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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2002
Commission file number 0-10822
BICO, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, PA 15220
(Address of principal executive offices) (Zip Code)
(412) 429-0673
Registrant's telephone number, including area code
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of September 30, 2002, 6,407,823,030 shares of BICO,
Inc. common stock, par value $.10 were outstanding.
1
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
Sept. 30, 2002 Dec. 31, 2001
(Unaudited) (Note A)
------------- -------------
CURRENT ASSETS
Cash and equivalents $ 199,436 $ 268,095
Accounts receivable - net of allowance for doubtful accounts
of $43,664 at Sep. 30, 2002 and Dec. 31, 2001 985,121 1,235,957
Inventory - net of valuation allowance 948,805 1,190,796
Note receivable 227,053 -
Related party notes receivable 112,554 138,394
Interest receivable, net of allowance 922 144,411
Prepaid expenses 1,702,516 1,055,901
Other current assets 62,269 62,268
------------ -------------
TOTAL CURRENT ASSETS 4,238,676 4,095,822
PROPERTY, PLANT AND EQUIPMENT
Building 1,246,350 2,566,777
Land 133,750 246,250
Leasehold improvements 1,688,056 2,071,629
Machinery and equipment 7,212,892 7,526,201
Furniture, fixtures & equipment 901,041 937,607
------------- -------------
Subtotal 11,182,089 13,348,464
Less accumulated depreciation 6,573,013 6,151,384
------------- -------------
4,609,076 7,197,080
OTHER ASSETS
Related party receivables
Notes receivable 1,012,928 1,036,293
Interest receivable 49,738 14,406
-------------- ------------
1,062,666 1,050,699
Allowance for related party receivables (1,062,666) (1,050,699)
------------- ------------
- -
Notes receivable 319,480 111,041
Notes receivable-Practical Environmental Solutions, Inc.,
net allow. of $2,950,405 at Sept. 30, 2002 and zero at
Dec. 31, 2001 200,000 3,148,404
Goodwill, net of amortization 238,102 595,217
Intangible assets - marketing rights - 6,866,398
Investment 160,461 -
Investment in unconsolidated subsidiaries 707,495 2,409,843
Other assets 110,585 213,616
------------- -------------
1,736,123 13,344,519
------------- -------------
TOTAL ASSETS $ 10,583,875 $ 24,637,421
============= =============
The accompanying notes are an integral part of these statements.
2
BICO, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
Sept. 30, 2002 Dec. 31, 2001
(Unaudited) (Note A)
------------- -------------
CURRENT LIABILITIES
Accounts payable $ 5,132,411 $ 4,755,455
Note payable 2,480,378 7,037,198
Current portion of long-term debt 115,135 86,420
Current portion of capital lease obligations 181,235 75,523
Accrued liabilities 3,491,652 2,568,526
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 11,403,511 14,525,812
LONG-TERM LIABILITIES
Capital lease obligations 1,103,021 2,128,149
Long - term debt 77,778 127,777
Other 19,601 25,009
------------- -------------
1,200,400 2,280,935
UNRELATED INVESTORS' INTEREST
IN SUBSIDIARY 199,551 293,527
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, par value $.10 per share,
authorized 4,000,000,000 shares at Dec. 31, 2001
and 8,000,000,000 shares at Sept. 30 2002, issued
and outstanding 6,407,823,030 at Sept. 30, 2002 and
2,450,631,111 at Dec. 31, 2001 640,782,303 245,063,111
Convertible preferred stock, par value $10 per
share authorized 500,000 shares issuable in
series, shares issued and outstanding 11,682
at Sept. 30, 2002 and 16,930 at Dec. 31, 2001 116,822 169,300
Discount assigned to beneficial conversion
feature - preferred stock - (141,000)
Additional paid-in capital(Discount on issuance
of common stock) (377,156,490) 10,887,152
Warrants 6,219,313 6,221,655
Accumulated deficit (272,181,535) (254,663,071)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (2,219,587) 7,537,147
TOTAL LIABILITIES AND ------------- -------------
STOCKHOLDER' EQUITY (DEFICIENCY) $ 10,583,875 $ 24,637,421
============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the nine months ended For the three months ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Revenues
Net Sales $ 3,999,621 $ 2,869,611 $ 1,402,187 $ 1,514,136
Other income 39,007 9,497 1,592 934
-------------- -------------- -------------- --------------
4,038,628 2,879,108 1,403,779 1,515,070
Costs and expenses
Cost of products sold 2,656,396 2,082,021 868,866 1,220,151
Research and development 896,186 5,142,507 164,616 2,281,361
General and administrative 12,123,787 16,217,485 2,908,896 4,406,697
Amortization of goodwill 210,451 579,671 11,817 204,903
-------------- -------------- -------------- --------------
15,886,820 24,021,684 3,954,195 8,113,112
-------------- -------------- -------------- --------------
Loss from operations (11,848,192) (21,142,576) (2,550,416) (6,598,042)
-------------- -------------- -------------- --------------
Other (income) and expense
Interest income (308,484) (478,399) (106,245) (159,190)
Debt issue costs - 1,741,886 - 221,728
Beneficial convertible debt feature - 2,063,915 - -
Unusual items 3,137,336 225,000 59,079 225,000
Impairment loss 2,207,755 - - -
Interest expense 535,386 690,948 190,312 253,582
(Gain) on sale of Microislet stock (752,973) - (752,973) -
Loss on unconsolidated subsidiary 161,340 221,407 18,166 55,819
Loss on disposal of assets 783,888 18,635 734,391 32
-------------- -------------- -------------- -------------
5,764,248 4,483,392 142,730 596,971
-------------- -------------- -------------- -------------
Loss before unrelated investors' interest (17,612,440) (25,625,968) (2,693,146) (7,195,013)
Unrelated investors' interest in net (income)
loss of subsidiary 93,976 44,848 9,238 (99,271)
-------------- -------------- -------------- --------------
Net loss $ (17,518,464)$ (25,581,120) $ (2,683,908) $ (7,294,284)
============== ============== ============== ==============
Loss per common share - Basic:
Net Loss $ (0.006) $ (0.015) $ (0.001) $ (0.003)
Less: Preferred stock dividends (0.000) (0.000) (0.000) (0.000)
-------------- -------------- ------------- --------------
Net loss attributable to common stockholders: $ (0.006) $ (0.015) $ (0.001) $ (0.003)
============== ============== ============= ==============
Loss per common share - Diluted:
Net Loss $ (0.006) $ (0.015) $ (0.001) $ (0.003)
Less: Preferred stock dividends (0.000) (0.000) (0.000) (0.000)
-------------- -------------- ------------- --------------
Net loss attributable to common stockholders: $ (0.006) $ (0.015) $ (0.001) $ (0.003)
============== ============== ============= ==============
Weighted-average number of common shares outstanding 2,723,533,856 1,675,879,572 4,540,616,783 2,120,615,637
The accompanying notes are an integral part of these statements.
