. Mr. Keeling is also the president and
a director of ViaCirq. Michael P. Thompson is our chief
financial officer. He is also the chief financial officer for
Diasense and Petrol Rem, and a director of ViaCirq. Ben Johnson,
executive vice president and director of our Washington, D.C.
office, is also the executive vice president and a director of
Rapid HIV Detection Corp.
Property
Two of our current executive officers and/or directors and
three former directors are members of the nine-member 300 Indian
Springs Road Real Estate Partnership that in July 1990 purchased
our real estate in Indiana, Pennsylvania. Each member of the
partnership personally guaranteed the payment of lease
obligations to the bank providing the funding. The five members
of the partnership who are also current or former officers and/or
directors of BICO, David L. Purdy, Fred E. Cooper, Glenn Keeling,
Jack H. Onorato and C. Terry Adkins, each received warrants on
June 29, 1990 to purchase 100,000 shares of our common stock at
an exercise price of $.33 per share until June 29, 1995. Those
warrants still outstanding as of the original expiration date
were extended until June 29, 2003. Mr. Purdy, who was a
director and executive officer at the time of the transaction,
resigned from our board of directors on June 1, 2000, and
resigned as an officer in November 2000, effective February 2001.
Mr. Adkins, who was a director at the time of the transaction,
resigned from our board of directors on March 30, 1992. Mr.
Keeling, who was not a director at the time of the transaction,
joined our board of directors on May 3, 1991. Mr. Onorato, who
was not a director at the time of the transaction, was a BICO
director from September 1992 until April 1994. The property was
sold in October 2000 for $475,000, and each of the partners
received $12,698, after the mortgage was paid.
Like all our warrants, the warrants issued to the members of
300 Indian Springs Road Real Estate Partnership had exercise
prices equal to or above the current quoted market price of our
common stock on the date of issuance.
Warrants
On April 28, 1999, we granted warrants to purchase our
common stock at $.129 per share until April 28, 2004 in the
following amounts: 4,000,000 to Fred E. Cooper, our chief
executive officer and a director; 2,000,000 to Anthony J. Feola,
our chief operating officer and a director; 2,000,000 to Glenn
Keeling, our senior vice president and a director; 4,000,000 to
David L. Purdy, our former chairman and director; 250,000 to Stan
Cottrell, a director; and 250,000 to Paul Stagg, a director. The
exercise price of $.129 per share was equal to the market price
on April 28, 1999.
On August 28, 2000, we granted warrants to purchase
1,000,000 shares of our common stock at $.125 per share until
August 28, 2005 to Michael P. Thompson, our chief financial
officer. The exercise price of $.125 per share was equal to the
market price on August 28, 2000.
On January 11, 2001, we granted warrants to purchase 500,000
shares of our common stock at $.073 per share until January 11,
2006 to Ben Johnson, our executive vice president. The exercise
price of $.073 per share was equal to the market price on January
11, 2001.
On February 1, 2001, we granted warrants to purchase 200,000
shares of our common stock at $.102 per share until February 1,
2006 to Paul Stagg, a director. The exercise price of $.102 per
share was equal to the market price on February 1, 2001.
On May 23, 2001, we granted warrants to purchase our common
stock at $.0525 per share until May 23, 2006 in the following
amounts: 15 million to Fred E. Cooper, our chief executive
officer and a director; 10 million to Anthony J. Feola, our chief
operating officer and a director; 8 million to Glenn Keeling, our
senior vice president and a director; 3 million to Michael P.
Thompson, our chief financial officer; 1 million to Stan
Cottrell, a director and 1 million to Paul Stagg, a director.
The exercise price of $.0525 per share exceeded the market price
on May 23, 2001.
On July 30, 2001, we granted warrants to purchase 1 million
shares of common stock at $.05 per share until July 30, 2006 to
Ben Johnson, our executive vice president. The exercise price of
$.05 per share exceeded the market price on July 30, 2001.
On December 3, 2001, we granted warrants to purchase 500,000
shares of common stock at $.05 per share until December 3, 2006
to Ben Johnson, our executive vice president. The exercise price
of $.05 per share exceeded the market price on December 3, 2001.
Loans
In 1999, we consolidated all of Fred E. Cooper's outstanding
loans from us, including accrued interest, into one loan in the
amount of $777,399.80 at 8% interest. Mr. Cooper began repaying
the loans in May of 1999. The loan balance as of December 31,
2001 was $678,021. Our disinterested directors - with Mssrs.
Cooper, Feola and Keeling abstaining with respect to their
individual transactions- approved these loans because the
disinterested directors believed they were for a good business
purpose. The business purposes were: to provide Mr. Cooper with
funds during his initial years with BICO, when he waived a
salary; and to refinance loans secured by BICO stock, so the
stock wouldn't have to be sold when the loans were in default.
Mr. Cooper's individual loans, along with Msrrs. Feola and
Keeling's loans, had been, for period beginning in March 1996,
secured by BICO certificates of deposits. Those CDs were released
in February 1998, when Mssrs. Cooper, Feola and Keeling obtained
loans from BICO. The disinterested directors believed that if Mr.
Cooper and the other directors had been forced to sell their
stock, and to disclose the sale, it would have hurt our stock
price because many people view insider stock sales as a negative
message. In 2001, Mr. Cooper gave his stock in B-A-Champ.com to
BICO; he no longer owns any interest in B-A-Champ.com.
In 1999, we consolidated all of Anthony J. Feola's
outstanding loans from us, including accrued interest, into one
loan in the amount of $259,476.82 at 8% interest. Mr. Feola
began repaying the loans in May of 1999. The loan balance as of
December 31, 2001 was $197,570. Our disinterested directors -
with Mssrs. Feola, Cooper and Keeling abstaining with respect to
their individual transactions- approved these loans because the
disinterested directors believed they were for a good business
purpose. The business purposes was to refinance loans secured by
BICO stock, so the stock wouldn't have to be sold when the loans
were in default. Mr. Feola's individual loan, along with Msrrs.
Cooper and Keeling's loans, had been, for period beginning in
March 1996, secured by BICO certificates of deposits. Those CDs
were released in February 1998, when Mssrs. Cooper, Feola and
Keeling obtained loans from BICO. The disinterested directors
believed that if Mr. Feola and the other directors had been
forced to sell their stock, and to disclose the sale, it would
have hurt our stock price because many people view insider stock
sales as a negative message.
In 1999, we consolidated all of Glenn Keeling's outstanding
loans from us, including accrued interest, into one loan in the
amount of $296,358.07 at 8% interest. Mr. Keeling began repaying
the loans in May of 1999. The loan balance as of December 31,
2001 was $150,161. Our disinterested directors - with Mssrs.
Keeling, Feola and Cooper abstaining with respect to their
individual transactions- approved these loans because the
disinterested directors believed they were for a good business
purpose. The business purposes was to refinance loans secured by
BICO stock, so the stock wouldn't have to be sold when the loans
were in default. Mr. Keeling's individual loan, along with
Msrrs. Cooper and Feola's loans, had been, for period beginning
in March 1996, secured by BICO certificates of deposits. Those
CDs were released in February 1998, when Mssrs. Cooper, Feola and
Keeling obtained loans from BICO. The disinterested directors
believed that if Mr. Keeling and the other directors had been
forced to sell their stock, and to disclose the sale, it would
have hurt our stock price because many people view insider stock
sales as a negative message.
In September 1995, we granted a loan in the amount of
$250,000 to Allegheny Food Services in the form of a one-year
renewable note bearing interest at prime rate as reported by the
Wall Street Journal plus 1%. Interest and principal payments
have been made on the note, and as of December 31, 2001, the
balance was $24,394. Our board of directors approved this loan
because of its business purpose - in return for granting the
loan, we received an option to purchase a franchise owned by
Joseph Kondisko, a former director of Diasense, who is a
principal owner of Allegheny Food Services. The franchise
generates revenue, which is why we made the investment - until
our products begin to generate significant revenues, we
investigate other ways to generate revenue to fund our
operations. We have not exercised the option, which has an
exercise price of $200,000, but it remains valid until 2005.
All future loans to officers, directors and their affiliates
will also be made only after board approval, and for good
business purposes.
Intercompany Agreements
Our management believes that the agreements between BICO and
Diasense, which are summarized below, were based upon terms,
which were as favorable as those that may have been available in
comparable transactions with third parties. However, we did not
retain any unaffiliated third party to determine independently
the fairness of such transactions.
License and Marketing Agreement. Diasense acquired the exclusive
marketing rights for the noninvasive glucose sensor and related
products and services from BICO in August 1989 in exchange for
8,000,000 shares of Diasense's common stock. That agreement was
canceled through a cancellation agreement dated November 18,
1991, and superseded by a purchase agreement dated November 18,
1991. The cancellation agreement provides that BICO will retain
the 8,000,000 shares of Diasense common stock, which BICO
received under the license and marketing agreement.
Purchase agreement. BICO and Diasense entered into a purchase
agreement dated November 18, 1991 whereby BICO gave Diasense its
entire right, title and interest in the noninvasive glucose
sensor and its development, including its extensive knowledge,
technology and proprietary information. Those transfers included
BICO's patent received in December 1991.
In consideration of the conveyance of its entire right in the
noninvasive glucose sensor and its development, BICO received
$2,000,000. In addition, Diasense may try, at its own expense,
to obtain patents on other inventions relating to the noninvasive
glucose sensor. Diasense also guaranteed BICO the right to use
that patented technology in the development of BICO's proposed
implantable closed-loop system, a related system in the early
stages of development.
In December 1992, BICO and Diasense executed an amendment to the
purchase agreement, which clarified terms of the purchase
agreement. The amendment defines sensors to include all devices
for the noninvasive detection of analytes in mammals or in other
biological materials. In addition, the amendment provides for a
royalty to be paid to Diasense in connection with any sales by
BICO of its proposed closed-loop system.
Research and Development Agreement. Diasense and BICO entered
into an agreement dated January 20, 1992 in connection with the
research and development of the noninvasive glucose sensor.
Under the agreement, BICO will continue the development of the
noninvasive glucose sensor, including the fabrication of
prototypes, the performance of clinical trials, and the
submission to the FDA of all necessary applications in order to
obtain market approval for the noninvasive glucose sensor. BICO
will also manufacture the models of the noninvasive glucose
sensor to be delivered to Diasense for sale under the terms of a
manufacturing agreement. Upon the delivery of the completed
models, the research and development phase of the noninvasive
glucose sensor will be deemed complete.
Diasense agreed to pay BICO $100,000 per month for indirect costs
beginning April 1, 1992, during the 15 year term of the
agreement, plus all direct costs, including labor. BICO also
received a first right of refusal for any program undertaken to
develop, refine or improve the noninvasive glucose sensor, and
for the development of other related products. In July 1995,
BICO and Diasense agreed to suspend billings, accruals of amounts
due and payments under to the research and development agreement
pending the FDA's review.
Manufacturing Agreement. BICO and Diasense entered into an
agreement dated January 20, 1992, whereby BICO will act as the
exclusive manufacturer of the noninvasive glucose sensor and
other related products. Diasense will provide BICO with purchase
orders for the products and will endeavor to provide projections
of future quantities needed. The original manufacturing
agreement called for the products to be manufactured and sold at
a price to be determined in accordance with the following
formula: Cost of Goods, including actual or 275% of overhead,
whichever is lower, plus a fee of 30% of cost of goods. In July
1994, the formula was amended to be as follows: costs of goods
sold was defined as BICO's aggregate cost of materials, labor and
associated manufacturing overhead + a fee equal to one third of
the difference between the cost of goods sold and Diasense's
sales price of each sensor. Diasense's sales price of each
sensor is defined as the price paid by any purchaser, whether
retail or wholesale, directly to Diasense for each sensor.
Subject to certain restrictions, BICO may assign its
manufacturing rights to a subcontractor with Diasense's written
approval. The term of the agreement is fifteen years.
EXECUTIVE COMPENSATION
The following table contains information on our executive
officer's annual and long-term compensation for their services to
us in all capacities for the years ended December 31, 2001, 2000
and 1999. The executive officers included are those people who,
as of December 31, 2001 were: our chief executive officer, and
our other most highly compensated executive officers who were
paid more than $100,000. In addition, we included information
regarding David L. Purdy, who was an executive officer and
director until June 2000, and the president of our Biocontrol
Technology division during 2000. In November 2000, Mr. Purdy
resigned effective February 2001.
SUMMARY COMPENSATION TABLE
==============================================================================
Annual Compensation | (1)Long Term Compensation
- ------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal Bonus($) Other | Underlying (4) All other
Position Year Salary($) (2) ($)(3) | Warrants(#) Compensation
==============================================================================
David L. |
Purdy (5) 2001 $989,265 $0 $0 | 0 $0
2000 $646,795 $200,000(6) $0 | 0 $0
1999 $450,000 $0 $0 | 4,000,000(4) $0
- ------------------------------------------------------------------------------
Fred E. 2001 $977,115 $0 $0 | 15,000,000(4) $0
Cooper, 2000 $939,000 $383,746(8) $0 | 0 $0
CEO (7) 1999 $821,242 $200,000 $0 | 4,000,000(4) $0
- ------------------------------------------------------------------------------
Anthony J. 2001 $660,248 $0 $0 | 8,000,000(4) $0
Feola , Sr. 2000 $633,850 $268,190(10) $0 | 0 $0
Vice Pres.(9) 1999 $500,886 $0 $0 | 2,000,000(4) $0
- ------------------------------------------------------------------------------
Glenn 2001 $483,732 $0 $0 | 8,000,000(4) $0
Keeling, VP 2000 $500,000 $93,190(12) $0 | 0 $0
(11) 1999 $302,083 $0 $0 | 2,000,000(4) $0
- ------------------------------------------------------------------------------
Michael P. 2001 $317,375 $0 $0 | 3,000,000(4) $0
Thompson, 2000 $103,243 $0 $0 | 1,000,000(4) $0
Chief Financial
Officer (13)
- ------------------------------------------------------------------------------
R. Ben 2001 $191,171 $0 $0 | 1,500,000(4) $0
Johnson,
Executive VP
(14)
(1) We do not currently have a Long-Term Incentive Plan, and no
payouts were made under to any LTIP during the years 2001,
2000 or 1999. We issued warrants during those three years,
which we also discuss in Note 4. We do not have any
retirement, pension or profit-sharing programs for the
benefit of our directors, officers or other employees.
(2) The amounts shown include both cash bonuses and dollar
amounts reflecting stock bonuses. The footnotes that follow
break down the total amount for each executive officer. The
dollar amount shown for stock bonuses equals the number of
shares of stock granted multiplied by the stock price on the
grant date. This valuation does not take into account the
diminution in value attributable to the restrictions
applicable to the shares based on short-swing profit or
other restrictions.
(3) During the year ended December 31, 2001, the executive
officers received medical benefits under our group insurance
policy, including disability and life insurance benefits.
The total combined amount of all those benefits was less
than 10% of the total annual salary and bonus reported for
each executive officer.
(4) On May 23, 2001, we granted Mssrs. Cooper, Feola, Keeling
and Thompson warrants to purchase the number of shares
listed. All the warrants are exercisable at $.0525 per
share - a price greater than our trading price on May 23,
2001, until May 23, 2006. During 2001, we also issued
warrants to R. Ben Johnson, our new executive vice
president. We granted him warrants on July 30, 2001 that
give him the right to purchase 1 million shares of our
common stock at $.05 per share, until July 30, 2006; we also
issued him warrants on December 3, 2001 that give him the
right to purchase 500,000 shares of our common stock at $.05
per share until December 3, 2006. The $.05 exercise price
on Mr. Johnson's loans exceeds the market price on the dates
we issued the warrants. During 2000, we issued warrants to
Michael P. Thompson, our new chief financial officer. We
granted the warrants on August 28, 2000 that give him the
right to purchase 1 million shares of our common stock at
$.125 per share, which was the market price on the grant
date, until August 28, 2005. During 1999, we issued
warrants to the executive officers listed. All of the
warrants were issued on April 28, 1999 at $.129 per share,
which was the market price on the date of the warrant grant.
