SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended 09/30/99 Commission File Number 0-26504
Diasensor.com, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1605848
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2275 Swallow Hill Road, Building 2500; Pittsburgh, PA 15220
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 279-9740
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K, or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of November 30, 1999:
Common Stock, $.01 par value -- $__________*
*The market value cannot be determined because there is no
established trading market for the stock.
As of November 30, 1999, 22,980,051 shares of Common Stock, par
value $.01 per share were outstanding. As of November 30, 1999,
no shares of Preferred Stock were outstanding.
Exhibit index is located on page 37.
PART I
Item 1. Business
General Development of Business
Diasensor.com, Inc. ("Diasensor.com" or the "Company") was
incorporated in the Commonwealth of Pennsylvania on July 5, 1989
as Diasense, Inc., a wholly-owned subsidiary of Biocontrol
Technology, Inc. ("BICO"). Diasensor.com's headquarters are
located in an office condominium located at 2275 Swallow Hill
Road, Building 2500, 2nd Floor, Pittsburgh, PA 15220.
The Company's business is the development, marketing and
manufacture of a noninvasive glucose sensor (the "Noninvasive
Glucose Sensor" or the "Sensor") for use by diabetics. In
connection with the Sensor, the Company is also developing the
Telemedicine system, a monitoring system which would allow
diabetics to transmit glucose readings via the internet, allowing
both a central monitoring department and the diabetic's own
physician to monitor glucose levels and assist in glucose
control. During Fiscal 1999, the Company continued to focus its
efforts on the Noninvasive Glucose Sensor. The Company is
working with Joslin Diabetes Center, an affiliate of Harvard
Medical School and an international leader in diabetes treatment,
to design and conduct clinical trials on the Diasensor in the
U.S. Diasensor.com owns the patent, marketing and distribution
rights to the Sensor. BICO has the exclusive rights to the
research and development and manufacture of the Sensor (See,
"Intercompany Agreements"). Where applicable, Diasensor.com and
BICO will be referred to herein as "the Companies".
Financial Information About Industry Segments
The Company operates in a single industry segment consisting of
the research, development, marketing and intended sale of
biomedical products and devices.
Forward-Looking Statements
From time to time, the Companies may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new
products, research and development activities, the regulatory
approval process, specifically in connection with the FDA
marketing approval process, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the
terms of the safe harbor, the Companies note that a variety of
factors could cause the Companies' actual results to differ
materially from the anticipated results or other expectations
expressed in the Companies' forward-looking statements. The
risks and uncertainties that may affect the operations,
performance, research and development and results of the
Companies' business include the following: additional delays in
the research, development and FDA marketing approval of the
Noninvasive Glucose Sensor; the Companies' future capital needs
and the uncertainty of additional funding; Diasensor.com's
substantial reliance upon BICO, and BICO's uncertainty of
additional funding; competition and the risk that the Noninvasive
Glucose Sensor may become obsolete; the Company's dependence on a
single technology; the Companies' continued operating losses,
negative net worth and uncertainty of future profitability;
potential conflicts of interest; the status and risk to the
Company's patents, trademarks and licenses; the uncertainty of
third-party payor reimbursement for the Sensor and the general
uncertainty of the health care industry; the Companies' limited
sales, marketing and manufacturing experience; the attraction and
retention of key employees; the risk of product liability; the
uncertain outcome and consequences of the lawsuits pending
against the Companies; the absence of a public market for the
Company's common stock; the control of the Company by existing
shareholders; and the dilution of the Company's common stock.
Description of Business
Development of the Noninvasive Glucose Sensor
Diasensor.com and BICO are currently developing a Noninvasive
Glucose Sensor, which management believes will be able to measure
the concentration of glucose in human tissue without requiring
the drawing of blood. Currently available glucose sensors
require the drawing of blood by means of a finger prick.
BICO's initial research and development with insulin pumps led to
a theory by which blood glucose levels could be detected
noninvasively by correlating the spectral description of
reflected electromagnetic energy from the skin with blood glucose
levels in the 50 mg per deciliter to 500 mg per deciliter range
in the infrared region of the electromagnetic spectrum. The
method was studied in 1986 and 1987 by BICO and its consultants
at Battelle Memorial Institute in Columbus, Ohio, using
laboratory instruments. The results of the studies provided
information regarding the use of infrared light in the
noninvasive measurement of glucose. The information from the
studies, along with later affirmative work, led to a patent
application by BICO's research team in 1990. A patent covering
the method was granted to the research team and assigned to BICO
in December 1991. The rights of this patent were purchased by
Diasensor.com from BICO, pursuant to a Purchase Agreement (See,
"Intercompany Agreements"). A second patent application was
filed by BICO in December 1992, and was granted in January 1995.
This filing contained new claims, which extended the coverage of
the patent based on additional discoveries and data obtained
since the original patent was filed. BICO has assigned the
rights to such patent to Diasensor.com. Additional concepts to
improve the capability of the instrument to recognize blood
glucose were developed, and, in May 1993, corresponding patent
applications were filed. As of November 1999, a total of seven
patents have been issued, with additional patent applications
pending (See, "Current Status of the Noninvasive Glucose Sensor"
and "Patents, Trademarks and Licenses"). BICO has been granted
the right to develop and manufacture sensors pursuant to
agreements with Diasensor.com (See, "Intercompany Agreements").
In 1991, BICO's research team began development of a research
prototype utilizing different technology than previously studied
or developed. This device, the Beta 1 research prototype, was
initially tested on six human subjects, and was subsequently
tested on 110 human subjects in March 1992, during which
simultaneous spectral, blood and chemical data was recorded for
analysis in order to develop calibration data for the device.
The Beta 1 utilized a separate laptop computer to perform
computational functions. The results of the March 1992 tests
were used to develop further refinements which led to the
development of the Beta 2A.
Although functionally equivalent in terms of performance with the
Beta 1, the next prototype, the Beta 2A, was smaller and had
fully integrated computational software and a liquid crystal
display which interacted with the operator. This model was
tested by BICO on 40 human subjects in July 1992. The spectral
and blood chemistry data obtained indicated that the Beta 2A did
not have a satisfactory signal-to-noise ratio to allow for the
calculation of algorithms of sufficient accuracy to be acceptable
to Diasensor.com. The signal-to-noise ratio reflects the
sensor's ability to optimize the measurement by accepting the
signal desired (the glucose level) and rejecting the random
interference. A higher signal-to-noise ratio results in a more
accurate measurement.
Additional Beta prototypes evolved which addressed this problem.
Testing was performed with each prototype, culminating in
clinical trials at two hospitals with ten diabetic volunteers
each in Des Plaines, Illinois in May 1993 and in Indiana,
Pennsylvania in August 1993. These advanced systems embodying
improvements in the optics, electronics and detection subsystems
led to the design of the Beta 2D, Beta 2E, and Beta 2F
prototypes, designed and constructed to simulate production
models.
BICO initially obtained the approval of six Institutional Review
Boards ("IRBs") to conduct testing at their hospitals. Those
hospitals are Children's Hospital in Pittsburgh, Pennsylvania;
Rush North Shore in Skokie, Illinois; Westmoreland Hospital in
Greensburg, Pennsylvania; Lutheran General Hospital in Park
Ridge, Illinois; Holy Family Hospital in Des Plaines, Illinois;
and Indiana Hospital in Indiana, Pennsylvania. The Company
conducted initial testing at the Holy Family Hospital and Indiana
Hospital, and may conduct further studies on present and future
models at some or all of the other hospitals from which IRB
approval has been obtained.
On January 6, 1994, BICO submitted its initial 510(k)
Notification to the U.S. Food and Drug Administration (the "FDA")
for approval to market the production model, the Diasensor 1000.
The submission was based on data obtained from the advanced Beta
2 prototypes, since functionally, the production model will be
identical to these prototype models. BICO's 510(k) Notification
claims that the product has substantial equivalence to home
market glucose monitoring devices presently in the marketplace
since its function is similar, although the device operates on a
different technological principle. BICO provided information in
this 510(k) submission which it believes substantiates that the
device does not raise different questions of safety and efficacy
and is as safe and effective as the legally marketed predicated
devices. Such information is required by the FDA before market
approval can be granted. In February 1996, the FDA convened a
panel of advisors to make a recommendation regarding BICO's
510(k) Notification. The majority of the panel members
recommended that BICO conduct additional testing and clinical
trials prior to marketing the Diasensor 1000. BICO and
Diasensor.com announced that they remained committed to bringing
the Diasensor 1000 to diabetics, and that additional research,
development and testing would continue (See, "Current Status of
the Noninvasive Glucose Sensor").
In 1997 and 1998, due to continued delays of the FDA approval
process, which are summarized below, and while continuing to work
with the FDA and conduct its mandated testing, the Companies also
focused their efforts on obtaining approval to market the
Diasensor 1000 overseas. The Companies obtained a "CE" mark. In
connection with obtaining a CE mark, the Companies have undergone
a series of audits and have been certified as manufacturers and
marketers in Europe for the Diasensor 1000.
In 1998, BICO, as designer and manufacturer of the device, was
awarded ISO certification by TUV Rheinland, a company authorized
to conduct such audits, which was contracted to perform a
"conformity assessment" of BICO's quality system. BICO was
awarded International Organization for Standardization ("ISO")
Certification to the 9001 standard, evidencing that BICO has in
place a total quality system for the design, development and
manufacture of its products. BICO also was awarded EN46001
Certification, indicating it meets European standards for medical
devices. Once the ISO 9001 certification was approved, and a
technical file was submitted and approved by TUV, BICO received
approval to apply a CE mark to the device. Much like an
Underwriters Laboratory "UL" mark, the CE mark is provided by the
regulatory bodies of the European Community, or by authorized
private bodies, such as TUV Rheinland, to indicate that the
device adheres to "quality systems" of the ISO and the European
Committee for Standardization. The CE mark permits the Companies
to sell the Diasensor and other medical products in Europe.
With regard to marketing the device within the United States, the
Companies continued to work with the FDA to obtain approval. A
revised 510(k) Notification was submitted in October 1996, and
was followed by continued discussions with the FDA. During 1997
and 1998, the Company continued to meet with the FDA, and
established a protocol for in-home testing of the Diasensor 1000.
Due to the Company's cash flow problems during 1998, testing did
not proceed at the pace originally anticipated, and completion of
the testing was delayed.
BICO continued various aspects of the Diasensor development,
resulting upon a method by which the readings generated by the
machine could be transmitted via modem to the patient's clinic or
physician. Following an in-depth marketing study, the Company
determined that the machines with this capability are more
attractive to the patient, since there is the possibility of
selling a telemedicine service which includes the machine, the
patient, and his or her physician. The model of the Diasensor
has been named the Diasensor 2000 to differentiate between this
model and the earlier model. Upon the advice of the FDA, BICO
determined that it was in the Companies' best interest to submit
a PreMarket Approval Application ("PMA") to the FDA seeking
marketing approval for the Diasensor 2000. In 1999 the FDA
implemented a new PMA system wherein individual modules of a PMA
submission could be made as they were ready. In May 1999, BICO
submitted the first module, which covered manufacturing methods
and procedures for the Diasensor 2000. The FDA requested further
information which will be submitted in future modules. Future
modules will include non-clinical testing, such as product
validation and safety testing, and human clinical trial data.
The Diasensor is a spectrophotometer capable of illuminating a
small area of skin on a patient's arm with infrared light, and
then making measurements from the infrared light diffusely
reflected back into the device, which it then displays on a
liquid crystal display on the face of the instrument for the user
to read. The Diasensor uses internal algorithms to calculate a
glucose measurement.
Since the Diasensor will be calibrated individually, each
instrument will be sold by prescription only and will be
calibrated in the patient's home. This feature may limit the
marketability of the Diasensor, and if the device is unable to
qualify for third-party reimbursement, the Company's ability to
market the device could be adversely effected.
Current Status of the Noninvasive Glucose Sensor
Hampered by the Companies' cash flow problems, progress on the
Sensor project was slowed during 1998, which makes up part of
Diasensor.com's Fiscal 1999. Once funds became available, the
Company allocated resources to re-establishing active dialog with
the FDA. To further that effort, the Company has engaged Joslin
Diabetes Center to design and conduct clinical trials, which are
necessary to obtain FDA approval.
In addition to the agreement with Joslin, the Company took other
significant steps toward FDA approval. In February 1999 the
Company submitted a PMA shell to the FDA for the Diasensor. The
PMA shell is part of a relatively new FDA procedure, which
divides submissions into modules. These modules, which were
designed to facilitate and expedite FDA review, contain different
pieces of the full PMA submission. However, from both its own
experience and by observing other module submissions, the Company
does not believe that the FDA intends to "approve" the PMA one
module at a time. Rather, the Company has had meetings with the
FDA, including an October meeting, where requirements for the
"next step" in the process have been discussed without a specific
FDA finding on prior submissions.
The Company is also developing a Telemedicine program for use
with the Diasensor. This program would involve the use of a
Diasensor, along with an internet software program. Each reading
on the Diasensor would be automatically stored for transmission,
via the internet, to a location, which would analyze the data and
transmit it to the patient's physician. This use of historical
readings is critical in the patient's analysis of trends in
glucose levels, an important tool in both the treatment of
diabetes and the use of insulin. The Company believes that this
Telemedicine program, which would involve a monthly fee for the
use of the device and the service, rather than a purchase of the
device, will make the Diasensor technology available to larger
numbers of diabetics.
As with all other FDA-related activities, the Companies cannot
provide any assurances as to the date upon which the studies will
be completed, the next module of the PMA will be submitted, or
when the FDA will complete its review of such submission.
Although the Company's research and development team continues to
have discussions with the FDA, due to the complex, technical
nature of the information being evaluated by the FDA, it is
impossible for the Company to estimate how much longer the FDA
approval process will take.
FDA approval is necessary to market the Diasensor in the United
States. In 1999, the Companies also focused additional effort on
the European market, and are planning to send devices to
different European sites for clinical evaluation in order to
encourage those markets to use the Diasensor.
Diasensor.com is responsible for the marketing and sales of the
Noninvasive Glucose Sensor. Diasensor.com plans to market the
Noninvasive Glucose Sensor and the Telemedicine program directly
to diabetics, through their doctors' orders. The Diasensor 1000
has been sold in Europe at a price approximately equivalent to US
$8,500, and it is anticipated that the Diasensor would be sold at
a similar price in other markets. The Telemedicine program will
involve a monthly fee for the use of both the Sensor and the
service. Such prices may be set at levels, which would limit its
sales, absent third-party reimbursement. Due to the current
vicissitudes of the health-care insurance industry, the Companies
are unable to make any projections as to the availability of, or
procedures required in connection with, third-party
reimbursement. Although the Companies estimate, based on 1999
American Diabetes Association data, that there are nearly
16,000,000 diabetics in the United States, not all diabetics will
be suitable users of the Noninvasive Glucose Sensor. Those
diabetics who require and benefit from frequent glucose
monitoring comprise the potential market for the Noninvasive
Glucose Sensor. The Companies are unable to estimate the size of
that market at this time.
