As filed with the Securities and Exchange Commission on August 20, 2002
Registration No. 333-97267
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Pre-Effective Amendment No. 1 to
FORM S-1/A
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
________________________Fax (412) 731-9190_______________________
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 1,848,544,020(1) $0.002(2) $ 3,697,088 $ 340.13
Stock, Series G(1)
Common Stock
issuable upon
the Conversion 414,024,941(1) $0.002(2) $ 828,050 $ 76.18
Of Preferred
Stock, Series H(1)
Common Stock
issuable upon
the Conversion 478,158,390(1) $0.002(2) $ 956,317 $ 87.98
of Preferred
Stock, Series I(1)
Common Stock
issuable upon
the Conversion 259,272,649(1) $0.002(2) $ 518,545 $ 47.71
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
(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]
PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST 20, 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
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 15 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.
AUGUST 20, 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 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 System.
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 has 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 severance 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 7,869,674,043 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 3,427,855,778. 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 SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 2001
6/30/02 12/31/01
Total Assets $13,459,356 $24,637,421
Long-Term
Obligations $ 2,185,166 $ 2,280,935
Working
Capital
(Deficit) ($ 5,961,133) ($10,429,990)
Preferred Stock $ 146,246 $ 169,300
Net Sales $ 2,597,434 $ 4,342,203
TOTAL REVENUES $ 2,634,849 $ 4,349,918
Warrant $0 $0
Extensions
Benefit (Provision) $0 $120,882
for Income Taxes
Net Loss ($14,836,716) ($30,942,310)
Net Loss Per
Common Share
Basic ($.005) ($.02)
Diluted ($.005) ($.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 $269.5 million as of June 30, 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 NEED TO GENERATE CASH TO SATISFY OUR CREDITORS
We had a working capital deficiency of approximately $6
million on June 30, 2002 which included approximately $5.2
million in accounts payable. In order to reduce our current
obligations we will need to sell off some or all of our investment
in MicroIslet and some or all of our ownership in our subsidiaries
Petrol Rem and ViaCirq. If we can't generate enough cash to satisfy
our creditors, we may not be able to continue operations.
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 $560,591, which
is currently due. Demand for payment has been made and legal
action has commenced. 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. Attorneys 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 $50,000 of that settlement.
The landlords for our Indiana, PA manufacturing facilities
have given us notice that they intend to terminate our leases
because we have not made the payments when due and owe them
approximately $323,000, including rent, real estate taxes,
insurance and late fees. We plan to turn over part of our
manufacturing facility that we are not using so it can be leased
to another tenant, and we are working with Indiana County, the
landlord for the space we are using, to see if we can work
something out. If we cannot, they can evict us, and we will have
to stop our manufacturing work until, and if, we can find and
build out new space. We don't know if that will be possible and
we may decide the best thing to do is to shut down our
manufacturing division.
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 June 2002,
we, along with Diasense, have raised over $184 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:
NUMBER OF SHARES
OUTSTANDING
YEAR FUNDS RAISED 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 $.0045 111,111,111
$1,000,000 10% $.010 $.009 111,111,111
$1,000,000 10% $.005 $.0045 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 BICO's interim chief executive
officer as well as our chief financial officer; he is also the
chief financial officer and interim chief executive officer for
Diasense, as well as the chief financial officer for Petrol Rem,
and a member of ViaCirq's board of directors. As a result, he is
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, and 99% of
ViaCirq. Mr. Thompson owns the following warrants:
Diasense - Mr. Thompson owns warrants to purchase 200,000
shares at $.50 per share.
Petrol Rem -Mr. Thompson owns warrants to purchase 200,000
shares at $.10 per share.
ViaCirq - 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 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 $50,000 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 could have requested a maximum of about $867,000 this month,
depending upon how much stock we have available to sell, and the
selling price of our stock. 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. Several of our officers resigned in July 2002,
and all of our officers had already 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 June
30, 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.
June 30, 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: 3,427,855,778 $342,785,577 $245,063,111
at June 30, 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: 14,635 146,246 169,300
at June 30, 2002 and 16,930
at December 31, 2001
Discount assigned to beneficial
conversion feature Preferred stock 0 (141,000)
Additional paid-in capital (79,558,290) 10,887,152
Warrants 6,221,655 6,221,655
Accumulated Deficit (269,499,787) (254,663,071)
Total Capitalization $ 95,401 $ 7,537,147
June 30, 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 August 14, 2002,9, the closing bid
price for the common stock was $.14.$.0016. 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 40 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, periodically during each month, based on the following
formula. Based on that formula, we could have received a maximum
of about $867,000 in June 2002, depending upon how much stock is
sold, and the selling price of our stock. 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 August 15, 2002, it would have been
at a 10% discount to the average closing bid prices on July 23,
24 and 25, 2002. That price, after the discount, would be $0.0012
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 3,427,855,778 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 employment agreements, including their rights to receive
any of our common stock. 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 3,427,855,778
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
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 August 13, 2002, when our
closing bid price was approximately $.0018. 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 JUNE 30, 2002 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 2001
June 30, 2002 December 31, 2001
(Unaudited)
Total Assets $13,459,356 $24,637,421
Long-Term $ 2,185,166 $ 2,280,935
Obligations
Working Capital
(Deficit) ($ 5,961,133) ($10,429,990)
Preferred Stock $ 146,246 $ 169,300
Net Sales $ 2,597,434 $ 4,342,203
TOTAL REVENUES $ 2,634,849 $ 4,349,918
Other Income $ 202,239 $ 561,817
Warrant
Extensions $ 0 $ 0
Benefit (Provision) $ 0 ($ 120,882)
for Income Taxes
Net Loss ($14,836,716) ($30,942,310)
Net Loss
per Common
Share:
Basic ($.005) ($.02)
Diluted ($.005) ($.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 six months ended June 30, 2002
Our cash increased to $303,822 as of June 30, 2002 from $268,095
as of December 31, 2001 primarily due to $103,268 in advance
payments on manufacturing contracts and the factors discussed
below.
