SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended 12/31/02 Commission File Number 0-10822
BICO, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 279-1059
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of September 15, 2004:
Common Stock, $.10 par value -- $6,648,757
As of December 31, 2002, 7,138,933,127 shares of common stock,
par value $.10 per share, were outstanding.
As of December 31, 2002, 10,836 shares of preferred stock, par
value $10 per share, were outstanding.
Exhibit index is located on pages 26 to 31
Item 1. Business
General Development of Business
BICO, Inc. was incorporated in the Commonwealth of
Pennsylvania in 1972 as Coratomic, Inc. In February 2003, we
stopped all manufacturing, research and development operations
and vacated our manufacturing facility in Indiana, Pennsylvania.
On March 18, 2003 we filed a voluntary petition for Chapter 11
bankruptcy with the United States Bankruptcy Court for the
Western District of Pennsylvania. Our administrative offices
are located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania,
15220.
Before closing down our operations, our primary business was the
development of new devices and technologies, which included
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. handled our environmental
products PRP, BIOSOK and BIOBOOM that help clean up oil
spills and other pollutants in water. ViaCirq, Inc. handled the
hyperthermia project, a technology called the ThermoChem System.
Diasense, Inc. managed the noninvasive glucose sensor project.
On March 18, 2003, Petrol Rem, Inc. also filed a voluntary
petition for Chapter 11 bankruptcy with the United States
Bankruptcy Court for the Western District of Pennsylvania.
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:
our ability to develop a plan of reorganization which is
acceptable to our creditors and confirmed by the Bankruptcy
Court;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
BICO is a development stage company, researching, developing
and selling products used in the medical product and
environmental remediation businesses. In addition, prior to
its bankruptcy filing, BICO regularly invested funds in
other businesses. BICO has historically financed its
business operations from proceeds generated from private
and public sales of its securities, the issuance of debt
in the form of convertible debentures, and from funds paid
by subsidiaries to BICO for research and development costs.
Chapter 11 Petition: On March 18, 2003, BICO, Inc. and its
subsidiary Petrol Rem, Inc. filed voluntary petitions for
Chapter 11 bankruptcy with the United States Bankruptcy
court for the Western District of Pennsylvania.
Events that Caused the Filing: BICO extensively focused its
efforts on research and development of products used in the
medical products business (particularly medical products
used in the treatment of diabetes) and environmental
remediation business. BICO also invested in other business
ventures. BICO's operations required a continuous capital
infusion to support its operations. In late 2001 and
continuing throughout 2002, BICO experienced difficulty
in raising monies to support its own operations and
controlling costs. In 2002,BICO began selling its assets to
provide capital to meet its obligations. BICO's financial
situation continued to deteriorate throughout 2002. Without
necessary funding, BICO was unable to continue operations or
to retain sufficient counsel to defend itself from litigation
matters. In 2002, BICO was sued by several alleged creditors who
subsequently obtained default judgments against BICO and a subsidiary.
The judgment holders thereafter levied on property of BICO,
scheduling an execution sale of assets. Faced with the
threat of losing substantial assets to a single disputed
creditor, BICO filed a petition for relief under Chapter
11 on March 18, 2003.
In the years prior to the Chapter 11 filing, BICO
experienced substantial losses and financial difficulties.
The consolidated financial statements for BICO for the
year ended December 31, 2002 reflect a net loss of
$25,116,853 compared to a net loss of $30,942,310 for
the fiscal year ended December 31, 2001. As of December 31, 2001,
and December 31, 2002, BICO's accumulated deficit was $279,779,924
and $254,663,071 respectively.
Prior to the Chapter 11 filing, BICO decided to voluntarily
vacate its manufacturing facility in Indiana, PA. All
manufacturing operations have ceased and no additional
work is being performed on any remaining contracts at the
Indiana, PA facility. The inventory and equipment at the
Indiana, PA facility have been sold during the course of
BICO's Chapter 11 bankruptcy case.
Item 2. Properties
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
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 former officers and directors.
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 was 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 February 2003 we
stopped all manufacturing, research and development operations
and vacated our manufacturing facility in Indiana, Pennsylvania.
We currently have no facilities to support any manufacturing,
research and development activities.
Item 3. Legal Proceedings
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. In July 2002,
the Company was notified that 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.
During September 2002, the class action lawsuit, captioned
Walsingham v. Biocontrol Technology, et al., was settled when
the final payment of $50,000 was made. As of December 31, 2001,
the Company owed $450,000 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
$450,000 were made in the nine months ended September 30, 2002,
and the settlement is now completed.
Lawsuits have been filed against the company and its subsidiaries
for collection of approximately $1,645,062 for amounts due to
creditors or employees. Management defended these actions and
worked to negotiate suitable payment arrangements as funds allowed,
but the lack of funds crippled the Company's ability
to defend or settle the litigation. The dollar amount of these claims
is included in either accounts payable or accrued expenses. During
the nine months ending September 30, 2002, default judgments
were entered against the Company for $582,091 of these claims for
the full amount.
Management believes that any liability arising from litigation through
the effective date of the Company's reorganization under its Chapter
11 bankruptcy will be either dismissed or settled through the plan of
reorganization.
Item 4. Submission of Matters to a Vote of Security Holders
At a shareholders' meeting held on July 5, 2002, our
shareholders approved an increase in the number of our authorized
shares of common stock from 4 billion to 8 billion.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Our common stock trades on the electronic bulletin board pink sheets
under the symbol "BIKO". On September 15, 2004, the closing bid price
for the common stock was $ .0009. The following table sets
forth the high and low bid prices for our common stock during the
calendar periods indicated, through December 31, 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
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 $.0350 $.0150
Second Quarter $.0194 $.0027
Third Quarter $.0049 $.0004
Fourth Quarter $.0060 $.0001
We have approximately 135,000 holders, including those who hold
in street name, of our common stock, and 41 holders of our
preferred stock.
DESCRIPTION OF SECURITIES
Our authorized capital currently consists of 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. As of
December 31, 2002 we had a total of 10,836 shares of our preferred
stock outstanding.
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 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. 2,186 of the
series I has been converted to date.
In February 2002, we accepted a funding commitment from J.P.
Carey Asset Management, LLC, a Georgia corporation. The first
part of the funding is through J.P. Carey Asset Management's
purchase of $7.5 million of our Series K preferred stock.
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.
Common Stock
Holders of our common stock are entitled to one vote per
share for each share held of record on all matters submitted to a
vote of stockholders. Holders of our common stock do not have
cumulative voting rights, and therefore the holders of a majority
of the shares of common stock voting for the election of
directors may elect all of the directors, and the holders of the
remaining common stock would not be able to elect any of the
directors. Subject to preferences that may be applicable to the
holders of our preferred stock, if any, the holders of our common
stock are entitled to receive dividends that may be declared by
our board of directors.
In the event of a liquidation, dissolution or winding up of
our operations, whether voluntary or involuntary, and subject to
the rights of any preferred stockholders, the holders of our
common stock would be entitled to receive, on a pro rata basis,
all of our remaining assets available for distribution to our
stockholders. The holders of our common stock have no
preemptive, redemption, conversion or subscription rights. As of
December 31, 2002, we had 7,138,933,127 shares of our common
stock outstanding.
Dividends
We have not paid cash dividends on our common stock, with the
exception of 1983, since our inception. We do not anticipate
paying any dividends at any time in the foreseeable future. We
expect to use any excess funds generated from our operations for
working capital and to continue to fund our various projects.
Our Articles of Incorporation restrict our ability to pay cash
dividends under certain circumstances. For example, our board
can only declare dividends subject to any prior right of our
preferred stockholders to receive any accrued but unpaid
dividends. In addition, our board can only declare a dividend to
our common stockholders from net assets that exceed any
liquidation preference on any outstanding preferred stock.
Warrants
As of December 31, 2001, we had outstanding warrants - most
of which were not currently exercisable - to purchase 96,136,560
shares of our common stock. These warrants had exercise prices
ranging from $.015 to $3.20 per share and expiration dates
through December 4, 2006, and were held by members of our
scientific advisory board, certain employees, officers,
directors, loan guarantors, and consultants. As of December 31,
2002, all remaining warrants were deemed to have been
cancelled due to our bankruptcy.
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.
Item 6. Selected Financial Data
YEARS ENDED DECEMBER 31st
2002 2001 2000 1999 1998
Total Assets $ 178,116 $24,637,421 $21,930,070 $15,685,836 $ 9,835,569
Long-Term
Obligations $ 0 $ 2,280,935 $ 2,211,537 $ 1,338,387 $ 1,412,880
Working
Capital ($ 9,816,536)($10,429,990) $ 754,368 $ 4,592,935 ($ 9,899,088)
(Deficit)
Preferred
Stock $ 108,357 $ 169,300 $ 0 $ 0 $ 0
Net Sales $ 2,828,923 $ 4,342,203 $ 340,327 $ 112,354 $ 1,145,968
TOTAL
REVENUES $ 2,828,923 $ 4,349,918 $ 345,874 $ 165,251 $ 1,196,180
Other Income $ 413,703 $ 561,817 $ 589,529 $ 1,031,560 $ 182,033
Warrant
Extensions $ 0 $ 0 $ 5,233,529 $ 0 $ 0
Benefit
(Provision)
for Income
Taxes $ 0 ($ 120,882) $ 0 $ 0 $ 0
Net Loss ($25,116,853)($30,942,310)($42,546,303)($38,072,578)($22,402,644)
Net Loss per
Common Share:
Basic ($.01) ($.02) ($.04) ($.05) ($.08)
Diluted ($.01) ($.02) ($.04) ($.05) ($.08)
Cash Dividends
per share:
Preferred $ 0 $ 0 $ 0 $ 0 $ 0
Common $ 0 $ 0 $ 0 $ 0 $ 0
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 2, and you should review that
section.
