As filed with the Securities and Exchange Commission on August 4, 2000
Registration No. 333-39656
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
PRE-EFFECTIVE AMENDMENT NO. 2 to FORM S-1
under
THE SECURITIES ACT OF 1933
BICO, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 3841 25-1229323
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
2275 Swallow Hill Road, Bldg. 2500
Pittsburgh, Pennsylvania 15220 (412) 429-0673
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices and principal
place of business)
___________________________________________
Fred E. Cooper, Chief Executive Officer
BICO, Inc.
2275 Swallow Hill Road, Building 2500, Pittsburgh, Pennsylvania 15220
(412) 429-0673
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
___________________________________________
Copy to:
Sweeney & Associates P.C.
7300 Penn Avenue, Pittsburgh, Pennsylvania 15208
(412) 731-1000
_____________________________________________________
Approximate date of commencement of proposed sale to the public:
As soon as possible after this registration statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 check the following box. [X]
CALCULATION OF REGISTRATION FEE
Title of Each Amount to Proposed Proposed Amount of
Class of be Maximum Maximum Registra-
Securities to be Registered Offering Aggregate tion Fee
Registered Price Per Offering
Share Price
Common Stock
issuable upon
the Conversion 56,500,000(1) $0.24(2) $13,560,000 $ 3,769.41
of Preferred
Stock, Series F (1)
Common Stock
issuable upon
the Conversion of
the outstanding 61,850,000(1) $0.24(2) $14,844,000 $ 4,126.33
Principal amount
and other amounts
Due under the
Registrant's 4%
Convertible
Debentures due 2001 (1)
Total Common Stock
Total Registration Fee $ 7,895.74(3)
TOTAL OF SEPARATELY NUMBERED PAGES 94 EXHIBIT INDEX ON
SEQUENTIALLY NUMBERED PAGE 88
(1) These shares are registered on behalf of selling stockholders.
(2) Estimated SOLELY for purposes of calculating the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, as
amended, and based on the average of the high and low sales prices
of the common stock of Registrant on the electronic bulletin board
on June 12, 2000.
(3) A filing fee of $11,720.48 for these shares was paid in
connection with the Form S-3, No. 333-31962, filed March 8, 2000.
_____________________
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall
become effective on such date as the Commission acting pursuant to
Section 8(a) may determine.
_____________________
Information contained herein is subject to completion or
amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange
Commission. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
[INSIDE FRONT COVER]
SUBJECT TO COMPLETION DATED August 4, 2000
PRELIMINARY PROSPECTUS
118,350,000 shares
BICO, INC.
Common Stock
In June 2000, we changed our name from Biocontrol Technology,
Inc. to BICO, Inc.
This prospectus is for an offering of shares of BICO, Inc.
common stock on behalf of certain selling stockholders. These
selling stockholders bought preferred stock and debentures from us
that are convertible into common stock. We are registering that
common stock for sale on behalf of those preferred stockholders
and debenture holders under this prospectus. Up to 56,500,000
shares are being registered that may be issuable upon the
conversion of our outstanding Series F convertible preferred
stock, and up to 61,850,000 shares are being registered that may
be issuable upon the conversion of the outstanding principal
amount and interest due under our $9,850,000 principal amount of
4% subordinated convertible debentures. We estimated the number
of shares we'll need to cover the conversions of our preferred
stock and debentures - depending on our stock price at the time of
conversion, we may need to issue fewer shares or more shares. You
should review the Selling Stockholders and Plan of Distribution
sections for more information.
Our common stock trades on the electronic bulletin board
under the trading symbol "BICO".
We will not receive any of the money from selling the
118,350,000 shares of stock we are offering on behalf of the
selling stockholders. They will receive the proceeds from any
sales.
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU NEED TO REVIEW
THESE RISKS BEFORE YOU CONSIDER BUYING OUR COMMON STOCK. THESE
RISKS ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON
PAGE 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. If anyone tells you otherwise, it's a criminal offense.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND
SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
THE INFORMATION IN THIS PROSPECTUS ISN'T COMPLETE. IT MIGHT
CHANGE. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS
PROSPECTUS UNTIL THE REGISTRATION STATEMENT WE HAVE FILED WITH THE
SEC BECOMES EFFECTIVE. THIS PROSPECTUS ISN'T AN OFFER TO SELL OUR
COMMON STOCK, AND WE ARE NOT SOLICITING OFFERS TO BUY OUR COMMON
STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT ALLOWED.
August 4, 2000
PROSPECTUS SUMMARY
THE FOLLOWING SECTION IS ONLY A SUMMARY. YOU SHOULD CAREFULLY
READ THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING OUR FINANCIAL INFORMATION. OUR BUSINESS INVOLVES
SIGNIFICANT RISKS - READ MORE ABOUT THEM IN THE SECTION CAPTIONED
RISK FACTORS WHICH BEGINS ON PAGE 5
ABOUT BICO
BICO, Inc. was incorporated in the Commonwealth of
Pennsylvania in 1972 as Coratomic, Inc. In June 2000, we
changed our corporate name from Biocontrol Technology, Inc. to
BICO, Inc. Our operations are located at 625 Kolter Drive in
Indiana, Pennsylvania, 15701, and our administrative offices are
located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania,
15220.
Our primary business is the development of new devices,
which include models of a noninvasive glucose sensor,
procedures relating to the use of regional extracorporeal
hyperthermia in the treatment of cancer, and environmental
products, which help to clean up oil spills. Our noninvasive
glucose sensor helps diabetics measure their glucose without
pricking their fingers or having to draw blood. Regional
extracorporeal hyperthermia is a system that re-circulates the
patient's blood in a specific area of the body after the blood
has been heated outside the body. The re-circulated blood's
higher temperature helps treat certain diseases by inducing an
artificial fever that kills targeted cells.
We have several subsidiaries that specialize in those
different projects. Diasensor.com, Inc. manages the noninvasive
glucose sensor project. ViaCirQ, Inc. - formerly IDT - handles
the hyperthermia project, a technology called the ThermoChem
Systemr, that induces an artificial fever to help treat diseases.
Petrol Rem, Inc. handles our environmental products PRPr, BIOSOKr
and BIOBOOM r that help clean up oil spills and other pollutants
in water.
None of our current projects are generating any significant
revenue. We discontinued our functional electrical stimulator
project, which had generated some revenue, when our primary buyer
cancelled its contract with us. Although some Petrol Rem
products are being sold, the revenues from those products have
decreased over the last two years.
RISK FACTORS
If you invest in our stock, you will be placing your money
at a significant risk. Our projects are in the research and
development phase, and none of our current products has produced
any significant revenue to date. You should not invest money you
are not prepared to lose - and you should carefully review the
section captioned Risk Factors that begins on page 5 before you
decide whether to invest in our stock.
THE OFFERING
Common stock to be issued upon conversion of
our Series F preferred stock, including interest 56.5 million shares
Common stock to be issued upon conversion of
our 4% subordinated convertible debentures,
including interest 61.85 million shares
Common stock outstanding after this offering,
if all shares are sold 1.081 billion shares
Common stock outstanding if we also sell all
of the 313,000,000 shares we are also
registering for sale in a separate best-efforts
offering 1.394 billion shares
Our Trading Symbol BICO - we currently
trade on the electronic
bulletin board
The common stock outstanding after this offering, if all shares
are sold, is based upon the number of shares we had outstanding
as of June 30, 2000, which was 962,825,628. In addition to the
118,350,000 shares in this prospectus, we have another prospectus
to sell 313 million shares on a best efforts basis. If we sell
all of the 118,350,000 from this prospectus and all of the 313
million shares from our best efforts offering, we will have
approximately 1.394 billion shares outstanding.
The 1.081 billion and 1.394 billion shares do not include the
28,271,162 shares of our common stock that are subject to
outstanding warrants. Those warrants have exercise prices
ranging from $.06 to $4.03 per share and expiration dates through
April 26, 2005. The weighted average exercise price of those
warrants is $.30 per share.
SUMMARY CONSOLIDATED FINANCIAL DATA
FOR THE QUARTER ENDED MARCH 31, 2000 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1999
3/31/2000 12/31/99
Total Assets $24,203,821 $15,685,836
Long-Term
Obligations $ 1,306,241 $ 1,338,387
Working Capital $ 2,382,342 $ 4,592,935
Preferred Stock $ 3,418,259 $ 720,000
Net Sales $ 18,998 $ 112,354
TOTAL REVENUES $ 18,998 $ 165,251
Warrant
Extensions $ 0 $ 4,669,483
Benefit
(Provision) for $ 0 $ 0
Income Taxes
Net Loss ($9,131,546) ($38,072,578)
Net Loss Per
Common Share
Basic ($.01) ($.05)
Diluted ($.01) ($.05)
Cash Dividends
Per Share:
Preferred $0 $0
Common $0 $0
Constructive
Dividend per $1.73 $0
Preferred Share
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 $ 4,592,935 ($ 9,899,008) $ 888,082 $ 1,785,576 $ 3,188,246
(Deficit)
Preferred $ 720,000 $ 0 $ 0 $ 0 $ 37,900
Stock
Net Sales $ 112,354 $ 1,145,968 $ 1,155,907 $ 597,592 $ 461,257
TOTAL
REVENUES $ 165,251 $ 1,196,180 $ 1,260,157 $ 600,249 $ 461,257
Warrant
Extensions $ 4,669,483 $ 0 $ 4,046,875 $ 9,175,375 $12,523,220
Benefit
(Provision) $ 0 $ 0 $ 0 $ 0 $ 0
for Income Taxes
Net Loss ($38,072,578)($22,402,644)($30,433,177)($24,045,702)($29,420,345)
Net Loss Per
Common Share
Basic ($.05) ($.08) ($.43) ($.57) ($.84)
Diluted ($.05) ($.08) ($.43) ($.57) ($.84)
Cash Dividends Per
Share:
Preferred $0 $0 $0 $0 $0
Common $0 $0 $0 $0 $0
For more detailed information, you should review our financial
statements and notes that are included in this prospectus. You
can also get copies of our Form 10-K/A for the year ended
December 31, 1999, and our Form 10-Q for the quarter ended March
31, 2000, as well as our other filings, all of which are
available at www.sec.gov or from us at the address listed in the
section of this prospectus captioned "Where You Can Get More
Information".
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED IN THIS
SECTION BEFORE MAKING THE DECISION TO INVEST IN OUR STOCK. YOU
SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS PROSPECTUS
INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE
CURRENTLY BELIEVE MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL
RISKS AND UNCERTAINTIES THAT WE ARE UNAWARE OF OR THAT WE
CURRENTLY CONSIDER IMMATERIAL ALSO MAY BECOME IMPORTANT FACTORS
THAT AFFECT US. AN INVESTMENT IN OUR STOCK IS A HIGH RISK
INVESTMENT, AND YOU SHOULD BE PREPARED TO SUFFER A LOSS OF YOUR
ENTIRE INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE RISKS
FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, WE EXPECT THAT LOSSES WILL CONTINUE
TO INCREASE FOR THE FORSEEABLE FUTURE - AT LEAST THE NEXT SEVERAL
YEARS - AND OUR INDEPENDENT ACCOUNTANTS HAVE EXPRESSED
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN.
We have lost money in every period since we started our
current research and development projects - we had an accumulated
deficit of $190.3 million as of March 31, 2000 and $181.2 million
as of December 31, 1999. We plan to invest heavily to continue to
develop our biomedical and environmental products and to set up
manufacturing and marketing of those products. As a result, we
expect to continue to lose money for the foreseeable future - at
least for the next several years - and we expect that the losses
will continue to increase. We cannot assure you that we will
ever achieve or sustain profitability or that our operating
losses will not increase in the future. We have received a
report from our independent accountants containing an explanatory
paragraph stating that our historical losses and negative cash
flows from operations raise substantial doubt about our ability
to continue as a going concern.
WE HAVE A LIMITED OPERATING HISTORY, NO SIGNIFICANT REVENUES AND
LIMITED EXPERIENCE IN MARKETING THAT MAKES AN EVALUATION OF OUR
BUSINESS DIFFICULT.
Although we have been in business for years, we have not
generated any material revenue in our recent history. The
majority of our activities have been related to the research and
development of products. Our current management team has limited
experience in manufacturing and marketing biomedical and
environmental products. Therefore, our historical financial
information is of limited value in evaluating our future
operating results.
We discontinued our functional electrical stimulator project
due to a loss of orders from our primary buyer. Because these
products accounted for the majority of our sales revenues -
almost $900,000 in 1997 and $1 million in 1998 - it was a
significant loss that impacted our cash flows, liquidity and
revenue.
Our target markets - the health care and environmental
markets - change rapidly, and we may not have the experience
necessary to successfully market our products.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR
OPERATIONS AND THAT ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO
US.
We won't receive any money if you buy the stock offered in
this prospectus - we are registering the stock for our selling
stockholders, and they will get the money if you buy this stock.
We filed a different prospectus to sell shares on our own behalf,
and we plan to sell those other shares to raise money. Even if
we can sell stock, and we can't assure you that we'll be
successful, it may not be enough to fund our operations until -
and unless - we become profitable. We cannot quantify the
specific amounts we will need, since the research and development
process is subject to continuous change. However, we believe we
have enough funds available to operate for at least a year. We
will need to raise more capital to fund our operations and our
research and development projects, and we may not be able to find
financing when we need it. If that happens, we will not be able
to continue operations long enough to bring our products to
market, or to market them long enough to become profitable. Any
additional equity financing - through sales of our securities -
will cause our existing investors to experience additional
dilution.
WE CANNOT BE SURE HOW LONG IT WILL TAKE TO BRING OUR PRODUCTS TO
MARKET OR WHETHER THEY WILL EVER BECOME PROFITABLE. WE HAVE
ALREADY INVESTED OVER $29 MILLION ON PROJECTS, OTHER THAN OUR
NONINVASIVE GLUCOSE SENSOR, THAT STILL HAVEN'T GENERATED ANY
REVENUE.
Our biomedical products, specifically the noninvasive
glucose sensor and the hyperthermia treatment device, are new
products that are not established in any market. Although we
have started to market the sensor in Europe, our revenues to date
have been minimal - only about $35,000. We cannot market the
sensor in the U.S. until we receive FDA approval - and we don't
know how much longer that will take. Our hyperthermia treatment
device is being used in one hospital, but we won't be able to
sell the device until we begin manufacturing. Even when we are
able to manufacture and sell these devices, we don't know how
long it will be before they become profitable.
So far, we have already invested over $29 million in various
projects, other than our noninvasive glucose sensor, including
the ViaCirQ hyperthermia project, the Petrol Rem environmental
products, the American Inter-Metallics propellant enhancement
project, and a metal-coating project - and we still don't have
any material revenues from any of those projects. The only
minimal revenue we generated at all has been from the Petrol Rem
products, and even that revenue decreased to only about $26,000
for all of 1999, with no new revenues during the first quarter of
2000.
WE FACE SERIOUS COMPETITION, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY. IF SOMEONE ELSE DEVELOPS A BETTER PRODUCT BEFORE WE
DO, WE WON'T BE ABLE TO SELL OUR PRODUCTS OR MAKE ANY MONEY.
The medical device industry and the environmental industry
are very competitive. Other companies are developing
technologies and devices that will compete with ours. These
other companies may be further along in their research and
development may be better capitalized, have more sophisticated
equipment and expertise and various other competitive advantages
compared to us. These other companies may be able to bring their
products to market before we are able to enter the market, which
would have a serious negative impact on our ability to succeed.
Many of the large biomedical companies are funding research
into noninvasive glucose measurement, and one of them might beat
us to the market. Our sensor will also compete against existing
finger-prick technology, which is already well established. If
we cannot convince diabetics that our device is superior, we will
not be able to sell our sensor. Our hyperthermia device is a new
technology, which will compete against other, well-established
forms of cancer treatment. If we cannot convince the medical
community that our product offers superior alternatives, we will
not succeed with that device.
OUR PRODUCTS ARE THE TYPE THAT CAN BECOME OBSOLETE, AND NO LONGER
COMPETITIVE. IF THEY BECOME OBSOLETE, WE CAN'T SELL THEM.
Both the medical device and environmental industries are
subject to rapid technological innovation and change. Although
we are not currently aware of any new product or technology that
would make our products obsolete, it is always possible. Future
technological developments could make our products significantly
less competitive or even no longer marketable.
OUR PATENTS ARE IMPORTANT TO US - IF OUR PATENTS ARE CHALLENGED
OR INFRINGED UPON, WE MIGHT NOT BE ABLE TO AFFORD TO FIGHT FOR
THEM. IF WE CAN'T PROTECT OUR PATENTS, WE WON'T BE ABLE TO SELL
OUR PRODUCTS SUCCESSFULLY.
We hold patents on many of our products, as well as
trademarks on the names of our products and procedures. We try
to file patent applications when we believe they are necessary,
both in the U.S. and in foreign countries where we seek to do
business. However, we cannot assure you that future patents will
be granted, or that our existing patents will not be challenged
or circumvented by a competitor. If any of our critical patents
are challenged, or if someone accuses us of infringing upon their
patents, it would be expensive and time-consuming to defend those
charges, and our projects could be delayed. Similarly, if
someone else infringes upon one of our patents, it would be
expensive and distracting for us to challenge them.
If our patents are challenged or infringed upon, we might
not be able to enter the market without a long legal battle to
determine which patent has priority. This type of delay and
expense would hurt our ability to successfully market our
products.
WE ARE DEPENDENT UPON HEALTH INSURANCE REIMBURSEMENT FOR OUR
BIOMEDICAL DEVICES, AND WE MAY NOT BE ABLE TO OBTAIN THAT
REIMBURSEMENT.
Our biomedical products are subject to the reimbursement
policies of insurance companies and Medicare. The doctors and
patients who want to use our devices will not be able to pay for
them without reimbursement from their health insurance providers.
If we are not able to convince those insurance providers that our
devices are worth reimbursement, we will not succeed.
WE MAY ACQUIRE COMPANIES THAT ARE NOT PROFITABLE OR WORTH WHAT WE
ORIGINALLY ESTIMATED.
Our officers and directors have discretion in how to spend
the money we raise. One of the ways they intend to use part of
the money is to acquire companies with revenue or with the
potential to generate revenue in the short term. We may not find
companies that actually generate revenue. We may also acquire
companies that do not generate revenue, even though we project
that they will. In the past, we have invested in companies that
are not worth what we paid for them, and we have lost our
investment.
For example, we purchased a majority interest in a metal-
coating company in 1998 - because it did not perform the way we
expected, we had to write-off our entire investment, including a
$4.4 million write down in 1999. You should carefully review our
financial statements for more detailed information on the
investment and the write-downs. We cannot guarantee that we
will not make the same mistake in the future.
WE MAY BE DISTRACTED OR SUFFER LOSSES DUE TO LEGAL PROCEEDINGS.
We are involved in several legal proceedings. Although we
cannot project how they will be resolved, you should know that we
might suffer losses depending upon the outcome. Our class action
lawsuit is still pending, and we may have to pay significant
amounts of money if we lose the case, or we settle the case.
Both the Pennsylvania Securities Commission and the U.S.
Attorneys' office are investigating us, and we have provided them
with the information they requested. We don't know how much
longer these investigations will last, and we don't know how they
will be resolved. If either one of these investigations results
in findings that we, or someone we're responsible for, violated
the law, we could suffer significant monetary damages, harm to
our reputation, or the loss of the services of key employees. We
don't know what those damages might be, but they could include
fines or restrictions on how we are allowed to do business in the
future.
These legal proceedings cost us money, mostly in legal fees,
that we could be using for our projects. Even if we don't have
to pay any money or suffer any other damages as a direct result
of these proceedings, you should be aware that we might be
distracted from our other responsibilities while we deal with
these legal matters, and that distraction could also hurt us.
WHEN WE SELL STOCK OR CONVERTIBLE SECURITES LIKE OUR DEBENTURES
OR PREFERRED STOCK, IT DILUTES OUR EXISTING STOCKHOLDERS. WE
HAVE ALREADY SUFFERED SIGNIFICANT DILUTION AND WE KNOW THAT IT
WILL CONTINUE.
Each time we sell and issue stock, it dilutes the holdings
of our existing stockholders. Since 1989, and through December
1999, we, along with Diasensor.com, have raised over $137,000,000
in private and public offerings. We have already issued almost
one billion shares of stock and we plan to issue more, since
that's the only way we can survive until - and if - our product
sales can support our operations. Dilution occurs when more
shares are issued to own the same company - it means that when we
issue more stock, our previous stockholders own a smaller piece
of our company than they did before the new shares were issued.
When we sell stock, or we sell convertible securities like
preferred stock or debentures, we have to issue more shares of
stock upon the sale or the conversion. We plan to raise more
money by selling more stock. You should know that your ownership
in our company will continue to be diluted - significantly - each
time we sell and issue more stock.
For example, this chart shows the money we've raised by
selling stock and other securities, like debentures, during the
last three years, along with the total number of shares
outstanding at the end of each year:
YEAR FUNDS RAISED NUMBER OF SHARES OUTSTANDING
AT YEAR END
1997 $22,300,000 138,583,978
1998 $10,720,000 420,773,568
1999 $30,730,000 956,100,496
You can see that, as we raise more money, the total number
of our shares outstanding increases dramatically. As long as we
continue to raise money by selling stock - and that is our
intention - this dilution will continue.
