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, 2003
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) 279-1059
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 No X
As of September 30, 2003, 7,387,507,775 shares of BICO,
Inc. common stock, par value $.10 were outstanding.
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Balance Sheets
Sept. 30, 2003 Dec. 31, 2002
(Unaudited)
------------- -------------
CURRENT ASSETS
Cash and equivalents $ 131,700 $ 81,682
Accounts receivable - 50,096
Notes receivable - 46,338
------------- -------------
TOTAL CURRENT ASSETS 131,700 178,116
OTHER ASSETS
Related Party Receivables
Notes receivable 317,137 317,137
Interest receivable 16,047 16,047
------------- -------------
333,184 333,184
Other notes receivable 546,533 546,533
Other interest receivable 1,384 1,384
------------- ------------
881,101 881,101
Allowance for notes receivable (881,101) (881,101)
------------- ------------
- -
TOTAL ASSETS $ 131,700 $ 178,116
============= =============
The accompanying notes are an integral part of these statements.
F-2
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Balance Sheets
(Continued)
Sept. 30, 2003 Dec. 31, 2002
(Unaudited)
------------ -------------
CURRENT LIABILITIES
Accounts payable $ - $ 4,105,303
Advance payment on asset sale 10,000 -
Notes payable - 1,473,347
Current portion of long-term debt - 286,457
Capital lease obligations - 1,265,299
Accrued liabilities - 2,270,635
Escrow payable - 2,700
------------ -------------
TOTAL CURRENT LIABILITIES 10,000 9,403,741
LONG-TERM LIABILITIES
Liabilities subject to compromise 8,154,100 -
Liabilities in excess of assets held for sale 836,969 590,911
------------ -------------
9,001,069 9,994,652
COMMITMENTS AND CONTIGENCIES
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARIES - 1,440
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, par value $.10 per share,
authorized 8,000,000,000 shares at Sept. 30, 2003
and Dec. 31, 2002, outstanding 7,387,507,775 shares
at Sept. 30, 2003 and 7,138,933,127 shares at
Dec. 31, 2002 738,750,778 713,893,312
Convertible preferred stock, par value $10
per share, authorized 500,000 shares issuable in
series, shares issued and outstanding 108,356 at
December 31, 2003 - 108,357
Additional paid-in capital (468,788,830) (444,039,721)
Accumulated deficit (278,831,317) (279,779,924)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (8,869,369) (9,817,976)
------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 131,700 $ 178,116
============= =============
The accompanying notes are an integral part of these statements.
F-3
BICO, INC. AND SUBSIDIARIES
(Debtor in Possessions)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended Sept 30, For the three months ended Sept 30,
2003 2002 2003 2002
------------- ------------- --------------- -------------
Revenues
Net sales $ 581,681 $ 3,999,621 $ 222,147 $ 1,402,187
Other income - 39,007 - 1,592
------------- ------------ -------------- ------------
581,681 4,038,628 222,147 1,403,779
Costs and expenses
Cost of products sold 248,093 2,656,396 72,139 868,866
Research and development - 896,186 - 164,616
General and administrative 634,622 12,123,787 174,929 2,908,896
Amortization - 210,451 - 11,817
------------- ------------- ------------- -------------
882,715 15,886,820 247,068 3,954,195
------------- ------------- ------------- -------------
Loss from operations (301,034) (11,848,192) (24,921) (2,550,416)
Other (income) and expense
Forgiveness of debt (1,292,335) - - -
Interest income - (308,484) - (106,245)
Unusual item - (170,077) - -
Impairment loss - 5,515,168 - 56,919
Interest expense 42,694 535,386 - 190,312
(Gain) on sale of MicroIslet stock - (752,973) - (752,973)
Loss on unconsolidated subsidiaries - 161,340 - 18,166
Loss on disposal of assets - 783,888 - 734,391
------------- ------------- ------------- ------------
(1,249,641) 5,764,248 - 140,570
------------- ------------- ------------- ------------
Income (Loss) before unrelated
investors' interest 948,607 (17,612,440) (24,921) (2,690,986)
Unrelated investors' interest in
net loss of subsidiaries - 93,976 - 9,238
------------- -------------- ------------- ------------
Net income (loss) $ 948,607 $(17,518,464) $ (24,921) $(2,681,748)
============= ============== ============= ============
Income (loss) per common share - Basic:
Net Income (Loss) $ (0.000) $ (0.006) $ (0.000) $ (0.001)
Less: Preferred stock dividends (0.000) (0.000) (0.000) (0.000)
------------- ------------- ------------- ------------
Net income (loss) attributable to
common stockholders: $ (0.000) $ (0.006) $ (0.000) $ (0.001)
============= ============= ============= ============
Income (loss) per common share - Diluted:
Net Income (loss) $ (0.000) $ (0.006) $ (0.000) $ (0.001)
Less: Preferred stock dividends (0.000) (0.000) (0.000) (0.000)
------------- ------------- ------------- ------------
Net income (loss) attributable to
common stockholders: $ (0.000) $ (0.006) $ (0.000) $ (0.001)
============= ============= ============= ============
The accompanying notes are an integral part of these statements.