For more detailed information, please refer to the
"Option/Warrant/SAR Grants in Last Fiscal Year" table,
below.
(5) In 2001, we paid Mr. Purdy $912,727 by BICO, most of which
was a severance payment he demanded when he resigned. We
also paid him $26,923 from our Biocontrol Technology
division, and $49,615 from Diasense. In 2000, we paid Mr.
Purdy $196,795 by BICO and $450,000 by Diasense. In 1999,
he was paid $183,333 by BICO and $266,667 by Diasense. All
amounts are included in the table above. Mr. Purdy is paid
by BICO based on his employment agreement. Diasense paid
Mr. Purdy based on its board of director's decisions for
services performed on its behalf. In June 2000, Mr. Purdy
resigned as a BICO director and executive officer and became
the president of our Biocontrol Technology division. In
November 2000, he resigned from that position effective
February 2001.
(6) In 2000, we paid Mr. Purdy a cash bonus of $200,000 from
BICO.
(7) In 2001, we paid Mr. Cooper $336,281 by BICO; $414,167 by
Diasense; $80,000 each by Petrol Rem and ViaCirq; and
$66,667 by Rapid HIV. Due to our cash flow problems in the
last quarter of 2001, Mr. Cooper agreed to accrue a total of
$271,531 due him from all of the companies combined, rather
than collect that amount in 2001. In 2000, we paid Mr.
Cooper $250,000 by BICO; $497,000 by Diasense; and $96,000
each by Petrol Rem and ViaCirq. Part of his salary from
1998 was deferred and paid in 1999, and all amounts are
included in the table above. In 1999, he was paid $272,617
by BICO; $340,625 by Diasense and $104,000 each by Petrol
Rem and IDT, which is now ViaCirq All amounts are included
in the table above. Mr. Cooper is paid by BICO based on his
employment agreement. Amounts paid to Mr. Cooper by
Diasense, Petrol Rem, ViaCirq and Rapid HIV are determined
by the boards of directors of those companies based upon
services performed on their behalf.
(8) In 2000, we paid Mr. Cooper a cash bonus of $200,000 from
BICO. In addition, we gave him a stock bonus of 1 million
shares of our common stock. We determined the value of his
stock bonus, $183,746, using the stock price on the date of
the bonus, even though he hasn't sold the stock.
(9) In 2001, we paid Mr. Feola $472,748 by BICO and $187,500 by
Diasense. Due to our cash flow problems in the last quarter
of 2001, Mr. Feola agreed to accrue a total of $157,729 due
him from both companies, rather than collect that amount in
2001. In 2000, we paid Mr. Feola $408,850 by BICO and
$225,000 by Diasense. Part of his salary from 1998 was
deferred and paid in 1999, and all amounts are included in
the table above. In 1999, Mr. Feola was paid $425,886 by
BICO and $75,000 by Diasense. All amounts are included in
the table above. Mr. Feola is paid by BICO based on his
employment agreement. Diasense paid Mr. Feola based on its
board of director's decisions for services performed on its
behalf.
(10) In 2000, we paid Mr. Feola a cash bonus of $175,000 by BICO.
In addition, we gave him a stock bonus of 500,000 shares of
our common stock. We determined the value of his stock
bonus, $93,190, using the stock price on the date of the
bonus, even though he hasn't sold the stock.
(11) We pay Mr. Keeling based on his employment agreement. In
2001, 57% of the amounts paid were allocated to ViaCirq.
Due to our cash flow problems in the last quarter of 2001,
Mr. Keeling agreed to accrue $283,184 due him rather than
collect that amount in 2001. In 2000, 50% of his salary was
allocated to ViaCirq. In 1999, 87% of his salary was
allocated to IDT, now ViaCirq, based upon the time he
devoted to its operations.
(12) In 2000, we gave Mr. Keeling a stock bonus of 500,000 shares
of our common stock. We determined the value of his stock
bonus using the stock price on the date of the bonus, even
though he hasn't sold the stock.
(13) Mr. Thompson was appointed our interim chief financial
officer when he joined us in August 2000, and then appointed
chief financial officer in 2001. Due to our cash flow
problems in the last quarter of 2001, Mr. Thompson agreed to
accrue $52,474 due him rather than collect that amount in
2001. We pay him based on his employment agreement.
(14) Mr. Johnson was appointed our executive vice president when
he joined us in January 2001.
Option/Warrant/SAR Grants in Last Fiscal Year
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL GRANTS (1) PRICE APPRECIATION
FOR
OPTION TERM (3)
Percent of
Number of Total
Securities Options/SAR's Exercise
Underlying Granted to or Expiration
Options/ Employees in Base Date 5%($) 10%($) 0%($)
Name SAR's Fiscal Year Price
Granted (2) ($/Sh)
(#)
Fred E.
Cooper 15,000,000 31% $.0525 5/23/06 $0 $172,500 $0
Anthony J.
Feola 10,000,000 21% $.0525 5/23/06 $0 $115,000 $0
Glenn Keeling 8,000,000 16% $.0525 5/23/06 $0 $ 92,000 $0
Michael P.
Thompson 3,000,000 6% $.0525 5/23/06 $0 $ 34,500 $0
R. Ben
Johnson 1,000,000 3% $0.05 7/30/06 $0 $ 0 $0
500,000 12/03/06 $0 $ 0 $0
(1) The warrants in this table were granted during 2001. The
warrants granted the executive officers the right to purchase
the number of shares of common stock shown in the table at a
the price shown for five years.
(2) For purposes of calculating this percentage, the total number
of warrants granted to employees during 2001 was 48.5
million.
(3) Potential realizable values reflect the difference between
the warrant exercise price at the end of 2001 and the fair
value of our common stock price from the date of the grant
until the expiration of the warrant. The 5% and 10%
appreciation rates, compounded annually, are assumed under to
the rules adopted by the SEC and do not reflect actual
historical or projected rates of appreciation of our common
stock. Assuming such appreciation, the following illustrates
the per share value on the dates set forth, which are the
expiration dates for the warrants, assuming the values set
forth, which are the closing bid price on the date of the
grant as reported by the electronic bulletin board:
STOCK PRICE ON EXPIRATION
DATE OF GRANT DATE 5% 10%
05/23/01: $0.04 05/23/06 $0.051 $0.064
07/30/01: $0.02 07/30/06 $0.025 $0.032
12/03/01: $.025 12/03/06 $0.032 $0.040
The foregoing values do not reflect appreciation actually
realized by executive officers. For more information on the
warrants, review the next table.
(4) The -0- amounts reflect the fact that, even at the end of the
warrant term, based on the appreciation rate, the market
price will be less than the exercise price.
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at
at 12/31/01 ($)
12/31/01 (#)
Name Shares Value Exercisable/ Exercisable/
Acquired Realized Unexerciseable Unexercisable
on ($)(2) (3) (4)
Exercise
(#)(1)
David L. 0 $ 0 3,767,200 $ 0
Purdy (5) (11)
Fred E. 0 $ 0 19,300,000 $ 0
Cooper (6) (11)
Anthony 0 $ 0 12,550,000 $ 0
J. Feola (7) (11)
Glenn 0 $ 0 10,100,000 $ 0
Keeling (8) (11)
Michael P. 0 $ 0 4,000,000 $ 0
Thompson (9) (11)
R. Ben
Johnson 0 $ 0 1,500,000 $ 0
(10) (11)
__________________
(1) This figure represents the number of shares of common stock
acquired by each executive officer upon the exercise of
warrants. None of the executive officers exercised warrants
during 2000.
(2) The value realized of the warrants exercised is computed by
determining the difference between the market value of our
common stock on the exercise date minus the exercise price of
the warrant.
(3) All warrants held by the executive officers are currently
exercisable.
(4) The value of unexercised warrants was computed by subtracting
the exercise price of the outstanding warrants from the
closing sales price of our common stock on the last trading
day of December 2000 as reported by the electronic bulletin
board, which was $.049.
(5) Includes warrants to purchase: 187,200 shares of common
stock at $.25 per share until April 24, 2001; 500,000 shares
of common stock at $.25 per share until May 1, 2001; 80,000
shares of common stock at $.33 per share until June 29, 2003;
and 3 million shares of common stock at $.129 per share until
April 28, 2004.
(6) Includes warrants to purchase: 300,000 shares of common stock
at $.25 per share until May 1, 2001; 4 million shares of
common stock at $.129 per share until April 28, 2004; and 15
million shares of common stock at $.0525 per share until May
23, 2006.
(7) Includes warrants to purchase: 100,000 shares of common
stock at $.25 per share until May 1, 2001; 100,000 shares of
common stock at $.25 per share until November 26, 2003;
350,000 shares of common stock at $.50 per share until
October 11, 2002; 2 million shares of common stock at $.129
per share until April 28, 2004; and 10 million shares of
common stock at $.0525 per share until May 23, 2006.
(8) Includes warrants to purchase: 100,000 shares of common stock
at $1.48 per share until August 26, 2001; 2 million shares
of common stock at $.129 per share until April 28, 2004; and
8 million shares of common stock at $.0525 per share until
May 23, 2006.
(9) Includes warrants to purchase 1 million shares of common
stock at $.125 per share until August 28, 2005; and 3 million
shares of common stock at $.0525 per share until May 23,
2006.
(10) Includes warrants to purchase 1,000,000 shares of common
stock at $.05 per share until July 30, 2006 and 500,000
shares of common stock at $.05 per share until December 3,
2006.
(11) Because the market price as of the last trading day of
December 2001 was less than the exercise price of the
warrants, none of the warrants were in the money.
Employment Agreements
We have employment agreements with our executive officers, Fred E.
Cooper, Anthony J. Feola and Glenn Keeling effective November 1,
1994, and Michael P. Thompson effective August 16, 2000. Under
those agreements, they are currently entitled to receive annual
salaries of $400,000, $558,850, $250,000 and $300,000
respectively, which are subject to review and adjustment. The
initial term of the agreements with Mr. Cooper was renewed in
October 1999 for an additional three-year term, which will
automatically renew for additional three-year terms unless one of
the parties gives proper notice of non-renewal; in November 2000,
Mr. Purdy resigned effective February 2001. The initial term of
the agreements with Messrs. Feola and Keeling was renewed in
October 1999 for an additional two-year term, which will
automatically renew for additional two-year terms unless one of
the parties gives proper notice of non-renewal. The initial term
of Mr. Thompson's agreement will expire on August 31, 2005 and
will also automatically renew for additional two-year periods
unless one of the parties gives proper notice of non-renewal. The
agreements also provide that in the event of a "change of
control", we are required to issue the following shares of common
stock, represented by a percentage of our total outstanding shares
of common stock immediately after the change in control: 5% to Mr.
Cooper; 4% to Mr. Feola; 3% to Mr. Keeling; and 2% to Mr.
Thompson. In general, a change of control would occur for
purposes of the agreements if: 20% or more of our outstanding
voting stock is acquired by any person; if 1/3 or more of our
directors are not continuing directors, as defined in the
agreement; or when a controlling influence over our management or
policies is exercised by any person or by persons acting as a
group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934.
In addition, if there is a change in control during the term of
the agreements, or within one year afterwards, Messrs. Cooper,
Feola, Keeling and Thompson are entitled to receive severance
payments in amounts equal to: 100% of their most recent annual
salary for the first three years following termination; 50% of
their most recent annual salary for the next two years; and 25% of
their most recent salary for the next five years. We are also
required to continue medical insurance coverage for Messrs.
Cooper, Feola, Keeling and Thompson and their families during
those periods. Those severance payments will terminate in the
event of the employee's death.
In the event that Mr. Cooper becomes disabled, as defined in his
agreements, he will be entitled to the following payments, in lieu
of salary. The disability payments would be reduced by any amount
paid directly to him under a disability insurance policy if we
provided one: 100% of his most recent annual salary for the first
three years; and 70% of his most recent salary for the next two
years. In the event that either Mr. Feola, Mr. Keeling or Mr.
Thompson becomes disabled, as defined in their agreements, he will
be entitled to similar payments: 100% of his most recent annual
salary for the first year; and 70% of his most recent salary for
the second year.
Under the employment agreements, Messrs. Cooper, Feola, Keeling
and Thompson are required to protect our confidential information
during the term of the agreements and they are restricted from
competing with us for a period of one year in specified states
following the expiration or termination of the agreements.
In addition to the employment agreements we just described, we
have employment agreements with two of our non-executive officer
employees effective November 1, 1994. The terms of such
agreements are similar to those described for Messrs. Feola and
Keeling above, with the following amendments: the term of one
agreement is from November 1, 1994 through October 31, 2002, and
is renewable for successive two-year terms; the term of the other
agreement was renewed for an additional two-year term in October
1999, and will automatically renew for additional two-year terms
unless one of the parties terminates the agreement. In the event
of a change in control, we are required to issue both employees
shares of common stock equal to 2% of our outstanding shares of
common stock immediately after the change in control.
Purdy Agreement
In February 2001, we entered into an agreement with David L. Purdy
in connection with his resignation from our affiliates and us.
The agreement required us to pay Mr. Purdy an aggregate of
$912,727 plus $100,000 to be placed in an escrow account for his
future attorney's fees. The agreement contains confidentiality
and release provisions for both Mr. Purdy and us.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the indicated information as
of December 31, 2001 with respect to each person who we know is
beneficial owner of more than 5% of the outstanding common stock,
each of our directors and executive officers, and all of our
directors and executive officers as a group.
As of December 31, 2001, we had 2,450,631,119 shares of our
common stock outstanding. The table below shows the common stock
currently owned by each person or group, including common stock
underlying warrants, all of which are currently exercisable, as of
December 31, 2001. The left-hand column sets forth the percentage
of the total number of shares of common stock outstanding as of
December 31, 2001, which would be owned by each named person or
group if they exercised of all of their warrants, together with
common stock they currently owned. An asterisk - * - means less
than 1%. Except as otherwise indicated, each person has the sole
power to vote and dispose of each of the shares listed in the
columns opposite his name.
Name and Address Amount and Percent of Beneficial
of Beneficial Nature of Ownership of
Owner Beneficial Total Outstanding
Ownership (1) Common Stock (2)
Fred E. Cooper 21,076,200 (3) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Stan Cottrell 1,350,000 (4) *
4619 Westhampton Drive
Tucker, GA 30084
Anthony J. Feola 13,404,000 (5) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Robert B. Johnson 1,500,000 (6) *
1140 Connecticut Ave., NW
11th Floor
Washington, D.C. 20036
Glenn Keeling 10,738,500 (7) *
2275 Swallow Hill Road
Building 2500, 2nd Floor
Pittsburgh, PA 15220
Paul Stagg 1,570,000 (8) *
168 LaLanne Road
Madisonville, LA 70447
Michael P. Thompson 4,000,000 (9) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
All directors 53,638,700 (10) 2.1%
and executive officers
as a group (7 people)
NOTE: The officers and directors listed above entered into
agreements not to exercise the warrants set forth below until
August 2002. This means that the warrants are only currently
exercisable after that time.
(1) Includes ownership of all shares of common stock which each
named person or group has the right to acquire, through the
exercise of warrants, within sixty (60) days, together with the
common stock currently owned.
(2) Represents total number of shares of common stock owned by
each person, which each named person or group has the right to
acquire, through the exercise of warrants within sixty (60) days,
together with common stock currently owned, as a percentage of the
total number of shares of common stock outstanding as of June 30,
2001. For individual computation purposes, the total number of
shares of common stock outstanding as of June 30, 2001 has been
increased by the number of additional shares which would be
outstanding if the person or group exercised all outstanding
warrants.