4
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended For the three months ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Cash flows used by operating activities:
Net loss ($17,518,464) ($25,581,120) ($2,681,748) ($7,294,284)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation 766,921 749,526 224,550 272,213
Amortization 210,451 579,671 15,756 204,903
Loss on disposal of assets, net of cash
included in sale 804,902 18,635 775,442 32
Loss on unconsolidated subsidiary 161,345 221,407 18,167 55,819
Gain on sale of Microislet stock (752,973) - (752,973) -
Unrelated investors' interest in subsidiary (93,976) (44,848) (9,238) 99,271
Beneficial convertible debt feature - 2,063,915 - -
Stock issued in exchange for services 3,334,947 - 465,000 -
Stock issued in payment of interest 121,711 - 56,620 -
Warrants granted 768,545 17,420 - 6
Stock options, warrants and warrant extensions
by subsidiary (28,313) 188,252 (60,000) 55,200
Impairment expense 2,207,755 - - -
Increase(decrease) in allowance for notes receivable
and interest 3,339,709 (50,828) 103,343 (15,228)
(Increase) decrease in accounts receivables 212,547 (872,150) (394,785) (841,547)
(Increase) decrease in inventories 916,079 (2,329,114) 321,332 (1,568,180)
Increase (decrease) in inventory valuation allowance (734,374) 1,558,965 (77,323) 1,056,267
(Increase) decrease in prepaid expenses 283,385 (28,968) (63,272) (167,255)
(Increase) decrease in other assets 63,864 (133,544) (680) (66,222)
Increase (decrease) in accounts payable 376,966 1,467,006 (91,666) 951,854
Increase in other liabilities 917,718 446,530 334,492 191,095
-------------- -------------- -------------- --------------
Net cash flow used by operating activities (4,641,255) (21,729,245) (1,816,983) (7,066,056)
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment (358,964) (1,361,626) (258,934) (617,156)
(Increase) in notes receivable (2,001) (2,385,341) - (400,000)
Payments received on notes receivable 115,963 256,065 9,966 125,677
(Increase) decrease in interest receivable (269,180) (45,029) (102,953) 95,313
Proceeds from sale of Microislet stock 1,379,386 - 1,379,386 -
Acquisition of unconsolidated subsidiary interests - (1,093,948) - (110,000)
-------------- -------------- -------------- --------------
Net cash provided (used) by investing activities 865,204 (4,629,879) 1,027,465 (906,166)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from warrants exercised 770,000 - - -
Proceeds from sale of preferred stock 1,864,840 - 509,140 -
Proceeds from public offering - 10,692,600 - 10,692,600
Redemptions of stock subscriptions - (1,453,600) - (1,453,600)
Proceeds from debentures payable - 8,255,659 - -
Increase in notes payable 1,908,013 9,866,650 347,942 3,375,000
Decrease in notes payable (864,833) (6,452,314) (237,337) (6,451,486)
Increase in long term debt 26,499 117,235 26,499 117,235
Payments on long term debt (47,783) (1,084,274) (11,768) (26,238)
Increase (decrease) in capital lease obligations 50,656 (77,732) 50,656 (25,951)
-------------- -------------- -------------- --------------
Net cash provided by financing activities 3,707,392 19,864,224 685,132 6,227,560
(Decrease) increase in cash and equivalents (68,659) (6,494,900) (104,386) (1,744,662)
Cash and equivalents, beginning of period 268,095 7,844,807 303,822 3,094,569
-------------- -------------- -------------- --------------
Cash and equivalents, end of period $ 199,436 $ 1,349,907 $ 199,436 $1,349,907
============== ============== ============== ==============
The accompanying notes are an integral part of these statements.
BICO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying consolidated financial statements of BICO,
Inc. (the "Company") and its 52% owned subsidiary, Diasense,
Inc., and its 75% owned subsidiary, Petrol Rem, Inc., and its
99% owned subsidiary, ViaCirQ, Inc., and its 99% owned
subsidiary, ViaTherm, Inc., and its 75% owned subsidiary,
Rapid HIV Detection Corp., and its 98% owned subsidiary
Ceramic Coatings Technologies, Inc.(through March 31, 2002),
and its 100% owned subsidiary, B-A-Champ, Inc., have been
prepared in accordance with generally accepted accounting
principles for interim financial information, and with the
instructions to Form 10-Q and Article 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. Also included in the
consolidated financial statements are the accounts of the
following subsidiaries which are inactive: International
Chemical Technologies, Inc., a 58% owned subsidiary, Coraflex,
Inc., a 90% owned subsidiary and Barnacle Ban, Inc., a 100%
owned subsidiary. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. For further information, refer to the consolidated
financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended December 31,
2001.
NOTE B - Operations and Liquidity
The Company and its subsidiaries continue to incur significant
losses and negative cash flow from operations. As of
September 30, 2002 it had a Consolidated Net Working Capital
Deficiency of $(7,164,835) and a Consolidated Net Deficiency
in Assets $(2,219,587). Accounts payable at September 30,
2002 were $5,132,411 (most of which were over 90 days old).
Accrued liabilities at September 30, 2002 were $3,491,652,
which included approximately $2,440,000 in accrued payroll.
Lawsuits have been filed against the Company and its
subsidiaries for collection of approximately $1.6 million
dollars for amounts due to creditors or employees. Default
judgments have been entered against the Company for $623,000.
$582,091 of these claims, are in the process of negotiations,
although they are enforceable at any time.
Operations for the nine months ended September 30, 2002 have
been funded primarily from the Series K preferred stock and
sales of shares of stock in MicroIslet, Inc. (an investment).
The Biocontrol Technology manufacturing division and ViaCirq
generated average monthly revenue of $183,000 and $50,000,
respectively, totaling $233,000/month revenue. However, due
to the Company's lack of funds, it may be unable to continue
operations or generate revenue. The Company's current net
monthly cash requirements have been reduced, but interest,
accrued liabilities, litigation, judgments or settlements
will increase these cash requirements.
These factors, as well as the others discussed herein,
indicate that the Company is not able to continue as a going
concern absent a significant influx of cash. The Company
has no way of knowing whether or when such cash will be
received and has no commitments for the funds. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in
existence.
In order to fund its immediate obligations Management intends
to continue in its efforts to sell additional shares of its
MicroIslet stock, pledge its assets and patents for potential
loans, as well as sell some or all of the Company's ownership
of Diasense,Inc., Petrol Rem, Inc., ViaTherm, Inc. and ViaCirQ,
Inc. If sufficient cash cannot be generated from the sale of
these or other assets the Company will not be able to
continue operations or will need to reorganize under the
protection of bankruptcy in order to continue operations.
Although, even in bankruptcy, reorganization may not be possible.
Because of the significance of the Company's working capital
deficiency there is an immediate possibility that the Company
could also be forced into bankruptcy should management not be
able to make suitable arrangements with current creditors. The
Company's existing creditors could force it into involuntary
bankruptcy at any time.
NOTE C - Notes Receivable
In June 2002, Ceramic Coating Technologies, Inc. (CCTI), a 98%
owned subsidiary, sold substantially all of its assets for a
total sales price of $502,250 consisting of two promissory
notes. The first note for $227,053 was due on or before
October 31, 2002 with no interest, and is now payable on
demand. Under the terms of the Asset Purchase Agreement the
buyer will receive credit for the buyer's direct payment of
CCTI obligations, including accounts payable and accrued
payroll, which existed on March 31, 2002. The second note for
the $275,197 is payable over a five year period with interest
at six percent per annum. This note is collateralized by the
equipment sold in the Asset Purchase Agreement and is payable
in payments equal to two percent of the buyer's net sales
beginning with the first quarter 2003 through the fourth
quarter 2007. Under agreement between the buyer and CCTI the
terms of the Asset Purchase Agreement were made effective as
of April 1, 2002.
The Company sold 2,366 shares of Series K preferred stock to
J.P. Carey Asset Management in May 2002 and 895 shares in July
2002 under a commitment from J. P. Carey Asset Management to
purchase these securities. In exchange for these shares of
preferred stock, J. P. Carey Asset Management issued
promissory notes for $1,630,500. The notes bear interest at
8% per annum beginning 10 months after the date of the note.
At September 30, 2002, the promissory notes had been paid in
full.
Under the terms of a line of credit agreement, Petrol Rem, a
75% owned subsidiary, has loaned $3,150,405 to Practical
Environmental Solutions (Practical), a company that treats
sludge and disposes of it in accordance with state and federal
environmental laws. As discussed in NOTE C to the December
31, 2001 financial statements the note was classified as a
noncurrent asset because the management of Petrol Rem was
considering converting all or part of this note into a
controlling equity interest in Practical with the balance of
the note converted to a term loan. The loan is currently past
its due date of May 31, 2002 and is due upon demand.
