SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
Commission file number 0-10822
BICO, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, PA 15220
(Address of principal executive offices) (Zip Code)
(412) 429-0673
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of September 30, 2000, 1,091,679,690 shares of BICO,
Inc. common stock, par value $.10 were outstanding.
<PAGE>1
<TABLE>
Bico, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Sep. 30, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 12,352,876 $ 10,827,631
Accounts receivable - net of allowance for doubtful accounts
of $65,664 at Sept. 30, 2000 and $63,679 at Dec. 31, 1999 65,529 27,263
Inventory - net of valuation allowance 767,256 10,308
Notes receivable 20,000 200,000
Interest receivable 1,723 2,701
Prepaid expenses 493,191 192,246
Advances - Officers 129,790 125,290
------------ -------------
TOTAL CURRENT ASSETS 13,830,365 11,385,439
PROPERTY, PLANT AND EQUIPMENT
Building 2,529,176 1,207,610
Land 246,250 133,750
Leasehold improvements 1,734,109 1,435,319
Machinery and equipment 5,277,145 4,676,330
Furniture, fixtures & equipment 887,826 841,308
------------- -------------
Subtotal 10,674,506 8,294,317
Less accumulated depreciation 4,998,572 4,704,539
------------- -------------
5,675,934 3,589,778
OTHER ASSETS
Related Party Receivables
Notes receivable 1,352,737 1,491,261
Interest receivable 25,297 22,023
------------- -------------
1,378,034 1,513,284
Allowance for related party receivables (1,250,227) (1,340,560)
------------- ------------
127,807 172,724
Notes receivable 1,272,000 12,000
Interest receivable 5,023 4,235
Investment in unconsolidated subsidiaries 1,820,664 485,284
Other assets 36,562 36,376
------------- -------------
3,262,056 710,619
------------- -------------
TOTAL ASSETS $ 22,768,355 $ 15,685,836
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>2
<TABLE>
Bico, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
<CAPTION>
Sep. 30, 2000 Dec. 31, 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 236,622 $ 759,733
Current portion of long-term debt 4,144,030 4,159,684
Current portion of capital lease obligations 102,375 76,017
Interest payable 14,550 -
Accrued liabilities 3,050,197 1,794,370
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 7,550,474 6,792,504
LONG-TERM LIABILITIES
Capital lease obligations 2,221,398 1,336,147
Long-term debt 1,979 2,240
------------- -------------
2,223,377 1,338,387
COMMITMENTS AND CONTIGENCIES
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY 51,936 -
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share,
authorized 1,700,000,000 shares, issued and
outstanding 1,091,679,690 at Sep. 30, 2000 and
956,100,496 at Dec. 31, 1999 109,167,969 95,610,050
Series F 4% convertible preferred stock, par
value $10 per share, authorized 500,000 shares
issuable in series, shares issued and outstanding
0 at Sept. 30, 2000 and 72,000 at December 31, 1999. - 720,000
Common Stock Subscriptions 10,389,752 -
Additional paid-in capital 93,365,198 85,608,192
Warrants 6,805,608 6,791,161
Accumulated deficit (206,785,959) (181,174,458)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 12,942,568 7,554,945
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDER' EQUITY $ 22,768,355 $ 15,685,836
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>3
<TABLE>
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the nine months ended For the three months ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 98,831 $ 86,936 $ 60,018 $ 8,508
Other income - 14,397 - -
-------------- -------------- -------------- --------------
98,831 101,333 60,018 8,508
Costs and expenses
Cost of products sold 132,644 148,678 74,416 15,687
Research and development 5,082,319 3,456,384 1,276,359 1,301,625
General and administrative 12,947,387 19,643,437 5,326,320 11,511,161
Amortization of goodwill 279,681 - 142,944 -
-------------- -------------- -------------- --------------
18,442,031 23,248,499 6,820,039 12,828,473
-------------- -------------- -------------- --------------
Loss from operations (18,343,200) (23,147,166) (6,760,021) (12,819,965)
Other income
Interest 449,559 204,024 121,610 143,266
Other expense
Beneficial convertible debt feature 2,462,500 7,228,296 - 3,221,772
Warrant extensions 6,390 - 6,390 -
Interest expense 1,343,393 331,345 1,083,575 137,092
Loss on unconsolidated subsidiary 493,925 - 485,175 -
Loss on disposal of assets 15,874 - - -
Unusual item 3,450,000 - 3,450,000 -
-------------- -------------- -------------- --------------
7,772,082 7,559,641 5,025,140 3,358,864
-------------- -------------- -------------- --------------
Loss before unrelated investors' interest (25,665,723) (30,502,783) (11,663,551) (16,035,563)
Unrelated investors' interest in net (income)
loss of subsidiary 54,222 24,162 (18,274) 21,848
-------------- -------------- -------------- --------------
Net loss ($25,611,501) ($30,478,621) ($11,681,825) ($16,013,715)
============== ============== ============== ==============
