As filed with the Securities and Exchange Commission on March 29, 2001
Registration No. 333-_________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-1
under
THE SECURITIES ACT OF 1933
BICO, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 3841 25-1229323
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
2275 Swallow Hill Road, Bldg. 2500
Pittsburgh, Pennsylvania 15220 (412) 429-0673
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices and principal
place of business)
___________________________________________
Fred E. Cooper, Chief Executive Officer
BICO, Inc.
2275 Swallow Hill Road, Building 2500, Pittsburgh, Pennsylvania 15220
(412) 429-0673
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
___________________________________________
Copy to:
Sweeney & Associates P.C.
7300 Penn Avenue, Pittsburgh, Pennsylvania 15208
(412) 731-1000
_____________________________________________________
Approximate date of commencement of proposed sale to the public:
As soon as possible after this registration statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 check the following box. [X]
CALCULATION OF REGISTRATION FEE
Title of Each Class Amount to Proposed Proposed Amount of
of Securities to be be Maximum Maximum Registra-
Registered Registered Offering Aggregate tion Fee
Price Per Offering
Share Price
Common Stock
issuable upon the
Conversion of the
outstanding
Principal amount 284,217,673(1) $0.07 (2) $19,895,237 $5,530.46
and other amounts
Due under the
Registrant's 4%
Convertible
Debentures due 2001 (1)
Total Common Stock 284,217,673
Total Registration
Fee $5,530.46
TOTAL OF SEPARATELY NUMBERED PAGES 99 EXHIBIT INDEX ON SEQUENTIALLY NUMBERED
PAGE 93
(1) These shares are registered on behalf of selling stockholders.
(2) Estimated SOLELY for purposes of calculating the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, and based on the closing bid price of the common stock
of Registrant on the electronic bulletin board on March 21, 2001.
(3) A filing fee of $5,530.46 was paid on March 15, 2001
_____________________
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall
become effective on such date as the Commission acting pursuant to
Section 8(a) may determine.
_____________________
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
[INSIDE FRONT COVER]
SUBJECT TO COMPLETION SUBJECT TO COMPLETION DATED March 29, 2001
PRELIMINARY PRELIMINARY PROSPECTUS
284,217,673 shares
BICO, INC.
Common Stock
This prospectus is for an offering of shares of BICO, Inc.
common stock on behalf of certain selling stockholders. These
selling stockholders bought debentures from us that are
convertible into common stock. We are registering that common
stock for sale on behalf of those debenture holders under this
prospectus. Up to 284,217,673 shares are being registered that
may be issuable upon the conversion of the outstanding principal
amount and interest due under our $10,655,659 principal amount of
4% subordinated convertible debentures. We estimated the number of
shares we'll need to cover the debenture conversions - depending
on our stock price at the time of conversion; we may need to issue
fewer shares or more shares. You should review the Selling
Stockholders and Plan of Distribution sections for more
information.
Our common stock trades on the electronic bulletin board
under the trading symbol "BIKO".
We will not receive any of the money from selling the
284,217,673 shares of stock we are offering on behalf of the
selling stockholders. They will receive the proceeds from any
sales.
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU NEED TO REVIEW
THESE RISKS BEFORE YOU CONSIDER BUYING OUR COMMON STOCK. THESE
RISKS ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON
PAGE 4.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. If anyone tells you otherwise, it's a criminal offense.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND
SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
THE INFORMATION IN THIS PROSPECTUS ISN'T COMPLETE. IT MIGHT
CHANGE. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS
PROSPECTUS UNTIL THE REGISTRATION STATEMENT WE HAVE FILED WITH THE
SEC BECOMES EFFECTIVE. THIS PROSPECTUS ISN'T AN OFFER TO SELL OUR
COMMON STOCK, AND WE ARE NOT SOLICITING OFFERS TO BUY OUR COMMON
STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT ALLOWED.
MARCH 29, 2001
PROSPECTUS SUMMARY
THE FOLLOWING SECTION IS ONLY A SUMMARY. YOU SHOULD CAREFULLY
READ THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING OUR FINANCIAL INFORMATION. OUR BUSINESS INVOLVES
SIGNIFICANT RISKS - READ MORE ABOUT THEM IN THE SECTION CAPTIONED
RISK FACTORS WHICH BEGINS ON PAGE 5
ABOUT BICO
BICO, Inc. was incorporated in the Commonwealth of
Pennsylvania in 1972 as Coratomic, Inc. In June 2000, we
changed our corporate name from Biocontrol Technology, Inc. to
BICO, Inc. Our administrative offices are located at 2275
Swallow Hill Road, Pittsburgh, Pennsylvania, 15220.
Our primary business is the development of new devices,
which include models of a noninvasive glucose sensor,
procedures relating to the use of regional extracorporeal
hyperthermia in the treatment of cancer, and environmental
products, which help to clean up oil spills. Our noninvasive
glucose sensor helps diabetics measure their glucose without
pricking their fingers or having to draw blood. Regional
extracorporeal hyperthermia is a system that re-circulates the
patient's blood in a specific area of the body after the blood
has been heated outside the body. The re-circulated blood's
higher temperature helps treat certain diseases by inducing an
artificial fever that kills targeted cells.
We have several subsidiaries that specialize in those
different projects. Diasense, Inc. -which for a time was called
Diasensor.com, Inc- manages the noninvasive glucose sensor
project. ViaCirQ, Inc. handles the hyperthermia project, a
technology called the ThermoChem System, that induces an
artificial fever to help treat diseases. Petrol Rem, Inc.
handles our environmental products PRP, BIOSOK and BIOBOOM
that help clean up oil spills and other pollutants in water.
None of our current projects are generating any significant
revenue. We discontinued our functional electrical stimulator
project, which had generated some revenue, when our primary buyer
cancelled its contract with us. Although some Petrol Rem
products are being sold, the revenues from those products have
not been material.
RISK FACTORS
If you invest in our stock, you will be placing your money
at a significant risk. Our projects are in the research and
development phase, and none of our current products has produced
any significant revenue to date. You should not invest money you
are not prepared to lose - and you should carefully review the
section captioned Risk Factors that begins on page 5 before you
decide whether to invest in our stock.
THE OFFERING
Common stock to be issued upon conversion of
our 4% subordinated convertible debentures,
including interest 284,217,673 shares
Common stock outstanding after this offering,
if all shares are sold 1,667,921,840 shares
Our Trading Symbol BIKO - we currently
trade on the electronic
bulletin board
The common stock outstanding after this offering, if all shares
are sold, is based upon the number of shares we had outstanding
as of December 31, 2000, which was 1,383,704,167.
The 1,667,921,840 shares do not include the 32,078,160
shares of our common stock that are subject to outstanding
warrants. Those warrants have exercise prices ranging from $.06
to $4.03 per share and expiration dates through February 1, 2006.
The weighted average exercise price of those warrants is $.27 per
share.
SUMMARY CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31st
2000 1999 1998 1997 1996
Total Assets$21,930,070 $15,685,836 $9,835,569 $12,981,300 $14,543,991
Long-Term
Obligations $ 2,211,537 $ 1,338,387 $1,412,880 $ 2,697,099 $ 2,669,727
Working
Capital $ 754,368 $ 4,592,935 ($9,899,008) $ 888,082 $ 1,785,576
Preferred
Stock $ 0 $ 720,000 $ 0 $ 0 $ 0
Net Sales $ 340,327 $ 112,354 $1,145,968 $ 1,155,907 $ 597,592
TOTAL
REVENUES $ 345,874 $ 165,251 $1,196,180 $1,260,157 $ 600,249
Other
Income $ 589,529 $ 1,031,560 $ 182,033 $ 165,977 $ 176,478
Warrant
Extensions $ 5,233,529 $ 4,669,483 $ 0 $4,046,875 $ 9,175,375
Benefit
(Provision)
for Income $ 0 $ 0 $ 0 $ 0 $ 0
Taxes
Net Loss ($42,546,303)($38,072,578)($22,402,644)($30,433,177)($24,045,702)
Net Loss
Per Common
Share:
Basic ($.04) ($.05) ($.08) ($.43) ($.57)
Diluted ($.04) ($.05) ($.08) ($.43) ($.57)
Cash
Dividends
Per Share:
Preferred $ 0 $ 0 $ 0 $ 0 $ 0
Common $ 0 $ 0 $ 0 $ 0 $ 0
For more detailed information, you should review our financial
statements and notes that are included in this prospectus. You
can also get copies of our Form 10-K for the year ended December
31, 2000, as well as our other filings, all of which are
available at www.sec.gov or from us at the address listed in the
section of this prospectus captioned "Where You Can Get More
Information".
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED IN THIS
SECTION BEFORE MAKING THE DECISION TO INVEST IN OUR STOCK. YOU
SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS PROSPECTUS
INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE
CURRENTLY BELIEVE MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL
RISKS AND UNCERTAINTIES THAT WE ARE UNAWARE OF OR THAT WE
CURRENTLY CONSIDER IMMATERIAL ALSO MAY BECOME IMPORTANT FACTORS
THAT AFFECT US. AN INVESTMENT IN OUR STOCK IS A HIGH RISK
INVESTMENT, AND YOU SHOULD BE PREPARED TO SUFFER A LOSS OF YOUR
ENTIRE INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE RISKS
FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, WE EXPECT THAT LOSSES WILL CONTINUE
TO INCREASE FOR THE FORSEEABLE FUTURE - AT LEAST THE NEXT SEVERAL
YEARS - AND OUR INDEPENDENT ACCOUNTANTS HAVE EXPRESSED
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
We have lost money in every period since we started our
current research and development projects - we had an accumulated
deficit of $223.7 million as of December 31, 2000. We plan to
invest heavily to continue to develop our biomedical and
environmental products and to set up manufacturing and marketing
of those products. As a result, we expect to continue to lose
money for the foreseeable future - at least for the next several
years - and we expect that the losses will continue to increase.
We cannot assure you that we will ever achieve or sustain
profitability or that our operating losses will not increase in
the future. We have received a report from our independent
accountants containing an explanatory paragraph stating that our
historical losses and negative cash flows from operations raise
substantial doubt about our ability to continue as a going
concern.
WE HAVE A LIMITED OPERATING HISTORY, NO SIGNIFICANT REVENUES AND
LIMITED EXPERIENCE IN MARKETING THAT MAKES AN EVALUATION OF OUR
BUSINESS DIFFICULT.
Although we have been in business for years, we have not
generated any material revenue in our recent history. The
majority of our activities have been related to the research and
development of products. Our current management team has limited
experience in manufacturing and marketing biomedical and
environmental products. Therefore, our historical financial
information is of limited value in evaluating our future
operating results.
We discontinued our functional electrical stimulator project
due to a loss of orders from our primary buyer. Because these
products accounted for the majority of our sales revenues - $1
million in 1998 - it was a significant loss that impacted our
cash flows, liquidity and revenue.
Our target markets - the health care and environmental
markets - change rapidly, and we may not have the experience
necessary to successfully market our products.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR
OPERATIONS AND THAT ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO
US.
We won't receive any money if you buy the stock offered in
this prospectus - we are registering the stock for our selling
stockholders, and they will get the money if you buy this stock.
Even if we can sell stock, and we can't assure you that we'll be
successful, it may not be enough to fund our operations until -
and unless - we become profitable. We cannot quantify the
specific amounts we will need, since the research and development
process is subject to continuous change. However, we believe,
between the money we have and the money we plan to raise, that we
have enough funds available to operate for at least a year. We
will need to raise more capital to fund our operations and our
research and development projects, and we may not be able to find
financing when we need it. If that happens, we will not be able
to continue operations long enough to bring our products to
market, or to market them long enough to become profitable. Any
additional equity financing - through sales of our securities -
will cause our existing investors to experience additional
dilution.
WE CANNOT BE SURE HOW LONG IT WILL TAKE TO BRING OUR PRODUCTS TO
MARKET OR WHETHER THEY WILL EVER BECOME PROFITABLE. WE HAVE
ALREADY INVESTED OVER $37 MILLION ON PROJECTS, OTHER THAN OUR
NONINVASIVE GLUCOSE SENSOR, THAT STILL HAVEN'T GENERATED ANY
REVENUE.
Our biomedical products, specifically the noninvasive
glucose sensor and the hyperthermia treatment device, are new
products that are not established in any market. Although we
have started to market the sensor in Europe, our revenues to date
have been minimal - only about $35,000. We cannot market the
sensor in the U.S. until we receive FDA approval - and we don't
know how much longer that will take. Our hyperthermia treatment
device is being used in two hospitals, but we won't be able to
generate revenue until we begin full-scale manufacturing. Even
when we are able to manufacture and sell these devices, we don't
know how long it will be before they become profitable.
So far, we have already invested over $37 million in various
projects, other than our noninvasive glucose sensor, including
the ViaCirQ hyperthermia project, the Petrol Rem environmental
products, the American Inter-Metallics propellant enhancement
project, other diabetes-related research projects called
MicroIslet and Diabecore, and a metal-coating project - and we
still don't have any material revenues from any of those
projects. The only minimal revenue we generated at all has been
from the Petrol Rem products, and even that revenue was only
about $26,000 in 1999, and $218,000 in 2000.
WE FACE SERIOUS COMPETITION, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY. IF SOMEONE ELSE DEVELOPS A BETTER PRODUCT BEFORE WE
DO, WE WON'T BE ABLE TO SELL OUR PRODUCTS OR MAKE ANY MONEY.
The medical device industry and the environmental industry
are very competitive. Other companies are developing
technologies and devices that will compete with ours. These
other companies may be further along in their research and
development, may be better capitalized, have more sophisticated
equipment and expertise and various other competitive advantages
compared to us. These other companies may be able to bring their
products to market before we are able to enter the market, which
would have a serious negative impact on our ability to succeed.
Many of the large biomedical companies are funding research
into noninvasive glucose measurement, and one of them might beat
us to the market. Our sensor will also compete against existing
finger-prick technology, which is already well established. If
we cannot convince diabetics that our device is superior, we will
not be able to sell our sensor. Our hyperthermia device is a new
technology, which will compete against other, well-established
forms of cancer treatment. If we cannot convince the medical
community that our product offers superior alternatives, we will
not succeed with that device.
OUR PRODUCTS ARE THE TYPE THAT CAN BECOME OBSOLETE, AND NO LONGER
COMPETITIVE. IF THEY BECOME OBSOLETE, WE CAN'T SELL THEM.
Both the medical device and environmental industries are
subject to rapid technological innovation and change. Although
we are not currently aware of any new product or technology that
would make our products obsolete, it is always possible. Future
technological developments could make our products significantly
less competitive or even no longer marketable.
OUR PATENTS ARE IMPORTANT TO US - IF OUR PATENTS ARE CHALLENGED
OR INFRINGED UPON, WE MIGHT NOT BE ABLE TO AFFORD TO FIGHT FOR
THEM. IF WE CAN'T PROTECT OUR PATENTS, WE WON'T BE ABLE TO SELL
OUR PRODUCTS SUCCESSFULLY.
We hold patents on many of our products, as well as
trademarks on the names of our products and procedures. We try
to file patent applications when we believe they are necessary,
both in the U.S. and in foreign countries where we seek to do
business. However, we cannot assure you that future patents will
be granted, or that our existing patents will not be challenged
or circumvented by a competitor. If any of our critical patents
are challenged, or if someone accuses us of infringing upon their
patents, it would be expensive and time-consuming to defend those
charges, and our projects could be delayed. Similarly, if
someone else infringes upon one of our patents, it would be
expensive and distracting for us to challenge them.
If our patents are challenged or infringed upon, we might
not be able to enter the market without a long legal battle to
determine which patent has priority. This type of delay and
expense would hurt our ability to successfully market our
products.
WE ARE DEPENDENT UPON HEALTH INSURANCE REIMBURSEMENT FOR OUR
BIOMEDICAL DEVICES, AND WE MAY NOT BE ABLE TO OBTAIN THAT
REIMBURSEMENT.
Our biomedical products are subject to the reimbursement
policies of insurance companies and Medicare. The doctors and
patients who want to use our devices will not be able to pay for
them without reimbursement from their health insurance providers.
If we are not able to convince those insurance providers that our
devices are worth reimbursement, we will not succeed.
WE MAY ACQUIRE COMPANIES THAT ARE NOT PROFITABLE OR WORTH WHAT WE
ORIGINALLY ESTIMATED.
Our officers and directors have discretion in how to spend
the money we raise. One of the ways they intend to use part of
the money is to acquire companies with revenue or with the
potential to generate revenue in the short term. We may not find
companies that actually generate revenue. We may also acquire
companies that do not generate revenue, even though we project
that they will. In the past, we have invested in companies that
are not worth what we paid for them, and we have lost our
investment.
For example, we purchased a majority interest in a metal-
coating company in 1998 - because it did not perform the way we
expected, we had to write-off our entire investment, including a
$4.4 million write down in 1999. You should carefully review our
financial statements for more detailed information on the
investment and the write-downs. We cannot guarantee that we
will not make the same mistake in the future.
WE MAY BE DISTRACTED OR SUFFER LOSSES DUE TO LEGAL PROCEEDINGS.
We are involved in several legal proceedings. Although we
cannot project how they will be resolved, you should know that we
might suffer losses depending upon the outcome. We settled our
class action lawsuit; we've paid as part of the settlement
$2,150,000 and will pay another $1,300,000 in July 2001. Both
the Pennsylvania Securities Commission and the U.S. Attorneys'
office are investigating us, and we have provided them with the
information they requested. We don't know how much longer these
investigations will last, and we don't know how they will be
resolved. If either one of these investigations results in
findings that we, or someone we're responsible for, violated the
law, we could suffer significant monetary damages, harm to our
reputation, or the loss of the services of key employees. We
don't know what those damages might be, but they could include
fines or restrictions on how we are allowed to do business in the
future.
These legal proceedings cost us money, mostly in legal fees,
that we could be using for our projects. Even if we don't have
to pay any money or suffer any other damages as a direct result
of these proceedings, you should be aware that we might be
distracted from our other responsibilities while we deal with
these legal matters, and that distraction could also hurt us.
WHEN WE SELL STOCK OR CONVERTIBLE SECURITES LIKE OUR DEBENTURES,
IT DILUTES OUR EXISTING STOCKHOLDERS. WE HAVE ALREADY SUFFERED
SIGNIFICANT DILUTION AND WE KNOW THAT IT WILL CONTINUE.
Each time we sell and issue stock, it dilutes the holdings
of our existing stockholders. Since 1989, and through December
2000, we, along with Diasense, have raised over $166,000,000 in
private and public offerings. We have already issued over 1.3
billion shares of stock and we plan to issue more, since that's
the only way we can survive until - and if - our product sales
can support our operations. Dilution occurs when more shares are
issued to own the same company - it means that when we issue more
stock, our previous stockholders own a smaller piece of our
company than they did before the new shares were issued. When we
sell stock, or we sell convertible securities like preferred
stock or debentures, we have to issue more shares of stock upon
the sale or the conversion. We plan to raise more money by
selling more stock. You should know that your ownership in our
company will continue to be diluted - significantly - each time
we sell and issue more stock.
For example, this chart shows the money we've raised by
selling stock and other securities, like debentures, during the
last three years, along with the total number of shares
outstanding at the end of each year:
YEAR FUNDS RAISED NUMBER OF SHARES
OUTSTANDING AT YEAR END
1998 $10,720,000 420,773,568
1999 $30,730,000 956,100,496
2000 $29,900,000 1,383,704,167
You can see that, as we raise more money, the total number
of our shares outstanding increases dramatically. As long as we
continue to raise money by selling stock - and that is our
intention - this dilution will continue.
WHEN WE ISSUE CONVERTIBLE SECURITIES LIKE OUR DEBENTURES, THE
NUMBER OF SHARES WE ISSUE UPON CONVERSION IS SIGNIFICANTLY
DISCOUNTED FROM THE MARKET PRICE.
One way we raise money is by selling convertible securities,
like convertible debentures. Our convertible securities have no
minimum conversion price, so if our stock price is low when they
are converted, we have to issue more stock than if our stock
price was higher. Sometimes, our stock price is rising, so that
when the securities are converted, the market price is higher
than when we sold the securities - but if our stock price falls,
the conversion price is lower than the stock price when we sold
the securities.
Our debentures have minimum holding periods of 90 days, and
are convertible into our common stock at a 20% discount to our
market price.
The following table shows the total amount of our $10,655,659
debentures and examples of how many shares of stock we'd
have to issue upon conversion depending on the discount and our
stock's market price.
Discount 5-day Number of
Amount to Avg. Shares
Market Market Conversion Issued Upon
Price Price Price Conversion
$10,655,659 20% $.20 $.16 66,597,869
$10,655,659 20% $.05 $.04 266,391,475
You should know that the lower our stock price, the more
shares we have to issue to raise money, and the more shares we
have to issue, the more diluted your ownership will become.
BECAUSE WE HAVE SOLD CONVERTIBLE DEBENTURES, IT COULD HAVE A
NEGATIVE IMPACT ON OUR STOCK PRICE.
In addition to the dilution that occurs when we sell
convertible securities and they're converted, those conversions
can have other negative effects on our stock. If all of the
debentures are converted at the same time, the supply of stock
for sale would increase dramatically. Without a corresponding
increase in the demand for our stock, our stock price would fall.
As the table in the previous risk factor also illustrates, the
lower the price, the more shares we have to issue upon
conversions. There is no limit on the number of shares to be
issued for conversions of the debentures.
Several factors - the timing of conversions; the downward
pressure on our stock price; and the additional number of shares
needed for conversions with no limit, could separately or in
combination cause our stock price to fall significantly - and we
don't have any control over them. If we have funds available,
our only option might be to redeem some of the debentures, but we
may not be able to do so, or we might not be able to redeem
enough in time to make a difference.
OUR COMPANY AND ITS AFFILIATES ARE SUBJECT TO CONFLICTS OF
INTEREST.
Fred E. Cooper, Anthony J. Feola, Glenn Keeling and Michael
P. Thompson are employed by BICO, and are also officers and/or
directors of our affiliates and subsidiaries, Diasense, Inc.,
Petrol Rem, Inc. and ViaCirQ, Inc. These people are subject to
competing demands and may face conflicts of interest. The good
faith and integrity of these members of management is of utmost
importance to our business and operations.
BICO owns 52% of Diasense; 75% of Petrol Rem and 99% of
ViaCirQ. All of those officers own stock or warrants in
Diasense, Petrol Rem, or ViaCirQ:
Diasense - Mr. Cooper owns 22,000 shares of stock and
warrants to purchase 1,680,045 shares at $.50 to $1 per share;
Mr. Feola owns 20,000 shares of stock and warrants to purchase 1
million shares at $.50 per share; and Mr. Keeling owns 100,000
shares of stock and warrants to purchase 300,000 shares at $.50
per share.
Petrol Rem - Mssrs. Cooper and Feola own warrants to
purchase 1 million shares of stock at $.10 per share; Mr. Keeling
owns warrants to purchase 500,000 shares of stock at $.10 per
share; and Mr. Thompson owns warrants to purchase 200,000 shares
at $.10 per share.
ViaCirQ - Mr. Cooper owns warrants to purchase 1,250,000
shares of stock at $.10 per share; Mr. Feola owns warrants to
purchase 750,000 shares of stock at $.10 per share; Mr. Keeling
owns warrants to purchase 1,200,000 shares of stock at $.10 per
share; and Mr. Thompson owns warrants to purchase 100,000 shares
at $.10 per share.
Conflicts of interest could arise if one or more of our
officers act in a way that benefits them and hurts BICO or
another one of our subsidiaries. To protect ourselves, we
require that any action that benefits any individual executive
officer or director of any of our companies has to be approved by
a majority of the disinterested directors. We also make sure
that each of our boards of directors includes outside directors -
people who are not employees - and those outside directors must
approve any action that might present a conflict. For example,
if BICO issues warrants or loans money to Mssrs. Cooper, Feola or
Keeling, who are BICO directors, BICO's other disinterested
directors, including the outside directors, must approve the
warrants or loans first. The same policy applies to Diasense,
Petrol Rem and ViaCirQ. We believe this policy helps avoid
conflicts that could hurt us.
WE DEPEND ON OUR KEY OFFICERS, AND WE WOULD SUFFER IF THEY LEFT.
We are dependent upon our key officers, Fred E. Cooper, our
CEO, Anthony J. Feola, our COO, and Glenn Keeling, the CEO of
ViaCirQ. We don't have key-man life insurance on any of our
officers, and our business would suffer if they left for any
reason.
WE ARE DEPENDENT UPON EMPLOYEES AND INDEPENDENT CONTRACTORS WHO
ARE DIFFICULT TO REPLACE.
Because we are developing new technologies, devices and
engineering methods, we depend on certain employees and
independent contractors who may not devote their full-time
efforts to our operations. We depend on some of our employees
who have a specific expertise that is not common. We also need
independent contractors to assist us in areas where our employees
do not have the necessary expertise. If we lose the services of
any of these employees or independent contractors and are unable
to replace them, our business could suffer.
WE SOMETIMES NEED SUPPLIERS AND PARTS THAT ARE DIFFICULT TO FIND.
Our products involve designs that are new, and we often need
to have component parts fabricated especially for our
experimentation, testing and development. Suppliers for these
parts are not always readily available, or available at all, so
we have to create the parts in-house. This can result in delays
in our development - so far, these delays have not been material
- but we cannot assure you that they won't be material in the
future. If we are unable to obtain a supplier or create the
necessary parts ourselves, we have to redesign the product, which
also results in significant delays. Although we try to minimize
our dependence on custom parts when we design products,
unforeseeable problems can arise which negatively affect our
operations.
WE HAVE LIMITED COMMERCIAL MANUFACTURING EXPERIENCE, WHICH MAKES
IT HARDER FOR US TO COMPETE WITH MORE EXPERIENCED MANUFACTURERS.
We have a contractual duty to manufacture our medical
devices. We have leased space, which has been modified, for our
manufacturing needs, but our current management team has limited
experience with large-scale commercial manufacturing. If we are
not able to hire the right people, or to provide manufacturing
expertise ourselves, we will not be able to successfully
manufacture our biomedical devices, even if they are approved for
sale in the U.S., or even if we are able to make sales.
WE CANNOT SELL PRODUCTS WITHOUT GOVERNMENT APPROVAL. WE HAVE
BEEN, AND CONTINUE TO BE, INVOLVED IN A LONG, EXPENSIVE
GOVERNMENTAL APPROVAL PROCESS THAT WE MUST COMPLETE BEFORE WE CAN
SELL OUR PRODUCTS.
The Food and Drug Administration and other federal and state
agencies control many of our products. FDA approval is necessary
to market our biomedical products in the U.S. If we do not get
approval, we cannot sell our products in the U.S.
We are currently conducting clinical trials for our
noninvasive glucose sensor - these trials will last approximately
a year, and we hope to have FDA approval once the trials are
completed and the results are submitted. We have suffered
significant delays in the FDA approval in the past - those delays
occurred for several reasons, including the following. The FDA
did not give us a decision on the 510(k) Notification we
submitted in 1994 until 1996. In 1996, after the FDA's panel
refused to approve our submission, the FDA told us to make a
different filing, on a PreMarket Approval Application - known as
a PMA. Rather than immediately pursue the PMA, we decided to
focus on getting certification to sell our sensor in Europe,
which we completed in June 1998. We had serious cash flow
problems in 1998, and it delayed all of our projects further.
Late in 1998 and early 1999, we started the PMA process. We
filed the first module of our PMA in May 1999 and the second
module in May 2000. The FDA asked for more information in
September 1999, and we responded. Then, in November 1999, the
FDA asked for additional information. We finished compiling all
that additional information, and in July 2000 we submitted an
Investigational Device Exemption to the FDA that included the
protocol for our clinical trials. An Investigational Device
Exemption is a request to the FDA for approval to conduct
clinical trials on a device that is not FDA-approved. Once the
FDA approved the protocol for our clinical trials, those trials
began in 2000.
Once we complete our clinical trials, we will submit the
data to the FDA. We are working with outside biomedical
consultants to help us obtain FDA approval following these
clinical trials; however, we cannot assure you when or if that
will happen.
IF WE ARE HIT WITH PRODUCT LIABILITY CLAIMS THAT EXCEED OUR
INSURANCE, WE WILL HAVE TO PAY THE EXCESS.
We don't have any current product liability claims against
us, but we are engaged in activities that involve testing and
selling biomedical devices. These kinds of activities expose us
to product liability claims. We currently have $1,000,000 in
product liability insurance. If a claim against us is successful
and exceeds that amount, we could be liable for the balance.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK MAY BE VOLATILE, WE DO NOT TRADE ON AN
ESTABLISHED STOCK EXCHANGE, AND YOU MAY NOT BE ABLE TO SELL YOUR
STOCK AT OR ABOVE YOUR PURCHASE PRICE.
Our stock currently trades on the electronic bulletin board,
which is not a formal stock exchange. As a result, it may be
more difficult to obtain trading information than if our stock
still traded on the Nasdaq. Because our stock price did not meet
the Nasdaq Small-Cap market requirements implemented in 1998, we
were delisted and we're no longer able to trade there. Although
we have maintained acceptable trading volume since we left
Nasdaq, we cannot assure you that our trading volume will
continue. As a result, you may be unable to sell your stock when
you want to sell it. In addition, our stock price has fluctuated
significantly, and you may not be able to sell your stock at or
above your purchase price when you are ready to sell.
OUR STOCK IS CONSIDERED PENNY STOCK, SO IT'S SUBJECT TO
REGULATIONS THAT COULD MAKE IT MORE DIFFICULT FOR YOU TO SELL
YOUR STOCK.
Our stock is considered penny stock because of its low price.
The penny stock low-priced securities regulations could affect
the way you sell your stock, and the way our stock is sold. These
regulations require broker-dealers to disclose the risk
associated with buying penny stocks and to disclose their
compensation for selling the stock.
The regulations may have the effect of discouraging brokers
from trading our stock. For example, brokers selling our
stock have to obtain a written agreement from the purchaser and
determine that our stock is a suitable investment for that
purchaser. Many brokers will not want to bother with those
requirements, so they won't sell our stock, and that could reduce
the level of trading activity, making it more difficult for you
to sell your stock.
THE VOLATILITY OF OUR COMMON STOCK COULD EXPOSE US TO SECURITIES
LITIGATION.
In the past, following periods of volatility in the market
price of a company's securities, securities class action suits
have been filed. Due to the historic volatility of our common
stock, we may be particularly susceptible to this kind of
litigation. If it were to happen to us, the litigation would be
expensive and would divert our management's attention from
business operations. Any litigation that resulted in a finding
of liability against us would adversely affect our business,
prospects and financial condition, along with the price of our
stock. We have already been the subject of one class action
lawsuit, which was filed in 1996. We settled that lawsuit in
2000 for a total of $3,450,000.
INVESTORS WILL INCUR IMMEDIATE DILUTION.
The price of our stock in this offering will be
significantly higher than its book value per share. If you buy
our stock in this offering, you will suffer an immediate and
substantial dilution in the net tangible book value per share
from the price you pay for the stock. We also have a large
number of outstanding warrants to purchase our common stock with
prices below the estimated offering price of our stock. To the
extent those warrants are exercised, additional dilution will
occur.
THE WAY WE SELL AND ISSUE STOCK COULD HAVE AN ANTI-TAKEOVER
EFFECT.
We sold convertible debentures and we intend to continue to
sell stock to raise money to fund our operations. When we issue
those additional shares of common stock, either from conversions
of debentures, or from sales of stock, the stock could be used to
oppose or delay a hostile takeover attempt or delay or prevent
changes in control or in our management. For example, without
further stockholder approval, our board of directors could
strategically sell stock to purchasers who would oppose a
takeover or a change in our management. Although our sales of
stock are based on our business and financial needs, and not on
the threat of a takeover, you should be aware that it could have
an anti-takeover effect. We are not aware of any takeover
attempts, but if a takeover was proposed, it could mean you might
be offered a premium for your stock over the market price - but
the way we issue and sell our stock could discourage a takeover
attempt.
WHERE YOU CAN FIND MORE INFORMATION
The securities laws require us to file reports and other
information. All of our reports can be reviewed at the SEC's
web site, at www.sec.gov through the SEC's EDGAR database. You
can also review and copy any report we file with the SEC at the
SEC's Public Reference Room, which is located at 450 Fifth
Street, N.W., Washington, D.C., or at the SEC's regional offices,
including the ones located at 601 Walnut Street, Curtis Center,
Suite 1005E, Philadelphia, PA 19106-3432; and 75 Park Place, New
York, NY. You can also order copies for a fee from the SEC's
Public Reference section, at 450 Fifth Street, N.W. Washington,
D.C. 20549. Our stock trades on the electronic bulletin board.
We will send you a copy of our SEC filings if you ask for
them. If you want to receive copies, please contact our
Shareholder Relations department at: Shareholder Relations
Department, BICO, Inc., 2275 Swallow Hill Road, Building 2500,
2nd Floor, Pittsburgh, PA 15220, by telephone at 412-429-0673 or
by fax at 412-279-1367.
Until 90 days after the effective date of this prospectus,
all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
USE OF PROCEEDS
We will not receive any proceeds from this offering. We are
registering our common stock on behalf of the selling
stockholders, who bought our convertible debentures. If and when
the debenture holders sell their stock, they will receive the
proceeds.
DIVIDEND POLICY
We have not paid cash dividends on our common stock or our
preferred stock, with the exception of 1983, since our inception,
and cash dividends are not presently contemplated at any time in
the foreseeable future. In accordance with our Articles of
Incorporation, cash dividends are restricted under certain circumstances.
CAPITALIZATION
The following table sets forth our capitalization as of
December 31, 1999 and 2000, and is made up of the figures taken
from our audited financial statements, which are included in this
prospectus and included a qualification regarding our ability to
continue as a going concern.
December 31, 1999 December 31, 2000
(1) (1)
Stockholders' Equity
Common Stock, par value
$.10 per share; authorized
1,700,000,000 shares;
shares issued and $95,610,050 $138,370,417
outstanding:
956,100,496 at
December 31, 1999 and
1,383,704,167 at
December 31, 2000
Series F 4% convertible
preferred stock,
par value $10 per
share, issued and 720,000 0
outstanding 72,000 at
December 31,1999 and
none at December 31, 2000
Additional paid-in 85,608,192 87,035,096
capital
Warrants 6,791,161 6,204,235
Accumulated Deficit (181,174,458) (223,720,761)
Total Capitalization $ 7,554,945 $ 7,888,987
December 31, 1999 December 31, 2000
(1) Does not include the effects
of the following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.05 to $4.03 per share,
expiring 1999 through 2005. 29,896,662 31,378,160
MARKET PRICE FOR COMMON STOCK
Our common stock trades on the electronic bulletin board
under the symbol "BIKO". On March 21, 2001, the closing bid
price for the common stock was $.074 per share. The following
table sets forth the high and low bid prices for our common stock
during the calendar periods indicated, through December 31, 2000.
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
1998 First Quarter $ .250 $ .0937
Second Quarter $ .1875 $ .0313
Third Quarter $ .359 $ .0313
Fourth Quarter $ .126 $ .049
1999 First Quarter $ .084 $ .049
Second Quarter $ .340 $ .048
Third Quarter $ .125 $ .070
Fourth Quarter $ .099 $ .050
2000 First Quarter $1.050 $.051
Second Quarter $.400 $.160
Third Quarter $.184 $.12
Fourth Quarter $.122 $.049
We have approximately 128,000 holders, including those who hold
in street name, of our common stock, and no holders of our
preferred stock.
DESCRIPTION OF SECURITIES
Our authorized capital currently consists of 1,700,000,000
shares of common stock, par value $.10 per share and 500,000
shares of cumulative preferred stock, par value $10.00 per share.
In May 2001, we will have a shareholders meeting and will ask the
shareholders to approve an increase of our authorized common
stock to 2,500,000,000 shares.
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 December 1999, our board
of directors authorized the creation of a Series F convertible
preferred stock. As of December 31, 2000, all of the shares of
that Series F preferred stock had been converted to common stock,
and we had zero shares of preferred stock outstanding.
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. All
of our outstanding shares of common stock are, and the shares of
common stock to be sold in this offering will be, fully paid and
nonassessable. As of December 31, 2000 and March 29, 2001, there
were 1,383,704,167 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.
Subordinated Convertible Debentures
Beginning in December 2000, we issued subordinated convertible
debentures that have a one-year term and are due in 2001 and
2002. The debentures earn interest at 4% and are convertible
into shares of common stock. As of December 31, 2000 and March
29, 2001, we had $2,400,000 and $10,655,659 in subordinated
debentures outstanding, respectively.
Our debentures are not secured by any of our assets, and are
subordinate to our corporate debt, except for related-party debt.
The debentures are convertible beginning 90 days from issuance.
Our debentures can be converted to our common stock at a price
that is determined by computing 80% of the average closing bid
price for the four days prior to and the day of conversion - or a
20% discount to a five-day average trading price. There is no
minimum conversion price, so the lower the bid price of our
stock, the more shares we will need to issue when our debentures
are converted - there is no limit on the number of shares of our
common stock that our debentures can be converted into. This
means that, if our stock price is low, the debenture holders
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 can redeem our debentures.
Some of the stock included in this prospectus is for our
selling stockholders who purchased our subordinated convertible
debentures. When they convert their debentures and get our
common stock, they may want to sell it, and you need to carefully
review this prospectus before you decide whether to buy it from
them.
Employment Agreement Provisions Related to Changes in Control
We have employment agreements with Fred E. Cooper, Anthony J.
Feola, Glenn Keeling, Michael P. Thompson and two non-executive
officer employees. The agreements provide that in the event of a
"change of control", we must: issue to Mr. Cooper shares of
common stock equal to 5%; issue to Mr. Feola 4%; issue to Mr.
Keeling 3%; and issue to Mr. Thompson and the two non-executive
officer employees 2% each of our outstanding shares of common
stock. For purposes of these agreements, a change of control is
deemed to occur: when 20% or more of our outstanding voting stock
is acquired by any person; or when 1/3 or more of our directors
are not continuing directors, as defined in the agreements; or
when a controlling influence over our management or policies is
exercised by any person or by persons acting as a group within
the meaning of the federal securities laws.
Warrants
As of December 31, 2000, we had outstanding warrants to
purchase 31,378,160 shares of our common stock. These warrants
have exercise prices ranging from $.06 to $3.20 per share and
expiration dates through October 23, 2005, and are held by
members of our scientific advisory board, certain employees,
officers, directors, loan guarantors, and consultants. As of
March 29, 2001, we had outstanding warrants to purchase
32,078,160 shares of our common stock.
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
Chase-Mellon Shareholder Services in New York, New York acts
as our Registrar and Transfer Agent for our common stock. We act
as our own registrar and transfer agent for our preferred stock
and warrants.
SELLING STOCKHOLDERS
This prospectus covers the shares of common stock that may
be offered by the selling stockholders set forth below. None
of the selling stockholders have had a material relationship with
us within the last three years, and they are not affiliated with
us other than through their ownership interest in our debentures.
Except as noted, none of the selling stockholders are affiliated
with each other. Some stockholders listed are companies or
investment funds, rather than individuals. Unless the investors
who own those funds are numerous, we've listed the individual
owners. We prepared the table below based on the information
provided to us by the selling stockholders.
You should know that, based on the agreements our selling
stockholders signed when they bought our debentures, they are not
permitted to own 5% or more of our stock.
The selling stockholders bought our convertible debentures.
We sold our convertible debentures from December 2000 through
March 2001, and we received gross proceeds of $10,655,659 with net
proceeds of $9,590,093 from our debenture sales. As of the date
of our last financial statements, which was December 31, 2000, we
hadn't yet used the proceeds from our debentures. We plan to use
the proceeds to continue to fund our various projects and
operations.
We calculated the number of shares for each selling
stockholder using a good faith estimate. We based our estimate
on our recent stock price, as well as our historical prices. The
number of shares for each selling stockholder includes shares we
might issue to pay interest on their convertible securities. We
can choose whether to pay their interest in stock or in cash. If
our stock price stays at around $.07 where it has been trading
for the past month or so, we will not need to issue as many
shares as we've included; if our stock price goes down we may
have to issue more.
Any or all of the shares listed below may be offered for
sale by the selling stockholders from time to time and,
therefore, we can't give an estimate as to the number of shares
that will be held by the selling stockholders when we terminate
this offering. Unless we indicate otherwise, the selling
stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
The table lists the selling stockholders who own our
convertible subordinated debentures, which are convertible
beginning in March 2001, and are due beginning in December 2001.
The last column shows the percentage of ownership of each
individual or entity shown assuming all shares registered in this
prospectus are sold, when compared to the total number of shares
of our common stock outstanding as of December 31, 2000. An
asterisk - * - indicates less than one percent.
Selling Stockholders Number of Beneficial Beneficial
Shares Ownership Ownership
Offered Prior to Sale After Sale
Rance Merkel 1,829,269 1,829,269 *
William Murphy 3,658,537 3,658,537 *
David Miller 1,219,512 1,219,512 *
David Hungerford 3,414,634 3,414,634 *
Timothy Borne 2,439,025 2,439,025 *
Marvin Edoff 487,805 437,805 *
Joanna M. Saporito 1,219,512 1,219,512 *
Brian McNay 4,165,854 4,165,854 *
John & Victoria Martin 1,219,512 1,219,512 *
John Diesel 1,219,512 1,219,512 *
George McDonnell 1,219,512 1,219,512 *
Chien Chang 1,219,512 1,219,512 *
Robert Oelkers 1,219,512 1,219,512 *
Gordon Rausser 1,583,073 1,583,073 *
James Ratliff 1,219,512 1,219,512 *
Gerald H. Simpson 3,658,537 3,658,537 *
Herbert Robbins 853,659 853,659 *
Michael Durels 1,219,512 1,219,512 *
Texas International 2,439,025 2,439,025 *
Gary Anderson 1,219,512 1,219,512 *
Viamax Trading Company 6,097,195 6,097,195 *
Joseph J. Raymond 1,219,512 1,219,512 *
Cornell Capital Partners 4,878,050 4,878,050 *
Frank Collins 1,219,512 1,219,512 *
Arab Commerce Bank 3,414,634 3,414,634 *
Lufeng Corp. 731,707 731,707 *
Mary Ellen Misiak 2,439,025 2,439,025 *
John Boyle 609,756 609,756 *
Paul Welch 1,219,512 1,219,512 *
Herbert Robbins 365,855 365,855 *
Guardian Commercial, 4,878,050 4,878,050 *
owned by Ryan O'Neill
GPS America Fund, Ltd. 12,195,125 12,195,125 *
Markham Holdings 3,657,756 3,657,756 *
Howard Weiss 4,878,050 4,878,050 *
Cache Capital 49,860,113 49,860,113 *
Mercaz Revaj 2,439,025 2,439,025 *
Zelman Fishmen 2,439,025 2,439,025 *
Yorkland Investment 4,878,050 4,878,050 *
Briencrest Avenue LLC 83,000,000 83,000,000 *
Mendy Chmuel 4,878,050 4,878,050 *
Jara Group, owned by 1,219,512 1,219,512 *
Michael and Rose
Koretsky (1)
Michael Koretsky (1) 1,219,512 1,219,512 *
Ted Liebowitz 12,195,125 12,195,125 *
Leon Kahn 609,756 609,756 *
Kador Investment, 1,219,512 1,219,512 *
owned by Gerald Selbst
Mark Garfunkkel 975,610 975,610 *
Joseph McGuire 2,439,025 2,439,025 *
Yosef Davis 2,439,025 2,439,025 *
Claire Brook 2,439,025 2,439,025 *
Starling Corporation 2,439,025 2,439,025 *
Jacqueline Balough 609,756 609,756 *
Mantle Int'l Investment 12,195,125 12,195,125 *
Clearview Int'l Investment 12,195,125 12,195,125 *
(1) These selling stockholders are affiliated with each other
through their ownership in entities other than us.
The following table shows, for our convertible debentures,
certain information that might be helpful in making your
investment decision. We listed the investments in chronological
order. As you can see, none of the debentures have been
converted so far. The stock price listed is the closing bid
price of our stock on the date listed. When we use a range of
dates, we computed the stock price based on the average closing
bid price for each day in the range. The most current
information in the table is as of March 26, 2001, when our
closing bid price was $.07.
Type and Amount Number of Issue Stock Number of Number of
amount of Converted Shares Date Price on Shares if Shares if
Investment Through Issued on Issue Converted Converted
3/26/01 Conversion Date/ on on
Range Issue Date March 26,2001
Debentures - 0 0 12/20/00 $.048 62,500,000 42,857,143
$2,400,000
Debentures - 0 0 1/25/01- $.116 24,845,970 41,173,321
$2,305,706 2/2/01
Debentures - 0 0 2/5/01- $.095 22,828,329 30,981,304
$1,734,953 2/22/01
Debentures - 0 0 2/26/01- $.900 51,031,746 57,410,714
$3,215,000 3/6/01
Debentures - 0 0 3/26/01 $.07 17,857,143 17,857,143
$1,000,000
You should review our risk factors that begin "When we sell our
stock or convertible securities like our debentures, it dilutes
our existing stockholders."; "When we issue convertible
securities like our debentures, the number of shares we issue
upon conversion is significantly discounted from the market
price"; and "Because we have sold convertible debentures, it
could have a negative impact on our stock price" on pages 7-8 for
related information.
PLAN OF DISTRIBUTION
The shares of stock in this prospectus will be sold by the
Selling Stockholders, and will not be underwritten. They may sell
the shares of common stock from time to time in one or more
transactions. The offering price will fluctuate with the market
price for our stock, so they will sell the stock at various
prices. They may sell this stock directly, or they may hire
brokers or other licensed agents to sell it for them, in which
case the selling stockholder will give those brokers or agents
some consideration, which could take the form of a commission or
other payment.
Selling stockholders and any broker-dealers participating in
the sale of our stock may be considered underwriters within the
meaning of section 2(11) of the Securities Act of 1933.
Particularly if they act as principals, any commissions or
profits received by broker-dealers or selling stockholders from
the sale of our stock may be considered underwriting compensation
under the Securities Act. If anyone who participates in this
offering is deemed to be an underwriter, then any consideration
received may be deemed to be underwriting discounts or
commissions under the federal securities laws.
If any selling stockholder makes a particular offer that
triggers certain securities law filing requirements, they have an
obligation to tell us, and we will file a supplement to this
prospectus that sets forth the number of shares being offered and
the terms of the offering, including the name or names of any
underwriters, dealers, brokers or agents, the purchase price paid
by any underwriter for the shares and any discounts, commissions
or concessions allowed or reallowed to dealers, including the
proposed selling price to the public.
In order to comply with the securities laws of certain
jurisdictions, the selling stockholders may be required to sell
stock only through registered or licensed brokers or dealers. In
addition, they may not be able to sell any stock in certain
states unless we register the stock in those states on their
behalf or otherwise comply with applicable state securities laws
by exemption, qualification or otherwise.
STOCK ELIGIBLE FOR FUTURE SALE
As long as this registration statement remains effective with
the SEC and we remain current in our SEC filings, the stock will
be freely transferable without restriction or further
registration unless they are acquired by one of our affiliates.
Affiliates generally include our officers and directors and any
other person or entity that controls, is controlled by, or is
under common control of BICO. Any affiliates who acquire stock
from this offering will continue to be subject to the volume
restrictions of Rule 144, as we describe below.
In general, under Rule 144 as currently in effect, our
affiliates and any person, or persons whose stock is aggregated,
who has beneficially owned restricted stock for at least two
years would be entitled to sell within any three-month period a
number of shares of stock which does not exceed the greater of:
1% of the then outstanding shares of our common stock; or the
average weekly trading volume of our common stock during the four
calendar weeks preceding such sale. Rule 144 also requires those
sales to be placed through a broker or with a market maker on an
unsolicited basis and requires that there be adequate current
public information available concerning our company. A person who
is deemed not to have been our affiliate at any time during the
three months preceding a sale, and who has beneficially owned
restricted stock for at least one year, would be entitled to sell
the stock under Rule 144(k) without regard to any of the
limitations discussed above. Restricted stock properly sold in
reliance on Rule 144 is thereafter freely tradable without
restriction or registration, unless the stock is later held by an
affiliate.
We can't make any predictions as to the effect that sales of
our common stock or the availability of stock for sale will have
on the market price of our common stock. Nevertheless, sales of
any substantial amounts of common stock in the public market will
probably adversely affect the prevailing market price.
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31st
2000 1999 1998 1997 1996
Total Assets$21,930,070 $15,685,836 $9,835,569 $12,981,300 $14,543,991
Long-Term
Obligations $ 2,211,537 $ 1,338,387 $1,412,880 $ 2,697,099 $ 2,669,727
Working
Capital $ 754,368 $ 4,592,935 ($9,899,008) $ 888,082 $ 1,785,576
Preferred
Stock $ 0 $ 720,000 $ 0 $ 0 $ 0
Net Sales $ 340,327 $ 112,354 $1,145,968 $ 1,155,907 $ 597,592
TOTAL
REVENUES $ 345,874 $ 165,251 $1,196,180 $1,260,157 $ 600,249
Other
Income $ 589,529 $ 1,031,560 $ 182,033 $ 165,977 $ 176,478
Warrant
Extensions $ 5,233,529 $ 4,669,483 $ 0 $4,046,875 $ 9,175,375
Benefit
(Provision)
for Income $ 0 $ 0 $ 0 $ 0 $ 0
Taxes
Net Loss ($42,546,303)($38,072,578)($22,402,644)($30,433,177)($24,045,702)
Net Loss
Per Common
Share:
Basic ($.04) ($.05) ($.08) ($.43) ($.57)
Diluted ($.04) ($.05) ($.08) ($.43) ($.57)
Cash
Dividends
Per Share:
Preferred $ 0 $ 0 $ 0 $ 0 $ 0
Common $ 0 $ 0 $ 0 $ 0 $ 0
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is a summary of the more detailed information
in our financial statements. You should carefully review those
financial statements before you decide whether to invest in our
stock.
Forward-Looking Statements
This section contains forward-looking statements. We
discussed these kinds of statements on page 26, and you should
review that section.
Liquidity and Capital Resources
Our working capital was $754,368 at December 31, 2000 as
compared to $4,592,935 at December 31, 1999 and as compared to a
working capital deficiency of ($9,899,008) at December 31, 1998.
Working Capital fluctuations occur primarily because we raise
different amounts of money from year to year. We raised
approximately $29,900,000 in 2000, $30,816,000 in 1999, and
$10,720,000 in 1998. Accounts receivable increased to $400,950
at December 31, 2000 from $27,263 at December 31, 1999 and
$55,950 at December 31, 1998 primarily from our acquisition of
INTCO. Changes in net inventory and accounts payable also affect
working capital - our net inventory increased to $805,224 as of
December 31, 2000 from $10,308 as of December 31, 1999 and
$74,515 as of December 31, 1998 because inventory previously
provided for in our valuation allowance was disposed of and
replaced with inventory currently being used to manufacture our
noninvasive glucose sensors as well as our hyperthermia systems.
Our accounts payable decreased from $1,750,188 at December 31,
1998 to $759,733 at December 31, 1999 to $578,520 at December 31,
2000. The $1 million decrease from 1998 to 1999 occurred because
our cash flow problems in 1998 were corrected in 1999, and the
decrease from 1999 to 2000 was due to payments in the ordinary
course of business. Accrued liabilities increased at December
31, 2000 primarily because of the $1.3 million class action
settlement payment due to be paid in 2001.
Our cash decreased to $7,844,807 as of December 31, 2000
from $10,827,631 as of December 31, 1999. The decrease was
partially due to different amounts generated from sales of our
securities. In 2000, our securities sales included:
approximately $18.6 million from our public offering of common
stock; approximately $4.3 million from sales of our Series F
preferred stock; $6.4 million from sales of our subordinated
convertible debentures, after redemptions; and approximately
$616,000 from warrants exercised. Our Series F convertible
preferred stock, which was all converted to common stock during
2000, was not secured by any of our assets, and was convertible
by its holders beginning 120 days from when it was issued.
Our subordinated convertible debentures are not secured by any
assets, and are subordinate to our corporate debt, except for
debt to any related parties. Our debentures are convertible
beginning 90 days from when we issue them. They can be converted
to common stock at a price that is determined by computing 80% of
the average closing bid price for the four days prior to and the
day of conversion - or a 20% discount to a five-day average
trading price. There is no minimum conversion price. We sold
convertible debentures at different times during 2000. All of
the debentures issued during the first quarter of 2000 were
converted. We also sold convertible debentures beginning in
December 2000, and those $2,400,000 in debentures are still
outstanding.
During 2000, 1999 and 1998, our cash flows used by operating
activities totaled $26,681,873; $18,411,002; and $11,855,294,
respectively. During 1998, those activities included a $ .8
million increase in inventory reserves. During 1998, we spent
cash and other resources when we purchased a majority interest in
a metal-coating company. Because that investment did not
perform as we anticipated, we had to write down assets, including
goodwill, in 1999. In addition, we recorded an $11.2 million
charge against operations due to warrant grants and extensions by
our subsidiaries in 2000, with a similar charge of $5.9 million
in 1999.
During 2000, our net cash flow used by investing activities
was $6,455,166, compared to $1,213,099 in 1999 due primarily to
our investments in the following unconsolidated subsidiaries:
Insight Data Link.com, Inc., American Inter-Metallics, Inc.,
MicroIslet, Inc., and Diabecore Medical, Inc., which we discuss
in the following three paragraphs.
During 2000, we made investments in unconsolidated
subsidiaries. In January, we acquired a 25% interest in Insight
Data Link.com, Inc. for $100,000. Insight is a start-up
corporation with a software program and website business that
acts as an Internet clearinghouse for the rental of shopping mall
space. Insight also plans to develop additional software for
related projects. We also invested an additional $285,000 in
American Inter-Metallics, bringing our total investment in AIM's
rocket propulsion project to $810,000, which represents a 16.2%
ownership in AIM - we plan to invest additional funds to increase
our total ownership to 20% during 2001. We made these
investments because our management believes they will generate
revenue.
Our subsidiary, Diasense, Inc. also made investments in
unconsolidated subsidiaries. In January 2000, Diasense initiated
an alliance with MicroIslet, Inc.; in return for its initial
equity investment of $500,000, Diasense received a 10% stake with
an option to purchase an additional 10% in the future. As of
December 31, 2000, Diasense had invested a total of $1,000,000 in
MicroIslet, and owned 15% - Diasensor plans to invest additional
funds during 2001 to increase its ownership to 20%. MicroIslet
is developing several diabetes research technologies with Duke
University that focus on optimizing microencapsulated islets for
transplantation. The project is in the research and development
phase. Diasense also invested in Diabecore Medical, Inc.
Diabecore is a company in Toronto working with other research
institutions to develop a new insulin to treat diabetes. During
2000, Diasense invested $693,520 in Diabecore and received a
20.8% ownership interest. This project is also in the research
and development phase. Diasense made these investments because
management believes that these diabetes research organizations
and the institutions they affiliate with will bring strength and
support to our own diabetes research and development projects.
As a result of those investments in Insight Data Link.com,
American Inter-Metallics, MicroIslet and Diabecore Medical, our
overall investment in unconsolidated subsidiaries increased from
$485,284 as of December 31, 1999 to $2,061,439 at December 31,
2000. The money we spent investing in those four companies came
from stock and debenture sales during 1999 and 2000. All the
investments were our initial investments in those companies,
except American-Inter-Metallics. We invested a total of $810,000
in American Inter-Metallics, a company that is developing
products designed to enhance rocket propulsion performance. We
carry the AIM investment on our balance sheet as a $663,916
investment in an unconsolidated subsidiary. The difference
between the actual investment and the balance sheet amount is due
to certain accounting rules known as the equity basis of
reporting.
Our investing activities also included the acquisition of
additional property, plant and equipment in connection with the
expansion of our manufacturing facilities and advances made under
a line of credit by Petrol Rem to a company involved in the
acquisition of other environmental companies. In connection with
this line of credit, current - short-term - notes receivable
increased by $1,726,363.
Our other assets increased from $710,619 at year-end 1999 to
$3,119,167 at the end of 2000. Approximately $200,000 of that
increase was due to a 1999 short-term note that was reclassified
as a long-term note in 2000; approximately $700,000 was from an
increase in goodwill related to our investments in our
subsidiaries; and the balance was primarily due to our increased
investments in unconsolidated subsidiaries. During 2000, we
converted loans totaling $55,256 to B-A-Champ.com, to an equity
interest in that company; we also invested an additional
$400,000, and we now own 51% and Fred E. Cooper, our CEO, owns
30%.
Related party receivables decreased by about $316,000 during
2000 due to scheduled repayments on related party debt.
Our current liabilities increased by $4.6 million from 1999
to 2000, from $6,792,504 as of December 31, 1999 to $11,394,556
as of December 31, 2000. The increase was primarily due to $2.4
million in debentures payable that we sold in December 2000, and
a $1 million increase in our current portion of long-term debt;
we also accrued $1.3 million for the remaining payments left on
our class action settlement.
We incurred debentures payable of $2.4 million because we
sold convertible subordinated debentures during 2000 to raise
capital to fund operations. Accrued liabilities increased to
$3,131,765 from $1,794,370 due to a $440,000 increase in accrued
interest, a $653,000 decrease in accrued payroll, and a
$1,529,000 increase in other accrued liabilities, which included
the $1,300,000 balance due in July 2001 for our class action
settlement.
We continued to fund operations mostly by selling our
securities. During 2000, we raised approximately $29,900,000,
including $4,275,000 from sales of preferred stock; $6,400,000
from sales of convertible debentures, and $18,604,650 from sales
of stock in our public offering. During 1999, we raised
approximately $30,816,000 from the sales of securities, including
$810,000 from sales of our Series F preferred stock. During 1998
and 1999 we issued $10,720,000 and $29,020,000, respectively, of
our subordinated convertible debentures. All of our debentures
have one-year terms, minimum holding periods prior to conversion
and mandatory conversion provisions. When those debentures were
converted, we issued 280,134,590; 515,013,737; and 56,679,610
shares of stock, respectively during 1998, 1999 and 2000. During
1999 and 2000, we redeemed $4,130,000 and $5,850,000 in
debentures - we still had the money from selling the debentures,
and we used some to buy some debentures back so we wouldn't have
to issue more stock.
As of December 31, 1998 and 2000, the conversion price of
our outstanding debentures would have been approximately $.059
and $.0421 per share, respectively, based upon a formula that
applies a discount to the average market price for the previous
week and determined by the length of the holding period. As of
December 31, 1998 and 2000, the number of shares to be issued
upon conversion of all outstanding debentures was approximately
60.1 million and 57 million shares, respectively, which would
have reflected discounts of approximately 23% and 20%,
respectively. No debentures were outstanding as of December 31,
1999.
Due to our current limited sources of revenue, we will have
to find additional financing that we'll use to finance
development of, and to proceed to manufacture, our noninvasive
glucose sensor and to complete the development of our other
projects. We can't assure you that we'll be able to find that
additional financing.
Our products are at various stages of development and we'll
need more money to complete them. We may decide to discontinue
any of our projects at any time if research and development
efforts dictate that's the best thing to do.
We currently have commitments for capital leases on certain
equipment and we'll have to commit to other capital leases so we
can continue to develop and manufacture our products.
Our financial statements contain a going concern opinion
from our auditors. Our auditors issued that opinion because we
have a history of losses and no revenue to support our
operations. We get money to fund our operations by selling
securities - and we don't know if we'll be able to continue to
raise enough money that way. Because we're not sure - and our
auditors are not sure - how long we can continue, our financial
statements include the auditor's opinion that we may not be able
to continue operating as a going concern. As of February 2001,
we estimate that between the money we have and the money we can
raise by selling stock, we'll be able to continue operations for
at least a year, including continuing the research and
development of our noninvasive glucose sensor, completion of the
FDA approval process and marketing and manufacturing the device.
We have a history of successful capital-raising efforts; since
1989, and through December 2000, we, along with Diasense, have
raised over $166,000,000 in private and public offerings alone.
In prior years, we met a portion of our short-term working
capital needs through development contracts with other
organizations and through manufacturing for other companies on a
contractual basis. During 1997 and 1998, we received contracts
by the Department of Veteran's Affairs Medical Center for Case
Western Reserve University, Shriners Hospital - Philadelphia
Unit, and Austin Hospital to manufacture FES products. Functional
electrical stimulators, known as FES products, are implanted
under the skin of patients who are disabled as a result of spinal
cord injury, stroke, head injury or other neurological disorder.
The FES uses low levels of electrical stimulation to activate
nerves and muscles to assist the patient with grasping, arm
movement or standing. Those contracts generated revenues of
$584,026 in 1998. During 1998, the other parties canceled the
orders and those contracts. As a result, we terminated FES
project activities for the present, and we don't anticipate any
additional material revenue from those activities in the future.
Given our expenses and the other factors we discussed, as
compared to our sources of funds, we estimate that we will be
able to meet our funding needs for at least a year from December
31, 2000. We make that estimate based in part because we are not
aware of any extraordinary technological, regulatory or legal
problems. If any of those problems, which could include
unanticipated delays resulting from new developmental hurdles in
product development, FDA requirements, or the loss of a key
employee, arise, we would have to reevaluate our position. We
can't assure you that, despite our good-faith efforts, our
estimates will be correct.
We think that our long-term liquidity needs will include
working capital to fund manufacturing expenses for our products
and continued research and development expenses for existing and
future projects. If our projects are delayed, we will need more
money. We believe we will be able to continue selling our stock
and other securities in order to raise funds, but we can't assure
you we will be successful. If we can't raise enough money to
fund our projects and operations, we will not be able to
continue. We don't have any other sources of funds, such as bank
lines of credit. We believe that, at some point, we will be able
to sell our products to generate revenue, but we can't assure you
when, or if, that will happen.
Results of Operations
The following seven paragraphs discuss the Results of
Operations of our entire company based on our consolidated
financial statements. We discuss our business segments at the
end of this section.
Our sales and corresponding costs of products sold during
the last year increased to $340,327 and $354,511, respectively in
2000 from $112,354 and $147,971 in 1999 and $1,145,968 and
$587,821 in 1998. The changes from year to year were due to
fluctuations in sales of our various products. Our costs
increased and decreased due to our overall increase and decrease
in sales. The increase from 1999 to 2000 was due primarily to an
increase in sales: a $191,000 increase in bioremediation sales
and initial sales of our ThermoChem system. The decrease from
1998 to 1999 was primarily due to the loss of our FES contracts.
We had sales of the Diasensor totaling $427,603 in 1998; $47,500
in 1999, and none in 2000, because we haven't been able to
successfully sell the device in Europe. We're not sure why we
were only able to sell a few sensors in 1999, and none in 2000.
We've hired marketing consultants to help us figure out why, and
to help us learn how to sell more. During 1998, 1999 and 2000,
sales of $16,855; $31,060; and $20,068, respectively, were from
sales of our theraPORT, an implantable device used by patients
who have to have repeated injections of drugs. The theraPORT is
implanted in the patient's chest, and provides a fixed port for
catheters used to deliver the drugs the patient needs. Those
sales increased because we were able to convince more doctors to
use the product in 2000 than we were in 1999. We had minor sales
totaling $3,496 and $2,028 of other biomedical products,
primarily leftover parts from previous models of the Diasensor,
during 1999, and 2000. Our other product sales increased.
Bioremediation product sales totaled $45,382 in 1998 and $26,693
during 1999, with an increase to $217,722 during 2000. We also
had sales of our metal-coating products beginning in 1999 of
$3,605, which increased to $40,593 in 2000. The increase was due
to repeat customers who sent us more work once they were
satisfied with our earlier performance. Until we have
significant sales, we can't predict any trends for future
revenues. We had sales of $69,605 from our ThermoChem
hyperthermia system for the first time in 2000.
In 2000, 1999 and 1998, we received interest income in the
amount of $589,529; $1,031,560; and $182,033 respectively. The
fluctuations are due to the varying amounts of money - which came
mostly from our securities sales - we had to invest. Our other
income decreased to $5,547 in 2000 as compared to $52,897 in 1999
and $50,212 in 1998. The decrease was due to the loss of rental
income.
Research and Development expenses during 2000 increased to
$6,651,471 from $4,430,819 in 1999, a decrease from $6,340,676 in
1998. The increase from 1999 to 2000 was due to increased
spending on our noninvasive glucose sensor project, and our
hyperthermia project, made possible due to the availability of
additional funds. We used those additional funds to replace
scientists and engineers who left during 1998 when we had serious
cash flow problems, and to work on future versions of the
noninvasive glucose sensor. We also hired new personnel to work
on ViaCirQ's hyperthermia project following the FDA approval in
January 2000.
Selling, General and Administrative expenses increased to
$21,407,472 in 2000 from $12,884,237 in 1999 and $10,673,265 in
1998. The increase from 1999 to 2000 was primarily due to the
following factors: a $4.9 million increase in warrants granted
by BICO and our subsidiaries; a $1.27 million increase in
salaries; a $2.4 million decrease in commissions paid on our
securities sales; a $1.16 million increase in legal fees; a $1.2
million increase in consulting fees; and a $1 million expense to
reflect a write-off of inventory we couldn't sell. The increase
from 1998 to 1999 was due primarily to the following factors: a
$1.6 million increase in salaries; a $2.2 million increase in
commissions paid on our securities sales; an $800,000 increase in
consulting fees; and a $700,000 charge in 1998 for ViaCirQ
manufacturing rights that was not incurred in any other year.
Beginning in 2000, we had a loss on unconsolidated
subsidiaries of $158,183 that reflects our ownership share of the
losses incurred by American Inter-Metallics, MicroIslet,
Diabecore, and Insight Data Link.
In 2000, we had an unusual item expense totaling $3,450,000
to settle our class action lawsuit. Even though we don't believe
any violations of the securities laws occurred, we agreed to
settle the lawsuit. We paid $2,150,000 in 2000, and an
additional $1,300,000 payment is due in July 2001 - we also
included that amount as an accrued liability on our balance
sheet.
During 1999, we reevaluated our investment in the metal-
coating project and determined that an impairment charge of
$5,060,951 was necessary in addition to a $39,716 write-down of
goodwill. We recognized these charges because we determined we
would not be able to recover our investment. We had no similar
charges in 1998 or 2000.
Beneficial conversion terms included in our convertible
debentures are recognized as expense and credited
to additional paid in capital at the time the associated
debentures are issued. We recognized $3,062,500 of
expense in connection with the issuance of our subordinated
convertible debentures in 2000 compared to $7,228,296 in 1999 and
$3,799,727 in 1998. The amount decreased primarily because we
issued fewer debentures this year compared to last year.
Similarly, we recognized a beneficial conversion feature for
our preferred stock during 2000. During 2000, we issued 452,000
shares of our Series F preferred stock. The preferred stock was
convertible into our common stock at a discount of 25% after 120
days. Based on accounting rules, the value of the beneficial
conversion feature of the preferred stock is calculated as the
difference between the market price and the discounted price for
the corresponding common stock on the date the preferred stock
was purchased. The total discount of $1,883,333 or $.17 per
preferred share was recognized as a constructive dividend on our
preferred stock during 2000. We charged the $1,883,333 to
additional paid-in capital. We did not have any of these charges
or constructive dividends during 1999 or 1998 because we had not
yet issued our preferred stock.
During 1999 our subsidiary, Diasense, extended warrants
originally granted to certain officers, directors, employees and
consultants. In addition, our subsidiary ViaCirQ also extended
warrants in 2000. Because the exercise price of some of those
warrants - $.25 to $3.50 for Diasense and $.10 for ViaCirQ - was
lower than the market price of the common stock at the time of
the extensions, $4,669,483 and $5,233,529 were charged to
operations during 1999 and 2000, respectively. For more detailed
information, you should read Note L to our financial statements.
Interest expense on our outstanding debt was $1,924,873 in
2000, compared to $1,373,404 in 1999 and $481,025 in 1998. The
increase was due to an increase in capital leases and interest
payments on our subordinated debentures.
In 2000, unrelated investors' interest in net loss of
subsidiary increased to $280,997 from $24,164 in 1999, a decrease
from $1,385,485 in 1998. Unrelated investors' interest is an
entry on our statement of operations that is different from
income or expense entries. It represents the total amount of our
subsidiaries' losses that is allocated to other owners. When our
subsidiaries lose money, we, as majority owner, have to take a
charge for our share of those losses, but we are allowed to
deduct the portion of the losses that are allocated to the other
owners - called the unrelated investors. This means that the
entry for the unrelated investors' share of the losses actually
decreases our total net loss, because it gives us credit for the
part of the loss allocated to the unrelated investors. The
significant decrease from 1998 to 1999 is due to the declining
net worth of Diasense, our 52% owned subsidiary. In 1998,
Diasense's losses were less than the interest of its unrelated
investors. Therefore, those unrelated investors shared in the
losses to the extent of their ownership - 48%, and we were able
to deduct their share of the loss, which was ($1,385,485). In
1999, Diasense's losses were more than the interest of its
unrelated investors, which was $24,164. Therefore, accounting
rules require that we - as majority owner - take full
responsibility for all of Diasense's 1999 losses that exceeded
that $24,164, and only deduct that small amount from our losses.
There was no unrelated investors' interest in the net loss of
Diasense in 2000 due to the continued decline in the net worth of
Diasense. The increase from 1999 to 2000 is primarily due to the
increased net worth of ViaCirQ, our 99%-owned subsidiary. In
1999 and 1998, ViaCirQ's losses exceeded the interest of
unrelated investors and we - as majority owner - were required to
take full responsibility for ViaCirQ's losses. In 2000,
ViaCirQ's net worth increased due to the conversion of debt to
common stock. ViaCirQ's losses were less than the interest of
its unrelated investors and those unrelated investors shared in
the losses to the extent of their ownership of 1%. Therefore, we
were able to deduct their share of ViaCirQ's loss, which was
($146,708). Our acquisitions also contributed to the increase
from 1999 to 2000. Petrol Rem acquired a majority of INTCO and
Tireless, and we acquired a majority of B-A-Champ.com. In 2000,
the unrelated investors' interest in the net losses of INTCO,
Tireless and B-A-Champ were $9,827, $52,729, and $71,733,
respectively. There were no similar amounts in 1999 or 1998
because we didn't acquire them until 2000.
Segment Discussion
For purposes of accounting disclosure, we provide the
following discussion regarding two business segments: Biomedical
devices, which includes the operations of our Biocontrol
Technology division, Diasense, Inc., and ViaCirQ, Inc.; and
Bioremediation, which includes the operations of Petrol Rem, Inc.
More complete financial information on these segments is set
forth in Note H to our accompanying financial statements.
Biomedical Device Segment. During the year ended December 31,
2000, sales to external customers decreased to $81,954 from
$82,056 in 1999, a decrease from $1,028,484 in 1998. The overall
decrease was primarily due to sales of the functional electrical
stimulators, which have been discontinued. Corresponding
fluctuations in costs of products goods sold occurred for the
same reason, from $483,388 in 1998 to $133,288 in 1999 and
$47,862 in 2000.
Bioremediation Segment. During the year ended December 31, 2000,
sales to external customers increased to $217,722 as compared to
$26,693 in 1999 and $45,382 in 1998. The increase from 1999 to
2000 was due to our increased efforts to effectively penetrate
the market with products other than the BioSok. The reasons for
the decline from 1998 to 1999 are as follows: due to cash flow
problems in 1998, Petrol Rem stopped funding its sales efforts
and lost employees. In 1999, Petrol Rem restructured its
management, operations and pricing structure - during that time,
sales efforts slowed until the new management and funding was in
place. Costs of products sold fluctuated due to the same factors
that impacted sales, from $33,061 in 1998 to $14,683 in 1999 and
to $179,446 in 2000.
Income Taxes
Due to our net operating loss carried forward from previous
years and our current year losses, no federal or state income
taxes were required to be paid for the years 1987 through 2000.
As of December 31, 2000, we and our subsidiaries, except for
Diasense and Petrol Rem, had available net operating loss carry
forwards for federal income tax purposes of approximately
$132,500,000, which expire during the years 2001 through 2021.
Supplemental Financial Information
During early 2001, we made investments in unconsolidated
subsidiaries. In January and February, we invested an additional
$110,000 in American Inter-Metallics, bringing our total
investment in AIM's rocket propulsion project to $920,000. We
made this investment because our management believes it will
generate revenue.
Our subsidiary, Diasense, Inc. also made investments in
unconsolidated subsidiaries. Through March 2001, Diasense
invested an additional $350,000 in MicroIslet, Inc. Diasense now
owns a total of 18.5% of MicroIslet, and has invested a total of
$1,350,000. Diasense also invested an additional $293,951 in
Diabecore Medical, Inc. Diasense now owns 27% of Diabecore and
has invested a total of $970,874. Diasense made these
investments because management believes that these diabetes
research organizations and the institutions they affiliate with
will bring strength and support to its own diabetes research and
development projects.
From January through March 2001, we raised net funds
aggregating approximately $6,530,093 by selling our convertible
debentures. The subordinated convertible debentures are not
secured by any assets, and are subordinate to corporate debt,
except for related-party debt. The debentures are convertible
beginning 90 days from issuance. They can be converted to common
stock at a price that is determined by computing 80% of the
average closing bid price for the four days prior to and the day
of conversion - or a 20% discount to a five-day average trading
price. There is no minimum conversion price.
In February 2001, we entered into an agreement with David L.
Purdy in connection with his resignation from our affiliates and
us. The agreement required us to pay Mr. Purdy an aggregate of
$912,727 plus $100,000 to be placed in an escrow account for his
future attorney's fees. The agreement contains confidentiality
and release provisions for both Mr. Purdy and us.
In February 2001, we filed a preliminary proxy because we'll
be having a shareholders meeting in May, where we'll ask the
shareholders to approve an increase of our authorized shares to
2,500,000,000.
BICO's BUSINESS
General Development of Business
BICO, Inc. was incorporated in the Commonwealth of
Pennsylvania in 1972 as Coratomic, Inc. In June 2000, we
changed our corporate name from Biocontrol Technology, Inc. to
BICO, Inc. Our operations are located at 625 Kolter Drive in
Indiana, Pennsylvania, 15701, and our administrative offices are
located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania,
15220.
Our primary business is the development and manufacture of
new devices, which include models of a noninvasive glucose
sensor, procedures relating to the use of regional extracorporeal
hyperthermia in the treatment of cancer, and environmental
products, which help to clean up oil spills. Our noninvasive
glucose sensor helps diabetics measure their glucose without
pricking their fingers or having to draw blood. Regional
extracorporeal hyperthermia is a system that recirculates the
patient's blood in a specific area of the body after the blood
has been heated outside the body. The recirculated blood's
higher temperature helps treat certain diseases by inducing an
artificial fever that kills targeted cells.
We have several subsidiaries that specialize in those
different projects. Diasense, Inc. manages the noninvasive
glucose sensor project. ViaCirQ, Inc. - formerly IDT - handles
the hyperthermia project, a technology called the ThermoChem
System, that induces an artificial fever to help treat diseases.
Petrol Rem, Inc. handles our environmental products PRP, BIOSOK
and BIOBOOM that help clean up oil spills and other pollutants
in water.
Forward-Looking Statements
From time to time, we may publish forward-looking statements
relating to such matters as anticipated financial performance,
business prospects, technological developments, new products,
research and development activities, the regulatory approval
process, specifically in connection with the FDA marketing
approval process, and similar matters. You need to know that a
variety of factors could cause our actual results to differ
materially from the anticipated results or other expectations we
expressed in our forward-looking statements. The risks and
uncertainties that may affect our operations, performance,
research and development and results include the following:
additional delays in the research, development and FDA marketing
approval of the noninvasive glucose sensor; delays in the
manufacture or marketing of our other products and medical
devices; our future capital needs and the uncertainty of
additional funding; competition and the risk that the noninvasive
glucose sensor or our other products may become obsolete; our
continued operating losses, negative net worth and uncertainty of
future profitability; potential conflicts of interest; the status
and risk to our patents, trademarks and licenses; the uncertainty
of third-party payor reimbursement for the sensor and other
medical devices and the general uncertainty of the health care
industry; our limited sales, marketing and manufacturing
experience; the amount of time or funds required to complete or
continue any of our various products or projects; the attraction
and retention of key employees; the risk of product liability;
the uncertain outcome and consequences of 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
Development of the Noninvasive Glucose Sensor
Along with Diasense, we have completed the development of
the first commercial noninvasive glucose sensor, which is able to
measure the concentration of glucose in human tissue without
requiring the drawing of blood. Currently available glucose
monitors require the drawing of blood by means of a finger prick.
Our initial research and development with insulin pumps led
to a theory by which blood glucose levels could be detected
noninvasively by correlating points on the infrared spectrum that
are reflected by electromagnetic energy through the skin. We
studied this method in 1986 and 1987 using laboratory instruments
and working with consultants at Battelle Memorial Institute in
Columbus, Ohio. The results of the studies provided information
regarding the use of infrared light in the noninvasive
measurement of glucose. The information from the studies, along
with later additional work, led to a patent application by our
research team in 1990. A patent covering the method was granted
to our research team and assigned to Diasense in December 1991.
Diasense purchased those patent rights from us under a purchase
agreement. We filed a second patent application in December
1992, which was granted in January 1995. That second filing
contained new claims, which extended the coverage of the patent
based on additional discoveries and data obtained since the
original patent was filed. We assigned the rights to that patent
to Diasense. We developed additional concepts to improve the
capability of the instrument to recognize blood glucose, and, in
May 1993, filed corresponding patent applications. As of
November 2000, a total of 13 patents have been issued, with
additional patent applications pending. We have the right to
develop and manufacture sensors based on contracts with Diasense.
Our research team advanced this technology base through the
development of several research prototypes, which were tested in
human clinical trials. We conducted a trial on 110 human
subjects in March 1992. In that trial, we recorded spectral,
blood and chemical data for analysis in order to develop
calibration data for the noninvasive glucose sensor. We
conducted a second trial on 40 human subjects in July 1992 that
indicated that the device did not have a satisfactory signal-to-
noise ratio to allow for sufficient accuracy to be acceptable for
patient use. Signal-to-noise ratio is determined by the
relationship of the signal, which is the glucose level, and the
noise, which are the random interferences, such as differences in
skin surfaces. We conducted other trials at several testing
sites under the guidance of the sites' Institutional Review Board
using prototypes, which addressed the signal -to-noise problem.
We designed and constructed those prototypes to simulate
production models.
On January 6, 1994, we submitted the initial 510(k)
Notification to the Food and Drug Administration for approval to
market the production model, the Diasensor 1000. A 510(k)
Notification is a type of FDA filing used to ask the FDA to
approve a device for sale in the U.S. We based the submission on
data obtained from the advanced research prototypes, since we
believed that the production model would be identical to the
advanced prototypes. In February 1996, the FDA convened a panel
of advisors to make a recommendation regarding our 510(k)
Notification. The majority of the panel members recommended that
we conduct additional testing and clinical trials of a production
model prior to marketing the Diasensor 1000. We, along with
Diasense, announced that we would remain committed to bringing
the Diasensor 1000 to diabetics, and that additional research,
development and testing would continue.
Due to continued delays in the FDA approval process, and
while continuing to work with the FDA and conduct its mandated
testing, we turned our focus to other markets for the Diasensor
1000 besides the U.S.
In 1998, we, as designer and manufacturer of the device,
were awarded International Organization for Standardization
certification by TUV Rheinland, a German company authorized to
conduct such audits, which was contracted to perform an audit of
our quality system. We were awarded ISO Certification to the
9001 standard, which is evidence that we have, in place, a total
quality system for the design, development and manufacture of our
products. We were also awarded EN46001 Certification, indicating
we meet European standards for medical devices. Once the ISO
9001 certification was approved, and a technical file was
submitted and approved by TUV Rheinland, we received approval to
apply a CE mark to the device. Much like an Underwriters
Laboratory "UL" mark, the CE mark is provided by the regulatory
bodies of the European Community, or by authorized private
bodies, such as TUV Rheinland, to indicate that the device
adheres to "quality systems" of the ISO and the European
Committee for Standardization. The CE mark permits us to sell
the Diasensor in Europe.
With regard to marketing the device within the United
States, we continued to work with the FDA to obtain approval.
After discussions with the FDA, we submitted a revised 510(k)
Notification in October 1996, which was followed by continued
discussions with the FDA. During 1997 and 1998, we continued to
meet with the FDA, and established a protocol for in-home testing
of the Diasensor 1000. Due to our cash flow problems during
1998, testing did not proceed at the pace originally anticipated,
and completion of the testing was delayed.
We continued various aspects of the Diasensor development,
which resulted in a method that will allow the patient to
transmit the readings generated by the noninvasive glucose sensor
to the patient's clinic or physician. Following an in-depth
marketing study, we determined that the machines with this
capability are more attractive to the patient, since there is the
possibility of selling a telemedicine service which includes the
machine, the patient, and his or her physician. This model of
the Diasensor has been named the Diasensor 2000 to differentiate
between the earlier models. Based on advice from the FDA, we
decided it was in our best interest to submit a PreMarket
Approval Application to the FDA, rather than continue with the
510(k) Notification process, in order to seek FDA approval for
the Diasensor 2000. In 1999 the FDA implemented a new PMA
system. Under the new system, individual modules - or parts - of
a PMA submission can be made, as they are ready. We discuss our
PMA submissions in the "Current Status of the Noninvasive Glucose
Sensor" section, which follows.
The Diasensor is a spectrophotometer, which is a machine
capable of illuminating a small area of skin on a patient's arm
with infrared light, and then making measurements from the
infrared light that is reflected back into the device. The
device then displays the measurement in a window on the top of
the device for the user to read. The Diasensor uses internal
mathematical calculations and customized software to calculate a
glucose measurement.
Since the Diasensor will be calibrated individually, each
instrument will be sold in the U.S. by prescription only and will
be calibrated in the patient's home. This feature may limit the
marketability of the Diasensor, and if the device is unable to
qualify for third-party reimbursement - which means if the health
insurance companies won't pay for it -we will have a hard time
marketing and selling the device.
Current Status of the Noninvasive Glucose Sensor
We were hampered by cash flow problems during 1998, so we
didn't make as much progress on the noninvasive glucose sensor
project as we planned. Once we raised more money, we restarted
our discussions with the FDA. We hired Joslin Diabetes Center to
help us with the FDA in August 1999. Joslin Diabetes Center
designed and is conducting the clinical trials the FDA requires
before they will give us approval to market the sensor.
Our contract with Joslin calls for Joslin's representatives
to conduct a clinical study on the effectiveness of the Diasensor
2000. The study is contingent upon FDA approval of the Joslin
protocol for the clinical study, which we obtained in August
2000. We had a meeting with the FDA in October 1999 to focus on
the protocol, and we made revisions to the protocol to comply
with the FDA's recommendations. In the Joslin contract, we
agreed to pay for the study, and Joslin agreed to provide us with
a report on the data gathered. Joslin also has the right,
subject to confidentiality provisions, to publish the results of
the clinical trials. The Joslin contract requires us to pay fees
for their services - those fees will be paid when we pay for the
clinical trials and will be based on the number of patients
enrolled in the study. We are negotiating similar agreements
with four additional sites.
In addition to the agreement with Joslin, we took other
significant steps toward FDA approval. In February 1999 we
submitted a PMA shell to the FDA for the Diasensor. The PMA
shell is part of a relatively new FDA procedure, which divides
submissions into modules, or parts. These modules, which were
designed to facilitate and expedite FDA review, contain different
pieces of the full PMA submission. However, from both our own
experience and by observing other module submissions, we do not
believe that the FDA intends to "approve" the PMA one module at a
time. Rather, we have had meetings with the FDA, including the
October 1999 meeting, where requirements for the "next step" in
the process have been discussed without a specific FDA finding on
prior submissions.
In May 1999, we submitted the first module, which covered
manufacturing methods and procedures for the Diasensor 2000. The
FDA asked for additional information in September 1999, and we
responded. We filed the second module in May 2000. The second
module contained information regarding electrical and mechanical
standards for the FDA's requirements on safety and effectiveness,
and a description of how our noninvasive glucose sensor will be
used by patients. Future modules will include raw data and
laboratory study methods and test results. The final PMA
submission will include human clinical results and a summary of
safety and effectiveness data.
We met with the FDA in October 1999, and at that meeting,
the FDA made further recommendations regarding the protocol for
the upcoming clinical trials. In November 1999, the FDA
requested further information. With the help of our outside
consultants, we finished compiling all that additional
information, and in July 2000 we submitted an Investigational
Device Exemption to the FDA that included the protocol for our
clinical trials. An Investigational Device Exemption is a
request to the FDA for approval to conduct clinical trials on a
device that is not FDA-approved. The FDA approved the protocol
for our clinical trials in August 2000.
Clinical trials began in October 2000 at Joslin Diabetes
Center in Boston. The trials were designed for a total of 125
diabetics, all of whom will participate for 9 months. We are
currently amending our study protocol to add additional patients,
bringing the total to 200 in both device using and control
groups. We submitted protocol amendments to the FDA to change
some of the criteria we'll use to select patients for the trials,
and the FDA approved those amendments in March 2001. Trials will
also be conducted at two other sites: St. Luke's-Roosevelt
Hospital Center in New York City and SUNY Health Science Center
in Syracuse, New York. We expect to add 2 to 4 additional sites
in the near future. We hired Amarex, LLC, an independent
research organization headquartered in Washington, D.C., which
has experience in conducting clinical trials, to monitor our
clinical trials. Amarex will also collect data, and provide
training, data and site management, including statistics and
report writing, at all three sites. Working with Joslin and
Amarex, we plan to submit data to the FDA when the trials are
completed. We will also work with outside biomedical consultants
to help us obtain FDA approval following these clinical trials;
however, we can't assure you when or if that will happen.
The Diasensor 2000 will be used as part of a system of care
that includes home use of the Diasensor with regular evaluation
of the patient's blood glucose trends as determined by the
device. The Diasensor also contains a telemedicine feature - a
software program that automatically transmits the patient's
glucose measurements to a secure website via the Internet, where
they can be viewed and evaluated by the patient's health care
provider. The data can be graphed and displayed in a variety of
ways and for a variety of time periods as needed. This use of
historical readings is critical in the patient's analysis of
trends in glucose levels, an important tool in both the treatment
of diabetes and the use of insulin.
In March 2001, we announced that Diasense launched its
DataCONN program, which is the on-line telemedicine service.
Diabetics who monitor blood glucose levels using an invasive
meter can use the DataCONN program. Professional caregivers who
make treatment decisions for their diabetic patients based on
invasive meter readings can also use DataCONN. Users can use the
Internet at www.diasensor.com or a touchtone telephone to record
or access glucose measurements. The service can also provide
physicians an electronic record of the patient's progress over
time. The service costs $59 for a one-year subscription.
As with all other FDA-related activities, we cannot provide
any assurances as to the date when we'll complete our studies,
when we'll submit our next PMA module, or when the FDA will
complete its review of our submission.
Although our research and development team continues to have
discussions with the FDA, due to the complex, technical nature of
the information being evaluated by the FDA, it is impossible for
us to estimate how much longer the FDA approval process will
take.
FDA approval is necessary to market the Diasensor in the
United States. In 1999, we also focused additional effort on the
European market; since no material sales have occurred, we
decided to reassess our marketing plan. In connection with
adjusting our marketing plan, we are currently reevaluating our
pricing structure for the Diasensor in Europe.
Based on contracts between Diasense and us, we have the
exclusive right to manufacture the noninvasive glucose sensor.
Diasense will pay us for manufacturing, and that's how we'll make
money if we ever successfully market and sell the noninvasive
glucose sensor.
Diasense is responsible for the marketing and sales of the
noninvasive glucose sensor. The current marketing plan is to
market the noninvasive glucose sensor and the telemedicine
program directly to diabetics, through their doctors' orders.
Prescriptions are not needed in Europe. The telemedicine program
will involve a monthly fee for the use of both the sensor and the
service. We may set those prices too high, which will limit our
sales, unless we can convince health insurance companies to pay
for them. Because the health insurance industry is in a constant
state of change, we can't predict whether - when - or if - we
will convince them to pay for our noninvasive glucose sensor or
the telemedicine program. We have estimated, based on
information from the American Diabetes Association, that there
are about 15.7 million diabetics in the United States, but not
all diabetics will be suitable users of our noninvasive glucose
sensor. Those diabetics who require and benefit from frequent
glucose monitoring and whose physicians adjust their insulin
dosages based on glucose averages over time make up the potential
market for our sensor, and we can't accurately estimate the size
of that market at this time.
Extracorporeal Hyperthermia
ViaCirQ was incorporated on October 23, 1992 as IDT, Inc.
ViaCirQ focused on the research and development of the
ThermoChem technology and associated disposables as a delivery
system for perfusion induced systemic hyperthermia, known as
PISH, a form of whole body hyperthermia and regional hyperthermia
in the treatment of certain types of cancers and AIDS/HIV.
Perfusion induced hyperthermia is the elevation of the body's
temperature, which is like inducing an artificial fever.
Perfusion-induced hyperthermia can be used to raise the
temperature of a regional part of the body - called regional
hyperthermia; and can raise the temperature of the entire body -
called systemic hyperthermia. Extracorporeal means outside the
body - so extracorporeal hyperthermia uses a device to circulate
blood outside the body and return it to the patient to raise the
patient's temperature. Perfusion involves circulating blood.
Perfusion-induced extracoroporeal hyperthermia heats blood
outside the body then circulates the blood back through the body
to raise the body's temperature.
In 1993, ViaCirQ formed an alliance with HemoCleanse, Inc.
located in Lafayette, Indiana. HemoCleanse, Inc., founded in
1989, designs, manufacturers and markets medical devices and
disposables for the treatment of blood outside the body.
HemoCleanse's core product was the BioLogic System, which
consists of a sophisticated, computer controlled multi-treatment
device and a series of single-use disposable treatment kits.
HemoCleanse's unique technology is based on special chemical
sorbents that selectively remove toxins from the blood while
balancing critical blood chemistries. The BioLogic System
received clearance by the FDA in 1994 as a detoxifier for
treatment of drug overdose; in 1996 the BioLogic System received
FDA clearance for use in treating patients with liver failure.
We believed that HemoCleanse's core technology was essential in
developing a safe delivery system for whole body hyperthermia.
In 1993, we entered into a license agreement with
HemoCleanse to develop the ThermoChem technology for delivering
extracorporeal hyperthermia. Under the license agreement, we
received worldwide rights to market the ThermoChem technology
and disposables while HemoCleanse retained worldwide
manufacturing rights for ThermoChem technology and disposables.
We funded HemoCleanse's development of a prototype of the
ThermoChem System for PISH. The prototype was used in pre-
clinical trials and subsequently in the first ever FDA approved
clinical trial.
The ThermoChem System consists of two components:
ThermoChem-HT System and ThermoChem-SB System that are
necessary for delivering PISH, a form of whole body hyperthermia.
ThermoChem-HT System is a fully integrated system that
heats, circulates and maintains desired blood/fluid temperatures
in delivery of whole body hyperthermia or regional hyperthermia.
ThermoChem-SB System is used in conjunction with the
ThermoChem-HT System to deliver whole body hyperthermia by
balancing blood chemistries on a real-time basis while removing
toxins.
It is common knowledge that higher temperatures of the body,
like natural fevers, can serve to control infections. Using this
concept, the ThermoChem System induces an artificial fever to
107.6 F, which is hyperthermia. During hyperthermia, however,
blood chemistries shift potentially causing severe organ damage
and possibly death.
The ThermoChem System is a unique system that incorporates
the features of the ThermoChem-HT, but also automatically
balances electrolytes and important nutrients using the chemical
exchange characteristics of the ThermoChem-SB, while
simultaneously removing many small toxins. The electrolytes and
nutrients flow from the sorbent to the blood until equilibrium is
reached. Unbound toxins flow freely from the blood and bind to
the charcoal of the suspension.
There are many methods for inducing whole body hyperthermia
including radiant heat chambers, microwave heat chambers, water
blankets and perfusion induced systemic hyperthermia PISH. We
believe that PISH allows for a more uniform heating of the body
and a higher sustained body temperature.
Perfusion Induced Systemic Hyperthermia Utilizing the ThermoChem
System
Perfusion induced systemic hyperthermia, known as PISH, is
achieved through extracorporeal blood heating which involves
heating the patient's blood outside the body to a maximum of
118.4 F and returning it back to the body, thus raising the
body's core temperature to the desired treatment temperature up
to a current maximum of 108.4 F for 2 hours. Catheters are
placed in two venous access sites and attached to the disposable
tubing of the ThermoChem-HT. Blood passes a roller pump that
sends it onward to the heat exchanger where indirect heating of
the blood occurs, raising the outside blood temperature to a
maximum of 118.4 F. A portion of the blood passes through a T-
connection to the ThermoChem-SB, located between the roller pump
and the heat exchanger, where it is chemically balanced on a real-
time basis and then returned to the blood flow path before it
reaches the heat exchanger. Continually circulating blood is
returned to the patient at approximately 114.8 F, gradually
raising the patient's core body temperature to the desired
temperature, which is measured by various temperature probes
throughout the body.
Intraperitoneal Hyperthermia Utilizing the ThermoChem-HT System
In a surgical procedure cancerous growths are surgically
removed from the patient's abdomen and pelvis; while all spaces
and lining surfaces are opened, inlet and outlet catheters are
placed. The ThermoChem-HT System raises the temperature of the
abdominal cavity to a target temperature of up to 43.5 C
(110.3 F) by continuously circulating sterile solution throughout
the abdominal cavity.
The ThermoChem-HT is a system of specially integrated
subsystems and devices for fluid control and precise temperature
maintenance. All operating parameters of the system are
monitored by a computer and displayed and managed through an
interactive video touch screen display. The operator can access
all system controls and operations, in-put all necessary patient
data, and define and adjust treatment parameters with just a
touch of a finger.
Intraperitoneal hyperthermia offers a new choice to combat
peritoneal cancers arising from gastrointestinal, pancreatic,
ovarian and other metastatic tumors.
Physicians have known that cancer cells are sensitive to
heat, but only recently have the mechanisms of hyperthermia on
cancer cells been understood. The vascular structure in tumors
restricts blood supply so a tumor will retain heat, which
destroys cellular components essential for a tumor to exist.
Heat also makes cancer cell membranes more permeable to certain
chemotherapeutic drugs while certain chemotherapeutic drugs are
strengthened by heat.
Beginning in 1994, the safety and efficacy of hyperthermia
utilizing the ThermoChem technology was evaluated in the
following FDA institutional review board clinical and pre-
clinical approved trials.
St. Elizabeth Hospital - Lafayette, Indiana
1. Phase I completed under protocol entitled "Evaluation of
Whole-Body Hyperthermia Utilizing the ThermoChem technology in
the Treatment of Kaposi's Sarcoma with AIDS." This was the first
FDA approved whole body hyperthermia study and was published in
The Journal of Acquired Immunodeficiency Syndrome and Human
Retrovirology.
2. Phase II trial completed under protocol entitled
"Extracorporeal Whole-Body Hyperthermia Treatments for HIV
Infections and AIDS" with results published in American Society
for Artificial Internal Organs (ASAIO) Journal.
The University of Texas M.D. Anderson Cancer Center
Pre-clinical studies in preparation for a Phase I trial
involving thermo chemotherapy of patients with lower extremity
cancers of different types has been completed at the University
of Texas M.D. Anderson Cancer Center. These animal studies were
used to develop the surgical techniques necessary for a clinical
trial on humans and to train and familiarize the center's staff
in the use of ThermoChem technology.
University of Texas Medical Branch at Galveston
Human trials are ongoing under an Investigational Device
Exemption utilizing the ThermoChem System and disposables to
deliver perfusion induced systemic hyperthermia for patients with
non-small cell lung cancer. Non-small cell lung cancer remains a
major cause of cancer morbidity and mortality in the United
States and Europe. In February 2000, the FDA approved a
continued clinical trial to include stage IIIb patients with non-
small cell lung cancer.
One of the objectives of this trial is to evaluate the
ThermoChem technology for treatment of metastatic non-small cell
lung cancer with regard to patient selection, tumor response,
patient performance status, and patient survival. The follow-up
of the patients is patterned after the Southwest Oncology
protocols, which are considered state-of-the-art to follow
response of cancer to the therapy. Results of this study have
been accepted for publication in Annals of Thoracic Surgery;
Perfusion; and American Society of Artificial Organs.
Wake Forest University School of Medicine
In May 1998, the FDA approved an Investigational Device
Exemption to allow human clinical trials utilizing the
ThermoChem-HT and related disposables for intraperitoneal
hyperthermia. Intraperitoneal hyperthermia is used as an
adjunctive therapy with surgery and chemotherapy.
In a surgical procedure all cancerous growths are surgically
removed from the patient's abdomen and pelvis; while all spaces
and lining surfaces are opened, the abdomen is perfused utilizing
the ThermoChem-HT System with a heated physiologic solution
circulating for a 2 hour period.
ViaCirQ and the surgeons at Wake Forest believe that the
ThermoChem-HT System can make the technique more effective with
better temperature monitoring and control. This procedure is
offered as a standard-of-care for treatment of patients with
advanced ovarian and gastrointestinal cancers.
In November 2000, we began a study with Wake Forest using
the ThermoChem-HT System and disposables to deliver
intraperitoneal hyperthermia in combination with surgery and
chemotherapy as a primary treatment of ovarian cancer. The study
will involve the use of hyperthermia as an adjunct to
chemotherapy following a hysterectomy and surgery to remove as
much of the cancer as possible, and the hyperthermia will be
repeated 6 months later during second-look surgery if the patient
has no residual disease.
MEDICAL ADVISORY BOARD
ViaCirQ has a medical and scientific advisory board that is
made up of these professionals. Advisory Board members do not
receive a fee for serving on the board, but are reimbursed for
expenses incurred. Brian Loggie, MD is under a separate
consultant agreement with ViaCirQ that has been approved by the
University of Texas Southwest to help expand the use of
intraperitoneal hyperthermia with the ThermoChem-HT System.
B. Loggie, M.D. Surgical Oncology; University of
Texas Southwestern
Intraperitoneal hyperthermia focus
S. Tomasovic, Ph.D. Tumor Biology; UT/M.D. Anderson
Cancer biology focus
R. Fleming, Ph.D. Pharmacology
Hematology/oncology focus
S. Ash, M.D. Internal Medicine; Nephrology;
St. Elizabeth Hospital
Extracorporeal blood therapy systems focus
C. Steinhart, M.D., Ph.D. Internal Medicine; Immunology; Mercy Hospital
HIV specialty
M. Yatvin, Ph.D. Radiation; Thermal Biology;
Oregon Health Sciences University (Retired)
HIV Specialty
In January 1998, ViaCirQ and HemoCleanse modified their
original license agreement whereby ViaCirQ would acquire the
manufacturing rights to the ThermoChem-HT System and related
disposables for use in regional hyperthermia.
The ThermoChem-HT System and ThermoChem-SB work together
to perform whole body hyperthermia with all commands originating
from the ThermoChem-HT System. In order for the ThermoChem-HT
System to be used in regional hyperthermia, the ThermoChem-HT
had to be reconfigured to operate independently of the
ThermoChem-SB System since blood chemistry balancing is not
necessary in regional hyperthermia.
ViaCirQ contracted with our Biocontrol Technology division,
to develop and manufacture the ThermoChem-HT System to operate
independently from the ThermoChem-SB System for regional
hyperthermia.
In March 1999, ViaCirQ entered into a license agreement with
Wake Forest University in which ViaCirQ licensed all proprietary
developments, data and information owned by Wake Forest relating
to a method of heated perfusion of chemotherapy drug in treatment
of intraperitoneal and other cancers.
In April 1999, a study was completed at Wake Forest
University School of Medicine utilizing the ThermoChem-HT System
for intraperitoneal hyperthermia in combination with surgery and
chemotherapy in patients with advanced ovarian and
gastrointestinal cancer.
We submitted the ThermoChem-HT to the FDA for clearance to
market.
In January 2000, HemoCleanse and ViaCirQ received FDA
clearance to market the ThermoChem-HT System and related
disposables, which are used to raise the core temperature of the
abdominal cavity to the desired temperature in the 41 C (105.8
F) to 42 C (107.6 F) range by continuously bathing the abdominal
cavity with circulating sterile solution.
ViaCirQ progressed during 1999 and 2000 from product
development and clinical trials to an operational company that
will market the ThermoChem-HT System and related disposables.
In February 2000, ViaCirQ formed a strategic and corporate
development alliance with Capital Management to position ViaCirQ
for growth, development and partnerships. Joseph Kozikowski,
M.D. is leading the ViaCirQ/Capital Management team strategies
for additional clinical trial designs, development plans for
expanded intended uses of the ThermoChem technology and
implementation of a quality system with a build-out of operating
infrastructure.
In April 2000, ViaCirQ formed an alliance with The Egan
Group to help develop an operating and marketing plan, establish
a sales and customer training program, assist in marketing
support and promotional materials for ThermoChem-HT System and
recruit a national vice president of sales to staff 10 product
specialists to launch the ThermoChem-HT System to targeted
regions across the United States in the first quarter of 2001.
In March 2001, ViaCirQ announced the introduction of the
ThermoChem-HT System at the 54th Annual Cancer Symposium
and Exhibition meeting of the Society of Surgical Oncology
Symposium in Washington, D.C. ViaCirQ also announced its
executive management team, which includes members of the
Egan Group as chief operating officer and vice president of
sales, along with a national sales manager.
In August 2000, ViaCirQ entered into a 3-year agreement with
North Carolina Baptist Hospitals to provide our ThermoChem-HT
System and disposables to Wake Forest University Baptist Medical
Center. In November 2000, ViaCirQ entered into a contract to
provide our ThermoChem-HT System and disposables to Zale Lipshy
University Hospital.
In June 2000, ViaCirQ amended the license agreement with
HemoCleanse whereby HemoCleanse granted ViaCirQ a limited,
exclusive worldwide, fully paid-up, irrevocable, perpetual
license limited to the relevant field of use in hyperthermia to
manufacture the ThermoChem-SB and SB treatment kits. All
patents and patent applications in whole body hyperthermia owned
by HemoCleanse were assigned to ViaCirQ, the consideration for
the above was 1,042,253 shares of HemoCleanse common stock.
Since 1994, we invested $2,460,065 in HemoCleanse stock. Of the
$2,460,065 invested in HemoCleanse common stock, approximately
$1,018,750 was invested in 1994; $1,310,822 in 1995; and $130,493
in 1998. These investments were considered speculative
throughout the term of the investment because HemoCleanse was
continually operating at a deficit due to its research and
development activities. Throughout those periods, HemoCleanse
incurred net losses, accumulated deficiencies in assets, and no
net tangible assets. Our management considered all HemoCleanse
funding to be research and development expenditures and did not
recognize any goodwill due to the absence of a proven technology.
Due to HemoCleanse's financial condition and the absence of a
fair market value for the HemoCleanse common stock, all amounts
invested in HemoCleanse were expensed when the investments were
made.
We spent approximately $15,625,073 on this project through
December 31, 2000. We have been funding this project since 1992
with money we raised selling our securities, including our stock
or convertible debentures.
Bioremediation
We are also involved in the field of biological remediation,
or bioremediation, development. Bioremediation technology uses
naturally occurring microorganisms or bacteria to convert various
types of contamination, like oil spills, to carbon dioxide and
water. The product, PRP, which stands for Petroleum Remediation
Product, is designed as an environmental microbial microcapsule,
which is used to collect, contain and separate oil-type products
in or from water. The product's purpose is to convert the
contaminant, with no leftover residue in need of disposal. When
the PRP comes in contact with the petroleum substances like oil
spills, the oil spills become bound or attached to the PRP, and
they stay afloat. Because the product contains the necessary
nutrients and microorganisms, the bioremediation process begins
immediately, which limits secondary contamination of the air or
surrounding wildlife. Eventually, the product will break down
both the petroleum and itself, leaving nothing but carbon dioxide
and water.
Part of Petrol Rem's initial research and development
involved field-testing supervised by the National Environmental
Technology Applications Corporation. That group, which is known
as NETAC, is endorsed by the Environmental Protection Agency to
determine whether products are effective. As a result of their
testing, NETAC reported positive results regarding the
effectiveness of the product.
PRP is now being manufactured and marketed for use in water
and on solid surfaces in the form of Petrol Rem's OIL BUSTER
product, which is used for small oil cleanups on hard surfaces
such as the floors of manufacturing facilities, garages and
machine shops, or as a container for heavy petroleum sludges.
The product is listed on the EPA's National Contingency Plan
Product Schedule, and is available in free-flowing powder or
absorbent socks. In 1995, the EPA required that all products
previously listed on the National Contingency Plan Product
Schedule be submitted to additional testing. Because PRP
successfully passed the test conducted by NETAC, the product was
requalified for listing on the EPA's product schedule. In
addition, PRP was one of only fourteen products listed after the
1996 Alternative Response Tool Evaluation System was implemented.
In April 1993, Petrol Rem entered into a lease for a
facility in the Pittsburgh, Pennsylvania area, which is used to
manufacture PRP. The current lease has a renewable three-year
term, with monthly rental payments of $4,661 plus utilities and
applicable business privilege taxes. Petrol Rem purchased
equipment, which has the capability to produce PRP in quantities
of 2,000 pounds per day, and has built an adequate inventory.
Petrol Rem also completed development of a new spray
applicator for its PRP product. The new applicator is a
lightweight, portable unit, which provides a more continuous flow
of product. The lighter weight and smaller size will allow
easier access to remote sites, which were impossible to reach
with the previous applicator.
In addition to PRP, Petrol Rem also developed other
products. In order to address water pollution issues at marinas,
Petrol Rem introduced the BIOSOK, which is PRP contained in a
10" fabric tube, and is designed and used to aid in the cleaning
of boat bilges. Bilges are commonly cleaned out with detergents
and other chemicals, which cause the oil pumped out of the bilge
to sink to the bottom of the water, where it is harmful to marine
life, and becomes difficult to collect. In addition, it is
illegal to dump oil or fuel into the water. The BIOSOK, when
placed in the bilge, absorbs and biodegrades the oil or fuel on
contact, which significantly reduces or eliminates the pollution;
then the product biodegrades itself. As a result, BIOSOK helps
to keep waters clear. In addition, BIOSOK helps eliminate the
chore of bilge cleanup, and helps users such as boaters and
marinas to avoid fines for pumping oil and fuel into the
waterways, which is prohibited. The U.S. Coast Guard is using
the BIOSOK in certain regions on their vessels and maintains a
sufficient supply to provide continuing availability.
Petrol Rem's BIOBOOM product is used in water clean-up
projects. The product is a 3" x 10' fabric tube which is filled
with PRP, and is used to both contain and biodegrade
contaminants in water. BIOBOOM is a superior product to most
containment products because, in addition to containing the oil
or fuel spill, or restricting the spread of an anticipated spill,
it also biodegrades the contaminant, and then biodegrades itself.
These features act to virtually eliminate secondary contaminants,
thereby reducing disposal and clean-up costs.
During 1998 and 1999, the majority of Petrol Rem's sales
were from the BIOSOK and BIOBOOM products. Sales were
approximately $45,000 in 1998 and declined to approximately
$27,000 in 1999. In 2000, we had sales of $217,722, which
included sales of our other products. The decline from 1998 to
1999 was due to several factors: Petrol Rem was unable to
effectively penetrate the market with products other than the
BIOSOK and BIOBOOM; due to cash flow problems in 1998, Petrol Rem
stopped funding its sales efforts and lost employees; and in
1999, Petrol Rem restructured its management, operations and
pricing structure - during that time, sales efforts slowed until
the new management and funding was in place. By the end of 1999,
Petrol Rem had its management and marketing team in place.
Effective August 2000, Petrol Rem entered into a national
marketing agreement with International Consultants, Inc., an
international marketing firm from Phoenix, Arizona. International
Consultants, Inc. has regional representation in 12 states in
addition to their home office in Phoenix. Part of Petrol Rem's
marketing strategy involved re-pricing its products. Petrol Rem
now markets the BIOSOK and BIOBOOM at wholesale prices ranging
from $11-$13, and $110-$130, respectively, depending on the
quantity purchased.
Petrol Rem is marketing PRP through trade shows, magazines,
direct mail advertising, and direct contacts with companies and
consultants specializing in petroleum clean-up, as well as
marketing directly to municipalities and corporations with needs
for the product.
During 1999, Petrol Rem focused efforts on the international
market, and entered into joint venture or distributorship
agreements for Chile, Brazil, Uruguay, Paraguay, Bolivia and
Indonesia. Although there can be no assurances that PRP will be
successfully marketed, we believe, based on their scientific
determinations, the results of recent NETAC testing, and the
favorable response at the retail level, that PRP will be a
viable product in the bioremediation marketplace. Petrol Rem
currently markets PRP at wholesale prices ranging from $14-$20
per pound, depending upon the quantity purchased.
During 2000, Petrol Rem acquired INTCO, a Louisiana company
that specializes in regional oil spill clean-ups, primarily on
the Gulf coast of southeast Louisiana. Petrol Rem's oil spill
clean-up products have been shipped to Louisiana warehouse sites,
where they are being used in clean up projects. In addition,
Petrol Rem formed a joint venture called Tireless, LLC, which was
formed to handle the environmental and business concerns arising
from scrap and discarded tires. Tireless expects to take delivery
of a portable tire shredder, which will allow Tireless to go
directly to the tire pile sites to coordinate shredding and
recycling. Petrol Rem also funded Practical Environmental
Solutions, a Pennsylvania company involved in the acquisition and
management of environmental companies. Petrol Rem made these
investments because they believe the two companies will help
Petrol Rem generate revenue.
We believe that we have spent all of the funds necessary to
complete the development of its bioremediation products, and to
build up sufficient inventory pending additional orders. We
expect that our expenses going forward will be for marketing and
sales. We spent approximately $13,863,409 on this project
through December 31, 2000. We have been funding this project
since 1992 with money we raised by selling our securities,
including our stock or convertible debentures.
Other Projects
Implantable Technology
In April 1996, we received FDA approval to market our
theraPORT Vascular Access System. The approval was granted in
response to our 510(k) Notification filed in January 1996. The
device is made up of a reservoir, which is implanted beneath the
skin in the chest region with a catheter inserted in a vein and
provides a delivery system for patients who require continual
injections. Because such repeated injections can cause veins to
shut down and collapse, the theraPORT offers an improved
delivery system by eliminating that trauma. If necessary to
accommodate multiple drug therapy with incompatible drugs, dual
ports can be implanted. Such devices are frequently used in
cancer drug therapy. We began selling the standard ports during
the second quarter of 1997. A second device with a low profile
was developed for pediatric use, and a 510(k) was submitted to
the FDA in November 1997 for marketing approval. In early
February 1998, we submitted a supplement to the FDA in response
to a request for additional information, and the FDA granted its
approval that same month. We are currently developing a dual
port device and plan to submit another 510(k) for that device;
however, our biomedical efforts continue to be focused on the
Diasensor, so it is impossible for us to estimate when that
submission might occur.
Through our subsidiary, Coraflex Inc., we are engaged in the
development of a polyurethane heart valve, which we believe may
not have the disadvantages of the mechanical and other synthetic
valves currently being marketed. The Coraflex valve, which
resembles the human heart's aortic valve, is made by means of a
proprietary manufacturing process. We believe that the
polyurethane we use to make our heart valve is stronger and more
resistant to fatigue compared to other valves. In vitro testing,
some of which has been performed through the Children's Hospital
of Pittsburgh, of the Coraflex valve to date has demonstrated
that our valve has superior fatigue resistance and flow
characteristics compared to other devices. We must conduct
additional development and testing before we can submit our valve
to the FDA to begin testing it on humans. We'll need additional
funding to do that, and we don't know when, or if, and FDA
submission or testing will occur.
We also developed technology for other implantable devices,
such as hemodialysis ports, implantable insulin dispensers and
rate-adaptive pacemakers. Because we decided to focus most of
our resources on the noninvasive glucose sensor, we haven't made
any real progress on these other projects, so they are all in
very preliminary stages of development
Functional Electrical Stimulator Project
We had to discontinue our functional electrical stimulator
project when we lost our contract with NeuroControl, the sole
purchaser. Functional electrical stimulators, known as FES, are
implanted under the skin of patients who are disabled as a result
of spinal cord injury, stroke, head injury or other neurological
disorder. The FES uses low levels of electrical stimulation to
activate nerves and muscles to assist the patient with grasping,
arm movement or standing. Because these products accounted for
the majority of our sales revenues in recent years, the loss of
the contract, and the end of the project, was significant.
However, we continue to work with the FES Center at Case Western
Reserve University on a new 16-channel device.
Metal-Plating Technology
When we acquired an interest in a metal-plating company, we
estimated that the product would generate revenue and profit. We
were wrong - the actual results were very different from our
original estimates. The project did not generate any revenue
during 1998 or 1999. Our early estimates were based upon our
assessment not only of the marketability of the product, but on
our ability to penetrate the metal finishing market using the
features of the product. Our actual experience shows that it is
much more difficult to exploit the existing market, regardless of
whether or not the product has superior features. As a result,
we had to adjust our marketing strategy. As a result, we can no
longer estimate whether we will ever receive any revenue or
profit from this technology, and we made the appropriate
adjustments to our financial statements to reduce the value of
this investment, which totaled $4.6 million - we funded that
investment through sales of our securities including our
debentures.
American Inter-Metallics
During 1999, we made our initial investment in American
Inter-Metallics, Inc. AIM has its operations in Rhode Island,
and is developing a product that enhances the performance of
propellants. AIM is developing specialized equipment and a
process for producing a product, which AIM believes will increase
the burn rates of current propellant formulas. AIM believes
that, by increasing the burn rate of propellants, its product
will improve the performance of rockets and other machinery.
During 2000, AIM completed its prototype and is now testing the
equipment. We invested $525,000 in AIM during 1999, and made
additional investments of $285,000 during 2000 for a total
investment of $810,000, or 16.2% of AIM. In 2001, we invested
an additional $110,000, which brought our ownership interest to
18.4%. If AIM continues to perform as promised, we may invest
additional funds during 2001, for a total maximum investment of
$1 million. If we invest the entire $1 million, using funds we
raised by selling our stock and debentures, we will own 20% of
AIM. AIM's product is in the research and development phase; we
can't give any assurances that it will be successful or
profitable.
Diabecore Medical, Inc.
During 2000, we, through Diasense, invested in Diabecore
Medical, Inc., a Canadian company that is conducting research and
working with other research institutions to develop a new type of
insulin to treat diabetes. In preliminary studies, this new
insulin has demonstrated effectiveness in controlling
hyperglycemia without risk of severe hypoglycemia. Laboratory
tests indicate that this new insulin, when administered in large
doses, extends the duration of insulin action for improved
control of glucose levels, rather than producing hypoglycemia.
Those tests also have shown the new insulin to be 3 to 4 times
less hypoglycemic when compared to presently available insulin.
William D. Lougheed and Kusiel Perlman, M.D. are developing
Diabecore's insulin with the support of the Research Institute of
the Hospital for Sick Children in Toronto, where insulin was
discovered, and the Loyal True Blue and Orange Research Institute
in Richmond Hill, Ontario. We invested a total of $693,520 in
Diabecore during 2000, and owned 20.8% as of December 31, 2000.
In January 2001, we invested an additional $146,755, which
increased Diasense's ownership to 24% of Diabecore. Through
Diasense, we have the option to invest a total of approximately
$1.6 million in Diabecore, for a total ownership of 35% of
Diabecore's stock.
MicroIslet, Inc.
During 2000, we, through Diasense, also invested in
MicroIslet, Inc. MicroIslet is a California company that is
developing several diabetes research technologies with Duke
University that focus on optimizing microencapsulated islets for
transplantation. The current research involves the use of
microencapsulated pancreatic cells, which are transplanted into
diabetic animals. The initial trial on a non-human primate
continues to provide very encouraging results. The diabetic
animal achieved and maintained normal glucose readings for over 8
months following the transplant. MicroIslet believes that there
are several benefits to using the microencapsulated islets for
transplants, rather than transplanting human pancreatic cells.
One benefit is the supply; the only source of human cells is from
deceased organ donors, and more than one donor is needed for each
transplant. In addition, human transplants involve a serious
course of immuno-suppression therapy so the human recipient does
not reject the transplanted cells. Dr. Emmanuel Opara, Ph.D. is
the director of islet transplantation research at Duke University
Medical Center, and he is heading up the research team. Dr.
Opara's team plans to replicate the testing on 3 more primates to
obtain additional data to support a planned request to the FDA to
conduct human trials. We invested a total of $1,000,000 in
MicroIslet during 2000, and owned 15% as of December 31, 2000.
In January 2001, we invested an additional $250,000 and increased
Diasense's ownership to 17.5% of MicroIslet. Through Diasense,
we plan to invest a total of approximately $1.5 million in
MicroIslet, and will own 20% of MicroIslet's stock.
All this information regarding our projects is in summary form,
and the status of each project is subject to constant change. We
can't assure that any of our projects will be completed or
successful.
RESEARCH AND DEVELOPMENT
We continue to be actively engaged in the research and
development of new products. Our major emphasis has been the
development of a noninvasive glucose sensor. In order to raise
funds for the research and development of new products, we sell
our stock and convertible securities.
MARKETING AND DISTRIBUTION
Petrol Rem began marketing of its bioremediation product,
PRP, in mid-1993, and is now sold in quality marine supply
stores in the coastal areas of the United States, Canada, Europe
and South East Asia.
ViaCirQ received FDA approval to market its ThermoChem-HT
System and related disposables used for regional cancer
treatment.
None of our current projects have generated any meaningful
sales or revenue.
PATENTS, TRADEMARKS AND LICENSES
We own patents on certain products and we file applications
to obtain patents on new inventions when practical.
Additionally, we try to obtain licenses from others when we think
it's necessary to conduct our business.
We rely on trade secret protection for our confidential and
proprietary information. Although we and our affiliates,
Diasense, ViaCirQ and Petrol Rem, take all reasonable steps to
protect such information, including the use of confidentiality
agreements and similar provisions, we can't assure that others
will not independently develop substantially equivalent
proprietary information or techniques, otherwise gain access to
our trade secrets, disclose such technology, or we can
meaningfully protect its trade secrets.
Noninvasive Glucose Sensor
Diasense owns a patent entitled "Non-Invasive Determination
of Glucose Concentration in Body of Patients" which covers
certain aspects of a process for measuring blood glucose levels
noninvasively. That patent was awarded to our research team in
December 1991 and was sold to Diasense under a purchase agreement
dated November 18, 1991. The patent will expire, if all
maintenance fees are paid, no earlier than the year 2008. If
clinical testing or regulatory review delays marketing of a
product made under the patent, we may be able to obtain an
extension of the term of the patent. The patent relates only to
noninvasive sensing of glucose but not to other blood
constituents. Diasense has filed corresponding patent
applications in a number of foreign countries.
We filed a second patent application in December 1992, which
was assigned to Diasense. This second patent contained new
claims, which extend the coverage based upon additional
discoveries and data obtained since the original patent was
filed. The patent application was amended in October 1993, and
was granted in January 1995.
In May 1993, our research teams filed four additional patent
applications related to the methods, measurement and noninvasive
determination of analyte concentrations in blood.
As of February 2001, a total of 13 patents have been issued,
all of which have been assigned to Diasense, and additional
patents are pending. Corresponding patent applications have
been filed in foreign countries where we anticipate marketing the
noninvasive glucose sensor.
Our research team continues to file patent applications,
provisional patent applications, some of which are being
converted into PCTs - Patent Cooperative Treaty - that reflect
the continued research and development and additional refinements
to the noninvasive glucose sensor.
Diasense or BICO may file applications in the United States
and other countries, as appropriate, for additional patents
directed to other features of the noninvasive glucose sensor and
related processes.
We know that competitors currently developing non-invasive
glucose sensors own patents directed to various devices and
processes related to the non-invasive monitoring of
concentrations of glucose and other blood constituents. It is
possible that those patents may require us to alter any model of
the noninvasive glucose sensor or the underlying processes
relating to the noninvasive glucose sensor, to obtain licenses,
or to cease certain activities.
Diasense also relies upon trade secret protection for
confidential and proprietary information. Although we, along
with Diasense, take all reasonable steps to protect such
information, including the use of confidentiality agreements and
similar provisions, there can be no assurance that others will
not independently develop substantially equivalent proprietary
information or techniques, otherwise gain access to our trade
secrets, disclose such technology, or that we can meaningfully
protect our trade secrets.
Diasense has registered the trademark "Diasensor ", which is
intended for use in connection with the Diasensor models.
Diasense intends to apply, at the appropriate time, for
registrations of other trademarks as to any future products.
Extracorporeal Hyperthermia
In September 1992, a research team funded by us applied for
a domestic patent in connection with the use of perfusion-induced
extracorporeal hyperthermia and the treatment of HIV-positive
patients; the patent has been assigned to ViaCirQ. In October
1994, ViaCirQ received notification that the patent application
for its specialized method for whole-body hyperthermia has been
issued.
The patent entitled "Specialized Perfusion Protocol for
Whole-Body Hyperthermia" contains seventeen claims for the
hyperthermia procedure, including the method of heating all of
the blood in the extracorporeal blood circuit to raise the
patient's core temperature to approximately 42 degrees
centigrade. A continuation in part, which was filed by ViaCirQ
and included the ThermoChem System, was allowed in July 1995 and
was issued in December 1995.
In May 1999 and early 2000, ViaCirQ filed provisional
patents for its use of the ThermoChem-HT System and related
disposables, and for use of the device for regional hyperthermia
procedures.
In June 2000, HemoCleanse assigned all patents and patent
applications to ViaCirQ relating to the ThermoChem technology in
hyperthermia. One of those patents was issued in December 2000,
and another was allowed in January 2001.
Implantable Technology
During 1995, we renewed our U.S. trademark registration for
the name Coraflex, which was originally granted in 1988. We
also obtained trademark registration for the name theraPORT.
In October 1996, we obtained a patent for our heart valve
product.
Bioremediation
In 1992 and 1993, Petrol Rem applied for patents in
connection with its bioremediation product, all of which are
still pending. Petrol Rem received trademark authorization for
the use of the product names PRP, BIO-SOK, BIO-BOOM, and Oil
Buster.
WARRANTIES AND PRODUCT LIABILITY
Our current product liability insurance coverage is
$1,000,000 in the aggregate, and we believe that's sufficient due
to our discontinuance of sales of certain products, including our
former pacemaker line and our functional electrical stimulators,
as well as our potential exposure to liability.
SOURCE OF SUPPLY
In connection with the manufacture the noninvasive glucose
sensor and the ThermoChem System, we will be dependent upon
suppliers for some of the components required to manufacture the
device. We plan to assemble the devices, but will need to
purchase components, including some components that will be
custom made for us by certain suppliers. These components will
not be generally available, and we may become dependent upon
those suppliers, which do provide such specialized products.
If we successfully develop other new products, and receive
regulatory approvals to manufacture such products, we may become
dependent on certain suppliers for custom parts.
COMPETITION
Noninvasive Glucose Sensor
With the rapid progress of medical technology, and in spite
of continuing research and development programs, our
developmental products are always subject to the risk of
obsolescence if some other company introduces a better product or
technique. We are aware that other research groups are
developing noninvasive glucose sensors, but we have limited
knowledge about the actual technology or the stage of development
for most of our competitors. There is a risk that some other
group will complete the development of their devices before we
do. There is no other company currently producing or marketing
noninvasive sensors for the measurement of blood glucose similar
to ours. Competitive success in the medical device field is
dependent upon product characteristics including performance,
reliability, and design innovations.
Our noninvasive glucose sensor will compete with existing
invasive glucose sensors. Although we believe that the features
of our noninvasive glucose sensor, particularly its convenience
and the fact that no blood samples are required, will compete
favorably with existing invasive glucose sensors, we can't assure
that it will succeed. Most currently available invasive glucose
sensors yield accuracy levels of plus or minus 25% to 30%, range
in price from $80 to $200, not including monthly costs for
disposable supplies and accessories, and are produced and
marketed by eight to ten sizable companies. Those companies
include Bayer, Inc., Boehringer Mannheim Diagnostics, and
Lifescan, an affiliate of Johnson & Johnson.
Those companies have established marketing and sales forces,
and represent established entities in the industry. Certain
competitors, including their corporate or joint venture partners
or affiliates, currently marketing invasive glucose sensors have
substantially greater financial, technical, marketing and other
resources and expertise than we do, and may have other
competitive advantages over us, based on any one or more
competitive factors such as accuracy, convenience, features,
price or brand loyalty. Additionally, competitors marketing
existing invasive glucose sensors may from time to time improve
or refine their products, or otherwise make them more price
competitive, so as to enhance their marketing competitiveness
over our noninvasive glucose sensor. As a result, we can't make
any guarantees that our sensor will be able to compete
successfully.
We face more direct competition from other companies who are
currently researching and developing noninvasive glucose sensors.
We have very limited knowledge as to the stage of development of
these other devices; however, if another company successfully
develops a noninvasive glucose sensor, obtains FDA approval, and
reaches the market before we do, we would suffer.
Among the other companies investigating infrared technology
to measure blood glucose levels noninvasively is CME Telemetrix
in Waterloo, Ontario, Canada. CME is reportedly conducting tests
with a desktop monitor that uses one type of infrared
wavelengths. OptiScan Biomedical in Alameda, California is
developing a device that uses another type of infrared
wavelengths. Rio Grande Medical Technologies of Albuquerque, New
Mexico is designing a photo-based device. Rio Grande is
currently funded by Johnson & Johnson.
Other companies claim that they are designing systems that
are semi-invasive. SpectRx in Norcross, Georgia is using a laser
to create small holes in the skin without the invasive
penetration of a metal needle or lancet. The device, called the
Accu-Chek D-Tector, then gives a glucose reading from the fluid
collected from the holes in the skin. SpectRx has partnered with
Roche Diagnostics, and reported in November 2000 that they had
received expedited review status from the FDA for a three-module
pre-market approval filing for their diabetes detection device;
we don't know whether they've filed any modules or how the FDA
has responded, but we believe their clinical trials are
continuing. Cell Robotics International, Inc. in Albuquerque,
New Mexico is also using a laser device that pierces the skin.
Called the Lasette, a laser makes a small hole in the fingertip
to draw blood for glucose testing. A continuous glucose
monitoring system from MiniMed, Inc. in Sylmar, California
received FDA approval in June 1999. The device includes a tube
with a small sensor at its tip that is inserted through the skin,
sending readings via a small wire to a sensor. A new sensor must
be reinserted under the skin every two to three days.
Cygnus of Redwood, California recently underwent an FDA
panel review for its GlucoWatch that draws fluid through the skin
through an electric needle. The fluid triggers a reaction in a
disposable pad. Although Cygnus claims that its device is
noninvasive, the fact remains that, in addition to the use of
electrical charges to draw fluid through the skin, each person
must use finger prick technology every day to set and use the
device. The FDA approved the device in March 2001. We were
interested to learn that the FDA panel accepted Cygnus' use of the
same error grid data analysis - a specific method for displaying
data - which the FDA rejected when we used it for our own panel review.
Certain organizations are also researching and developing
technologies that may regulate the use or production of insulin
or otherwise affect or cure the underlying causes of diabetes.
We are not aware of any new or anticipated technology that would
effectively render our noninvasive glucose sensor obsolete or
otherwise not marketable. However, future technological
developments or products could make our noninvasive glucose
sensor significantly less competitive or, in the case of the
discovery of a cure for diabetes, even obsolete.
Bioremediation
Although our bioremediation products compete with other oil-
spill clean-up products, there is no direct competition for the
type of product we produce. The EPA recently created a separate
category for its NCP listing, for enzyme additives, and PRP is
the only product listed in that category.
GOVERNMENT REGULATIONS
Since most of our products are medical devices as defined by
the Federal Food, Drug and Cosmetic Act, as amended, they are
subject to the regulatory authority of the FDA. The FDA
regulates the testing, marketing and registration of new medical
devices, in addition to regulating manufacturing practices,
labeling and record keeping procedures. The FDA can inspect our
facilities and operations and may also audit our record keeping
procedures at any time. The FDA's Quality System Regulation
specifies various requirements for our manufacturing processes
and the way we must maintain certain records.
In 1997, Congress passed legislation that addresses the
regulation of pharmaceutical and medical devices. Although the
impact of the FDA Administration Modernization Act of 1997 was
expected to reduce the quantity of information a company must
submit for approval of devices that has not been our experience.
Noninvasive Glucose Sensor
Because the FDA regulates our noninvasive glucose sensor, we
have to meet all FDA requirements before we can market and sell
our device in the United States. These requirements include
clinical testing, which must be supervised by the chosen
hospitals. During 1999, the FDA recommended we file a Pre-Market
Application and conduct an additional clinical study. We are in
the process of submitting a modular PMA, which allows us to
submit parts of the submission to the FDA over a period of time.
This modular PMA is a new method of submitting information to the
FDA, and resulted from the passage of FDA legislation in 1997.
We have submitted the first two parts of the PMA and we began our
clinical trials in October 2000, after the FDA approved our
submission that included the testing protocol.
We don't know how long it will take for the FDA to accept
our filings or approve our device, if ever.
In June of 1998, the FDA instituted a new Quality System
Regulation that took the place of Good Manufacturing Practices.
These regulations align closely with similar guidelines required
by the European Union and have added control of the design
process as well as the manufacturing process.
There are different requirements for selling our device in
Europe. On January 14, 1998, we received certification to ISO
9001, and on June 23, 1998, we received the CE mark. The CE mark
and the ISO certification are provided by the regulatory bodies
or other approved companies of the European Union. The CE mark
indicates that the device adheres to quality systems guidelines.
Rigorous audits were conducted at our Indiana, Pennsylvania
facility to certify that our development and manufacturing
procedures, as well as the Diasensor 1000 itself met the
international standards laid down by Europe's medical device
directive. In order to maintain our approval to ship the device
into the European Union, we must be vigilant in our adherence to
our quality system. We will also be subject to annual audits to
be sure that we continue to meet the required standards.
Any changes in FDA or European procedures or requirements
will require corresponding changes in our obligations in order to
maintain compliance with those standards. Those changes may
result in additional delays or increased expenses. Depending on
which other countries we target, our products may also be subject
to additional foreign regulatory approval before we can sell our
devices.
Extracorporeal Hyperthermia
In January 2000, HemoCleanse and ViaCirQ received FDA
approval to market the ThermoChem-HT System and related
disposables, which are used to raise the core temperature of the
abdominal cavity to the desired temperature in the 41 C (105.8 F)
to 42 C (107.6 F) range by continuously bathing the abdominal
cavity with circulating sterile solution. In addition, in
February 2000, the FDA approved continued clinical trials at the
University of Texas Medical Branch using the ThermoChem
technology in whole-body hyperthermia to treat patients with
certain types of end-stage lung cancer.
Bioremediation
The EPA and the Pennsylvania Department of Environmental
Resources regulate our bioremediation products. In addition,
each state in which the bioremediation products are used has its
own environmental regulations. Regional response teams
consisting of representatives from the National Oceanic and
Atmospheric Administration, the U.S. Coast Guard and the EPA
govern our oil spill clean-up products.
Human Resources
As of December 31, 2000, we had 109 full-time employees who
were located primarily in either our Indiana or Pittsburgh
locations. In addition, ViaCirQ had six employees; Diasense had
one employee; and Petrol Rem had eleven employees as of December
31, 2000.
We have employment contracts with some of our non-officer
employees, most of whom are scientists and engineers employed in
our research and development operations. Those contracts are
typically for terms of five years and contain confidentiality
provisions. We also employ consultants as needed; some of the
consultants are employed based on consulting contracts, which
contain confidentiality provisions.
Financial Information About Foreign and Domestic Operations and
Export Sales
Our operations are located primarily in the United States of
America. In 1994, we incorporated a majority-owned foreign
subsidiary, Diasense U.K. Limited, in order to facilitate the
opening of our office in London, England. Although we have
taken some orders from our distributor in the U.K. and have
delivered devices for patient use, we have had no material sales,
foreign or domestic, since our inception. We are in the process
of applying to receive approval to market our device in Canada.
PROPERTY
Due to cash flow problems, Diasense sold its office
condominium in 1999, and they now lease the same space for
administrative offices. We, along with our subsidiaries, continue
to lease a portion of that office at a monthly rental amount of
$5,175 plus one-half of the utilities.
Prior to 1999, our research and development operations were
located in a 20,000 square foot one-story building at 300 Indian
Springs Road, Indiana, PA. We leased that building from the 300
Indian Springs Road Real Estate Partnership, which was owned in
part by some of our current and former officers and directors.
Of the eight members of the partnership, two are currently
officers or directors - Fred E. Cooper and Glenn Keeling. Each
member of the partnership personally guaranteed the payment of
lease obligations to the bank providing the funding, and in
return received warrants to buy 100,000 shares of our stock at
$.33 per share. In addition to rent, we paid all taxes,
utilities, insurance, and other expenses related to our
operations at that location. In 1999, after all our Indiana, PA
operations were moved out of 300 Indian Springs Road location to
Kolter Drive, the property was put up for sale. The property was
sold in October 2000 for $475,000, and each of the partners
received $12,698, after the mortgage was paid.
In September 1992, we entered into a ten-year lease
agreement with the Indiana County Board of Commissioners for
35,000 square feet of space on Kolter Drive that we reconfigured
to our manufacturing specifications. During 1998 and 1999, we
moved the balance of our Indiana, Pennsylvania operations to this
space. During 2000, we obtained an additional 33,000 square
feet of manufacturing space, which is being completed for
manufacturing. That space, which was originally obtained in
1995, was vacated in 1998 in return for the lessor's agreement
not to pursue legal action against us for nonpayment of rent. In
2000, we settled all the pending legal issues with the lessor
when we reacquired the space. This facility contains sufficient
additional space to accommodate our projected Indiana operations
through 2001.
As of February 2001, Diasense has an office in London,
England for the purpose of taking orders for the Diasensor 1000.
We believe that our existing facilities will be sufficient
to meet our needs through 2001. If we require additional space,
we believe such space will be available at reasonable commercial
rates.
LEGAL PROCEEDINGS
In May 1996, we, along with Diasense and our current and
former individual directors, including David Purdy, Fred Cooper,
and Anthony J. Feola, who are also current and former Diasense
officers and directors, were served with a federal class action
lawsuit based on alleged misrepresentations and violations of
federal securities laws. In 2000, even though we don't believe
any violations of the securities laws occurred, we agreed to
settle the lawsuit. The parties reached a settlement, and we
have paid an aggregate of $2,150,000 toward the settlement to
date. An additional $1,300,000 is due in July 2001. Although we
don't know whether the class action plaintiffs have been formally
notified of the settlement, or if they have accepted its terms,
we believe the existing settlement agreement will end this
matter.
In April 1998, we, along with our corporate affiliates, were
served with subpoenas requesting documents in connection with an
investigation by the U.S. Attorneys' office for the U.S. District
Court for the Western District of Pennsylvania. We continue to
submit various scientific, financial and contractual documents in
response to their requests.
In April 1996, the Pennsylvania Securities Commission
commenced a private investigation into sales of Diasense common
stock in a public offering in an effort to determine whether any
sales were made improperly to Pennsylvania residents. We
cooperated fully with the state and provided all of the
information requested. As of the date of this filing, no
determinations had been made, and no orders have been issued.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of March
2001 were as follows:
Name Age Director Position
Since
Fred E. Cooper 54 1989 Chief Executive Officer,
Executive Vice President,
Director
Anthony J. Feola 52 1990 Senior Vice President,
Director
Michael P. Thompson 50 Chief Financial Officer
Glenn Keeling 49 1991 Vice President, Director
Stan Cottrell 57 1998 Director
Paul W. Stagg 53 1998 Director
FRED E. COOPER, 54, is our chief executive officer, executive
vice president and a director; he devotes approximately 60% of
his time to BICO, and 40% to Diasense. Prior to joining us, Mr.
Cooper co-founded Equitable Financial Management, Inc. of
Pittsburgh, PA, where he was the executive vice president until
he left in August 1990. Our board of directors appointed him
chief executive officer in January 1990. He is also an officer
and director of Diasense and a director of Petrol Rem and
Coraflex.
ANTHONY J. FEOLA, 52, rejoined BICO as our senior vice president
in April 1994, after serving as Diasense's vice president of
marketing and sales from January 1992 until April 1994. Prior to
January 1992, he was our vice president of marketing and sales.
Prior to joining us in November 1989, Mr. Feola was vice
president and chief operating officer with Gateway Broadcasting
in Pittsburgh in 1989, and national sales manager for
Westinghouse Corporation, also in Pittsburgh, from 1980 until
1989. He was elected a director in February 1990, and also
serves as a director of Diasense, Coraflex, and Petrol Rem.
MICHAEL P. THOMPSON, 50, joined BICO as our interim chief
financial officer in August 2000, and was elected our chief
financial officer by our board of directors in January 2001.
Prior to joining us, he was a partner in Thompson Dugan, P.C.,
the CPA firm that served as our outside auditors until August,
when Mr. Thompson joined us as interim CFO. He has been a CPA
for over 25 years.
GLENN KEELING, 49, joined our board of directors in April 1991.
Mr. Keeling currently is BICO's vice president of marketing and
ViaCirQ's president and chief executive officer. He devotes 50%
of his time to BICO and 50% to ViaCirQ. From 1976 through 1991,
he was a vice president in charge of new business development at
Equitable Financial Management, Inc., a regional equipment lessor.
His responsibilities included initial contacts with banks and
investment firms to open new lines of business referrals in
connection with financing large equipment transactions. He is also
president and a director of ViaCirQ.
STAN COTTRELL, 57, was appointed to our board of directors in
1998. Mr. Cottrell is the chairman and founder of Cottrell
Associates International, Inc., which provides international
business development, brokerage, specialty marketing and
promotional services. He is a former director of marketing for
Inhalation Therapy Services and was employed by Boehringer
Ingelheim, Ltd. as a national product manager. Mr. Cottrell is a
world ultra-distance runner and the author of several books.
PAUL W. STAGG, 53, was appointed to our board of directors in
1998. Mr. Stagg is the owner of P.C. Stagg, LLC. Prior to his
current position, he was the marketing manager for the Wholesale
Division of First Financial Resources, Inc., where he was
responsible for marketing, underwriting, sorting and coordination
various types of financing for institutional investors. Prior to
his current position, he was district distributor of marketing
for Ginger Mae, a division of United Companies of Baton Rouge,
LA.
Item 405 of Regulation S-K requires us to make disclosures
regarding timely filings required by Section 16(a) of the
Securities and Exchange Act. Based solely on our review of
copies of forms received and written representations from certain
reporting persons, we believe that all of our officers, directors
and greater than ten percent beneficial owners complied with
applicable filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We share common officers and directors with our
subsidiaries. In addition, BICO and Diasense have entered into
several intercompany agreements including a purchase agreement, a
research and development agreement and a manufacturing agreement,
which we describe later in this section. Our management believes
that it was in our the best interest to enter into those
agreements and that the transactions were based upon terms as
fair as those which may have been available in comparable
transactions with third parties. However, we did not hire any
unaffiliated third party to determine independently the fairness
of those transactions. Our policy concerning related party
transactions requires the approval of a majority of the
disinterested directors of both the corporations involved, if
applicable.
Employment Relationships
Our board of directors approved employment agreements on
November 1, 1994 for its officers, David L. Purdy, Fred E.
Cooper, Anthony J. Feola and Glenn Keeling, and approved an
employment agreement for Michael P. Thompson in August 2000. We
discuss those agreements in the executive compensation section.
David L. Purdy, the president, treasurer and a director of
BICO until June 2000, was a director of Diasense, and the
chairman and chief scientist of Diasense. In June 2000, he
resigned his positions with BICO in order to head up our
Biocontrol Technology division and devote all of his efforts to
our noninvasive glucose sensor project. In November 2000 he
resigned from his other positions with BICO and Diasense
effective February 2001. Fred E. Cooper, chief executive
officer, executive vice president and a director, is a director
of Diasense, and Petrol Rem. He is also the president of
Diasense. Mr. Cooper devotes approximately 60% of his time to
BICO and 40% to Diasense. Anthony J. Feola, senior vice president
and a director, is also a director of Diasense, and Petrol Rem.
Glenn Keeling is a vice president and a director. Mr. Keeling
is also the president and a director of ViaCirQ, formerly IDT.
Michael P. Thompson is our new chief financial officer. He is
also the chief financial officer for Diasense, and Petrol Rem,
and a director of ViaCirQ.
Property
Two of our current executive officers and/or directors and
three former directors are members of the nine-member 300 Indian
Springs Road Real Estate Partnership that in July 1990 purchased
our real estate in Indiana, Pennsylvania. Each member of the
partnership personally guaranteed the payment of lease
obligations to the bank providing the funding. The five members
of the partnership who are also current or former officers and/or
directors of BICO, David L. Purdy, Fred E. Cooper, Glenn Keeling,
Jack H. Onorato and C. Terry Adkins, each received warrants on
June 29, 1990 to purchase 100,000 shares of our common stock at
an exercise price of $.33 per share until June 29, 1995. Those
warrants still outstanding as of the original expiration date
were extended until June 29, 2001. 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.
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
This section discusses the warrants we granted to our
executive officers and directors from 1998 through 2000. We
recognize warrants granted based upon the minimum value method.
Under this method, the warrants are valued by comparing the
current market price of our common stock to the present value of
the warrants' exercise price. Our policy is to set exercise
prices for our warrants that is equal to or above the current
quoted market price of our stock on the date issued.
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 senior vice president and a director; 2,000,000 to Glenn
Keeling, our vice president and a director; 4,000,000 to David L.
Purdy, our chairman and a director; 250,000 to Stan Cottrell, our
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 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, one of our directors.
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 January 31,
2001 was $710,864. Our board of directors - with Mr. Cooper
abstaining - approved these loans because 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. We believe that if Mr.
Cooper had been forced to sell his 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 addition, Mr.
Cooper owns 30% of a corporation called B-A-Champ.com, an
Internet company. During 1999 and 2000, we loaned B-A-Champ.com
an aggregate of $55,256 at 6% interest. In 2000, we converted
that outstanding loan to common stock and invested an additional
$400,000, - we now own 4,789,291 shares of stock, resulting in
BICO's total ownership of 51% ownership of B-A-Champ.com. The
business purpose of the loan and the conversion was that we
received an equity interest in that company, which expects to
generate revenues.
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
January 31, 2001 was $219,758. Our board of directors approved
these loans - with Mr. Feola abstaining - because they were for
a good business purpose. The business purpose was to refinance
loans secured by BICO stock, so the stock wouldn't have to be
sold. We believe that if Mr. Feola had been forced to sell his
stock, and to disclose the sale, it would have hurt our stock
price because many people view insider stock sales as a negative
message.
In 1999, we consolidated all of Glenn Keeling's outstanding
loans from us, including accrued interest, into one loan in the
amount of $296,358.07 at 8% interest. Mr. Keeling began repaying
the loans in May of 1999. The loan balance as of January 31,
2001 was $235,804. Our board of directors approved these loans
- with Mr. Keeling abstaining - because they were for a good
business purpose. The business purpose was to refinance loans
secured by BICO stock, so the stock wouldn't have to be sold. We
believe that if Mr. Keeling had been forced to sell his stock,
and to disclose the sale, it would have hurt our stock price
because many people view insider stock sales as a negative
message.
In September 1995, we granted a loan in the amount of
$250,000 to Allegheny Food Services in the form of a one-year
renewable note bearing interest at prime rate as reported by the
Wall Street Journal plus 1%. Interest and principal payments
have been made on the note, and as of January 31, 2001, the
balance was $77,723. 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, is a principal
owner of Allegheny Food Services. The franchise generates
revenue, which is why we made the investment - until our products
begin to generate significant revenues; we investigate other ways
to generate revenue to fund our operations. We have not
exercised the option, which has an exercise price of $200,000,
but it remains valid until 2005.
All future loans to officers, directors and their affiliates
will also be made only after board approval, and for good
business purposes.
Intercompany Agreements
Our management believes that the agreements between BICO and
Diasense, which are summarized below, were based upon terms,
which were as favorable as those that may have been available in
comparable transactions with third parties. However, we did not
retain any unaffiliated third party to determine independently
the fairness of such transactions.
License and Marketing Agreement. Diasense acquired the exclusive
marketing rights for the noninvasive glucose sensor and related
products and services from BICO in August 1989 in exchange for
8,000,000 shares of Diasense's common stock. That agreement was
canceled through a cancellation agreement dated November 18,
1991, and superseded by a purchase agreement dated November 18,
1991. The cancellation agreement provides that BICO will retain
the 8,000,000 shares of Diasense common stock, which BICO
received under the license and marketing agreement.
Purchase agreement. BICO and Diasense entered into a purchase
agreement dated November 18, 1991 whereby BICO gave Diasense its
entire right, title and interest in the noninvasive glucose
sensor and its development, including its extensive knowledge,
technology and proprietary information. Those transfers included
BICO's patent received in December 1991.
In consideration of the conveyance of its entire right in
the noninvasive glucose sensor and its development, BICO received
$2,000,000. In addition, Diasense may try, at its own expense,
to obtain patents on other inventions relating to the noninvasive
glucose sensor. Diasense also guaranteed BICO the right to use
that patented technology in the development of BICO's proposed
implantable closed-loop system, a related system in the early
stages of development.
In December 1992, BICO and Diasense executed an amendment to
the purchase agreement, which clarified terms of the purchase
agreement. The amendment defines sensors to include all devices
for the noninvasive detection of analytes in mammals or in other
biological materials. In addition, the amendment provides for a
royalty to be paid to Diasense in connection with any sales by
BICO of its proposed closed-loop system.
Research and Development Agreement. Diasense and BICO entered
into an agreement dated January 20, 1992 in connection with the
research and development of the noninvasive glucose sensor.
Under the agreement, BICO will continue the development of the
noninvasive glucose sensor, including the fabrication of
prototypes, the performance of clinical trials, and the
submission to the FDA of all necessary applications in order to
obtain market approval for the noninvasive glucose sensor. BICO
will also manufacture the models of the noninvasive glucose
sensor to be delivered to Diasense for sale under the terms of a
manufacturing agreement. Upon the delivery of the completed
models, the research and development phase of the noninvasive
glucose sensor will be deemed complete.
Diasense agreed to pay BICO $100,000 per month for indirect
costs beginning April 1, 1992, during the 15 year term of the
agreement, plus all direct costs, including labor. BICO also
received a first right of refusal for any program undertaken to
develop, refine or improve the noninvasive glucose sensor, and
for the development of other related products. In July 1995,
BICO and Diasense agreed to suspend billings, accruals of amounts
due and payments under to the research and development agreement
pending the FDA's review.
Manufacturing Agreement. BICO and Diasense entered into an
agreement dated January 20, 1992, whereby BICO will act as the
exclusive manufacturer of the noninvasive glucose sensor and
other related products. Diasense will provide BICO with purchase
orders for the products and will endeavor to provide projections
of future quantities needed. The original manufacturing
agreement called for the products to be manufactured and sold at
a price to be determined in accordance with the following
formula: Cost of Goods, including actual or 275% of overhead,
whichever is lower, plus a fee of 30% of cost of goods. In July
1994, the formula was amended to be as follows: costs of goods
sold was defined as BICO's aggregate cost of materials, labor and
associated manufacturing overhead + a fee equal to one third of
the difference between the cost of goods sold and Diasense's
sales price of each sensor. Diasense's sales price of each
sensor is defined as the price paid by any purchaser, whether
retail or wholesale, directly to Diasense for each sensor.
Subject to certain restrictions, BICO may assign its
manufacturing rights to a subcontractor with Diasense's written
approval. The term of the agreement is fifteen years.
EXECUTIVE COMPENSATION
The following table contains information on our executive
officer's annual and long-term compensation for their services to
us in all capacities for the years ended December 31, 2000, 1999
and 1998. The executive officers included are those people who,
as of December 31, 2000, were: our chief executive officer, and
our other most highly compensated executive officers who were
paid more than $100,000. In addition, we included information
regarding David L. Purdy, who was an executive officer and
director until June 2000, and the president of our Biocontrol
Technology division during 2000. In November 2000, Mr. Purdy
resigned effective February 2001.
SUMMARY COMPENSATION TABLE
==============================================================================
Annual Compensation | (1)Long Term Compensation
------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal Bonus($) Other | Underlying (4) All other
Position Year Salary($) (2) ($)(3) | Warrants(#) Compensation
==============================================================================
David L. |
Purdy (5) 2000 $646,795 $200,000(6) $0 | * $0
1999 $450,000 $0 $0 | 4,000,000(4) $0
1998 $166,802 $0 $0 | 0 $0
------------------------------------------------------------------------------
Fred E. 2000 $939,000 $383,746(8) $0 | * $0
Cooper, 1999 $821,242 $200,000 $0 | 4,000,000(4) $0
CEO (7) 1998 $556,173 $0 $0 | 0 $0
------------------------------------------------------------------------------
Anthony J. 2000 $633,850 $268,190(10) $0 | * $0
Feola , Sr. 1999 $500,886 $0 $0 | 2,000,000(4) $0
Vice Pres.(9) 1998 $326,912 $0 $0 | 0 $0
------------------------------------------------------------------------------
Glenn 2000 $500,000 $93,190(12) $0 | * $0
Keeling, VP 1999 $302,083 $0 $0 | 2,000,000(4) $0
(11) 1998 $180,003 $0 $0 | 0 $0
------------------------------------------------------------------------------
Michael P. 2000 $103,243 $0 $0 | 1,000,000(4) $0
Thompson,
Chief Financial
Officer (13)
(1) We do not currently have a Long-Term Incentive Plan, and no
payouts were made under to any LTIP during the years 2000,
1999 or 1998. We issued warrants during 1999 and 2000,
which we also discuss in Note 3. 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, 2000, 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) 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 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. In 1998, he was paid $66,802 by BICO
and $100,000 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 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. In 1998,
in addition to his BICO salary of $250,000, Diasense paid
him $150,000 and Petrol Rem and IDT, which is now ViaCirQ,
paid him $96,000. 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 and ViaCirQ 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 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, $93,190, using the stock price on the date of the
bonus, even though he hasn't sold the stock.
(11) We pay Mr. Keeling based on his employment agreement. In
2000, 50% of his salary was allocated to ViaCirQ. In 1999,
87% of his salary was allocated to IDT, now ViaCirQ, based
upon the time he devoted to its operations.
(12) In 2000, we gave Mr. Keeling a stock bonus of 500,000 shares
of our common stock. We determined the value of his stock
bonus using the stock price on the date of the bonus, even
though he hasn't sold the stock.
(13) Mr. Thompson was appointed our interim chief financial
officer when he joined us in August 2000. We pay him based
on his employment agreement.
Option/Warrant/SAR Grants in Last Fiscal Year
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL GRANTS (1) PRICE APPRECIATION
FOR
OPTION TERM (3)
Number of Percent of
Securities of Total
Underlying Options/SAR's Exercise
Options/ Granted to or Expiration
SAR's Employees in Base Date 5%($) 10%($) 0%($)
Name Granted Fiscal Year Price
(#) (2) ($/Sh)
Michael P.
Thompson 1,000,000 100% $0.125 8/28/05 $159,000 $201,000 $0
(1) The warrants in this table were granted during 2000. The
warrants granted the executive officer the right to purchase
the number of shares of common stock shown in the table at a
price of $0.125 per share for five years.
(2) For purposes of calculating this percentage, the total number
of warrants granted to employees during 2000 was 1,000,000.
(3) Potential realizable values reflect the difference between
the warrant exercise price at the end of 2000 and the fair
value of our common stock price from the date of the grant
until the expiration of the warrant. The 5% and 10%
appreciation rates, compounded annually, are assumed under to
the rules adopted by the SEC and do not reflect actual
historical or projected rates of appreciation of our common
stock. Assuming such appreciation, the following illustrates
the per share value on the dates set forth, which are the
expiration dates for the warrants, assuming the values set
forth, which are the closing bid price on the date of the
grant as reported by the electronic bulletin board:
STOCK PRICE ON EXPIRATION
DATE OF GRANT DATE 5% 10%
08/28/00:$0.125 08/28/05 $0.159 $0.201
The foregoing values do not reflect appreciation actually
realized by executive officers. For more information on the
warrants, review the next table.
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at
Shares at 12/31/00 ($)
Acquired 12/31/00 (#)
Name On Value Exercisable/ Exercisable/
Exercise Realized Unexerciseable Unexercisable
(#) (1) ($)(2) (3) (4)
David L. 0 $ 0 3,767,200 $ 0
Purdy (5) (10)
Fred E. 0 $ 0 4,300,000 $ 0
Cooper (6) (10)
Anthony 0 $ 0 2,550,000 $ 0
J. Feola (7) (10)
Glenn 0 $ 0 2,100,000 $ 0
Keeling (8) (10)
Michael P. 0 $ 0 1,000,000 $ 0
Thompson (9) (10)
__________________
(1) This figure represents the number of shares of common stock
acquired by each executive officer upon the exercise of
warrants. None of the executive officers exercised warrants
during 2000.
(2) The value realized of the warrants exercised is computed by
determining the difference between the market value of our
common stock on the exercise date minus the exercise price of
the warrant.
(3) All warrants held by the executive officers are currently
exercisable.
(4) The value of unexercised warrants was computed by subtracting
the exercise price of the outstanding warrants from the
closing sales price of our common stock on the last trading
day of December 2000 as reported by the electronic bulletin
board, which was $.049.
(5) Includes warrants to purchase: 187,200 shares of common
stock at $.25 per share until April 24, 2001; 500,000 shares
of common stock at $.25 per share until May 1, 2001; 80,000
shares of common stock at $.33 per share until June 29, 2003;
and 3,000,000 shares of common stock at $.129 per share until
April 28, 2004.
(6) Includes warrants to purchase: 300,000 shares of common stock
at $.25 per share until May 1, 2001; and 4,000,000 shares of
common stock at $.129 per share until April 28, 2004.
(7) Includes warrants to purchase: 100,000 shares of common
stock at $.25 per share until May 1, 2001; 100,000 shares of
common stock at $.25 per share until November 26, 2003;
350,000 shares of common stock at $.50 per share until
October 11, 2002; and 2,000,000 shares of common stock at
$.129 per share until April 28, 2004.
(8) Includes warrants to purchase: 100,000 shares of common stock
at $1.48 per share until August 26, 2001; and 2,000,000
shares of common stock at $.129 per share until April 28,
2004.
(9) Includes warrants to purchase 1,000,000 shares of common
stock at $.125 per share until August 28, 2005.
(10) Because the market price as of the last trading day of
December 2000 was less than the exercise price of the
warrants, none of the warrants were in the money.
Employment Agreements
We have employment agreements with our executive officers,
Fred E. Cooper, Anthony J. Feola and Glenn Keeling effective
November 1, 1994, and Michael P. Thompson effective August 16,
2000. Under those agreements, they are currently entitled to
receive annual salaries of $400,000, $558,850, $250,000 and
$300,000 respectively, which are subject to review and adjustment.
The initial term of the agreements with Mr. Cooper was renewed in
October 1999 for an additional three-year term, which will
automatically renew for additional three-year terms unless one of
the parties gives proper notice of non-renewal; in November 2000,
Mr. Purdy resigned effective February 2001. The initial term of
the agreements with Messrs. Feola and Keeling was renewed in
October 1999 for an additional two-year term, which will
automatically renew for additional two-year terms unless one of
the parties gives proper notice of non-renewal. The initial term
of Mr. Thompson's agreement will expire on August 31, 2005 and
will also automatically renew for additional two-year periods
unless one of the parties gives proper notice of non-renewal. The
agreements also provide that in the event of a "change of
control", we are required to issue the following shares of common
stock, represented by a percentage of our total outstanding shares
of common stock immediately after the change in control: 5% to Mr.
Cooper; 4% to Mr. Feola; 3% to Mr. Keeling; and 2% to Mr.
Thompson. In general, a change of control would occur for
purposes of the agreements if: 20% or more of our outstanding
voting stock is acquired by any person; if 1/3 or more of our
directors are not continuing directors, as defined in the
agreement; or when a controlling influence over our management or
policies is exercised by any person or by persons acting as a
group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934.
In addition, if there is a change in control during the term
of the agreements, or within one year afterwards, Messrs. Cooper,
Feola, Keeling and Thompson are entitled to receive severance
payments in amounts equal to: 100% of their most recent annual
salary for the first three years following termination; 50% of
their most recent annual salary for the next two years; and 25% of
their most recent salary for the next five years. We are also
required to continue medical insurance coverage for Messrs.
Cooper, Feola, Keeling and Thompson and their families during
those periods. Those severance payments will terminate in the
event of the employee's death.
In the event that Mr. Cooper becomes disabled, as defined in
his agreements, he will be entitled to the following payments, in
lieu of salary. The disability payments would be reduced by any
amount paid directly to him under a disability insurance policy if
we provided one: 100% of his most recent annual salary for the
first three years; and 70% of his most recent salary for the next
two years. In the event that either Mr. Feola, Mr. Keeling or Mr.
Thompson becomes disabled, as defined in their agreements, he will
be entitled to similar payments: 100% of his most recent annual
salary for the first year; and 70% of his most recent salary for
the second year.
Under the employment agreements, Messrs. Cooper, Feola,
Keeling and Thompson are required to protect our confidential
information during the term of the agreements and they are
restricted from competing with us for a period of one year in
specified states following the expiration or termination of the
agreements.
In addition to the employment agreements we just described,
we have employment agreements with two of our non-executive
officer employees effective November 1, 1994. The terms of such
agreements are similar to those described for Messrs. Feola and
Keeling above, with the following amendments: the term of one
agreement is from November 1, 1994 through October 31, 2002, and
is renewable for successive two-year terms; the term of the other
agreement was renewed for an additional two-year term in October
1999, and will automatically renew for additional two-year terms
unless one of the parties terminates the agreement. In the event
of a change in control, we are required to issue both employees
shares of common stock equal to 2% of our outstanding shares of
common stock immediately after the change in control.
Purdy Agreement
In February 2001, we entered into an agreement with David L.
Purdy in connection with his resignation from our affiliates and
us. The agreement required us to pay Mr. Purdy an aggregate of
$912,727 plus $100,000 to be placed in an escrow account for his
future attorney's fees. The agreement contains confidentiality
and release provisions for both Mr. Purdy and us.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the indicated information as
of December 31, 2000 with respect to each person who we know is
beneficial owner of more than 5% of the outstanding common stock,
each of our directors and executive officers, and all of our
directors and executive officers as a group.
As of December 31, 2000, we had 1,383,704,167 shares of our
common stock outstanding. The table below shows the common stock
currently owned by each person or group, including common stock
underlying warrants, all of which are currently exercisable, as of
December 31, 2000. The left-hand column sets forth the percentage
of the total number of shares of common stock outstanding as of
December 31, 2000, which would be owned by each named person or
group if they exercised of all of their warrants, together with
common stock they currently owned. An asterisk - * - means less
than 1%. Except as otherwise indicated, each person has the sole
power to vote and dispose of each of the shares listed in the
columns opposite his name.
Name and Amount and Percent of Beneficial
Address of Nature of Ownership of
Beneficial Beneficial Total Outstanding
Owner Ownership (1) Common Stock (2)
David L. Purdy (3) 4,167,340 (4) *
Box 121A R.D. #2
Marion Center, PA 15759
Fred E. Cooper 6,076,200 (5) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Stan Cottrell 350,000 (6) *
4619 Westhampton Drive
Tucker, GA 30084
Anthony J. Feola 3,404,000 (7) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Glenn Keeling 2,738,500 (8) *
2275 Swallow Hill Road
Building 2500,2nd Floor
Pittsburgh, PA 15220
Paul Stagg 370,000 (9) *
168 LaLanne Road
Madisonville, LA 70447
Michael P. Thompson 1,000,000(10) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
All directors 18,106,040(11) 1.3%
and executive
officers as a
group (7 people)
(1) Includes ownership of all shares of common stock which each
named person or group has the right to acquire, through the
exercise of warrants, within sixty (60) days, together with the
common stock currently owned.
(2) Represents total number of shares of common stock owned by
each person, which each named person or group has the right to
acquire, through the exercise of warrants within sixty (60) days,
together with common stock currently owned, as a percentage of the
total number of shares of common stock outstanding as of December
31, 2000. For individual computation purposes, the total number of
shares of common stock outstanding as of December 31, 2000 has
been increased by the number of additional shares which would be
outstanding if the person or group exercised all outstanding
warrants.
(3) Does not include shares held by Mr. Purdy's adult children.
Mr. Purdy disclaims any beneficial interest to shares held by
members of his family. In November 2000, Mr. Purdy resigned
effective February 2001.
(4) Includes currently exercisable warrants to purchase the
following: 187,200 shares of common stock at $.25 per share until
April 24, 2001; 80,000 shares of common stock at $.33 per share
until June 29, 2003; 500,000 shares of common stock at $.25 per
share until May 1, 2001; and 3,000,000 shares of common stock at
$.129 per share until April 28, 2004.
(5) Includes currently exercisable warrants to purchase the
following: 300,000 shares of common stock at $.25 per share until
May 1, 2001; and 4,000,000 shares of common stock at $.129 per
share until April 28, 2004. In addition, Mr. Cooper is entitled
to certain shares of common stock upon a change of control of BICO
as defined in his employment agreement.
(6) Includes currently exercisable warrants to purchase 250,000
shares of common stock at $.129 per share until April 28, 2004.
(7) Includes currently exercisable warrants to purchase the
following: 100,000 shares of common stock at $.25 per share until
November 26, 2003; 100,000 shares of common stock at $.25 per
share until May 1, 2001; 350,000 shares of common stock at $.50
per share until October 11, 2002; and 2,000,000 shares of common
stock at $.129 per share until April 28, 2004. In addition, Mr.
Feola is entitled to certain shares of common stock upon a change
of control of BICO as defined in his employment agreement.
(8) Includes currently exercisable warrants to purchase 100,000
shares of common stock at $1.48 per share until August 26, 2001;
and 2,000,000 shares of common stock at $.129 per share until
April 28, 2004. In addition, Mr. Keeling is entitled to certain
shares of common stock upon a change of control of BICO as defined
in his employment agreement.
(9) Includes currently exercisable warrants to purchase 20,000
shares of common stock at $.06 per share until April 27, 2003; and
250,000 shares of common stock at $.129 per share until April 28,
2004.
(10) Includes currently exercisable warrants to purchase 1,000,000
shares of common stock at $.125 per share until August 28, 2005.
In addition, Mr. Thompson is entitled to certain shares of common
stock upon a change of control of BICO as defined in his
employment agreement.
(11) Includes shares of common stock available under currently
exercisable warrants to purchase an aggregate of as set forth
above.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Sweeney & Associates, P.C. of Pittsburgh, PA, our securities
counsel, will pass on the validity of the shares in this offering.
M. Kathryn Sweeney, the owner, currently holds, along with her
husband, warrants to purchase the following shares of Diasense,
one of our affiliates: 40,000 shares at $.50 per share until
October 23, 2003 and 60,000 shares at $1.00 per share until
January 6, 2003. She also owns warrants to purchase 100,000
shares of ViaCirQ common stock at $.10 per share until December
29, 2005; and warrants to purchase 200,000 shares of Petrol Rem
common stock at $.50 per share until November 8, 2005.
EXPERTS
Our consolidated financial statements as of December 31, 2000,
1999 and 1998, all of which included an explanatory paragraph
referring to an uncertainty regarding our ability to continue as a
going concern, included in this prospectus, have been audited by
Goff Backa Alfera & Company, LLC, independent certified public
accountants, as stated in their report for the year ended December
31, 2000 and have been included in reliance upon that report given
upon the authority of that firm as experts in auditing and
accounting.
Goff Backa Alfera & Company, LLC
CERTIFIED PUBLIC ACCOUNTANTS
3325 Saw Mill Run Blvd.
Pittsburgh, Pa
Report of Independent Accountants
The Board of Directors and Stockholders
BICO, Inc.
We have audited the accompanying consolidated balance sheets
of BICO, Inc. and its subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of BICO, Inc. and its
subsidiaries at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in note B to the financial statements, the
Company has incurred losses from operations and negative cash
flows from operations for each of the three years in the period
ended December 31, 2000, and these conditions are expected to
continue through 2001, raising substantial doubt about its
ability to continue as a going concern. Management's plans in
regard to these matters are also discussed in note B. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty, including
adjustments relating to the recoverability and classification of
recorded assets that might be necessary in the event the Company
cannot continue to meet its financing requirements and achieve
productive operations.
/s/ Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
February 27, 2001
F-1
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
Dec. 31, 2000 Dec. 31, 1999
------------- -------------
CURRENT ASSETS
Cash and equivalents (note A) $ 7,844,807 $ 10,827,631
Accounts receivable - net of allowance for doubtful accounts
of $43,664 at Dec. 31, 2000 and $63,679 at Dec. 31, 1999 400,950 27,263
Inventory - net of valuation allowance (notes A and D) 805,224 10,308
Related party notes receivable (notes C and N) 87,706 0
Notes receivable (note C) 1,926,363 200,000
Interest receivable (note C) 48,252 2,701
Prepaid expenses (note E) 988,354 192,246
Advances - Officers 0 125,290
Other current assets 47,268 0
------------- -------------
TOTAL CURRENT ASSETS 12,148,924 11,385,439
PROPERTY, PLANT AND EQUIPMENT (notes A and J)
Building 2,529,176 1,207,610
Land 246,250 133,750
Leasehold improvements 1,848,674 1,435,319
Machinery and equipment 6,405,594 4,676,330
Furniture, fixtures & equipment 921,195 841,308
------------- -------------
Subtotal 11,950,889 8,294,317
Less accumulated depreciation 5,288,910 4,704,539
------------- -------------
6,661,979 3,589,778
OTHER ASSETS
Related Party Receivables
Notes receivable - (notes C and N) 1,174,738 1,491,261
Interest receivable - (notes C and N) 13,463 22,023
------------- -------------
1,188,201 1,513,284
Allowance for related party receivables (1,188,201) (1,340,560)
------------- ------------
0 172,724
Notes receivable - (note C) 200,000 12,000
Interest receivable 0 4,235
Goodwill, net of amortization - (notes A and Q) 694,895 0
Investment in unconsolidated subsidiaries-(notes A and G) 2,061,439 485,284
Other assets 162,833 36,376
------------- -------------
3,119,167 710,619
------------- -------------
TOTAL ASSETS $21,930,070 $15,685,836
============= =============
The accompanying notes are an integral part of these statements.
F-2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
Dec. 31,2000 Dec. 31, 1999
------------ -------------
CURRENT LIABILITIES
Accounts payable $ 578,520 $ 759,733
Current portion of long-term debt (note I) 5,182,783 4,159,684
Current portion of capital lease obligations (note J) 98,788 76,017
Debentures payable (note K) 2,400,000 0
Accrued liabilities (note F) 3,131,765 1,794,370
Escrow payable (note L) 2,700 2,700
------------ -------------
TOTAL CURRENT LIABILITIES 11,394,556 6,792,504
LONG-TERM LIABILITIES
Capital lease obligations (note J) 2,203,673 1,336,147
Long-term debt (note I) 7,864 2,240
------------- -------------
2,211,537 1,338,387
COMMITMENTS AND CONTIGENCIES (note O)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY (note A) 434,990 0
STOCKHOLDERS' EQUITY (note L)
Common stock, par value $.10 per share,
authorized 1,700,000,000 shares, issued and
outstanding 1,383,704,167 at Dec. 31, 2000 and
956,100,496 at Dec. 31, 1999 138,370,417 95,610,050
Series F 4% convertible preferred stock, par value $10
per share, authorized 500,000 shares issuable in
series, shares issued and outstanding none at
December 31, 2000 and 72,000 at December 31, 1999. 0 720,000
Additional paid-in capital 87,035,096 85,608,192
Warrants 6,204,235 6,791,161
Accumulated deficit (223,720,761) (181,174,458)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,888,987 7,554,945
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 21,930,070 $ 15,685,836
============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2000 1999 1998
------------- ------------- -------------
Revenues
Net sales $ 340,327 $ 112,354 $ 1,145,968
Other income 5,547 52,897 50,212
------------- ------------- -------------
345,874 165,251 1,196,180
Costs and expenses
Cost of products sold 354,511 147,971 587,821
Research and development (notes A,L and M) 6,651,471 4,430,819 6,340,676
General and administrative (note L) 21,407,472 12,884,237 10,673,265
Amortization of goodwill (notes A and G) 392,307 39,716 887,080 -
Impairment loss - 5,060,951 -
------------- ------------- -------------
28,805,761 22,563,694 18,488,842
------------- ------------- -------------
Loss from operations (28,459,887) (22,398,443) (17,292,662)
Other income
Interest 589,529 1,031,560 182,033
Other expense
Debt issue costs (note A) 1,005,000 3,458,300 1,865,682
Beneficial convertible debt feature(notes A&K) 3,062,500 7,228,296 3,799,727
Interest expense 1,924,873 1,373,404 481,025
Warrant extensions (note L) 5,233,529 4,669,483 -
Loss on unconsolidated subsidiaries(notes A&G) 158,183 - -
Loss on disposal of assets 122,857 376 531,066
Unusual Item (note O) 3,450,000 - -
------------- ------------- -------------
14,956,942 16,729,859 6,677,500
------------- ------------- -------------
Loss before unrelated
investors' interest (42,827,300) (38,096,742) (23,788,129)
Unrelated investors' interest in
net loss of subsidiaries 280,997 24,164 1,385,485
------------- -------------- -------------
Net loss $(42,546,303) $(38,072,578) $(22,402,644)
============= ============== =============
Loss per common share - Basic:
Net Loss $ (0.04) $ (0.05) $ (0.08)
Less: Preferred stock dividends (0.00) (0.00) (0.00)
------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.04) $ (0.05) $ (0.08)
============= ============= =============
Loss per common share - Diluted:
Net Loss $ (0.04) $ (0.05) $ (0.08)
Less: Preferred stock dividends (0.00) (0.00) (0.00)
------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.04) $ (0.05) $ (0.08)
============= ============= =============
The accompanying notes are an integral part of these statements.
F-4
BICO, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficiency)
Note rec.
Preferred Stock Common Stock issued for Additional
--------------- ---------------- Common Stk Paid in Accumulated
Shares Amount Shares Amount Warrants Rel Party Capital Deficit Total
------- -------- --------- ---------- ---------- --------- ----------- -------------- ----------
Balance at Dec. 31, 1997 - $ - 138,583,978 $13,858,398 $6,396,994$(25,000)$104,932,920 $(120,699,236)$ 4,464,076
-------- ------- ---------- ---------- ---------- ------- ---------- ------------ ----------
Proceeds from stock offering - - 2,055,000 205,500 - - 22,423 - 227,923
Conversion of debentures - - 280,134,590 28,013,459 - - (16,029,785) - 11,983,674
Issuance of convertible debt - - - - - - 3,799,727 - 3,799,727
Net Loss - - - - - - - (22,402,644)(22,402,644)
-------- ------- ---------- ---------- ---------- -------- ---------- ------------ -----------
Balance at Dec. 31, 1998 - - 420,773,568 42,077,357 6,396,994 (25,000) 92,725,285 (143,101,880) (1,927,244)
-------- ------- ---------- ---------- ---------- -------- ---------- ------------ ----------
Proceeds from stk offering - - 19,625,691 1,962,569 - - (914,485) - 1,048,084
Proceeds from sale of
Preferred stk.-Series F 72,000 720,000 - - - - 90,000 - 810,000
Conversion of debentures - - 515,013,737 51,501,374 - - (19,444,872) - 32,056,502
Warrants granted and
extended-subsidiaries - - - - - - 5,897,332 - 5,897,332
Issuance of convertible debt - - - - - - 7,228,296 - 7,228,296
Repayment of subscriptio recv. - - - - - 25,000 - - 25,000
Warrants exercised - - 687,500 68,750 (8,968) - 26,636 - 86,418
Warrants granted - - - - 403,135 - - - 403,135
Net loss - - - - - - - (38,072,578)(38,072,578)
-------- ------- ---------- ---------- --------- ------- --------- ----------- -----------
Balance at Dec. 31,1999 72,000 720,000 956,100,496 95,610,050 6,791,161 0 85,608,192 (181,174,458) 7,554,945
-------- -------- ---------- ---------- --------- ------- --------- ----------- ----------
Proceeds from stk offering - - 327,615,231 32,761,523 - - (14,156,873) - 18,604,650
Proceeds from sale of
Preferred stk.-Series F 380,000 3,800,000 - - - - 475,000 - 4,275,000
Conversion of preferred
stk.- Series F (452,000)(4,520,000) 56,679,610 5,667,961 - - (1,147,961) - 0
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 - 0
Net loss - - - - - - - (42,546,303)(42,546,303)
------- ------- ------------- ----------- ---------- ------- ---------- ----------- -----------
Balance at Dec. 31, 2000 0 $ 0 1,383,704,167 $138,370,417 $6,204,235 $ 0 $87,035,096 $(223,720,761)$ 7,888,987
======= ======= ============= =========== ========== ======= ========== =========== ===========
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,
2000 1999 1998
------------- ------------- -------------
Cash flows used by operating activities:
Net loss $(42,546,303) $(38,072,578) $(22,402,644)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 689,762 773,696 815,125
Amortization 392,307 42,149 891,412
Loss on disposal of assets 122,857 177,000 531,066
Loss on unconsolidated subsidiaries 158,183 - -
Unrelated investors' interest in susidiaries (280,997) (24,164) (1,385,485)
Stock issued in exchange for services 338,000 148,484 (22,063)
Stock issued in exchange for services by subsidiary 225,000 - -
Debenture interest converted to stock 120,547 211,503 106,894
Premium for extension on debenture - - 680,500
Beneficial convertible debt feature 3,062,500 7,228,296 3,799,727
Provision for (recovery of)potential loss on notes receivable (152,359) 70,253 1,270,307
Warrants granted 608,655 403,135 -
Warrants granted and extended by subsidiaries 11,184,858 5,897,332 -
(Decrease)increase in allowance for losses on accounts receivable (20,015) 36,620 12,128
(Increase) decrease in accounts receivable (25,148) (7,924) 268,195
(Increase) decrease in inventories 101,480 90,052 987,948
Increase (decrease) in inventory valuation allowance (859,283) (25,845) 779,050
(Increase) decrease in prepaid expenses (651,305) (21,702) (31,495)
(Increase) decrease in other assets 33,834 (146,408) 36,927
Increase (decrease) in accounts payable (296,657) (949,578) 1,078,124
Increase in other liabilities 1,112,211 697,726 845,136
(Decrease) in deferred revenue - - (116,146)
Impairment loss - 5,060,951 -
------------- ------------- -------------
Net cash flow used by operating activities (26,681,873) (18,411,002) (11,855,294)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,388,508) (641,371) (111,216)
Disposal of property, plant and equipment - 175,000 -
Acquisitions, net of cash acquired (1,395,126) - (1,030,000)
(Increase) in notes receivable (1,939,073) (337,928) (31,493)
Payments received on notes receivable 378,817 141,974 -
(Increase) in interest receivable (32,756) (25,774) (97,929)
Acquisition of unconsolidated subsidiaries (2,078,520) (525,000) -
------------- ------------- -------------
Net cash used by investing activites (6,455,166) (1,213,099) (1,270,638)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock offering 18,604,650 900,000 -
Proceeds from warrants exercised 615,658 86,018 -
Proceeds from sale of preferred stock-Series F 4,275,000 810,000 -
Proceeds from debentures payable 12,250,000 33,150,000 10,720,000
Payments on debentures payable (5,850,000) (4,130,000) -
Payments on notes payable (53,125) (465,650) (675,393)
Increase in notes payable 855,801 75,396 550,000
Payments on capital lease obligations (543,769) (99,777) (101,997)
------------- ------------- -------------
Net cash provided by financing activities 30,154,215 30,325,987 10,492,610
_____________ _____________ _____________
Net increase (decrease) in cash (2,982,824) 10,701,886 (2,633,322)
Cash and cash equivalents, beginning of year 10,827,631 125,745 2,759,067
------------- ------------- -------------
Cash and cash equivalents, end of year $ 7,844,807 $ 10,827,631 $ 125,745
============= ============= =============
The accompanying notes are an integral part of these statements.
F-6
BICO, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
Year ended December 31,
2000 1999 1998
------------- ------------- -------------
Supplemental Information:
Interest paid $ 1,485,286 $ 966,713 $ 364,716
============= ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of ICTI with note payable $ - $ - $ 3,350,000
============= =========== ============
Acquisition of property under a capital lease:
Land $ 112,500 $ - $ -
Equipment - - 24,050
Building 1,321,566 - -
------------- ---------- ------------
$ 1,434,066 $ - $ 24,050
============= =========== ============
Capital Lease Termination:
Reduction of capital lease obligation $ - $ - $ 1,184,288
============= =========== ============
Reduction of property
Construction in progress $ - $ - $ 1,459,110
Land - - 112,500
------------- ------------- ------------
$ - $ - $ 1,571,610
============= ============= ============
Conversion of preferred stock for common stock $ 5,580,168 $ - $ -
============= ============= ============
Preferred stock dividend paid in common stock $ 121,825 $ - $ -
============= ============= ============
Constructive dividend on convertible preferred stock $ 1,883,333 $ - $ -
============= ============= ============
Conversion of debentures for common stock $ 4,000,000 $ 31,845,000 $ 11,876,780
============= ============= ============
The accompanying notes are an integral part of these statements.
BICO, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. Organization
BICO, Inc. (the Company) and its subsidiaries are engaged in
the development, manufacturing and marketing of biomedical
products and biological remediation products. In June 2000,
the Company changed its name from Biocontrol Technology, Inc.
to BICO, Inc.
2. Principles of Consolidation
The consolidated financial statements include the accounts
of: Diasensor.com, Inc., a 52% owned subsidiary as of
December 31, 2000 and 1999; Petrol Rem, Inc., a 75% owned
subsidiary as of December 31, 2000 and 1999, ViaCirQ, Inc.
(formerly IDT, Inc.), a 99% owned subsidiary as of December
31, 2000 and 1999; International Chemical Technologies, Inc.,
a 58.4% owned subsidiary as of December 31, 2000 and 1999,
Barnacle Ban Corporation, a 100% owned subsidiary as of
December 31, 2000 and 1999, Ceramic Coatings Technologies,
Inc., a 98% owned subsidiary as of December 31, 2000 and
1999 and B-A-Champ.com, Inc., a 51% owned subsidiary as of
December 31, 2000. All significant intercompany accounts and
transactions have been eliminated. Subsidiary losses in
excess of the unrelated investors' interest are charged
against the Company's interest. Changes in the Company's
proportionate share of subsidiary equity resulting from the
additional equity raised by the subsidiary are accounted for
as equity transactions in consolidation with no gain
recognition due to the development stage of the subsidiaries
and uncertainty regarding the subsidiary's ability to
continue as a going concern.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at acquisition to be cash equivalents.
4. Inventory
Inventory is valued at the lower of cost (first-in, first-out
method) or market. An inventory valuation allowance is
provided against finished goods and raw materials for
products for which a market has not yet been established.
5. Property and Equipment
Property and equipment are recorded at cost and are
depreciated over their estimated useful lives, ranging from 3
to 39 years, on a straight-line basis. Amortization of
assets recorded under capital leases is included with
depreciation expense. Impairment losses are recognized when
management determines that operating conditions raise doubts
about the ability to recover the carrying value of particular
assets. The amount of impairment loss is determined by
comparing the present value of the estimated future cash
inflows of such assets to their net carrying value.
6. Goodwill
Goodwill, which represents the excess cost of purchased
companies over the fair value of their net assets at dates of
acquisition, is amortized on a straight-line basis over five
years. Goodwill associated with assets determined to be
impaired is correspondingly written down.
7. Investment in Unconsolidated Subsidiaries
During 1999 and 2000, the Company made investments in
unconsolidated subsidiaries (see Note G). These investments
are being reported on the equity basis due to the Company's
ownership percentage, options to purchase additional shares
and membership on the boards of directors of each
unconsolidated subsidiary as discussed in Note G. The
difference between the amount invested and the underlying
equity in the unconsolidated subsidiary's net assets is being
amortized as goodwill over a 5-year period. Declines in these
investment values that are determined by Management to be
other than temporary are recognized as losses on a current
basis.
8. Loss Per Common Share
Net loss per common share is based upon the weighted average
number of common shares outstanding. The loss per share does
not include common stock equivalents since the effect would
be antidilutive. The weighted average shares used to
calculate the loss per share amounted to 1,037,254,759 in
2000, 695,400,191 in 1999 and 266,362,526 in 1998. The net
losses attributable to common shareholders for the years
ended December 31, 2000, 1999 and 1998 were $44,510,398,
$38,072,578 and $22,402,644, respectively, which include
constructive dividends to preferred stockholders of
$1,883,333, $0 and $0, respectively.
9. Research and Development Costs
Research and development costs are charged to operations as
incurred. Machinery, equipment and other capital
expenditures, which have alternative future use beyond
specific research and development activities, are capitalized
and depreciated over their estimated useful lives.
10. Income Taxes
The Company previously adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income
Taxes, which requires the asset and liability method of
accounting for income taxes. Enacted statutory tax rates are
applied to temporary differences arising from the differences
in financial statement carrying amounts and the tax bases of
existing assets and liabilities. Due to the uncertainty of the
realization of income tax benefits (Note M), the adoption of
FAS 109 had no effect on the financial statements of the
Company.
11. Interest
The Company follows the policy of capitalizing interest as a
component of the cost of property, plant and equipment
constructed for its own use. Total interest incurred for the
periods December 31, 2000, 1999, and 1998 was $1,924,873,
$1,373,404, and $589,300, respectively, of which $1,924,873,
$1,373,404, and $481,025, respectively, was charged to
operations.
12. Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The Company has established allowances based upon
management's evaluation of inventories, accounts receivable,
and receivables from related parties and amortizes intangible
assets such as goodwill and patents over estimated useful
lives.
13. Common Stock Warrants
The Company recognizes cost on warrants granted or extended
based upon the minimum value method. Under this method, the
warrants are valued by reducing the current market price of
the underlying shares by the present value of the exercise
price discounted, at an estimated risk-free interest rate of
5% and assuming no dividends. The value of warrants is
recalculated when warrants are extended and any increase in
value over the value recorded at the time the warrant was
granted is recognized at the time the warrant is extended.
14. Debt Issue Costs
The Company follows the policy of expensing debt issue costs
on debentures during the period of debenture issuance. Total
debt issue costs incurred for the periods December 31, 2000,
1999 and 1998 were $1,225,000, $3,458,300 and $1,865,682,
respectively.
15. Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to significant concentrations of credit risk, consist
principally of cash investments at commercial banks,
receivables from officers and directors of the Company and
investments in unconsolidated subsidiaries. Cash and cash
equivalents are temporarily invested in interest bearing
accounts in financial institutions, and such investments may
be in excess of the FDIC insurance limit. Receivables from
directors and officers of the Company (Notes C and N) are
unsecured and represent a concentration of credit risk due to
the common employment and financial dependency of these
individuals on the Company.
16. Comprehensive Income
The Company's consolidated net income (loss) is substantially
the same as comprehensive income to be disclosed under
Statement of Financial Accounting Standards No. 130.
17. Beneficial Convertible Debt Feature
Beneficial conversion terms included in the Company's
convertible debentures are recognized as expense and credited
to additional paid in capital at the time the associated
debentures are issued.
18. Beneficial Conversion Feature of Preferred Stock
The Company's Series F 4% convertible preferred stock
includes a beneficial conversion feature providing the
preferred stockholder a discount of 25% upon conversion to
the Company's common stock after 120 days. The value of this
beneficial conversion feature is determined by reducing the
market price of the Company's common stock by the discounted
conversion price on the date of commitment. This discount is
recognized as a reduction in the preferred stock recorded at
par and is amortized as constructive dividends to the
preferred stockholders over the 120-day period using the
effective interest method.
19. Advertising Costs
Advertising costs are charged to operations when incurred.
Advertising expenses for 2000, 1999 and 1998 were $208,617,
$4,851 and $43,901, respectively.
NOTE B - OPERATIONS AND LIQUIDITY
The Company and its subsidiaries have incurred substantial
losses in 2000 and in prior years and have funded their
operations and product development primarily through the sale
of common and preferred stock and issuance of debt
instruments. Until such time that products can be
successfully developed and marketed, the Company and its
subsidiaries will continue to need to fulfill working capital
requirements through the sale of stock and issuance of debt.
The inability of the Company to continue its operations as a
going concern would impact the recoverability and
classification of recorded asset amounts.
The ability of the Company to continue in existence is
dependent on its having sufficient financial resources to
complete the research and development necessary to
successfully bring products to market and for marketplace
acceptance. As a result of its significant losses, negative
cash flows from operations and significant accumulated
deficits for each of the periods ending December 31, 2000,
1999, and 1998, there is substantial doubt about the
Company's ability to continue as a going concern.
In order to meet its projected expenditures for 2001,
Management believes that additional funds will need to be
raised from sales of stock and future debt issuance.
NOTE C - NOTES RECEIVABLE
Notes receivable due from various related and unrelated
parties consisted of:
Dec. 31, 2000 Dec. 31, 1999
Related Parties
Note receivable from Fred E.
Cooper, Chief Executive Officer,
dated April 28, 1999, in the
amount of $777,400, payable in
monthly installments of $9,427
with a final balloon payment on
May 31, 2002. Interest is
accrued at a rate of 8% per
annum. $ 715,693 $ 747,087
Note receivable from Glenn
Keeling, Director, dated April
28, 1999, in the amount of
$296,358, payable in monthly
installments of $4,184 with a
final balloon payment on May 1,
2002. Interest is accrued at a
rate of 8% per annum. 237,737 275,869
Note Receivable from T.J. Feola,
Director, dated April 28, 1999,
in the amount of $259,477,
payable in monthly installments
of $3,676 with a final balloon
payment on May 31, 2002.
Interest is accrued at a rate of
8% per annum. 221,308 245,581
Note receivable from Allegheny
Food Services, Inc. of which
Joseph Kondisko, a former
director, is principal owner,
payable in monthly installments
of $3,630, including interest at
9.25%, with a final balloon
payment on April 1, 2001. 87,706 172,724
Note receivable from B-A-
Champ.com, a company
substantially owned by Fred E.
Cooper, Chief Executive Officer.
Note was due on November 8, 2000.
Interest accrued at a rate of 6%
per annum. - 50,000
Unrelated Parties
Demand note receivable from a
corporation on a $3,100,000 line
of credit agreement. Principal
plus interest accrued at a rate
of 10% per annum is payable upon
demand. Note is secured by a
pledge of 100% of the borrower's
common stock and security
interests in all assets of the
borrower. 1,914,363 -
Note receivable from an
individual, due on November 15,
2002 with interest at prime plus
2% (11.5% at December 31, 2000). 200,000 200,000
Note receivable from an
individual, payable upon
demand with 8.75% interest. 12,000 12,000
____________ ____________
3,388,807 1,703,261
Less current notes receivable 2,014,069 200,000
____________ ____________
Noncurrent $ 1,374,738 $ 1,503,261
============ ============
Accrued interest receivable on the related party notes as of
December 31, 2000 and 1999 was $13,463 and $22,023,
respectively.
Due to the financial dependency of the above officers and
directors on the Company, an allowance of $1,188,201 and
$1,340,560 has been provided as of December 31, 2000 and
1999, respectively.
NOTE D - INVENTORY
Inventories consisted of the following as of:
Dec. 31, 2000 Dec. 31, 1999
Raw materials $ 3,212,053 $ 3,504,708
Finished goods 1,087,093 858,805
____________ ____________
4,299,146 4,363,513
Less valuation allowance (3,493,922) (4,353,205)
____________ ____________
$ 805,224 $ 10,308
============ ============
NOTE E - PREPAID EXPENSES
Prepaid expenses consisted of the following as of:
Dec. 31, 2000 Dec. 31, 1999
Prepaid insurance $ 304,229 $ 73,172
Prepaid professional fees 234,961 87,112
Prepaid debt issue costs 220,000 0
Employee advances 32,549 3,208
Prepaid taxes 31,200 0
Security deposits 14,799 1,543
Other prepaid expenses 150,616 27,211
____________ ____________
$ 988,354 $ 192,246
============ ============
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of:
Dec. 31, 2000 Dec. 31, 1999
Accrued interest $ 1,120,655 $ 681,068
Accrued payroll 373,821 1,027,147
Accrued payroll taxes and
withholdings 24,303 35,362
Accrued vacation 66,445 33,038
Accrued class action
settlement (note O) 1,300,000 0
Other accrued liabilities 246,541 17,755
____________ ____________
$ 3,131,765 $ 1,794,370
============ ============
NOTE G - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
In January 2000, the Company acquired a twenty-five percent (25%)
interest in Insight Data Link.com, Inc. for $100,000. Insight is
a Pennsylvania corporation formed to engage in the business of
acting as an internet clearinghouse for persons seeking to
acquire, and persons having available, shopping mall space, as
well as software development for related projects.
Also, during the year ended December 31, 2000 the Company invested
an additional $285,000 in American Inter-Metallics, Inc. ("AIM")
an unconsolidated subsidiary interest initially acquired during
1999. With this additional investment, the Company owns 16.2% of
AIM. Upon completion of funding, the Company's ownership will
increase to 20%. AIM has its operations in Rhode Island, and is
developing a product that enhances performance in rockets and
other machinery by increasing the burn rate of propellants.
During the year ended December 31, 2000, Diasensor.com acquired a
fifteen percent (15%) interest in MicroIslet, Inc. for an
investment of $1,000,000. The company has an option to purchase an
additional 5% interest in MicroIslet. The company also holds a
seat on the board of directors of MicroIslet. MicroIslet is a
California company, which has licensed several diabetes research
technologies from Duke University with a specific focus on
optimizing microencapsulated islets for transplantation.
In March 2000, Diasensor.com acquired a 20.8% equity interest in
Diabecore Medical, Inc., a Toronto-based company working to
develop a new insulin for the treatment of diabetes, for $693,520.
The company also owns warrants to purchase additional shares of
Diabecore, which, if exercised, will increase the company's
ownership to 35%. The company holds a seat on the board of
directors of Diabecore.
These investments are being reported on the equity basis and
differences between the investment and the underlying net assets
of the unconsolidated subsidiaries are being amortized as goodwill
over a 5-year period.
The Company's investment in the underlying assets and the
unamortized goodwill of each unconsolidated subsidiary as of
December 31, 2000 and December 31, 1999 are as follows:
Investment in
Unconsolidated Underlying Net Unamortized
Subsidiary Assets Goodwill Total
2000 1999 2000 1999 2000 1999
American Inter-
Metallics, Inc. $ 222,912 $48,405 $ 441,004 $436,879 $ 663,916 $485,284
Insight Data Link.com 28,503 0 52,546 0 81,049 0
MicroIslet, Inc. 50,731 0 688,508 0 739,239 0
Diabecore Medical,Inc 50,615 0 526,620 0 577,235 0
_________ ________ _________ _________ __________ ________
Total $ 352,761 $48,405 $1,708,678 $436,879 $2,061,439 $485,284
========= ======== ========= ========= ========== ========
The amounts recognized as amortization of goodwill and income (loss)
on unconsolidated subsidiaries for each investment for the years
ended December 31, 2000 and 1999 are as follows:
Income (Loss) on
Unconsolidated Amortization of Unconsolidated
Subsidiary Goodwill Subsidiaries
2000 1999 2000 1999
American Inter-
Metallics, Inc. $ 106,369 $ 39,716 $ 0 $ 0
Insight Data Link.com 13,136 0 (5,815) 0
MicroIslet, Inc. 152,628 0 (108,133) 0
Diabecore Medical,Inc. 72,049 0 (44,235) 0
_________ _________ __________ _______
Total $ 344,182 $ 39,716 $(158,183) $ 0
========= ========= ========== =======
NOTE H- BUSINESS SEGMENTS
The Company operates in two reportable business segments:
Biomedical devices, which includes the operations of BICO, Inc.,
Diasensor.com, Inc. and ViaCirQ, Inc. and Bioremediation, which
includes the operations of Petrol Rem, Inc. Following is
summarized financial information for the Company's reportable
segments:
Biomedical
2000 Devices Bioremedication All Other Consolidated
Sales to external customers $ 81,954 $ 217,722 $ 40,651 $ 340,327
Cost of products sold 47,862 179,446 127,203 354,511
Gross profit (loss) 34,092 38,276 (86,552) (14,184)
Identifiable assets 16,628,619 4,385,100 835,589 21,849,308
Capital expenditures 2,788,454 0 34,120 2,822,574
Depreciation and amortization 979,083 74,120 43,198 1,096,401
Interest Income 543,457 46,072 0 589,529
Interest Expense 1,811,665 0 113,208 1,924,873
1999
Sales to external customers $ 82,056 $ 26,693 $ 3,599 $ 112,348
Cost of products sold 133,288 14,683 0 147,971
Gross profit(loss) (51,232) 12,010 3,599 (35,623)
Identifiable asset 15,018,258 226,760 440,818 15,685,836
Capital expenditures 262,954 0 378,417 641,371
Depreciation and amortization 5,108,855 34,351 96,060 5,239,266
Interest Income 1,031,560 0 0 1,031,560
Interest Expense 1,373,404 0 0 1,373,404
1998
Sales to external customers $ 1,028,484 $ 45,382 $ 72,102 $ 1,145,968
Cost of products sold 483,388 33,061 71,372 587,821
Gross profit (loss) 545,096 12,321 730 558,147
Identifiable assets 8,614,498 168,315 1,052,756 9,835,569
Capital expenditures 105,827 0 5,389 111,216
Depreciation and amortization 1,563,366 36,061 111,442 1,710,869
Interest Income 182,033 0 0 182,033
Interest Expense 481,025 0 0 481,025
NOTE I- LONG-TERM DEBT
Long-term debt consisted of the following as of:
Dec. 31, Dec. 31,
2000 1999
------------- -----------
Note Payable in connection with stock purchase
agreement for 58.4% interest in International
Chemical Technologies, Inc.(ICTI). The note
bears interest at a rate of 10% per annum and
is collateralized by the shares of ICTI purchased
in the transaction. At December 31, 1999 and
2000, the Company was, and continues to be,
in default on the terms of this loan and
the note holder has made demand for payment.
Accordingly, the unpaid balance is
classified as due and payable. $ 2,900,000 $ 2,900,000
Note Payable by the Company's subsidiary,
International Chemical Technologies, Inc.
(ICTI) to, it's former shareholder. The
loan bears interest at a rate of 9.5% per
annum and is guaranteed by the Company and
collateralized by all tangible and
intangible assets of ICTI, and assignment of
ICTI's interest in its lease for its
production facilities. At December 31, 1999
and 2000, the Company was, and continues to
be in default on the terms of this loan and
the note holder has made demand for payment.
Accordingly, the unpaid balance is
classified as due and payable. 1,191,667 1,191,667
Promissory Note of Intco, Inc., a 51% owned
subsidiary of the Company's subsidiary,
Petrol Rem, Inc. The loan is collateralized
by certain Intco equipment. Principal and
interest at 9.5% per annum are payable in 25
equal monthly installments of $1,500 each
commencing February 27, 2000 with a final
payment of all remaining principal and
interest due on March 27, 2002. 20,351 -
Commercial Premium Finance Agreement of
Intco, Inc., a 51% owned subsidiary of the
Company's subsidiary, Petrol Rem, Inc.
Amounts are payable in nine monthly
installments of $11,342 including interest
at 9.47% per annum beginning October 1,
2000. 66,209 -
Promissory Note of Intco, Inc., a 51% owned
subsidiary of the Company's subsidiary,
Petrol Rem, Inc. The loan is collateralized
by certain Intco equipment. Principal and
interest at 9% per annum are payable in 35
equal monthly installments of $320 each
commencing February 25, 2000 with a final
payment of all remaining principal and
interest due on February 25, 2003. 7,263 -
Note Payable by the Company's subsidiary,
Petrol Rem, Inc., in connection with the
stock purchase agreement for 51% interest in
Intco, Inc. The note is payable without
interest in installments as follows: (i) on
the first day of each calendar month from
January 1, 2001 through and including April
1, 2001, a principal payment of $150,000 and
(ii) $250,000 on May 1, 2001. 850,000 -
Commercial Premium Finance Agreement payable
in nine monthly installments of $9,697
including interest at 7.62% per annum
beginning November 1, 1999. 66,187
Commercial Premium Finance Agreement payable
in eight monthly installments of $13,208
including interest at 8.5% per annum
beginning December 1, 2000. 77,317 -
Commercial Premium Finance Agreement payable
in nine monthly installments of $9,903
including interest at 12.63% per annum
beginning December 10, 2000. 75,600 -
Note Payable to a bank in monthly payments
of $433 including interest at 8.75% per
annum. The loan in collateralized by
equipment. 2,240 4,070
___________ ___________
5,190,647 4,161,924
Current portion of long-term debt 5,182,783 4,159,684
___________ ___________
Long-term debt $ 7,864 $ 2,240
=========== ===========
NOTE J- LEASES
Operating Leases
Until October 2000, the Company was committed under a non-
cancelable operating lease for its research and product
development facility. The lease between the Company and a group
of investors (lessor), which includes four of the Company's
Executive Officers and/or Directors, was for a period of 240
months beginning September 1, 1990. Monthly rental under the
terms of the lease was $8,810 for a period of 119 months to August
1, 2000. In October 2000, after the Company's research and
development operations had been moved from the facility, the
building was sold by the investor group and the lease was
terminated. Total rent expense was $70,480 in 2000 and $105,720
in each of the years 1999 and 1998.
The Company and its related subsidiaries also lease other office
facilities, various equipment and automobiles under operating
leases expiring in various years through 2004. Total lease
expense related to these leases was $534,235, $425,654 and
$279,329 in the years ended December 31, 2000, 1999 and 1998,
respectively.
Capital Leases
During 1996, the Company leased two manufacturing buildings under
capital leases expiring in various years through 2011. The assets
and liabilities under capital leases are recorded at the lower of
the present value of the minimum lease payments or the fair value
of the asset. The assets are depreciated over the lower of their
related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in
depreciation expense.
During 1998, the Company terminated the lease of one of its two
manufacturing buildings in response to the filing of a judgement
for nonpayment under the terms of the lease. The Company
recognized a loss of $387,321 based upon the difference between
the remaining lease obligation and the property relinquished.
In July 2000, the Company entered into a new capital lease
replacing the lease on its manufacturing facility terminated in
1998. Under the terms of the lease, the Company will make total
payments of $1,602,221 through December 2010, at which time title
to the property will be transferred to the Company. Management
recognized this property and the corresponding capital lease
obligation at the present value of the lease payments, which was
$1,434,066 at the inception of the lease, using an imputed rate of
9% per annum.
The following is a summary of property held under capital leases:
Dec. 31, 2000 Dec. 31, 1999
Buildings $ 2,527,326 $ 1,207,610
Land 246,250 133,750
Equipment 264,490 229,565
______________ ______________
Sub Total 3,038,066 1,570,925
Less: Accumulated
Depreciation 529,286 378,885
______________ ______________
Total Property under
Capital Leases $ 2,508,780 $ 1,192,040
============== ==============
Minimum future lease payments under capital leases and
noncancelable operating leases are as follows:
Capital Operating
Leases Leases
2001 $ 241,877 $ 318,062
2002 336,562 228,237
2003 333,654 181,594
2004 338,413 53,825
2005 352,066 16,500
Thereafter 2,105,169 -
___________ ___________
Total minimum lease payments 3,707,741 $ 798,218
===========
Less amounts representing
interest 1,405,280
___________
Present value of net minimum
lease payments $ 2,302,461
===========
NOTE K - SUBORDINATED CONVERTIBLE DEBENTURES
During 2000, 1999 and 1998, the Company issued subordinated
4% convertible debentures totaling $12,250,000, $33,150,000
and $10,720,000, respectively. Such convertible debentures
were issued pursuant to Regulation S, Regulation D, and/or
Section 4(2) and have a one-year mandatory maturity and are
not saleable or convertible for a minimum of 45 to 90 days
from issuance. At December 31, 2000 and 1999, the
subordinated convertible debentures totaled $2,400,000 and
$0, respectively. The debentures issued in 1999 and 2000
included beneficial conversion features providing a discount
on the acquisition of common stock at discounts ranging from
12% to 22%.
As of December 31, 2000, the conversion price of the
debentures would have been approximately $.0421 per share,
based upon a formula, which applies a discount to the average
market price for the previous week and is determined by the
length of the holding period. As of December 31, 2000, the
number of shares issuable upon conversion of all outstanding
debentures was approximately 57 million shares, which would
have reflected discounts of approximately 20%. No
debentures were outstanding as of December 31, 1999.
NOTE L - STOCKHOLDERS' EQUITY
Preferred Stock
The Board of Directors of the Company may issue up to 500,000
shares of preferred stock in series, which would have rights
as determined by the Board.
During 1999, 400,000 shares of the preferred stock were
authorized as "4% Cumulative Convertible Preferred Stock,
Series F". 72,000 shares of this preferred stock were issued
in 1999 and 452,000 shares were issued in 2000 and these
shares include a beneficial conversion feature providing the
preferred stockholder a discount of 25% upon conversion to
the Company's common stock after 120 days. The total value
of this beneficial conversion feature was $1,883,333 and was
recognized as constructive dividends charged to additional
paid in capital during the year ended December 31, 2000.
During 2000, all shares of preferred stock were converted to
common stock. In addition, a preferred stock dividend of
$121,824 was distributed to preferred shareholders upon
conversion.
Common Stock Warrants
During 2000, warrants ranging from $.070 to $.250 per share
to purchase 5,941,998 shares of common stock were granted at
exercise prices that were equal to or above the current
quoted market price of the stock on the date issued. In
1999, warrants to purchase 23,017,500 shares were granted at
exercise prices ranging from $.123 to $.23 per share. In
connection with the granting of warrants, the Company
recognized $324,897 and $403,134 of general and administrative
expense in 2000 and 1999 respectively. Warrants to purchase
31,378,160 shares of common stock were exercisable at December
31, 2000. The per share exercise prices of these warrants
are as follows:
Shares Exercise Price
20,000 $.060
160,000 $.070
35,000 $.080
1,700,000 $.100
85,000 $.103
1,000,000 $.125
19,910,500 $.129
1,110,200 $.130
600,000 $.140
400,000 $.144
125,000 $.155
236,798 $.160
10,000 $.220
2,826,700 $.250
80,000 $.330
50,000 $.380
1,482 $.450
350,000 $.500
884,000 $1.000
150,000 $1.480
1,375,000 $2.000
94,000 $2.125
69,480 $2.250
35,000 $2.410
20,000 $2.750
25,000 $3.000
25,000 $3.200
____________
Total 31,378,160
============
The fiscal years in which common stock warrants were granted
and the various expiration dates by fiscal year are as
follows:
Fiscal Warrants Warrants Expire during Fiscal Year
Year Granted 2001 2002 2003 2004 2005
1990 406,700 226,700 180,000
1991 1,251,482 900,000 351,482
1992 0
1993 154,000 144,000 10,000
1994 130,000 20,000 85,000 25,000
1995 0
1996 594,480 535,000 59,480
1997 1,444,000 500,000 944,000
1998 1,420,000 1,420,000
1999 20,035,500 20,035,500
2000 5,941,998 5,941,998
__________ _________ ________ __________ ___________ ___________
31,378,160 2,305,700 1,315,482 1,695,000 20,119,980 5,941,998
========== ========= ======== ========== =========== ===========
The following is a summary of the warrant transactions during 2000:
Outstanding at beginning of period 29,896,662
Granted during the twelve-month period 5,941,998
Canceled during the twelve-month period (46,000)
Exercised during the twelve-month period (4,414,500)
Outstanding and eligible for exercise at ___________
end of period 31,378,160
===========
The following is a summary of expenses recognized in connection
with warrants granted or extended during 2000 and 1999:
2000 1999
Granted Extended Total Granted Extended Total
Parent Company $ 324,897 $ 0 $ 324,897 $ 403,134 $ 0 $ 403,134
Subsidiaries:
Petrol Rem 0 0 0 54,981 20,160 75,141
Diasensor.com 230,178 0 230,178 229,642 272,078 501,720
ViaCirQ 5,885,069 5,233,529 11,118,598 943,226 4,377,245 5,320,471
_________ _________ ___________ _________ _________ _________
6,115,247 5,233,529 11,348,776 1,227,849 4,669,483 5,897,332
_________ _________ __________ _________ _________ _________
Total $6,440,144 $5,233,529 $11,673,673 $1,630,983 $4,669,483 $6,300,466
========= ========= =========== ========== ========= =========
During 2000 and 1999, expenses recognized on warrants granted
are included in the Statement of Operations as general and
administrative expenses of $6,071,961 and $1,189,171,
respectively and research and development expenses of
$368,183 and $441,812, respectively.
Warrant Extensions
During 2000, the Company did not extend the exercise date of
any warrants.
During 1999, the Company extended the exercise date of
warrants to purchase 540,962 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.45 to $2.75, and were extended at the original grant
price. No expense was charged to operations since the market
price of the stock was less than the present value of the
warrant exercise price.
During 1998, the Company extended the exercise date of
warrants to purchase 1,510,180 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.25 to $3.20, and were extended at the original grant
price. No expense was charged to operations since the market
price of the stock was less than the present value of the
warrant exercise price.
Diasensor.com, Inc. Common Stock
At December 31, 2000, warrants to purchase 10,387,013 shares
of Diasensor.com, Inc. common stock were exercisable. The
per share exercise price is $.50 for 7,380,000 shares, $1.00
for 2,160,463 shares and $3.50 for 846,550 shares. The
warrants expire at various dates through 2005. To the extent
that all warrants were exercised, the Company's proportionate
ownership would be diluted from 52% at December 31, 2000 to
36%.
Diasensor.com, Inc. Warrants
During 2000, Diasensor.com, Inc. granted warrants to purchase
2,075,000 shares of its common stock and extended the
exercise date of warrants to purchase 2,483,050 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $230,178 is included in general and
administrative expenses for warrants granted during 2000.
The extended warrants were originally granted at an exercise
price ranging from $1.00 to $3.50 and extended at the same
price. No expense was charged to operations since the
estimated market price of the stock was less than the present
value of the warrant exercise price.
During 1999, Diasensor.com, Inc. granted warrants to purchase
2,080,000 shares of its common stock and extended the
exercise date of warrants to purchase 3,070,213 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $229,642 is included in general and
administrative expenses for warrants granted during 1999.
The extended warrants were originally granted at an exercise
price ranging from $.50 to $3.50 and extended at the same
price. Diasensor.com, Inc. recorded a $272,078 expense for
these extended warrants.
Petrol Rem, Inc. Common Stock
At December 31, 2000, warrants to purchase 6,290,000 shares
of Petrol Rem common stock were exercisable. The per share
exercise price is $.10 for 3,940,000 shares, $.50 for
2,150,000 shares and $1.00 for 200,000 shares. The warrants
expire at various dates through 2005. To the extent that all
the warrants were exercised, the Company's proportionate
ownership would be diluted from 75% at December 31, 2000 to
57%.
Petrol Rem Warrants
During 2000, Petrol Rem, Inc. granted warrants to purchase
1,950,000 shares of its common stock to certain officers,
directors, employees and consultants. No expense was charged
to operations since the market price of the stock was less
than the present value of the warrant exercise price. Petrol
Rem did not extend the exercise dates of any warrants during
2000.
During 1999, Petrol Rem, Inc. granted warrants to purchase
2,690,000 shares of its common stock and extended the
exercise date of warrants to purchase 1,450,000 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $54,981 is included in general and
administrative expenses for the warrants granted during 1999.
The extended warrants were originally granted at an exercise
price of $.10 and were extended at the same price. Petrol
Rem, Inc. recorded a $20,160 expense for these extended
warrants.
ViaCirQ, Inc. Common Stock
At December 31, 2000, warrants to purchase 6,713,000 shares
of ViaCirQ common stock were exercisable. The per share
exercise price is $.10 for 6,363,000 shares and $.50 for
20,000 shares, $1.00 for 310,000 shares, $2.00 for 5,000
shares and $3.00 for 15,000 shares. The warrants expire at
various dates through 2005. To the extent that all the
warrants were exercised, the Company's proportionate
ownership would be diluted from 99% at December 31, 2000 to
69.1%.
ViaCirQ, Inc. Warrants
During 2000, ViaCirQ, Inc. granted warrants to purchase
2,128,000 shares of its common stock and extended the
exercise date of warrants to purchase 3,125,000 shares of
common stock to certain officers, directors, employees and
consultants. Charges of $5,516,886 and $368,183 are included
in general and administrative expenses and research and
development expenses, respectively, for the warrants granted
during 2000. The extended warrants were originally granted
at an exercise price ranging from $0.10 to $3.00 and extended
at the same price. ViaCirQ, Inc. recorded a $5,233,529
expense for these extended warrants.
During 1999, ViaCirQ, Inc. granted warrants to purchase
295,000 shares of its common stock and extended the exercise
date of warrants to purchase 1,505,000 shares of common stock
to certain officers, directors, employees and consultants.
Charges of $501,414 and $441,812 are included in general and
administrative expenses and research and development
expenses, respectively, for these warrants granted during
1999. The extended warrants were originally granted at an
exercise price of $0.10 and extended at the same price.
ViaCirQ, Inc. recorded a $4,377,245 expense for these
extended warrants.
NOTE M - INCOME TAXES
As of December 31, 2000, the Company and its subsidiaries
except Diasensor.com, Inc., Petrol Rem, and ICTI, have
available approximately $132,500,000 of net operating loss
carryforwards for federal income tax purposes. These
carryforwards are available, subject to limitations, to
offset future taxable income, and expire in tax years 2001
through 2021. The Company also has research and development
credit carryforwards available to offset federal income taxes
of approximately $1,775,000, subject to limitations, expiring
in tax years 2005 through 2021.
As of September 30, 2000, the end of its fiscal year,
Diasensor.com, Inc. had available approximately $25,500,000
of net operating loss carryforwards for federal income tax
purposes. These carryforwards, which expire during the years
2005 through 2020, are available, subject to
limitations, to offset future taxable income. Diasensor.com,
Inc. also has research and development credit carryforwards
available for federal income tax purposes of approximately
$700,000, subject to limitations, expiring in the years 2005
through 2012.
As of December 31, 2000, Petrol Rem had available
approximately $14,000,000 of net operating loss carryforwards
for federal income tax purposes. These carryforwards, which
expire during the years 2008 through 2021, are available,
subject to limitations, to offset future taxable income.
Petrol Rem also has research and development credit
carryforwards available for federal income tax purposes of
approximately $15,000.
As of December 31, 2000, ICTI had available approximately
$1,400,000 of net operating loss carryforwards for federal
income tax purposes. These carryforwards, which expire in
years 2019 and 2021, are available, subject to limitations,
to offset future taxable income.
Certain items of income and expense are recognized in
different periods for financial and income tax reporting
purposes. In the year ended December 31, 1999, a warrant
exercise adjustment of $50,625 was reported for tax purposes.
The fair market value of warrant extentions have been
recorded and expenses of $6,092,562 and $11,118,598 have been
recognized for financial statement purposes in the years
ended December 31, 1999 and 2000, respectively.
The Company has not reflected any future income tax benefits
for these temporary differences or for net operating loss and
credit carryforwards because of the uncertainty as to
realization. Accordingly, the adoption of FAS 109 had no
effect on the financial statements of the Company.
The following is a summary of the composition of the
Company's deferred tax asset and associated valuation
allowance at December 31, 2000, December 31, 1999 and
December 31, 1998:
Dec.31,2000 Dec.31,1999 Dec.31,1998
Net Operating Loss $ 45,050,000 $ 37,672,000 $ 28,294,800
Warrant Expense 8,593,191 4,812,868 2,741,397
Tax Credit
Carryforward 1,775,000 1,370,000 1,100,000
____________ ____________ ____________
55,418,191 43,854,868 32,136,197
Valuation Allowance (55,418,191) (43,854,868) (32,136,197)
____________ ____________ ____________
Net Deferred Tax
Asset $ 0 $ 0 $ 0
============ ============ ============
The deferred tax benefit and the associated increase in the
valuation allowance are summarized in the following schedule:
Increase in
Deferred Valuation
Tax Benefit Allowance Net
Year-ended December 31, 2000 $(11,563,323) $ 11,563,323 $ 0
Year-ended December 31, 1999 $(11,718,671) $ 11,718,671 $ 0
Year-ended December 31, 1998 $( 7,306,400) $ 7,306,400 $ 0
From March 20, 1972 (inception)
Through December 31, 2000 $(55,418,191) $ 55,418,191 $ 0
NOTE N - RELATED PARTY TRANSACTIONS
Research and Development Activities
The Company is currently performing research and development
activities related to the non-invasive glucose sensor (the
Sensor) under a Research and Development Agreement with
Diasensor.com, Inc.. If successfully developed, the Sensor
will enable users to measure blood glucose levels without
taking blood samples. Diasensor.com, Inc. acquired the
rights to the Sensor, including one United States patent from
BICO for $2,000,000 on November 18, 1991. Such patent covers
the process of measuring blood glucose levels non-invasively.
Approval to market the Sensor is subject to federal
regulations including the Food and Drug Administration (FDA).
The Sensor is subject to clinical testing and regulatory
approvals by the FDA. BICO is responsible for substantially
all activities in connection with the development, clinical
testing, FDA approval and manufacturing of the Sensor. As
discussed in Note B, BICO finances its operations from the
sales of stock and issuance of debt and was reimbursed for
costs incurred under the terms and conditions of the Research
and Development Agreement for the research and development of
the Sensor by Diasensor.com, Inc.. If BICO is unable to
perform under the Research and Development or Manufacturing
Agreements, Diasensor.com, Inc. would need to rely on other
arrangements to develop and manufacture the Sensor or perform
these efforts itself.
BICO and Diasensor.com, Inc. have entered into a series of
agreements related to the development, manufacturing and
marketing of the Sensor. BICO is to develop the Sensor and
carry out all steps necessary to bring the Sensor to market
including 1) developing and fabricating the prototypes
necessary for clinical testing; 2) performing the clinical
investigations leading to FDA approval for marketing; 3)
submitting all applications to the FDA for marketing
approval; and 4) developing a manufacturable and marketable
product. Diasensor.com, Inc. is to conduct the marketing of
the Sensor. The following is a brief description of the
agreements:
Manufacturing Agreement
The manufacturing agreement between BICO and Diasensor.com,
Inc. was entered into on January 20, 1992. BICO is to act as
the exclusive manufacturer of production units of the Sensor
upon the completion of the Research and Development Agreement
and sell the units to Diasensor.com, Inc. at a price
determined by the agreement. The term of the agreement is
fifteen years.
Research and Development Agreement
Under a January 1992 agreement between BICO and
Diasensor.com, Inc., beginning in April 1992, BICO received
$100,000 per month, plus all direct costs for the research
and development activities of the Sensor. This agreement
replaced a previous agreement dated May 14, 1991. The term
of the new agreement is fifteen years. In July 1995, BICO
and Diasensor.com, Inc. agreed to suspend billings, accruals
of amounts due and payments pursuant to the research and
development agreement pending the FDA's review of the Sensor.
Purchase Agreement
In November 1991, BICO entered into a Purchase Agreement with
Diasensor.com, Inc. under which Diasensor.com, Inc. acquired
BICO's rights to the Sensor for a cash payment of $2,000,000.
This agreement permits BICO to use Sensor technology for the
manufacture and sale by BICO of a proposed implantable closed
loop system. BICO will pay Diasensor.com, Inc. a royalty
equal to five percent of the net sales of such implantable
closed loop system.
Real Estate Activities
Four of the Company's Executives and/or Directors are members
of an eight-member partnership that in July 1990 purchased
the Company's real estate in Indiana, Pennsylvania, and each
personally guaranteed the payment of lease obligations to the
bank providing the funding. For their personal guarantees,
the four individuals each received warrants to purchase
100,000 shares of the Company's common stock at an exercise
price of $.33 per share until June 29, 1995. Those warrants
still outstanding as of the original expiration date were
extended until June 29, 2001. In 1999, after all operations
were relocated from this site, the property was offered for
sale. The property was sold in October 2000 and the lease
was terminated.
Amounts due from Officers
On April 28, 1999, Fred E. Cooper, CEO and Director,
consolidated various outstanding obligations into a term loan
totaling $777,400 payable in monthly installments of $9,427
with a final balloon payment on May 31, 2002. Interest on
this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Cooper at December 31, 1999 and
December 31, 2000, include balances of $747,087 and $715,963,
respectively, on the term loan discussed above plus accrued
interest of $10,813 and $9,163, respectively.
On April 28, 1999, Glenn Keeling, a Director, consolidated
various outstanding obligations into a term loan totaling
$296,358 payable in monthly installments of $4,184 with a
final balloon payment on May 1, 2002. Interest on this loan
is accrued at a rate of 8% per annum.
Total amounts due from Mr. Keeling at December 31, 1999 and
December 31, 2000, include balances of $275,869 and $237,737,
respectively, on the term loan discussed above plus accrued
interest of $3,668 and $3,668, respectively.
On April 28, 1999, T.J. Feola, Senior Vice President and
Director, consolidated various outstanding obligations into a
term loan totaling $259,477 payable in monthly installments
of $3,676 with a final balloon payment on May 31, 2002.
Interest on this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Feola at December 31, 1999 and
December 31, 2000 include balances of $245,581 and $221,308,
respectively, on the term loan discussed above plus accrued
interest of $4,536 and $631, respectively.
As of December 31, 1999 and 2000 the Company had a note
receivable from Allegheny Food Services, Inc. of which Joseph
Kondisko, a former director, is principal owner. The loan,
which bears interest at a rate of 9.25%, is payable in
monthly installments of $3,630 with a final balloon payment
on April 1, 2001. The outstanding balance on this loan was
$172,724 at December 31, 1999 and $87,706 at December 31,
2000.
During 1999 the Company made various demand loans totaling
$150,000 to B-A-Champ.com, Inc., a company substantially
owned by Fred E. Cooper, CEO. As of December 31, 1999, these
loans had been repaid to a balance of $50,000 with an accrued
interest of $3,006. As of December 31, 1999, the Company
owned approximately 6.5% of the outstanding stock of B-A-
Champ.com, Inc. In 2000, the Company provided additional
funding of $400,000 in exchange for additional shares of B-A-
Champ.com, Inc. In addition, the Company converted a note
receivable of $50,000 from B-A-Champ.com, Inc. plus accrued
interest of $5,256 to common stock. As a result of these
additional investments, the Company owned 51% of the
outstanding stock of B-A-Champ.com, Inc. as of December 31,
2000 and included B-A-Champ.com, Inc. as a consolidated
subsidiary in the December 31, 2000 financial statements. As
of December 31, 2000, Fred E. Cooper, Chief Executive Officer
of the Company, owned approximately 30% of the outstanding
common stock of B-A-Champ.com, Inc.
Employment Contracts
The Company has employment contracts with three officers and
two employees that commenced November 1, 1994 and were
renewed on October 31, 1999. There is an additional contract
with an officer that commenced August 16, 2000. These
employment contracts set forth annual basic salaries
aggregating approximately $2,125,000 in 2000 and expiring in
periods beginning October 2001 through 2005, which are
subject to review and adjustment. The contracts may be
extended for successive two to three year periods. In the
event of change in control in the Company and termination of
employment, continuation of annual salaries at 100%
decreasing to 25% are payable in addition to the issuing of
shares of common stock as defined in the contracts. The
contracts also provide for severance, disability benefits and
issuances of BICO common stock under certain circumstances.
NOTE O - COMMITMENTS AND CONTINGENCIES
Litigation
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasensor.com, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology, et al., was certified as a class action in the
U.S. District Court for the Western District of Pennsylvania.
The suit alleged misleading disclosures in connection with
the Noninvasive Glucose Sensor and other related activities,
which the Company denies. Without agreeing to the alleged
charges or acknowledging any liability or wrongdoing, the
Company agreed to settle the lawsuit for a total amount of
$3,450,000. As of December 31, 2000, $2,150,000 has been
paid toward the settlement. An additional $1,300,000 is
included in accrued liabilities and will be paid in July
2001. Although it is not known whether the class action
plaintiffs have been formally notified of the settlement, or
if they have accepted its terms, the Company believes that
the existing settlement will end this matter.
Pennsylvania Securities Commission
The Pennsylvania Securities Commission is conducting a
private investigation of the Company and its subsidiary,
Diasensor.com, Inc., in connection with the sale of
securities. The Companies have cooperated with and provided
information to the Pennsylvania Securities Commission in
connection with the private investigation. As the
Commission's investigation is not yet complete, there can be
no estimate or evaluation of the likelihood of an unfavorable
outcome in this matter or the range of possible loss, if any.
Additional Legal Proceedings
In April 1998, the Company and its affiliates were served
with subpoenas requesting documents in connection with an
investigation by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
Company continues to submit various scientific, financial and
contractual documents in response to such requests.
NOTE P - EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan with 401(k)
provisions, which covers all employees meeting certain age
and period of service requirements. Employer contributions
are discretionary as determined by the Board of Directors.
There have been no employer contributions to the plan through
December 31, 2000.
NOTE Q -STOCK ACQUISITIONS
ICTI, Inc.
Effective March 4, 1998, pursuant to a Stock Purchase
Agreement dated February 20, 1998, the Company acquired 58.4%
of International Chemical Technologies, Inc. (ICTI) a
development stage corporation. ICTI commenced operations in
May 1997 and planned to engage in the business of
manufacturing and marketing, and licensing rights with
respect to certain corrosion/wear-resistant metal alloy
coating compositions.
Consideration for the purchase of the 58.4% interest in ICTI
included a cash payment of $1,030,000; a promissory note for
$3,350,000 at 8%; 2,000,000 shares of BICO common stock
(fair market value of $250,000), a warrant to purchase
1,000,000 shares of BICO stock for $2 per share anytime
through March 4, 2003; and the guarantee by BICO of a
promissory note for $1,300,000 payable by ICTI to the seller.
The Company recognized $5,310,501 of goodwill in connection
with the ICTI Stock Purchase Agreement. For purposes of
amortizing this goodwill, management had determined a useful
life of 5 years. Accumulated amortization on this goodwill
was $887,080 at December 31, 1998. Based upon a reevaluation
of this goodwill, the remaining balance of $4,423,421 was
included in an impairment charge recognized in 1999.
Management's reevaluation was reached due to failure of the
investment to perform as anticipated and the decision that
future cash flow was unlikely. For these same reasons an
impairment charge was recorded to write off associated plant
and equipment.
B-A-Champ.com
Effective August 1, 2000, the Company acquired an additional
44.5% of B-A-Champ.com, Inc., a development stage
corporation. This additional investment increased the
Company's ownership of B-A-Champ.com, Inc. to 51%. B-A-
Champ.com, Inc. commenced operations in 1999 and plans to
engage in various internet promotional activities.
Consideration for the purchase of the additional 44.5%
interest in B-A-Champ.com, Inc. included a cash payment of
$400,000 and the conversion of a $50,000 note receivable from
B-A-Champ.com, Inc. plus accrued interest of $5,256 into
common stock.
The Company recognized $259,964 of goodwill in connection
with the acquisition of of B-A-Champ.com, Inc. For purposes
of amortizing this goodwill, management has determined a
useful life of 5 years. Accumulated amortization on this
goodwill was $21,664 at December 31, 2000.
INTCO, Inc.
Pursuant to a Stock Purchase Agreement dated November 1,
2000, Petrol Rem, Inc. acquired 51% of INTCO, Inc. INTCO,
Inc. was incorporated on February 5, 1981 and engages in oil-
spill cleanup and the treatment of oil wells and also
charters out self-propelled barges for maintenance work.
Consideration for the purchase of 51% on INTCO, Inc. included
a cash payment of $250,000 and a promissory note for $1
million. As of December 31, 2000, the outstanding balance on
the promissory note was $850,000.
The Company recognized $310,567 of goodwill in connection
with the INTCO Stock Purchase Agreement. For purposes of
amortizing this goodwill, management has determined a useful
life of 5 years. Accumulated amortization on this goodwill
was $10,352 at December 31, 2000.
Tireless, LLC
In October 2000, Petrol Rem, Inc. and Universal Scrap Tire
Company, LLC (an unaffiliated company) formed a joint venture
called Tireless, LLC (Tireless) with Petrol Rem, Inc. and
Universal Scrap Tire Company, LLC owning 51% and 49%,
respectively. Tireless is a development stage company that
plans to engage in the acquisition, shredding and disposal of
tires and tire parts.
Consideration for the 51% ownership in Tireless included an
agreement by Petrol Rem to provide working capital funding of
$455,000 to Tireless. As of December 31, 2000, Petrol Rem
had made cash payments of $335,940 to fund the operating and
capital needs of Tireless.
Petrol Rem recognized $164,611 of goodwill in connection with
the investment in Tireless. For purposes of amortizing this
goodwill, management has determined a useful life of 5 years.
Accumulated amortization on this goodwill was $8,231 as of
December 31, 2000.
NOTE R - SUBSEQUENT EVENTS
The Company made additional investments in American Inter-
Metallics, Inc. of $35,000 in January 2001 and $75,000 in
February 2001. These additional investments increased the
Company's ownership in American Inter-Metallics, Inc. to
18.4%.
From January through late February 2001, the Company raised net
funds aggregating approximately $3,900,000 from the sale of its
convertible debentures.
In January 2001, Diasensor.com made additional investments of
$250,000 in MicroIslet, Inc. and $293,951 in Diabecore
Medical, Inc. These additional investments increased
Diasensor.com's ownership percentage to approximately 17.5%
and 27% in MicroIslet and Diabecore, respectively.
In February 2001, the Company entered into an agreement with
David L. Purdy in connection with his resignation from the
Company and its2 affiliates. The agreement required the
Company to pay Mr. Purdy an aggregate of $912,727 and place
$100,000 in an escrow account for Mr. Purdy's future attorney
fees.
No dealer, salesman or other
person has been authorized to give
any information or to make any
representation other than those
contained in this prospectus and
you may not rely upon that
information. Neither the delivery
of this prospectus nor any sale
made hereunder shall, under any
circumstances, create any
implication that there has been no
change in our affairs or
operations since the date of this
prospectus. This prospectus does
not constitute an offer to sell or
solicitation of an offer to buy
any securities offered in any
jurisdiction in which such offer
or solicitation is not qualified
to do so or to anyone to whom it
is unlawful to make such offer or
solicitation.
__________________________
TABLE OF CONTENTS Page 284,217,673 Shares
Summary 3
Risk Factors 4
Where You Can Find More
Information 12
Prospectus Delivery
Requirements 12
Use of Proceeds 12
Dividend Policy 12 BICO, INC.
Capitalization 12
Market Price for Common Stock 13
Description of Securities 14 Common Stock
Selling Stockholders 15
Plan of Distribution 18
Stock Eligible for Future Sale 18
Management's Discussion and
Analysis 19
Business 25
Legal Proceedings 43
Directors and Executive --------------------
Officers 44 P R O S P E C T U S
Executive Compensation 48 --------------------
Security Ownership 53
Interests of Named March 29, 2001
Experts and Counsel 54
Experts 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth our estimated expenses incurred in connection
with the issuance and distribution of the securities described in the
prospectus other than underwriting discounts and commissions:
Printing and Copying $ 2,500
Legal Fees 25,000
SEC Registration Fees 5,530
Accounting Fees 5,000
-------
Total $38,030
=======
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as set forth herein, we have no provisions for the
indemnification of its officers, directors or control persons. Fred
E. Cooper, Anthony J. Feola, Glenn Keeling and Michael P. Thompson
have employment contracts, which include indemnification provisions,
which indemnify them to the extent permitted by law. BICO and its
affiliates Diasense, Inc., Coraflex, Inc., Petrol Rem, Inc., and
ViaCirQ, Inc. are incorporated under the Business Corporation Law of
the Commonwealth of Pennsylvania. Section 1741, et seq. of said law,
in general, provides that an officer or director shall be indemnified
against reasonable and necessary expenses incurred in a successful
defense to any action by reason of the fact that he serves as a
representative of the corporation, and may be indemnified in other
cases if he acted in good faith and in a manner he reasonably believed
was in, or not opposed to, the best interests of the corporation,
and if he had no reason to believe that his conduct was unlawful,
except that no indemnification is permitted when such person has
been adjudged liable for recklessness or misconduct in the performance
of his duty to the corporation, unless otherwise permitted by a court
of competent jurisdiction.
Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has
been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
RECENT SALES OF UNREGISTERED SECURITIES
BICO recently completed sales of unregistered securities as
summarized below. Unless otherwise indicated, all offers and sales
were made pursuant to the "private offering" exemption under Section
4(2) of the 1933 Act. Accordingly, because the shares sold constitute
"restricted securities" within the meaning of Rule 144 under the 1933
Act, stop-transfer instructions were given to the transfer agent, and
the stock certificates evidencing the shares bear a restrictive
legend.
During 1996 through March 1998, BICO entered into agreements with
several entities, which agreed to use their best efforts to sell
BICO's common stock to foreign investors subject to the requirements
set forth in Regulation S of the Securities Act of 1933. Those
entities undertook to ensure compliance with Regulation S, which among
other things, limits a foreign investor's ability to trade BICO's
stock in the United States. In addition to sales of common stock
pursuant to Regulation S, BICO has also sold convertible preferred
stock and convertible debentures. The debentures mandatorily
convert to common stock at prices that are discounted to the market
price, but cannot be converted for periods of 45 to 90 days following
the purchase of the debentures; such holding periods were enforced via
the use of stop transfer instructions and other notices. The
following funds were raised pursuant to Regulation S offerings during
the years noted: approximately $21.6 million in 1996, approximately
$22 million in 1997, and approximately $6.9 million in 1998.
In August 1998, BICO sold convertible debentures pursuant to
Regulation D; each debenture had mandatory conversion provisions and
was convertible beginning ninety days from purchase. Proceeds of the
sales were used to continue to fund BICO's research and development
projects and to provide working capital for BICO and its subsidiaries.
Beginning in December 1999, BICO sold $5,650,000 of its Series F
Convertible Preferred Stock, and $9,850,000 of its subordinated
convertible debentures in private offerings. Both the preferred stock
and the debentures have holding periods of ninety to one hundred
twenty days prior to conversion and are convertible into common stock
at prices that are discounted to the market price. Proceeds of the
sales were used to continue to fund BICO's projects, and to provide
working capital. Beginning in December 2000, BICO sold $10,655,659 of
its subordinated convertible debentures in private offerings. The
debentures have ninety day holding periods prior to conversion and are
convertible into common stock at a 20% discount to the market price.
Proceeds of the sales were used to continue to fund BICO's projects
and to provide working capital.
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer and the terms of any
subsequent reoffering thereof. If any public offering is to be made
on terms differing from those set forth on the cover page of the
prospectus, a post-effective amendment will be filed to set forth the
terms of such offering.
EXHIBIT TABLE
Exhibit
Sequential Page No.
3.1(4) Articles of Incorp. as filed March 20, 1972... N/A
3.2(4) Amendment to Articles filed May 8,1972...... N/A
3.3(4) Restated Articles filed June 19,1975......... N/A
3.4(4) Amendment to Articles filed February 4,1980.. N/A
3.5(4) Amendment to Articles filed March 17,1981.... N/A
3.6(4) Amendment to Articles filed January 27,1982.. N/A
3.7(4) Amendment to Articles filed November 22,1982. N/A
3.8(4) Amendment to Articles filed October 30,1985.. N/A
3.9(4) Amendment to Articles filed October 30,1986. N/A
3.10(4) By-Laws...................................... N/A
3.11(5) Amendment to Articles filed December 28,1992. N/A
3.12(8) Amendment to Articles filed February 7, 2000 N/A
3.13 Amendment to Articles filed June 14, 2000 N/A
5.1 Legal Opinion of Sweeney & Associates P.C..... 97
10.1(1) Manufacturing Agreement...................... N/A
10.2(1) Research and Development Agreement........... N/A
10.3(1) Termination Agreement........................ N/A
10.4(1) Purchase Agreement........................... N/A
10.5(2) Sublicensing Agreement and Amendments........ N/A
10.6(3) Lease Agreement with 300 Indian Springs
Partnership......................... N/A
10.7(4) Lease Agreement with Indiana County.......... N/A
10.8(5) First Amendment to Purchase Agreement dated
December 8, 1992.................. N/A
10.9(6) Fred E. Cooper Employment Agreement dated
11/1/94............ N/A
10.10(6) David L. Purdy Employment Agreement dated
11/1/94........... N/A
10.11(6) Anthony J. Feola Employment Agreement dated
11/1/94........... N/A
10.12(6) Glenn Keeling Employment Agreement dated
11/1/94........... N/A
10.13(9) David L. Purdy resignation as a director letter
dated 6/1/00........... N/A
10.14(11) Michael P. Thompson Employment Agreement dated
8/16/00............................ N/A
16.1(7) Disclosure and Letter Regarding Change in
Certifying Accountants dated 1/25/95 N/A
16.2(10) Disclosure and Letter Regarding Change in
Certifying Accountants dated 8/24/00 N/A
24.1 Consents of Goff Backa Alfera & Company, LLC
Independent Certified Public Accountants 99
24.2 Consent of Counsel (Included in
Exhibit 5.1 above) 97
25.1 Power of Attorney of Fred E. Cooper 96
(included under "Signatures")
(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 Exhibits with this title to
Registration Statement on Form S-1 filed on December 1, 1992
(5) Incorporated by reference from Exhibits with this title to
Amendment No. 1 to Registration Statement on Form S-1 filed on
February 8, 1993
(6) Incorporated by reference from Exhibit with this title to Form
10-K for the year ended December 31, 1994
(7) Incorporated by reference from Exhibit with this title to Form
8-K dated January 25, 1995
(8) Incorporated by reference from Exhibit with this title to Form
10-K dated March 27, 2000
(9) Incorporated by reference from Exhibit with this title to Form
8-K dated June 2, 2000
(10)Incorporated by reference from Exhibit with this title to Form
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
Exhibit 25.1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration Statement to be signed
on its behalf by the undersigned on March 29, 2001.
BICO, INC.
By: /s/ Fred E. Cooper
Fred E. Cooper, director, CEO,
(principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Fred E. Cooper his
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-
effective amendments) to this registration Statement, and to file the
same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.
Signature Title Date
/s/ Anthony J. Feola Chief Operating Officer, March 29, 2001
Anthony J. Feola director
/s/ Michael P. Thompson Principal Accounting March 29, 2001
Michael P. Thompson Officer, Principal
Financial Officer
/s/ Glenn Keeling director March 29, 2001
Glenn Keeling
/s/ Stan Cottrell director March 29, 2001
Stan Cottrell
/s/ Paul W. Stagg director March 29, 2001
Paul W. Stagg
Exhibit 5.1
SWEENEY & ASSOCIATES, P.C.
ATTORNEYS AT LAW
7300 PENN AVENUE TELEPHONE (412) 731-1000
PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190
March 29, 2001
To the Board of Directors
BICO, Inc.
2275 Swallow Hill Road
Building 2500; 2nd Floor
Pittsburgh, PA 15220
Gentlemen:
We have examined the corporate records and proceedings of BICO,
Inc., formerly Biocontrol Technology, Inc, a Pennsylvania corporation
(the "Company"), with respect to:
The organization of the Company;
The legal sufficiency of all corporate proceedings of the
Company taken in connection with the creation, issuance, the form and
validity, and full payment and non-assessability, of all the present
outstanding and issued common stock of the Company; and
The legal sufficiency of all corporate proceedings of the
Company, taken in connection with the creation, issuance, the form
and validity, and full payment and non-assessability, when issued, of
shares of the Company's common stock (the "Shares"), to be issued by
the Company covered by this registration statement (hereinafter
referred to as the "Registration Statement") filed with the
Securities and Exchange Commission March 29, 2001, file number 333-
__________ (in connection with which Registration Statement this
opinion is rendered.)
We have also examined such other documents and such questions of
law as we have deemed to be necessary and appropriate, and on the
basis of such examinations, we are of the opinion:
(a) That the Company is duly organized and validly
existing under the laws of the Commonwealth of
Pennsylvania;
(b) That the Company is authorized to have outstanding
1,700,000,000 shares of common stock of which 1,383,704,167
shares of common stock were outstanding as of December 31,
2000;
(c) That the Company has taken all necessary and
required corporate proceeding in connection with the
creation and issuance of the said presently issued and
outstanding shares of common stock and that all of
said stock so issued and outstanding has been validly
issued, is fully paid and non-assessable, and is in
proper form and valid;
(d) That when the Registration Statement shall have
been declared effective by order of the Securities and
Exchange Commission, after a request for acceleration
by the Company, and the Shares shall have been issued
and sold upon the terms and conditions set forth in
the Registration Statement, then the Shares will be
validly authorized and legally issued, fully paid and
non-assessable.
We hereby consent (1) to be named in the Registration Statement,
and in the prospectus, which constitutes a part thereof, as the
attorneys who will pass upon legal matters in connection with the
sale of the Shares, and (2) to the filing of this opinion as Exhibit
5.1 of the Registration Statement.
Sincerely,
Sweeney & Associates, P.C.
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We have issued our report dated February 27, 2001, accompanying the
consolidated financial statements of BICO, Inc., formerly Biocontrol
Technology, Inc. and subsidiaries appearing in the 2000 Annual Report
on Form 10-K for the year ended December 31, 2000. We consent to the
inclusion in this Registration Statement of the aforementioned report
and to the use of our name, as it appears under the caption
"EXPERTS". Our report on the consolidated financial statements
referred to above includes an explanatory paragraph, which discusses
going concern considerations as to BICO, Inc.
/s/ Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
March 29, 2001