Practical is currently not able to conduct a significant
portion of its operations because the landfill which is
necessary for the disposal of its processed biosolids has been
temporarily prohibited from accepting these processed
biosolids under direction of the Department of Environmental
Protection. Unless these discontinued operations can be
restored, Practical may be unable to fully meet its
obligations under the line of credit agreement even if the
note is converted to a term loan after the conversion of a
portion of the amount owed into an equity interest by Petrol
Rem. Due to the uncertainty of Practical's ability to resolve
this issue, the collectibility of this loan is in jeopardy.
Therefore, an unusual item of $3,307,413 has been recorded
reducing the carrying value of the note receivable and the
corresponding accrued interest to the fair value of the
underlying collateral, which is estimated at approximately
$200,000.
Under agreements with Fred E. Cooper, Anthony J. Feola and
Glenn Keeling in connection with their resignations, the
parties agreed that the net amounts after tax withholdings of
the accrued and unpaid salary owed to these individuals would
be applied against the outstanding loan from the Company to
the individuals. Because the cash required to meet the
payroll tax withholdings associated with this transaction was
not available due to the Company's cash flow problems, the
accrued salaries have not been applied against the outstanding
loans as of September 30, 2002.
NOTE D - Prepaid Expenses
On March 28, 2002, the Company issued 100 million shares of
common stock to an individual in payment for consulting
services to be provided over a twelve-month period. The total
value of the stock on the date of issue was $1,860,000. This
amount was recorded as a prepaid expense and is being
recognized as expense at $155,000 per month beginning in April
2002.
NOTE E - Investments
Our investments in unconsolidated subsidiaries are being
reported on the equity basis and differences between the
investment and the underlying net assets of the unconsolidated
subsidiaries were being amortized as goodwill over a 5-year
period during prior years. However, Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" became effective for the Company's financial
statements as of January 1, 2002 and, under this provision,
goodwill is no longer amortized but is evaluated for
impairment at least annually. Due to the history of negative
cashflow and the uncertainty of the Company's ability to
recover the carrying amount of the investment in American
Inter-Metallics, Inc., an impairment loss of $712,500 was
recognized in the quarter ended March 31, 2002. Also in the
quarter ended March 31, 2002, the goodwill associated with
Insight Data Link.com, Inc. was evaluated and management
determined that an impairment loss of $41,629 should be
recognized. No impairment of the goodwill related to
MicroIslet or Diabecore was deemed necessary.
Diasense's ownership percentage as of March 31, 2002 in
MicroIslet, Inc. was 20.21%. When MicroIslet raised additional
capital through the sale of stock during the first quarter of
fiscal year 2002, the Company was issued additional shares in
order to maintain an ownership percentage of 20.21%. As a
result of this transaction, Diasense's share of the underlying
net assets of MicroIslet increased by $179,364 with a
corresponding decrease in goodwill. In April 2002, MicroIslet
participated in a merger with ALD Services, Inc., a publicly
traded company also known as ALDI. In connection with the
merger, Diasense, along with the other MicroIslet
shareholders, consented to a forward stock split of MicroIslet
stock where each common stockholder received 3.1255 shares of
MicroIslet common stock for every one share owned. As a
result, Diasense received 3,465,451 shares of MicroIslet
common stock. All the common stockholders maintained their
same percentage ownership. Diasense, along with the other
MicroIslet stockholders, also approved a merger with ALDI. As
a result of the merger, each MicroIslet common stockholder -
including Diasense - received one share of ALDI stock for each
share of MicroIslet stock owned. After the merger, Diasense
owned approximately 15.3% of restricted ALDI stock. In May
2002, ALDI changed its name to MicroIslet, Inc. and its
trading symbol to MIIS.OB. Because Diasense's ownership
percentage went below 20% and because the Company was not
represented on the board of directors of MicroIslet, this
investment was reported on the cost basis beginning in the
second quarter of 2002 and no longer reported under the equity
method. Also, the investment balance of $160,461 was no
longer classified as an investment in an unconsolidated
subsidiary as of June 30, 2002. This change in reporting
method and classification had no effect on the carrying value
of the investment.
In July 2002, Diasense sold 1,000,000 shares of Microislet
common stock for $500,000 and an additional 1,758,772 shares
were sold in September 2002 for $879,386. The purchasers of
the stock are not affiliated with the Company, its
subsidiaries or any of its officers and directors. A gain of
$752,973 was recognized as a result of these sales. The
proceeds from the sales were used to reduce the amount owed by
Diasense to BICO. As of September 30, 2002 Diasense owned
706,679 shares of Microislet common stock recorded at a
carrying value of $160,461.
The Company's investment in the underlying assets and the
unamortized goodwill of each unconsolidated subsidiary as of
September 30, 2002 and December 31, 2001 are as follows:
Investment in
Unconsolidated Underlying Unamortized
Subsidiary Net Assets Goodwill Total
Sept. 30, Dec. 31, Sept. 30, Dec. 31, Sept 30, Dec. 31,
2002 2001 2002 2001 2002 2001
American Inter-
Metallics, Inc. $ - $318,200 $ - $394,300 $ - $712,500
Insight Data
Link.com 17,370 22,876 - 41,629 17,370 64,505
MicroIslet, Inc. - 130,477 - 786,874 - 917,351
Diabecore
Medical, Inc. 133,573 158,935 556,552 556,552 690,125 715,487
------- ------- ------- --------- ------- ---------
Total $150,943 $630,488 $556,552 $1,779,355 $707,495 $2,409,843
======= ======= ======= ========= ======= =========
NOTE F- Intangible Assets - Marketing Rights
During 2001, the Company entered into a marketing agreement
with GAIFAR, a German company that owned all the rights to
certain rapid HIV tests, and Dr. Heinrich Repke, the man who
developed the tests. The marketing rights were assigned to
Rapid HIV Detection Corp., of which the Company owns 75% and
GAIFAR owns 25%. GAIFAR retained the manufacturing rights for
the tests. The marketing agreement had a 10-year minimum term
and called for total payments of $7,000,000 to GAIFAR. During
2001, the Company paid $1,285,000 to GAIFAR. The remaining
payments were due in monthly amounts ranging from $125,000 to
$1,000,000 through August 20, 2002. Due to cashflow problems,
only $115,000 was paid to GAIFAR during the quarter ended
March 31, 2002. Because of the uncertainty of the Company's
ability to recover the value of the intangible asset
recognized for the Marketing rights at March 31, 2002, an
impairment charge was recorded to reduce the intangible asset
to $5,600,000, which is the balance of the obligations due
under that agreement. In May 2002, the Company lost its
exclusive marketing rights because the Company was unable to
make the payments required. The intangible asset and
corresponding note payable of $5,600,000 were eliminated as a
result.
The marketing rights were being amortized as an intangible
asset over the ten-year minimum term of the marketing
agreement. Amortization of $175,000 was recognized during
2002 prior to the loss of the exclusive marketing rights.
NOTE G - Notes Payable
The Company received proceeds from two promissory notes in
April 2002. One loan for $1,000,000 is payable on March 28,
2003 with interest of 22%. This loan is collateralized by all
of our assets. A payment of $82,000 plus interest of $18,000
was made in June 2002. A second loan for $230,000 is payable
in a single installment on June 19, 2003 with interest of 22%.
As of September 30, 2002, INTCO has borrowed $419,130 under
line of credit agreements established with a bank in Louisiana
in 2002. These lines of credit are secured by the assets of
INTCO.
In April 2002, the Company agreed to pay an outstanding
obligation of $68,243 to American Express under twelve equal
monthly installments of $6,189, including interest at 15.9%
per annum. This obligation is secured by the assets of BICO.