Liquidity and Capital Resources
On March 18, 2003, we along with our subsidiary Petrol Rem, Inc.
filed voluntary petitions for chapter 11 bankruptcy with the
United States Bankruptcy Court for the Western District of
Pennsylvania.
We have extensively focused our efforts on research and
development of products used in the medical products business
(particularly medical products used in the treatment of
diabetes) and environmental remediation business. We also
invested in other business ventures. Our operations required
a continuous capital infusion to support its operations. In
late 2001 and continuing throughout 2002, we experienced difficulty
in raising monies to support our own operations and controlling
costs. We began selling our assets to provide capital to meet
our obligations. Our financial situation continued to deteriorate
throughout 2002. Without necessary funding, we were unable to
continue operations or to retain sufficient counsel to defend
ourselves from litigation matters. In 2002, we were sued by
several alleged creditors who obtained default judgments against
us and one of our subsidiaries. The judgment holders thereafter
levied on our property scheduling an execution sale of assets.
Faced with the threat of losing substantial assets to a single
disputed creditor, we filed a petition for relief under
Chapter 11 on March 18, 2003.
In the years prior to the Chapter 11 filing, we experienced
substantial losses and financial difficulties. Our consolidated
financial statements for the year ended December 31, 2002 included
disclosures that we had a net loss for the year of $25,116,853
and for the year ended December 31, 2001 of $30,942,310, compared
to a net loss for the fiscal year ended December 31, 2000 of
$42,546,303. As of December 31, 2002, our accumulated deficit
was $279,779,924.
Prior to the Chapter 11 filing, we decided to voluntary vacate
our manufactuing facility in Indiana, PA. All manufacturing
operations have ceased and no additional work is being
performed on any remaining contracts at the Indiana, PA
facility. The inventory and equipment at the Indiana, PA
facility has been sold during the course of the Chapter 11
bankruptcy case.
We have proposed a Joint Plan of Reorganization (the Plan) and
have received the required acceptance by our creditors. The
Plan is subject to confirmation by the Bankruptcy Court. A
hearing is scheduled for September 23, 2004 to request said
confirmation. Under the Plan we will not continue business
operations as an independent entity. Instead, the Joint Plan
Proponent PHD Capital anticipates combining a new entity,
cXc Services, Inc. ("cXc"), into BICO. BICO will obtain 100%
of the assets of cXc, including the exclusive licensing
rights to a product known as a "web phone" and management
expertise. In return, the shareholders of cXc will receive
full voting, convertible, preferred stock in BICO. The
preferred stock shall be convertible at any time into an
amount of common stock equal to 49.6% of the total stock
issuable by BICO, but will not provide cXc with any priority
over the common shareholders upon liquidation, nor any dividend
or disbursement priority. The former shareholders of cXc
will hold two of the three positions on the Board of
Directors of BICO. BICO shall continue business operations
as a publicly traded company with continuing infusions
of capital and resources from selling additional shares or
any other available source. Neither cXc nor its principals
shall receive any funds currently held by BICO.
cXc is a private company based in Laguna Hills, California.
cXc was located by the joint plan proponent, PHD Capital
(PHD and cXc had no prior dealings). cXc was incorporated
in Delaware in 2003. Neither cXc, nor any of its principals,
have had any prior dealings with BICO or are insiders of
BICO or its subsidiaries. cXc is a developing company
dedicated to providing internet connectivity to the large
number of customers and consumers who do not currently have
internet service, as well as making internet service more
convenient for those who do have service. cXc is marketing
and will shortly begin selling, a "web phone" product
which will enable telephone users to access the internet
(without a computer or television) by pushing one button
on a telephone. cXc has the exlusive distribution rights
in North America for the web phone product manufactured by
Amstrad, PLC, a public British company. Amstrad has sold
and installed 300,000 units of the web phone product in
its markets in the last year and a half. To date,
cXc and its predecessors have raised over $1 million to
support its operations. A summary of cXc's product
description and target markets may be viewed at the firm's
website, cXcservices.com.
cXc Services is substantially owned (over 80%) by Ken
Raznick, Richard Greenwood and the management team. The
co-founder, President and CEO of cXc is Richard Greenwood.
Greenwood has over 25 years of experience in executive
level positions with financial institutions involving
funding and capital management. For example, he held various
treasury positions for Citibank, was CFO of California
Federal Bank and Valley National, and was the CEO of Bank
Plus/Fidelity Federal Bank. Most recently before starting cXc,
Greenwood was CEO of Hagenuk CPS/USA, a manufacturer and
distributor of web phones and smart card systems and
technologies. Greenwood is experienced at raising funds for
a developing business and managing its daily challenges.
Co-founder Ken Raznick, the Chairman of cXc, has worked in the
commercial real estate field for 30 years, participating in
the development of over 25 million square feet of commercial
and industrial space. In 1974, Raznick started The Ken
Raznick company deeloping neighborhood shopping cernters. In
addition to developing and managing shopping centers, Raznick
has been actively involved in commercial financing issues.
Raznick has invested substantial monies in cXc and its
operations.
The Joint Plan Proponent, PHD Capital, is an investment banking
company based in New York, NY. PHD Capital was used by us prior
to the filing of the Chapter 11 as an investment banker to raise
funds. None of our principals or insiders are principals or
insiders of PHD Capital, nor have any members of PHD Capital
ever held any positions with us. PHD Capital is one of our
creditors and has worked with us to identify a merger partner
and submit this Plan. In return for its services, PHD Capital
will obtain stock in BICO representing 2.0% of our issuable
shares. One-half of these shares shall be restricted from sale
for a period of 60 days after issuance, and the remainder
shall be unrestricted. No post-bankruptcy filing contractual
relationship exists between BICO and PHD Capital.
The shareholders of cXc shall receive preferred stock in
BICO with full voting rights (the preferred stock will be
convertible into common stock representing 49.6% of
BICO's issuable shares). cXc will control two of three
Board of Director positions. Upon consummation of the
merger, cXc and/or PHD will endeavor to secure the funds
necessary on an as needed basis to:(i) merge operations
with the Reorganized Debtor; and (ii) continue BICO's
operations and preserve its status as a publicly traded
company (including, but not limited to, the costs and
expenses of preparing public company filings, registration
statements, and mailings to shareholders.) In the 90 day
period following the merger, cXc expects to continue
uninterrupted its business plan and as such expects at
least another $1 million dollars to be raised for the
new BICO operation.
BICO's reorganized Board of Directors shall have the
following special powers, none of which shall require
the consent of any shareholders: 1)combine cXc into
BICO and implement the terms of the Joint Plan of
Reorganization; 2) designate officers and directors
of the Reorganized Debtor for a period of 12 months
or until a merger is consummated, whichever is sooner;
3)increase the total authorized shares in the
Reorganized Debtor to up to 250,000,000,000 shares;
4)split or reverse split the stock in the Reorganized
Debtor as many times as desired for a period of 5
years from the effective date of the Plan; 5)redeem the
interest of BICO's preferred shareholders in exchange
for common stock in the Reorganized Debtor; 6)impose
commercially reasonable restrictions on the transfer
of any issued stock; 7)amend BICO's bylaws and/or
issue new bylaws for BICO for a period of 2 years
from the effective date of the Plan; 8)assume, ratify,
assign and/or amend that certain Securities Purchase
Agreement between BICO and J.P. Carey Asset
Management relating to Series K Convertible Preferred
Stock, including extending the maturity date to
September 1, 2001. this agreement permits BICO to
raise funds by selling stock in a less costly manner than
by issuing a secondary offering; and 9)issue restricted
or unrestricted shares of BICO stock in such amounts and
at such times to persons or entities who shall perform
services for BICO, as the Board of Directors shall
determine.
Existing unsecured nonpriority creditors of BICO
shall receive 6,500,000,000 shares of restricted
common stock in the Reorganized Debtor, distributed
on a pro-rata basis. Holders of this common stock shall
be restricted from trading the stock in the following
manner: 25% may be sold beginning 6 months from the
date of issuance;another 25% may be sold beginning
9 months from the date of issuance; and the
remainder may be sold beginning 1 year from the date
of issuance. Existing unsecured creditors shall also
receive the net proceeds distributed on a pro-rata
basis of any fraudulent transfer litigation to be
commenced by BICO or its assign. This includes a
possible cause of action against Edward Lofton and/or
Intco., arising out of a loan transaction between
BICO and Intco, Inc. The Debtor believes that this
cause of action has merit and should be pursued. Upon
locating an attorney to pursue the action on a
contingency, BICO may fund a cost account to pursue the
litigation prior to any merger. The Reorganized Debtor
shall have no obligationn to pursue or fund this
litigation.
The Reorganized Debtor shall redeem the existing preferred stock
in exchange for common stock in the Reorganized Debtor of
another 6,500,000,000 shares. The existing common stockholders
in BICO shall retain their existing shares in the amount of
approx. 6,500,000,000. collectively, existing creditors,
preferred shareholders, and shareholders of the Debtor shall
receive approx. 8% of the issuable shares in the Reorganized
Debtor.
J.P. Carey Asset Management shall receive 1,000,000,000 shares
of common stock in the Reorganized Debtor, which shares shall
be restricted from trading for a period of 6 months from the
date of issuance. These shares shall be paid to J.P. Carey
Asset Management for assisting BICO in raising revenue
pursuant to the Securities Purchase Agreement for Series K
Preferred Stock dated February 15, 2002.
The Reorganized Debtor shall also reserve 4,500,000,000 shares
of common stock, restricted or unrestricted as the Board of
the Debtor shall determine, to be used to pay for services to
be rendered to the Reorganized Debtor (including, but not
limited to, public relations firm(s), marketing agents,
accountants, attorneys, employees, and professionals).
Holders of warrants and/or options to purchase BICO stock or
debt which had not been exercised as of March 18, 2003 shall
not receive any property under this Plan, and such interests
are cancelled.
Administrative claimants will be paid either in full on the
Effective Date of the Plan or as agreed between the Debtor and
the claimant(s). Priority wage claim creditors will be paid the
full amount of their allowed prioriy claims (up to $4,650 per
claimant) on the Effective Date of the Plan. Unsecured priority
tax creditors shall be paid the full amount of their priority
claims over a period of 72 months or less, plus interest at the
prevailing interest rate for such claims in effect on the date
the Plan is confirmed, as provided by 11 U.S.C. 507(a)(8).
Upon approval of the Plan and implementation of the Plan, BICO
anticipates registering and issuing unrestricted stock in BICO
representing 16% of the issuable shares in the company, and
immediately begin selling such stock to raise needed
investment capital. BICO shall reserve another 22% of its
issuable shares for future capital raising.
Our cash decreased to $81,682 as of December 31, 2002 from
$268,095 as of December 31, 2001 primarily due to the factors
discussed above including the deasation of operations.
Accounts receivable, net of allowance for doubtful accounts,
decreased from $1,235,957 as of December 31, 2001 to $50,096 as
of December 31, 2002. The decrease is primarily attributable to
the closing down of operations.
Our net inventory decreased from $1,190,796 as of December 31, 2001
to zero at December 31, 2002. The decrease was primarily due to
the reclassification of inventory balances to assets held for
sale which are offset by associated liabilities.
Current notes receivable of $46,338 as of December 31, 2002
represents proceeds due from the sale of MicroIslet stock in
the fourth quarter of 2002 which was paid in January 2003.
There was no similar item at December 31, 2001.
Prepaid expenses and other current assets were reduced from
$1,055,901 and $62,268 as of December 31, 2001 to zero at
December 31, 2002 due to the discontinuation of operations.
All of our property, plant and equipment, goodwill, intangible
assets, investments in unconsolidated, and other assets were
either written off through impairment charges or were
reclassified to assets held for sale which are offset by associated
liabilities.
Related party receivables decreased by $885,909 due primarily to
balances being offset against accrued payroll of certain officers
in connection with their agreements of resignation during 2002.
Other notes receivable and other interest receivable decreased
from $3,259,445 and $144,411 respectively to $546,533 and
$1,384 respectively from December 31, 2001 to December 31, 2002.
The primary reason for this reduction is the write off of amounts
due from Practical Environmental which discontinued operations
in the final quarter of 2002.
Accounts payable decreased from $4,755,445 at December 31, 2001
to $4,105,303 at December 31, 2002 primarily due to our
diminished operations in the last quarter of 2002.
Notes payable decreased from $7,037,198 at December 31, 2001
to $1,473,347 at December 31, 2002 primarily due to the write
off of a $5.6 million loan which was eliminated in 2002
related to the Company's write off of its intangible asset
(marketing rights to Rapid HIV test kits).
Capital lease obligations decreased from $2,203,672 at
December 31, 2001 to $1,265,299 at December 31, 2002. The
primary reason for this reduction is that we vacated one of
our manufacturing buildings in August 2002. In connection
with the termination of the lease and return of the leased
premises to the landlord we eliminated the lease obligation
of approximately $970,000 and wrote off the remaining net
assets of approximately $ 1,617,000 .
Results of Operations
The following paragraphs discuss the results of operations of
our entire company based on our consolidated financial
statements.
Our net sales and corresponding costs of products sold decreased
in 2002 to $2,828,923 and $1,645,258 respectively. Our net sales
and corresponding costs of products sold during 2001 increased to
$4,324,203 and $3,287,176 respectively in 2001 from $340,327 and
$354,511 in 2000. the increase in 2001 and subsequent decrease in
2002 were primarily due to sales of $3,212,418 by Petrol Rem's
subsidiary, INTCO, which was acquired in the fourth quarter of
2000 and diposed of in early 2002 and, therefore, not included in
the first nine months of 2000 or in most of 2002 operations.
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 beginning in the 4th quarter of 2001.
We filed a copy of that contract as an exhibit to our Form
8-K/A filed October 15, 2001. Revenues from this contract helped
to offset the reduced revenues in Petrol Rem discussed above.
Research and development activities were significantly curtailed
during 2002 due to a lack of funding. As a result, the associated
expenses in 2002 were reduced to $896,186. Research and Development
expenses increased to $7,113,258 in 2001 from $6,651,471 in 2000.
The increase was due to expenses incurred for the Diasensor clinical
trials partially offset by reduced research activities on our
hyperthermia products and the redeployment of resources from research
activities to production of hyperthermia products.
General and administrative expenses decreased approximately
$2,862,425 from 2002 compared to 2001 and increased a total of
approximately $471,650 for 2001 as compared to 2000. The
increase is attributable to additional salaries in 2001, 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 was higher travel expenses,
primarily for ViaCirq's and Petrol Rem's increased marketing
efforts. The above increases in 2001 were partially offset by a decrease
in expense recognized in connection with the granting of warrants
for services. The 2002 decreases were also the result of curtailed
operations in 2002. Our total general and administrative expenses were
approximately $19 million in 2002, $22 million in 2001 and, $21.4
million in 2000.
Amortization decreased from $804,458 in 2001 to $175,000 in 2002
due to the write off of the intangible assets.Amortization increased
from $392,307 to $804,458 from 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 on 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.
There were no debt issue costs in 2002.Debt issue costs increased
from $1,005,000 in 2000 to $2,218,066 in 2001.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.
There were no such costs in 2002.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 yearcompared to last year, which was already a
decrease from 1999.
The $6,014,576 impairment loss recognized in 2002 resulted
primarily from the write down of the Company's investments
and goodwill.
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 and $217,722
in 2000. In 2002 these sales were reduced to $138,751 due to the
elimination of Petrol Rem, Inc. ownership interest in INTCO, Inc.
The increase from 2000 to 2001 is primarily due to revenues from
INTCO. Costs of products sold also decreased to $204,325 in 2002
from $2,507,717 in 2001 and $179,446 in 2000, primarily to due
INTCO's operations.
Biomedical Device Segment. During the year ended December 31,
2002, sales to external customers increased to $2,608,736 in
2002 to $817,353 in 2001 and $81,954 in 2000. The overall increase
was primarily due to increased revenues from our ThermoChem products
in 2001 and manufacturing activity for the US Army at our Indiana
facility in 2002. 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 former
subsidiary of Petrol Rem, Inc., files separate income tax returns
and the 2001 tax return included tax expense of $120,882. As of
December 31, 2002, 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
$166 million, which expire over the course of the years 2003
through 2023.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements appear on pages F-1 through
F-37 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
Name Age Director Position
Since
Anthony Paterra 54 2003 Chief Executive Officer,
Director
Jerome M. Buyny 53 2002 Director
ANTHONY PATERRA, 54, joined BICO in 1999 as our Director of Public
Affairs. He then began to consult on our corporate insurance issues.
In 2001 he started to handle our delinquent accounts payable. On
April 16, 2003, he was appointed to the BICO board of directors.
On May 15, 2003 he was appointed CEO. Prior to joining us he
worked as an Insurance Agent from 1989 to 1998.
JEROME M. BUYNY, 53, joined our board of directors on October
23, 2002. Mr. Buyny is President of S.W.A.T Security Services
in Pittsburgh, PA. Mr. Buyny was formerly a Special Agent for
the Federal Bureau of Investigation from 1972 through 1990. He
attended Alliance College in Cambridge Springs, PA and has a
B.A. degree in History and Political science. He also attended
the American Institute of Banking, George Washinton University,
the FBI Academy and Federal Law Enforcement Academy.
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.
Item 11. Executive Compensation
The following table contains information on our executive
officer's annual and long-term compensation for their services to
us in all capacities for the years ended December 31, 2002, 2001
and 2000. The executive officers included are those people who,
as of December 31, 2002 were: our chief executive officer, and
our other most highly compensated executive officers who were
paid more than $100,000 during 2002. In addition, we included
information regarding David L. Purdy, who was an executive officer
and director until June 2000, and the president of our Biocontrol
Technology division during 2000. In November 2000, Mr. Purdy
resigned effective February 2001.
SUMMARY COMPENSATION TABLE
==============================================================================
Annual Compensation | (1)Long Term Compensation
- ------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal Bonus($) Other | Underlying (4) All other
Position Year Salary($) (2) ($)(3) | Warrants(#) Compensation
==============================================================================
David L. 2002 $0 $0 $0 | 0 $0
Purdy (5) 2001 $989,265 $0 $0 | 0 $0
Resigned 2000 $646,795 $200,000(6) $0 | 0 $0
February 2001 |
- ------------------------------------------------------------------------------
Fred E. 2002 $165,351 $0 $0 | 0 $0
Cooper, 2001 $977,115 $0 $0 | 15,000,000(4) $0
CEO (7) 2000 $939,000 $383,746(8) $0 | 0 $0
Resigned
July 2002
- ------------------------------------------------------------------------------
Anthony J. 2002 $107,788 $0 $0 | 0 $0
Feola , Sr. 2001 $660,248 $0 $0 | 10,000,000(4) $0
Vice Pres.(9) 2000 $633,850 $268,190(10) $0 | 0 $0
Resigned
July 2002
- ------------------------------------------------------------------------------
Glenn 2002 $147,659 $0 $0 | 0 $0
Keeling, VP 2001 $483,732 $0 $0 | 8,000,000(4) $0
(11) 2000 $500,000 $93,190(12) $0 | 0 $0
Resigned
July 2002
- ------------------------------------------------------------------------------
Michael P. 2002 $159,100 $0 $0 | 0 $0
Thompson, 2001 $317,375 $0 $0 | 3,000,000(4) $0
Chief 2000 $103,243 $0 $0 | 1,000,000(4) $0
Financial
Officer (13)
Resigned
October 2002
- ------------------------------------------------------------------------------
R. Ben 2002 $ 97,424 $0 $0 | 0 $0
Johnson, 2001 $191,171 $0 $0 | 1,500,000(4) $0
Executive VP
(14)
Resigned
April 2003
- ------------------------------------------------------------------------------
Stan
Cottrell 2002 $ 8,967 $0 $0 | 0 $0
CEO
Resigned
April 2003
(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.