During the six months ended June 30, 2002 our net cash flow used
by operating activities was $(2,824,272). During the same period,
our net cash flow used by investing activities was ($162,261) due
primarily to the acquisition of property, plant and equipment.
Cash flow provided by financing activities was $3,022,260 mostly
due to stock issued to employees and consultants as compensation
for services, increases in notes payable and sales of preferred
stock.
Accounts receivable decreased from $1,235,957 at December 31, 2001
to $590,336 at June 30, 2002 primarily due to a decrease in
revenues for INTCO in the first six months of 2002 compared with
revenues recognized during the latter part of 2001 and the timing
of billings and collections related to these revenues.
Current notes receivable increased from zero at December 31, 2001
to $641,250 at June 30, 2002. Our subsidiary, Ceramic Coatings
Technologies, Inc. (CCTI) sold substantially all of its assets in
June 2002 for a total sales price of $502,250, which consisted of
two notes receivable. In addition, we sold shares of convertible
preferred stock to J. P. Carey Asset Management in exchange for a
note receivable of $1,183,000 during the six months ended June 30,
2002. The outstanding balance on this note is $139,000 at June
30, 2002.
Current related party receivables decreased by $25,574 during the
six-month period ended June 30, 2002 due to scheduled repayments
on related party notes.
Interest receivable, net of allowance, decreased from $144,411 as
of December 31, 2001 to $1,312 at June 30, 2002 due to the
write-off of accrued interest on a note receivable from Practical
Environmental Solutions (Practical), 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 $3,150,405 to Practical as of
June 30, 2002. The loan was classified as a non-current asset at
December 31, 2001 because our management was considering whether
to convert all or part of that loan to an equity investment. 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. Due to the uncertainty of
Practical's ability to resolve this issue, the collectibility of
this loan is in jeopardy. Therefore, an unusual item of
$3,248,334 has been recorded to reflect the write-down of the
value of the note receivable and the corresponding accrued
interest to the fair value of the underlying collateral, which is
estimated at approximately $200,000.
Prepaid expenses increased from $1,055,901 as of December 31, 2001
to $2,104,245 as of June 30, 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 and is being expensed at $155,000 per month beginning in
April 2002.
Goodwill, net of amortization, decreased by $357,115 during the
six months ended June 30, 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.
At June 30, 2002, Diasense's investment interest in
MicroIslet is no longer classified as an investment in
unconsolidated subsidiaries - it is classified as an investment.
The change in classification occurred because Diasense's ability
to exercise significant influence over MicroIslet decreased as
illustrated by the decline in Diasense's ownership below 20% to
15.3% and the fact that Diasense is no longer represented on
MicroIslet's board of directors. This change in classification
had no effect on the carrying value of the investment in
MicroIslet, which was $786,874 at June 30, 2002 compared to
$917,351 at December 31, 2001. In April 2002, MicroIslet
participated in a merger with ALD Services, Inc., a publicly
traded 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
shareholder 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 shareholders maintained
their same percentage ownership. Diasense, along with the other
MicroIslet shareholders, also approved the merger with ALDI. As a
result of the merger, each MicroIslet common shareholder -
including Diasense received one share of ALDI stock for each
share of MicroIslet stock owned. After the merger, Diasense owned
approximately 15.3% of restricted ALDI stock. In May 2002, ALDI
changed its name to MicroIslet, Inc. and its trading symbol to
MIIS.OB.
Our investment in the marketing agreement for the rapid
HIV tests, which was $6,866,398 as of December 31, 2001, was
reduced to zero when we lost our exclusive marketing rights in May
2002. This intangible asset had been reduced by amortization of
$175,000 and an impairment charge of $1,091,398 during the first
quarter of 2002. When the remaining balance of the marketing
rights, which was $5,600,000, was written off in May 2002, a
corresponding note payable of $5,600,000 was eliminated at the
same time.
Accounts payable increased by $468,632 during the six months ended
June 30, 2002 because of the timing of payments that were slower
than normal due to our cash flow problems. Accrued liabilities
increased by $588,632 during the six months ended June 30, 2002
primarily because of increases in accrued wages due to our cash
flow problems. Accrued liabilities decreased by $843,251 for the
three months ended June 30, 2002 due to reductions in accrued
payroll of approximately $300,000, payments on the class action
settlement of $175,000 and approximately $360,000 in advance
payments on contract revenue that was received in the first
quarter 2002 and earned in the second quarter 2002.
We received proceeds from two promissory notes early in
April 2002. One loan for $1,000,000 is payable on March 28, 2003
with interest of 22%. This loan is collateralized by all of our
equipment. A payment of $82,000 plus interest of $18,000 was made
in June 2002. A second loan for $230,000 is payable in a single
installment on June 19, 2003 with interest of 22%.
In April 2002, the Company agreed to pay an outstanding
obligation of $68,243 to American Express under twelve equal monthly
installments of $6,189, including interest at 15.9% per annum. This
obligation is secured by the assets of BICO. At June 30, 2002, the
outstanding note payable under this agreement was $51,575. Also, as
of June 30, 2002, INTCO has borrowed $249,130 under a line of credit
agreement established with a Louisiana bank in 2002. This line of
credit is secured by INTCO's assets.
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 is 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 or 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 ($374,134) of the note payable by BICO and Petrol Rem
to INTCO's minority shareholder. In July 2002, legal action was
commenced by INTCO's minority shareholder to obtain a judgment. A
$100,000 payment was made in August 2002 toward the settlement of
this issue. 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.