At September 30, 2002, the outstanding note payable under this
agreement was $40,729.
As discussed in Note E, the note payable of $5,600,000 was
eliminated in connection with the Company's loss of its
exclusive marketing rights for certain rapid HIV tests.
In May 2002, BICO and its subsidiary Petrol Rem, Inc.,
executed a demand note in favor of INTCO, Inc. (a subsidiary
of Petrol Rem). The note is for $286,457 and bears interest
at a rate of 13% per annum. The note consolidated various
amounts previously advanced by INTCO to either BICO or Petrol
Rem or incurred by INTCO on behalf of either BICO or Petrol
Rem and is collateralized by a security interest in Petrol
Rem's shares of stock in INTCO. In June 2002, demand was made
by INTCO and INTCO's minority shareholder for repayment of the
loan for $286,457 plus accrued interest and for repayment of
the balance ($374,134) of the note payable by BICO and Petrol
Rem to INTCO's minority shareholder. In July 2002, legal
action was commenced by INTCO's minority shareholder to obtain
a judgment.
Payments of $100,000 in August 2002 and $60,440 in September
2002 were made toward the settlement of this issue. Since
both of these obligations are collateralized by Petrol Rem's
51% ownership in INTCO, it is possible that Petrol Rem may
forfeit its ownership in INTCO as part of a settlement of
these obligations. If Petrol Rem forfeits ownership in INTCO,
the Company will lose a significant portion of its revenues.
A default judgment was issued on September 30, 2002 in the
amount of $357,345, and although the Company is currently in
negotiations, there is no formal agreement in place that would
prevent execution of the judgment against the Company.
NOTE H - Lease Obligations
Although the Company and its subsidiaries are in arrears on
their various operating leases for certain production
facilities and office space, to date, none of the landlords
holding these operating leases has exercised their rights to
accelerate payment of remaining lease obligations.
The Company is in default on its payment obligations under two
capital leases for two manufacturing buildings. Since
receiving an eviction notice on one of the buildings in early
August 2002, the Company has been negotiating a work out of
all issues on both leases with the related landlords. The
Company still occupies one of the buildings and operations are
continuing. Management is attempting to negotiate settlement
terms to remedy its past due obligations and restore the
leases to current status. If an acceptable resolution cannot
be reached with the property owners, in the very near future,
the Company will be evicted, and may be locked out, preventing
the Biocontrol Technology division from completing its contract
obligations. In addition the Company will need to
find an alternative facility to continue its manufacturing
activities. A summary of the property held under these
capital leases is included in Note K to the Company's
consolidated financial statements included in the Company's
annual report on Form 10-K for the year ended December 31,
2001.
NOTE I - Shareholders' Equity
Preferred Stock
During 2001, shares of preferred stock were authorized as "4%
Cumulative Convertible Preferred Stock" in series G, H, I, J
and K. The preferred stock transactions for each series
during the nine months ended September 30, 2002 are summarized
below:
Shares
Issued Shares Shares Shares
Authorized at Dec. 31, Issued Converted Outstanding
Series Shares 2001 in 2002 in 2002 at Sept 30, 2002
G 100,000 10,530 0 3,260 7,270
H 246,000 2,000 0 357 1,643
I 4,000 4,000 0 2,186 1,814
J 50,000 400 950 395 955
K 100,000 0 3,261 3,261 0
------- ------ ----- ----- ------
Total 500,000 16,930 4,211 9,459 11,682
Series G, H, J and K include a beneficial conversion feature
providing the preferred stockholder a discount of between 10%
and 24%, depending upon the series, upon conversion to the
Company's common stock after a required holding period. The
value of this beneficial conversion feature is determined by
reducing the market price of the Company's common stock by the
discounted conversion price on the date of commitment. This
discount is recognized as a discount assigned to the
beneficial conversion feature of preferred stock and is
amortized as constructive dividends to the preferred
shareholders over the holding period using the effective
interest method. The total valuation discount of this
beneficial conversion feature on the preferred stock issued
during the nine months ending September 30, 2002 was $299,913.
Total amortization of the discount, including amortization of
amounts related to preferred shares issued in 2001 that were
not fully amortized at December 31, 2001, was $440,913 and
this amount is recognized as a constructive dividend charged
to additional paid in capital at September 30, 2002.
In 2001, the Company issued 4,000 shares of convertible
preferred stock in connection with a settlement agreement for
obligations incurred in 1998 when the Company purchased its
interest in ICTI, Inc. The settlement documents provide that,
if the value of the common stock available from the conversion
of the preferred stock on the date the registration statement
on this stock became effective was less than $2 million then
the difference would be subject to a note payable over a 36
month period at 10% interest. The balance due is currently
secured by a confession of judgment. The Series I preferred
shareholder could execute upon that judgment at any time
because BICO has failed to make payments when due.
The Company is currently in default of its obligations
pursuant to all of its classes of preferred stock because the
Company has failed to reserve a sufficient number of its
common stock to satisfy conversions as required.
Common Stock
The Company filed a Form S-8 in December 2001 that included
125 million shares. The Form S-8 allowed the Company to issue
freely tradable stock to non-executive employees under the
Employees' Equity Compensation plan and to certain consultants
in lieu of paying them in cash. As of September 30, 2002, 125
million shares of common stock had been issued from that Form
S-8. Two additional Form S-8s were filed in March 2002 that
included shares for consultants. One Form S-8 registered 100
million shares for a consultant. The other Form S-8 included
stock for a consultant to obtain upon a warrant exercise. The
consultant did exercise $770,000 in warrants and he was issued
110 million shares of common stock in April 2002.
The Company issued 3,584,747,293 shares of common stock upon
conversion of 6,359shares of preferred stock during the nine
months ended September 30, 2002. In addition, 25,598,002
shares of common stock were issued in payment of interest
accrued on Series G preferred stock.
In May 2002, the Company registered 1,210,000,000 shares of
common stock on Form S-1 on behalf of the selling
shareholders. These shares were registered on behalf of our
preferred shareholders.
On July 5, 2002, the Company's stockholders approved an
increase in the number of authorized shares of common stock
from 4 billion to 8 billion shares.
On July 29, 2002, the Company filed a registration statement
for 3.9 billion shares. 900 million of those shares were
registered for our series K preferred stock and the balance
was registered on behalf of our preferred stockholders.
Additional Paid-In Capital / Discount on Issuance of Common
Stock
Additional paid-in capital decreased from $10,887,152 at
December 31, 2001 to ($372,272,575) at September 30, 2002.
The deficit balance at September 30, 2002 is classified as
"discount on issuance of common stock" and it represents the
effect of issuing common stock at prices less than the par
value of $0.10 per share.
NOTE J - Unusual Items
It is the Company's policy to record an inventory valuation
allowance against finished goods and raw materials for
products for which a market has not yet been established.
During the nine months ended September 30, 2002, Petrol Rem
sold inventory for which an inventory allowance had previously
been established. Therefore, the Company reduced its
inventory valuation allowance and recorded an unusual gain for
the recovery of inventory valuation allowance of $170,077.
As discussed in Note B, an unusual loss of $3,307,413 has been
recorded to reduce the carrying value of the note receivable
from Practical Environmental Solutions, Inc. and the
corresponding accrued interest to the estimated fair value of
the underlying collateral.
NOTE K - Impairment
In June 2001, the FASB issued statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." SFAS 142 addresses financial accounting and
reporting for goodwill and other intangible assets. Under
this provision, goodwill and certain intangible assets will no
longer be amortized but will be evaluated for impairment at
least annually. The provisions of this statement became
effective for the Company's fiscal year beginning January 1,
2002. Based on the Company's evaluation, an impairment charge
of $1,118,517 was recognized related to goodwill associated
with investments in Insight Data Link, American Intermetallics
(see Note C), Tireless and B-A Champ. In addition, the value
of the intangible asset representing the Company's exclusive
marketing rights for certain rapid HIV tests was evaluated
during the quarter. Because of the uncertainty of the
Company's ability to recover the full carrying value of the
marketing rights, an impairment charge of $1,091,398 was
recorded to reduce the intangible asset to its estimated net
realizable value.