Loss per common share - Basic:
Net Loss ($0.03) ($0.05) ($0.01) ($0.03)
Less: Preferred stock dividends 0.00 0.00 0.00 0.00
-------------- -------------- -------------- --------------
Net loss attributable to
common stockholders: ($0.03) ($0.05) ($0.01) ($0.03)
============== ============== ============== ==============
Loss per common share - Diluted:
Net Loss ($0.03) ($0.05) ($0.01) ($0.03)
Less: Preferred stock dividends 0.00 0.00 0.00 0.00
-------------- -------------- -------------- --------------
Net loss attributable to
common stockholders: ($0.03) ($0.05) ($0.01) ($0.03)
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
BICO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the nine months ended For the three months ended
Sep. 30, Sep. 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($25,611,501) ($30,478,621) ($11,681,825) ($16,013,715)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation 397,778 509,790 88,132 153,306
Amortization 279,681 526,510 142,944 2,217
Loss on disposal of assets 15,874 - - -
Loss on unconsolidated subsidiary 110,723 - 101,973 -
Reduction in goodwill - 3,213,872 - 1,213,872
Unrelated investors' interest in subsidiary 8,523 (24,162) 81,019 (21,848)
Stock issued in exchange for services 338,000 64,463 338,000 -
Beneficial convertible debt feature 2,462,500 7,228,296 - 3,221,772
Warrants granted 322,028 - 86,771 -
Warrants and warrant extensions by subsidiary 1,598,936 5,758,343 734,795 5,261,807
Allowance for related party note receivable (90,333) (22,402) (55,031) (2,599)
Debebture interest converted to stock 120,547 129,789 120,547 107,719
(Increase) decrease in accounts receivables (38,266) (20,541) (58,406) (71)
(Increase) decrease in inventories 134,373 105,344 (407,783) 31,399
(Decrease) increase in inventory allowance (891,321) (40,829) (2,906) (40,829)
(Increase) decrease in prepaid expenses (300,945) (206,633) 41,995 (227,736)
(Increase) decrease in other assets (186) (356,110) 498,817 (300)
(Decrease) increase in accounts payable (523,111) (1,100,003) (21,112) (3,913)
(Decrease) increase in other liabilities 1,270,377 496,985 1,670,289 963,038
Impairment loss - 283,208 - -
-------------- -------------- -------------- -------------
Net cash flow used by operating activities (20,396,323) (13,932,701) (8,321,781) (5,355,881)
-------------- -------------- -------------- -------------
Cash flows from investing activities:
Purchase of property,plant and equipment (2,499,808) (475,079) (1,885,153) (354,041)
Disposal of property,plant and equipment - 175,000 - -
(Increase) decrease in notes receivable (1,034,500) (89,341) (1,012,500) (40,000)
Payments on notes receivable 88,524 41,154 19,287 41,154
(Increase) decrease in interest receivable (3,084) (21,734) (2,641) 611
Deposit on equipment - (45,547) - -
Acquistion of unconsolidated subsidiary interests (1,725,784) - (450,000) -
-------------- -------------- -------------- --------------
Net cash provided (used) by investing activities (5,174,652) (415,547) (3,331,007) (352,276)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from warrants exercised 899,420 - - -
Proceeds from sale of Preferred stock-Series F 4,275,000 - - -
Proceeds from debentures payable 9,850,000 - - -
Proceeds from public offering 17,026,106 34,136,418 17,026,106 14,775,000
Payments on notes payable (15,915) (452,563) 51,160 (9,005)
Redemption of debentures (5,850,000) - (5,850,000) -
Additional capital lease obligations 1,434,066 - 1,434,066 -
Payments on capital lease obligations (522,457) (104,163) (483,431) (36,679)
-------------- -------------- -------------- --------------
Net cash provided by financing activities 27,096,220 33,579,692 12,177,901 14,729,316
-------------- -------------- -------------- --------------
(Decrease) increase in cash and equivalents 1,525,245 19,231,444 525,113 9,021,159
-------------- -------------- -------------- --------------
Cash and equivalents, beginning of period 10,827,631 125,745 11,827,763 10,336,030
-------------- -------------- -------------- --------------
Cash and equivalents, end of period $ 12,352,876 $ 19,357,189 $ 12,352,876 $ 19,357,189
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
BICO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying consolidated financial statements of BICO,
Inc. (the "Company") and its 89.9% owned subsidiary, Coraflex,
Inc., and its 52% owned subsidiary, Diasensor.com, Inc., and
its 75% owned subsidiary, Petrol Rem, Inc., and its 99.1%
owned subsidiary, ViaCirQ, Inc., and its 58.4% owned
subsidiary, ICTI, Inc., and its 100% owned subsidiary Ceramic
Coatings Technologies, Inc., and its 51% owned subsidiary, B-A
Champ.com, Inc., have been prepared in accordance with
generally accepted accounting principles for interim financial
information, and with the instructions to Form 10-Q and Rule
10-O Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. For further information,
refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K/A for the
year ended December 31, 1999.