Invasive Glucose Sensors
Currently, blood glucose levels are generally measured by use of
invasive glucose sensors utilizing two different methods. The
simplest method for monitoring blood glucose levels requires the
user to prick a finger, draw a drop of blood, and place the blood
on a chemically-treated test strip. After a specified amount of
time has elapsed, the blood must be blotted or wiped off. After
an additional amount of time has elapsed, the color of the test
strip is visually compared to that of a color chart, and the
glucose level is read from the chart. The second method
requires the user of an invasive glucose sensor to prick a
finger, draw a drop of blood, and to place the blood on a test
strip similar to those described above. Later, the user must
wait a prescribed period of time and place the test strip in the
invasive glucose sensor, which will display a readout of the
blood glucose level. Diasensor.com believes that many of the
existing invasive glucose sensors are complicated, time-
consuming, prone to user error, inconvenient, unpleasant and
entail significant ongoing expenditures by the user for supplies.
The Company believes that these methods generally yield accuracy
levels within plus or minus 25-30 mg/dl of actual glucose levels
(depending upon testing conditions). Diasensor.com believes that
if current research and development efforts are successful, the
Noninvasive Glucose Sensor will have a range of accuracy at least
as accurate as currently available invasive glucose sensors.
With either method, adequate control of blood glucose levels
requires several finger pricks each day, which is an unpleasant
experience for the user, especially for children. Depending upon
the relative facility of the user, it generally takes at least
two to four minutes for a readout to be provided from existing
invasive glucose sensors. Moreover, the ongoing costs of
repeated testing are significant to the average user, given the
cost of test strips, lancets, swabs, antiseptics, test solutions,
etc., and could represent a monthly cost of up to $100 or more.
Diasensor.com believes that if the Noninvasive Glucose Sensor is
successfully developed, manufactured and marketed, the
unpleasantness of existing testing methods will be effectively
eliminated, and the expense and inconvenience will, over the long
term, be significantly reduced.
A clinical invasive glucose sensor marketed by Yellow Springs
Instruments, Inc. (the "Yellow Springs Sensor") is an invasive
glucose sensor, which is relatively non-portable and costs
approximately $8,000 per unit. It is used nearly exclusively by
hospitals and other institutions. The Yellow Springs Sensor has
significantly different abilities, characteristics and
limitations than existing invasive glucose sensors. Although
Diasensor.com believes that the Yellow Springs Sensor yields
higher accuracy levels than other invasive glucose sensors
(within plus or minus 3% of actual glucose levels) within up to
30 minutes, Diasensor.com believes that its Noninvasive Glucose
Sensor may be more desirable to most users of existing invasive
glucose sensors, who typically value speed and convenience, who
do not require the higher accuracy levels achieved by the Yellow
Springs Sensor, and who do not want to utilize invasive methods.
Diabetes
The American Diabetes Association (the "ADA") has estimated that
diabetes is the seventh leading cause of death in the United
States. The ADA also estimates that there are 16 million
diabetics in the United States, including 11% of all people
between the ages of 65 and 74, with corresponding estimated
annual health care and work loss costs of more than $90 billion.
It is also estimated that more than 385,000 diabetics die each
year from complications associated with diabetes. More than
625,000 new cases of diabetes are diagnosed each year. Diabetics
who are stricken with juvenile diabetes, the most severe form of
the disease, can survive with insulin injections. However, the
quality and length of their lives are generally reduced by
problems associated with insulin therapy and by the onset of
serious diabetic complications, including blindness, kidney
failure, impotence and increased susceptibility to infection.
Many tissues of the body normally rely on glucose, a form of
sugar, as a source of metabolic energy. Most cells store
significant amounts of glucose as glycogen, but certain tissues,
especially the brain, depend upon the blood to deliver a
continuous supply of glucose. The concentration of glucose in
the bloodstream must be controlled within a relatively tight
range to maintain normal health. If blood glucose drops too low,
causing hypoglycemia, the brain and nervous system stop working
properly, thereby causing faintness, weakness, tremulousness,
headache, confusion, and personality changes. Severe
hypoglycemia can progress to convulsions, coma, and death. If
blood glucose rises too high, causing hyperglycemia, there may be
excess urine production, thirst, weight loss, fatigue, and in the
most severe cases, dehydration, coma, and death. Moreover,
hyperglycemia causes damage from chemical reactions between the
excess glucose and proteins in cells, tissues, and organs. Over
long periods of time, episodes of hyperglycemia are thought to
lead to diabetic complications, including blindness, kidney
failure, impotence and increased susceptibility to infection.
To control the storage and metabolism of blood glucose, the
pancreas makes hormones that signal either removal or addition of
glucose to the blood, depending on the need. Insulin is a
pancreatic hormone that lowers blood glucose levels. Glucagon is
a pancreatic hormone that raises blood glucose levels. Although
certain other hormones affect blood glucose levels, insulin and
glucagon have been considered the principal regulators of glucose
metabolism associated with eating.
When the concentration of glucose in the bloodstream is not
controlled within a relatively tight range, severe complications
result. The principal disease associated with abnormal glucose
metabolism is diabetes mellitus, which is defined by the presence
of elevated blood glucose levels. Over the last 20 years, it has
become generally accepted that there are several distinct
subclasses of diabetes, the two most important of which are Type
I diabetes ("Type I Diabetes") and Type II diabetes ("Type II
Diabetes"). Type I Diabetes, or insulin-dependent diabetes
mellitus, typically begins during childhood or early adulthood
(and is therefore termed "juvenile diabetes"). Type II Diabetes,
or non-insulin-dependent diabetes mellitus, typically begins
during or after middle age (and is therefore termed "adult onset
diabetes").
Type I Diabetes. It is estimated that there are over 1 million
Type I diabetics in the United States, and about 45,000 new cases
are diagnosed each year. Type I Diabetes is caused by the
destruction of the pancreatic cells that make insulin, resulting
in deficient hormonal control of glucose metabolism and
abnormally high blood glucose. High blood glucose levels can
lead to coma and death if not adequately controlled.
Before the discovery of insulin, Type I Diabetes was a rapidly
fatal disease. Insulin therapy corrects the most serious
metabolic disorders, and the discovery of insulin is regarded as
a major triumph of medical science. However, even with modern
insulin therapy, Type I diabetics cannot lead normal lives. Type
I diabetics' life spans can be shortened by the onset of serious
complications, including blindness, kidney failure, impotence and
increased susceptibility to infection. Consequently, intensive
insulin therapy to control blood glucose is an objective of
modern diabetes treatment. For Type I diabetics, glucose control
requires frequent monitoring of glucose levels and rigid
management of diet, exercise and therapy and is difficult to
achieve for many patients.
Type II Diabetes. It is estimated that there are over 5 million
diagnosed Type II diabetics in the United States and equal
numbers of both undiagnosed Type II diabetics and people with
impaired glucose tolerance, a condition characterized by normal
blood glucose levels before eating but a tendency toward
hyperglycemia afterward. An estimated 600,000 new cases of Type
II Diabetes are diagnosed each year in the United States.
The cause of Type II Diabetes is not precisely known. What is
known is that Type II Diabetes usually occurs during or after
middle age, heredity plays a role, and energy-rich diets coupled
with sedentary lifestyles are involved. These factors appear to
combine to cause insulin resistance, which is a failure of
insulin to act normally to reduce blood glucose levels. As a
consequence, even though insulin continues to be secreted by the
pancreas, sometimes in above-normal amounts, blood glucose is
poorly controlled. Over time, the resulting episodes of
hyperglycemia are thought to cause widespread tissue damage,
including possible damage to insulin secretion mechanisms in the
pancreas. Current therapies for Type II diabetics include rigid
dietary control, often in conjunction with the prescription of
sulfonylurea compounds or, in the late stages of the disease,
daily insulin injections. Again, frequent monitoring of glucose
levels is required.
Foreign Subsidiaries
In connection with its office in London, Diasensor.com formed
Diasensor.com U.K. Limited. Operations of this subsidiary is
currently limited to the employment of part-time consultants.
Net Sales
The Company is still in the research and development mode of its
product development; no sales have occurred since its inception.
Research and Development
The Company is continuing the research and development of the
Noninvasive Glucose Sensor. The research and development is
being conducted by BICO pursuant to a Research and Development
Agreement (See, "Intercompany Agreements").
Product Development
The Company is currently developing other models of the
Noninvasive Glucose Sensor for more universal use.
Manufacturing
Production and inventory buildup of the Diasensor 1000 is
expected to continue. Manufacturing of the Diasensor 1000 for
sale in the U.S. will not begin without FDA approval. BICO will
act as Diasensor.com's exclusive manufacturer of production units
of the Noninvasive Glucose Sensor for fifteen years (See,
"Manufacturing Agreement"). Pursuant to the Manufacturing
Agreement, BICO will manufacture units of the Noninvasive Glucose
Sensor for sale to Diasensor.com at its manufacturing facility in
Indiana, PA, although BICO may use various subcontractors to
provide certain components. The Companies plan to have the
optics, software, electronics and other mechanical components
supplied to BICO for assembly on a coordinated basis with BICO's
production schedule. After manufacturing is underway, BICO does
not expect to maintain significant inventories and, as a result,
backlogs may occur from time to time.
In September 1992, BICO entered into a 10-year lease with the
Indiana County Board of Commissioners for a 22,500 square foot
facility located in Indiana, PA. BICO renovated the facility and
ordered the required capital equipment and machinery necessary
for assembly operations. During 1999, all of the Companies'
Indiana, PA operations were moved to this location, which is now
used for manufacturing, research and development and
administrative functions. During 1995, BICO obtained an
additional 45,500 square feet of manufacturing space, which is
being completed for manufacturing. In 1998, BICO vacated this
additional space to its lessor in return for the lessor?s
agreement not to pursue legal action against BICO for nonpayment
of rent.
BICO has undertaken, pursuant to the Manufacturing Agreement, to
comply with good manufacturing practices and other regulatory
standards and intends to establish a quality control and quality
assurance program once manufacturing begins. Although the
Companies plan to work closely to coordinate the implementation
of these undertakings, there can be no assurance that BICO will
meet Diasensor.com's requirements for quality, quantity, or
timeliness.
Marketing and Distribution
Although Diasensor.com's officers and marketing employees have
experience in sales, marketing, and/or distribution,
Diasensor.com has no direct prior or existing experience.
Diasensor.com's officers have such experience, but not
specifically in the biomedical device industry (See, "Directors
and Executive Officers"). Although the Company believes that a
successfully developed Noninvasive Glucose Sensor will attract a
market, the Company anticipates that substantial marketing
efforts and the expenditure of significant funds may be necessary
to inform potential customers and distributors of the distinctive
characteristics and benefits of the Company's Noninvasive Glucose
Sensor. The Company's success will also depend to a significant
extent on its ability to establish an effective internal
marketing organization.
In addition, the Company's operating results will depend largely
on its ability to establish successful arrangements with domestic
and international distributors and marketing partners.
Diasensor.com also contemplates that it will employ a direct
sales force focusing directly on diabetics. Although the Company
believes that a successfully developed Noninvasive Glucose
Sensor, including the Telemedicine internet monitoring program,
will be a profitable product for the Company, there can be no
assurances that Diasensor.com will be able to establish
sufficient direct sales capabilities and distribution
relationships or that it will be successful in gaining market
acceptance and profitability through sales of its products.
Patents, Trademarks and Licenses
Diasensor.com owns a patent entitled "Non-Invasive Determination
of Glucose Concentration in Body of Patients" (the "Patent")
which covers certain aspects of a process for measuring blood
glucose levels noninvasively. Such Patent was awarded to BICO's
research team in December 1991 and was sold to Diasensor.com
pursuant to a Purchase Agreement dated November 18, 1991 (See,
"Intercompany Agreements"). The Patent will expire, if all
maintenance fees are paid, no earlier than the year 2008. If
marketing of a product made under the Patent is delayed by
clinical testing or regulatory review, an extension of the term
of the Patent may be obtained. Diasensor.com's Patent relates
only to noninvasive sensing of glucose but not to other blood
constituents. Diasensor.com has filed corresponding patent
applications in a number of foreign countries.
A second patent application was filed by BICO in December 1992,
which was assigned to Diasensor.com. This second patent
contained new claims, which extend the coverage based upon
additional discoveries and data obtained since the original
patent was filed. The patent application was amended in October
1993, and was granted in January 1995.
In May 1993, four additional patent applications were filed by
BICO's research teams related to the methods, measurement and
noninvasive determination of analyze concentrations in blood.
As of November 1999, a total of seven patents have been issued,
all of which have been assigned to Diasensor.com, and additional
patents are pending. Corresponding patent applications have
been filed in foreign countries where the Company anticipates
marketing the Noninvasive Glucose Sensor.
BICO's research team continues to file patent applications,
provisional patent applications, some of which are being
converted into "PCTs" (Patent Cooperative Treaty), which reflect
the continued research and development and additional refinements
to the Noninvasive Glucose Sensor.
Diasensor.com or BICO may file applications in the United States
and other countries, as appropriate, for additional patents
directed to other features of the Noninvasive Glucose Sensor and
related processes.
Those competitors known by Diasensor.com to be currently
developing non-invasive glucose sensors own patents directed to
various devices and processes related to the non-invasive
monitoring of concentrations of glucose and other blood
constituents. It is possible that such patents may require
Diasensor.com to alter any model of the Noninvasive Glucose
Sensor or the underlying processes relating to the Noninvasive
Glucose Sensor, to obtain licenses, or to cease certain
activities.
The Company also relies upon trade secret protection for its
confidential and proprietary information. Although Diasensor.com
and BICO take all reasonable steps to protect such information,
including the use of Confidentiality Agreements and similar
provisions, there can be no assurance that others will not
independently develop substantially equivalent proprietary
information or techniques, otherwise gain access to the Company's
trade secrets, disclose such technology, or that the Company can
meaningfully protect its trade secrets.
The Company has registered its trademark "Diasensor ", which is
intended for use in connection with the Diasensor models. The
Company intends to apply, at the appropriate time, for
registrations of other trademarks as to any future products of
the Company.
Warranties and Product Liability
Because the Company has not yet begun its manufacture or sale of
any products, it has not extended any warranties or incurred
product liability risk. BICO and Diasensor.com currently have
product liability insurance. Upon the initiation of manufacture
or sale of products, the Company will attempt to obtain
additional insurance to cover product liability risk, if
necessary.
Source of Supply
Once production of the Noninvasive Glucose Sensor begins, BICO,
as the manufacturer (See, "Intercompany Agreements"), will be
dependent upon suppliers for some of the components required to
manufacture the Noninvasive Glucose Sensor. Some components may
not be generally available, in which case BICO and the Company
may become dependent upon those suppliers, which do provide such
specialized products.
Competition
With the rapid progress of medical technology, and in spite of
continuing research and development programs, the Company's
developmental products are always subject to the risk of
obsolescence through the introduction by others of new products
or techniques. Management is aware that other research groups
are developing noninvasive glucose sensors, but has limited
knowledge as to the technology used or stage of development of
these devices. There is a risk that those other groups will
complete the development of their devices before the Company
does. There is no other company currently producing or marketing
noninvasive sensors for the measurement of blood glucose similar
to those being developed by the Company. Competitive success in
the medical device field is dependent upon product
characteristics including performance, reliability, and design
innovations.
The Noninvasive Glucose Sensor will compete with existing
invasive glucose sensors. Although the Company believes that the
features of the Noninvasive Glucose Sensor, particularly its
convenience and the fact that no blood samples are required, will
compete favorably with existing invasive glucose sensors, there
can be no assurance that the Noninvasive Glucose Sensor will
compete successfully. Most currently available invasive glucose
sensors yield accuracy levels of plus or minus 25% to 30%, range
in price from $80 to $200, not including monthly costs for
disposable supplies and accessories, and are produced and
marketed by eight to ten sizable companies. Those companies
include Bayer, Inc., Boehringer Mannheim Diagnostics, and
Lifescan (an affiliate of Johnson & Johnson).