(3) Includes warrants to purchase the following: 300,000 shares of
common stock at $.25 per share until May 1, 2003; 4,000,000 shares
of common stock at $.129 per share until April 28, 2004; and
15,000,000 shares of common stock at $.0525 per share until May
23, 2006. In addition, Mr. Cooper is entitled to certain shares
of common stock upon a change of control of BICO as defined in his
employment agreement.
(4) Includes warrants to purchase 250,000 shares of common stock
at $.129 per share until April 28, 2004; and warrants to purchase
1,000,000 shares of common stock at $.0525 until May 23, 2006.
(5) Includes warrants to purchase the following: 100,000 shares of
common stock at $.25 per share until November 26, 2003; 100,000
shares of common stock at $.25 per share until May 1, 2003;
350,000 shares of common stock at $.50 per share until October
11, 2002; 2,000,000 shares of common stock at $.129 per share
until April 28, 2004; and 10,000,000 shares of common stock at
$.0525 per share until May 23, 2006. In addition, Mr. Feola is
entitled to certain shares of common stock upon a change of
control of BICO as defined in his employment agreement.
(6) Includes warrants to purchase the following: 500,000 shares of
common stock at $.0730 per share until January 11, 2006; and
1,000,000 shares of common stock at $.05 per share until July 30,
2006.
(7) Includes warrants to purchase 100,000 shares of common stock
at $1.48 per share until August 26, 2003; 2,000,000 shares of
common stock at $.129 per share until April 28, 2004; and
8,000,000 shares of common stock at $.0525 per share until May 23,
2006. In addition, Mr. Keeling is entitled to certain shares of
common stock upon a change of control of BICO as defined in his
employment agreement.
(8) Includes warrants to purchase 20,000 shares of common stock at
$.06 per share until April 27, 2003; 250,000 shares of common
stock at $.129 per share until April 28, 2004; 200,000 shares of
common stock at $.102 per share until February 1, 2006; and
1,000,000 shares of common stock at $.0525 per share until May 23,
2006.
(9) Includes warrants to purchase 1,000,000 shares of common stock
at $.125 per share until August 28, 2005; and 3,000,000 shares of
common stock at $.0525 per share until May 23, 2006. In addition,
Mr. Thompson is entitled to certain shares of common stock upon a
change of control of BICO as defined in his employment agreement.
(10) Includes shares of common stock available under warrants to
purchase an aggregate as set forth above.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Sweeney & Associates, P.C. of Pittsburgh, PA, our securities
counsel, will pass on the validity of the shares in this offering.
M. Kathryn Sweeney owns warrants to purchase 3 million shares of
our common stock at $.05 per share until May 23, 2006; and
warrants to purchase 200,000 shares of Diasense, Inc., one of our
affiliates, at $.50 per share until April 23, 2006. Thomas E.
Sweeney, Jr., Esq., a former partner, currently holds
approximately 5,000 shares of our common stock and warrants to
purchase the following shares of Diasense, Inc., one of our
affiliates: 40,000 shares at $.50 per share until October 23, 2003
and 60,000 shares at $1.00 per share until January 6, 2003.
EXPERTS
Our consolidated financial statements as of December 31, 2000,
1999 and 1998, all of which included an explanatory paragraph
referring to an uncertainty regarding our ability to continue as a
going concern, included in this prospectus, have been audited by
Goff Backa Alfera & Company, LLC, independent certified public
accountants, as stated in their report for the year ended December
31, 2000 and have been included in reliance upon that report given
upon the authority of that firm as experts in auditing and
accounting.
Goff Backa Alfera & Company, LLC
CERTIFIED PUBLIC ACCOUNTANTS
3325 Saw Mill Run Blvd.
Pittsburgh, Pa
Report of Independent Accountants
The Board of Directors and Stockholders
BICO, Inc.
We have audited the accompanying consolidated balance sheets
of BICO, Inc. and its subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of BICO, Inc. and its
subsidiaries at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in note B to the financial statements, the
Company has incurred losses from operations and negative cash
flows from operations for each of the three years in the period
ended December 31, 2000, and these conditions are expected to
continue through 2001, raising substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in note B. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty, including
adjustments relating to the recoverability and classification of
recorded assets that might be necessary in the event the Company
cannot continue to meet its financing requirements and achieve
productive operations.
/s/ Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
February 22, 2001
F-1
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Sept. 30, 2001 Dec. 31, 2000 Dec. 31, 1999
-------------- ------------- -------------
CURRENT ASSETS
Cash and equivalents (note A) $1,349,907 $ 7,844,807 $ 10,827,631
Accounts receivable - net of allowance
for doubtful accounts of $43,664 at
Sept. 30, 2001 and Dec. 31, 2000 and
$63,679 at Dec. 31, 1999 1,273,100 400,950 27,263
Inventory - net of valuation allowance (notes A and D) 1,575,373 805,224 10,308
Related party notes receivable (notes C,N, and S) 142,278 87,706 -
Notes receivable (note C) - 1,926,363 200,000
Notes receivable-Practical Environmental Solutions, Inc. - 1,914,363 -
Interest receivable (note C) 97,826 48,252 2,701
Prepaid expenses (note E) 1,017,322 988,354 192,246
Advances - Officers - - 125,290
Other current assets 62,270 47,268 -
--------- ----------- -----------
TOTAL CURRENT ASSETS 5,518,076 12,148,924 11,385,439
PROPERTY, PLANT AND EQUIPMENT (notes A and J)
Building 2,529,176 2,529,176 1,207,610
Land 246,250 246,250 133,750
Leasehold improvements 2,019,016 1,848,674 1,435,319
Machinery and equipment 7,535,953 6,405,594 4,676,330
Furniture, fixtures & equipment 935,516 921,195 841,308
----------- ----------- -----------
Subtotal 13,265,911 11,950,889 8,294,317
Less accumulated depreciation 6,010,467 5,288,910 4,704,539
----------- ----------- -----------
7,255,444 6,661,979 3,589,778
OTHER ASSETS
Related Party Receivables
Notes receivable (notes C and N) 1,128,455 1,174,738 1,491,261
Interest receivable (notes C and N) 8,918 13,463 22,023
----------- ---------- -----------
1,137,373 1,188,201 1,513,284
Allowance for related party receivables (1,137,373) (1,188,201) (1,340,560)
----------- ---------- -----------
- - 172,724
Notes receivable (note C) 138,646 200,000 12,000
Notes receivable - Practical Environmental
Solutions, Inc. (Note S) 3,083,704 - -
Notes receivable - GAIFAR (Note S) 1,025,000 - -
Interest receivable - - 4,235
Goodwill, net of amortization (notes A and Q) 635,129 694,895 -
Investment in unconsolidated
subsidiaries(notes A,G and S) 2,507,865 2,061,439 485,284
Other assets 245,924 162,833 36,376
----------- ---------- -----------
7,636,268 3,119,167 710,619
----------- ---------- -----------
TOTAL ASSETS $20,409,788 $21,930,070 $15,685,836
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
(Unaudited)
Sept. 30, 2001 Dec. 31,2000 Dec. 31, 1999
-------------- ------------ -------------
CURRENT LIABILITIES
Accounts payable $2,045,526 $ 578,520 $ 759,733
Note payable (note S) 3,414,336
Current portion of long-term debt (note I) 4,222,375 5,182,783 4,159,684
Current portion of capital lease obligations (note J) 79,031 98,788 76,017
Debentures payable (notes K and S) - 2,400,000 -
Accrued liabilities (note F) 3,578,295 3,131,765 1,794,370
Escrow payable (note L) 2,700 2,700 2,700
---------- ----------- -------------
TOTAL CURRENT LIABILITIES 13,342,263 11,394,556 6,792,504
LONG-TERM LIABILITIES
Capital lease obligations (note J) 2,145,698 2,203,673 1,336,147
Long-term debt (note I) 1,233 7,864 2,240
--------- ----------- -------------
2,146,931 2,211,537 1,338,387
COMMITMENTS AND CONTIGENCIES (note O)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY (note A) 454,757 434,990 -
STOCKHOLDERS' EQUITY (notes L and S)
Common stock, par value $.10 per share,
authorized 2,500,000,000 shares, issued and
outstanding 2,450,631,119 at Sept. 30, 2001,
1,383,704,167 at Dec. 31, 2000 and
956,100,496 at Dec. 31, 1999 245,063,111 138,370,417 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
none at Sept. 30, 2001 and December 31, 2000
and 72,000 at December 31, 1999. - - 720,000
Additional paid-in capital 2,482,952 87,035,096 85,608,192
Warrants 6,221,655 6,204,235 6,791,161
Accumulated deficit (249,301,881) (223,720,761) (181,174,458)
------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 4,465,837 7,888,987 7,554,945
------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $20,409,788 $ 21,930,070 $ 15,685,836
============= ============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended Year Ended December 31,
Sept. 30, Sept. 30,
2001 2000 2000 1999 1998
------------ ------------- ------------ ------------- -------------
Revenues
Net sales $ 2,869,611 $ 98,831 $ 340,327 $ 112,354 $ 1,145,968
Other income 9,497 - 5,547 52,897 50,212
--------- ---------- ------------ ----------- ------------
2,879,108 98,831 345,874 165,251 1,196,180
Costs and expenses
Cost of products sold 2,082,021 132,644 354,511 147,971 587,821
Research and development (notes A,L and M) 5,142,507 5,082,319 6,651,471 4,430,819 6,340,676
General and administrative (note L) 16,217,485 11,962,387 21,407,472 12,884,237 10,673,265
Amortization of goodwill (notes A,G and S) 579,671 279,681 392,307 39,716 887,080
Impairment loss - - - 5,060,951 -
---------- --------- ------------ ----------- -------------
24,021,684 17,457,031 28,805,761 22,563,694 18,488,842
---------- ---------- ------------ ----------- -------------
Loss from operations (21,142,576) (17,358,200) (28,459,887) (22,398,443) (17,292,662)
Other income
Interest 478,399 449,559 589,529 1,031,560 182,033
Other expense
Debt issue costs (note A) 1,741,886 985,000 1,005,000 3,458,300 1,865,682
Beneficial convertible debt
feature(notes A&K) 2,063,915 2,462,500 3,062,500 7,228,296 3,799,727
Warrant extensions (note L) - 6,390 5,233,529 4,669,483 -
Interest expense 690,948 1,343,393 1,924,873 1,373,404 481,025
Loss on unconsolidated subsidiaries(notes A&G) 221,407 493,925 158,183 - -
Loss on disposal of assets 18,635 15,874 122,857 376 531,066
Unusual Item (notes O and S) 225,000 3,450,000 3,450,000 - -
---------- ---------- ------------ ------------ -------------
4,961,791 8,757,082 14,956,942 16,729,859 6,677,500
---------- ---------- ------------ ------------ -------------
Loss before unrelated
investors' interest (25,625,968) (25,665,723) (42,827,300) (38,096,742) (23,788,129)
Unrelated investors' interest in
net loss of subsidiaries 44,848 54,222 280,997 24,164 1,385,485
----------- ---------- ----------- ----------- ------------
Net loss $(25,581,120) $(25,611,501) $(42,546,303) $(38,072,578) $(22,402,644)
============ ========== =========== ============ ============
Loss per common share - Basic:
Net Loss $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08)
Less: Preferred stock dividends 0.000 0.000 (0.00) (0.00) (0.00)
------------ -------- ---------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08)
============ ======== ========== ============= =============
Loss per common share - Diluted:
Net Loss $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08)
Less: Preferred stock dividends 0.000 0.000 (0.00) (0.00) (0.00)
------------ --------- --------- ------------- ------------
Net loss attributable to
common stockholders: $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08)
============ ========= ========= ============ ============
The accompanying notes are an integral part of these statements.
F-4
BICO, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficiency)
Note rec.