WHEN WE ISSUE CONVERTIBLE SECURITIES LIKE OUR DEBENTURES OR
PREFERRED STOCK, THE NUMBER OF SHARES WE ISSUE UPON CONVERSION IS
SIGNIFICANTLY DISCOUNTED FROM THE MARKET PRICE.
One way we raise money is by selling convertible securities,
like convertible debentures or convertible preferred stock. Our
convertible securities have no minimum conversion price, so if
our stock price is low when they are converted, we have to issue
more stock than if our stock price was higher. Sometimes, our
stock price is rising, so that when the securities are converted,
the market price is higher than when we sold the securities - but
if our stock price falls, the conversion price is lower than the
stock price when we sold the securities.
Our debentures and preferred stock have minimum holding
periods from 90 to 120 days, and are convertible into our common
stock at discounts to our market price of 20% and 25%,
respectively.
The following table shows the total amount of our $9.85
million debentures and $5.65 million preferred stock and examples
of how many shares of stock we'd have to issue upon conversion
depending on the discount and our stock's market price.
Discount to 5-day Avg. Conversion Number of Shares
Amount Market Market Price Issued Upon Conversion
$9,850,000 20% $.20 $.16 61,562,500
$9,850,000 20% $.05 $.04 246,250,000
$5,650,000 25% $.20 $.15 37,666,667
$5,650,000 25% $.05 $.037 152,702,703
You should know that the lower our stock price, the more
shares we have to issue to raise money, and the more shares we
have to issue, the more diluted your ownership will become.
BECAUSE WE HAVE SOLD CONVERTIBLE DEBENTURES AND PREFERRED STOCK,
IT COULD HAVE A NEGATIVE IMPACT ON OUR STOCK PRICE.
In addition the dilution that occurs when we sell
convertible securities and they're converted, those conversions
can have other negative effects on our stock. If all of the
debentures and preferred stock are converted at the same time,
the supply of stock for sale would increase dramatically.
Without a corresponding increase in the demand for our stock, our
stock price would fall. As the table in the previous risk factor
also illustrates, the lower the price, the more shares we have to
issue upon conversions. There is no limit on the number of
shares to be issued for conversions of either the debentures or
the preferred stock.
For example, as of August 4, 2000, $350,000 in debentures had
been converted. The following table shows the market price on
the date we sold those debentures, as well as the conversion
price. The conversion price is determined based on a five-day
average price at the time of conversion, with a 20% discount. We
paid the interest on those conversions in cash - if we had paid
the interest in shares of our common stock, more stock would have
been issued.
Amount of Stock Price Debenture Number of
Debenture on Conversion Shares
Converted Debenture Price Issued Upon
Sale Date Conversion
$350,000 $.313 $.152 2,302,632
Several factors - the timing of conversions; the downward
pressure on our stock price; and the additional number of shares
needed for conversions with no limit, could separately or in
combination cause our stock price to fall significantly - and we
don't have any control over them. If we have funds available,
our only option might be to redeem some of the debentures or the
preferred stock, but we may not be able to do so, or we might not
be able to redeem enough in time to make a difference.
OUR COMPANY AND ITS AFFILIATES ARE SUBJECT TO CONFLICTS OF
INTEREST.
David L. Purdy, Fred E. Cooper, Anthony J. Feola and Glenn
Keeling are employed by BICO, and are also officers and/or
directors of our affiliates and subsidiaries, Diasensor.com,
Inc., Petrol Rem, Inc. and ViaCirQ, Inc. These men are subject
to competing demands and may face conflicts of interest. The
good faith and integrity of these members of management is of
utmost importance to our business and operations.
BICO owns 52% of Diasensor.com; 75% of Petrol Rem and 99% of
ViaCirQ. All of those officers own stock or warrants
Diasensor.com, Petrol Rem, or ViaCirQ:
Diasensor.com - Mr. Cooper owns 22,000 shares of stock
and warrants to purchase 1,680,045 shares at $.50 to $1 per
share; Mr. Purdy owns 32,000 shares of stock and warrants to
purchase 1,556,250 shares at $.50 to $1 per share; Mr. Feola owns
20,000 shares of stock and warrants to purchase 1 million shares
at $.50 per share; and Mr. Keeling 100,000 shares of stock and
warrants to purchase 200,000 shares at $.50 per share.
Petrol Rem - Mssrs. Cooper and Feola own warrants to
purchase 1 million shares of stock at $.10 per share; Mr. Purdy
owns warrants to purchase 700,000 shares of stock at $.10 per
share; and Mr. Keeling owns warrants to purchase 500,000 shares
of stock at $.10 per share.
ViaCirQ - Mr. Cooper owns warrants to purchase 1 million
shares of stock at $.10 per share; Mssrs. Purdy, Feola and
Keeling each own warrants to purchase 750,000 shares of stock at
$.10 per share.
Conflicts of interest could arise if one or more of our
officers act in a way that benefits them and hurts BICO or
another one of our subsidiaries. To protect ourselves, we
require that any action that benefits any individual executive
officer or director of any of our companies has to be approved by
a majority of the disinterested directors. We also make sure
that each of our boards of directors includes outside directors -
people who are not employees - and those outside directors must
approve any action that might present a conflict. For example,
if BICO issues warrants or loans money to Mssrs. Cooper, Feola or
Keeling, who are BICO directors, BICO's other disinterested
directors, including the outside directors, must approve the
warrants or loans first. The same policy applies to
Diasensor.com, Petrol Rem and ViaCirQ. We believe this policy
helps avoid conflicts that could hurt us.
WE DEPEND ON OUR KEY OFFICERS, AND WE WOULD SUFFER IF THEY LEFT.
We are dependent upon our key officers, David L. Purdy, the
president and CEO of our Biocontrol Technology division; and Fred
E. Cooper, our CEO. We do not have any key-man life insurance on
these men, and our business would suffer if they left for any
reason.
WE ARE DEPENDENT UPON EMPLOYEES AND INDEPENDENT CONTRACTORS WHO
ARE DIFFICULT TO REPLACE.
Because we are developing new technologies, devices and
engineering methods, we depend on certain employees and
independent contractors who may not devote their full-time
efforts to our operations. We depend on some of our employees
who have a specific expertise that is not common. We also need
independent contractors to assist us in areas where our employees
do not have the necessary expertise. If we lose the services of
any of these employees or independent contractors and are unable
to replace them, our business could suffer.
WE SOMETIMES NEED SUPPLIERS AND PARTS THAT ARE DIFFICULT TO FIND.
Our products involve designs that are new, and we often need
to have component parts fabricated especially for our
experimentation, testing and development. Suppliers for these
parts are not always readily available, or available at all, so
we have to create the parts in-house. This can result in delays
in our development - so far, these delays have not been material
- but we cannot assure you that they won't be material in the
future. If we are unable to obtain a supplier or create the
necessary parts ourselves, we have to redesign the product, which
also results in significant delays. Although we try to minimize
our dependence on custom parts when we design products,
unforeseeable problems can arise which negatively affect our
operations.
WE HAVE LIMITED COMMERCIAL MANUFACTURING EXPERIENCE, WHICH MAKES
IT HARDER FOR US TO COMPETE WITH MORE EXPERIENCED MANUFACTURERS.
We have a contractual duty to manufacture our medical
devices. We have leased space, which has been modified, for our
manufacturing needs, but our current management team has limited
experience with large-scale commercial manufacturing. If we are
not able to hire the right people, or to provide manufacturing
expertise ourselves, we will not be able to successfully
manufacture our biomedical devices, even if they are approved for
sale in the U.S., or even if we are able to make sales.
WE CANNOT SELL PRODUCTS WITHOUT GOVERNMENT APPROVAL. WE HAVE
BEEN, AND CONTINUE TO BE, INVOLVED IN A LONG, EXPENSIVE
GOVERNMENTAL APPROVAL PROCESS THAT WE MUST COMPLETE BEFORE WE CAN
SELL OUR PRODUCTS.
The Food and Drug Administration and other federal and state
agencies control many of our products. FDA approval is necessary
to market our biomedical products in the U.S. If we do not get
approval, we cannot sell our products in the U.S.
We are currently preparing a set of clinical trials for our
noninvasive glucose sensor - these trials will last approximately
nine months, and we hope to have FDA approval once the trials are
completed and the results are submitted. We have suffered
significant delays in the FDA approval in the past - those delays
occurred for several reasons, including the following. The FDA
did not give us a decision on the 510(k) Notification we
submitted in 1994 until 1996. In 1996, after the FDA's panel
refused to approve our submission, the FDA told us to make a
different filing, on a PreMarket Approval Application - known as
a PMA. Rather than immediately pursue the PMA, we decided to
focus on getting certification to sell our sensor in Europe,
which we completed in June 1998. We had serious cash flow
problems in 1998, and it delayed all of our projects further.
Late in 1998 and early 1999, we started the PMA process. We
filed the first module of our PMA in May 1999 and the second
module in May 2000. The FDA asked for more information in
September 1999, and we responded. Then, in November 1999, the
FDA asked for additional information. We finished compiling all
that additional information, and in July 2000 we submitted an
Investigational Device Exemption to the FDA that included the
protocol for our clinical trials. An Investigational Device
Exemption is a request to the FDA for approval to conduct
clinical trials on a device that is not FDA-approved. We still
don't know whether the FDA will be satisfied with this additional
information and the protocol for our clinical trials, and the FDA
could come back and ask us for more information, which would
cause more delays.
Once the FDA has accepted our information, we will begin our
clinical trials. We are working with outside biomedical
consultants to help us obtain FDA approval following these
clinical trials; however, we cannot assure you when or if that
will happen.
IF WE ARE HIT WITH PRODUCT LIABILITY CLAIMS THAT EXCEED OUR
INSURANCE, WE WILL HAVE TO PAY THE EXCESS.
We don't have any current product liability claims against
us, but we are engaged in activities that involve testing and
selling biomedical devices. These kinds of activities expose us
to product liability claims. We currently have $1,000,000 in
product liability insurance. If a claim against us is successful
and exceeds that amount, we could be liable for the balance.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK MAY BE VOLITILE, WE DO NOT TRADE ON AN
ESTABLISHED STOCK EXCHANGE, AND YOU MAY NOT BE ABLE TO SELL YOUR
STOCK AT OR ABOVE YOUR PURCHASE PRICE.
Our stock currently trades on the electronic bulletin board,
which is not a formal stock exchange. As a result, it may be
more difficult to obtain trading information than if our stock
still traded on the Nasdaq. Because our stock price did not meet
the Nasdaq Small-Cap market requirements implemented in 1998, we
were delisted and we're no longer able to trade there. Although
we have maintained acceptable trading volume since we left
Nasdaq, we cannot assure you that our trading volume will
continue. As a result, you may be unable to sell your stock when
you want to sell it. In addition, our stock price has fluctuated
significantly, and you may not be able to sell your stock at or
above your purchase price when you are ready to sell.
OUR STOCK IS CONSIDERED PENNY STOCK, SO IT'S SUBJECT TO
REGULATIONS THAT COULD MAKE IT MORE DIFFICULT FOR YOU TO SELL
YOUR STOCK.
Our stock is considered penny stock because of its low price.
The penny stock low-priced securities regulations could affect
the way you sell your stock, and the way our stock is sold. These
regulations require broker-dealers to disclose the risk
associated with buying penny stocks and to disclose their
compensation for selling the stock.
The regulations may have the effect of discouraging brokers
from trading our stock. For example, brokers selling our
stock have to obtain a written agreement from the purchaser and
determine that our stock is a suitable investment for that
purchaser. Many brokers will not want to bother with those
requirements, so they won't sell our stock, and that could reduce
the level of trading activity, making it more difficult for you
to sell your stock.
THE VOLATILITY OF OUR COMMON STOCK COULD EXPOSE US TO SECURITIES
LITIGATION.
In the past, following periods of volatility in the market
price of a company's securities, securities class action suits
have been filed. Due to the historic volatility of our common
stock, we may be particularly susceptible to this kind of
litigation. If it were to happen to us, the litigation would be
expensive and would divert our management's attention from
business operations. Any litigation that resulted in a finding
of liability against us would adversely affect our business,
prospects and financial condition, along with the price of our
stock. We have already been the subjects of one class action
lawsuit, which was filed in 1996. This lawsuit was filed in
connection with the disclosures surrounding our 1996 FDA panel
review, and was also related to the corresponding decline in our
stock price - from approximately $3.56 at the beginning of 1996
to approximately $0.94 at the end of 1996.
INVESTORS WILL INCUR IMMEDIATE DILUTION.
The price of our stock in this offering will be
significantly higher than its book value per share. If you buy
our stock in this offering, you will suffer an immediate and
substantial dilution in the net tangible book value per share
from the price you pay for the stock. We also have a large
number of outstanding warrants to purchase our common stock with
prices below the estimated offering price of our stock, and we
are currently offering an additional 313 million shares to raise
money to fund our operations. When we sell that additional
stock, and to the extent those warrants are exercised, additional
dilution will occur.
THE WAY WE SELL AND ISSUE STOCK COULD HAVE AN ANTI-TAKEOVER
EFFECT.
We sold convertible preferred stock and convertible
debentures and we intend to continue to sell stock to raise money
to fund our operations. When we issue those additional shares of
common stock, either from conversions of preferred stock or
debentures, or from sales of stock, the stock could be used to
oppose or delay a hostile takeover attempt or delay or prevent
changes in control or in our management. For example, without
further stockholder approval, our board of directors could
strategically sell stock to purchasers who would oppose a
takeover or a change in our management. Although our sales of
stock are based on our business and financial needs, and not on
the threat of a takeover, you should be aware that it could have
an anti-takeover effect. We are not aware of any takeover
attempts, but if a takeover was proposed, it could mean you might
be offered a premium for your stock over the market price - but
the way we issue and sell our stock could discourage a takeover
attempt.
WHERE YOU CAN FIND MORE INFORMATION
The securities laws require us to file reports and other
information. All of our reports can be reviewed at the SEC's
web site, at www.sec.gov through the SEC's EDGAR database. You
can also review and copy any report we file with the SEC at the
SEC's Public Reference Room, which is located at 450 Fifth
Street, N.W., Washington, D.C., or at the SEC's regional offices,
including the ones located at 601 Walnut Street, Curtis Center,
Suite 1005E, Philadelphia, PA 19106-34322; and 75 Park Place, New
York, NY. You can also order copies for a fee from the SEC's
Public Reference section, at 450 Fifth Street, N.W. Washington,
D.C. 20549. Our stock trades on the electronic bulletin board.
We will send you a copy of our SEC filings if you ask for
them. If you want to receive copies, please contact our
Shareholder Relations department at: Shareholder Relations
Department, BICO, Inc., 2275 Swallow Hill Road, Building 2500,
2nd Floor, Pittsburgh, PA 15220, by telephone at 412-429-0673 or
by fax at 412-279-1367.
Until 90 days after the effective date of this prospectus,
all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
USE OF PROCEEDS
We will not receive any proceeds from this offering. We are
registering our common stock on behalf of the selling
stockholders, who bought our convertible debentures and
convertible preferred stock. If and when the preferred
stockholders or the debenture holders sell their stock, they will
receive the proceeds.
DIVIDEND POLICY
We have not paid cash dividends on our common stock or our
preferred stock since our inception, and cash dividends are not
presently contemplated at any time in the foreseeable future. In
accordance with our Articles of Incorporation, cash dividends are
restricted under certain circumstances.
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2000 and December 31, 1999. The March 31, 2000
information is taken from our unaudited financial statements,
which are included in this prospectus. The December 31, 1999
information is taken from our audited financial statements, which
are also include in this prospectus.
March 31, 2000 December 31, 1999
(1) (1)
Stockholders' Equity
Common Stock, par value $.10
per share; authorized
1,700,000,000 shares; shares
issued and outstanding:
960,514,996 at March 31, 2000 $96,051,500 $95,610,050
and 956,100,496 at December 31,
1999
Series F 4% convertible
preferred stock, par value $10
per share,issued and outstanding 3,418,259 720,000
452,000 at March 31, 2000 and
72,000 at December 31, 1999
Additional paid-in capital 90,694,479 85,608,192
Warrants 6,673,878 6,791,161
Accumulated Deficit (190,306,004) (181,174,458)
------------- -------------
Total Capitalization $ 6,532,112 $ 7,554,945
============= =============
March 31, 2000 December 31, 1999
(1) Does not include the effects of the
following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.05 to $4.03 per share,
expiring through 2004. 27,476,162 29,896,662
The following table sets forth our capitalization as of
December 31, 1999 and 1998, and is made up of the figures taken
from our audited financial statements, which are included in this
prospectus and included a qualification regarding our ability to
continue as a going concern.
December 31, 1999 December 31, 1998
(1) (1)
Stockholders' Equity
Common Stock, par value
$.10 per share;
authorized 975,000,000
shares; shares issued $95,610,050 $42,077,357
issued and outstanding:
956,100,496 at
December 31, 1999 and
420,773,568 at
December 31, 1998
Series F 4% convertible
preferred stock, par
value $10 per share,
issued and outstanding 720,000 0
outstanding 72,000 at
December 31, 1999 and
none at December 31, 1998
Additional paid-in capital 85,608,192 92,725,285
Note receivable issued
for common stock- 0 (25,000)
related party (Note L)
Warrants 6,791,161 6,396,994
Accumulated Deficit (181,174,458) (143,101,880)
------------- -------------
Total Capitalization $ 7,554,945 ($ 1,927,244)
(Deficiency) ============= =============
December 31, 1999 December 31, 1998
(1) Does not include the effects
of the following:
Outstanding Warrants to purchase
common stock granted by the
Company, at exercise prices ranging
from $.05 to $4.03 per share,
expiring 1998 through 2004. 29,896,662 7,831,662
Note: In February 2000, our stockholders approved an increase in
the number of authorized shares of our common stock to 1.7
billion shares.
MARKET PRICE FOR COMMON STOCK
Our common stock trades on the electronic bulletin board
under the symbol "BICO". On August 2, 2000, the closing bid price
for the common stock was $.15. The following table sets forth
the high and low bid prices for our common stock during the
calendar periods indicated, through June 30, 2000. Because our
stock trades on the electronic bulletin board, you should know
that these stock price quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and they may not
necessarily represent actual transactions.
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
2000 First Quarter $1.050 $.051
Second Quarter $.400 $.160
We have approximately 80,000 holders, including those who hold in
street name, of our common stock, and 20 holders of our preferred
stock.
DESCRIPTION OF SECURITIES
Our authorized capital currently consists of 1,700,000,000
shares of common stock, par value $.10 per share and 500,000
shares of cumulative preferred stock, par value $10.00 per share.
Preferred Stock
Our Articles of Incorporation authorize the issuance of a
maximum of 500,000 shares of cumulative convertible preferred
stock, and authorize our board of directors to define the terms
of each series of preferred stock. In December 1999, our board
of directors authorized the creation of a Series F convertible
preferred stock. As of August 4, 2000 we had 452,000 shares of
our preferred stock outstanding, and we raised a gross total of
$5,085,000 from selling our preferred stock.
Our Series F Convertible Preferred Stock is not secured by any
of our assets, and it is convertible by its holders beginning 120
days from issuance. Our preferred stock can be converted to our
common stock at a price that is determined by computing 75% of
the average closing bid price for the four days prior to and the
day of conversion - or a 25% discount to a five-day average
trading price. There is no minimum conversion price, so the
lower the bid price of our stock, the more shares we will need to
issue when our preferred stock is converted - there is no limit
on the number of shares of our common stock that our preferred
stock can be converted into. This means that, if our stock price
is low, the preferred stockholders could own a large percentage
of our outstanding common stock - except that they have each
agreed not to own more than 5% of our common stock at any one
time. We can redeem our preferred stock. You should carefully
review our Risk Factors section for more risks associated with
our preferred stock, and the impact of conversions on your stock.
Some of the stock included in this prospectus is for our
selling stockholders who purchased our Series F Preferred Stock.
When they convert their preferred stock and get our common stock,
they may want to sell it, and you need to carefully review this
prospectus before you decide whether to buy it from them.
Common Stock
Holders of our common stock are entitled to one vote per
share for each share held of record on all matters submitted to a
vote of stockholders. Holders of our common stock do not have
cumulative voting rights, and therefore the holders of a majority
of the shares of common stock voting for the election of
directors may elect all of the directors, and the holders of the
remaining common stock would not be able to elect any of the
directors. Subject to preferences that may be applicable to the
holders of our preferred stock, if any, the holders of our common
stock are entitled to receive dividends that may be declared by
our board of directors.
In the event of a liquidation, dissolution or winding up of
our operations, whether voluntary or involuntary, and subject to
the rights of any preferred stockholders, the holders of our
common stock would be entitled to receive, on a pro rata basis,
all of our remaining assets available for distribution to our
stockholders. The holders of our common stock have no
preemptive, redemption, conversion or subscription rights. All
of our outstanding shares of common stock are, and the shares of
common stock to be sold in this offering will be, fully paid and
nonassessable. As of June 30, 2000, there were 962,825,628
shares of our common stock outstanding.
