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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended 12/31/00 Commission File Number 0-10822
BICO, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 429-0673
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 20, 2001:
Common Stock, $.10 par value --$135,085,878
As of December 31, 2000, 1,383,704,167 shares of common stock,
par value $.10 per share, were outstanding.
As of December 31, 2000, zero shares of preferred stock, par
value $10 per share, were outstanding.
Exhibit index is located on pages 40 to 42
Item 1. 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. Diasensor.com, 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 Diasensor.com, 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 Diasensor.com in December
1991. Diasensor.com 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 Diasensor.com. 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 Diasensor.com.
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 Diasensor.com,
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 are also amending our protocol to change some of the
criteria we'll use to select patients for the trials. Our
amendments have not delayed the trials. We will submit our
amendments to the FDA for consideration and we don't know whether
the FDA will approve the changes. 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. We believe that this
telemedicine program, which would involve a monthly fee for the
use of the device and the service, rather than a purchase of the
device, will make the Diasensor technology available to larger
numbers of diabetics. We are conducting market studies on the
best way to market and service the telemedicine program, but we
have not yet begun to market or provide the service.
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 Diasensor.com and us, we have the
exclusive right to manufacture the noninvasive glucose sensor.
Diasensor.com will pay us for manufacturing, and that's how we'll
make money if we ever successfully market and sell the
noninvasive glucose sensor.
Diasensor.com 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, input 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 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 Diasensor.com, 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 Diasensor.com's ownership to 24% of Diabecore.
Through Diasensor.com, 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 Diasensor.com, 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
Diasensor.com's ownership to 17.5% of MicroIslet. Through
Diasensor.com, 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,
Diasensor.com, 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
Diasensor.com 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 Diasensor.com 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. Diasensor.com has filed corresponding patent
applications in a number of foreign countries.
We filed a second patent application in December 1992, which was
assigned to Diasensor.com. 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 Diasensor.com, 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.
Diasensor.com 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.
Diasensor.com also relies upon trade secret protection for
confidential and proprietary information. Although we, along
with Diasensor.com, 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.
Diasensor.com has registered the trademark "Diasensor ", which is
intended for use in connection with the Diasensor models.
Diasensor.com 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. Although the panel recommended FDA approval, to the best
of our knowledge, the FDA has not issued that approval without
conditions. We were interested to learn that the FDA panel
accepted Cygnus' use of the same error grid data analysis - a
specific method for displaying data - that the FDA rejected when
we used it for our own panel review.
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 Diasensor1000 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; Diasensor.com 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, Diasensor.com 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.
Item 2. Properties
Due to cash flow problems, Diasensor.com 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, Diasensor.com 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.
Item 3. Legal Proceedings
In May 1996, we, along with Diasensor.com and our current and
former individual directors, including David Purdy, Fred Cooper,
and Anthony J. Feola, who are also current and former
Diasensor.com 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 Diasensor.com 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
MARKET PRICE FOR COMMON STOCK
Our common stock trades on the electronic bulletin board under
the symbol "BIKO". On February 20, 2001, the closing bid price
for the common stock was $.098 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.
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, 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
February 20, 2001, we had $2,400,000 and $6,290,659 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.
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.
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.
Item 6. 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
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is a summary of the more detailed information in
our financial statements. You should carefully review those
financial statements before you decide whether to invest in our
stock.
Forward-Looking Statements
This section contains forward-looking statements. We discussed
these kinds of statements on page 2, and you should review that
section.
Liquidity and Capital Resources
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, Diasensor.com, Inc. also made investments in
unconsolidated subsidiaries. In January 2000, Diasensor.com
initiated an alliance with MicroIslet, Inc.; in return for its
initial equity investment of $500,000, Diasensor.com received a
10% stake with an option to purchase an additional 10% in the
future. As of December 31, 2000, Diasensor.com 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. Diasensor.com
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, Diasensor.com
invested $693,520 in Diabecore and received a 20.8% ownership
interest. This project is also in the research and development
phase. Diasensor.com 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 Diasensor.com, 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, Diasensor.com, 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 Diasensor.com 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 Diasensor.com, our 52% owned subsidiary. In 1998,
Diasensor.com'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, Diasensor.com'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 Diasensor.com'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 Diasensor.com in 2000 due to the continued decline in the
net worth of Diasensor.com. 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, Diasensor.com, 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
Diasensor.com 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, Diasensor.com, Inc. also made investments in
unconsolidated subsidiaries. In January 2000, Diasensor.com
invested an additional $250,000 in MicroIslet, Inc. Diasensor.com
now owns a total of 17.5% of MicroIslet, and has invested a total
of $1,250,000. Diasensor.com also invested an additional
$293,951 in Diabecore Medical, Inc. Diasensor.com now owns 27%
of Diabecore and has invested a total of $970,874. Diasensor.com
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 February 2001, we raised net funds
aggregating approximately $3,890,659 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, 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.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements appear on pages F-1 through
F-32 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Effective August 24, 2000, upon a determination by the board of
directors, we engaged Goff Backa Alfera & Company, LLC as our
independent auditors and accountants to replace Thompson Dugan,
P.C. Goff Backa Alfera & Company, LLC also serves as the
independent auditors and accountants for Diasensor.com, replacing
Thompson Dugan, P.C. Neither company had any disagreements with
Thompson Dugan, P.C. or Goff Backa Alfera & Company, LLC on any
matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company as of
December 31, 2000 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 Diasensor.com. 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 Diasensor.com 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 Diasensor.com'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 Diasensor.com, 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 a full-time employee of BICO in the
position of vice president of marketing; his primary
responsibilities are to manage our ViaCirQ operations. From 1976
through 1991, he was a vice president in charge of new business
development at Equitable Financial Management, Inc., a regional
equipment lessor. His responsibilities included initial contacts
with banks and investment firms to open new lines of business
referrals in connection with financing large equipment
transactions. He is also president and a director of ViaCirQ.