NOTE B - Notes Receivable
In September 2000, Petrol Rem, Inc. (a 75% owned subsidiary)
loaned $1,060,000 to a company involved in the acquisition and
management of environmental entities. The loan, which bears
interest at a rate of 10% per annum is due on August 31, 2001,
and is collateralized by a security interest and lien on all
of the Company's assets including its rights to any and all
contracts, options or claims of that Company to purchase or
acquire the assets of any environmental company.
NOTE C - Investments in Unconsolidated Subsidiaries
In January 2000, the company acquired a twenty-five percent
(25%) interest in Insight Data Link.com, Inc. for $100,000.
Insight is a Pennsylvania corporation formed to engage in the
business of acting as an internet clearinghouse for persons
seeking to acquire, and persons having available, shopping
mall space, as well as software development for related
projects.
Also, during the nine months ended September 30, 2000 the
Company invested an additional $225,000 in American Inter-
Metallics, Inc. ("AIM") an unconsolidated subsidiary interest
initially acquired during 1999. AIM has its operations in
Rhode Island, and is developing a product that enhances
performance in rockets and other machinery by increasing the
burn rate of propellants.
During the nine months ended September 30, 2000,
Diasensor.com, acquired a fourteen percent (14%) interest in
MicroIslet, Inc. for an investment of $900,000. The company
has an option to purchase an additional 6% interest in
MicroIslet. The company also holds a seat on the board of
directors of MicroIslet. MicroIslet is a California company,
which has licensed several diabetes research technologies
from Duke University with a specific focus on optimizing
microencapsulated islets for transplantation.
In March 2000, Diasensor.com, acquired an equity interest in
Diabecore Medical, Inc., a Toronto-based company working to
develop a new insulin for the treatment of diabetes, for
$500,784. With this initial investment, the Company owns
15.9% of Diabecore. The company also owns warrants to purchase
additional shares of Diabecore which, if exercised, will
increase the company's ownership to 35%. The company holds 2
seats on the board of directors of Diabecore.
These investments are being reported on the equity basis and
differences between the investment and the underlying net
assets of the unconsolidated subsidiaries are being amortized
as goodwill over a 5-year period. The company's investment in
the underlying assets and the unamortized goodwill of each
unconsolidated subsidiary as of September 30, 2000 are as
follows:
Unconsolidated Investment in Unamortized
Subsidiary Underlying Net Assets Goodwill Total
American Inter-Metallics, Inc. $134,400 $461,700 $596,100
Insight Data Link.com 19,702 63,750 83,452
MicroIslet, Inc. 89,657 635,409 725,066
Diabecore Medical, Inc. 37,003 379,043 416,046
-------- --------- ---------
Total $280,762 $1,539,902 $1,820,664
======== ========= =========
NOTE D - Capital Lease
In July 2000, the Company entered into a capital lease for an
industrial building adjacent to its existing manufacturing
facility in Indiana County, Pennsylvania. Under the terms of
the lease the Company will make total payments of $1,602,221
through December 2010 at which time title to the property will
be transferred to the Company. Management recognized this
property and the corresponding capital lease obligation at the
present value of the lease payments, which was $1,434,066
at the inception of the lease, using an imputed rate of 9% per
annum.