Such companies have established marketing and sales forces, and
represent established entities in the industry. Certain of the
Company's competitors (including their corporate or joint venture
partners or affiliates) currently marketing invasive glucose
sensors have substantially greater financial, technical,
marketing and other resources and expertise than Diasensor.com,
and may have other competitive advantages over Diasensor.com
(based on any one or more competitive factors such as accuracy,
convenience, features, price or brand loyalty). Additionally,
competitors marketing existing invasive glucose sensors may from
time to time improve or refine their products (or otherwise make
them more price competitive) so as to enhance their marketing
competitiveness relative to the Company's Noninvasive Glucose
Sensor. Accordingly, there can be no assurance that the product,
or Diasensor.com as marketer for the Noninvasive Glucose Sensor,
will be able to compete favorably with such competition.
The Company faces more direct competition from other companies
who are currently researching and developing noninvasive glucose
sensors. The Company has very limited knowledge as to the stage
of development of these sensors; however, should another company
successfully develop a noninvasive glucose sensor, achieve FDA
approval, and reach the market prior to the Company, it would
have an adverse effect upon the Company's ability to market its
sensor.
Among the other companies investigating infrared technology to
measure blood glucose levels noninvasively is CME Telemetrix in
Waterloo, Ontario, Canada. CME is reportedly conducting tests
with a desktop monitor that uses near-IR wavelengths. OptiScan
Biomedical in Alameda, California is developing a device that
uses far-IR wavelengths. Rio Grande Medical Technologies of
Albuquerque, New Mexico is designing a photonics-based device.
Rio Grande is currently funded by Johnson & Johnson.
Other companies claim that they are designing systems that are
semi-invasive. SpectRx in Norcross, Georgia is using a laser to
create micropores on the skin without the invasive penetration of
a metal needle or lancet. The device then gives a glucose
reading from the interstitial fluid collected from the
micropores. Cell Robotics International, Inc. in Albuquerque,
New Mexico is also using a laser device that perforates the skin.
Called the Lasette, a single-pulse Er:YAG laser ablates a small
hole in the fingertip to extract capillary blood for glucose
testing. A continuous glucose monitoring system from MiniMed,
Inc. in Sylmar, California received FDA approval in June 1999.
The device includes a catheter with a small sensor at its tip
that is inserted through the skin, sending readings via a small
wire to a sensor. A new sensor must be reinserted under the skin
every two to three days.
Cygnus of Redwood, California recently received FDA approval for
its GlucoWatch that leeches glucose through the skin by
electrical stimulation. The glucose triggers an electrochemical
reaction in a disposable transdermal pad that acts as a
biosensor, generating electrons. Although Cygnus claims that its
device is noninvasive, the fact remains that, in addition to the
use of electrical currents to draw fluid through the skin, each
person must use finger prick technology every day to calibrate
and use the device.
Certain organizations are also actively engaged in researching
and developing technologies that may regulate the use or
production of insulin or otherwise affect or cure the underlying
causes of diabetes. Diasensor.com is not aware of any new or
anticipated technology that would effectively render the
Noninvasive Glucose Sensor obsolete or otherwise not marketable
as currently contemplated. However, there can be no assurance
that future technological developments or products will not make
the Noninvasive Glucose Sensor significantly less competitive or,
in the case of the discovery of a cure for diabetes, even
effectively obsolete.
Government Regulations
Since the Company's Noninvasive Glucose Sensor product is a
"medical device" as defined by the Federal Food, Drug and
Cosmetic Act, as amended (the "Act"), it is subject to the
regulatory authority of the FDA and will also be subject to the
authority of similar foreign regulatory agencies in countries
where the Noninvasive Glucose Sensor may be marketed. The FDA
has promulgated regulations that apply to the testing, marketing,
registration and manufacture of medical devices and products.
The FDA can subject the Company to inspections of its facilities
and operations and may also audit its record keeping procedures
at any time.
Moreover, approvals are subject to continual review, and the
future discovery of previously unknown problems may result in
certain restrictions being applied to the use or marketing of the
Noninvasive Glucose Sensor or a complete withdrawal from the
market.
Because the Noninvasive Glucose Sensor is subject to regulation
by the FDA, the Company will be required to meet applicable FDA
requirements prior to marketing the device in the United States.
These requirements include clinical testing, which must be
supervised by the IRBs of chosen hospitals. Clinical testing
began on the Noninvasive Glucose Sensor in May 1993 (See,
"Current Status of the Noninvasive Glucose Sensor"). The
clinical trials have been conducted based on a determination by
the Company and the IRBs that the device is a "non-significant
risk" device, thus obviating the need for an Investigational
Device Exemption ("IDE") filing with the FDA. Should any of the
IRBs determine, and are successful in convincing the FDA, that
the device is a "significant risk" device, the Company would be
required to submit an IDE filing to the FDA. Such filing would
result in material delays and expenses for the Company, and a
resulting significant delay in the completion, marketing and sale
of the Noninvasive Glucose Sensor. To date, neither the IRBs nor
the FDA have informed the Company that they are of the opinion
that the device is a "significant risk" device.
Diasensor.com may conclude clinical testing on any device at any
point at which it believes additional data is not necessary for
inclusion in the 510(k) Notification. Such notification will
include a detailed description of the prototype and data produced
during clinical trials. The 510(k) Notification review by the
FDA involves a substantial period of time, and requests for
additional information and clinical data will require additional
time. Although the Company does not anticipate extraordinary
problems, there can be no assurance that the 510(k) Notification
will ultimately be approved, or when it will be approved.
The 510(k) Notification filed by the Company for the Diasensor
1000 indicated that the device is "substantially equivalent" to
similar existing devices, namely invasive glucose sensors. In
connection with its review of the Company's 510(k) Notification,
the FDA will determine whether the device is "substantially
equivalent" to a similar existing device based upon the following
factors: (i) whether the device has the same "intended use" as an
the existing device; and (ii) whether the device has the same
technological characteristics as the existing device, unless the
different technological characteristics do not adversely affect
its safety and effectiveness. Although the Company and the IRBs
believe that the Noninvasive Glucose Sensor satisfies those
requirements, thus qualifying for a 510(k) Notification, there
can be no assurance that the FDA will agree. Although its
correspondence with the Company appears to indicate that the FDA
believes that the 510(k) Notification is the appropriate filing
for the Diasensor 1000, should the FDA determine that the device
is not "substantially equivalent" to an existing device, or
refuse to approve the 510(k) Notification for any reason, the
Company would be required to submit to the FDA's full pre-market
approval process, which would require additional testing, and
result in significant delays and increased expenses. The FDA's
pre-market approval process is more extensive, time-consuming and
will result in increased research and development expenses, while
delaying the time period in which BICO and Diasensor.com could
begin manufacturing and marketing the product.
The time elapsed between the completion of clinical testing at
IRBs and the grant of marketing approval by the FDA is uncertain,
and no assurance can be given that approval to market the
Noninvasive Glucose Sensor will ultimately be obtained. In
addition, delays or rejections may be encountered based upon
changes in the FDA's regulatory policies during the period of
research and development and the FDA's review.
The Company may also be required to comply with the same
regulatory requirements prior to introducing the Diasensor 2000,
or other models of the Noninvasive Glucose Sensor, to the market.
Any changes in FDA procedures or requirements will require
corresponding changes in the Company's obligations in order to
maintain compliance with FDA standards. Such changes may result
in additional delays or increased expenses.
The FDA's Good Manufacturing Practices for Medical Devices
specifies various requirements for BICO's manufacturing processes
and maintenance of certain records.
Because the FDA approval process has been subject to several
delays, the Companies have focused efforts on obtaining approval
to sell its device in Europe (SEE, "The Company and its
Business").
Human Resources
Diasensor.com currently has no full-time employees.
Diasensor.com employs consultants in its London office. The
Company believes that, if and when FDA approval is obtained for
the Noninvasive Glucose Sensor, or manufacturing and marketing
begins, it will employ approximately 48 persons on a full-time or
part-time basis in the United States, and approximately sixteen
persons in each foreign office. Diasensor.com's success will
depend upon the efforts of its key management personnel, the
departure of any of whom may adversely affect Diasensor.com's
business. None of the Company's employees are represented by a
collective bargaining unit, and Diasensor.com considers its
relations with its employees to be excellent.
Financial Information About Foreign and Domestic Operations and
Export Sales
The Company's operations are located primarily in the United
States of America. In 1994, the Company incorporated a majority-
owned foreign subsidiary, Diasensor.com U.K. Limited, in order to
facilitate the opening of its office in London, England.
Although the Company is currently taking orders in its London
office, the Company has had no sales, foreign or domestic, since
its inception.
Item 2. Properties
In April 1992, Diasensor.com purchased an office condominium for
$190,000. The office, which consists of approximately 4600
square feet, is located at 2275 Swallow Hill Road, Building 2500,
2nd Floor, Pittsburgh, PA 15220. Due to cash flow problems, the
Company sold the office condominium in 1999, and now leases the
space for its administrative offices. BICO continues to lease a
portion of the office at a monthly rental amount of $3,544 plus
one-half of the utilities (See, "Certain Relationships and
Related Transactions").
As of November 1999, Diasensor.com has an office in London,
England for the purpose of taking orders for the Diasensor 1000.
The Company believes that its existing facilities will be
sufficient to meet its needs through Fiscal 1999. Should the
Company require additional space, the Company believes such space
will be available at reasonable commercial rates.
Item 3. Legal Proceedings
In April 1996, the Pennsylvania Securities Commission commenced a
private investigation into Diasensor.com's sales of its common
stock pursuant to its public offering in an effort to determine
whether any sales were made improperly to Pennsylvania residents.
The Company has been cooperating fully with the state and has
provided all of the information requested. As of the date of
this filing, no determinations had been made, and no orders have
been issued.
In May 1996, the Company, along with BICO and BICO's individual
directors, including David Purdy and Fred Cooper, who are also
officers and directors of Diasensor.com, was served with a
federal class action lawsuit based on alleged misrepresentations
and violations of federal securities laws. The action is pending
in federal district court for the Western District of
Pennsylvania, and remains in the pre-trial pleadings stage with
the consent of all parties. No determinations as to possible
liability or exposure are possible at this time, although the
Company does not believe that any violations of the securities
laws have occurred.
In April 1998, the Company was served with a subpoena requesting
documents in connection with an investigation by the U.S.
Attorneys' office for the Western District of Pennsylvania. The
Company has submitted various scientific, financial and
contractual documents in response to such requests.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Diasensor.com was incorporated in the Commonwealth of
Pennsylvania on July 5, 1989. Diasensor.com has the authority to
issue 40,000,000 shares of common stock at a par value of $.01,
and 1,000,000 shares of preferred stock. As of November 30,
1999, 22,980,051 shares of common stock were outstanding. No
shares of Preferred Stock are outstanding. As of November 30,
1999, there were currently exercisable warrants outstanding to
purchase 8,639,113 shares of the common stock of Diasensor.com at
exercise prices ranging from $.50 to $3.50 per share. The
warrants have various expiration dates through November 3, 2004.
As of November 30, 1999, the Company had approximately 600
holders of record for its common stock and no holders of record
for its preferred stock.
Diasensor.com is not currently listed on any stock exchange or
market. The Company currently acts as its own registrar and
transfer agent for its common stock and its warrants. Currently,
there is no established public trading market for the Company's
common stock.
Common Stock
The holders of common stock are entitled to one vote per share on
all matters to be voted on by shareholders and are entitled to
cumulative voting rights in the election of directors. In
cumulative voting, the holders of common stock are entitled to
cast, for each share held, the number of votes equal to the
number of directors to be elected. A holder may cast all of his
or her votes for one nominee or distribute them among any number
of nominees for election. Subject to any preferences that may be
granted to any holders of preferred stock, the holders of common
stock are entitled to receive, on a pro rata basis, dividends out
of funds legally available for distribution, when and if declared
by the Board of Directors, and to share ratably in the assets of
Diasensor.com legally available for distribution to its
shareholders in the event of liquidation, dissolution or winding-
up of Diasensor.com. The holders of common stock have no
preemptive, redemption or conversion rights. The shares of common
stock currently outstanding are fully paid and nonassessable.
Preferred Stock
The Company's Articles of Incorporation permit the issuance of up
to 1,000,000 shares of preferred stock. No shares of preferred
stock are currently issued or outstanding. Diasensor.com has no
present intention to issue any such shares; although there can be
no assurance that preferred stock will not be issued in the
future.
Dividends
The Company has not paid cash dividends on its common stock or
preferred stock since its inception and cash dividends are not
presently contemplated at any time in the foreseeable future.
The Company anticipates that any excess funds generated from
operations in the foreseeable future will be used for working
capital and to continue to fund the research and development of
the Noninvasive Glucose Sensor. In accordance with the Company's
Articles of Incorporation, cash dividends are also restricted
under certain circumstances.
Warrants
As of November 30, 1999 there were outstanding warrants, all of
which are currently exercisable, to purchase 8,639,113 shares of
common stock at exercise prices ranging from $0.50 to $3.50 per
share and having expiration dates ranging from December 2, 1999
to November 3, 2004. During Fiscal 1999 2,070,000 warrants were
granted. The warrants were issued to directors, officers and
employees of Diasensor.com and to certain other persons for
certain goods and services transferred or rendered to
Diasensor.com and, in the case of certain officers, in
consideration of meritorious service. The number of shares of
common stock issuable upon the exercise of the warrants and the
exercise prices relating thereto are subject to adjustment upon
the occurrence of certain events, including stock dividends,
stock splits, mergers, consolidations and reorganizations.
Diasensor.com may not redeem the warrants prior to their
expiration.
Employment Agreement Provisions Related to Changes in Control
Diasensor.com has entered into agreements (the "Agreements") with
Fred E. Cooper and David L. Purdy pursuant to which they receive
annual salaries of $100,000, and $50,000 from Diasensor.com,
respectively, all of which are subject to review and adjustment
annually. As of the end of Fiscal 1999, such annual salaries had
been increased to $372,000 and $325,000 respectively, although,
due to the Company's cash flow problems, full payment was not
made during Fiscal 1998 or1999. The initial term of Messrs.
Cooper's and Purdy's Agreements expired on October 31, 1999, but
the Agreements were automatically renewed for additional three-
year periods; such renewals will continue unless any party gives
proper notice of non-renewal. The Agreements also provide that
in the event of a "change of control" of Diasensor.com,
Diasensor.com is required to issue to Mr. Cooper and Mr. Purdy
shares of common stock equal to five percent (5%) of the
outstanding shares of common stock of the Company immediately
after the change in control. In general, a "change of control"
is deemed to occur for purposes of the Agreements: (i) when 20%
or more of Diasensor.com's outstanding voting stock is acquired
by any person, (ii) when one-third (1/3) or more of
Diasensor.com's directors are not Continuing Directors (as
defined in the Agreements), or (iii) when a controlling influence
over the management or policies of Diasensor.com is exercised by
any person or by persons acting as a group within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (See, "Employment Agreements").
Item 6. Selected Financial Data
The selected financial data presented herein has been derived
from the Company's audited consolidated financial statements.
These financial statements have been audited by Thompson Dugan,
P.C. for the twelve-month periods ended September 30, 1999, 1998,
1997, 1996, 1995 and 1994, the reports of each of which include
explanatory paragraphs as to "going concern" considerations. The
selected financial data should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and the financial statements of the
Company and related notes thereto included elsewhere in this
report.
