As filed with the Securities and Exchange Commission on July 29, 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 2890 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)
___________________________________________
Michael P. Thompson, Interim 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.
P.O. Box 82637, Pittsburgh, Pennsylvania 15218-0637
(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 1,848,862,652(1) $0.002(2) $ 3,697,726 $ 340.00
Stock, Series G(1)
Common Stock
issuable upon
the Conversion 413,011,070(1) $0.002(2) $ 826,022 $ 76.00
Of Preferred
Stock, Series H(1)
Common Stock
issuable upon
the Conversion 478,611,990(1) $0.002(2) $ 957,224 $ 88.07
of Preferred
Stock, Series I(1)
Common Stock
issuable upon
the Conversion 259,514,288(1) $0.002(2) $ 519,029 $ 44.75
of Preferred
Stock, Series J(1)
Common Stock
issuable upon
the Conversion 900,000,000(1) $0.002(2) $ 1,800,000 $ 165.60
of Preferred
Stock, Series K(1)
Total Common Stock 3,900,000,000
Total Registration Fee $ 717.60(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 July 15, 2002
(3) A filing fee of $717.60 for these shares was paid on July 29, 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.
_____________________
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 July 29, 2002
3,900,000,000 shares
BICO, INC.
Common Stock
This prospectus is for an offering of shares of BICO, Inc.
common stock on behalf of certain selling stockholders. 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. We already registered shares for the preferred
stockholders in a registration statement dated May 7, 2002, but
because our price declined, we have to register more shares on
their behalf. Of the total shares registered, the following are
being registered for each class of preferred stock:
1, 848,544,020 shares issuable on conversion of our Series G
preferred stock
414,024,941 shares issuable on conversion of our Series H
preferred stock
478,158,390 shares issuable on conversion of our Series I
preferred stock
259,272,649 shares issuable on conversion of our Series J
preferred stock
900 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 3.9
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 from 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.
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.
JULY 29, 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 business is the development of new devices, which include
environmental products, which help to clean up oil spills, procedures
relating to the use of regional extracorporeal hyperthermia in the
treatment of cancer, and, models of a noninvasive glucose sensor.
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. 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. Petrol Rem, Inc. handles our environmental
products PRPr, BIOSOKr and BIOBOOM r that help clean up oil
spills and other pollutants in water. ViaCirq, Inc. handles the
hyperthermia project, a technology called the ThermoChem Systemr.
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.
Diasense, Inc. manages the noninvasive glucose sensor project.
On July 26, 2002, we made the following announcements:
The U.S. Attorney's Office for the Western District of
Pennsylvania ended its 4-year investigation of BICO and has
declined to bring any charges against us.
Three of our officers and directors, Fred E. Cooper,
Anthony J. Feola and Glenn Keeling resigned as our officers
and directors. Our board named Michael P. Thompson, our
chief financial officer, to also act as our interim chief
executive officer while we search for a new CEO.
Glenn Keeling will continue to serve as an officer and
director of our ViaCirq subsidiary.
Mr. Cooper, our former CEO, will act as our outside
consultant to focus on transitioning and closing some
pending transactions that could help us raise money. Mr.
Feola is no longer affiliated with us.
In connection with their resignations, Mr. Cooper and Mr.
Feola gave up their employment agreements with BICO and Diasense.
Mr. Keeling gave up his employment agreement with BICO but retained
his employment agreement with ViaCirq. By giving up their employment
agreements, Mssrs. Cooper, Feola and Keeling released the Company
from any obligations under the agreements, including those provisions
related to severence and change of control.
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 1,848,544,020 shares
Common stock to be issued upon conversion of
our Series H preferred stock 414,024,941 shares
Common stock to be issued upon conversion of
our Series I preferred stock 478,158,390 shares
Common stock to be issued upon conversion of
our Series J preferred stock 259,272,649 shares
Common stock to be issued upon conversion of
our Series K preferred stock 900,000,000 shares
Common stock remaining in our registration
Statement from May 2002 541,818,265 shares
Common stock outstanding after this offering, if all
shares are sold 7,869,674,051 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 June 30, 2002, which was 3,427,855,786. On
July 5, 2002, our stockholders approved an increase in our
authorized shares of common stock to a total of 8 billion shares.
Neither the shares outstanding as of June 30, 2002 nor the number
of shares outstanding after this offering include the warrants
outstanding as of June 30, 2002 to purchase 96,902,560 shares of
stock.
OUR PREFERRED STOCK
We have five classes of convertible preferred stock. We've
already sold and issued our Series G, H, I, J and K preferred
stock.
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 THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 2001
3/31/02 12/31/01
Total Assets $23,793,960 $24,637,421
Long-Term
Obligations $ 2,240,919 $ 2,280,935
Working ($10,207,933) ($10,429,990)
Capital
(Deficit)
Preferred $ 178,800 $ 169,300
Stock
Net Sales $ 1,575,871 $ 4,342,203
TOTAL REVENUES $ 1,600,674 $ 4,349,918
Warrant $ 0 $ 0
Extensions
Benefit
(Provision) $ 0 $ 120,882
for Income Taxes
Net Loss ($7,224,247) ($30,942,310)
Net Loss Per
Common Share
Basic ($.003) ($.02)
Diluted ($.003) ($.02)
Cash Dividends
Per Share:
Preferred $0 $0
Common $0 $0
FOR THE YEARS ENDED DECEMBER 31st
2001 2000 1999 1998 1997
Total Assets $24,637,421 $21,930,070 $15,685,836 $9,835,569 $12,981,300
Long-Term
Obligations $ 2,280,935 $ 2,211,537 $ 1,338,387 $1,412,880 $ 2,697,099
Working
Capital ($10,429,990) $ 754,368 $ 4,592,935 ($9,899,008) $ 888,082
(Deficit)
Preferred
Stock $ 169,300 $ 0 $ 720,000 $ 0 $ 0
Net Sales $ 4,342,203 $ 340,327 $ 112,354 $1,145,968 $ 1,155,907
TOTAL
REVENUES $ 4,349,918 $ 345,874 $ 165,251 $1,196,180 $ 1,260,157
Other Income $ 561,817 $ 589,529 $ 1,031,560 $ 182,033 $ 165,977
Warrant
Extensions $ 0 $ 5,233,529 $ 4,669,483 $ 0 $ 4,046,875
Benefit
(Provision)
for Income
Taxes ($ 120,882) $ 0 $ 0 $ 0 $ 0
Net Loss ($30,942,310)($42,546,303)($38,072,578)($22,402,644)($30,433,177)
Net Loss per
Common Share:
Basic ($.02) ($.04) ($.05) ($.08) ($.43)
Diluted ($.02) ($.04) ($.05) ($.08) ($.43)
Cash Dividends
per share:
Preferred $ 0 $ 0 $ 0 $ 0 $ 0
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, 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 $261.9 million as of March 31, 2002 and $254.7 million
as of December 31, 2001. We plan to invest heavily to continue to
develop our environmental and biomedical products and to continue
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, which is part of our Petrol Rem operations. 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 increased during
2001 - by $4 million over our 2000 revenues - 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 environmental and health care
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 hyperthermia
treatment device and the noninvasive glucose sensor, are new
products that are not established in any market. Our
hyperthermia treatment device is being used in over a dozen
health care institutions, and we hope that we will be able to
convince more institutions to use our device and buy the
disposables that go with it. We are not currently marketing our
noninvasive glucose sensor. 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. 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, a metal-coating project and the Rapid HIV test project-
and we still don't have any material revenues from any of those
projects. Although we are beginning to receive revenue from our
ViaCirq hyperthermia devices and from contract manufacturing, the
only real revenue we have generated to date has been from the Petrol
Rem's subsidiary, INTCO, who engages in oil-spill cleanup, treatment
of oil wells and charters out self-propelled barges for maintenance
work. Although Petrol Rem had gross revenues of about $3.4 million
in 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. In the second quarter of 2002,
we executed a demand note in favor of INTCO to consolidate various
amounts previously advanced by INTCO to either BICO or Petrol Rem
or incurred by INTCO on behalf of either BICO or Petrol Rem. Although
we've made some payments, we still owe INTCO and its minority
shareholder $660,591, which is currently due and demand for payment
has been made. If INTCO's minority shareholder decides to do so, he
can take our INTCO stock, and we would lose that source of revenue.
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.
We believe our environmental products are unique in the way
they bioremediate oil spills, but they do compete against
existing oil spill clean up products. Large, well-established
and well-funded companies own oil clean-up equipment and they use
products other than ours. In order to compete effectively with
those existing companies, we will need to convince them that our
product is better for the environment and cost-effective for
them. So far, we have only made a little progress in that
direction; if we cannot ultimately convince them to use our
products, we will not be successful.
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. 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 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. In July 2002, the
U.S. Attorney's office for the Western District of Pennsylvania told
us they had ended their investigation and declined to bring charges
against us as a company. The Pennsylvania Securities Commission is
investigating us, and we have provided them with the
information they requested. We don't know how much longer this
investigation will last, and we don't know how it will be
resolved. If somehow 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 $3.7 million.
We have paid all but $150,000 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 March 2002,
we, along with Diasense, have raised over $183 million in private
and public offerings. As of June 30, 2002, we had already
issued about 3.4 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 $23.8 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.
OUR STOCKHOLDERS JUST AUTHORIZED MORE STOCK, AND THAT WILL CAUSE
MORE DILUTION.
Our stock has been recently trading at around $0.002 per
share. On July 5, 2002, our stockholders authorized 4 billion
more shares of stock. Before we can even raise any more money,
we'll need to issue the stock to cover conversions of our
preferred stock - that is the stock included in this prospectus.
If we have stock left over, we will need to sell it to continue
our operations. All of these stock issuances will cause
significant dilution to you and our other stockholders.
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 are convertible into
our common stock at discounts to our market price of 20% to 24%.
The following table shows the total remaining amount
outstanding $4,450,959 of our Series G preferred stock, which is
convertible at a 24% discount; and our $1 million Series H and
remaining outstanding $625,367 of our 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 Conversion Number of
Amount to Avg. Shares
Market Market Price Issued Upon
Price Price Conversion
$1,625,367 20% $.010 $.008 203,170,875
$1,625,367 20% $.005 $.004 406,341,750
$4,450,959 24% $.010 $.0076 585,652,500
$4,450,959 24% $.005 $.0038 1,171,350,000
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 remaining $1,175,000 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 Conversion Number of
Amount Avg. Shares
Market Price Issued Upon
Price Conversion
$1,175,000 $.010 $.010 117,500,000
$1,175,000 $.005 $.005 235,000,000
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
$1 million per month. The following table shows examples of the
number of shares we'd have to issue based on dollar amounts of
$500,000 and $1 million at different average market prices.
Discount 22-day Conversion Number of
Amount to Avg. Shares
Market Market Price Issued Upon
Price Price Conversion
$ 500,000 10% $.010 $.009 55,555,555
$ 500,000 10% $.005 $.045 111,111,111
$1,000,000 10% $.010 $.009 111,111,111
$1,000,000 10% $.005 $.045 222,222,222
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 were 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.
For example, as of June 30, 2002, a total of $1,688,674
in Series G,H and J preferred stock, combined, had been
converted. The following table shows the market price on the
date we sold that preferred stock, as well as the conversion
price. The conversion price is determined based on the terms of
each class of preferred stock.
Amount of Stock Price Preferred Number of
Preferred on Stock Shares
Stock Preferred Conversion Issued Upon
Converted Stock Sale Price Conversion
Date
$ 10,960 Series G $.0376 $.0030 3,587,886
$501,393 Series G $.0381 $.0047 106,544,019
$ 49,633 Series J $.0213 $.0049 9,946,576
$ 69,579 Series G $.0381 $.0047 14,709,215
$825,000 Series I $.0249 $.0060 137,500,000
$ 40,900 Series G $.0406 $.0042 9,784,660
$ 19,978 Series G $.0363 $.0026 7,575,675
$ 95,436 Series G $.0375 $.0023 41,303,994
$ 75,794 Series G $.0368 $.0020 37,229,710
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.
Michael P. Thompson is employed by BICO and Fred Cooper,
Anthony J. Feola and Glenn Keeling are former officers or directors.
Those people are also existing or former 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 our 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 try to 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 to any 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 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 recently discontinued the clinical trials for our
noninvasive glucose sensor. The trials took much longer and were
much more expensive than we thought, so we decided to use the
funds we have to continue to develop the next generation
noninvasive glucose sensor. For more information on our
noninvasive glucose sensor project, you need to read the business
section of this prospectus. In addition to our decision to
discontinue the trials, 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. We discontinued the trials
in 2002, since our management decided it would be better to
continue development on the next generation noninvasive glucose
sensor, which is smaller and less expensive than the model used
in the clinical trials.
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 VOLATILE, 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 $3.7 million and we are still making payments
to pay that amount. We have paid all but $150,000 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 our
series G.H, I and J preferred stock. 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 and be able to receive more funds from
our Series K convertible preferred stock. We already have a
previous registration statement that was declared effective in
May 2002. Since then, we have had access to funding from our
series K preferred stock. The terms of that series K preferred
stock provide us with funding: during each month J.P. Carey
Asset Management will provide us with funding, up to $3 million,
based on the following formula. Based on the following formula,
we would have received about $867,000 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 Management's Discussion and Analysis and Supplemental
Financial Information sections for more information on our
current position and our plans.
We will continue to use money from our Series K preferred 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: environmental projects and
medical technology.
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. Our officers recently reduced their salaries,
so we know that those expenses have decreased. 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
March 31, 2002 (unaudited) and December 31, 2001. The December
31, 2001 information is made up of the amounts 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.
March 31, 2002
Unaudited December 31, 2001
(1) (1)
Stockholders' Equity
Common Stock, par value $.10
per share; authorized 4 billion
shares (2); shares issued and
outstanding: 2,656,885,988 $265,688,598 $245,063,111
at March 31, 2002; and
2,450,631,111 at December 31, 2001
Convertible preferred stock,
par value $10 per share,
authorized 500,000 shares
issuable in series, shares
issued and outstanding: 17,880 178,800 169,300
at March 31, 2002 and 16,930
at December 31, 2001
Discount assigned to beneficial
conversion feature Preferred stock 0 (141,000)
Additional paid-in capital (5,256,283) 10,887,152
Warrants 6,221,655 6,221,655
Accumulated Deficit (261,887,318) (254,663,071)
Total Capitalization $ 4,945,452 $ 7,537,147
March 31, 2002 December 31, 2001
(1) Does not include the effects
of the following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.015 to $4.03 per share,
expiring 2002 through 2006 95,902,560 96,136,560
(2) On July 5, 2002, our stockholders approved an increase in the
number of our authorized shares of common stock to 8 billion.
The following table sets forth our capitalization as of
December 31, 2000 and 2001, and is made up of the amounts 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, December 31,
2000 2001
(1) (1)
Stockholders' Equity
Common Stock, par value $.10
per share; Authorized 4 billion
shares; shares issued and
outstanding: 1,383,704,167 $138,370,417 $245,063,111
at December 31, 2000; and
2,450,631,119 at December 31, 2001
Convertible preferred stock,
par value $10 per share,
authorized 500,000 shares
issuable in series, shares
issued and outstanding: none 0 169,300
at December 31, 2000 and
16,930 at December 31, 2001
Discount assigned to beneficial
conversion feature preferred stock 0 (141,000)
Additional paid-in capital 87,035,096 10,887,152
Warrants 6,204,235 6,221,655
Accumulated Deficit (223,720,761) (254,663,071)
------------- -------------
Total Capitalization $ 7,888,987 $ 7,537,147
============= =============
December 31, 2000 December 31, 2001
(1) Does not include the effects of the
following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.015 to $4.03 per share,
expiring 2000 through 2006 31,378,160 96,136,560
MARKET PRICE FOR COMMON STOCK
Our common stock trades on the electronic bulletin board
under the symbol "BIKO". On July 15, 2002,9, the closing bid
price for the common stock was $.14.$.002. The following table
sets forth the high and low bid prices for our common stock
during the calendar periods indicated, through June 30, 2002.
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 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
2002 First Quarter $.033 $.015
Second Quarter $.017 $.0028
We have approximately 127,000 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 8 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 - were all filed as exhibits to our May 2002 registration
statement. As of June 30, 2002 we had a total of 28,879 shares
of our preferred stock outstanding, as follows:
8,902 shares of Series G
2,000 shares of Series H
2,350 shares of Series I
1,251 shares of Series J
14,376 shares of Series K
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 were filed as exhibits to our May
2002 registration statement.
Our series G preferred stock had a minimum holding period of
the earlier of: 60 days from issuance or the date our previous
registration statement was declared effective by the SEC. The
holding period has expired for all of our series G preferred
stock. 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 had a minimum holding period of
the earlier of: 75 days from issuance or 35 days after the date
our previous registration statement was declared effective by the
SEC. The holding period has expired for all of our series H
preferred stock. 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 had 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. The holding period has expired
for all of our series J preferred stock.
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. Because our
May 2002 registration statement did not include enough shares for
the Jones' to convert all of their preferred stock, we are
including more stock in this registration statement for them. 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 $25 million funding
commitment from J.P. Carey Asset Management, LLC, a Georgia
corporation. The initial funding from this commitment is through
J.P. Carey Asset Management's purchase of $7.5 million of our
Series K preferred stock. As of June 30, 2002, we've already
received a total of $944,000 from our series K preferred stock.
We agreed to register the underlying common stock for them, and
that stock is included in this prospectus. We will receive
funds, about once a month, based on the following formula. Based
on that formula, we would have received about $867,000 in June
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 July 15, 2002, it would have been
at a 10% discount to the average closing bid prices on July 10,
11, and 12, 2002. That price, after the discount, would be
$0.0018 per share. If our stock price drops, the conversion
price per share will also drop.
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
June 30, 2002, we had 3,427,855,786 shares of our common stock
outstanding.
We had a stockholders meeting on July 5, 2002 and they
authorized an increase in our authorized shares of common stock
to 8 billion.
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 an employment agreement with change in control
provisions with Michael P. Thompson our CFO and Interim CEO.
The agreement provides that in the event of a "change of control,"
we must issue to Mr. Thompson 2% of our outstanding shares of common
stock. For purposes of the agreement, 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.
In July 2002, Mssrs. Cooper, Feola and Keeling gave up their
emplyment agreements. Mr. Thompson has agreed to waive that
provision in connection with the July 2002 resignations.
Warrants
As of June 30, 2002, we had outstanding warrants to purchase
95,902,560 shares of our common stock. These warrants have
exercise prices ranging from $.015 to $3.20 per share and
expiration dates through January 4, 2007, and are held by members
of our scientific advisory board, certain employees, officers,
directors, loan guarantors, and consultants. As of June 30,
2002, many of our outstanding warrants were not currently
exercisable - 82,746,898 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. In
our registration statement dated May 7, 2002, we registered
shares for these same selling stockholders, but we didn't
register enough shares, because our stock price declined more
than we expected. The shares in this registration statement are
for the same selling stockholders.
In May 2002, we agreed to issue a majority of our preferred
stockholders 7% of their total amount of preferred stock in
return for agreeing to lock up 40% of their preferred stock - and
not convert it - until August 2002. The 7% was issued in the
form of our common stock and is included in the chart for those
preferred stockholders who agreed not to convert.
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.
If we redeem any of our preferred stock, or if our stock
price rises and we don't need to issue as many shares as we have
listed for any selling stockholder, we may use that stock for
another selling stockholder, or for our series K preferred stock.
In addition, if we decide not to use all of the shares registered
for our series K common stock, and we need more stock to cover
other preferred stock conversions, we may allocate some of the
stock listed for our series K to other selling stockholders.
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 3,427,855,786
shares we had outstanding as of June 30, 2002.
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 June
30, 2002. 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
Selling Stockholders Number of Beneficial Beneficial
Shares Ownership Ownership
Offered Prior to After Sale
Sale
PREFERRED STOCKHOLDERS
Series G Preferred
Cache Capital (USA) L.P. 618,528,560 8.2% *
Quines Financial, SR 27,264,355 * *
John C. Canouse (1) 50,877,115 * *
Joseph C. Canouse (1) 50,877,115 * *
01144 Ltd. 61,907,698 * *
Emuna Trust 99,207,495 * *
Yokin Asset Management 195,168,196 2.7% *
Arab Commerce Bank 28,149,834 * *
Jara Group, owned by
Michael and Rose 15,993,454 * *
Koretsky (2)
Michael Koretsky (2) 15,993,453 * *
Mark Garfunkkel 26,534,036 * *
Leon Kahn 7,258,828 * *
Kurt Fichthorn 32,577,226 * *
Jaime Radusky (3) 15,993,454 * *
Rina Sugarman 15,993,453 * *
Starling Corporation 34,053,024 * *
Lawrence Abrams 51,522,275 * *
Ted Liebowitz 154,621,664 2.2% *
Joseph McGuire and W.C. 33,757,864 * *
Rossi
Chava Scharf 15,993,453 * *
Yosef Davis 124,405,714 1.8% *
Jacqueline Balough 8,144,307 * *
Grahame Harding 45,914,244 * *
Mark Barash 6,668,509 * *
Michael Drescher 6,963,668 * *
Claire Brook, IRA 38,325,256 * *
Henry Radusky (3) 15,993,453 * *
Stanley S. Raphael 8,144,306 * *
Trust
Miriam Hoffman (4) 8,734,626 * *
Peter Hoffman (4) 6,668,509 * *
Colin Broad 12,971,858 * *
Jody Eisenman, IRA 6,668,509 * *
Christopher Jacobsen 6,668,509 * *
Series H Preferred
Mendy Chmuel 41,432,011 * *
Eli Itzinger 41,432,011 * *
GPS America Fund 331,160,919 4.6% *
Series I Preferred
Farrell B. and Brenda 478,158,390 6.5% *
K. Jones
Series J Preferred
Cache Capital 165,728,044 2.3% *
Atlantis Capital Fund 41,432,011 * *
Arab Commerce Bank 27,854,674 * *
Yokin Asset Management 13,927,337 * *
BlueFin Partners 10,330,583 * *
Series K Preferred
J.P. Carey Asset 900,000,000 * *
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
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. The conversions shown are those that
occurred as of June 30, 2002. 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 June 30, 2002, when our closing
bid price was approximately $.0028. If we have not registered
enough stock to cover any selling stockholder's conversions, we
need to have more stock authorized then register it on their
behalf.