F-4
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Statements of Cash Flows
For the nine months ended Sept. 30, For the nine months ended June 30,
2003 2002 2003 2002
------------- ------------- --------------- -------------
Cash flow used by operating activities:
Net income (loss) $ 948,607 $(17,518,464) $ (24,921) $ (2,681,748)
Adjustments to reconcile net loss ot net
cash used by operating activities:
Depreciation - 766,921 - 244,223
Amortization - 210,451 - 15,756
Loss on disposal of assets, net of cash
included in sale - 804,902 - 775,442
Loss on unconsolidated subsidiaries - 161,345 - 18,167
Gain on sale of MicroIslet stock - (752,973) - (752,973)
Unrelated investors' interest in subsidiaries (1,440) (93,976) - (9,238)
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 - -
Stock options, warrants and warrant ext. by sub. - (28,313) - (60,000)
Impairment expense - 2,207,755 - -
Increase (decrease) in allow. for notes rec. & int. - 3,339,709 - 103,343
(Increase) decrease in accounts receivables 50,096 212,547 - (394,785)
(Increase) decrease in inventories - 916,079 - 321,332
Increase (decrease) in inventory valuation allow. - (734,374) - (77,323)
(Increase) decrease in prepaid expenses - 283,385 - (63,272)
(Increase) decrease in other assets - 63,864 - (680)
Increase (decrease) in accounts payable - 376,966 - (91,666)
(Decrease) increase in other liabilities 42,694 917,718 - 334,492
Increase in liabilities in excess of assets
held for sale 116,058 - 16,307 -
Forgiveness of debt (1,292,335) - - -
------------- ------------- ------------- -------------
Net cash flow used by operating activities (136,320) (4,641,255) (8,614) (1,816,983)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Equipment sale 130,000 - 125,000 -
ViaCirq sale 10,000 - 10,000 -
Purchase of property,plant and equipment - (358,964) - (258,934)
(Increase) in notes receivable - (2,001) - -
Payments received on notes receivable 46,338 115,963 - 9,966
(Increase) decrease in interest receivable - (269,180) - (102,953)
Proceeds from sale of Microislet stock - 1,379,386 - 1,379,386
------------- ------------- ------------- ------------
Net cash provided (used) by investing
activities 186,338 865,204 135,000 1,027,465
------------- ------------- ------------- ------------
Cash flows from financing activities:
Proceeds from warrants exercised - 770,000 - 770,000
Proceeds from sale of Preferred stock - 1,864,840 - 925,700
Increase in notes payable - 1,908,013 - 1,312,047
Decrease in notes payable - (864,833) - (237,337)
Increase in long term debt - 26,499 - 26,499
Payments on long term debt - (47,783) - (11,768)
Increase (decrease) in capital lease oblig. -
------------ ------------ ------------ ------------
Net cash provided by financing activities - 3,707,392 - 685,132
------------ ------------ ------------ ------------
(Decrease) increase in cash and equivalents 50,018 (68,659) 126,386 (104,386)
Cash and equivalents, beginning of period 81,682 268,095 5,314 303,822
------------ ------------ ------------- ------------
Cash and equivalents, end of period $ 131,700 $ 199,436 $131,700 $ 199,436
============ ============ ============= ============
The accompanying notes are an integral part of these statements.