Dividends
We have not paid cash dividends on our common stock, with the
exception of 1983, since our inception. We do not anticipate
paying any dividends at any time in the foreseeable future. We
expect to use any excess funds generated from our operations for
working capital and to continue to fund our various projects.
Our Articles of Incorporation restrict our ability to pay cash
dividends under certain circumstances. For example, our board
can only declare dividends subject to any prior right of our
preferred stockholders to receive any accrued but unpaid
dividends. In addition, our board can only declare a dividend to
our common stockholders from net assets that exceed any
liquidation preference on any outstanding preferred stock.
Subordinated Convertible Debentures
We issued subordinated convertible debentures that have a one-
year term and are due in 2001. The debentures earn interest at
4% and are convertible into shares of common stock. As of August
4, 2000, we had $9,500,000 in subordinated debentures
outstanding. We raised a gross amount of $9,850,000 from the
sale of our debentures, $350,000 of those debentures were
converted at a price of $.152 per share during May 2000.
Our debentures are not secured by any of our assets, and are
subordinate to our corporate debt, except for related-party debt.
The debentures are convertible beginning 90 days from issuance.
Our debentures can be converted to our common stock at a price
that is determined by computing 80% of the average closing bid
price for the four days prior to and the day of conversion - or a
20% discount to a five-day average trading price. There is no
minimum conversion price, so the lower the bid price of our
stock, the more shares we will need to issue when our debentures
are converted - there is no limit on the number of shares of our
common stock that our debentures can be converted into. This
means that, if our stock price is low, the debenture holders
could own a large percentage of our outstanding common stock -
except that they have each agreed not to own more than 5% of our
common stock at any one time. We can redeem our debentures. You
should carefully review our Risk Factors section for more
information on the risks associated with our debentures and the
impact of debenture conversions on your stock.
Some of the stock included in this prospectus is for our
selling stockholders who purchased our subordinated convertible
debentures. When they convert their debentures and get our
common stock, they may want to sell it, and you need to carefully
review this prospectus before you decide whether to buy it from
them.
Employment Agreement Provisions Related to Changes in Control
We have employment 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", we must: issue to Mr. Cooper and Mr. Purdy
shares of common stock equal to 5%; issue to Mr. Feola 4%; issue
to Mr. Keeling 3%; and issue to the two non-executive officer
employees 2% each of our outstanding shares of common stock. For
purposes of these agreements, a change of control is deemed to
occur: when 20% or more of our outstanding voting stock is
acquired by any person; or when 1/3 or more of our directors are
not continuing directors, as defined in the agreements; or when a
controlling influence over our management or policies is
exercised by any person or by persons acting as a group within
the meaning of the federal securities laws.
Warrants
As of June 30, 2000, we had outstanding warrants to purchase
28,271,162 shares of our common stock. These warrants have
exercise prices ranging from $.06 to $4.03 per share and
expiration dates through April 26, 2005, and are held by members
of our scientific advisory board, certain employees, officers,
directors, loan guarantors, and consultants.
Holders of warrants are not entitled to vote, to receive
dividends or to exercise any of the rights of the holders of
shares of our common stock for any purpose until the warrant
holder properly exercises the warrant and pays the exercise
price.
Transfer Agent
Chase-Mellon Shareholder Services in New York, New York acts
as our Registrar and Transfer Agent for our common stock. We act
as our own registrar and transfer agent for our preferred stock
and warrants.
SELLING STOCKHOLDERS
This prospectus covers the shares of common stock that may
be offered by the selling stockholders set forth below. None
of the selling stockholders have had a material relationship with
us within the last three years, and they are not affiliated with
us other than through their ownership interest in our preferred
stock or debentures. Except as noted, none of the selling
stockholders are affiliated with each other. Some stockholders
listed are companies or investment funds, rather than
individuals. Unless the investors who own those funds are
numerous, we've listed the individual owners. We prepared the
table below based on the information provided to us by the
selling stockholders.
You should know that, based on the agreements our selling
stockholders signed when they bought our preferred stock or
debentures, they are not permitted to own 5% or more of our
stock.
The selling stockholders bought either our convertible
preferred stock or our convertible debentures. We sold our
convertible preferred stock during late December 1999 through
early March 2000, and we received gross proceeds of $5,650,000
with net proceeds of $5,085,000 from those sales. We sold our
convertible debentures during February and March 2000, and we
received gross proceeds of $9,850,000 with net proceeds of
$8,865,000 from our debenture sales. As of the date of our last
financial statements, which was March 31, 2000, we hadn't yet
used the proceeds from our convertible preferred stock or our
debentures. We plan to use the proceeds to continue to fund our
various products.
We calculated the number of shares for each selling
stockholder using a good faith estimate. We based our estimate
on our recent stock price, as well as our historical prices. The
number of shares for each selling stockholder includes shares we
might issue to pay interest on their convertible securities. We
can choose whether to pay their interest in stock or in cash. If
our stock price stays at around $.15, where it has been trading
for the past month or so, we will not need to issue as many
shares as we've included; if our stock price goes down we may
have to issue more.
Any or all of the shares listed below may be offered for
sale by the selling stockholders from time to time and,
therefore, we can't give an estimate as to the number of shares
that will be held by the selling stockholders when we terminate
this offering. Unless we indicate otherwise, the selling
stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
The first part of the table lists the selling stockholders
who own our Series F convertible preferred stock, all of which
are convertible at any time. The second part of the table lists
the selling stockholders who own our convertible subordinated
debentures, which are also convertible at any time, and are due
beginning in February 2001. The last column shows the percentage
of ownership of each individual or entity shown assuming all
shares registered in this prospectus are sold, when compared to
the total number of shares of our common stock outstanding as of
June 30, 2000. An asterisk - * - indicates less than one
percent.
Selling Stockholders Number of Beneficial Beneficial
Shares Ownership Ownership
Offered Prior to After Sale
Sale
Series F Preferred
Nachum Stein 1,000,000 1,000,000 *
Cache Capital, L.P. 2,500,000 2,500,000 *
Guardian Commercial, 4,500,000 4,500,000 *
owned by Ryan O'Neill
GPS America Fund, Ltd. 1,000,000 1,000,000 *
Carpe Diem, Ltd. 1,000,000 1,000,000 *
Markham Holdings 3,000,000 3,000,000 *
Howard Weiss 2,500,000 2,500,000 *
Lampton, Inc. 2,000,000 2,000,000 *
Wayne Invest & Trade 2,500,000 2,500,000 *
L&H Family Foundation, 1,000,000 1,000,000 *
owned by Lawrence and
Hindy Friedman
Ashfield Investment 5,000,000 5,000,000 *
Correllus 2,000,000 2,000,000 *
International, Ltd.
Econor Investment 5,000,000 5,000,000 *
Arab Commerce Bank 1,500,000 1,500,000 *
Enrique DeNegri 1,000,000 1,000,000 *
Musdos Hachesed 1,000,000 1,000,000 *
Englewood Holdings 5,000,000 5,000,000 *
Mantle International 5,000,000 5,000,000 *
Clearview Int. 5,000,000 5,000,000 *
Investments
Burnstein & Lindsey 5,000,000 5,000,000 *
4% Subordinated
Debenture Holders
Farnsworth Association, 156,980 156,980 *
owned by Jonas Singer
and Michael Koretsky (1)
Jara Group, owned by 313,959 313,959 *
Michael and Rose
Koretsky (1)
Michael Koretsky (1) 313,959 313,959 *
Ted Liebowitz 3,139,595 3,139,595 *
Doug Monas 156,980 156,980 *
Eytan Sugarman 533,730 533,730 *
Leon Kahn 313,959 313,959 *
Kador Investment, 627,919 627,919 *
owned by Gerald Selbst
Chava Scharf 313,959 313,959 *
Gross Foundation, 1,255,838 1,255,838 *
owned by Chaim Grosf
Mark Garfunkkel 313,959 313,959 *
Brass Capital LLC (2) 156,980 156,980 *
Jos McGuire and Wilma 313,959 313,959 *
Rossi
Yosef Davis 627,919 627,919 *
Kurt Fichthorn 627,919 627,919 *
Jaime Radusky 251,167 251,167 *
Claire Brook IRA 313,959 313,959 *
Starling Corporation 1,883,757 1,883,757 *
Jolie Investors LLC (3) 27,628,427 27,628,427 *
Friends of Arachim 1,255,838 1,255,838 *
Amro International 2,511,675 2,511,675 *
CALP II, L.P. 6,279,188 6,279,188 *
Briencrest Avenue LLC 12,558,375 12,558,375 *
(1) These selling stockholders are affiliated with each other
through their ownership in entities other than us.
(2) Bill Slutsky, Alan Pearlstein and Steven Goodman own this
company.
(3) WEC Asset Management, LLC, has voting and investment control
over these shares.
The following table shows, for our convertible preferred
stock and our convertible debentures, certain information that
might be helpful in making your investment decision. We listed
the investments - whether preferred stock or debentures - in
chronological order. As you can see, only a small amount has
been converted so far. The stock price listed is the closing
bid price of our stock on the date listed. When we use a range
of dates, we computed the stock price based on the average
closing bid price for each day in the range. The most current
information in the table is as of August 2, 2000, when our closing
bid price was $.15.
Type and Amount Number of Issue Stock Number of Number of
amount of Converted Shares Date Price on Shares if Shares if
Investment Through Issued on Issue Converted Converted
8/2/00 Conversion Date/Range on on
Issue August 2,
Date 2000
Preferred 0 0 12/20/99- $.052 23,076,923 7,594,937
Stock - 12/29/99
$900,000
Preferred 0 0 1/11/00 $.093 1,433,692 843,882
Stock -
$100,000
Preferred 0 0 1/21/00- $.157 6,837,607 6,751,056
Stock - 1/28/00
$800,000
Preferred 0 0 2/3/00- $.179 3,728,561 4,219,409
Stock - 2/8/00
$500,000
Preferred 0 0 2/14/00- $.323 2,687,061 5,485,232
Stock - 2/15/00
$650,000
Debentures - 0 0 2/15/00 $.335 4,981,343 10,561,709
$1,335,000
Debentures - $350,000 2,302,632 2/16/00 $.313 5,600,000 11,075,949
$1,400,000
Debentures - 0 0 2/18/00 $.375 3,716,667 8,821,202
$1,115,000
Preferred 0 0 2/18/00- $.483 1,656,315 5,063,291
Stock - 2/23/00
$600,000
Debentures - 0 0 2/25/00 $.900 1,388,889 7,911,392
$1,000,000
Preferred 0 0 3/1/00- $.674 4,154,303 17,721,519
Stock - 3/6/00
$2,100,000
Debentures - 0 0 3/1/00- $.674 9,259,259 39,556,962
$5,000,000 3/6/00
You should review our risk factors that begin "When we sell our
stock or convertible securities like our debentures or preferred
stock, it dilutes our existing stockholders."; "When we issue
convertible securities like our debentures or preferred stock,
the number of shares we issue upon conversion is significantly
discounted from the market price"; and "Because we have sold
convertible debentures and preferred stock, it could have a
negative impact on our stock price on pages 8-10 for related
information.
PLAN OF DISTRIBUTION
The shares stock in this prospectus will be sold by the
Selling Stockholders, and will not be underwritten. They may sell
the shares of common stock from time to time in one or more
transactions. The offering price will fluctuate with the market
price for our stock, so they will sell the stock at various
prices. They may sell this stock directly, or they may hire
brokers or other licensed agents to sell it for them, in which
case the selling stockholder will give those brokers or agents
some consideration, which could take the form of a commission or
other payment.
Selling stockholders and any broker-dealers participating in
the sale of our stock may be considered underwriters within the
meaning of section 2(11) the Securities Act of 1933.
Particularly if they act as principals, any commissions or
profits received by broker-dealers or selling stockholders from
the sale of our stock may be considered underwriting compensation
under the Securities Act. If anyone who participates in this
offering is deemed to be an underwriter, then any consideration
received may be deemed to be underwriting discounts or
commissions under the federal securities laws.
If any selling stockholder makes a particular offer that
triggers certain securities law filing requirements, they have an
obligation to tell us, and we will file a supplement to this
prospectus that sets forth the number of shares being offered and
the terms of the offering, including the name or names of any
underwriters, dealers, brokers or agents, the purchase price paid
by any underwriter for the shares and any discounts, commissions
or concessions allowed or reallowed to dealers, including the
proposed selling price to the public.
In order to comply with the securities laws of certain
jurisdictions, the selling stockholders may be required to sell
stock only through registered or licensed brokers or dealers. In
addition, they may not be able to sell any stock in certain
states unless we register the stock in those states on their
behalf or otherwise comply with applicable state securities laws
by exemption, qualification or otherwise.
STOCK ELIGIBLE FOR FUTURE SALE
As long as this registration statement remains effective with
the SEC and we remain current in our SEC filings, the stock will
be freely transferable without restriction or further
registration unless they are acquired by one of our affiliates.
Affiliates generally include our officers and directors and any
other person or entity that controls, is controlled by, or is
under common control of BICO. Any affiliates who acquire stock
from this offering will continue to be subject to the volume
restrictions of Rule 144, as we describe below.
In general, under Rule 144 as currently in effect, our
affiliates and any person, or persons whose stock is aggregated,
who has beneficially owned restricted stock for at least two
years would be entitled to sell within any three-month period a
number of shares of stock which does not exceed the greater of:
1% of the then outstanding shares of our common stock; or the
average weekly trading volume of our common stock during the four
calendar weeks preceding such sale. Rule 144 also requires those
sales to be placed through a broker or with a market maker on an
unsolicited basis and requires that there be adequate current
public information available concerning our company. A person who
is deemed not to have been our affiliate at any time during the
three months preceding a sale, and who has beneficially owned
restricted stock for at least one year, would be entitled to sell
the stock under Rule 144(k) without regard to any of the
limitations discussed above. Restricted stock properly sold in
reliance on Rule 144 are thereafter freely tradable without
restriction or registration, unless the stock is later held by an
affiliate.
We can't make any predictions as to the effect that sales of
our common stock or the availability of stock for sale will have
on the market price of our common stock. Nevertheless, sales of
any substantial amounts of common stock in the public market will
probably adversely affect the prevailing market price.
SELECTED FINANCIAL DATA
FOR THE QUARTER ENDED MARCH 31, 2000 (UNAUDITED) AND
THE YEAR ENDED DECEMBER 31, 1999
3/31/2000 12/31/99
Total Assets $24,203,821 $15,685,836
Long-Term
Obligations $ 1,306,241 $ 1,338,387
Working Capital $ 2,382,342 $ 4,592,935
Preferred Stock $ 3,418,259 $ 720,000
Net Sales $ 18,998 $ 112,354
TOTAL REVENUES $ 18,998 $ 165,251
Warrant $ 0 $ 4,669,483
Extensions
Benefit (Provision) $ 0 $ 0
for Income Taxes
Net Loss ($ 9,131,546) ($38,072,578)
Net Loss Per
Common Share
Basic ($.01) ($.05)
Diluted ($.01) ($.05)
Cash Dividends
Per Share:
Preferred $0 $0
Common $0 $0
Constructive
Dividend per $1.73 $0
Preferred Share
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 $ 1,338,387 $ 1,412,880 $ 2,697,099 $ 2,669,727 $ 175,330
Obligations
Working Capital $ 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 $ 165,251 $ 1,196,180 $ 1,260,157 $ 600,249 $ 461,257
Other Income $ 1,031,560 $ 182,033 $ 165,977 $ 176,478 $ 294,734
Warrant
Extensions $ 4,669,483 $ 0 $ 4,046,875 $ 9,175,375 $12,523,220
Benefit
(Provision) $ 0 $ 0 $ 0 $ 0 $ 0
for Income Taxes
Net Loss ($38,072,578)($22,402,644)($30,433,177)($24,045,702)($29,420,345)
Net Loss per
Common Share:
Basic ($.05) ($.08) ($.43) ($.57) ($.84)
Diluted ($.05) ($.08) ($.43) ($.57) ($.84)
Cash Dividends
per share:
Preferred $0 $0 $0 $0 $0
Common $0 $0 $0 $0 $0
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is a summary of the more detailed information
in our financial statements. You should carefully review those
financial statements before you decide whether to invest in our
stock.
Forward-Looking Statements
This section contains forward-looking statements. We discussed
these kinds of statements on page 29, and you should review that
section.
Liquidity and Capital Resources
For the Quarter ended March 31, 2000
Our cash increased to $17, 521,694 as of March 31, 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; and $899,420 from warrants
exercised. Our Series F Convertible Preferred Stock is not
secured by any of our assets, and it is convertible by its
holders beginning 120 days from when it's issued. Our preferred
stock can be converted to our common stock at a price that is
determined by computing 75% of the average closing bid price for
the four days prior to and the day of conversion - or a 25%
discount to a five-day average trading price. There is no
minimum conversion price. Our
Subordinated convertible debentures are not secured by any
assets, and are subordinate to our corporate debt, except for
debt to any related parties. Our debentures are convertible
beginning 90 days from when we issue them. They can be converted
to common stock at a price that is determined by computing 80% of
the average closing bid price for the four days prior to and the
day of conversion - or a 20% discount to a five-day average
trading price. There is no minimum conversion price.
During the quarter ended March 31, 2000 our net cash flow used by
operating activities was ($6,787,907). During
the same quarter, our net cash flow used by investing activities
was ($1,484,210) due primarily 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 quarter 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. We also invested an additional
$123,000 in American Inter-Metallics, bringing our total investment in AIM's
rocket propulsion project to $648,000. 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. 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. Diasensor.com invested $500,784 in Diabecore
and received a 12% 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 $1,623,111 at March 31, 2000. The money we spent investing in those four
companies came from stock and debenture sales during 1999. All the investments
were our initial investments in those companies, except American Inter-
Metallics-we've invested a total of $648,000 in AIM as of March 31, 2000.
Our net inventory decreased from $10,308 as of December 31, 1999
to $2,801 as of March 31, 2000 as a result of certain
evaluations and write-offs of existing inventory. Current -
short-term - notes receivable increased by $55,000 due to a note
to one individual that is being repaid currently, with a full
payoff by August 1, 2000, 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 zero at March 31,2000 due to timing of interest payments on
certain debt. Prepaid expenses increased from $192,246 at
December 31, 1999 to $271,441 as of March 31, 2000 due to
expenses incurred in the ordinary course of business.
Other current assets of $500,000 resulted from a deposit we made
during the first quarter on a transaction that we later
cancelled; we expect to have the deposit returned during the
third quarter of 2000. Leasehold improvements
increased by $61,660; machinery and equipment increased by
$97,698; and furniture, fixtures and equipment increased $50,075
during the first quarter due to purchases we made in connection
with our noninvasive glucose sensor project.
Related party receivables decreased by $35,285 during the first
quarter due to scheduled repayments on related party debt.
Notes receivable increased by $200,000 when a note previously
carried as a current asset was reclassified as a long-tem asset.
Debentures payable of $9,850,000 were incurred because we sold
convertible subordinated debentures during the first quarter to raise
capital to fund operations. Accrued liabilities decreased from
$1,794,370 to $1,309,656 when we paid employees accrued bonuses
during the first quarter.
For the year ended December 31, 1999
Our working capital was $4,592,935 at December 31, 1999 as
compared to a working capital deficiency of ($9,899,008) at
December 31, 1998 and working capital of $888,082 at December 31,
1997. Working Capital fluctuations occur primarily because we
raise different amounts of money from year to year. We raised
approximately $30,730,000 in 1999, $10,720,000 in 1998; and
$22,300,000 in 1997. Changes in net inventory and accounts
payable also affect working capital - our net inventory decreased
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 our
accounts payable decreased from $1,750,188 at December 31, 1998
to $759,733 at December 31, 1999.
Our 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 due to the following
factors: we sold securities totaling $30,730,000 during 1999;
$10,720,000 during 1998; and $22,300,000 during 1997. During
those periods, our cash flows used by operating activities
totaled $18,411,002; $11,855,294; and $19,121,752; respectively.
During 1998 and 1997, those activities included a $ .8 and $2.1
million increase in inventory reserves, respectively. During
1998, we spent cash and other resources when we purchased a
majority interest in a metal-coating company. Because that
investment did not perform as we anticipated, we had to write
down assets, including goodwill, in 1999. We also discuss those
write downs in the next paragraph. In addition, we recorded a $4
million charge against operations due to warrant extensions by
our subsidiaries in 1997, with a similar charge of $5.9 million
in 1999.
Our other assets decreased from $4,803,384 at year-end 1998 to
$710,619 at year-end 1999. $4.4 million of the decrease was due
to the write down of goodwill - we had to write off assets when
we determined that our investment in a metal-coating company did
not perform as we expected. We also invested $525,000 in
American Inter-Metallics, a company that is developing products
designed to enhance rocket propulsion performance. We carry that
AIM investment on our balance sheet as a $485,284 investment in
an unconsolidated subsidiary. The difference between the actual
investment and the balance sheet amount is due to certain
accounting rules known as the equity basis of reporting.