Type and Amount Number of Issue Stock Number of Number of
amount of Converted Shares Date Price on Shares if Shares if
Investment Through Issued on Issue Converted Converted
6/02 Conversion Date/ on on
Range Issue Date 6/30/02
Series G $814,041 220,735,159 10/24/01- $.038 138,552,631 1,880,357,142
Preferred Stock 10/25/01
$5,265,000
Series H 0 0 11/15/01- $.026 38,461,538 357,142,857
Preferred Stock 11/21/01
$1,000,000
Series I 825,000 137,500,000 11/28/01 $.025 80,000,000 714,285,714
Preferred Stock
$2,000,000
Series J 49,633 9,946,576 12/18/01- $.025 15,000,000 241,071,428
Preferred Stock 1/28/01
$675,000
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 MARCH 31, 2002 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 2001
March 31, 2002 December 31, 2001
(Unaudited)
Total Assets $23,793,960 $24,637,421
Long-Term $ 2,240,919 $ 2,280,935
Obligations
Working Capital
(Deficit) ($10,207,933) ($10,429,990)
Preferred Stock $ 178,800 $ 169,300
Net Sales $ 1,575,871 $ 4,342,203
TOTAL REVENUES $ 1,600,674 $ 4,349,918
Other Income $ 102,727 $ 561,817
Warrant
Extensions $ 0 $ 0
Benefit (Provision) $ 0 ($ 120,882)
for Income Taxes
Net Loss ($ 7,224,247) ($30,942,310)
Net Loss
per Common
Share:
Basic ($.003) ($.02)
Diluted ($.003) ($.02)
Cash
Dividends
per share:
Preferred $0 $0
Common $0 $0
YEARS ENDED DECEMBER 31st
2001 2000 1999 1998 1997
Total Assets $24,637,421 $21,930,070 $15,685,836 $9,835,569 $12,981,300
Long-Term
Obligations $ 2,280,935 $ 2,211,537 $ 1,338,387 $1,412,880 $ 2,697,099
Working
Capital ($10,429,990) $ 754,368 $ 4,592,935 ($9,899,008) $ 888,082
(Deficit)
Preferred
Stock $ 169,300 $ 0 $ 720,000 $ 0 $ 0
Net Sales $ 4,342,203 $ 340,327 $ 112,354 $1,145,968 $ 1,155,907
TOTAL
REVENUES $ 4,349,918 $ 345,874 $ 165,251 $1,196,180 $ 1,260,157
Other Income $ 561,817 $ 589,529 $ 1,031,560 $ 182,033 $ 165,977
Warrant
Extensions $ 0 $ 5,233,529 $ 4,669,483 $ 0 $ 4,046,875
Benefit
(Provision)
for Income
Taxes ($ 120,882) $ 0 $ 0 $ 0 $ 0
Net Loss ($30,942,310)($42,546,303)($38,072,578)($22,402,644)($30,433,177)
Net Loss per
Common Share:
Basic ($.02) ($.04) ($.05) ($.08) ($.43)
Diluted ($.02) ($.04) ($.05) ($.08) ($.43)
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 5, and you should
review that section.
Liquidity and Capital Resources
For the quarter ended March 31, 2002
Our cash increased to $607,628 as of March 31, 2002 from
$268,095 as of December 31, 2001 primarily due to $378,979 in
advance payments on manufacturing contracts and the factors
discussed below.
During the three months ended March 31, 2002 our net cash flow
used by operating activities was $(2,253,742). During the same
period, our net cash flow used by investing activities was
($122,680) due primarily to the acquisition of property, plant
and equipment and cashflow provided by financing activities was
$2,715,955 mostly due to stock issued to employees and
consultants as compensation for services and sales of preferred
stock.
Accounts receivable decreased from $1,235,957 at December
31, 2001 to $1,097,370 at March 31, 2002 primarily due to a
decrease in revenues for INTCO in the first quarter of 2002
compared with revenues recognized during the latter part of 2001
and the timing of billings and collections related to these
revenues.
Our net inventory increased by $134,819 during the quarter
ending March 31, 2002. The increase was mostly due to an
inventory build-up for contract manufacturing projects at our
Biocontrol Technology division.
Current related party receivables decreased by $19,472
during the three-month period ended March 31, 2002 due to
scheduled repayments on related party notes.
Interest receivable increased from $144,411 as of December
31, 2001 to $222,649 at March 31, 2002 due to additional interest
accrued on notes receivable. The majority of this increase is
related to interest on the note receivable from Practical
Environmental Solutions, a Pennsylvania company that acquired
technology to safely convert municipal sludge to recyclables that
comply with state and federal environmental laws. Petrol Rem has
loaned a total of $3,148,404 to Practical Environmental as of
March 31, 2002. The loan is classified as a non-current asset
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.
Prepaid expenses increased from $1,055,901 as of December
31, 2001 to $2,691,864 as of March 31, 2002. The increase is
primarily due to the issuance of 100 million shares of common
stock to an individual in payment for consulting services to be
provided over a twelve-month period. The total value of the
stock on the date of issue was $1,860,000. This amount was
recorded as a prepaid expense at March 31, 2002 and will be
expensed at $155,000 per month beginning in April 2002.
Goodwill, net of amortization, decreased by $357,115 during
the quarter ended March 31, 2002. The amounts invested in BA
Champ and Tireless in excess of their net book value were
reported as goodwill as of December 31, 2001. Under new
accounting standards effective for our current fiscal year, we
evaluated the investments and determined that there was
considerable uncertainty concerning our ability to recover these
amounts. Therefore, an impairment charge was recorded to write
off the goodwill related to these investments. A similar
evaluation was made of our investments in unconsolidated
subsidiaries, American Intermetallics, Inc., Insight Data Link,
Microislet and Diabecore. We determined that there was
considerable uncertainty regarding the recoverability of our
investments in American Intermetallics and Insight Data Link and
an impairment charge of $754,129 was recognized to reduce the
carrying value of these investments.
Our investment in the marketing agreement for the rapid HIV
tests was also reduced by an impairment charge of $1,091,398.
The investment was reduced to a carrying amount equal to the
remaining obligations which would be eliminated should the
marketing agreement be terminated.
Accounts payable increased by $398,541 during the quarter
ended March 31, 2002 due to the timing of payments that were
slower than normal due to our cash flow problems. Accrued
liabilities increased by $1,431,883 due to increases in accrued
wages due to our cash flow problems. Also contributing to the
increase were payments received on manufacturing contracts in
excess of amounts billed.
Additional paid-in capital decreased from $10,887,125 at
December 31, 2001 to ($5,256,283) at March 31, 2002. The deficit
balance at March 31, 2002 is classified as "discount on issuance
of common stock" and it represents the effect of issuing common
stock at prices less than the par value of $0.10 per share.
For the year ended December 31, 2001
We continue to be dependent on security sales as our primary
source of working capital. As of December 31, 2001, we had total
authorized common stock of 4 billion shares of which
2,450,631,111 shares were issued and outstanding. We had a
working capital deficiency at December 31, 2001 of ($10,429,990)
as compared to working capital of $754,368 at December 31, 2000
and $4,592,935 at December 31, 1999. Our working capital
fluctuates each year due to the amount of money we raise by
selling our securities and the amount of money we spend. We
raised approximately $23.8 million in 2001, $29.9 million in 2000
and $10.7 million in 1999 from selling our securities.
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 $23.8
million in 2001, which is much less than we expected. As a
result, our payroll and our accounts payable are seriously past
due. We also have other serious obligations that are past due.
We still owe $375,000 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.
In November 2001, our stockholders approved an increase in
our authorized shares from 2.5 billion to 4 billion. 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. During
November and December 2001, we issued the following shares of
convertible preferred stock:
10,530 shares of Series G
2,000 shares of Series H
4,000 shares of Series I
400 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.
Each series of preferred stock has its own minimum holding period
and each series defines its conversion price.
Our series G preferred stock has a minimum holding period of
the earlier of: 60 days from issuance or the date the
registration statement covering the common stock 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
the registration statement covering the common stock 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 $6,465,000 from selling our series G, H
and J preferred stock in 2001.
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. We don't
have any other relationship with the Joneses other than these
remaining issues from the ICTI transaction. Note J to our
financial statements contains more detail on the transaction with
the Joneses.
When we sell or issue 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 $268,095 as of December 31, 2001 from
$7,844,807 as of December 31, 2000 primarily due to the factors
discussed below.
During the year ended December 31, 2001 our net cash flow
used by operating activities was ($25,891,584). During the same
period, our net cash flow used by investing activities was
($5,063,413) 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, investments in Rapid HIV, 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 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 former 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; in the interim, Mr. DelVicario began making
monthly payments of $5,000 per month in April 2002. 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. As a result,
we will not make any additional investments in either of those
companies.
Our subsidiary, Diasense, Inc. also made investments in
unconsolidated subsidiaries during 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
December 31, 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 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 $2,409,843
at December 31, 2001.
During the year ended December 31, 2001, our subsidiary,
Petrol Rem, advanced an additional $1,234,041 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 $3,148,404 to Practical Environmental
as of December 31, 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 December 31, 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 December 31, 2001,
although they are still operating at a loss, Practical
Environmental's internal financial information shows revenues of
$537,100. We may consider making additional loans or investments
in Practical Environmental if those loans or investments could
help increase earnings.
During the year ended December 31, 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 $515,610 during the year ended December 31, 2001, which
was used primarily to purchase a mobile tire-shredding machine
that is being used to fulfill a contract in Ohio. As of December
31, 2001, Tireless has only generated $63,127 in revenues, and we
are re-evaluating whether to continue to invest in Tireless.
In 2001, we formed Rapid HIV Detection Corp. to market rapid
HIV tests. 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. 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
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.
That entire $7 million was accrued as of December 31, 2001, and
the rights are reflected in intangible assets. When the
marketing agreement became effective in October 2001, $1.025
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 $1,025,000. 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. The remaining $6
million in payments are due from October 20, 2001 through August
20, 2002. We made the $125,000 payments due in October and
November 2001 and made additional payments totaling $125,000
through January 2002. Due to our cash flow problems, we were
unable to make additional payments when they were due. As a
result, we may end up losing our exclusive marketing rights if we
cannot bring the payments due current.
The money we spent investing in these companies came from
notes payable, debentures payable and stock sales during 2001.
In July 2001, we announced that ViaCirq entered into a
Memorandum of Understanding with Phoenix Hospital Management 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 $1,235,957 as
of December 31, 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. Due to our cash flow problems, Petrol Rem
borrowed over $500,000 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 the payments are due in June 2002, we may lose our
ownership interest in INTCO, and with it, a major source of
revenue.
Our net inventory increased from $805,224 as of December 31,
2000 to $1,190,796 as of December 31, 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 by $50,688
during the year ended December 31, 2001 due to the $114,000 loan
made to Anthony DelVicario (a former member of Diasense's board
of directors) that 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 aggregating $1,120,607 for
the year ended December 31, 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 $222,955 primarily
due to renovations made to our Indiana, PA facility.
Related party receivables decreased by $138,445 due
primarily to repayments on related party notes.
Accounts payable increased by $4,176,925 during the year
ended December 31, 2001 due to the timing of payments that were
slower than normal due to our cash flow problems. Notes payable
increased by $5,968,071 during 2001 primarily due to the
obligation we incurred when we purchased the Rapid HIV marketing
rights. Our current portion of long-term debt decreased by
$4,027,236 due to our negotiated settlement of amounts due in
connection with debt we incurred when we purchased ICTI.
Notes payable increased from zero at December 31, 2000 to
$45,365 at December 31, 2001 due to borrowings under a $50,000
line of credit agreement.
Debentures payable decreased by $2,400,000 during year ended
December 31, 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. We had no debentures outstanding as
of December 31, 2001.
In July and August, we raised $11,164,000 through the sale
of common stock subscriptions. As of December 31, 2001,
769,410,092 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 December 31, 2001 compared to $138,370,417
as of December 31, 2000. For the same reasons, our additional
paid in capital decreased from $87,035,096 at December 31, 2000
to $10,877,152 at December 31, 2001.
Although our revenues continue to grow, until we produce
enough revenues to fund our operations, we will have to find
additional financing that we'll use to finance development of,
and to proceed to manufacture, our various 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. Our financial
statements contain a going concern opinion from our auditors.
Our auditors issued that opinion because we have a history of
losses and very little 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 2001, we, along with
Diasense, have raised over $183,000,000 in private and public
offerings alone.
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 quarter ended March 31, 2002
Our sales and corresponding costs of products sold during
the three months were $1,575,871 and $1,155,542 respectively in
2002 compared to $599,007 and $424,092 in 2001. The increase in
sales was primarily due to contract revenue of $519,274 at our
Biocontrol Technology division. There was no contract revenue
during the first quarter of 2001. Petrol Rem also had increased
revenue in the first quarter of 2002 compared to the same period
in the prior year. Bioremediation product sales were up from
$4,089 in the first three months of 2001 to $109,922 for the
first three months of 2002. In addition, Petrol Rem's
subsidiary, INTCO reported an increase in sales from $516,089 in
the first quarter of 2001 to $599,776 during the first quarter of
2002. Tireless, another Petrol Rem subsidiary, began generating
revenue in the fourth quarter of 2001 and they reported revenue
of $72,424 during the first quarter of 2002 compared to zero in
the prior year. ViaCirq's sales of its hyperthermia products
increased from $48,838 in the first quarter of 2001 to $168,433
in the first quarter of 2002. Our other product sales increased
in total, but not significantly. Metal coating sales totaled
$21,766 during the first three months of 2001, with an increase
to $77,085 during the first three months of 2002. During the
first three months of 2001 and 2002, sales of $8,225 and $4,527,
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. We also realized $20,690 in sales for the rapid
HIV kits and $3,750 from our internet marketing services, both of
which produced no sales in the prior year's first quarter. Our
costs increased due to the increase in sales of our various
products. Until we have significant sales, we can't predict any
trends for future revenues.
Interest income decreased during the first three months to
$102,727 in 2002 from $124,600 in 2001. The decrease occurred
because we had fewer funds to invest.
Research and Development expenses during the first three
months decreased to $426,754 in 2002 from $1,285,222 in 2001.
The decrease was due to reduced research activities on our
noninvasive glucose monitor and hyperthermia products and the
redeployment of resources from research activities to contract
manufacturing and production of the hyperthermia products.
General and Administrative expenses during the first three
months decreased from $6,238,852 in 2001 to $4,838,617 in 2002.
The decrease is primarily due to decreases in professional
services, marketing and travel expenses as well as $912,727 paid
in the first quarter of 2001 under an agreement with David L.
Purdy in connection with his resignation from the Company and its
affiliates.
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
three months of 2001. In addition, we recognized $679,174 in
debt issue costs during the first quarter of 2001. This was
mostly for commissions paid when debentures were issued. We had
no corresponding expenses in 2002 because we did not issue any
debentures.
In prior years, we wrote off bioremediation inventory
because we did not know if we would eventually be able to
establish a market to sell this inventory. During the three
months ended March 31, 2002, Petrol Rem sold inventory that was
previously written off. Therefore, we recorded an unusual item
for the recovery of inventory valuation allowance of $170,077.
Interest expense decreased from $229,194 in the first
quarter of 2001 to $142,737 during the first quarter of 2002 due
to the settlement we reached with Mr. and Mrs. Farrell Jones in
the fourth quarter of 2001 to reduce the amounts owed to them in
connection with our purchase of ICTI in 1998.
Our loss on unconsolidated subsidiaries increased to
$140,635 for the quarter ended March 31, 2002 compared to $72,192
for the same period in 2001. This loss results because we absorb
part of the losses incurred by unconsolidated subsidiaries. Our
share of the subsidiaries' losses is determined by applying our
ownership percentage to the total loss incurred. The increase in
the loss recognized is due to larger losses incurred by the
unconsolidated subsidiaries and an increase in our ownership
percentage compared to the prior year.
We recognized an impairment loss of $2,202,642 in the first
quarter of 2002 due to an evaluation of our goodwill and
intangible assets that is required under new accounting
regulations that became effective at the beginning of 2002. Due
to our decision to shut down our subsidiary, BA Champ/TruePoints,
all goodwill associated with this investment was written off as
an impairment charge. In addition, evaluations were made of our
investments in consolidated and unconsolidated subsidiaries.
Based on the progress made so far and the uncertainty of future
success, the goodwill associated with our investments in
Tireless, American Intermetallics and Insight Data Link were also
written off as impairment charges. The carrying value of the
marketing agreement for rapid HIV tests was written down to the
balance of obligations due under that agreement. Since this
change in accounting regulations was not effective in the prior
year, there were no similar impairment charges recognized in the
first quarter of 2001.
For the year ended December 31, 2001
The following ten 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 net sales and corresponding costs of products sold
during 2001 increased to $4,342,203 and $3,287,176 respectively
in 2001 from $340,327 and $354,511 in 2000, and $122,354 and
$147,971 in 1999. The increase in 2001 was primarily due to
sales of $3,212,418 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 or in 1999 operations.
Petrol Rem's increase also included an increase in bioremediation
product sales to $108,092 during 2001 compared to $53,758 during
2000 and $26,693 in 1999. 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 recognized revenues totaling $63,127 from the
Tireless project during 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.
In addition, we recognized sales of $339,839 from our
hyperthermia products during 2001, which produced sales of
$69,605 during 2000 and no sales in 1999. 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. In 2001, we received $112,091 from CCTI's metal
coating products compared with $40,593 in 2000 and no sales in
1999. 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. As part of an
overall effort to cut costs and operate more efficiently, we are
in the process of trying to sell CCTI.
During 2001, we recognized sales of $28,057 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. Our 2001 theraPORT sales
were higher than the $20,068 in 2000 and lower than the $31,060
in 1999. We also recognized sales of $38,400 for HIV tests
marketed by Rapid HIV Corporation for the first time during 2001,
because we just acquired our interest in Rapid HIV. 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 began generating revenue
during late 2001. 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. During the 4th quarter of 2001,
our manufacturing division generated outside contract revenue
aggregating $410,998.
Research and Development expenses increased to $7,113,258 in
2001 from $6,651,471 in 2000 and $4,430,819 in 1999. 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 $471,650 million for 2001 as compared to 2000. 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). Also
contributing to the increase were higher travel expenses,
primarily for ViaCirq and Petrol Rem's increased marketing
efforts. The above increases were partially offset by a decrease
in expense recognized in connection with the granting of warrants
for services. Our total general and administrative expenses were
approximately $22 million in 2001, $21.4 million in 2000 and
$12.9 million in 1999.
Amortization increased from $392,307 to $804,458 for 2000 to
2001, and increased $352,591 from 1999 to 2000. The increases
are due to additional investments in unconsolidated subsidiaries
during 2000 and 2001 and our acquisition of the Rapid HIV
marketing rights in 2001. A portion of these investments is
recognized as goodwill and amortized over a five-year period.
Our loss in unconsolidated subsidiaries increased to $279,986 for
the year ended December 31, 2001 compared to $158,183 for the
same period in 2000, and zero in 1999. This loss results because
we absorb part of losses incurred by unconsolidated subsidiaries
and our investments began in 2000. Our share of the loss is
determined by applying our ownership percentage to the total loss
incurred.
Debt issue costs increased from $1,005,000 in 2000 to
$2,218,066 in 2001, a decrease from $3,458,300 in 1999. The
increase is due to additional debentures and notes payable during
2001 compared to 2000. We had more debentures outstanding in
1999 than either 2000 or 2001.
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 2001
compared to $3,062,500 for 2000 and $7,228,296 in 1999. The
amount varied because we issued fewer debentures this year
compared to last year, which was already a decrease from 1999
Segment Discussion
For purposes of accounting disclosure, we provide the
following discussion regarding two business segments:
Bioremediation and environmental clean-up, which includes the
operations of Petrol Rem, Inc., and Biomedical devices, which
includes the operations of our Biocontrol Technology division,
Diasense, Inc., and ViaCirq, Inc. More complete financial
information on these segments is set forth in Note H to our
accompanying financial statements.
Bioremediation Segment. During the year ended December 31, 2001,
sales to external customers increased to $3,383,637 from $217,722
in 2000 and $26,693 in 1999. The increase from 2000 to 2001 is
primarily due to revenues from INTCO. The increase from 1999 to
2000 was due to our increased efforts to effectively penetrate
the market with products other than the BioSok. Costs of
products sold also increased to $2,507,717 in 2001 from $179,446
in 2000 and $14,683 in 1999, primarily to due INTCO's operations.
Biomedical Device Segment. During the year ended December 31,
2001, sales to external customers increased to $817,353 from
$81,954 in 2000 and $82,056 in 1999. The overall increase was
primarily due to increased revenues from our ThermoChem products.