Preferred Stock Common Stock issued for Additional
--------------- ---------------- Common Stk Paid in Accumulated
Shares Amount Shares Amount Warrants Rel Party Capital Deficit Total
------- -------- --------- ---------- ---------- --------- ----------- -------------- ----------
Balance at Dec. 31, 1997 - $ - 138,583,978 $13,858,398 $6,396,994$(25,000)$104,932,920 $(120,699,236)$ 4,464,076
-------- ------- ---------- ---------- ---------- ------- ---------- ------------ ----------
Proceeds from stock offering - - 2,055,000 205,500 - - 22,423 - 227,923
Conversion of debentures - - 280,134,590 28,013,459 - - (16,029,785) - 11,983,674
Issuance of convertible debt - - - - - - 3,799,727 - 3,799,727
Net Loss - - - - - - - (22,402,644)(22,402,644)
-------- ------- ---------- ---------- ---------- -------- ---------- ------------ -----------
Balance at Dec. 31, 1998 - - 420,773,568 42,077,357 6,396,994 (25,000) 92,725,285 (143,101,880) (1,927,244)
-------- ------- ---------- ---------- ---------- -------- ---------- ------------ ----------
Proceeds from stk offering - - 19,625,691 1,962,569 - - (914,485) - 1,048,084
Proceeds from sale of
Preferred stk.-Series F 72,000 720,000 - - - - 90,000 - 810,000
Conversion of debentures - - 515,013,737 51,501,374 - - (19,444,872) - 32,056,502
Warrants granted and
extended-subsidiaries - - - - - - 5,897,332 - 5,897,332
Issuance of convertible debt - - - - - - 7,228,296 - 7,228,296
Repayment of subscriptio recv. - - - - - 25,000 - - 25,000
Warrants exercised - - 687,500 68,750 (8,968) - 26,636 - 86,418
Warrants granted - - - - 403,135 - - - 403,135
Net loss - - - - - - - (38,072,578)(38,072,578)
-------- ------- ---------- ---------- --------- ------- --------- ----------- -----------
Balance at Dec. 31,1999 72,000 720,000 956,100,496 95,610,050 6,791,161 - 85,608,192 (181,174,458) 7,554,945
-------- -------- ---------- ---------- --------- ------- --------- ----------- ----------
Proceeds from stk offering - - 327,615,231 32,761,523 - - (14,156,873) - 18,604,650
Proceeds from sale of
Preferred stk.-Series F 380,000 3,800,000 - - - - 475,000 - 4,275,000
Conversion of preferred
stk.- Series F (452,000)(4,520,000) 56,679,610 5,667,961 - - (1,147,961) - -
Conversion of debentures - - 36,294,340 3,629,434 - - 491,113 - 4,120,547
Warrants exercised - - 4,414,490 441,449 (307,581) - 481,790 - 615,658
Warrants granted and
extended-subsidiaries - - - - - - 11,084,555 - 11,084,555
Issuance of convertible debt - - - - - - 3,062,500 - 3,062,500
Common stk. issued for serv. - - 2,600,000 260,000 - - 78,000 - 338,000
Common stk. issued-subs. - - - - - - 170,780 - 170,780
Warrants granted - - - - 608,655 - - - 608,655
Warrants expired - - - - (888,000) - 888,000 - -
Net loss - - - - - - - (42,546,303)(42,546,303)
------- ------- ------------- ----------- ---------- ------- ---------- ----------- -----------
Balance at Dec. 31, 2000 - $ - 1,383,704,167 $138,370,417 $6,204,235 $ - $87,035,096 $(223,720,761)$ 7,888,987
------- ------- ------------- ----------- ---------- -------- ---------- ----------- -----------
Proceeds from stk offering - - 769,410,092 76,941,009 - - (67,702,009) - 9,239,000
Proceeds from sale of
Preferred stk.-Series F - - - - - - - - -
Conversion of preferred
stk.- Series F - - - - - - - - -
Conversion of debentures - - 297,516,852 29,751,682 - - (19,096,026) - 10,655,659
Warrants exercised - - - - - - - - -
Warrants granted and
extended-subsidiaries - - - - - - (1,331) - (1,331)
Issuance of convertible debt - - - - - - 2,058,970 - 2,058,970
Common stk. issued for serv. - - - - - - - - -
Common stk. issued-subs. - - - - - - - - -
Warrants granted - - - - 17,420 - 188,252 - 205,672
Warrants expired - - - - - - - - -
Net loss - - - - - - - (25,581,120)(25,581,120)
------- ------- ------------ ----------- ---------- ------- ---------- ----------- -----------
Balance at Sep. 30, 2000 - $ - 2,450,631,111 $245,063,111 $6,221,655 $ - $ 2,482,952 $(249,301,881)$ 4,465,837
======= ======= ============= =========== ========== ======= ========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended Year ended December 31,
Sep. 30, Sep. 30,
2001 2000 2000 1999 1998
---------- ---------- ------------- ------------- -------------
Cash flows used by operating activities:
Net loss $(25,581,120) $(25,611,501) $(42,546,303) $(38,072,578) $(22,402,644)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 749,526 397,778 689,762 773,696 815,125
Amortization 579,671 279,681 392,307 42,149 891,412
Loss on disposal of assets 18,635 15,874 122,857 177,000 531,066
Loss on unconsolidated subsidiaries 221,407 110,723 158,183 - -
Unrelated investors' interest in susidiaries (44,848) 8,523 (280,997) (24,164) (1,385,485)
Stock issued in exchange for services - 338,000 338,000 148,484 (22,063)
Stock issued in exchange for services by subsidiary - - 225,000 - -
Debenture interest converted to stock - 120,547 120,547 211,503 106,894
Premium for extension on debenture - - - - 680,500
Beneficial convertible debt feature 2,063,915 2,462,500 3,062,500 7,228,296 3,799,727
Warrants granted 17,420 322,028 608,655 403,135 -
Warrants granted and extended by subsidiaries 188,252 1,598,936 11,184,858 5,897,332 -
(Decrease)increase in allowance for losses on
accounts receivable - - (20,015) 36,620 12,128
Provision for (recovery of)allownace for related
party note (50,828) (90,333) (152,359) 70,253 1,270,307
(Increase) decrease in accounts receivable (872,150) (38,266) (25,148) (7,924) 268,195
(Increase) decrease in inventories (2,329,114) 134,373 101,480 90,052 987,948
Increase (decrease) in inventory valuation allowance 1,558,965 (891,321) (859,283) (25,845) 779,050
(Increase) in prepaid expenses (28,968) (300,945) (651,305) (21,702) (31,495)
(Increase) decrease in other assets (133,544) (186) 33,834 (146,408) 36,927
Increase (decrease) in accounts payable 1,467,006 (523,111) (296,657) (949,578) 1,078,124
Increase in other liabilities 446,530 1,270,377 1,112,211 697,726 845,136
(Decrease) in deferred revenue - - - - (116,146)
Impairment loss - - - 5,060,951 -
------------ ------------ ------------- ------------- -------------
Net cash flow used by operating activities (21,729,245) (20,396,323) (26,681,873) (18,411,002) (11,855,294)
------------ ------------ ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,361,626) (2,499,808) (1,388,508) (641,371) (111,216)
Disposal of property, plant and equipment - - - 175,000 -
Acquisitions, net of cash acquired - - (1,395,126) - (1,030,000)
(Increase) in notes receivable (2,385,341) (1,034,500) (1,939,073) (337,928) (31,493)
Payments received on notes receivable 256,065 88,524 378,817 141,974 -
(Increase) in interest receivable (45,029) (3,084) (32,756) (25,774) (97,929)
Acquisition of unconsolidated subsidiaries (1,093,948) (1,725,784) (2,078,520) (525,000) -
------------ ------------- ------------- ------------- -------------
Net cash used by investing activites (4,629,879) (5,174,652) (6,455,166) (1,213,099) (1,270,638)
------------ ------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from public offering 10,692,600 17,026,106 18,604,650 900,000 -
Proceeds from warrants exercised - 899,420 615,658 86,018 -
Proceeds from sale of preferred stock-Series F - 4,275,000 4,275,000 810,000 -
Proceeds from debentures payable 8,255,659 9,850,000 12,250,000 33,150,000 10,720,000
Payments on debentures payable - - (5,850,000) (4,130,000) -
Redemptions of Stock Subscriptions (1,453,600) - - - -
Increase in notes payable 9,866,650 - 855,801 75,396 550,000
Decrease in notes payable (6,452,314) - (53,125) (465,650) (675,393)
Increase on long term debt 117,235 - - - -
Payments on long term debt (1,084,274) (15,915) - - -
Redemptions of debentures - (5,850,000) - - -
Additional capital lease obligations - 1,434,066 - - -
Payments on capital lease obligations (77,732) (522,457) (543,769) (99,777) (101,997)
------------ ------------ ------------- ------------- -------------
Net cash provided by financing activities 19,864,224 27,096,220 30,154,215 30,325,987 10,492,610
____________ ____________ _____________ _____________ _____________
Net increase (decrease) in cash (6,494,900) 1,525,245 (2,982,824) 10,701,886 (2,633,322)
------------- ------------ -------------- ------------- ------------
Cash and cash equivalents, beginning of year 7,844,807 10,827,631 10,827,631 125,745 2,759,067
------------- ------------ ------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,349,907 $ 12,352,876 $ 7,844,807 $ 10,827,631 $ 125,745
============= ============ ============= ============= =============
The accompanying notes are an integral part of these statements.
F-6
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
For the nine months ended Year ended December 31,
Sept. 30, Sept. 30,
2001 2000 2000 1999 1998
----------- ------------ ------------- ------------- -------------
Supplemental Information:
Interest paid $ 130,379 $1,026,435 $ 1,485,286 $ 966,713 $ 364,716
=========== ============ ============= ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of ICTI with note payable $ - $ - $ - $ - $ 3,350,000
=========== =========== ============= =========== ============
Acquisition of property under a
capital lease:
Land $ - $ 112,500 $ 112,500 $ - $ -
Equipment - - - - 24,050
Building - 1,321,566 1,321,566 - -
----------- ----------- ------------- ----------- ------------
$ - $1,434,066 $ 1,434,066 $ - $ 24,050
=========== =========== ============= =========== ============
Capital Lease Termination:
Reduction of capital lease
obligation $ - $ - $ - $ - $ 1,184,288
=========== =========== ============= =========== ============
Reduction of property
Construction in progress $ - $ - $ - $ - $ 1,459,110
Land $ - $ - $ - $ - $ 112,500
----------- ----------- ------------- ----------- ------------
$ - $ - $ - $ - $ 1,571,610
=========== ============ ============= =========== ============
Conversion of preferred stock for
common stock $ - $5,580,168 $ 5,580,168 $ - $ -
=========== ============ ============ =========== ============
Preferred stock dividend paid in
common stock $ - $ 121,825 $ 121,825 $ - $ -
=========== ============ ============ ============ ============
Constructive dividend on convertible
preferred stock $ - $1,883,333 $ 1,883,333 $ - $ -
=========== ============ ============ ============ ============
Conversion of debentures for
common stock $10,655,659 $4,000,000 $ 4,000,000 $31,845,000 $ 11,876,780
============ ============ ============ ============ ============
Conversion of stock subscriptions
for common stock $ 9,900,000 $ - $ - $ - $ -
============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements.
BICO, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. Organization
BICO, Inc. (the Company) and its subsidiaries are engaged in
the development, manufacturing and marketing of biomedical
products and biological remediation products. In June 2000,
the Company changed its name from Biocontrol Technology, Inc.
to BICO, Inc.
2. Principles of Consolidation
The consolidated financial statements include the accounts
of: Diasensor.com, Inc., a 52% owned subsidiary as of
December 31, 2000 and 1999; Petrol Rem, Inc., a 75% owned
subsidiary as of December 31, 2000 and 1999, ViaCirQ, Inc.
(formerly IDT, Inc.), a 99% owned subsidiary as of December
31, 2000 and 1999; International Chemical Technologies, Inc.,
a 58.4% owned subsidiary as of December 31, 2000 and 1999,
Barnacle Ban Corporation, a 100% owned subsidiary as of
December 31, 2000 and 1999, Ceramic Coatings Technologies,
Inc., a 100% owned subsidiary as of December 31, 2000 and
1999 and B-A-Champ.com, Inc., a 51% owned subsidiary as of
December 31, 2000. All significant intercompany accounts and
transactions have been eliminated. Subsidiary losses in
excess of the unrelated investors' interest are charged
against the Company's interest. Changes in the Company's
proportionate share of subsidiary equity resulting from the
additional equity raised by the subsidiary are accounted for
as equity transactions in consolidation with no gain
recognition due to the development stage of the subsidiaries
and uncertainty regarding the subsidiary's ability to
continue as a going concern.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at acquisition to be cash equivalents.
4. Inventory
Inventory is valued at the lower of cost (first-in, first-out
method) or market. An inventory valuation allowance is
provided against finished goods and raw materials for
products for which a market has not yet been established.
5. Property and Equipment
Property and equipment are recorded at cost and are
depreciated over their estimated useful lives, ranging from 3
to 39 years, on a straight-line basis. Amortization of
assets recorded under capital leases is included with
depreciation expense. Impairment losses are recognized when
management determines that operating conditions raise doubts
about the ability to recover the carrying value of particular
assets. The amount of impairment loss is determined by
comparing the present value of the estimated future cash
inflows of such assets to their net carrying value.
6. Goodwill
Goodwill, which represents the excess cost of purchased
companies over the fair value of their net assets at dates of
acquisition, is amortized on a straight-line basis over five
years. Goodwill associated with assets determined to be
impaired is correspondingly written down.
7. Investment in Unconsolidated Subsidiaries
During 1999 and 2000, the Company made investments in
unconsolidated subsidiaries (see Note G). These investments
are being reported on the equity basis due to the Company's
ownership percentage, options to purchase additional shares
and membership on the boards of directors of each
unconsolidated subsidiary as discussed in Note G. The
difference between the amount invested and the underlying
equity in the unconsolidated subsidiary's net assets is being
amortized as goodwill over a 5-year period. Declines in this
investment's value that are determined by Management to be
other than temporary are recognized as losses on a current
basis.
8. Loss Per Common Share
Net loss per common share is based upon the weighted average
number of common shares outstanding. The loss per share does
not include common stock equivalents since the effect would
be antidilutive. The weighted average shares used to
calculate the loss per share amounted to 1,037,254,759 in
2000, 695,400,191 in 1999 and 266,362,526 in 1998. The net
losses attributable to common shareholders for the years
ended December 31, 2000, 1999 and 1998 were $44,510,398,
$38,072,578 and $22,402,644, respectively, which include
constructive dividends to preferred stockholders of
$1,883,333, $0 and $0, respectively.
9. Research and Development Costs
Research and development costs are charged to operations as
incurred. Machinery, equipment and other capital
expenditures, which have alternative future use beyond
specific research and development activities, are capitalized
and depreciated over their estimated useful lives.
10. Income Taxes
The Company previously adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income
Taxes, which requires the asset and liability method of
accounting for income taxes. Enacted statutory tax rates are
applied to temporary differences arising from the differences
in financial statement carrying amounts and the tax bases of
existing assets and liabilities. Due to the uncertainty of the
realization of income tax benefits (Note M), the adoption of
FAS 109 had no effect on the financial statements of the
Company.
11. Interest
The Company follows the policy of capitalizing interest as a
component of the cost of property, plant and equipment
constructed for its own use. Total interest incurred for the
periods December 31, 2000, 1999, and 1998 was $1,924,873,
$1,373,404, and $589,300, respectively, of which $1,924,873,
$1,373,404, and $481,025, respectively, was charged to
operations.
12. Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The Company has established allowances based upon
management's evaluation of inventories, accounts receivable,
and receivables from related parties and amortizes intangible
assets such as goodwill and patents over estimated useful
lives.
13. Common Stock Warrants
The Company recognizes cost on warrants granted or extended
based upon the minimum value method. Under this method, the
warrants are valued by reducing the current market price of
the underlying shares by the present value of the exercise
price discounted, at an estimated risk-free interest rate of
5% and assuming no dividends. The value of warrants is
recalculated when warrants are extended and any increase in
value over the value recorded at the time the warrant was
granted is recognized at the time the warrant is extended.
14. Debt Issue Costs
The Company follows the policy of expensing debt issue costs
on debentures during the period of debenture issuance. Total
debt issue costs incurred for the periods December 31, 2000,
1999 and 1998 were $1,225,000, $3,458,300 and $1,865,682,
respectively.
15. Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to significant concentrations of credit risk, consist
principally of cash investments at commercial banks,
receivables from officers and directors of the Company and
investments in unconsolidated subsidiaries. Cash and cash
equivalents are temporarily invested in interest bearing
accounts in financial institutions, and such investments may
be in excess of the FDIC insurance limit. Receivables from
directors and officers of the Company (Notes C and N) are
unsecured and represent a concentration of credit risk due to
the common employment and financial dependency of these
individuals on the Company.
16. Comprehensive Income
The Company's consolidated net income (loss) is substantially
the same as comprehensive income to be disclosed under
Statement of Financial Accounting Standards No. 130.
17. Beneficial Convertible Debt Feature
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.
18. Beneficial Conversion Feature of Preferred Stock
The Company's Series F 4% convertible preferred stock
includes 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.
19. Advertising Costs
Advertising costs are charged to operations when incurred.
Advertising expenses for 2000, 1999 and 1998 were $208,617,
$4,851 and $43,901, respectively.
NOTE B - OPERATIONS AND LIQUIDITY
The Company and its subsidiaries have incurred substantial
losses in 2000 and in prior years and have funded their
operations and product development primarily through the sale
of common and preferred stock and issuance of debt
instruments. Until such time that products can be
successfully developed and marketed, the Company and its
subsidiaries will continue to need to fulfill working capital
requirements through the sale of stock and issuance of debt.
The inability of the Company to continue its operations as a
going concern would impact the recoverability and
classification of recorded asset amounts.
The ability of the Company to continue in existence is
dependent on its having sufficient financial resources to
complete the research and development necessary to
successfully bring products to market and for marketplace
acceptance. As a result of its significant losses, negative
cash flows from operations and significant accumulated
deficits for each of the periods ending December 31, 2000,
1999, and 1998, there is substantial doubt about the
Company's ability to continue as a going concern.
In order to meet its projected expenditures for 2001,
Management believes that additional funds will need to be
raised from sales of stock and future debt issuance.
NOTE C - NOTES RECEIVABLE
Notes receivable due from various related and unrelated
parties consisted of:
Dec. 31, 2000 Dec. 31, 1999
Related Parties
Note receivable from Fred E.
Cooper, Chief Executive Officer,
dated April 28, 1999, in the
amount of $777,400, payable in
monthly installments of $9,427
with a final balloon payment on
May 31, 2002. Interest is
accrued at a rate of 8% per
annum. $ 715,693 $ 747,087
Note receivable from Glenn
Keeling, Director, dated April
28, 1999, in the amount of
$296,358, payable in monthly
installments of $4,184 with a
final balloon payment on May 1,
2002. Interest is accrued at a
rate of 8% per annum. 237,737 275,869
Note Receivable from T.J. Feola,
Director, dated April 28, 1999,
in the amount of $259,477,
payable in monthly installments
of $3,676 with a final balloon
payment on May 31, 2002.
Interest is accrued at a rate of
8% per annum. 221,308 245,581
Note receivable from Allegheny
Food Services, Inc. of which
Joseph Kondisko, a former
director, is principal owner,
payable in monthly installments
of $3,630, including interest at
9.25%, with a final balloon
payment on April 1, 2001. 87,706 172,724
Note receivable from B-A-
Champ.com, a company
substantially owned by Fred E.
Cooper, Chief Executive Officer.
Note was due on November 8, 2000.
Interest accrued at a rate of 6%
per annum. - 50,000
Unrelated Parties
Demand note receivable from a
corporation on a $3,100,000 line
of credit agreement. Principal
plus interest accrued at a rate
of 10% per annum is payable upon
demand. Note is secured by a
pledge of 100% of the borrower's
common stock and security
interests in all assets of the
borrower. 1,914,363 -
Note receivable from an
individual, due on November 15,
2002 with interest at prime plus
2% (11.5% at December 31, 2000). 200,000 200,000
Note receivable from an
individual, payable upon
demand with 8.75% interest. 12,000 12,000
____________ ____________
3,388,807 1,703,261
Less current notes receivable 2,014,069 200,000
____________ ____________
Noncurrent $ 1,374,738 $ 1,503,261
============ ============
Accrued interest receivable on the related party notes as of
December 31, 2000 and 1999 was $13,463 and $22,023,
respectively.
Due to the financial dependency of the above officers and
directors on the Company, an allowance of $1,188,201 and
$1,340,560 has been provided as of December 31, 2000 and
1999, respectively.
NOTE D - INVENTORY
Inventories consisted of the following as of:
Dec. 31, 2000 Dec. 31, 1999
Raw materials $ 3,212,053 $ 3,504,708
Finished goods 1,087,093 858,805
____________ ____________
4,299,146 4,363,513
Less valuation allowance (3,493,922) (4,353,205)
____________ ____________
$ 805,224 $ 10,308
============ ============
NOTE E - PREPAID EXPENSES
Prepaid expenses consisted of the following as of:
Dec. 31, 2000 Dec. 31, 1999
Prepaid insurance $ 304,229 $ 73,172
Prepaid professional fees 234,961 87,112
Prepaid debt issue costs 220,000 0
Employee advances 32,549 3,208
Prepaid taxes 31,200 0
Security deposits 14,799 1,543
Other prepaid expenses 150,616 27,211
____________ ____________
$ 988,354 $ 192,246
============ ============
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of:
Dec. 31, 2000 Dec. 31, 1999
Current
Accrued interest $ 1,120,655 $ 681,068
Accrued payroll 373,821 1,027,147
Accrued payroll taxes and
withholdings 24,303 35,362
Accrued vacation 66,445 33,038
Accrued class action
settlement (note O) 1,300,000 0
Other accrued liabilities 246,541 17,755
____________ ____________
$ 3,131,765 $ 1,794,370
============ ============
NOTE G - INVESTMENT 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.
Also, during the year ended December 31, 2000 the Company invested
an additional $285,000 in American Inter-Metallics, Inc. ("AIM")
an unconsolidated subsidiary interest initially acquired during
1999. With this additional investment, the Company owns 16.2% of
AIM. Upon completion of funding, the Company's ownership will
increase to 20%. 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.
During the year ended December 31, 2000, Diasensor.com acquired a
fifteen percent (15%) interest in MicroIslet, Inc. for an
investment of $1,000,000. The company has an option to purchase an
additional 5% interest in MicroIslet. The company also holds a
seat on the board of directors of MicroIslet. 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.
In March 2000, Diasensor.com acquired a 20.8% equity interest in
Diabecore Medical, Inc., a Toronto-based company working to
develop a new insulin for the treatment of diabetes, for $693,520.
The company also owns warrants to purchase additional shares of
Diabecore, which, if exercised, will increase the company's
ownership to 35%. The company holds a seat on the board of
directors of Diabecore.
These investments are being reported on the equity basis and
differences between the investment and the underlying net assets
of the unconsolidated subsidiaries are being amortized as goodwill
over a 5-year period.
The Company's investment in the underlying assets and the
unamortized goodwill of each unconsolidated subsidiary as of
December 31, 2000 and December 31, 1999 are as follows:
Investment in
Unconsolidated Underlying Net Unamortized
Subsidiary Assets Goodwill Total
2000 1999 2000 1999 2000 1999
American Inter-
Metallics, Inc. $ 22,574 $48,405 $ 553,220 $436,879 $ 575,794 $485,284
Insight Data Link.com 28,409 0 60,000 0 88,409 0
MicroIslet, Inc. 50,731 0 688,508 0 739,239 0
Diabecore Medical,Inc 50,615 0 526,620 0 577,235 0
_________ ________ _________ _________ __________ ________
Total $ 152,329 $48,405 $1,828,348 $436,879 $1,980,677 $485,284
========= ======== ========= ========= ========== ========
The amounts recognized as amortization of goodwill and income (loss)
on unconsolidated subsidiaries for each investment for the years
ended December 31, 1999 and 2000 are as follows:
Income (Loss) on
Unconsolidated Amortization of Unconsolidated
Subsidiary Goodwill Subsidiaries
2000 1999 2000 1999
American Inter-
Metallics, Inc. $ 118,837 $ 39,716 $ (75,654) $ 0
Insight Data Link.com 15,000 0 3,409 0
MicroIslet, Inc. 152,628 0 (108,133) 0
Diabecore Medical,Inc. 72,049 0 (44,235) 0
_________ _________ __________ _______
Total $358,514 $ 39,716 $(224,613) $ 0
========= ========= ========== =======
NOTE H- BUSINESS SEGMENTS
The Company operates in two reportable business segments:
Biomedical devices, which includes the operations of BICO, Inc.,
Diasensor.com, Inc. and ViaCirQ, Inc. and Bioremediation, which
includes the operations of Petrol Rem, Inc. Following is
summarized financial information for the Company's reportable
segments:
Biomedical
2000 Devices Bioremedication All Other Consolidated
Sales to external customers $ 81,954 $ 217,722 $ 40,651 $ 340,327
Cost of products sold 47,862 179,446 127,203 354,511
Gross profit (loss) 34,092 38,276 (86,552) (14,184)
Identifiable assets 16,628,619 4,385,100 835,589 21,849,308
Capital expenditures 2,788,454 0 34,120 2,822,574
Depreciation and amortization 979,083 74,120 43,198 1,096,401
Interest Income 543,457 46,072 0 589,529
Interest Expense 1,811,665 0 113,208 1,924,873
1999
Sales to external customers $ 82,056 $ 26,693 $ 3,599 $ 112,348
Cost of products sold 133,288 14,683 0 147,971
Gross profit(loss) (51,232) 12,010 0 (39,222)
Identifiable asset 15,018,258 226,760 440,818 15,685,836
Capital expenditures 262,954 0 378,417 641,371
Depreciation and amortization 5,108,855 34,351 96,060 5,239,266
Interest Income 1,031,560 0 0 1,031,560
Interest Expense 1,373,404 0 0 1,373,404
1998
Sales to external customers $ 1,028,484 $ 45,382 $ 72,102 $ 1,145,968
Cost of products sold 483,388 33,061 71,372 587,821
Gross profit (loss) 545,096 12,321 730 558,147
Identifiable assets 8,614,498 168,315 1,052,756 9,835,569
Capital expenditures 105,827 0 5,389 111,216
Depreciation and amortization 1,563,366 36,061 111,442 1,710,869
Interest Income 182,033 0 0 182,033
Interest Expense 481,025 0 0 481,025
NOTE I- LONG-TERM DEBT
Long-term debt consisted of the following as of:
Dec. 31, Dec. 31,
2000 1999
------------- -----------
Note Payable in connection with stock purchase
agreement for 58.4% interest in International
Chemical Technologies, Inc.(ICTI). The note
bears interest at a rate of 10% per annum and
is collateralized by the shares of ICTI purchased
in the transaction. At December 31, 1999 and
2000, the Company was, and continues to be,
in default on the terms of this loan and
the note holder has made demand for payment.
Accordingly, the unpaid balance is
classified as due and payable. $ 2,900,000 $ 2,900,000
Note Payable by the Company's subsidiary,
International Chemical Technologies, Inc.
(ICTI) to, it's former shareholder. The
loan bears interest at a rate of 9.5% per
annum and is guaranteed by the Company and
collateralized by all tangible and
intangible assets of ICTI, and assignment of
ICTI's interest in its lease for its
production facilities. At December 31, 1999
and 2000, the Company was, and continues to
be in default on the terms of this loan and
the note holder has made demand for payment.
Accordingly, the unpaid balance is
classified as due and payable. 1,191,667 1,191,667
Promissory Note of Intco, Inc., a 51% owned
subsidiary of the Company's subsidiary,
Petrol Rem, Inc. The loan is collateralized
by certain Intco equipment. Principal and
interest at 9.5% per annum are payable in 25
equal monthly installments of $1,500 each
commencing February 27, 2000 with a final
payment of all remaining principal and
interest due on March 27, 2002. 20,351 -
Commercial Premium Finance Agreement of
Intco, Inc., a 51% owned subsidiary of the
Company's subsidiary, Petrol Rem, Inc.
Amounts are payable in nine monthly
installments of $11,342 including interest
at 9.47% per annum beginning October 1,
2000. 66,209 -
Promissory Note of Intco, Inc., a 51% owned
subsidiary of the Company's subsidiary,
Petrol Rem, Inc. The loan is collateralized
by certain Intco equipment. Principal and
interest at 9% per annum are payable in 35
equal monthly installments of $320 each
commencing February 25, 2000 with a final
payment of all remaining principal and
interest due on February 25, 2003. 7,263 -
Note Payable by the Company's subsidiary,
Petrol Rem, Inc., in connection with the
stock purchase agreement for 51% interest in
Intco, Inc. The note is payable without
interest in installments as follows: (i) on
the first day of each calendar month from
January 1, 2001 through and including April
1, 2001, a principal payment of $150,000 and
(ii) $250,000 on May 1, 2001. 850,000 -
Commercial Premium Finance Agreement payable
in nine monthly installments of $9,697
including interest at 7.62% per annum
beginning November 1, 1999. 66,187
Commercial Premium Finance Agreement payable
in eight monthly installments of $13,208
including interest at 8.5% per annum
beginning December 1, 2000. 77,317 -
Commercial Premium Finance Agreement payable
in nine monthly installments of $9,903
including interest at 12.63% per annum
beginning December 10, 2000. 75,600 -
Note Payable to a bank in monthly payments
of $433 including interest at 8.75% per
annum. The loan in collateralized by
equipment. 2,240 4,070
___________ ___________
5,190,647 4,161,924
Current portion of long-term debt 5,182,783 4,159,684
___________ ___________
Long-term debt $ 7,864 $ 2,240
=========== ===========
NOTE J- LEASES
Operating Leases
Until October 2000, the Company was committed under a non-
cancelable operating lease for its research and product
development facility. The lease between the Company and a group
of investors (lessor), which includes four of the Company's
Executive Officers and/or Directors, was for a period of 240
months beginning September 1, 1990. Monthly rental under the
terms of the lease was $8,810 for a period of 119 months to August
1, 2000. In October 2000, after the Company's research and
development operations had been moved from the facility, the
building was sold by the investor group and the lease was
terminated. Total rent expense was $70,480 in 2000 and $105,720
in each of the years 1999 and 1998.
The Company and its related subsidiaries also lease other office
facilities, various equipment and automobiles under operating
leases expiring in various years through 2004. Total lease
expense related to these leases was $534,235, $425,654 and
$279,329 in the years ended December 31, 2000, 1999 and 1998,
respectively.
Capital Leases
During 1996, the Company leased two manufacturing buildings under
capital leases expiring in various years through 2011. The assets
and liabilities under capital leases are recorded at the lower of
the present value of the minimum lease payments or the fair value
of the asset. The assets are depreciated over the lower of their
related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in
depreciation expense.
During 1998, the Company terminated the lease of one of its two
manufacturing buildings in response to the filing of a judgement
for nonpayment under the terms of the lease. The Company
recognized a loss of $387,321 based upon the difference between
the remaining lease obligation and the property relinquished.
In July 2000, the Company entered into a new capital lease
replacing the lease on its manufacturing facility terminated in
1998. Under the terms of the lease, the Company will make total
payments of $1,602,221 through December 2010, at which time title
to the property will be transferred to the Company. Management
recognized this property and the corresponding capital lease
obligation at the present value of the lease payments, which was
$1,434,066 at the inception of the lease, using an imputed rate of
9% per annum.
The following is a summary of property held under capital leases:
Dec. 31, 2000 Dec. 31, 1999
Building $ 2,527,326 $ 1,207,610
Land 246,250 133,750
Equipment 264,490 229,565
______________ ______________
Sub Total 3,038,066 1,570,925
Less: Accumulated
Depreciation 529,286 378,885
______________ ______________
Total Property under
Capital Leases $ 2,508,780 $ 1,192,040
============== ==============
Minimum future lease payments under capital leases and
noncancelable operating leases are as follows:
Capital Operating
Leases Leases
2001 $ 241,877 $ 318,062
2002 336,562 228,237
2003 333,654 181,594
2004 338,413 53,825
2005 352,066 16,500
Thereafter 2,105,169 -
___________ ___________
Total minimum lease payments 3,707,741 $ 798,218
===========
Less amounts representing
interest 1,405,280
___________
Present value of net minimum
lease payments $ 2,302,461
===========
NOTE K - SUBORDINATED CONVERTIBLE DEBENTURES
During 2000, 1999 and 1998, the Company issued subordinated
4% convertible debentures totaling $12,250,000, $33,150,000
and $10,720,000, respectively. Such convertible debentures
were issued pursuant to Regulation S, Regulation D, and/or
Section 4(2) and have a one-year mandatory maturity and are
not saleable or convertible for a minimum of 45 to 90 days
from issuance. At December 31, 2000 and 1999, the
subordinated convertible debentures totaled $2,400,000 and
$0, respectively. The debentures issued in 1999 and 2000
included beneficial conversion features providing a discount
on the acquisition of common stock at discounts ranging from
12% to 22%.
As of December 31, 2000, the conversion price of the
debentures would have been approximately $.0421 per share,
based upon a formula, which applies a discount to the average
market price for the previous week and is determined by the
length of the holding period. As of December 31, 2000, the
number of shares issuable upon conversion of all outstanding
debentures was approximately 57 million shares, which would
have reflected discounts of approximately 20%. No
debentures were outstanding as of December 31, 1999.
Preferred Stock
The Board of Directors of the Company may issue up to 500,000
shares of preferred stock in series, which would have rights
as determined by the Board.
During 1999, 400,000 shares of the preferred stock were
authorized as "4% Cumulative Convertible Preferred Stock,
Series F". 72,000 shares of this preferred stock were issued
in 1999 and 452,000 shares were issued in 2000 and these
shares 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 total value
of this beneficial conversion feature was $1,883,333 and was
recognized as constructive dividends charged to additional
paid in capital during the year ended December 31, 2000.
During 2000, all shares of preferred stock were converted to
common stock. In addition, a preferred stock dividend of
$121,824 was distributed to preferred shareholders upon
conversion.
NOTE L - STOCKHOLDERS' EQUITY
Common Stock Warrants
During 2000, warrants ranging from $.070 to $.250 per share
to purchase 5,941,998 shares of common stock were granted at
exercise prices that were equal to or above the current
quoted market price of the stock on the date issued. In
connection with the granting of warrants, the Company
recognized $324,897 of general and administrative expense.