BICO, INC.
(Debtor in Possession)
NOTES TO FINANCIAL STATEMENTS
NOTE A - Proceedings under Chapter 11 of the Bankruptcy Code
On March 18, 2003 ("Petition Date"), BICO, Inc., filed a
voluntary petition for reorganization under Chapter 11 of the
Federal bankruptcy laws ("Bankruptcy Code") in the United
States Bankruptcy Court for the Western District of
Pennsylvania ("Bankruptcy Court"). The Company and its
subsidiaries incurred substantial losses in 2002 and in prior
years and funded their operations and product development
through the sale of common and preferred stock and issuance of
debt instruments. In late 2001 and continuing throughout 2002,
BICO experienced difficulty raising monies to support its own
operations and controlling costs. During 2002, BICO began
selling its assets to provide capital to meet its obligations.
BICO's financial situation continued to deteriorate throughout
2002. Without necessary funding, BICO was unable to continue
operations and to retain sufficient counsel to defend itself
from litigation matters. In 2002, BICO was sued by several
alleged creditors who obtained default judgments against BICO
and a subsidiary. The judgment holders thereafter levied on
property of BICO, scheduling an execution sale of assets. The
threat of losing substantial assets to a single creditor
precipitated the need to seek protection under Chapter 11 and
to reorganize the Company.
As a Debtor-in-Possession, BICO is authorized to continue to
operate as an ongoing business but may not engage in
transactions outside the ordinary course of business without
the approval of the Court, after notice and an opportunity for
a hearing. Under the Bankruptcy Code, actions to collect pre-
petition indebtedness, as well as most other pending
litigation, are stayed and other contractual obligations
against the Company may not be enforced. In addition, under
the Bankruptcy Code, the Company may assume or reject executor
contracts, including lease obligations. Parties affected by
these rejections may file claims with the Court, in accordance
with the reorganization process. Absent an order of the Court,
substantially all pre-petition liabilities are subject to
settlement under a plan of reorganization to be voted upon by
creditors and equity holders and approved by the Court.
Upon emergence from bankruptcy, the amounts reported in
subsequent financial statements may materially change due to
the restructuring of the Company's assets and liabilities as a
result of the Plan of Reorganization and the application of
the provisions of Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy
Code," (SOP 90-7), with respect to reporting upon emergence
from Chapter 11 ("Fresh-Start" accounting). Changes in
accounting principles required under generally accepted
accounting principles within 12 months of emerging from
bankruptcy are required to be adopted at the date of
emergence. Additionally, the Company may choose to make
changes in accounting practices and policies at that time. For
all of these reasons, financial statements for periods
subsequent to emergence from Chapter 11 may not be comparable
with those of prior periods.
The accompanying Consolidated Financial Statements have been
prepared on a going concern basis, which assumes continuity of
operations and realization of assets and satisfaction of
liabilities in the ordinary course of business, and in
accordance with SOP-7. Accordingly, all pre-petition
liabilities subject to compromise have been segregated in the
Consolidated Balance Sheets and classified as Liabilities
Subject to Compromise, at the estimated amount of allowable
claims. Liabilities not subject to compromise are separately
classified as current and non-current.
NOTE B - 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., 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 Rule 10-01 Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. 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,
2002.
The Company and its subsidiary Petrol Rem, Inc. filed
voluntary petitions for Chapter 11 bankruptcy with the United
States Bankruptcy Court for the Western District of
Pennsylvania.
As discussed in Note A, for financial reporting purposes, the
consolidated financial statements have been prepared on a
going concern basis. In addition, the debtor has applied the
provisions of the American Institute of Certified Public
Accountants Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code" ("SOP
90-7). Accordingly, all pre-petition liabilities subject to
compromise have been segregated in the Balance Sheet and
classified as Liabilities Subject to Compromise, at the
estimate amount of allowable claims. Liabilities not subject
to settlement are classified current and non-current.