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.
Item 11. Executive Compensation
The following table contains information on our executive
officer's annual and long-term compensation for their services to
us in all capacities for the years ended December 31, 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 $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
Diasensor.com. In 1999, he was paid $183,333 by BICO and
$266,667 by Diasensor.com. In 1998, he was paid $66,802 by
BICO and $100,000 by Diasensor.com. All amounts are
included in the table above. Mr. Purdy is paid by BICO based
on his employment agreement. Diasensor.com 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
Diasensor.com; 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 Diasensor.com and
$104,000 each by Petrol Rem and IDT, which is now ViaCirQ.
In 1998, in addition to his BICO salary of $250,000,
Diasensor.com 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 Diasensor.com, 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
Diasensor.com. 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 Diasensor.com. All amounts are included in the
table above. Mr. Feola is paid by BICO based on his
employment agreement. Diasensor.com 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.
Item 12. 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.
Item 13. Certain Relationships and Related Transactions
We share common officers and directors with our
subsidiaries. In addition, BICO and Diasensor.com have
entered into several intercompany agreements including a
purchase agreement, a research and development agreement and
a manufacturing agreement, which we describe later in this
section. Our management believes that it was in our
best interest to enter into those agreements and that the
transactions were based upon terms as fair as those which
may have been available in comparable transactions with
third parties. However, we did not hire any unaffiliated
third party to determine independently the fairness of those
transactions. Our policy concerning related party
transactions requires the approval of a majority of the
disinterested directors of both the corporations involved,
if applicable.
Employment Relationships
Our board of directors approved employment agreements on
November 1, 1994 for 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 Diasensor.com, and
the chairman and chief scientist of Diasensor.com. 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 Diasensor.com effective February 2001. Fred E. Cooper,
chief executive officer, executive vice president and a
director, is a director of Diasensor.com, and Petrol Rem.
He is also the president of Diasensor.com. Mr. Cooper
devotes approximately 60% of his time to BICO and 40% to
Diasensor.com. Anthony J. Feola, senior vice president and a
director, is also a director of Diasensor.com, 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 Diasensor.com, and Petrol Rem.
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.
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 Diasensor.com, 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
Diasensor.com, 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. Diasensor.com 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 Diasensor.com'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 Diasensor.com common stock, which
BICO received under the license and marketing agreement.
Purchase agreement. BICO and Diasensor.com entered into a
purchase agreement dated November 18, 1991 whereby BICO gave
Diasensor.com 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, Diasensor.com may try, at
its own expense, to obtain patents on other inventions
relating to the noninvasive glucose sensor. Diasensor.com
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 Diasensor.com 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
Diasensor.com in connection with any sales by BICO of its
proposed closed-loop system.
Research and Development Agreement. Diasensor.com 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 Diasensor.com 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.
Diasensor.com 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 Diasensor.com
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 Diasensor.com 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. Diasensor.com 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
Diasensor.com's sales price of each sensor. Diasensor.com's
sales price of each sensor is defined as the price paid by
any purchaser, whether retail or wholesale, directly to
Diasensor.com for each sensor. Subject to certain
restrictions, BICO may assign its manufacturing rights to a
subcontractor with Diasensor.com's written approval. The
term of the agreement is fifteen years.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements
The financial statements, together with the report thereon
of the Company's independent accountants, are included in
this report on the pages listed below.
Financial Statements Page
Report of Independent Certified Public Accountants
Goff Backa Alfera & Company, LLC F-1
Consolidated Balance Sheets
December 31, 2000 and 1999 F-2
Consolidated Statements of Operations
for the years ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998 F-8
2. Exhibits:
(b) Reports on Form 8-K
The Company filed a Form 8-K report on November 16,
2000, for the event dated November 7, 2000. The items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on November 16,
2000, for the event dated November 16, 2000. The items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on November 27,
2000, for the event dated November 22, 2000. The item
listed was Item 5, Other Events.