Corresponding overall increases in costs of products goods sold
occurred for the same reason, from $133,288 in 1999 to $47,862 in
2000 and $558,408 in 2001.
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 2001 on
BICO's consolidated tax return. However, INTCO, Inc., a
subsidiary of Petrol Rem, files separate tax returns and its 2001
tax return included tax expense of $120,882. As of December 31,
2001, we and our subsidiaries, except for Diasense, Petrol Rem,
Rapid HIV and ICTI had available net operating loss carry
forwards for federal income tax purposes of approximately $157
million, which expire over the course of the years 2002 through
2022.
Supplemental Financial Information
In May 2002, we were unable to make up the payments due
under our exclusive marketing agreement with Rapid HIV Detection
Corp. As a result, we no longer have the exclusive marketing
rights to the rapid HIV tests. However, we are still marketing
the tests and we are negotiating with GAIFAR to enter into a
contract to define what revenues we would receive on any sales we
make. Since we are no longer obligated under the marketing
agreement, we don't have to make the remaining $5.6 million in
payments that would have been due this year.
In May 2002, along with Petrol Rem, we formalized our loans
from INTCO and its minority stockholder. Because the loans are
secured by our stock in INTCO, if we default on the loans, we
could lose our INTCO stock, which represents most of our revenue.
In June 2002, we missed a payment on the notes and both INTCO and
its minority shareholder made a demand for payment. So far, we
have been able to work with them to avoid losing our INTCO stock,
but we have no idea how long we will be able to keep the stock.
If we lose the stock, we will lose the source of most of our
revenue.
Petrol Rem has loaned money to Practical Environmental
Solutions, a company that treats sludge and disposes of it in
accordance with state and federal environmental laws.
Practical's operations have been significantly curtailed because
of a directive from the PA Department of Environmental
Protection. Practical has met with the DEP and is trying to
resolve the issue as quickly as possible. If it cannot be
resolved, the loan may be in jeopardy.
This registration statement includes stock registered on
behalf of the Joneses, who own our series I convertible preferred
stock. We issued that stock to the Joneses as part of our
settlement with them involving our 1998 investment in ICTI. We
had to include more stock for them in this registration statement
because we did not have enough stock in our May 2002 registration
statement to cover all of their conversions. The settlement
documents provide that, if the series I preferred stock was not
fully converted, payments would begin on July 1, 2002 on a note -
the total amount of the note would reflect the difference between
$2 million and the value of the stock that the Jones' would have
received on the effective date of our previous registration
statement, which was May 7, 2002. At this point, we believe that
the Jones may continue to convert more preferred stock when this
registration statement is declared effective. However, the
settlement agreement provides that the note is payable monthly
over a period of 3 years at 10% interest.
In June 2002, we disposed of our remaining assets and
obligations in connection with Ceramic Coatings Technologies,
Inc. We are in the process of dissolving that Florida
corporation. Under the terms of the sale, the buyer issued two
promissory notes. The first note, which has a balance of
$227,053, is due on October 31, 2002. The second note, which has
a balance of $275,197, is payable over five years at 6% interest.
Payments are due beginning in the first quarter of 2003.
In April 2002, MicroIslet participated in a merger with ALD
Services, Inc., a publicly traded shell company also known as
ALDI. In connection with the merger, Diasense, along with the
other MicroIslet shareholders, consented to a forward stock split
of MicroIslet stock where each common stockholder received 3.1255
shares of MicroIslet for every one share owned. As a result,
Diasense received 3,465,451 shares of MicroIslet common stock.
All the common stockholders maintained their same percentage
ownership. Diasense, along with the other MicroIslet
stockholders, also approved the merger with ALDI. As a result of
the merger, each MicroIslet common stockholder - including
Diasense - received one share of ALDI stock for each share of
MicroIset stock owned. After the merger, Diasense owns
approximately 15.3% of restricted ALDI stock. In May 2002, ALDI
changed its trading symbol to MIIS.OB. We are trying to use our
MicroIslet stock to help raise money to fund our operations.
We received proceeds from two promissory notes early in
April 2002. One loan for $1,000,000 is payable in a single
installment on March 28, 2003 with interest of 22%. This loan is
collateralized by all of our equipment. A second loan for
$230,000 is payable in a single installment on April 8, 2003 with
interest of 22%.
Our registration statement, which included 620 million
shares to cover our Series K preferred stock, was declared
effective on May 7, 2002. Following the effective date, we began
receive funding under a commitment from J. P. Carey Asset
Management to purchase these securities. In order to have
sufficient shares available to continue our funding under the
total $25 million commitment from J. P. Carey Asset Management,
we needed to have more stock authorized, and to file this
additional registration statement.
On July 5, 2002, our stockholders approved an increase in
the number of our authorized shares of common stock from 4
billion to 8 billion shares. Most of the new shares of stock are
included in this registration statement.
Along with our subsidiaries and our division, we are behind
in our lease payments; however, so far, none of our landlords
have accelerated payments or evicted us.
On July 26, 2002, we made the following announcements:
The U.S. Attorney's Office for the Western District of
Pennsylvania ended its 4-year investigation of BICO and
has declined to bring any charges against us.
Three of our officers and directors, Fred E. Cooper, Anthony
J. Feola and Glenn Keeling resigned as our officers and
directors. Our board named Michael P. Thompson, our chief
financial officer, to also act as our interim chief executive
officer while we search for a new CEO.
Glenn Keeling will continue to serve as an officer and director
of our ViaCirq subsidiary.
Mr. Cooper, our former CEO, will act as our outside consultant
to focus on transitioning and closing some pending transactions
that could help us raise money. Mr. Feola is no longer
affiliate with us.
In connection with their resignations, Mr. Cooper and Mr Feola
gave up their employment agreements with BICO and Diasense. Mr.
Keeling gave up his employment agreement with BICO but retained his
employment agreement with ViaCirq. By giving up their employment
agreements, Mssrs. Cooper, Feola and Keeling released the Company from
any obligations under those agreements including those provisions
related to severence and change of control.
BICO's BUSINESS
General Development of Business
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 and
technologies, which include environmental products, which help to
clean up oil spills, procedures relating to the use of regional
extracorporeal hyperthermia in the treatment of cancer, and
models of a noninvasive glucose sensor. 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. 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. Petrol Rem, Inc. handles our environmental
products PRP, BIOSOK and BIOBOOM that help clean up oil
spills and other pollutants in water. ViaCirq, Inc. handles the
hyperthermia project, a technology called the ThermoChem Systemr.
Diasense, Inc. manages the noninvasive glucose sensor project.
Our Biocontrol Technology division focuses on our biomedical
projects and on contract research and manufacturing.
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 the lawsuits pending
against us; our ability to maintain a trading market for our
common stock; and the dilution of our common stock.
Description of Business
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 PRPr, 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 2001, Petrol Rem filed a new patent application for PRP
and its manufacture without the addition of microorganisms.
Scientific experimentation and current literature indicate that
bioremediation occurs at the same efficient level without the
added microorganisms, allowing us to cut manufacturing costs
without sacrificing performance. The patent is currently
pending.
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. In 2001, we borrowed money from INTCO
and its minority owner. In May 2002, we formalized those loans
and confirmed our pledge of all of our INTCO stock as collateral
for the loans. We have not made the payments on the loans when
due, so INTCO and its minority shareholder could exercise their
right to take the collateral. If we lose our INTCO ownership, we
will also lose the primary source of Petrol Rem's revenues, which
currently represent most of our BICO revenue. The balance due on
the loans is $660,591.
During 2001, Petrol Rem focused on the Asian market. In
2000, Petrol Rem hired a vice president of Asian sales and
marketing who speaks four languages fluently, including English.
His efforts helped increase the number of Asian distributors,
which resulted in increased sales.
Petrol Rem's revenues increased significantly during 2001,
due primarily to INTCO's revenues. Petrol Rem's total revenues
for 2001 were approximately $3.384 million. Of that,
approximately $3.2 million was from INTCO and $108,000 was from
bioremediation products.
In December 2001, Petrol Rem signed a two-year agreement
with Belgian-based Clean World Solutions. The agreement grants
Clean World exclusive master distributorship rights to all of
Petrol Rem's oil spill absorption and bioremediation products
throughout Europe. Clean World placed its initial order, for
$110,000, in January 2002.
Clean World plans to grant sub-distributor agreements in
each country covered by the agreement. They have already signed
agreements with companies in Germany, Belgium and Luxemburg. For
more information on Clean World Solutions, you should visit their
website at www.cleanworldsolutions.com.
Clean World Solutions will operate the agreement through its
recently-formed division called Petrol Rem Europe. Petrol Rem
Europe officially launched its sales and marketing efforts for
the Bio-Sok at a German boat show held January 9-14, 2002 in
Dusseldorf. The European product launch for PRP is scheduled for
the International Maritime Organization's Third Research and
Development Forum on High-density Oil Spill Response was held in
Brest, France in mid-March 2002.
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
2002.
In March 2002, we announced that Petrol Rem had named Winner
Advertising of Sharon, PA as its agency of record to assist with
its marketing, brand management, advertising, public and media
relations. 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.
In March 2002, we announced that Corpfin.com, an Atlanta
company, has agreed to undertake the process of taking Petrol Rem
from a private company to a public company. Since the process is
just beginning, we don't know how long the process might take, or
what the terms of the transaction might be.
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.
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 PRP 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 clean. 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 PRP, 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.
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 $17.8 million on this project
through December 31, 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 began shredding tires
at that site, and billing during the third quarter of 2001.
Management stopped funding Tireless in 2002 and Tireless has
maintained its operation independently.
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 June 30, 2002.
Practical Environmental has made interest payments on the amount
due. The loan, which was originally due on August 31, 2001 had
been extended until May 31, 2002 and is now due; 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 December 31, 2001, Practical Environmental's
internal financial information shows revenues of $537,100; 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. Practical's operations have been significantly
curtailed because of a directive from the PA Department of
Environmental Protection. Practical has met with the DEP and is
trying to resolve the issue as quickly as possible. If it cannot
be resolved, the loan may be in jeopardy.
ViaCirq's Extracorporeal Hyperthermia Project
Development of The ThermoChem Systems
We founded ViaCirq in 1993, in order to develop a system to
enable hyperthermia as therapy for certain cancer and HIV
victims. To that end in 1993, ViaCirq established a working
alliance with a private company, HemoCleanse, Inc., located in
Lafayette, Indiana. We believed that HemoCleanse's core
technology was essential in developing a safe delivery system for
whole-body hyperthermia. HemoCleanse, founded in 1989, designs,
manufacturs 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, and in 1996, it
received FDA clearance for use in treating patients with liver
failure.
In 1993, ViaCirq 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. Initially, we
focused on the research and development of the ThermoChem System
and associated disposables as a delivery system for perfusion
induced systemic hyperthermia - known as PISH - a form of whole
body hyperthermia, in the treatment of certain types of cancers
and HIV/AIDS. We funded HemoCleanse's development of a prototype
of the ThermoChem System for PISH. The prototype was used in
preclinical trials and subsequently in the first FDA approved
clinical trials for AIDS and non-small cell lung cancer (NSCLC).
In May 1998, ViaCirq amended the license agreement with
HemoCleanse whereby HemoCleanse granted us exclusive
manufacturing rights for the ThermoChem HT System and
disposables.
In June 2000, ViaCirq again amended the license agreement
with HemoCleanse whereby HemoCleanse granted us an exclusive
worldwide, fully-paid, irrevocable, perpetual license to the
ThermoChem technology limited to the relevant field of use in
hyperthermia including the right to manufacture the ThermoChem SB
and SB treatment kits. All patents and patent applications in
whole body hyperthermia owned by HemoCleanse were assigned to us;
in return, we gave them our 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. 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.
Whole-Body Hyperthermia Development - ThermoChem System
Both the ThermoChem HT System and ThermoChem SB System are
necessary for delivering PISH. 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 maximum of 108.4 F for
2 hours. Catheters are placed in two venous access sites, the
external jugular vein and the femoral vein, 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.
The 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.
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 the
finger.
Beginning 1994, ViaCirq arranged and concluded evaluations
of the safety and efficacy of PISH utilizing the ThermoChem
System in the following FDA approved and hospital Institutional
Review Board clinical trials:
St. Elizabeth Hospital - Lafayette, Indiana
Phase I trial 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, 1996.
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, 1997.
University of Texas Medical Branch at Galveston
Phase I clinical trial completed in 2001 utilizing the
ThermoChem System and disposables to deliver perfusion induced
systemic hyperthermia on 10 patients with Stage IIIb and Stage IV
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.
One of the objectives of this trial was 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. Case reports of this study
have been published in Annals of Thoracic Surgery and Perfusion,
2001, and results of the 10 patient study have recently been
submitted to the Annals of Thoracic Surgery for publication.
Regional Hyperthermia Development - ThermoChem HT System
Wake Forest University School of Medicine
In May 1998, an Investigational Device Exemption, or IDE was
approved by the FDA to allow human clinical trials utilizing the
ThermoChem HT System and related disposables to deliver
intraperitoneal hyperthermia as an adjunct therapy with
cytoreductive surgery and chemotherapy. The technique, using
IPH, cytoreductive surgery and chemotherapy has been done at Wake
Forest University Baptist Medical Center since 1991 and is now
offered as a standard-of-care for the treatment of advanced
cancers spread to the abdominal cavity.
Before IPH is administered to a patient in a surgical
procedure, the surgeon makes a midline abdominal incision to
expose the entire abdominal cavity. Tumors within the abdominal
cavity are surgically removed to the extent possible. Ingoing
and outgoing catheters are placed and the patient's abdominal
cavity is temporarily closed. The ThermoChem HT System
administers intraperitoneal hyperthermia. When the desired core
temperature, as directed by the surgeon, of the abdominal cavity
is reached, at the surgeons choice, chemotherapy may be
administered to the abdominal cavity during the procedure. After
2 hours of intraperitoneal hyperthermia, the sterile solution is
circulated out the abdominal cavity and the catheters are
removed. The surgical procedure is completed and the patient is
transferred to the Intensive Care Unit.
In a surgical procedure, 2 inlet catheters with temperature
probes are placed in the upper abdomen and 2 outlet catheters
with temperature probes are placed in the lower abdominal cavity
in the pelvic area; then the abdominal cavity is temporarily
closed. The ThermoChem HT System is primed and begins
circulating 3 liters of heated sterile solution through the 2
inlet catheters, throughout the 2 outlet catheters that are
placed in the lower abdominal cavity in the pelvic area. The
continuous circulation of heated sterile solution raises the core
temperature of the abdomen, to the desired temperature of the
surgeon, in the range of 41 C (105.8 F) to 42 C (107.6 F). This
procedure is known as intraperitoneal hyperthermia, or IPH.
In March 1999, ViaCirq entered into a license agreement with
Wake Forest University in which we licensed all proprietary
development, 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, the Wake Forest University School of Medicine
completed its study utilizing the ThermoChem HT System for
intraperitoneal hyperthermia in combination with surgery and
chemotherapy in patients with advanced ovarian and
gastrointestinal cancer.
Subsequently, in January 2000, we 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.
In May 2000, ViaCirq entered into a Research Agreement with
Wake Forest School of Medicine using the ThermoChem HT System and
disposables to deliver intraperitoneal hyperthermia in
combination with cytoreductive surgery and carboplatin
(chemotherapy) in the primary treatment of ovarian cancer. One
of the main objectives of the study is to determine the response
to intraperitoneal hyperthermia and carboplatin as a combined
therapy in patients with Stage III ovarian cancer. The IPH
treatment will be repeated 6 months later during second-look
surgery if the patient has no residual disease. The study is
ongoing.
In 2001, ViaCirq sponsored the first and only long-term
quality of life study with Wake Forest University Baptist Medical
Center involving patients who have survived greater than three
years following intraperitoneal hyperthermia in conjunction with
cytoreductive surgery and chemotherapy.
ViaCirq's Market
While only IPH is currently approved for marketing, we view
the ThermoChem HT System as a platform technology for delivery of
thermally enhanced anti-cancer therapies, which could address
treating cancer in other regional body applications, such as the
lung, chest cavity, limb and liver. Accordingly, we plan to
pursue FDA clinical trials for these platforms.
Surgeons use our ThermoChem HT Systems and our disposable
products in conjunction with cytoreductive surgery, which is the
surgical removal of cancerous tumors, and chemotherapy to treat
advanced stages of cancer that has spread to the lining of the
abdominal cavity. The spread of cancer within the abdominal
cavity occurs in advanced stages of gastric cancer, colon cancer,
appendiceal cancer, ovarian cancer and tumors of other primary
sites affecting approximately 56,000 US patients per year.
Studies indicate disseminated abdominal cancer is often
accompanied by malignant ascites, bowel obstruction, pain, poor
survival rates and poor quality of life.
Surgery may not permit the complete resection of tumor and
microscopic residual disease often remains at time of surgical
closure. It has been reported that surgery alone has been
associated with poor survival statistics, leaving some doctors
recommending supportive care rather than aggressive surgery.
Intravenous chemotherapy can be very diluted by the time it
reaches the tumors, thus leaving them unaffected. As a result,
the cancer often persists, despite surgery and IV chemotherapy
resulting in patients having few if any options. A unique
procedure, pioneered at institutions such as the National
Institutes of Health and Wake Forest University School of
Medicine, combines cytoreductive surgery with the pharmacokinetic
delivery of intraperitoneal chemotherapy along with the synergism
of heat to yield positive survival and quality of life outcomes
for patients with limited options. These results have been
published in numerous medical journals, including The European
Journal of Surgical Oncology, American Surgeon, Annals of
Surgical Oncology and The European Journal of Cancer. Despite
these promising outcomes, the treatment of disseminated abdominal
cancer, via IPH in combination with intraperitoneal hyperthermia
and chemotherapy, has remained limited to a few academic medical
centers due to the unavailability of a dedicated system to
deliver intraperitoneal hyperthermia.
The FDA clearance and commercial availability of the
ThermoChem HT System can now provide for broader adoption of this
therapy within the surgical oncology community. In March 2001,
ViaCirq introduced our technology at the annual cancer symposium
meeting of The Society of Surgical Oncology in Washington, DC,
and currently we are in long-term use agreements with Wake Forest
University Medical Center in Winston-Salem, NC; The 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. ViaCirq entered into evaluation agreements in which we
are paid on a per IPH procedure to evaluate the program. These
institutions include: Veterans Affairs Medical Center in
Pittsburgh, PA; 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; the
University of Maryland Medical Center in Baltimore, MD; Fairview
University Medical Center in Minneapolis, MN and the University
of Illinois at Chicago in Chicago, IL.
The ThermoChem HT System is comprised of specially
integrated systems and devices for fluid circulation and accurate
temperature maintenance. There is a significant opportunity for
our technology as there are major unmet needs in cancer therapy.
Following are the major key factors:
Cancer in the abdominal lining (peritoneum) is especially
difficult to treat
Heat, in its own right, has demonstrated deleterious effects
on cancer cells
Heat (42C) has been shown to potentiate the action of many
anticancer therapeutics
Larger doses of chemotherapy can be used intraperitoneally
without the toxicities associated with systemic treatments
ViaCirq's Fresenius Contracts
In May 2002, ViaCirq entered into a co-marketing agreement
with Fresenius Medical Care-Extracorporeal Alliance, known as FMC
EA. Fresenius Medical Care is an international medical company
with its headquarters in Hamburg, Germany; its stock trades on
the Frankfurt stock exchange and on the New York stock exchange
as ADRs under the symbol FMS. Fresenius Medical has operations
in 100 countries with over 37,000 employees, and had net revenues
in excess of $4.8 billion in 2001. Fresenius is the world's
largest, integrated provider of products and services for
individuals with chronic kidney failure, a condition that affects
more than 1,100,000 individuals worldwide. It is also the
world's largest provider of dialysis products, such as
hemodialysis machines, dialyzers and related disposable products.
FMC EA, headquartered in San Diego, CA., is the leading
contract provider in the United States of Extracorporeal
Therapies; including Perfusion and related cardiovascular
services, autotransfusion, apheresis and acute dialysis. FMC EA
provides services under contract to nearly 600 hospitals in 40
states with 1000 clinical employees. Fresenius established its
extracorporeal alliance division in February 2002. For more
information on Fresenius, you should visit their website at
www.fmc-ag.com.
Under the agreement, FMC EA and ViaCirq agree to market and
promote the sale and use of each other's services and products,
respectively, to physicians and hospitals in the United States.
FMC EA will be marketing and promoting intraperitoneal
hyperthermia procedures utilizing the ThermoChem HT System and
related disposables to physicians and hospitals in the United
States. ViaCirq will be marketing and promoting FMC EA perfusion
and related extracorporeal services, which are provided by their
certified technicians.
We believe that our cooperative agreement with Fresenius,
worldwide leader in medical procedures, will help us achieve
greater credibility in the market, as well as providing us with
additional marketing exposure.
Rapid HIV Detection Corp.'s HIV Test Project
In May 2002, we lost our exclusive marketing rights to the
Rapid HIV tests because we did not make all the payments when
due; as a result we are no longer obligated to make $5.6 million
in payments due in 2002. We are still working with the inventor
of the tests and if we are able to make product sales, and GAIFAR
is able to produce them, we believe GAIFAR will work with us and
we may still generate some revenue. However, we are not
investing any additional money in Rapid HIV at this time.
Even though we are no longer the exclusive marketer for
Rapid HIV, we've included information on our previous activities
so you can understand how we've invested our money in the past.
In 2001, we formed Rapid HIV Detection Corp. Rapid HIV
Detection Corp. was formed 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. The marketing agreement is no longer valid,
but the following explains what the major terms of the agreement.