Warrants to purchase 31,378,160 shares of common stock were
exercisable at December 31, 2000. The per share exercise
prices of these warrants are as follows:
Shares Exercise Price
20,000 $.060
160,000 $.070
35,000 $.080
1,700,000 $.100
85,000 $.103
1,000,000 $.125
19,910,500 $.129
1,110,200 $.130
600,000 $.140
400,000 $.144
125,000 $.155
236,798 $.160
10,000 $.220
2,826,700 $.250
80,000 $.330
50,000 $.380
1,482 $.450
350,000 $.500
884,000 $1.000
150,000 $1.480
1,375,000 $2.000
94,000 $2.125
69,480 $2.250
35,000 $2.410
20,000 $2.750
25,000 $3.000
25,000 $3.200
____________
Total 31,378,160
============
The fiscal years in which common stock warrants were granted
and the various expiration dates by fiscal year are as
follows:
Fiscal Warrants Warrants Expire during Fiscal Year
Year Granted 2001 2002 2003 2004 2005
1990 406,700 226,700 351,482 180,000
1991 1,251,482 900,000
1992 0
1993 154,000 144,000 10,000
1994 130,000 20,000 85,000 25,000
1995 0
1996 594,480 535,000 59,480
1997 1,444,000 500,000 944,000
1998 1,420,000 1,420,000
1999 20,035,500 20,035,500
2000 5,941,998 5,941,998
__________ _________ ________ __________ ___________ ___________
31,378,160 2,305,700 1,315,482 1,695,000 20,119,980 5,941,998
========== ========= ======== ========== =========== ===========
The following is a summary of the warrant transactions during 2000:
Outstanding at beginning of period 29,896,662
Granted during the twelve-month period 5,941,998
Canceled during the twelve-month period 46,000
Exercised during the twelve-month period 4,414,500
Outstanding and eligible for exercise at ___________
end of period 31,378,160
===========
The following is a summary of expenses recognized in connection
with warrants granted or extended during 2000 and 1999:
2000 1999
Granted Extended Total Granted Extended Total
Parent Company $ 324,897 $ 0 $ 324,897 $ 403,134 $ 0 $ 403,134
Subsidiaries:
Petrol Rem 0 0 54,981 20,160 75,141
Diasensor.com 230,178 0 230,178 229,642 272,078 501,720
ViaCirQ 5,885,069 5,233,529 11,118,598 943,226 4,377,245 5,320,471
_________ _________ ___________ _________ _________ _________
6,115,247 5,233,529 11,348,776 1,227,849 4,669,483 5,897,332
_________ _________ __________ _________ _________ _________
Total $6,440,144 $5,233,529 $11,673,673 $1,630,983 $4,669,483 $5,897,332
========= ========= =========== ========== ========= =========
During 2000 and 1999, expenses recognized on warrants granted
are included in the Statement of Operations as general and
administrative expenses of $6,071,961 and $1,189,171,
respectively and research and development expenses of
$368,183 and $441,812, respectively.
Warrant Extensions
During 2000, the Company did not extend the exercise date of
any warrants.
During 1999, the Company extended the exercise date of
warrants to purchase 540,962 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.45 to $2.75, and were extended at the original grant
price. No expense was charged to operations since the market
price of the stock was less than the present value of the
warrant exercise price.
During 1998, the Company extended the exercise date of
warrants to purchase 1,510,180 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.25 to $3.20, and were extended at the original grant
price. No expense was charged to operations since the market
price of the stock was less than the present value of the
warrant exercise price.
Diasensor.com, Inc. Common Stock
At December 31, 2000, warrants to purchase 10,387,013 shares
of Diasensor.com, Inc. common stock were exercisable. The
per share exercise price is $.50 for 7,380,000 shares, $1.00
for 2,160,463 shares and $3.50 for 846,550 shares. The
warrants expire at various dates through 2005. To the extent
that all warrants were exercised, the Company's proportionate
ownership would be diluted from 52% at December 31, 2000 to
36%.
Diasensor.com, Inc. Warrants
During 2000, Diasensor.com, Inc. granted warrants to purchase
2,075,000 shares of its common stock and extended the
exercise date of warrants to purchase 2,483,050 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $230,178 is included in general and
administrative expenses for warrants granted during 2000.
The extended warrants were originally granted at an exercise
price ranging from $1.00 to $3.50 and extended at the same
price. No expense was charged to operations since the
estimated market price of the stock was less than the present
value of the warrant exercise price.
During 1999, Diasensor.com, Inc. granted warrants to purchase
2,080,000 shares of its common stock and extended the
exercise date of warrants to purchase 3,070,213 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $229,642 is included in general and
administrative expenses for warrants granted during 1999.
The extended warrants were originally granted at an exercise
price ranging from $.50 to $3.50 and extended at the same
price. Diasensor.com, Inc. recorded a $272,078 expense for
these extended warrants.
Diasensor.com, Inc. Warrants
During 1998, Diasensor.com, Inc. extended the exercise date
of warrants to purchase 825,000 shares of common stock to
certain officers, directors, employees and consultants. The
warrant shares were originally granted at an exercise price
of $.50 and extended at the same price. No expense was
charged to operations since the market price of the stock was
less than the present value of the warrant exercise price.
Petrol Rem, Inc. Common Stock
At December 31, 2000, warrants to purchase 6,290,000 shares
of Petrol Rem common stock were exercisable. The per share
exercise price is $.10 for 3,940,000 shares, $.50 for
2,150,000 shares and $1.00 for 200,000 shares. The warrants
expire at various dates through 2005. To the extent that all
the warrants were exercised, the Company's proportionate
ownership would be diluted from 75% at December 31, 2000 to
57%.
Petrol Rem Warrants
During 2000, Petrol Rem, Inc. granted warrants to purchase
1,950,000 shares of its common stock to certain officers,
directors, employees and consultants. No expense was charged
to operations since the market price of the stock was less
than the present value of the warrant exercise price. Petrol
Rem did not extend the exercise dates of any warrants during
2000.
During 1999, Petrol Rem, Inc. granted warrants to purchase
2,690,000 shares of its common stock and extended the
exercise date of warrants to purchase 1,450,000 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $54,981 is included in general and
administrative expenses for the warrants granted during 1999.
The extended warrants were originally granted at an exercise
price of $.10 and were extended at the same price. Petrol
Rem, Inc. recorded a $20,160 expense for these extended
warrants.
ViaCirQ, Inc. Common Stock
At December 31, 2000, warrants to purchase 6,713,000 shares
of ViaCirQ common stock were exercisable. The per share
exercise price is $.10 for 6,363,000 shares and $.50 for
20,000 shares, $1.00 for 310,000 shares, $2.00 for 5,000
shares and $3.00 for 15,000 shares. The warrants expire at
various dates through 2005. To the extent that all the
warrants were exercised, the Company's proportionate
ownership would be diluted from 99% at December 31, 2000 to
69.1%.
ViaCirQ, Inc. Warrants
During 2000, ViaCirQ, Inc. granted warrants to purchase
2,128,000 shares of its common stock and extended the
exercise date of warrants to purchase 3,125,000 shares of
common stock to certain officers, directors, employees and
consultants. Charges of $5,516,886 and $368,183 are included
in general and administrative expenses and research and
development expenses, respectively, for the warrants granted
during 2000. The extended warrants were originally granted
at an exercise price ranging from $0.10 to $3.00 and extended
at the same price. ViaCirQ, Inc. recorded a $5,233,529
expense for these extended warrants.
During 1999, ViaCirQ, Inc. granted warrants to purchase
295,000 shares of its common stock and extended the exercise
date of warrants to purchase 1,505,000 shares of common stock
to certain officers, directors, employees and consultants.
Charges of $501,414 and $441,812 are included in general and
administrative expenses and research and development
expenses, respectively, for these warrants granted during
1999. The extended warrants were originally granted at an
exercise price of $0.10 and extended at the same price.
ViaCirQ, Inc. recorded a $4,377,245 expense for these
extended warrants.
NOTE M - INCOME TAXES
As of December 31, 2000, the Company and its subsidiaries
except Diasensor.com, Inc., Petrol Rem, and ICTI, have
available approximately $132,500,000 of net operating loss
carryforwards for federal income tax purposes. These
carryforwards are available, subject to limitations, to
offset future taxable income, and expire in tax years 2000
through 2021. The Company also has research and development
credit carryforwards available to offset federal income taxes
of approximately $1,775,000, subject to limitations, expiring
in tax years 2005 through 2021.
As of September 30, 2000, the end of its fiscal year,
Diasensor.com, Inc. had available approximately $25,500,000
of net operating loss carryforwards for federal income tax
purposes. These carryforwards, which expire during the years
2005 through 2020, are available, subject to
limitations, to offset future taxable income. Diasensor.com,
Inc. also has research and development credit carryforwards
available for federal income tax purposes of approximately
$700,000, subject to limitations, expiring in the years 2005
through 2012.
As of December 31, 2000, Petrol Rem had available
approximately $14,000,000 of net operating loss carryforwards
for federal income tax purposes. These carryforwards, which
expire during the years 2008 through 2021, are available,
subject to limitations, to offset future taxable income.
Petrol Rem also has research and development credit
carryforwards available for federal income tax purposes of
approximately $15,000.
As of December 31, 2000, ICTI had available approximately
$1,400,000 of net operating loss carryforwards for federal
income tax purposes. These carryforwards, which expire in
years 2019 and 2021, are available, subject to limitations,
to offset future taxable income.
Certain items of income and expense are recognized in
different periods for financial and income tax reporting
purposes. In the year ended December 31, 1999, a warrant
exercise adjustment of $50,625 was reported for tax purposes.
The fair market value of warrant extentions have been
recorded and expenses of $6,092,562 and $11,118,598 have been
recognized for financial statement purposes in the years
ended December 31, 1999 and 2000, respectively.
The Company has not reflected any future income tax benefits
for these temporary differences or for net operating loss and
credit carryforwards because of the uncertainty as to
realization. Accordingly, the adoption of FAS 109 had no
effect on the financial statements of the Company.
The following is a summary of the composition of the
Company's deferred tax asset and associated valuation
allowance at December 31, 2000, December 31, 1999 and
December 31, 1998:
Dec.31,2000 Dec.31,1999 Dec.31,1998
Net Operating Loss $ 45,050,000 $ 37,672,000 $ 28,294,800
Warrant Expense 8,593,191 4,812,868 2,741,397
Tax Credit
Carryforward 1,775,000 1,370,000 1,100,000
____________ ____________ ____________
55,418,191 43,854,868 32,136,197
Valuation Allowance (55,418,191) (43,854,868) (32,136,197)
____________ ____________ ____________
Net Deferred Tax
Asset $ 0 $ 0 $ 0
============ ============ ============
The deferred tax benefit and the associated increase in the
valuation allowance are summarized in the following schedule:
Increase in
Deferred Valuation
Tax Benefit Allowance Net
Year-ended December 31, 2000 $(11,563,323) $ 11,563,323 $ 0
Year-ended December 31, 1999 $(11,718,671) $ 11,718,671 $ 0
Year-ended December 31, 1998 $( 7,306,400) $ 7,306,400 $ 0
From March 20, 1972 (inception)
Through December 31, 2000 $(55,418,191) $ 55,418,191 $ 0
NOTE N - RELATED PARTY TRANSACTIONS
Research and Development Activities
The Company is currently performing research and development
activities related to the non-invasive glucose sensor (the
Sensor) under a Research and Development Agreement with
Diasensor.com, Inc.. If successfully developed, the Sensor
will enable users to measure blood glucose levels without
taking blood samples. Diasensor.com, Inc. acquired the
rights to the Sensor, including one United States patent from
BICO for $2,000,000 on November 18, 1991. Such patent covers
the process of measuring blood glucose levels non-invasively.
Approval to market the Sensor is subject to federal
regulations including the Food and Drug Administration (FDA).
The Sensor is subject to clinical testing and regulatory
approvals by the FDA. BICO is responsible for substantially
all activities in connection with the development, clinical
testing, FDA approval and manufacturing of the Sensor. As
discussed in Note B, BICO finances its operations from the
sales of stock and issuance of debt and was reimbursed for
costs incurred under the terms and conditions of the Research
and Development Agreement for the research and development of
the Sensor by Diasensor.com, Inc.. If BICO is unable to
perform under the Research and Development or Manufacturing
Agreements, Diasensor.com, Inc. would need to rely on other
arrangements to develop and manufacture the Sensor or perform
these efforts itself.
BICO and Diasensor.com, Inc. have entered into a series of
agreements related to the development, manufacturing and
marketing of the Sensor. BICO is to develop the Sensor and
carry out all steps necessary to bring the Sensor to market
including 1) developing and fabricating the prototypes
necessary for clinical testing; 2) performing the clinical
investigations leading to FDA approval for marketing; 3)
submitting all applications to the FDA for marketing
approval; and 4) developing a manufacturable and marketable
product. Diasensor.com, Inc. is to conduct the marketing of
the Sensor. The following is a brief description of the
agreements:
Manufacturing Agreement
The manufacturing agreement between BICO and Diasensor.com,
Inc. was entered into on January 20, 1992. BICO is to act as
the exclusive manufacturer of production units of the Sensor
upon the completion of the Research and Development Agreement
and sell the units to Diasensor.com, Inc. at a price
determined by the agreement. The term of the agreement is
fifteen years.
Research and Development Agreement
Under a January 1992 agreement between BICO and
Diasensor.com, Inc., beginning in April 1992, BICO received
$100,000 per month, plus all direct costs for the research
and development activities of the Sensor. This agreement
replaced a previous agreement dated May 14, 1991. The term
of the new agreement is fifteen years. In July 1995, BICO
and Diasensor.com, Inc. agreed to suspend billings, accruals
of amounts due and payments pursuant to the research and
development agreement pending the FDA's review of the Sensor.
Purchase Agreement
In November 1991, BICO entered into a Purchase Agreement with
Diasensor.com, Inc. under which Diasensor.com, Inc. acquired
BICO's rights to the Sensor for a cash payment of $2,000,000.
This agreement permits BICO to use Sensor technology for the
manufacture and sale by BICO of a proposed implantable closed
loop system. BICO will pay Diasensor.com, Inc. a royalty
equal to five percent of the net sales of such implantable
closed loop system.
Real Estate Activities
Four of the Company's Executives and/or Directors are members
of an eight-member partnership that in July 1990 purchased
the Company's real estate in Indiana, Pennsylvania, and each
personally guaranteed the payment of lease obligations to the
bank providing the funding. For their personal guarantees,
the four individuals each received warrants to purchase
100,000 shares of the Company's common stock at an exercise
price of $.33 per share until June 29, 1995. Those warrants
still outstanding as of the original expiration date were
extended until June 29, 2001. In 1999, after all operations
were relocated from this site, the property was offered for
sale. The property was sold in October 2000 and the lease
was terminated.
Amounts due from Officers
On April 28, 1999, Fred E. Cooper, CEO and Director,
consolidated various outstanding obligations into a term loan
totaling $777,400 payable in monthly installments of $9,427
with a final balloon payment on May 31, 2002. Interest on
this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Cooper at December 31, 1999 and
December 31, 2000, include balances of $747,087 and $715,963,
respectively, on the term loan discussed above plus accrued
interest of $10,813 and $9,163, respectively.
On April 28, 1999, Glenn Keeling, a Director, consolidated
various outstanding obligations into a term loan totaling
$296,358 payable in monthly installments of $4,184 with a
final balloon payment on May 1, 2002. Interest on this loan
is accrued at a rate of 8% per annum.
Total amounts due from Mr. Keeling at December 31, 1999 and
December 31, 2000, include balances of $275,869 and $237,737,
respectively, on the term loan discussed above plus accrued
interest of $3,668 and $3,668, respectively.
On April 28, 1999, T.J. Feola, Senior Vice President and
Director, consolidated various outstanding obligations into a
term loan totaling $259,477 payable in monthly installments
of $3,676 with a final balloon payment on May 31, 2002.