The Company filed a Form 8-K report on November 27,
2000, for the event dated November 22, 2000. The items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on January 24,
2001, for the event dated January 22, 2001. The items
listed were Item 5, Other Events; and Item 7(c),
Exhibits.
The Company filed a Form 8-K report on February 5, 2001
for the event dated February 2, 2001. The items listed
were Item 5, Other Events; and Item 7(c), Exhibits.
(c) Exhibits Required by Item 601 of Regulation S-K
The following exhibits required by Item 601 of Regulation
S-K are filed as part of this report. Except as otherwise
noted, all exhibits are incorporated by reference from
exhibits to Form S-1 (Registration #33-55200) filed December
1, 1992 or from exhibits to Form 10-K filings prior to or
subsequent to that date.
3.1(4) Articles of Incorporation as filed March 20, 1972
3.2(4) Amendment to Articles filed May 8,1972
3.3(4) Restated Articles filed June 19,1975
3.4(4) Amendment to Articles filed February 4,1980
3.5(4) Amendment to Articles filed March 17,1981
3.6(4) Amendment to Articles filed January 27,1982
3.7(4) Amendment to Articles filed November 22,1982
3.8(4) Amendment to Articles filed October 30,1985
3.9(4) Amendment to Articles filed October 30,1986
3.10(4) By-Laws
3.11(5) Amendment to Articles filed December 28,1992
3.12(8) Amendment to Articles filed February 7, 2000
3.13 Amendment to Articles filed June 14, 2000
10.1(1) Manufacturing Agreement
10.2(1) Research and Development Agreement
10.3(1) Termination Agreement
10.4(1) Purchase Agreement
10.5(2) Sublicensing Agreement and Amendments
10.6(3) Lease Agreement with 300 Indian Springs Partnership
10.7(4) Lease Agreement with Indiana County
10.8(5) First Amendment to Purchase Agreement dated December
8, 1992
10.9(6) Fred E. Cooper Employment Agreement dated November
1, 1994
10.10(6) David L. Purdy Employment Agreement dated November
1, 1994
10.11(6) Anthony J. Feola Employment Agreement dated
November 1, 1994
10.12(6) Glenn Keeling Employment Agreement dated November
1, 1994
10.13(9) David L. Purdy resignation as a director letter
dated June 1, 2000
10.14 Michael P. Thompson Employment Agreement dated August
16, 2000
16.1(7) Disclosure and Letter Regarding Change in Certifying
Accountants dated January 25, 1995
16.2(10) Disclosure and Letter Regarding Change in
Certifying Accountants dated August 24, 2000
(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
Conformed Copy
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 27th day of
February 2001.
BICO, INC.
/s/ Fred E. Cooper
By: Fred E. Cooper
CEO, principal executive
officer and director
Pursuant to the requirements of the Securities Exchange
Act of 1934, the following persons on behalf of the
Registrant and in the capacities and on the dates indicated
have signed this report below.
Signature Title Date
/s/ Anthony J. Feola Senior Vice President, February 27, 2001
Anthony J. Feola Director
/s/ Michael P. Thompson Chief Financial Officer, February 27, 2001
Michael P. Thompson principal financial officer,
principal accounting officer
/s/ Glenn Keeling Director February 27, 2001
Glenn Keeling
/s/ Stan Cottrell Director February 27, 2001
Stan Cottrell
/s/ Paul W. Stagg Director February 27, 2001
Paul W. Stagg
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.
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of the 16th day of
August, 2000 (the "Agreement"), by and between BICO, INC. ("Employer"
or the "Corporation") and MICHAEL P. THOMPSON ("Employee"). The
Corporation and Employee are sometimes hereinafter referred to as the
"Parties".
RECITALS:
WHEREAS, the Corporation desires to secure the services of
Employee as its Chief Financial Officer for an extended period; and
WHEREAS, Employee is willing to enter into this Agreement and to
perform such services for the Corporation on certain terms and
conditions set forth herein;
WHEREAS, Employer is a Pennsylvania corporation with its
principal business offices in Pittsburgh, Pennsylvania. Employee has
substantial business experience and related business skills which can
be utilized in Employer's business. Employer desires to employ
Employee upon the terms and conditions hereinafter set forth, and
Employee desires to accept such employment. Employer and Employee
desire to set forth in writing the terms and conditions of their
agreements and understandings.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the Parties
hereto agree that the employment of Employee by the Corporation shall
be governed as follows:
ARTICLE 1
DEFINITIONS
1.01 Annual Salary. For purposes of this Agreement, the term
"Annual Salary" shall mean the compensation payable to Employee
as provided in section 6.01 hereof.