Our 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 we incurred when we had cash flow
problems during 1998. During 1999, we loaned approximately
$150,000 to Bio-Med, Inc. d/b/a B-A-Champ.com, $100,000 of which
was repaid during 1999, and the balance of which, including
interest, is due in November 2000. In return, we received a 6.5%
equity interest in that company, which is majority-owned by Fred
E. Cooper, our CEO.
We continued to fund operations mostly by selling our securities.
During 1999, we raised approximately $30,730,000 from the sales
of securities, including $810,000 from sales of our Series F
preferred stock. During 1997, 1998 and 1999 we issued
$20,200,000; $10,720,000 and $29,020,000, respectively, of our
subordinated convertible debentures. The debentures had one-year
terms, minimum holding periods prior to conversion and mandatory
conversion provisions. When those debentures were converted, we
issued 8,059,902; 28,013,436 and 51,501,374 shares of stock,
respectively during 1997, 1998 and 1999. During 1997, we sold
22,000 shares of our Series B preferred stock; we issued 691,337
shares of stock when the Series B preferred was converted during
1997.. All of the debentures were converted or redeemed before
the end of 1999. During 1999, we redeemed $4,130,000 in
debentures - we still had the money from selling the debentures,
and we used some to buy some debentures back so we wouldn't have
to issue more stock.
As of December 31, 1998 and 1997, the conversion price of our
outstanding debentures would have been approximately $.059 and
$.146 per share, respectively, based upon a formula that 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 our current limited sources of revenue, we will have to
find additional financing that we'll use to finance development
of, and to proceed to manufacture, our noninvasive glucose sensor
and to complete the development of our other projects. We can't
assure you that we'll be able to find that additional financing.
Our products are at various stages of development and we'll need
more money to complete them. We may decide to discontinue any of
our projects at any time if research and development efforts
dictate that's the best thing to do.
We currently have commitments for capital leases on certain
equipment and we'll have to commit to other capital leases so we
can continue to develop and manufacture our products.
Our financial statements contain a going concern opinion from our
auditors. Our auditors issued that opinion because we have a
history of losses and no revenue to support our operations. We
get money to fund our operations by selling securities - and we
don't know if we'll be able to continue to raise enough money
that way. Because we're not sure - and our auditors are not sure
- how long we can continue, our financial statements include the
auditor's opinion that we may not be able to continue operating
as a going concern. As of March 2000, we estimated that we have
enough money to continue operations for a year. We estimate that
between the money we have and the money we can raise by selling
stock, we'll be able to complete the research and development of
our noninvasive glucose sensor, complete the FDA approval process
and begin to market and manufacture the device. We have a
history of successful capital-raising efforts; since 1989, and
through December 1999, we, along with Diasensor.com, have raised
over $137,000,000 in private and public offerings alone.
In prior years, we met a portion of our short-term working
capital needs through development contracts with other
organizations and through manufacturing for other companies on a
contractual basis. During 1997 and 1998, we received 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. Functional
electrical stimulators, known as FES products, are implanted
under the skin of patients who are disabled as a result of spinal
cord injury, stroke, head injury or other neurological disorder.
The FES uses low levels of electrical stimulation to activate
nerves and muscles to assist the patient with grasping, arm
movement or standing. Those contracts generated revenues of
$880,919 and $1,028,484 in 1997 and 1998, respectively. During
1998, the orders and those contracts were cancelled by the other
parties. As a result, we terminated FES project activities for
the present, and we don't anticipate any additional revenue from
those activities in the future.
Given our expenses and the other factors we discussed, as
compared to our sources of funds, we estimate that we will be
able to meet our funding needs for at least a year from December
31, 1999. We make that estimate based in part because we are not
aware of any extraordinary technological, regulatory or legal
problems. If any of those problems, which could include
unanticipated delays resulting from new developmental hurdles in
product development, FDA requirements, or the loss of a key
employee, arise, we would have to re-evaluate our position. We
can't assure you that, despite our good-faith efforts, our
estimates will be correct.
We think that our long-term liquidity needs will include working
capital to fund manufacturing expenses for our products and
continued research and development expenses for existing and
future projects. If our projects are delayed, we will need more
money. We believe we will be able to continue selling our stock
and other securities in order to raise funds, but we can't assure
you we will be successful. If we can't raise enough money to
fund our projects and operations, we will not be able to
continue. We don't have any other sources of funds, such as bank
lines of credit. We believe that, at some point, we will be able
to sell our products to generate revenue, but we can't assure you
when, or if, that will happen.
Results of Operations
For the quarter ended March 31, 2000
Our sales and corresponding costs of products sold during the
first quarter decreased to $18,998 and $30,660 respectively in
2000 from $27,230 and $66,419 in 1999. The decreases were due
to fluctuations in sales of our various products. Our costs
increased because we continue to create inventory of the products
we are trying to sell. However, our overall sales have decreased
because we have not been able to successfully market our products.
For example, we had sales of the Diasensor totaling $9000 in the
first quarter of 1999, and no sales of the Diasensor during the
first quarter of 2000, because we haven't been able to successfully
sell the device in Europe. We had minor sales totaling $3500 of
other biomedical products during the first quarter of 1999, but we
discontinued those products and had no similar sales in 2000. Our
other product sales increased, but not significantly. Bioremedication
product sales totaled $9200 during the first quarter of 1999, with
a slight increase to $9400 during the first quarter of 2000. During
the first quarters of 1999 and 2000, sales of $3100 and $5400,
respectively were from sales of our theraPORT, an implantable device
used by patients who have to have repeated injections of drugs.
The theraPORT is implanted in the patient's chest, and provides a
fixed port for catheters used to deliver the drugs the patient needs.
We also had sales of our metal coating products totaling $2400 during
the first quarter of 1999 and $4150 during the first quarter of 2000.
Until we have significant sales, we can't predict any trends for future
revenues.
Interest income increased during the first quarter to $164,318 in
2000 from $26,706 in 1999. The increase occurred because we had
more funds to invest.
Other Income decreased from $6,767 during the first quarter of
1999 to zero during the first quarter of 2000. The decrease was
due to the loss of rental income.
Research and Development expenses during the first quarter
increased to $2,150,323 in 2000 from $743,845 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.
Selling, General and Administrative expenses during the first
quarter increased to $4,188,967 in 2000 from $2,443,443 in 1999.
The increase primarily due to additional expenses in the
following areas: a $635,000 increase in salaries; a $398,000
increase in commissions on sales of our debentures and preferred
stock; and a $190,000 increase in expenses recognized for
warrants granted.
We had a loss in unconsolidated subsidiary during the first
quarter of $8,750. This loss resulted because we absorbed part
of a loss incurred by an unconsolidated subsidiary. 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.
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 its issuance of our subordinated
convertible debentures in the first quarter of 2000 compared to
$945,730 for the same period in 1999. The amount increased
primarily because we issued more debentures this year compared to
last year.
Similarly, we recognized a beneficial conversion feature for our
preferred stock during the first quarter of 2000. As of March
31, 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 is recognized as a constructive dividend on our preferred
stock over 120 days. The amount of the constructive dividend
recognized in the first quarter of 2000 totaled $781,592 - or
$1.73 per preferred share. We charged the $781,592 to additional
paid-in capital. We did not have any of these charges or
constructive dividends during the first quarter of 1999 because
we had not yet issued our preferred stock.
For the year ended December 31, 1999
The following seven paragraphs discuss the Results of Operations
of our entire company based on our consolidated financial
statements. We discuss our business segments at the end of this
section.
In 1999, our net sales decreased to $112,354 from $1,145,968 in
1998 and $1,155,907 in 1997. The primary reason for the decrease
was that we lost our FES contracts and discontinued FES
operations. In addition, Petrol Rem's product sales declined.
You should review the segment discussion in this section for more
information on Petrol Rem's sales.
In 1999, 1998 and 1997, we received interest income in the amount
of $1,031,560; $182,033; and $165,977, respectively. The
increase occurred because we had more money - which came mostly
from our securities sales - to invest during 1999 than we did in
1998 or 1997. Our 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 we raised
during those years.
In 1999, our 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 corresponding decreases in product sales, and the loss
of our FES contracts.
Our 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 our realignment of personnel and
resources in an effort to obtain a CE Mark so we can sell 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 following: aggregate compensation to
executive officers, including salaries and bonuses from BICO and
its subsidiaries, increased by approximately $1 million from 1998
to 1999, as set forth more fully in the Executive Compensation
section. In addition, we had increased expenses in the form of
funds paid to outside consultants and other advisors, who were
retained primarily to assist us in our efforts to accelerate our
various projects, including: a $294,000 increase for the
hyperthermia project; a $230,000 increase for the bioremediation
project, and a $124,000 increase for the noninvasive glucose
sensor project, respectively, from 1998 to 1999.
During 1999, we re-evaluated our investment in the metal-coating
project and determined that an impairment charge of $5,060,951
was necessary in addition to a $39,716 write-down of goodwill.
We recognized these charges because we determined we would not
be able to recover our investment.
We recognize charges and expenses when we issue our convertible
debentures. Debt issue costs were $3,458,300 in 1999 as compared
to $1,865,682 in 1998 and $3,306,812 in 1997. Charges for
beneficial convertible debt features were $7,228,296; $3,799,727
and $6,278,853 in 1999, 1998 and 1997, respectively. The
fluctuations are directly related to the varying amounts of
debentures issued during those years, which were $33,150,000 in
1999; $10,720,000 in 1998 and $20,230,000 in 1997. We determined
the amount of the beneficial conversion debt charges based on the
amount of debentures outstanding for each of those periods, along
with the amount of the discount to the market price of our common
stock upon conversion, which ranged from 12% to 23%, depending on
the holding periods prior to conversion.
During 1997 and 1999 our subsidiary, Diasensor.com, extended
warrants originally granted to certain officers, directors,
employees and consultants. Because the exercise price of some of
those warrants ($.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. For more detailed information, you should read
Note J to our financial statements.
Interest expense on our outstanding debt 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 our subordinated debentures.
In 1999, unrelated investors' interest in net loss of subsidiary
decreased to $24,164 from $1,385,485 in 1998 and $2,411,920 in
1997. Unrelated investors' interest is an entry on our statement
of operations that is different from income or expense entries.
It represents the total amount of our subsidiaries' losses that
is allocated to other people. When our subsidiaries lose money,
we, as majority owner, have to take a charge for our share of
those losses, but we are allowed to deduct the portion of the
losses that are allocated to the other owners - called the
unrelated investors. This means that the entry for the unrelated
investors' share of the losses actually decreases our total net
loss, because it gives us credit for the part of the loss
allocated to the unrelated investors. The significant decrease
from 1997 through 1999 is due to the declining net worth of
Diasensor.com, our 52% owned subsidiary. In 1997 and 1998,
Diasensor.com's losses were less than the interest of its
unrelated investors. Therefore, those unrelated investors shared
in the losses to the extent of their ownership - 48%, and we were
able to deduct their share of the loss. In 1999,
Diasensor.com's losses were more than the interest of its
unrelated investors, which were $24,164. Therefore, accounting
rules require that we - as majority owner - take full
responsibility for all of Diasensor.com's losses that exceeded
that $24,164, and only deduct that small amount from our losses.
Segment Discussion
For purposes of accounting disclosure, we provide the following
discussion regarding three business segments: Biomedical
devices, which includes the operations of Biocontrol Technology
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 our 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 BioSok. Other reasons for the decline are as
follows: due to cash flow problems in 1998, Petrol Rem stopped
funding its sales efforts and lost employees. In 1999, Petrol
Rem restructured its management, operations and pricing structure
- during that time, sales efforts slowed until the new management
and funding was in place. 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 BioSok
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 our 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, we
discontinued our marine paint products segment, and no activity
occurred in 1999.
Income Taxes
Due to our net operating loss carried forward from previous years
and our current year losses, no federal or state income taxes
were required to be paid for the years 1987 through 1999. As of
December 31, 1999, we and our subsidiaries, except for
Diasensor.com and Petrol Rem, had available net operating loss
carry forwards for federal income tax purposes of approximately
$110,800,000, which expire during the years 2000 through 2020.
BICO's BUSINESS
General Development of Business
Biocontrol Technology, Inc. was incorporated in the Commonwealth
of Pennsylvania in 1972 as Coratomic, Inc. We changed our
corporate name to BICO, Inc. in June 2000. Our biomedical
division is headquartered at 625 Kolter Drive, Indiana, PA, and
our corporate administrative offices are located at 2275 Swallow
Hill Road, Bldg. 2500, Pittsburgh, PA.
Our primary business is the development of new devices, which
include models of a noninvasive glucose sensor, procedures
relating to the use of regional extracorporeal hyperthermia in
the treatment of cancer, and environmental products, which help
to clean up oil spills. Our noninvasive glucose sensor helps
diabetics measure their glucose without pricking their fingers or
having to draw blood. Regional extracorporeal hyperthermia is a
system that re-circulates the patient's blood in a specific area
of the body after the blood has been heated outside the body.
The re-circulated blood's higher temperature helps treat certain
diseases by inducing an artificial fever that kills targeted
cells.
We have several subsidiaries that specialize in those different
projects. Diasensor.com, Inc. manages the noninvasive glucose
sensor project. ViaCirQ, Inc. - which was formerly named IDT,
Inc. - handles the hyperthermia project, a technology called the
ThermoChem System, that induces an artificial fever to help
treat diseases. Petrol Rem, Inc. handles our environmental
products PRP, BIOSOK and BIOBOOM that help clean up oil spills
and other pollutants in water.
In June 2000, we decided to create a new division to focus on our
biomedical products. The new division retained the name
Biocontrol Technology, and is headquartered at our Indiana,
Pennsylvania location. David L. Purdy decided to resign his
position as a director and chairman of the board in order to
become the president and CEO of the new division so he can focus
his full-time efforts and energy on the continued development and
refinement of our noninvasive glucose sensor. Mr. Purdy will
also remain the chairman of the board of Diasensor.com, Inc.
Forward-Looking Statements
From time to time, we may publish forward-looking statements
relating to such matters as anticipated financial performance,
business prospects, technological developments, new products,
research and development activities, the regulatory approval
process, specifically in connection with the FDA marketing
approval process, and similar matters. You need to know that a
variety of factors could cause our actual results to differ
materially from the anticipated results or other expectations we
expressed in our forward-looking statements. The risks and
uncertainties that may affect our operations, performance,
research and development and results include the following:
additional delays in the research, development and FDA marketing
approval of the noninvasive glucose sensor; delays in the
manufacture or marketing of our other products and medical
devices; our future capital needs and the uncertainty of
additional funding; competition and the risk that the noninvasive
glucose sensor or our other products may become obsolete; our
continued operating losses, negative net worth and uncertainty of
future profitability; potential conflicts of interest; the status
and risk to our patents, trademarks and licenses; the uncertainty
of third-party payor reimbursement for the sensor and other
medical devices and the general uncertainty of the health care
industry; our limited sales, marketing and manufacturing
experience; the amount of time or funds required to complete or
continue any of our various products or projects; the attraction
and retention of key employees; the risk of product liability;
the uncertain outcome and consequences of the lawsuits pending
against us; our ability to maintain a trading market for our
common stock; and the dilution of our common stock.
Description of Business
Development of the Noninvasive Glucose Sensor
We, along with 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.
Our initial research and development with insulin pumps led to a
theory by which blood glucose levels could be detected
noninvasively by correlating points on the infrared spectrum that
are reflected by electromagnetic energy through the skin. We
studied this method in 1986 and 1987 using laboratory instruments
and working with consultants at Battelle Memorial Institute in
Columbus, Ohio. 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 additional work, led to a patent application by our
research team in 1990. A patent covering the method was granted
to the research team and assigned to us in December 1991.
Diasensor.com purchased those patent rights from us under a
purchase agreement. We filed a second patent application in
December 1992, which was granted in January 1995. That second
filing contained new claims, which extended the coverage of the
patent based on additional discoveries and data obtained since
the original patent was filed. We assigned the rights to that
patent to Diasensor.com. We developed additional concepts to
improve the capability of the instrument to recognize blood
glucose, and, in May 1993, we filed corresponding patent
applications. As of August 2000, a total of nine patents have been
issued, with additional patent applications pending. We have the
right to develop and manufacture sensors based on contracts with
Diasensor.com.
Our research team advanced this technology base through the
development of several research prototypes, which were tested in
human clinical trials. We conducted a trial on 110 human
subjects in March 1992. In that trial, we recorded spectral,
blood and chemical data for analysis in order to develop
calibration data for the noninvasive glucose sensor. We
conducted a second trial on 40 human subjects in July 1992 that
indicated that the device did not have a satisfactory signal-to-
noise ratio to allow for sufficient accuracy to be acceptable for
patient use. Signal-to-noise ratio is determined by the
relationship of the signal, which is the glucose level, and the
noise, which are the random interferences, such as differences in
skin surfaces. We conducted other at several testing sites under
the guidance of the sites' Institutional Review Board using
prototypes, which addressed the signal -to-noise problem. We
designed and constructed those prototypes to simulate production
models.
On January 6, 1994, we submitted our initial 501(k) Notification
to the Food and Drug Administration for approval to market the
production model, the Diasensorr1000. A 510(k) Notification is a
type of FDA filing used to ask the FDA to approve a device for
sale in the U.S. We based the submission on data obtained from
the advanced research prototypes, since we 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 our 510(k) Notification. The majority
of the panel members recommended that we conduct additional
testing and clinical trials of a production model prior to
marketing the Diasensor 1000. We, along with Diasensor.com,
announced that we remained committed to bringing the Diasensor
1000 to diabetics, and that additional research, development and
testing would continue.
Due to continued delays in the FDA approval process, and while
continuing to work with the FDA and conduct its mandated testing,
we turned our focus to other markets for the Diasensor 1000
besides the U.S.
In 1998, we - BICO - as designer and manufacturer of the device,
were awarded International Organization for Standardization
certification by TUV Rheinland, a German company authorized to
conduct such audits, which was contracted to perform an audit of
our quality system. We were awarded ISO Certification to the
9001 standard, which is evidence that we have, in place, a total
quality system for the design, development and manufacture of our
products. We were also awarded EN46001 Certification, indicating
we meet European standards for medical devices. Once the ISO
9001 certification was approved, and a technical file was
submitted and approved by TUV Rheinland, we 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 us to sell
the Diasensor and other medical products in Europe.
With regard to marketing the device within the United States, we
continued to work with the FDA to obtain approval. After
discussions with the FDA, we submitted a revised 510(k)
Notification in October 1996, which was followed by continued
discussions with the FDA. During 1997 and 1998, we continued to
meet with the FDA, and established a protocol for in-home testing
of the Diasensor 1000. Due to our cash flow problems during
1998, testing did not proceed at the pace originally anticipated,
and completion of the testing was delayed.
We continued various aspects of the Diasensor development, which
resulted in a method that will allow the patient to transmit the
readings generated by the noninvasive glucose sensor the
patient's clinic or physician. Following an in-depth marketing
study, we 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. This model of the Diasensor
has been named the Diasensor 2000 to differentiate between the
earlier model. Based on advice from the FDA, we decided it was
in our best interest to submit a PreMarket Approval Application
to the FDA, rather than continue with the 510(k) Notification
process, in order to seek FDA approval for the Diasensor 2000.
In 1999 the FDA implemented a new PMA system. Under the new
system, individual modules - or parts - of a PMA submission
could be made as they were ready. We discuss our PMA
submissions in the "Current Status of the Noninvasive Glucose
Sensor" section, which follows.
The Diasensor is a spectrophotometer, which is a machine capable
of illuminating a small area of skin on a patient's arm with
infrared light, and then making measurements from the infrared
light that is reflected back into the device. The device then
displays the measurement in a window on the top of the device for
the user to read. The Diasensor uses internal mathematical
calculations and customized software 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 - which means if the health
insurance companies won't pay for it -we will have a hard time
marketing and selling the device.
Current Status of the Noninvasive Glucose Sensor
We were hampered by cash flow problems during 1998, so we didn't
make as much progress on the noninvasive glucose sensor project
as we planned. Once we raised more money, we re-started our
discussions with the FDA. We hired Joslin Diabetes Center to
help us with the FDA in August 1999. Joslin Diabetes Center is
designing and conducting the clinical trials the FDA requires
before they will give us approval to market the sensor.
Our contract with Joslin calls for Joslin's representatives to
conduct a clinical study on the effectiveness of the Diasensor
2000. The study is contingent upon FDA approval of the Joslin
protocol for the clinical study, which has not yet been obtained.
We had a meeting with the FDA in October 1999 to focus on the
protocol, and we have made revisions to the protocol to comply
with the FDA's recommendations. In the Joslin contract, we
agreed to pay for the study, and Joslin agreed to provide us with
a report on the data gathered. Joslin also has the right,
subject to confidentiality provisions, to publish the results of
the clinical trials. The Joslin contract requires us to pay fees
for their services - those fees will be paid when we pay for the
clinical trials and are based on the budgeted amounts for the
trials. The budgets, and therefore the total payments due under
the contract, have not been finalized.