Additional paid-in capital decreased from $10,887,152 at
December 31, 2001 to ($79,558,290) at June 30, 2002. The deficit
balance at June 30, 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 six months ended June 30, 2002
Our sales and corresponding costs of products sold during the six
months were $2,597,434 and $1,787,530 respectively in 2002
compared to $1,355,475 and $861,870 in 2001. The increase in
sales was primarily due to contract revenue of $934,082 at our
Biocontrol Technology division. There was no contract revenue
during the first six months of 2001. Petrol Rem also had
increased revenue in the first six months of 2002 compared to the
same period in the prior year. Bioremediation product sales were
up from $35,818 in the first six months of 2001 to $126,538 for
the first six months of 2002. In addition, Petrol Rem's
subsidiary, Tireless, began generating revenue in the fourth
quarter of 2001 and they reported revenue of $228,241 during the
first six months of 2002 compared to zero in the prior year.
INTCO, another Petrol Rem subsidiary, reported a decrease in sales
from $1,115,635 in the first six months of 2001 to $873,048 during
the first six months of 2002. The decrease in INTCO revenues is
mostly due to certain vessels being out of service temporarily due
to maintenance procedures and upgrades related to a periodic Coast
Guard certification. ViaCirq's sales of its hyperthermia products
increased from $122,467 in the first six months of 2001 to
$320,933 in the first six months of 2002. Our other product sales
increased in total, but not significantly. Metal coating sales
totaled $65,721 during the first six months of 2001, with an
increase to $77,085 during the first six months of 2002. These
metal coating sales occurred in the first quarter of 2002, prior
to the disposition of the majority of CCTI's assets and the
discontinuation of its operations. During the first six months of
2001 and 2002, sales of $15,775 and $8,417, 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 $24,740 in sales for the rapid HIV kits
and $4,350 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 six months to $202,239
in 2002 from $319,209 in 2001. The decrease occurred because we
had fewer funds to invest.
Research and Development expenses during the first six months
decreased to $731,570 in 2002 from $2,861,146 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. The clinical trials
which we were performing on the noninvasive glucose sensor were
discontinued during the second quarter of 2002 so that efforts
could be directed toward the development of a new generation
device which will be less sensitive to noise factors in
interpreting infrared spectroscopy and will be a more compact
device. The clinical trials for the new device are being planned
but will be deferred until management determines that adequate
funding is available.
General and Administrative expenses during the first six months
decreased from $11,810,788 in 2001 to $9,214,891 in 2002. The
decrease is primarily due to decreases in salaries, 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 six months
of 2001. In addition, we recognized $1,520,158 in debt issue
costs during the first six months 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 six months
ended June 30, 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. Also, an
unusual item of ($3,248,334) was recorded for the write-down of a
note receivable and accrued interest from Practical Environmental
Solutions, Inc., as discussed above under Liquidity and Capital
Resources.
Interest expense decreased from $437,366 in the first six months
of 2001 to $345,074 during the first six months of 2002. The
decrease is primarily due to a decrease in debt 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 decreased to $143,174 for
the six months ended June 30, 2002 compared to $165,588 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.
We recognized an impairment loss of $2,209,915 in the
first six months 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
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.
When our officers Fred E. Cooper, Anthony J. Feola and Glenn
Keeling resigned, they released us from our obligations under
their employment agreements with BICO and Diasense. As a result,
we were not required to make any severance payments to them or
issue them any of our common stock, which would have otherwise
been required.
On July 31, 2002, Diasense sold one million shares of its
restricted MicroIslet stock to an individual for $500,000. The
purchaser is not affiliated with us or any of our subsidiaries. As
a result of the sale, we will recognize a gain of approximately
$273,000.
Although we are in arrears on various operating leases for certain
production facilities and office space, to date none of the
lessors on these operating leases has exercised the right to
accelerate the payments remaining.
The landlords for our Indiana, PA manufacturing facilities have
given us notice that they intend to terminate our leases because
we have not made the payments when due and owe them approximately
$323,000, including rent, real estate taxes, insurance and late
fees. We plan to turn over part of our manufacturing facility
that we are not using so it can be leased to another tenant, and
we are working with Indiana County, the landlord for the space we
are using, to see if we can work something out. If we cannot,
they can evict us, and we will have to stop our manufacturing work
until, and if, we can find and build out new space. We don't know
if that will be possible and we may decide the best thing to do it
to shut down our manufacturing division.
Other Significant Events On
July 26, 2002, BICO announced that 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 BICO or its
subsidiaries.
In addition, three of BICO's officers and directors, Fred E. Cooper,
Anthony J. Feola and Glenn Keeling resigned as officers and directors.
BICO's board named chief financial officer, Michael P. Thompson, to
also act as interim chief executive officer as a search for a new CEO
is conducted. Glenn Keeling will continue to serve as an officer and
director of ViaCirq. Fred Cooper, former CEO of BICO and Diasense,
will act as an outside consultant to focus on transitioning and closing
some pending transactions. Anthony Feola is no longer affiliated with
BICO or any of its subsidiaries.
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 System. 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 PRP, and
they stay afloat. Because the product contains the necessary
nutrients and microorganisms, the bioremediation process begins
immediately, which limits secondary contamination of the air or
surrounding wildlife. Eventually, the product will break down
both the petroleum and itself, leaving nothing but carbon dioxide
and water.
In 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 and legal action has
commenced. 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
$560,591.
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 PRP
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 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. Because we are not certain
that these issues will be successfully resolved, we have written
down the value of the note receivable and its accrued interest to
$ 200,000 - the estimated fair value of the loan's collateral.
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 at both Shadyside and Presbyterian
hospitals 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
also 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; the University of Illinois at
Chicago in Chicago, IL; the University Hospital of Louisville in
Louisville, Kentucky; the National Institutes of Health in
Bethesda, Maryland; and St. David's Medical Center in Austin,
Texas.
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 (42 C) 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 Diasensor3000;
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 Diasensor1000. 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 theraPORT 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 Coraflex 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
Coraflex 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 currently owns
approximately 10.9% 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 had begun to receive revenues in CCTI,
which aggregated approximately $112,091 for 2001, we could no longer
commit to continued funding and 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 June 30, 2001, we had made payments
totaling $471,500, 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 severely hindered our marketing efforts for the
ThermoChem HT. 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 theraPORT.