12 mos. 12 mos. 12 mos. 12 mos. 12 mos.
Ended Ended Ended Ended Ended
9/30 9/30 9/30 9/30 9/30
1999 1998 1997 1996 1995
R&D $ -0- $ -0- $ -0- $ -0- $ 3,487,882
Expenses
General &
Administrative
Expenses $ 1,354,066 $ 669,764 $ 1,023,961 $ 1,509,298 $ 2,323,279
Warrant
Extensions $ 272,078 $ 25,000 $ 5,593,875 $ 7,644,033 $ 4,650,000
Net Loss ($ 753,501) ($ 2,914,329)($ 6,564,837)($ 9,021,823)($10,361,514)
Total
Assets $ 38,324 $ 292,322 $ 3,108,243 $ 4,171,910 $ 5,407,401
Total $ 91,214 $ 92,327 $ 22,419 $ 20,624 $ 1,323,980
Liabilities
Working
Capital ($ 84,559) ($ 44,724) $ 2,862,349 $ 3,914,198 $ 3,839,965
(Deficit)
Accumulated
Deficit ($45,628,601) ($44,875,100)($41,960,771)($35,395,934)($26,374,111)
Net Loss
Per Common
Share ($.03) ($.13) ($.29) ($.39) ($.54)
Cash
Dividends
Per Share: $ -0- $ -0- $ -0- $ -0- $ -0-
Common
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Diasensor.com operates on a fiscal year ended September 30th.
Therefore, years are referred to as Fiscal years; for example,
the year from October 1, 1998 through September 30, 1999 is
referred to as Fiscal 1999.
Forward-Looking Statements
In addition to Part I of this Form 10-K, the Management's
Discussion and Analysis section also contains the type of forward-
looking statements discussed on page 2 herein. Please refer to
such discussion in connection with the information presented
here.
Liquidity and Capital Resources
Diasensor.com's cash balance at September 30, 1999 was $6,525, a
decrease from $41,811 at September 30, 1998 and $1,181,070 at
September 30, 1997. The decrease occurred because the Company did
not raise additional capital during Fiscal 1998 or Fiscal 1999,
with no income generated from operations. As a result, the
Company experienced significant cash flow problems during Fiscal
1998 and Fiscal 1999. Diasensor.com had negative working capital
of ($84,559) at September 30, 1999 and ($44,724) at September
30, 1998, as compared to positive working capital of $2,862,349
at September 30, 1997. This fluctuation in working capital was
primarily attributable to net advances and repayments of advances
to BICO and funds raised from sales of its stock in Fiscal 1996,
with no sales of stock or other capital-raising activities during
Fiscal 1997, Fiscal 1998 and Fiscal 1999.
In July 1995, BICO and Diasensor.com agreed to suspend billings,
accruals and payments due pursuant to the R&D Agreement pending
the FDA's review of the Diasensor 1000. The suspension
continued during Fiscal 1999; no amounts are due or being accrued
pursuant to the R&D Agreement.
During Fiscal 1998, the Company made allowances for doubtful
accounts, including amounts owed to the Company from BICO.
During Fiscal 1999 the Company reduced the allowance for doubtful
accounts to reflect a reduction in amounts due from BICO. These
allowances were recorded based upon the current financial
position of BICO.
Diasensor.com has entered into employment agreements (the
"Agreements") with Fred E. Cooper and David L. Purdy effective
November 1, 1994, pursuant to which they were originally entitled
to receive annual salaries of $100,000 and $50,000, respectively,
which are subject to review and adjustment annually. As of the
end of Fiscal 1999, such annual salaries had been increased to
$372,000 and $325,000, respectively, although, due to the
Company's cash flow problems, such amounts were not paid during
Fiscal 1998 (See, "Executive Compensation"). The initial term of
the Agreements expired on October 31, 1999 and was automatically
renewed for a three-year period. The Agreements are subject to
review, adjustment and renewal. In the event of a change in
control of the Company, as defined in the Agreements, and
termination of employment, continuation of salaries at 100%,
which decreases to 25% over time, are payable in addition to the
issuance of stock as set forth in the Agreements. The Agreements
also provide for severance and disability benefits under certain
circumstances (See," DIRECTORS AND EXECUTIVE OFFICERS -
Employment Agreements").
Based on Diasensor.com's available cash, the ability of
Diasensor.com and its affiliates to raise capital, its rate of
monthly expenditures and the deferrals agreed upon by
Diasensor.com and BICO, Diasensor.com believes that it will be
able to continue its current activities for a limited time. If
Diasensor.com is not able to obtain additional financing or if
such additional financing is insufficient, Diasensor.com will be
required to cease operations and the development of the
Noninvasive Glucose Sensor altogether.
Accordingly, Diasensor.com may be required to seek substantial
additional financing from third parties to complete the
development of the Noninvasive Glucose Sensor, to obtain FDA
approval to market the Noninvasive Glucose Sensor and to provide
for its general working capital requirements during that time
period. There can be no assurance that such additional financing
will be available or available on terms acceptable to
Diasensor.com. Moreover, certain demands on liquidity, such as
technological, regulatory or legal problems, could cause
Diasensor.com's liquidity to be further burdened. Diasensor.com
does not currently have any additional sources of liquidity or
working capital, including bank lines of credit, etc. Long-term
working capital needs are expected to be met through sales of the
Noninvasive Glucose Sensor, although no assurance can be made
that the Noninvasive Glucose Sensor will be successfully
developed, manufactured, marketed or commercially viable.
Results of Operations
During Fiscal 1999, 1998 and 1997, research and development
expenses were $0. This decrease was due to the agreed-upon
suspension of billings by Diasensor.com and BICO pursuant to the
R&D Agreement (See, "Liquidity and Capital Resources").
General and administrative expenses aggregated $1,354,066 during
Fiscal 1999, as compared to $669,764 during Fiscal 1998, and
$1,023,961 during Fiscal 1997. This decrease during Fiscal 1998
was due primarily to the suspension of billings pursuant to the
R&D Agreement, and the reduction in personnel due to the
Company's cash flow problems. Other income aggregated $48,973 in
Fiscal 1999, as compared to $62,914 in Fiscal 1998, and $52,999
in Fiscal 1997. Other income is comprised of interest income and
rental income; rental income averages approximately $42,000 per
year (all of which was paid by BICO to Diasensor.com), and the
balance of other income is from interest earned on deposits of
liquid assets.
During Fiscal 1999, 1998 and 1997, the Company extended
2,561,213; 10,000; and 2,236,550 warrants, respectively, which
were originally granted to certain officers, directors, employees
and consultants in 1992 through 1994, until 2000 through 2002,
respectively. Because the exercise price of some of the warrants
($1.00 or $.50 per share) was lower than the market price of the
common stock at the time of the extensions (which is assumed to
be $3.50 per share, although there is currently no public trading
market for the common stock), $272,078 was charged against
operations in Fiscal 1999; $25,000 was charged to operations in
Fiscal 1998; and $5,593,875 was charged to operations in Fiscal
1997.
During Fiscal 1999, the Company recovered $823,670 in amounts due
from BICO which had been part of the Fiscal 1998 charge of
$2,282,479 to a provision for doubtful accounts, reflecting
amounts due to the Company from BICO, due to BICO's financial
position.
Income Taxes
As of September 30, 1999, the Company had approximately
$23,700,000 in net operating losses available for federal tax
purposes. Subject to certain limitations, these losses will be
available as carry forwards to offset future taxable income
through the years 2005-2013. The Company also has federal
research and development credit carry forwards available to
offset federal income taxes of approximately $700,000, subject to
limitations and expiring in the years 2005 through 2013.
Supplemental Financial Information (unaudited)
In November 1999, the Company extended warrants to purchase
600,000 shares of common stock, which would have otherwise
expired.
Item 8. Financial Statements and Supplementary Data.
The Company's consolidated financial statements appear on pages F-
1 through F-21 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers
The directors and executive officers of the Company are as
follows:
Name Age Director Positions Held
Since
David L. Purdy 71 1989 Chairman of the Board,
Chief Scientist,
Director
Fred E. Cooper 53 1989 President, CEO, Director
Anthony J. Feola 51 1991 Director
Feola
Patrick H. O'Neil 84 1999 Director
DAVID L. PURDY, 71, is the Chairman of the Board and Chief
Scientist of the Company. Mr. Purdy has been a director since
the Company's inception and became Chairman of the Board in
October 1992. Mr. Purdy acted as the Company's Treasurer from
its inception until October 1992, when he became its Chief
Scientist. Mr. Purdy has been employed primarily as the
President of BICO from 1972 to the present. Mr. Purdy is
currently the President, Chairman of the Board and a director of
BICO. Mr. Purdy currently devotes approximately 40% of his time
to Diasensor.com, and 60% of his time to BICO and its
subsidiaries.
FRED E. COOPER, 53, has been the President and a director of the
Company since its inception. Prior to joining the Company, Mr.
Cooper co-founded Equitable Financial Management, Inc. of
Pittsburgh, PA, a company in which he served as Executive Vice
President until his resignation and divestiture of ownership in
August 1990. Mr. Cooper is the Chief Executive Officer and a
director of BICO. Mr. Cooper currently devotes approximately 40%
of his time to Diasensor.com and 60% to BICO and its
subsidiaries.
ANTHONY J. FEOLA, 51, has been a director of the Company since
February 1991. In addition, Mr. Feola served as the Company's
Chief Operating Officer until April 1994, when he rejoined BICO
as its Senior Vice President. At that time, BICO assumed Mr.
Feola's employment contract with Diasensor.com. Mr. Feola also
served as the Company's Vice President of Marketing and Sales
from December 1991 until October 1992. Until January 1, 1992, he
was BICO's Vice President of Marketing and Sales. Prior to
joining BICO in November 1989, Mr. Feola was Vice President and
Chief Operating Officer with Gateway Broadcasting in Pittsburgh,
PA and a National Sales Manager for Westinghouse Corporation,
also in Pittsburgh, PA. He also serves as a director of BICO.
PATRICK H. O'NEILL, 84, was appointed to the Board in 1999. Mr.
O'Neill is a former Chairman of the Board of Joslin Diabetes
Center in Boston, Mass. He obtained his engineering degree from
the University of Alaska, which has subsequently honored him as
both a Distinguished Alumni and an Outstanding Alumnus of the
School of Mineral Industry. His career began with a job as a
miner in Alaskan open cut gold mines, where he worked his way
through college. Other than four years of military service, his
career was spent in the mining industry. He progressed to chief
engineer and ultimately the President of International Mining
Corporation and several of its subsidiaries. Since 1982, he has
worked as an international consultant to the gold mining
industry, and serves as a director of Zemex Corporation in
Toronto, the American Geographical Society in New York and the
Ireland U.S. Council for Commerce and Industry.
Pursuant to the requirements of Item 405 of Regulation S-K
regarding timely filings required by Section 16(a) of the
Securities and Exchange Act, the Company represents the
following. Based solely on its review of copies of forms
received and written representations from certain reporting
persons, the Company believes that all of its officers,
directors, and greater than ten percent beneficial owners
complied with applicable filing requirements.
Item 11. Executive Compensation
The following table sets forth information concerning the annual
and long-term compensation for services in all capacities to the
Company for the Fiscal Years ended September 30, 1999, 1998 and
1997 of those persons who were, at September 30, 1999: (i) the
Chief Executive Officer, and (ii) the other most highly
compensated executive officers of the Company whose remuneration
exceeded $100,000 (the "Named Executives").
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term All Other
Compension (1) Compensation
($) (2)
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Name and Year Salary ($) Bonus ($) (2)Other Awards
Principal ($) Warrants
Position (number of
shares) (#)
- -----------------------------------------------------------------------------------------------
Fred E. 1999 $ 288,792 $ 0 $ 0 678,545(3)(4) $ 0
Cooper, 1998 $ 173,875 $ 0 $ 0 0 $ 0
CEO (5) 1997 $ 150,000 $ 0 $ 0 363,500(4) $ 0
- -----------------------------------------------------------------------------------------------
David L. 1999 $ 202,083 $ 0 $ 0 800,000(3)(4) $ 0
Purdy 1998 $ 91,667 $ 0 $ 0 0 $ 0
Chief Scientist 1997 $ 87,500 $ 0 $ 0 0 $ 0
(6)
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) The Company does not currently have a Long-Term Incentive
Plan ("LTIP"), and no payouts were made pursuant to any
LTIP during the years 1998, 1997 or 1996. Except as noted
in Note (3) below, the Named Executives were awarded
warrants to purchase the number of shares of the Company's
common stock set forth in the table above in each of the
years noted (See, "Certain Relationships and Related
Transactions"). The Company has no retirement, pension or
profit-sharing programs for the benefit of its directors,
officers or other employees.
(2) During the years ended September 30, 1999, 1998 and 1997,
the Named Executives received medical benefits under the
Company's group insurance policy.
(3) During Fiscal 1999, the Named Executives were granted
warrants as follows: Fred E. Cooper and David L. Purdy each
received warrants to purchase 200,000 shares of the
Company's common stock at $.50 per share until January 27,
2004. No warrants were granted to the Named Executives
during Fiscal 1997 or 1998.
(4) During Fiscal 1999 and Fiscal 1997, the Company extended
warrants previously issued to the Named Executives, which
would have otherwise expired. Although the extensions were
in connection with warrants already held by the Named
Executives, they are shown in the table set forth above as
"awards" for executive compensation disclosure purposes.
However, such warrants do not appear in the "Option/Warrant
Grant" Table, since, at the time of the extension, the
exercise price of the warrants (which remained unchanged at
$.50 per share) was equal to the designated "market price"
of the common stock, which is assumed to be $.50 per share,
although there is currently no public trading market for
the common stock. During Fiscal 1999 both Fred E. Cooper's
and David L. Purdy's warrants to purchase 300,000 shares of
the Company's common stock at $.50 per share were extended
until March 25, 2004; and warrants to purchase 178,545 and
300,000 shares were extended to May 7, 2004 for Fred E.
Cooper and David L. Purdy, respectively.
(5) Due to the Company's cash flow problems, Mr. Cooper's full
salary was not paid during Fiscal 1998. Mr. Cooper will be,
or was paid salary and bonuses aggregating approximately
$660,417, $382,298, and $442,000 by BICO and its other
subsidiaries during calendar years 1999, 1998 and 1997,
respectively.
(6) Due to the Company's cash flow problems, Mr. Purdy's full
salary was not paid during Fiscal 1998. During Fiscal
1997, Mr. Purdy waived part of his $100,000 salary, and
voluntarily decreased his annual salary in BICO. Mr. Purdy
was or will be paid salary and bonuses aggregating
approximately $183,333, $75,135, and $154,000, by BICO
during calendar years 1999, 1998, and 1997, respectively.
Option/Warrant/SAR Grants in Last Fiscal Year
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
INDIVIDUAL GRANTS (1) PRICE APPRECIATION
FOR
OPTION TERM (3)
Percent
of
Number Total
of Options/
Securities SARs Exercise Expiration
Name Underlying Granted or Date 5% ($) 10%($) 0%($)
Options/ to Base
SARs Employee Price
Granted in ($/Sh)
(#) Fiscal
Year(2)
Fred E.
Cooper 200,000 10.0% $ .50 01/27/04 $30,000 $ 62,000 $0
David L.