NOTE C - Liabilities Subject to Compromise
Pursuant to Section 362 of the Bankruptcy Code, the
commencement of the Chapter 11 Case imposed an automatic stay,
applicable generally to creditors and other parties of
interest, of: (1) the commencement or continuation of a
judicial, administrative or other action or proceeding against
the Debtor that was or could have been commenced prior to
commencement of the Chapter 11 Case or to recover for a claim
that arose prior to commencement of the Chapter 11 Case; (2)
the enforcement against the Debtor or its property of any
judgments obtained prior to commencement of the Chapter 11
Case; (3) the taking of any action to obtain possession of
property of the Debtor or to exercise control over property of
the Debtor; (4) the creation, perfection or enforcement of any
lien against the property of the Debtor's bankruptcy estate;
(5) any act to create, perfect or enforce against property of
the Debtor any lien that secures a claim that arose prior to
the commencement of the Chapter 11 Case; (6) the taking of any
action to collection, assess or recover claims against the
Debtor that arose before commencement of the Chapter 11 Case;
(7) the setoff of any debt owing the Debtor that arose prior
to commencement of the Chapter 11 Case against any claim
against the Debtor; (8) the commencement or continuation of a
proceeding before the United States Tax Court concerning the
Debtor. Any entity may apply to the Bankruptcy Court, upon an
appropriate showing of cause, for relief from the automatic
stay to exercise the foregoing remedies, however, enforcement
of judgments entered on these claims, if any, is expressly
prohibited without further Bankruptcy Court approval.
Petition Date liabilities that are expected to be settled as
part of a plan of reorganization are separately classified in
the consolidated balance sheet as Liabilities Subject to
Compromise. Reductions in liabilities as a result of the
bankruptcy proceedings are recognized as "Forgiveness of Debt"
in the Consolidated Statements of Operations.
NOTE D - Liabilities in Excess of Assets Held for Sale
In March 2003, the Company and its subsidiary Petrol Rem, Inc.
filed a voluntary petition for bankruptcy under Chapter 11 of
the Bankruptcy Code. Following the filing, the Company's
equity interests in Diasense, ViaCirq, and Viatherm were sold;
Petrol Rem was liquidated in connection with its own
bankruptcy plan; and the former operating assets at the
Company's manufacturing facility were sold. Although these
transactions all took place after the Chapter 11 filing and
subsequent to the first quarter of 2003, efforts were underway
at that time to sell these assets.
The balance recognized as Liabilities in Excess of Assets Held
for Sale represents the excess of the liabilities related to
the carrying value of the assets held for sale. Following is a
summary of these net assets and (net liabilities):
September 30, 2003 Dec. 31, 2002
Diasense, Inc. $ (178,023) $ (145,148)
ViaCirq, Inc. (759,294) (676,111)
Petrol Rem,Inc. 100,348 100,348
Other Assets 0 130,000
----------- -----------
$ (836,969) $ (590,911)
=========== ===========
In August 2003 the Company sold all inventory and equipment
formerly held at its Indiana County manufacturing facility to
an unrelated party for $130,000.
NOTE E - Commitments and Contingencies
Management of the Company believes that any liability arising
from litigation through the effective date of the Company's
reorganization will be either dismissed or settled through the
plan of reorganization.
NOTE F - Shareholders' Equity
Under our Plan of Reoganization, confirmed by the Bankruptcy
Court, all of our outstanding preferred stock as of the
bankruptcy date, March 18, 2003 were cancelled. Prior to the
bankruptcy date 248,574,648 shares of our common stock were
issued in connection with preferred stock conversions.
NOTE G - Subsequent Events
On August 3, 2004 the Company, along with a joint plan
proponent, PHD Capital, submitted a Plan of Reorganization.
PHD Capital is an investment banking company and was used by
the Company prior to the filing of the Chapter 11 as an
investment banker to raise funds. None of the principals or
insiders of the Company are principals or insiders of PHD
Capital, nor have any members of PHD Capital ever held any
positions with the Company. As of September 15, 2004,
sufficient votes had been received from creditors to approve
the Plan of Reorganization and at a hearing on September 23,
2004 the Court confirmed the plan subject to the Company
becoming current with its SEC reporting.
Asset Sales
During the course of the bankruptcy, through September 30,
2004, the Company (Debtor) liquidated substantially all of
its operating and investment assets.
In October 2003 the Company sold its equity and debt interest
in subsidiaries ViaCirq, Inc. and Viatherm, Inc. to an
unrelated party for $300,000. A gain of $1,061,254 was
recognized in the fourth quarter of 2003 as a result of this
sale.