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 ThermoChem-HT System and related
disposables, which are used to raise the core temperature of the
abdominal cavity to the desired temperature in the 41 C (105.8 F)
to 42 C (107.6 F) range by continuously bathing the abdominal
cavity with circulating sterile solution.
In addition, in February 2000, the FDA approved
continued clinical trials at the University of Texas Medical
Branch using the ThermoChem technology in whole-body hyperthermia
to treat patients with certain types of end-stage lung cancer.
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 1000
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 July 31, 2002, we had 38 full-time employees who
were located primarily in either our Indiana or Pittsburgh
locations. In addition, ViaCirq had 8 employees; and Petrol Rem
had 24 employees, including 17 INTCO employees, as of July 31,
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. The landlords for our Indiana,
PA manufacturing facilities have given us notice that they intend
to terminate our leases because we have not made the payments when
due and owe them approximately $323,000, including rent, real
estate taxes, insurance and late fees. We plan to turn over part
of our manufacturing facility that we are not using so it can be
leased to another tenant, and we are working with Indiana County,
the landlord for the space we are using, to see if we can work
something out. If we cannot, they can evict us, and we will have
to stop our manufacturing work until, and if, we can find and
build out new space. We don't know if that will be possible and
we may decide the best thing to do it to shut down our
manufacturing division.
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
On April 30, 1996, a class action lawsuit was filed against us,
Diasense, Inc., and our 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. We still need to make
payments totaling $50,000 to satisfy the terms of the settlement.
The class action lawsuit has been settled, subject to court
approval on September 3, 2002. If the court approves the
settlement and our final payment of $50,000 each are made, we
believe this will end this matter.
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 that the 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 and
interim chief executive officer for Diasense, the chief financial
officer for 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 our current officer, Michael P. Thompson in August 2000. In
July 2002, Mssrs. Cooper, Feola and Keeling released us from our
obligations under their employment contracts when they resigned.
Mr. Keeling still has an employment contract with ViaCirq.
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. Michael P. Thompson is our interim chief executive
officer and chief financial officer. He is also the chief
financial officer and interim chief executive officer for
Diasense, the chief financial officer for 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 25, 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
July 31, 2002 was $698,131. 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 a 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 July 31, 2002
was $199,883. 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 July 31, 2002 was
$142,921. 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. As of
July 31, 2002, the balance was $114,034.
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. Under 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 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 provided 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 currently
a beneficial owner of more than 5% of the outstanding common
stock, each of our current directors and executive officers, and
all of our current directors and executive officers as a group.
As of June 30, 2002, we had 3,427,855,778 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)
(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 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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., 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.
/s/Goff Backa Alfera & Company, LLC
Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
February 28, 2002
(except for Note S, as to which
the date is March 29, 2002)
1
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
Jun. 30, 2002
(Unaudited) Dec. 31, 2001 Dec. 31, 2000
-------------- ------------- -------------
CURRENT ASSETS
Cash and equivalents (note A) $ 303,822 $ 268,095 $ 7,844,807
Accounts receivable - net of allowance for doubtful accounts
of $43,664 at Jun. 30, 2002 and Dec. 31, 2001 590,336 1,235,957 400,950
Inventory - net of valuation allowance (notes A and D) 1,192,814 1,190,796 805,224
Related party notes receivable (notes C and O) 112,820 138,394 87,706
Note receivable (note C) 641,250 - 12,000
Notes receivable - Practical Environmental
Solutions, Inc. (note C) - - 1,914,363
Interest receivable, net of allowance (note C) 1,312 144,411 48,252
Prepaid expenses (note E) 2,104,245 1,055,901 988,354
Other current assets 62,268 62,268 47,268
------------ ------------ -------------
TOTAL CURRENT ASSETS 5,008,867 4,095,822 12,148,924
PROPERTY, PLANT AND EQUIPMENT (notes A and K)
Building 2,567,916 2,566,777 2,529,176
Land 246,250 246,250 246,250
Leasehold improvements 1,958,931 2,071,629 1,848,674
Machinery and equipment 7,139,971 7,526,201 6,405,594
Furniture, fixtures & equipment 917,796 937,607 921,195
------------- ------------- -------------
Subtotal 12,830,864 13,348,464 11,950,889
Less accumulated depreciation 6,510,658 6,151,384 5,288,910
------------- ------------- -------------
6,320,206 7,197,080 6,661,979
OTHER ASSETS
Related Party Receivables
Notes receivable (notes C and O) 1,012,928 1,036,293 1,174,738
Interest receivable (notes C and O) 25,803 14,406 13,463
------------- -------------- ------------
1,038,731 1,050,699 1,188,201
Allowance for related party receivables (1,038,731) (1,050,699) (1,188,201)
------------- ------------- ------------
- - -
Notes receivable (note C) 53,983 111,041 200,000
Notes receivable-Practical Environmental Solutions, Inc.,
net of allowance of $2,950,405 at June 30, 2002 and zero
at Dec. 31, 2001 (note C) 200,000 3,148,404 -
Goodwill, net of amortization (notes A and R) 238,102 595,217 694,895
Intangible assets - marketing rights (note F) - 6,866,398 -
Investment 786,874 - -
Investment in unconsolidated subsidiaries (notes A and G) 725,663 2,409,843 2,061,439
Other assets 125,661 213,616 162,833
------------- ------------- -------------
2,130,283 13,344,519 3,119,167
------------- ------------- -------------
TOTAL ASSETS $ 13,459,356 $ 24,637,421 $ 21,930,070
============= ============= =============
The accompanying notes are an integral part of these statements.