In addition to the agreement with Joslin, we took other
significant steps toward FDA approval. In February 1999 we
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, or parts. These modules, which were
designed to facilitate and expedite FDA review, contain different
pieces of the full PMA submission. However, from both our own
experience and by observing other module submissions, we do not
believe that the FDA intends to "approve" the PMA one module at a
time. Rather, we have had meetings with the FDA, including the
October meeting, where requirements for the "next step" in the
process have been discussed without a specific FDA finding on
prior submissions.
In May 1999, we submitted the first module, which covered
manufacturing methods and procedures for the Diasensor 2000. The
FDA asked for additional information in September 1999, and we
responded. We filed the second module in May 2000. The second
module contained information regarding electrical and mechanical
standards for the FDA's requirements on safety and effectiveness,
and a description of how our noninvasive glucose sensor will be
used by patients. Future modules will include raw data and
laboratory study methods and test results. The final PMA
submission will include human clinical results and a summary of
safety and effectiveness data.
We met with the FDA in October 1999, and at that meeting, the FDA
made further recommendations regarding the protocol for the
upcoming clinical trials. In November 1999, the FDA requested
further information. With the help of our outside consultants,
we finished compiling all that additional information, and in
July 2000 we submitted an Investigational Device Exemption to the
FDA that included the protocol for our clinical trials. An
Investigational Device Exemption is a request to the FDA for
approval to conduct clinical trials on a device that is not FDA-
approved. We still don't know whether the FDA will be satisfied
with this additional information and the protocol for our
clinical trials, and the FDA could come back and ask us for more
information, which would cause more delays.
Once the FDA has accepted our information, clinical trials will
begin and will last for nine months. We are working with outside
biomedical consultants to help us obtain FDA approval following
these clinical trials; however, we can't assure you when or if
that will happen.
We are 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. The data
could then be reviewed by both the patient and his or her doctor
at a secure website. 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. We believe 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. We are
conducting market studies on the best way to market and service
the telemedicine program, but we have not yet begun to market or
provide the service.
As with all other FDA-related activities, we cannot provide any
assurances as to the date when we'll complete our studies, when
we'll submit our next PMA module, or when the FDA will complete
its review of our submission.
Although our 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
us 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, we also focused additional effort on the
European market; since no material sales have occurred, we
decided to re-assess our marketing plan. During 2000, we plan to
send devices to different European sites for clinical evaluation
in order to encourage those markets to use the Diasensor. In
connection with adjusting its marketing plan, we are currently re-
evaluating our pricing structure for the Diasensor in Europe.
Based on contracts between BICO and Diasensor.com, BICO has the
exclusive right to manufacture our noninvasive glucose sensor.
Diasensor.com will pay BICO for manufacturing, and that's how
BICO will make money if we ever successfully market and sell the
noninvasive glucose sensor.
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. Prescriptions are
not needed in Europe. The telemedicine program will involve a
monthly fee for the use of both the sensor and the service. We
may set those prices too high, which will limit our sales, unless
we can convince health insurance companies to pay for them.
Because the health insurance industry is in a constant state of
change, we can't predict whether - when - or if - we will
convince them to pay for our noninvasive glucose sensor or the
telemedicine program. We have estimated, based on information
from the American Diabetes Association data, that there are
nearly 16,000,000 diabetics in the United States, not all
diabetics will be suitable users of our noninvasive glucose
sensor. Those diabetics who require and benefit from frequent
glucose monitoring make up the potential market for our sensor,
and we can't estimate the size of that market at this time.
Extracorporeal Hyperthermia
In January 2000, we received FDA clearance to market the
ThermoChem-HT System. The ThermoChem-HT System uses heat to
raise the body's temperature. The idea behind the ThermoChem
system is that the heat will act like an artificial fever, and
will kill certain germs or cells that are sensitive to heat. The
ThermoChem-HT System heats and circulates sterile solution
through tubes in the abdomen with the objective of raising the
temperature in the abdominal cavity to the range 41 C (105.8 F)
to 42 C (107.6 F). This process is referred to as
intraperitoneal hyperthermia. In a related surgical procedure,
all visible cancerous growths are surgically removed from the
patient's abdomen and pelvis. While all those spaces and lining
surfaces are opened, the abdomen is flushed, using the ThermoChem-
HT System with a heated, sterile solution that is circulated for
a 2-hour period. At the surgeon's choice, chemotherapy may be
administered to the abdominal cavity. Surgeons at Wake Forest
University Baptist Medical Center use this combined treatment as
a standard-of-care for advanced gastrointestinal and ovarian
cancer.
Since 1992, ViaCirQ - which was formerly called IDT - and
HemoCleanse, Inc. an unaffiliated company, located in Lafayette,
Indiana, have been involved in developing a delivery system for
perfusion-induced hyperthermia. Perfusion induced hyperthermia
is the elevation of the body's temperature, which is like
inducing an artificial fever. Perfusion-induced hyperthermia can
be used to raise the temperature of a regional part of the body
- called regional hyperthermia; and can raise the temperature of
the entire body - called systemic hyperthermia. Extracorporeal
means outside the body - so extracorporeal hyperthermia uses a
device to circulate blood outside the body and return it to the
patient to raise the patient's temperature. Perfusion involves
circulating blood. Perfusion-induced extracoroporeal
hyperthermia heats blood outside the body then circulates the
blood back through the body to raise the body's temperature to
destroy cancer cells or viruses that are sensitive to heat.
We conducted studies on our hyperthermia product over a period of
several years. We conducted our first human trials in November
1993. In 1994, the FDA allowed us to conduct a feasibility study
on 6 AIDs patients using a single treatment, which helped us show
the FDA that our procedure was safe. We conducted additional
trials in 1994 through 1997, which reinforced our claim that our
procedure could administer hyperthermia safely.
During 1996, we decided to pursue the use of hyperthermia to
treat cancer. We conducted FDA-approved clinical trials at two
hospitals, and the results of the trials continue to be
encouraging. Our trials were conducted on patients in the final
stages of cancer, who had few options left to try. Overall, the
patient survival rate was better for patients using our
hyperthermia procedures than similar patients who did not receive
the treatment. We discuss our clinical trials in more detail in
the parts of this section captioned "University of Texas Medical
Branch at Galveston" and "Wake Forest University School of
Medicine". One reason we decided to investigate cancer
treatment using the ThermoChem is that research indicates that
cancer cells, as well as other viruses like the AIDs virus, may
be heat-sensitive. In basic terms, the reasons we think, based
on outside medical research, that those cells are sensitive to
heat are:
Heat may cause apoptosis, which is programmed cell death.
Heat can help change a cell's internal structure, and trigger a
message that programs the cell to die.
Heat can damage the cell's membrane - or outer layer -,
which makes the cell vulnerable.
Because tumor cells have a different vascular structure than
normal cells, tumor cells have abnormal blood flow
characteristics. Once heated, tumor cells have a harder time
cooling off than normal cells, which can dissipate heat more
easily. As a result, tumor cells stay hot longer, giving the heat
more time to cause damage.
Tumor cells have a different pH make-up than normal cells.
Heat can help capitalize on the difference in the acidic levels
to make it harder for tumor cells to use and maintain the
nutrients necessary to stay alive or grow.
By helping to weaken the tumor cells, heat can not only help
attack the cells, but make them more susceptible to other types
of chemotherapy.
HemoCleanse, Inc., founded in 1989, designs, manufacturers and
markets medical devices and disposables for the treatment of
blood outside the body. The ThermoChem technology is based on
special chemical solutions that selectively remove toxins from
the blood while balancing blood chemistries.
HemoCleanse's core product, the BioLogic-DT, received clearance
by the FDA in 1994 as a detoxifier for treatment of drug
overdose; in 1996, the BioLogic-DT received FDA clearance for use
in treating patients with liver failure.
In 1993, we entered into a license agreement with HemoCleanse to
develop the ThermoChem technology for delivering extracorporeal
hyperthermia. Under the license agreement, we received worldwide
rights to market the ThermoChem technology and disposables.
In 1998, we amended the license agreement to allow us to
manufacture the ThermoChem-HT System and related disposables for
perfusion-induced hyperthermia. We also expanded the agreement
to include uses in hypothermia, which is the lowering of the body
temperature using similar methods.
The ThermoChem technology is made up 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, and is made up of
several specialty-integrated devices that perform the following
functions:
Blood/Fluid flow and circulation
Water heating and cooling to control extracorporeal
blood/fluid temperature
Air bubble detection
Monitoring and recording temperatures
Constant up-to-the minute information on status of patient
treatment via video touch screen
Data gathering capabilities
The ThermoChem-SB System is an accessory to the ThermoChem-HT
System and is used when delivering perfusion induced systemic
hyperthermia - a form of whole body hyperthermia.
The ThermoChem-SB is a blood treatment system that circulates
blood from the ThermoChem-HT, passes through a type of filter,
and returns it to the ThermoChem-HT circuit. Within the filter,
certain chemicals within the blood are balanced in order to
maintain the proper composition of the patient's blood. The
ThermoChem-SB does not use a pump to move blood, as the
ThermoChem-HT does, but rather uses pressure changes that expand
and compress the blood and return the blood to the ThermoChem-HT
circuit. The ThermoChem-SB controls the blood flowing in and out
of the patient's body to maintain the proper balance.
The ThermoChem-HT delivers whole body hyperthermia by heating the
patient's blood outside the body to approximately 48 degrees
centigrade (118 F) 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 (108.4 F).
Blood passes through a pump that sends it to a heating device.
The heating device, called a heat exchanger, heats the blood and
raises the outside blood temperature to approximately 46 degrees
centigrade (116 F). A portion of the blood passes through a T-
connection to the ThermoChem-SB, located between the pump and the
heat exchanger, where it is chemically balanced on a real-time
basis and then returned to the patient's body. 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 this
type of hyperthermia, one significant problem has been the safe
delivery of the procedure. ViaCirQ believes that the
improvements made in our ThermoChem technology increase the
safety of the procedure.
As a result, ViaCirQ believes that we have taken a significant
step towards the creation of a safe delivery system. Although we
cannot assure that the ThermoChem technology is safe for all
humans, clinical trials to date have confirmed that the humans
tested were able to safely tolerate the procedure 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 approved additional clinical trials.
In 1998, ViaCirQ began developing protocols for regional
hyperthermia using 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 - hyperthermia used in the
peritoneal region of the body, which is located near the abdomen
and pelvis. The FDA cleared the use of the ThermoChem-HT system
in January 2000. We are developing other protocols to expand the
intended use of the ThermoChem-HT system for regional
hyperthermia.
ViaCirQ has a medical and scientific advisory board that is made
up of these three professionals. Currently, none of the advisory
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.
ViaCirQ's progress during 1999 and early 2000 included work
resulting in FDA clearance for the ThermoChem-HT system in
January 2000, and clearance for additional clinical trials using
the ThermoChem technology to treat lung cancer in February 2000.
For more detailed information, please read the sections captioned
"University of Texas Medical Branch at Galveston" and "Wake
Forest University School of Medicine".
In early February 2000, ViaCirQ retained Capital Management
Consulting, Inc. The initial contract called for ViaCirQ to pay
Capital Management Consulting $72,400 in return for their
assistance in the following areas: creating a clinical
development strategy which will address regulatory, market and
product development issues; market research and analysis; and
strategies for clinical trial design and development plans for
expanded intended uses of the ThermoChem technology. ViaCirQ and
its consultants are working on marketing plans for the existing
technology, including the disposables, but have not yet finalized
the pricing for either one.
We spent approximately $12,586,000 on this project through March
31, 2000, which includes approximately $2,460,065 for our
acquisition of an 8% interest in HemoCleanse, via the purchase of
common stock and the conversion of a loan into common stock. We
have been funding this project since 1992 with money we raised by
selling our securities, including our stock or convertible
debentures. Of the $2,460.065 invested in HemoCleanse common
stock, approximately $1,018,750 was invested in 1994; $1,310,822
in 1995; and $130,493 in 1998. These investments were considered
speculative throughout the term of the investment because
HemoCleanse was continually operating at a deficit due to its
research and development activities. Throughout those periods,
HemoCleanse incurred net losses, accumulated deficiencies in
assets, and no net tangible assets. Our management considered
all HemoCleanse funding to be research and development
expenditures and did not recognize any goodwill due to the
absence of a proven technology. Due to HemoCleanse's financial
condition and the absence of a fair market value for the
HemoCleanse common stock, all amounts invested in HemoCleanse
were expensed when the investments were made.
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 safely balanced by using
the ThermoChem technology. In November 1996, we submitted an
Investigational Device Exemption application to the FDA for a
study utilizing the ThermoChem technology for two hours at 108.4
F to treat patients with certain types of lung cancer called
metastatic non-small cell lung cancer. An Investigational Device
Exemption - known as an IDE - is the FDA filing used to get FDA
approval to test a product that's never been approved for
marketing and sale by the FDA. 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 Board, which is a special hospital
committee in charge of approving clinical trials, approved this
study in May 1997.
On September 11, 1997, we entered into an agreement with the
University of Texas Medical Branch at Galveston to begin a human
clinical trial in November 1997. The trial used the ThermoChem
technology and disposables to deliver hyperthermia to treat
patients with a specific type of end-stage lung cancer. One of
the objectives of this Phase I trial was to evaluate the
ThermoChem technology for the use in the treatment of that type
of lung cancer with regard to patient selection, tumor response,
patient performance status, and patient survival. The follow-up
of the patients was patterned after the Southwest Oncology Group
protocols, which are considered state-of-the-art studies to
follow response of cancer to therapy. The study was conducted at
the General Clinical Research Center at the University of Texas
Medical Branch, which is supported by the National Institute of
Health. This was the only study of its kind approved by the FDA.
Five patients with the specific type of cancer targeted - stage
IV metastatic non-small cell lung cancer - which is end-stage
lung cancer, received the treatment through June 1998. A summary
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. The
results showed an increased kill rate for the cancer cells, as
well as good patient tolerance of the procedure. Initial patient
survival rate data is encouraging, and we believe that any
survival with some quality of life is an improvement over the
patients' other option, which for stage IV cancer patients, is
usually terminal. We believe the results support our position
that hyperthermia can be delivered safely and effectively using
our system.
Based on the Phase I trial results, the FDA and the required
bodies at the University of Texas Medical Branch at Galveston
approved continued clinical trials using the ThermoChem
technology to treat patients with stage IIIb small cell lung
cancer. Stage IIIb lung cancer is cancer that has spread to the
chest wall, to other organs near the lung, or to the chest and
neck; it is also the type of cancer that can't be treated with
surgery. Those trials started in February 2000.
WAKE FOREST UNIVERSITY SCHOOL OF MEDICINE
In May 1998, the FDA gave us an Investigational Device Exemption
to allow human clinical trials using the ThermoChem-HT System.
The IDE filing covered human trials to study the effectiveness of
the ThermoChem-HT System for heating and maintaining core
temperature of the peritoneal region - a region located around
the abdomen and pelvis - in patients with advanced
gastrointestinal and ovarian cancers. These types of cancer
involve the stomach, digestive and intestinal system or the
ovaries, including the lining that surrounds them. Wake Forest
had been using a procedure involving intraperitoneal hyperthermic
chemotherapy - chemotherapy using heat in the peritoneal region
- since 1992 by using a non-standardized setup.
In the clinical trials, the ThermoChem-HT System was used to heat
a solution outside the body then circulate it into and out of the
peritoneal cavity. The solution flows into the patient, then out
through a tube, passing through a pump and a heating mechanism.
The heating mechanism, called a heat exchanger, regulates and
controls the fluid's temperature. Additional parts of the system
maintain the volume of the flow and monitor the temperatures of
the circulating solutions.
The results of the clinical trials showed that patient tolerance
for the procedure was good, and that the patients' survival rates
were better than those patients who had the surgery without the
treatment. The trials also showed that the treatment could be
delivered safely and effectively, maintaining the target
temperature.
ViaCirQ and the 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.
Bioremediation
We are also involved in the field of biological remedial, or
bioremediation, development. Bioremediation technology uses
naturally occurring microorganisms or bacteria to convert various
types of contamination, like oil spills, to carbon dioxide and
water. The product, PRP, which stands for Petroleum Remediation
Product, is designed as an environmental microbial microcapsule,
which is used to collect, contain and separate oil-type products
in or from water. The product's purpose is to convert the
contaminant, with no leftover residue in need of disposal. When
the PRP comes in contact with the petroleum substances like oil
spills, the oil spills become bound or attached to the PRP, 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 break down
both the petroleum and itself, leaving nothing but carbon dioxide
and water.
In connection with this project, we created a subsidiary, Petrol
Rem, Inc. Petrol Rem's officers and directors include Anthony
J. Feola and Fred E. Cooper, who are also directors and/or
officers of BICO and our other affiliates.
Part of Petrol Rem's initial research and development involved
field-testing supervised by the National Environmental Technology
Applications Corporation. That group, which is known as NETAC, is
endorsed by the Environmental Protection Agency to determine
whether products are effective. As a result of their testing,
NETAC reported positive results regarding the effectiveness of
the product.
PRP is now being manufactured and marketed for use in water and
on solid surfaces in the form of Petrol Rem's OIL BUSTER
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
Product Schedule, and is available in free-flowing powder or
absorbent socks. In 1995, the EPA required that all products
previously listed on the National Contingency Plan Product
Schedule be submitted to additional testing. Because PRP
successfully passed the test conducted by NETAC, the product was
requalified for listing on the EPA's product schedule. 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 purchased equipment, which
has the capability to produce PRP in quantities of 2,500 pounds
per day, and has built an adequate inventory.
Petrol Rem 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 also developed other products.
In order to address water pollution issues at marinas, Petrol Rem
introduced the BIOSOK, which is PRP contained in a 10" fabric
tube, and is designed and used to aid in the cleaning of boat
bilges. Bilges are commonly cleaned out with detergents and
other chemicals, 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 BIOSOK, 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, BIOSOK helps
to keep waters clear. In addition, BIOSOK helps 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 BIOSOK in certain regions on their vessels and maintains a
sufficient supply to provide continuing availability.
Petrol Rem's BIOBOOM 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. BIOBOOM 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.
During 1997, 1998 and 1999, the majority of Petrol Rem's sales
were from the BIOSOK and BIOBOOM products. Sales ranged from
a high of approximately $138,000 in 1997 and declined to a low of
approximately $27,000 in 1999. We had $9,500 in sales during the
first quarter of 2000. The decline was due to several factors:
Petrol Rem was unable to effectively penetrate the market with
products other than the BIOSOK and BIOBOOM; due to cash flow
problems in 1998, Petrol Rem stopped funding its sales efforts
and lost employees; and in 1999, Petrol Rem restructured its
management, operations and pricing structure - during that time,
sales efforts slowed until the new management and funding was in
place. By the end of 1999, Petrol Rem had its management and
marketing team in place. Part of Petrol Rem's marketing strategy
involved re-pricing its products. Petrol Rem now markets the
BIOSOK and BIOBOOM at wholesale prices ranging from $14-$16,
and $109-$139, respectively, depending on the quantity purchased.
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, we believe,
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. Petrol Rem currently markets PRP at wholesale
prices ranging from $14-$20 per pound, depending upon the
quantity purchased.
We believe that we have spent all of the funds necessary to
complete the development of its bioremediation products, and to
build up sufficient inventory pending additional orders. We
expect that our expenses going forward will be for marketing and
sales. We spent approximately $11,816,000 on this project
through March 31, 2000. We have been funding this project since
1992 with money we raised by selling our securities, including
our stock or convertible debentures.
Other Projects
Implantable Technology
In April 1996, we received FDA approval to market our theraPORT
Vascular Access System. The approval was granted in response to
our 510(k) Notification filed in January 1996. The device is
made up 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 theraPORT offers an improved delivery system by
eliminating that 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. We began selling the standard ports during the second
quarter of 1997. A second device with a low profile was
developed for pediatric use, and a 510(k) was submitted to the
FDA in November 1997 for marketing approval. In early February
1998, we submitted a supplement to the FDA in response to a
request for additional information, and the FDA granted its
approval that same month. We are currently developing a dual
port device and plan to submit another 510(k) for that device;
however, our biomedical efforts continue to be focused on the
Diasensor, so it is impossible for us to estimate when that
submission might occur.
Through our subsidiary, Coraflex Inc., we are engaged in the
development of a polyurethane heart valve, which we believe may
not have the disadvantages of the mechanical and other synthetic
valves currently being marketed. The Coraflex valve, which
resembles the human heart's aortic valve, is made by means of a
proprietary manufacturing process. We believe that the
polyurethane we use to make our heart valve is stronger and more
resistant to fatigue compared to other valves. In vitro testing,
some of which has been performed through the Children's Hospital
of Pittsburgh, of the Coraflex valve to date has demonstrated
that our valve has superior fatigue resistance and flow
characteristics compared to other devices. We must conduct
additional development and testing before we can submit our valve
to the FDA to begin testing it on humans. We'll need additional
funding to do that, and we don't know when, or if, and FDA
submission or testing will occur.