Purdy 200,000 10.0% $ .50 01/27/04 $30,000 $ 62,000 $0
__________________________________________
(1) During Fiscal 1999, certain warrants previously granted to
the Named Executives in 1991 were extended. These
warrants, which aggregate 600,000 and 478,545 for Mssrs.
Purdy and Cooper, respectively, are not included in this
Table, since the exercise price of the warrants was equal
to the designated "market price" of $.50 per share at the
time of the extension.
(2) For purposes of calculating these percentages, the total
number of warrants granted during Fiscal 1999 was
2,070,000.
(3) Potential realizable values reflect the difference between
the warrant exercise price at the end of Fiscal 1999 and
the fair value of the Company's common stock price from the
date of the grant or extension until the expiration of the
warrant. The 5% and 10% appreciation rates, compounded
annually, are assumed pursuant to the rules promulgated by
the SEC and do not reflect actual historical or projected
rates of appreciation of the common stock. Assuming such
appreciation, the following illustrates the per share value
on the dates set forth (the expiration dates for the
warrants), assuming the values set forth ($.50 per share,
which is the price the Company has designated; there is
currently no trading market for the common stock):
STOCK PRICE ON DATE EXPIRATION
OF GRANT DATE 5% 10%
1/27/99: $.50 1/27/04 $.65 $.81
The foregoing values do not reflect appreciation actually
realized by the Named Executives (See, "Option/Warrant/SAR
Exercises in Last Fiscal Year and Fiscal Year-End
Option/Warrant/SAR Value" Table, Below).
AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired on at FY-End (#) at FY-End ($)
Exercise Value Exercisable/ Exercisable/
Name (#)(1)(2) Realized($)(3) Unexercisable(4) Unexercisable(5)
Fred E. Cooper -0- -0- 1,180,045(6) $ 0
David L.
Purdy -0- -0- 1,056,250(7) $ 0
_________________
(1) This figure represents the number of shares of common stock
acquired by each Named Executive upon the exercise of
warrants.
(2) During the fiscal year ended September 30, 1999, neither of
the Named Executives exercised any warrants to purchase
common stock.
(3) The value realized of the warrants exercised would be
computed by determining the spread between the market value
of the underlying securities at the time of exercise minus
the exercise price of the option or warrant.
(4) All warrants held by the Named Executives are currently
exercisable.
(5) The value of unexercised warrants is computed by
subtracting the exercise price of the outstanding warrants
from $.50 per share, the price per share in the Company's
current public offering, although there is currently no
market for the Company's common stock. Because none of the
Named Executive's warrants were granted at exercise prices
less than $.50 per share, none of the warrants are "in-the-
money" for purposes of this table.
(6) Includes warrants to purchase: 138,000 shares of common
stock at $.50 per share until April 24, 1995 (extended
until April 24, 2001); 300,000 shares of common stock at
$.50 per share until March 25, 1996 (extended until March
25, 2004); 178,545 shares of common stock at $.50 until May
7, 1996 (extended until May 7, 2004); 150,000 shares of
common stock at $1.00 per share until October 25, 1996
(extended until October 25, 2002); 213,500 shares of common
stock at $1.00 per share until January 27, 1997 (extended
until January 27, 2000); and 200,000 shares of common stock
at $.50 per share until January 27, 2004.
(7) Includes warrants to purchase: 250,000 shares of common
stock at $.50 per share until April 24, 1995 (extended
until April 24, 2001); 300,000 shares of common stock at
$.50 per share until March 25, 1996 (extended until March
25, 2004); 6,250 shares of common stock at $1.00 per share
until April 15, 2000; 300,000 shares of common stock at
$.50 per share until May 7, 1996 (extended until May 7,
2004); and 200,000 shares of common stock until January 27,
2004.
Employment Agreements
Diasensor.com has entered into employment agreements (the
"Agreements") with Fred E. Cooper and David L. Purdy effective
November 1, 1994, pursuant to which they were originally entitled
to receive annual salaries of $100,000 and $50,000 respectively,
which are subject to review and adjustment annually. As of the
end of Fiscal 1999, such annual salaries had been increased to
$372,000, and $325,000, respectively, although, due to the
Company's cash flow problems, full payment was not made during
Fiscal 1998. The initial term of the Agreements expired on
October 31, 1999, but continues thereafter for additional three-
year terms unless any of the parties give proper notice of non-
renewal. The Agreements also provide that in the event of a
"change of control" of Diasensor.com, Diasensor.com is required
to issue to Messrs. Cooper and Purdy shares of common stock equal
to five percent (5%) of the outstanding shares of the common
stock of the Company immediately after the change in control. In
general, a "change of control" is deemed to occur for purposes of
the Agreements (i) when 20% or more of Diasensor.com's
outstanding voting stock is acquired by any person, (ii) when one-
third (1/3) or more of Diasensor.com's directors are not
Continuing Directors (as defined in the Agreement), or (iii) when
a controlling influence over the management or policies of
Diasensor.com is exercised by any person or by persons acting as
a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
In addition, in the event of a change in control within the term
of the Agreements or within one year thereafter, Messrs. Cooper,
and Purdy 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. Diasensor.com is also
required to continue medical insurance coverage for Messrs.
Cooper and Purdy and their families during such periods. Such
severance payments will terminate in the event of the employee's
death.
In the event that either Mr. Cooper or Mr. Purdy becomes
disabled, as defined in the Agreements, they will be entitled to
the following payments, in lieu of salary, such payments to be
reduced by any amount paid directly to them pursuant to a
disability insurance policy provided by the Company or its
affiliates: 100% of their most recent annual salary for the first
three years; and 70% of their most recent salary for the next two
years.
The Agreements also generally restrict the disclosure of certain
confidential information obtained by Messrs. Cooper and Purdy
during the term of the Agreements and restricts them from
competing with Diasensor.com for a period of one year in
specified states following the expiration or termination of the
Agreements.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Percent of
Amount & Nature Ownership with Class with
Name and Address of Beneficial Percent of Warrants and Warrants and
of Beneficial Owner Ownership(1) Class (2) Options(3) Options (4)
Biocontrol 11,975,000 52.1% 11,975,000 52.1%
Technology, Inc.
300 Indian Springs Rd.
Indiana, PA 15701
David L. Purdy (5) 32,000 * 1,088,250(6) 4.5%
300 Indian Springs Road
Indiana, PA 15701
Fred E. Cooper 22,000 * 1,202,045(7) 5.0%
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
Anthony J. Feola 20,000 * 820,000(8) 3.4%
Building 2500, 2nd Floor
2275 Swallow Hill Rd.
Pittsburgh, PA 15220
Patrick H. O'Neill 0 * 100,000(9) *
42 Dunning Road
New Canaan, CT 06840
All directors and 74,000 * 3,210,295(9) 12.3%
executive officers
as a group (4 persons)
* Less than one percent
________________________
(1) Excludes currently exercisable warrants and options set
forth in the third column and detailed in the footnotes
below.
(2) Represents current common stock owned by each person, as
set forth in the first column, excluding currently
exercisable warrants and options, as a percentage of the
total number of shares of common stock outstanding as of
September 30, 1998, which was 22,980,051.
(3) Includes ownership of all shares of common stock which each
named person or group has the right to acquire, through the
exercise of warrants or options, within sixty (60) days,
together with the common stock currently owned.
(4) Represents total number of shares of common stock owned by
each person, as set forth in the third column, which each
named person or group has the right to acquire, through the
exercise of warrants or options within sixty (60) days,
together with common stock currently owned, as a percentage
of the total number of shares of common stock outstanding
as of September 30, 1999. For individual computation
purposes, the total number of shares of common stock
outstanding as of September 30, 1999 has been increased by
the number of additional shares which would be outstanding
if the person or group owned the number of shares set forth
in the third column.
(5) Does not include shares held solely by Mr. Purdy's adult
children. Mr. Purdy disclaims any beneficial interest to
shares held by members of his family.
(6) Includes currently exercisable warrants to purchase the
following: 250,000 shares of common stock at $.50 per share
until April 24, 1995 (extended until April 24, 2001);
300,000 shares of common stock at $.50 per share until
March 25, 1996(extended until March 25, 2004); 6,250 shares
of common stock at $1.00 per share until April 15, 2000;
300,000 shares of common stock at $.50 per share until May
7, 1996 (extended until May 7, 2004); and 200,000 shares of
common stock at $.50 per share until January 27, 2004.
(7) Includes currently exercisable warrants to purchase the
following: 138,000 shares of common stock at $.50 per
share until April 24, 1995 (extended until April 24, 2001);
300,000 shares of common stock at $.50 per share until
March 25, 1996 (extended until March 25, 2004); 178,545
shares of common stock at $.50 until May 7, 1996 (extended
until May 7, 2004); 150,000 shares of common stock at $1.00
per share until October 25, 1996 (extended until October
25, 2002); 213,500 shares of common stock at $1.00 per
share until January 27, 1997 (extended until January 27,
2000); and 200,000 shares of common stock at $.50 per share
until January 27, 2004.
(8) Includes currently exercisable warrants to purchase the
following: 100,000 shares of common stock at $.50 per
share until April 24, 1995 (extended until April 24, 2001);
100,000 shares of common stock at $.50 per share until
October 23, 1995 (extended until October 23, 2003); 300,000
shares of common stock at $.50 per share until March 25,
1996 (extended until March 25, 2004); and 300,000 shares of
common stock at $.50 per share until May 7, 1996 (extended
until May 7, 2004).
(9) Includes currently exercisable warrants to purchase the
following: 100,000 shares of common stock at $.50 per share
until September 8, 2004.
(10) Includes shares of common stock, including stock currently
owned, available under currently exercisable warrants as
set forth above.
Item 13. Certain Relationships and Related Transactions
Diasensor.com and BICO (the "Companies") share common officers
and directors. In addition, the Companies have entered into
several intercompany agreements, which are summarized below.
Management believes that it was in the best interest of
Diasensor.com to enter into such agreements and that the
transactions were based on terms as fair as those which may have
been available in comparable transactions with third parties.
However, no unaffiliated third party was retained to
independently determine the fairness of such transactions. The
Company's policy concerning related party transactions requires
the approval of a majority of the disinterested directors.
Employment Relationships
The Board of Directors of the Company approved employment
agreements effective November 1, 1994 for its officers and
directors Fred E. Cooper and David L. Purdy. (See, "Employment
Agreements").
David L. Purdy, Chairman of the Board, Chief Scientist and a
director of the Company, is a director of the BICO and Coraflex
Boards. He is also the Chairman of the Board, President and
Treasurer of BICO, and the Chairman and the President and
Treasurer of Coraflex. Fred E. Cooper, President and a director
of the Company, is a director of the BICO, Coraflex, and Petrol
Rem Boards. He is also the CEO and Executive Vice President of
BICO. Anthony J. Feola, a director, is also a director on the
BICO, Coraflex, and Petrol Rem Boards. He is also the Senior
Vice President of BICO.
Leases and Property
Diasensor.com rents an office condominium in Pittsburgh, PA
(See, "Properties"). BICO moved its Pittsburgh offices to the
Diasensor.com office condominium and pays Diasensor.com rent in
the amount of $3,544 per month plus one-half of the utilities.
Three of the Company's current executive officers and/or
directors and three former directors of the Company are members
of the eight-member 300 Indian Springs Road Real Estate
Partnership (the "Partnership") which in July 1990, purchased
BICO's real estate in Indiana, PA, and each has personally
guaranteed the payment of lease obligations to the bank providing
the funding. The cost of the property to BICO was $1,084,852.
The property was sold to the Partnership subject to the leaseback
provision and outstanding liens for approximately $800,000; BICO
received approximately $403,000 in cash as a result of the sale-
leaseback. The sale price was determined by First West Virginia
Bank. Each member of the Partnership received warrants in
consideration of his or her personal guarantees. The six members
of the Partnership who are also current or former officers and/or
directors of the Company, David L. Purdy, Fred E. Cooper, Gary R.
Keeling, Jack H. Onorato, Richard M. Erenberg and C. Terry
Adkins, each received warrants to purchase 100,000 shares of
BICO's common stock at an exercise price of $.33 per share until
June 29, 1995 (which were extended until June 29, 2000), and
warrants to purchase 100,000 shares of Diasensor.com's common
stock at an exercise price of $.50 per share until June 29, 1995,
all of which have expired unexercised. The warrant exercise
prices were equal to the market prices of the common stock at the
time of issuance. Mr. Keeling, who was not a director at the
time of the transaction, joined the board in October 1991, became
a Vice President in October 1992, and resigned from both
positions in August 1997. Mr. Adkins, who was not a director at
the time of the transaction, joined the board in March 1992 and
became a Vice President in October 1992; Mr. Adkins resigned as
an officer and director during Fiscal 1998. Mr. Onorato, who was
not a director at the time of the transaction, was a director
until September 1992 when he became a director of BICO until
April 1994. Mr. Erenberg, who was not a director at the time of
the transaction, was a director until April 1993.
Intercompany Agreements
License and Marketing Agreement. Diasensor.com acquired the
exclusive marketing rights for the Noninvasive Glucose Sensor and
related products and services from BICO in August 1989 in
exchange for 8,000,000 shares of its common stock. That
agreement was canceled pursuant to a Cancellation Agreement dated
November 18, 1991, and superseded by a Purchase Agreement dated
November 18, 1991. The Cancellation Agreement provides that BICO
retain the 8,000,000 shares of Diasensor.com common stock, which
BICO received pursuant to the License and Marketing Agreement.
Purchase Agreement. BICO and Diasensor.com entered into a
Purchase Agreement dated November 18, 1991 whereby BICO conveyed
to Diasensor.com its entire right, title and interest in the
Noninvasive Glucose Sensor and its development, including its
extensive knowledge, technology and proprietary information.
Such conveyance includes BICO's patent received in December 1991
(See, "Business").
In consideration of the conveyance of its entire right in the
Noninvasive Glucose Sensor and its development, BICO received
$2,000,000. In addition, Diasensor.com may endeavor, at its own
expense, to obtain patents on other inventions relating to the
Noninvasive Glucose Sensor. Diasensor.com also guaranteed BICO
the right to use such patented technology in the development of
BICO's proposed implantable closed-loop system, a related system
in the early stages of development.
In December 1992, BICO and Diasensor.com executed an amendment to
the Purchase Agreement, which clarified terms of the Purchase
Agreement. The amendment defines "Sensors" to include all
devices for the noninvasive detection of analytes in mammals or
in other biological materials. In addition, the amendment
provides for a royalty to be paid to Diasensor.com in connection
with any sales by BICO of its proposed closed-loop system.
Research and Development ("R&D") Agreement. Diasensor.com and
BICO entered into an agreement dated January 20, 1992 in
connection with the research and development of the Noninvasive
Glucose Sensor. Pursuant to the agreement, BICO will continue
the development of the Noninvasive Glucose Sensor, including the
fabrication of prototypes, the performance of clinical trials,
and the submission to the FDA of all necessary applications in
order to obtain market approval for the Noninvasive Glucose
Sensor. BICO will also manufacture the models of the Noninvasive
Glucose Sensor to be delivered to Diasensor.com for sale (See,
"Manufacturing Agreement"). Upon the delivery of the completed
models, the research and development phase of the Noninvasive
Glucose Sensor will be deemed complete.
Diasensor.com has agreed to pay BICO $100,000 per month for
indirect costs beginning April 1, 1992, during the 15 year term
of the agreement, plus all direct costs, including labor. BICO
also received a first right of refusal for any program undertaken
to develop, refine or improve the Noninvasive Glucose Sensor, and
for the development of other related products. In July 1995,
BICO and Diasensor.com agreed to suspend billings, accruals of
amounts due and payments pursuant to the R&D Agreement pending
the FDA's review of the Sensor.