NOTE L - Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas requesting documents in connection with an
investigation by the U.S. Attorneys' office for the District
Court for the Western District of Pennsylvania. In July 2002,
the Company was notified that this investigation was concluded
with no charges against BICO or its subsidiaries.
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology, et al., was certified as a class action in the
U.S. District Court for the Western District of Pennsylvania.
The suit alleged misleading disclosures in connection with the
Noninvasive Glucose Sensor and other related activities, which
the company denies. Without agreeing to the alleged charges
or acknowledging any liability or wrongdoing, the company
agreed to settle the lawsuit for a total amount of $3,450,000.
During September 2002, the class action lawsuit, captioned
Walsingham v. Biocontrol Technology, et al., was settled when
the final payment of $50,000 was made. As of December 31,
2001, the Company owed $425,000 for this settlement. In May
2002, the parties agreed to extend the payments on the
remaining balance plus a forbearance fee of $25,000. Payments
totaling $450,000 were made in the nine months ended September
30, 2002, and the settlement is now completed.
Lawsuits have been filed against the Company and its
subsidiaries for collection of approximately $1,645,062 for
amounts due to creditors or employees. Management is
defending these actions and working to negotiate suitable
payment arrangements as funds allow, but the lack of funds are
likely to cripple the Company's ability to defend or settle
the litigation, and possibly the Company. The dollar amount
of these claims is included in either accounts payable or
accrued expenses. During the nine months ending September 30,
2002, default judgments have been entered against the Company
for $582,091 of these claims.
The Company and/or certain of its subsidiaries and directors
have been named in two lawsuits relating to early termination
of employment agreements of TruePoints, Inc. The total
damages claimed under these lawsuits are approximately
$263,825. It is Management's belief that it has no liability
for actions taken by TruePoints management, but in the event
that the plaintiff is successful in piercing the corporate
veil, BICO will have absolute liability for the full amount.
There are also several other lawsuits alleging damages that
total less than $25,000.
NOTE M - Disposition of Assets
In the first quarter of 2002, the Company began pursuing the
disposition of two consolidated subsidiaries, Ceramic Coating
Technologies, Inc. and TruePoints.com - which was formerly B-A-
Champ. TruePoints operations were closed in April 2002.
Certain assets of TruePoints were sold for a net loss of
$44,556. In June 2002, Ceramic Coating Technologies, Inc.
(CCTI), a 98% owned subsidiary, sold substantially all of its
assets for a total sales price of $502,250 as described in
Note B. The net loss on the disposition of CCTI assets was
$69,458.
In April 2002, the inventory, equipment and intellectual
property of International Chemical Technologies, Inc. (ICTI)
were sold for $18,000 and the lease on the ICTI facility was
terminated. These assets had been fully reserved in prior
years and the sale resulted in a gain on disposal of $18,000.
As discussed in Note H, the Company vacated one of its
manufacturing buildings, which had been accounted for under a
capital lease. When this lease was terminated, the Company
recognized a loss on disposal of assets of approximately
$647,000 including the disposal of property, plant and
equipment with a book value of approximately $1,617,000 and
the elimination of lease obligations of approximately
$970,000.
NOTE N - Clinical Trials
The clinical trials which were being performed by the Company
on the noninvasive glucose sensor were discontinued during the
second quarter of 2002 so that efforts could be directed
toward the development of a new generation device which will
be less sensitive to noise factors in interpreting infrared
spectroscopy and will be a more compact device. The Company
does not have the funds to conduct any additional trials at
this time, and all development of the next generation device
has been suspended indefinitely.
NOTE O - Officers and Directors
In July 2002, BICO entered into agreements with Fred Cooper,
Anthony J. Feola and Glenn Keeling in connection with their
resignations. Both Mssrs. Cooper and Feola resigned as both
officers and directors of BICO, Diasense, and all of our
affiliates. Mr. Keeling resigned as an officer and director
of BICO and Diasense, but continued as an officer and director
of ViaCirq until his resignation was requested for breach of
contract by the Company on September 2002. All of the July
2002 agreements provided us with a right to offset their
accrued and unpaid salaries against the balance of the loans
they owed us. The July 2002 agreements released us from our
obligations under their employment agreements, which included
not only significant severance payments, but would have
required us to issue them collectively a total of 12% of our
outstanding common stock. We agreed to pay their health
insurance for a year. We also agreed to pay Mr. Cooper as an
outside consultant so he could transition the work he had been
doing, and facilitate completing financing transactions he was
working on. Mr. Cooper was to be paid $15,000 per month,
including any expenses under the agreement, which has a
maximum term of one year and is terminable at any time with
ten days notice. In September 2002, the consulting agreement
with Mr. Cooper was terminated.
On September 17, 2002, Stan Cottrell was appointed as Chief
Executive Officer replacing Michael Thompson who had been
acting as Interim Chief Executive Officer since the
resignation of Fred Cooper on July 25, 2002. In October 2002
all former employees were informed that the Company would no
longer pay their insurance and COBRA notices were issued
accordingly, and these employees could bring legal action for
damages.
NOTE P - Subsequent Events
On October 23, 2002, Robert E. Lawler, MD and Jerome M. Buyny
joined the Company's board of directors.
On October 25, 2002, Stan Cottrell was named Principal
Accounting Officer replacing Michael P. Thompson, former Chief
Financial Officer, who left the Company, and its subsidiaries.
Thus, Mr. Cottrell has sole control over the information set
forth herein as principal executive, financial and accounting
officer.
The Company currently has a severe shortage of cash. As of
November 14, 2002, the total cash balance was $251,714. Of
this amount, $50,000 is restricted to secure credit card
financing, $125,000 is frozen by a court order pending
resolution of Proformant, Inc. V. BICO, ViaCirq, Fred Cooper &
Stan Cottrell, in Massachusetts for $125,000. The Company
does not have sufficient cash to meet its obligations when
they are due, and if we do not satisfy our obligations under
contract with the U.S. Army, the Company must refund amounts
advanced by the U. S. Army. Approximately $269,000 was
advanced to the Company by the U.S. Army in October 2002.
The company did not meet its payroll obligations for any
periods in October 2002, and will not be able to meet the
payroll that is due November 15, 2002. This is in addition to
the payroll obligations that accrued in prior periods and were
never paid. As a result, many employees have left the Company
and several have already begun the process to exercise their
rights under state law to collect their unpaid wages.
As of November 14, 2002 there were 11,087 shares of Preferred
Stock outstanding. At the current market price for the
Company's common stock it would require approximately
5,780,000,000 common shares if all of these outstanding
preferred shares were to be converted. The Company will need
to either exercise its redemption rights on these outstanding
preferred shares or have authorized and registered additional
shares of the Company's common stock to meet conversion
requirements. The total redemption price for the 11,087
shares of Preferred Stock outstanding is approximately
$6,600,000. The Company is in default on its obligation to
reserve sufficient common stock to cover the conversion of its
preferred stock, and has no immediate remedy since there is
not sufficient cash to redeem the preferred stock.
On October 30, 2002, Paul Stagg resigned as a member of the
Company's board of directors.
On November 4, 2002, the Company announced that Konny Light
Sylvester had been appointed to the position of Acting Chief
Operating Officer and General Counsel for the Company and its
subsidiaries.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Our cash decreased to $199,436 as of September 30, 2002 from
$268,095 as of December 31, 2001 primarily due to the factors
discussed below.