1.02 Cause. For purposes of this Agreement, the term "cause" is
defined to include acts of serious moral turpitude of Employee;
gross negligence of Employee in connection with the performance
of his duties as provided for in this Agreement, which gross
negligence causes or reasonably could cause material harm to
Employer; fraud by Employee in connection with the performance of
his duties hereunder; material breach by Employee of any of the
terms and conditions of this Agreement, or Employee's refusal to
follow Employer's reasonable orders and directions in connection
with the performance of Employee's duties, as described in
Article 5 of this Agreement, which breach or refusal is not
cured, as provided below, after receipt of written notice from
Employer specifying the breach or refusal of Employee; provided
that it shall not be "cause" for termination as described in this
section if Employee, upon receipt of such notice, undertakes
reasonable measures to correct such breach or refusal and
diligently pursues such corrective measures to completion.
1.03 Change in Control. For purposes of this Agreement, a
"change in control" shall have occurred when: (i) any person
becomes the beneficial owner (as defined by Regulations 13D-G of
the General Rules and Regulations under the Securities and
Exchange Act of 1934, as in effect from time to time, or any
successor rules or regulations thereto) of 20% or more of the
voting power of the Corporation's then outstanding common stock,
if such person does not either own such shares on the date of
this Agreement or receive such shares by will or by the laws of
descent or distribution from a person who owned the shares on the
date of this Agreement; (ii) one-third (1/3) or more of the
members of the Corporation's Board of Directors are not
continuing directors, as defined in section 1.04 herein; or (iii)
the occurrence of an exercise of a controlling influence over the
management or policies of the Corporation by any person or
persons acting as a group within the meaning of Section 13(d) of
the Securities and Exchange Act of 1934, as amended. This
limitation shall not apply to a transaction in which the
Corporation forms a holding company without change in the
respective beneficial ownership interest of the stockholders
other than pursuant to the exercise of any dissenter and
appraisal rights or the purchase of shares by underwriters in
connection with a purchase offering.
1.04 Continuing Director. For purposes of this Agreement,
"continuing director" shall mean (i) any director of the
Corporation who was a member of the Corporation's Board of
Directors on July 31, 2000; and (ii) any successor of a
continuing director who is recommended, nominated, or elected to
succeed the continuing director by a majority of the then
continuing directors.
1.05 Disabled. For purposes of this Agreement, Employee shall be
deemed to be "disabled" when, in the reasonable judgment of the
Corporation's Board of Directors, he is unable to perform
substantially all of the duties required of him in connection
with his employment hereunder by reason of physical or mental
illness or injury, and such inability shall have continued for
one hundred eighty (180) consecutive days.
1.06 Person. For purposes of this Agreement, the term "person"
means an individual other than Employee, or a corporation,
partnership, limited partnership, limited liability company,
trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, any "affiliate" or
"associate" as the terms are defined in Rule 12b-2 of the General
Rules and Regulations under the Securities and Exchange Act of
1934, as amended, or any other form of entity not specifically
listed herein.
ARTICLE 2
EMPLOYMENT
2.01 The Corporation hereby employs Employee, and Employee hereby
accepts employment by the Corporation upon all the terms and
conditions hereinafter set forth.
ARTICLE 3
TERM OF EMPLOYMENT
3.01 Subject to the provisions for the termination of this
Employment Agreement pursuant to Article 14 hereof, the initial
term of this Agreement (the "Initial Term") shall be for a period
of commencing on August 16, 2000 and ending on August 31, 2005,
and continuing thereafter for successive two (2) year periods
("Renewal Terms"), unless, more than ninety (90) days prior to
the expiration of the Initial Term or any Renewal Term, either
Party gives notice that this Agreement will terminate as of the
end of the Initial Term or any such Renewal Term. The Initial
Term, plus any Renewal Terms, are collective referred to herein
as the "Employment Term".
ARTICLE 4
EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
4.01 Employee represents and warrants to Employer that he is free
to accept employment with Employer as contemplated herein, and he has
no other prior obligations or commitments of any kind to anyone which
would in any way interfere with the acceptance or full performance of
his obligations under this Agreement.
ARTICLE 5
DESCRIPTION OF DUTIES AND EXTENT OF SERVICES
5.01 Duties. Employee agrees to devote such working time,
energy, knowledge, and efforts as Employer deems necessary to the
performance and discharge of employee's duties and
responsibilities hereunder, and such other reasonable duties and
responsibilities as are assigned to him from time to time by the
Board of Directors of Employer, at the business offices of
Employer or such other places as may be designated by Employer.
Employee shall use his best efforts to be loyal and faithful at
all times to Employer and to endeavor to improve his ability and
his knowledge of the business of Employer in an effort to
increase the value of his services for the mutual benefit of
Employer and Employee.
5.02 Payments. Employee hereby agrees that all fees or other
remuneration received or collected as a result of services
rendered by him to employer or otherwise relating in any manner
to Employer's business shall be the property of Employer.
Employee acknowledges that his employment does not confer upon
him any ownership interest in or claim upon any fees earned by
Employer for his services, whether said fees are collected during
the Employment Term or thereafter. Employee expressly agrees
that the compensation and benefits received by him or payable to
him under this Agreement shall satisfy and discharge in full all
his claims upon Employer for compensation in respect of his
services.
5.03 Position. Employee shall serve as Chief Financial Officer
of Employer, with such duties as are assigned to him by the Board
of Directors employer consistent with his status and capacity as
Vice President of Finance of Employer.
ARTICLE 6
COMPENSATION
As his entire compensation for all services to be rendered to
Employer during the Employment Term, in whatever capacity rendered,
and for all rights herein granted by employee to the Corporation,
Employee shall receive:
6.01 Annual Salary. The Corporation shall pay Employee an Annual
Salary at a rate of $300,000 beginning on August 16, 2000, and
continuing until termination of Employee's employment, payable on
a bi-monthly basis. Employee's Annual Salary shall be reviewed
by the Board of Directors (or by a compensation committee there
of) immediately following the six-month anniversary date of this
Agreement, and thereafter annually as of the beginning of each
calendar year. Such Annual Salary shall be adjusted consistent
with Employee's performance and Employer's financial condition;
provided, however, that Employee's Annual Salary shall not be
decreased except with the consent and agreement of Employee.
6.02 Bonus. Employee shall receive such bonus compensation, if
any, as the Board of Directors shall deem appropriate.
6.03 Fringe Benefits. Employer shall provide Employee with
normal fringe benefits provided to its executive personnel
including, without limitation, a medical program, and such other
fringe benefits, including retirement programs, as employer may
determine from time to time.
6.04 Vehicle. During the Employment Term, Employer shall
reimburse Employee for the cost of purchasing or leasing a
vehicle for business use, or at Employer's option, shall provide
a company-owned vehicle to Employee.
ARTICLE 7
DEDUCTIONS
7.01 Deductions shall be made from Employee's Annual Salary and
any bonuses for withholding tax and other such taxes or similar
charges as may from time to time be required by governmental
authority.
ARTICLE 8
EXPENSES
8.01 Employee is expected, from time to time, to incur reasonable
expenses for promoting the business of Employer which will be
reimbursed by Employer. Such expenses include, but are not
limited to, expenses for travel, continuing professional
education, professional liability insurance, professional
licenses, professional associations, entertainment, and
miscellaneous expenses incurred in the performance of Employee's
duties and responsibilities, or in the conduct of the business of
Employer. Reimbursement for such expenses shall be subject to
such regulations and procedures as Employer may from time to time
establish.
ARTICLE 9
FACILITIES AND PROPERTY RIGHTS
9.01 Facilities. Employer shall provide and maintain such
facilities, equipment, and supplies as it deems necessary for
Employee's performance of his duties under this Employment
Agreement. Employer shall pay all expenses for supplies,
publications, and office furniture necessary for Employee to
conduct the services contemplated herein for Employer.
9.02 Property Rights. Upon termination of this Agreement,
Employee shall immediately turn over to the Corporation all of
the Corporation's property, including all items used by employee
in rendering services hereunder or otherwise, that may be in
employee's possession or under his control.
ARTICLE 10
EMPLOYER RECORDS
10.01 Ownership. All books, records, and documents relating
to Employer's business shall be the sole and permanent property
of Employer. Employee shall not be entitled to any copies
thereof, notwithstanding his participation therein.
10.02 Disclosure. Unless required by service of legal
process, no employer records shall be displaced or delivered to,
or any information therefrom disclosed, to any person not
connected with Employer except in strict accordance with the
rules of Employer from time to time established.
ARTICLE 11
VACATION
11.01 During the term of this Agreement, Employee shall be
entitled to four (4) weeks of annual vacation, and such
additional vacation, if any, as the Corporation's Board of
Directors shall deem appropriate. Employee shall not be entitled
to carry vacation over from year to year, nor shall Employee be
paid for unused vacation time, unless specifically authorized by
Employer's Board of Directors.
ARTICLE 12
DISABILITY
12.01 Disability. If Employee should become disabled (as
defined in section 1.02 hereof) during the Employment Term, in
lieu of the Annual Salary provided for in section 6.01 hereof,
Employee shall be paid the amounts set forth below, reduced,
however, by an amount paid directly to Employee under any
disability insurance policy with respect to which Employer has
paid the premiums. Such amounts shall be payable regardless of
whether Employer terminates this Agreement pursuant to Section
14.02(iv).
12.02 First Year. During the first year or any part thereof
of any disability, Employee shall be paid at a rate of one
hundred percent (100%) of his Annual Salary at the time of
commencement of the disability.
12.03 Second Year. During the second year or any part
thereof of any disability, Employee shall be paid at a rate of
seventy percent (70%) of his Annual Salary at the time of
commencement of the disability.
12.04 After Second Year. If, after two (2) years, Employee
continues to be disabled, he shall be deemed to be permanently
incapacitated, and Employee shall no longer receive any
remuneration hereunder, except as set forth in any disability
insurance policy owned by Employer for Employee. Nothing herein
shall create an obligation on the part of Employer to acquire any
such disability insurance policies, or if acquired, to continue
such coverage in force.
ARTICLE 13
STANDARDS
13.01 Employee shall perform his duties under this Agreement
in accordance with the highest standards of professional ethics
and practices as may from time to time be applicable during the
Employment Term.
ARTICLE 14
TERMINATION OF EMPLOYMENT
14.01 Termination by Employee. In the event that Employee
shall terminate his employment with Employer for any reason,
Employer shall pay to Employee as final remuneration all amounts
accrued, due and payable under this Agreement, to the extent not
previously paid to Employee, in accordance with the terms hereof.
Employee may terminate this Agreement effective ninety (90) days
after he gives written notice of his intent to do so.
14.02 Termination by Employer. The Employment Term may, at
the option of the Board of Directors of Employer, be terminated
upon the happening of any of the following events:
(i) If Employee accepts (without having obtained the prior
written consent of Employer) employment with any other company,
and fails to terminate such employment within five (5) days after
receipt of written notice from Employer to do so;
(ii) If Employee shall become, without having obtained the prior
written consent of Employer, a director or stockholder owning
more than 10% of the outstanding common stock of a company which
materially competes with Employer's business;
(iii) If this Agreement shall become terminable for cause, as
that term is defined in section 1.02 hereof; or
(iv) If Employee shall become disabled, as that term is defined
in section 1.05 hereof.
14.03 Death of Employee. This Agreement shall terminate
immediately upon the death of Employee, in which event all
compensation, reimbursable expenses and other benefits accrued
through the date of Employee's death, as well as any payments
required pursuant to Article 18 hereof, shall be paid to
Employee's estate or beneficiary. Moreover, in the event of
Employee's death during the Employment Term, the Corporation
shall continue to pay Employee's Annual Salary, in quarterly
installments at the then-current rate, for a period of one (1)
year following his death.
14.04 Mutual Termination. This Agreement may be terminated
at any time by the Parties' mutual written agreement to do so.
ARTICLE 15
CONFIDENTIALITY AND DISCLOSURE OF INFORMATION
15.01 Employee acknowledges that, in and as a result of his
employment hereunder, he will be making use of, acquiring and/or
adding to confidential or proprietary information developed by
Employer and of a special and unique nature and value to
Employer, including, but not limited to, the nature and material
terms of business opportunities and proposals available to
Employer, Employer's products, methods, systems and research, the
names and addresses of its customers and suppliers, prices
charged and paid by employer or its customers, technical
memoranda, research reports, laboratory notebooks, designs and
specifications, record cards, customers' and suppliers' records,
customer files, services, operating procedures, charts, accounts
receivable ledgers, methods and systems, accounts payable
ledgers, record of amounts received from customers, financial
records of Employer and of customers, insurance records, and
other information, data, and documents now existing or hereafter
acquired by Employee or Employer, regardless of whether any such
information, data, or documents qualify as a "trade secret" under
applicable Federal or State law (collectively, the "Confidential
Information"). As a material inducement to employer to enter
into this Agreement and to pay Employee the compensation referred
to in Article 6 hereof, along with other consideration provided
herein, Employee covenants and agrees that he shall not at any
time during the Employment Term or following any termination
thereof, directly or indirectly, divulge or disclose or use for
any purpose whatsoever (except for the sole and exclusive benefit
of Employer), and Confidential Information which has been
obtained by or disclosed to him as a result of his employment
with Employer. In accordance with the foregoing, Employee
further agrees that he will at no time retain or remove from the
Corporation's premises records of any kind or description
whatsoever for any purpose whatsoever unless authorized by
Employer, and will return all of the foregoing to Employer upon
Employer's request or upon any termination of his employment. In
the event of a breach or threatened breach by Employee of any of
the provisions of this Article 15, Employer, in addition to and
not in limitation of any other rights, remedies, damages
available to Employer at law or in equity, shall be entitled to a
permanent injunction in order to prevent or to restrain any such
breach by employee or by Employee's partners, agents,
representatives, servants, employers, employees and/or any and
all persons directly or indirectly acting for or with him.
ARTICLE 16
COVENANT AGAINST COMPETITION
16.01 Non-Competition. Employee acknowledges that his
services to be rendered hereunder are of a special and unusual
character which have a unique value to Employer, the loss of
which cannot adequately be compensated by damages in an action at
law. In view of the unique value to employer of the services of
Employee for which Employer has contracted hereunder, and because
of the Confidential Information to be obtained by or disclosed to
Employee as set forth in Article 15 herein, and as a material
inducement to Employer to enter into this Employment Agreement
and to pay to Employee the compensation referred to in Article 6
hereof and other consideration provided herein, employee
covenants and agrees that he will not during the Employment Term
and for a period of one (1) year after any termination thereof:
(i) engage in any business in competition with the business of
Employer as conducted during the Employment Term (the
"Activities") in the geographic area (the "Area") consisting of
(a) the States of Pennsylvania, New Jersey and New York, and (b)
any other state in the United States (including the District of
Columbia) in which Employer has sales of products or services
during the Employment Term; (ii) become associated as manager,
supervisor, employee, officer, director, consultant, advisor,
stockholder owning more than 10% of the outstanding stock, or
otherwise with any person engaging in any activity competitive
with the Activities anywhere within the Area; (iii) call upon any
customer of Employer for the purposes of engaging in any
activities for any person other than Employer competitive with
the Activities within the Area; (iv) divert, solicit, or take
away any customer or customers of Employer or solicit, hire, or
attempt to hire any employee of Employer; or (v) attempt to
convert to other methods of using the same or similar products or
services as provided by Employer, any customer or account of
Employer located in the Area with which Employee has had any
contact as a result of his employment by Employer hereunder.
16.02 Non-Usurpation. During the Employment Term, Employee
covenants and agrees that he shall offer to Employer any business
opportunities which shall become available to him as a result of
his employment by Employer.
16.03 Remedies. Employee covenants and agrees that if he
shall violate any of his covenants or agreements provided for
pursuant to this Article, Employer shall be entitled to an
accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which employee, directly
or indirectly, has realized and/or may realize as a result of,
growing out of, or in connection with any such violation; such
remedy shall be in addition to and not in limitation of any
injunctive relief or other rights or remedies to which Employer
may be entitled at law or in equity or under this Agreement.
Employee also consents to the jurisdiction of the Commonwealth of
Pennsylvania in connection with any action or proceeding which
seeks to enforce Employer's rights under this Article 16.
ARTICLE 17
REASONABLENESS OF RESTRICTIONS
17.01 Acknowledgment. Employee has carefully read and
considered the provisions of Article 15 and 16 hereof, and having
done so, agrees that the restrictions set forth in such Articles
(including, but not limited to, the time period of restriction
and the geographical areas of restriction set forth in Article 16
hereof) are fair and reasonable and are reasonably required for
the protection of the interests of Employer, its officers,
directors, and other employees.
17.02 Severability and Modification. In the event that,
notwithstanding the foregoing, any of the provisions of Articles
15 and 16 shall be held to be invalid or unenforceable, the
remaining provisions thereof shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable
parts had not been included therein. In the event that any
provision of Article 16 hereof relating to time period and/or
areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such
court deems reasonable and enforceable, said time period and/or
areas of restriction shall be deemed to become, and thereafter
be, the maximum time period and/or area which such court deems
reasonable and enforceable.
ARTICLE 18
CHANGE IN CONTROL; SEVERANCE PAYMENTS
18.01 Change in Control. In the event that a change in
control of the Corporation (as defined in section 1.03 hereof)
occurs during the Employment Term, then, regardless of whether
Employee thereafter continues to be employed by the Corporation,
Employee shall be issued, on the date of the change in control,
at no cost to him, a number of shares of common stock of the
Corporation equal to two percent (2%) of the outstanding shares
of common stock of the Corporation immediately after the change
in control.
18.02 Termination. Upon the occurrence of any Triggering
Event (as defined below), Employer shall pay, in quarterly
installments, to Employee, as severance payments, the following
amounts: (i) during the three (3) year period commencing on the
date of termination of Employee's employment hereunder (the
"Termination Date"), an amount equal to one hundred percent
(100%) of Employee's Annual Salary during the year preceding the
Termination Date; (ii) during the two (2) year period commencing
on the third anniversary of the Termination Date, an amount equal
to fifty percent (50%) of Employee's Annual Salary during the
year preceding the Termination Date; and (iii) during the five
(5) year period commencing on the fifth Anniversary of the
Termination Date, an amount equal to twenty-five percent (25%) of
Employee's Annual Salary during the year preceding the
Termination Date. Notwithstanding the foregoing, there shall be
credited against the foregoing payments any amounts received by
Employee, or which Employee is entitled to receive, during the
ten (10) year period commencing on the Termination Date, which
amounts (i) are paid or payable from any pension, profit sharing
or other qualified retirement plan maintained by Employer or any
of its affiliates, (ii) represent Employer's contributions to
such plan or plans, or interest thereon, and not Employee's
contributions, or interest thereon, and (iii) are paid or payable
to employee without liability for any excise tax or similar tax
or penalty on early distributions.
For the purposes of this Article 18, the term "Triggering
Event" shall mean the termination of Employee's employment with
Employer for any reason (including, without limitation, by reason of
Employee's death, disability, retirement or involuntary termination
without cause); provided, however, that "Triggering Event" shall not
include a termination for cause of Employee's employment or a
voluntary termination by Employee prior to reaching age sixty-five
(65).