We also developed technology for other implantable devices, such
as hemodialysis ports, implantable insulin dispensers and
rate-adaptive pacemakers. Because we decided to focus most of
our resources on the noninvasive glucose sensor, we haven't made
any real progress on these other projects, so they are all in
very preliminary stages of development
Functional Electrical Stimulator Project. We had to discontinue
our functional electrical stimulator project when we lost our
contract with NeuroControl, the sole purchaser. Functional
electrical stimulators, known as FES, are implanted under the
skin of patients who are disabled as a result of spinal cord
injury, stroke, head injury or other neurological disorder. The
FES uses low levels of electrical stimulation to activate nerves
and muscles to assist the patient with grasping, arm movement or
standing. Because these products accounted for the majority of
our sales revenues in recent years, the loss of the contract, and
the end of the project, was significant.
Metal-Plating Technology
When we acquired an interest in a metal-plating company, we
estimated that the product would generate revenue and profit. We
were wrong - the actual results were very different from our
original estimates. The project did not generate any revenue
during 1998 or 1999. Our early estimates were based upon our
assessment not only of the marketability of the product, but on
our ability to penetrate the metal finishing market using the
features of the product. Our actual experience shows that it is
much more difficult to exploit the existing market, regardless of
whether or not the product has superior features. As a result,
we had to adjust our marketing strategy. As a result, we can no
longer estimate whether we will ever receive any revenue or
profit from this technology, and we made the appropriate
adjustments to our financial statements to reduce the value of
this investment, which totaled $4.6 million - we funded that
investment through sales of our securities including our
debentures.
American Inter-Metallics
During 1999, we made our initial investment in American Inter-
Metallics, Inc. AIM has its operations in Rhode Island, and is
developing a product that enhances the performance of
propellants. AIM is developing specialized equipment and a
process for producing a product, which AIM believes will increase
the burn rates of current propellant formulas. AIM believes
that, by increasing the burn rate of propellants, its product
will improve the performance of rockets and other machinery.
During 1999, AIM made progress on the development of a prototype
machine to produce the product and, although there can be no
assurances, AIM believes the prototype will be completed by
September 2000. We invested $525,000 in AIM during 1999, and
made additional investments of $123,000 during the first quarter
of 2000. If AIM completes its prototype machine and the
prototype performs as promised, we may invest additional funds
during 2000, for a total maximum investment of $1 million. If we
invest the entire $1 million, using funds we raised by selling
our stock and debentures, we will own 20% of AIM. AIM's product
is in the research and development phase; we can't give any
assurances that it will be successful or profitable.
All this information regarding our projects is in summary form,
and the status of each project is subject to constant change. We
can't assure that any of our projects will be completed or
successful.
RESEARCH AND DEVELOPMENT
We continue to be actively engaged in the research and
development of new products. Our major emphasis has been the
development of a noninvasive glucose sensor. In order to raise
funds for the research and development of new products, we sell
our stock and convertible securities.
MARKETING AND DISTRIBUTION
Petrol Rem began marketing of its bioremediation product, PRP,
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.
ViaCirQ received FDA approval to market its ThermoChem-HT System
and related disposables used for regional cancer treatment.
None of our current projects have generated any meaningful sales
or revenue.
PATENTS, TRADEMARKS AND LICENSES
We own patents on certain products and we file applications to
obtain patents on new inventions when practical. Additionally,
we try to obtain licenses from others when we think it's
necessary to conduct our business.
We rely on trade secret protection for our confidential and
proprietary information. Although we and our affiliates,
Diasensor.com, ViaCirQ an Petrol Rem take all reasonable steps to
protect such information, including the use of confidentiality
agreements and similar provisions, we can't assure that others
will not independently develop substantially equivalent
proprietary information or techniques, otherwise gain access to
our trade secrets, disclose such technology, or we 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" which covers
certain aspects of a process for measuring blood glucose levels
noninvasively. That patent was awarded to our research team in
December 1991 and we sold it to Diasensor.com under a purchase
agreement dated November 18, 1991. That 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, we may be able to extend
the patent, but we can't assure that we will. Diasensor.com's
patent relates only to noninvasive sensing of glucose but not to
other blood constituents. Diasensor.com filed corresponding
patent applications in a number of foreign countries.
We filed a second patent application in December 1992, and we
assigned it 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, we filed four additional patent applications related
to the methods, measurement and noninvasive determination of
analyze concentrations in blood.
As of August 2000, a total of nine patents have been issued, all of
which have been assigned to Diasensor.com, and additional patents
are pending. We filed corresponding patent applications in
foreign countries where we plan to market the noninvasive glucose
sensor.
Our research team continues to file patent applications and
provisional patent applications, some of which are being
converted into Patent Cooperative Treaties, and reflect the
continued research and development and additional refinements to
the noninvasive glucose sensor.
We or Diasensor.com 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.
Our competitors who are currently developing non-invasive glucose
sensors own patents covering various devices and processes
related to the non-invasive monitoring of concentrations of
glucose and other blood constituents. It is possible that those
patent-holders could 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.
We registered our trademark "Diasensor ", which is intended for
use in connection with the Diasensor models. We intend to apply,
at the appropriate time, for registrations of other trademarks as
needed for future products.
Extracorporeal Hyperthermia
In September 1992, a research team funded by us applied for a
domestic patent in connection with the use of perfusion-induced
extracorporeal hyperthermia and the treatment of HIV-positive
patients; the patent has been assigned to ViaCirQ. In October
1994, ViaCirQ received notification that the patent application
for its specialized method for whole-body extracorporeal
hyperthermia had been issued.
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 ViaCirQ
and included the ThermoChem System, was allowed in July 1995 and
was issued in December 1995.
In May of 1999 and early 2000, ViaCirQ filed provisional patents
for its use of the ThermoChem-HT System and related disposables,
and for the use of the device for regional hyperthermia
procedures.
Implantable Technology
During 1995, we renewed our U.S. trademark registration for the
name Coraflex, which was originally granted in 1988. We also
obtained trademark registration for the name theraPORTr.
In October 1996, we obtained a patent for our 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.
Petrol Rem received trademark authorization for the use of the
product names PRP, BIO-SOK, BIO-BOOM, and Oil Buster.
WARRANTIES AND PRODUCT LIABILITY
Our current product liability insurance coverage is $1,000,000 in
the aggregate, and we believe that's sufficient due to our
discontinuance of sales of certain products, including our former
pacemaker line and our functional electrical stimulators, as well
as our potential exposure to liability.
SOURCE OF SUPPLY
In connection with the manufacture the noninvasive glucose sensor
and the ThermoChem System, we will be dependent upon suppliers
for some of the components required to manufacture the device.
We plan to assemble the devices, but will need to purchase
components, including some components that will be custom made
for us by certain suppliers. These components will not be
generally available, and we may become dependent upon those
suppliers, which do provide such specialized products.
If we successfully develop other new products, and receive
regulatory approvals to manufacture such products, we 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, our developmental
products are always subject to the risk of obsolescence if some
other company introduces a better product or technique. We are
aware that other research groups are developing noninvasive
glucose sensors, but we have limited knowledge about the actual
technology or the stage of development for most of our
competitors. There is a risk that some other group will complete
the development of their devices before we do. There is no other
company currently producing or marketing noninvasive sensors for
the measurement of blood glucose similar to ours. Competitive
success in the medical device field is dependent upon product
characteristics including performance, reliability, and design
innovations.
Our noninvasive glucose sensor will compete with existing
invasive glucose sensors. Although we believe that the features
of our noninvasive glucose sensor, particularly its convenience
and the fact that no blood samples are required, will compete
favorably with existing invasive glucose sensors, we can't assure
that it will succeed. 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.
Those companies have established marketing and sales forces, and
represent established entities in the industry. Certain
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
over our noninvasive glucose sensor. As a result, we can't make
any guarantees that our sensor will be able to compete
successfully.
We face more direct competition from other companies who are
currently researching and developing noninvasive glucose sensors.
We have very limited knowledge as to the stage of development of
these other devices; however, if another company successfully
develops a noninvasive glucose sensor, obtains FDA approval, and
reaches the market before we do, we would suffer.
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 one type of infrared wavelengths.
OptiScan Biomedical in Alameda, California is developing a device
that uses another type of infrared wavelengths. Rio Grande
Medical Technologies of Albuquerque, New Mexico is designing a
photo-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 small holes in the skin without the invasive penetration of
a metal needle or lancet. The device then gives a glucose reading
from the collected from the holes in the skin. Cell Robotics
International, Inc. in Albuquerque, New Mexico is also using a
laser device that pierces the skin. Called the Lasette, a laser
makes a small hole in the fingertip to draw 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 tube 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 draws glucose through the skin
through an electric needle. The glucose triggers a reaction in a
disposable pad. Although Cygnus claims that its device is
noninvasive, the fact remains that, in addition to the use of
electrical charges to draw fluid through the skin, each person
must use finger prick technology every day to set and use the
device. Although the panel recommended FDA approval, to the best
of our knowledge, the FDA has not issued that approval without
conditions. We were interested to learn that the FDA panel
accepted Cygnus' use of the same error grid data analysis - a
specific method for displaying data -, which the FDA rejected when
we used it for our own panel review.
Certain organizations are also researching and developing
technologies that may regulate the use or production of insulin or
otherwise affect or cure the underlying causes of diabetes. We
are not aware of any new or anticipated technology that would
effectively render our noninvasive glucose sensor obsolete or
otherwise not marketable. However, future technological
developments or products could make our noninvasive glucose sensor
significantly less competitive or, in the case of the discovery of
a cure for diabetes, even obsolete.
GOVERNMENT REGULATIONS
Since most of our products are medical devices as defined by the
Federal Food, Drug and Cosmetic Act, as amended, 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 inspect our facilities and
operations and may also audit our record keeping procedures at any
time. The FDA's Quality System Regulation specifies various
requirements for our manufacturing processes and the way we must
maintain certain records.
In 1997, Congress passed legislation that addresses the regulation
of pharmaceutical and medical devices. Although the impact of the
FDA Administration Modernization Act of 1997 was expected to
reduce the quantity of information a company must submit for
approval of devices that has not been our experience.
Noninvasive Glucose Sensor
Because the FDA regulates our noninvasive glucose sensor, we have
to meet all FDA requirements before we can market and sell our
device in the United States. These requirements include clinical
testing, which must be supervised by the chosen hospitals. During
1999, the FDA recommended we file a Pre-Market Application and
conduct an additional clinical study. We are in the process of
submitting a modular PMA, which allows us to submit parts of the
submission to the FDA over a period of time. This modular PMA is
a new method of submitting information to the FDA, and resulted
from the passage of FDA legislation in 1997. We have submitted
the first two parts of the PMA and we plan to begin our clinical
trials during 2000, as soon as the FDA approves our submission
that includes the testing protocol.
We don't know how long it will take for the FDA to accept our
filings or approve our device, if ever.
In June of 1998, the FDA instituted a new Quality System
Regulation that took the place of Good Manufacturing Practices.
These regulations align closely with similar guidelines required
by the European Union and have added control of the design process
as well as the manufacturing process.
There are different requirements for selling our device in Europe.
On January 14, 1998, we received certification to ISO 9001, and on
June 23, 1998, we received the CE mark. The CE mark and the ISO
certification are provided by the regulatory bodies or other
approved companies of the European Union. The CE mark indicates
that the device adheres to quality systems guidelines. Rigorous
audits were conducted at our Indiana, Pennsylvania facility to
certify that our development and manufacturing procedures, as well
as the Diasensor 1000r itself met the international standards laid
down by Europe's medical device directive. In order to maintain
our approval to ship the device into the European Union, we must
be vigilant in our adherence to our quality system. We will also
be subject to annual audits to sure that we continue to meet the
required standards.
Any changes in FDA or European procedures or requirements will
require corresponding changes in our obligations in order to
maintain compliance those standards. Those changes may result in
additional delays or increased expenses. Depending on which other
countries we target, our products may also be subject to
additional foreign regulatory approval before we can sell our
devices.
Extracorporeal Hyperthermia
In January 2000, HemoCleanse and ViaCirQ received FDA approval to
market the ThermoChem-HT System 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 bathed using the ThermoChem-HT System with
a heated solution circulating for a 2-hour period. In addition,
in February 2000, the FDA approved continued clinical trials using
the ThermoChem-HT technology to treat patients with certain types
of end-stage lung cancer.
The ThermoChem technology was submitted for FDA approval in a
510(k) Notification. 510(k) Notifications are used when the
device is "substantially equivalent" to a similar existing device
based on the following factors: whether the device has the same
"intended use" as an existing device; and whether the device has
the same technological characteristics as the existing device,
unless the differences do not adversely affect its safety and
effectiveness.
ViaCirQ is working with BICO to obtain a CE Mark to market the
ThermoChem-HT System in Europe.
Bioremediation
Our 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 has its own
environmental regulations.
Human Resources
As of June 30, 2000, we had 103 full-time employees who were
located primarily in either our Indiana or Pittsburgh locations.
In addition, ViaCirQ had two employees; Diasensor.com had three
employees; and Petrol Rem had six employees as of June 30, 2000.
We have employment contracts with some of our non-officer
employees, most of whom are scientists and engineers employed in
our research and development operations. Those contracts are
typically for terms of five years and contain confidentiality
provisions. We also employ consultants as needed; some of the
consultants are employed based on consulting contracts, which
contain confidentiality provisions.
PROPERTY
Prior to 1999, our research and development operations were
located in a 20,000 square foot one-story building at 300 Indian
Springs Road, Indiana, PA. We lease that building from the 300
Indian Springs Road Real Estate Partnership, which is owned in
part by some of our current and former officers and directors. Of
the eight members of the partnership, three are currently officers
or directors - David L. Purdy, Fred E. Cooper and Glenn Keeling.
Each member of the partnership personally guaranteed the payment
of lease obligations to the bank providing the funding, and in
return received warrants to buy 100,000 shares of our stock at
$.33 per share.
The lease period is 20 years and runs concurrently for ten
years with a mortgage arranged by the partnership. At the end of
ten years, the amount of rent we have to pay - which is $105,720
per year - is subject to renegotiation, based on refinancing of a
balloon payment due on the mortgage, unless the mortgage has been
paid. In addition to rent, we pay all taxes, utilities,
insurance, and other expenses related to our operations at that
location. We vacated that building and the partnership has listed
it for sale; we are still obligated to pay the rent and other
expenses until the property is sold or the lease is renegotiated.
We moved our operations and activities formerly located on Indian
Springs Road to the space we discuss in the next paragraph. We
found a buyer for the property, and subject to an environmental
study, we hope to sell the property during the third quarter of
2000. If we don't sell the property, we will renegotiate the rent
with the partnership.
In September 1992, we entered into a ten-year lease agreement
with the Indiana County Board of Commissioners for 22,500 square
feet of space that we reconfigured to our manufacturing
specifications. During 1998 and 1999, we move the balance of our
Indiana, Pennsylvania operations to this space. This facility
contains sufficient additional space to accommodate our projected
operations through 2000.
LEGAL PROCEEDINGS
During April 1998, we, along with our corporate
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 we continue to provide
documents in response to their requests.
On April 30,1996, a class action lawsuit was filed against
us, Diasensor.com and our 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, and we are unable
to determine the outcome or its impact upon our operations at
this time.
In April 1996, the Pennsylvania Securities Commission
commenced a private investigation into Diasensor.com's sales of
its common stock in its public offering in an effort to determine
whether any sales were made improperly to Pennsylvania residents.
We have been cooperating fully with the state and we provided all
of the information they requested. As of the date of this
document, no determinations had been made, and no orders have been
issued.
We leased space in two locations in Indiana County for our
manufacturing facilities. We are still using one space, which
we have upgraded with leasehold improvements. The other space,
which we had leased as expansion space, was the subject of a
judgment proceeding. We gave up possession of the 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 against us on the judgment.
DIRECTORS AND EXECUTIVE OFFICERS
As of July 2000, our directors and executive officers were as
follows:
Name Age Director Position
Since
David L. Purdy 71 1972* president and CEO, Biocontrol
Division
Fred E. Cooper 54 1989 chief executive officer,
executive vice president,
director
Anthony J. Feola 52 1990 senior vice president,
director
Glenn Keeling 49 1991 vice president, director
Stan Cottrell 57 1998 director
Paul W. Stagg 53 1998 director
*On June 1, 2000, Mr. Purdy resigned his position as a director
and chairman of the board in order to become the president and CEO
of the new division so he can focus his full-time efforts and
energy on the continued development and refinement of our
noninvasive glucose sensor.
DAVID L. PURDY, 71, is president and CEO of our new Biocontrol
Technology division. Mr. Purdy had been a director and chairman
of the board since our organization in 1972. As we discussed, Mr.
Purdy resigned as a director in order to head our new division.
Mr. Purdy is also an officer and director of Diasensor.com and
Coraflex.
FRED E. COOPER, 54, is our chief executive officer, executive vice
president and a director; he devotes approximately 60% of his time
to BICO, and 40% to Diasensor.com. Prior to joining us, Mr.
Cooper co-founded Equitable Financial Management, Inc. of
Pittsburgh, PA, where he was the executive vice president until he
left in August 1990. Our board of directors appointed him 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, 52, rejoined BICO as our 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 our vice president of marketing and sales.
Prior to joining us 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 in February 1990, and also serves as a director
of Diasensor.com, Coraflex, and Petrol Rem.
GLENN KEELING, 49, joined our 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 are to manage our ViaCirQ operations. 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 ViaCirQ.
STAN COTTRELL, 57, was appointed to our 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, 53, was appointed to our 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 was
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.
Item 405 of Regulation S-K requires us to make disclosures
regarding timely filings required by Section 16(a) of the
Securities and Exchange Act. Based solely on our review of copies
of forms received and written representations from certain
reporting persons, we believe that all of our officers, directors
and greater than ten percent beneficial owners complied with
applicable filing requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We share common officers and directors with our subsidiaries.
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 we
describe later in this section. Our management believes that it
was in our the best interest to enter into those agreements and
that the transactions were based upon terms as fair as those which
may have been available in comparable transactions with third
parties. However, we did not hire any unaffiliated third party to
determine independently the fairness of those transactions. Our
policy concerning related party transactions requires the approval
of a majority of the disinterested directors of both the
corporations involved, if applicable.
Employment Relationships
Our board of directors approved employment agreements on November
1, 1994 for its officers, David L. Purdy, Fred E. Cooper, Anthony
J. Feola and Glenn Keeling. We discuss those agreements in the
Executive Compensation section of this prospectus.
David L. Purdy, the president, treasurer and a director of BICO
until June 2000, 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. In June 2000, he resigned
his positions with BICO in order to head up our Biocontrol
Technology division and devote all of his efforts to our
noninvasive glucose sensor project. 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, 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, is also a director of Diasensor.com, Coraflex, and
Petrol Rem. Glenn Keeling is the vice president and a director.
Mr. Keeling is also the president and a director of ViaCirQ,
formerly IDT.
Property
Four of our current executive officers and/or directors and three
former directors are members of the nine-member 300 Indian Springs
Road Real Estate Partnership that in July 1990 purchased our 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 BICO,
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 our 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. Purdy, who was a director and executive
officer at the time of the transaction, resigned from our board of
directors on June 1, 2000. Mr. Adkins, who was a director at the
time of the transaction, resigned from our board of directors on
March 30, 1992. Mr. Keeling, who was not a director at the time
of the transaction, joined our 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 our
common stock on the date of issuance.
Warrants
The following paragraphs, along with the notes to the financial
statements, include descriptions of the warrants, which were
granted to our executive officers and directors from 1997 through
June 2000. 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. We did not
record any value 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. 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
During 1999, we issued the following warrants to purchase common
stock to our executive officers and directors:
On April 28, 1999, we granted warrants to purchase common stock at
$.129 per shares until April 28, 2004 were granted as follows:
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 us,
including accrued interest, were consolidated to one loan in the
amount of $777,399.80 at 8% interest. Mr. Cooper began repaying
the loans in May of 1999. The loan balance as of June 30, 2000
was $719,959. Our board of directors - with Mr. Cooper abstaining
- approved these loans because they were for a good business
purpose. The business purposes were: to provide Mr. Cooper with
funds during his initial years with BICO, when he waived a salary;
and to refinance loans secured by BICO stock, so the stock
wouldn't have to be sold. We believe that if Mr. Cooper had been
forced to sell his stock, and to disclose the sale, it would have
hurt our stock price because many people view insider stock sales
as a negative message. In addition, Mr. Cooper owns 66% of a
corporation called B-A-Champ.com, a start-up internet company
that plans to focus on selling sports-related items. During
1999, we loaned B-A-Champ.com an aggregate of $150,000 at 6%
interest; as of June 30, 2000, approximately $100,000 had been
repaid, and the balance is due in November 2000. The business
purpose of the loan was that we received a 6.5% equity interest
in that company, which expects to generate revenues.
In 1999, all of Anthony J. Feola's outstanding loans from us,
including accrued interest, were consolidated into one loan in the
amount of $259,476.82 at 8% interest. Mr. Feola began repaying
the loans in May of 1999. The loan balance as of June 30, 2000
was $233,132. Our board of directors approved these loans - with
Mr. Feola abstaining - because they were for a good business
purpose. The business purpose was to refinance loans secured by
BICO stock, so the stock wouldn't have to be sold. We believe
that if Mr. Feola had been forced to sell his stock, and to
disclose the sale, it would have hurt our stock price because many
people view insider stock sales as a negative message.