GAIFAR retained the manufacturing rights for the tests. We
entered into the agreement in June 2001. 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, had a minimum
ten-year term and called 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, which
totaled $1,025,000 were applied to the total $7 million
consideration. The remaining $5,975,000 in payments were 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.
Beginning in December 2001, we did not make payments on the
marketing agreement when they were due because of our cash flow
problems. In March 2002, GAIFAR and Dr. Repke gave us notice
that we needed to make up the late payments or they would
terminate rights under the marketing agreement. We weren't able
to make up the payments so the marketing agreement is no longer
valid.
Our management entered into the Marketing Agreement and
invested the money because they believe that the tests are
superior, and that we would 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 have charged a
research facility, like Walter Reed, less than $5, and charged
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 believed investing in Rapid HIV was 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 believed that investing in Rapid HIV was
a good use of our company's funds because they believe that the
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.
The 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.
The Rapid HIV 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.
The Rapid HIV tests are affordable - we plan to charge $5 or
less in most instances for the InstantScreen test.
Biocontrol Technology's Research & Manufacturing Projects
In 2001 and 2002, our Biocontrol Technology division
increased its efforts to obtain research and manufacturing
contracts to utilize our manufacturing facility in Indiana, PA.
The division received a $1.5 million manufacturing contract from
the U.S. Army, and $238,000 research 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 March 2002, we decided to suspend the clinical trials for
our Diasensor 2000 for several reasons. First of all, we've made
better progress on the development of our Diasensor 3000, the
next generation of our noninvasive glucose sensor, and as soon as
it's completed, we plan to conduct a new clinical trial for the
better Diasensor. As long as we can continue to fund more
development, we hope to finish the Diasensor 3000 this year. The
Diasensor 3000 is better than the Diasensor 2000 because:
It can be calibrated to the patient in a few days, rather
than 6-8 weeks;
It is quicker and easier - thus less expensive - to
manufacture. It takes days to manufacture the Diasensor 2000,
and only hours to manufacture the Diasensor 3000;
It is smaller than the Diasensor 2000; and
It should cost the patient much less - probably about half
as much as we would have charged for the Diasensor 2000.
Although we are not permitted to discuss the results of the
clinical trials, the data we gathered was encouraging and helped
us develop the Diasensor 3000. Another reason we decided to
suspend the trials was that we believe that, by using the
Diasensor 3000, we can use a different type of trial - one that
is quicker and less expensive, to satisfy the FDA.
Finally, our cash flow problems made it almost impossible to
continue and complete the Diasensor 2000 trials. The trials took
much longer and were much more expensive than we planned, and we
didn't have enough money to keep them going at full scale. Some
sites had already discontinued their trials because we couldn't
keep their payments current. You should read our Managements'
Discussion and Analysis section for more information on our cash
flow problems.
We don't know how much longer the FDA approval process will
take. Although suspending the trials will delay FDA approval,
our management believes that the Diasensor 3000 is a better
device and we hope that the FDA approval process for the
Diasensor 3000 will be shorter and less expensive than the
Diasensor 2000.
Although we discontinued our Diasensor 2000 trials, the
following paragraphs tell you about how they did operate during
1999-2000. In August 1999, we hired Joslin Diabetes Center to
help us with our FDA submission. Joslin Diabetes Center designed
and conducted the clinical trials on the Diasensor 2000.
Our contract with Joslin called 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.
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 were designed for a total of 200
diabetics. Trials were 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.
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
theraPORT 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.
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 15% of MicroIslet's stock. In 2002, MicroIslet
merged with a public company and is now publicly traded on the
electronic bulletin board under the symbol MIIS.OB. 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 $112,091 for 2001, we decided to sell substantially
all of the assets of CCTI and discontinue operations. The sale
was completed in June 2002 with an effective date of April 1,
2002.
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.
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. Fred Cooper, our former CEO, owned stock
in B-A-Champ but during 2001, he gave that stock to BICO. As of
December 31, 2001, we had invested a total of $1,445,000 in the
project since the beginning of 2000. TruePoints discontinued its
operations in 2002.
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,
PRP, 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
System and related disposables used for regional cancer
treatment. Our poor cash position has severly hindered our
marketing effort for the Thermo Chem - HT System. However,
the System is currently in use at 15 medical institutions.
Although none of our current projects have generated any
meaningful sales or revenue, INTCO is generating revenue by
providing environmental clean-up services, treatment of oil wells
and charters of self propelled maintenance barges.
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.
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 PRP, BIO-SOK, BIO-BOOM, and Oil
Buster.
In 2001, Petrol Rem filed a new patent application regarding
PRP and its manufacture without the addition of microorganisms.
The patent is currently pending.
Extracorporeal Hyperthermia
ViaCirq's intellectual property includes five issued U.S.
Patents:
U.S. Patent 5,354,277 entitled "Specialized Perfusion
Protocol for Whole Body Hyperthermia" Issued October 11, 1994; 18
claims
U.S. Patent 5,476,444 entitled "Specialized Perfusion
Protocol for Whole Body Hyperthermia" Issued December 12, 1995;
15 claims
U.S. Patent 6,156,007 entitled "Apparatuses and Processes
for Whole Body Hyperthermia" Issued December 5, 2000; 10 claims
U.S. Patent 6,264,680 entitled "Apparatuses and Processes
for Whole Body Hyperthermia" Issued July 24, 2001; 8 claims
U.S. Patent 6,348,162 entitled "Starting Dialysate
Composition for Use as an Initial Dialysate in HemoDialysis"
Issued February 19, 2002
In May 1999, ViaCirq filed a patent entitled "Hyperthermia
method and Apparatus" for use of ThermoChem HT System and related
disposables for regional hyperthermia.
In June 2000, HemoCleanse assigned all patents and patent
applications to ViaCirq relating to the ThermoChem technology in
hyperthermia, filed in Canada, Australia, China, Japan, Europe,
Mexico and Hong Kong.
In November 2001, ViaCirq filed a patent entitled
"Hyperthermia Method and Apparatus" covering additional concepts
related to our system; we are awaiting action from the U.S.
patent office. ViaCirq also made similar filings for this patent
in Canada, Australia, Europe, and Japan - we have not received
anything definitive from those countries either.
In July 2001, ViaCirq filed a divisional patent application
entitled "Apparatuses and processes for Whole Body Hyperthermia"
which includes technology that overlaps with our regional
hyperthermia.
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.
Implantable Technology
During 1995, we renewed our U.S. trademark registration for
the name Coraflex, 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.
WARRANTIES AND PRODUCT LIABILITY
Our current product liability insurance coverage is
$10,000,000 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
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.
Extracorporeal Hyperthermia
To the best our knowledge, ViaCirq is the first to get FDA
clearance to market our hyperthermia system and its disposables
to deliver intraperitoneal hyperthermia. However, most major
medical and drug companies are actively researching and testing
drugs and procedures to treat cancer. Other companies may have
and may continue to research and test procedures that involve
hyperthermia. Many of those companies may be better capitalized,
have a stronger market appeal, have more expertise and experience
than we do, and may have various other competitive advantages
over us.
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 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 - which 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.
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.
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.
Extracorporeal Hyperthermia
In January 2000, ViaCirq, along with HemoCleanse, received
FDA clearance to market the ThermoChemT-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.
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. In March 2002, we
discontinued those trials in order to finish developing our
Diasensor 3000.
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 with 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.
Human Resources
As of June 30, 2002, we had 46 full-time employees who were
located primarily in either our Indiana or Pittsburgh locations.
In addition, ViaCirq had 13 employees; and Petrol Rem had 23
employees, including 17 INTCO employees, as of June 30, 2002.
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 were officers or
directors until July 2002 - 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 2002.
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
$375,000 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. Due to cash flow problems, we did not make
the full final payment on the settlement. We need to make an
additional payment of $150,000 in order to satisfy the terms of
the settlement.
In July 2002, the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania informed
us that they have declined to bring any charges against our
company. We believe that this means federal investigation, which
began in April 1998, is over as far as our corporation is
concerned. However, we believe the federal investigation will
continue regarding certain individual conduct.
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
On July 25, 2002, Fred E. Cooper, Anthony J. Feola and Glenn
Keeling resigned as our officers and directors. In addition, our
board of directors appointed Michael P.Thompson, our CFO, as our
interim chief executive officer.
Name Age Director Position
Since
Michael P. Thompson 52 Interim Chief Executive
Officer, Chief Financial
Officer
Ben Johnson 59 Executive Vice President
Stan Cottrell 59 1998 Director
Paul W. Stagg 56 1998 Director
MICHAEL P. THOMPSON, 52, 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.
He was appointed Interim CEO in July 2002. 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. His experience as a CPA includes auditing and consulting
services for numerous public companies and serving as managing
partner of a regional CPA firm. He is also the chief financial
officer for Diasense and Petrol Rem, and a director of ViaCirq.
R. BEN JOHNSON, 59, 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, 59, 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, 56, 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.
Item 405 of Regulation S-K requires us to make disclosures
regarding timely filings required by Section 16(a) of the
Securities and Exchange Act. Based solely on our review of
copies of forms received and written representations from certain
reporting persons, we believe that all of our officers, directors
and greater than ten percent beneficial owners complied with
applicable filing requirements.
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 former officers, Fred E. Cooper,
Anthony J. Feola and Glenn Keeling, and approved an employment
agreement for Michael P. Thompson in August 2000.
Until July 2002 Fred E. Cooper was chief executive officer,
executive vice president and a director and was a director of Diasense,
Petrol Rem, and Rapid HIV Detection Corp. He was also the CEO of
Rapid HIV Detection Corp and the president of Diasense. Until July
2002, Anthony J. Feola was chief operating officer and a director and
was also the secretary of Rapid HIV Detection Corp, and a director of
Diasense, and Petrol Rem. Until July 2002, Glenn Keeling was our
senior vice president and a director. Mr. Keeling is also the
president and a director of ViaCirq. As of July 2002, Michael P.
Thompson is our interim chief executive officer and 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
Five of our former executive officers and/or directors
were 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 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,
was on our board of directors from May 3, 1991 to July 2002.
Mr. Onorato, who was not a director at the time of the transaction,
was a BICO director from September 1992 until April 1994. Fred E.
Cooper resigned as our officer and director on July 25, 2002.
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 former chief
executive officer and a director; 2,000,000 to Anthony J. Feola,
our former chief operating officer and a director; 2,000,000 to Glenn
Keeling, our former 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 former chief executive
officer and a director; 10 million to Anthony J. Feola, our
former chief operating officer and a director; 8 million to
Glenn Keeling, our former 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 June 30, 2002
was $693,656. 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 Mssrs. 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 and repaid the loans which had been secured by the BICO
certificates of deposit. 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 July 2002, in connection with Mr. Cooper's
resignation as a BICO officer and director, we agreed to offset
approximately $474,000 we owe Mr. Cooper in accrued and unpaid salary
against his loan. 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
June 30, 2002 was $198,578. 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 Mssrs.
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 and repaid the loans which had
been secured by BICO certificates of deposit. 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 July 2002, in connection
with Mr. Feola's resignation as a BICO officer and director, we
agreed to offset the balance of his loan against the approximately
$304,000 we owe Mr. Feola in accrued and unpaid salary.
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 June 30, 2002
was $141,977. 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 Mssrs. 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 and repaid the loans which had been
secured by the BICO certificates of deposit. 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 July 2002, in connection with
Mr. Keeling's resignation as a BICO officer and director, we agreed
to offset the balance of his loan against the approximately
$436,000 we owe Mr. Keeling in accrued and unpaid salary.
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%. In 2002, Mr. Kondisko paid the loan
in full, including accrued interest.
In 2001, we granted a loan in the amount of $110,000 to
Anthony DelVicario, a former Diasense director and the president
of American Intermetallics. We loaned him the money because he
used it to try to close a transaction in Europe that was supposed
to generate revenues. The transaction involves the creation of a
distribution system in Europe to sell American Inter-Metallic's
products and generate revenue. In November 2001, we increased
the amount due to $114,000 to cover accrued interest and secured
the loan with all of the assets of American Intermetallics. Mr.
DelVicario made a $5,000 payment on the loan in March 2002.
In April 2001, we loaned $70,000 to Pascal M. Nardelli,
president and chief executive officer of Petrol Rem. In August
2001, Mr. Nardelli repaid the note in full, plus accrued interest
of $2,110.
All future loans to officers, directors and their affiliates
will also be made only after board approval, and for good
business purposes.
Consulting
In 2000, we hired Thomas F. Feola as an outside consultant
to assist us with finding and evaluating environmental companies
for potential acquisitions, mergers or strategic alliances.
Thomas F. Feola is the brother of Anthony J. Feola, our former COO
and a director. We paid Thomas Feola $64,000 in 2000 and $56,000 in
2001, and we terminated his services in August 2001.
In connection with his resignation on July 25, 2002, we entered
into a consulting agreement with Fred E. Cooper our former CEO and
director. Uner the terms of the agreement, Mr. Cooper will act as a
consultant, focusing on transitioning and completion of pending
transactions. Mr. Cooper will be paid $15,000 per month for his
services (inclusive of expenses) for a maximum term of one year
under an agreement which is terminable by either party at any time
upon ten days notice.
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
In July 2002, Fred E. Cooper, Anthony J. Feola and Glenn
Keeling resigned as BICO officers and directors. This
section on executive compensation reflects information about
our officers as of December 31, 2001.
SUMMARY COMPENSATION TABLE
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 $100,000. In addition, we included information
regarding David L. Purdy, who was an executive officer and
director until June 2000, and the president of our Biocontrol
Technology division during 2000. In November 2000, Mr. Purdy
resigned effective February 2001.
==============================================================================
Annual Compensation | (1)Long Term Compensation
- ------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal Bonus($) 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 | 10,000,000(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 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 5/23/05 $ 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 7/30/06 $ 0 $ 0 $0
500,000 3% $ 0.05 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
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 0 $ 0 1,500,000 $ 0
Johnson (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
Until July 2002, we had employment agreements with our
executive officers, Fred E. Cooper, Anthony J. Feola and Glenn
Keeling effective November 1, 1994. We still have an employment
agreement with Michael P. Thompson effective August 16, 2000.
Under those agreements, they were 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 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.
ViaCirq also has an employment agreement with Mr. Keeling,
effective December 3, 2000, under which he is entitled to receive
an annual salary of $350,000.
In July 2002, Mssrs. Cooper, Feola and Keeling resigned as
BICO officers and directors, and gave up their employment agreements.
The following paragraphs summarize the terms of the agreements as
they existed, along with Mr. Thompson's agreement, which is still
effective. 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.
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.
July 2002 Agreements
In July 2002, we entered into agreements with Fred Cooper,
Anthony J. Feola and Glenn Keeling in connection with their
resignations. Both Mssrs. Cooper and Feola resigned as both
officers and directors of BICO, Diasense, and all of our
affiliates. Mr. Keeling resigned as an officer and director
of BICO and Diasense, but will continue as an officer and
director of ViaCirq. All of them had employment agreements
with us. All of the July 2002 agreements provided us with a
right to offset their accrued and unpaid salaries against
the balance of the loans they owed us. The July 2002
agreements released us from our obligations under their
employment agreements, which included not only significant
severance payments, but would have required us to issue them
collectively a total of 12% of our outstanding common stock.
We agreed to pay their health insurance for a year. We also
agreed to pay Mr. Cooper as an outside consultant so he
could transition the work he'd been doing, and facilitate
completing financing transactions he was working on. If any
of those transactions raise cash for us, our board of
directors can pay him a bonus at their discretion. If we do
pay him a bonus, 40% of it will go toward paying the balance
of his outstanding loans. We can cancel Mr. Cooper's
consulting agreement at any time with 10 days' notice.
We've attached copies of all the July 2002 agreements as
exhibits to this registration statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the indicated information as
of June 30, 2002 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. Since June 30, 2002,
Mssrs. Cooper, Feola and Keeling have resigned as our officers
and directors.
As of June 30, 2002, we had 3,427,855,786 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
June 30, 2002. The left-hand column sets forth the percentage of
the total number of shares of common stock outstanding as of June
30, 2002, 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 Amount and Percent of Beneficial
Address of Nature of Ownership of
Beneficial Beneficial Total Outstanding
Owner 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 2,000,000 (6) *
1140 Connecticut Ave., NW
11th Floor
Washington, DC 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 54,138,700(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,
2002. For individual computation purposes, the total number of
shares of common stock outstanding as of June 30, 2002 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; 1,000,000
shares of common stock at $.05 per share until July 30, 2006; and
500,000 shares of common stock at $0.05 per share until November
19, 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, 2001,
2000 and 1999, 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, 2001 and have been included in reliance upon that report given
upon the authority of that firm as experts in auditing and
accounting.
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, 2001 and
2000, 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, 2001. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with U.S. 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 as of December 31, 2001 and 2000, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2001, in
conformity with U.S. generally accepted accounting principles.
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, 2001, and these conditions are expected to
continue through 2002, 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.
Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
February 28, 2002
(except for Note S, as to which
the date is March 29, 2002)
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
Mar. 31, 2002
(Unaudited) Dec. 31, 2001 Dec. 31, 2000
------------- ------------- -------------
CURRENT ASSETS
Cash and equivalents (note A) $ 607,628 $ 268,095 $ 7,844,807
Accounts receivable - net of allowance for doubtful accounts
of $43,664 at Dec. 31, 2001 and 2000 1,097,370 1,235,957 400,950
Inventory - net of valuation allowance (notes A and D) 1,325,615 1,190,796 805,224
Related party notes receivable (notes C and O) 118,922 138,394 87,706
Notes receivable (note C) - - 12,000
Notes receivable-Practical Environmental Sol.,Inc.(note C) - - 1,914,363
Interest receivable (note C) 222,649 144,411 48,252
Prepaid expenses (note E) 2,691,864 1,055,901 988,354
Other current assets 62,268 62,268 47,268
------------- ------------- -------------
TOTAL CURRENT ASSETS 6,126,316 4,095,822 12,148,924
PROPERTY, PLANT AND EQUIPMENT (notes A and K)
Building 2,566,777 2,566,777 2,529,176
Land 246,250 246,250 246,250
Leasehold improvements 2,113,057 2,071,629 1,848,674
Machinery and equipment 7,517,837 7,526,201 6,405,594
Furniture, fixtures & equipment 937,607 937,607 921,195
------------- ------------- -------------
13,381,528 13,348,464 11,950,889
Less accumulated depreciation 6,435,317 6,151,384 5,288,910
------------- ------------- -------------
6,946,211 7,197,080 6,661,979
OTHER ASSETS
Related Party Receivables
Notes receivable - (notes C and O) 1,036,293 1,036,293 1,174,738
Interest receivable - (notes C and O) 35,176 14,406 13,463
------------- ------------- -------------
1,071,469 1,050,699 1,188,201
Allowance for related party receivables (1,071,469) (1,050,699) (1,188,201)
------------- ------------- ------------
- - -
Notes receivable - (note C) 82,738 111,041 200,000
Notes receivable-Practical Environmental Sol., Inc. (note C) 3,148,404 3,148,404 -
Goodwill, net of amortization (notes A and R) 238,102 595,217 694,895
Intangible assets - marketing rights (Note F) 5,600,000 6,866,398 -
Investment in unconsolidated subsidiaries-(notes A and G) 1,515,079 2,409,843 2,061,439
Other assets 137,110 213,616 162,833
------------- ------------- -------------
10,721,433 13,344,519 3,119,167
------------- ------------- -------------
TOTAL ASSETS $ 23,793,960 $ 24,637,421 $21,930,070
============= ============= =============
The accompanying notes are an integral part of these statements.