Interest on this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Feola at December 31, 1999 and
December 31, 2000 include balances of $245,581 and $221,308,
respectively, on the term loan discussed above plus accrued
interest of $4,536 and $631, respectively.
As of December 31, 1999 and 2000 the Company had a note
receivable from Allegheny Food Services, Inc. of which Joseph
Kondisko, a former director, is principal owner. The loan,
which bears interest at a rate of 9.25%, is payable in
monthly installments of $3,630 with a final balloon payment
on April 1, 2001. The outstanding balance on this loan was
$172,724 at December 31, 1999 and $87,706 at December 31,
2000.
During 1999 the Company made various demand loans totaling
$150,000 to B-A-Champ.com, Inc., a company substantially
owned by Fred E. Cooper, CEO. As of December 31, 1999, these
loans had been repaid to a balance of $50,000 with an accrued
interest of $3,006. As of December 31, 1999, the Company
owned approximately 6.5% of the outstanding stock of B-A-
Champ.com, Inc. In 2000, the Company provided additional
funding of $400,000 in exchange for additional shares of B-A-
Champ.com, Inc. In addition, the Company converted a note
receivable of $50,000 from B-A-Champ.com, Inc. plus accrued
interest of $5,256 to common stock. As a result of these
additional investments, the Company owned 51% of the
outstanding stock of B-A-Champ.com, Inc. as of December 31,
2000 and included B-A-Champ.com, Inc. as a consolidated
subsidiary in the December 31, 2000 financial statements. As
of December 31, 2000, Fred E. Cooper, Chief Executive Officer
of the Company, owned approximately 30% of the outstanding
common stock of B-A-Champ.com, Inc.
Employment Contracts
The Company has employment contracts with three officers and
two employees that commenced November 1, 1994 and were
renewed on October 31, 1999. There is an additional contract
with an officer that commenced August 16, 2000. These
employment contracts set forth annual basic salaries
aggregating approximately $2,125,000 in 2000 and expiring in
periods beginning October 2001 through 2005, which are
subject to review and adjustment. The contracts may be
extended for successive two to three year periods. In the
event of change in control in the Company and termination of
employment, continuation of annual salaries at 100%
decreasing to 25% are payable in addition to the issuing of
shares of common stock as defined in the contracts. The
contracts also provide for severance, disability benefits and
issuances of BICO common stock under certain circumstances.
NOTE O - COMMITMENTS AND CONTINGENCIES
Litigation
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasensor.com, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology, et al., was certified as a class action in the
U.S. District Court for the Western District of Pennsylvania.
The suit alleged misleading disclosures in connection with
the Noninvasive Glucose Sensor and other related activities,
which the Company denies. Without agreeing to the alleged
charges or acknowledging any liability or wrongdoing, the
Company agreed to settle the lawsuit for a total amount of
$3,450,000. As of December 31, 2000, $2,150,000 has been
paid toward the settlement. An additional $1,300,000 is
included in accrued liabilities and will be paid in July
2001. Although it is not known whether the class action
plaintiffs have been formally notified of the settlement, or
if they have accepted its terms, the Company believes that
the existing settlement will end this matter.
Pennsylvania Securities Commission
The Pennsylvania Securities Commission is conducting a
private investigation of the Company and its subsidiary,
Diasensor.com, Inc., Inc. in connection with the sale of
securities. The Companies have cooperated with and provided
information to the Pennsylvania Securities Commission in
connection with the private investigation. As the
Commission's investigation is not yet complete, there can be
no estimate or evaluation of the likelihood of an unfavorable
outcome in this matter or the range of possible loss, if any.
Additional Legal Proceedings
In April 1998, the Company and its affiliates were served
with subpoenas requesting documents in connection with an
investigation by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
Company continues to submit various scientific, financial and
contractual documents in response to such requests.
NOTE P - EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan with 401(k)
provisions, which covers all employees meeting certain age
and period of service requirements. Employer contributions
are discretionary as determined by the Board of Directors.
There have been no employer contributions to the plan through
December 31, 2000.
NOTE Q -STOCK ACQUISITIONS
ICTI, Inc.
Effective March 4, 1998, pursuant to a Stock Purchase
Agreement dated February 20, 1998, the Company acquired 58.4%
of International Chemical Technologies, Inc. (ICTI) a
development stage corporation. ICTI commenced operations in
May 1997 and planned to engage in the business of
manufacturing and marketing, and licensing rights with
respect to certain corrosion/wear-resistant metal alloy
coating compositions.
Consideration for the purchase of the 58.4% interest in ICTI
included a cash payment of $1,030,000; a promissory note for
$3,350,000 at 8%; 2,000,000 shares of Biocontrol common stock
(fair market value of $250,000), a warrant to purchase
1,000,000 shares of Biocontrol stock for $2 per share anytime
through March 4, 2003; and the guarantee by Biocontrol of a
promissory note for $1,300,000 payable by ICTI to the seller.
The Company recognized $5,310,501 of goodwill in connection
with the ICTI Stock Purchase Agreement. For purposes of
amortizing this goodwill, management had determined a useful
life of 5 years. Accumulated amortization on this goodwill
was $887,080 at December 31, 1998. Based upon a reevaluation
of this goodwill, the remaining balance of $4,423,421 was
included in an impairment charge recognized in 1999.
Management's reevaluation was reached due to failure of the
investment to perform as anticipated and the decision that
future cash flow was unlikely. For these same reasons an
impairment charge was recorded to write off associated plant
and equipment.
B-A-Champ.com
Effective August 1, 2000, the Company acquired an additional
44.5% of B-A-Champ.com, Inc., a development stage
corporation. This additional investment increased the
Company's ownership of B-A-Champ.com, Inc. to 51%. B-A-
Champ.com, Inc. commenced operations in 1999 and plans to
engage in various internet promotional activities.
Consideration for the purchase of the additional 44.5%
interest in B-A-Champ.com, Inc. included a cash payment of
$400,000 and the conversion of a $50,000 note receivable from
B-A-Champ.com, Inc. plus accrued interest of $5,256 into
common stock.
The Company recognized $259,964 of goodwill in connection
with the acquisition of of B-A-Champ.com, Inc. For purposes
of amortizing this goodwill, management has determined a
useful life of 5 years. Accumulated amortization on this
goodwill was $21,664 at December 31, 2000.
INTCO, Inc.
Pursuant to a Stock Purchase Agreement dated November 1,
2000, Petrol Rem, Inc. acquired 51% of INTCO, Inc. INTCO,
Inc. was incorporated on February 5, 1981 and engages in oil-
spill cleanup and the treatment of oil wells and also
charters out self-propelled barges for maintenance work.
Consideration for the purchase of 51% on INTCO, Inc. included
a cash payment of $250,000 and a promissory note for $1
million. As of December 31, 2000, the outstanding balance on
the promissory note was $850,000.
The Company recognized $310,567 of goodwill in connection
with the INTCO Stock Purchase Agreement. For purposes of
amortizing this goodwill, management has determined a useful
life of 5 years. Accumulated amortization on this goodwill
was $10,352 at December 31, 2000.
Tireless, LLC
In October 2000, Petrol Rem, Inc. and Universal Scrap Tire
Company, LLC (an unaffiliated company) formed a joint venture
called Tireless, LLC (Tireless) with Petrol Rem, Inc. and
Universal Scrap Tire Company, LLC owning 51% and 49%,
respectively. Tireless is a development stage company that
plans to engage in the acquisition, shredding and disposal of
tires and tire parts.
Consideration for the 51% ownership in Tireless included an
agreement by Petrol Rem to provide working capital funding of
$455,000 to Tireless. As of December 31, 2000, Petrol Rem
had made cash payments of $335,940 to fund the operating and
capital needs of Tireless.
Petrol Rem recognized $164,611 of goodwill in connection with
the investment in Tireless. For purposes of amortizing this
goodwill, management has determined a useful life of 5 years.
Accumulated amortization on this goodwill was $8,231 as of
December 31, 2000.
NOTE R - Unaudited Notes to Financial Statements for September 30, 2001
1. - Related Party Notes Receivable
In April 2001, the Company loaned $70,000 to Pascal M. Nardelli,
President and Chief Executive Officer of Petrol Rem, Inc. In
August 2001, this demand note and accrued interest of $2,110
were paid in full. In May 2001, the Company loaned $110,000 to
Anthony J. Delvicario, the president of the Company's
unconsolidated subsidiary, American Inter-Metallics, Inc., and a
member of Diasense's board of directors. The original demand
note was secured by 110,000 shares of American Inter-Metallics,
Inc. common stock and bore interest at prime rate plus two
percent. In November 2001, the note was converted into a new
note for $114,000 to reflect accrued interest, with a due date
of December 17, 2001. The new note is secured by an
unconditional guaranty by American Inter-Metallics and all of
American Inter-Metallics' assets, including all of its
equipment.
2. - Notes Receivable - Practical Environmental Solutions, Inc.
During the nine months ended September 30, 2001, Petrol Rem,
Inc. (a 75% owned subsidiary) loaned an additional $1,169,341 to
Practical Environmental Solutions, Inc., a company involved in
the acquisition and management of environmental entities. The
loan, which has a principal balance of $3,083,704 as of
September 30, 2001, bears interest at a rate of 10% per year and
is due on demand on or before January 21, 2002. The loan is
collateralized by a security interest and lien on all of
Practical Environmental's assets including its rights to any and
all contracts, options or claims of that company to purchase or
acquire the assets of any environmental company. The note is
classified as a noncurrent asset as of September 30, 2001
because the management of Petrol Rem intends to convert all or
part of this note into a controlling equity interest in
Practical Environmental Solutions with the balance of the note
being converted to a term loan.
3. - Notes Receivable - GAIFAR
In June 2001, the Company entered into a marketing agreement
with GAIFAR, a German company that owned all the rights to
certain rapid HIV tests, and Dr. Heinrich Repke, the man who
developed the tests. The marketing rights were assigned to
Rapid HIV Detection Corp, of which the Company owns 75% and
GAIFAR owns 25%. GAIFAR retained the manufacturing rights for
the tests. The agreement, as amended, provided for a due
diligence period until October 15, 2001 and approval by the
Company's board of directors. In October 2001, the due
diligence period was completed and the Company's board provided
their unanimous resolution, making the marketing agreement fully
effective. The marketing agreement has a minimum ten-year term
and calls for total payments of $7,000,000 through the third
quarter of 2002. When the marketing agreement became effective
in October 2001, $1,000,000 previously loaned to GAIFAR was
applied to the $7 million consideration. The original agreement
called for a loan of $500,000 to the owner of the rapid HIV
tests and technology, but the Company agreed to loan another
$125,000 during the second quarter while the due diligence was
continuing. During the third quarter, the Company loaned an
additional $400,000 while the due diligence was completed. Of
these funds loaned to GAIFAR, $1 million was made part of the
consideration paid to acquire the exclusive worldwide marketing
rights to the rapid HIV tests and technology and is now part of
the Company's investment in Rapid HIV Detection Corp. The
remaining $6 million in payments are due from October 20, 2001
through August 20, 2002. The payments include $125,000 per
month for the three months from October through December 2001,
$200,000 in January 2002, $250,000 in February 2002, $500,000 in
March 2002, $1 million per month for the four months from April
through July of 2002 and a final payment of $675,000 in August
2002.
4.- Investments in Unconsolidated Subsidiaries
During the third quarter of 2001, the Company invested an
additional $10,000 in Insight Data Link.com, Inc. ("IDL"), an
unconsolidated subsidiary interest initially acquired in 2000.
With this additional investment, the Company has invested
$110,000 in IDL and its ownership percentage is approximately
27%.
During the nine months ended September 30, 2001 the Company
invested an additional $190,000 in American Inter-Metallics,
Inc. ("AIM") an unconsolidated subsidiary interest initially
acquired during 1999. With this additional investment, the
Company has invested $1,000,000 in AIM and its ownership is
approximately 20%.
During the nine months ended September 30, 2001, Diasense
invested an additional $600,000 in MicroIslet, Inc., an
unconsolidated subsidiary interest initially acquired during
2000. With this additional investment, Diasense has invested
$1,600,000 in MicroIslet and its ownership is approximately
20.2%.
During the nine months ended September 30, 2001, Diasense
invested an additional $293,948 in Diabecore Medical, Inc., an
unconsolidated subsidiary interest initially acquired during
2000. With this additional investment, Diasense has invested
$987,468 in Diabecore and owns approximately 24% of this
unconsolidated subsidiary.
These investments are being reported on the equity basis and
differences between the investment and the underlying net assets
of the unconsolidated subsidiaries are being amortized as
goodwill over a 5-year period. The Company's investment in the
underlying assets and the unamortized goodwill of each
unconsolidated subsidiary as of September 30, 2001 are as
follows:
Investment
Unconsolidated in Unamortized Total
Subsidiary Underlying Goodwill
Net Assets
American Inter- $313,400 $ 435,122 $ 748,522
Metallics, Inc.
Insight Data Link.com 7,603 44,920 52,523
MicroIslet, Inc. 11,335 966,238 977,573
Diabecore Medical, Inc. 172,695 556,552 729,247
-------- ---------- ----------
Total $505,033 $2,002,832 $2,507,865
======== ========== ==========
5.- Notes Payable
During the nine months ended September 30, 2001, the Company
issued promissory notes totaling $9,825,000. As of September
30, 2001, promissory notes totaling $6,450,000 had been repaid
with proceeds from the sale of common stock subscriptions. The
outstanding notes payable of $3,375,000 at September 30, 2001
bear interest at a rate of 10% per year and are payable on
various dates in January 2002. Also during this nine-month
period, the Company obtained a $50,000 line of credit with PNC
Bank. As of September 30, 2001, $39,336 was outstanding under
this line of credit. The outstanding balance bears interest at
a rate of 6.75% per year.
6. - Subordinated Convertible Debentures
At December 31, 2000, the Company had subordinated 4%
convertible debentures outstanding totaling $2,400,000. During
the first quarter of 2001 the Company issued additional
subordinated 4% convertible debentures totaling $8,255,659.
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 $2,063,915 expense was recognized upon issuance for
the beneficial conversion feature of these debentures. During
the nine months ended September 30, 2001, all of these
debentures totaling $10,655,659 were converted into 297,516,846
shares of common stock.
7. - Stockholders Equity
During the third quarter of 2001, the Company raised $11,164,000
through the sales of common stock subscriptions. As of
September 30, 2001, 769,410,099 shares of common stock had been
issued to satisfy $9,900,000 of these subscriptions. In
addition, subscriptions totaling $1,264,000 were repurchased by
the Company for the original subscription amount plus a premium
of $189,600.
8 - Legal Proceedings and Contingencies
As of September 30, 2001, $2,150,000 has been paid toward the
settlement of a class action law suit (See Note O). During the
third quarter of 2001, the parties agreed to extend the payments
on the remaining balance. An additional $1,525,000 is included
in accrued liabilities, including $225,000 for extending the due
dates, and is due in the fourth quarter of 2001.
9. - Impact of Recently Issued Accounting Standards.
In June 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 141, "Business Combinations." SFAS 141 supersedes APB
Opinion No. 16 and FASB Statement No. 38 and requires that
all business combinations be accounted for using the purchase
method. The provisions of this statement apply to all
business combinations initiated after June 30, 2001. The
Company is in the process of assessing the impact of this
pronouncement on its financial statements.
Also in June 2001, the FASB issued Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." SFAS 142 supersedes APB Opinion No. 17 and
addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under this provision,
goodwill and certain intangible assets will no longer be
amortized. These assets will be evaluated on a periodic
basis to determine if an impairment loss needs to be
recorded. The provisions of this statement will be effective
for the Company's fiscal year ending December 31, 2002. The
Company is in the process of assessing the impact of this
pronouncement on its financial statements.