In 1999, all of Glenn Keeling's outstanding loans from us,
including accrued interest, were consolidated into one loan in the
amount of $296,358.07 at 8% interest. Mr. Keeling began repaying
the loans in May of 1999. The loan balance as of June 30, 2000
was $263,609. Our board of directors approved these loans - with
Mr. Keeling abstaining - because they were for a good business
purpose. The business purpose was to refinance loans secured by
BICO stock, so the stock wouldn't have to be sold. We believe
that if Mr. Keeling had been forced to sell his stock, and to
disclose the sale, it would have hurt our stock price because many
people view insider stock sales as a negative message.
In September 1995, we 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 1%. Interest and principal payments have been made
on the note, and as of June 30, 2000, the balance was $155,324.
Our board of directors approved this loan because of its business
purpose - in return for granting the loan, we received an option
to purchase a franchise owned by Joseph Kondisko, a former
director of Diasensor.com, is a principal owner of Allegheny Food
Services. The franchise generates revenue, which is why we made
the investment-until our products begin to generate significant
revenues, we investigate other ways to generate revenue to fund
our operations. We have not exercised the option, which has an
exercise price of $200,000, but it remains valid until 2005.
All future loans to officers, directors and their affiliates will
also be made only after board approval, and for a good business
purposes.
Intercompany Agreements
Our management 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, we did not
retain any unaffiliated third party 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 Diasensor.com's common stock. That
agreement was canceled through 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 under the license and marketing agreement.
Purchase agreement. BICO and Diasensor.com entered into a
purchase agreement dated November 18, 1991 whereby BICO gave
Diasensor.com its entire right, title and interest in the
noninvasive glucose sensor and its development, including its
extensive knowledge, technology and proprietary information.
Those transfers included 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 try, 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 that 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 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. Under 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 under the terms of a
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 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 under to the research and development 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 was defined as
BICO's aggregate cost of materials, labor and associated
manufacturing overhead + a fee equal to one third 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.
Employment Relationships
Our board of directors approved employment agreements on November
1, 1994 for our officers, David L. Purdy, Fred E. Cooper, Anthony
J. Feola and Glenn Keeling. We discuss those agreements in the
Executive Compensation section of this prospectus.
David L. Purdy, former president, treasurer and a director of
BICO, is the president of our Biocontrol Technology division, 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 60% of his time to
BICO, and 40% to Diasensor.com. Fred E. Cooper, chief executive
officer, executive vice president and our director, 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 our director, is also a director of
Diasensor.com, Coraflex, and Petrol Rem. Glenn Keeling, vice
president and our director, was employed on January 1, 1992 as
BICO's manager of product development. Mr. Keeling is also the
president and a director of ViaCirQ.
EXECUTIVE COMPENSATION
The following table contains information on our executive
officer's annual and long-term compensation for their services to
us in all capacities for the years ended December 31, 1999, 1998
and 1997. The executive officers included are those men who, as
of December 31, 1999, were: our chief executive officer, and our
other most highly compensated executive officers who were paid
more than $100,000.
SUMMARY COMPENSATION TABLE
==============================================================================
Annual Compensation | (1)Long Term Compensation
------------------------------------------------------------------------------
| Awards
Name and | Securities
Principal (2) | Underlying (2) All other
Position Year Salary($) 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 $809,042 $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) We do not currently have a Long-Term Incentive Plan, and no
payouts were made under to any LTIP during the years 1999,
1998, or 1997. We did not award any restricted stock during
any year, including the years 1999, 1998 or 1997. We issued
warrants during 1999, which we also discuss in Note 3. We
do not have any retirement, pension or profit-sharing
programs for the benefit of our directors, officers or other
employees.
(2) During the year ended December 31, 1999, the executive
officers received medical benefits under our group insurance
policy, including disability and life insurance benefits.
The total combined amount of all those benefits was less
than 10% of the total annual salary and bonus reported for
each executive officer.
(3) During 1999, we issued warrants to the executive officers
listed. 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 1999, we paid Mr. Purdy $183,333 by BICO and $266,667 by
Diasensor.com. Although Mr. Purdy is entitled to a salary
of $300,000 from BICO, he voluntarily reduced his salary
beginning in 1998. In addition to his BICO salary,
Diasensor.com paid Mr. Purdy $100,000 in 1997 and 1998. All
amounts are included in the table above. Diasensor.com paid
Mr. Purdy based on its board of director's decisions for
services performed on its behalf.
(5) In 1999, we paid Mr. Cooper $260,417 by BICO; $340,625 by
Diasensor.com; and $104,000 each by Petrol Rem and IDT.
Those 1999 payments included amounts due in 1998 which were
deferred and paid in 1999. In 1997 and 1998, addition to
his BICO salary of $250,000, Diasensor.com paid him $150,000
and Petrol Rem and IDT, which is now ViaCirQ, paid him
$96,000. All amounts are included in the table above. Mr.
Cooper is paid by BICO based on his employment agreement.
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) In 1999, we paid Mr. Feola $425,886 by BICO and $75,000 by
Diasensor.com. Part of his salary from 1998 was deferred and
paid in 1999, and all amounts are included in the table
above. Mr. Feola is paid by BICO based on his employment
agreement. Diasensor.com paid Mr. Feola based on its board
of director's decisions for services performed on its
behalf.
(7) We pay Mr. Keeling based on his employment agreement. In
1999, 87% of Mr. Keeling's salary was allocated to IDT, now
ViaCirQ, based upon the time he devoted to its operations.
Option/Warrant/SAR Grants in Last Fiscal Year
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL GRANTS (1) PRICE APPRECIATION
FOR
OPTION TERM (3)
Percent of
Number of Total
Securities Options/SAR's Exercise
Underlying Granted to or Expiration
Options/ Employees in Base Date 5%($) 10%($) 0%($)
Name SAR's Fiscal Year Price
Granted(#) (2) ($/Sh)
Fred E. Cooper 4,000,000 18% $0.129 4/28/04 $144,000 $316,000 $0
David L. Purdy 4,000,000 18% $0.129 4/28/04 $144,000 $316,000 $0
Anthony J. Feola 2,000,000 9% $0.129 4/28/04 $ 72,000 $158,000 $0
Glenn Keeling 2,000,000 9% $0.129 4/28/04 $ 72,000 $158,000 $0
____
(1) The warrants in this table were granted during 1999. All of
the warrants granted each executive officer 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 our 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 under to
the rules adopted by the SEC and do not reflect actual
historical or projected rates of appreciation of our common
stock. Assuming such appreciation, the following illustrates
the per share value on the dates set forth, which are the
expiration dates for the warrants, assuming the values set
forth, which are 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 $0.208
The foregoing values do not reflect appreciation actually
realized by executive officers. For more information on the
warrants, review the next table.
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs
Options/SARs at
at 12/31/99 ($)
12/31/99 (#)
Name Shares Value Exercisable/ Exercisable/
Acquired Realized Unexerciseable Unexercisable
on Exercise ($)(2) (3) (4)
(#)(1)
David L. Purdy 0 $ 0 4,767,200 (5) $ 0 (9)
Fred E. Cooper 0 $ 0 4,300,000 (6) $ 0 (9)
Anthony J. Feola 0 $ 0 2,550,000 (7) $ 0 (9)
Glenn Keeling 0 $ 0 2,100,000 (8) $ 0 (9)
__________________
(1) This figure represents the number of shares of common stock
acquired by each executive officer upon the exercise of
warrants. None of the executive officers exercised warrants
during 1999.
(2) The value realized of the warrants exercised is computed by
determining the difference between the market value of our
common stock on the exercise date minus the exercise price of
the warrant.
(3) All warrants held by the executive officers 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 our common stock on the last trading
day of December 1999 as reported by the electronic bulletin
board, which was $.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.
(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.
(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.
(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
We have employment agreements with our executive officers, Fred E.
Cooper, David L. Purdy, Anthony J. Feola and Glenn Keeling
effective November 1, 1994. Under those agreements, 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. Beginning in 1998, Mr. Purdy voluntarily
reduced his salary and was not paid the entire amount to which he
was entitled. 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", we are required to issue the following shares
of common stock, represented by a percentage of our total
outstanding shares of common stock immediately after the change in
control: 5% to Mr. Cooper and Mr. Purdy; 4% to Mr. Feola; and 3%
to Mr. Keeling. In general, a change of control would occur for
purposes of the agreements if: 20% or more of our outstanding
voting stock is acquired by any person; if 1/3 or more of our
directors are not continuing directors, as defined in the
agreement; or when a controlling influence over our management or
policies 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.
In addition, if there is a change in control during the term of
the agreements, or within one year afterwards, 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. We are also
required to continue medical insurance coverage for Messrs.
Cooper, Purdy, Feola and Keeling and their families during those
periods. Those 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. The disability payments
would be reduced by any amount paid directly to him under a
disability insurance policy if we provided one: 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 similar payments: 100% of
his most recent annual salary for the first year; and 70% of his
most recent salary for the second year.
Under the employment agreements, Messrs. Cooper, Purdy, Feola and
Keeling are required to protect our confidential information
during the term of the agreements and they are restricted from
competing with us for a period of one year in specified states
following the expiration or termination of the agreements.
In addition to the employment agreements we just described, we
have employment agreements with two of our 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, we are required to issue both employees
shares of common stock equal to 2% of our outstanding shares of
common stock immediately after the change in control.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the indicated information as
of June 30, 2000 with respect to each person who we know is
beneficial owner of more than 5% of the outstanding common stock,
each of our directors and executive officers, and all of our
directors and executive officers as a group.
As of June 30, 2000, we had 962,825,628 shares of our common
stock outstanding. The table below shows the common stock
currently owned by each person or group, including common stock
underlying warrants, all of which are currently exercisable, as of
June 30, 2000. The left-hand column sets forth the percentage of
the total number of shares of common stock outstanding as of June
30, 2000, which would be owned by each named person or group if
they exercised of all of their warrants, together with common
stock they currently owned. An asterisk - * - means less than 1%.
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.
Amount and Percent of Beneficial
Nature of Ownership
Name and Address of Beneficial of Total Outstanding
Beneficial Owner Ownership Common Stock
David L. Purdy (1) 5,167,340 (2) *
625 Kolter Drive
Indiana, PA 15701
Fred E. Cooper 5,076,200 (3) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Stan Cottrell 250,000 (4) *
4619 Westhampton Drive
Tucker, GA 30084
Anthony J. Feola 2,904,000 (5) *
2275 Swallow Hill Road
Bldg. 2500, 2nd Floor
Pittsburgh, PA 15220
Glenn Keeling 2,238,500 (6) *
2275 Swallow Hill Road
Building 2500, 2nd Floor
Pittsburgh, PA 15220
Paul Stagg 270,000 (7) *
168 LaLanne Road
Madisonville, LA 70447
All directors and
executive officers 15,906,040 (8) 1.6%
as a group (6 people)
(1) 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.
(2) 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.
(3) 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.
(4) Includes currently exercisable warrants to purchase 250,000
shares of common stock at $.129 per share until April 28, 2004.
(5) 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.
(6) 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.
(7) 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.
(8) Includes shares of common stock available under currently
exercisable warrants owned by all of our executive officers and
directors combined.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Sweeney & Associates, P.C. of Pittsburgh, PA, our securities
counsel, will pass on the validity of the shares in this offering.
Thomas E. Sweeney, Jr., Esq., a former partner, currently holds
approximately 20,000 shares of our common stock and warrants to
purchase the following shares of Diasensor.com, Inc., one of our
affiliates: 40,000 shares at $.50 per share until October 23, 2000
and 60,000 shares at $1.00 per share until January 6, 2003.
EXPERTS
Our consolidated financial statements as of December 31, 1999,
1998 and 1997, all of which included an explanatory paragraph
referring to an uncertainty regarding our ability to continue as a
going concern, included in this prospectus, have been audited by
Thompson Dugan, independent certified public accountants, as
stated in their report for the year ended December 31, 1999 and
has been included in reliance upon that report given upon the
authority of that firm as experts in auditing and accounting.
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.
As discussed in Note Q to the consolidated financial statements,
certain restatements have been made to financial statements which
were previously issued by the company.
Pittsburgh, Pennsylvania
March 24, 2000, except for Note Q as to which the date is May 24, 2000
<PAGE> F-1
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Mar. 31, 2000
(Unaudited) Dec. 31, 1999 Dec. 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and equivalents (note A) $17,521,694 $ 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 42,760 27,263 55,959
Inventory - net of valuation allowance (notes A and D) 2,801 10,308 74,515
Notes receivable (note C) 55,000 200,000 0
Interest receivable (note C) 0 2,701 0
Prepaid expenses 271,441 192,246 170,544
Advances - Officers 125,290 125,290 0
Other assets 500,000 0 0
------------- -------------- -------------
TOTAL CURRENT ASSETS 18,518,986 11,385,439 426,763
PROPERTY, PLANT AND EQUIPMENT (notes A and H)
Building 1,207,610 1,207,610 1,429,906
Land 133,750 133,750 133,750
Leasehold improvements 1,496,979 1,435,319 1,477,573
Machinery and equipment 4,774,028 4,676,330 5,014,103
Furniture, fixtures & equipment 891,383 841,308 794,740
------------ -------------- -------------
Subtotal 8,503,750 8,294,317 8,850,072
Less accumulated depreciation 4,844,499 4,704,539 4,244,650
------------ -------------- -------------
3,659,251 3,589,778 4,605,422
OTHER ASSETS
Related Party Receivables
Notes receivable - (notes C and L) 1,455,976 1,491,261 1,223,900
Interest receivable - (notes C and L) 22,773 22,023 155,628
Advances-Officers 0 0 90,779
------------ -------------- -------------
1,478,749 1,513,284 1,470,307
Allowance for related party receivables (1,329,398) (1,340,560) (1,270,307)
------------ -------------- -------------
149,351 172,724 200,000
Notes receivable - (notes C) 212,000 12,000 142,493
Interest receivable 4,496 4,235 19,778
Goodwill, net of amortization - (note A and O) 0 0 4,423,421
Patents, net of amortization (note A) 0 0 2,433
Investment in unconsolidated
subsidiary (notes A and R) 1,623,111 485,284 0
Other assets 36,626 36,376 15,259
------------ ------------- -------------
2,025,584 710,619 4,803,384
------------ ------------- -------------
TOTAL ASSETS $24,203,821 $ 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>
Mar. 31, 2000
(Unaudited) Dec. 31,1999 Dec. 31, 1998
------------- ------------ -------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 764,681 $ 759,733 $ 1,750,188
Current portion of long-term debt (note G) 4,122,270 4,159,684 4,552,178
Current portion of capital lease obligations (note H) 87,337 76,017 99,061
Debentures payable (note I) 9,850,000 0 2,825,000
Accrued liabilities (note E) 1,309,656 1,794,370 1,096,644
Escrow payable (note J) 2,700 2,700 2,700
------------- ------------ -------------
TOTAL CURRENT LIABILITIES 16,136,644 6,792,504 10,325,771
LONG-TERM LIABILITIES
Capital lease obligations (note H) 1,304,493 1,336,147 1,412,880
Long-term debt (note G) 1,748 2,240 0
------------- ------------- -------------
1,306,241 1,338,387 1,412,880
COMMITMENTS AND CONTIGENCIES (notes M)
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY (note A) 228,824 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 96,051,500 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.(note S) 3,418,259 720,000 0
Additional paid-in capital (note S) 90,694,479 85,608,192 92,725,285
Notes receivable issued for common stock-related
party (note L) 0 0 (25,000)
Warrants 6,673,878 6,791,161 6,396,994
Accumulated deficit (190,306,004) (181,174,458) (143,101,880)
--------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 6,532,112 7,554,945 (1,927,244)
--------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDER' EQUITY (DEFICIENCY) $24,203,821 $ 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>
For the three months ended March 31, Year Ended December 31,
2000 1999 1999 1998 1997
(Unaudited) (Unaudited)
---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Net Sales $ 18,998 $ 27,320 $ 112,354 $ 1,145,968 $ 1,155,907
Other income - 6,767 52,897 50,212 104,250
---------- ----------- --------- ---------- ----------
18,998 34,087 165,251 1,196,180 1,260,157
Costs and expenses
Cost of products sold 30,660 66,419 147,971 587,821 641,331
Research and development (notes A and L) 2,150,323 743,845 4,430,819 6,340,676 6,977,590
General and administrative 4,188,967 2,443,443 12,884,237 10,673,265 12,695,628
Amortization of goodwill 77,207 - 39,716 887,080 -
Impairment loss - - 5,060,951 - -
---------- ----------- ----------- ---------- ------------
6,447,157 3,253,707 22,563,694 18,488,842 20,314,549
---------- ----------- ----------- ---------- ------------
Loss from operations (6,428,159) (3,219,620) (22,398,443) (17,292,662) (19,054,392)
Other income
Interest 164,318 26,706 1,031,560 182,033 165,977
Other expense
Debt issue costs (note A) - - 3,458,300 1,865,682 3,306,812
Beneficial convertible debt
feature(note A) 2,462,500 945,730 7,228,296 3,799,727 6,278,853
Interest expense 151,757 140,763 1,373,404 481,025 315,624
Loss on unconsolidated subsidiary 8,750 - - - -
Warrant extensions (note J) - - 4,669,483 - 4,046,875
Loss on disposal of assets 15,874 - 376 531,066 8,518
---------- ----------- ----------- ---------- ------------
2,638,881 1,086,493 16,729,859 6,677,500 13,956,682
---------- ----------- ----------- ---------- ------------
Loss before unrelated
investors' interest (8,902,722) (4,279,407) (38,096,742) (23,788,129) (32,845,097)
Unrelated investors' interest in
net loss of subsidiary (228,824) 24,162 24,164 1,385,485 2,411,920
---------- ----------- ----------- ---------- ------------
Net loss $(9,131,546) $(4,255,245) $(38,072,578) $(22,402,644) $(30,433,177)
========== =========== =========== ========== ============
Loss per common share - Basic:
Net Loss $ (0.01) $ (0.03) $ (0.05) $ (0.08) $ (0.43)
Less: Preferred stock dividends (0.00) (0.00) (0.00) (0.00) (0.00)
---------- ----------- ----------- ---------- -------------
Net loss attributable to
common stockholders (notes A and T): $ (0.01) $ (0.03) $ (0.05) $ (0.08) $ (0.43)
========== =========== =========== ========== =============
Loss per common share - Diluted:
Net Loss $ (0.01) $ (0.03) $ (0.05) $ (0.08) $ (0.43)
Less: Preferred stock dividends (0.00) (0.00) (0.00) (0.00) (0.00)
---------- ----------- ----------- ---------- -------------
Net loss attributable to
common stockholders (notes A and T): $ (0.01) $ (0.03) $ (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 (Deficiency)
<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
Warrants granted and
extended-subsidiaries - - - - - - 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
-------- ------- ---------- ---------- --------- ------- ---------- ----------- -----------
Proceeds from sale of
Preferred stk. Series F 380,000 1,916,667 - - - - 2,358,333 - 4,275,000
Constructive dividends on
preferred stock - 781,592 - - - - (781,592) - -
Warrants granted -
subsidiaries - - - - - - 281,494 - 281,494
Warrants exercised - - 4,414,500 441,450 (307,581) - 765,552 - 899,421
Issuance of convertible debt - - - - - - 2,462,500 - 2,462,500
Warrants granted - - - - 190,298 - - - 190,298
Net loss - - - - - - - (9,131,546) (9,131,546)
-------- ------- ---------- --------- --------- ------- ---------- ---------- ----------
Balance at March 31, 2000
(Unaudited) 452,000 $3,418,259 960,514,996 $96,051,500 $6,673,878 $ 0 $90,694,479 $(190,306,004) $6,532,112
======== ======= ========== ========= ========= ======= ========== ========== ==========
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>
For the three months ended March 31, Year ended December 31,
2000 1999
(Unaudited) (Unaudited) 1999 1998 1997
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss $ (9,131,546) $(4,255,245) $(38,072,578) $(22,402,644) $(30,433,177)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 157,056 441,549 773,696 815,125 846,470
Amortization 77,207 - 42,149 891,412 4,332
Loss on disposal of assets 15,874 - 177,000 531,066 -
Loss on unconsolidated subsidiary 8,750 - - - -
Impairment loss - - 5,060,951 - -
Unrelated investors' interest in susidiary 228,824 (24,162) (24,164) (1,385,485) (2,411,920)
Stock issued in exchange for services - 64,463 148,484 (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 2,462,500 945,730 7,228,296 3,799,727 6,278,853
Provision for potential loss on notes receivable (11,162) (18,956) 70,253 1,270,307 -
Warrants granted 190,298 - 403,135 - -
Warrants granted and extended by subsidiaries 281,493 - 5,897,332 - 4,046,875
Increase (decrease)in allowance for
losses on accounts receivable - - 36,620 12,128 (180,909)
(Increase) decrease in accounts receivable (15,497) (5,584) (7,924) 268,195 (137,651)
(Increase) decrease in inventories 821,880 4,877 90,052 987,948 (586,029)
Increase (decrease) in inventory valuation allowance (814,373) - (25,845) 779,050 2,092,131
(Increase) decrease in prepaid expenses (79,195) 45,053 (21,702) (31,495) 113,397
(Increase) decrease in other assets (500,250) (5,810) (146,408) 36,927 3,713
Increase (decrease) in accounts payable 4,948 (805,773) (949,578) 1,078,124 (388,636)
Increase (decrease)in other liabilities (484,714) (101,897) 697,726 845,136 66,737
(Decrease) in deferred revenue - - - (116,146) (63,854)
----------- ---------- ----------- ---------- ----------
Net cash flow used by operating activities (6,787,907) (3,715,755) (18,411,002) (11,855,294) (19,121,752)
----------- ---------- ----------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment (242,401) (8,764) (641,371) (111,216) (845,512)
Disposal of property, plant and equipment - 175,000 175,000 - -
(Increase) decrease in notes receivable (55,000) 2,634 (337,928) (31,493) (313,000)
Payments received on notes receivable 35,285 - 141,974 - -
Deposit on equipment - (32,809) - - (300,000)
(Increase) decrease in interest receivable 1,690 (21,543) (25,774) (97,929) (23,519)
Acquisition of ICTI - - - (1,030,000) -
Acquisition of unconsolidated subsidiary (1,223,784) - (525,000) - -
----------- ---------- ----------- ---------- ----------
Net cash provided by (used by) investing activites (1,484,210) 114,518 (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 899,420 900,000 86,018 - 13,200
Proceeds from sale of Preferred stock-Series F 4,275,000 - 810,000 - -
Proceeds from sale of Preferred stock-Series B - - - - 2,027,000
Proceeds from debentures payable 9,850,000 4,870,000 33,150,000 10,720,000 20,230,000
Payments on debentures payable - - (4,130,000) - (2,605,833)
Payments on notes payable (37,906) (288,844) (465,650) (675,393) (41,904)
Increase in notes payable - - 75,396 550,000 -
Payments on capital lease obligations (20,334) (34,393) (99,777) (101,997) (65,987)
----------- --------- ----------- ---------- ----------
Net cash provided by financing activities 14,966,180 5,446,763 30,325,987 10,492,610 19,559,976
----------- --------- ___________ __________ __________
Net increase (decrease) in cash 6,694,063 1,845,526 10,701,886 (2,633,322) (1,043,807)
Cash and cash equivalents, beginning of year 10,827,631 125,745 125,745 2,759,067 3,802,874
----------- --------- ----------- ---------- ----------
Cash and cash equivalents, end of year $ 17,521,694 $ 1,971,271 $ 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>
For the three months ended March 31, Year ended December 31,
2000 1999 1999 1998 1997
Unaudited Unaudited
----------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Supplemental Information:
Interest paid $ 50,955 $ 179,769 $ 966,713 $ 364,716 $ 155,647
=========== ============ ============= =========== ==========
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of ICTI with note payable $ - $ 3,350,000 $ - $ 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 $ - $ 6,450,000 $ 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 $ 307,581 $ - $ - $ - $ 510,168
========== ============ ============ ============= ===========
Constructive dividends on preferred stock $ 781,592 $ - $ - $ - $ -
========== ============ ============ ============= ===========
The accompanying notes are an integral part of these statements.