During the nine months ended September 30, 2002 our net cash
flow used by operating activities was $(4,641,255). During
the same period, our net cash flow provided by investing
activities was $865,204 due primarily to the sale of a portion
of Diasense's investment in MicroIslet. Cash flow provided by
financing activities was $3,707,392 mostly due to increases in
notes payable and sales of preferred stock.
Accounts receivable decreased from $1,235,957 at December 31,
2001 to $985,121 at September 30, 2002 primarily due to the
timing of billings and collections.
Current notes receivable increased from zero at December 31,
2001 to $227,053 at September 30, 2002. Our subsidiary,
Ceramic Coatings Technologies, Inc. (CCTI) sold substantially
all of its assets in June 2002 for a total sales price of
$502,250, which consisted of a current note receivable of
$227,053 and a non-current notes receivable of $275,197.
Interest receivable, net of allowance, decreased from $144,411
as of December 31, 2001 to $922 at September 30, 2002 due to
the write-off of accrued interest on a note receivable from
Practical Environmental Solutions (Practical), a Pennsylvania
company that acquired technology to safely convert municipal
sludge to recyclables that comply with state and federal
environmental laws. Petrol Rem has loaned a total of
$3,150,405 to Practical as of September 30, 2002. The loan
was classified as a non-current asset at December 31, 2001
because our management was considering whether to convert all
or part of that loan to an equity investment. The loan is
currently past its due date of May 31, 2002 and is due upon
demand. Practical is currently not able to conduct a
significant portion of its operations because the landfill
which is necessary for the disposal of its processed biosolids
has been temporarily prohibited from accepting these processed
biosolids under direction of the Department of Environmental
Protection. Unless these discontinued operations can be
restored, Practical will be unable to fully meet its
obligations under the line of credit agreement even if the
note is converted to a term loan after the conversion of a
portion of the amount owed into an equity interest by Petrol
Rem. Due to the uncertainty of Practical's ability to resolve
this issue, the collectibility of this loan is in jeopardy.
Therefore, an unusual item of $3,307,413 has been recorded to
reflect the write-down of the value of the note receivable and
the corresponding accrued interest to the fair value of the
underlying collateral, which is estimated at approximately
$200,000.
Prepaid expenses increased from $1,055,901 as of December 31,
2001 to $1,702,516 as of September 30, 2002. The increase is
primarily due to the issuance of 100 million shares of common
stock to an individual in payment for consulting services to
be provided over a twelve-month period. The total value of
the stock on the date of issue was $1,860,000. This amount
was recorded as a prepaid expense and is being expensed at
$155,000 per month beginning in April 2002.
Goodwill, net of amortization, decreased by $357,115 during
the nine months ended September 30, 2002. The amounts
invested in BA Champ and Tireless in excess of their net book
value were reported as goodwill as of December 31, 2001.
Under new accounting standards effective for our current
fiscal year, we evaluated the investments and determined that
there was considerable uncertainty concerning our ability to
recover these amounts. Therefore, an impairment charge was
recorded to write off the goodwill related to these
investments. A similar evaluation was made of our investments
in unconsolidated subsidiaries, American Intermetallics, Inc.,
Insight Data Link, Microislet and Diabecore. We determined
that there was considerable uncertainty regarding the
recoverability of our investments in American Intermetallics
and Insight Data Link and an impairment charge of $754,129 was
recognized to reduce the carrying value of these investments.
At September 30, 2002, Diasense's investment interest in
MicroIslet is no longer classified as an investment in
unconsolidated subsidiaries - it is classified as an
investment. The change in classification occurred because
Diasense's ability to exercise significant influence over
MicroIslet decreased as illustrated by the decline in
Diasense's ownership below 20% and the fact that Diasense is
no longer represented on MicroIslet's board of directors.
This change in classification had no effect on the carrying
value of the investment in MicroIslet. In April 2002,
MicroIslet participated in a merger with ALD Services, Inc., a
publicly traded company also known as ALDI. In connection
with the merger, Diasense, along with the other MicroIslet
shareholders, consented to a forward stock split of MicroIslet
stock where each common shareholder received 3.1255 shares of
MicroIslet for every one share owned. As a result, Diasense
received 3,465,451 shares of MicroIslet common stock. All the
common shareholders maintained their same percentage
ownership. Diasense, along with the other MicroIslet
shareholders, also approved the merger with ALDI. As a result
of the merger, each MicroIslet common shareholder - including
Diasense - received one share of ALDI stock for each share of
MicroIslet stock owned. After the merger, Diasense owned
approximately 15.3% of restricted ALDI stock. In May 2002,
ALDI changed its name to MicroIslet, Inc. and its trading
symbol to MIIS.OB. In July 2002, Diasense sold 1,000,000
shares of MicroIslet common stock for $500,000 and an
additional 1,758,772 shares were sold in September 2002 for
$879,386. A gain of $752,973 was recognized as a result of
these sales. As of September 30, 2002 Diasense owned 706,679
shares of Microislet common stock recorded at a carrying value
of $160,461.
Our investment in the marketing agreement for the rapid HIV
tests, which was $6,866,398 as of December 31, 2001, was
reduced to zero when we lost our exclusive marketing rights in
May 2002. This intangible asset had been reduced by
amortization of $175,000 and an impairment charge of
$1,091,398 during the first quarter of 2002. When the
remaining balance of the marketing rights, which was
$5,600,000, was written off in May 2002, a corresponding note
payable of $5,600,000 was eliminated at the same time.
Accounts payable increased by $376,966 during the nine months
ended September 30, 2002 because we were unable to make
payments due to our cash flow problems. Accrued liabilities
increased by $923,126 during the nine months ended September
30, 2002 primarily because of increases in accrued wages that
remain unpaid due to our lack of cash.
We received proceeds from two promissory notes early in April
2002. One loan for $1,000,000 is payable on March 28, 2003
with interest of 22%. This loan is collateralized by all of
our assets. A payment of $82,000 plus interest of $18,000 was
made in June 2002. A second loan for $230,000 is payable in a
single installment on June 19, 2003 with interest of 22%.
In April 2002, the Company agreed to pay an outstanding
obligation of $68,243 to American Express under twelve equal
monthly installments of $6,189, including interest at 15.9%
per annum. This obligation is secured by the assets of BICO.
At September 30, 2002, the outstanding note payable under this
agreement was $40,729. Also, as of September 30, 2002, INTCO
(a subsidiary of Petrol Rem) has borrowed $419,130 under line
of credit agreements established with a Louisiana bank in
2002. These lines of credit are secured by INTCO's assets.
In September 2002, INTCO financed the insurance premium for
its vessels with a note payable of approximately $150,000.
In May 2002, BICO and its subsidiary Petrol Rem, Inc.,
executed a demand note in favor of INTCO, Inc. (a subsidiary
of Petrol Rem). The note is for $286,457 and bears interest
at a rate of 13% per annum. The note consolidated various
amounts previously advanced by INTCO to either BICO or Petrol
Rem or incurred by INTCO on behalf of either BICO or Petrol
Rem and is collateralized by a security interest in Petrol
Rem's shares of stock in INTCO. In June 2002, demand was made
by INTCO and INTCO's minority shareholder for repayment of the
loan for $286,457 plus accrued interest and for repayment of
the balance ($374,134) of the note payable by BICO and Petrol
Rem to INTCO's minority shareholder. In July 2002, legal
action was commenced by INTCO's minority shareholder to obtain
a judgment. A $100,000 payment was made in August 2002 and a
payment of $60,440 was made in September toward the settlement
of this issue. If Petrol Rem forfeits its ownership in INTCO,
Petrol Rem and BICO will lose a significant portion of their
revenues. Since both of these obligations are collateralized
by Petrol Rem's 51% ownership in INTCO, it is possible that
Petrol Rem may forfeit its ownership in INTCO as part of a
settlement of these obligations. A default judgment was
issued on September 30, 2002 in the amount of $357,345.