18.03 Medical Coverage. During the period described in
section 18.02 and so long as Employee is entitled to receive
payments thereunder, Employer shall continue to provide medical
insurance coverage for Employee and his dependents at least equal
to that which was provided at the Termination Date.
18.04 Consideration. All payments received by Employee under
sections 18.01, 18.02, or 18.03 constitute a portion of the
consideration for the rights granted to Employer under Article 15
and 16 hereof, as well as severance pay.
ARTICLE 19
INDEMNIFICATION
19.01 Indemnification. Employee (or his legal
representative) shall be indemnified for all legal expenses and
all liabilities in connection with any proceeding involving him
by reason of his being or having been a director, officer,
employee, or agent of the Corporation or any of its affiliates to
the extent permitted by the laws of the Commonwealth of
Pennsylvania or the states of incorporation of the Corporation's
affiliates, irrespective of whether Employee is employed by the
Corporation at the time an action resulting in such expenses or
liabilities occurs.
19.02 Costs. In the event of any action, proceeding, or
claim against Employee arising out of his serving or having
served as aforesaid in section 19.01 hereof, which in Employee's
reasonable judgment requires him to retain counsel or otherwise
expend personal funds for his defense in connection therewith,
the Corporation shall advance to Employee (or pay directly to his
counsel) counsel fees and other costs associated with Employee's
defense of such action, proceeding, or claim
ARTICLE 20
LAW APPLICABLE; SEVERABILITY
20.01 This Agreement shall be governed by and construed
pursuant to the laws of the Commonwealth of Pennsylvania, where
it is made and executed. If any terms or part of this Agreement
shall be determined to be invalid, illegal, or unenforceable in
whole or in part, the validity of the remaining part of such term
or the validity of any other terms of this Agreement shall not in
any way be affected. All provisions of this Agreement shall be
construed to be valid and enforceable to the fullest extent
permitted by law.
ARTICLE 21
NOTICE
21.01 Any notices required or permitted to be given pursuant
to this Agreement to Employer or Employee shall be in writing and
shall be deemed given upon personal delivery thereof or upon
deposit of the same in the United States mail, certified or
registered mail, return receipt requested, first class postage
and registration fees prepaid, and addressed to the principal
office of Employer or to Employee's last known principal
residence address, or such other address as is most recently
designated by a Party by notice given as aforesaid.
ARTICLE 22
BINDING PROVISIONS AND PERFORMANCE
22.01 This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their successors in interest
of any kind whatsoever, and all such parties agree to be bound by
the provisions contained herein.
ARTICLE 23
AMENDMENT
23.01 No amendment or variation of the terms of this
Employment Agreement shall be valid unless made in writing and
signed by the Parties hereto.
ARTICLE 24
ENTIRE EMPLOYMENT AGREEMENT
24.01 This Employment Agreement represents the entire
agreement between the Parties hereto with respect to the subject
matter hereof and there are no representations, warranties, or
commitments, except as set forth herein. This Agreement may be
amended only by an instrument in writing executed by the Parties
hereo.
ARTICLE 25
WAIVER OF VIOLATION NOT CONTINUING
25.01 The waiver by either Party of a breach or violation of
any provision of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach.
ARTICLE 26
ASSIGNMENT
26.01 This Agreement is personal to each of the Parties
hereto, and neither Party may assign nor delegate any of his or
its rights or obligations hereunder without first obtaining the
written consent of the other Party.
ARTICLE 27
HEADINGS
27.01 The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
ARTICLE 28
ARBITRATION
28.01 Except as otherwise provided in this Agreement, any
controversy or claim arising out of or relating to this Agreement
or breach thereof, shall be settled by arbitration in accordance
with the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. In reaching his or her
decision, the arbitrator shall have no authority to change or
modify any provision of this Agreement.
ARTICLE 29
SAVINGS CLAUSE
29.01 Should any valid Federal or State law or final
determination of any administrative agency or court of competent
jurisdiction affect any provision of this Agreement, the
provision or provisions so affected shall be automatically
conformed to the law or determination, and otherwise this
Agreement shall continue in full force and effect.
ARTICLE 30
COUNTERPARTS
30.01 This Employment Agreement may be executed in multiple
counterparts, each of which shall be an original, but all of
which shall be deemed to constitute one instrument.
ARTICLE 31
BENEFICIARIES
31.01 In the event that Employee shall die prior to his
receipt of all payments to which he is entitled hereunder, all
remaining payments shall be made to the beneficiary or
beneficiaries designated by Employee by a signed and dated
writing given to Employer for this purpose, or if none, then to
Employee's surviving spouse, or if none, then to his estate.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands
and seals on the day and year first above written.
ATTEST: EMPLOYER:
BICO, Inc.
_____________________________________ By: /s/ Fred E. Cooper
Title:_________________________________ Title: CEO
WITNESS: EMPLOYEE:
_____________________________________ /s/ Michael P. Thompson
Michael P. Thompson