</TABLE>
Biocontrol Technology, Inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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. Changes in the Company's
proportionate share of subsidiary equity resulting from the
additional equity raised by the subsidiary are accounted for
as equity transactions in consolidation with no gain
recognition due to the development stage of the subsidiaries
and uncertainty regarding the subsidiary's ability to
continue as a going concern.
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. The amount
of impairment loss is determined by comparing the present
value of the estimated future cash inflows of such assets to
their net carrying value.
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. Goodwill associated with assets determined to be
impaired is correspondingly written down.
8. Investment in Unconsolidated Subsidiary
During 1999 the Company acquired a 10% interest in American
Inter-Metallics, Inc. (AIM) for $525,000. Due to the
Company's representation on the AIM board of directors and
the ability through the stock purchase agreement to increase
the Company's interest in AIM to 20%, Management has
determined that the equity basis of accounting is appropriate
for this investment. 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. Declines
in this investment's value that are determined by Management
to be other than temporary will be recognized as losses on a
current basis.
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 the debt is outstanding.
Total debt issue costs recognized 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. Advertising Costs
Advertising costs are charged to operations when incurred.
Advertising expenses for 1999, 1998 and 1997 were $4,851,
$43,901, and $214,832 respectively.
20. 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, 1999 Dec. 31, 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, 1999 Dec. 31, 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, 1999 Dec. 31, 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 (loss) (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
Interest income 1,031,560 0 0 0 1,031,560
Interest expense 1,373,404 0 0 0 1,373,404
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
Interest income 182,033 0 0 0 182,033
Interest expense 481,025 0 0 0 481,025
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
Interest income 165,977 0 0 0 165,977
Interest expense 315,624 0 0 0 315,624
</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,
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.
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 in monthly payments of $374
including interest at a rate of $18.00%.
Collateralized by cash on deposit. - 2,682
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, 1999 Dec. 31, 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 ============= =============
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. The debentures issued in 1999 included
beneficial conversion features providing a discount on the
acquisition of common stock at discounts ranging from 12% to
22%.
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. The Series F
Convertible Preferred Stock is not secured by any assets, and
it is convertible by its holders beginning 120 days from
issuance. The preferred stock can be converted to common
stock at a price that is determined by computing 75% of the
average closing bid price for the four days prior to and the
day of conversion - or a 25% discount to a five-day average
trading price.
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. In connection
with the granting of warrants, the Company recognized
$403,134 of general and administrative expense. 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 Granted 2000 2001 2002 2003 2004
------------ --------- ------ ------ ------- ------- -------
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 the 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
===========
The following is a summary of expenses recognized in
connection with warrants granted or extended during 1999:
Granted Extended Total
------- --------- ------
Parent Company $ 403,134 $ 0 $ 403,134
Subsidiaries:
Petrol Rem, Inc. 54,981 20,160 75,141
Diasensor.com, Inc. 229,642 272,078 501,720
IDT, Inc. 943,226 4,377,245 5,320,471
------- --------- ---------
1,227,849 4,669,483 5,897,332
--------- --------- ---------
Total $1,630,983 $4,669,483 $6,300,466
========= ========= =========
Expenses recognized on warrants granted are included in the
Statement of Operations as general and administrative
expenses and research and development expenses ($1,189,171
and $441,812 respectively).
Warrant Extensions
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. Warrants
During 1999, Diasensor.com, Inc. granted warrants to purchase
2,080,000 shares of its common stock and extended the
exercise date of warrants to purchase 3,070,213 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $229,642 is included in general and
administrative expenses for warrants granted during 1999.
The extended warrants 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%.
Petrol Rem Warrants
During 1999, Petrol Rem, Inc. granted warrants to purchase
2,690,000 shares of its common stock and extended the
exercise date of warrants to purchase 1,450,000 shares of
common stock to certain officers, directors, employees and
consultants. A charge of $54,981 is included in general and
administrative expenses for the warrants granted during 1999.
The extended warrants were originally granted at an exercise
price of $.10 and were extended at the same price. Petrol
Rem recorded a $20,160 expense for these extended warrants.
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%.
IDT Warrants
During 1999, IDT granted warrants to purchase 295,000 shares
of its common stock and extended the exercise date of
warrants to purchase 1,505,000 shares of common stock to
certain officers, directors, employees and consultants.
Charges of $501,414 and $441,812 are included in general and
administrative expenses and research and development
expenses, respectively, for these warrants granted during
1999. The extended warrants were originally granted at
exercise prices ranging from $.10 to $2.00 and were extended
at the same prices. IDT recorded a $4,377,245 expense for
these extended warrants.
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 carryforwards 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.31, 1999 Dec.31, 1998 Dec.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, 1999 $(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.
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
outstanding 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.
NOTE Q - RESTATEMENT
The accompanying consolidated financial statements include the
effect of reclassifications which were made
to consolidated financial statements previously issued by the
Company and to the disclosures included in those consolidated
financial statements. There was no change to the previously
reported consolidated financial position or results of
consolidated operations of the Company.
NOTE R - FIRST QUARTER 2000 INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
(UNAUDITED)
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.
In January 2000, Diasensor.com, acquired a ten percent (10%)
interest in MicroIslet, Inc. for an investment of $500,000.
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.
Also, during the quarter ended March 31, 2000 the Company
invested an additional $123,000 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.
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 12%
of Diabecore.
These investments are being reported on the equity basis and
differences in the investment and the underlying net assets of
the unconsolidated subsidiaries are being amortized as goodwill
over a 5 year period.
NOTE S - BENEFICIAL CONVERSION FEATURE OF PREFERRED STOCK (UNAUDITED)
As of March 31, 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 outstanding at March 31, 2000, was $1,883,333. Total
amortization recognized as constructive dividends that were
charged to Additional Paid in Capital in the quarter ended March
31, 2000 was $781,592.
NOTE T - FIRST QUARTER 2000 LOSS PER SHARE (UNAUDITED)
The net loss per share attributable to common stockholders for
the quarter ended March 31, 2000, was determined by dividing the
net loss attributable to common stockholders by the weighted
average number of common shares outstanding, which amounted to
957,411,668 shares. The net loss attributable to common
shareholders, $9,913,138, was determined by increasing the net
loss of $9,131,546 by the $781,592 constructive dividend to
preferred stockholders discussed in Note S.
No dealer, salesman or other
person has been authorized to give
any information or to make any
representation other than those
contained in this prospectus and
you may not rely upon that
information. Neither the delivery
of this prospectus nor any sale
made hereunder shall, under any
circumstances, create any
implication that there has been no
change in our affairs or
operations since the date of this
prospectus. This prospectus does
not constitute an offer to sell or
solicitation of an offer to buy
any securities offered in any 118,350,000 Shares
jurisdiction in which such offer
or solicitation is not qualified
to do so or to anyone to whom it
is unlawful to make such offer or
solicitation.
__________________________
BICO, INC.
TABLE OF CONTENTS Page
Common Stock
Summary 3
Risk Factors 5
Where You Can Find More
Information 13
Prospectus Delivery ____________________
Requirements 13
Use of Proceeds 14 P R O S P E C T U S
Dividend Policy 14 ____________________
Capitalization 14
Market Price for Common Stock 15 August 4, 2000
Description of Securities 16
Selling Stockholders 18
Plan of Distribution 21
Stock Eligible for Future Sale 21
Management's Discussion and
Analysis 23
Business 29
Legal Proceedings 44
Directors and Executive
Officers 45
Executive Compensation 49
Security Ownership 53
Interests of Named
Experts and Counsel 54
Experts 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth our estimated expenses incurred in connection
with the issuance and distribution of the securities described in the
prospectus other than underwriting discounts and commissions:
Printing and Copying $ 2,500
Legal Fees 25,000
SEC Registration Fees 11,720
Accounting Fees 5,000
-------
Total $44,220
=======
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as set forth herein, we have no provisions for the
indemnification of its officers, directors or control persons. David
L. Purdy, Fred E. Cooper, Anthony J. Feola and Glenn Keeling have
employment contracts, which include indemnification provisions, which
indemnify them to the extent permitted by law. BICO and its
affiliates Diasensor.com, Inc., Coraflex, Inc., Petrol Rem, Inc., and
ViaCirQ, formerly IDT, Inc. are incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania. Section 1741, et
seq. of said law, in general, provides that an officer or director
shall be indemnified against reasonable and necessary expenses
incurred in a successful defense to any action by reason of the fact
that he serves as a representative of the corporation, and may be
indemnified in other cases if he acted in good faith and in a manner
he reasonably believed was in, or not opposed to, the best
interests of the corporation, and if he had no reason to believe that
his conduct was unlawful, except that no indemnification is
permitted when such person has been adjudged liable for recklessness
or misconduct in the performance of his duty to the corporation,
unless otherwise permitted by a court of competent jurisdiction.
Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has
been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any
action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
RECENT SALES OF UNREGISTERED SECURITIES
BICO recently completed sales of unregistered securities as
summarized below. Unless otherwise indicated, all offers and sales
were made pursuant to the "private offering" exemption under Section
4(2) of the 1933 Act. Accordingly, because the shares sold constitute
"restricted securities" within the meaning of Rule 144 under the 1933
Act, stop-transfer instructions were given to the transfer agent, and
the stock certificates evidencing the shares bear a restrictive
legend.
During 1996 through March 1998, BICO entered into agreements with
several entities, which agreed to use their best efforts to sell
BICO's common stock to foreign investors subject to the requirements
set forth in Regulation S of the Securities Act of 1933. Those
entities undertook to ensure compliance with Regulation S, which among
other things, limits a foreign investor's ability to trade BICO's
stock in the United States. In addition to sales of common stock
pursuant to Regulation S, BICO has also sold convertible preferred
stock and convertible debentures. The debentures mandatorily
convert to common stock at prices that are discounted to the market
price, but cannot be converted for periods of 45 to 90 days
following the purchase of the debentures; such holding periods were
enforced via the use of stop transfer instructions and other notices.
The following funds were raised pursuant to Regulation S offerings
during the years noted: approximately $21.6 million in 1996,
approximately $22 million in 1997, and approximately $6.9 million in
1998.
In August 1998, BICO sold convertible debentures pursuant to
Regulation D; each debenture had mandatory conversion provisions and
was convertible beginning ninety days from purchase. Proceeds of the
sales were used to continue to fund BICO's research and development
projects and to provide working capital for BICO and its subsidiaries.
Beginning in December 1999, BICO sold $5,650,000 of its Series F
Convertible Preferred Stock, and $9,850,000 of its subordinated
convertible debentures in private offerings. Both the preferred stock
and the debentures have holding periods of ninety to one hundred
twenty days prior to conversion and are convertible into common stock
at prices that are discounted to the market price. Proceeds of the
sales were used to continue to fund BICO's projects, and to provide
working capital.
UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer and the terms of any
subsequent reoffering thereof. If any public offering is to be made
on terms differing from those set forth on the cover page of the
prospectus, a post-effective amendment will be filed to set forth the
terms of such offering.
EXHIBIT TABLE
Exhibit
Sequential Page No.
3.1(4) Articles of Incorp. as filed March 20, 1972... N/A
3.2(4) Amendment to Articles filed May 8,1972........ N/A
3.3(4) Restated Articles filed June 19,1975.......... N/A
3.4(4) Amendment to Articles filed February 4,1980... N/A
3.5(4) Amendment to Articles filed March 17,1981..... N/A
3.6(4) Amendment to Articles filed January 27,1982... N/A
3.7(4) Amendment to Articles filed November 22,1982.. N/A
3.8(4) Amendment to Articles filed October 30,1985... N/A
3.9(4) Amendment to Articles filed October 30,1986... N/A
3.10(4) By-Laws....................................... N/A
3.11(5) Amendment to Articles filed December 28,1992.. N/A
3.12(8) Amendment to Articles filed February 7, 2000.. N/A
3.13 Amendment to Articles filed June 14, 2000..... N/A
5.1 Legal Opinion of Sweeney & Associates P.C..... 63
10.1(1) Manufacturing Agreement....................... N/A
10.2(1) Research and Development Agreement............ N/A
10.3(1) Termination Agreement......................... N/A
10.4(1) Purchase Agreement............................ N/A
10.5(2) Sublicensing Agreement and Amendments......... N/A
10.6(3) Lease Agreement with 300 Indian Springs
Partnership................................... N/A
10.7(4) Lease Agreement with Indiana County........... N/A
10.8(5) First Amendment to Purchase Agreement dated
December 8, 1992.............................. N/A
10.9(6) Fred E. Cooper Employment Agreement dated
11/1/94....................................... N/A
10.10(6) David L. Purdy Employment Agreement dated
11/1/94....................................... N/A
10.11(6) Anthony J. Feola Employment Agreement dated
11/1/94....................................... N/A
10.12(6) Glenn Keeling Employment Agreement dated
11/1/94....................................... N/A
10.13(9) David L. Purdy resignation as a director letter
dated 6/1/00.................................. N/A
16.1(7) Disclosure and Letter Regarding Change in
Certifying Accountants dated 1/25/95.......... N/A
24.1 Consents of Thompson Dugan, Independent
Certified Public Accountants.................. 65
24.2 Consent of Counsel Included in Exhibit 5.1
above......................................... 63
25.1 Power of Attorney of Fred E. Cooper
(included under "Signatures")................. 62
(1) Incorporated by reference from Exhibit with this title filed
with BICO's Form 10-K for the year ended December 31, 1991
(2) Incorporated by reference from Exhibit with this title to Form
8-K dated May 3, 1991
(3) Incorporated by reference from Exhibit with this title to Form
10-K for the year ended December 31, 1990
(4) Incorporated by reference from Exhibits with this title to
Registration Statement on Form S-1 filed on December 1, 1992
(5) Incorporated by reference from Exhibits with this title to
Amendment No. 1 to Registration Statement on Form S-1 filed on
February 8, 1993
(6) Incorporated by reference from Exhibit with this title to Form
10-K for the year ended December 31, 1994
(7) Incorporated by reference from Exhibit with this title to Form
8-K dated January 25, 1995
(8) Incorporated by reference from Exhibit with this title to Form
10-K dated March 27, 2000
(9) Incorporated by reference from Exhibit with this title to Form
8-K dated June 2, 2000
Exhibit 25.1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration Statement to be signed
on its behalf by the undersigned on August 4, 2000.
BICO, INC.
By: /s/ Fred E. Cooper
Fred. E. Cooper, director, CEO,
(principal executive officer, principal
financial officer, and principal
accounting officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Fred E. Cooper his
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments (including post-
effective amendments) to this registration Statement, and to file the
same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration Statement has been signed by the following
persons in the capacities indicated on the dates indicated.
Signature Title Date
/s/Anthony J. Feola senior vice president, August 4, 2000
Anthony J. Feola director
/s/Glenn Keeling director August 4, 2000
Glenn Keeling
/s/Stan Cottrell director August 4, 2000
Stan Cottrell
/s/Paul W. Stagg director August 4, 2000
Paul W. Stagg
Exhibit 5.1
SWEENEY & ASSOCIATES, P.C.
ATTORNEYS AT LAW
7300 PENN AVENUE TELEPHONE (412) 731-1000
PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190
August 4, 2000
To the Board of Directors
BICO, Inc.
2275 Swallow Hill Road
Building 2500; 2nd Floor
Pittsburgh, PA 15220
Gentlemen:
We have examined the corporate records and proceedings of BICO,
Inc., formerly Biocontrol Technology, Inc, a Pennsylvania corporation
(the "Company"), with respect to:
The organization of the Company;
The legal sufficiency of all corporate proceedings of the
Company taken in connection with the creation, issuance, the form and
validity, and full payment and non-assessability, of all the present
outstanding and issued common stock of the Company; and
The legal sufficiency of all corporate proceedings of the
Company, taken in connection with the creation, issuance, the form
and validity, and full payment and non-assessability, when issued, of
shares of the Company's common stock (the "Shares"), to be issued by
the Company covered by this registration statement (hereinafter
referred to as the "Registration Statement") filed with the
Securities and Exchange Commission August 4, 2000, file number 333-
39656 (in connection with which Registration Statement this opinion
is rendered.)
We have also examined such other documents and such questions of
law as we have deemed to be necessary and appropriate, and on the
basis of such examinations, we are of the opinion:
(a) That the Company is duly organized and validly
existing under the laws of the Commonwealth of
Pennsylvania;
(b) That the Company is authorized to have outstanding
1,700,000,000 shares of common stock of which 962,825,628
shares of common stock were outstanding as of June 30,
2000;
(c) That the Company has taken all necessary and
required corporate proceeding in connection with the
creation and issuance of the said presently issued and
outstanding shares of common stock and that all of
said stock so issued and outstanding has been validly
issued, is fully paid and non-assessable, and is in
proper form and valid;
(d) That when the Registration Statement shall have
been declared effective by order of the Securities and
Exchange Commission, after a request for acceleration
by the Company, and the Shares shall have been issued
and sold upon the terms and conditions set forth in
the Registration Statement, then the Shares will be
validly authorized and legally issued, fully paid and
non-assessable.
We hereby consent (1) to be named in the Registration Statement,
and in the prospectus, which constitutes a part thereof, as the
attorneys who will pass upon legal matters in connection with the
sale of the Shares, and (2) to the filing of this opinion as Exhibit
5.1 of the Registration Statement.
Sincerely,
Sweeney & Associates, P.C.
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
We have issued our report dated March 24, 2000, except for Note Q as
to which the date was May 24, 2000 accompanying the consolidated
financial statements of BICO, Inc., formerly Biocontrol Technology,
Inc. and subsidiaries appearing in the 1999 Annual Report on Form 10-
K/A for the year ended December 31, 1999. We consent to the
inclusion in this Registration Statement of the aforementioned report
and to the use of our name, as it appears under the caption
"EXPERTS". Our report on the consolidated financial statements
referred to above includes an explanatory paragraph, which discusses
going concern considerations as to BICO, Inc.
/s/Thompson Dugan
Pittsburgh, Pennsylvania
August 4, 2000