F-2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
Mar. 31, 2002
(Unaudited) Dec.31, 2001 Dec. 31, 2000
------------ ------------ -------------
CURRENT LIABILITIES
Accounts payable $ 5,153,986 $ 4,755,445 $ 578,520
Notes payable (note J) 6,997,278 7,037,198 1,069,127
Current portion of long-term debt (note J) 80,449 86,420 4,113,656
Current portion of capital lease obligations (note K) 99,427 75,523 98,788
Debentures payable (note L) - - 2,400,000
Accrued liabilities (note I) 4,000,409 2,568,526 3,131,765
Escrow payable (note M) 2,700 2,700 2,700
------------ ------------ -------------
TOTAL CURRENT LIABILITIES 16,334,249 14,525,812 11,394,556
LONG-TERM LIABILITIES
Capital lease obligations (note K) 2,110,205 2,128,149 2,203,673
Long-term debt (note J) 111,111 127,777 7,864
Other 19,603 25,009 -
------------ ------------- -------------
2,240,919 2,280,935 2,211,537
COMMITMENTS AND CONTIGENCIES (note P)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARIES (note A) 273,340 293,527 434,990
STOCKHOLDERS' EQUITY (note M)
Common stock, par value $.10 per share,
authorized 4,000,000,000 shares at Dec. 31,
2001 and 1,700,000 shares at Dec. 31, 2000, outstanding
2,450,631,111 shares at Dec. 31, 2001 and 1,383,704,167
at Dec. 31, 2000 265,688,598 245,063,111 138,370,417
Convertible preferred stock, par value $10
per share, authorized 500,000 shares issuable in
series, shares issued and outstanding 16,930 at
December 31, 2001 and none at December 31, 2000. 178,800 169,300 -
Discount assigned to beneficial conversion feature -
preferred stock (note M) - (141,000) -
Additional paid-in capital (5,256,283) 10,887,152 87,035,096
Warrants 6,221,655 6,221,655 6,204,235
Accumulated deficit (261,887,318) (254,663,071) (223,720,761)
------------ ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 4,945,452 7,537,147 7,888,987
------------ ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 23,793,960 $ 24,637,421 $ 21,930,070
============ ============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, Year Ended December 31,
2002 2001 2001 2000 1999
(Unaudited) (Unaudited)
------------- ------------- ------------- ------------- -------------
Revenues
Net sales $1,575,871 $ 599,007 $ 4,342,203 $ 340,327 $ 112,354
Other income 24,803 7,418 7,715 5,547 52,897
------------- ------------- ------------- ------------- -------------
1,600,674 606,425 4,349,918 345,874 165,251
Costs and expenses
Cost of products sold 1,155,542 424,092 3,287,176 354,511 147,971
Research and development (notes A,M and N) 426,754 1,285,222 7,113,258 6,651,471 4,430,819
General and administrative (note M) 4,838,617 6,238,852 21,879,130 21,407,472 12,884,237
Amortization (notes A,F and G) 186,817 182,715 804,458 392,307 39,716
Impairment loss 2,202,642 - - - 5,060,951
------------- ------------- ------------- ------------- -------------
8,810,372 8,130,881 33,084,022 28,805,761 22,563,694
------------- ------------- ------------- ------------- -------------
Loss from operations (7,209,698) (7,524,456) (28,734,104) (28,459,887) (22,398,443)
Other income and expense
Interest income (102,727) (124,600) (561,817) (589,529) (1,031,560)
Debt issue costs (note A) - 679,174 2,218,066 1,005,000 3,458,300
Beneficial convertible debt feature(notes A&L) - 2,063,915 2,063,915 3,062,500 7,228,296
Interest expense 142,737 229,194 826,346 1,924,873 1,373,404
Warrant extensions (note M) - - - 5,233,529 4,669,483
Loss on unconsolidated subsidiaries(notes A&G) 140,635 72,192 279,978 158,183 -
Loss on disposal of assets 24,168 18,311 29,759 122,857 376
Other taxes (note N) - - 120,882 - -
Unusual item (note J and P) (170,077) - (2,562,848) 3,450,000 -
------------ ------------ ------------- ------------- -------------
34,736 2,938,186 2,414,281 14,367,413 15,698,299
------------ ------------ ------------- ------------- -------------
Loss before unrelated
investors' interest (7,244,434) (10,462,642) (31,148,385) (42,827,300) (38,096,742)
Unrelated investors' interest in
net loss of subsidiaries 20,187 63,930 206,075 280,997 24,164
------------- -------------- ------------- -------------- -------------
Net loss $(7,224,247) $(10,398,712) $(30,942,310) $(42,546,303) $(38,072,578)
============= ============== ============= ============== =============
Loss per common share - Basic:
Net Loss $ (0.003) $ (0.008) $ (0.02) $ (0.04) $ (0.05)
Less: Preferred stock dividends (0.000) (0.000) (0.00) (0.00) (0.00)
------------- -------------- ------------- -------------- -------------
Net loss attributable to
common stockholders: $ (0.003) $ (0.008) $ (0.02) $ (0.04) $ (0.05)
============= ============== ============= ============= =============
Loss per common share - Diluted:
Net Loss $ (0.003) $ (0.008) $ (0.02) $ (0.04) $ (0.05)
Less: Preferred stock dividends (0.000) (0.000) (0.00) (0.00) (0.00)
------------- -------------- ------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.003) $ (0.008) $ (0.02) $ (0.04) $ (0.05)
============= ============== ============= ============= =============
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 Discount assigned Common Stock issued for Additional
--------------- to benef. conv. ------------ Common Stk Paid in Accumulated
Shares Amount feature Shares Amount Warrants Rel Party Capital Deficit Total
------ ------ ---------- ------ ------ ---------- --------- ----------- -------------- ----------
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
subscription 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 (1,883,333) - - - - 2,358,333 - 4,275,000
Constructive div.
on preferred stk. - - 1,883,333 - - - - (1,883,333) - -
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 - - (67,717,009) - 9,224,000
Preferred stk.
-Series G 10,530 105,300(1,662,632) - - - - 6,822,332 - 5,265,000
Preferred stk.
-Series H 2,000 20,000 (250,000) - - - - 1,070,000 - 840,000
Preferred stk.
-Series I 4,000 40,000 - - - - - 1,960,000 - 2,000,000
Preferred stk.
-Series J 400 4,000 (50,000) - - - - 226,000 - 180,000
Constructive
dividend on
preferred stock - - 1,821,632 - - - - (1,821,632) - -
Conversion of
debentures - - - 297,516,852 29,751,685 - - (19,096,026) - 10,655,659
Warrants
granted and extended
-subsidiaries - - - - - - - (1,331) - (1,331)
Issuance of
convertible debt - - - - - - - 2,058,970 - 2,058,970
Common stk.
issued-subs. - - - - - - - 162,500 - 162,500
Warrants granted - - - - - 17,420 - 188,252 - 205,672
Net loss - - - - - - - - (30,942,310) (30,942,310)
------ ------- ------- ------------- ---------- ---------- ------- ---------- ----------- -----------
Balance at
Dec. 31, 2001 - $ - $(141,000) 1,383,704,167$138,370,417$6,204,235 $ - $87,035,096 $(223,720,761) $ 7,888,987
------ ------- -------- ------------- ---------- ---------- ------- ---------- ----------- -----------
Proceeds from sale
of preferred stk 950 9,500 (118,750) - - - - 539,250 - 430,000
Common stk issued
for services - - - 206,254,877 20,625,487 - - (16,422,935) - 4,202,552
Constructive
dividend on
preferred stk. - - 259,750 - - - - (259,750) - -
Net loss - - - - - - - - (7,224,247) (7,224,247)
------ --------- -------- ------------- ---------- ---------- ------- ---------- ----------- -----------
Balance at
Mar. 31, 2002 17,880 $ 178,800 $ - 2,656,885,988$265,688,598$6,221,655 $ - $(5,256,283)$(261,887,318) $ 4,945,452
====== ========= ======== ============= ========== ========== ======= ========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the three months ended March 31, Year ended December 31,
2002 2001 2001 2000 1999
Unaudited Unaudited
------------- -------------- ------------- ------------- -------------
Cash flows used by operating activities:
Net loss $(7,224,247) $(10,398,712) $(30,942,310) $(42,546,303) $(38,072,578)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 298,148 228,528 977,178 689,762 773,696
Amortization 186,817 182,715 804,453 392,307 42,149
Loss on disposal of assets 24,168 18,311 29,759 122,857 177,000
Loss on unconsolidated subsidiaries 140,635 72,192 279,978 158,183 -
Unrelated investors' interest in susidiaries (20,187) (63,934) (206,078) (280,997) (24,164)
Stock issued in exchange for services - - - 338,000 148,484
Stock issued in exchange for services by sub. - - - 225,000 -
Debenture interest converted to stock - - - 120,547 211,503
Beneficial convertible debt feature - 2,063,915 2,063,915 3,062,500 7,228,296
Provision for (recovery of)
potential loss on notes receivable 20,770 (31,726) (137,502) (152,359) 70,253
Warrants granted - 17,414 17,420 608,655 403,135
Warrants granted and extended by subsidiaries - - 188,252 11,184,858 5,897,332
(Decrease)increase in allow. for losses on
accounts receivable - - - (20,015) 36,620
(Increase) in accounts receivable 138,587 (5,577) (835,007) (25,148) (7,924)
Decrease in inventories 56,287 (299,360) 1,303,127 101,480 90,052
(Decrease) in inventory valuation allowance (191,106) 150,000 (1,688,699) (859,283) (25,845)
(Increase) in prepaid expenses 224,037 1,788 (67,547) (651,305) (21,702)
(Increase) decrease in other assets 64,689 (10,622) (113,051) 33,834 (146,408)
Increase (decrease) in accounts payable 398,541 (132,561) 4,176,925 (296,657) (949,578)
Increase in other liabilities 1,426,477 305,826 820,451 1,112,211 697,726
Debt forgiveness - - (2,562,848) - -
Impairment loss 2,202,642 - - - 5,060,951
------------- -------------- ------------- ------------- -------------
Net cash flow used by operating
activities (2,253,742) (7,901,803) (25,891,584) (26,681,873) (18,411,002)
------------- --------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (71,447) (328,179) (1,542,038) (1,388,508) (641,371)
Disposal of property, plant and equipment - - - - 175,000
Acquisitions, net of cash acquired - - - (1,395,126) -
(Increase) in notes receivable - (1,082,609) (1,429,041) (1,939,073) (337,928)
Payments received on notes receivable 47,775 55,633 383,716 378,817 141,974
(Increase) in interest receivable (99,008) (43,419) (97,102) (32,756) (25,774)
Purchase of marketing rights - - (1,285,000) - -
Acquisition of unconsolidated subsidiaries - (753,948) (1,093,948) (2,078,520) (525,000)
------------- --------------- ------------- ------------- -------------
Net cash used by investing activites (122,680) (2,152,522) (5,063,413) (6,455,166) (1,213,099)
------------- --------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock offering - - 10,677,600 18,604,650 900,000
Stock issued in exchange for services 2,342,552 - - - -
Proceeds from warrants exercised - - - 615,658 86,018
Proceeds from sale of preferred stock 430,000 - 6,285,000 4,275,000 810,000
Redemption of stock subscriptions - - (1,453,600) - -
Proceeds from debentures payable - 8,255,659 8,255,659 12,250,000 33,150,000
Payments on debentures payable - - - (5,850,000) (4,130,000)
Payments on notes payable and long-term debt (310,581) (563,727) (14,408,087) (53,125) (465,650)
Increase in notes payable and long-term debt 248,024 - 14,120,502 855,801 75,396
Payments on capital lease obligations 5,960 (29,052) (98,789) (543,769) (99,777)
------------- --------------- ------------- ------------- -------------
Net cash provided by financing activities 2,715,955 7,662,880 23,378,285 30,154,215 30,325,987
------------- --------------- _____________ _____________ _____________
Net increase (decrease) in cash 339,533 (2,391,445) (7,576,712) (2,982,824) 10,701,886
Cash and cash equivalents, beginning of year 268,095 7,844,807 7,844,807 10,827,631 125,745
------------- --------------- ------------- ------------- -------------
Cash and cash equivalents, end of year $ 607,628 $ 5,453,362 $ 268,095 $ 7,844,807 $ 10,827,631
============= =============== ============= ============= =============
The accompanying notes are an integral part of these statements.
F-6
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
For the three months ended March 31, Year ended December 31,
2002 2001 2001 2000 1999
----------- ---------- ------------- ------------- -------------
Supplemental Information:
Interest paid $41,938 $36,288 $ 412,239 $ 1,485,286 $ 966,713
========== ========== ============= ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of property under a
capital lease:
Land $ $ $ - $ 112,500 $ -
Building - 1,321,566 -
--------- ---------- ------------ ------------ ------------
$ $ $ - $ 1,434,066 $ -
========= ========== ============ ============ ============
Conversion of preferred stock for
common stock $ $ $ - $ 5,580,168 $ -
========= ========== ============ ============ ============
Preferred stock dividend paid in
common stock $ $ $ - $ 121,825 $ -
========= ========== ============ ============ ============
Constructive dividend on
convertible preferred stock $ 259,750 $ $ 1,821,632 $ 1,883,333 $ -
========= ========== ============ ============ ============
Conversion of debentures for
common stock $ $ $ 10,655,659 $ 4,000,000 $ 31,845,000
========= ========== ============ ============ ============
Conversion of stock subscriptions
for common stock $ $ $ 9,900,000 $ - $ -
========= ========== ============ ============ ============
Preferred stock issued in payment
of long term debt $ $ $ 2,000,000 $ - $ -
========= ========== ============ ============ ============
Acquisition of marketing rights
for note payable $ $ $ 5,715,000 $ - $ -
========= ========== ============ ============ ============
The accompanying notes are an integral part of these statements.
BICO, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
BICO, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
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: Diasense, Inc., a 52% owned subsidiary as of December 31,
2001 and 2000; Petrol Rem, Inc., a 75% owned subsidiary as of
December 31, 2001 and 2000; ViaCirq, Inc. (formerly IDT,
Inc.), a 99% owned subsidiary as of December 31, 2001 and
2000; ViaTherm, Inc., a 99% owned subsidiary as of December
31, 2001; Ceramic Coatings Technologies, Inc., a 98% owned
subsidiary as of December 31, 2001 and 2000 and B-A-
Champ.com, Inc., a 99.8% owned subsidiary as of December 31,
2001 and a 51% owned subsidiary as of December 31, 2000.
Also included in the consolidated financial statements are
the accounts of the following subsidiaries which are
inactive: International Chemical Technologies, Inc., a 58.4%
owned subsidiary as of December 31, 2001 and 2000 and
Barnacle Ban Corporation, a 100% owned subsidiary as of
December 31, 2001 and 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.
Some of our consolidated subsidiaries also include
consolidated subsidiaries of their own. Petrol Rem, Inc.
consolidated financial statements include the accounts of
INTCO, Inc., a 51% owned subsidiary as of December 31, 2001
and 2000; and Tireless, Inc., a 51% owned subsidiary as of
December 31, 2001 and 2000. B-A-Champ.com, Inc. consolidated
financial statements include the accounts of TruePoints.com,
Inc., a 100% owned subsidiary as of December 31, 2001 and
2000.
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.
Included in cash and equivalents is a $50,000 certificate of
deposit which is pledged as collateral to secure the
Company's corporate credit cards.
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. With the Company's
implementation of newly issued accounting standards effective
January 1, 2002, goodwill will no longer be amortized. See
Note A, number 20 below.
7. Investment in Unconsolidated Subsidiaries
During 2000 and 2001, 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. With the
Company's implementation of newly issued accounting standards
effective January 1, 2002, goodwill will no longer be
amortized. See Note A, number 20 below.
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 1,952,313,675 in
2001, 1,037,254,759 in 2000 and 695,400,191 in 1999. The net
losses attributable to common shareholders for the years
ended December 31, 2001, 2000 and 1999 were $32,763,942,
$44,429,636 and $38,072,578, respectively, which include
constructive dividends to preferred stockholders of
$1,821,632, $1,883,333 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
No interest was capitalized as a component of the cost of
property, plant and equipment constructed for its own use
during the years ended December 31, 2001, 2000 or 1999.
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 when debentures are issued. Total debt issue
costs incurred for the periods ended December 31, 2001, 2000
and 1999 were $2,218,066, $1,005,000 and $3,458,300,
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,
investments in unconsolidated subsidiaries and accounts
receivable from two customers, which represent over 90% of
consolidated accounts receivable. 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 O) are unsecured and
represent a concentration of credit risk due to the common
employment and financial dependency of these individuals on
the Company. The company has reviewed the creditworthiness of
its significant customers and does not expect to incur a
significant loss for uncollected accounts.
16. Comprehensive Income
The Company's consolidated net income (loss) is 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 4% convertible preferred stock includes a
beneficial conversion feature providing the preferred
stockholder a discount upon conversion to the Company's
common stock after a specified number of 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 discount assigned to beneficial
conversion feature and is amortized as constructive dividends
to the preferred stockholders over the period prior to
conversion using the effective interest method.
19. Advertising Costs
Advertising costs are charged to operations when incurred.
Advertising expenses for 2001, 2000 and 1999 were $367,867,
$208,617 and $4,851, respectively.
20. 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.
NOTE B - OPERATIONS AND LIQUIDITY
The Company and its subsidiaries have incurred substantial
losses in 2001 and in prior years and have funded their
operations and product development 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, 2001,
2000, and 1999, there is substantial doubt about the
Company's ability to continue as a going concern.
In order to meet its projected expenditures for 2002,
Management believes that additional funds will need to be
raised from sales of stock and future debt issuance. As
discussed in NOTE S, Management secured commitments to
provide such funding during the first quarter of 2002.
Management believes that these financing commitments along
with a plan to reduce operating expenses, to curtail
investment activities and to dispose of certain subsidiaries
(Note S) will provide the opportunity for the Company to
continue as a going concern.
NOTE C - NOTES RECEIVABLE
Notes receivable due from various related and unrelated
parties consisted of:
Dec. 31, 2001 Dec. 31, 2000
Related Parties
Note receivable from Allegheny
Food Services, Inc. of which
Joseph Kondisko, a former
director, is principal owner,
payable in monthly installments $ 24,394 $ 87,706
of $3,630, including interest at
9.25%. The balance is due and
payable at December 31, 2001.
Note Receivable from Anthony J.
DelVicario, a former director of
Diasense, Inc. and president of
American Inter-Metallics, Inc.,
dated November 9, 2001 in the
amount of $114,000 payable on 114,000 -
demand with interest at prime
rate plus 2%. The note is
collateralized by the assets of
American Inter-Metallics, Inc.
Note receivable from Fred E.
Cooper, Chief Executive Officer,
dated April 28, 1999, in the
amount of $777,400, payable in
monthly installments of $9,427 671,338 715,693
with a final balloon payment on
May 31, 2002. Interest is
accrued at a rate of 8% per
annum.
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 146,332 237,737
final balloon payment on May 1,
2002. Interest is accrued at a
rate of 8% per annum.
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 195,623 221,308
payment on May 31, 2002.
Interest is accrued at a rate of
8% per annum.
Demand note receivable from
Joseph A. Resnick, an employee, 23,000 -
payable upon demand with 8.75%
interest.
Unrelated Parties
Demand note receivable from
Practical Environmental
Solutions, Inc. on a $3,150,000
line of credit agreement.
Principal plus interest accrued
at a rate of 10% per annum is
payable upon demand on or before
May 31, 2002. The loan is
collateralized by a security
interest and lien on all of
Practical Environmental
Solutions' assets including its
rights to any and all contracts,
options or claims of that company
to purchase or acquire the assets 3,148,404 1,914,363
of any environmental company.
The note is classified as a
noncurrent asset as of December
31, 2001 because the management
of Petrol Rem is considering
converting 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.
Note receivable from an
individual, due on November 15,
2002 with interest at prime plus 111,041 200,000
2% (6.75% at December 31, 2001).
Note receivable from an
individual, payable upon - 12,000
demand with 8.75% interest.
---------- -----------
4,434,132 3,388,807
Less current notes receivable 138,394 2,014,069
---------- -----------
Noncurrent $4,295,738 $ 1,374,738
========== ===========
Accrued interest receivable on the related party notes as of
December 31, 2001and 2000 was $16,092 and $13,463,
respectively.
Due to the financial dependency of the above officers and
directors on the Company, an allowance of $1,050,699 and
$1,188,201 has been provided as of December 31, 2001 and
2000, respectively.
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.
NOTE D - INVENTORY
Inventories consisted of the following as of:
Dec. 31, 2001 Dec. 31, 2000
Raw materials $ 543,354 $ 2,699,527
Work in Process 341,226 512,526
Finished goods 2,111,439 1,087,093
--------- ---------
2,996,019 4,299,146
Less valuation (1,805,223) (3,493,922)
allowance --------- ---------
$1,190,796 $ 805,224
========= =========
NOTE E - PREPAID EXPENSES
Prepaid expenses consisted of the following as of:
Dec. 31, 2001 Dec. 31, 2000
Prepaid insurance $ 330,761 $ 304,229
Prepaid professional fees 612,813 234,961
Prepaid debt issue costs - 220,000
Employee advances 47,297 32,549
Prepaid taxes 22,642 31,200
Security deposits 4,428 14,799
Other prepaid expenses 37,960 150,616
---------- ---------
$1,055,901 $ 988,354
========== =========
NOTE F - INTANGIBLE ASSETS
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.
The entire $7,000,000 was recorded as an intangible asset with a
corresponding amount payable to GAIFAR. When the marketing
agreement became effective in October 2001, $1,025,000 previously
loaned to GAIFAR was applied to the $7 million owed to GAIFAR for
the marketing rights. 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. These payments to GAIFAR totaling
$1,025,000 were made part of the consideration paid to acquire
the exclusive worldwide marketing rights to the rapid HIV tests
and technology and are now part of the Company's investment in
Rapid HIV Detection Corp. An additional $260,000 was paid to
GAIFAR during the fourth quarter of 2001 reducing the amount
due to GAIFAR to $5,715,000, which is included in the current
portion of long-term debt (note K). The remaining payments are due
in monthly amounts ranging from $125,000 to $1,000,000 through
August 20, 2002. The marketing rights are being amortized as an
intangible asset over the ten-year minimum term of the marketing
agreement. Amortization of $133,602 was recognized during 2001.
NOTE G - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
During the year ended December 31, 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%. 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, 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 owns 20% of AIM. 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, 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%.
Diasense holds a seat on the board of directors of this
unconsolidated subsidiary. MicroIslet is a California
company, which has licensed several diabetes research
technologies from Duke University with a specific focus on
optimizing microencapsulated islets for transplantation.
Also during the year ended December 31, 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. Diasense holds a seat on the
board of directors of Diabecore. Diabecore is a Toronto-
based company working to develop a new insulin for the
treatment of diabetes.
