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 12/31/99 Commission File Number 0-10822
Biocontrol Technology, 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) 349-1811
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of March 20, 2000:
Common Stock, $.10 par value --$431,376,370
As of December 31, 1999, 956,100,496 shares of common stock, par
value $.10 per share, were outstanding.
As of December 31, 1999, 72,000 shares of preferred stock, par
value $10 per share, were outstanding.
Exhibit index is located on pages 32 to 33
Item 1. Business
General Development of Business
Biocontrol Technology, Inc. was incorporated in the Commonwealth
of Pennsylvania in 1972 as Coratomic, Inc. and is referred to
herein as "BICO" or the "Company". BICO's operations are
currently located at 625 Kolter Drive, Indiana, PA, and its
administrative offices are located at 2275 Swallow Hill Road,
Bldg. 2500, Pittsburgh, PA. The Company is developing the
Noninvasive Glucose Sensor with Diasensor.com, Inc., its 52% owed
subsidiary. Where applicable, BICO and Diasensor.com will be
referred to herein as the "Companies".
The primary business of the Company is the development of new
devices which include models of a noninvasive glucose sensor (the
"Noninvasive Glucose Sensor"), an implantable port for drug
delivery and hemodialysis use, a polyurethane heart valve, a
device designed to use whole-body extracorporeal hyperthermia in
the treatment of cancer and the human immunodeficiency virus
("HIV"), and bioremediation products. (See "Management's
Discussion and Analysis").
Forward-Looking Statements
From time to time, the Company 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. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the
terms of the safe harbor, the Company notes that a variety of
factors could cause the Company's actual results to differ
materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance,
research and development and results of the Company's business
include the following: additional delays in the research,
development and FDA marketing approval of the Noninvasive Glucose
Sensor; delays in the manufacture or marketing of the Company's
other products and medical devices; the Company's future capital
needs and the uncertainty of additional funding; BICO's
uncertainty of additional funding; competition and the risk that
the Noninvasive Glucose Sensor or its other products may become
obsolete; the Company's continued operating losses, negative net
worth and uncertainty of future profitability; potential
conflicts of interest; the status and risk to the Company's
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; the
Company's limited sales, marketing and manufacturing experience;
the amount of time or funds required to complete or continue any
of the Company's 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 the Company; the ability of the Company to maintain a
national listing for its common stock; and the dilution of the
Company's common stock.
Description of Business
Development of the Noninvasive Glucose Sensor
BICO and Diasensor.com have completed the development of the
first commercial Noninvasive Glucose Sensor, which is able to
measure the concentration of glucose in human tissue without
requiring the drawing of blood. Currently available glucose
sensors require the drawing of blood by means of a finger prick.
BICO's initial research and development with insulin pumps led to
a theory by which blood glucose levels could be detected
noninvasively by correlating the spectral description of
reflected electromagnetic energy from the skin with blood glucose
levels in the 50 mg per deciliter to 500 mg per deciliter range
in the infrared region of the electromagnetic spectrum. The
method was studied in 1986 and 1987 by BICO and its consultants
at Battelle Memorial Institute in Columbus, Ohio, using
laboratory instruments. The results of the studies provided
information regarding the use of infrared light in the
noninvasive measurement of glucose. The information from the
studies, along with later affirmative work, led to a patent
application by BICO's research team in 1990. A patent covering
the method was granted to the research team and assigned to BICO
in December 1991. The rights of this patent were purchased by
Diasensor.com from BICO, pursuant to a Purchase Agreement (See,
"Intercompany Agreements"). A second patent application was
filed by BICO in December 1992, and was granted in January 1995.
This filing contained new claims, which extended the coverage of
the patent based on additional discoveries and data obtained
since the original patent was filed. BICO has assigned the
rights to such patent to Diasensor.com. Additional concepts to
improve the capability of the instrument to recognize blood
glucose were developed, and, in May 1993, corresponding patent
applications were filed. As of November 1999, a total of seven
patents have been issued, with additional patent applications
pending (See, "Current Status of the Noninvasive Glucose Sensor"
and "Patents, Trademarks and Licenses"). BICO has been granted
the right to develop and manufacture sensors pursuant to
agreements with Diasensor.com (See, "Intercompany Agreements").
BICO's research team advanced its technology base through the
development of several research prototypes, which were tested in
human clinical trials. In a trial conducted by BICO on 110 human
subjects in March 1992, spectral, blood and chemical data was
recorded for analysis in order to develop calibration data for
the Sensor. A second trial on 40 human subjects in July 1992
indicated that the device did not have a satisfactory signal-to-
noise ratio to allow for the calculation of algorithms of
sufficient accuracy to be acceptable for patient use. Signal-to-
noise ratio is determined by the relationship of the signal (the
glucose level) and the noise (random interferences). Other
trials were conducted at several testing sites under the guidance
of the sites' Institutional Review Board using prototypes, which
addressed the signal -to-noise problem. These prototypes were
designed and constructed to simulate production models.
On January 6, 1994, BICO submitted its initial 501(k)
Notification to the Food and Drug Administration (the "FDA") for
approval to market the production model, the Diasensorr1000. The
submission was based on data obtained from the advanced research
prototypes, since management believed that the production model
would be identical to the advanced prototypes. In February 1996,
the FDA convened a panel of advisors to make a recommendation
regarding BICO's 510(k) Notification. The majority of the panel
members recommended that BICO conduct additional testing and
clinical trials of a production model prior to marketing the
Diasensor 1000. BICO and Diasensor.com announced that they
remained committed to bringing the Diasensor 1000 to diabetics,
and that additional research, development and testing would
continue (See, "Current Status of the Noninvasive Glucose
Sensor").
Due to continued delays in the FDA approval process, and while
continuing to work with the FDA and conduct its mandated testing,
the Companies turned their focus to other markets for the
Diasensor 1000 besides the U.S.
In 1998, BICO, as designer and manufacturer of the device, was
awarded ISO certification by TUV Rheinland, a company authorized
to conduct such audits, which was contracted to perform a
"conformity assessment" of BICO's quality system. BICO was
awarded International Organization for Standardization ("ISO")
Certification to the 9001 standard, evidencing that BICO has in
place a total quality system for the design, development and
manufacture of its products. BICO also was awarded EN46001
Certification, indicating it meets European standards for medical
devices. Once the ISO 9001 certification was approved, and a
technical file was submitted and approved by TUV, BICO received
approval to apply a CE mark to the device. Much like an
Underwriters Laboratory "UL" mark, the CE mark is provided by the
regulatory bodies of the European Community, or by authorized
private bodies, such as TUV Rheinland, to indicate that the
device adheres to "quality systems" of the ISO and the European
Committee for Standardization. The CE mark permits the Companies
to sell the Diasensor and other medical products in Europe.
With regard to marketing the device within the United States, the
Companies continued to work with the FDA to obtain approval. A
revised 510(k) Notification was submitted in October 1996, and
was followed by continued discussions with the FDA. During 1997
and 1998, the Company continued to meet with the FDA, and
established a protocol for in-home testing of the Diasensor 1000.
Due to the Company's cash flow problems during 1998, testing did
not proceed at the pace originally anticipated, and completion of
the testing was delayed.
BICO continued various aspects of the Diasensor development,
resulting upon a method by which the readings generated by the
machine could be transmitted via modem to the patient's clinic or
physician. Following an in-depth marketing study, the Company
determined that the machines with this capability are more
attractive to the patient, since there is the possibility of
selling a telemedicine service which includes the machine, the
patient, and his or her physician. The model of the Diasensor
has been named the Diasensor 2000 to differentiate between this
model and the earlier model. Upon the advice of the FDA, BICO
determined that it was in the Companies' best interest to submit
a PreMarket Approval Application ("PMA") to the FDA seeking
marketing approval for the Diasensor 2000. In 1999 the FDA
implemented a new PMA system wherein individual modules of a PMA
submission could be made as they were ready. In May 1999, BICO
submitted the first module, which covered manufacturing methods
and procedures for the Diasensor 2000. The FDA requested further
information that will be submitted in future modules. Future
modules will include non-clinical testing, such as product
validation and safety testing, and human clinical trial data.
The Diasensor is a spectrophotometer capable of illuminating a
small area of skin on a patient's arm with infrared light, and
then making measurements from the infrared light diffusely
reflected back into the device, which it then displays on a
liquid crystal display on the face of the instrument for the user
to read. The Diasensor uses internal algorithms to calculate a
glucose measurement.
Since the Diasensor will be calibrated individually, each
instrument will be sold by prescription only and will be
calibrated in the patient's home. This feature may limit the
marketability of the Diasensor, and if the device is unable to
qualify for third-party reimbursement, the Company's ability to
market the device could be adversely effected.
Current Status of the Noninvasive Glucose Sensor
Hampered by the Companies' cash flow problems, progress on the
Sensor project was slowed during 1998. Once funds became
available, the Company allocated resources to re-establishing
active dialog with the FDA. To further that effort, the Company
has engaged Joslin Diabetes Center to design and conduct clinical
trials, which are necessary to obtain FDA approval.
In addition to the agreement with Joslin, the Company took other
significant steps toward FDA approval. In February 1999 the
Company submitted a PMA shell to the FDA for the Diasensor. The
PMA shell is part of a relatively new FDA procedure, which
divides submissions into modules. These modules, which were
designed to facilitate and expedite FDA review, contain different
pieces of the full PMA submission. However, from both its own
experience and by observing other module submissions, the Company
does not believe that the FDA intends to "approve" the PMA one
module at a time. Rather, the Company has had meetings with the
FDA, including an October meeting, where requirements for the
"next step" in the process have been discussed without a specific
FDA finding on prior submissions.
The Company is also developing a Telemedicine program for use
with the Diasensor. This program would involve the use of a
Diasensor, along with an internet software program. Each reading
on the Diasensor would be automatically stored for transmission,
via the internet, to a location, which would analyze the data and
transmit it to the patient's physician. This use of historical
readings is critical in the patient's analysis of trends in
glucose levels, an important tool in both the treatment of
diabetes and the use of insulin. The Company believes that this
Telemedicine program, which would involve a monthly fee for the
use of the device and the service, rather than a purchase of the
device, will make the Diasensor technology available to larger
numbers of diabetics.
As with all other FDA-related activities, the Companies cannot
provide any assurances as to the date upon which the studies will
be completed, the next module of the PMA will be submitted, or
when the FDA will complete its review of such submission.
Although the Company's research and development team continues to
have discussions with the FDA, due to the complex, technical
nature of the information being evaluated by the FDA, it is
impossible for the Company to estimate how much longer the FDA
approval process will take.
FDA approval is necessary to market the Diasensor in the United
States. In 1999, the Companies also focused additional effort on
the European market, and are planning to send devices to
different European sites for clinical evaluation in order to
encourage those markets to use the Diasensor.
Diasensor.com is responsible for the marketing and sales of the
Noninvasive Glucose Sensor. Diasensor.com plans to market the
Noninvasive Glucose Sensor and the Telemedicine program directly
to diabetics, through their doctors' orders. The Telemedicine
program will involve a monthly fee for the use of both the Sensor
and the service. Such prices may be set at levels, which would
limit its sales, absent third-party reimbursement. Due to the
current vicissitudes of the health-care insurance industry, the
Companies are unable to make any projections as to the
availability of, or procedures required in connection with, third-
party reimbursement. Although the Companies estimate, based on
1999 American Diabetes Association data, that there are nearly
16,000,000 diabetics in the United States, not all diabetics will
be suitable users of the Noninvasive Glucose Sensor. Those
diabetics who require and benefit from frequent glucose
monitoring comprise the potential market for the Noninvasive
Glucose Sensor. The Companies are unable to estimate the size of
that market at this time.
Extracorporeal Hyperthermia
In January 2000, the Company announced it received FDA Clearance
to market the ThermoChem-HT SystemT with intended use to raise
the core temperature of the abdominal cavity to the desired
temperature in the 41 C (105.8 F) to 42 C (107.6 F) range by
continuously bathing the abdominal cavity with circulating
sterile solution. In a surgical procedure all cancerous growths
are surgically removed from the patient's abdomen and pelvis
while all spaces and lining surfaces are opened, the abdomen is
perfused utilizing the ThermoChem-HT System with a heated
physiologic solution circulating for a two (2) hour period.
Since 1992, IDT and HemoCleanse, Inc. an unaffiliated company,
located in Lafayette, Indiana, have been engaged in a project,
which involves the use of a device as a delivery system for
perfusion-induced hyperthermia. Perfusion induced hyperthermia
is the elevation of the core temperature of either a regional
part of the body (PIRH-Perfusion Induced Regional hyperthermia)
or the entire body (PISH-Perfusion Induced Systemic Hyperthermia)
using an extracorporeal device.
HemoCleanse, Inc., founded in 1989, designs, manufacturers and
markets medical devices and disposables for the treatment of
blood outside the body. The Company's unique technology is based
on special chemical sorbents that selectively remove toxins from
the blood while balancing blood chemistries.
HemoCleanse's core product, the BioLogic-DTT, received clearance
by the FDA in 1994 as a detoxifier for treatment of drug overdose
in 1996; the BioLogic-DT received FDA (510K) clearance for an
active hepatic coma indication.
In 1993, IDT entered into a License Agreement with HemoCleanse to
develop the ThermoChem technology for delivering PISH. Under the
License Agreement, IDT was granted worldwide rights to market the
ThermoChem technology and disposables for PISH.
In 1998, the License Agreement was amended to allow IDT to
manufacture the ThermoChem-HT System and related disposables for
perfusion-induced hyperthermia and expand the field of relevance
to the use of the ThermoChem technology to hypothermia.
The ThermoChem technology is comprised of two separate systems,
the ThermoChem-HT System the ThermoChem-SB System.
The ThermoChem-HT System delivers perfusion induced systemic and
perfusion induced regional hyperthermia. The ThermoChem-HT
System is comprised of several specialty-integrated devices that
perform the following:
Blood/Fluid Propulsion via roller pump with maximum flow
rate of 2000 ccs per minute
Water heating and cooling to control extracorporeal
blood/fluid temperature up to maximum of 118.4 F
Air bubble detection
Roller pump occlusion detection
Monitoring and recording temperatures up to seven sites
Constant up-to-the minute information on status of patient
treatment via video touch screen
Data acquisition capabilities
The ThermoChem-SB SystemT is an accessory to the ThermoChem-HT
System and is used when delivering perfusion induced systemic
hyperthermia.
The ThermoChem-SB is an extracorporeal blood treatment system
that circulates blood from the ThermoChem-HT, passes through a
cellulosic plate dialyzer, and returns it to the ThermoChem-HT
circuit. Within the dialyzer, diffusion causes many chemicals to
pass from the blood into a sorbent suspension surrounding the
membranes. Depending upon the binding characteristics of the
sorbents, some chemicals remain a low concentration in the
dialysate (and are therefore efficiently removed from the blood),
and others reach concentrations similar to the blood (are
therefore not removed from the blood). Inclusion of certain
chemicals in the sorbent suspension composition can partially
saturate sorbent binding sites, and cause return of those
chemicals to the blood during treatment. The ThermoChem-SB does
not use a roller pump to move blood, as the ThermoChem-HT, but
rather uses pressure changes in the sorbent side to expand and
compress the membrane packages, thus pulling and returning blood
to the ThermoChem-HT circuit. The sorbent suspension is
contained within a bag in which all ultrafiltrate is captured;
the weight changes of the entire machine mirrors the weight
change of the patient. By simple algorithms, the ThermoChem-SB
alters blood inflow and outflow cycle times to increase fluid
removal from the patient, or automatically reinfuse fluid to the
patient to obtain exactly the prescribed weight increase or
decrease.
Perfusion-induced systemic hyperthermia, a form of whole-body
hyperthermia achieved through the ThermoChem-HT System involves
heating the patient's blood outside the body to approximately 48
degrees centigrade and returning it back to the body, thus
raising the body's core temperature to the desired treatment
temperature up to a maximum of 42.5 degrees centigrade. Blood
passes a roller pump that send it onward to the heat exchanger
where indirect heating of the blood occurs, raising the outside
blood temperature to approximately 46 degrees centigrade. A
portion of the blood passes through a T-connection to the
ThermoChem-SB, located between the roller pump and the heat
exchanger, where it is chemically balanced on a real-time basis
and then returned to the blood flow path before it reaches the
heat exchanger. Continually circulating blood is returned to the
patient at 46 degrees centigrade, gradually raising the patient's
core body temperature to the desired treatment temperature, which
is measured by various temperature probes throughout the body.
Although other entities have experimented with the use of PISH,
one significant problem has been the safe delivery of the
procedure. IDT believes that the improvements inherent to their
ThermoChem technology increase the safety of the procedure.
As a result, IDT believes that they have taken a significant step
towards the creation of a safe delivery system. Although there
can be no assurances that the ThermoChem technology is safe for
all humans, clinical trials to date have confirmed that the
humans tested were able to safely tolerate PISH at a core
temperature of 42 degrees centigrade for two hours. Based in
part upon the safety results of its initial clinical results, the
FDA has approved additional clinical trials.
In 1998 IDT began developing protocols for perfusion-induced
regional hyperthermia utilizing only the ThermoChem-HT system on
procedures that are already being performed as therapy and are
effective for treating certain types of cancer; however, the
perfusion setup is not standardized. The first protocol
developed involved intraperitoneal hyperthermia that resulted in
FDA clearance of the ThermoChem-HT system in January 2000. Other
protocols are under development to expand the intended use of the
ThermoChem-HT system.
UNIVERSITY OF TEXAS MEDICAL BRANCH AT GALVESTON
Pre-clinical studies were conducted on six swine to assure safety
at an increased flow rate and maintenance of a higher core
temperature of 109.4 F for a period of two hours. This study
concluded that blood chemistries were normalized with the use of
the ThermoChem technology. In November 1996, we submitted an IDE
application to the FDA for a study utilizing the ThermoChem
technology for PISH for two hours at 108.4 F to treat patients
with metastatic non-small cell lung cancer. This protocol was
developed by the University of Texas in Galveston. The FDA
responded in December 1996 with an approval to conduct a Phase I
trial. The University of Texas' Institutional Review (IRB)
granted approval of this study in May 1997.
On September 11, 1997, we entered into an agreement with the
University of Texas Medical Branch at Galveston (UTMB) to begin a
human clinical trial in November 1997. The trial utilized the
ThermoChem technology and disposables to deliver perfusion-
induced systemic hyperthermia to treat patients with metastatic
non-small cell lung cancer. One of the objectives of this Phase
I trial was to evaluate the ThermoChem technology for the use in
the treatment of metastatic non-small cell lung cancer with
regard to patient selection, tumor response, patient performance
status, and patient survival. The follow-up of the patients is
patterned after the Southwest Oncology Group protocols, which are
considered state-of-the-art studies to follow response of cancer
to the therapy. The study is being conducted at the General
Clinical Research Center (GCRC) at UTMB, which is supported by
the National Institute of Health (NIH). This is the only PISH
study for metastatic non-small cell lung cancer approved by the
FDA. Five patients with stage IV metastatic non-small cell lung
cancer received PISH treatment through June 1998. An abstract of
the results of the first five patients was presented by the
principal investigator at the American Association for Cancer
Research at Philadelphia, Pennsylvania in March 1999.
In February 2000, the FDA and the necessary IRB at the University
of Texas Medical Branch at Galveston approved continued clinical
trials using the ThermoChem-HT technology to treat patients with
stage IIIb small cell lung cancer.
WAKE FOREST UNIVERSITY SCHOOL OF MEDICINE
In May 1998, the FDA approved an Investigational Device Exemption
(IDE) to allow a human clinical trial utilizing the ThermoChem-HT
System to study the effectiveness of the device for heating and
maintaining core temperature of the peritoneal cavity in patients
with advance gastrointestinal and ovarian cancers. The procedure
of intraperitoneal hyperthermic chemotherapy has been done at
Wake Forest School of Medicine since 1992 utilizing a non-
standardized perfusion setup.
The ThermoChem-HT System heats the perfusion solution and
circulates it into and out of the peritoneal cavity. Flow from
the patients Outlet Catheter passes through a Roller Pump and
then to an in-line, disposable Heat Exchanger. The Heat
Exchanger is interfaced with heated water from a heater/cooler
that provides regulated temperature control to the Heat
Exchanger. The disposable circuit includes an in-line Reservoir
that primes the circuit and maintains adequate fluid volumes.
The system monitors the inflow and outflow temperatures of the
circulating Perfusion Solutions.
The Company and surgeons at Wake Forest believe that the
ThermoChem-HT System can make the technique more effective with
better temperature monitoring and control. This procedure is
offered as a standard-of-care treatment to patients with advanced
ovarian and gastrointestinal cancers at Wake Forest University
Baptist Medical Center.
IDT's Medical and Scientific Advisory Board consists of the three
following professionals. Currently, none of the board members
receive a fee for serving on the board, but are reimbursed for
expenses incurred.
Corklin R. Steinhart, M.D., Ph.D., is the medical director of
special immunology services at Mercy Hospital in Miami, Florida.
Milton B. Yatvin, Ph.D., is a professor in the Radiation &
Thermal Biology Division, Department of Radiation Oncology at
Oregon Health Sciences University in Portland, Oregon.
Stephen R. Ash, M.D., F.A.C.P., is the Chairman of the Board and
Director of Research and Development of HemoCleanse, a
corporation located in West Lafayette, Indiana.
The Company has expensed approximately $12,204,000 on this
project through December 31, 1999, which includes the Company's
acquisition of HemoCleanse common stock, via a purchase of common
stock and the conversion of a loan into common stock.
Bioremediation
BICO is also involved in the field of biological remedial
("bioremediation") development. Bioremediation technology
utilizes naturally occurring microorganisms or bacteria to
convert various types of contamination to carbon dioxide and
water. This occurs through the dual processes of chemical and
microbiological reactions. The product, PRPr, which stands for
Petroleum Remediation Product, is designed as an environmental
microbial microcapsule, which is utilized for the collection,
containment and separation of oil-type products in or from water.
The product's purpose is to convert the contaminant, with no
residual mass (separated or absorbed) in need of disposal. When
the PRPr comes in contact with the petroleum substances, the
contaminants are bound to the PRPr, and they stay afloat.
Because the product contains the necessary nutrients and
microorganisms, the bioremediation process begins immediately,
which limits secondary contamination of the air or surrounding
wildlife. Eventually, the product will biodegrade both the
petroleum and itself.
In connection with this project, BICO created a subsidiary,
Petrol Rem, Inc. ("Petrol Rem"). Petrol Rem's officers and
directors include Anthony J. Feola and Fred E. Cooper, who are
also directors and/or officers of BICO and its other affiliates.
Part of Petrol Rem's initial research and development involved
field testing supervised by the National Environmental Technology
Applications Corporation ("NETAC"), a group endorsed by the
Environmental Protection Agency (the "EPA"), to determine whether
the product is effective. As a result of such testing, NETAC
reported positive results regarding the effectiveness of the
product.
PRPr is now being manufactured and marketed for use in water and
on solid surfaces in the form of Petrol Rem's OIL BUSTER r
product, which is used for small oil cleanups on hard surfaces
such as the floors of manufacturing facilities, garages and
machine shops, or as a container for heavy petroleum sludges.
The product is listed on the EPA's National Contingency Plan
("NCP") Product Schedule, and is available in free-flowing powder
or absorbent socks. In 1995, the EPA required that all products
previously listed on the NCP be submitted to additional testing.
Because PRPr successfully passed the Tier II efficacy test
conducted by NETAC, the product was requalified for listing on
the NCP. In addition, PRP was one of only fourteen products
listed after the 1996 Alternative Response Tool Evaluation System
was implemented.
In April 1993, Petrol Rem entered into a lease for a facility in
the Pittsburgh, Pennsylvania area, which is used to manufacture
PRPr. The current lease has a renewable three-year term, with
monthly rental payments of $2,888 plus utilities and applicable
business privilege taxes. Petrol Rem has also purchased
equipment, which has the capability to produce PRPr in quantities
of 2,500 pounds per day, and Petrol Rem has built an adequate
inventory.
Petrol Rem has also completed development of a new spray
applicator for its PRP product. The new applicator is a
lightweight, portable unit, which provides a more continuous flow
of product. The lighter weight and smaller size will allow
easier access to remote sites, which were impossible to reach
with the previous applicator.
In addition to PRP, Petrol Rem has also developed other
products. In order to address water pollution issues at marinas,
Petrol Rem has introduced BIO-SOK, which is PRP contained in a
10" fabric tube, is designed and used to aid in the cleaning of
boat bilges. Bilges are commonly cleaned out with detergents and
emulsifiers, which cause the oil pumped out of the bilge to sink
to the bottom of the water, where it is harmful to marine life,
and becomes difficult to collect. In addition, it is illegal to
dump oil or fuel into the water. The BIO-SOK, when placed in
the bilge, absorbs and biodegrades the oil or fuel on contact,
which significantly reduces or eliminates the pollution; then the
product biodegrades itself. As a result, BIO-SOKr helps to keep
waters clear. In addition, BIO-SOK helps to eliminate the chore
of bilge cleanup, and helps users such as boaters and marinas to
avoid fines for pumping oil and fuel into the waterways, which is
prohibited. The U.S. Coast Guard is using the BIO-SOK in certain
regions on their vessels and maintains a sufficient supply to
provide continuing availability.
Petrol Rem's BIO-BOOM product is used in water clean-up
projects. The product is a 3" x 10' fabric tube which is filled
with PRP, and is used to both contain and biodegrade
contaminants in water. BIO-BOOM is a superior product to most
containment products because, in addition to containing the oil
or fuel spill, or restricting the spread of an anticipated spill,
it also biodegrades the contaminant, and then biodegrades itself.
These features act to virtually eliminate secondary contaminants,
thereby reducing disposal and clean-up costs. Initial sales have
occurred, and marketing efforts are accelerating.
Petrol Rem is marketing PRP through trade shows, magazines,
direct mail advertising, and direct contacts with companies and
consultants specializing in petroleum clean-up, as well as
marketing directly to municipalities and corporations with needs
for the product.
During 1999, Petrol Rem focused efforts on the international
market, and entered into joint venture or distributorship
agreements for Chile, Brazil, Uruguay, Paraguay, Bolivia,
Indonesia, Greece, Cyprus and Syria. Although there can be no
assurances that PRP will be successfully marketed, the Company
believes, based on their scientific determinations, the results
of recent NETAC testing, and the favorable response at the retail
level, that PRP will be a viable product in the bioremediation
marketplace.
The Company believes that it has expended the necessary funds to
complete the development of its bioremediation products, and to
build up sufficient inventory pending additional orders. The
Company has spent approximately $11,247,000 on this project
through December 31, 1999.
Other Projects
Implantable Technology
In April 1996, BICO was granted FDA approval to market its
theraPORTr Vascular Access System ("VAS"). The approval was in
connection with the Company's 510(k) Notification filed in
January 1996. The device is comprised of a reservoir, which is
implanted beneath the skin in the chest region with a catheter
inserted in a vein and provides a delivery system for patients
who require continual injections. Because such repeated
injections can cause veins to shut down and collapse, the
theraPORTr offers an improved delivery system by eliminating that
vascular trauma. If necessary to accommodate multiple drug
therapy with incompatible drugs, dual ports can be implanted.
Such devices are frequently used in cancer drug therapy. BICO
began selling the standard ports during the second quarter of
1997. A second device with a low profile has been developed for
pediatric use, and a 510(k) was submitted to the FDA in November
1997 for marketing approval. In early February 1998, BICO
submitted a supplement to the FDA in response to a request for
additional information. The Company is currently developing a
dual port device and plans to submit another 510(k) for that
device in the near future.
Through its subsidiary, Coraflex Inc. ("Coraflex"), BICO is
engaged in the development of a polyurethane heart valve which
management believes may not have the disadvantages of the
mechanical and bioprosthetic valves currently being marketed.
The Coraflexr valve, which resembles the human heart's aortic
valve, is made by means of a proprietary manufacturing process.
The polyurethane used in the construction of the heart valve is
believed by BICO to exhibit strength and fatigue resistance which
compare favorably with that of other materials used for
prosthetic valves. In vitro testing, some of which has been
performed through the Children's Hospital of Pittsburgh, of the
Coraflexr valve to date has demonstrated superior fatigue
resistance and flow characteristics relative to the currently
available bioprosthetic and mechanical devices, respectively.
Additional development and testing must be conducted by BICO
prior to its making an application to the FDA for approval to
begin clinical testing in humans. BICO will need additional
financing to complete clinical testing of the valve and to begin
production. No assurances can be made that BICO will receive the
necessary funding to complete testing, will receive FDA-marketing
approval, will be able to produce and sell the valve, or that the
valve will be commercially viable.
BICO also has developed technology for other implantable devices,
such as hemodialysis ports, implantable insulin dispensers and
rate-adaptive pacemakers. Because BICO's management decided to
focus most of the Company's resources on the research and
development of the Noninvasive Glucose Sensor, little progress
was made on these projects. Consequently, some of these devices
are in a very preliminary stage of development, and it is unclear
at this time whether their development will be pursued or
completed.
Functional Electrical Stimulator Project. The Company has
discontinued its functional electrical stimulator project due to
a loss of orders from NeuroControl, its sole purchaser. Because
these products accounted for the majority of the Company's sales
revenues, this loss is significant and will have a corresponding
negative impact upon the Company's cash flows, liquidity and
revenue.
Metal-Plating Technology
When the Company acquired its interest in a metal-plating
company, it estimated that the product would generate revenue and
profit. The results have differed materially from the
Company's initial estimates. The project did not generate any
revenue during 1998 or 1999. The Company's early estimates were
based upon its assessment not only of the marketability of the
product, but on the Company's ability to penetrate the metal
finishing market using the features of the product. The
Company's actual experience has indicated that it is much more
difficult to exploit the existing market, regardless of whether
or not the Company's product has superior features. As a result,
the Company has been compelled to adjust its marketing strategy.
Accordingly, the Company can no longer estimate the amounts or
timing of any revenue or profit, and the Company has adjusted the
value of its investment in its financial statements.
The information set forth herein regarding BICO's projects is of
a summary nature, and the status of each project is subject to
constant change. There can be no assurances as to the completion
or success of any project.
RESEARCH AND DEVELOPMENT
The Company continues to be actively engaged in the research and
development of new products. Its major emphasis has been the
development of a Noninvasive Glucose Sensor. In order to raise
funds for the research and development of new products, the
Company and Diasensor.com have conducted sales of stock. (See,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS").
MARKETING AND DISTRIBUTION
Petrol Rem began marketing of its bioremediation product, PRPr,
in mid-1993, and is now sold in quality marine supply stores in
the coastal areas of the United States, Canada, Europe and South
East Asia. These projections are based on management's belief,
as to which there can be no assurances, that the development and
manufacture of those products will continue to proceed
successfully and on schedule.
IDT received FDA approval to market its ThermoChem-HT SystemT and
related disposables used for regional cancer treatment.
PATENTS, TRADEMARKS AND LICENSES
The Company owns patents on certain of its products and files
applications to obtain patents on new inventions when practical.
Additionally, the Company endeavors to obtain licenses from
others, as it deems necessary to conduct its business.
The Company also relies upon trade secret protection for its
confidential and proprietary information. Although BICO,
Diasensor.com and their affiliates take all reasonable steps to
protect such information, including the use of Confidentiality
Agreements and similar provisions, there can be no assurance that
others will not independently develop substantially equivalent
proprietary information or techniques, otherwise gain access to
the Company's trade secrets, disclose such technology, or that
the Company can meaningfully protect its trade secrets.
Noninvasive Glucose Sensor
Diasensor.com owns a patent entitled "Non-Invasive Determination
of Glucose Concentration in Body of Patients" (the "Patent")
which covers certain aspects of a process for measuring blood
glucose levels noninvasively. Such Patent was awarded to BICO's
research team in December 1991 and was sold to Diasensor.com
pursuant to a Purchase Agreement dated November 18, 1991 (See,
"Intercompany Agreements"). The Patent will expire, if all
maintenance fees are paid, no earlier than the year 2008. If
marketing of a product made under the Patent is delayed by
clinical testing or regulatory review, an extension of the term
of the Patent may be obtained. Diasensor.com's Patent relates
only to noninvasive sensing of glucose but not to other blood
constituents. Diasensor.com has filed corresponding patent
applications in a number of foreign countries.
A second patent application was filed by BICO in December 1992,
which was assigned to Diasensor.com. This second patent
contained new claims, which extend the coverage based upon
additional discoveries and data obtained since the original
patent was filed. The patent application was amended in October
1993, and was granted in January 1995.
In May 1993, four additional patent applications were filed by
BICO's research teams related to the methods, measurement and
noninvasive determination of analyze concentrations in blood.
As of March 2000, a total of eight patents have been issued, all
of which have been assigned to Diasensor.com, and additional
patents are pending. Corresponding patent applications have
been filed in foreign countries where the Company anticipates
marketing the Noninvasive Glucose Sensor.
BICO's research team continues to file patent applications,
provisional patent applications, some of which are being
converted into "PCTs" (Patent Cooperative Treaty), which reflect
the continued research and development and additional refinements
to the Noninvasive Glucose Sensor.
Diasensor.com or BICO may file applications in the United States
and other countries, as appropriate, for additional patents
directed to other features of the Noninvasive Glucose Sensor and
related processes.
Those competitors known by Diasensor.com to be currently
developing non-invasive glucose sensors own patents directed to
various devices and processes related to the non-invasive
monitoring of concentrations of glucose and other blood
constituents. It is possible that such patents may require
Diasensor.com to alter any model of the Noninvasive Glucose
Sensor or the underlying processes relating to the Noninvasive
Glucose Sensor, to obtain licenses, or to cease certain
activities.
The Company also relies upon trade secret protection for its
confidential and proprietary information. Although Diasensor.com
and BICO take all reasonable steps to protect such information,
including the use of Confidentiality Agreements and similar
provisions, there can be no assurance that others will not
independently develop substantially equivalent proprietary
information or techniques, otherwise gain access to the Company's
trade secrets, disclose such technology, or that the Company can
meaningfully protect its trade secrets.
The Company has registered its trademark "Diasensor ", which is
intended for use in connection with the Diasensor models. The
Company intends to apply, at the appropriate time, for
registrations of other trademarks as to any future products of
the Company.
Extracorporeal Hyperthermia
In September 1992, a research team funded by the Company applied
for a domestic patent in connection with the use of PISH and the
treatment of HIV-positive patients; the patent has been assigned
to IDT. In October 1994, IDT received notification that the
patent application for its specialized method for whole-body
extracorporeal hyperthermia had been issued. A Continuation in
Part, which included the ThermoChem SystemT was filed by IDT, was
allowed in July 1995 and issued in December 1995.
The patent, entitled "Specialized Perfusion Protocol for Whole-
Body Hyperthermia", contains seventeen claims for the
hyperthermia procedure, including the method of heating all of
the blood in the extracorporeal blood circuit to raise the
patient's core temperature to approximately 42 degrees
centigrade. A Continuation in Part, which was filed by IDT and
included the ThermoChem SystemT, was allowed in July 1995 and was
issued in December 1995.
In May of 1999 and early 2000, IDT filed provisional patents for
its use of the ThermoChem-HT SystemT and related disposables, and
for the use of the device for regional hyperthermia procedures.
Implantable Technology
During 1995, the Company renewed its U.S. trademark registration
for the name Coraflexr, which was originally granted in 1988.
The Company has also obtained trademark registration for the name
theraPORTr (See, "BUSINESS - Implantable Technology).
In October 1996, a patent was issued for the Company's heart
valve product.
Bioremediation
In 1992 and 1993, Petrol Rem applied for patents in connection
with its bioremediation product, all of which are still pending.
The Company has received trademark authorization for the use of
the product names PRP, BIO-SOK, BIO-BOOM, and Oil Buster
(See, "BUSINESS - Bioremediation").
WARRANTIES AND PRODUCT LIABILITY
The Company's present product liability insurance coverage is
$1,000,000 in the aggregate, which management considers to be a
sufficient amount due to the Company's discontinuance of sales of
certain products, including its former pacemaker line and its
functional electrical stimulators, and potential exposure to
liability.
SOURCE OF SUPPLY
In connection with the manufacture the Noninvasive Glucose
Sensor, the Company will be dependent upon suppliers for some of
the components required for the devices fabrication. The Company
plans to assemble the devices, but will need to purchase
components, including some components which will be custom made
for the Company from certain suppliers. These components will
not be generally available, and the Company may become dependent
upon those suppliers, which do provide such specialized products.
If the Company successfully develops other new products, and
receives the regulatory approvals to manufacture such products,
it may become dependent on certain suppliers for custom parts.
COMPETITION
Noninvasive Glucose Sensor
With the rapid progress of medical technology, and in spite of
continuing research and development programs, the Company's
developmental products are always subject to the risk of
obsolescence through the introduction by others of new products
or techniques. Management is aware that other research groups
are developing noninvasive glucose sensors, but has limited
knowledge as to the technology used or stage of development of
these devices. There is a risk that those other groups will
complete the development of their devices before the Company
does. There is no other company currently producing or marketing
noninvasive sensors for the measurement of blood glucose similar
to those being developed by the Company. Competitive success in
the medical device field is dependent upon product
characteristics including performance, reliability, and design
innovations.
The Noninvasive Glucose Sensor will compete with existing
invasive glucose sensors. Although the Company believes that the
features of the Noninvasive Glucose Sensor, particularly its
convenience and the fact that no blood samples are required, will
compete favorably with existing invasive glucose sensors, there
can be no assurance that the Noninvasive Glucose Sensor will
compete successfully. Most currently available invasive glucose
sensors yield accuracy levels of plus or minus 25% to 30%, range
in price from $80 to $200, not including monthly costs for
disposable supplies and accessories, and are produced and
marketed by eight to ten sizable companies. Those companies
include Bayer, Inc., Boehringer Mannheim Diagnostics, and
Lifescan (an affiliate of Johnson & Johnson).
Such companies have established marketing and sales forces, and
represent established entities in the industry. Certain of the
Company's competitors (including their corporate or joint venture
partners or affiliates) currently marketing invasive glucose
sensors have substantially greater financial, technical,
marketing and other resources and expertise than Diasensor.com,
and may have other competitive advantages over Diasensor.com
(based on any one or more competitive factors such as accuracy,
convenience, features, price or brand loyalty). Additionally,
competitors marketing existing invasive glucose sensors may from
time to time improve or refine their products (or otherwise make
them more price competitive) so as to enhance their marketing
competitiveness relative to the Company's Noninvasive Glucose
Sensor. Accordingly, there can be no assurance that the product,
or Diasensor.com as marketer for the Noninvasive Glucose Sensor,
will be able to compete favorably with such competition.
The Company faces more direct competition from other companies
who are currently researching and developing noninvasive glucose
sensors. The Company has very limited knowledge as to the stage
of development of these sensors; however, should another company
successfully develop a noninvasive glucose sensor, achieve FDA
approval, and reach the market prior to the Company, it would
have an adverse effect upon the Company's ability to market its
sensor.
Among the other companies investigating infrared technology to
measure blood glucose levels noninvasively is CME Telemetrix in
Waterloo, Ontario, Canada. CME is reportedly conducting tests
with a desktop monitor that uses near-IR wavelengths. OptiScan
Biomedical in Alameda, California is developing a device that
uses far-IR wavelengths. Rio Grande Medical Technologies of
Albuquerque, New Mexico is designing a photonics-based device.
Rio Grande is currently funded by Johnson & Johnson.
Other companies claim that they are designing systems that are
semi-invasive. SpectRx in Norcross, Georgia is using a laser to
create micropores on the skin without the invasive penetration of
a metal needle or lancet. The device then gives a glucose
reading from the interstitial fluid collected from the
micropores. Cell Robotics International, Inc. in Albuquerque,
New Mexico is also using a laser device that perforates the skin.
Called the Lasette, a single-pulse Er: YAG laser ablates a small
hole in the fingertip to extract capillary blood for glucose
testing. A continuous glucose monitoring system from MiniMed,
Inc. in Sylmar, California received FDA approval in June 1999.
The device includes a catheter with a small sensor at its tip
that is inserted through the skin, sending readings via a small
wire to a sensor. A new sensor must be reinserted under the skin
every two to three days.
Cygnus of Redwood, California recently underwent an FDA panel
review for its GlucoWatch that leeches glucose through the skin
by electrical stimulation. The glucose triggers an
electrochemical reaction in a disposable transdermal pad that
acts as a biosensor, generating electrons. Although Cygnus
claims that its device is noninvasive, the fact remains that, in
addition to the use of electrical currents to draw fluid through
the skin, each person must use finger prick technology every day
to calibrate and use the device. Although the panel recommended
FDA approval, to the best of the Company's knowledge, the FDA has
not issued that approval. BICO was interested to learn that the
FDA panel accepted Cygnus' use of the same error grid data
analysis that was rejected when BICO used it for its own panel
review.
Certain organizations are also actively engaged in researching
and developing technologies that may regulate the use or
production of insulin or otherwise affect or cure the underlying
causes of diabetes. Diasensor.com is not aware of any new or
anticipated technology that would effectively render the
Noninvasive Glucose Sensor obsolete or otherwise not marketable
as currently contemplated. However, there can be no assurance
that future technological developments or products will not make
the Noninvasive Glucose Sensor significantly less competitive or,
in the case of the discovery of a cure for diabetes, even
effectively obsolete.
GOVERNMENT REGULATIONS
Since most of the Company's products are "medical devices" as
defined by the Federal Food, Drug and Cosmetic Act, as amended
(the "Act"), they are subject to the regulatory authority of the
FDA. The FDA regulates the testing, marketing and registration
of new medical devices, in addition to regulating manufacturing
practices, labeling and record keeping procedures. The FDA can
subject the Company to inspections of its facilities and
operations and may also audit its record keeping procedures at
any time. The FDA's Good Manufacturing Practices for Medical
Devices specifies various requirements for BICO's manufacturing
processes and maintenance of certain records.
In 1997, Congress enacted legislation directed toward regulation
of pharmaceutical and medical devices. Although the impact of
the FDA Administration Modernization Act of 1997 ("FDAMA") was
expected to reduce the quantity of information a company must
submit for approval of devices, that has not been the Companies'
experience. In certain sections of the FDAMA concerned with
Risk-Based Regualtion of Medical Devices, the agency promulgated
guidance for industry on the use of national and international
consensus standards. The FDA anticipates that the use of
consensus standards will accelerate premarket notification
clearance. The impact of the FDAMA on the approval process for
obtaining marketing approval for the Diasensorr has yet to be
established.
Noninvasive Glucose Sensor
Because the Noninvasive Glucose Sensor is subject to regulation
by the FDA, the Company will be required to meet applicable FDA
requirements prior to marketing the device in the United States.
These requirements include clinical testing, which must be
supervised by the IRBs of chosen hospitals. During 1999, the FDA
recommended that the Company file a PMA and conduct an additional
clinical study under an IDE. Biocontrol will submit a modular
PMA, which allows the various aspects of the submission to be
made in modules over a period of time. The Modular PMA is a new
method of submitting information to the FDA, and resulted from
the passage of the FDAMA in 1997. The Company submitted a PMA
Shell and certain modules, and plans to begin clinical trials
during 2000.
The time elapsed between the completion of clinical testing at
IRBs and the grant of marketing approval by the FDA is uncertain,
and no assurance can be given that approval to market the device
in the U.S. will ultimately be obtained.
In June of 1998, the FDA instituted new Quality System
Regulations ("QSR"s) that took the place of Good Manufacturing
Practices. These regulations align closely with those guidelines
specified by the ISO, which sets quality requirements for
products being shipped to the European Union ("EU"). These
regulations have added control of the design process as well as
the manufacturing process.
On January 14, 1998, the Company received certification to ISO
9001, and on June 23, 1998, it received the CE mark. The CE mark
and the ISO certification is provided by the regulatory bodies of
the EU or private "notified bodies" which are third-party
companies certified by the EU as able to also provide the
certifications. The CE mark indicates that the device adheres to
quality systems guidelines of the ISO and its European signatory,
European Norm Standards for Medical Devices ("EN"). Rigorous
audits were conducted at the Company to certify that the
Company's development and manufacturing procedures, as well as
the Diasensor 1000r itself met the international standards laid
down by the Medical Device Directive. In order to maintain its
approval to ship the device into the EU, the Company must be
vigilant in its adherence to its quality system, and audits will
be conducted on an annual basis by its third-party notified body
to verify that the Company continues to meet the standards.
Any changes in FDA procedures or requirements will require
corresponding changes in the Company's obligations in order to
maintain compliance with FDA standards. Such changes may result
in additional delays or increased expenses. BICO's products may
also be subject to additional foreign regulatory approval prior
to any sales.
Extracorporeal Hyperthermia
In January 2000, HemoCleanse and IDT received FDA approval to
market the ThermoChem-HT SystemT and related disposables, which
are used to raise the core temperature of the abdominal cavity to
the desired temperature in the 41 C (105.8 F) to 42 C (107.6 F)
range by continuously bathing the abdominal cavity with
circulating sterile solution. In a surgical procedure all
cancerous growths are surgically removed from the patient's
abdomen and pelvis while all spaces and lining surfaces are
opened, the abdomen is perfused utilizing the ThermoChem-HT
System with a heated physiologic solution circulating for a two
(2) hour period. In addition, in February 2000, the FDA approved
continued clinical trials using the ThermoChem-HT technology to
treat patients with stage IIIb small cell lung cancer.
IDT is working with BICO to obtain a CE Mark to market the
ThermoChem-HT SystemT in Europe.
Bioremediation
The Company's bioremediation projects are supervised by NETAC, a
private group endorsed and supervised by the EPA and the
Pennsylvania Department of Environmental Resources. In addition,
each state in which the bioremediation products are used will
apply its own environmental regulations to the use and sale of
the products.
HUMAN RESOURCES
As of December 31, 1999, the Company had 85 full-time employees
who were located primarily in either the Indiana or Pittsburgh
locations. In addition, IDT had two employees; Diasensor.com had
three employees; and Petrol Rem had six employees as of December
31, 1999.
The Company has employment contracts with some of its non-officer
employees, most of whom are scientists and engineers employed in
the Company's research and development operations. Such
contracts are typically for terms of five years and contain
confidentiality provisions. The Company also employs consultants
as needed; some of the consultants are employed pursuant to
consulting contracts, which contain confidentiality provisions.
Item 2. Properties
Prior to 1999, the Company's research and development operations
were located in a 20,000 square foot one-story building at 300
Indian Springs Road, Indiana, Pennsylvania. The building is
leased by the Company from the 300 Indian Springs Road Real
Estate Partnership (the "Partnership"). The lease period is 20
years and runs concurrently for ten years with a mortgage
arranged by the Partnership at a stated amount of rent. At the
end of ten years, the amount of rent paid by the Company is
subject to renegotiation, based on refinancing of a balloon
payment due on the mortgage, unless the mortgage has been
satisfied by the Partnership. In addition to rent, the Company
pays all taxes, utilities, insurance, and other expenses related
to its operations at that location (See, "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS"). The Company has vacated this
building and the partnership has listed it for sale. The
operations and activities formerly located on Indian Springs Road
have been moved to the manufacturing space discussed below.
In September 1992, BICO entered into a ten-year lease agreement
with the Indiana County Board of Commissioners for 22,500 square
feet of space that BICO has reconfigured to its manufacturing
specifications. During 1998 and 1999, BICO moved the balance of
its Indiana, Pennsylvania operations to this space. This
facility contains sufficient additional space to accommodate the
Company's projected operations through 2000.
Item 3. Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
subpoenas requested certain corporate, financial and scientific
documents and the Company continues to provide documents in
response to such requests.
On April 30, 1996, a class action lawsuit was filed against the
Company, Diasensor.com and individual officers and directors.
The suit, captioned Walsingham v. Biocontrol Technology, et al.,
has been certified as a class action, and is pending in the U.S.
District Court for the Western District of Pennsylvania. The
suit alleges misleading disclosures in connection with the
noninvasive glucose sensor and other related activities. By
mutual agreement of the parties, the suit remains in the pre-
trial pleading stage.
The Company had leased space in two locations in Indiana County
for its manufacturing facilities. One space, which has been
upgraded with leasehold improvements, is still being used by the
Company. The other space, which had been leased as expansion
space, was the subject of a judgment proceeding. The Company has
given up possession of its expansion space in Indiana County in
response to the filing of such judgment for nonpayment of lease
fees. In return for possession of the space, the leaseholder
agreed not to pursue any action on the judgment at this time.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
MARKET PRICE FOR COMMON STOCK
BICO's common stock trades on the electronic bulletin board under
the symbol "BICO". On March 21, 2000, the closing bid price for
the common stock was $.45 per share. The following table sets
forth the high and low prices for BICO's common stock during the
calendar periods indicated, through December 31, 1999.
Calendar Year High Low
and Quarter
1997 First Quarter $1.500 $ .625
Second Quarter $1.000 $ .3125
Third Quarter $ .719 $ .3125
Fourth Quarter $ .406 $ .0937
1998 First Quarter $ .250 $ .0937
Second Quarter $ .1875 $ .0313
Third Quarter $ .359 $ .0313
Fourth Quarter $ .126 $ .049
1999 First Quarter $ .084 $ .049
Second Quarter $ .340 $ .048
Third Quarter $ .125 $ .070
Fourth Quarter $ .099 $ .050
As of December 31, 1999, BICO had approximately 80,000 holders,
including those who hold in street name, of its common stock, and
four holders of its preferred stock.
Employment Agreement Provisions Related to Changes in Control
BICO has entered into agreements (the "Agreements") with Fred E.
Cooper, David L. Purdy, Anthony J. Feola, Glenn Keeling, and two
non-executive officer employees. The Agreements provide that in
the event of a "change of control" of BICO, BICO is required to
issue the following shares of common stock, represented by a
percentage of the outstanding shares of common stock of the
Company immediately after the change in control: five percent
(5%) to Mr. Cooper and Mr. Purdy; four percent (4%) to Mr. Feola;
three percent (3%) to Mr. Keeling; and two percent (2%) each to
the two non-executive officer employees. In general, a "change
of control" is deemed to occur for purposes of the Agreement: (i)
when 20% or more of BICO's outstanding voting stock is acquired
by any person, (ii) when one-third (1/3) or more of BICO's
directors are not Continuing Directors (as defined in the
Agreements), or (iii) when a controlling influence over the
management or policies of BICO is exercised by any person or by
persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (See, "MANAGEMENT - Employment Agreements").
Item 6. Selected Financial Data
FOR THE YEARS ENDED DECEMBER 31st
1999 1998 1997 1996 1995
Total
Assets $15,685,836 $9,835,569 $12,981,300 $14,543,991 $ 9,074,669
Long-Term
Obligations $ 1,338,387 $1,412,880 $ 2,697,099 $ 2,669,727 $ 175,330
Working
Capital
(Deficit) $ 4,592,935 ($9,899,008) $ 888,082 $ 1,785,576 $ 3,188,246
Preferred
Stock $ 720,000 $ 0 $ 0 $ 0 $ 37,900
Net Sales $ 112,354 $1,145,968 $1,155,907 $ 597,592 $ 461,257
TOTAL
REVENUES $ 1,196,811 $1,378,213 $1,426,134 $ 776,727 $ 755,991
Warrant
Extensions $ 4,669,483 $ 0 $4,046,875 $ 9,175,375 $12,523,220
Benefit
(Provision)
for Income $ 0 $ 0 $ 0 $ 0 $ 0
Taxes
Net Loss ($38,072,578)($22,402,644)($30,433,177)($24,045,702)($29,420,345)
Net Loss
Per Common ($.05) ($.08) ($.43) ($.57) ($.84)
Share
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 set
forth in the financial statements attached hereto. Data from all
year-end periods are from the Company's Audited Financial
Statements. Except as noted otherwise, all discussions reflect
fully consolidated financial information.
Forward-Looking Statements
In addition to other sections of this report, the Management's
Discussion and Analysis section also contains the type of forward-
looking statements discussed on page 2 herein. Please refer to
such discussion in connection with the information presented
here.
Liquidity and Capital Resources
Working capital was $4,592,935 at December 31, 1999 as compared
to ($9,899,008) at December 31, 1998 and $888,082 at December
31, 1997. Working Capital fluctuations are due primarily to the
varied capital-raising efforts of the Company which aggregated
approximately $30,730,000 in 1999, $10,720,000 in 1998; and
$22,300,000 in 1997; a decrease in net inventory from $1,834,018
as of December 31, 1997, to $74,515 as of December 31, 1998, and
$10,308 as of December 31, 1999; and a decrease in accounts
payable from $1,750,188 at December 31, 1998 to $759,733 at
December 31, 1999.
Cash decreased from $2,759,067 at December 31, 1997 to $125,745
at December 31, 1998, and increased to $10,827,631 at December
31, 1999. These changes were attributable to the following
factors. The Company's sales of its securities raised funds
aggregating $30,730,000 during 1999; $10,720,000 during 1998; and
$22,300,000 during 1997. During those periods, the Company's cash
flows used by operating activities aggregated $18,411,002;
$11,855,294; and $19,121,752; respectively. During 1998 and
1997, such activities included a $ .8 and $2.1 million increase
in inventory reserves, respectively. During 1998, the Company
expended cash and other resources in connection with its purchase
of a majority interest in a metal-coating company. Because that
investment did not perform as anticipated, assets including
goodwill were amortized in 1999, as discussed below. In
addition, the Company recorded a $4 million charge against
operations due to warrant extensions by its subsidiary in 1997,
with a similar charge of $5.9 million in 1999. (See, Note J to
the Financial Statements).
The Company's other assets decreased from $4,803,384 at year-end
1998 to $710,619 at year-end 1999 due primarily to a $4.4 million
adjustment to goodwill in connection with the company's metal-
plating segment. In addition, during 1999, the company invested
$485,284 in a business that is developing products designed to
enhance rocket propulsion performance.
The Company's current liabilities decreased by $3.5 million from
1998 to 1999, from $10,325,771 as of December 31, 1998 to
$6,792,504 as of December 31, 1999. The decrease was primarily
due to the payoff of current liabilities incurred in connection
with the Company's cash flow problems during 1998.
The Company continued to fund operations mostly from sales of its
securities. During 1999, the Company raised approximately
$30,730,000 from the sales of securities, including $810,000 from
sales of its Series F preferred stock. During 1998 and 1999, the
Company issued $10,720,000 and $29,020,000, respectively, of its
4% Subordinated Convertible Debentures. The debentures had one-
year terms, minimum holding periods prior to conversion and
mandatory conversion provisions. During 1997, the Company sold
22,000 shares of its Series B preferred stock; and issued $20.2
million in subordinated convertible debentures.
As of December 31, 1998 and 1997, the conversion price of the
debentures would have been approximately $.059 and $.146 per
share, respectively, based upon a formula which applies a
discount to the average market price for the previous week and
determined by the length of the holding period. As of December
31, 1998 and 1997, the number of shares to be issued upon
conversion of all outstanding debentures was approximately 60.1
million and 23.9 million shares, respectively, which would have
reflected discounts of approximately 23% and 18%, respectively.
No debentures were outstanding as of December 31, 1999.
Due to the Company's current limited sources of revenue, the
Company plans to seek additional financing which will be used to
finance development of, and to proceed to manufacture, the
Noninvasive Glucose Sensor and to complete the development of its
other projects. No assurances are made as to the availability
of any such financing (See, "BUSINESS").
The Company's products are at various stages of development and
will require additional funding for completion. The Company may
choose to discontinue any of its projects at any time if research
and development efforts indicate that continuation would be
inadvisable.
The Company currently has a commitment for capital leases on
certain of its capital equipment and future commitments for new
capital expenditures will be required to continue the Company's
efforts in research and development, and to manufacture and
market its existing products and any other products it may
develop.
As of March 2000, the Company estimates that its short-term
liquidity needs will be met from currently available funds. The
Company estimates that such funds will be sufficient to complete
the research and development stage of the Noninvasive Glucose
Sensor, to complete the FDA submission process, and to begin
marketing the device. The Company anticipates that it will
finance those expenses with existing funds, as well as funds
raised through the sales of its securities and from the other
sources of funds described herein. The Company has a history of
successful capital-raising efforts; since 1989, and through
December 1999, BICO and its affiliate Diasensor.com have raised
over $137,000,000 in private and public offerings alone.
In prior years, the Company met a portion of its short-term
working capital needs through development contracts with other
organizations and through manufacturing for other companies on a
contractual basis, as described herein. During 1997 and 1998,
the Company was awarded contracts by the Department of Veteran's
Affairs Medical Center for Case Western Reserve University,
Shriners Hospital - Philadelphia Unit, and Austin Hospital to
manufacture FES products. Such contracts generated revenues of
$880,919 and $1,028,484 in 1997 and 1998, respectively. During
1998, orders related to such contracts were terminated by these
other entities. As a result, the Company has terminated FES
project activities for the present, and does not anticipate any
additional revenue from those activities on a going-forward
basis. (See, "BUSINESS").
In view of BICO's expenses resulting from its product development
projects, and other factors discussed herein, as compared to
BICO's contract revenues, currently available funds, and
established ability to raise capital in public and private
markets, BICO estimates that it will meet its liquidity needs for
a period of at least twelve months from December 31, 1999 from
currently available funds, including those expected to be raised
via additional sales of the Company's securities. This estimate
is based, in part, upon the current absence of any extraordinary
technological, regulatory or legal problems. Should such
problems, which could include unanticipated delays resulting from
new developmental hurdles in product development, FDA
requirements, or the loss of a key employee, arise, the Company's
estimates would require re-evaluation. There can be no
assurances that despite the Company's good-faith efforts, its
estimates will lead to accurate results.
The Company's long-term liquidity needs are expected to include
working capital to fund manufacturing expenses for its products
and continued research and development expenses for existing and
future projects. Delays in the development of the Company's
products will result in increased needs for capital from other
sources. The Company anticipates that such other sources will
include continued sales of common stock, and investment partners
such as venture capital funds and private investment groups.
There can be no assurances given that adequate funds will be
available. If the Company is unable to raise the funds necessary
to fund the long-term expenses necessary to complete the
development or manufacture of its products, the Company will be
unable to continue its operations.
As described herein, management believes the Company has
sufficient liquidity to meet its projected expenditures on a
short-term basis. Absent additional funding, the Company will
have limited liquidity on a long-term basis. Moreover, many
demands on liquidity, such as technological, regulatory or legal
problems, could cause the Company's liquidity to be inadequate.
At present, the Company does not have any additional sources of
liquidity, such as bank lines of credit. Long-term working
capital needs are expected to be met through licensing and sales
of the Noninvasive Glucose Sensor, the ThermoChem technology, the
PRPr bioremediation product, and other new products. There can
be no assurances that any such products will be successfully
marketed or commercially viable.
Results of Operations
The following seven paragraphs discuss the Results of Operations
of the entire Company based on its consolidated financial
statements. A discussion of the business segments follows.
In 1999, the Company's net sales decreased to $112,354 from
$1,145,968 in 1998 and $1,155,907 in 1997. The decrease was due
primarily to the absence of sales of FES products, which have
been discontinued. (See, Note F to the Financial Statements).
In 1999, 1998 and 1997, the Company received interest income in
the amount of $1,031,560; $182,033; and $165,977, respectively.
The fluctuation was due to the investment of the Company's liquid
assets (which are composed primarily of funds raised via sales of
securities), the availability of such assets and applicable
interest rates. The Company's other income increased to $52,897
in 1999 as compared to $50,212 in 1998 and $104,250 in 1997. The
fluctuation was due primarily to the amount of funds raised by
the Company during those years.
In 1999, the Company's costs of products sold were $147,971 as
compared to $587,821 in 1998 and $641,331 in 1997. The decrease
is primarily due to the Company's corresponding decreases in
product sales, and products produced pursuant to FES and IRS
Device contracts, which have been discontinued.
The Company's research and development expenses were $4,430,819
in 1999, a decrease from $6,340,676 in 1998, and $6,977,590 in
1997. The prior years' decrease was due to the Company's
realignment of personnel and resources in an effort to obtain a
CE Mark for sale of the Noninvasive Glucose Sensor outside the
U.S., and, in 1998, to a loss of personnel due to cash flow
problems.
In 1999, General and Administrative expenses were $12,884,237 an
increase from $10,673,265 in 1998 and $12,695,628 in 1997. The
decrease in 1998 from 1997 was due to a loss in personnel and
reduction in related expenses. The increase from 1998 to 1999
was due, in part, to the allocation of funds to outside
consultants and other advisors to assist the Company in its
efforts to accelerate its various projects, including the
hyperthermia project, and to assist with the noninvasive glucose
sensor project.
During 1999, the Company re-evaluated its investment in its metal-
coating project and determined that, in addition to the write-
down of goodwill aggregating $4,463,137, an impairment charge of
$637,530 was necessary.
During 1997 and 1999 the Company's subsidiary, Diasensor.com,
extended warrants originally granted to certain officers,
directors, employees and consultants. Because the exercise price
of some such warrants ($.25 to $3.50) was lower than the market
price of the common stock at the time of the extensions,
$4,046,875 and $4,669,483 were charged to operations during 1997
and 1999, respectively. (See, Note J to the Financial
Statements).
Interest expense on the Company's outstanding indebtedness was
$1,373,404 in 1999 as compared to $481,025 in 1998 and $315,624
in 1997. The increase was due to an increase in capital leases
and interest payments on the Company's subordinated debentures.
Other charges to the Company's statements of operations relating
to the accounting treatment for the Company's subordinated
debentures are discussed in Note A to the Financial Statements.
Segment Discussion
For purposes of accounting disclosure, the Company provides the
following discussion regarding three business segments:
Biomedical devices, which includes the operations of Biocontrol
Technology, Inc. and Diasensor.com, Inc.; Bioremediation, which
includes the operations of Petrol Rem, Inc.; and Marine Paint
Products, including the operations of Barnacle Ban Corporation,
which have been discontinued. More complete financial
information on these segments is set forth in Note F to the
accompanying financial statements.
Biomedical Device Segment. During the year ended December 31,
1999, sales to external customers decreased to $82,056 from
$1,028,484 in 1998 and $880,919 in 1997. These fluctuations and
overall decrease were primarily due to sales of the functional
electrical stimulators, which have been discontinued.
Corresponding fluctuations in costs of products goods sold
occurred for the same reason, from $445,843 in 1997 to $483,388
in 1998 and $133,288 in 1999.
Bioremediation Segment. During the year ended December 31, 1999,
sales to external customers decreased to $26,693 as compared to
$45,382 in 1998 and $138,362 in 1997. The decreases were due to
an inability to effectively penetrate the market with products
other than the Bio-Sok. Costs of products sold decreased due to
the same factors, from $88,178 in 1997 to $33,061 in 1998, and
$14,683 in 1999. The relatively higher costs of products sold in
1997 were due to the higher cost of producing the Bio-Sok as
opposed to other bioremediation products.
Marine Paint Products Segment. Sales to external customers
decreased to $40,835 in 1998 from $136,624 in 1997. This
decrease was due primarily to the Company's decision to
discontinue this segment's operations. Costs of products sold
reflect the same impact, with $32,777 in 1998 and $107,310 in
1997. In 1998, the Company discontinued its marine paint
products segment, and no activity occurred in 1999.
Income Taxes
Due to the Company's net operating loss carried forward from
previous years and its current year losses, no federal or state
income taxes were required to be paid for the years 1987 through
1999. As of December 31, 1999, the Company and its subsidiaries,
except for Diasensor.com and Petrol Rem, had available net
operating loss carryforwards for federal income tax purposes of
approximately $110,800,000, which expire during the years 2000
through 2020 (See, Note K to the Financial Statements).
Supplemental Financial Information
In January, the Company announced that its subsidiary
Diasensor.com had initiated an alliance with MicroIslet, Inc.; in
return for its initial equity investment of $500,000,
Diasensor.com received a 10% stake with an option to purchase an
additional 10% in the future
From January through early March 2000, the Company raised net
funds aggregating approximately $14.7 million from the sale of
its preferred stock and debentures.
In March 2000, the Company filed a Preliminary Registration
Statement on Form S-3. The Registration Statement includes
common stock on behalf of certain selling shareholders and on
behalf of the Company. The selling shareholders are those who
purchased either preferred stock or subordinated debentures.
Item 8. Financial Statements and Supplementary Data
The Company's financial statements appear on pages F-1 through
F-25 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
The directors and executive officers of the Company as of
December 31, 1999 were as follows:
Name Age Director Position
Since
David L. Purdy 71 1972 President, Chairman of the
Board, Treasurer, Director
Fred E. Cooper 53 1989 Chief Executive Officer,
Executive Vice President,
Director
Anthony J. Feola 51 1990 Senior Vice President,
Director
Glenn Keeling 48 1991 Vice President, Director
Stan Cottrell 56 1998 Director
Paul W. Stagg 52 1998 Director
DAVID L. PURDY, 71, is President, Chairman of the Board,
Treasurer and a director of the Company. Mr. Purdy has been a
director and Chairman of the Board since its organization in 1972
and is considered the organizer and founder of the Company; he
devotes 60% of his time to the business of the Company, and 40%
of his time to Diasensor.com. Mr. Purdy is also an officer and
director of Diasensor.com and Coraflex.
FRED E. COOPER, 53, is the Chief Executive Officer, Executive
Vice President and a director of the Company; he devotes
approximately 60% of his time to the business of the Company, and
40% to Diasensor.com. Prior to joining the Company, Mr. Cooper
co-founded Equitable Financial Management, Inc. of Pittsburgh,
PA, a company in which he served as Executive Vice President
until his resignation and divestiture of ownership in August
1990. Mr. Cooper was appointed Chief Executive Officer in
January 1990. He is also an officer and director of Diasensor.com
and a director of Petrol Rem and Coraflex.
ANTHONY J. FEOLA, 51, rejoined the Company as its Senior Vice
President in April 1994, after serving as Diasensor.com's Vice
President of Marketing and Sales from January 1992 until April
1994. Prior to January 1992, he was the Company's Vice President
of Marketing and Sales. Prior to joining the Company in November
1989, Mr. Feola was Vice President and Chief Operating Officer
with Gateway Broadcasting in Pittsburgh in 1989, and National
Sales Manager for Westinghouse Corporation, also in Pittsburgh,
from 1980 until 1989. He was elected a director of the Company
in February 1990, and also serves as a director of Diasensor.com,
Coraflex, and Petrol Rem.
GLENN KEELING, 48, joined the Board of Directors in April 1991.
Mr. Keeling currently is a full-time employee of BICO in the
position of Vice President of Marketing; his primary
responsibilities during 1994 through 1997 have been the
management and operation of IDT's Whole-Body Extracorporeal
Hyperthermia project. From 1976 through 1991, he was a Vice
President in charge of new business development at Equitable
Financial Management, Inc., a regional equipment lessor. His
responsibilities included initial contacts with banks and
investment firms to open new lines of business referrals in
connection with financing large equipment transactions. He is
also President and a director of IDT.
STAN COTTRELL, 56, was appointed to the Board of Directors in
1998. Mr. Cottrell is the Chairman and Founder of Cottrell
Associates International, Inc., which provides international
business development, brokerage, specialty marketing and
promotional services. He is a former director of marketing for
Inhalation Therapy Services and was employed by Boehringer
Ingelheim, Ltd. as a national product manager. Mr. Cottrell is a
world ultra-distance runner and the author of several books.
PAUL W. STAGG, 52, was appointed to the Board of Directors in
1998. Mr. Stagg is the owner of P.C. Stagg, LLC. Prior to his
current position, he was the marketing manager for the Wholesale
Division of First Financial Resources, Inc., where he is
responsible for marketing, underwriting, sorting and coordination
various types of financing for institutional investors. Prior to
his current position, he was District Distributor of Marketing
for Ginger Mae, a division of United Companies of Baton Rouge,
LA.
Pursuant to the disclosure requirements of Item 405 of Regulation
S-K regarding timely filings required by Section 16(a) of the
Securities and Exchange Act, the Company represents the
following. Based solely on its review of copies of forms
received and written representations from certain reporting
persons, the Company believes that all of its officers, directors
and greater than ten percent beneficial owners complied with
applicable filing requirements.
Item 11. Executive Compensation
The following table sets forth information concerning the annual
and long-term compensation for services in all capacities to the
Company for the fiscal years ended December 31, 1999, 1998 and
1997, of those persons who were, at December 31, 1999 (i) the
Chief Executive Officer, and (ii) the other most highly
compensated executive officers of the Company whose remuneration
exceeded $100,000 (the "Named Executives").
SUMMARY COMPENSATION TABLE
==============================================================================
Annual Compensation | (1)Long Term Compensation
- - ------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal (2) | Underlying (2) All other
Position Year Salary($) Bonus($) Other($) | Warrants(#) Compensation
==============================================================================
David L. |
Purdy , 1999 $450,000 $0 $0 | 4,000,000(3) $0
President, 1998 $166,802 $0 $0 | 0 $0
Treasurer (4) 1997 $241,667 $0 $0 | 0 $0
- - ------------------------------------------------------------------------------
Fred E. 1999 $808,772 $200,000 $0 | 4,000,000(3) $0
Cooper, 1998 $556,173 $0 $0 | 0 $0
CEO (5) 1997 $592,000 $0 $0 | 0 $0
- - ------------------------------------------------------------------------------
Anthony J. 1999 $500,886 $0 $0 | 2,000,000(3) $0
Feola , Sr. 1998 $326,912 $0 $0 | 0 $0
Vice Pres.(6) 1997 $300,000 $0 $0 | 0 $0
- - ------------------------------------------------------------------------------
Glenn 1999 $302,083 $0 $0 | 2,000,000(3) $0
Keeling, VP 1998 $180,003 $0 $0 | 0 $0
(7) 1997 $200,000 $0 $0 | 0 $0
(1) The Company does not currently have a Long-Term Incentive
Plan ("LTIP"), and no payouts were made pursuant to any LTIP
during the years 1998, 1997, or 1996. The Company did not
award any restricted stock to the Named Executives during
any year, including the years 1998, 1997 or 1996. The
Company did not award any warrants, options or Stock
Appreciation Rights ("SARs") to the Named Executives during
the years ended December 31, 1998, 1997 or 1996; however,
the Company did extend warrants owned by the Named
Executives, which would have expired during 1996 (See Note
3, below). The Company has no retirement, pension or profit-
sharing programs for the benefit of its directors, officers
or other employees.
(2) During the year ended December 31, 1998, the Named
Executives received medical benefits under the Company's
group insurance policy, including disability and life
insurance benefits. The aggregate amount of all perquisite
compensation was less than 10% of the total annual salary
and bonus reported for each Named Executive.
(3) During 1999, the Company issued warrants to the Named
Executives. All of the warrants were issued on April 28,
1999 at $.129 per share, which was the market price on the
date of the warrant grant. For more detailed information,
please refer to the "Option/Warrant/SAR Grants in Last
Fiscal Year" table, below.
(4) In addition to his BICO salary, in 1997, 1998 and 1999, Mr.
Purdy was paid $100,000, $100,000, and $266,667,
respectively, by Diasensor.com; such amounts are included in
the table above. Mr. Purdy is paid a salary by the Company
based on his employment contract (See, "Employment
Agreements"). Amounts paid to Mr. Purdy by Diasensor.com
are determined by the Diasensor.com Board of Directors based
upon services performed on its behalf. During 1998, Mr.
Purdy voluntarily reduced his salary by 69%.
(5) In addition to his BICO salary, in 1997, 1998 and 1999, Mr.
Cooper was paid $96,000, $96,000, and $104,000,
respectively, by both Petrol Rem and IDT, both of which are
subsidiaries of BICO; such amounts are included in the table
above, and part of his salaries for 1998 were deferred and
paid in 1999. In 1997, 1998 and 1999, Mr. Cooper was paid
$150,000, $150,000, and $340,625, respectively, in salary
by Diasensor.com.; such amounts are also included in the
table above. Mr. Cooper is paid a salary by the company
based on his employment agreement (See, "Employment
Agreements"). Amounts paid to Mr. Cooper by Diasensor.com,
Petrol Rem and IDT are determined by the Boards of Directors
of those companies based upon services performed on their
behalf.
(6) Mr. Feola is paid a salary by the company based on his
employment agreement (See, "Employment Agreements"); part of
his salary from 1998 was deferred and paid in 1999. In
addition, Mr. Feola was paid $75,000 by Diasensor.com in
1999; that amount is included in the table above. Amounts
paid to Mr. Feola by Diasensor.com are determined by the
Diasensor.com Board of Directors based upon services
performed on its behalf.
(7) Mr. Keeling is paid a salary by the company based on his
employment (See, "Employment Agreements"). In 1999, 87%
Keeling's salary was allocated to IDT, Inc. based upon the
time he devoted to its operations.
Option/Warrant/SAR Grants in Last Fiscal Year
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL GRANTS (1) PRICE APPRECIATION
FOR
OPTION TERM (3)
Percent of
Number of Total
Securities Options/SAR's Exercise
Underlying Granted to or Expiration
Options/ Employees in Base Date 5%($) 10%($) 0%($)
Name SAR's Fiscal Year Price
Granted (2) ($/Sh)
Fred E. Cooper 4,000,000 18% $0.12 4/28/04 $144,000 $316,000 $0
David L. Purdy 4,000,000 18% $0.12 4/28/04 $144,000 $316,000 $0
Anthony J. Feola 2,000,000 9% $0.12 4/28/04 $ 72,000 $158,000 $0
Glenn Keeling 2,000,000 9% $0.12 4/28/04 $ 72,000 $158,000 $0
____
(1) The warrants set forth in this table represent the
warrants granted to the Named Executives during 1999.
All of the warrants granted each Named Executive the
right to purchase the number of shares of common stock
shown in the table at a price of $0.129 per share for
five years.
(2) For purposes of calculating these percentages, the
total number of warrants granted during 1999 was
22,092,500.
(3) Potential realizable values reflect the difference
between the warrant exercise price at the end of 1999
and the fair value of the Company's common stock price
from the date of the grant until the expiration of the
warrant. The 5% and 10% appreciation rates, compounded
annually, are assumed pursuant to the rules promulgated
by the SEC and do not reflect actual historical or
projected rates of appreciation of the common stock.
Assuming such appreciation, the following illustrates
the per share value on the dates set forth (the
expiration dates for the warrants), assuming the values
set forth (the closing bid price on the date of the
grant as reported by the electronic bulletin board):
STOCK PRICE ON EXPIRATION
DATE OF GRANT DATE 5% 10%
04/28/99: $0.129 04/28/04 $0.165 $0.208
The foregoing values do not reflect appreciation
actually realized by the Named Executives (See,
"Option/Warrant/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/Warrant/SAR Value" Table,
Below).
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at
at 12/31/99 ($)
12/31/99 (#)
Name Shares Value Exercisable/ Exercisable/
Acquired Realized Unexerciseabl Unexercisabl
on ($) e (3) e (4)
Exercise (2)
(#)(1)
David L. 0 $ 0 4,767,200 $ 0
Purdy (5) (9)
Fred E. 0 $ 0 4,300,000 $ 0
Cooper (6) (9)
Anthony 0 $ 0 2,550,000 $ 0
J. Feola (7) (9)
Glenn 0 $ 0 2,100,000 $ 0
Keeling (8) (9)
__________________
(1) This figure represents the number of shares of common
stock acquired by each named executive officer upon the
exercise of warrants. None of the Named Executives
exercised warrants during 1999.
(2) The value realized of the warrants exercised was
computed by determining the spread between the market
value of the underlying securities at the time of
exercise minus the exercise price of the warrant.
(3) All warrants held by the Named Executives are currently
exercisable.
(4) The value of unexercised warrants was computed by
subtracting the exercise price of the outstanding
warrants from the closing sales price of the Company's
common stock on the last trading day of December 1999
as reported by the electronic bulletin board ($.05).
(5) Includes warrants to purchase: 187,200 shares of
common stock at $.25 per share until April 24, 2001;
500,000 shares of common stock at $.25 per share until
May 1, 2001; 80,000 shares of common stock at $.33 per
share until June 29, 2003; and 4,000,000 shares of
common stock at $.129 per share until April 28, 2004
(See, "Warrants").
(6) Includes warrants to purchase: 300,000 shares of common
stock at $.25 per share until May 1, 2001; and
4,000,000 shares of common stock at $.129 per share
until April 28, 2004 (See, "Warrants").
(7) Includes warrants to purchase: 100,000 shares of
common stock at $.25 per share until May 1, 2001;
100,000 shares of common stock at $.25 per share until
November 26, 2003; 350,000 shares of common stock at
$.50 per share until October 11, 2002; and 2,000,000
shares of common stock at $.129 per share until April
28, 2004 (See, "Warrants").
(8) Includes warrants to purchase: 100,000 shares of common
stock at $1.48 per share until August 26, 2001; and
2,000,000 shares of common stock at $.129 per share
until April 28, 2004.
(9) Because the market price as of the last trading day of
December 1999 was less than the exercise price of the
warrants, none of the warrants were in-the-money.
Employment Agreements
BICO has employment agreements (the "Agreements") with its
Named Executives Fred E. Cooper, David L. Purdy, Anthony J.
Feola and Glenn Keeling effective November 1, 1994, pursuant
to which they are currently entitled to receive annual
salaries of $250,000, $300,000, $408,000 and $375,000
respectively, which are subject to review and adjustment.
The initial term of the Agreements with Messrs. Cooper and
Purdy was renewed in October 1999 for an additional three-
year term, which will automatically renew for additional
three-year terms unless one of the parties gives proper
notice of non-renewal. The initial term of the Agreements
with Messrs. Feola and Keeling was renewed in October 1999
for an additional two-year term, which will automatically
renew for additional two-year terms unless one of the
parties gives proper notice of non-renewal. The Agreements
also provide that in the event of a "change of control" of
BICO, BICO is required to issue the following shares of
common stock, represented by a percentage of the outstanding
shares of common stock of the Company immediately after the
change in control: five percent (5%) to Mr. Cooper and Mr.
Purdy; four percent (4%) to Mr. Feola; and three percent
(3%) to Mr. Keeling. In general, a "change of control" is
deemed to occur for purposes of the Agreements (i) when 20%
or more of BICO's outstanding voting stock is acquired by
any person, (ii) when one-third (1/3) or more of BICO's
directors are not Continuing Directors (as defined in the
Agreement), or (iii) when a controlling influence over the
management or policies of BICO is exercised by any person or
by persons acting as a group within the meaning of Section
13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
In addition, in the event of a change in control within the
term of the Agreements or within one year thereafter,
Messrs. Cooper, Purdy, Feola and Keeling are entitled to
receive severance payments in amounts equal to: 100% of
their most recent annual salary for the first three years
following termination; 50% of their most recent annual
salary for the next two years; and 25% of their most recent
salary for the next five years. BICO is also required to
continue medical insurance coverage for Messrs. Cooper,
Purdy, Feola and Keeling and their families during such
periods. Such severance payments will terminate in the
event of the employee's death.
In the event that either Mr. Purdy or Mr. Cooper becomes
disabled, as defined in their Agreements, he will be
entitled to the following payments, in lieu of salary, such
payments to be reduced by any amount paid directly to him
pursuant to a disability insurance policy provided by the
Company or its affiliates: 100% of his most recent annual
salary for the first three years; and 70% of his most recent
salary for the next two years. In the event that either Mr.
Feola or Mr. Keeling becomes disabled, as defined in their
Agreements, he will be entitled to the following payments,
in lieu of salary, such payments to be reduced by any amount
paid directly to him pursuant to a disability insurance
policy provided by the Company or its affiliates: 100% of
his most recent annual salary for the first year; and 70% of
his most recent salary for the second year.
The Agreements also generally restrict the disclosure of
certain confidential information obtained by Messrs. Cooper,
Purdy, Feola and Keeling during the term of the Agreements
and restricts them from competing with BICO for a period of
one year in specified states following the expiration or
termination of the Agreements.
In addition to the Employment Agreements described above,
BICO also has employment agreements with two of its non-
executive officer employees effective November 1, 1994. The
terms of such agreements are similar to those described for
Messrs. Feola and Keeling above, with the following
amendments: the term of one agreement is from November 1,
1994 through October 31, 2002, and is renewable for
successive two-year terms; the term of the other agreement
was renewed for an additional two-year term in October 1999,
and will automatically renew for additional two-year terms
unless one of the parties terminates the agreement. In the
event of a "change in control", BICO is required to issue
both employees shares of common stock equal to two percent
(2%) of the outstanding shares of the common stock of the
Company immediately after the change in control.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth the indicated information as
of December 31, 1999 with respect to each person who is
known by the Company to be the beneficial owner of more than
five percent (5%) of the outstanding common stock, each
director of the Company, and all directors and executive
officers of the Company as a group.
As of December 31, 1999, there were 956,108,496 shares of
the Company's common stock outstanding. The table below
sets forth the common stock currently owned by each person
or group, including common stock underlying warrants, all of
which are currently exercisable, as of December 31, 1999.
The left-hand column sets forth the percentage of the total
number of shares of common stock outstanding as of December
31, 1999, which would be owned by each named person or group
upon the exercise of all of the warrants held by such person
or group together with common stock currently owned.
Except as otherwise indicated, each person has the sole
power to vote and dispose of each of the shares listed in
the columns opposite his name.
Name and Amount and Percent of Beneficial
Address of Nature of Ownership of
Beneficial Beneficial Total Outstanding
Owner Ownership (1) Common Stock (2)
David L. Purdy (3) 5,167,340 (4) *
625 Kolter Drive
Indiana, PA 15701
Fred E. Cooper 5,076,200 (5) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Stan Cottrell 250,000 (6) *
4619 Westhampton Drive
Tucker, GA 30084
Anthony J. Feola 2,904,000 (7) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Glenn Keeling 2,238,500 (8) *
2275 Swallow Hill Road
Bldg.2500,2nd Floor
Pittsburgh, PA 15220
Paul Stagg 270,000 (9) *
168 LaLanne Road
Madisonville,LA 70447
All directors 15,906,040 (10) 1.6%
and executive
Officers as a
group (6)
*Less than one percent
____________________
(1) Includes ownership of all shares of common stock which
each named person or group has the right to acquire, through
the exercise of warrants, within sixty (60) days, together
with the common stock currently owned.
(2) Represents total number of shares of common stock owned
by each person, which each named person or group has the
right to acquire, through the exercise of warrants within
sixty (60) days, together with common stock currently owned,
as a percentage of the total number of shares of common
stock outstanding as of December 31, 1999. For individual
computation purposes, the total number of shares of common
stock outstanding as of December 31, 1999 has been increased
by the number of additional shares which would be
outstanding if the person or group exercised all outstanding
warrants.
(3) Does not include shares held by Mr. Purdy's adult
children. Mr. Purdy disclaims any beneficial interest to
shares held by members of his family.
(4) Includes currently exercisable warrants to purchase the
following: 187,200 shares of common stock at $.25 per share
until April 24, 2001; 80,000 shares of common stock at $.33
per share until June 29, 2003; 500,000 shares of common
stock at $.25 per share until May 1, 2001; and 4,000,000
shares of common stock at $.129 per share until April 28,
2004. In addition, Mr. Purdy is entitled to certain shares
of common stock upon a change of control of BICO as defined
in his employment agreement (See, "Employment Agreements").
(5) Includes currently exercisable warrants to purchase the
following: 300,000 shares of common stock at $.25 per share
until May 1, 2001; and 4,000,000 shares of common stock at
$.129 per share until April 28, 2004. In addition, Mr.
Cooper is entitled to certain shares of common stock upon a
change of control of BICO as defined in his employment
agreement (See, "Employment Agreements").
(6) Includes currently exercisable warrants to purchase
250,000 shares of common stock at $.129 per share until
April 28, 2004.
(7) Includes currently exercisable warrants to purchase the
following: 100,000 shares of common stock at $.25 per share
until November 26, 2003; 100,000 shares of common stock at
$.25 per share until May 1, 2001; 350,000 shares of common
stock at $.50 per share until October 11, 2002; and
2,000,000 shares of common stock at $.129 per share until
April 28, 2004. In addition, Mr. Feola is entitled to
certain shares of common stock upon a change of control of
BICO as defined in his employment agreement (See,
"Employment Agreements").
(8) Includes currently exercisable warrants to purchase
100,000 shares of common stock at $1.48 per share until
August 26, 2001; and 2,000,000 shares of common stock at
$.129 per share until April 28, 2004. In addition, Mr.
Keeling is entitled to certain shares of common stock upon a
change of control of BICO as defined in his employment
agreement (See, "Employment Agreements").
(9) Includes currently exercisable warrants to purchase
20,000 shares of common stock at $.06 per share until April
27, 2003; and 250,000 shares of common stock at $.129 per
share until April 28, 2004.
(10) Includes shares of common stock available under
currently exercisable warrants to purchase an aggregate of
as set forth above.
Item 13. Certain Relationships and Related Transactions
The Company and its affiliates share common officers and
directors. In addition, BICO and Diasensor.com have entered
into several intercompany agreements including a Purchase
Agreement, a Research and Development Agreement and a
Manufacturing Agreement, which are summarized herein.
Management believes that it was in the best interest of the
Company to enter into such 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, no unaffiliated third party was
retained to determine independently the fairness of such
transactions. The Company's policy concerning related party
transactions requires the approval of a majority of the
disinterested directors of both the corporations involved,
if applicable.
Employment Relationships
The Board of Directors of the Company approved employment
agreements on November 1, 1994 for its officers, David L.
Purdy, Fred E. Cooper, Anthony J. Feola and Glenn Keeling
(See "Employment Agreements").
David L. Purdy, President, Treasurer and a director of the
Company, is a director of Diasensor.com and Coraflex. He is
also the chairman and Chief Scientist of Diasensor.com, and
the President and Treasurer of Coraflex. Mr. Purdy devotes
approximately 60% of his time to BICO, and 40% to
Diasensor.com. Fred E. Cooper, Chief Executive Officer,
Executive Vice President and a director of the Company, is a
director of Diasensor.com, Coraflex and Petrol Rem. He is
also the President of Diasensor.com. Mr. Cooper devotes
approximately 60% of his time to BICO and 40% to
Diasensor.com. Anthony J. Feola, Senior Vice President and a
director of the Company, is also a director of
Diasensor.com, Coraflex, and Petrol Rem. Glenn Keeling is
the Vice President and a director of the Company. Mr.
Keeling is also the President and a director of IDT.
Property
Three of the Company's current executive officers and/or
directors and two former directors of the Company are
members of the nine-member 300 Indian Springs Road Real
Estate Partnership (the "Partnership") that in July 1990
purchased the Company's real estate in Indiana,
Pennsylvania. Each member of the Partnership personally
guaranteed the payment of lease obligations to the bank
providing the funding. The five members of the Partnership
who are also current or former officers and/or directors of
the Company, David L. Purdy, Fred E. Cooper, Glenn Keeling,
Jack H. Onorato and C. Terry Adkins, each received warrants
on June 29, 1990 to purchase 100,000 shares of the Company's
common stock at an exercise price of $.33 per share until
June 29, 1995 (those warrants still outstanding as of the
original expiration date were extended until June 29, 2001).
Mr. Adkins, who was a director at the time of the
transaction, resigned from the Board of Directors on March
30, 1992. Mr. Keeling, who was not a director at the time
of the transaction, joined the Board of Directors on May 3,
1991. Mr. Onorato, who was not a director at the time of
the transaction, was a BICO director from September 1992
until April 1994.
In all instances where warrants were issued in connection
with the transactions set forth above, the exercise price of
the warrants was equal to or above the current quoted market
price of the Company's common stock on the date of issuance.
Warrants
The following paragraphs, along with the notes to the
financial statements, include disclosure of the warrants,
which were granted to executive officers, and directors of
the Company from 1997 through 1999. These warrants were
accounted for in accordance with Accounting Principles Board
Opinion 25 (based on the spread, if any, between the
exercise price and the quoted market price of the stock on
the date that the warrants were granted). No value was
recorded for these warrants since they were all granted at
exercise prices that were equal to or above the current
quoted market price of the stock on the date issued (See,
Note J to the Financial Statements). Because the exercise
price of the warrants, which remained unchanged, was less
than the market price of the common stock on the dates of
the extensions, charges were made against operations (See,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS", and Note J to the Financial
Statements).
During 1999, the Company issued the following warrants to
purchase common stock to its executive officers and
directors:
On April 28, 1999, warrants to purchase common stock at
$.129 per shares until April 28, 2004 were granted in the
following amounts: 4,000,000 to Fred E. Cooper, the CEO and
a director; 2,000,000 to Anthony J. Feola, the Senior Vice
President and a director; 2,000,000 to Glenn Keeling, a Vice
President and a director; 4,000,000 to David L. Purdy, the
Chairman and a director; 250,000 to Stan Cottrell, a
director; and 250,000 to Paul Stagg, a director. The
exercise price of $.129 per share was equal to the market
price on April 28, 1999.
Loans
In 1999, all of Fred E. Cooper's outstanding loans from the
Company, including accrued interest, were consolidated to
one loan in the amount of $777,399.80. Mr. Cooper began
repaying the loans in May of 1999. The loan balance as of
February 29, 2000 was $738,164.39. In addition, Mr. Cooper
owns 66% of a corporation called B-A-Champ.com. During
1999, the Company loaned B-A-Champ.com an aggregate of
$150,000; as of February 29, 2000, approximately $100,000
had been repaid, and the balance is due in November 2000.
In return, the Company received a 6.5% equity interest in
that company.
In 1999, all of Anthony J. Feola's outstanding loans from
the Company, including accrued interest, were consolidated
into one loan in the amount of $259,476.82. Mr. Feola began
repaying the loans in May of 1999. The loan balance as of
February 29, 2000 was $241,491.17.
In 1999, all of Glenn Keeling's outstanding loans from the
Company, including accrued interest, were consolidated into
one loan in the amount of $296,358.07. Mr. Keeling began
repaying the loans in May of 1999. The loan balance as of
February 29, 2000 was $275,707.86.
In September 1995, the Company granted a loan in the amount
of $250,000 to Allegheny Food Services in the form of a one-
year renewable note bearing interest at prime rate as
reported by the Wall Street Journal plus one percent (1%).
Interest and principal payments have been made on the note,
and as of February 29, 2000, the balance was $167,012.99.
Joseph Kondisko, a former director of Diasensor.com, is a
principal owner of Allegheny Food Services.
Each of the loans made to officers or directors and their
affiliates was made for a bona fide business purpose. All
future loans to officers, directors and their affiliates
will be made for bona fide business purposes only.
Intercompany Agreements
Management of the Company believes that the agreements
between BICO and Diasensor.com, which are summarized below,
were based upon terms, which were as favorable as those that
may have been available in comparable transactions with
third parties. However no unaffiliated third party was
retained to determine independently the fairness of such
transactions.
License and Marketing Agreement. Diasensor.com acquired the
exclusive marketing rights for the Noninvasive Glucose
Sensor and related products and services from BICO in August
1989 in exchange for 8,000,000 shares of its common stock.
That agreement was canceled pursuant to a Cancellation
Agreement dated November 18, 1991, and superseded by a
Purchase Agreement dated November 18, 1991. The
Cancellation Agreement provides that BICO will retain the
8,000,000 shares of Diasensor.com common stock, which BICO
received pursuant to the License and Marketing Agreement.
Purchase Agreement. BICO and Diasensor.com entered into a
Purchase Agreement dated November 18, 1991 whereby BICO
conveyed to Diasensor.com its entire right, title and
interest in the Noninvasive Glucose Sensor and its
development, including its extensive knowledge, technology
and proprietary information. Such conveyance includes
BICO's patent received in December 1991.
In consideration of the conveyance of its entire right in
the Noninvasive Glucose Sensor and its development, BICO
received $2,000,000. In addition, Diasensor.com may
endeavor, at its own expense, to obtain patents on other
inventions relating to the Noninvasive Glucose Sensor.
Diasensor.com also guaranteed BICO the right to use such
patented technology in the development of BICO's proposed
implantable closed-loop system, a related system in the
early stages of development.
In December 1992, BICO and Diasensor.com executed an
amendment to the Purchase Agreement, which clarified terms
of the Purchase Agreement. The amendment defines "Sensors"
to include all devices for the noninvasive detection of
analytes in mammals or in other biological materials. In
addition, the amendment provides for a royalty to be paid to
Diasensor.com in connection with any sales by BICO of its
proposed closed-loop system.