Although settlement negotiations continue, the default
judgment is in effect, and INTCO could enforce the judgement
at any time.
Additional paid-in capital decreased from $10,887,152 at
December 31, 2001 to ($372,272,575) at September 30, 2002.
The deficit balance at September 30, 2002 is classified as
"discount on issuance of common stock" and it represents the
effect of issuing common stock at prices less than the par
value of $0.10 per share.
We continue to incur significant losses and negative cash flow
from operations. Only very minimal payments have been made to
vendors since September 30, 2002. The company did not meet
its payroll obligations for any periods in October 2002, and
will not be able to meet the payroll that is due November 15,
2002. This is in addition to the payroll obligations that
accrued in prior periods and were never paid. As a result,
employees have left the Company and several have already begun
the process to exercise their rights under state law to
collect their unpaid wages.
In order to fund its immediate obligations Management intends
to continue in its efforts to sell additional shares of its
MicroIslet stock, Insight Data Link.com and/or Diabecore
Medical stock, pledge its assets and patents for potential
loans, as well as sell some or all of the Company's ownership
of Diasense, Petrol Rem, Inc., ViaTherm and ViaCirQ, Inc. If
sufficient cash cannot be generated from the sale of these or
other assets we may not be able to continue operations or may
need to reorganize under the protection of bankruptcy in order
to continue operations. Because of the significance of the
Company's working capital deficiency it could also be forced
into bankruptcy should management not be able to make suitable
arrangements with current creditors. Our existing creditors
could force us into involuntary bankruptcy at any time.
Results of Operations
Our sales and corresponding costs of products sold during the
nine months were $3,999,621 and $2,656,396 respectively in
2002 compared to $2,869,611 and $2,082,021 in 2001. The
increase in sales was primarily due to contract revenue of
$1,662,431 at our Biocontrol Technology division. There was
no contract revenue during the first nine months of 2001.
Petrol Rem also had increased revenue in the first nine months
of 2002 compared to the same period in the prior year.
Bioremediation product sales were up from $75,801 in the first
nine months of 2001 to $137,671 for the first nine months of
2002. In addition, Petrol Rem's subsidiary, Tireless, began
generating revenue in the fourth quarter of 2001 and they
reported revenue of $260,264 during the first six months of
2002 compared to zero in the prior year. Tireless lost its
only contract in the second quarter and recognized no revenue
in the third quarter of 2002. INTCO, another Petrol Rem
subsidiary, reported a decrease in sales from $1,325,651 in
the first nine months of 2001 to $519,714 during the first
nine months of 2002. The decrease in INTCO revenues is mostly
due to certain vessels being out of service temporarily due to
maintenance procedures and upgrades related to a periodic
Coast Guard certification. If Petrol Rem loses its ownership
in INTCO, as discussed in Note G, Petrol Rem will lose most of
its revenue and BICO will lose a significant portion of its
revenue.
ViaCirq's sales of its hyperthermia products increased from
$208,284 in the first nine months of 2001 to $454,497 in the
first nine months of 2002. Our other product sales decreased
in total, but not significantly. Metal coating sales totaled
$80,405 during the first nine months of 2001, with a decrease
to $77,085 during the first nine months of 2002. These 2002
metal-coating sales occurred in the first quarter, prior to
the disposition of the majority of CCTI's assets and the
discontinuation of its operations.
During the first nine months of 2001 and 2002, sales of
$49,403 and $15,667, respectively, were from sales of our
theraPORT, an implantable device used by patients who have to
have repeated injections of drugs. The theraPORT is implanted
in the patient's chest, and provides a fixed port for
catheters used to deliver the drugs the patient needs. We
also realized $26,540 in sales for the rapid HIV kits during
the first nine months of 2002 compared with $36,000 in the
same period of the prior year. Our internet marketing
services produced $4,350 in sales in the first three quarters
of 2002 compared with zero in the prior year. Our costs
increased due to the increase in sales of our various
products. Until we have funds to continue operations, we
cannot predict any trends for future revenues.
Interest income decreased during the first nine months to
$308,484 in 2002 from $478,399 in 2001. The decrease occurred
because we had fewer funds to invest.
Research and Development expenses during the first nine months
decreased to $896,186 in 2002 from $5,142,507 in 2001. The
decrease was due to reduced research activities on our
noninvasive glucose monitor and hyperthermia products and the
redeployment of resources from research activities to contract
manufacturing and production of the hyperthermia products.
The clinical trials which we were performing on the
noninvasive glucose sensor were discontinued during the second
quarter of 2002 so that efforts could be directed toward the
development of a new generation device which will be less
sensitive to noise factors in interpreting infrared
spectroscopy and will be a more compact device. Because the
Company lacks funds, all development of the new device has
been suspended and there are no plans to conduct additional
trials.
General and Administrative expenses during the first nine
months decreased from $16,217,485 in 2001 to $12,123,787 in
2002. The decrease is primarily due to decreases in
salaries, professional services, marketing and travel expenses
due to terminations, resignations and rehires at significantly
lower salaries. In addition, BICO paid $912,727 in the first
quarter of 2001 under an agreement with David L. Purdy in
connection with his resignation from the Company and its
affiliates.
Beneficial conversion terms included in our convertible
debentures are recognized as expense and credited to
additional paid in capital at the time the associated
debentures are issued. We recognized $2,063,915 of expense in
connection with the issuance of our subordinated convertible
debentures in the first nine months of 2001. In addition, we
recognized $1,741,886 in debt issue costs during the first
nine months of 2001. This was mostly for commissions paid
when debentures were issued. We had no corresponding expenses
in 2002 because we did not issue any debentures.
In prior years, we wrote off bioremediation inventory because
we did not know if we would eventually be able to establish a
market to sell this inventory. During the six months ended
June 30, 2002, Petrol Rem sold inventory that was previously
written off. Therefore, we recorded an unusual item for the
recovery of inventory valuation allowance of $170,077. Also,
an unusual item of ($3,307,413) was recorded for the write-
down of a note receivable and accrued interest from Practical
Environmental Solutions, Inc., as discussed above under
Liquidity and Capital Resources.
Interest expense decreased from $690,948 in the first nine
months of 2001 to $535,386 during the first nine months of
2002. The decrease is primarily due to a decrease in debt due
to the settlement we reached with Mr. and Mrs. Farrell Jones
in the fourth quarter of 2001 to reduce the amounts owed to
them in connection with our purchase of ICTI in 1998; however,
we have not made payments pursuant to that settlement when
they were due, which could result in the execution of their
existing judgment against us. Our loss on unconsolidated
subsidiaries decreased to $161,340 for the three quarters ended
September 30, 2002 compared to $221,407 for the same period in
2001. This loss results because we absorb part of the losses
incurred by unconsolidated subsidiaries. Our share of the
subsidiaries' losses is determined by applying our ownership
percentage to the total loss incurred.
We recognized an impairment loss of $2,207,755 in the first
nine months of 2002 due to an evaluation of our goodwill and
intangible assets that is required under new accounting
regulations that became effective at the beginning of 2002.
Due to our decision to shut down our subsidiary, BA
Champ/TruePoints, all goodwill associated with this investment
was written off as an impairment charge. In addition,
evaluations were made of our investments in consolidated and
unconsolidated subsidiaries. Based on the progress made so
far and the uncertainty of future success, the goodwill
associated with our investments in Tireless, American
Intermetallics and Insight Data Link were also written off as
impairment charges. The carrying value of the marketing
agreement for rapid HIV tests was written down to the balance
of obligations due under that agreement. Since this change in
accounting regulations was not effective in the prior year,
there were no similar impairment charges recognized in the
first three quarters of 2001.