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, 2001 and December 31, 2000 are as follows:
Investment in
Unconsolidated Underlying Net Unamortized
Subsidiary Assets Goodwill Total
2001 2000 2001 2000 2001 2000
American Inter-
Metallics, Inc. $ 318,200 $222,912 $ 394,300 $441,004 $ 712,500 $ 663,916
Insight Data Link.com 22,876 28,503 41,629 52,546 64,505 81,049
MicroIslet, Inc. 130,477 50,731 786,874 688,508 917,351 739,239
Diabecore Medical,Inc 158,935 50,615 556,552 526,620 715,487 577,235
_________ ________ _________ _________ __________ ________
Total $ 630,488 $352,761 $1,779,355$1,708,678$2,409,843 $2,061,439
========= ======== ========= ========= ========== =========
The amounts recognized as amortization of goodwill and loss on
unconsolidated subsidiaries for each investment for the years ended
December 31, 2001 and 2000 are as follows:
Loss
Unconsolidated Amortization on
Subsidiary of Goodwill Unconsolidated
Subsidiaries
2001 2000 2001 2000
American Inter-
Metallics, Inc. $ 141,416 $106,369 $ - $ -
Insight Data 13,770 13,136 (12,774) (5,815)
Link.com
MicroIslet, Inc. 188,525 152,628 (233,363) (108,133)
Diabecore Medical, Inc. 121,855 72,049 (33,841) (44,235)
--------- ------- --------- --------
Total $ 465,566 $344,182 $(279,978) $(158,183)
========= ======= ========= ========
NOTE H- BUSINESS SEGMENTS
The Company operates in two reportable business segments:
Biomedical devices, which includes the operations of BICO, Inc.,
Diasense, 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
2001 Devices Bioremedication All Other Consolidated
Sales to external customers $ 817,353 $3,383,637 $ 141,213 $ 4,342,203
Cost of products sold 558,408 2,507,717 221,051 3,287,176
Gross profit (loss) 258,945 875,920 (79,838) 1,055,027
Identifiable assets 17,414,784 6,515,188 642,095 24,572,067
Capital expenditures 930,012 512,887 99,139 1,542,038
Depreciation and amortization 1,302,037 350,688 56,355 1,709,080
Interest Income 259,928 301,889 0 561,817
Interest Expense 737,972 11,329 77,045 826,346
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 3,599 (35,623)
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
NOTE I - ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of:
Dec. 31, 2001 Dec. 31, 2000
Accrued interest $ 176,080 $ 1,120,655
Accrued payroll 1,488,748 373,821
Accrued payroll taxes and 14,815 24,303
withholdings
Accrued vacation 65,446 66,445
Accrued class action 425,000 1,300,000
settlement (note P)
Deferred revenue 173,516 21,633
Accrued income taxes 140,827 43,780
Other accrued liabilities 84,094 181,128
----------- ----------
$ 2,568,526 $ 3,131,765
=========== ==========
NOTE J - DEBT OBLIGATIONS
Notes payable consisted of the following as of:
Dec. 31, Dec. 31,
2001 2000
Note Payable in connection with a Settlement
Agreement and Mutual Release related to the
outstanding amounts owed for the Company's
stock purchase agreement for 58.4% interest
in International Chemical Technologies, Inc. 500,000 -
(ICTI). The note bears interest at a rate
of 10% per annum and is payable in ten
monthly installments from January to October
2002.
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 - 66,210
installments of $11,342 including interest
at 9.47% per annum beginning October 1,
2000.
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 79,016 -
installments of $13,534 including interest
at 9.45% per annum beginning October 1,
2001.
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 - 850,000
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.
Promissory Note payable to the minority
owner of Intco, Inc., a 51% owned subsidiary
of the Company's subsidiary, Petrol Rem,
Inc. The loan is collateralized by Petrol 500,000 -
Rem's 51% ownership in Intco. Principal and
interest at 7% per annum are payable upon
demand
Note Payable in connection with the purchase
of marketing rights for certain rapid HIV
tests. The note is payable in various 5,715,000 -
monthly installments ranging from $125,000
to $1,000,000 per month through August 2002
Commercial Premium Finance Agreement payable
in nine monthly installments of $11,492 89,187 -
including interest at 8.15% per annum
beginning December 9, 2001.
Commercial Premium Finance Agreement payable
in nine monthly installments of $15,878 108,630 -
including interest at 6.9% per annum
beginning November 1, 2001.
Commercial Premium Finance Agreement payable
in eight monthly installments of $13,208 - 77,317
including interest at 8.5% per annum
beginning December 1, 2000.
Commercial Premium Finance Agreement payable
in nine monthly installments of $9,903 - 75,600
including interest at 12.63% per annum
beginning December 10, 2000.
$50,000 line of credit with PNC Bank. The
outstanding balance bears interest at a
rate of 6.75% per annum. 45,365 -
---------- --------
Note payable $7,037,198 $1,069,127
========== =========
During the year ended December 31, 2001, the Company issued
promissory notes totaling $11,715,000. As of December 31, 2001, all
of these promissory notes totaling $11,715,000 had been repaid with
proceeds from the sale of common stock subscriptions and preferred
stock.
Long-term debt consisted of the following as of:
Dec. 31, Dec. 31,
2001 2000
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, 2000, the $ - $ 2,900,000
Company was in default on the terms of this
loan and the note holder had made demand for
payment. Accordingly, the unpaid balance
was classified as due and payable. In 2001,
the Company finalized an agreement for
payment of this note.
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 - 1,191,667
production facilities. At December 31,
2000, the Company was in default on the
terms of this loan and the note holder had
made demand for payment. Accordingly, the
unpaid balance was classified as due and
payable. In 2001, the Company finalized an
agreement for payment of this note See
further discussion of this agreement later
in this note.
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 3,503 20,351
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.
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 on demand or, if no demand is made, 3,602 7,263
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.
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 7.75% per annum
are payable on demand or, if no demand is 12,285 -
made, in 47 equal monthly installments of
$325 each commencing October 10, 2001 with a
final payment of all remaining principal and
interest due on September 10, 2005.
Term Loan of Tireless, Inc., a 51% owned
subsidiary of the Company's subsidiary,
Petrol Rem, Inc. The loan is collateralized
by certain Tireless assets. 194,444 -
Principal and interest at prime rate plus
2.5% per annum are payable in 36 monthly
installments of $5,556 each plus interest
commencing December 1, 2001.
Note Payable to a bank in monthly payments
of $433 including interest at 8.75% per 363 2,239
annum. The loan in collateralized by
equipment. ---------- ----------
214,197 4,121,520
Current portion of long-term debt 86,420 4,113,656
---------- ----------
Long-term debt $ 127,777 $ 7,864
========== ==========
As of December 31, 2001, the Company's current portion of
long-term debt included $4,091,667 due in connection with
debt incurred when ICTI was purchased. In addition,
$1,084,277 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.
NOTE K - 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 included 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 for
this facility was $0, $70,480 and $105,720 in 2001, 2000 and
1999, respectively.
The Company and its related subsidiaries also lease other
office facilities, various equipment and automobiles under
operating leases expiring in various years through 2005.
Total lease expense related to these leases was $598,981,
$534,235, and $425,654 in the years ended December 31, 2001,
2000 and 1999, 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, 2001 Dec. 31, 2000
Buildings $ 2,527,326 $ 2,527,326
Land 246,250 246,250
Equipment 264,490 264,490
---------- ------------
Sub Total 3,038,066 3,038,066
Less: Accumulated Depreciation 680,776 529,286
---------- ------------
Total Property under
Capital Leases $ 2,357,290 $ 2,508,780
========== ============
Minimum future lease payments under capital leases and
noncancelable operating leases are as follows:
Capital Operating Leases
Leases
2002 $ 336,562 $ 322,476
2003 333,654 251,661
2004 338,413 72,068
2005 352,066 16,500
2006 357,115 -
Thereafter 1,748,054 -
--------- ---------
Total minimum lease payments 3,465,864 $ 662,705
=========
Less amounts representing 1,262,192
interest ---------
Present value of net minimum
lease payments $2,203,672
=========
NOTE L- SUBORDINATED CONVERTIBLE DEBENTURES
During 2001 the Company issued 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 mandatory 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. As of
December 31, 2001, all of the debentures totaling $10,655,659
were converted into 297,516,852 shares of common stock.
During 2000 and 1999, the Company issued subordinated 4%
convertible debentures totaling $12,250,000 and $33,150,000,
respectively. Such convertible debentures were issued
pursuant to Regulation S, Regulation D, and/or Section 4(2)
and had a one-year mandatory maturity and were 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%.
NOTE M- STOCKHOLDERS' EQUITY
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
$121,825 was distributed to preferred shareholders upon
conversion.
During 2001, shares of preferred stock were authorized as "4%
Cumulative Convertible Preferred Stock" in the following
series and with the following features:
Issued Number of Days
Shares at until
Series Authorized Dec. 31, Conversion Conversion to
Shares 2001 Discount Common Stock
G 100,000 10,530 24% 60
H 246,000 2,000 20% 75
I 4,000 4,000 0% 0
J 50,000 400 20% 30
Series G, H and J include a beneficial conversion feature
providing the preferred shareholder a discount upon
conversion to the Company's common stock after a specified
number of 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
discount assigned to the beneficial conversion feature of
preferred stock and is amortized as constructive dividends to
the preferred shareholders over the holding period using the
effective interest method. The total valuation discount of
this beneficial conversion feature on the preferred stock
outstanding at December 31, 2001 was $1,962,632. Total
amortization recognized as constructive dividends that were
charged to Additional Paid in Capital in the year ended
December 31, 2001 was $1,821,632.
Common Stock
In December 2001, we filed a Form S-8 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.
Common Stock Warrants
During 2001, warrants ranging from $.015 to $.102 per share
to purchase 65,641,400 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
2000, warrants to purchase 5,941,998 shares were granted at
exercise prices ranging from $.07 to $.25 per share. In
connection with the granting of warrants, the Company
recognized $17,420 and $324,897 of general and administrative
expense in 2001 and 2000 respectively. Warrants to purchase
96,136,560 shares of common stock were exercisable at
December 31, 2001. The per share exercise prices of these
warrants are as follows:
Shares Exercise
Price
30,000 $.0150
36,400 $.0156
60,000 $.0208
60,000 $.0212
60,000 $.0301
60,000 $.0372
85,000 $.0382
12,550,000 $.0500
52,000,000 $.0525
20,000 $.0600
160,000 $.0700
500,000 $.0730
35,000 $.0800
1,700,000 $.1000
200,000 $.1020
85,000 $.1030
1,000,000 $.1250
19,910,500 $.1290
1,110,200 $.1300
600,000 $.1400
400,000 $.1440
125,000 $.1550
236,798 $.1600
10,000 $.2200
2,326,700 $.2500
80,000 $.3300
50,000 $.3800
1,482 $.4500
350,000 $.5000
884,000 $1.0000
150,000 $1.4800
1,025,000 $2.0000
71,000 $2.1250
69,480 $2.2500
25,000 $2.4100
20,000 $2.7500
25,000 $3.0000
25,000 $3.2000
----------
Total 96,136,560
==========
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 2002 2003 2004 2005 2006
1990 406,700 0 406,700 0 0 0
1991 1,251,482 351,482 900,000 0 0 0
1992 0 0 0 0 0 0
1993 131,000 0 131,000 0 0 0
1994 130,000 20,000 85,000 25,000 0 0
1995 0 0 0 0 0 0
1996 234,480 0 175,000 59,480 0 0
1997 944,000 944,000 0 0 0 0
1998 1,420,000 0 1,420,000 0 0 0
1999 20,035,500 0 0 20,035,500 0 0
2000 5,941,998 0 0 5,941,998 0
2001 65,641,400 0 0 0 65,641,400
__________ _________ _________ __________ ___________ ___________
96,136,560 1,315,482 3,117,700 20,119,980 5,941,998 65,641,400
========== ========= ======== ========== =========== ===========
The following is a summary of the warrant transactions during
2001:
Outstanding at beginning of period 31,378,160
Granted during the twelve-month period 65,641,400
Canceled during the twelve-month period (883,000)
Exercised during the twelve-month period -
------------
Outstanding and eligible for exercise at
end of period 96,136,560
============
The following is a summary of expenses recognized in connection
with warrants granted or extended during 2001 and 2000:
2001 2000
Granted Extended Total Granted Extended Total
Parent
Company $17,420 $ - $ 17,420 $ 324,897 $ - $ 324,897
Subsidiaries:
Diasense 55,199 - 55,199 230,178 - 230,178
ViaCirQ 133,052 - 133,052 5,885,069 5,233,529 11,118,598
------- ------ ------- --------- --------- ----------
188,251 - 188,251 6,115,247 5,233,529 11,348,776
------- ------ ------- --------- --------- ----------
Total $205,671 $ - $205,671 $6,440,144 $5,233,529 $11,673,673
======= ====== ======== ========= ========= ==========
During 2001 and 2000, expenses recognized on warrants granted
are included in the Statement of Operations as general and
administrative expenses of $205,671 and $6,071,961,
respectively and research and development expenses of $0 and
$368,183, respectively.
Warrant Extensions
During 2001, the Company extended the exercise date of
warrants to purchase 1,432,700 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.25 to $3.00, 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 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.
Diasense, Inc. Common Stock
At December 31, 2001, warrants to purchase 10,635,013 shares
of Diasense, Inc. common stock were exercisable. The per
share exercise price is $.50 for 7,780,000 shares, $1.00 for
2,160,463 shares and $3.50 for 694,550 shares. The warrants
expire at various dates through 2006. To the extent that all
warrants were exercised, the Company's proportionate
ownership would be diluted from 52% at December 31, 2001 to
36%.
Diasense, Inc. Warrants
During 2001, Diasense, Inc. granted warrants to purchase
500,000 shares of its common stock and extended the exercise
date of warrants to purchase 1,205,750 shares of common stock
to certain officers, directors, employees and consultants. A
charge of $55,199 is included in general and administrative
expenses for warrants granted during 2001. The extended
warrants were originally granted at an exercise price ranging
from $0.50 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 2000, Diasense, 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.
Petrol Rem, Inc. Common Stock
At December 31, 2001, warrants to purchase 6,490,000 shares
of Petrol Rem common stock were exercisable. The per share
exercise price is $.10 for 3,940,000 shares, $.50 for
2,350,000 shares and $1.00 for 200,000 shares. The warrants
expire at various dates through 2006. To the extent that all
the warrants were exercised, the Company's proportionate
ownership would be diluted from 75% at December 31, 2001 to
57%.
Petrol Rem Warrants
During 2001, Petrol Rem, Inc. granted warrants to purchase
200,000 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
2001.
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.
ViaCirq, Inc. Common Stock
At December 31, 2001, warrants to purchase 6,508,000 shares
of ViaCirq common stock were exercisable. The per share
exercise price is $.10 for 6,183,000 shares and $.50 for
20,000 shares, $1.00 for 285,000 shares, $2.00 for 5,000
shares and $3.00 for 15,000 shares. The warrants expire at
various dates through 2006. To the extent that all the
warrants were exercised, the Company's proportionate
ownership would be diluted from 99% at December 31, 2001 to
70%.
ViaCirq, Inc. Warrants
During 2001, ViaCirq, Inc. granted warrants to purchase
25,000 shares of its common stock to certain officers,
directors, employees and consultants. Charges of $133,052
are included in general and administrative expenses for the
warrants granted during 2001. ViaCirq did not extend the
exercise dates of any warrants during 2001.
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.
NOTE N- INCOME TAXES
As of December 31, 2001, the Company and its subsidiaries
except Diasense Inc., Petrol Rem, Rapid HIV, and ICTI, have
available approximately $157,400,000 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 2002
through 2022. The Company also has research and development
credit carryforwards available to offset federal income taxes
of approximately $1,569,000, subject to limitations, expiring
in tax years 2005 through 2021.
As of September 30, 2001, the end of its fiscal year,
Diasense, Inc. had available approximately $26,700,000 of net
operating loss carryforwards for federal income tax purposes.
These carryforwards, which expire during the years 2005
through 2021, are available, subject to limitations, to
offset future taxable income. Diasense, 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, 2001, Petrol Rem had available
approximately $17,600,000 of net operating loss carryforwards
for federal income tax purposes. These carryforwards, which
expire during the years 2008 through 2022, 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, 2001, Rapid HIV had available
approximately $480,000 of net operating loss carryforwards
for federal income tax purposes. These carryforwards, which
expire in the year 2022, are available, subject to
limitations, to offset future taxable income.
As of December 31, 2001, ICTI had available approximately
$1,435,000 of net operating loss carryforwards for federal
income tax purposes. These carryforwards, which expire
during the years 2018 through 2020, 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 expensed for financial statement purposes in the
year ended December 31, 1999 in the amount of $6,092,562 and
in the year ended December 31, 2000 of $11,118,598.
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, 2001, December 31, 2000 and
December 31, 1999:
Dec. 31, Dec. 31, Dec. 31,
2001 2000 1999
Net Operating Loss $53,516,000 $ 45,050,000 $ 37,672,000
Warrant Expense 8,593,191 8,593,191 4,812,686
Tax Credit Carryforward 1,569,000 1,775,000 1,370,000
---------- ---------- -----------
63,678,191 55,418,191 43,854,868
Valuation Allowance (63,678,191) (55,418,191) (43,854,868)
---------- ---------- -----------
Net Deferred Tax Asset $ - $ - $ -
========== ========== ===========
The following is a summary of deferred tax benefit and the
associated increase in the valuation allowance:
Increase in
Deferred Valuation
Tax Benefit Allowance Net
Year-ended December 31, 2001 $( 8,466,000) $ 8,466,000 $ 0
Year-ended December 31, 2000 $(11,357,323) $ 11,357,323 $ 0
Year-ended December 31, 1999 $(11,718,671) $ 11,718,671 $ 0
From March 20, 1972 (inception)
Through December 31, 2001 $(63,678,191) $ 63,678,191 $ 0
Intco, Inc., a subsidiary of Petrol Rem, files separate income
tax returns. At December 31, 2001, the Company has included
Intco's tax provision and related deferred and current taxes
in the accompanying financial statements as follows:
Amount Recorded As
------ -----------
Income tax provision $120,882 Other income and expense-other taxes
Deferred tax asset $ 8,115 Other assets
Deferred tax liability $ 25,009 Long-term liabilities-other
Income taxes payable $140,827 Accrued liabilities
NOTE O - 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
Diasense, Inc. If successfully developed, the Sensor will
enable users to measure blood glucose levels without taking
blood samples. Diasense, 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
Diasense, Inc. If BICO were unable to perform under the
Research and Development or Manufacturing Agreements,
Diasense, Inc. would need to rely on other arrangements to
develop and manufacture the Sensor or perform these efforts
itself.
BICO and Diasense, 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. Diasense, 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 Diasense, 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 Diasense, 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 Diasense,
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 Diasense, 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
Diasense, Inc. under which Diasense, 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 Diasense, 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, 2001 and
December 31, 2000, include balances of $671,338 and $715,963,
respectively, on the term loan discussed above plus accrued
interest of $6,683 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, 2001 and
December 31, 2000, include balances of $146,332 and $237,737,
respectively, on the term loan discussed above plus accrued
interest of $3,829 and $3,668, respectively.
On April 28, 1999, T.J. Feola, COO 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, 2001 and
December 31, 2000 include balances of $195,623 and $221,308,
respectively, on the term loan discussed above plus accrued
interest of $1,947 and $631, respectively.
As of December 31, 2001 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 upon
demand. The outstanding balance on this loan was $24,394 at
December 31, 2001 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,
2001 and 2000 and included B-A-Champ.com, Inc. as a
consolidated subsidiary in the December 31, 2001 and 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. In 2001, Mr. Cooper gave his shares of B-A-
Champ.com, Inc. to BICO. As of December 31, 2001, BICO owns
99.8% of B-A-Champ.com, Inc.
In April 2001, the Company loaned $70,000 to Pascal M.
Nardelli, President and CEO 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, 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, payable in
monthly installments of $5,000. The note is secured by an
unconditional guaranty by American Inter-Metallics and all of
American Inter-Metallics' assets, including all of its
equipment.
Employment Contracts
The Company has employment contracts with change in control
provisions with four officers. In the event of a 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.
Consulting
In 2000, Thomas F. Feola, was engaged as an outside
consultant to assist with the identification and evaluation
of environmental companies for potential acquisitions,
mergers or strategic alliances. Thomas F. Feola is the
brother of Anthony J. Feola, COO and a director. The Company
paid Thomas Feola $64,000 in 2000 and $56,000 in 2001 for
these services which were terminated in August 2001.
NOTE P- COMMITMENTS AND CONTINGENCIES
Litigation
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology, 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, 2001, $3,250,000 has been
paid toward the settlement. During the third quarter of
2001, the parties agreed to extend the payments on the
remaining balance. The remaining balance of 425,000 is
included in accrued liabilities, including $225,000 for
extending the due dates, and was due in the fourth quarter of
2001. Due to cashflow problems, the final payment was not
made in 2001. Payment is necessary in order to satisfy the
terms of the settlement. 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,
Diasense, 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 Q- 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 from
inception through December 31, 2001.
NOTE R - 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 BICO common stock (fair
market value of $250,000), a warrant to purchase 1,000,000
shares of BICO stock for $2 per share anytime through March
4, 2003; and the guarantee by BICO 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 of $637,530 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 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 $73,657 at December 31, 2001.
In 2001, most of the minority owners of B-A-Champ.com, Inc.
gave their shares to BICO increasing BICO's ownership to
99.8%.
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. This promissory note was fully paid as of December
31, 2001.
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 $72,465 at December 31, 2001.
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 engaged 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, 2001, Petrol Rem
had invested $455,000 in Tireless and made loans to Tireless
totaling $381,160 to fund its operating and capital needs.
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 $52,145 as of
December 31, 2001.
NOTE S - SUBSEQUENT EVENTS
Preferred Stock
During January and February 2002, we issued 570,000
additional shares of our Series J preferred stock.
