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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended 12/31/03 Commission File Number 0-10822
BICO, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, Pennsylvania 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 279-1059
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of October 1, 2004:
Common Stock, $.10 par value -- $7,378,508
As of December 31, 2003, 7,387,507,775 shares of common stock,
par value $.10 per share, were outstanding.
Exhibit index is located on pages 26 to 31
Item 1. Business
General Development of Business
BICO, Inc. was incorporated in the Commonwealth of
Pennsylvania in 1972 as Coratomic, Inc. In February 2003, we
stopped all manufacturing, research and development operations
and vacated our manufacturing facility in Indiana, Pennsylvania.
On March 18, 2003 we filed a voluntary petition for Chapter 11
bankruptcy with the United States Bankruptcy Court for the
Western District of Pennsylvania. Our administrative offices
are located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania,
15220.
Before closing down our operations, our primary business was the
development of new devices and technologies, which included
environmental products, which help to clean up oil spills,
procedures relating to the use of regional
extracorporeal hyperthermia in the treatment of cancer, and
models of a noninvasive glucose sensor. Regional extracorporeal
hyperthermia is a system that circulates fluid in a specific area
of the body after the fluid has been heated outside the body.
The circulated fluid's higher temperature helps treat certain
diseases by inducing an artificial fever that kills targeted
cells. The only business which we conducted during 2003 was that
related to the hyperthermia project and that concluded in
October 2003 when we sold our interet in ViaCirq, Inc. Our
noninvasive glucose sensor helped diabetics measure their glucose
without pricking their fingers or having to draw blood.
We had several subsidiaries that specialized in those
different projects. Petrol Rem, Inc. handled our environmental
products PRP, BIOSOK and BIOBOOM that help clean up oil
spills and other pollutants in water. ViaCirq, Inc. handled the
hyperthermia project, a technology called the ThermoChem System.
Diasense, Inc. managed the noninvasive glucose sensor project.
On March 18, 2003, Petrol Rem, Inc. also filed a voluntary
petition for Chapter 11 bankruptcy with the United States
Bankruptcy Court for the Western District of Pennsylvania.
Forward-Looking Statements
From time to time, we may publish forward-looking statements
relating to such matters as anticipated financial performance,
business prospects, technological developments, new products,
research and development activities, the regulatory approval
process, specifically in connection with the FDA marketing
approval process, and similar matters. You need to know that a
variety of factors could cause our actual results to differ
materially from the anticipated results or other expectations we
expressed in our forward-looking statements. The risks and
uncertainties that may affect our operations, performance,
research and development and results include the following:
our ability to develop a plan of reorganization which is
acceptable to our creditors and confirmed by the Bankruptcy
Court;additional delays in the research, development and FDA
marketing approval of the noninvasive glucose sensor; delays
in the manufacture or marketing of our other products and
medical devices; our future capital needs and the uncertainty of
additional funding; competition and the risk that the noninvasive
glucose sensor or our other products may become obsolete; our
continued operating losses, negative net worth and uncertainty of
future profitability; potential conflicts of interest; the status
and risk to our patents, trademarks and licenses; the uncertainty
of third-party payor reimbursement for the sensor and other
medical devices and the general uncertainty of the health care
industry; our limited sales, marketing and manufacturing
experience; the amount of time or funds required to complete or
continue any of our various products or projects; the attraction
and retention of key employees; the risk of product liability;
the uncertain outcome and consequences of the lawsuits pending
against us; our ability to maintain a trading market for our
common stock; and the dilution of our common stock.
Description of Business
BICO is a development stage company, that researched, developed
and sold products used in the medical product and
environmental remediation businesses. In addition, prior to
its bankruptcy filing, BICO regularly invested funds in
other businesses. BICO has historically financed its
business operations from proceeds generated from private
and public sales of its securities, the issuance of debt
in the form of convertible debentures, and from funds paid
by subsidiaries to BICO for research and development costs.
Chapter 11 Petition: On March 18, 2003, BICO, Inc. and its
subsidiary Petrol Rem, Inc. filed voluntary petitions for
Chapter 11 bankruptcy with the United States Bankruptcy
court for the Western District of Pennsylvania.
Events that Caused the Filing: BICO extensively focused its
efforts on research and development of products used in the
medical products business (particularly medical products
used in the treatment of diabetes) and environmental
remediation business. BICO also invested in other business
ventures. BICO's operations required a continuous capital
infusion to support its operations. In late 2001 and
continuing throughout 2002, BICO experienced difficulty
in raising monies to support its own operations and
controlling costs. In 2002, BICO began selling its assets to
provide capital to meet its obligations. BICO's financial
situation continued to deteriorate throughout 2002. Without
necessary funding, BICO was unable to continue operations or
to retain sufficient counsel to defend itself from litigation
matters. In 2002, BICO was sued by several alleged creditors who
subsequently obtained default judgments against BICO and a subsidiary.
The judgment holders thereafter levied on property of BICO,
scheduling an execution sale of assets. Faced with the
threat of losing substantial assets to a single disputed
creditor, BICO filed a petition for relief under Chapter
11 on March 18, 2003.
In the years prior to the Chapter 11 filing, BICO
experienced substantial losses and financial difficulties.
The consolidated financial statements for BICO for the
year ended December 31, 2002 reflect a net loss of
$25,116,853 and as of December 31, 2002, BICO's accumulated
deficit was $254,663,071
Prior to the Chapter 11 filing, BICO decided to voluntarily
vacate its manufacturing facility in Indiana, PA. All
manufacturing operations had ceased and no additional
work was being performed on any remaining contracts at the
Indiana, PA facility. The inventory and equipment at the
Indiana, PA facility have been sold during the course of
BICO's Chapter 11 bankruptcy case.
With the exception of our hyperthermia project all operations
were discontinued in 2003. The hyperthermia project was
discontinued in October 2003 when our interest in ViaCirq, Inc.
was sold.
In December 2003 the United States Bankruptcy Court for the
Western District of Pennsylvania confirmed a plan of liquidation
for our 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.
Item 2. Properties
Due to cash flow problems, Diasense sold its office condominium
in 1999, and they leased the same space for administrative
offices through December 31, 2003. We, along with our subsidiaries,
continued to lease a portion of that office at a monthly rental amount
of $5,175 plus utilities through December 31, 2003. After December 31,
2003 we continued to occupy these administrative offices on a month
to month basis at a monthly rate of $1,500.
In September 1992, we entered into a ten-year lease agreement
with the Indiana County Board of Commissioners for 35,000 square
feet of space on Kolter Drive that we reconfigured to our
manufacturing specifications. During 1998 and 1999, we moved the
balance of our Indiana, Pennsylvania operations to this space.
During 2000, we obtained an additional 33,000 square feet of
manufacturing space, which was being completed for manufacturing.
That space, which was originally obtained in 1995, was vacated in
1998 in return for the lessor's agreement not to pursue legal
action against us for nonpayment of rent. In February 2003 we
stopped all manufacturing, research and development operations
and vacated our manufacturing facility in Indiana, Pennsylvania.
We currently have no facilities to support any manufacturing,
research and development activities.
Item 3. Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas requesting documents in connection with an
investigation by the U.S. Attorneys' office for the District
Court for the Western District of Pennsylvania. In July 2002,
the Company was notified that this investigation was concluded
with no charges against BICO or its subsidiaries.
On April 30, 1996, a class action lawsuit was filed against the
Company, Diasense, Inc., and individual officers and directors.
The suit, captioned Walsingham v. Biocontrol Technology, et al.,
was certified as a class action in the U.S. District Court for
the Western District of Pennsylvania. The suit alleged misleading
disclosures in connection with the Noninvasive Glucose Sensor
and other related activities, which the company denies. Without
agreeing to the alleged charges or acknowledging any liability
or wrongdoing, the Company agreed to settle the lawsuit for a
total amount of $3,450,000.
During September 2002, the class action lawsuit, captioned
Walsingham v. Biocontrol Technology, et al., was settled when
the final payment of $50,000 was made. As of December 31, 2001,
the Company owed $450,000 for this settlement. In May 2002,
the parties agreed to extend the payments on the remaining
balance plus a forbearance fee of $25,000. Payments totaling
$450,000 were made in the nine months ended September 30, 2002,
and the settlement is now completed.
Lawsuits have been filed against the company and its subsidiaries
for collection of approximately $1,645,062 for amounts due to
creditors or employees. Management defended these actions and
worked to negotiate suitable payment arrangements as funds allowed,
but the lack of funds crippled the Company's ability
to defend or settle the litigation. The dollar amount of these claims
is included in Liabilites Subject to Compromise at December 31, 2003.
Management believes that any liability arising from litigation through
the effective date of the Company's reorganization under its Chapter
11 bankruptcy will be either dismissed or settled through the plan of
reorganization.
Item 4. Submission of Matters to a Vote of Security Holders
At a shareholders' meeting held on July 5, 2002, our
shareholders approved an increase in the number of our authorized
shares of common stock from 4 billion to 8 billion.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Our common stock trades on the electronic bulletin board pink sheets
under the symbol "BIKO". On September 15, 2004, the closing bid price
for the common stock was $ .0009. The following table sets
forth the high and low bid prices for our common stock during the
calendar periods indicated, through December 31, 2003. Because
our stock trades on the electronic bulletin board, you should
know that these stock price quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and they
may not necessarily represent actual transactions.
Calendar Year High Low
and Quarter
2001 First Quarter $.1355 $.05
Second Quarter $.072 $.037
Third Quarter $.057 $.01
Fourth Quarter $.049 $.02
2002 First Quarter $.0350 $.0150
Second Quarter $.0194 $.0027
Third Quarter $.0049 $.0004
Fourth Quarter $.0060 $.0001
2003 First Quarter $.0110 $.0004
Second Quarter $.0030 $.0001
Third Quarter $.0029 $.0003
Fourth Quarter $.0014 $.0001
We have approximately 135,000 holders, including those who hold
in street name, of our common stock.
DESCRIPTION OF SECURITIES
Our authorized capital currently consists of 8 billion shares of
common stock, par value $.10 per share and 500,000 shares of
cumulative preferred stock, par value $10.00 per share.
Preferred Stock
Our Articles of Incorporation authorize the issuance of a
maximum of 500,000 shares of cumulative convertible preferred
stock, and authorize our board of directors to define the terms
of each series of preferred stock. In 2001 and 2002, our board
of directors authorized the creation of five new series of
convertible preferred stock - series G, H, I, J and K. As of
December 31, 2002 we had a total of 10,836 shares of our preferred
stock outstanding. Prior to the bankruptcy date, 248,574,648
shares of our common stock were issued in connection with
preferred stock conversions. Under our Plan of Reorganization,
confirmed by the Bankruptcy Court, all outstanding preferred
shares as of the bankruptcy date, March 18, 2003, were cancelled.
None of our convertible preferred stock is secured by any of
our assets. Each share of our preferred stock has a designated
value of $500 per share. There is no minimum conversion price,
so the lower the bid price of our stock, the more shares we will
need to issue when our preferred stock is converted - there is no
limit on the number of shares of our common stock that our
preferred stock can be converted into. This means that, if our
stock price is low, the preferred stockholders could own a large
percentage of our outstanding common stock - except that they
have each agreed not to own more than 5% of our common stock at
any one time. We only sold our preferred stock to accredited
investors. We can redeem our preferred stock.
Each series of preferred stock has its own minimum holding
period and each series defines its conversion price.
We issued 4,000 shares of our series I preferred stock to Mr.
and Mrs. Farrell Jones as part of a renegotiation and settlement
of amounts due in connection with our purchase of ICTI back in
1998. Even though we wrote off that entire investment, we still
owed the Joneses a total of $5,450,348. In December 2001, we
finalized an agreement with the Joneses to decrease the amount
owed to a total of $2,887,500. Of that total, $2 million was
applied when we issued them the 4,000 shares of series I
preferred stock. The series I preferred is convertible at any
time into our common stock based on the 5-day average of our
closing bid price immediately prior to conversion. 2,186 of the
series I has been converted to date.
In February 2002, we accepted a funding commitment from J.P.
Carey Asset Management, LLC, a Georgia corporation. The first
part of the funding is through J.P. Carey Asset Management's
purchase of $7.5 million of our Series K preferred stock.
The conversion price for the Series K preferred is based on a
10% discount to the average of the lowest 3 consecutive closing
bid prices during the 22 days prior to conversion.
Common Stock
Holders of our common stock are entitled to one vote per
share for each share held of record on all matters submitted to a
vote of stockholders. Holders of our common stock do not have
cumulative voting rights, and therefore the holders of a majority
of the shares of common stock voting for the election of
directors may elect all of the directors, and the holders of the
remaining common stock would not be able to elect any of the
directors. Subject to preferences that may be applicable to the
holders of our preferred stock, if any, the holders of our common
stock are entitled to receive dividends that may be declared by
our board of directors.
In the event of a liquidation, dissolution or winding up of
our operations, whether voluntary or involuntary, and subject to
the rights of any preferred stockholders, the holders of our
common stock would be entitled to receive, on a pro rata basis,
all of our remaining assets available for distribution to our
stockholders. The holders of our common stock have no
preemptive, redemption, conversion or subscription rights. As of
December 31, 2003, we had 7,387,507,775 shares of our common
stock outstanding.
Dividends
We have not paid cash dividends on our common stock, with the
exception of 1983, since our inception. We do not anticipate
paying any dividends at any time in the foreseeable future. We
expect to use any excess funds generated from our operations for
working capital and to continue to fund our various projects.
Our Articles of Incorporation restrict our ability to pay cash
dividends under certain circumstances. For example, our board
can only declare dividends subject to any prior right of our
preferred stockholders to receive any accrued but unpaid
dividends. In addition, our board can only declare a dividend to
our common stockholders from net assets that exceed any
liquidation preference on any outstanding preferred stock.
Warrants
As of December 31, 2001, we had outstanding warrants - most
of which were not currently exercisable - to purchase 96,136,560
shares of our common stock. These warrants had exercise prices
ranging from $.015 to $3.20 per share and expiration dates
through December 4, 2006, and were held by members of our
scientific advisory board, certain employees, officers,
directors, loan guarantors, and consultants. As of December 31,
2002, all remaining warrants were deemed to have been
cancelled due to our bankruptcy.
Holders of warrants are not entitled to vote, to receive
dividends or to exercise any of the rights of the holders of
shares of our common stock for any purpose until the warrant
holder properly exercises the warrant and pays the exercise
price.
Transfer Agent
Mellon Investor Services in New York, New York acts as our
Registrar and Transfer Agent for our common stock. We act as our
own registrar and transfer agent for our preferred stock and
warrants.
Item 6. Selected Financial Data
YEARS ENDED DECEMBER 31st
2003 2002 2001 2000 1999
Total Assets $ 448,180 $ 178,116 $24,637,421 $21,930,070 $15,685,836
Long-Term
Obligations $ 0 $ 0 $ 2,280,935 $ 2,211,537 $ 1,338,387
Working
Capital $ 448,180 ($ 9,816,536)($10,429,990) $ 754,368 $ 4,592,935
(Deficit)
Preferred
Stock $ 0 $ 108,357 $ 169,300 $ 0 $ 0
Net Sales $ 625,231 $ 2,828,923 $ 4,342,203 $ 340,327 $ 112,354
TOTAL
REVENUES $ 625,231 $ 2,828,923 $ 4,349,918 $ 345,874 $ 165,251
Other Income $ 0 $ 413,703 $ 561,817 $ 589,529 $ 1,031,560
Warrant
Extensions $ 0 $ 0 $ 0 $ 5,233,529 $ 0
Benefit
(Provision)
for Income
Taxes $ 0 $ 0 ($ 120,882) $ 0 $ 0
Net Income
(Loss) $ 1,927,283 ($25,116,853)($30,942,310)($42,546,303)($38,072,578)
Net Income (Loss)per
Common Share:
Basic $.00 ($.01) ($.02) ($.04) ($.05)
Diluted $.00 ($.01) ($.02) ($.04) ($.05)
Cash Dividends
per share:
Preferred $ 0 $ 0 $ 0 $ 0 $ 0
Common $ 0 $ 0 $ 0 $ 0 $ 0
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following is a summary of the more detailed information in
our financial statements. You should carefully review those
financial statements before you decide whether to invest in our
stock.
Forward-Looking Statements
This section contains forward-looking statements. We discussed
these kinds of statements on page 2, and you should review that
section.
Liquidity and Capital Resources
On March 18, 2003, we along with our subsidiary Petrol Rem, Inc.
filed voluntary petitions for chapter 11 bankruptcy with the
United States Bankruptcy Court for the Western District of
Pennsylvania.
We had extensively focused our efforts on research and
development of products used in the medical products business
(particularly medical products used in the treatment of
diabetes) and environmental remediation business. We also
invested in other business ventures. Our operations required
a continuous capital infusion to support its operations. In
late 2001 and continuing throughout 2002, we experienced difficulty
in raising monies to support our own operations and controlling
costs. We began selling our assets to provide capital to meet
our obligations. Our financial situation continued to deteriorate
throughout 2002. Without necessary funding, we were unable to
continue operations or to retain sufficient counsel to defend
ourselves from litigation matters. In 2002, we were sued by
several alleged creditors who obtained default judgments against
us and one of our subsidiaries. The judgment holders thereafter
levied on our property scheduling an execution sale of assets.
Faced with the threat of losing substantial assets to a single
disputed creditor, we filed a petition for relief under
Chapter 11 on March 18, 2003.
In the years prior to the Chapter 11 filing, we experienced
substantial losses and financial difficulties. Our consolidated
financial statements for the year ended December 31, 2002 included
disclosures that we had a net loss for the year of $25,116,853
and our accumulated deficit was $279,779,924.
Prior to the Chapter 11 filing, we decided to voluntary vacate
our manufactuing facility in Indiana, PA. All manufacturing
operations have ceased and no additional work is being
performed on any remaining contracts at the Indiana, PA
facility. The inventory and equipment at the Indiana, PA
facility has been sold during the course of the Chapter 11
bankruptcy case.
We have proposed a Joint Plan of Reorganization (the Plan) and
have received the required acceptance by our creditors. The
Plan was confirmed by the Bankruptcy Court on September 23, 2004
subject to our becoming current on our SEC reporting. Under the
Plan we will not continue business operations as an independent
entity. Instead, the Joint Plan Proponent PHD Capital anticipates
combining a new entity, cXc Services, Inc. ("cXc"), into BICO. BICO
will obtain 100% of the assets of cXc, including the exclusive licensing
rights to a product known as a "web phone" and management
expertise. In return, the shareholders of cXc will receive
full voting, convertible, preferred stock in BICO. The
preferred stock shall be convertible at any time into an
amount of common stock equal to 49.6% of the total stock
issuable by BICO, but will not provide cXc with any priority
over the common shareholders upon liquidation, nor any dividend
or disbursement priority. The former shareholders of cXc
will hold two of the three positions on the Board of
Directors of BICO. BICO shall continue business operations
as a publicly traded company with continuing infusions
of capital and resources from selling additional shares or
any other available source. Neither cXc nor its principals
shall receive any funds currently held by BICO.
cXc is a private company based in Laguna Hills, California.
cXc was located by the joint plan proponent, PHD Capital
(PHD and cXc had no prior dealings). cXc was incorporated
in Delaware in 2003. Neither cXc, nor any of its principals,
have had any prior dealings with BICO or are insiders of
BICO or its subsidiaries. cXc is a developing company
dedicated to providing internet connectivity to the large
number of customers and consumers who do not currently have
internet service, as well as making internet service more
convenient for those who do have service. cXc is marketing
and will shortly begin selling, a "web phone" product
which will enable telephone users to access the internet
(without a computer or television) by pushing one button
on a telephone. cXc has the exlusive distribution rights
in North America for the web phone product manufactured by
Amstrad, PLC, a public British company. Amstrad has sold
and installed 300,000 units of the web phone product in
its markets in the last year and a half. To date,
cXc and its predecessors have raised over $1 million to
support its operations. A summary of cXc's product
description and target markets may be viewed at the firm's
website, cXcservices.com.
cXc Services is substantially owned (over 80%) by Ken
Raznick, Richard Greenwood and the management team. The
co-founder, President and CEO of cXc is Richard Greenwood.
Greenwood has over 25 years of experience in executive
level positions with financial institutions involving
funding and capital management. For example, he held various
treasury positions for Citibank, was CFO of California
Federal Bank and Valley National, and was the CEO of Bank
Plus/Fidelity Federal Bank. Most recently before starting cXc,
Greenwood was CEO of Hagenuk CPS/USA, a manufacturer and
distributor of web phones and smart card systems and
technologies. Greenwood is experienced at raising funds for
a developing business and managing its daily challenges.
Co-founder Ken Raznick, the Chairman of cXc, has worked in the
commercial real estate field for 30 years, participating in
the development of over 25 million square feet of commercial
and industrial space. In 1974, Raznick started The Ken
Raznick company deeloping neighborhood shopping centers. In
addition to developing and managing shopping centers, Raznick
has been actively involved in commercial financing issues.
Raznick has invested substantial monies in cXc and its
operations.
The Joint Plan Proponent, PHD Capital, is an investment banking
company based in New York, NY. PHD Capital was used by us prior
to the filing of the Chapter 11 as an investment banker to raise
funds. None of our principals or insiders are principals or
insiders of PHD Capital, nor have any members of PHD Capital
ever held any positions with us. PHD Capital is one of our
creditors and has worked with us to identify a merger partner
and submit this Plan. In return for its services, PHD Capital
will obtain stock in BICO representing 2.0% of our issuable
shares. One-half of these shares shall be restricted from sale
for a period of 60 days after issuance, and the remainder
shall be unrestricted. No post-bankruptcy filing contractual
relationship exists between BICO and PHD Capital.
The shareholders of cXc shall receive preferred stock in
BICO with full voting rights (the preferred stock will be
convertible into common stock representing 49.6% of
BICO's issuable shares). cXc will control two of three
Board of Director positions. Upon consummation of the
merger, cXc and/or PHD will endeavor to secure the funds
necessary on an as needed basis to:(i) merge operations
with the Reorganized Debtor; and (ii) continue BICO's
operations and preserve its status as a publicly traded
company (including, but not limited to, the costs and
expenses of preparing public company filings, registration
statements, and mailings to shareholders.) In the 90 day
period following the merger, cXc expects to continue
uninterrupted its business plan and as such expects at
least another $1 million dollars to be raised for the
new BICO operation.
BICO's reorganized Board of Directors shall have the
following special powers, none of which shall require
the consent of any shareholders: 1)combine cXc into
BICO and implement the terms of the Joint Plan of
Reorganization; 2) designate officers and directors
of the Reorganized Debtor for a period of 12 months
or until a merger is consummated, whichever is sooner;
3)increase the total authorized shares in the
Reorganized Debtor to up to 250,000,000,000 shares;
4)split or reverse split the stock in the Reorganized
Debtor as many times as desired for a period of 5
years from the effective date of the Plan; 5)redeem the
interest of BICO's preferred shareholders in exchange
for common stock in the Reorganized Debtor; 6)impose
commercially reasonable restrictions on the transfer
of any issued stock; 7)amend BICO's bylaws and/or
issue new bylaws for BICO for a period of 2 years
from the effective date of the Plan; 8)assume, ratify,
assign and/or amend that certain Securities Purchase
Agreement between BICO and J.P. Carey Asset
Management relating to Series K Convertible Preferred
Stock, including extending the maturity date to
September 1, 2001. this agreement permits BICO to
raise funds by selling stock in a less costly manner than
by issuing a secondary offering; and 9)issue restricted
or unrestricted shares of BICO stock in such amounts and
at such times to persons or entities who shall perform
services for BICO, as the Board of Directors shall
determine.
Existing unsecured nonpriority creditors of BICO
shall receive 6,500,000,000 shares of restricted
common stock in the Reorganized Debtor, distributed
on a pro-rata basis. Holders of this common stock shall
be restricted from trading the stock in the following
manner: 25% may be sold beginning 6 months from the
date of issuance; another 25% may be sold beginning
9 months from the date of issuance; and the
remainder may be sold beginning 1 year from the date
of issuance. Existing unsecured creditors shall also
receive the net proceeds distributed on a pro-rata
basis of any fraudulent transfer litigation to be
commenced by BICO or its assign. This includes a
possible cause of action against Edward Lofton and/or
Intco., arising out of a loan transaction between
BICO and Intco, Inc. The Debtor believes that this
cause of action has merit and should be pursued. Upon
locating an attorney to pursue the action on a
contingency, BICO may fund a cost account to pursue the
litigation prior to any merger. The Reorganized Debtor
shall have no obligation to pursue or fund this
litigation.
The Reorganized Debtor shall redeem the existing preferred stock
in exchange for common stock in the Reorganized Debtor of
another 6,500,000,000 shares. The existing common stockholders
in BICO shall retain their existing shares in the amount of
approx. 6,500,000,000. collectively, existing creditors,
preferred shareholders, and shareholders of the Debtor shall
receive approx. 8% of the issuable shares in the Reorganized
Debtor.
J.P. Carey Asset Management shall receive 1,000,000,000 shares
of common stock in the Reorganized Debtor, which shares shall
be restricted from trading for a period of 6 months from the
date of issuance. These shares shall be paid to J.P. Carey
Asset Management for assisting BICO in raising revenue
pursuant to the Securities Purchase Agreement for Series K
Preferred Stock dated February 15, 2002.
The Reorganized Debtor shall also reserve 4,500,000,000 shares
of common stock, restricted or unrestricted as the Board of
the Debtor shall determine, to be used to pay for services to
be rendered to the Reorganized Debtor (including, but not
limited to, public relations firm(s), marketing agents,
accountants, attorneys, employees, and professionals).
Holders of warrants and/or options to purchase BICO stock or
debt which had not been exercised as of March 18, 2003 shall
not receive any property under this Plan, and such interests
are cancelled.
Administrative claimants will be paid either in full on the
Effective Date of the Plan or as agreed between the Debtor and
the claimant(s). Priority wage claim creditors will be paid the
full amount of their allowed prioriy claims (up to $4,650 per
claimant) on the Effective Date of the Plan. Unsecured priority
tax creditors shall be paid the full amount of their priority
claims over a period of 72 months or less, plus interest at the
prevailing interest rate for such claims in effect on the date
the Plan is confirmed, as provided by 11 U.S.C. 507(a)(8).
Upon approval of the Plan and implementation of the Plan, BICO
anticipates issuing unrestricted stock in BICO representing 16%
of the issuable shares in the company, and immediately begin
selling such stock to raise needed investment capital. BICO shall
reserve another 22% of its issuable shares for future capital raising.
Our cash increased to $448,180 as of December 31, 2003 from
$81,682 as of December 31, 2002 primarily due to collection
of notes receivable of $46,338 and $230,000 from the sale of assets.
These sources of cash were offset by losses from operations and
other items to bring our net increase in cash to $366,498.
Accounts receivable, decreased to zero as of December 31, 2003
due to payment of $50,096 in the first quarter of 2003.
Current notes receivable of $46,338 as of December 31, 2002
represents proceeds due from the sale of MicroIslet stock in
the fourth quarter of 2002 which was paid in January 2003.
All of our property, plant and equipment, goodwill, intangible
assets, investments in unconsolidated, and other assets were
either written off through impairment charges or were
reclassified to assets held for sale which are offset by associated
liabilities.
Petition Date liabilities (including accounts payable, notes
payable, capital lease obligations, accrued liabilities and
other 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.
Results of Operations
The following paragraphs discuss the results of operations of
our entire company based on our consolidated financial
statements.
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 net sales and corresponding costs of products sold decreased
in 2003 to $625,231 and $258,919 respectively. Our net sales
and corresponding costs of products sold during 2002 decreased to
$2,828,923 and $1,645,258 respectively from $4,324,203 and
$3,287,176 in 2001. The decrease in 2002 was primarily due to sales
of $3,212,418 by Petrol Rem's subsidiary, INTCO, which was acquired
in the fourth quarter of 2000 and diposed of in early 2002 and,
therefore, not included in the most of 2002 operations. The decreases
from 2002 to 2003 resulted primarily from the cessation of all operations
except for ViaCirq.
During the 3rd quarter of 2001, our manufacturing division in
Indiana, PA received contracts, which began generating revenue
during late 2001. Our Biocontrol Technology division received a
$1.5 million manufacturing contract from the U.S. Army, and
$238,000 manufacturing contract from a private company. We began
work on the U.S. Army contract beginning in the 4th quarter of 2001.
Revenues from this contract helped to offset the reduced 2002 revenues
in Petrol Rem discussed above.
Interest income decreased to zero for 2003 compared to $413,700 and
$561,817 for 2002 and 2001 respectively because we had no funds to
invest during 2003.
Research and development activities were significantly curtailed
during 2002 and completely discontinued in 2003 due to a lack of
funding. As a result, the associated expenses in 2002 were reduced to
$896,186 and to zero in 2003.
General and administrative expenses for 2003 decreased to $747,444
from $19,016,705 and $21,879,130 in 2002 and 2001 respectively.
The decrease in 2003 is due to curtailed operations in 2003. The
decrease in 2002 is attributable to additional salaries in 2001, which include
a $912,727 payment to David L. Purdy in connection with his
resignation from the Company and its affiliates and new hiring at
ViaCirq and Petrol Rem (including INTCO and Tireless, LLC). In addition,
in 2001 higher travel expenses, primarily for ViaCirq's and Petrol Rem's
increased marketing efforts increased expenses. The above decreases in
2002 were partially offset by a decrease in expense recognized in connection
with the granting of warrants for services. The 2002 decreases were also the
result of curtailed operations in 2002.
Amortization decreased from $804,458 in 2001 to $175,000 in 2002
due to the write off of the intangible assets. We had no losses
on unconsolidated susidiaries in 2003 because we ceased all
funding to these entities and abandoned our interests.
Our loss on unconsolidated subsidiaries increased to $524,151 for
the year ended December 31, 2002 compared to $279,978 for 2001. This
loss results because we absorb part of the losses incurred by our
unconsolidated our subsidiaries. Our share of the loss is determined
by applying our ownership percentage to the total loss incurred.
There were no debt issue costs in 2003 or 2002. Debt issue costs
were $2,218,066 in 2001 due to additional debentures and notes
payable during 2001.
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 $639,591 and $826,346 in 2002 and
2001 respectively to $42,694 in 2003 due to lower debt balances
at the beginning of 2003 and our bankruptcy filing on March 18, 2003.
We recognized income in 2003 of $1,292,335 due to forgiveness of debt
due to our bankruptcy filing and recognized a gain of $1,061,254 on the
sale of our ownership interest in ViaCirq, Inc. in 2003. In 2001, we
recognized $2,562,848 in debt forgiveness in connection with a renegotiated
settlement of debt incurred when we purchased subsidiary, ICTI. there were
no such transactions in 2002.
Beneficial conversion terms included in our convertible
debentures are recognized as expense and credited to additional
paid in capital at the time the associated debentures are issued.
There were no such costs in 2003 or 2002. We recognized $2,063,915 of
expense in connection with the issuance of our subordinated
convertible debentures in 2001.
The $6,014,576 impairment loss recognized in 2002 resulted
primarily from the write down of the Company's investments
and goodwill.
Segment Discussion
Because of the cessation of our operations with the exception on ViaCirq, Inc.,
we only operated in the biomedical segment in 2003. For purposes of accounting
disclosure, we provide the following discussion regarding two business segments
for 2002 and 2001: Bioremediation and environmental clean-up, which includes
the operations of Petrol Rem, Inc., and Biomedical devices, which includes the
operations of our Biocontrol Technology division, Diasense, Inc., and ViaCirq,
Inc. More complete financial information on these segments is set forth in Note
H to our accompanying financial statements.
Bioremediation Segment. During the year ended December 31, 2001,
sales to external customers were $3,383,637. In 2002 these sales
were reduced to $138,751 due to the elimination of Petrol Rem, Inc.
ownership interest in INTCO, Inc. As a result, costs of products sold decreased
to $204,325 in 2002 from $2,507,717 in 2001.
Biomedical Device Segment. During the year ended December 31,
2002, sales to external customers increased to $2,608,736 from
$817,353 in 2001. The overall increase was primarily due to increased
revenues from manufacturing activity for the US Army at our Indiana
facility in 2002.
Income Taxes
Due to our net operating loss carried forward from previous years
and our current year losses, no federal or state income taxes
were required to be paid for the years 1987 through 2003 on
BICO's consolidated tax return. However, INTCO, Inc., a former
subsidiary of Petrol Rem, Inc., files separate income tax returns
and the 2001 tax return included tax expense of $120,882. As of
December 31, 2003, we and our subsidiaries, except for Diasense,
Petrol Rem, Rapid HIV and ICTI had available net operating loss
carry forwards for federal income tax purposes of approximately
$16 million, which expire over the course of the years 2004
through 2024.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements appear on pages F-1 through
F-37 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
Name Age Director Position
Since
Anthony Paterra 54 2003 Chief Executive Officer,
Director
Jerome M. Buyny 53 2002 Director
ANTHONY PATERRA, 54, joined BICO in 1999 as our Director of Public
Affairs. He then began to consult on our corporate insurance issues.
In 2001 he started to handle our delinquent accounts payable. On
April 16, 2003, he was appointed to the BICO board of directors.
On May 15, 2003 he was appointed CEO. Prior to joining us he
worked as an Insurance Agent from 1989 to 1998.
JEROME M. BUYNY, 53, joined our board of directors on October
23, 2002. Mr. Buyny is President of S.W.A.T Security Services
in Pittsburgh, PA. Mr. Buyny was formerly a Special Agent for
the Federal Bureau of Investigation from 1972 through 1990. He
attended Alliance College in Cambridge Springs, PA and has a
B.A. degree in History and Political science. He also attended
the American Institute of Banking, George Washinton University,
the FBI Academy and Federal Law Enforcement Academy.
Item 405 of Regulation S-K requires us to make disclosures
regarding timely filings required by Section 16(a) of the
Securities and Exchange Act. Based solely on our review of
copies of forms received and written representations from certain
reporting persons, we believe that all of our officers, directors
and greater than ten percent beneficial owners complied with
applicable filing requirements.
Item 11. Executive Compensation
Due to our discontinuation of operations and bankruptcy filing,
we only have one executive officer, Mr. Anthony Paterra. For
the year ended December 31, 2003, Mr. Paterra was paid $35,500.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
None of our current management or executive officers have any
security ownership in the Company.
Item 13. Certain Relationships and Related Transactions
We previously shared common officers and directors with our
subsidiaries. In addition, BICO and Diasense had entered
into several intercompany agreements including a purchase
agreement, a research and development agreement and a
manufacturing agreement, which we describe later in this
section. Our management believes that it was in our best
interest to enter into those agreements and that the
transactions were based upon terms as fair as those which
may have been available in comparable transactions with
third parties. However, we did not hire any unaffiliated
third party to determine independently the fairness of those
transactions. Our policy concerning related party
transactions requires the approval of a majority of the
disinterested directors of both the corporations involved,
if applicable.
Loans
In 1999, we consolidated all of Fred E. Cooper's
outstanding loans from us, including accrued interest, into
one loan in the amount of $777,399.80 at 8% interest. Mr.
Cooper began repaying the loans in May of 1999. In 2002,
under the terms of a resignation agreement, Mr. Cooper's
outstanding loans were reduced to $204,583 by offsetting
previously accrued salaries.
In 1999, we consolidated all of Anthony J. Feola's
outstanding loans from us, including accrued interest, into
one loan in the amount of $259,476.82 at 8% interest. Mr.
Feola began repaying the loans in May of 1999. In 2002, under
the terms of a resignation agreement, Mr. Feola's outstanding
loans were completely offset against previously accrued salaries.
In 1999, we consolidated all of Glenn Keeling's
outstanding loans from us, including accrued interest, into
one loan in the amount of $296,358.07 at 8% interest. Mr.
Keeling began repaying the loans in May of 1999. In 2002,
under the terms of a resignation agreement, Mr.
Keelings outstanding loans were completely offset against
previously accrued salaries.
In 2001, we granted a loan in the amount of $110,000 to
Anthony DelVicario, a former Diasense director and the
president of American Intermetallics. We loaned him the
money because he used it to try to close a transaction in
Europe that could generate revenues. The transaction
involved the creation of a distribution system in Europe to
sell American Inter-Metallic's products and generate
revenue. In November 2001, we increased the amount due to
$114,000 to cover accrued interest and secured the loan with all
of the assets of American Intermetallics. Mr. DelVicario began
making monthly payments on the loan in March 2002 but is
currently in default with a remaining balance of $112,554.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements
The financial statements, together with the report thereon
of the Company's independent accountants, are included in
this report on the pages listed below.
Financial Statements Page
Report of Independent Certified Public Accountants
Goff Backa Alfera & Company, LLC F-1
Consolidated Balance Sheets
December 31, 2003 and 2002 F-2
Consolidated Statements of Operations
for the years ended December 31, 2003, 2002 and 2001 F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2003, 2002 and 2001 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 2003, 2002 and 2001 F-6
Notes to Consolidated Financial Statements
December 31, 2003, 2002 and 2001 F-8
2. Exhibits:
(b) Reports on Form 8-K
The Company filed a Form 8-K report on September 27,
2004, for the event dated July 23, 2004. The
items listed were Item 5, Other Events.
c) Exhibits Required by Item 601 of Regulation S-K
The following exhibits required by Item 601 of Regulation
S-K are filed as part of this report. Except as otherwise
noted, all exhibits are incorporated by reference from
exhibits to Form S-1 (Registration #33-55200) filed December
1, 1992 or from exhibits to Form 10-K filings prior to or
subsequent to that date.
3.1(4) Articles of Incorporation as filed March 20, 1972
3.2(4) Amendment to Articles filed May 8,1972
3.3(4) Restated Articles filed June 19,1975
3.4(4) Amendment to Articles filed February 4,1980
3.5(4) Amendment to Articles filed March 17,1981
3.6(4) Amendment to Articles filed January 27,1982
3.7(4) Amendment to Articles filed November 22,1982
3.8(4) Amendment to Articles filed October 30,1985
3.9(4) Amendment to Articles filed October 30,1986
3.10(4) By-Laws
3.11(5) Amendment to Articles filed December 28,1992
3.12(8) Amendment to Articles filed February 7, 2000
3.13(12) Amendment to Articles filed June 14, 2000
3.14(14) Amendment to Articles filed November 30, 2001
3.15(14) Certificate of Designation of Series G Preferred
Stock
3.16(14) Certificate of Designation of Series H Preferred
Stock
3.17(14) Certificate of Designation of Series I Preferred Stock
3.18(14) Certificate of Designation of Series J Preferred Stock
3.19(14) Certificate of Designation of Series K Preferred Stock
10.1(1) Manufacturing Agreement
10.2(1) Research and Development Agreement
10.3(1) Termination Agreement
10.4(1) Purchase Agreement
10.5(2) Sublicensing Agreement and Amendments
10.6(3) Lease Agreement with 300 Indian Springs Partnership
10.7(4) Lease Agreement with Indiana County
10.8(5) First Amendment to Purchase Agreement dated
December 8, 1992
10.9(6) Fred E. Cooper Employment Agreement dated November
1, 1994
10.10(6) David L. Purdy Employment Agreement dated November
1, 1994
10.11(6) Anthony J. Feola Employment Agreement dated November
1, 1994
10.12(6)Glenn Keeling Employment Agreement dated November
1, 1994
10.13(9) David L. Purdy resignation as a director letter
dated June 1, 2000
10.14(11)Michael P. Thompson Employment Agreement dated
August 16, 2000
10.15(13)Marketing Agreement by and between BICO, Rapid HIV
Detection Corp., GAIFAR and Dr. Heinrich Repke
10.16(13)Contract between Biocontrol Technology, Inc. and
U.S. Army Assistance
16.1(7) Disclosure and Letter Regarding Change in Certifying
Accountants dated January 25, 1995
16.2 (10)Disclosure and Letter Regarding Change in
Certifying Accountants dated August 24, 2000
(15) Order of Court dated August 5, 2003, regarding sale of
inventory and equipment from Indiana, PA manufacturing
facility.
(15) Order of Court dated October 14, 2003, regarding sale of
BICO's equity interest in ViaCirq.
(15) Order of Court dated December 16, 2003, regarding sale
of Petrol Rem, Inc. assets.
(15) Order of Court dated May 25, 2004, regarding sale of
BICO's eqity interest in Diasense, Inc.
(15) Liquidating Plan of Reorganization of Petrol Rem, Inc.
dated March 12, 2004.
(15) Order of Court dated July 8, 2004, confirming the
Petrol Rem, Inc. Plan of Reorganization.
(15) BICO, Inc. Second Amended Joint Plan of Reorganization.
(15) Second Amended Disclosure Statement to Accompany
Amended Joint Plan of Reorganization dated August 3, 2004.
(15) Order of Court Approving Joint Second Amended Disclosure
Statement, Fixing Time for acceptances or resections of
plan, fixing time for hearing on plan confirmation, and
setting last day for filing complaint objecting to
discharge combined with notice therof.
(1) Incorporated by reference from Exhibit with this
title filed with BICO's Form 10-K for the year ended
December 31, 1991
(2) Incorporated by reference from Exhibit with this
title to Form 8-K dated May 3, 1991
(3) Incorporated by reference from Exhibit with this
title to Form 10-K for the year ended December 31, 1990
(4) Incorporated by reference from Exhibit with this
title to Registration Statement on Form S-1 filed on
December 1, 1992
(5) Incorporated by reference from Exhibit with this
title to Amendment No. 1 to Registration Statement on Form S-
1 filed on February 8, 1993
(6) Incorporated by reference from Exhibit with this
title to Form 10-K for the year ended December 31, 1994
(7) Incorporated by reference from Exhibit with this title
to Form 8-K dated January 25, 1995
(8) Incorporated by reference from Exhibit with this title
to Form 10-K for the year ended December 31, 1999
(9) Incorporated by reference from Exhibit with this title
to Form 8-K dated June 2, 2000
(10) Incorporated by reference from Exhibit with this title
to Form 8-K filed August 24, 2000
(11) Incorporated by reference from Exhibit with this title
to Form 10-K for the year ended December 31, 2000
(12) Incorporated by reference from Exhibit with this title
to Form S-1 filed July 9, 2001
(13) Incorporated by reference from Exhibit with this title
to Form 8-K/A filed October 15, 2001
(14) Incorporated by reference from Exhibit with this title
to Form 10-K for the year ended December 31, 2001
(15) Incorporated by reference from Exhibit with this title
to Form 10-K for the year ended December 31, 2002
Item 15: Controls and Procedures
Our Chief Executive Officer (the ("Certifying Officer") is
responsible for establishing and maintaining diclosure controls
and procedures for the Company. The Certifying Officer has
designed such disclosure controls and procedures to ensure that
material information is made known to him particularly during
the period in which this report was prepared. The Certifying
Officer has evaluated the effectiveness of the Company's
disclosure controls and procedures within 90 days of the date
of this report and believe that the Company's disclosure controls
and procedures are effective based on the required evaluation.
There have been no significant changes in internal controls or
in other factors that could significantly affect internal
controls subsequent to the date of his evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
Conformed Copy
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 5th day of
October 2004.
BICO, INC.
/s/ Anthony Paterra
By: Anthony Paterra
CEO, principal executive
officer and director
Pursuant to the requirements of the Securities Exchange
Act of 1934, the following persons on behalf of the
Registrant and in the capacities and on the dates indicated
have signed this report below.
Signature Title Date
/s/ Anthony Paterra Chief Executive Officer, October 5, 2004
Anthony Paterra Principal financial officer,
Principal accounting officer,
Director
/s/ Jerome M. Buyny Director October 5, 2004
Jerome M. Buyny
Report of Independent Accountants
The Board of Directors and Stockholders
BICO, Inc.
We have audited the accompanying consolidated balance sheets
of BICO, Inc. and its subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of operations,
stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with U.S. generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of BICO, Inc. and its
subsidiaries as of December 31, 2003 and 2002, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2003, in
conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
described in Note V, on March 18, 2003, the Company filed a
voluntary petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code and was authorized to continue managing
and operating the business as a debtor in possession subject
to the control and supervision of the Bankruptcy Court. Those
conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
Goff Backa Alfera & Company, LLC
Pittsburgh, Pennsylvania
October 4, 2004
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Balance Sheets
Dec. 31, 2003 Dec. 31, 2002
------------- -------------
CURRENT ASSETS
Cash and equivalents $ 448,180 $ 81,682
Accounts receivable - 50,096
Notes receivable - 46,338
------------- -------------
TOTAL CURRENT ASSETS 448,180 178,116
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 $ 448,180 $ 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)
Dec.31, 2003 Dec. 31, 2002
------------ -------------
CURRENT LIABILITIES
Accounts payable $ - $ 4,105,303
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 - 9,994,652
LONG-TERM LIABILITIES
Liabilities subject to compromise 8,154,100 -
Liabilities in excess of assets held for sale 184,773 590,911
------------ -------------
8,338,873 590,911
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 Dec. 31,
2003 and 2002, outstanding 7,387,507,775 shares
at Dec. 31, 2003, 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, 2002 - 108,357
Additional paid-in capital (468,788,830) (444,039,721)
Accumulated deficit (277,852,641) (279,779,924)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (7,890,693) (9,817,976)
------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 448,180 $ 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
Year Ended December 31,
2003 2002 2001
------------- ------------- -------------
Revenues
Net sales $ 625,231 $ 2,828,923 $ 4,342,203
Costs and expenses
Cost of products sold 258,319 1,645,258 3,287,176
Research and development - 896,186 7,113,258
General and administrative 750,524 19,016,705 21,879,130
Amortization - 175,000 804,458
Impairment loss - 6,014,576 -
------------- ------------- -------------
1,008,843 27,747,725 33,084,022
------------- ------------- -------------
Loss from operations (383,612) (24,918,802) (28,741,819)
Other (income) and expense
Forgiveness of debt (1,292,335) - -
Gain on sale of ViaCirq (1,061,254) - -
Loss on sale of equipment - - -
Gain on sale of MicroIslet stock - (1,283,852) -
Interest income - (413,703) (561,817)
Debt issue costs - - 2,218,066
Beneficial convertible debt feature - - 2,063,915
Interest expense 42,694 639,591 826,346
Loss on unconsolidated subsidiaries - 524,151 279,978
Loss on disposal of assets - 922,451 29,759
Other taxes - - 120,882
Unusual item - (170,075) (2,562,848)
Other Income - (20,512) (7,715)
------------- ------------- -------------
(2,310,895) 198,051 2,406,566
------------- ------------- -------------
Income (Loss) before unrelated
investors' interest 1,927,283 (25,116,853) (31,148,385)
Unrelated investors' interest in
net loss of subsidiaries - - 206,075
------------- -------------- -------------
Net income (loss) $ 1,927,283 $(25,116,853) $(30,942,310)
============= ============== =============
Loss per common share - Basic:
Net Loss $ (0.00) $ (0.01) $ (0.02)
Less: Preferred stock dividends (0.00) (0.00) (0.00)
------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.00) $ (0.01) $ (0.02)
============= ============= =============
Loss per common share - Diluted:
Net Loss $ (0.00) $ (0.01) $ (0.02)
Less: Preferred stock dividends (0.00) (0.00) (0.00)
------------- ------------- -------------
Net loss attributable to
common stockholders: $ (0.00) $ (0.01) $ (0.02)
============= ============= =============
The accompanying notes are an integral part of these statements.
F-4
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Statements of Stockholders' Equity (Deficiency)
Note rec.
Preferred Stock Discount assigned Common Stock issued for Additional
--------------- to benef. conv. ------------ Common Stk Paid in Accumulated
Shares Amount feature Shares Amount Warrants Rel Party Capital Deficit Total
------ ------ ---------- ------ ------ ---------- -------- ----------- -------------- ----------
Balance at
Dec. 31, 2000 - $ - $ - 1,383,704,167$138,370,417$6,204,235 $87,035,096 $(223,720,761) $ 7,888,987
------ ------- ------- ------------- ---------- ---------- ---------- ----------- -----------
Proceeds from
stk offering - - - 769,410,092 76,941,009 - (67,717,009) - 9,224,000
Preferred stk. 16,930 169,300(1,962,632) - - - 10,078,332 - 8,285,000
Constructive
dividend on
preferred stock - - 1,821,632 - - - (1,821,632) - -
Conversion of
debentures - - - 297,516,852 29,751,685 - (19,096,026) - 10,655,659
Warrants
granted and extended
-subsidiaries - - - - - - (1,331) - (1,331)
Issuance of
convertible debt - - - - - - 2,058,970 - 2,058,970
Common stk.
issued-subs. - - - - - - 162,500 - 162,500
Warrants granted - - - - - 17,420 188,252 - 205,672
Net loss - - - - - - - (30,942,310) (30,942,310)
------ ------- ------- ------------- ---------- ---------- ---------- ----------- -----------
Balance at
Dec. 31, 2001 16,930 $ 169,300 $(141,000) 2,450,631,111$245,063,111$6,221,655 $ 10,887,152 $(254,663,071) $ 7,537,147
------ --------- ---------- ------------- ----------- --------- ---------- ----------- ---------
Proceeds from
stk offering - - - 372,444,628 37,244,463 - (31,655,920) - 5,588,543
Conversion of
preferred stock (6,094) (60,943) - 4,315,857,388 431,585,738 - (429,464,295) - 2,060,500
Constructive
dividend on
preferred stock - - 141,000 - - - - - 141,000
Warrants
granted and extended
-subsidiaries - - - - - - (60,000) - (60,000)
Common stk.
issued-subs. - - - - - - 31,687 - 31,687
Warrants expired/
cancelled - - - - - (6,221,655) 6,221,655 - -
Net loss - - - - - - - (25,116,853) (25,116,853)
------ ------- ------- ------------- ---------- ---------- ---------- ----------- -----------
Balance at
Dec. 31, 2002 10,836 $108,357 $ - 7,138,933,167$713,893,312$ - $(444,039,721)$(279,779,924) $(9,817,976)
------ ------- ------- ------------- ----------- ---------- ----------- ----------- -----------
Conversion of
preferred stock (10,836)(108,357) - 248,574,648 24,857,466 - (24,749,109) - -
Net income - - - - - - - 1,927,283 1,927,283
------ ------- ------- ------------- ---------- ---------- ---------- ----------- -----------
Balance at
Dec. 31, 2003 - $ - $ - 7,387,507,775$713,893,312$ - $(468,788,830)$(277,852,641) $(7,890,693)
====== ======= ======= ============= =========== ========== ========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Statements of Cash Flows
Year ended December 31,
2003 2002 2001
------------- ------------- -------------
Cash flows used by operating activities:
Net income (loss) $ 1,927,283 $(25,116,853) $(30,942,310)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation - 988,878 977,178
Amortization - 175,000 804,453
Loss on disposal of assets - 922,451 29,759
Loss on unconsolidated subsidiaries - 524,151 279,978
Unrelated investors' interest in susidiaries (1,440) - (260,078)
Stock issued in exchange for services - 3,334,947 -
Provision for (recovery of)potential loss on notes receivable - (169,598) (137,502)
Warrants granted - 768,545 17,420
Warrants granted and extended by subsidiaries - (28,313) 188,252
(Decrease)increase in allowance for losses on accounts receivable - (43,664) -
(Decrease)increase in accounts receivable 50,096 1,129,124 (835,007)
Decrease in inventories - 1,645,605 1,303,127
(Decrease) in inventory valuation allowance - (734,374) (1,688,699)
(Increase) decrease in prepaid expenses - 1,041,093 (67,547)
(Increase) decrease in other assets - 125,910 (113,051)
Increase (decrease) in accounts payable - 189,039 4,176,925
Increase in other liabilities 42,694 1,288,567 820,451
Debt forgiveness (1,292,335) - (2,562,848)
Impairment loss - 6,014,576 -
Gain on sale of MicroIslet stock - (1,283,852) -
Stock issued in payment of interest - 121,711 -
Increase in liabilities in excess of assets held for sale 125,116 - -
Gain on sale of assets held for sale (1,061,254) - -
------------- ------------- -------------
Net cash flow used by operating activities (209,840) (9,107,057) (25,891,584)
------------- ------------- -------------
Cash flows from investing activities:
Liabilities in excess of assets sold 530,000 - -
Purchase of property, plant and equipment - (363,331) (1,542,038)
Proceeds from sale of MicroIslet stock - 1,521,038 -
Disposal of property, plant and equipment - 2,171,261 -
(Increase)decrease in notes receivable - 2,599,451 (1,429,041)
Payments received on notes receivable - 115,963 383,716
(Increase)in interest receivable 46,338 141,386 (97,102)
Purchase of marketing rights - - (1,285,000)
Acquisition of unconsolidated subsidiaries - - (1,093,948)
------------- ------------- -------------
Net cash provided (used) by investing activites 576,338 6,185,768 (5,063,413)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock offering - 10,677,600
Proceeds from warrants exercised - 770,000 -
Proceeds from sale of preferred stock - 2,794,840 6,285,000
Redemption of stock subscriptions - - (1,453,600)
Proceeds from debentures payable - - 8,255,659
Payments on notes payable and long-term debt - (1,826,103) (14,408,087)
Increase in notes payable and long-term debt - 1,934,512 14,120,502
Decrease in capital lease obligations - (938,373) (98,789)
------------- ------------- -------------
Net cash provided by financing activities - 2,734,876 23,378,285
_____________ _____________ _____________
Net increase (decrease) in cash 366,498 (186,413) (7,576,712)
Cash and cash equivalents, beginning of year 81,682 268,095 7,844,807
------------- ------------- -------------
Cash and cash equivalents, end of year $ 448,180 $ 81,682 $ 268,095
============= ============= =============
The accompanying notes are an integral part of these statements.
F-6
BICO, Inc. and Subsidiaries
(Debtor in Possession)
Consolidated Statements of Cash Flows
(Continued)
Year ended December 31,
2003 2002 2001
------------- ------------- -------------
Supplemental Information:
Interest paid $ - $ 700,474 $ 412,239
============= ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Conversion of preferred stock for common stock $ 24,857,466 $ - $ -
============= =========== ============
Constructive dividend on convertible preferred stock $ - $ 141,000 $ 1,821,632
============= =========== ============
Conversion of debentures for common stock $ - $ - $10,655,659
============= =========== ============
Conversion of stock subscriptions for common stock $ - $ - $ 9,900,000
============= =========== ============
Preferred stock issued in payment of long term debt $ - $ - $ 2,000,000
============= =========== ============
Acquisition of marketing rights for note payable $ - $ - $ 5,715,000
============= =========== ============
Cancellation of marketing rights offset by
reduction in note payable $ - $ 5,600,000 $ -
============= =========== ============
Reduction in notes receivable from related parties
by offsetting previously accrued salaries $ - $ 808,710 $ -
============= =========== ============
The accompanying notes are an integral part of these statements.
BICO, Inc. and Subsidiaries
(Debtor in Possession)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
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 disputed 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.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at acquisition to be cash equivalents.
Income (Loss) Per Common Share
Net income (loss) per common share is based upon the weighted average
number of common shares outstanding. The income (loss) per share does
not include common stock equivalents since the effect would
be antidilutive. The weighted average shares used to
calculate the loss per share amounted to 7,357,012,122 in 2003,
3,643,337,572 in 2002, and 1,952,313,675 in 2001. The net income (loss)
attributable to common shareholders for the years ended December
31, 2003, 2002 and 2001 were $2,817,141, ($25,257,853), and ($32,763,942),
respectively, which include constructive dividends to preferred stockholders
of zero $141,000, and $1,821,632, respectively.
Research and Development Costs
Research and development costs are charged to operations as
incurred. Machinery, equipment and other capital
expenditures, which have alternative future use beyond
specific research and development activities, are capitalized
and depreciated over their estimated useful lives.
Income Taxes
The Company previously adopted Statement of Financial
Accounting Standards No. 109 (FAS 109), Accounting for Income
Taxes, which requires the asset and liability method of
accounting for income taxes. Enacted statutory tax rates are
applied to temporary differences arising from the differences
in financial statement carrying amounts and the tax bases of
existing assets and liabilities. Due to the uncertainty of the
realization of income tax benefits (Note M), the adoption of
FAS 109 had no effect on the financial statements of the
Company.
Interest
No interest was capitalized as a component of the cost of
property, plant and equipment constructed for its own use
during the years ended December 31, 2003, 2002 or 2001.
Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The Company has stated liabilities subject to
compromise based upon estimated settlement amounts, has established
allowances based upon management's evaluation of inventories,
accounts receivable, and receivables from related parties and
amortizes intangible assets such as goodwill and patents over
estimated useful lives.
Common Stock Warrants
The Company recognizes cost on warrants granted or extended
based upon the minimum value method. Under this method, the
warrants are valued by reducing the current market price of
the underlying shares by the present value of the exercise
price discounted, at an estimated risk-free interest rate of
5% and assuming no dividends. The value of warrants is
recalculated when warrants are extended and any increase in
value over the value recorded at the time the warrant was
granted is recognized at the time the warrant is extended.
Debt Issue Costs
The Company follows the policy of expensing debt issue costs
on debentures when debentures are issued. Total debt issue
costs incurred for the period ended December 31, 2000 were
$2,218,066. There were no such costs incurred in 2003 or 2002.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to significant concentrations of credit risk, consist
principally of cash investments at commercial banks,
receivables from officers and directors of the Company,
and investments in unconsolidated subsidiaries Cash and cash
equivalents are temporarily invested in interest bearing
accounts in financial institutions, and such investments may
be in excess of the FDIC insurance limit. Receivables from
directors and officers of the Company are unsecured and
represent a concentration of credit risk due to the common
employment and financial dependency of these individuals on
the Company.
Comprehensive Income
The Company's consolidated net income (loss) is the same as
comprehensive income required to be disclosed under
Statement of Financial Accounting Standards No. 130.
Beneficial Convertible Debt Feature
Beneficial conversion terms included in the Company's
convertible debentures are recognized as expense and credited
to additional paid in capital at the time the associated
debentures are issued.
Advertising Costs
Advertising costs are charged to operations when incurred.
Advertising expenses for 2003, 2002 and 2001 were zero, $7,302,
and $367,867, respectively.
NOTE B - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts 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
(through October 13, 2003), ViaCirQ, Inc., and its 99% owned subsidiary
(through October 13, 2003), 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. All
significant intercompany accounts and transactions have been eliminated.
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, efforts were underway at that time to sell these assets.
In August 2003 the Company sold all inventory and equipment formerly held at
its Indiana County manufacturing facility to an unrelated party for $130,000.
There was no gain or loss realized on this sale.
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.
In December 2003 the United States Bankruptcy Court for the Western District
of 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
dministrative expenses and claims; priority creditor claims and unsecured claims
of Petrol Rem creditors to the extent of available funds.
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):
Dec. 31, 2003 Dec. 31, 2002
Diasense, Inc. $ (184,773) $ (145,148)
ViaCirq, Inc. 0 (676,111)
Petrol Rem, Inc. 0 100,348
Other Assets 0 130,000
-------- ---------
$ (184,773) $ (590,911)
======== =========
NOTE E - NOTES RECEIVABLE
Notes receivable due from various related and unrelated
parties consisted of:
Dec. 31, 2003 Dec. 31, 2002
Related Parties
Note Receivable from Anthony J.
DelVicario, a former director of
Diasense, Inc. and president of
American Inter-Metallics, Inc.,
dated November 9, 2001 in the
amount of $114,000 payable on $ 112,554 $ 112,554
demand with interest at prime
rate plus 2%. The note is
collateralized by the assets of
American Inter-Metallics, Inc.
Note receivable from Fred E.
Cooper, Chief Executive Officer,
dated April 28, 1999, in the
amount of $777,400, payable in
monthly installments of $9,427 204,583 204,583
with a final balloon payment on
May 31, 2002. Interest is
accrued at a rate of 8% per
annum. Under an agreement
between the Company and Mr.
Cooper amounts accrued as
unpaid salary were applied
to the note balance during
2002.
Unrelated Parties
Note receivable from sale of
MicroIslet stock without interest - 46,338
(See note G)
Note receivable from an
individual, due on November 15,
2002 with interest at prime plus 44,283 44,283
2% (6.75% at December 31, 2001).
Note receivable from CCTI Partners
in connection with an Asset
Purchase Agreement for the sale
of assets by Ceramic Coating
Technologies, Inc. $227,053 of 502,250 502,250
the note was due on October 31,
2002 without interest. The balance
of the note was due over a five
year period with interest of 6%.
---------- -----------
863,670 910,008
Less current notes receivable - 46,338
---------- -----------
Noncurrent 863,670 863,670
Accrued Interest 17,431 17,431
---------- -----------
$ 881,101 $ 881,101
========== ===========
Accrued interest receivable on the related party notes as of
December 31, 2003 and 2002 was $16,047.
NOTE F - BUSINESS SEGMENTS
Because the Company discontinued all other operations, there was
only one operating segment, "Biomedical Devices," in 2003.
The Company operated in two reportable business segments in 2002 and
2001: Biomedical devices, which included the operations of BICO, Inc.,
Diasense, Inc. and ViaCirQ, Inc. and Bioremediation, which included
the operations of Petrol Rem, Inc. Following is summarized financial
information for the Company's reportable segments:
Biomedical
2002 Devices Bioremedication All Other Consolidated
Sales to external customers $ 2,608,736 $ 138,751 $ 81,436 $ 2,828,923
Cost of products sold 1,423,242 204,325 17,691 1,645,258
Gross profit (loss) 1,185,494 (65,574) 63,745 1,183,665
Identifiable assets 1,126,107 103,036 0 1,229,143
Interest Income 74,169 339,534 0 413,703
Interest Expense 617,155 22,436 0 639,591
Biomedical
2001 Devices Bioremedication All Other Consolidated
Sales to external customers $ 817,353 $3,383,637 $ 141,213 $ 4,342,203
Cost of products sold 558,408 2,507,717 221,051 3,287,176
Gross profit (loss) 258,945 875,920 (79,838) 1,055,027
Identifiable assets 17,414,784 6,515,188 642,095 24,572,067
Capital expenditures 930,012 512,887 99,139 1,542,038
Depreciation and amortization 1,302,037 350,688 56,355 1,709,080
Interest Income 259,928 301,889 0 561,817
Interest Expense 737,972 11,329 77,045 826,346
NOTE G - ACCRUED LIABILITIES
Accrued liabilities at December 31, 2002 consisted of accrued interest of
$42,118 and accrued payroll of $2,228,517. These accrued liabilities were
included in liabilities subject to compromise at the time of the
bankruptcy filing in 2003.
NOTE H - DEBT OBLIGATIONS
Notes payable as of December 31, 2002 consisted of the following as of:
Dec. 31,
2002
Note Payable in connection with a Settlement
Agreement and Mutual Release related to the
outstanding amounts owed for the Company's
stock purchase agreement for 58.4% interest
in International Chemical Technologies, Inc. $ 443,520
(ICTI). The note bears interest at a rate
of 10% per annum and is payable in ten
monthly installments from January to October
2002.
Note Payable to Cache Capital payable
on or before March 28, 2003 with 518,000
interest at 22%
Note Payable to Individuals on demand
with interest at a rate of 13% 242,698
Promissory Note payable to the minority
owner of Intco, Inc., a 51% owned subsidiary
of the Company's subsidiary, Petrol Rem,
Inc. The loan is collateralized by Petrol 219,961
Rem's 51% ownership in Intco. Principal and
interest at 7% per annum are payable upon
demand
Commercial Premium Finance Agreement payable
in various monthly installments including 49,168
interest at various rates.
----------
Note payable $1,473,347
==========
Current portion of long-term debt as of December 31, 2002 consisted of a
Demand Note of $286,457 in favor of INTCO, Inc.(a former subsidiary of
Petrol Rem)at an interest rate of 13% per annum. Demand for payment was
made in July 2002. There were no payments on the debt obligation during
2003.
All debt obligations at the time of the bankruptcy filing were included
in liabilities subject to compromise.
NOTE I - LEASES
Under the terms of a capital lease, the Company was obligated to make
total payments of $1,602,221 through December 2010, at which
time title to the property would transfer to the
Company. Management recognized this property and the
corresponding capital lease obligation at the present value
of the lease payments, which was $1,434,066 at the inception
of the lease, using an imputed rate of 9% per annum. The
Company received an eviction notice under this lease in August
2002, as a result, the Company vacated its manufacturing
facility. The remaining asset and accumulated depreciation were
written off through an impairment charge as of December 31, 2002.
NOTE J- STOCKHOLDERS' EQUITY
Preferred Stock
The Board of Directors of the Company may issue up to 500,000
shares of preferred stock in series, which would have rights
as determined by the Board.
During 2001, 500,000 shares of preferred stock were authorized
as "4% Cumulative Convertible Preferred Stock" in series G,
H,I,J and K. 16,930 preferred shares were issued in 2001 and
4,211 were issued in 2002. There were 10,305 preferred
shares converted during 2002 leaving a balance of 10,836
shares outstanding at December 31, 2002. Under the Plan of
Reorganization, confirmed by the Bankruptcy Court, all outstanding
preferred shares as of the bankruptcy date, March 18, 2003,
were cancelled. Prior to the banjruptcy datte, 248,574,648
shares of our common shares were issued in connection with
preferred stock conversions.
Common Stock Warrants
During 2001, warrants ranging from $.015 to $.102 per share
to purchase 65,641,400 shares of common stock were granted at
exercise prices that were equal to or above the current
quoted market price of the stock on the date issued. In
2000, warrants to purchase 5,941,998 shares were granted at
exercise prices ranging from $.07 to $.25 per share. In
connection with the granting of warrants, the Company
recognized $17,420 and $324,897 of general and administrative
expense in 2001 and 2000 respectively. Warrants to purchase
96,136,560 shares of common stock were exercisable at
December 31, 2001.
As of December 31, 2002 all remaining warrants were deemed to
have been cancelled due to the Company's bankruptcy and the
balance previously reported as a component of Stockholders
Equity was added to Additional Paid In Capital.
NOTE K - UNUSUAL ITEMS
It is the Company's policy to record an inventory valuation
allowance against finished goods and raw materials for products
for which a market has not yet been established. During 2002,
Petrol Rem sold inventory for which an inventory allowance
had previously been established. Therefore, the Company reduced
its inventory valuation allowance and recorded an unusual gain
for the recovery of inventory valuation allowance of $170,077.
NOTE L - INCOME TAXES
As of December 31, 2003, the Company had available
approximately $160,000,000 of net operating loss carryforwards
for federal income tax purposes. These carryforwards
are available, subject to limitations, to offset future
taxable income, and expire in tax years 2004 through 2023.
The Company also has research and development credit
carryforwards available to offset federal income taxes
of approximately $1,569,000, subject to limitations, expiring
in tax years 2005 through 2021.
The Company has not reflected any future income tax benefits
for these temporary differences or for net operating loss and
credit carryforwards because of the uncertainty as to
realization. Accordingly, the adoption of FAS 109 had no
effect on the financial statements of the Company.
The following is a summary of the composition of the
Company's deferred tax asset and associated valuation
allowance at December 31, 2003, and December 31, 2002:
Dec. 31, Dec. 31, Dec. 31,
2003 2002 2001
Net Operating Loss $50,000,000 $ 56,440,000 $ 53,516,000
Warrant Expense 8,593,191 8,593,191 8,593,191
Tax Credit Carryforward 1,569,000 1,569,000 1,569,000
---------- ---------- -----------
60,602,191 66,602,191 63,678,191
Valuation Allowance (60,602,191) (66,602,191) (63,678,191)
---------- ---------- -----------
Net Deferred Tax Asset $ - $ - $ -
========== ========== ===========
NOTE M - COMMITMENTS AND CONTINGENCIES
Litigation
During April 1998, the Company and its affiliates were
served with subpoenas requesting documents in connection
with an investigation by the U.S. Attorney's office for
the District Court for the Western District of Pennsylvania.
In July 2002, the Company was notified that this investigation
was concluded with no charges against BICO or its subsidiaries.
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology, et al.,was certified as a class action in the
U.S. District Court for the Western District of Pennsylvania.
The suit alleged misleading disclosures in connection with
the Noninvasive Glucose Sensor and other related activities,
which the company denies. Without agreeing to the alleged
charges or acknowledging any liability or wrongdoing, the
company agreed to settle the lawsuit for a total amount of
$3,450,000.
During September 2002, the class action lawsuit, captioned
Walsingham v. Biocontrol Technology, et al., was settled when
the final payment of $50,000 was made. As of December 31, 2001,
the Company owed $425,000 for this settlement. In May 2002,
the parties agreed to extend the payments on the remaining
balance plus a forbearance fee of $25,000. Payments totaling
$450,000 were made in the nine months ended September 30, 2002,
and the settlement is now completed.
Lawsuits have been filed against the Company and its subsidiaries
for collection of approximately $1,645,062 for amounts due to
creditors or employees. Management is defending these actions and
working to negotiate suitable payment arrangements as funds allow,
but the lack of funds are likely to cripple the Company's ability
to defend or settle the litigation, and possibly the Company. The
dollar amount of these claims is included in either accounts
payable or accrued expenses. During 2002, default judgements were
entered against the Company for $582,091 of these claims and these
amounts are included in liabilities subject to compromise at
December 31, 2003.
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 N- EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan with 401(k)
provisions, which covers all employees meeting certain age
and period of service requirements. Employer contributions
are discretionary as determined by the Board of Directors.
There were no employer contributions to the plan from
inception through December 31, 2003.
NOTE 0 - SUBSEQUENT EVENTS (UNAUDITED)
Chapter 11 Bankruptcy
On August 3, 2004 the Company, along with a joint plan proponent, PHD
Capital,submitted a Plan of Reorganization. PHD Capital is an investment
banking company and was used by the Company prior to the filing of the
Chapter 11 as an investment banker to raise funds. None of the principals
or insiders of the Company are principals or insiders of PHD Capital, nor
have any members of PHD Capital ever held any posiions with the Company.
As of September 30, 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 in its SEC reporting.
Asset Sales
In July 2004 the Company sold its equity and debt interest in
subsidiary Diasense, Inc. to an unrelated party for $80,000 which resulted
in a net gain of $264,773.