As of September 30, 2000, the future minimum payments due under
the terms of the lease are as follows:
October - December 2001 $ 37,386
January - December 2002 154,033
January - December 2003 158,652
January - December 2004 163,413
January - December 2005 168,316
Thereafter thru 2010 920,421
-------
TOTAL FUTURE LEASE PAYMENTS 1,602,221
Less amount representing interest (632,149)
-------
Present value of future lease payments $ 970,072
NOTE E - Subordinated Convertible Debentures
During the first quarter of 2000, the Company issued
subordinated 4% convertible debentures totaling $9,850,000.
In the second quarter, $350,000 of these debentures were
converted to common stock. In the third quarter, $3,650,000 of
these debentures were converted to common stock and $5,850,000
of these debentures were redeemed. Such convertible debentures
were issued pursuant to Regulation D, and /or Section 4(2),
and have a one-year maturity and are not saleable or
convertible for a minimum of 90 days from issuance. A
$2,462,500 expense was recognized upon issuance for the
beneficial conversion feature of these debentures.
NOTE F - Stockholders Equity
During the nine months ended September 30, 2000, the Company
raised $4,275,000 through sales of its Series F-Preferred
Stock. All outstanding shares of Series F - Preferred stock
had been converted to common stock as of September 30, 2000.
In addition, a preferred stock dividend of $121,824 was
distributed to preferred shareholders upon conversion. The
company also raised $899,420 when warrants were exercised
during the nine months ended September 30, 2000.
During the third quarter of 2000, the company raised
$17,026,106 through sales of common stock subscriptions. As
of September 30, 2000, $3,950,000 of the subscriptions were
distributed as common stock. The remaining subscriptions will
be distributed by December 31, 2000.
The Company's common stock is currently traded on the
electronic bulletin board under the trading symbol "BIKO".
NOTE G - Beneficial Conversion Feature of Preferred Stock
As of September 30, 2000 the Company had issued 452,000 shares
of its Series F 4% convertible preferred stock, which include
a beneficial conversion feature providing the preferred
stockholder a discount of 25% upon conversion to the Company's
common stock after 120 days. The value of this beneficial
conversion feature is determined by reducing the market price
of the Company's common stock by the discounted conversion
price on the date of commitment. This discount is recognized
as a reduction in the preferred stock recorded at par and is
amortized as constructive dividends to the preferred
stockholders over the 120-day period using the effective
interest method. The total valuation discount of this
beneficial conversion feature on the 452,000 shares of
preferred stock was $1,883,333 and was recognized as
constructive dividends charged to Additional Paid in Capital
during the nine months ended September 30, 2000. As of
September 30, 2000, all shares of the Company's Series F 4%
convertible preferred stock had been converted to common
stock.
NOTE H - Related Party Transaction
As of December 31, 1999, the company owned approximately 6.5%
of the outstanding stock of B-A-Champ.com, Inc. On August 1,
2000, the company made an additional investment of $150,000
and agreed to provide additional funding of $250,000 in the
fourth quarter of 2000. In addition, the company converted a
note receivable of $50,000 from B-A-Champ.com into common
stock. As a result of these additional investments, the company
owned to 51% of the outstanding stock of B-A-Champ.com as
of September 30, 2000 and included B-A-Champ.com, as a
consolidated subsidiary in the September 30, 2000 financial
statements. Fred E. Cooper, Chief Executive Officer of the
company, owns approximately 30% of the outstanding common
stock of B-A-Champ.com.
NOTE I - Legal Proceedings and Unusual Item
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, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology,et al., was certified as a class action in the U.S.
District Court for the Western District of Pennsylvania. The
suit alleged misleading disclosures in connection with the
Noninvasive Glucose Sensor and other related activities, which
the company denies. Without agreeing to the alleged charges
or acknowledging any liability or wrongdoing, the company
agreed to settle the lawsuit for a total amount of $3,450,000.
As of September 30, 2000, $2,150,000 has been paid toward the
settlement. An additional $1,300,000 is included in accrued
liabilities and will be paid in June 2001. Although it is not
known whether the class action plaintiffs have been formally
notified of the settlement, or if they have accepted its
terms, the company believes that the existing settlement will
end this matter.