In February 2002, we accepted a $25 million funding
commitment from J.P. Carey Asset Management. The initial
funding will be through their purchase of $7.5 million of our
Series K preferred stock after our registration statement
covering the 620 million shares needed to cover the Series K
conversions is declared effective by the Securities and
Exchange Commission.
Common Stock
During the first quarter 2002, we issued approximately 101.25
million shares of our common stock from the Form S-8.
Bridge Loan
In March 2002, we obtained a $4 million bridge loan
commitment to help us meet our cash flow needs until the
registration statement covering the common stock underlying
our preferred stock is declared effective and we begin
receiving funding from our $25 million commitment from J.P.
Carey Asset Management discussed above. The bridge loan is
repayable in one year. $1 million of the $4 million commitment
had been placed in escrow as of March 29, 2002. These funds
will be released from escrow upon the filing of the Company's
registration statement. This $1 million loan was collateralized
by all equipment and other property of the Company.
Planned Subsidiary Disposition
In the first quarter 2002 the Company's Board of Directors
directed Management to pursue the disposition of two
consolidated subsidiaries, Ceramic Coatings Technologies,
Inc., and B-A-Champ.com (dba True Points.com). In 2001,
these two subsidiaries had losses of $(962,000) and
$(1,226,313) respectively, which were included in the
consolidated results of operations of the Company.
Clinical Trials
The clinical trials, which were being performed on the
Company's noninvasive glucose sensor were discontinued during
the first quarter of 2002 so that efforts could be directed
toward the development of a new generation device. The
clinical trials for the new device are being planned but will
be deferred until Management determines that adequate funding
is available. Total costs incurred during 2001 for the
clinical trials were approximately $1,900,000.
NOTE T - FIRST QUARTER 2002 PREPAID EXPENSES (UNAUDITED)
On March 28, 2002, the Company issued 100 million shares of
common stock to an individual in payment for consulting
services to be provided over a twelve-month period. The
total value of the stock on the date of issue was $1,860,000.
This amount was recorded as a prepaid expense at March 31,
2002 and will be expensed at $155,000 per month beginning in
April 2002.
NOTE U - FIRST QUARTER 2002 INVESTMENTS IN UNCONSOLIDATED
SUBSIDIARIES (UNAUDITED)
Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" became effective for
the Company's financial statements as of January 1, 2002 and,
under this provision, goodwill is no longer amortized but is
evaluated for impairment at least annually. Due to the
history of negative cashflow and the uncertainty of the
Company's ability to recover the carrying amount of the
investment in American Inter-Metallics, Inc., an impairment
loss of $712,500 was recognized in the quarter ended March
31, 2002. Also in the quarter ended March 31, 2002, the
goodwill associated with Insight Data Link.com, Inc. was
evaluated and management determined that an impairment loss
of $41,629 should be recognized. No impairment of the
goodwill related to Microislet or Diabecore was deemed
necessary at this time.
NOTE V - FIRST QUARTER 2002 INTANGIBLE ASSETS - MARKETING RIGHTS
(UNAUDITED)
Because of the uncertainty of the Company's ability to
recover the value of the intangible asset recognized for the
marketing rights for certain rapid HIV tests at March 31,
2002, an impairment charge was recorded to reduce the
intangible asset to $5,600,000, which is the balance of the
obligations due under that agreement. Even if the exclusive
marketing rights are terminated, this amount will be realized
in the elimination of the corresponding note payable.
NOTE W - FIRST QUARTER 2002 SHAREHOLDERS' EQUITY (UNAUDITED)
Preferred Stock
During the three months ended March 31, 2002, 950 shares of
Series J preferred stock were issued and these shares include
a beneficial conversion feature providing the preferred
stockholder a discount of 20% upon conversion to the
Company's common stock after 30 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 discount assigned to the beneficial
conversion feature of preferred stock and is amortized as
constructive dividends to the preferred shareholders over the
holding period using the effective interest method. The
total valuation discount of this beneficial conversion
feature on the preferred stock issued during the quarter
ending March 31, 2002 was $118,750. Total amortization of
the discount, including amortization of amounts related to
preferred shares issued in 2001 that were not fully amortized
at December 31, 2001, was $259,750 and this amount is
recognized as a constructive dividend charged to additional
paid in capital at March 31, 2002.
Common Stock
The Company filed a Form S-8 in December 2001 that included
125 million shares. The Form S-8 allows the Company to issue
freely tradable stock to non-executive employees under the
Employees' Equity Compensation plan and to certain
consultants in lieu of paying them in cash. As of March 31,
2002, approximately 106 million shares of common stock had
been issued from that Form S-8. Two additional Form S-8s
were filed in March 2002 that included shares for
consultants. One Form S-8 registered 100 million shares for
a consultant. The other Form S-8 included stock for a
consultant to obtain upon a warrant exercise. The consultant
did exercise $770,000 in warrants and he was issued 110
million shares of common stock in April 2002.
Additional Paid-In Capital / Discount on Issuance of Common
Stock
Additional paid-in capital decreased from $10,887,125 at
December 31, 2001 to ($5,256,283) at March 31, 2002. The
deficit balance at March 31, 2002 is classified as "discount
on issuance of common stock" and it represents the effect of
issuing common stock at prices less than the par value of
$0.10 per share.
NOTE X - FIRST QUARTER 2002 UNUSUAL ITEM - RECOVERY OF INVENTORY
VALUATION ALLOWANCE (UNAUDITED)
It is the Company's policy to record an inventory valuation
allowance against finished goods and raw materials for
products for which a market has not yet been established.
During the three months ended March 31, 2002, Petrol Rem sold
inventory for which an inventory allowance had previously
been established. Therefore, the Company reduced its
inventory valuation allowance and recorded an unusual item
for the recovery of inventory valuation allowance of
$170,077.
NOTE Y - FIRST QUARTER 2002 IMPAIRMENT (UNAUDITED)
In June 2001, the FASB issued statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." SFAS 142 addresses financial accounting and
reporting for goodwill and other intangible assets. Under
this provision, goodwill and certain intangible assets will
no longer be amortized but will be evaluated for impairment
at least annually. The provisions of this statement became
effective for the Company's fiscal year beginning January 1,
2002. Based on the Company's evaluation, an impairment
charge of $1,111,244 was recognized related to goodwill
associated with investments in Insight Data Link, American
Intermetallics (see Note C), Tireless and B-A Champ. In
addition, the value of the intangible asset representing the
Company's exclusive marketing rights for certain rapid HIV
tests was evaluated during the quarter. Because of the
uncertainty of the Company's ability to recover the full
carrying value of the marketing rights, an impairment charge
of $1,091,398 was recorded to reduce the intangible asset to
its estimated net realizable value.
NOTE Z - SIGNIFICANT SUBSEQUENT EVENTS AFTER FIRST QUARTER 2002
(UNAUDITED)
In May 2002, the Company lost its exclusive rights to market
certain rapid HIV tests because the Company was unable to
make the payments required. The Company is still marketing
the Rapid HIV tests, but no additional payments are due.
As of December 31, 2001, the Company owed $425,000 for the
settlement of a lawsuit as described in Note P. A payment of
$50,000 was made in April 2002. In May 2002, the parties
agreed to extend the payments on the remaining balance.
Payments totaling $200,000 were made in June and July 2002.
The remaining balance, including $25,000 for extending the
due dates, is due by August 30, 2002.
As of June 30, 2002, 125 million shares of common stock had
been issued from the Form S-8 described in Note W.
The March 31, 2002 consolidated financial statements include
a note receivable for $3,148,404 from Practical Environmental
Solutions, Inc. (Practical) on a $3,150,000 line of credit
agreement with Petrol Rem, Inc., a 75% owned subsidiary. As
discussed in NOTE C to the December 31, 2001 financial
statements the note was classified as a noncurrent asset
because the management of Petrol Rem was considering
converting all or part of this note into a controlling equity
interest in Practical with the balance of the note converted
to a term loan. The loan is currently past its due date of
May 31, 2002 and is due upon demand. Practical is currently
not able to conduct a significant portion of its operations
because the landfill which is necessary for the disposal of
its processed biosolids has been temporarily prohibited from
accepting these processed biosolids under direction of the
Department of Environmental Protection. Unless these
discontinued operations can be restored, Practical may be
unable to fully meet its obligations under the line of credit
agreement even if the note is converted to a term loan after
the conversion of a portion of the amount owed into an equity
interest by Petrol Rem. Management is currently evaluating
whether an impairment charge should be recognized against
this asset.
In June 2002, Ceramic Coating Technologies, Inc. (CCTI), a
98% owned subsidiary, sold substantially all of its assets
for a total sales price of $502,250 consisting of two
promissory notes. The first note for $227,053 is due on or
before October 31, 2002 with no interest. Under the terms of
the Asset Purchase Agreement the buyer will receive credit
for the buyer's direct payment of CCTI obligations, including
accounts payable and accrued payroll, which existed on March
31, 2002. The second note for the $275,197 is payable over a
five year period with interest at six percent per annum.
This note is collateralized by the equipment sold in the
Asset Purchase Agreement and is payable in payments equal to
two percent of the buyer's net sales beginning with the first
quarter 2003 through the fourth quarter 2007. Under
agreement between the buyer and CCTI the terms of the Asset
Purchase Agreement were made effective as of April 1, 2002.
In May 2002, BICO and its subsidiary Petrol Rem, Inc.,
executed a demand note in favor of INTCO, Inc. (a subsidiary
of Petrol Rem). The note was for $286,457 and bears interest
at a rate of 13% per annum. The note consolidated various
amounts previously advanced by INTCO to either BICO and
Petrol Rem or incurred by INTCO on behalf of either BICO or
Petrol Rem and is collateralized by a security interest in
Petrol Rem's shares of stock in INTCO.
In June 2002, demand was made by INTCO and INTCO's minority
shareholder for repayment of the loan for $286,457 plus
accrued interest and for repayment of the balance ($347,134)
of the note payable by BICO and Petrol Rem to INTCO's minority
shareholder. No payments have been made on either of these
two obligations since the demand was made for repayment and
legal action has commenced. Since both of these obligations
are collateralized by Petrol Rem's 51% ownership in INTCO,
it is possible that Petrol Rem may forfeit its ownership in
INTCO as part of a settlement of these obligations.
As discussed in Note J to the consolidated financial
statements the Company issued 4,000 shares of convertible
preferred stock in connection with a settlement agreement for
obligations incurred in 1998 when the Company purchased its
interest in ICTI, Inc. The settlement documents provide
that, if the value of the common stock available from the
conversion of the preferred stock on the date the
registration statement on this stock became effective was
less than $2 million then the difference would be subject to
a note payable over a 36 month period at 10% interest. As of
the effective date of the registration the total shares
available for conversion had a market value of $1,333,750.
Although the Company and its subsidiaries are in arrears on
their various operating leases for certain production
facilities and office space, to date, none of the landlords
on these operating leases has exercised their rights to
accelerate payment of remaining lease obligations.
The Company continues to be dependent on sales of securities
to meet its operating obligations. In addition to reductions
in operating expenses, Management is planning to reduce this
dependency on security sales by selling off portions of the
Company's ownership in its various consolidated and
unconsolidated subsidiaries.
In July 2002, the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania
announced that they have declined to bring any charges
against the Company. Management believes that this means
that the federal investigation discussed in Note P to the
consolidated financial statements as of December 31, 2001, is
over as far as the Company is concerned.
In July 2002, we entered into agreements with Fred Cooper,
Anthony J. Feola and Glenn Keeling in connection with their
resignations. Both Mssrs. Cooper and Feola resigned as both
officers and directors of BICO, Diasense, and all of our
affiliates. Mr. Keeling resigned as an officer and director
of BICO and Diasense, but will continue as an officer and
director of ViaCirq. All of them had employment agreements
with us. All of the July 2002 agreements provided us with a
right to offset their accrued and unpaid salaries against
the balance of the loans they owed us. The July 2002
agreements released us from our obligations under their
employment agreements, which included not only significant
severance payments, but would have required us to issue them
collectively a total of 12% of our outstanding common stock.
We agreed to pay their health insurance for a year. We also
agreed to pay Mr. Cooper as an outside consultant so he
could transition the work he'd been doing, and facilitate
completing financing transactions he was working on. If any
of those transactions raise cash for us, our board of
directors can pay him a bonus at their discretion. Mr. Cooper
will be paid $15,000 per month, inclusive of expenses under the
agreement which has a maximum term of one year and is terminable
at any time with ten days notice. If we do pay him a bonus, 40%
of it will go toward paying the balance of his outstanding loans.
We've attached copies of all the July 2002 agreements as exhibits
to this registration statement.
No dealer, salesman or other
person has been authorized to give
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
jurisdiction in which such offer
or solicitation is not qualified 3.9 billion shares
to do so or to anyone to whom it
is unlawful to make such offer or
solicitation.
__________________________
TABLE OF CONTENTS Page
BICO, INC.
Summary 3
Risk Factors 5 Common Stock
Where You Can Find More
Information 14
Prospectus Delivery
Requirements 14
Use of Proceeds 14 ____________________
Dividend Policy 15
Capitalization 15 P R O S P E C T U S
Market Price for Common Stock 17 ____________________
Description of Securities 17
Selling Stockholders 20 July 29, 2002
Plan of Distribution 22
Stock Eligible for Future
Sale 23
Management's Discussion and
Analysis 24
Business 34
Legal Proceedings 55
Directors and Executive
Officers 55
Certain Transactions 57
Executive Compensation 60
Security Ownership 66
Interests of named Experts
and Counsel 68
Experts 68
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 15,000
SEC Registration Fees 718
Accounting Fees 5,000
--------
Total $ 23,218
========
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 had employment contracts and
Michael P. Thompson has an employment agreement 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 $6.465 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(12) Amendment to Articles filed May 17, 2001 N/A
3.14(14) Amendment to Articles filed November 30, 2001 N/A
3.15(14)Certificate of Designation of Series G Preferred
Stock N/A
3.16(14)Certificate of Designation of Series H Preferred
Stock N/A
3.17(14)Certificate of Designation of Series I Preferred
Stock N/A
3.18(14)Certificate of Designation of Series J Preferred
Stock N/A
3.19(14)Certificate of Designation of Series K Preferred
Stock N/A
3.20 Amendment to Articles filed July 10, 2002 78
5.1 Legal Opinion of Sweeney & Associates P.C 80
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) Michael P. Thompson Employment Agreement dated
August 16, 2000 N/A
10.14(13) Marketing Agreement by and between BICO,
Rapid HIV Detection Corp., GAIFAR and
Dr. Heinrich Repke N/A
10.15(13) Contract between Biocontrol Technology and
U.S. Army Assistance N/A
10.16 Agreement with Fred E. Cooper dated July
25, 2002 82
10.17 Agreement with Anthony J. Feola dated
July 25, 2002 85
10.18 Agreement with Glenn Keeling dated July
25, 2002 88
16.1(7) Disclosure and Letter Regarding Change in
Certifying Accountants dated 1/25/95 N/A
16.2(10) Disclosure and Letter Regarding Change
in Certifying Accountants dated August 24, 2000 N/A
24.1 Consents of Goff Backa Alfera & Company LLC,
Independent Certified Public Accountants 91
24.2 Consent of Counsel Included in Exhibit 5.1 above 79
25.1 Power of Attorney of Michael P. Thompson 77
(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 for the year ended December 31, 1999
(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
8-K filed August 24, 2000
(11) Incorporate by reference from Exhibit with this title to Form
10-K for the year ended December 31, 2000
(12) Incorporated by reference from Exhibit with this title to Form
S-1 filed July 9, 2001
(13) Incorporated by reference from Exhibit with this title to Form
8-K/A filed October 15, 2001
(14) Incorporated by reference from Exhibit with this title to Form
10-K for the year ended December 31, 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 July 29, 2002.
BICO, INC.
By: /s/ Michael P. Thompson
Michael P. Thompson, Interim CEO
(principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Michael P. thompson 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/Stan Cottrell director July 29, 2002
Stan Cottrell
/s/Paul W. Stagg director July 29, 2002
Paul W. Stagg
Exhibit 3.20
Microfilm Number __________ Filed with the Department of State on____________
Entity Number__________ ________________________________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to
amend its Articles, hereby states that:
1. The name of the corporation is: BICO, Inc.
________________________________________
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
The Bourse, Building 2500
(a) 2275 Swallow Hill Road Pittsburgh PA 15220 Allegheny
----------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:__________________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is
located for venue and official publication purposes.
3. The statute by or under which it was incorporated is Act of May 5,
1933, P.L. 364, as amended
4. The date of its incorporation is: March 30, 1972
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
___ The amendment shall be effective on: _____________at______________
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant
to 15 Pa.C.S. 1914(a) and (b).
___ The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. 1914(c).
7. (Check, and if appropriate complete, one of the following):
_X_ The amendment adopted by the corporation, set forth in full, is as
follows:
The first paragraph of Article 5 shall be amended to read as follows:
5. The aggregate number of shares which the Company shall have
authority to issue is 500,000 shares of Cumulative Preferred Stock,
par value $10.00 per share and 8,000,000,000 shares of Common Stock,
par value $.10 per share.
The amendment adopted by the corporation is set forth in full in
Exhibit A attached hereto and made a part hereof.
8. (Check if the amendment restates the Articles):
____The restated Articles of Incorporation supersede the original Articles
and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 3rd day of
July, 2002.
BICO, INC.
--------------------------------
(Name of Corporation)
BY: /s/Fred E. Cooper
----------------------------
(Signature)
TITLE: Fred E. Cooper, Chief
Executive Officer
Exhibit 5.1
SWEENEY & ASSOCIATES, P.C.
ATTORNEYS AT LAW
P.O. BOX 82637 TELEPHONE (412) 731-1000
PITTSBURGH, PA 15218 FACSIMILE (412) 731-9190
July 29, 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 July 29, 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
8,000,000,000 shares of common stock of which 3,427,855,786
shares of common stock were outstanding as of June 20,
2002;
(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 10.16
AGREEMENT
1. The parties to this Agreement are FRED E. COOPER
("Cooper") and BICO, INC., a Pennsylvania corporation, including
its affiliates, subsidiaries and division ("Employer").
2. Cooper and Employer are concluding their employment
relationship effective July 25, 2002 (the "Termination Date").
The parties mutually agree to the terms of this Agreement as a
full and complete resolution of any and all claims by Cooper
against Employer or any of its affiliates or representatives
arising out of Cooper's employment.
3. The parties hereby agree to the following:
(a) The accrued and unpaid salary owed by Employer to
Cooper in the gross amount of $474,364.57 shall be applied
against the outstanding loan from Employer to Cooper in the
principal sum of $693,656.06 (the "Loan"), at such time as
Employer demands payment of the Loan. The balance of the Loan
shall remain due and payable in accordance with its terms, and
shall continue to accrue interest at the stated rate of 8% per
annum.
(b) Employer shall provide health and accident insurance
coverage for Cooper and his dependents, without cost to Cooper,
for a period of one (1) year following the Termination Date.
(c) Employer shall transfer to Cooper title to the 1994
Cadillac sedan, which has been utilized by Cooper as his company
car, and a 1994 GMC pickup truck owned by Employer. Cooper shall
also be entitled to the used fax machine from his office and a
used personal computer.
4. Cooper hereby resigns, effective as of the Termination
Date, from the Boards of Directors, and all committees thereof,
of Employer and all of its subsidiaries and affiliates,
including, without limitation, Petrol Rem, Inc. and Diasense,
Inc.
5. Employer hereby engages Cooper as its consultant, to
perform such duties on behalf of Employer as BICO's Board shall
determine, at a consulting fee of $15,000 per month, which shall
be deemed to include expenses, payable monthly, subject to
availability of funds in Employer to make such payments. In
addition, in the event that the BICO Board closes a transaction
negotiated by Cooper on behalf of Employer which results in a
cash infusion to BICO or any of its subsidiaries or affiliates,
Employer will pay Cooper a bonus in an amount determined by
BICO's Board. At its discretion, Employer may apply up to 40% of
any such bonus against the remaining balance of the principal and
accrued interest under the Loan after the offset provided for in
paragraph 3(a) herein. The consulting engagement shall be for a
maximum term of one (1) year following the Termination Date, and
shall be terminable by either party at any time upon ten (10)
days prior written notice to the other party.
6. Employer hereby agrees to provide Cooper with
reasonable legal fees in connection with proceedings conducted by
the U.S. Attorneys' office for the Western District of
Pennsylvania. The hourly rates for such legal fees shall be
subject to the approval of the BICO Board prior to Cooper's
engagement or continuation of his chosen counsel.
7. This Agreement does not constitute and shall not be
construed in any way as an admission of any wrongdoing or any
violation of or noncompliance with any legal requirement or
obligation by Cooper or Employer and/or its predecessors,
successors, affiliates, related entities, assigns, directors,
officers, agents and employees.
8. Cooper hereby fully, forever and irrevocably releases
and discharges Employer, its owners, directors, officers, agents,
employees, predecessors, successors, parent and subsidiary
corporations, related entities, trustees, fringe benefits plans,
insurers, attorneys, and assigns from any and all claims, suits,
debts, obligations, damages, expenses (including attorneys' fees
and costs), promises, rights, demands, actions or causes of
actions of any nature whatsoever, known or unknown, suspected or
unsuspected, in any way arising from or related to Cooper's
employment and conclusion of employment with Employer, including
but not limited to all employment agreements, including but not
limited to his Employment Agreements with BICO and Diasense, both
dated November 1, 1994. It is expressly agreed and understood
that this release is a GENERAL RELEASE. This Agreement does not
preclude Cooper from participating or testifying in a government
agency investigation, claim, charge, or other proceeding or court
proceeding; however, the terms of this Agreement bar Cooper from
receiving any recovery, financial or otherwise, as a result of
such a proceeding.