10.- Reclassification
Certain items included in the financial statements of prior
periods have been reclassified to conform to classifications in
the 2001 financial statements. Such reclassifications had no
effect on prior period reported net losses.
NOTE S - Subsequent Events
During the 4th quarter of 2001 and to date, we have continued to have
significant cash flow problems. Although we authorized an additional
1.5 million shares of common stock in November 2001, we have only
raised $6.64 million through February 21, 2002. As a result, our
payroll and our accounts payable are seriously past due. Accounts
payable as of February 21, 2002 were approximately $4,500,000. In
addition, we borrowed over $700,000 from INTCO, our Louisiana oil-
spill clean-up company and the minority owner of INTCO, and we
secured that loan with our 51% ownership in INTCO. If we are unable
to repay that loan when it's due in March and April 2002, we may lose
our ownership interest in INTCO. We also have other serious
obligations that are past due. We still owe $425,000 in connection
with our class action settlement. Although we are working with the
class action counsel to make payments on the amount due, we can't
assure you how long they will continue to work with us. They could
obtain an order from the judge demanding that we pay the balance, and
if we can't, they could enter a judgment against us. We have not
been able to make payments when due under our Rapid HIV Marketing
Agreement. So far, the other parties to that agreement have not
given us notice that we are in default. If they do, we will have 60
days to make the required payments, or we will lose our marketing
rights.
We filed a form S-8 in December 2001 that included 125 million
shares. The Form S-8 allows us to issue freely tradable stock to non-
executive employees under our Equity Compensation plan and to certain
consultants in lieu of paying them in cash. As of February 21, 2002,
we've issued approximately 81.2 million shares of our common stock
from the Form S-8.
In February 2002, we accepted a commitment from J.P. Carey Asset
Management to purchase $25 million of our Series K preferred stock.
The commitment requires that we first have an effective registration
statement covering the underlying shares of common stock before we
will receive funding from that commitment. We are working to obtain
bridge financing in the form of loans to help us meet our cash flow
needs until this registration statement is declared effective and we
begin receiving funding from J.P. Carey Asset Management.
Now that we've received the funding commitment, we believe we can
obtain bridge financing in the form of loans to help us bring our
payroll and accounts payable more current, and to make the class
action, loan and contract payments we need to make to avoid losing
our INTCO stock and our Rapid HIV marketing rights. However, we
can't assure you if that will happen, or if it will happen soon
enough to avoid lawsuits against us.
Notes payable of $3,375,000 were repaid during the 4th quarter with
proceeds from our sales of convertible preferred stock.
As of September 30, 2001, the Company' current portion of long-term
debt included $4,091,667 due in connection with debt incurred when
ICTI was purchased. In addition, $1,358,681 was accrued for interest
related to the ICTI debt. In the fourth quarter, the Company
finalized an agreement to make payments of $725,000, issue 4,000
shares of convertible preferred stock valued at $2,000,000, issue
50,000 shares of the common stock of the Company's subsidiary,
ViaCirq, valued at $150,000 and issue 25,000 shares of the common
stock of the Company's subsidiary, Petrol Rem, valued at $12,500 as
settlement for the amounts due. As a result of this agreement, the
Company recognized $2,562,848 in debt forgiveness in the fourth
quarter.
From October 2001 through January 2002, we raised funds aggregating
approximately $6.64 million by selling our convertible preferred
stock. Generally, the preferred stock is not secured by any assets
and can be converted into common stock at prices ranging from 76-90%
of our stock's average closing bid prices. There is no minimum
conversion price.
No dealer, salesman or other
person has been authorized to give
any information or to make any
representation other than those
contained in this prospectus and
you may not rely upon that
information. Neither the delivery
of this prospectus nor any sale
made hereunder shall, under any
circumstances, create any
implication that there has been no
change in our affairs or
operations since the date of this
prospectus. This prospectus does
not constitute an offer to sell or
solicitation of an offer to buy
any securities offered in any 1.25 billion shares
jurisdiction in which such offer
or solicitation is not qualified
to do so or to anyone to whom it
is unlawful to make such offer or
solicitation.
__________________________
BICO, INC.
TABLE OF CONTENTS Page
Common Stock
Summary 3
Risk Factors 5
Where You Can Find More
Information 14
Prospectus Delivery ____________________
Requirements 14
Use of Proceeds 14 P R O S P E C T U S
Dividend Policy 15 ____________________
Capitalization 15
Market Price for Common Stock 16 February 21, 2002
Description of Securities 17
Selling Stockholders 20
Plan of Distribution 22
Stock Eligible for Future Sale 23
Management's Discussion and
Analysis 24
Business 35
Legal Proceedings 56
Directors and Executive
Officers 57
Executive Compensation 61
Security Ownership 67
Interests of Named
Experts and Counsel 69
Experts 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth our estimated expenses incurred in connection
with the issuance and distribution of the securities described in the
prospectus other than underwriting discounts and commissions:
Printing and Copying $ 2,500
Legal Fees 25,000
SEC
Registration Fees 2,300
Accounting Fees 5,000
-------
Total $34,800
=======
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as set forth herein, we have no provisions for the
indemnification of its officers, directors or control persons Fred E.
Cooper, Anthony J. Feola, Glenn Keeling and Michael P. Thompson have
employment contracts which include indemnification provisions, which
indemnify them to the extent permitted by law. BICO and its
affiliates Diasense, Inc., Coraflex, Inc., Petrol Rem, Inc., ViaCirq,
Inc. and Rapid HIV Detection Corp. are incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania. Section 1741, et
seq. of said law, in general, provides that an officer or director
shall be indemnified against reasonable and necessary expenses
incurred in a successful defense to any action by reason of the fact
that he serves as a representative of the corporation, and may be
indemnified in other cases if he acted in good faith and in a manner
he reasonably believed was in, or not opposed to, the best interests
of the corporation, and if he had no reason to believe that his
conduct was unlawful, except that no indemnification is permitted when
such person has been adjudged liable for recklessness or misconduct in
the performance of his duty to the corporation, unless otherwise
permitted by a court of competent jurisdiction.
Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has
been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
RECENT SALES OF UNREGISTERED SECURITIES
BICO recently completed sales of unregistered securities as
summarized below. Unless otherwise indicated, all offers and sales
were made pursuant to the "private offering" exemption under Section
4(2) of the 1933 Act. Accordingly, because the shares sold constitute
"restricted securities" within the meaning of Rule 144 under the 1933
Act, stop-transfer instructions were given to the transfer agent, and
the stock certificates evidencing the shares bear a restrictive
legend.
In August 1998, BICO sold convertible debentures pursuant to
Regulation D; each debenture had mandatory conversion provisions and
was convertible beginning ninety days from purchase. Proceeds of the
sales were used to continue to fund BICO's research and development
projects and to provide working capital for BICO and its subsidiaries.
Beginning in December 1999, BICO sold $5,650,000 of its Series F
Convertible Preferred Stock, and $9,850,000 of its subordinated
convertible debentures in private offerings. Both the preferred stock
and the debentures have holding periods of ninety to one hundred
twenty days prior to conversion and are convertible into common stock
at prices that are discounted to the market price. Proceeds of the
sales were used to continue to fund BICO's projects, and to provide
working capital. In November 2001 through February 2002, BICO sold
shares of its convertible preferred stock; the shares of common stock
underlying that convertible preferred are being registered in
connection with this registration statement on Form S-1. The sales,
raised an aggregate of $8.64 million for BICO that were used to
continue to fund BICO's projects and investments and to provide
working capital, including salaries and other administrative expenses.
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement; and
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer and the terms of any
subsequent reoffering thereof. If any public offering is to be made
on terms differing from those set forth on the cover page of the
prospectus, a post-effective amendment will be filed to set forth the
terms of such offering.
EXHIBIT TABLE
Exhibit
Sequential Page No.
3.1(4) Articles of Incorp. as filed March 20, 1972... N/A
3.2(4) Amendment to Articles filed May 8,1972...... N/A
3.3(4) Restated Articles filed June 19,1975......... N/A
3.4(4) Amendment to Articles filed February 4,1980.. N/A
3.5(4) Amendment to Articles filed March 17,1981.... N/A
3.6(4) Amendment to Articles filed January 27,1982.. N/A
3.7(4) Amendment to Articles filed November 22,1982. N/A
3.8(4) Amendment to Articles filed October 30,1985.. N/A
3.9(4) Amendment to Articles filed October 30,1986. N/A
3.10(4) By-Laws...................................... N/A
3.11(5) Amendment to Articles filed December 28,1992. N/A
3.12(8) Amendment to Articles filed February 7, 2000 N/A
3.13(10) Amendment to Articles filed May 17, 2001 N/A
3.14 Amendment to Articles filed November 30, 2001 116
3.15 Certificate of Designation of Series G Preferred
Stock....................................... 119
3.16 Certificate of Designation of Series H Preferred
Stock........................................ 126
3.17 Certificate of Designation of Series I Preferred
Stock......................................... 133
3.18 Certificate of Designation of Series J Preferred
Stock......................................... 140
3.19 Certificate of Designation of Series K Preferred
Stock......................................... 147
5.1 Legal Opinion of Sweeney & Associates P.C..... 154
10.1(1) Manufacturing Agreement...................... N/A
10.2(1) Research and Development Agreement........... N/A
10.3(1) Termination Agreement........................ N/A
10.4(1) Purchase Agreement........................... N/A
10.5(2) Sublicensing Agreement and Amendments........ N/A
10.6(3) Lease Agreement with 300 Indian Springs
Partnership.................................. N/A
10.7(4) Lease Agreement with Indiana County.......... N/A
10.8(5) First Amendment to Purchase Agreement dated
December 8, 1992............................. N/A
10.9(6) Fred E. Cooper Employment Agreement dated
11/1/94...................................... N/A
10.10(6) David L. Purdy Employment Agreement dated
11/1/94...................................... N/A
10.11(6) Anthony J. Feola Employment Agreement dated
11/1/94...................................... N/A
10.12(6) Glenn Keeling Employment Agreement dated
11/1/94...................................... N/A
10.13(9) David L. Purdy resignation as a director
letter dated 6/1/00.......................... N/A
10.14 (11) Marketing Agreement by and between BICO,
Rapid HIV Detection Corp., GAIFAR and Dr.
Heinrich Repke.............................. N/A
10.15 (11) Contract between Biocontrol Technology and
U.S. Army Assistance........................ N/A
10.16 Securities Purchase Agreement dated
February 15, 2002........................... 156
10.17 Registration Rights Agreement dated
February 15, 2002........................... 171
10.18 Escrow Agreement dated February 15, 2002 182
16.1(7) Disclosure and Letter Regarding Change in
Certifying Accountants dated 1/25/95 N/A
24.1 Consents of Goff Backa Alfera & Company LLC,
Independent Certified Public Accountants 187
24.2 Consent of Counsel Included in Exhibit
5.1 above.................................... 154
25.1 Power of Attorney of Fred E. Cooper.......... 115
(included under "Signatures")
(1) Incorporated by reference from Exhibit with this title filed
with the Company's Form 10-K for the year ended December 31, 1991
(2) Incorporated by reference from Exhibit with this title to Form
8-K dated May 3, 1991
(3) Incorporated by reference from Exhibit with this title to Form
10-K for the year ended December 31, 1990
(4) Incorporated by reference from Exhibits with this title to
Registration Statement on Form S-1 filed on December 1, 1992
(5) Incorporated by reference from Exhibits with this title to
Amendment No. 1 to Registration Statement on Form S-1 filed on
February 8, 1993
(6) Incorporated by reference from Exhibit with this title to Form
10-K for the year ended December 31, 1994
(7) Incorporated by reference from Exhibit with this title to Form
8-K dated January 25, 1995
(8) Incorporated by reference from Exhibit with this title to Form
10-K dated March 27, 2000
(9) Incorporated by reference from Exhibit with this title to Form
8-K dated June 2, 2000
(10) Incorporated by reference from Exhibit with this title to Form
S-1 filed July 9, 2001
(11) Incorporated by reference from Exhibit with this title to Form
8-K/A filed October 15, 2001
Exhibit 25.1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration Statement to be signed
on its behalf by the undersigned on February 21, 2002.0
BICO, INC.
By: /s/ Fred E. Cooper
Fred. E. Cooper, director, CEO,
(principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Fred E. Cooper his
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-
effective amendments) to this registration Statement, and to file the
same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.
Signature Title Date
/s/Anthony J. Feola senior vice president, February 21, 2002
Anthony J. Feola director
/s/ Michael P. Thompson Principal Accounting Officer, February 21, 2002
Michael P. Thompson Principal Financial Officer
/s/Glenn Keeling director February 21, 2002
Glenn Keeling
/s/Stan Cottrell director February 21, 2002
Stan Cottrell
/s/Paul W. Stagg director February 21, 2002
Paul W. Stagg
Exhibit
5.1
SWEENEY & ASSOCIATES, P.C.
ATTORNEYS AT LAW
7300 PENN AVENUE TELEPHONE (412) 731-1000
PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190
February 21, 2002
To the Board of Directors
BICO, Inc.
2275 Swallow Hill Road
Building 2500; 2nd Floor
Pittsburgh, PA 15220
Gentlemen:
We have examined the corporate records and proceedings of BICO,
Inc., formerly Biocontrol Technology, Inc, a Pennsylvania corporation
(the "Company"), with respect to:
The organization of the Company;
The legal sufficiency of all corporate proceedings of the
Company taken in connection with the creation, issuance, the form and
validity, and full payment and non-assessability, of all the present
outstanding and issued common stock of the Company; and
The legal sufficiency of all corporate proceedings of the
Company, taken in connection with the creation, issuance, the form
and validity, and full payment and non-assessability, when issued, of
shares of the Company's common stock (the "Shares"), to be issued by
the Company covered by this registration statement (hereinafter
referred to as the "Registration Statement") filed with the
Securities and Exchange Commission February 21, 2002, file number 333-
__________ (in connection with which Registration Statement this
opinion is rendered.)
We have also examined such other documents and such questions of
law as we have deemed to be necessary and appropriate, and on the
basis of such examinations, we are of the opinion:
(a) That the Company is duly organized and validly
existing under the laws of the Commonwealth of
Pennsylvania;
(b) That the Company is authorized to have outstanding
4,000,000,000 shares of common stock of which 2,450,631,119
shares of common stock were outstanding as of December 31,
2001;
(c) That the Company has taken all necessary and
required corporate proceeding in connection with the
creation and issuance of the said presently issued and
outstanding shares of common stock and that all of
said stock so issued and outstanding has been validly
issued, is fully paid and non-assessable, and is in
proper form and valid;
(d) That when the Registration Statement shall have
been declared effective by order of the Securities and
Exchange Commission, after a request for acceleration
by the Company, and the Shares shall have been issued
and sold upon the terms and conditions set forth in
the Registration Statement, then the Shares will be
validly authorized and legally issued, fully paid and
non-assessable.
We hereby consent (1) to be named in the Registration Statement,
and in the prospectus, which constitutes a part thereof, as the
attorneys who will pass upon legal matters in connection with the
sale of the Shares, and (2) to the filing of this opinion as Exhibit
5.1 of the Registration Statement.
Sincerely,
Sweeney & Associates, P.C.
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We have issued our report dated February 27, 2001accompanying the
consolidated financial statements of BICO, Inc., formerly Biocontrol
Technology, Inc. and subsidiaries appearing in the 2000 Annual Report
on Form 10-K for the year ended December 31, 2000. We consent to the
inclusion in this Registration Statement of the aforementioned report
and to the use of our name, as it appears under the caption
"EXPERTS". Our report on the consolidated financial statements
referred to above includes an explanatory paragraph, which discusses
going concern considerations as to BICO, Inc.
/s/ Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
February 21, 2002