Other Significant Events
On July 26, 2002, BICO announced that the U.S. Attorney's
Office for the Western District of Pennsylvania ended its 4-
year investigation of BICO and declined to bring any charges
against BICO or its subsidiaries.
Three of BICO's officers and directors, Fred E. Cooper,
Anthony J. Feola and Glenn Keeling resigned as officers and
directors. Fred Cooper, former CEO of BICO and Diasense,
acted as an outside consultant to focus on transitioning and
closing some pending transactions until his services were
terminated. Anthony Feola is no longer affiliated with BICO
or any of its subsidiaries. Glenn Keeling continued to
serve as an officer and director of ViaCirq until October
2002 when he was terminated from these positions. Mr. Keeling
has retained counsel to enforce his rights under his ViaCirq
employment contract.
BICO's board named Chief Financial Officer, Michael P.
Thompson, to also act as interim chief executive officer as a
search for a new CEO was conducted. In September 2002, Stan
Cottrell was named as the new Chief Executive Officer. Stan
Cottrell was also appointed as Interim Chief Executive Officer
of ViaCirq.
On October 23, 2002, Robert E. Lawler, MD.and Jerome M.
Buyny joined the Company's board of directors. Dr. Lawler
also joined the Board of Via Cirq.
Supplemental Financial Information
On October 25, 2002, Stan Cottrell became Principal Accounting
and Principal Financial Officer for BICO, replacing Michael P.
Thompson, former Chief Financial Officer, who left the Company
to pursue other interests. On November 4, 2002, Konny Light
Sylvester was named Acting Chief Operating Officer and General
Counsel for BICO and its subsidiaries.
Although we are in arrears on various operating leases for
certain production facilities and office space, to date none
of the lessors on these operating leases has exercised the
right to accelerate the payments remaining. We previously
surrendered one part of our manufacturing facility in Indiana,
PA; we are obligated to continue to pay $3,500 a month for
sixty months and settle an elevator lien. We are attempting to
renegotiate with Indiana County, the landlord, for the balance
of the manufacturing space. If we do not conclude favorable
arrangements, the county can evict us and lock us out, and we
will have to stop our manufacturing until, and if, we can find
and build out new space. We do not know if that will be
possible and we may decide it best thing to shut down our
manufacturing division. If we do, we will not only lose
revenue, but will be in breach of our existing contracts.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
A. Court Proceedings
Amarex v. Biocontrol Technology, Inc., Case No.
235554-V, Cir. Ct., Montgomery Co., Maryland,
$501,928 contract
Indiana Co. v. BICO, Case No. 2002-30664, Ct. of
Common Pleas, Indiana Co., Civil Div., $224,
745.73 Lease Default, Default Judgment
Eddie Lofton v. Petro Rem & BICO, Case No. 135906,
32nd Judicial District Court Parrish of
Terrebonne, Louisiana, $357,345. Promissory
Note, Default Judgment
INTCO v. Petrol Rem & BICO, Case No. 136734, 32nd
Judicial District Court, Parrish of Terrebonne,
Louisiana, $118,885 Suit on Account
Michael Kahn v. Truepoints, Inc., BICO, Fred Cooper,
Susan Taylor & Jason Taylor, Case No. 02-L-
006463, Circuit Court of Cook County, Illinois,
$251,000 Employment contract
Proformant, Inc. v. BICO, ViaCirq & PNC Bank New
England, Case no. 02-4189, Superior Court,
County of Middlesex, Mass. $125,000 Consulting
Contract, Attached Payroll and Military Account
John Michael Fausset v. ViaCirq, BICO, Fred Cooper &
Stan Cottrell, Case No. GD 02-19538, Ct. of
Common Pleas, Allegheny County, Pennsylvania,
$31,275 Back Pay
Diagnostic Center v. Biocontrol Technology, Inc.,
Case No. 2002-11554, Ct. of Common Pleas,
Indiana Co., Pennsylvania, $24,157 Contract,
Default Judgment
Jennifer Damon v. Truepoints, Inc., Wage Claim No.
02-003911, D.O.L., Chicago, Ill, Office of ALJ,
$12,825
Law Offices of Jason Lyons, PC v. BICO & Petrol Rem,
Docket No. 02-017777, City Court of Houma,
Parrish of Terrebonne, Louisiana, $8,365
Contract Services
CAD Research v. Biocontrol Technology, CV0000697-
02, Magistrate Dist No. 05-2-40, Pittsburgh,
PA, $7,525.36 Contract Services, Default
Judgment
Superior Printing v. BICO, No. CV0000180-02,
Magistrate Dist No. 05-2-22, Carnegie, PA,
$6,706.33, Contract Services, Judgment
Process Reproductions v. Petro Rem, Inc., CV0000180-
02, Magistrate Dist No. 05-2-22, Carnegie, PA,
$6,327.56 Contract Services, Judgment
Lowe's Home Centers v. Biocontrol Technology, A.D.
2002-1230, Court of Common Pleas, 39th Judicial
District, Franklin County, PA, $6,821.43
Supplies
CAD Research v. v. Biocontrol Technology, CV-
0000696-02, Magistrate Dist No. 05-2-40,
Pittsburgh, PA, $3,725. Contract Services,
Default Judgment
CAD Research v. v. Biocontrol Technology, CV-
0000695-02, Magistrate Dist No. 05-2-40,
Pittsburgh, PA, $917. Contract Services,
Default Judgment
Target Office Products, Inc. v. Petro Rem, Inc. &
BICO, No. CV0000366, 367 & 368-02, agistrate
Dist No. 05-2-21, Bridgeville, PA, $3,994.05
Supplies
Southern Saltwater v. Petro Rem, Inc. & Pat
Nardelli, Case No. 20020050077, Georgetown Co.,
State of S.C., $3,000, Contract Services
CDS Micro Systems, Inc. v. Biocontrol Technology,
Inc., No. CV0000181-02, Magistrate Dist No. 05-
2-22, Carnegie, PA, $2,855, Equipment, Default
Judgment
B. Other Proceedings:
David Staudenmaier v. BICO, Inc., Fred Cooper, Paul
Stagg & Stan Cottrell, Mailed, but not properly
served for back pay & resulting damages
Glenn Keeling, attorney demand for $476,787 for
breach of employment contract and backpay.
South Hills Self Storage v. BICO, Inc., Notice of
Lock Out & Pending Sale, $784.16, Accounting
historical storage
Numerous letters of demand on current payables
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(B) Reports on Form 8-K
A report on form 8-K filed September 18,2002 for
the event dated September 17, 2002. The items
listed were Item 5, Other Events.
A report on form 8-K filed September 19, 2002 for
the event dated September 19, 2002. The items
listed were Item 5, Other Events, and Item 7(c),
Exhibits.
A report on form 8-K filed September 23, 2002 for
the event dated September 19, 2002. The items
listed were Item 5, Other Events.
A report on form 8-K filed October 23, 2002 for the
event dated September 19, 2002. The items listed
were Item 5, Other Events, and Item 7(c), Exhibits.
A report on form 8-K filed October 30, 2002 for the
event dated October 29, 2002. The items listed were
Item 5, Other Events.
A report on form 8-K filed October 31, 2002 for the
event dated October 31, 2002. The items listed were
Item 5, Other Events, and Item 7 (c), Exhibits.
A report on form 8-K filed October 31, 2002 for the
event dated October 30, 2002. The items listed were
Item 5, Other Events, and Item 7 (c), Exhibits.
A report on form 8-K filed November 5, 2002 for the
event dated November 4, 2002. The items listed were
Item 5, Other Events, and Item 7 (c), Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on this 15th day
of November 2002.
BICO, INC.
By /s/Stanely W. Cottrell, Jr.
Stanely W. Cottrell, Jr., CEO
(Principal Executive Officer,
Principal Financial Officer
and Principal Accounting
Officer)