Without restricting the generality of the foregoing, it
is expressly agreed and understood that this release includes, to
the extent permissible by law, but is not confined to any cause
of action, claim or charge before any court, government agency or
in any other forum based on any claim of any nature, including
but not limited to Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. 2000e et seq. (race, color, religion, sex and
national origin discrimination), the Age Discrimination in
Employment Act, as amended, 29 U.S.C. 621 et seq. (age
discrimination), the National Labor Relations Act, as amended, 29
U.S.C. 141 et seq. (union and collective activity), the Equal
Pay Act of 1963, 29 U.S.C. 201 et seq. (equal pay), the
Americans with Disabilities Act, 42 U.S.C. 12101 (disability
discrimination), the Rehabilitation Act of 1973, 29 U.S.C. 701
(disability discrimination), the Civil Rights Acts of 1866 and
1871, 29 U.S.C. 1981 et seq. (civil rights), the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA - group health
insurance), the Employee Retirement Income Security Act, 29
U.S.C. 1001 et seq. (employee benefits), the Immigration and
Nationality Act, 8 U.S.C. 1101 et seq. (citizenship and visa
status), the Family and Medical Leave Act of 1993, 42 U.S.C.
2601 et seq. (leaves of absence), the Pennsylvania Human
Relations Act, 43 P.S. 951 et seq. (race, color, religion, age,
sex, national origin, and handicap discrimination), the
Pennsylvania Prevailing Wage Act, 43 P.S. 165-1 et seq.
(required pay rates for public projects), the Pennsylvania
Minimum Wage Act of 1968, 43 P.S. 333.101 et seq., (minimum
wage, overtime pay and working hours), the Pennsylvania Wage
Payment and Collection Law, 43 P.S. 260.1 et seq. (payment of
wages), the Pennsylvania Public Employee Relations Act, 43 P.S.
1101.101 (public sector labor relations), a wrongful discharge
action based upon an implied contract or public policy, and any
other federal, state or local statute, public policy, order,
regulation, tort or contract claim.
Except as provided above, this Agreement is understood
to not alter or diminish the vested benefits (e.g., pension),
whatever they may be, which Cooper may have by virtue of his
employment with Employer. Moreover, Cooper shall retain all
warrants, which he holds to acquire shares of stock of Employer
or any of its subsidiaries or affiliates.
9. Cooper agrees to keep the terms and fact of this
Agreement completely confidential, and will not hereafter
disclose any information concerning this Agreement to anyone else
except as necessary to enforce this Agreement and with the
exception that Cooper shall be permitted to disclose information
concerning this Agreement to his immediate family, professional
representatives, and persons evaluating Cooper for purposes of
extending credit to him, all of whom will be informed of and must
agree in advance to be bound by this confidentiality clause.
10. Cooper represents and agrees that he will not divulge
or pass any of Employer's confidential, privileged, or
proprietary information to anyone outside of Employer and shall
not take any actions or make any statements to anyone contrary to
the best interests of Employer. This Agreement does not void,
diminish, or reduce in any way Cooper's obligations under common-
law or a prior agreement to protect Employer's business interests
(e.g., a non-compete or restrictive covenant agreement, patent or
intellectual property agreement, etc., if any). Cooper also
represents and agrees that he has or will within the next five
days return to the Employer any and all property of the Employer,
including but not limited to keys, credit cards, equipment,
funds, reports, memos, studies, documents, computer disk, tape or
other information or materials received or generated in the
course of employment for the Employer.
11. This Agreement contains and constitutes the entire
understanding and Agreement between the parties hereto respecting
the subject matter hereof and supersedes and cancels any
negotiations, agreements, commitments, and representations not
set forth herein respecting the subject matter hereof. In the
event any provision or part of this Agreement is held invalid or
unenforceable, the validity of the remainder of this Agreement
shall not be affected. This Agreement may be amended only in
writing executed by the parties hereto. All parties acknowledge
and agree that the terms set forth herein, including but not
limited to the benefits described in paragraph 3 and the releases
are adequate, sufficient and valuable consideration for this
Agreement. The release contained herein is contractual and not a
mere recital.
12. Violation of any of these provisions by Employee will
result in a termination of all benefits received by Employee
hereunder and the return of any benefits already received by
Employee under this Agreement, in addition to any other remedies
available by law. Employee further agrees that should he
unsuccessfully challenge the validity of this Agreement, he will
pay the attorneys' fees and costs of the Employer in such a
challenge.
13. COOPER STATES THAT HE HAS CAREFULLY READ THE FOREGOING
AGREEMENT, KNOWS AND UNDERSTANDS THE CONTENTS THEREOF, WHICH
INCLUDE A FULL RELEASE OF ANY AND ALL CLAIMS, HAS HAD FULL AND
ADEQUATE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS OWN
CHOOSING REGARDING THIS AGREEMENT, FREELY AND VOLUNTARILY ASSENTS
TO ALL THE TERMS AND CONDITIONS THEREOF, INTENDS TO BE LEGALLY
BOUND BY THESE TERMS, AND THAT HE SIGNS THIS AGREEMENT AS HIS OWN
FREE ACT.
EMPLOYEE: EMPLOYER:
BICO, INC.
/s/Fred E. Cooper
Fred E. Cooper By /s/ Michael P. Thompson
Date: July 25, 2002 Name: Michael P. Thompson
Title: Chief Financial Officer
Date: July 25, 2002
Exhibit 10.17
AGREEMENT
1. The parties to this Agreement are ANTHONY J.FEOLA
("Feola") and BICO, INC., a Pennsylvania corporation, including
its affiliates, subsidiaries and division ("Employer").
2. Feola and Employer are concluding their employment
relationship effective July 25, 2002 (the "Termination Date").
The parties mutually agree to the terms of this Agreement as a
full and complete resolution of any and all claims by Feola
against Employer or any of its affiliates or representatives
arising out of Feola's employment.
3. The parties hereby agree to the following:
(a) The net amount after tax withholdings of the accrued
and unpaid salary owed by Employer to Feola in the gross amount
of $303,537.41 shall be applied against the outstanding loan from
Employer to Feola in the principal sum of $198,578.30 (the
"Loan"), at such time as Employer demands payment of the Loan.
The balance of the accrued salary shall remain as accrued salary
and will be paid when BICO funds are available.
(b) Employer shall provide health and accident insurance
coverage for Feola and his dependents, without cost to Feola, for
a period of one (1) year following the Termination Date.
4. Feola hereby resigns, effective as of the Termination
Date, from the Boards of Directors, and all committees thereof,
of BICO and all of its subsidiaries and affiliates, including,
without limitation, Diasense, Inc. and Rapid HIV Detection Corp.,
Inc.
5. This Agreement does not constitute and shall not be
construed in any way as an admission of any wrongdoing or any
violation of or noncompliance with any legal requirement or
obligation by Feola or Employer and/or its predecessors,
successors, affiliates, related entities, assigns, directors,
officers, agents and employees.
6. Feola hereby fully, forever and irrevocably releases
and discharges Employer, its owners, directors, officers, agents,
employees, predecessors, successors, parent and subsidiary
corporations, related entities, trustees, fringe benefits plans,
insurers, attorneys, and assigns from any and all claims, suits,
debts, obligations, damages, expenses (including attorneys' fees
and costs), promises, rights, demands, actions or causes of
actions of any nature whatsoever, known or unknown, suspected or
unsuspected, in any way arising from or related to Feola's
employment and conclusion of employment with Employer, including
but not limited to all employment agreements, including but not
limited to his Employment Agreement with BICO dated November 1,
1994. It is expressly agreed and understood that this release is
a GENERAL RELEASE. This Agreement does not preclude Feola from
participating or testifying in a government agency investigation,
claim, charge, or other proceeding or court proceeding; however,
the terms of this Agreement bar Feola from receiving any
recovery, financial or otherwise, as a result of such a
proceeding.
Without restricting the generality of the foregoing, it
is expressly agreed and understood that this release includes, to
the extent permissible by law, but is not confined to any cause
of action, claim or charge before any court, government agency or
in any other forum based on any claim of any nature, including
but not limited to Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. 2000e et seq. (race, color, religion, sex and
national origin discrimination), the Age Discrimination in
Employment Act, as amended, 29 U.S.C. 621 et seq. (age
discrimination), the National Labor Relations Act, as amended, 29
U.S.C. 141 et seq. (union and collective activity), the Equal
Pay Act of 1963, 29 U.S.C. 201 et seq. (equal pay), the
Americans with Disabilities Act, 42 U.S.C. 12101 (disability
discrimination), the Rehabilitation Act of 1973, 29 U.S.C. 701
(disability discrimination), the Civil Rights Acts of 1866 and
1871, 29 U.S.C. 1981 et seq. (civil rights), the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA - group health
insurance), the Employee Retirement Income Security Act, 29
U.S.C. 1001 et seq. (employee benefits), the Immigration and
Nationality Act, 8 U.S.C. 1101 et seq. (citizenship and visa
status), the Family and Medical Leave Act of 1993, 42 U.S.C.
2601 et seq. (leaves of absence), the Pennsylvania Human
Relations Act, 43 P.S. 951 et seq. (race, color, religion, age,
sex, national origin, and handicap discrimination), the
Pennsylvania Prevailing Wage Act, 43 P.S. 165-1 et seq.
(required pay rates for public projects), the Pennsylvania
Minimum Wage Act of 1968, 43 P.S. 333.101 et seq., (minimum
wage, overtime pay and working hours), the Pennsylvania Wage
Payment and Collection Law, 43 P.S. 260.1 et seq. (payment of
wages), the Pennsylvania Public Employee Relations Act, 43 P.S.
1101.101 (public sector labor relations), a wrongful discharge
action based upon an implied contract or public policy, and any
other federal, state or local statute, public policy, order,
regulation, tort or contract claim.
Except as provided above, this Agreement is understood
to not alter or diminish the vested benefits (e.g., pension),
whatever they may be, which Feola may have by virtue of his
employment with Employer. Moreover, Feola shall retain all
warrants, which he holds to acquire shares of stock of Employer
or any of its subsidiaries or affiliates.
7. Feola agrees to keep the terms and fact of this
Agreement completely confidential, and will not hereafter
disclose any information concerning this Agreement to anyone else
except as necessary to enforce this Agreement and with the
exception that Feola shall be permitted to disclose information
concerning this Agreement to his immediate family, professional
representatives, and persons evaluating Feola for purposes of
extending credit to him, all of whom will be informed of and must
agree in advance to be bound by this confidentiality clause.
8. Feola represents and agrees that he will not divulge or
pass any of Employer's confidential, privileged, or proprietary
information to anyone outside of Employer and shall not take any
actions or make any statements to anyone contrary to the best
interests of Employer. This Agreement does not void, diminish,
or reduce in any way Feola's obligations under common-law or a
prior agreement to protect Employer's business interests (e.g., a
non-compete or restrictive covenant agreement, patent or
intellectual property agreement, etc., if any). Feola also
represents and agrees that he has or will within the next two
days return to the Employer any and all property of the Employer,
including but not limited to keys, credit cards, equipment,
funds, reports, memos, studies, documents, computer disk, tape or
other information or materials received or generated in the
course of employment for the Employer.
9. This Agreement contains and constitutes the entire
understanding and Agreement between the parties hereto respecting
the subject matter hereof and supersedes and cancels any
negotiations, agreements, commitments, and representations not
set forth herein respecting the subject matter hereof. In the
event any provision or part of this Agreement is held invalid or
unenforceable, the validity of the remainder of this Agreement
shall not be affected. This Agreement may be amended only in
writing executed by the parties hereto. All parties acknowledge
and agree that the terms set forth herein, including but not
limited to the benefits described in paragraph 3 and the releases
are adequate, sufficient and valuable consideration for this
Agreement. The release contained herein is contractual and not a
mere recital.
10. Violation of any of these provisions by Employee will
result in a termination of all benefits received by Employee
hereunder and the return of any benefits already received by
Employee under this Agreement, in addition to any other remedies
available by law. Employee further agrees that should he
unsuccessfully challenge the validity of this Agreement, he will
pay the attorneys' fees and costs of the Employer in such a
challenge.
11. FEOLA STATES THAT HE HAS CAREFULLY READ THE FOREGOING
AGREEMENT, KNOWS AND UNDERSTANDS THE CONTENTS THEREOF, WHICH
INCLUDE A FULL RELEASE OF ANY AND ALL CLAIMS, HAS HAD FULL AND
ADEQUATE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS OWN
CHOOSING REGARDING THIS AGREEMENT, FREELY AND VOLUNTARILY ASSENTS
TO ALL THE TERMS AND CONDITIONS THEREOF, INTENDS TO BE LEGALLY
BOUND BY THESE TERMS, AND THAT HE SIGNS THIS AGREEMENT AS HIS OWN
FREE ACT.
EMPLOYEE: EMPLOYER:
BICO, INC.
/s/ Anthony J. Feola
Anthony J. Feola By /s/ Michael P. Thompson
Date: July 25, 2002 Name: Michael P. Thompson
Title: Chief Financial Officer
Date: July 25, 2002
Exhibit 10.18
AGREEMENT
1. The parties to this Agreement are GLENN KEELING
("Keeling") and BICO, INC., a Pennsylvania corporation, including
its affiliates, subsidiaries excluding ViaCirq, Inc. and division
("Employer").
2. Keeling and Employer are concluding their employment
relationship effective July 25, 2002 (the "Termination Date").
The parties mutually agree to the terms of this Agreement as a
full and complete resolution of any and all claims by Keeling
against Employer or any of its affiliates or representatives
arising out of Keeling's employment.
3. The parties hereby agree to the following:
(a) The net amount after tax withholdings of the accrued
and unpaid salary owed by Employer to Keeling in the gross amount
of $435,850.65 shall be applied against the outstanding loan from
Employer to Keeling in the principal sum of $141,977.54 (the
"Loan"), at such time as Employer demands payment of the Loan.
The balance of the accrued salary shall remain as accrued salary
and will be paid when BICO funds are available.
(b) Unless provided by one of its affiliates, BICO shall
provide health and accident insurance coverage for Keeling and
his dependents, without cost to Keeling, for a period of one (1)
year following the Termination Date.
(c) BICO will continue to make regular monthly payments
on the two credit card cash advances taken by Keeling to fund company
operations. Balances on these accounts will be paid in full when
BICO funds are available.
4. Keeling hereby resigns, effective as of the Termination
Date, from the Boards of Directors, and all committees thereof,
of BICO, and all of its subsidiaries and affiliates, excluding
ViaCirq, Inc.
5. This Agreement does not constitute and shall not be
construed in any way as an admission of any wrongdoing or any
violation of or noncompliance with any legal requirement or
obligation by Keeling or Employer and/or its predecessors,
successors, affiliates, related entities, assigns, directors,
officers, agents and employees.
6. Except for obigations by Employer in Item 3 above,
Keeling hereby fully, forever and irrevocably releases
and discharges Employer, its owners, directors, officers, agents,
employees, predecessors, successors, parent and subsidiary
corporations, related entities, trustees, fringe benefits plans,
insurers, attorneys, and assigns from any and all claims, suits,
debts, obligations, damages, expenses (including attorneys' fees
and costs), promises, rights, demands, actions or causes of
actions of any nature whatsoever, known or unknown, suspected or
unsuspected, in any way arising from or related to Keeling's
employment and conclusion of employment with Employer, including
but not limited to all employment agreements, including but not
limited to his Employment Agreement with BICO dated November 1,
1994. It is expressly agreed and understood that this release is
a GENERAL RELEASE. This Agreement does not preclude Keeling from
participating or testifying in a government agency investigation,
claim, charge, or other proceeding or court proceeding; however,
the terms of this Agreement bar Keeling from receiving any
recovery, financial or otherwise, as a result of such a
proceeding.
Without restricting the generality of the foregoing, it
is expressly agreed and understood that this release includes, to
the extent permissible by law, but is not confined to any cause
of action, claim or charge before any court, government agency or
in any other forum based on any claim of any nature, including
but not limited to Title VII of the Civil Rights Act of 1964, as
amended, 42 U.S.C. 2000e et seq. (race, color, religion, sex and
national origin discrimination), the Age Discrimination in
Employment Act, as amended, 29 U.S.C. 621 et seq. (age
discrimination), the National Labor Relations Act, as amended, 29
U.S.C. 141 et seq. (union and collective activity), the Equal
Pay Act of 1963, 29 U.S.C. 201 et seq. (equal pay), the
Americans with Disabilities Act, 42 U.S.C. 12101 (disability
discrimination), the Rehabilitation Act of 1973, 29 U.S.C. 701
(disability discrimination), the Civil Rights Acts of 1866 and
1871, 29 U.S.C. 1981 et seq. (civil rights), the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA - group health
insurance), the Employee Retirement Income Security Act, 29
U.S.C. 1001 et seq. (employee benefits), the Immigration and
Nationality Act, 8 U.S.C. 1101 et seq. (citizenship and visa
status), the Family and Medical Leave Act of 1993, 42 U.S.C.
2601 et seq. (leaves of absence), the Pennsylvania Human
Relations Act, 43 P.S. 951 et seq. (race, color, religion, age,
sex, national origin, and handicap discrimination), the
Pennsylvania Prevailing Wage Act, 43 P.S. 165-1 et seq.
(required pay rates for public projects), the Pennsylvania
Minimum Wage Act of 1968, 43 P.S. 333.101 et seq., (minimum
wage, overtime pay and working hours), the Pennsylvania Wage
Payment and Collection Law, 43 P.S. 260.1 et seq. (payment of
wages), the Pennsylvania Public Employee Relations Act, 43 P.S.
1101.101 (public sector labor relations), a wrongful discharge
action based upon an implied contract or public policy, and any
other federal, state or local statute, public policy, order,
regulation, tort or contract claim.
Except as provided above, this Agreement is understood
to not alter or diminish the vested benefits (e.g., pension),
whatever they may be, which Keeling may have by virtue of his
employment with Employer. Moreover, Keeling shall retain all
warrants, which he holds to acquire shares of stock of Employer
or any of its subsidiaries or affiliates.
7. Keeling agrees to keep the terms and fact of this
Agreement completely confidential, and will not hereafter
disclose any information concerning this Agreement to anyone else
except as necessary to enforce this Agreement and with the
exception that Keeling shall be permitted to disclose information
concerning this Agreement to his immediate family, professional
representatives, and persons evaluating Keeling for purposes of
extending credit to him, all of whom will be informed of and must
agree in advance to be bound by this confidentiality clause.
8. Keeling represents and agrees that he will not divulge
or pass any of Employer's confidential, privileged, or
proprietary information to anyone outside of Employer and shall
not take any actions or make any statements to anyone contrary to
the best interests of Employer. This Agreement does not void,
diminish, or reduce in any way Keeling's obligations under common-
law or a prior agreement to protect Employer's business interests
(e.g., a non-compete or restrictive covenant agreement, patent or
intellectual property agreement, etc., if any). Keeling also
represents and agrees that he has or will within the next two
days return to the Employer any and all property of the Employer,
including but not limited to keys, credit cards, equipment,
funds, reports, memos, studies, documents, computer disk, tape or
other information or materials received or generated in the
course of employment for the Employer.
9. This Agreement contains and constitutes the entire
understanding and Agreement between the parties hereto respecting
the subject matter hereof and supersedes and cancels any
negotiations, agreements, commitments, and representations not
set forth herein respecting the subject matter hereof. In the
event any provision or part of this Agreement is held invalid or
unenforceable, the validity of the remainder of this Agreement
shall not be affected. This Agreement may be amended only in
writing executed by the parties hereto. All parties acknowledge
and agree that the terms set forth herein, including but not
limited to the benefits described in paragraph 3 and the releases
are adequate, sufficient and valuable consideration for this
Agreement. The release contained herein is contractual and not a
mere recital.
10. Violation of any of these provisions by Employee will
result in a termination of all benefits received by Employee
hereunder and the return of any benefits already received by
Employee under this Agreement, in addition to any other remedies
available by law. Employee further agrees that should he
unsuccessfully challenge the validity of this Agreement, he will
pay the attorneys' fees and costs of the Employer in such a
challenge.
11. KEELING STATES THAT HE HAS CAREFULLY READ THE FOREGOING
AGREEMENT, KNOWS AND UNDERSTANDS THE CONTENTS THEREOF, WHICH
INCLUDE A FULL RELEASE OF ANY AND ALL CLAIMS, HAS HAD FULL AND
ADEQUATE OPPORTUNITY TO CONSULT WITH AN ATTORNEY OF HIS OWN
CHOOSING REGARDING THIS AGREEMENT, FREELY AND VOLUNTARILY ASSENTS
TO ALL THE TERMS AND CONDITIONS THEREOF, INTENDS TO BE LEGALLY
BOUND BY THESE TERMS, AND THAT HE SIGNS THIS AGREEMENT AS HIS OWN
FREE ACT.
EMPLOYEE: EMPLOYER:
BICO, INC.
/s/ Glenn Keeling By: /s/ Michael P. Thompson
Glenn Keeling Name: Michael P. Thompson
Date: July 25, 2002 Title: Chief Financial Officer
Date: July 25, 2002
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We have issued our report dated February 28, 2002 except for note S,
for which the date is March 29, 2002, accompanying the consolidated
financial statements of BICO, Inc., formerly Biocontrol Technology,
Inc. and subsidiaries appearing in the 2001 Annual Report on Form 10-
K for the year ended December 31, 2001. 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
May 7, 2002
July 29, 2002