Employment Agreements
We previously had employment agreements with our executive officers,
Fred E. Cooper, Anthony J. Feola and Glenn Keeling effective
November 1, 1994, and Michael P. Thompson effective August
16, 2000. All of these agreements were terminated in 2002
when each of the officers resigned.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
None of our current management of executive officers have any
security ownership in the Company.
Item 13. Certain Relationships and Related Transactions
We previously share common officers and directors with our
subsidiaries. In addition, BICO and Diasense had 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.
Property
Two of our former executive officers and/or directors
and three former 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 were 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, joined our board of directors on
May 3, 1991. Mr. Onorato, who was not a director at the
time of the transaction, was a BICO director from September
1992 until April 1994. The property was sold in October
2000 for $475,000, and each of the partners received
$12,698, after the mortgage was paid.
Like all our warrants, the warrants issued to the
members of 300 Indian Springs Road Real Estate Partnership
had exercise prices equal to or above the current quoted
market price of our common stock on the date of issuance.
Warrants
On April 28, 1999, we granted warrants to purchase our
common stock at $.129 per share until April 28, 2004 in the
following amounts: 4,000,000 to Fred E. Cooper, our chief
executive officer and a director; 2,000,000 to Anthony J.
Feola, our chief operating officer and a director; 2,000,000
to Glenn Keeling, our senior vice president and a director;
4,000,000 to David L. Purdy, our former chairman and
director; 250,000 to Stan Cottrell, a director; and 250,000
to Paul Stagg, a director. The exercise price of $.129 per
share was equal to the market price on April 28, 1999.
On August 28, 2000, we granted warrants to purchase
1,000,000 shares of our common stock at $.125 per share
until August 28, 2005 to Michael P. Thompson, our chief
financial officer. The exercise price of $.125 per share
was equal to the market price on August 28, 2000.
On January 11, 2001, we granted warrants to purchase
500,000 shares of our common stock at $.073 per share until
January 11, 2006 to Ben Johnson, our executive vice
president. The exercise price of $.073 per share was equal
to the market price on January 11, 2001.
On February 1, 2001, we granted warrants to purchase
200,000 shares of our common stock at $.102 per share until
February 1, 2006 to Paul Stagg, a director. The exercise
price of $.102 per share was equal to the market price on
February 1, 2001.
On May 23, 2001, we granted warrants to purchase our
common stock at $.0525 per share until May 23, 2006 in the
following amounts: 15 million to Fred E. Cooper, our chief
executive officer and a director; 10 million to Anthony J.
Feola, our chief operating officer and a director; 8 million
to Glenn Keeling, our senior vice president and a director;
3 million to Michael P. Thompson, our chief financial
officer; 1 million to Stan Cottrell, a director and 1
million to Paul Stagg, a director. The exercise price of
$.0525 per share exceeded the market price on May 23, 2001.
On July 30, 2001, we granted warrants to purchase 1
million shares of common stock at $.05 per share until July
30, 2006 to Ben Johnson, our executive vice president. The
exercise price of $.05 per share exceeded the market price
on July 30, 2001.
On December 3, 2001, we granted warrants to purchase
500,000 shares of common stock at $.05 per share until
December 3, 2006 to Ben Johnson, our executive vice
president. The exercise price of $.05 per share exceeded
the market price on December 3, 2001.
Loans
In 1999, we consolidated all of Fred E. Cooper's
outstanding loans from us, including accrued interest, into
one loan in the amount of $777,399.80 at 8% interest. Mr.
Cooper began repaying the loans in May of 1999. The loan
balance as of December 31, 2001 was $678,021. Our
disinterested directors - with Mssrs. Cooper, Feola and
Keeling abstaining with respect to their individual
transactions- approved these loans because the disinterested
directors believed they were for a good business purpose.
The business purposes were: to provide Mr. Cooper with funds
during his initial years with BICO, when he waived a salary;
and to refinance loans secured by BICO stock, so the stock
wouldn't have to be sold when the loans were in default.
Mr. Cooper's individual loans, along with Mssrs. Feola and
Keeling's loans, had been, for period beginning in March
1996, secured by BICO certificates of deposits. Those CDs
were released in February 1998, when Mssrs. Cooper, Feola
and Keeling obtained loans from BICO and repaid the loans
which had been secured by 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 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 2002, under the terms of a resignations
agreement, Mr. Cooper's outstanding loans were reduced
to $204,583 by offsetting previously accrued salaries.
In 1999, we consolidated all of Anthony J. Feola's
outstanding loans from us, including accrued interest, into
one loan in the amount of $259,476.82 at 8% interest. Mr.
Feola began repaying the loans in May of 1999. The loan
balance as of December 31, 2001 was $197,570. Our
disinterested directors - with Mssrs. Feola, Cooper and
Keeling abstaining with respect to their individual
transactions- approved these loans because the disinterested
directors believed they were for a good business purpose.
The business purposes was to refinance loans secured by BICO
stock, so the stock wouldn't have to be sold when the loans
were in default. Mr. Feola's individual loan, along with
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 2002, under the terms of a resignations
agreement, Mr. Feola's outstanding loans were completely offset
against previously accrued salaries.
In 1999, we consolidated all of Glenn Keeling's
outstanding loans from us, including accrued interest, into
one loan in the amount of $296,358.07 at 8% interest. Mr.
Keeling began repaying the loans in May of 1999. The loan
balance as of December 31, 2001 was $150,161. Our
disinterested directors - with Mssrs. Keeling, Feola and
Cooper abstaining with respect to their individual
transactions- approved these loans because the disinterested
directors believed they were for a good business purpose.
The business purposes was to refinance loans secured by BICO
stock, so the stock wouldn't have to be sold when the loans
were in default. Mr. Keeling's individual loan, along with
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 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 2002, under the terms of a resignation agreement, Mr.
Keelings outstanding loans were completely offset against
previously accrued salaries.
In September 1995, we granted a loan in the amount of
$250,000 to Allegheny Food Services in the form of a one-
year renewable note bearing interest at prime rate as
reported by the Wall Street Journal plus 1%. Interest and
principal payments have been made on the note, and as of
December 31, 2002, the loan was paid off. Our board of
directors approved this loan because of its business purpose
- - in return for granting the loan, we received an option to
purchase a franchise owned by Joseph Kondisko, a former
director of Diasense, who is a principal owner of Allegheny
Food Services. The franchise generates revenue, which is
why we made the investment - until our products begin to
generate significant revenues;
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 will 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 began
making monthly payments on the loan in March 2002 but is
currently in default with a remaining balance of $112,554.
In April 2001, we 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.
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.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements
The financial statements, together with the report thereon
of the Company's independent accountants, are included in
this report on the pages listed below.
Financial Statements Page
Report of Independent Certified Public Accountants
Goff Backa Alfera & Company, LLC F-1
Consolidated Balance Sheets
December 31, 2002 and 2001 F-2
Consolidated Statements of Operations
for the years ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 2002, 2001 and 2000 F-6
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000 F-8
2. Exhibits:
(b) Reports on Form 8-K
The Company filed a Form 8-K report on September 18,
2002, for the event dated September 18, 2002. The
items listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on September 19,
2002, for the event dated September 19, 2002. The
items listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on September 23,
2002, for the event dated October 23, 2002. The items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on October 23,
2002, for the event dated October 23, 2002. The item
listed was Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on October 30, 2002,
for the event dated October 30, 2002. The items listed
were Item 5, Other Events; and Item 7(c), Exhibits.
The Company filed a Form 8-K report on October 31,
2002, for the event dated October 31, 2002. The items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on October 31, 2002
for the event dated October 31, 2002. The items listed
were Item 5, Other Events; and Item 7(c), Exhibits.
The Company filed a Form 8-K report on November 5,
2002 for the event dated November 5, 2002. The Items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on December 19, 2002
for the event dated December 19, 2002. The Items listed
were Item 5, Other Events; and Item 7(c), Exhibits.
The Company filed a Form 8-K report on February 6, 2003
for the event dated February 5, 2003. The Items listed
were Item 5, Other Events; and Item 7(c), Exhibits.
The Company filed a Form 8-K report on February 6, 2003
for the event dated February 6, 2003. The Items listed
were Item 6,Resignations of Registrant's Directors.
The Company filed a Form 8-K report on March 18, 2003
for the event dated March 18, 2003. The Items listed
were Item 3, Bankruptcy or Receivership.
The Company filed a Form 8-K report on May 1, 2003
for the event dated April 29, 2003. The Items listed
were Item 6, Resignation of Registrant's Directors.
(c) Exhibits Required by Item 601 of Regulation S-K
The following exhibits required by Item 601 of Regulation
S-K are filed as part of this report. Except as otherwise
noted, all exhibits are incorporated by reference from
exhibits to Form S-1 (Registration #33-55200) filed December
1, 1992 or from exhibits to Form 10-K filings prior to or
subsequent to that date.
3.1(4) Articles of Incorporation as filed March 20, 1972
3.2(4) Amendment to Articles filed May 8,1972
3.3(4) Restated Articles filed June 19,1975
3.4(4) Amendment to Articles filed February 4,1980
3.5(4) Amendment to Articles filed March 17,1981
3.6(4) Amendment to Articles filed January 27,1982
3.7(4) Amendment to Articles filed November 22,1982
3.8(4) Amendment to Articles filed October 30,1985
3.9(4) Amendment to Articles filed October 30,1986
3.10(4) By-Laws
3.11(5) Amendment to Articles filed December 28,1992
3.12(8) Amendment to Articles filed February 7, 2000
3.13(12) Amendment to Articles filed June 14, 2000
3.14(14) Amendment to Articles filed November 30, 2001
3.15(14) Certificate of Designation of Series G Preferred
Stock
3.16(14) Certificate of Designation of Series H Preferred
Stock
3.17(14) Certificate of Designation of Series I Preferred Stock
3.18(14) Certificate of Designation of Series J Preferred Stock
3.19(14) Certificate of Designation of Series K Preferred Stock
10.1(1) Manufacturing Agreement
10.2(1) Research and Development Agreement
10.3(1) Termination Agreement
10.4(1) Purchase Agreement
10.5(2) Sublicensing Agreement and Amendments
10.6(3) Lease Agreement with 300 Indian Springs Partnership
10.7(4) Lease Agreement with Indiana County
10.8(5) First Amendment to Purchase Agreement dated
December 8, 1992
10.9(6) Fred E. Cooper Employment Agreement dated November
1, 1994
10.10(6) David L. Purdy Employment Agreement dated November
1, 1994
10.11(6) Anthony J. Feola Employment Agreement dated November
1, 1994
10.12(6)Glenn Keeling Employment Agreement dated November
1, 1994
10.13(9) David L. Purdy resignation as a director letter
dated June 1, 2000
10.14(11)Michael P. Thompson Employment Agreement dated
August 16, 2000
10.15(13)Marketing Agreement by and between BICO, Rapid HIV
Detection Corp., GAIFAR and Dr. Heinrich Repke
10.16(13)Contract between Biocontrol Technology, Inc. and
U.S. Army Assistance
16.1(7) Disclosure and Letter Regarding Change in Certifying
Accountants dated January 25, 1995
16.2 (10)Disclosure and Letter Regarding Change in
Certifying Accountants dated August 24, 2000
Order of Court dated August 5, 2003, regarding sale of
inventory and equipment from Indiana, PA manufacturing
facility.
Order of Court dated October 14, 2003, regarding sale of
BICO's equity interest in ViaCirq.
Order of Court dated December 16, 2003, regarding sale
of Petrol Rem, Inc. assets.
Order of Court dated May 25, 2004, regarding sale of
BICO's eqity interest in Diasense, Inc.
Liquidating Plan of Reorganization of Petrol Rem, Inc.
dated March 12, 2004.
Order of Court dated July 8, 2004, confirming the
Petrol Rem, Inc. Plan of Reorganization.
BICO, Inc. Second Amended Joint Plan of Reorganization.
Second Amended Disclosure Statement to Accompany
Amended Joint Plan of Reorganization dated August 3, 2004.
Order of Court Approving Joint Second Amended Disclosure
Statement, Fixing Time for acceptances or resections of
plan, fixing time for hearing on plan confirmation, and
setting last day for filing complaint objecting to
discharge combined with notice therof.
(1) Incorporated by reference from Exhibit with this
title filed with BICO'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 Exhibit with this
title to Registration Statement on Form S-1 filed on
December 1, 1992
(5) Incorporated by reference from Exhibit 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) Incorporated 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 K for the year ended December 31, 2001
Item 15: Controls and Procedures
Our Chief Executive Officer (the ("Certifying Officer") is
responsible for establishing and maintaining diclosure controls
and procedures for the Company. The Certifying Officer has
designed such disclosure controls and procedures to ensure that
material information is made known to him particularly during
the period in which this report was prepared. The Certifying
Officer has evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the date
of this report and believe that the Company's disclosure controls
and procedures are effective based on the required evaluation.
There have been no significant changes in internal controls or
in other factors that could significantly affect internal
controls subsequent to the date of his evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
Conformed Copy
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 18th day of
September 2004.
BICO, INC.
/s/ Anthony Paterra
By: Anthony Paterra
CEO, principal executive
officer and director
Pursuant to the requirements of the Securities Exchange
Act of 1934, the following persons on behalf of the
Registrant and in the capacities and on the dates indicated
have signed this report below.
Signature Title Date
/s/ Anthony Paterra Chief Executive Officer, September 18, 2004
Anthony Paterra Principal financial officer,
Principal accounting officer,
Director
/s/ Jerome M. Buyny Director September 18, 2004
Jerome M. Buyny
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, 2002 and
2001, 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, 2002. 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, 2002 and 2001, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2002, in
conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
described in Note V, on March 18, 2003, the Company filed a
voluntary petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code and was authorized to continue managing
and operating the business as a debtor in possession subject
to the control and supervision of the Bankruptcy Court. Those
conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
September 17, 2004
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
Dec. 31, 2002 Dec. 31, 2001
------------- -------------
CURRENT ASSETS
Cash and equivalents (note A) $ 81,682 $ 268,095
Accounts receivable - net of allowance for doubtful accounts
of $43,664 at Dec. 31, 200 1 50,096 1,235,957
Inventory - net of valuation allowance (notes A and D) - 1,190,796
Related party notes receivable (notes C and Q) - 138,394
Notes receivable (note C) 46,338 -
Prepaid expenses (note E) - 1,055,901
Other current assets - 62,268
------------- -------------
TOTAL CURRENT ASSETS 178,116 3,951,411
PROPERTY, PLANT AND EQUIPMENT (notes A and K)
Building - 2,566,777
Land - 246,250
Leasehold improvements - 2,071,629
Machinery and equipment - 7,526,201
Furniture, fixtures & equipment - 937,607
------------- -------------
- 13,348,464
Less accumulated depreciation - 6,151,384
------------- -------------
- 7,197,080
OTHER ASSETS
Related Party Receivables
Notes receivable - (notes C and Q) 317,137 1,036,293
Interest receivable - (notes C and Q) 16,047 14,406
------------- -------------
333,184 1,050,699
Other notes receivable (notes C and Q) 546,533 3,259,445
Other interest receivable 1,384 144,411
------------- ------------
881,101 4,454,555
Allowance for notes receivable (881,101) (1,050,699)
------------- ------------
- 3,403,856
Goodwill, net of amortization (notes A and U) - 595,217
Intangible assets - marketing rights (notes F and K - 6,866,398
Investment in unconsolidated subsidiaries-(notes A and G) - 2,409,843
Other assets - 213,616
------------- -------------
- 13,488,930
------------- -------------
TOTAL ASSETS $ 178,116 $24,637,421
============= =============
The accompanying notes are an integral part of these statements.
F-2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
Dec.31, 2002 Dec. 31, 2001
------------ -------------
CURRENT LIABILITIES
Accounts payable $ 4,105,303 $ 4,755,445
Notes payable (note K) 1,473,347 7,037,198
Current portion of long-term debt (note K) 286,457 86,420
Capital lease obligations (note L) 1,265,299 75,523
Liabilities in excess of assets held for sale (note U) 590,911 -
Accrued liabilities (note J) 2,270,635 2,568,526
Escrow payable (note N) 2,700 2,700
------------ -------------
TOTAL CURRENT LIABILITIES 9,994,652 14,525,812
LONG-TERM LIABILITIES
Capital lease obligations (note L) - 2,128,149
Long-term debt (note K) - 127,777
Other - 25,009
------------- -------------
- 2,280,935
COMMITMENTS AND CONTIGENCIES (note R)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARIES (note A) 1,440 293,527
STOCKHOLDERS' EQUITY (DEFICIENCY)(note N)
Common stock, par value $.10 per share,
authorized 8,000,000,000 shares at Dec. 31,
2002 and 4,000,000 shares at Dec. 31, 2001, outstanding
7,138,933,127 shares at Dec. 31, 2002 and 2,450,631,111
at Dec. 31, 2001 713,893,312 245,063,111
Convertible preferred stock, par value $10
per share, authorized 500,000 shares issuable in
series, shares issued and outstanding 108,356 at
December 31, 2002 and 16,930 at December 31, 2001. 108,357 169,300
Discount assigned to beneficial conversion feature -
preferred stock (note M) - (141,000)
Additional paid-in capital (444,039,721) 10,887,152
Warrants - 6,221,655
Accumulated deficit (279,779,924) (254,663,071)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 9,817,976 7,537,147
------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 178,116 $ 24,637,421
============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2002 2001 2000
------------- ------------- -------------
Revenues
Net sales $2,828,923 $ 4,342,203 $ 340,327
Costs and expenses
Cost of products sold 1,645,258 3,287,176 354,511
Research and development (notes A,N and O) 896,186 7,113,258 6,651,471
General and administrative (note N) 19,016,705 21,879,130 21,407,472
Amortization (notes A,F and G) 175,000 804,458 392,307
Impairment loss (note U) 6,014,576 - -
------------- ------------- -------------
27,747,725 33,084,022 28,805,761
------------- ------------- -------------
Loss from operations (24,918,802) (28,741,819) (28,465,434)
Other (income) and expense
Gain on sale of MicroIslet stock (1,283,852) - -
Interest income (413,703) (561,817) (589,529)
Debt issue costs (note A) - 2,218,066 1,005,000
Beneficial convertible debt feature(notes A&M) - 2,063,915 3,062,500
Interest expense 639,591 826,346 1,924,873
Warrant extensions (note N) - - 5,233,529
Loss on unconsolidated subsidiaries(notes A&G) 524,151 279,978 158,183
Loss on disposal of assets 922,451 29,759 122,857
Other taxes (note O) - 120,882 -
Unusual item (note K and Q) (170,075) (2,562,848) 3,450,000
Other Income (20,512) (7,715) (5,547)
------------- ------------- -------------
198,051 2,406,566 14,361,866
------------- ------------- -------------
Loss before unrelated
investors' interest (25,116,853) (31,148,385) (42,827,300)
Unrelated investors' interest in
net loss of subsidiaries - 206,075 280,997
------------- -------------- -------------
Net loss $(25,116,853) $(30,942,310) $(42,546,303)
============= ============== =============
Loss per common share - Basic:
Net Loss $ (0.01) $ (0.02) $ (0.04)
Less: Preferred stock dividends (0.00) (0.00) (0.00)
------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.01) $ (0.02) $ (0.04)
============= ============= =============
Loss per common share - Diluted:
Net Loss $ (0.01) $ (0.02) $ (0.04)
Less: Preferred stock dividends (0.00) (0.00) (0.00)
------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.01) $ (0.02) $ (0.04)
============= ============= =============
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. 31,1999 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. 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. (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. 16,930 169,300(1,962,632) - - - 10,078,332 - 8,285,000
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
stk offering - - - 372,444,628 37,244,463 - (31,655,920) - 5,588,543
Conversion of
preferred stock (6,094) (60,943) - 4,315,857,388 431,585,738 - (429,464,295) - 2,060,500
Constructive
dividend on
preferred stock - - 141,000 - - - - - 141,000
Warrants
granted and extended
-subsidiaries - - - - - - (60,000) - (60,000)
Common stk.
issued-subs. - - - - - - 31,687 - 31,687
Warrants expired/
cancelled - - - - - (6,221,655) 6,221,655 - -
Net loss - - - - - - - (25,116,853) (25,116,853)
------ ------- ------- ------------- ---------- ---------- ---------- ----------- -----------
Balance at
Dec. 31, 2002 10,836 $108,357 $ - 7,138,933,167$713,893,312$ - $(444,039,721)$(279,779,924) $(9,817,976)
====== ======= ======= ============= =========== ========== ========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31,
2002 2001 2000
------------- ------------- -------------
Cash flows used by operating activities:
Net loss $(25,116,853) $(30,942,310) $(42,545,303)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 988,878 977,178 689,762
Amortization 175,000 804,453 392,307
(Gain) Loss on disposal of assets 922,451 29,759 122,857
Loss on unconsolidated subsidiaries 524,151 279,978 158,183
Unrelated investors' interest in susidiaries - (206,078) (280,997)
Stock issued in exchange for services 3,334,947 - 338,000
Stock issued in exchange for services by subsidiary - - 225,000
Debenture interest converted to stock - - 120,547
Beneficial convertible debt feature - 2,063,915 3,062,500
Provision for (recovery of)potential loss on notes receivable (169,598) (137,502) (152,359)
Warrants granted 768,545 17,420 608,655
Warrants granted and extended by subsidiaries (28,313) 188,252 11,184,858
(Decrease)increase in allowance for losses on accounts receivable (43,664) - (20,015)
(Increase)decrease in accounts receivable 1,129,124 (835,007) (25,148)
Decrease in inventories 1,645,605 1,303,127 101,480
(Decrease) in inventory valuation allowance (734,374) (1,688,699) (859,283)
(Increase) decrease in prepaid expenses 1,041,093 (67,547) (651,305)
(Increase) decrease in other assets 125,910 (113,051) 33,834
Increase (decrease) in accounts payable 189,039 4,176,925 (296,657)
Increase in other liabilities 1,288,567 820,451 1,112,211
Debt forgiveness - (2,562,848) -
Impairment loss 6,014,576 - -
Gain on sale of MicroIslet stock (1,283,852) - -
Stock issued in payment of interest 121,711 - -
------------- ------------- -------------
Net cash flow used by operating activities ( 9,107,057) (25,891,584) (26,681,873)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (363,331) (1,542,038) (1,388,508)
Proceeds from sale of MicroIslet stock 1,521,038 - -
Disposal of property, plant and equipment 2,171,261 - -
Acquisitions, net of cash acquired - - (1,395,126)
(Increase)decrease in notes receivable 2,599,451 (1,429,041) (1,939,073)
Payments received on notes receivable 115,963 383,716 378,817
(Increase)decrease in interest receivable 141,386 (97,102) (32,756)
Purchase of marketing rights - (1,285,000) -
Acquisition of unconsolidated subsidiaries - (1,093,948) (2,078,520)
------------- ------------- -------------
Net cash used by investing activites 6,185,768 (5,063,413) (6,455,166)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock offering - 10,677,600 18,604,650
Proceeds from warrants exercised 770,000 - 615,658
Proceeds from sale of preferred stock 2,794,840 6,285,000 4,275,000
Redemption of stock subscriptions - (1,453,600) -
Proceeds from debentures payable - 8,255,659 12,250,000
Payments on debentures payable - - (5,850,000)
Payments on notes payable and long-term debt (1,826,103) (14,408,087) (53,125)
Increase in notes payable and long-term debt 1,934,512 14,120,502 855,801
Decrease in capital lease obligations (938,373) (98,789) (543,769)
------------- ------------- -------------
Net cash provided by financing activities 2,734,876 23,378,285 30,154,215
_____________ _____________ _____________
Net increase (decrease) in cash (186,413) (7,576,712) (2,982,824)
Cash and cash equivalents, beginning of year 268,095 7,844,807 10,827,631
------------- ------------- -------------
Cash and cash equivalents, end of year $ 81,682 $ 268,095 $ 7,844,807
============= ============= =============
The accompanying notes are an integral part of these statements.
F-6
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
Year ended December 31,
2002 2001 2000
------------- ------------- -------------
Supplemental Information:
Interest paid $ 700,474 $ 412,239 $ 1,485,286
============= ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of property under a capital lease:
Land $ - $ - $ 112,500
Building - - 1,321,566
------------- ---------- ------------
$ - $ - $ 1,434,066
============= ========== ============
Conversion of preferred stock for common stock $ - $ - $ 5,580,168
============= =========== ============
Preferred stock dividend paid in common stock $ - $ - $ 121,825
============= =========== ============
Constructive dividend on convertible preferred stock $ 141,000 $ 1,821,632 $ 1,883,333
============= =========== ============
Conversion of debentures for common stock $ - $10,655,659 $ 4,000,000
============= =========== ============
Conversion of stock subscriptions for common stock $ - $ 9,900,000 $ -
============= =========== ============
Preferred stock issued in payment of long term debt $ - $ 2,000,000 $ -
============= =========== ============
Acquisition of marketing rights for note payable $ - $ 5,715,000 $ -
============= =========== ============
Cancellation of marketing rights offset by
reduction in note payable $ 5,600,000 $ - $ -
============= =========== ============
Reduction in notes receivable from related parties
by offsetting previously accrued salaries $ 808,710 $ - $ -
============= =========== ============
The accompanying notes are an integral part of these statements.
BICO, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. Organization
Until March 18, 2003 when BICO, Inc. (the Company) and its
subsidiary Petrol Rem, Inc. filed voluntary petitions for
Chapter 11 bankruptcy with the United States Bankruptcy
Court for the Western District of Pennsylvania, the Company
and its subsidiaries 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,
2002 and 2001; Petrol Rem, Inc., a 75% owned subsidiary as of
December 31, 2002 and 2001; ViaCirq, Inc. (formerly IDT,
Inc.), a 99% owned subsidiary as of December 31, 2002 and
2001; ViaTherm, Inc., a 99% owned subsidiary as of December
31, 2002 and 2001; Ceramic Coatings Technologies, Inc., a 98%
owned subsidiary as of December 31, 2002 and 2001 and
B-A-Champ.com, Inc., a 99.8% owned subsidiary as of December 31,
2002 and 2001. 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, 2002 and 2001
and Barnacle Ban Corporation, a 100% owned subsidiary as of
December 31, 2002 and 2001. 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
Tireless, Inc., a 51% owned subsidiary as of
December 31, 2002 and 2001. B-A-Champ.com, Inc. consolidated
financial statements include the accounts of TruePoints.com,
Inc., a 100% owned subsidiary as of December 31, 2002 and
2001.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at acquisition to be cash equivalents.
4. Inventory
Inventory is valued at the lower of cost (first-in, first-out
method) or market. An inventory valuation allowance is
provided against finished goods and raw materials for
products for which a market has not yet been established.
5. Property and Equipment
Property and equipment are recorded at cost and are
depreciated over their estimated useful lives, ranging from 3
to 39 years, on a straight-line basis. Amortization of
assets recorded under capital leases is included with
depreciation expense. Impairment losses are recognized when
management determines that operating conditions raise doubts
about the ability to recover the carrying value of particular
assets. The amount of impairment loss is determined by
comparing the present value of the estimated future cash
inflows of such assets to their net carrying value.
6. Goodwill
Goodwill, which represents the excess cost of purchased
companies over the fair value of their net assets at dates of
acquisition, is amortized on a straight-line basis over five
years. Goodwill associated with assets determined to be
impaired is correspondingly written down. 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 and Note G.
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 3,643,337,572 in 2002,
1,952,313,675 in 2001,and 1,952,313,675 in 2000. The net
losses attributable to common shareholders for the years
ended December 31, 2002, 2001 and 2000 were $25,257,853,
$32,763,942 and $44,429,636, respectively, which include
constructive dividends to preferred stockholders of
$141,000, $1,821,632 and $1,883,333, 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, 2002, 2001 or 2000.
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, 2002, 2001
and 2000 were $0, $2,218,066 and $1,005,000,
respectively.
15. Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to significant concentrations of credit risk, consist
principally of cash investments at commercial banks,
receivables from officers and directors of the Company,
and investments in unconsolidated subsidiaries Cash and cash
equivalents are temporarily invested in interest bearing
accounts in financial institutions, and such investments may
be in excess of the FDIC insurance limit. Receivables from
directors and officers of the Company (Notes C and O) are
unsecured and represent a concentration of credit risk due to
the common employment and financial dependency of these
individuals on the Company.
16. Comprehensive Income
The Company's consolidated net income (loss) is the same as
comprehensive income required 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 2002, 2001 and 2000 were $7,302,
$367,867 and $208,617, 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.
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 were effective
for the Company's fiscal year ending December 31, 2002.
NOTE B - OPERATIONS AND LIQUIDITY
The Company and its subsidiaries have incurred substantial
losses in 2002 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. In late
2001 and continuing throughout 2002, BICO experienced difficulty
raising monies to support its own operations and controlling
costs. During 2002, BICO began selling its assets to provide capital
to meet its obligations. BICO's financial situation continued to
deteriorate throughout 2002. Without necessary funding, BICO
was unable to continue operations and to retain sufficient counsel
to defend itself from litigation matters. In 2002, BICO was sued
by several alleged creditors who obtained default judgments against
BICO and a subsidiary. The judgment holders thereafter levied on
property of BICO, scheduling an execution sale of assets. Faced
with the threat of losing substantial assets to a single diputed
creditor, BICO filed a petition for relief under Chapter 11 on
March 18, 2003.
In the years prior to the Chapter 11 filing, BICO experienced
substantial losses and financial difficulties. The consolidated
financial statements for The Company for the years ended 2002,
2001 and 2000 include disclosures that the Company had a net
loss of $25,116,853, $30,942,310, and $42,546,303, respectively.
As of December 31, 2002 and 2001, BICO's accumulated defict was
$279,779,924 and $254,663,071, respectively.
Prior to the Chapter 11 filing, BICO decided to voluntarily
vacate its manufacturing facility in Indiana, PA. All
manufacturing operations have ceased and no additional work
is being performed on any remaining contracts at the Indiana,
PA facility. The inventory and equipment at the Indiana, PA
facility was sold in August 2003 during the course of BICO's
Chapter 11 bankruptcy case.
NOTE C - NOTES RECEIVABLE
Notes receivable due from various related and unrelated
parties consisted of:
Dec. 31, 2002 Dec. 31, 2001
Related Parties
Note receivable from Allegheny
Food Services, Inc. of which
Joseph Kondisko, a former
director, is principal owner.
The balance was due and payable $ - $ 24,394
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 112,554 114,000
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 $9,427 204,583 671,338
with a final balloon payment on
May 31, 2002. Interest is
accrued at a rate of 8% per
annum. Under an agreement
between the Company and Mr.
Cooper amounts accrued as
unpaid salary were applied
to the note balance during
2002.
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
final balloon payment on May 1,
2002. Interest is accrued at a
rate of 8% per annum. Under an
agreement between the Company
and Mr. Keeling amounts accrued
as unpaid salary were applied
to the note balance during
2002.
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
payment on May 31, 2002.
Interest is accrued at a rate of
8% per annum. Under an
agreement between the Company
and Mr. Feola amounts accrued
as unpaid salary were applied
to the note balance during
2002.
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.
Practical Environmental Solutions, - 3,148,404
Inc. discontinued operations
in 2002 and the note was written
off as uncollectible.
Note receivable from sale of
MicroIslet stock without interest 46,338 -
(See note G)
Note receivable from an
individual, due on November 15,
2002 with interest at prime plus 44,283 111,041
2% (6.75% at December 31, 2001).
Note receivable from CCTI Partners
in connection with an Asset
Purchase Agreement for the sale
of assets by Ceramic Coating
Technologies, Inc. $227,053 of 502,250 -
the note was due on October 31,
2002 without interest. The balance
of the note was duee over a five
year period with interest of 6%.
---------- -----------
910,008 4,434,132
Less current notes receivable 46,338 138,394
---------- -----------
Noncurrent $ 863,670 $ 4,295,738
Accrued Interest 17,431 158,817
---------- -----------
881,101 4,454,555
========== ===========
Accrued interest receivable on the related party notes as of
December 31, 2001 and 2002 was $14,406 and $16,047,
respectively.
Due to the financial dependency of the above officers and
directors on the Company, an allowance of $1,050,699 was
provided as of December 31, 2001. At December 31, 2002, an
allowance of $881,101 was provided on the notes receivable
since no payments have been made through September 10, 2004.
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.
The Company sold 2,366 shares of Series K preferred stock to
J.P. Carey Asset Management in May 2002 and 895 shares in July
2002 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 promissory
notes for $1,630,500. The notes bear interest at 8% per annum
beginning 10 months after the date of the note. At September
30, 2002, the promissory notes had been paid in full.
NOTE D - INVENTORY
Inventories consisted of the following as of:
Dec. 31, 2002 Dec. 31, 2001
Raw materials $ - $ 543,354
Work in Process - 341,226
Finished goods - 2,111,439
--------- ---------
- 2,996,019
Less valuation - (1,805,223)
allowance --------- ---------
$ - $ 1,190,796
========= =========
As discussed in Note I, inventory of approximately $855,000 was
reclassified and reported in the excess of liabilities over assets
held for sale at December 31, 2002.
NOTE E - PREPAID EXPENSES
Prepaid expenses consisted of the following as of:
Dec. 31, 2002 Dec. 31, 2001
Prepaid insurance $ - $ 330,761
Prepaid professional fees - 612,813
Other - 112,327
---------- ---------
$ - $1,055,901
========== =========
As discussed in Note U, prepaid expenses of approximately $1,500,000
were written off in the final quarter of 2002.
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 individual 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 had a minimum ten-year term and called 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 2001 while the due diligence was continuing. During the third
quarter 2001, 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 at December 31, 2001(note K). The remaining
payments were due in monthly amounts ranging from $125,000 to
$1,000,000 through August 20, 2002.
Due to cashflow problems, only $115,000 was paid to GAIFAR during
the quarter ended March 31, 2002. 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 at March 31, 2002, to reduce the intangible
asset to $5,600,000, which was 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. As a result, the intangible asset and corresponding note
payable of $5,600,000 was written off in the second quarter of 2002.
The marketing rights were being amortized as an intangible asset
over the ten-year minimum term of the marketing agreement.
Amortization of $133,602 was recognized during 2001 and $175,000
was recognized during 2002 prior to the loss of the exclusive
marketing rights.
NOTE G - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Prior to January 1, 2002, investments in unconsolidated subsidiaries
were 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 was
no longer amortized but was evaluated for impairment during 2002.
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 had
invested $110,000 in IDL and its ownership percentage was
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. Due to a history of
negative cashflow and the uncertainty of the Company's ability
to recover the carrying amount of its investment in IDL an
impairment loss of $64,505 was recognized in 2002.
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. Due to a history of negative cashflow and the
uncertainty of the Company's ability to recover the carrying
amount of its investment in AIM an impairment loss of $712,500
was recognized in 2002.
During the year ended December 31, 2001, Diasense invested an
additional $600,000 in Microislet, Inc., an unconsolidated
subsidiary interest initially acquired in 2000. With
this additional investment, Diasense had 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.
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 its
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 shareholder 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
went below 20% and because the Company was not represented
on the board of directors of MicroIslet, this investment was
reported on the cost basis beginning in the second quarter of
2002 and no longer reported under the equity method. Also,
the carrying value of $160,461 was 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.
In July 2002, Diasense sold 1,000,000 shares of MicroIslet
common stock for $500,000, an additional 1,758,772 shares were
sold in September 2002 for $879,386 and the remaining 706,679
shares were sold in December 2002 for $691,340. The purchasers
of the stock are not affiliated with the Company, its
subsidiaries or any of its officers and directors. A gain of
$1,283,852 was recognized as a result of these sales. The
proceeds from the sales were used to reduce the amount owned
by Diasense to BICO.
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 had
invested $987,468 in Diabecore and owns approximately 24% of
this unconsolidated subsidiary. Diasense held 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. Due to a history of negative cashflow
and the uncertainty of the Company's ability to recover the
carrying amount of its investment in Diabecore an impairment
loss of $715,487 was recogized in 2002.
The Company's investment in the underlying assets and the
unamortized goodwill of each unconsolidated subsidiary as of
December 31, 2002 and December 31, 2001 are as follows:
Investment in
Unconsolidated Underlying Net Unamortized
Subsidiary Assets Goodwill Total
2002 2001 2002 2001 2002 2001
American Inter-
Metallics, Inc. $ 0 $318,200 $ 0 $394,300 $ 0 $ 712,500
Insight Data Link.com 0 22,876 0 41,629 0 64,505
MicroIslet, Inc. 0 130,477 0 786,874 0 917,351
Diabecore Medical,Inc 0 158,935 0 556,552 0 715,487
_________ ________ _________ _________ __________ ________
Total $ 0 $630,488 $ 0$1,779,355$ 0 $2,409,843
========= ======== ========= ========= ========== =========
NOTE H- BUSINESS SEGMENTS
The Company operated in two reportable business segments:
Biomedical devices, which included the operations of BICO, Inc.,
Diasense, Inc. and ViaCirQ, Inc. and Bioremediation, which
included the operations of Petrol Rem, Inc. Following is
summarized financial information for the Company's reportable
segments:
Biomedical
2002 Devices Bioremedication All Other Consolidated
Sales to external customers $ 2,608,736 $ 138,751 $ 81,436 $ 2,828,923
Cost of products sold 1,423,242 204,325 17,691 1,645,258
Gross profit (loss) 1,185,494 (65,574) 63,745 1,183,665
Identifiable assets 1,126,107 103,036 0 1,229,143
Interest Income 74,169 339,534 0 413,703
Interest Expense 617,155 22,436 0 639,591
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
NOTE I - LIABILITIES IN EXCESS OF ASSETS HELD FOR SALE
In March 2003, the Company and its subsidiary Petrol Rem, Inc.
filed a voluntary petition for bankruptcy under Chapter 11 of
the Bankruptcy Code. Following the filing, as discussed in
Note V, the Company's equity interests in Diasense, ViaCirq,
and Viatherm were sold; Petrol Rem was liquidated in connection
with its own bankruptcy plan; and the former operating assets
at the Company's manufacturing facility were sold. Although,
these transactions all took place after the Chapter 11 filing
efforts were underway to dispose of these assets at December
31, 2002. The balance of $590,911 recognized as Liabilities
in Excess of Assets Held for Sale represents the excess of the
liabilities related to the carrying value of the assets held
for sale as of December 31, 2002. Following is a summary of
these items:
Accounts Receivable $ 100,401
Inventory (net of valuation
allowance) 855,000
Property, Plant and Equipment
(net of accumulated depreciation) 79,599
Other Assets 16,022
Accounts Payable (839,181)
Accrued Expenses (802,752)
---------
Liabilities in Excess of
Assets Held for Sale $ (590,911)
=========
NOTE J - ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of:
Dec. 31, 2002 Dec. 31, 2001
Accrued interest $ 42,118 $ 176,080
Accrued payroll 2,228,517 1,503,563
Accrued vacation - 65,446
Accrued class action
settlement (note O) - 425,000
Deferred revenue - 173,516
Accrued income taxes - 140,827
Other accrued liabilities - 84,094
----------- ----------
$ 2,270,635 $ 2,568,526
=========== ==========
NOTE K - DEBT OBLIGATIONS
Notes payable consisted of the following as of:
Dec. 31, Dec. 31,
2002 2001
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. $ 443,520 $ 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.
Note Payable to Cache Capital payable
on or before March 28, 2003 with 518,000 -
interest at 22%
Note Payable to Individuals on demand
with interest at a rate of 13% 242,698 -
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 219,961 500,000
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.
The note was eliminated in 2002 in connection
with the Company's loss of its marketing
rights. (See note F)
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 variou monthly installments including 49,168 79,016
interest at various rates.
$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 $1,473,347 $7,037,198
========== =========
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,
2002 2001
Demand Note in favor of INTCO, Inc.
(a former subsidiary of Petrol Rem)at
an interest rate of 13% per annum. $ 286,457 $ -
Demand for payment was made in July 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 9.5% per annum are - 3,503
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
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
annum. The loan in collateralized by
equipment. ---------- ----------
286,457 214,197
Current portion of long-term debt 286,457 86,420
---------- ----------
Long-term debt $ - $ 127,777
========== ==========
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 of 2001.
NOTE L - LEASES
Operating Leases
The Company and its related subsidiaries lease office
facilities, various equipment and automobiles under
operating leases expiring in various years through 2005.
Total lease expense related to these leases was approximately
$587,293, $598,981, and $534,235,in the years ended December
31, 2002, 2001 and 2000, respectively. (See Note V)
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 were recorded
at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets were
depreciated over the lower of their related lease terms or
their estimated productive lives. Depreciation of assets
under capital leases was 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
Company received an eviction notice under this lease in August
2002, as a result, the Company vacated its manufacturing
facility. In January 2003, the remaining asset and accumulated
depreciation were written off through an impairment charge as
of December 31, 2002.
In August 2002 the Company vacated one of its manufacturing
buildings, which had been accounted for under a capital
lease. When this lease was terminated, the Company recognized
an abandonment loss of approximately $647,000, resulting from
the write offs of property, plant and equipment with
a book value of appoximately $1,617,000 and the related lease
obligations of approximately $970,000.
The following is a summary of property held under capital leases:
Dec. 31, 2002 Dec. 31, 2001
Buildings $ 0 $ 2,527,326
Land 0 246,250
Equipment 0 264,490
---------- ------------
Sub Total 0 3,038,066
Less: Accumulated
Depreciation 0 680,776
---------- ------------
Total Property under
Capital Leases $ 0 $ 2,357,290
========== ============
NOTE M- 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. There
were no debenture transactions during 2002.
NOTE N- 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 2001, 500,000 shares of preferred stock were authorized
as "4% Cumulative Convertible Preferred Stock" in series G,
H,I,J and K. 16,930 preferred shares were issued in 2001 and
4,211 were issued in 2002. There were 10,305 preferred
shares converted during 2002 leaving a balance of 10,836
shares outstanding at December 31, 2002.
Series G, H, J and K include a beneficial conversion feature
providing the preferred shareholder 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.
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
perion at 10% interest. The balance due is currently secured
by a confession of judgement.
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 cash. As of December 31,
2002, all 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 exercised $770,000
in warrants and he was issued 110 million shares of common
stock in April 2002.
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 were registered on behalf of our preferred
shareholders.
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 on behalf of our preferred stockholders.
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.
As of December 31, 2002 all remaining warrants were deemed to
have been cancelled due to the Company's bankruptcy and the
balance previously reported as a component of Stockholders
Equity was added to Additional Paid In Capital.
NOTE 0 - UNUSUAL ITEMS
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 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.
NOTE P - INCOME TAXES
As of December 31, 2002, the Company had available
approximately $166,000,000 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 2003 through 2023.
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.
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, 2002, December 31, 2001 and
December 31, 2000:
Dec. 31, Dec. 31, Dec. 31,
2002 2001 2000
Net Operating Loss $56,440,000 $ 53,516,000 $ 45,050,000
Warrant Expense 8,593,191 8,593,191 8,593,191
Tax Credit Carryforward 1,569,000 1,569,000 1,775,000
---------- ---------- -----------
66,602,191 63,678,191 55,418,191
Valuation Allowance (66,602,191) (63,678,191) (55,418,191)
---------- ---------- -----------
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, 2002 $(2,924,000) $ 2,924,000 $ 0
Year-ended December 31, 2001 $( 8,466,000) $ 8,466,000 $ 0
Year-ended December 31, 2000 $(11,357,323) $ 11,357,323 $ 0
From March 20, 1972 (inception)
Through December 31, 2002 $(66,602,191) $ 66,602,191 $ 0
NOTE Q - RELATED PARTY TRANSACTIONS
Research and Development Activities
The Company performed research and development activities
related to the non-invasive glucose sensor (the Sensor) under
a Research and Development Agreement with Diasense, Inc.
BICO financed 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. In January 2003 all research and development
activities were ceased.
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.
Related Party Receivables - See Note C
NOTE R - COMMITMENTS AND CONTINGENCIES
Litigation
During April 1998, the Company and its affiliates were
served with subpoenas requesting documents in connection
with an investigation by the U.S. Attorney's office for
the District Court for the Western District of Pennsylvania.
In July 2002, the Company was notified that 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.
During September 2002, the class action lawsuit, captioned
Walsingham v. Biocontrol Technology, et al., was settled when
the final payment of $50,000 was made. 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
$450,000 were made in the nine months ended September 30, 2002,
and the settlement is now completed.
Lawsuits have been filed against the Company and its subsidiaries
for collection of approximately $1,645,062 for amounts due to
creditors or employees. Management is defending these actions and
working to negotiate suitable payment arrangements as funds allow,
but the lack of funds are likely to cripple the Company's ability
to defend or settle the litigation, and possibly the Company. The
dollar amount of these claims is included in either accounts
payable or accrued expenses. During 2002, default judgements have
been entered against the Company for $582,091 of these claims.
Management of the Company believes that any liability arising
from litigation through the effective date of the Company's
reorganization will be either dismissed or settled through
the plan of reorganization.
NOTE S- 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 were no employer contributions to the plan from
inception through December 31, 2002.
NOTE T - OFFICER AGREEMENTS
In July 2002, BICO 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 continued as an officer and
director of ViaCirq until his resignation was requested for
breach of contract by the Company in September 2002. 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 on outside consultant so he could transition the work he
had been doing, and facilitate completing financing
transactions he was working on. Mr. Cooper was to be paid
$15,000 per month, including any expenses under the
agreement, which has a maximum term of one year and is
terminable at any time with ten days notice. In September
2002, the consulting agreement with Mr. Cooper was
terminated.
NOTE U - QUARTERLY INFORMATION (UNAUDITED)
As a result of the Company's cessation of operations and
bankruptcy filing in the first quarter of 2003 (Notes B
and V) adjustments were made in the final quarter of 2002
to reclass certain assets and liabilities that were held for
sale. As discussed in Note I these items resulted in a
net Liabilities in Excess of Assets Held for Sale of
$590,911 at December 31, 2002.
Company results of operations for the fourth quarter of
2002 also includes an impairment loss of approximately
$3,800,000 to reduce the carrying value of Property,
Plant and Equipment (approximately $900,000), Prepaid
Expenses (approximatley $1,500,000), Goodwill (approximately
$200,000), Investments Unconsolidated Subsidiaries
(approximately $700,000), and other assets (approximately
$500,000). These losses were partially offset by a gain
on the sale of MicroIslet stock of approximately $530,000
realized in the fourth quarter of 2002.
NOTE V - SUBSEQUENT EVENTS (UNAUDITED)
Operations Ceased
In January 2003 operations at the Company's manufacturing facility were
discontinued and the Company vacated the facility rather than litigate
with its landlord, Indiana County. The County had filed a lawsuit to
evict the Company and recover the balance of the lease and damages.
Common Stock
During the first quarter 2003, we issued approximately 248.57
million shares of our common stock from conversion of Series K preferred
shares.
Chapter 11 Bankruptcy
On March 18, 2003, the Company and its subsidiary, Petrol Rem, Inc.
filed voluntary petitions for Chapter 11 bankruptcy with the
United States Bankruptcy Court for the Western District of Pennsylvania.
On August 3, 2004 the Company, along with a joint plan proponent, PHD
Capital,submitted a Plan of Reorganization. PHD Capital is an investment
banking company and was used by the Company prior to the filing of the
Chapter 11 as an investment banker to raise funds. None of the principals
or insiders of the Company are principals or insiders of PHD Capital, nor
have any members of PHD Capital ever held any posiions with the Company.
As of September 15,2004 sufficient votes had been received from creditors
to approve the Plan of Reorganization and a hearing is set for September
23, 2004 at which time the Court will decide whether or not to confirm the
plan.
Asset Sales
During the course of the bankruptcy the Company (Debtor) has liquidated
substantially all of its operating and investment assets.
In August 2003 the Company sold all inventory and equipment formerly held
at its Indiana County manufacturing facility to an unrelated party for
$130,000.
In October 2003 the Company sold its equity and debt interest in
subsidiaries Viacirq, Inc. and Viatherm, Inc. to an unrelated party for
$300,000.
In December 2003 the Company sold its equity and debt interest in
subsidiary Diasense, Inc. to an unrelated party for $80,000.
Petrol Rem, Inc. Liquidating Plan of Reoranization
In July 2004 the United States Bankruptcy Court for the Western District
of Pennsylvania confirmed a plan of liquidation for the Company's
subsidiary, Petrol Rem, Inc. In December 2003 Petrol Rem, Inc sold all
of its assets to an unrelated party for $100,000. The proceeds from the
sale were utilized in the Liquidating Plan to pay administrative expenses
and claims; priority creditor claims and unsecured claims of creditors to
the extent of available funds.