Manufacturing Agreement. BICO and Diasensor.com entered into an
agreement dated January 20, 1992, whereby BICO will act as the
exclusive manufacturer of the Noninvasive Glucose Sensor and
other related products. Diasensor.com will provide BICO with
purchase orders for the products and will endeavor to provide
projections of future quantities needed. The original
Manufacturing Agreement called for the products to be
manufactured and sold at a price to be determined in accordance
with the following formula: Cost of Goods (including actual or
275% of overhead, whichever is lower) plus a fee of 30% of Cost
of Goods. In July 1994, the formula was amended to be as
follows: Costs of Goods Sold (defined as BICO's aggregate cost of
materials, labor and associated manufacturing overhead) + a fee
equal to one third (1/3) of the difference between the Cost of
Goods Sold and Diasensor.com's sales price of each Sensor.
Diasensor.com's sales price of each Sensor is defined as the
price paid by any purchaser, whether retail or wholesale,
directly to Diasensor.com for each Sensor. Subject to certain
restrictions, BICO may assign its manufacturing rights to a
subcontractor with Diasensor.com's written approval. The term of
the agreement is fifteen years.
Warrants
During Fiscal 1997 through Fiscal 1999, Diasensor.com issued the
following warrants to its officers and directors:
On January 27, 1999, Diasensor.com issued warrants to purchase
common stock at $.50 per share until January 27, 2004 to: Fred
Cooper, 200,000 shares; and David Purdy, 200,000 shares.
On September 8, 1999, Diasensor.com issued warrants to purchase
100,000 shares of common stock at $.50 per share until September
8, 2004 to Patrick H. O'Neill.
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
1. Consolidated Financial Statements
The consolidated financial statements, together with the report
thereon of the Company's independent accountants, are included in
this report on the pages listed below.
(a) Consolidated Financial Statements Page
Report of Independent Accountants Thompson Dugan, P.C. F-1
Consolidated Balance Sheets as of September 30, 1999;
September 30, 1998 F-3
Consolidated Statements of Operations For the Fiscal
Years Ended September 30, 1999, 1998, 1997, 1996; and
July 5, 1989 (inception) through September 30, 1999 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Fiscal Years Ended September 30, 1999,
1998, 1997, 1996, 1995, 1994; 1993; 1992; the 12 months
ended December 31, 1991, 1990, and from July 5, 1989
(inception) through December 31, 1989 F-5
Consolidated Statements of Cash Flows for the Fiscal
Years Ended September 30, 1999, 1998, 1997, 1996; and
July 5, 1989 (inception) through September 30, 1999 F-6
Notes to Consolidated Financial Statements for the Fiscal
Year Ended September 30, 1999 F-7
2. Exhibits
(a) Reports on Form 8-K
The Company filed a Form 8-K report dated November 17, 1999.
The item listed was Item 5, Other Events.
(c) Exhibits required by Item 601 of Regulation S-K
The following Exhibits required by Item 601 of Regulation S-
K are filed as part of this report. Except as otherwise
noted, all exhibits are incorporated by reference from
Exhibits to Form S-1 (Registration #33-56574) filed December
31, 1992 or from exhibits to Form 10-K filings subsequent to
that date.
3.1 Articles of Incorporation of Diasensor.com, Inc.,
as amended
3.2 Amended and Restated Bylaws of Diasensor.com, Inc.
4.1 Form of Specimen Common Stock Certificate of Diasensor.com, Inc.
10.1 Purchase Agreement dated as of November 18, 1991 between
Diasensor.com, Inc. and Biocontrol Technology, Inc.
10.2 Manufacturing Agreement dated as of January 20, 1992, between
Diasensor.com, Inc. and Biocontrol Technology, Inc.
10.3 Research and Development Agreement dated as of
January 20, 1992 between Diasensor.com, Inc. and
Biocontrol Technology, Inc.
10.4 Lease dated as of May 1, 1992 between
Diasensor.com, Inc. and Biocontrol Technology, Inc.
10.5 First Amendment to Purchase Agreement dated as of
December 8, 1992 between Diasensor.com, Inc. and
Biocontrol Technology, Inc.
10.6(1) Amendment to Manufacturing Agreement dated as of
June 7, 1994 between Diasensor.com, Inc. and Biocontrol
Technology, Inc.
10.7(1) Deferral Agreement, dated as of July 1, 1994,
between Diasensor.com, Inc. and Biocontrol Technology,
Inc.
10.8 Deferral Agreement dated as of September 30, 1994
between Diasensor.com, Inc. and Biocontrol Technology,
Inc.
10.9 Employment Agreement dated as of November 1, 1994
between Diasensor.com, Inc. and Fred E. Cooper
10.10 Employment Agreement dated as of November 1, 1994
between Diasensor.com, Inc. and David L. Purdy
10.11(2) Letter of Resignation of director C. Terry Adkins
(1) Incorporated by reference from Exhibit with this title filed
with the Company's Form S-1 filed August 17, 1994 at 33-
82796.
(2) Incorporated by reference from Exhibit with this title filed
with the Company's Form 8-K dated August 29, 1997.
Conformed Copy
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 29th day of December 1999.
DIASENSOR.COM, INC.
By: /s/ Fred E. Cooper
Fred E. Cooper,President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ David L. Purdy Chairman of December 29,1999
David L. Purdy the Board;
Chief Scientist
/s/ Fred E. Cooper President and December 29, 1999
Fred E. Cooper Director
(principal executive
officer, principal
financial officer, and
principal accounting
officer)
/s/ Anthony J. Feola Director December 29, 1999
Anthony J. Feola
/s/ Patrick H. O'Neill Director December 29, 1999
Patrick H. O'Neill
THOMPSON DUGAN
CERTIFIED PUBLIC ACCOUNTANTS
________________________
Pinebridge Commons
1580 McLaughlin Run Rd.
Pittsburgh, PA 15241
Report of Independent Certified Public Accountants
Independent Auditors' Report
Board of Directors
Diasensor.com, Inc.
We have audited the accompanying consolidated balance sheets
of Diasensor.com, Inc. (a development stage company) as of
September 30, 1999 and 1998, and the related statements of
operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1999,
and for the period from July 5, 1989 (inception) through
September 30, 1999. These financial statements are the
responsibility of the Company'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 financial statements present fairly, in
all material respects, the consolidated financial position of
Diasensor.com, Inc. as of September 30, 1999 and 1998, and the
results of its operations and its cash flows for each of the
three years in the period ended September 30, 1999, and for the
period from July 5, 1989 (inception) through September 30, 1999,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in note B to the financial statements, the
Company is in the development stage and has incurred losses from
operations and negative cash flows from operations for each of
the three years in the period ended September 30, 1999 and from
July 5, 1989 (inception) through September 30, 1999 raising
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in note B. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty, including adjustments relating to the recoverability
and classification of recorded assets that might be necessary in
the event the Company cannot continue to meet its financing
requirements and achieve productive operations.
In addition, as discussed in notes B and F, the Company is
dependent upon its parent, Biocontrol Technology, Inc. (BICO) to
continue to perform and fund contractual arrangements related to
research, development and manufacturing activities of products
for the Company. There has been and continues to be substantial
doubt about BICO's ability to continue as a going concern due to
their recurring losses from operations and negative cash flow.
These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
December 9, 1999
<PAGE>1
Diasensor.com, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
ASSETS 1999 1998
----------- -----------
Current assets
Cash and cash equivalents (note A) $ 6,525 $ 41,811
Prepaid expenses 130 5,792
----------- -----------
Total current assets 6,655 47,603
Property and equipment-at cost(notes A and C)
Building and improvements 0 222,296
Furniture and fixtures 42,750 42,750
----------- -----------
42,750 265,046
Less accumulated depreciation 28,331 69,553
----------- -----------
14,419 195,493
----------- -----------
Other assets
Due from BICO(notes A and F) 1,458,809 2,197,433
Notes receivable-related parties(note F) 0 125,000
Interest receivable-related parties(note F) 0 9,272
Allowance for doubtful account(note F) (1,458,809) (2,282,479)
Security deosit (note C) 17,250 0
----------- -----------
17,250 49,226
----------- -----------
TOTAL ASSETS $ 38,324 $ 292,322
=========== ===========
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 0 $ 23,606
Accrued payroll and withholdings(note f) 91,214 68,721
----------- -----------
Total current liabilities 91,214 92,327
Commitments and Contingencies (notes B and G)
Stockholders' equity
Preferred stock, 1,000,000 shares authorized, none issued
Common stock, 40,000,000 shares of $.01 par value
authorized; issued and outstanding
22,980,051 at Sep. 30, 1999 and
Sep. 30, 1998 229,801 229,801
Additional paid-in capital 26,892,071 26,892,071
Warrants 18,453,839 17,953,223
Deficit accumulated during the
development stage (45,628,601) (44,875,100)
----------- -----------
(52,890) 199,995
TOTAL LIABILITIES AND ----------- -----------
STOCKHOLDERS' EQUITY $ 38,324 $ 292,322
=========== ===========
[FN]
The accompanying notes are an integral part of this statement.
<PAGE>3
Diasensor.com, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
From July 5, 1989
For the year ended For the year ended For the year ended (inception) thru
September 30, 1999 September 30,1998 September 30, 1997 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Research and development expenses
(notes A, F, and G) $ - $ - $ - $ 10,556,405
General and administrative expenses 1,354,066 669,764 1,023,961 13,272,131
Provision for (recovery of) doubtful
accounts(note F) (823,670) 2,282,479 - 1,458,809
Warrant extensions (note H) 272,078 25,000 5,593,875 18,184,986
Technology and patent rights acquired (note F) - - - 2,650,000
Interest expense - - - 10,529
Other income - (note D) (48,973) (62,914) (52,999) (571,664)
Other expense - - - 37,405
-------------- -------------- -------------- ---------------
Net loss $ (753,501) $ (2,914,329) $ (6,564,837) $ (45,598,601)
============== ============== ============== ===============
Net loss per common share (note A) $ (0.03) $ (0.13) $ (0.29) $ (2.37)
============== ============== ============== ===============
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>4
<TABLE>
Diasensor.com, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Note H)
For the period July 5, 1989 (inception) through September 30, 1999
Deficit Total
Accumulated Stock-
Common Additional During the Holders'
Common Stock Stock Paid-in Development equity
Shares Amount Subscribed Capital Warrants Stage (Deficit)
---------- --------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
July 10,1989 Issuance of stock to BICO in connection with
obtaining License and Marketing Agreement 8,000,000 $ 80,000 $ - $ - $ - $ - $ 80,000
Aug. 21 through Dec. 31, 1989 (various dates)
First Private Placement 656,000 6,560 - 321,440 - - 328,000
Sep. 29, 1989 - Issuance of stk in connection
with patent rights acquired by BICO 1,040,000 10,400 - 509,600 - - 520,000
Net loss - - - - - (80,000) (80,000)
---------- --------- ---------- ---------- ----------- ------------ -----------
Balances at December 31, 1989 9,696,000 96,960 - 831,040 - (80,000) 848,000
Jan. 1 to Dec. 31, 1990 (various dates)
First private Placement 1,240,000 12,400 - 607,600 - - 620,000
May 1, 1990 through Aug. 31, 1990 (various dates)
First Private Placement
Exchange of debt for shares of stock 136,000 1,360 - 66,640 - - 68,000
Warrants issued - to BICO - - - - 27,500 - 27,500
Net loss - - - - - (497,628) (497,628)
---------- --------- ---------- ---------- ----------- ------------ -----------
Balances at December 31, 1990 11,072,000 110,720 - 1,505,280 27,500 (577,628) 1,065,872
Jan. 1 to Dec. 31, 1991 (various dates)
First Private Placement 768,000 7,680 - 376,320 - - 384,000
Second Private Placement 3,948,250 39,482 - 3,896,468 - - 3,935,950
December 31, 1991 - common stock subscribed
62,500 shares at $ 1 - - 625 61,875 - - 62,500
Warrants issued - to BICO - - - - 19,085 - 19,085
Net loss - - - - - (3,650,203) (3,650,203)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at December 31, 1991 15,788,250 157,882 625 5,839,943 46,585 (4,227,831) 1,817,204
Jan. 1 to Sep. 30, 1992 (various dates)
Second Private Placement 986,750 9,868 - 976,883 - - 986,751
Third Private Placement 7,212 72 - 25,170 - - 25,242
Fourth Private Placement 120,000 1,200 - 418,800 - - 420,000
Jan. 1992 - Exchange of debt for share of stk 235,000 2,350 - 232,650 - - 235,000
Jan. 1992 - Common stk subscriptions recieved 62,500 625 (625) - - - 0
Net loss - - - - - (2,846,584) (2,846,584)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at September 30, 1992 17,199,712 171,997 - 7,493,446 46,585 (7,074,415) 637,613
Sep. 30, 1992 to Oct. 31,1992(various dates)
Fourth Private Placement 180,000 1,800 - 628,200 - - 630,000
June 1993 thru July 1993 warrants exercised 25,000 250 - 28,520 (3,770) - 25,000
Net loss - - - - - (3,763,101) (3,763,101)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at September 30, 1993 17,404,712 174,047 - 8,150,166 42,815 (10,837,516) (2,470,488)
Oct. 1, 1993 to Sep. 30, 1994(various dates)
Registered Stock 230,961 2,309 - 783,936 - - 786,245
Consulting service in exchange for stock 7,200 72 - 25,128 - - 25,200
Treasury Stock purchase (10,000) (100) - (4,900) - (30,000) (35,000)
Treasury Stock sale 10,000 100 - 34,900 - - 35,000
Nov. 1993 thru Aug. 1994 warrants exercised 105,000 1,050 - 38,950 (2,500) - 37,500
June 1994 Private Placement subject to Reg. S 91,667 917 - 287,834 - - 288,751
Net Loss - - - - - (5,145,081) (5,145,081)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at September 30, 1994 17,839,540 178,395 - 9,316,014 40,315 (16,012,597) (6,477,873)
Consulting service in exchange for stock 17,500 175 - 61,075 - - 61,250
May 1995 Exchange of debt for shrs of stk 3,000,000 30,000 - 10,470,000 - - 10,500,000
Oct. 1994 thru Sep. 1995 warrants exercised 29,512 295 - 9,771 - - 10,066
Warrant extensions - - - - 4,650,000 - 4,650,000
Oct. 1, 1994 to Sep. 30, 1995(various dates)
Registered Stock 437,768 4,378 - 1,497,114 - - 1,501,492
July 12, 1995 unregistered stock to BICO 1,200,000 12,000 - 4,188,000 - - 4,200,000
Net Loss - - - - - (10,361,514) (10,361,514)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at September 30, 1995 22,524,320 225,243 - 25,541,974 4,690,315 (26,374,111) 4,083,421
Consulting service in exchange for stock:Reg. 10,000 100 - 34,900 - - 35,000
Consulting service in exchange for stock:Unreg. 5,000 50 - 17,450 - - 17,500
Oct. 1995 thru Sep. 1996 warrants exercised 56,000 560 - 27,440 - - 28,000
Warrant extensions - - - - 7,644,033 - 7,644,033
Oct. 1, 1995 to Sep. 30, 1996(various dates)
Registered Stock 410,731 4,108 - 1,361,047 - - 1,365,155
Net Loss - - - - - (9,021,823) (9,021,823)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at September 30, 1996 23,006,051 230,061 - 26,982,811 12,334,348 (35,395,934) 4,151,286
Warrant extensions - - - - 5,593,875 - 5,593,875
Oct. 1, 1996 to Sep. 30, 1997(various dates)
Registered Stock (27,000) (270) - (94,230) - - (94,500)
Net Loss - - - - - (6,564,837) (6,564,837)
---------- --------- ---------- ---------- ---------- ------------ -----------
Balances at September 30, 1997 22,979,051 229,791 - 26,888,581 17,928,223 (41,960,771) 3,085,824
Warrant extensions - - - - 25,000 - 25,000
Oct. 1, 1997 to Sep. 30, 1998(various dates)
Registered Stock 1,000 10 - 3,490 - - 3,500
Net Loss - - - - - (2,914,329) (2,914,329)
---------- --------- ---------- ---------- ---------- ---------- -----------
Balances at September 30, 1998 22,980,051 229,801 - 26,892,071 17,953,223 (44,875,100) 199,995
Warrants issued for services - - - - 228,538 - 228,538
Warrant extensions - - - - 272,078 - 272,078
Net Loss - - - - - (753,501) (753,501)
---------- --------- ---------- ---------- ---------- ----------- ----------
Balances at September 30, 1999 22,980,051 $229,801 -$26,892,071 $18,453,839 $(45,628,601) $ (52,890)
========== ========= ========== ========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>5
<TABLE>
Diasensor.com, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (Note I)
<CAPTION>
From July 5, 1989
For the year ended For the year ended For the year ended (inception) thru
September 30, 1999 September 30, 1998 September 30, 1997 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (753,501) $(2,914,329) $ (6,564,837) $ (45,598,601)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 6,074 13,615 13,613 75,627
Provision for (recovery of)doubtful
accounts (823,670) 2,282,479 - 1,458,809
Impairment loss - 14,367 - 14,367
Stock issued in exchange for services - - - 138,950
Stk issued for License & Marketing Agreement - - - 80,000
Warrants issued for services 228,538 - - 228,538
Warrant extensions 272,078 25,000 5,593,875 18,184,986
Inventory deposit - BICO - - - (1,000,000)
(Increase) decrease in prepaid expenses 5,662 7,906 615 (130)
Increase (decrease) in payable due to BICO - - - 10,500,000
Increase (decrease) in accounts payable (23,606) 14,173 (10,662) -
Increase in accrued payroll and withholdings 22,493 55,735 12,457 91,214
Increase in other assets (17,250) - - (17,250)
------------- ------------- ------------- -------------
Net cash used in operating activities (1,083,182) (501,054) (954,939) (15,843,490)
Cash flows from investing activities:
Disposal of property and equipment 175,000 - - 175,000
Purchase of property and equipment - - - (279,413)
(Increase)in notes rec.-related parties - (125,000) - (125,000)
(Increase)in interest rec-related parties (4,266) (9,272) - (13,538)
------------- ------------- ------------- -------------
Net cash used in investing activities 170,734 (134,272) - (242,951)
Cash flows from financing activities:
Advances to BICO (97,438) (2,853,665) (1,814,292) (7,060,964)
Repayment of advances to BICO 974,600 1,656,232 3,591,489 7,307,279
Proceeds from issuance of common stock - 3,500 (94,500) 10,971,834
Proceeds from issuance of common stk to BICO - - - 4,200,000
Proceeds from warrants exercised - - - 118,066
Purchase from treasury stock - - - (35,000)
Proceeds from Regulation S - - - 288,751
Proceeds from issuance of notes payable - - - 303,000
------------- -------------- ------------ --------------
Net cash provided (used)by fin. activities 877,162 (1,193,933) 1,682,697 16,092,966
------------- -------------- ------------ --------------
Net increase(decrease)in cash and cash equiv. (35,286) (1,829,259) 727,758 6,525
Cash and cash equivalents at beg of period 41,811 1,871,070 1,143,312 -
------------- --------------- ------------ --------------
Cash and cash equivalents at end of period $ 6,525 $ 41,811 $ 1,871,070 $ 6,525
============ ============== ============ ==============
The accompanying notes are an integral part of this statement.
</TABLE>
DIASENSOR.COM, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
1. ORGANIZATION
Diasensor.com, Inc. (the Company) was incorporated in the
Commonwealth of Pennsylvania on July 5, 1989 as a wholly owned
subsidiary of Biocontrol Technology, Inc. (BICO). BICO owned
approximately 52% of the stock of the Company at September 30,
1999. The Company and BICO are currently developing a
Noninvasive Glucose Sensor (Sensor), which management believes
will be able to measure the concentration of glucose in human
tissue without requiring the drawing of blood. The Company plans
to market the Sensor to diabetics through their doctors and is
currently negotiating with domestic and international
distribution organizations.
The consolidated financial statements include the accounts of
Diasensor.com UK LTD. a 100% owned subsidiary of Diasensor. com,
Inc. as of September 30, 1999. All significant intercompany
accounts and transactions have been eliminated.
2. CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The
Company places temporary cash deposits in financial institutions
and such deposits may be in excess of the FDIC insurance limit.
3. PROPERTY AND EQUIPMENT
Property and equipment are accounted for at cost and are
depreciated over their estimated useful lives (37 years for
property and 10 years for equipment) on a straight-line basis.
The carrying value of property and equipment are reduced for
impairment losses determined by management.
4. INCOME TAXES
The Company previously adopted Financial Accounting Standards
Board Statement 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 basis of existing assets
and liabilities. Due to the uncertainty of the realization of
income tax benefits (Note E), the adoption of FAS 109 had no
effect on the financial statements of the Company.
5. 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.
6. NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average
number of common shares outstanding which amounted to
22,980,051, 22,979,884 and 22,979,051 for the years ended
September 30, 1999, September 30, 1998 and September 30, 1997
respectively. The loss per share does not include common stock
equivalents since the effect would be anti-dilutive.
For the period from July 5, 1989 (inception) to September
30, 1999, net loss per common share is based on the weighted
average number of common shares outstanding and the number of
common shares issuable on the exercise of 1,708,000 warrants
issued in 1992; reduced by 488,000 common shares that were
assumed to have been purchased with the proceeds from the
exercise of the warrants at an assumed price of $3.50 per
share. The inclusion of the warrants in the loss per share
calculation is required by the rules of the Securities and
Exchange Commission relative to the initial registration
statement which included the Company's financial statements
through the period ended March 31, 1993. The registration
statement became effective July 19, 1993. The weighted
average number of common shares including the effect of the
conversion of the warrants for the period from July 5, 1989
(inception) to September 30, 1999 amounted to 19,208,920.
7. RESEARCH AND DEVELOPMENT
All research and development costs incurred by the Company, or
by BICO on its behalf, are charged to operations as incurred.
Patent and technology rights acquired from BICO (Note F) have
also been written off as a charge to operations.
8. TREASURY STOCK
The Company records treasury stock transactions using the par
value method.
9. INTERCOMPANY ACTIVITY
Certain expenses are allocated by management between the Company,
BICO and BICO's subsidiaries. These expenses are reimbursed to
the paying entity through the use of intercompany accounts, which
accounts are also used to account for non-interest bearing cash
advances between the companies.
10. COMMON STOCK WARRANTS
The Company recognizes cost on warrants granted or extended based
upon the minimum value method. There is currently no trading
market for the Company's warrants or common stock. Under this
method, the warrants are valued by reducing the exercise price of
the underlying stock by the present value of the exercise price
discounted at an estimated risk-free interest rate of 5% and
assuming no dividends.
11. COMPREHENSIVE INCOME
The Company's consolidated net income (loss) is substantially the
same as comprehensive income required to be disclosed by
Financial Accounting Standards Board Statement No. 130.
12. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of
receivables from BICO and from officers and directors of the
Company and BICO. The receivables from officers and directors of
the Company are unsecured and represent a concentration of credit
risk due to the common employment and financial dependency of
these individuals on the Company and BICO.
NOTE B - OPERATIONS
The Company is developing the Sensor and has not, as yet,
achieved a commercially marketable product. The ability of the
Company to continue in existence is dependent on its having
sufficient financial resources to maintain operations, to
complete the research and development necessary to successfully
bring the Sensor to market, and for marketplace acceptance. The
Company has no other commercial products and is dependent on the
successful development of the Sensor technology. The Company is
selling shares of its common stock pursuant to an offering with
the SEC, which became effective July 19, 1993 and has an
intercompany receivable from BICO of $ 1,458,809 at September 30,
1999. Any funds generated by the Company through the sale of its
common stock and any repayment of funds due from Bico would be
used to finance its operations. The Company has had only
minimal sales of its common stock over the last two fiscal years.
The Company is in the development stage, and accordingly, it has
presented cumulative information on results of operations, cash
flows, and changes in stockholders' equity since inception.
The Company has incurred significant losses and negative cash
flows from operations from inception through September 30, 1999
and has a significant accumulated deficit as of September 30,
1999, raising substantial doubt about its ability to continue as
a going concern. The Company has financed its losses and its
research and development program, which is temporarily suspended,
primarily from the sale of the Company's common stock through
private placements. Management believes that its available cash
resources, including funds it reasonably expects to be repaid by
BICO and to be raised by the Company or its affiliates will be
sufficient to fund its operations through the year ending
September 30, 2000. Management believes that the recoverability
and classification of recorded assets and liabilities are
comparable to approximate liquidation values as of September 30,
1999.
As a result of agreements with BICO relating to development
and manufacture of the Noninvasive Glucose Sensor, the Company
is dependent on BICO for substantially all of its activities in
connection with the development and manufacture of the Sensor,
other than its marketing efforts. Pursuant to the Research and
Development Agreement, BICO has undertaken the development
of the Sensor and has assumed certain other obligations. In July
1995, the Company and BICO agreed to suspend billings,accruals of
amounts due and payments pursuant to the R&D Agreement pending FDA
review of the Sensor. No amounts are due pursuant to the R&D
Agreement which have not been recorded, and no adjustments will be
made retroactively or cumulatively if and when billings resume.
Management believes that billings may resume, based on negotiations
between both companies,if and when the Diasensor 1000 is approved
for marketing. Pursuant to a manufacturing agreement between
BICO and the Company, BICO will manufacture the Sensor once
development is completed. In the absence of such agreements with
BICO, the research, development and manufacture of the Sensor could
not continue as currently contemplated. BICO's ability to
successfully complete the development of the Sensor, to obtain FDA
approval in a timely fashion and to manufacture production units
of the Sensor without significant delays or defects will directly
affect the Company's business and ability to achieve profitable
operations. BICO has experienced, and continues to experience,
substantial losses and financial difficulties. The consolidated
financial statements for BICO for the year ended December 31, 1998
included disclosures which referred to the existence of substantial
doubt about BICO's ability to continue as a going concern. BICO has
a net loss for the nine month period ended September 30, 1999
of $30,478,621 (unaudited) and for the fiscal year ended December
31, 1998 of $22,402,644, compared to a net loss for the fiscal year
ended December 31, 1997 of $30,433,177. As of December 31, 1998,
and September 30, 1999, BICO's accumulated deficit was $143,101,880
and $173,580,501 (unaudited) respectively.
In the past, BICO has financed its own operations from proceeds
generated from private and public sales of its securities, the
issuance of debt in the form of convertible debentures, from
funds paid by the Company to BICO for research and development of
the Noninvasive Glucose Sensor and from intercompany advances
from the Company and other BICO subsidiaries. The failure of
BICO to continue to exist as a going concern would have a
material adverse effect on the Company's business and ability to
continue operations.
If BICO does not continue as a going concern, the Company would
need to rely on other arrangements to develop and manufacture the
Sensor or to perform that work itself. There can be no assurance
that the Company would be able to find acceptable alternatives,
negotiate acceptable collaborative arrangements with any
alternative organizations, or to perform the work itself.
NOTE C - LEASE
In December 1998 the Company sold its building and leased it back
under an agreement which requires monthly rent of $5,750 for five
years beginning on January 1, 1999. An impairment loss was
recognized as a charge to general and administrative expenses in
the financial statements for the year ended September 30, 1998
for $14,367 which represented the difference between the previous
book value of the building and the $175,000 sales price in the
December 1998 sales agreement. Future minimum rental payments
under this lease are $69,000 for each of the fiscal years ending
on September 30, 2000 through 2003 and $17,250 for the final
three months of the lease concluding December 31, 2003. The
Company paid a security deposit of $17,250 upon entering into
this lease agreement.
NOTE D - OTHER INCOME
Other income for the years ending September 30, 1999, 1998 and
1997 consists of $6,445, $20,386 and $10,471 of interest income
and $42,528, $42,528 and $42,528 of rental income for their
respective periods. The total rental income for the years ended
September 30, 1999, 1998 and 1997, was from BICO for office
space.
NOTE E - INCOME TAXES
As of September 30, 1999, the Company has available approximately
$23,700,000 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
the tax years 2005 through 2013. The Company also has research
and development credit carryforwards available to offset federal
income taxes of approximately $700,000 subject to limitations,
expiring in the years 2005 through 2013.
The Company has temporary differences arising from different
methods of accounting for the costs of patent and technology
rights for financial statement and tax purposes. For financial
statement purposes, these costs have been charged to operations.
For tax purposes, the costs of approximately $2,650,000 have been
capitalized and are being amortized over seventeen years. Also,
warrant extensions have been recorded and expensed for financial
statement purposes in the amount of $18,413,524 as of September
30, 1999. For tax purposes, warrants are not recorded until the
warrants are exercised. Bad debt allowance recorded against
intercompany receivables in the amount of $2,282,479 at September
30, 1998 were expensed for financial statement purposes but not
for tax purposes. A reduction in the allowance account of
$823,670 at September 30, 1999 is also reflected in the financial
statements but is not included in the tax return.
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 their 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
September 30, 1999 and 1998:
1999 1998
----------- -----------
Net Operating Loss $ 8,049,126 $ 7,630,820
Warrant Expense 6,258,898 6,088,689
Patent Amortization 488,174 540,452
Allowance for Bad Debts 443,400 776,000
Tax Credit Carry Forward 700,000 700,000
----------- -----------
15,939,598 15,735,961
Valuation Allowance (15,939,598) (15,735,961)
----------- -----------
Net Deferred Tax Asset $ 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 September 30,1999 $ (203,637) $ 203,637 $0
Year Ended September 30,1998 $ (846,487) $ 846,487 $0
Year Ended September 30,1997 $ (2,326,496) $ 2,326,496 $0
Year Ended September 30,1996 $ (3,000,971) $ 3,000,971 $0
Year Ended September 30,1995 $ (3,877,527) $ 3,877,527 $0
From July 5,1989 (inception)
through September 30,1999 $(15,939,598) $15,939,598 $0
NOTE F - RELATED PARTY TRANSACTIONS
1. SENSOR RELATED AGREEMENTS
The Company has a development agreement with BICO for the sensor.
If successfully developed, the Sensor will enable users to
measure blood glucose levels without taking blood samples. On
November 18, 1991, the Company acquired for $2,000,000 the right
from BICO to one United States patent, which 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). Each model of the Sensor is
subject to clinical testing and regulatory approvals by the FDA.