NOTE J - Net Loss Per Common Share
Net loss per common share is based on the average number of
outstanding common shares. The loss per share does not
include common stock equivalents since the effect would be
anti-dilutive. The weighted average shares used to calculate
the loss per share for the period ending September 30, 2000,
and September 30, 1999, were 974,820,742 and 615,701,092,
respectively. The net losses attributable to common
stockholders for the nine-month period and the three month
period ended September 30, 2000 were $25,621,729 and
$11,692,053 which include constructive dividends to preferred
stockholders of $1,883,333 and $0, respectively.
NOTE K - Subsequent Events
On November 1, 2000, Petrol Rem, Inc. (a 75% owned subsidiary)
acquired 51% of the common stock of a petroleum treatment and
oil spill remediation company located in Louisiana. A payment
of $250,000 was made at the time of the purchase and
additional payments totaling $1,000,000 are payable in
installments of $150,000 per month beginning in December 2000
with a final payment of $250,000 in May 2001.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Our cash increased to $12,352,876 as of September 30, 2000
from $10,827,631 as of December 31, 1999. The increase was
generated from sales of our securities, including: $9,850,000
from sales of our subordinated convertible debentures;
$4,275,000 from sales of our Series F preferred stock;
$899,420 from warrants exercised; and $17,026,106 from sales
of stock in our public offering. All subordinated convertible
debentures and all Series F preferred stock had been redeemed
or converted to common stock as of September 30, 2000.
During the nine months ended September 30, 2000 our net cash
flow used by operating activities was ($20,396,323). During
the same period, our net cash flow used by investing
activities was ($5,174,652) due primarily to the acquisition
of property, plant and equipment and to our investments
in the following unconsolidated subsidiaries: Insight Data
Link.com, Inc., American Inter-Metallics, Inc.,
MicroIslet, Inc., and Diabecore Medical, Inc. which we discuss
in the following three paragraphs.
During the first nine months of 2000, we made investments in
unconsolidated subsidiaries. In January, BICO acquired a 25%
interest in Insight Data Link.com, Inc. for $100,000. Insight
is a start-up corporation with a software program and website
business that acts as an Internet clearinghouse for the rental
of shopping mall space. Insight also plans to develop
additional software for related projects. During 2000, we also
invested an additional $225,000 in American Inter-Metallics,
bringing our total investment in AIM's rocket propulsion
project to $750,000. We made these investments because our
management believes they will generate revenue.
Our subsidiary, Diasensor.com, Inc. also made investments in
unconsolidated subsidiaries. In January 2000, Diasensor.com
initiated an alliance with MicroIslet, Inc.; in return for its
initial equity investment of $500,000, Diasensor.com received
a 10% stake with an option to purchase an additional 10% in
the future. As of September 30, 2000, Diasensor.com has
acquired an additional 4% interest in MicroIslet in return for
an additional investment of $400,000. MicroIslet is developing
several diabetes research technologies with Duke University
that focus on optimizing microencapsulated islets for
transplantation. The project is in the research and
development phase. Diasensor.com also invested in Diabecore
Medical, Inc. Diabecore is a company in Toronto working with
other research institutions to develop a new insulin to treat
diabetes. Through September 30, 2000, Diasensor.com invested
$500,784 in Diabecore and received a 15.9% ownership interest.
This project is also in the research and development phase.
Diasensor.com made these investments because management
believes that these diabetes research organizations and the
institutions they affiliate with will bring strength and
support to our own diabetes research and development projects.
As a result of those investments in Insight Data Link.com,
American Inter-Metallics, MicroIslet, and Diabecore Medical,
our overall investment in unconsolidated subsidiaries
increased from $485,284 as of December 31, 1999 to $1,820,664
at September 30, 2000. The money we spent investing in those
four companies came from stock and debenture sales during
1999 and 2000. All the investments were our initial
investments in those companies, except American Inter-Metallics
- we've invested a total of $750,000 in AIM as of
September 30, 2000.
Our net inventory increased from $10,308 as of December 31,
1999 to $767,256 as of September 30, 2000. The increase was
made up of $250,000 in inventory build up for the ThermoChem
hyperthermia products, and the balance was for our noninvasive
glucose sensor product. Current - short-term - notes
receivable increased by $20,000 due to a demand note to one
individual and decreased by $200,000 when a short-term note
was reclassified as a long-term note.
Interest receivable decreased from $2,701 as of December 31,
1999 to $1,723 at September 30, 2000 due to timing of interest
payments on certain debt. Prepaid expenses increased from
$192,246 at December 31, 1999 to $493,191 as of September 30,
2000 due to prepayments required in the ordinary course of
business.