2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
Jun. 30, 2002
(Unaudited) Dec.31, 2001 Dec. 31, 2000
------------ ------------ -------------
CURRENT LIABILITIES
Accounts payable $ 5,224,077 $ 4,755,445 $ 578,520
Notes payable (note J) 2,369,773 7,037,198 1,069,127
Current portion of long-term debt (note J) 83,738 86,420 4,113,656
Current portion of capital lease obligations (note K) 132,554 75,523 98,788
Debentures payable (note L) - - 2,400,000
Accrued liabilities (note I) 3,157,158 2,568,526 3,131,765
Escrow payable (note M) 2,700 2,700 2,700
------------ ------------ -------------
TOTAL CURRENT LIABILITIES 10,970,000 14,525,812 11,394,556
LONG-TERM LIABILITIES
Capital lease obligations (note K) 2,071,118 2,128,149 2,203,673
Long-term debt (note J) 94,445 127,777 7,864
Other 19,603 25,009 -
------------ ------------- -------------
2,185,166 2,280,935 2,211,537
COMMITMENTS AND CONTIGENCIES (note P)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARIES (note A) 208,789 293,527 434,990
STOCKHOLDERS' EQUITY (note M)
Common stock, par value $.10 per share,
authorized 4,000,000,000 shares at Dec. 31,
2001 and June 30, 2002 and 1,700,000 shares at
Dec. 31, 2000, outstanding 3,427,855,778 shares at
June 30, 2002, 2,450,631,111 shares at Dec. 31, 2001
and 1,383,704,167 shares at Dec. 31, 2000 342,785,577 245,063,111 138,370,417
Convertible preferred stock, par value $10
per share, authorized 500,000 shares issuable in
series, shares issued and outstanding 14,625 at
June 30, 2002, 16,930 at December 31, 2001 and
none at December 31, 2000. 146,246 169,300 -
Discount assigned to beneficial conversion feature -
preferred stock (note M) - (141,000) -
Additional paid-in capital (Discount on issuance of
common stock) (79,558,290) 10,887,152 87,035,096
Warrants 6,221,655 6,221,655 6,204,235
Accumulated deficit (269,499,787) (254,663,071) (223,720,761)
------------ ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 95,401 7,537,147 7,888,987
------------ ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 13,459,356 $ 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
(Unaudited)
For the six months ended June 30, Year Ended December 31,
2002 2001 2001 2000 1999
(Unaudited) (Unaudited)
------------- ------------- ------------- ------------- -------------
Revenues
Net sales $2,597,434 $ 1,355,475 $ 4,342,203 $ 340,327 $ 112,354
Other income 37,415 8,563 7,715 5,547 52,897
------------- ------------- ------------- ------------- -------------
2,634,849 1,364,038 4,349,918 345,874 165,251
Costs and expenses
Cost of products sold 1,787,530 861,870 3,287,176 354,511 147,971
Research and development (notes A,M and N) 731,570 2,861,146 7,113,258 6,651,471 4,430,819
General and administrative (note M) 9,214,891 11,810,788 21,879,130 21,407,472 12,884,237
Amortization (notes A,F and G) 198,634 374,768 804,458 392,307 39,716
Impairment loss 2,209,915 - - - 5,060,951
------------- ------------- ------------- ------------- -------------
14,142,540 15,908,572 33,084,022 28,805,761 22,563,694
------------- ------------- ------------- ------------- -------------
Loss from operations (11,507,691) (14,544,534) (28,734,104) (28,459,887) (22,398,443)
Other (income) and expense
Interest income (202,239) (319,209) (561,817) (589,529) (1,031,560)
Debt issue costs (note A) - 1,520,158 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 345,074 437,366 826,346 1,924,873 1,373,404
Warrant extensions (note M) - - - 5,233,529 4,669,483
Loss on unconsolidated subsidiaries(notes A&G) 143,174 165,588 279,978 158,183 -
Loss on disposal of assets 49,497 18,603 29,759 122,857 376
Other taxes (note N) - - 120,882 - -
Unusual item (note J and P) 3,078,257 - (2,562,848) 3,450,000 -
------------ ------------ ------------- ------------- -------------
3,413,763 3,886,421 2,414,281 14,367,413 15,698,299
------------ ------------ ------------- ------------- -------------
Loss before unrelated
investors' interest (14,921,454) (18,430,955) (31,148,385) (42,827,300) (38,096,742)
Unrelated investors' interest in
net loss of subsidiaries 84,738 144,119 206,075 280,997 24,164
------------- -------------- ------------- -------------- -------------
Net loss $(14,836,716) $(18,286,836) $(30,942,310) $(42,546,303) $(38,072,578)
============= ============== ============= ============== =============
Loss per common share - Basic:
Net Loss $ (0.005) $ (0.012) $ (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: $ (0.005) $ (0.012) $ (0.02) $ (0.04) $ (0.05)
============= ============== ============= ============= =============
Loss per common share - Diluted:
Net Loss $ (0.005) $ (0.012) $ (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: $ (0.005) $ (0.012) $ (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 16,930 $ 169,300 $(141,000) 2,450,631,111$245,063,111$6,221,655 $ - $10,887,152 $(254,663,071) $ 7,537,147
------ ------- -------- ------------- ---------- ---------- ------- ---------- ----------- -----------
Proceeds from sale
of preferred stk 3,316 33,160 (118,750) - - - - 1,580,290 - 1,494,700
Conversion of
preferred stock (5,621) (56,214) - 630,378,041 63,037,804 - - (62,981,590) - -
Common stk issued
for services - - - 225,000,000 22,500,000 - - (18,235,053) - 4,264,947
Common stk issued
in payment of
interest - - - 11,846,626 1,184,662 - - (1,119,571) - 65,091
Constructive
dividend on
preferred stk. - - 259,750 - - - - (259,750) - -
Stock options
granted-subs. - - - - - - - 31,687 - 31,687
Warrants granted - - - - - 768,545 - - - 768,545
Warrants exercised - - - 110,000,000 11,000,000 (768,545) - (9,461,455) - 770,000
Net loss - - - - - - - - (14,836,716) (14,836,716)
------ --------- -------- ------------- ---------- ---------- ------- ---------- ----------- -----------
Balance at
Jun. 30, 2002 14,625 $ 146,246 $ - 3,427,855,778$342,785,577$6,221,655 $ - $(79,558,290)$(269,499,787) $ 95,401
====== ========= ======== ============= ========== ========== ======= ========== =========== ===========
The accompanying notes are an integral part of these statements.
5
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30, Year ended December 31,
2002 2001 2001 2000 1999
Unaudited Unaudited
------------- -------------- ------------- ------------- -------------
Cash flows used by operating activities:
Net loss $(14,836,716) $(18,286,836) $(30,942,310) $(42,546,303) $(38,072,578)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 542,371 477,313 977,178 689,762 773,696
Amortization 194,695 374,768 804,453 392,307 42,149
Loss on disposal of assets,net of cash
included in sale 29,460 18,603 29,759 122,857 177,000
Loss on unconsolidated subsidiaries 143,178 165,588 279,978 158,183 -
Unrelated investors' interest in susidiaries (84,738) (144,119) (206,078) (280,997) (24,164)
Stock issued in exchange for services 2,869,947 - - 338,000 148,484
Stock issued in payment of interest 65,091 - - - -
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
(Decrease) increase in allowance for
notes receivable and interest 3,236,366 (35,600) (137,502) (152,359) 70,253
Warrants granted 768,545 17,414 17,420 608,655 403,135
Stock options and warrants granted and
extended by subsidiaries 31,687 133,052 188,252 11,184,858 5,897,332
(Decrease)increase in allow. for losses on
accounts receivable - - - (20,015) 36,620
(Increase) in accounts receivable 607,332 (30,603) (835,007) (25,148) (7,924)
(Increase) decrease in inventories 594,747 (760,934) 1,303,127 101,480 90,052
(Decrease) in inventory valuation allowance (657,051) 502,698 (1,688,699) (859,283) (25,845)
(Increase) decrease in prepaid expenses 346,656 138,287 (67,547) (651,305) (21,702)
(Increase) decrease in other assets 64,545 (67,322) (113,051) 33,834 (146,408)
Increase (decrease) in accounts payable 468,632 515,152 4,176,925 (296,657) (949,578)
Increase in other liabilities 583,226 255,435 820,451 1,112,211 697,726
Debt forgiveness - - (2,562,848) - -
Impairment loss 2,207,755 - - - 5,060,951
------------- -------------- ------------- ------------- -------------
Net cash flow used by operating
activities (2,824,272) (14,663,189) (25,891,584) (26,681,873) (18,411,002)
------------- --------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (100,030) (744,470) (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 (2,001) (1,985,341) (1,429,041) (1,939,073) (337,928)
Payments received on notes receivable 105,997 130,388 383,716 378,817 141,974
(Increase) in interest receivable (166,227) (140,342) (97,102) (32,756) (25,774)
Purchase of marketing rights - - (1,285,000) - -
Acquisition of unconsolidated subsidiaries - (983,948) (1,093,948) (2,078,520) (525,000)
------------- --------------- ------------- ------------- -------------
Net cash used by investing activites (162,261) (3,723,713) (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
Proceeds from warrants exercised - - - 615,658 86,018
Proceeds from sale of preferred stock 1,355,700 - 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 (663,511) (1,058,864) (14,408,087) (53,125) (465,650)
Increase in notes payable and long-term debt 1,560,071 6,491,650 14,120,502 855,801 75,396
Payments on capital lease obligations - (51,781) (98,789) (543,769) (99,777)
------------- --------------- ------------- ------------- -------------
Net cash provided by financing activities 3,022,260 13,636,664 23,378,285 30,154,215 30,325,987
------------- --------------- _____________ _____________ _____________
Net increase (decrease) in cash 35,727 (4,750,238) (7,576,712) (2,982,824) 10,701,886
Cash and cash equivalents, beginning of period 268,095 7,844,807 7,844,807 10,827,631 125,745
------------- --------------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 303,822 $ 3,094,569 $ 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 June 30, Year ended December 31,
2002 2001 2001 2000 1999
----------- ---------- ------------- ------------- -------------
Supplemental Information:
Interest paid $ 278,254 $155,964 $ 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 $ -
Equipment - - -
Building - 1,321,566 -
----------- ---------- ------------ ------------ ------------
$ $ $ - $ 1,434,066 $ -
=========== ========== ============ ============ ============
Conversion of preferred stock for
common stock $64,157,375 $ $ - $ 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 $ - $ -
=========== ========== ============ ============ ============
Common stock issued in prepayment
of services $ 1,395,000 $ $ 5,715,000 $ - $ -
=========== ========== ============ ============ ============
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
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 J). 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 TO DECEMBER 31, 2001 CONSOLIDATED
FINANCIAL STATEMENTS
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 SIX MONTHS 2002 NOTES RECEIVABLE (UNAUDITED)
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, the Company sold 2,366 shares of Series K
preferred stock to J.P. Carey Asset Management under a
commitment from J. P. Carey Asset Management to purchase
these securities. In exchange for these shares of preferred
stock, J. P. Carey Asset Management issued a promissory note
for $1,183,000. The note bears interest at 8% per annum
beginning 10 months after the date of the note. At June 30,
2002, the remaining balance on this note was $139,000.
Under the terms of a line of credit agreement, Petrol Rem, a
75% owned subsidiary, has loaned $3,150,405 to Practical
Environmental Solutions (Practical), a company that treats
sludge and disposes of it in accordance with state and
federal environmental laws. 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. Due to the uncertainty of Practical's ability to
resolve this issue, the collectibility of this loan is in
jeopardy. Therefore, an unusual item of $3,248,334 has been
recorded reducing the carrying value of the note receivable
and the corresponding accrued interest to the fair value of
the underlying collateral, which is estimated at
approximately $200,000.
NOTE U - FIRST SIX MONTHS 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 V - FIRST SIX MONTHS 2002 INVESTMENTS (UNAUDITED)
Our investments in unconsolidated subsidiaries are being
reported on the equity basis and differences between the
investment and the underlying net assets of the unconsolidated
subsidiaries were being amortized as goodwill over a 5-year
period during prior years. However, 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.
Diasense's ownership percentage as of March 31, 2002 in
MicroIslet, Inc. was 20.21%. When MicroIslet raised additional
capital through the sale of stock during the first quarter of
fiscal year 2002, the Company was issued additional shares in
order to maintain an ownership percentage of 20.21%. As a
result of this transaction, Diasense's share of the underlying
net assets of MicroIslet increased by $179,364 with a
corresponding decrease in goodwill. In April 2002, MicroIslet
participated in a merger with ALD Services, Inc., a publicly
traded 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
common stock 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 a 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 MicroIslet stock
owned. After the merger, Diasense owned approximately 15.3% of
restricted ALDI stock. In May 2002, ALDI changed its name to
MicroIslet, Inc. and its trading symbol to MIIS.OB. Because
Diasense's ownership percentage is now below 20% and because the
Company is not represented on the board of directors of
MicroIslet, this investment is reported on the cost basis at
June 30, 2002 and no longer reported under the equity method.
Also, the investment balance of $786,874 is no longer classified
as an investment in an unconsolidated subsidiary as of June 30,
2002. This change in reporting method and classification had no
effect on the carrying value of the investment.
The Company's investment in the underlying assets and the
unamortized goodwill of each unconsolidated subsidiary as of
June 30, 2002 and December 31, 2001 are as follows:
Investment in
Unconsolidated Underlying Unamortized
Subsidiary Net Assets Goodwill Total
June 30, Dec. 31, June 30, Dec. 31, June 30, Dec. 31,
2002 2001 2002 2001 2002 2001
American Inter-
Metallics, Inc. $ - $318,200 $ - $394,300 $ - $712,500
Insight Data
Link.com 19,771 22,876 - 41,629 19,771 64,505
MicroIslet, Inc. - 130,477 - 786,874 - 917,351
Diabecore
Medical, Inc. 149,340 158,935 556,552 556,552 705,892 715,487
------- ------- ------- --------- ------- ---------
Total $169,111 $630,488 $556,552 $1,779,355 $725,663 $2,409,843
======= ======= ======= ========= ======= =========
NOTE W - FIRST SIX MONTHS 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 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. In May 2002, the
Company lost its exclusive marketing rights because the Company
was unable to make the payments required. The intangible asset
and corresponding note payable of $5,600,000 were eliminated as
a result. The Company is still marketing the Rapid HIV tests,
but no additional payments are due.
The marketing rights were being amortized as an intangible asset
over the ten-year minimum term of the marketing agreement.
Amortization of $175,000 was recognized during 2002 prior to the
loss of the exclusive marketing rights.
NOTE X - FIRST SIX MONTHS 2002 NOTES PAYABLE (UNAUDITED)
The Company received proceeds from two promissory notes in April
2002. One loan for $1,000,000 is payable on March 28, 2003 with
interest of 22%. This loan is collateralized by all of our
equipment. A payment of $82,000 plus interest of $18,000 was
made in June 2002. A second loan for $230,000 is payable in a
single installment on June 19, 2003 with interest of 22%.
As of June 30, 2002, INTCO has borrowed $249,130 under a line of
credit agreement established with a bank in Louisiana in 2002.
This line of credit is secured by the assets of INTCO.
In April 2002, the Company agreed to pay an outstanding
obligation of $68,243 to American Express under twelve equal
monthly installments of $6,189, including interest at 15.9% per
annum. This obligation is secured by the assets of BICO. At
June 30, 2002, the outstanding note payable under this agreement
was $51,575.
As discussed in Note W, the note payable of $5,600,000 was
eliminated in connection with the Company's loss of its
exclusive marketing rights for certain rapid HIV tests.
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 is 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 or 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
($374,134) of the note payable by BICO and Petrol Rem to INTCO's
minority shareholder. In July 2002, legal action was commenced
by INTCO's minority shareholder to obtain a judgment. A
$100,000 payment was made in August 2002 toward the settlement
of this issue. 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.
NOTE Y - FIRST SIX MONTHS 2002 LEASE OBLIGATIONS (UNAUDITED)
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 is in default on its payment obligations under two
capital leases for two manufacturing buildings. Although an
eviction notice was received on each of the buildings in
August 2002, the Company still occupies the building and
operations are continuing. Management is attempting to
negotiate settlement terms to remedy its past due obligations
and restore the leases to current status. If an acceptable
resolution cannot be reached with the property owners, the
Company will need to find an alternative facility to continue
its manufacturing activities. A summary of the property held
under these capital leases is included in Note K to the
Company's consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended December
31, 2001.
NOTE Z - FIRST QUARTER 2002 SHAREHOLDERS' EQUITY (UNAUDITED)
Preferred Stock
During 2001, shares of preferred stock were authorized as "4%
Cumulative Convertible Preferred Stock" in series G, H, I, J and
K. The preferred stock transactions for each series during the
six months ended June 30, 2002 are summarized below:
Shares
Shares Shares Shares Outstanding
Authorized Issued Issued Converted at June 30,
Series Shares at Dec. 31, in 2002 in 2002 2002
G 100,000 10,530 0 1,507 9,023
H 246,000 2,000 0 0 2,000
I 4,000 4,000 0 1,649 2,351
J 50,000 400 950 99 1,251
K 100,000 0 2,366 2,366 0
------- ------ ------- ----- ------
Total 500,000 16,930 3,316 5,621 14,625
======= ====== ======= ===== ======
Series G, H, J and K include a beneficial conversion feature
providing the preferred stockholder a discount of between 10%
and 24%, depending upon the series, upon conversion to the
Company's common stock after a required holding period. 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 six months ending June 30, 2002 was $250,194.
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 $391,194 and
this amount is recognized as a constructive dividend charged
to additional paid in capital at June 30, 2002.
In 2001, 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.
Common Stock
The Company filed a Form S-8 in December 2001 that included
125 million shares. The Form S-8 allowed 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 June 30,
2002, 125 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.
The Company issued 630,378,041 shares of common stock upon
conversion of 5,621 shares of preferred stock during the six
months ended June 30, 2002. In addition, 11,846,626 shares
of common stock were issued in payment of interest accrued on
Series G preferred stock.