In July 2004 the Company sold its equity and debt interest in
subsidiary Diasense, Inc. to an unrelated party for $80,000
and recognized a net gain of $264,773 at that time.
Petrol Rem, Inc. Liquidating Plan of Reorganization
In December 2003 the United States Bankruptcy Court for the
Western District off Pennsylvania confirmed a plan of
liquidation for the Company's subsidiary, Petrol Rem, Inc. All
of its assets were sold to an unrelated party for $100,000.
The proceeds from the sale were utilized in the Liquidating
Plan to pay administrative expenses and claims; priority
creditor claims and unsecured claims of Petrol Rem creditors
to the extent of available funds.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Our cash increased to $131,700 as of September 30, 2003 from
$81,682 as of December 31, 2002 primarily due to the receipt
of $130,000 from the sale of equipment previously used at our
manufacturing facility, the collection of $50,096 in accounts
receivable and the payment of $46,338 notes receivable. These
increases in cash were partially offset by $122,511 net cash
flow used by operating activities.
Results of Operations
Prior to the Chapter 11 filing in the first quarter of 2003,
we decided to voluntarily vacate our manufacturing facility in
Indiana, PA. All manufacturing operations were ceased and no
additional work was performed on any remaining contracts at
the Indiana, PA facility. With the exception of ViaCirq
substantially all operations of the Company were discontinued
throughout 2003.
We have proposed a Joint Plan of Reorganization (the Plan) and
have received the required acceptance by our creditors. Under
the Plan we will not continue business operations as an
independent entity. Instead, the Joint Plan Proponent, PHD
Capital, anticipates combining a new entity, cXc Services,
Inc. ("cXc"), into BICO. BICO will obtain 100% of the assets
of cXc, including the exclusive licensing rights to a product
known as a "web phone" and management expertise. In return,
the shareholders of cXc will receive full voting, convertible,
and preferred stock in BICO. The preferred stock shall be
convertible at any time into an amount of common stock equal
to 49.6% of the total stock issuable by BICO, but will not
provide cXc with any priority over the common shareholders
upon liquidation, nor any dividend or disbursement priority.
The former shareholders of cXc will hold two of the three
positions on the Board of Directors of BICO. BICO shall
continue business operations as a publicly traded company with
continuing infusions of capital and resources from selling
additional shares or any other available source. Neither cXc
nor its principals shall receive any funds currently held by
BICO.
Our sales and corresponding costs of products sold during the
nine months were $581,681 and $248,093 respectively in 2003
compared to $2,597,434 and $1,787,530 in 2002. The decrease
in sales resulted primarily from the cessation of all
operations except for ViaCirq. ViaCirq's sales of its
hyperthermia totaled $581,681 in the first nine months of 2003
compared to $454,497 in the first nine months of 2002.
Interest income decreased during the first nine months to zero
in 2003 from $308,484 in 2002. The decrease occurred because
we had no funds to invest.
Research and Development expenses during the first nine months
decreased to zero in 2003 from $896,186 in 2002. The decrease
was due to the fact that we stopped all of our research
activities.
General and Administrative expenses during the first nine
months decreased from $12,123,787 in 2002 to $634,622 in
2003. The decrease is primarily due to the fact that we
curtailed our operations.
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 nine months ended
September 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.
Interest expense decreased from $535,386 in the first nine
months of 2002 to $42,694 during the first nine months of 2003
due to lower debt balances and our bankruptcy filing on March
18, 2003.
Our loss on unconsolidated subsidiaries decreased from
$161,340 for the nine months ended September 30, 2002 compared
to zero for the same period in 2003. This reduction is due to
the fact that we abandoned our financial investment in
unconsolidated subsidiaries near the end of 2002.
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 was 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 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. Also, during the first nine months of 2002 we
recorded an impairment expense of $3,307,413 for the writedown
of a note receivable and accrued interest.
We recognized income of $1,249,641 due to forgiveness of debt
due to our bankruptcy filing in the first nine months of 2003.
There was no comparable item in the first six months of 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
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
None
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 5th day of October 2004.
..
BICO, INC.
By /s/ Anthony Paterra
Anthony Paterra
CEO and Director