The Company and BICO have entered into a series of agreements
related to the development, manufacture and marketing of the
Sensor. Under such agreements, BICO is required to 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. Following is a brief description of the
agreements:
Manufacturing Agreement
The manufacturing agreement between the Company and BICO was
entered into on January 20, 1992. Under such agreement, BICO is
to act as the exclusive manufacturer of production units of the
Sensor and to sell the units to the Company at a price determined
by the agreement. The term of the agreement is fifteen years.
Research and Development Agreement
Under a January 1992 agreement effective April 1992, the Company
is to pay BICO $100,000 for indirect costs per month, plus all
direct costs for the research and development of the Sensor. This
agreement replaced a previous agreement dated May 14, 1991 under
which Diasensor.com, Inc. had been paying BICO $50,000 for
indirect costs per month, plus all direct costs for the design
and development activities. The term of the agreement expires in
2007. In July 1995, the Company and BICO agreed to suspend
billings, accruals of amounts due and payments pursuant to the
R&D Agreement, pending FDA review of the Sensor.
The monthly charges from BICO for indirect costs are reflected as
general and administrative expenses and direct costs for the
research and development of the Sensor incurred by BICO are
reflected as R&D expenses in the statement of operations.
Purchase Agreement
In November 1991, the Company entered into a Purchase Agreement
with BICO under which the Company acquired all of BICO's rights
to the Sensor for a cash payment of $2,000,000 which was charged
to operations.
Sublicensing Agreement
In 1989, BICO acquired rights to certain concepts and patents
related to the Sensor from outside parties. The purchase price
was $650,000, and was paid by the conveyance of stock in BICO and
1,040,000 shares of Diasensor.com,Inc. common stock. The $520,000
value of the Diasensor.com, Inc. stock issued was charged to the
receivable due from BICO. On May 14, 1991, Diasensor.com, Inc.
and BICO entered into a sublicense agreement under which
Diasensor.com, Inc. acquired these rights from BICO for a cash
payment of $650,000 which was charged to operations.
License and Marketing Agreement
In August 1989, BICO granted Diasensor.com, Inc. the exclusive
right to represent BICO and to market the Sensor and related
products worldwide. In exchange for these rights, Diasensor.com,
Inc. conveyed 8,000,000 shares of its common stock to BICO. The
assigned value of these shares was $80,000 which was charged to
operations. In November 1991, this agreement was superseded when
the Company purchased all rights to the Sensor technology.
2. INTERCOMPANY ACTIVITY
For the fiscal years ended September 30, 1999, 1998 and 1997, net
intercompany charges by the Company to BICO and its subsidiaries
were $81,261, $160,433 and $129,960.
3. RECEIVABLES FROM OFFICERS AND DIRECTORS
During the fiscal year ended September 30, 1998 the Company made
loans to certain officers and directors totalling $125,000. The
loans were due upon demand with interest at a rate of 8.25%.
Total amounts due, including accrued interest, on these loans at
September 30, 1998, were $80,599 from Fred E. Cooper and $53,673
from Anthony J. Feola. During the fiscal year ended September
30, 1999, the Company (by agreement with BICO) assigned the above
$134,272 of notes receivable and accrued interest, plus an
additional $4,266 accrued interest, to BICO by an increase in the
intercompany due from BICO account.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Due to the financial condition of BICO, as discussed in Note B,
management has established an allowance for doubtful accounts
covering amounts due from BICO and its officers and directors.
The allowance for $ 2,282,479 was recognized on the books of the
Company in the fiscal year ended September 30, 1998. During the
fiscal year ended September 30, 1999, the Company reduced the
allowance for doubtful accounts by $ 823,670 to reflect the
reduction in amounts due from BICO at September 30, 1999.
5. ACCRUED PAYROLL
Included in accrued payroll and withholdings at September 30,1999,
is $45,208 and $29,167 for unpaid wages of Fred E. Cooper and
David L. Purdy, respectively, which were earned but voluntarily
deferred by these two directors.
NOTE G - COMMITMENTS AND CONTINGENCIES
1. RESEARCH AND DEVELOPMENT
Under terms of a Research and Development Agreement with BICO,
the Company is to pay BICO $100,000 for indirect costs per month,
plus direct costs associated with the research and development
through January, 2007. In July 1995, the Company and BICO agreed
to suspend billings, accruals of amounts due and payments
pursuant to the R&D Agreement, pending FDA review of the Sensor.
2. EMPLOYMENT AGREEMENTS
Diasensor.com, Inc. has entered into agreements with Fred E.
Cooper and David L. Purdy pursuant to which they receive annual
salaries (as adjusted through September 30, 1999) of $372,000
and $325,000 from Diasensor.com, Inc.,respectively, both of which
are subject to review and adjustment annually. The initial term
of the agreements with Mr. Cooper and Mr. Purdy expired on October
31, 1999, but were automatically renewed for an additional three-
year period; such renewals will continue unless either party gives
proper notice of non-renewal. The agreements also provide that
in the event of a "change of control" of Diasensor.com, Inc.,
Diasensor.com, Inc. is required to issue to Mr. Cooper and Mr.
Purdy shares of common stock equal to five percent (5%) of
the outstanding shares of common stock of the Company immediately
after the change in control.
3. LITIGATION
Several class action lawsuits have been filed against the Company
along with BICO and certain of their directors, all of which have
been consolidated into a single action. The suit alleges various
violations of federal securities laws on behalf of a class of
plaintiffs who purchased common stock of the Company between
April 25, 1995 and February 26, 1996, at which time the value of
the Company's stock dropped as a result of an unfavorable
recommendation of a Panel Review convened by the United States
Food and Drug Administration with respect to a certain medical
device owned by Diasensor.com, Inc. and manufactured by BICO. The
Company has engaged in voluntary mediation in order to explore
whether settlement is an option. As a result of the mediation,
the plaintiffs agreed to a "standstill" period, which has now
expired; however, no further activity has been conducted by the
plaintiffs to move the case forward. Management believes that no
federal securities violation has occurred, and they intend to
strongly defend the action. At this time it is not possible to
predict the outcome of the litigation or to estimate the
potential damages arising from the claims, since the number of
class members, and the volume and pricing of shares traded, are
unknown.
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.
4. PENNSYLVANIA SECURITIES COMMISSION
The Pennsylvania Securities Commission initiated a private
investigation of the Company and BICO in connection with the sale
of securities in 1996. 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 and the Company has not been
advised of any finding or order in connection with the
investigation, 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.
NOTE H - STOCKHOLDERS' EQUITY
Common Stock
The Company sold 2,800,000 shares of common stock at $0.50 per
share, from August 1989 to May 1991 in connection with a joint
private offering with BICO. The aggregate amount raised was
$1,400,000, on which no commissions were paid to any third party.
The Company sold 4,997,500 shares of common stock, at $1.00
per share, in a private offering from May 1991 to January
1992. The aggregate amount raised was $4,985,201, on which
no commissions were paid to any third party.
The Company sold, in July 1992, 7,212 shares of common stock, at
$3.50 per share, in a private offering to one accredited investor.
The aggregate amount raised was $25,242, on which no commissions
were paid to any third party.
The Company sold 300,000 shares of common stock, at $3.50 per
share, in a private offering from July 1992 through November 1992.
The aggregate amount raised was $1,050,000,on which no commissions
were paid to any third party.
In December 1991, the Company issued 235,000 shares of common
stock in exchange for the cancellation of outstanding promissory
notes for $235,000.
In June 1994, the Company sold 91,667 shares of its common stock
pursuant to the requirements set forth in Regulation S of the
Securities Act of 1933 ("Regulation S"). In connection with
such sale, the purchasers and any entity which facilitated such
sale undertook to ensure compliance with Regulation S, which
among other things, limits a foreign investor's ability to trade
the Company's stock in the United States. The Company received
net proceeds in the amount of $288,751 pursuant to such sales.
During 1995, the Company issued the following shares of its
common stock to BICO: 3,000,000 shares at an assigned price of
$3.50 per share in return for a corresponding reduction in the
amount due from Diasensor.com, Inc. to BICO pursuant to the
R&D Agreement of $10,500,000; and 1,200,000 shares of its common
stock at a price of $3.50 per share.
In July,1993, the Company commenced a public offering, which
is continuing. As of September 30, 1998, an aggregate of
1,063,460 shares had been issued with proceeds to the Company
of $3,561,892. Of that total, 230,961 shares with net proceeds
of $786,245 were issued in fiscal 1994; 437,768 shares with net
proceeds of $1,501,492 were issued in fiscal 1995; 410,731
shares with net proceeds of $1,365,155 were sold in fiscal
1996; 1000 shares were issued in fiscal 1998 at $3.50 per
share; 10,000 shares were issued for consulting services at a
charge to operations of $35,000 in fiscal 1996; and 27,000
shares were reimbursed with net repayment of $94,500 in fiscal
1997.
The Company issued unregistered common stock in exchange for
consulting services of 7,200 shares in fiscal 1994, 17,500 shares
in fiscal 1995, 5,000 shares in fiscal 1996 and none in fiscal
1997 or 1998. The associated consulting service expense was
recognized at a rate of $3.50 per share, which is the price at
which the common stock was being sold in the Company's public
offering.
Common Stock Warrants
At September 30, 1999, the Company has reserved 8,644,113 shares
of the Company's unissued common stock for warrants which were
outstanding and exercisable. Of these, warrants on 5,680,850
shares were issued to directors, officers, and employees for
meritorious service, employment contracts and personal
guarantees on Company indebtedness. Also, warrants on 2,563,263
shares were issued to consultants and medical advisers and on
400,000 shares to individuals for personal guarantees on Company
loans. The per share exercise price for 5,295,000 shares is
$.50, for 2,286,763 shares is $1.00 and for 1,062,350 shares is
$3.50. The fiscal years in which warrants expire are as follows:
Warrant Expiration Year Number of Shares
1999 638,800
2000 2,186,350
2001 1,187,750
2002 59,213
2003 285,000
2004 4,287,000
---------
8,644,113
=========
The following is a summary of warrant transactions during fiscal
years ended September 30,
1999 1998 1997 1996 1995
Outstanding beginning 6,676,513 7,476,513 7,533,263 7,077,213 6,891,525
of year
Granted during the year 2,070,000 0 59,000 743,250 265,200
Canceled during the year (102,400) (800,000) (115,750) (231,200) (50,000)
Exercised during the
years at prices ranging
from $.1875 to $1.00 per
share 0 0 0 (56,000) (29,512)
--------- --------- --------- --------- ---------
Outstanding, and 8,644,113 6,676,513 7,476,513 7,533,263 7,077,213
eligible for exercise. ========= ========= ========= ========= =========
During the period October 1, 1998 through September 30, 1999, the
Company extended the exercise date of warrants to purchase
2,561,213 shares of common stock to certain officers, directors,
employees and consultants. Warrants for 2,477,000 were
originally granted at an exercise price of $.50 per share,
warrants for 29,213 shares were origainally granted at an
exercise price of $1.00 and warrants for 55,000 shares were
originally granted at an exercise price of $3.50 were extended at
the same price. In connection with the extension of these
warrants the Company recorded a charge of $272,078 against
operations. In addition, during the year ended September 30,
1999, the Company granted warrants to purchase 2,070,000 shares
of common stock to employees and consultants at an exercise price
of $.50 per share. These warrants were granted for services
rendered which were recognized in general and administrative
expenses for a total of $228,538.
During the period October 1, 1997 through September 30, 1998, the
Company extended the exercise date of warrants to purchase
2,236,550 shares of common stock to certain officers, directors,
employees and consultants. Warrants for 748,000 were originally
granted at an exercise price of $.50 per share and warrants for
10,000 shares were originally granted at an exercise price of
$1.00 and were extended at the same price. The Company
recorded $25,000 against operations in connection with the
extension of these warrants.
During the period October 1, 1996 through September 30, 1997, the
Company extended the exercise date of warrants to purchase
2,236,550 shares of common stock to certain officers, directors,
employees and consultants. Warrants for 2,236,550 were
originally granted at an exercise price of $1.00 per share and
were extended at the same price. The Company recorded $5,593,875
against operations in connection with the extension of these
warrants.
During the period October 1, 1995 through September 30, 1996, the
Company extended the exercise date of warrants to purchase
2,556,213 shares of common stock to certain officers, directors,
employees and consultants. Warrants for 49,213 and 2,507,000
shares were originally granted at an exercise price of $1.00 and
$.50 per share, resepectively, and were extended at the same
price. The Company recorded $7,644,033 against operations in
connection with the extensions of these warrants.
During the period October 1, 1994 through September 30, 1995, the
Company extended the exercise date of warrants to purchase
1,550,000 shares of common stock to certain officers, directors,
employees and consultants. The warrants were originally granted
at an exercise price of $.50 per share and were extended at the
same price. The assumed value of the stock when the extensions
were granted was $3.50. The Company recorded $4,650,000 against
operations in connection with the extensions of these warrants.
In 1990, the Company granted warrants to purchase 800,000 shares
of common stock at an exercise price of $.50 per share to eight
current or former directors or officers of the Company or BICO
who personally guaranteed the payment of a lease obligation to
the bank for the premises occupied by BICO at the 300 Indian
Springs Road location. The Company also granted warrants to
purchase 100,000 shares of common stock each to an individual and
his company at an exercise price of $.50 per share for personally
guaranteeing the payment of an obligation related to the purchase
of equipment by BICO. In addition, the Company granted warrants
to purchase 100,000 shares of common stock for services performed
by consultants at an exercise price of $.50. The Company recorded
an estimated value of these warrants at $27,500 which was charged
to operations.
NOTE I- SUPPLEMENT CASH FLOW INFORMATION
The Company's financing activities included the following noncash
transactions.
During 1992 and 1990, notes payable aggregating $303,000 were
canceled and exchanged for 371,000 shares of the Company's
common stock.
On March 31, 1995, the Company issued 3,000,000 shares of its
unregistered stock to BICO in payment of $10,500,000 due to
BICO.
During the Fiscal year ended September 30, 1999, the Company
(by agreement with BICO) converted $125,000 of related party
notes receivable and $13,538 of associated interest receivable
to due from BICO.
Cash paid for interest and income taxes were as follows:
From July 5, 1989
(inception)
September September September through September
30,1999 30,1998 30,1997 30,1999
Interest Paid $ 0 $ 0 $ 0 $10,529
====== ====== ======= =======
Income Taxes Paid $ 0 $ 0 $ 0 $ 0
====== ====== ======= =======
NOTE J - YEAR 2000 ISSUE
The Company is currently working to resolve the potential impact
of the Year 2000 on the processing of date-sensitive information.
The Year 2000 Issue is the result of computer programs being
written using two digits (rather than four) to define the
applicable year. Programs which are susceptible to problems
after December 31, 1999 are those which recognize a date using
"00" as the year 1900 rather than the year 2000, which could
result in miscalculations or system failures. Based upon a
review of its own internal programs and software, the Company
currently believes that the Year 2000 will not pose significant
operational problems to its information systems, because such
systems are already compliant or will be made compliant with
minor adjustments. The Company is also conducting an
investigation of its major suppliers, vendors and other parties
to determine their respective plans for the Year 2000 compliance.
The Company's current estimates indicate that the costs of
addressing potential problems are not expected to have a material
impact upon the Company's financial position, results of
operations or cash flows in future periods. There can be no
assurance, however, that modifications to information systems
which impact the Company and which are required to remediate year
2000 issues will be made on a timely basis and that they will not
adversely affect the Company's systems or operations.
NOTE K - SUBSEQUENT EVENT
The Company extended warrants to purchase 620,000 shares of
common stock which would have otherwise expired during the period
October 1, 1999 through December 9, 1999.