In May 2002, the Company registered 1,210,000,000 shares of
common stock on Form S-1 on behalf of the selling
shareholders. These shares are issuable upon conversion of
preferred stock.
Additional Paid-In Capital / Discount on Issuance of Common
Stock
Additional paid-in capital decreased from $10,887,152 at
December 31, 2001 to ($79,558,290) at June 30, 2002. The
deficit balance at June 30, 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 AA - FIRST SIX MONTHS 2002 UNUSUAL ITEMS (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 six months ended June 30, 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 gain
for the recovery of inventory valuation allowance of
$170,077.
As discussed in Note T, an unusual loss of $3,248,334 has
been recorded to reduce the carrying value of the note
receivable from Practical Environmental Solutions, Inc. and
the corresponding accrued interest to the estimated fair
value of the underlying collateral.
NOTE BB - FIRST SIX MONTHS 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 $1,118,517 was recognized related to goodwill
associated with investments in Insight Data Link, American
Intermetallics (see Note V), 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 CC - FIRST SIX MONTHS 2002 LEGAL PROCEEDINGS (UNAUDITED)
During 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 District
Court for the Western District of Pennsylvania. Subsequent
to June 30, 2002, this investigation was concluded with no
charges against BICO or its subsidiaries.
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, the Company owed
$425,000 for this settlement. In May 2002, the parties
agreed to extend the payments on the remaining balance plus a
forbearance fee of $25,000. Payments totaling $200,000 were
made in the six months ended June 30, 2002. The remaining
balance of $250,000 at June 30, 2002 is due by August 30,
2002. Subsequent to June 30, 2002, the Company made payments
of $200,000 in July and August 2002. Payment is necessary in
order to satisfy the terms of the settlement. The class
action lawsuit has been settled, subject to court approval on
September 3, 2002. If the court approves the settlement and
our final payment of $50,000 is made, the Company believes
this will end this matter.
NOTE DD - FIRST SIX MONTHS 2002 DISPOSITION OF ASSETS (UNAUDITED)
In the first quarter of 2002, the Company began pursuing the
disposition of two consolidated subsidiaries, Ceramic Coating
Technologies, Inc. and TruePoints.com - which was formerly B-
A-Champ. TruePoints operations were closed in April 2002.
Certain assets of TruePoints were sold for a net loss of
$44,556. 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 as described in
Note T. The net gain on the disposition of CCTI assets was
$687.
In April 2002, the inventory, equipment and intellectual
property of International Chemical Technologies, Inc. (ICTI)
were sold for $18,000 and the lease on the ICTI facility was
terminated. These assets had been fully reserved in prior
years and the sale resulted in a gain on disposal of $18,000.
NOTE EE - FIRST SIX MONTHS 2002 CLINICAL TRIALS (UNAUDITED)
The clinical trials which were being performed by the Company
on the noninvasive glucose sensor were discontinued during
the second quarter of 2002 so that efforts could be directed
toward the development of a new generation device which will
be less sensitive to noise factors in interpreting infrared
spectroscopy and will be a more compact device. The clinical
trials for the new device are being planned but will be
deferred until management determines that adequate funding is
available.
NOTE FF - SIGNIFICANT SUBSEQUENT EVENTS AFTER FIRST SIX MONTHS
2002 (UNAUDITED)
On July 5, 2002, the Company's stockholders approved an
increase in the number of authorized shares of common stock
from 4 billion to 8 billion shares.
On July 29, 2002, the Company filed a registration statement
for 3.9 billion shares. 900 million of those shares were
registered for our series K preferred stock and the balance
was registered on behalf of our preferred shareholders.
On July 31, 2002, Diasense sold 1,000,000 shares of
MicroIslet common stock to an individual for $500,000. The
purchaser of the stock is not affiliated with the Company,
its subsidiaries or any of its officers or directors.
Diasense invested a total of $1,600,000 in MicroIslet since
January 2002 to obtain a total of 3,465,451 shares. The
investment balance was reduced to $786,874 to reflect
Diasense's proportionate share of MicroIslet's losses since
January 2000. In connection with the July 2002 sale of
MicroIslet stock, the Company will recognize a gain of
approximately $273,000 and the investment balance will be
reduced by approximately $227,000. The $500,000 proceeds
from the sale were used to reduce the Diasense payable to
BICO.
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. 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.
No dealer, salesman or other person has been authorized to give
any information or to make any representation other than those
contained in this prospectus and you may not rely upon that
information. Neither the delivery of this prospectus nor any sale
made hereunder shall, under any circumstances, create any
implication that there has been no change in our affairs or
operations since the date of this prospectus. This prospectus
does not constitute an offer to sell or solicitation of an offer
to buy any securities offered in any jurisdiction in which such
offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such offer or solicitation.
__________________________
TABLE OF CONTENTS Page
BICO, INC.
Summary 3
Risk Factors 4 Common Stock
Where You Can Find More
Information 15
Prospectus Delivery
Requirements 15
Use of Proceeds 15 ____________________
Dividend Policy 16
Capitalization 16 P R O S P E C T U S
Market Price for Common Stock 18 ____________________
Description of Securities 18
Selling Stockholders 21 August 20, 2002
Plan of Distribution 24
Stock Eligible for Future
Sale 24
Management's Discussion and
Analysis 26
Business 37
Legal Proceedings 58
Directors and Executive
Officers 58
Certain Transactions 59
Executive Compensation 63
Security Ownership 69
Interests of named Experts
and Counsel 71
Experts 71
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 our officers, directors or control persons. Fred E.
Cooper, Anthony J. Feola, Glenn Keeling had employment agreements, 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
(15) Incorporated by reference from Exhibit with this title to Form
S-1 filed July 29, 2002
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 August 20, 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 August 20, 2002
Stan Cottrell
/s/Paul W. Stagg director August 20, 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
August 20, 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 August 20, 2002, file number 333-
97267 (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
August 20, 2002