In the second quarter, we had Other Current Assets of
$500,000, which resulted from a deposit we made during the
first quarter on a transaction that we later cancelled; that
deposit was repaid during the third quarter. Building assets
increased by $1,321,566 during the nine months ended September
30, 2000 because we expanded our Indiana, PA space through
a capital lease. Leasehold improvements increased by $298,790;
machinery and equipment increased by $600,815; and furniture,
fixtures and equipment increased $46,518 for the nine month
period ended September 30, 2000 due to purchases we made
in connection with our noninvasive glucose sensor and
hyperthermia projects including new office space for our
ViaCirQ subsidiary.
Related party receivables decreased by $138,524 during the
nine-month period ended September 30, 2000 due to scheduled
repayments on related party debt. Notes receivable increased
by $1,260,000 during the nine months ended September due to
the following: a $200,000 note previously carried as a current
asset was reclassified as a long-term asset; and our
subsidiary Petrol Rem advanced a total of $1,060,000 to
Practical Environmental Solutions, an unaffiliated company
involved in the acquisition and management of environmental
companies for Petrol Rem.
Accounts payable decreased by $523,111 during the nine months
ended September 30, 2000 due to additional payments in the
ordinary course of business. Interest payable increased by
$14,550 due to the increase in capital leases.
Debentures payable of $9,850,000 were recorded during the
nine months ended September 30, 2000 because we sold
convertible subordinated debentures during the first quarter
to raise capital to fund operations. During the nine-month
period, $4,000,000 of debentures was converted to common stock
and $5,850,000 was redeemed, leaving a zero balance for
debentures payable.
Accrued liabilities increased from $1,794,370 to $3,050,197
primarily due to an accrual of $1,300,000 in connection with
the settlement of our class action lawsuit, which we discuss
more fully in the Results of Operations section below. The
$1,300,000 represents the final payment due in June 2001.
Results of Operations
Our sales and corresponding costs of products sold during the
nine months were $98,831 and $132,644 respectively in 2000
compared to $86,936 and $148,678 in 1999. The increase in
sales was primarily due to sales of $35,800 for our
hyperthermia products. Our costs decreased due to the
reduction in sales of our other products including the
Diasensor and other discontinued products. Our overall sales,
excluding the hyperthermia products, have decreased because
we have not been able to successfully market our products. For
example, we had sales of the Diasensor totaling $47,500 in
the first nine months of 1999, and $2,028 in sales of the
Diasensor during the first nine months of 2000, because we
haven't been able to successfully sell the device in Europe.
We're not sure why we were only able to sell a few sensors in
1999, and none in 2000. We've hired marketing consultants to help
us figure out why, and to help us learn how to sell more. We had
minor sales totaling $3,500 of other biomedical products,
primarily leftover parts from previous models of the Diasensor,
during the first six months of 1999, but we sold all of them
in 1999 and had no similar sales in 2000. Our other product
sales increased, but not significantly. Bioremediation product
sales totaled $19,275 during the first nine months of 1999,
with a slight increase to $25,982 during the first nine months of
2000. During the first nine months of 1999 and 2000, sales of
$13,060 and $6,900, respectively, were from sales of our
theraPORT, an implantable device used by patients who have to
have repeated injections of drugs. The theraPORT is implanted in
the patient's chest, and provides a fixed port for catheters used
to deliver the drugs the patient needs. Those sales decreased
because we had fewer orders in the second and third quarter
of 2000. We also had sales of our metal-coating products
totaling $3,600 during the first nine months of 1999 and
$28,200 during the first nine months of 2000. The increase
was due to repeat customers who sent us more work once they
were satisfied with our earlier performance. Until we have
significant sales, we can't predict any trends for future revenues.
Interest income increased during the first nine months to
$449,559 in 2000 from $204,024 in 1999. The increase occurred
because we had more funds to invest.
Other income decreased from $14,397 during the first nine
months of 1999 to zero during the first nine months of 2000.
The decrease was due to the loss of rental income.
Research and Development expenses during the first nine months
increased to $5,082,319 in 2000 from $3,456,384 in 1999. The
increase was due to increased spending on our noninvasive
glucose sensor project, made possible due to the availability
of additional funds. We used those additional funds to
replace scientists and engineers who left during 1998 when we
had serious cash flow problems, and to work on future versions
of the noninvasive glucose sensor.