Research and Development ("R&D") Agreement. Diasensor.com
and BICO entered into an agreement dated January 20, 1992 in
connection with the research and development of the
Noninvasive Glucose Sensor. Pursuant to the agreement, BICO
will continue the development of the Noninvasive Glucose
Sensor, including the fabrication of prototypes, the
performance of clinical trials, and the submission to the
FDA of all necessary applications in order to obtain market
approval for the Noninvasive Glucose Sensor. BICO will also
manufacture the models of the Noninvasive Glucose Sensor to
be delivered to Diasensor.com for sale (See, "Manufacturing
Agreement"). Upon the delivery of the completed models, the
research and development phase of the Noninvasive Glucose
Sensor will be deemed complete.
Diasensor.com has agreed to pay BICO $100,000 per month for
indirect costs beginning April 1, 1992, during the 15 year
term of the agreement, plus all direct costs, including
labor. BICO also received a first right of refusal for any
program undertaken to develop, refine or improve the
Noninvasive Glucose Sensor, and for the development of other
related products. In July 1995, BICO and Diasensor.com
agreed to suspend billings, accruals of amounts due and
payments pursuant to the R&D Agreement pending the FDA's
review.
Manufacturing Agreement. BICO and Diasensor.com entered
into an agreement dated January 20, 1992, whereby BICO will
act as the exclusive manufacturer of the Noninvasive Glucose
Sensor and other related products. Diasensor.com will
provide BICO with purchase orders for the products and will
endeavor to provide projections of future quantities needed.
The original Manufacturing Agreement called for the products
to be manufactured and sold at a price to be determined in
accordance with the following formula: Cost of Goods
(including actual or 275% of overhead, whichever is lower)
plus a fee of 30% of Cost of Goods. In July 1994, the
formula was amended to be as follows: Costs of Goods Sold
(defined as BICO's aggregate cost of materials, labor and
associated manufacturing overhead) + a fee equal to one
third (1/3) of the difference between the Cost of Goods Sold
and Diasensor.com's sales price of each Sensor.
Diasensor.com's sales price of each Sensor is defined as the
price paid by any purchaser, whether retail or wholesale,
directly to Diasensor.com for each Sensor. Subject to
certain restrictions, BICO may assign its manufacturing
rights to a subcontractor with Diasensor.com's written
approval. The term of the agreement is fifteen years.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements
The financial statements, together with the report thereon
of the Company's independent accountants, are included in
this report on the pages listed below.
Financial Statements Page
Report of Independent Certified Public Accountants
Thompson Dugan, P.C. F-1
Consolidated Balance Sheets
December 31, 1999 and 1998 F-2
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997 F-8
2. Exhibits:
(b) Reports on Form 8-K
The Company filed a Form 8-K report dated March 23,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated April 8,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated April 8,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated April 23,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated May 27, 1999.
The items listed were Item 5, Other Events; and Item
7(c), Exhibits.
The Company filed a Form 8-K report dated July 2, 1999.
The items listed were Item 5, Other Events; and Item
7(c), Exhibits.
The Company filed a Form 8-K report dated July 9, 1999.
The items listed were Item 5, Other Events; and Item
7(c), Exhibits.
The Company filed a Form 8-K report dated August 24,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated September 9,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated September 22,
1999. The items listed were Item 5, Other Events, and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated September 22,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated October 6,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated October 12,
1999. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated January 19,
2000. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated February 2,
2000. The item listed was Item 5, Other Events; and
Item 7c, Exhibits.
The Company filed a Form 8-K report dated February 9,
2000. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated February 23,
2000. The items listed were Item 5, Other Events; and
Item 7(c), Exhibits.
The Company filed a Form 8-K report dated March 2,
2000. The item listed was Item 5, Other Events; and
Item 7(c), Exhibits.
(c) Exhibits Required by Item 601 of Regulation S-K
The following exhibits required by Item 601 of
Regulation S-K are filed as part of this report.
Except as otherwise noted, all exhibits are
incorporated by reference from exhibits to Form
S-1 (Registration #33-55200) filed December 1,
1992 or from exhibits to Form 10-K filings prior
to or subsequent to that date.
3.1 Articles of Incorporation as filed March 20, 1972
3.2 Amendment to Articles filed May 8, 1972
3.3 Restated Articles filed June 19, 1975
3.4 Amendment to Articles filed February 4, 1980
3.5 Amendment to Articles filed March 17, 1981
3.6 Amendment to Articles filed January 27, 1982
3.7 Amendment to Articles filed November 22, 1982
3.8 Amendment to Articles filed October 30, 1985
3.9 Amendment to Articles filed October 30, 1986
3.10 By-Laws
3.11 (1) Amendment to Articles filed February 7, 2000
4.1 Incentive Stock Option Plan and Schedule
4.2 Form of Warrant and Schedule
____________________________
(1) Filed as an exhibit to this Form 10-K filed March 27, 2000
Conformed Copy
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 27th day of
March 2000.
BIOCONTROL TECHNOLOGY, INC.
By: /s/ David L. Purdy
David L. Purdy
President,Treasurer,
Director
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Fred E. Cooper Director, CEO, March 27, 2000
Fred E. Cooper (principal executive
officer, principal
financial officer and
principal accounting
officer)
/s/ Anthony J. Feola Senior Vice President, March 27, 2000
Anthony J. Feola Director
/s/ Glenn Keeling Director March 27, 2000
Glenn Keeling
/s/ Stan Cottrell Director March 27, 2000
Stan Cottrell
/s/ Paul W. Stagg Director March 27, 2000
Paul W. Stagg
THOMPSON DUGAN
CERTIFIED PUBLIC ACCOUNTANTS
________________________
Pinebridge Commons
1580 McLaughlin Run Rd.
Pittsburgh, PA 15241
Report of Independent Certified Public Accountants
Board of Directors
Biocontrol Technology, Inc.
We have audited the accompanying consolidated balance sheets of
Biocontrol Technology, Inc. and its subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity (deficiency) and cash flows for each
of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial position
of Biocontrol Technology, Inc. and its subsidiaries as of December
31, 1999 and 1998, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that the Corporation will continue as a going concern. As
discussed in Note B to the financial statements, the Corporation has
incurred losses and negative cash flows from operations in recent
years through December 31, 1999 and these conditions are expected to
continue through 2000, raising substantial doubt about the
Corporation's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note B. These
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Pittsburgh, Pennsylvania
March 24, 2000
<PAGE> F-1
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Dec. 31, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents (note A) $ 10,827,631 $ 125,745
Accounts receivable - net of allowance for doubtful accounts
of $63,679 at Dec. 31, 1999 and $27,059 at Dec. 31, 1998 27,263 55,959
Inventory - net of valuation allowance (notes A and D) 10,308 74,515
Notes receivable (note C) 200,000 0
Interest receivable (note C) 2,701 0
Prepaid expenses 192,246 170,544
Advances - Officers 125,290 0
------------- -------------
TOTAL CURRENT ASSETS 11,385,439 426,763
PROPERTY, PLANT AND EQUIPMENT (notes A and H)
Building 1,207,610 1,429,906
Land 133,750 133,750
Leasehold improvements 1,435,319 1,477,573
Machinery and equipment 4,676,330 5,014,103
Furniture, fixtures & equipment 841,308 794,740
------------- -------------
Subtotal 8,294,317 8,850,072
Less accumulated depreciation 4,704,539 4,244,650
------------- -------------
3,589,778 4,605,422
OTHER ASSETS
Related Party Receivables
Notes receivable - (notes C and L) 1,491,261 1,223,900
Interest receivable - (notes C and L) 22,023 155,628
Advances-Officers 0 90,779
------------- -------------
1,513,284 1,470,307
Allowance for related party receivables (1,340,560) (1,270,307)
------------- ------------
172,724 200,000
Notes receivable - (notes C) 12,000 142,493
Interest receivable 4,235 19,778
Goodwill, net of amortization - (note A and O) 0 4,423,421
Patents, net of amortization (note A) 0 2,433
Investment in unconsolidated subsidiary 485,284 0
Other assets 36,376 15,259
------------- -------------
710,619 4,803,384
------------- -------------
TOTAL ASSETS $15,685,836 $ 9,835,569
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> F-2
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
<CAPTION>
Dec. 31,1999 Dec. 31, 1998
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 759,733 $ 1,750,188
Current portion of long-term debt (note G) 4,159,684 4,552,178
Current portion of capital lease obligations (note H) 76,017 99,061
Debentures payable (note I) 0 2,825,000
Accrued liabilities (note E) 1,794,370 1,096,644
Escrow payable (note J) 2,700 2,700
------------ -------------
TOTAL CURRENT LIABILITIES 6,792,504 10,325,771
LONG-TERM LIABILITIES
Capital lease obligations (note H) 1,336,147 1,412,880
Long-term debt (note G) 2,240 0
------------- -------------
1,338,387 1,412,880
COMMITMENTS AND CONTIGENCIES (notes M)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY (note A) 0 24,162
STOCKHOLDERS' EQUITY (DEFICIENCY) (notes J and P)
Common stock, par value $.10 per share,
authorized 975,000,000 shares, issued and
outstanding 956,100,496 at Dec. 31, 1999 and
420,773,568 at Dec. 31, 1998 95,610,050 42,077,357
Series F 4% convertible preferred stock, par value $10
per share, authorized 400,000 shares issuable in
series, shares issued and outstanding 72,000 at
December 31, 1999 and none at December 31, 1998. 720,000 0
Additional paid-in capital 85,608,192 92,725,285
Notes receivable issued for common stock-related party (note L) 0 (25,000)
Warrants 6,791,161 6,396,994
Accumulated deficit (181,174,458) (143,101,880)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 7,554,945 (1,927,244)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDER' EQUITY (DEFICIENCY) $ 15,685,836 $ 9,835,569
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> F-3
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Net Sales $ 112,354 $ 1,145,968 $ 1,155,907
Interest income 1,031,560 182,033 165,977
Other income 52,897 50,212 104,250
------------- ------------- -------------
1,196,811 1,378,213 1,426,134
Costs and expenses
Cost of products sold 147,971 587,821 641,331
Research and development (notes A and L) 4,430,819 6,340,676 6,977,590
General and administrative 12,884,237 10,673,265 12,695,628
Amortization of goodwill 4,463,137 887,080
Loss on disposal of assets 376 531,066 8,518
Debt issue costs (note A) 3,458,300 1,865,682 3,306,812
Impairment loss 637,530 - -
Warrant extensions - Subsidiary (note J) 4,669,483 - 4,046,875
Interest expense 1,373,404 481,025 315,624
Beneficial convertible debt feature (note A) 7,228,296 3,799,727 6,278,853
------------- ------------- -------------
39,293,553 25,166,342 34,271,231
------------- ------------- -------------
Loss before unrelated investors' interest (38,096,742) (23,788,129) (32,845,097)
Unrelated investors' interest in net loss of
subsidiary 24,164 1,385,485 2,411,920
------------- ------------- -------------
Net loss $(38,072,578) $(22,402,644) $ (30,433,177)
============= ============= ==============
Loss per common share (notes A) $ (0.05) $ (0.08) $ (0.43)
============= ============== ==============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> F-4
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Note rec.
Preferred Stock Common Stock issued for Additional
--------------- ---------------- Common Stk Paid in Accumulated
Shares Amount Shares Amount Warrants Rel Party Capital Deficit Total
------- -------- --------- ---------- ---------- --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1996 - $ - 49,213,790 $4,921,379 $6,907,162 $ - $ 82,354,749 $(90,266,059) $3,917,231
-------- -------- ----------- ---------- ---------- -------- ------------ ------------ ----------
Proceeds from stk offering - - 1,705,000 170,500 - - 765,648 - 936,148
Conversion of preferred stk. (22,000)(220,000) 6,913,366 691,337 - - (471,337) - -
Proceeds from sale of
preferred stk.-Series B 22,000 220,000 - - - - 1,807,000 - 2,027,000
Conversion of debentures - - 80,599,022 8,059,902 - - 11,554,077 - 19,613,979
Warrant extensions - sub. - - - - - - 2,108,421 - 2,108,421
Change in ownership int-sub. - - - - - - 2,421 - 2,421
Warrants exercised - - 152,800 15,280 (510,168) (25,000) 533,088 - 13,200
Issuance of convertible
debt - - - - - - 6,278,853 - 6,278,853
Net loss - - - - - - - (30,433,177) (30,433,177)
-------- ------- ---------- ---------- --------- ------- --------- ----------- -----------
Balance at Dec. 31, 1997 - - 138,583,978 13,858,398 6,396,994 (25,000) 104,932,920 (120,699,236) 4,464,076
-------- ------- ---------- ---------- -------- ------- ---------- ------------ ----------
Proceeds from stock offering - - 2,055,000 205,500 - - 22,423 - 227,923
Conversion of debentures - - 280,134,590 28,013,459 - - (16,029,785) - 11,983,674
Issuance of convertible debt - - - - - - 3,799,727 - 3,799,727
Net Loss - - - - - - - (22,402,644) (22,402,644)
-------- -------- ---------- ---------- ---------- --------- ---------- ------------ ------------
Balance at Dec. 31, 1998 - - 420,773,568 42,077,357 6,396,994 (25,000) 92,725,285 (143,101,880) (1,927,244)
-------- -------- ----------- ---------- ---------- -------- ------------ ------------ ----------
Proceeds from stk offering - - 19,625,691 1,962,569 - - (914,485) - 1,048,084
Proceeds from sale of
Preferred stk.-Series F 72,000 720,000 - - - - 90,000 - 810,000
Conversion of debentures - - 515,013,737 51,501,374 - - (19,444,872) - 32,056,502
Warrant extensions - sub. - - - - - - 5,897,332 - 5,897,332
Issuance of convertible debt - - - - - - 7,228,296 - 7,228,296
Repayment of subscription recv. - - - - - 25,000 - - 25,000
Warrants exercised - - 687,500 68,750 (8,968) - 26,636 - 86,418
Warrants granted - - - - 403,135 - - - 403,135
Net loss - - - - - - - (38,072,578) (38,072,578)
-------- ------- ---------- ---------- --------- ------- --------- ----------- -----------
Balance at Dec. 31, 1999 72,000 $720,000 956,100,496 $95,610,050 $6,791,161 $ 0 $85,608,192 $(181,174,458) $ 7,554,945
======== ======== =========== =========== =========== ========= =========== ============== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> F-5
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows used by operating activities:
Net loss $(38,072,578) $(22,402,644) $(30,433,177)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 773,696 815,125 846,470
Amortization 4,465,570 891,412 4,332
Loss on disposal of assets 177,000 531,066 -
Impairment loss 637,530 - -
Unrelated investors' interest in susidiary (24,164) (1,385,485) (2,411,920)
Stock issued in exchange for services 148,484 (22,063) 936,148
Stock issued in exchange for services by subsidiary - - 600
Debenture interest converted to stock 211,503 106,894 164,055
Premium for extension on Debenture - 680,500 527,113
Beneficial convertible debt feature 7,228,296 3,799,727 6,278,853
Provision for potential loss on notes receivable 70,253 1,270,307 -
Warrants granted 403,135 - -
Warrants and warrant extentions by subsidiaries 5,897,332 - 4,046,875
(Decrease)increase in allowance for losses on accounts receivable 36,620 12,128 (180,909)
(Increase) decrease in accounts receivable (7,924) 268,195 (137,651)
(Increase) decrease in inventories 90,052 987,948 (586,029)
Increase in inventory valuation allowance (25,845) 779,050 2,092,131
(Increase) decrease in prepaid expenses (21,702) (31,495) 113,397
(Increase) decrease in other assets (146,408) 36,927 3,713
Increase (decrease) in accounts payable (949,578) 1,078,124 (388,636)
Increase (decrease) in other liabilities 697,726 845,136 66,737
(Decrease) in deferred revenue - (116,146) (63,854)
------------- ------------- -------------
Net cash flow used by operating activities (18,411,002) (11,855,294) (19,121,752)
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment (641,371) (111,216) (845,512)
Disposal of property, plant and equipment 175,000 - -
(Increase) in notes receivable (337,928) (31,493) (313,000)
Payments received on notes receivable 141,974 - -
Deposit on equipment - - (300,000)
(Increase in interest receivable (25,774) (97,929) (23,519)
Acquisition of ICTI - (1,030,000) -
Acquisition of unconsolidated subsidiary (525,000) - -
------------- ------------- -------------
Net cash used by investing activites (1,213,099) (1,270,638) (1,482,031)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock offering 900,000 - -
Proceeds from sale by subsidiary of its common stock - - 3,500
Proceeds from warrants exercised 86,018 - 13,200
Proceeds from sale of Preferred stock-Series F 810,000 - -
Proceeds from sale of Preferred stock-Series B - - 2,027,000
Proceeds from debentures payable 33,150,000 10,720,000 20,230,000
Payments on debentures payable (4,130,000) - (2,605,833)
Payments on notes payable (465,650) (675,393) (41,904)
Increase in notes payable 75,396 550,000 -
Payments on capital lease obligations (99,777) (101,997) (65,987)
------------- ------------- -------------
Net cash provided by financing activities 30,325,987 10,492,610 19,559,976
_____________ _____________ _____________
Net increase (decrease) in cash 10,701,886 (2,633,322) (1,043,807)
Cash and cash equivalents, beginning of year 125,745 2,759,067 3,802,874
------------- ------------- -------------
Cash and cash equivalents, end of year $ 10,827,631 $ 125,745 $2,759,067
============= ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>F-6
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
<CAPTION>
Year ended December 31,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental Information:
Interest paid $ 966,713 $ 364,716 $ 155,647
============= ============ ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of ICTI with note payable $ - $ 3,350,000 $ -
============= =========== ============
Acquisition of property under a capital lease:
Equipment $ - $ 24,050 $ 154,539
============= =========== ============
Capital Lease Termination
Reduction of capital lease obligation $ - $ 1,184,288 $ -
============= ============= ============
Reduction of property
Construction of Progress $ - $ 1,459,110 $ -
Land $ - 112,500 -
------------- ------------- -----------
$ - $ 1,571,610 $ -
============= ============= ===========
Conversion of Series B-preferred stock for common stock:
Common stock $ - $ - $ 220,000
Additional paid-in capital - - 1,807,000
------------ ------------ ------------
$ - $ - $ 2,027,000
============= ============ =============
Conversion of debentures for common stock $ 31,845,000 $ 11,876,780 $ 19,449,924
============= ============= =============
Stock granted to related party for note receivable $ - $ - $ 25,000
============= ============= =============
Conversion of warrants for common stock $ - $ - $ 510,168
============= ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. Organization
Biocontrol Technology, Inc. - BICO (the Company) and its
subsidiaries are engaged in the development, manufacturing
and marketing of biomedical products and biological
remediation products.
2. Principles of Consolidation
The consolidated financial statements include the accounts
of: Diasensor.com, Inc. (Diasense) a 52% owned subsidiary as
of December 31, 1999 and 1998; Petrol Rem, Inc., a 75% owned
subsidiary as of December 31, 1999 and a 67% owned subsidiary
as of December 31, 1998; IDT, Inc., a 99.1% owned subsidiary
as of December 31, 1999 and 1998; International Chemical
Technologies, Inc., a 58.4% owned subsidiary as of December
31, 1999 and 1998, Barnacle Ban Corporation, a 100% owned
subsidiary as of December 31, 1999 and 1998, and Ceramic
Coatings Technologies, Inc., a 100% owned subsidiary as of
December 31, 1999. All significant intercompany accounts and
transactions have been eliminated. Subsidiary losses in
excess of the unrelated investors' interest are charged
against the Company's interest.
3. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with a maturity of
three months or less at acquisition to be cash equivalents.
4. Inventory
Inventory is valued at the lower of cost (first-in, first-out
method) or market. An inventory valuation allowance is
provided against finished goods and raw materials for
products for which a market has not yet been established.
5. Property and Equipment
Property and equipment are accounted for at cost and are
depreciated over their estimated useful lives on a straight-
line basis. Amortization of assets recorded under capital
leases is included with depreciation expense. Impairment
losses are recognized when management determines that
operating conditions raise doubts about the ability to
recover the carrying value of particular assets.
6. Patents
Patents are amortized over their legal or useful lives
whichever is less. Accumulated amortization on patents was
$96,941 and $94,508 at December 31, 1999, and 1998,
respectively.
7. Goodwill
Goodwill, which represents the excess cost of purchased
companies over the fair value of their net assets at dates of
acquisition, are amortized on a straight line basis over five
years.
8. Investment in Unconsolidated Subsidiary
During 1999 the Company acquired a 10% interest in American
Inter-Metallics, Inc. (AIM) for $525,000. This investment is
being reported on the equity basis since the Company has
significant influence via membership on the AIM board of
directors. AIM has not yet commenced operations and has
reported no net income or loss through December 31, 1999.
The difference between the investment of $525,000 and the
underlying equity in AIM's net assets was $476,595 and is
being amortized as goodwill over a 5 year period.
9. Loss Per Common Share
Loss per common share is based upon the weighted average
number of common shares outstanding, which amounted to
695,400,191 shares in 1999, 266,362,526 shares in 1998 and
71,415,351 shares in 1997, respectively. Shares issuable
under stock options, stock warrants, convertible debentures
and convertible preferred stock are excluded from
computations, as their effect is antidilutive.
10. 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.
11. 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 K), the adoption of
FAS 109 had no effect on the financial statements of the
Company.
12. Interest
The Company follows the policy of capitalizing interest as a
component of the cost of property, plant and equipment
constructed for its own use. Total interest incurred for the
periods December 31, 1999, 1998, and 1997 was $1,373,404,
$589,300, and $528,942, respectively, of which $1,373,404,
$481,025, and $315,624, respectively, was charged to
operations.
13. Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. The Company has established allowances based upon
management's evaluation of inventories, accounts receivable,
and receivables from related parties and amortizes intangible
assets such as goodwill and patents over estimated useful
lives.
14. 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.
15. Debt Issue Costs
The Company follows the policy of expensing debt issue costs
on debentures during the period of debenture issuance. Total
debt issue costs incurred for the periods December 31, 1999,
1998, and 1997 were $3,458,300, $1,865,682, and $3,306,812,
respectively.
16. 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 and
receivables from officers and directors of the Company. 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 (Note C
and L) are unsecured and represent a concentration of credit
risk due to the common employment and financial dependency of
these individuals on the Company.
17. Comprehensive Income
The Company's consolidated net income (loss) is substantially
the same as comprehensive income to be disclosed under
Statement of Financial Accounting Standards No. 130.
18. 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.
19. Reclassification
Certain items included in the financial statements of prior
periods have been reclassified to conform to classifications
in the 1999 financial statements. Such reclassification had
no effect on prior year reported net losses.
NOTE B - OPERATIONS AND LIQUIDITY
The Company and its subsidiaries have incurred substantial
losses in 1999 and in prior years and have funded their
operations and product development primarily through the sale
of common and preferred stock and issuance of debt
instruments. Until such time that products can be
successfully developed and marketed, the Company and its
subsidiaries will continue to need to fulfill working capital
requirements through the sale of stock and issuance of debt.
The inability of the Company to continue its operations as a
going concern would impact the recoverability and
classification of recorded asset amounts.
The ability of the Company to continue in existence is
dependent on its having sufficient financial resources to
complete the research and development necessary to
successfully bring products to market and for marketplace
acceptance. As a result of its significant losses, negative
cash flows from operations and significant accumulated
deficits for each of the periods ending December 31, 1999,
1998 and 1997, there is substantial doubt about the Company's
ability to continue as a going concern.
Management believes that its currently available working
capital and funds raised from sales of stock and future debt
issuance will be sufficient to meet its projected
expenditures for a period of at least twelve months from
December 31, 1999.
NOTE C - NOTES RECEIVABLE
Notes receivable due from various related and unrelated parties
consisted of:
Dec. 31, Dec. 31,
1999 1998
Related Parties
Notes receivable from Fred E. Cooper, $ 523,900
Chief Executive Officer,
payable upon demand with interest
ranging from 8.25% to 12%.
Note receivable from Fred. E Cooper, $ 747,087
Chief Executive Officer, dated
April 28, 1999, in the amount of
$777,400, payable in monthly
installments of $9,427 with a final
balloon payment on May 31, 2002.
Interest is accrued at a Rate of
8% per annum.
Notes receivable from Glenn Keeling, 265,000
Director, payable upon demand with
interest ranging of 8.25% to 10%.
Note receivable from Glenn Keeling, 275,869
Director, dated April 28, 1999, in
the amount of $296,358, payable in
monthly installments of $4,184 with
a final balloon payment on May 1,
2002. Interest is accrued at a
rate of 8% per annum.
Note receivable from T.J. Feola, 235,000
Director, payable upon demand with
an interest rate of 8.25%.
Note Receivable from T.J. Feola, 245,581
Director, dated April 28, 1999,
in the amount of $259,477, payable
in monthly Installments of $3,676
with a final balloon payment on
May 31,2002. Interest is accrued
at a rate of 8% per annum.
Note receivable from Allegheny 172,724 200,000
Food Services, Inc. of which
Joseph Kondisko, a former director,
is principal owner, payable in
monthly installments of $3,630,
including interest at 9.25%,
with a final balloon payment on
April 1, 2001.
Note receivable from Bio Med, Inc. 50,000 -
(dba B-A-Champ.com). A company
substantially owned by
Fred E. Cooper, Chief Executive
Officer. Note is due on November 8,
2000 and bears interest of
6% per annum.
Unrelated Parties 12,000 12,000
Note receivable from an
individual, payable upon
Demand with 8.75% interest.
Note receivable from HemoCleanse - 130,493
Inc, payable on demand after
December 31, 2002 with interest
accrued at a rate of 20% per annum.
Note receivable from an 200,000 -
individual, due on November 15,
2000 with interest at prime plus
2% (10.50% at December 31, 1999).
_________ _________
1,703,261 1,366,393
Less current notes receivable 200,000 0
_________ _________
Noncurrent $ 1,503,261 $1,366,393
=========== ==========
Accrued interest receivable on the related party notes as of
December 31, 1999 and 1998 was $22,023 and $155,628,
respectively.
Due to the financial dependency of the above officers and
directors on the Company, an allowance of $1,340,560 and
$1,270,307 has been provided as of December 31, 1999 and
1998, respectively.
NOTE D - INVENTORY
Inventories consisted of the following as of:
Dec. 31, Dec. 31,
1999 1998
Raw materials $ 3,504,708 $ 3,498,976
Finished goods 858,805 954,589
____________ ____________
4,363,513 4,453,565
Less valuation allowance (4,353,205) (4,379,050)
____________ ____________
$ 10,308 $ 74,515
============ ============
NOTE E - ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of:
Dec. 31, Dec. 31,
1999 1998
__________ __________
Current
Accrued interest $ 681,068 $ 276,378
Accrued payroll 1,027,147 733,657
Accrued payroll taxes 35,362 1,919
and withholdings
Accrued vacation 33,038 46,654
Other accrued liabilities 17,755 38,036
_________ _________
$1,794,370 $1,096,644
========== ==========
NOTE F - BUSINESS SEGMENTS
The Company operates in three reportable business segments:
Biomedical devices, which includes the operations of Biocontrol
Technology, Inc., and Diasensor.com, Inc.; Bioremediation, which
includes the operations of Petrol Rem, Inc.; and Marine Paint
Products, which includes the operations of Barnacle Ban Corporation.
Following is summarized financial information for the Company's
reportable segments:
<TABLE>
Biomedical Bioremediation Marine All Consolidated
Devices Paint Other
Products
<S> <C> <C> <C> <C> <C>
1999
Sales to external customers 82,056 26,693 0 3,599 112,348
Cost of products sold 133,288 14,683 0 0 147,971
Gross profit (51,232) 12,010 0 0 (39,222)
Identifiable assets 15,018,258 226,760 17,968 422,850 15,685,836
Capital expenditures 262,954 0 0 378,417 641,371
Depreciation & amortization 5,108,855 34,351 0 96,060 5,239,266
1998
Sales to external customers 1,028,484 45,382 40,835 31,267 1,145,968
Cost of products sold 483,388 33,061 32,777 38,595 587,821
Gross profit (Loss) 545,096 12,321 8,058 (7,328) 558,147
Identifiable assets 8,614,498 168,315 8,770 1,043,986 9,835,569
Capital expenditures 105,827 0 0 5,389 111,216
Depreciation & amortization 1,563,366 36,061 5,938 105,504 1,710,869
1997
Sales to external customers $ 880,919 $138,362 $136,624 $ 0 $ 1,155,905
Cost of product sold 445,843 88,178 107,310 0 641,331
Gross profit 435,076 50,184 29,314 0 514,574
Identifiable assets 11,122,314 602,460 56,860 1,199,666 12,981,300
Capital expenditures 661,095 4,460 8,680 325,816 1,000,051
Depreciation & amortization 720,150 33,976 2,751 93,925 850,802
</TABLE>
NOTE G - LONG TERM DEBT
Long term debt consisted of the following as of:
Dec. 31, Dec. 31,
1999 1998
Note Payable to individuals with interest at $ - $ 250,000
prime plus 2%, collateralized by a
confession of judgement, payable in monthly
installments of $60,000 beginning on
February 10, 1999 with a final balloon
payment of all remaining principal and
interest on May 10, 1999.
Note Payable in connection with stock 2,900,000 2,900,000
purchase agreement for 58.4% interest in
International Chemical Technologies, Inc.
(ICTI). The note bears interest at a rate of
8% and is collateralized by the shares of
ICTI purchased in the transaction. The note
is payable in monthly installments as
follows: (I) on the first day of each
calendar month from April 1,1998 through and
including September 1, 1998 a principal
payment of $ 150,000 per month plus interest
(ii) on October 1, 1998, a principal
payment of $1,000,000 plus accrued interest
(iii) on the first day of each calendar
month from November 1, 1998 through and
including November 1, 1999 a principal
payment of $ 100,000 per month plus accrued
interest and (iv) on December 1, 1999 a
final payment equal to the remaining
outstanding principal balance plus all
accrued interest thereon. At December 31,
1998, the Company was, and continues to be,
in default on the terms of this loan.
Accordingly, the unpaid balance could be
declared immediately due and payable at the
option of the lender.
Note Payable by the Company's subsidiary, 1,191,667 1,191,667
International Chemical Technologies, Inc.
(ICTI) to, it's former shareholder. The
loan is guaranteed by the Company and
collateralized by all tangible and
intangible assets of ICTI, and assignment of
ICTI's interest in its lease for its
production facilities. Principle and
interest at 9.5% per annum are payable in
thirty-five equal monthly installments of
$36,111 each commencing on April 1,1998 with
a final payment of all remaining principal
and interest due on March 1, 2001. At
December 31, 1999, the Company was, and
continues to be in default on the terms of
this loan. Accordingly, the unpaid balance
could be declared immediately due and
payable at the option of the lender.
Commercial Premium Finance Agreement payable 53,296
in nine monthly installments of $7,818
including interest at 8% per annum beginning
November 1, 1998.
Commercial Premium Finance Agreement payable 66,187
in nine monthly installments of $ 9,697
including interest at 7.62 % per annum
beginning November 1, 1999.
Note payable due on January 5, 1999 with 150,000
interest at a rate of 8% per annum.
Collateralized by 5,444,644 shares of the
Company's common stock.
Note Payable to a bank in monthly payments
of $433 including interest at a rate of 8.75%. 4,070 4,533
Collateralized by equipment.
---------- ---------
4,161,924 4,552,178
Current portion of long-term debt 4,159,684 4,552,178
---------- ---------
Long-term debt $ 2,240 $ 0
=========== =========
NOTE H - LEASES
Operating Leases
The Company is committed under a non-cancelable operating
lease for its research and product development facility. The
lease between the Company and a group of investors (lessor)
which includes four of the Company's Executive Officers
and/or Directors, is for a period of 240 months beginning
September 1, 1990. Monthly rental under the terms of the
lease is $8,810 for a period of 119 months to August 1, 2000
when the monthly rental payments shall be fixed at an amount
equal to the fair rental value of the property as determined
by mutual agreement of lessor and the Company for the balance
of the lease. Total rent expense was $ 105,720 in each of
the years 1999, 1998 and 1997. Future minimum lease payments
as of December 31, 1999 are $ 61,670 for 2000.
The Company and its related subsidiaries also lease other
office facilities, various equipment and automobiles under
operating leases expiring in various years through 2002.
Total lease expense related to these leases was $425,654,
$279,329, and $295,809 in the years ended December 31, 1999,
1998 and 1997, respectively.
During 1996, the Company leased two manufacturing buildings
under capital leases expiring in various years through 2011.
The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets are
depreciated over the lower of their related lease terms or
their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense.
During 1998, the Company terminated the lease of one of its
two manufacturing buildings in response to the filing of a
judgement for nonpayment under the terms of the lease. The
Company recognized a loss of $387,321 based upon the
difference between the remaining lease obligation and the
property relinquished.
The following is a summary of property held under capital
leases:
Dec. 31, Dec. 31,
1999 1998
__________ __________
Building $ 1,207,610 $1,207,610
Land 133,750 133,750
Equipment 229,565 289,531
__________ __________
Sub Total 1,570,925 1,630,891
_
Less: Accumulated Depreciation 378,885 277,069
___________ __________
Total Property under $ 1,192,040 $1,353,822
Capital Leases =========== ==========
NOTE H - LEASES -Continued
Minimum future lease payments are as follows:
2000 $ 563,025
2001 474,812
2002 358,506
2003 276,655
2004 214,588
Thereafter 1,434,360
_________
Future minimum lease $3,321,946
payments ==========
NOTE I - SUBORDINATED CONVERTIBLE DEBENTURES
During 1999, 1998 and 1997 the Company issued subordinated 4%
convertible debentures totaling $33,150,000, $10,720,000 and
$20,230,000, respectively. Such convertible debentures were
issued pursuant to Regulation S, Regulation D, and/or Section
4(2) and have a one-year mandatory maturity and are not
saleable or convertible for a minimum of 45 to 90 days from
issuance. At December 31, 1999 and 1998, the subordinated
convertible debentures totaled $0 and $2,825,000,
respectively.
As of December 31, 1998, the conversion price of the
debentures would have been approximately $.059 per share,
based upon a formula, which applies a discount to the average
market price for the previous week and determined by the
length of the holding period. As of December 31, 1998, the
number of shares issuable upon conversion of all outstanding
debentures was approximately 60.1 million shares, which would
have reflected discounts of approximately 23%. No
debentures were outstanding as of December 31, 1999.
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 1999, 400,000 shares of the preferred stock were
authorized as "4% Cumulative Convertible Preferred Stock,
Series F". 72,000 shares of this preferred stock were issued
in 1999. Each holder of shares of the Series F Preferred
Stock has the option to convert any or all shares
under the terms of their agreements.
NOTE J - STOCKHOLDERS' EQUITY - Continued
During 1997, 22,000 shares of the Series B convertible
preferred stock were sold and converted.
Common Stock Warrants
During 1999, warrants ranging from $.123 to $.23 per share to
purchase 23,017,500 shares of common stock were granted at
exercise prices which were equal to or above the current
quoted
market price of the stock on the date issued. Warrants to
purchase 29,896,662 shares of common stock were exercisable
at December 31, 1999. The per share exercise prices of these
warrants are as follows:
Shares Exercise
Price
20,000 $.06
85,000 $.103
21,500,000 $.129
400,000 $.13
250,000 $.155
10,000 $.22
4,426,700 $.25
80,000 $.33
50,000 $.38
1,482 $.45
350,000 $.50
884,000 $1.00
150,000 $1.48
2,000 $1.69
1,375,000 $2.00
2,000 $2.09
94,000 $2.125
2,000 $2.13
69,480 $2.25
35,000 $2.41
20,000 $2.75
25,000 $3.00
25,000 $3.20
5,000 $3.31
25,000 $3.50
10,000 $4.03
___________
Total 29,896,662
===========
The fiscal years in which common stock warrants were granted
and the various expiration dates by fiscal year are as
follows:
Fiscal Warrants Warrants Expire During Fiscal Year
Year Granted 2000 2001 2002 2003 2004
Granted
1990 406,700 - 226,700 - 180,000 -
1991 1,251,482 - 900,000 351,482 - -
1992 25,000 25,000 - - - -
1993 154,000 - 144,000 - 10,000 -
1994 130,000 - - 20,000 85,000 25,000
1995 21,000 21,000 - - - -
1996 594,480 - 535,000 - - 59,480
1997 2,344,000 - 1,400,000 944,000 - -
1998 2,620,000 - - 1,200,000 1,420,000 -
1999 22,350,000 - - - 600,000 21,750,000
--------- ------- --------- --------- --------- ----------
29,896,662 46,000 3,205,700 2,515,482 2,295,000 21,834,480
========= ======== ========= ========= ========= ==========
The following is a summary of warrant transactions during 1999:
Outstanding beginning of period: 7,831,662
Granted during the twelve-month period: 23,017,500
Canceled during the twelve-month period: 265,000
Exercised during the twelve-month period: 687,500
----------
Outstanding and eligible for exercise: 29,896,662
==========
Warrent Extentions
During 1999, the Company extended the exercise date of
warrants to purchase 540,962 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.45 to $2.75, and were extended at the original grant
price. No expense was charged to operations since the market
price of the stock was less than the present value of the
warrant exercise price.
During 1998, the Company extended the exercise date of
warrants to purchase 1,510,180 shares of common stock to
certain officers, employees and consultants. The warrant
shares were originally granted at exercise prices ranging
from $.25 to $3.20, and were extended at the original grant
price. No expense was charged to operations since the market
price of the stock was less than the present value of the
warrant exercise price.
During 1997, the Company extended the exercise date of
warrants to purchase 177,800 shares of common stock to
certain officers and consultants. The warrant shares were
originally granted at exercise prices ranging from $.25 to
$3.50, and were extended at the original grant price. No
expense was charged to operations since the market price of
the stock was less than the present value of the warrant
exercise price.
Diasensor.com, Inc. Common Stock
At December 31, 1999, warrants to purchase 8,639,313 shares
of Diasensor.com, Inc. common stock were exercisable. The
per share exercise price for 5,305,000 shares is $.50, for
2,271,963 shares is $1.00 and for 1,062,350 shares is $3.50.
The warrants expire at various dates through 2004. To the
extent that all the warrants are exercised, the Company's
proportionate ownership would be diluted from 52% at December
31, 1999 to 37%.
Diasensor.com, Inc. Warrant Extensions
During 1999, Diasensor.com, Inc. extended the exercise date
of warrants to purchase 3,070,213 shares of common stock to
certain officers, directors, employees and consultants. The
warrant shares were originally granted at an exercise price
ranging from $.50 to $3.50 and extended at the same price.
Diasensor.com, Inc. recorded a $272,078 expense for these
extended warrants.
During 1998, Diasensor.com, Inc. extended the exercise date
of warrants to purchase 825,000 shares of common stock to
certain officers, directors, employees and consultants. The
warrant shares were originally granted at an exercise price
of $.50 and extended at the same price. No expense was
charged to operations since the market price of the stock was
less than the present value of the warrant exercise price.
During 1997, Diasensor.com, Inc. extended the exercise date
of warrants to purchase 2,236,550 shares of common stock to
certain officers, directors, employees and consultants. The
warrant shares were originally granted at an exercise price
of $1.00, and extended at the same price. Diasensor.com,
Inc. recorded a $4,046,875 expense for these extended
warrants.
Petrol Rem Common Stock
At December 31, 1999 warrants to purchase 4,340,000 shares of
Petrol Rem common stock were exercisable. The per share
exercise price for 3,940,000 is $.10 and for 200,000 is $.50
and for 200,000 is $1.00. The warrants expire at various
dates through 2004. To the extent that all the warrants were
exercised, the Company's proportionate ownership would be
diluted from 75% at December 31, 1999 to 61.6%.
At December 31, 1998 warrants to purchase 4,140,000 shares of
Petrol Rem common stock were exercisable. The per share
exercise price for 3,940,000 is $.10 and for 200,000 is
$1.00. The warrants expire at various dates through 2003.
To the extent that all the warrants were exercised, the
Company's proportionate ownership would be diluted from 75%
at December 31, 1998 to 62.1%.
IDT Common Stock
At December 31, 1999 warrants to purchase 4,630,000 shares of
IDT common stock were exercisable. The per share exercise
price for 4,380,000 shares is $.10 and for 210,000 shares is
$1.00 and for 20,000 shares is $2.00. The warrants expire at
various dates through 2003. To the extent that all the
warrants were exercised, the Company's proportionate
ownership would be diluted from 99.1% at December 31, 1998 to
67.9%.
NOTE K - INCOME TAXES
As of December 31, 1999, the Company and its subsidiaries
except Diasensor.com, Inc., Petrol Rem, and ICTI, have
available approximately $110,800,000 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 2000
through 2020. The Company also has research and development
credit carryforwards available to offset federal income taxes
of approximately $1,100,000 subject to limitations, expiring
in tax years 2005 through 2014.
As of September 30, 1999, the end of its fiscal year,
Diasensor.com, Inc. had available approximately $23,700,000
of net operating loss carryforwards for federal income tax
purposes. These carryforwards, which expire during the years
2005 through 2019, are available, subject to
limitations, to offset future taxable income. Diasensor.com,
Inc. also has research and development credit carryforwards
available for federal income tax purposes of approximately
$700,000, subject to limitations, expiring in the years 2005
through 2012.
As of December 31, 1999, Petrol Rem had available
approximately $11,500,000 of net operating loss carryforwards
for federal income tax purposes. These carryforwards, which
expire during the years 2008 through 2020, are available,
subject to limitations, to offset future taxable income.
Petrol Rem also has research and development credit
carryforwards available for federal income tax purposes of
approximately $15,000.
As of December 31, 1999, ICTI had available approximately
$1,800,000 of net operating loss caarryforwards for federal
income tax purposes. These carryforwards, which expire in
years 2019 and 2020, are available, subject to limitations,
to offset future taxable income.
Certain items of income and expense are recognized in
different periods for financial and income tax reporting
purposes. In the year ended December 31, 1999, a warrant
exercise adjustment of $50,625 was reported for tax purposes.
The fair market value of warrant extentions have been
recorded and expensed for financial statement purposes in the
year ended December 31, 1999 in the amount of $6,092,562.
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, 1999, December 31, 1998 and
December 31, 1997:
Dec. Dec. Dec.
31,1999 31,1998 31,1997
________ ________ _______
Net Operating Loss $ 37,672,000 $28,294,800 $ 21,508,400
Warrant Expense 4,812,868 2,741,397 2,741,397
Tax Credit Carryforward 1,700,000 1,100,000 580,000
__________ __________ __________
44,184,868 32,136,197 24,829,797
Valuation Allowance (44,184,868) (32,136,197) (24,829,797)
__________ __________ __________
Net Deferred Tax Asset $ 0 $ 0 $ 0
=========== =========== ===========
The deferred tax benefit and the associated increase in the
valuation allowance are summarized in the following schedule:
Increase
in
Deferred Valuation
Tax Allowance Net
Benefit
___________ ___________ ___
Year-ended December 31, 1999 $(12,048,671) $ 12,048,671 $ 0
Year-ended December 31, 1998 $ (7,306,400) $ 7,306,400 $ 0
Year-ended December 31, 1997 $ (6,237,758) $ 6,237,758 $ 0
From March 20,1972(inception) ------------- ----------- ---
through December 31, 1998 $(44,184,868) $ 44,184,868 $ 0
NOTE L - RELATED PARTY TRANSACTIONS
Research and Development Activities
The Company is currently performing research and development
activities related to the non-invasive glucose sensor (the
Sensor) under a Research and Development Agreement with
Diasensor.com, Inc.. If successfully developed, the Sensor
will enable users to measure blood glucose levels without
taking blood samples. Diasensor.com, Inc. acquired the
rights to the Sensor, including one United States patent from
BICO for $2,000,000 on November 18, 1991. Such patent covers
the process of measuring blood glucose levels non-invasively.
Approval to market the Sensor is subject to federal
regulations including the Food and Drug Administration (FDA).
The Sensor is subject to clinical testing and regulatory
approvals by the FDA. BICO is responsible for substantially
all activities in connection with the development, clinical
testing, FDA approval and manufacturing of the Sensor. As
discussed in Note B, BICO finances its operations from the
sales of stock and issuance of debt and was reimbursed for
costs incurred under the terms and conditions of the Research
and Development Agreement for the research and development of
the Sensor by Diasensor.com, Inc.. If BICO is unable to
perform under the Research and Development or Manufacturing
Agreements, Diasensor.com, Inc. would need to rely on other
arrangements to develop and manufacture the Sensor or perform
these efforts itself.
NOTE L - RELATED PARTY TRANSACTIONS - Continued
BICO and Diasensor.com, Inc. have entered into a series of
agreements related to the development, manufacturing and
marketing of the Sensor. BICO is to develop the Sensor and
carry out all steps necessary to bring the Sensor to market
including 1) developing and fabricating the prototypes
necessary for clinical testing; 2) performing the clinical
investigations leading to FDA approval for marketing; 3)
submitting all applications to the FDA for marketing
approval; and 4) developing a manufacturable and marketable
product. Diasensor.com, Inc. is to conduct the marketing of
the Sensor. The following is a brief description of the
agreements:
Manufacturing Agreement
The manufacturing agreement between BICO and Diasensor.com,
Inc. was entered into on January 20, 1992. BICO is to act as
the exclusive manufacturer of production units of the Sensor
upon the completion of the Research and Development Agreement
and sell the units to Diasensor.com, Inc. at a price
determined by the agreement. The term of the agreement is
fifteen years.
Research and Development Agreement
Under a January 1992 agreement between BICO and
Diasensor.com, Inc., beginning in April 1992, BICO received
$100,000 per month, plus all direct costs for the research
and development activities of the Sensor. This agreement
replaced a previous agreement dated May 14, 1991. The term
of the new agreement is fifteen years. Under the terms of
this agreement, the Company billed Diasensor.com, Inc.
$2,955,863 in research and development and general and
administrative expenses for the year ending December 31,
1995. In July 1995, BICO and Diasensor.com, Inc. agreed to
suspend billings, accruals of amounts due and payments
pursuant to the research and development agreement pending
the FDA's review of the Sensor.
Purchase Agreement
In November 1991, BICO entered into a Purchase Agreement with
Diasensor.com, Inc. under which Diasensor.com, Inc. acquired
BICO's rights to the Sensor for a cash payment of $2,000,000.
This agreement permits BICO to use Sensor technology for the
manufacture and sale by BICO of a proposed implantable closed
loop system. BICO will pay Diasensor.com, Inc. a royalty
equal to five percent of the net sales of such implantable
closed loop system.
Real Estate Activities
Four of the Company's Executives and/or Directors are members
of an eight-member partnership which in July 1990 purchased
the Company's real estate in Indiana, Pennsylvania, and each
has personally guaranteed the payment of lease obligations to
the bank providing the funding. For their personal
guarantees, the four individuals each received warrants to
purchase 100,000 shares of the Company's common stock at an
exercise price of $.33 per share until June 29, 1998.
Amounts due from Officers
At December 31, 1998, Fred E. Cooper, CEO, owed the Company
$548,900 (including a $25,000 note for common stock
purchased) on various demand loans with interest rates
ranging from 8.25% to 12%. In addition as of December 1998,
Mr. Cooper was obligated to the Company for advances
totaling $90,779 aand accrued interest of $109,599.
On April 28, 1999 Mr. Cooper's obligations, including those
outstanding at December 31, 1998, were converted to a term
loan totaling $777,400 payable in monthly installments of
$9,427 with a final balloon payment on May 31, 2002.
Interest on this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Cooper at December 31, 1999,
include the $747,087 balance on the term loan discussed above
plus accrued interest of $10,813.
At December 31, 1998, Glenn Keeling, a Director, owed the
Company $265,000 on various demand loans with interest rates
ranging from 8.25% to 10%. In addition as of December 31,
1998, Mr. Keeling was obligated to the Company for accrued
interest of $27,810.
On April 28, 1999 Mr. Keeling's obligations, including those
ourstanding at December 31, 1998, were converted to a term
loan totaling $296,358 payable in monthly installments of
$4,184 with a final balloon payment on May 1, 2002. Interest
on this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Keeling at December 31, 1999,
include the $275,869 balance on the term loan discussed above
plus accrued interest of $3,668.
At December 31, 1998, T.J. Feola, A Director, owed the
Company $235,000 on various demand loans with interest rates
of 8.25%. In addition as of December 31, 1998, Mr. Feola was
obligated to the Company for accrued interest of $18,219.
On April 28, 1999 Mr. Feola's obligations, including those
outstanding at December 31, 1998, were converted to a term
loan totaling $259,477 payable in monthly installments of
$3,676 with a final balloon payment on May 31, 2002.
Interest on this loan is accrued at a rate of 8% per annum.
Total amounts due from Mr. Feola at December 31, 1999,
include the $245,581 balance on the term loan discussed above
plus accrued interest of $4,536.
As of December 31, 1998 and 1999 the Company had a note
receivable from Allegheny Food Services, Inc. of which
Joseph Kondisko, a former director, is principal owner. The
loan, which bears interest at a rate of 9.25%, is payable in
monthly installments of $3,630 with a final balloon payment
on April 1, 2001. The outstanding balance on this loan was
$200,000 at December 31, 1998 and $172,724 at December 31,
1999.
During 1999 the Company made various demand loans totaling
$150,000 to Bio Med, Inc. (dba B-A-Champ.com), a company
substantially owned by Fred E. Cooper, CEO. As of December
31, 1999, these loans had been repaid to a balance of $50,000
with an accrued interest of $3,006.
Employment Contracts
The Company's employment contracts with four officers and two
employees commenced November 1, 1994 and were renewed on
October 31, 1999. These employment contracts set forth
annual basic salaries aggregating $1,500,000 in 1997 and
expiring in periods beginning October 1999 through 2002,
which are subject to review and adjustment. The contracts
may be extended for successive two to three year periods. In
the event of change in control in the Company and termination
of employment, continuation of annual salaries at 100%
decreasing to 25% are payable in addition to the issuing of
shares of common stock as defined in the contracts. The
contracts also provide for severance, disability benefits and
issuances of BICO common stock under certain circumstances.
NOTE M - COMMITMENTS AND CONTINGENCIES
Litigation
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasensor.com, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology, etal., has been certified as a class action, and
is pending in the U.S. District Court for the Western
District of Pennsylvania. The suit alleges misleading
disclosures in connection with the Noninvasive Glucose Sensor
and other related activities. By mutual agreement of the
parties, the suit remains in the pre-trial pleading stage,
and the Company is unable to determine the outcome or its
impact upon the Company at this time.
Pennsylvania Securities Commission
The Pennsylvania Securities Commission is conducting a
private investigation of the Company and its subsidiary,
Diasensor.com, Inc., Inc. in connection with the sale of
securities. The Companies have cooperated with and provided
information to the Pennsylvania Securities Commission in
connection with the private investigation. As the
Commission's investigation is not yet complete, there can be
no estimate or evaluation of the likelihood of an unfavorable
outcome in this matter or the range of possible loss, if any.
Additional Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
subpoenas requested certain corporate, financial and
scientific documents and the Company has provided documents
in response to such requests.
License Agreement
Under terms of a license agreement with a shareholder of
Petrol Rem for the marketing rights with respect to certain
inventions Petrol Rem is to make minimum royalty payments of
$50,000 per year for each year starting in 1999 through 2001.
NOTE N - EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan with 401k
provisions, which covers all employees meeting certain age
and period of service requirements. Employer contributions
are discretionary as determined by the Board of Directors.
There have been no employer contributions to the plan through
December 31, 1999.
NOTE O -STOCK PURCHASE AGREEMENT
Effective March 4, 1998, pursuant to a Stock Purchase
Agreement dated February 20, 1998, the Company acquired 58.4%
of International Chemical Technologies, Inc. (ICTI) a
development stage corporation. ICTI commenced operations in
May 1997 and plans to engage in the business of manufacturing
and marketing, and licensing rights with respect to certain
corrosion/wear-resistant metal alloy coating compositions.
Consideration for the purchase of the 58.4% interest in ICTI
included a cash payment of $1,030,000; a promissory note for
$3,350,000 at 8%; 2,000,000 shares of Biocontrol common stock
(fair market value of $250,000), a warrant to purchase 1,000,000
shares of Biocontrol stock for $2 per share anytime through
March 4, 2003; and the guarantee by Biocontrol of a promissory
note for $1,300,000 payable by ICTI to the seller.
The Company recognized $5,310,501 of goodwill in connection
with a Stock Purchase Agreement dated February 20, 1998 to
acquire 58.4% of International Chemical Technologies, Inc.
For purposes of amortizing this goodwill, management had
determined a useful life of 5 years. Accumulated
amortization on this goodwill was $887,080 at December 31,
1998. Based upon a reevaluation of this goodwill, the
remaining balance of $4,423,421 was charged to amortization
expense in 1999. Management's reevaluation was reached due
to failure of the investment to perform as anticipated and
the decision that future cash flow was unlikely. For these
same reasons an impairment charge was recorded to write off
associated plant and equipment.
NOTE P - SUBSEQUENT EVENTS
In January, the Company announced that its subsidiary
Diasensor.com had initiated an alliance with MicroIslet,
Inc.; in return for its initial equity investment of
$500,000, Diasensor.com received a 10% stake with an option
to purchase an additional 10% in the future.
From January through early March 2000, the Company raised net
funds aggregating approximately $14.7 million from the sale
of its preferred stock and debentures.
Conformed Copy
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 27th day of
March 2000.
BIOCONTROL TECHNOLOGY, INC.
By: /s/ David L. Purdy
David L. Purdy
President,Treasurer,
Director
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Fred E. Cooper Director, CEO, March 27, 2000
Fred E. Cooper (principal executive
officer, principal
financial officer and
principal accounting
officer)
/s/ Anthony J. Feola Senior Vice President, March 27, 2000
Anthony J. Feola Director
/s/ Glenn Keeling Director March 27, 2000
Glenn Keeling
/s/ Stan Cottrell Director March 27, 2000
Stan Cottrell
/s/ Paul W. Stagg Director March 27, 2000
Paul W. Stagg
Microfilm Number __________ Filed with the Department of State on____________
Entity Number _____________ ____________________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring
to amend its Articles, hereby states that:
1. The name of the corporation is: Biocontrol Technology, Inc.
____________________________________________
_______________________________________________________________________________
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
The Bourse, Building 2, 2nd Floor
(a) 2275 Swallow Hill Road Pittsburgh PA 15220 Allegheny
________________________________________________________________________
Number and Street City State Zip County
(b) c/o:____________________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is Act of May 5, 1933,
P.L. 364, as amended
4. The date of its incorporation is: March 30, 1972
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
___ The amendment shall be effective on: ______________at________________
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant
to 15 Pa.C.S. 1914(a) and (b).
The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. 1914(c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is as
follows:
The first paragraph of Article 5 shall be amended to read as follows:
5. The aggregate number of shares which the Company shall have
authority to issue is 500,000 shares of Cumulative Preferred
Stock, par value $10.00 per share and 1,700,000,000 shares of
Common Stock, par value $.10 per share.
The amendment adopted by the corporation is set forth in full in
Exhibit A attached hereto and made a part hereof.
DSCB:15-1915 (Rev 90)-2
8. (Check if the amendment restates the Articles):
____ The restated Articles of Incorporation supersede the original Articles
and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 7th day
of February, 2000.
BIOCONTROL TECHNOLOGY, INC.
(Name of Corporation)
BY:/s/ Fred E. Cooper
(Signature)
TITLE: Fred E. Cooper, Chief Executive Officer