General and Administrative expenses during the first nine
months decreased from $19,643,437 in 1999 to $12,947,387 in
2000. The decrease is primarily due to an impairment charge
of $3,800,000 included General and Administrative expenses for
the first nine months of 1999. No similar impairment charge
was incurred during 2000. Also contributing to the decrease
was a $2,800,000 decrease in commissions on sales of our
debentures because we sold less of those securities compared
to last year. Amortization of Goodwill increased from zero
for the nine months ended September 30, 1999 to $279,681 for
the same period in 2000. The increase was due to our
investments in MicroIslet and Diabecore.
We had a loss in unconsolidated subsidiaries during the first
nine months of $493,925. This loss resulted because we
absorbed part of losses incurred by unconsolidated
subsidiaries. Our share of the loss is determined by applying
our ownership percentage to the total loss incurred, and we
get to deduct the portion of the loss allocated to the
unrelated investors from our total net loss.
Our Statement of Operations includes an unusual item in the
amount of $3,450,000. This amount represents payments made,
and payments due, respectively, to settle our class action
lawsuit. In May 1996, BICO, Diasensor.com, Inc., and BICO's
individual directors, were served with a federal class action
lawsuit based on alleged misrepresentations and violations of
federal securities laws. In 2000, even though we don't
believe any violations of the securities laws occurred, we
agreed to settle the lawsuit. The parties reached a
settlement, and BICO has paid an aggregate of $2,150,000
toward the settlement to date. An additional $1,300,000 is due
in June 2001, and has been accrued in our financial
statements. Although we don't know whether the class action
plaintiffs have been formally notified of the settlement, or
if they have accepted its terms, we believe the existing
settlement agreement will end this matter.
Beneficial conversion terms included in our convertible
debentures are recognized as expense and credited to
additional paid in capital at the time the associated
debentures are issued. We recognized $2,462,500 of expense in
connection with the issuance of our subordinated convertible
debentures in the first nine months of 2000 compared to
$7,228,296 for the same period in 1999. The amount decreased
primarily because we issued fewer debentures this year
compared to last year.
Similarly, we recognized a beneficial conversion feature for
our preferred stock during the first nine months of 2000. As
of September 30, 2000, we issued 452,000 shares of our Series
F preferred stock. The preferred stock is convertible into our
common stock at a discount of 25% after 120 days. Based on
accounting rules, the value of the beneficial conversion
feature of the preferred stock is calculated as the difference
between the market price and the discounted price for the
corresponding common stock on the date the preferred stock was
purchased. The total discount of $1,883,333, or $4.17 per
preferred share, was recognized as a constructive dividend on
our preferred stock during the first nine months of 2000. We
charged the $1,883,333 to additional paid-in capital. We did
not have any of these charges or constructive dividends during
the first nine months of 1999 because we had not yet issued
our preferred stock.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On November 14, 2000, BICO accepted the resignation
of David L. Purdy as the head of its Biocontrol
Technology, Inc. division.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(B) Reports on Form 8-K
A report on form 8-K filed August 18, 2000, for the event
dated August 17, 2000, with respect to Item 5 other events.
and Item 7 (c), Exhibit.
A report on form 8-K filed August 23, 2000, for the event
dated August 22, 2000, with respect to Item 5 other events.
and Item 7 (c), Exhibit.
A report on form 8-K filed August 24, 2000, for the event
dated August 24, 2000, with respect to Item 5 other events and
Item 7 (c), Exhibit.
A report on form 8-K filed September 1, 2000, for the event
dated August 29, 2000, with respect to Item 5 other events and
Item 7 (c), Exhibit.
A report on form 8-K filed September 8, 2000, for the event
dated September 7, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed September 15, 2000, for the event
dated September 14, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed September 28, 2000, for the event
dated September 26, 2000, with respect to Item 5 other events
and Item 7 c), Exhibit
A report on form 8-K filed October 12, 2000, for the event
dated October 10, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed October 12, 2000, for the event
dated October 11, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed October 17, 2000, for the event
dated October 16, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed October 23, 2000, for the event
dated October 19, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed October 24, 2000, for the event
dated October 24, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed October 27, 2000, for the event
dated October 25, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed November 2, 2000, for the event
dated October 31, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed November 2, 2000, for the event
dated November 2, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
A report on form 8-K filed November 7, 2000, for the event
dated November 7, 2000, with respect to Item 5 other events
and Item 7 (c), Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized on this 14th day of November, 2000.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO
