-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Knea/DZXQRdhf82I9L/+XlVeNh7nDnuPTgnI5lKNjJQ8hKKDJQP6DXCI9/iQTNhR znTLgl6MRldNRjFcMjDaOQ== 0000225211-01-000020.txt : 20010330 0000225211-01-000020.hdr.sgml : 20010330 ACCESSION NUMBER: 0000225211-01-000020 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BICO INC/PA CENTRAL INDEX KEY: 0000225211 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 251229323 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-57828 FILM NUMBER: 1582956 BUSINESS ADDRESS: STREET 1: 2275 SWALLOW HILL ROAD CITY: PITTSBURGH STATE: PA ZIP: 15220 BUSINESS PHONE: 4124290673 MAIL ADDRESS: STREET 1: 2275 SWALLOW HILL ROAD CITY: PITTSBURGH STATE: PA ZIP: 15220 FORMER COMPANY: FORMER CONFORMED NAME: BIOCONTROL TECHNOLOGY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CORATOMIC INC DATE OF NAME CHANGE: 19861223 S-1 1 0001.txt As filed with the Securities and Exchange Commission on March 29, 2001 Registration No. 333-_________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM S-1 under THE SECURITIES ACT OF 1933 BICO, INC. (Exact name of registrant as specified in its charter) Pennsylvania 3841 25-1229323 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification organization) Number) 2275 Swallow Hill Road, Bldg. 2500 Pittsburgh, Pennsylvania 15220 (412) 429-0673 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices and principal place of business) ___________________________________________ Fred E. Cooper, Chief Executive Officer BICO, Inc. 2275 Swallow Hill Road, Building 2500, Pittsburgh, Pennsylvania 15220 (412) 429-0673 (Name, address, including zip code, and telephone number, including area code, of agent for service) ___________________________________________ Copy to: Sweeney & Associates P.C. 7300 Penn Avenue, Pittsburgh, Pennsylvania 15208 (412) 731-1000 _____________________________________________________ Approximate date of commencement of proposed sale to the public: As soon as possible after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] CALCULATION OF REGISTRATION FEE Title of Each Class Amount to Proposed Proposed Amount of of Securities to be be Maximum Maximum Registra- Registered Registered Offering Aggregate tion Fee Price Per Offering Share Price Common Stock issuable upon the Conversion of the outstanding Principal amount 284,217,673(1) $0.07 (2) $19,895,237 $5,530.46 and other amounts Due under the Registrant's 4% Convertible Debentures due 2001 (1) Total Common Stock 284,217,673 Total Registration Fee $5,530.46 TOTAL OF SEPARATELY NUMBERED PAGES 99 EXHIBIT INDEX ON SEQUENTIALLY NUMBERED PAGE 93 (1) These shares are registered on behalf of selling stockholders. (2) Estimated SOLELY for purposes of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended, and based on the closing bid price of the common stock of Registrant on the electronic bulletin board on March 21, 2001. (3) A filing fee of $5,530.46 was paid on March 15, 2001 _____________________ The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission acting pursuant to Section 8(a) may determine. _____________________ Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. [INSIDE FRONT COVER] SUBJECT TO COMPLETION SUBJECT TO COMPLETION DATED March 29, 2001 PRELIMINARY PRELIMINARY PROSPECTUS 284,217,673 shares BICO, INC. Common Stock This prospectus is for an offering of shares of BICO, Inc. common stock on behalf of certain selling stockholders. These selling stockholders bought debentures from us that are convertible into common stock. We are registering that common stock for sale on behalf of those debenture holders under this prospectus. Up to 284,217,673 shares are being registered that may be issuable upon the conversion of the outstanding principal amount and interest due under our $10,655,659 principal amount of 4% subordinated convertible debentures. We estimated the number of shares we'll need to cover the debenture conversions - depending on our stock price at the time of conversion; we may need to issue fewer shares or more shares. You should review the Selling Stockholders and Plan of Distribution sections for more information. Our common stock trades on the electronic bulletin board under the trading symbol "BIKO". We will not receive any of the money from selling the 284,217,673 shares of stock we are offering on behalf of the selling stockholders. They will receive the proceeds from any sales. OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU NEED TO REVIEW THESE RISKS BEFORE YOU CONSIDER BUYING OUR COMMON STOCK. THESE RISKS ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 4. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. If anyone tells you otherwise, it's a criminal offense. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. THE INFORMATION IN THIS PROSPECTUS ISN'T COMPLETE. IT MIGHT CHANGE. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT WE HAVE FILED WITH THE SEC BECOMES EFFECTIVE. THIS PROSPECTUS ISN'T AN OFFER TO SELL OUR COMMON STOCK, AND WE ARE NOT SOLICITING OFFERS TO BUY OUR COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT ALLOWED. MARCH 29, 2001 PROSPECTUS SUMMARY THE FOLLOWING SECTION IS ONLY A SUMMARY. YOU SHOULD CAREFULLY READ THE MORE DETAILED INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL INFORMATION. OUR BUSINESS INVOLVES SIGNIFICANT RISKS - READ MORE ABOUT THEM IN THE SECTION CAPTIONED RISK FACTORS WHICH BEGINS ON PAGE 5 ABOUT BICO BICO, Inc. was incorporated in the Commonwealth of Pennsylvania in 1972 as Coratomic, Inc. In June 2000, we changed our corporate name from Biocontrol Technology, Inc. to BICO, Inc. Our administrative offices are located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania, 15220. Our primary business is the development of new devices, which include models of a noninvasive glucose sensor, procedures relating to the use of regional extracorporeal hyperthermia in the treatment of cancer, and environmental products, which help to clean up oil spills. Our noninvasive glucose sensor helps diabetics measure their glucose without pricking their fingers or having to draw blood. Regional extracorporeal hyperthermia is a system that re-circulates the patient's blood in a specific area of the body after the blood has been heated outside the body. The re-circulated blood's higher temperature helps treat certain diseases by inducing an artificial fever that kills targeted cells. We have several subsidiaries that specialize in those different projects. Diasense, Inc. -which for a time was called Diasensor.com, Inc- manages the noninvasive glucose sensor project. ViaCirQ, Inc. handles the hyperthermia project, a technology called the ThermoChem System, that induces an artificial fever to help treat diseases. Petrol Rem, Inc. handles our environmental products PRP, BIOSOK and BIOBOOM that help clean up oil spills and other pollutants in water. None of our current projects are generating any significant revenue. We discontinued our functional electrical stimulator project, which had generated some revenue, when our primary buyer cancelled its contract with us. Although some Petrol Rem products are being sold, the revenues from those products have not been material. RISK FACTORS If you invest in our stock, you will be placing your money at a significant risk. Our projects are in the research and development phase, and none of our current products has produced any significant revenue to date. You should not invest money you are not prepared to lose - and you should carefully review the section captioned Risk Factors that begins on page 5 before you decide whether to invest in our stock. THE OFFERING Common stock to be issued upon conversion of our 4% subordinated convertible debentures, including interest 284,217,673 shares Common stock outstanding after this offering, if all shares are sold 1,667,921,840 shares Our Trading Symbol BIKO - we currently trade on the electronic bulletin board The common stock outstanding after this offering, if all shares are sold, is based upon the number of shares we had outstanding as of December 31, 2000, which was 1,383,704,167. The 1,667,921,840 shares do not include the 32,078,160 shares of our common stock that are subject to outstanding warrants. Those warrants have exercise prices ranging from $.06 to $4.03 per share and expiration dates through February 1, 2006. The weighted average exercise price of those warrants is $.27 per share. SUMMARY CONSOLIDATED FINANCIAL DATA YEARS ENDED DECEMBER 31st 2000 1999 1998 1997 1996 Total Assets$21,930,070 $15,685,836 $9,835,569 $12,981,300 $14,543,991 Long-Term Obligations $ 2,211,537 $ 1,338,387 $1,412,880 $ 2,697,099 $ 2,669,727 Working Capital $ 754,368 $ 4,592,935 ($9,899,008) $ 888,082 $ 1,785,576 Preferred Stock $ 0 $ 720,000 $ 0 $ 0 $ 0 Net Sales $ 340,327 $ 112,354 $1,145,968 $ 1,155,907 $ 597,592 TOTAL REVENUES $ 345,874 $ 165,251 $1,196,180 $1,260,157 $ 600,249 Other Income $ 589,529 $ 1,031,560 $ 182,033 $ 165,977 $ 176,478 Warrant Extensions $ 5,233,529 $ 4,669,483 $ 0 $4,046,875 $ 9,175,375 Benefit (Provision) for Income $ 0 $ 0 $ 0 $ 0 $ 0 Taxes Net Loss ($42,546,303)($38,072,578)($22,402,644)($30,433,177)($24,045,702) Net Loss Per Common Share: Basic ($.04) ($.05) ($.08) ($.43) ($.57) Diluted ($.04) ($.05) ($.08) ($.43) ($.57) Cash Dividends Per Share: Preferred $ 0 $ 0 $ 0 $ 0 $ 0 Common $ 0 $ 0 $ 0 $ 0 $ 0 For more detailed information, you should review our financial statements and notes that are included in this prospectus. You can also get copies of our Form 10-K for the year ended December 31, 2000, as well as our other filings, all of which are available at www.sec.gov or from us at the address listed in the section of this prospectus captioned "Where You Can Get More Information". RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED IN THIS SECTION BEFORE MAKING THE DECISION TO INVEST IN OUR STOCK. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN THIS PROSPECTUS INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE UNAWARE OF OR THAT WE CURRENTLY CONSIDER IMMATERIAL ALSO MAY BECOME IMPORTANT FACTORS THAT AFFECT US. AN INVESTMENT IN OUR STOCK IS A HIGH RISK INVESTMENT, AND YOU SHOULD BE PREPARED TO SUFFER A LOSS OF YOUR ENTIRE INVESTMENT. THIS PROSPECTUS ALSO CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS. RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF LOSSES, WE EXPECT THAT LOSSES WILL CONTINUE TO INCREASE FOR THE FORSEEABLE FUTURE - AT LEAST THE NEXT SEVERAL YEARS - AND OUR INDEPENDENT ACCOUNTANTS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. We have lost money in every period since we started our current research and development projects - we had an accumulated deficit of $223.7 million as of December 31, 2000. We plan to invest heavily to continue to develop our biomedical and environmental products and to set up manufacturing and marketing of those products. As a result, we expect to continue to lose money for the foreseeable future - at least for the next several years - and we expect that the losses will continue to increase. We cannot assure you that we will ever achieve or sustain profitability or that our operating losses will not increase in the future. We have received a report from our independent accountants containing an explanatory paragraph stating that our historical losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. WE HAVE A LIMITED OPERATING HISTORY, NO SIGNIFICANT REVENUES AND LIMITED EXPERIENCE IN MARKETING THAT MAKES AN EVALUATION OF OUR BUSINESS DIFFICULT. Although we have been in business for years, we have not generated any material revenue in our recent history. The majority of our activities have been related to the research and development of products. Our current management team has limited experience in manufacturing and marketing biomedical and environmental products. Therefore, our historical financial information is of limited value in evaluating our future operating results. We discontinued our functional electrical stimulator project due to a loss of orders from our primary buyer. Because these products accounted for the majority of our sales revenues - $1 million in 1998 - it was a significant loss that impacted our cash flows, liquidity and revenue. Our target markets - the health care and environmental markets - change rapidly, and we may not have the experience necessary to successfully market our products. WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR OPERATIONS AND THAT ADDITIONAL FINANCING MAY NOT BE AVAILABLE TO US. We won't receive any money if you buy the stock offered in this prospectus - we are registering the stock for our selling stockholders, and they will get the money if you buy this stock. Even if we can sell stock, and we can't assure you that we'll be successful, it may not be enough to fund our operations until - and unless - we become profitable. We cannot quantify the specific amounts we will need, since the research and development process is subject to continuous change. However, we believe, between the money we have and the money we plan to raise, that we have enough funds available to operate for at least a year. We will need to raise more capital to fund our operations and our research and development projects, and we may not be able to find financing when we need it. If that happens, we will not be able to continue operations long enough to bring our products to market, or to market them long enough to become profitable. Any additional equity financing - through sales of our securities - will cause our existing investors to experience additional dilution. WE CANNOT BE SURE HOW LONG IT WILL TAKE TO BRING OUR PRODUCTS TO MARKET OR WHETHER THEY WILL EVER BECOME PROFITABLE. WE HAVE ALREADY INVESTED OVER $37 MILLION ON PROJECTS, OTHER THAN OUR NONINVASIVE GLUCOSE SENSOR, THAT STILL HAVEN'T GENERATED ANY REVENUE. Our biomedical products, specifically the noninvasive glucose sensor and the hyperthermia treatment device, are new products that are not established in any market. Although we have started to market the sensor in Europe, our revenues to date have been minimal - only about $35,000. We cannot market the sensor in the U.S. until we receive FDA approval - and we don't know how much longer that will take. Our hyperthermia treatment device is being used in two hospitals, but we won't be able to generate revenue until we begin full-scale manufacturing. Even when we are able to manufacture and sell these devices, we don't know how long it will be before they become profitable. So far, we have already invested over $37 million in various projects, other than our noninvasive glucose sensor, including the ViaCirQ hyperthermia project, the Petrol Rem environmental products, the American Inter-Metallics propellant enhancement project, other diabetes-related research projects called MicroIslet and Diabecore, and a metal-coating project - and we still don't have any material revenues from any of those projects. The only minimal revenue we generated at all has been from the Petrol Rem products, and even that revenue was only about $26,000 in 1999, and $218,000 in 2000. WE FACE SERIOUS COMPETITION, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. IF SOMEONE ELSE DEVELOPS A BETTER PRODUCT BEFORE WE DO, WE WON'T BE ABLE TO SELL OUR PRODUCTS OR MAKE ANY MONEY. The medical device industry and the environmental industry are very competitive. Other companies are developing technologies and devices that will compete with ours. These other companies may be further along in their research and development, may be better capitalized, have more sophisticated equipment and expertise and various other competitive advantages compared to us. These other companies may be able to bring their products to market before we are able to enter the market, which would have a serious negative impact on our ability to succeed. Many of the large biomedical companies are funding research into noninvasive glucose measurement, and one of them might beat us to the market. Our sensor will also compete against existing finger-prick technology, which is already well established. If we cannot convince diabetics that our device is superior, we will not be able to sell our sensor. Our hyperthermia device is a new technology, which will compete against other, well-established forms of cancer treatment. If we cannot convince the medical community that our product offers superior alternatives, we will not succeed with that device. OUR PRODUCTS ARE THE TYPE THAT CAN BECOME OBSOLETE, AND NO LONGER COMPETITIVE. IF THEY BECOME OBSOLETE, WE CAN'T SELL THEM. Both the medical device and environmental industries are subject to rapid technological innovation and change. Although we are not currently aware of any new product or technology that would make our products obsolete, it is always possible. Future technological developments could make our products significantly less competitive or even no longer marketable. OUR PATENTS ARE IMPORTANT TO US - IF OUR PATENTS ARE CHALLENGED OR INFRINGED UPON, WE MIGHT NOT BE ABLE TO AFFORD TO FIGHT FOR THEM. IF WE CAN'T PROTECT OUR PATENTS, WE WON'T BE ABLE TO SELL OUR PRODUCTS SUCCESSFULLY. We hold patents on many of our products, as well as trademarks on the names of our products and procedures. We try to file patent applications when we believe they are necessary, both in the U.S. and in foreign countries where we seek to do business. However, we cannot assure you that future patents will be granted, or that our existing patents will not be challenged or circumvented by a competitor. If any of our critical patents are challenged, or if someone accuses us of infringing upon their patents, it would be expensive and time-consuming to defend those charges, and our projects could be delayed. Similarly, if someone else infringes upon one of our patents, it would be expensive and distracting for us to challenge them. If our patents are challenged or infringed upon, we might not be able to enter the market without a long legal battle to determine which patent has priority. This type of delay and expense would hurt our ability to successfully market our products. WE ARE DEPENDENT UPON HEALTH INSURANCE REIMBURSEMENT FOR OUR BIOMEDICAL DEVICES, AND WE MAY NOT BE ABLE TO OBTAIN THAT REIMBURSEMENT. Our biomedical products are subject to the reimbursement policies of insurance companies and Medicare. The doctors and patients who want to use our devices will not be able to pay for them without reimbursement from their health insurance providers. If we are not able to convince those insurance providers that our devices are worth reimbursement, we will not succeed. WE MAY ACQUIRE COMPANIES THAT ARE NOT PROFITABLE OR WORTH WHAT WE ORIGINALLY ESTIMATED. Our officers and directors have discretion in how to spend the money we raise. One of the ways they intend to use part of the money is to acquire companies with revenue or with the potential to generate revenue in the short term. We may not find companies that actually generate revenue. We may also acquire companies that do not generate revenue, even though we project that they will. In the past, we have invested in companies that are not worth what we paid for them, and we have lost our investment. For example, we purchased a majority interest in a metal- coating company in 1998 - because it did not perform the way we expected, we had to write-off our entire investment, including a $4.4 million write down in 1999. You should carefully review our financial statements for more detailed information on the investment and the write-downs. We cannot guarantee that we will not make the same mistake in the future. WE MAY BE DISTRACTED OR SUFFER LOSSES DUE TO LEGAL PROCEEDINGS. We are involved in several legal proceedings. Although we cannot project how they will be resolved, you should know that we might suffer losses depending upon the outcome. We settled our class action lawsuit; we've paid as part of the settlement $2,150,000 and will pay another $1,300,000 in July 2001. Both the Pennsylvania Securities Commission and the U.S. Attorneys' office are investigating us, and we have provided them with the information they requested. We don't know how much longer these investigations will last, and we don't know how they will be resolved. If either one of these investigations results in findings that we, or someone we're responsible for, violated the law, we could suffer significant monetary damages, harm to our reputation, or the loss of the services of key employees. We don't know what those damages might be, but they could include fines or restrictions on how we are allowed to do business in the future. These legal proceedings cost us money, mostly in legal fees, that we could be using for our projects. Even if we don't have to pay any money or suffer any other damages as a direct result of these proceedings, you should be aware that we might be distracted from our other responsibilities while we deal with these legal matters, and that distraction could also hurt us. WHEN WE SELL STOCK OR CONVERTIBLE SECURITES LIKE OUR DEBENTURES, IT DILUTES OUR EXISTING STOCKHOLDERS. WE HAVE ALREADY SUFFERED SIGNIFICANT DILUTION AND WE KNOW THAT IT WILL CONTINUE. Each time we sell and issue stock, it dilutes the holdings of our existing stockholders. Since 1989, and through December 2000, we, along with Diasense, have raised over $166,000,000 in private and public offerings. We have already issued over 1.3 billion shares of stock and we plan to issue more, since that's the only way we can survive until - and if - our product sales can support our operations. Dilution occurs when more shares are issued to own the same company - it means that when we issue more stock, our previous stockholders own a smaller piece of our company than they did before the new shares were issued. When we sell stock, or we sell convertible securities like preferred stock or debentures, we have to issue more shares of stock upon the sale or the conversion. We plan to raise more money by selling more stock. You should know that your ownership in our company will continue to be diluted - significantly - each time we sell and issue more stock. For example, this chart shows the money we've raised by selling stock and other securities, like debentures, during the last three years, along with the total number of shares outstanding at the end of each year: YEAR FUNDS RAISED NUMBER OF SHARES OUTSTANDING AT YEAR END 1998 $10,720,000 420,773,568 1999 $30,730,000 956,100,496 2000 $29,900,000 1,383,704,167 You can see that, as we raise more money, the total number of our shares outstanding increases dramatically. As long as we continue to raise money by selling stock - and that is our intention - this dilution will continue. WHEN WE ISSUE CONVERTIBLE SECURITIES LIKE OUR DEBENTURES, THE NUMBER OF SHARES WE ISSUE UPON CONVERSION IS SIGNIFICANTLY DISCOUNTED FROM THE MARKET PRICE. One way we raise money is by selling convertible securities, like convertible debentures. Our convertible securities have no minimum conversion price, so if our stock price is low when they are converted, we have to issue more stock than if our stock price was higher. Sometimes, our stock price is rising, so that when the securities are converted, the market price is higher than when we sold the securities - but if our stock price falls, the conversion price is lower than the stock price when we sold the securities. Our debentures have minimum holding periods of 90 days, and are convertible into our common stock at a 20% discount to our market price. The following table shows the total amount of our $10,655,659 debentures and examples of how many shares of stock we'd have to issue upon conversion depending on the discount and our stock's market price. Discount 5-day Number of Amount to Avg. Shares Market Market Conversion Issued Upon Price Price Price Conversion $10,655,659 20% $.20 $.16 66,597,869 $10,655,659 20% $.05 $.04 266,391,475 You should know that the lower our stock price, the more shares we have to issue to raise money, and the more shares we have to issue, the more diluted your ownership will become. BECAUSE WE HAVE SOLD CONVERTIBLE DEBENTURES, IT COULD HAVE A NEGATIVE IMPACT ON OUR STOCK PRICE. In addition to the dilution that occurs when we sell convertible securities and they're converted, those conversions can have other negative effects on our stock. If all of the debentures are converted at the same time, the supply of stock for sale would increase dramatically. Without a corresponding increase in the demand for our stock, our stock price would fall. As the table in the previous risk factor also illustrates, the lower the price, the more shares we have to issue upon conversions. There is no limit on the number of shares to be issued for conversions of the debentures. Several factors - the timing of conversions; the downward pressure on our stock price; and the additional number of shares needed for conversions with no limit, could separately or in combination cause our stock price to fall significantly - and we don't have any control over them. If we have funds available, our only option might be to redeem some of the debentures, but we may not be able to do so, or we might not be able to redeem enough in time to make a difference. OUR COMPANY AND ITS AFFILIATES ARE SUBJECT TO CONFLICTS OF INTEREST. Fred E. Cooper, Anthony J. Feola, Glenn Keeling and Michael P. Thompson are employed by BICO, and are also officers and/or directors of our affiliates and subsidiaries, Diasense, Inc., Petrol Rem, Inc. and ViaCirQ, Inc. These people are subject to competing demands and may face conflicts of interest. The good faith and integrity of these members of management is of utmost importance to our business and operations. BICO owns 52% of Diasense; 75% of Petrol Rem and 99% of ViaCirQ. All of those officers own stock or warrants in Diasense, Petrol Rem, or ViaCirQ: Diasense - Mr. Cooper owns 22,000 shares of stock and warrants to purchase 1,680,045 shares at $.50 to $1 per share; Mr. Feola owns 20,000 shares of stock and warrants to purchase 1 million shares at $.50 per share; and Mr. Keeling owns 100,000 shares of stock and warrants to purchase 300,000 shares at $.50 per share. Petrol Rem - Mssrs. Cooper and Feola own warrants to purchase 1 million shares of stock at $.10 per share; Mr. Keeling owns warrants to purchase 500,000 shares of stock at $.10 per share; and Mr. Thompson owns warrants to purchase 200,000 shares at $.10 per share. ViaCirQ - Mr. Cooper owns warrants to purchase 1,250,000 shares of stock at $.10 per share; Mr. Feola owns warrants to purchase 750,000 shares of stock at $.10 per share; Mr. Keeling owns warrants to purchase 1,200,000 shares of stock at $.10 per share; and Mr. Thompson owns warrants to purchase 100,000 shares at $.10 per share. Conflicts of interest could arise if one or more of our officers act in a way that benefits them and hurts BICO or another one of our subsidiaries. To protect ourselves, we require that any action that benefits any individual executive officer or director of any of our companies has to be approved by a majority of the disinterested directors. We also make sure that each of our boards of directors includes outside directors - people who are not employees - and those outside directors must approve any action that might present a conflict. For example, if BICO issues warrants or loans money to Mssrs. Cooper, Feola or Keeling, who are BICO directors, BICO's other disinterested directors, including the outside directors, must approve the warrants or loans first. The same policy applies to Diasense, Petrol Rem and ViaCirQ. We believe this policy helps avoid conflicts that could hurt us. WE DEPEND ON OUR KEY OFFICERS, AND WE WOULD SUFFER IF THEY LEFT. We are dependent upon our key officers, Fred E. Cooper, our CEO, Anthony J. Feola, our COO, and Glenn Keeling, the CEO of ViaCirQ. We don't have key-man life insurance on any of our officers, and our business would suffer if they left for any reason. WE ARE DEPENDENT UPON EMPLOYEES AND INDEPENDENT CONTRACTORS WHO ARE DIFFICULT TO REPLACE. Because we are developing new technologies, devices and engineering methods, we depend on certain employees and independent contractors who may not devote their full-time efforts to our operations. We depend on some of our employees who have a specific expertise that is not common. We also need independent contractors to assist us in areas where our employees do not have the necessary expertise. If we lose the services of any of these employees or independent contractors and are unable to replace them, our business could suffer. WE SOMETIMES NEED SUPPLIERS AND PARTS THAT ARE DIFFICULT TO FIND. Our products involve designs that are new, and we often need to have component parts fabricated especially for our experimentation, testing and development. Suppliers for these parts are not always readily available, or available at all, so we have to create the parts in-house. This can result in delays in our development - so far, these delays have not been material - - but we cannot assure you that they won't be material in the future. If we are unable to obtain a supplier or create the necessary parts ourselves, we have to redesign the product, which also results in significant delays. Although we try to minimize our dependence on custom parts when we design products, unforeseeable problems can arise which negatively affect our operations. WE HAVE LIMITED COMMERCIAL MANUFACTURING EXPERIENCE, WHICH MAKES IT HARDER FOR US TO COMPETE WITH MORE EXPERIENCED MANUFACTURERS. We have a contractual duty to manufacture our medical devices. We have leased space, which has been modified, for our manufacturing needs, but our current management team has limited experience with large-scale commercial manufacturing. If we are not able to hire the right people, or to provide manufacturing expertise ourselves, we will not be able to successfully manufacture our biomedical devices, even if they are approved for sale in the U.S., or even if we are able to make sales. WE CANNOT SELL PRODUCTS WITHOUT GOVERNMENT APPROVAL. WE HAVE BEEN, AND CONTINUE TO BE, INVOLVED IN A LONG, EXPENSIVE GOVERNMENTAL APPROVAL PROCESS THAT WE MUST COMPLETE BEFORE WE CAN SELL OUR PRODUCTS. The Food and Drug Administration and other federal and state agencies control many of our products. FDA approval is necessary to market our biomedical products in the U.S. If we do not get approval, we cannot sell our products in the U.S. We are currently conducting clinical trials for our noninvasive glucose sensor - these trials will last approximately a year, and we hope to have FDA approval once the trials are completed and the results are submitted. We have suffered significant delays in the FDA approval in the past - those delays occurred for several reasons, including the following. The FDA did not give us a decision on the 510(k) Notification we submitted in 1994 until 1996. In 1996, after the FDA's panel refused to approve our submission, the FDA told us to make a different filing, on a PreMarket Approval Application - known as a PMA. Rather than immediately pursue the PMA, we decided to focus on getting certification to sell our sensor in Europe, which we completed in June 1998. We had serious cash flow problems in 1998, and it delayed all of our projects further. Late in 1998 and early 1999, we started the PMA process. We filed the first module of our PMA in May 1999 and the second module in May 2000. The FDA asked for more information in September 1999, and we responded. Then, in November 1999, the FDA asked for additional information. We finished compiling all that additional information, and in July 2000 we submitted an Investigational Device Exemption to the FDA that included the protocol for our clinical trials. An Investigational Device Exemption is a request to the FDA for approval to conduct clinical trials on a device that is not FDA-approved. Once the FDA approved the protocol for our clinical trials, those trials began in 2000. Once we complete our clinical trials, we will submit the data to the FDA. We are working with outside biomedical consultants to help us obtain FDA approval following these clinical trials; however, we cannot assure you when or if that will happen. IF WE ARE HIT WITH PRODUCT LIABILITY CLAIMS THAT EXCEED OUR INSURANCE, WE WILL HAVE TO PAY THE EXCESS. We don't have any current product liability claims against us, but we are engaged in activities that involve testing and selling biomedical devices. These kinds of activities expose us to product liability claims. We currently have $1,000,000 in product liability insurance. If a claim against us is successful and exceeds that amount, we could be liable for the balance. RISKS RELATED TO THIS OFFERING OUR COMMON STOCK MAY BE VOLATILE, WE DO NOT TRADE ON AN ESTABLISHED STOCK EXCHANGE, AND YOU MAY NOT BE ABLE TO SELL YOUR STOCK AT OR ABOVE YOUR PURCHASE PRICE. Our stock currently trades on the electronic bulletin board, which is not a formal stock exchange. As a result, it may be more difficult to obtain trading information than if our stock still traded on the Nasdaq. Because our stock price did not meet the Nasdaq Small-Cap market requirements implemented in 1998, we were delisted and we're no longer able to trade there. Although we have maintained acceptable trading volume since we left Nasdaq, we cannot assure you that our trading volume will continue. As a result, you may be unable to sell your stock when you want to sell it. In addition, our stock price has fluctuated significantly, and you may not be able to sell your stock at or above your purchase price when you are ready to sell. OUR STOCK IS CONSIDERED PENNY STOCK, SO IT'S SUBJECT TO REGULATIONS THAT COULD MAKE IT MORE DIFFICULT FOR YOU TO SELL YOUR STOCK. Our stock is considered penny stock because of its low price. The penny stock low-priced securities regulations could affect the way you sell your stock, and the way our stock is sold. These regulations require broker-dealers to disclose the risk associated with buying penny stocks and to disclose their compensation for selling the stock. The regulations may have the effect of discouraging brokers from trading our stock. For example, brokers selling our stock have to obtain a written agreement from the purchaser and determine that our stock is a suitable investment for that purchaser. Many brokers will not want to bother with those requirements, so they won't sell our stock, and that could reduce the level of trading activity, making it more difficult for you to sell your stock. THE VOLATILITY OF OUR COMMON STOCK COULD EXPOSE US TO SECURITIES LITIGATION. In the past, following periods of volatility in the market price of a company's securities, securities class action suits have been filed. Due to the historic volatility of our common stock, we may be particularly susceptible to this kind of litigation. If it were to happen to us, the litigation would be expensive and would divert our management's attention from business operations. Any litigation that resulted in a finding of liability against us would adversely affect our business, prospects and financial condition, along with the price of our stock. We have already been the subject of one class action lawsuit, which was filed in 1996. We settled that lawsuit in 2000 for a total of $3,450,000. INVESTORS WILL INCUR IMMEDIATE DILUTION. The price of our stock in this offering will be significantly higher than its book value per share. If you buy our stock in this offering, you will suffer an immediate and substantial dilution in the net tangible book value per share from the price you pay for the stock. We also have a large number of outstanding warrants to purchase our common stock with prices below the estimated offering price of our stock. To the extent those warrants are exercised, additional dilution will occur. THE WAY WE SELL AND ISSUE STOCK COULD HAVE AN ANTI-TAKEOVER EFFECT. We sold convertible debentures and we intend to continue to sell stock to raise money to fund our operations. When we issue those additional shares of common stock, either from conversions of debentures, or from sales of stock, the stock could be used to oppose or delay a hostile takeover attempt or delay or prevent changes in control or in our management. For example, without further stockholder approval, our board of directors could strategically sell stock to purchasers who would oppose a takeover or a change in our management. Although our sales of stock are based on our business and financial needs, and not on the threat of a takeover, you should be aware that it could have an anti-takeover effect. We are not aware of any takeover attempts, but if a takeover was proposed, it could mean you might be offered a premium for your stock over the market price - but the way we issue and sell our stock could discourage a takeover attempt. WHERE YOU CAN FIND MORE INFORMATION The securities laws require us to file reports and other information. All of our reports can be reviewed at the SEC's web site, at www.sec.gov through the SEC's EDGAR database. You can also review and copy any report we file with the SEC at the SEC's Public Reference Room, which is located at 450 Fifth Street, N.W., Washington, D.C., or at the SEC's regional offices, including the ones located at 601 Walnut Street, Curtis Center, Suite 1005E, Philadelphia, PA 19106-3432; and 75 Park Place, New York, NY. You can also order copies for a fee from the SEC's Public Reference section, at 450 Fifth Street, N.W. Washington, D.C. 20549. Our stock trades on the electronic bulletin board. We will send you a copy of our SEC filings if you ask for them. If you want to receive copies, please contact our Shareholder Relations department at: Shareholder Relations Department, BICO, Inc., 2275 Swallow Hill Road, Building 2500, 2nd Floor, Pittsburgh, PA 15220, by telephone at 412-429-0673 or by fax at 412-279-1367. Until 90 days after the effective date of this prospectus, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. USE OF PROCEEDS We will not receive any proceeds from this offering. We are registering our common stock on behalf of the selling stockholders, who bought our convertible debentures. If and when the debenture holders sell their stock, they will receive the proceeds. DIVIDEND POLICY We have not paid cash dividends on our common stock or our preferred stock, with the exception of 1983, since our inception, and cash dividends are not presently contemplated at any time in the foreseeable future. In accordance with our Articles of Incorporation, cash dividends are restricted under certain circumstances. CAPITALIZATION The following table sets forth our capitalization as of December 31, 1999 and 2000, and is made up of the figures taken from our audited financial statements, which are included in this prospectus and included a qualification regarding our ability to continue as a going concern. December 31, 1999 December 31, 2000 (1) (1) Stockholders' Equity Common Stock, par value $.10 per share; authorized 1,700,000,000 shares; shares issued and $95,610,050 $138,370,417 outstanding: 956,100,496 at December 31, 1999 and 1,383,704,167 at December 31, 2000 Series F 4% convertible preferred stock, par value $10 per share, issued and 720,000 0 outstanding 72,000 at December 31,1999 and none at December 31, 2000 Additional paid-in 85,608,192 87,035,096 capital Warrants 6,791,161 6,204,235 Accumulated Deficit (181,174,458) (223,720,761) Total Capitalization $ 7,554,945 $ 7,888,987 December 31, 1999 December 31, 2000 (1) Does not include the effects of the following: Outstanding Warrants to purchase common stock granted by the Company, at exercise prices ranging from $.05 to $4.03 per share, expiring 1999 through 2005. 29,896,662 31,378,160 MARKET PRICE FOR COMMON STOCK Our common stock trades on the electronic bulletin board under the symbol "BIKO". On March 21, 2001, the closing bid price for the common stock was $.074 per share. The following table sets forth the high and low bid prices for our common stock during the calendar periods indicated, through December 31, 2000. Because our stock trades on the electronic bulletin board, you should know that these stock price quotations reflect inter- dealer prices, without retail mark-up, markdown or commission, and they may not necessarily represent actual transactions. Calendar Year High Low and Quarter 1998 First Quarter $ .250 $ .0937 Second Quarter $ .1875 $ .0313 Third Quarter $ .359 $ .0313 Fourth Quarter $ .126 $ .049 1999 First Quarter $ .084 $ .049 Second Quarter $ .340 $ .048 Third Quarter $ .125 $ .070 Fourth Quarter $ .099 $ .050 2000 First Quarter $1.050 $.051 Second Quarter $.400 $.160 Third Quarter $.184 $.12 Fourth Quarter $.122 $.049 We have approximately 128,000 holders, including those who hold in street name, of our common stock, and no holders of our preferred stock. DESCRIPTION OF SECURITIES Our authorized capital currently consists of 1,700,000,000 shares of common stock, par value $.10 per share and 500,000 shares of cumulative preferred stock, par value $10.00 per share. In May 2001, we will have a shareholders meeting and will ask the shareholders to approve an increase of our authorized common stock to 2,500,000,000 shares. Preferred Stock Our Articles of Incorporation authorize the issuance of a maximum of 500,000 shares of cumulative convertible preferred stock, and authorize our board of directors to define the terms of each series of preferred stock. In December 1999, our board of directors authorized the creation of a Series F convertible preferred stock. As of December 31, 2000, all of the shares of that Series F preferred stock had been converted to common stock, and we had zero shares of preferred stock outstanding. Common Stock Holders of our common stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of stockholders. Holders of our common stock do not have cumulative voting rights, and therefore the holders of a majority of the shares of common stock voting for the election of directors may elect all of the directors, and the holders of the remaining common stock would not be able to elect any of the directors. Subject to preferences that may be applicable to the holders of our preferred stock, if any, the holders of our common stock are entitled to receive dividends that may be declared by our board of directors. In the event of a liquidation, dissolution or winding up of our operations, whether voluntary or involuntary, and subject to the rights of any preferred stockholders, the holders of our common stock would be entitled to receive, on a pro rata basis, all of our remaining assets available for distribution to our stockholders. The holders of our common stock have no preemptive, redemption, conversion or subscription rights. All of our outstanding shares of common stock are, and the shares of common stock to be sold in this offering will be, fully paid and nonassessable. As of December 31, 2000 and March 29, 2001, there were 1,383,704,167 shares of our common stock outstanding. Dividends We have not paid cash dividends on our common stock, with the exception of 1983, since our inception. We do not anticipate paying any dividends at any time in the foreseeable future. We expect to use any excess funds generated from our operations for working capital and to continue to fund our various projects. Our Articles of Incorporation restrict our ability to pay cash dividends under certain circumstances. For example, our board can only declare dividends subject to any prior right of our preferred stockholders to receive any accrued but unpaid dividends. In addition, our board can only declare a dividend to our common stockholders from net assets that exceed any liquidation preference on any outstanding preferred stock. Subordinated Convertible Debentures Beginning in December 2000, we issued subordinated convertible debentures that have a one-year term and are due in 2001 and 2002. The debentures earn interest at 4% and are convertible into shares of common stock. As of December 31, 2000 and March 29, 2001, we had $2,400,000 and $10,655,659 in subordinated debentures outstanding, respectively. Our debentures are not secured by any of our assets, and are subordinate to our corporate debt, except for related-party debt. The debentures are convertible beginning 90 days from issuance. Our debentures can be converted to our common stock at a price that is determined by computing 80% of the average closing bid price for the four days prior to and the day of conversion - or a 20% discount to a five-day average trading price. There is no minimum conversion price, so the lower the bid price of our stock, the more shares we will need to issue when our debentures are converted - there is no limit on the number of shares of our common stock that our debentures can be converted into. This means that, if our stock price is low, the debenture holders could own a large percentage of our outstanding common stock - except that they have each agreed not to own more than 5% of our common stock at any one time. We can redeem our debentures. Some of the stock included in this prospectus is for our selling stockholders who purchased our subordinated convertible debentures. When they convert their debentures and get our common stock, they may want to sell it, and you need to carefully review this prospectus before you decide whether to buy it from them. Employment Agreement Provisions Related to Changes in Control We have employment agreements with Fred E. Cooper, Anthony J. Feola, Glenn Keeling, Michael P. Thompson and two non-executive officer employees. The agreements provide that in the event of a "change of control", we must: issue to Mr. Cooper shares of common stock equal to 5%; issue to Mr. Feola 4%; issue to Mr. Keeling 3%; and issue to Mr. Thompson and the two non-executive officer employees 2% each of our outstanding shares of common stock. For purposes of these agreements, a change of control is deemed to occur: when 20% or more of our outstanding voting stock is acquired by any person; or when 1/3 or more of our directors are not continuing directors, as defined in the agreements; or when a controlling influence over our management or policies is exercised by any person or by persons acting as a group within the meaning of the federal securities laws. Warrants As of December 31, 2000, we had outstanding warrants to purchase 31,378,160 shares of our common stock. These warrants have exercise prices ranging from $.06 to $3.20 per share and expiration dates through October 23, 2005, and are held by members of our scientific advisory board, certain employees, officers, directors, loan guarantors, and consultants. As of March 29, 2001, we had outstanding warrants to purchase 32,078,160 shares of our common stock. Holders of warrants are not entitled to vote, to receive dividends or to exercise any of the rights of the holders of shares of our common stock for any purpose until the warrant holder properly exercises the warrant and pays the exercise price. Transfer Agent Chase-Mellon Shareholder Services in New York, New York acts as our Registrar and Transfer Agent for our common stock. We act as our own registrar and transfer agent for our preferred stock and warrants. SELLING STOCKHOLDERS This prospectus covers the shares of common stock that may be offered by the selling stockholders set forth below. None of the selling stockholders have had a material relationship with us within the last three years, and they are not affiliated with us other than through their ownership interest in our debentures. Except as noted, none of the selling stockholders are affiliated with each other. Some stockholders listed are companies or investment funds, rather than individuals. Unless the investors who own those funds are numerous, we've listed the individual owners. We prepared the table below based on the information provided to us by the selling stockholders. You should know that, based on the agreements our selling stockholders signed when they bought our debentures, they are not permitted to own 5% or more of our stock. The selling stockholders bought our convertible debentures. We sold our convertible debentures from December 2000 through March 2001, and we received gross proceeds of $10,655,659 with net proceeds of $9,590,093 from our debenture sales. As of the date of our last financial statements, which was December 31, 2000, we hadn't yet used the proceeds from our debentures. We plan to use the proceeds to continue to fund our various projects and operations. We calculated the number of shares for each selling stockholder using a good faith estimate. We based our estimate on our recent stock price, as well as our historical prices. The number of shares for each selling stockholder includes shares we might issue to pay interest on their convertible securities. We can choose whether to pay their interest in stock or in cash. If our stock price stays at around $.07 where it has been trading for the past month or so, we will not need to issue as many shares as we've included; if our stock price goes down we may have to issue more. Any or all of the shares listed below may be offered for sale by the selling stockholders from time to time and, therefore, we can't give an estimate as to the number of shares that will be held by the selling stockholders when we terminate this offering. Unless we indicate otherwise, the selling stockholders listed in the table have sole voting and investment powers with respect to the shares indicated. The table lists the selling stockholders who own our convertible subordinated debentures, which are convertible beginning in March 2001, and are due beginning in December 2001. The last column shows the percentage of ownership of each individual or entity shown assuming all shares registered in this prospectus are sold, when compared to the total number of shares of our common stock outstanding as of December 31, 2000. An asterisk - * - indicates less than one percent. Selling Stockholders Number of Beneficial Beneficial Shares Ownership Ownership Offered Prior to Sale After Sale Rance Merkel 1,829,269 1,829,269 * William Murphy 3,658,537 3,658,537 * David Miller 1,219,512 1,219,512 * David Hungerford 3,414,634 3,414,634 * Timothy Borne 2,439,025 2,439,025 * Marvin Edoff 487,805 437,805 * Joanna M. Saporito 1,219,512 1,219,512 * Brian McNay 4,165,854 4,165,854 * John & Victoria Martin 1,219,512 1,219,512 * John Diesel 1,219,512 1,219,512 * George McDonnell 1,219,512 1,219,512 * Chien Chang 1,219,512 1,219,512 * Robert Oelkers 1,219,512 1,219,512 * Gordon Rausser 1,583,073 1,583,073 * James Ratliff 1,219,512 1,219,512 * Gerald H. Simpson 3,658,537 3,658,537 * Herbert Robbins 853,659 853,659 * Michael Durels 1,219,512 1,219,512 * Texas International 2,439,025 2,439,025 * Gary Anderson 1,219,512 1,219,512 * Viamax Trading Company 6,097,195 6,097,195 * Joseph J. Raymond 1,219,512 1,219,512 * Cornell Capital Partners 4,878,050 4,878,050 * Frank Collins 1,219,512 1,219,512 * Arab Commerce Bank 3,414,634 3,414,634 * Lufeng Corp. 731,707 731,707 * Mary Ellen Misiak 2,439,025 2,439,025 * John Boyle 609,756 609,756 * Paul Welch 1,219,512 1,219,512 * Herbert Robbins 365,855 365,855 * Guardian Commercial, 4,878,050 4,878,050 * owned by Ryan O'Neill GPS America Fund, Ltd. 12,195,125 12,195,125 * Markham Holdings 3,657,756 3,657,756 * Howard Weiss 4,878,050 4,878,050 * Cache Capital 49,860,113 49,860,113 * Mercaz Revaj 2,439,025 2,439,025 * Zelman Fishmen 2,439,025 2,439,025 * Yorkland Investment 4,878,050 4,878,050 * Briencrest Avenue LLC 83,000,000 83,000,000 * Mendy Chmuel 4,878,050 4,878,050 * Jara Group, owned by 1,219,512 1,219,512 * Michael and Rose Koretsky (1) Michael Koretsky (1) 1,219,512 1,219,512 * Ted Liebowitz 12,195,125 12,195,125 * Leon Kahn 609,756 609,756 * Kador Investment, 1,219,512 1,219,512 * owned by Gerald Selbst Mark Garfunkkel 975,610 975,610 * Joseph McGuire 2,439,025 2,439,025 * Yosef Davis 2,439,025 2,439,025 * Claire Brook 2,439,025 2,439,025 * Starling Corporation 2,439,025 2,439,025 * Jacqueline Balough 609,756 609,756 * Mantle Int'l Investment 12,195,125 12,195,125 * Clearview Int'l Investment 12,195,125 12,195,125 * (1) These selling stockholders are affiliated with each other through their ownership in entities other than us. The following table shows, for our convertible debentures, certain information that might be helpful in making your investment decision. We listed the investments in chronological order. As you can see, none of the debentures have been converted so far. The stock price listed is the closing bid price of our stock on the date listed. When we use a range of dates, we computed the stock price based on the average closing bid price for each day in the range. The most current information in the table is as of March 26, 2001, when our closing bid price was $.07. Type and Amount Number of Issue Stock Number of Number of amount of Converted Shares Date Price on Shares if Shares if Investment Through Issued on Issue Converted Converted 3/26/01 Conversion Date/ on on Range Issue Date March 26,2001 Debentures - 0 0 12/20/00 $.048 62,500,000 42,857,143 $2,400,000 Debentures - 0 0 1/25/01- $.116 24,845,970 41,173,321 $2,305,706 2/2/01 Debentures - 0 0 2/5/01- $.095 22,828,329 30,981,304 $1,734,953 2/22/01 Debentures - 0 0 2/26/01- $.900 51,031,746 57,410,714 $3,215,000 3/6/01 Debentures - 0 0 3/26/01 $.07 17,857,143 17,857,143 $1,000,000 You should review our risk factors that begin "When we sell our stock or convertible securities like our debentures, it dilutes our existing stockholders."; "When we issue convertible securities like our debentures, the number of shares we issue upon conversion is significantly discounted from the market price"; and "Because we have sold convertible debentures, it could have a negative impact on our stock price" on pages 7-8 for related information. PLAN OF DISTRIBUTION The shares of stock in this prospectus will be sold by the Selling Stockholders, and will not be underwritten. They may sell the shares of common stock from time to time in one or more transactions. The offering price will fluctuate with the market price for our stock, so they will sell the stock at various prices. They may sell this stock directly, or they may hire brokers or other licensed agents to sell it for them, in which case the selling stockholder will give those brokers or agents some consideration, which could take the form of a commission or other payment. Selling stockholders and any broker-dealers participating in the sale of our stock may be considered underwriters within the meaning of section 2(11) of the Securities Act of 1933. Particularly if they act as principals, any commissions or profits received by broker-dealers or selling stockholders from the sale of our stock may be considered underwriting compensation under the Securities Act. If anyone who participates in this offering is deemed to be an underwriter, then any consideration received may be deemed to be underwriting discounts or commissions under the federal securities laws. If any selling stockholder makes a particular offer that triggers certain securities law filing requirements, they have an obligation to tell us, and we will file a supplement to this prospectus that sets forth the number of shares being offered and the terms of the offering, including the name or names of any underwriters, dealers, brokers or agents, the purchase price paid by any underwriter for the shares and any discounts, commissions or concessions allowed or reallowed to dealers, including the proposed selling price to the public. In order to comply with the securities laws of certain jurisdictions, the selling stockholders may be required to sell stock only through registered or licensed brokers or dealers. In addition, they may not be able to sell any stock in certain states unless we register the stock in those states on their behalf or otherwise comply with applicable state securities laws by exemption, qualification or otherwise. STOCK ELIGIBLE FOR FUTURE SALE As long as this registration statement remains effective with the SEC and we remain current in our SEC filings, the stock will be freely transferable without restriction or further registration unless they are acquired by one of our affiliates. Affiliates generally include our officers and directors and any other person or entity that controls, is controlled by, or is under common control of BICO. Any affiliates who acquire stock from this offering will continue to be subject to the volume restrictions of Rule 144, as we describe below. In general, under Rule 144 as currently in effect, our affiliates and any person, or persons whose stock is aggregated, who has beneficially owned restricted stock for at least two years would be entitled to sell within any three-month period a number of shares of stock which does not exceed the greater of: 1% of the then outstanding shares of our common stock; or the average weekly trading volume of our common stock during the four calendar weeks preceding such sale. Rule 144 also requires those sales to be placed through a broker or with a market maker on an unsolicited basis and requires that there be adequate current public information available concerning our company. A person who is deemed not to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned restricted stock for at least one year, would be entitled to sell the stock under Rule 144(k) without regard to any of the limitations discussed above. Restricted stock properly sold in reliance on Rule 144 is thereafter freely tradable without restriction or registration, unless the stock is later held by an affiliate. We can't make any predictions as to the effect that sales of our common stock or the availability of stock for sale will have on the market price of our common stock. Nevertheless, sales of any substantial amounts of common stock in the public market will probably adversely affect the prevailing market price. SELECTED FINANCIAL DATA YEARS ENDED DECEMBER 31st 2000 1999 1998 1997 1996 Total Assets$21,930,070 $15,685,836 $9,835,569 $12,981,300 $14,543,991 Long-Term Obligations $ 2,211,537 $ 1,338,387 $1,412,880 $ 2,697,099 $ 2,669,727 Working Capital $ 754,368 $ 4,592,935 ($9,899,008) $ 888,082 $ 1,785,576 Preferred Stock $ 0 $ 720,000 $ 0 $ 0 $ 0 Net Sales $ 340,327 $ 112,354 $1,145,968 $ 1,155,907 $ 597,592 TOTAL REVENUES $ 345,874 $ 165,251 $1,196,180 $1,260,157 $ 600,249 Other Income $ 589,529 $ 1,031,560 $ 182,033 $ 165,977 $ 176,478 Warrant Extensions $ 5,233,529 $ 4,669,483 $ 0 $4,046,875 $ 9,175,375 Benefit (Provision) for Income $ 0 $ 0 $ 0 $ 0 $ 0 Taxes Net Loss ($42,546,303)($38,072,578)($22,402,644)($30,433,177)($24,045,702) Net Loss Per Common Share: Basic ($.04) ($.05) ($.08) ($.43) ($.57) Diluted ($.04) ($.05) ($.08) ($.43) ($.57) Cash Dividends Per Share: Preferred $ 0 $ 0 $ 0 $ 0 $ 0 Common $ 0 $ 0 $ 0 $ 0 $ 0 MANAGEMENT'S DISCUSSION AND ANALYSIS The following is a summary of the more detailed information in our financial statements. You should carefully review those financial statements before you decide whether to invest in our stock. Forward-Looking Statements This section contains forward-looking statements. We discussed these kinds of statements on page 26, and you should review that section. Liquidity and Capital Resources Our working capital was $754,368 at December 31, 2000 as compared to $4,592,935 at December 31, 1999 and as compared to a working capital deficiency of ($9,899,008) at December 31, 1998. Working Capital fluctuations occur primarily because we raise different amounts of money from year to year. We raised approximately $29,900,000 in 2000, $30,816,000 in 1999, and $10,720,000 in 1998. Accounts receivable increased to $400,950 at December 31, 2000 from $27,263 at December 31, 1999 and $55,950 at December 31, 1998 primarily from our acquisition of INTCO. Changes in net inventory and accounts payable also affect working capital - our net inventory increased to $805,224 as of December 31, 2000 from $10,308 as of December 31, 1999 and $74,515 as of December 31, 1998 because inventory previously provided for in our valuation allowance was disposed of and replaced with inventory currently being used to manufacture our noninvasive glucose sensors as well as our hyperthermia systems. Our accounts payable decreased from $1,750,188 at December 31, 1998 to $759,733 at December 31, 1999 to $578,520 at December 31, 2000. The $1 million decrease from 1998 to 1999 occurred because our cash flow problems in 1998 were corrected in 1999, and the decrease from 1999 to 2000 was due to payments in the ordinary course of business. Accrued liabilities increased at December 31, 2000 primarily because of the $1.3 million class action settlement payment due to be paid in 2001. Our cash decreased to $7,844,807 as of December 31, 2000 from $10,827,631 as of December 31, 1999. The decrease was partially due to different amounts generated from sales of our securities. In 2000, our securities sales included: approximately $18.6 million from our public offering of common stock; approximately $4.3 million from sales of our Series F preferred stock; $6.4 million from sales of our subordinated convertible debentures, after redemptions; and approximately $616,000 from warrants exercised. Our Series F convertible preferred stock, which was all converted to common stock during 2000, was not secured by any of our assets, and was convertible by its holders beginning 120 days from when it was issued. Our subordinated convertible debentures are not secured by any assets, and are subordinate to our corporate debt, except for debt to any related parties. Our debentures are convertible beginning 90 days from when we issue them. They can be converted to common stock at a price that is determined by computing 80% of the average closing bid price for the four days prior to and the day of conversion - or a 20% discount to a five-day average trading price. There is no minimum conversion price. We sold convertible debentures at different times during 2000. All of the debentures issued during the first quarter of 2000 were converted. We also sold convertible debentures beginning in December 2000, and those $2,400,000 in debentures are still outstanding. During 2000, 1999 and 1998, our cash flows used by operating activities totaled $26,681,873; $18,411,002; and $11,855,294, respectively. During 1998, those activities included a $ .8 million increase in inventory reserves. During 1998, we spent cash and other resources when we purchased a majority interest in a metal-coating company. Because that investment did not perform as we anticipated, we had to write down assets, including goodwill, in 1999. In addition, we recorded an $11.2 million charge against operations due to warrant grants and extensions by our subsidiaries in 2000, with a similar charge of $5.9 million in 1999. During 2000, our net cash flow used by investing activities was $6,455,166, compared to $1,213,099 in 1999 due primarily to our investments in the following unconsolidated subsidiaries: Insight Data Link.com, Inc., American Inter-Metallics, Inc., MicroIslet, Inc., and Diabecore Medical, Inc., which we discuss in the following three paragraphs. During 2000, we made investments in unconsolidated subsidiaries. In January, we acquired a 25% interest in Insight Data Link.com, Inc. for $100,000. Insight is a start-up corporation with a software program and website business that acts as an Internet clearinghouse for the rental of shopping mall space. Insight also plans to develop additional software for related projects. We also invested an additional $285,000 in American Inter-Metallics, bringing our total investment in AIM's rocket propulsion project to $810,000, which represents a 16.2% ownership in AIM - we plan to invest additional funds to increase our total ownership to 20% during 2001. We made these investments because our management believes they will generate revenue. Our subsidiary, Diasense, Inc. also made investments in unconsolidated subsidiaries. In January 2000, Diasense initiated an alliance with MicroIslet, Inc.; in return for its initial equity investment of $500,000, Diasense received a 10% stake with an option to purchase an additional 10% in the future. As of December 31, 2000, Diasense had invested a total of $1,000,000 in MicroIslet, and owned 15% - Diasensor plans to invest additional funds during 2001 to increase its ownership to 20%. MicroIslet is developing several diabetes research technologies with Duke University that focus on optimizing microencapsulated islets for transplantation. The project is in the research and development phase. Diasense also invested in Diabecore Medical, Inc. Diabecore is a company in Toronto working with other research institutions to develop a new insulin to treat diabetes. During 2000, Diasense invested $693,520 in Diabecore and received a 20.8% ownership interest. This project is also in the research and development phase. Diasense made these investments because management believes that these diabetes research organizations and the institutions they affiliate with will bring strength and support to our own diabetes research and development projects. As a result of those investments in Insight Data Link.com, American Inter-Metallics, MicroIslet and Diabecore Medical, our overall investment in unconsolidated subsidiaries increased from $485,284 as of December 31, 1999 to $2,061,439 at December 31, 2000. The money we spent investing in those four companies came from stock and debenture sales during 1999 and 2000. All the investments were our initial investments in those companies, except American-Inter-Metallics. We invested a total of $810,000 in American Inter-Metallics, a company that is developing products designed to enhance rocket propulsion performance. We carry the AIM investment on our balance sheet as a $663,916 investment in an unconsolidated subsidiary. The difference between the actual investment and the balance sheet amount is due to certain accounting rules known as the equity basis of reporting. Our investing activities also included the acquisition of additional property, plant and equipment in connection with the expansion of our manufacturing facilities and advances made under a line of credit by Petrol Rem to a company involved in the acquisition of other environmental companies. In connection with this line of credit, current - short-term - notes receivable increased by $1,726,363. Our other assets increased from $710,619 at year-end 1999 to $3,119,167 at the end of 2000. Approximately $200,000 of that increase was due to a 1999 short-term note that was reclassified as a long-term note in 2000; approximately $700,000 was from an increase in goodwill related to our investments in our subsidiaries; and the balance was primarily due to our increased investments in unconsolidated subsidiaries. During 2000, we converted loans totaling $55,256 to B-A-Champ.com, to an equity interest in that company; we also invested an additional $400,000, and we now own 51% and Fred E. Cooper, our CEO, owns 30%. Related party receivables decreased by about $316,000 during 2000 due to scheduled repayments on related party debt. Our current liabilities increased by $4.6 million from 1999 to 2000, from $6,792,504 as of December 31, 1999 to $11,394,556 as of December 31, 2000. The increase was primarily due to $2.4 million in debentures payable that we sold in December 2000, and a $1 million increase in our current portion of long-term debt; we also accrued $1.3 million for the remaining payments left on our class action settlement. We incurred debentures payable of $2.4 million because we sold convertible subordinated debentures during 2000 to raise capital to fund operations. Accrued liabilities increased to $3,131,765 from $1,794,370 due to a $440,000 increase in accrued interest, a $653,000 decrease in accrued payroll, and a $1,529,000 increase in other accrued liabilities, which included the $1,300,000 balance due in July 2001 for our class action settlement. We continued to fund operations mostly by selling our securities. During 2000, we raised approximately $29,900,000, including $4,275,000 from sales of preferred stock; $6,400,000 from sales of convertible debentures, and $18,604,650 from sales of stock in our public offering. During 1999, we raised approximately $30,816,000 from the sales of securities, including $810,000 from sales of our Series F preferred stock. During 1998 and 1999 we issued $10,720,000 and $29,020,000, respectively, of our subordinated convertible debentures. All of our debentures have one-year terms, minimum holding periods prior to conversion and mandatory conversion provisions. When those debentures were converted, we issued 280,134,590; 515,013,737; and 56,679,610 shares of stock, respectively during 1998, 1999 and 2000. During 1999 and 2000, we redeemed $4,130,000 and $5,850,000 in debentures - we still had the money from selling the debentures, and we used some to buy some debentures back so we wouldn't have to issue more stock. As of December 31, 1998 and 2000, the conversion price of our outstanding debentures would have been approximately $.059 and $.0421 per share, respectively, based upon a formula that applies a discount to the average market price for the previous week and determined by the length of the holding period. As of December 31, 1998 and 2000, the number of shares to be issued upon conversion of all outstanding debentures was approximately 60.1 million and 57 million shares, respectively, which would have reflected discounts of approximately 23% and 20%, respectively. No debentures were outstanding as of December 31, 1999. Due to our current limited sources of revenue, we will have to find additional financing that we'll use to finance development of, and to proceed to manufacture, our noninvasive glucose sensor and to complete the development of our other projects. We can't assure you that we'll be able to find that additional financing. Our products are at various stages of development and we'll need more money to complete them. We may decide to discontinue any of our projects at any time if research and development efforts dictate that's the best thing to do. We currently have commitments for capital leases on certain equipment and we'll have to commit to other capital leases so we can continue to develop and manufacture our products. Our financial statements contain a going concern opinion from our auditors. Our auditors issued that opinion because we have a history of losses and no revenue to support our operations. We get money to fund our operations by selling securities - and we don't know if we'll be able to continue to raise enough money that way. Because we're not sure - and our auditors are not sure - how long we can continue, our financial statements include the auditor's opinion that we may not be able to continue operating as a going concern. As of February 2001, we estimate that between the money we have and the money we can raise by selling stock, we'll be able to continue operations for at least a year, including continuing the research and development of our noninvasive glucose sensor, completion of the FDA approval process and marketing and manufacturing the device. We have a history of successful capital-raising efforts; since 1989, and through December 2000, we, along with Diasense, have raised over $166,000,000 in private and public offerings alone. In prior years, we met a portion of our short-term working capital needs through development contracts with other organizations and through manufacturing for other companies on a contractual basis. During 1997 and 1998, we received contracts by the Department of Veteran's Affairs Medical Center for Case Western Reserve University, Shriners Hospital - Philadelphia Unit, and Austin Hospital to manufacture FES products. Functional electrical stimulators, known as FES products, are implanted under the skin of patients who are disabled as a result of spinal cord injury, stroke, head injury or other neurological disorder. The FES uses low levels of electrical stimulation to activate nerves and muscles to assist the patient with grasping, arm movement or standing. Those contracts generated revenues of $584,026 in 1998. During 1998, the other parties canceled the orders and those contracts. As a result, we terminated FES project activities for the present, and we don't anticipate any additional material revenue from those activities in the future. Given our expenses and the other factors we discussed, as compared to our sources of funds, we estimate that we will be able to meet our funding needs for at least a year from December 31, 2000. We make that estimate based in part because we are not aware of any extraordinary technological, regulatory or legal problems. If any of those problems, which could include unanticipated delays resulting from new developmental hurdles in product development, FDA requirements, or the loss of a key employee, arise, we would have to reevaluate our position. We can't assure you that, despite our good-faith efforts, our estimates will be correct. We think that our long-term liquidity needs will include working capital to fund manufacturing expenses for our products and continued research and development expenses for existing and future projects. If our projects are delayed, we will need more money. We believe we will be able to continue selling our stock and other securities in order to raise funds, but we can't assure you we will be successful. If we can't raise enough money to fund our projects and operations, we will not be able to continue. We don't have any other sources of funds, such as bank lines of credit. We believe that, at some point, we will be able to sell our products to generate revenue, but we can't assure you when, or if, that will happen. Results of Operations The following seven paragraphs discuss the Results of Operations of our entire company based on our consolidated financial statements. We discuss our business segments at the end of this section. Our sales and corresponding costs of products sold during the last year increased to $340,327 and $354,511, respectively in 2000 from $112,354 and $147,971 in 1999 and $1,145,968 and $587,821 in 1998. The changes from year to year were due to fluctuations in sales of our various products. Our costs increased and decreased due to our overall increase and decrease in sales. The increase from 1999 to 2000 was due primarily to an increase in sales: a $191,000 increase in bioremediation sales and initial sales of our ThermoChem system. The decrease from 1998 to 1999 was primarily due to the loss of our FES contracts. We had sales of the Diasensor totaling $427,603 in 1998; $47,500 in 1999, and none in 2000, because we haven't been able to successfully sell the device in Europe. We're not sure why we were only able to sell a few sensors in 1999, and none in 2000. We've hired marketing consultants to help us figure out why, and to help us learn how to sell more. During 1998, 1999 and 2000, sales of $16,855; $31,060; and $20,068, respectively, were from sales of our theraPORT, an implantable device used by patients who have to have repeated injections of drugs. The theraPORT is implanted in the patient's chest, and provides a fixed port for catheters used to deliver the drugs the patient needs. Those sales increased because we were able to convince more doctors to use the product in 2000 than we were in 1999. We had minor sales totaling $3,496 and $2,028 of other biomedical products, primarily leftover parts from previous models of the Diasensor, during 1999, and 2000. Our other product sales increased. Bioremediation product sales totaled $45,382 in 1998 and $26,693 during 1999, with an increase to $217,722 during 2000. We also had sales of our metal-coating products beginning in 1999 of $3,605, which increased to $40,593 in 2000. The increase was due to repeat customers who sent us more work once they were satisfied with our earlier performance. Until we have significant sales, we can't predict any trends for future revenues. We had sales of $69,605 from our ThermoChem hyperthermia system for the first time in 2000. In 2000, 1999 and 1998, we received interest income in the amount of $589,529; $1,031,560; and $182,033 respectively. The fluctuations are due to the varying amounts of money - which came mostly from our securities sales - we had to invest. Our other income decreased to $5,547 in 2000 as compared to $52,897 in 1999 and $50,212 in 1998. The decrease was due to the loss of rental income. Research and Development expenses during 2000 increased to $6,651,471 from $4,430,819 in 1999, a decrease from $6,340,676 in 1998. The increase from 1999 to 2000 was due to increased spending on our noninvasive glucose sensor project, and our hyperthermia project, made possible due to the availability of additional funds. We used those additional funds to replace scientists and engineers who left during 1998 when we had serious cash flow problems, and to work on future versions of the noninvasive glucose sensor. We also hired new personnel to work on ViaCirQ's hyperthermia project following the FDA approval in January 2000. Selling, General and Administrative expenses increased to $21,407,472 in 2000 from $12,884,237 in 1999 and $10,673,265 in 1998. The increase from 1999 to 2000 was primarily due to the following factors: a $4.9 million increase in warrants granted by BICO and our subsidiaries; a $1.27 million increase in salaries; a $2.4 million decrease in commissions paid on our securities sales; a $1.16 million increase in legal fees; a $1.2 million increase in consulting fees; and a $1 million expense to reflect a write-off of inventory we couldn't sell. The increase from 1998 to 1999 was due primarily to the following factors: a $1.6 million increase in salaries; a $2.2 million increase in commissions paid on our securities sales; an $800,000 increase in consulting fees; and a $700,000 charge in 1998 for ViaCirQ manufacturing rights that was not incurred in any other year. Beginning in 2000, we had a loss on unconsolidated subsidiaries of $158,183 that reflects our ownership share of the losses incurred by American Inter-Metallics, MicroIslet, Diabecore, and Insight Data Link. In 2000, we had an unusual item expense totaling $3,450,000 to settle our class action lawsuit. Even though we don't believe any violations of the securities laws occurred, we agreed to settle the lawsuit. We paid $2,150,000 in 2000, and an additional $1,300,000 payment is due in July 2001 - we also included that amount as an accrued liability on our balance sheet. During 1999, we reevaluated our investment in the metal- coating project and determined that an impairment charge of $5,060,951 was necessary in addition to a $39,716 write-down of goodwill. We recognized these charges because we determined we would not be able to recover our investment. We had no similar charges in 1998 or 2000. Beneficial conversion terms included in our convertible debentures are recognized as expense and credited to additional paid in capital at the time the associated debentures are issued. We recognized $3,062,500 of expense in connection with the issuance of our subordinated convertible debentures in 2000 compared to $7,228,296 in 1999 and $3,799,727 in 1998. The amount decreased primarily because we issued fewer debentures this year compared to last year. Similarly, we recognized a beneficial conversion feature for our preferred stock during 2000. During 2000, we issued 452,000 shares of our Series F preferred stock. The preferred stock was convertible into our common stock at a discount of 25% after 120 days. Based on accounting rules, the value of the beneficial conversion feature of the preferred stock is calculated as the difference between the market price and the discounted price for the corresponding common stock on the date the preferred stock was purchased. The total discount of $1,883,333 or $.17 per preferred share was recognized as a constructive dividend on our preferred stock during 2000. We charged the $1,883,333 to additional paid-in capital. We did not have any of these charges or constructive dividends during 1999 or 1998 because we had not yet issued our preferred stock. During 1999 our subsidiary, Diasense, extended warrants originally granted to certain officers, directors, employees and consultants. In addition, our subsidiary ViaCirQ also extended warrants in 2000. Because the exercise price of some of those warrants - $.25 to $3.50 for Diasense and $.10 for ViaCirQ - was lower than the market price of the common stock at the time of the extensions, $4,669,483 and $5,233,529 were charged to operations during 1999 and 2000, respectively. For more detailed information, you should read Note L to our financial statements. Interest expense on our outstanding debt was $1,924,873 in 2000, compared to $1,373,404 in 1999 and $481,025 in 1998. The increase was due to an increase in capital leases and interest payments on our subordinated debentures. In 2000, unrelated investors' interest in net loss of subsidiary increased to $280,997 from $24,164 in 1999, a decrease from $1,385,485 in 1998. Unrelated investors' interest is an entry on our statement of operations that is different from income or expense entries. It represents the total amount of our subsidiaries' losses that is allocated to other owners. When our subsidiaries lose money, we, as majority owner, have to take a charge for our share of those losses, but we are allowed to deduct the portion of the losses that are allocated to the other owners - called the unrelated investors. This means that the entry for the unrelated investors' share of the losses actually decreases our total net loss, because it gives us credit for the part of the loss allocated to the unrelated investors. The significant decrease from 1998 to 1999 is due to the declining net worth of Diasense, our 52% owned subsidiary. In 1998, Diasense's losses were less than the interest of its unrelated investors. Therefore, those unrelated investors shared in the losses to the extent of their ownership - 48%, and we were able to deduct their share of the loss, which was ($1,385,485). In 1999, Diasense's losses were more than the interest of its unrelated investors, which was $24,164. Therefore, accounting rules require that we - as majority owner - take full responsibility for all of Diasense's 1999 losses that exceeded that $24,164, and only deduct that small amount from our losses. There was no unrelated investors' interest in the net loss of Diasense in 2000 due to the continued decline in the net worth of Diasense. The increase from 1999 to 2000 is primarily due to the increased net worth of ViaCirQ, our 99%-owned subsidiary. In 1999 and 1998, ViaCirQ's losses exceeded the interest of unrelated investors and we - as majority owner - were required to take full responsibility for ViaCirQ's losses. In 2000, ViaCirQ's net worth increased due to the conversion of debt to common stock. ViaCirQ's losses were less than the interest of its unrelated investors and those unrelated investors shared in the losses to the extent of their ownership of 1%. Therefore, we were able to deduct their share of ViaCirQ's loss, which was ($146,708). Our acquisitions also contributed to the increase from 1999 to 2000. Petrol Rem acquired a majority of INTCO and Tireless, and we acquired a majority of B-A-Champ.com. In 2000, the unrelated investors' interest in the net losses of INTCO, Tireless and B-A-Champ were $9,827, $52,729, and $71,733, respectively. There were no similar amounts in 1999 or 1998 because we didn't acquire them until 2000. Segment Discussion For purposes of accounting disclosure, we provide the following discussion regarding two business segments: Biomedical devices, which includes the operations of our Biocontrol Technology division, Diasense, Inc., and ViaCirQ, Inc.; and Bioremediation, which includes the operations of Petrol Rem, Inc. More complete financial information on these segments is set forth in Note H to our accompanying financial statements. Biomedical Device Segment. During the year ended December 31, 2000, sales to external customers decreased to $81,954 from $82,056 in 1999, a decrease from $1,028,484 in 1998. The overall decrease was primarily due to sales of the functional electrical stimulators, which have been discontinued. Corresponding fluctuations in costs of products goods sold occurred for the same reason, from $483,388 in 1998 to $133,288 in 1999 and $47,862 in 2000. Bioremediation Segment. During the year ended December 31, 2000, sales to external customers increased to $217,722 as compared to $26,693 in 1999 and $45,382 in 1998. The increase from 1999 to 2000 was due to our increased efforts to effectively penetrate the market with products other than the BioSok. The reasons for the decline from 1998 to 1999 are as follows: due to cash flow problems in 1998, Petrol Rem stopped funding its sales efforts and lost employees. In 1999, Petrol Rem restructured its management, operations and pricing structure - during that time, sales efforts slowed until the new management and funding was in place. Costs of products sold fluctuated due to the same factors that impacted sales, from $33,061 in 1998 to $14,683 in 1999 and to $179,446 in 2000. Income Taxes Due to our net operating loss carried forward from previous years and our current year losses, no federal or state income taxes were required to be paid for the years 1987 through 2000. As of December 31, 2000, we and our subsidiaries, except for Diasense and Petrol Rem, had available net operating loss carry forwards for federal income tax purposes of approximately $132,500,000, which expire during the years 2001 through 2021. Supplemental Financial Information During early 2001, we made investments in unconsolidated subsidiaries. In January and February, we invested an additional $110,000 in American Inter-Metallics, bringing our total investment in AIM's rocket propulsion project to $920,000. We made this investment because our management believes it will generate revenue. Our subsidiary, Diasense, Inc. also made investments in unconsolidated subsidiaries. Through March 2001, Diasense invested an additional $350,000 in MicroIslet, Inc. Diasense now owns a total of 18.5% of MicroIslet, and has invested a total of $1,350,000. Diasense also invested an additional $293,951 in Diabecore Medical, Inc. Diasense now owns 27% of Diabecore and has invested a total of $970,874. Diasense made these investments because management believes that these diabetes research organizations and the institutions they affiliate with will bring strength and support to its own diabetes research and development projects. From January through March 2001, we raised net funds aggregating approximately $6,530,093 by selling our convertible debentures. The subordinated convertible debentures are not secured by any assets, and are subordinate to corporate debt, except for related-party debt. The debentures are convertible beginning 90 days from issuance. They can be converted to common stock at a price that is determined by computing 80% of the average closing bid price for the four days prior to and the day of conversion - or a 20% discount to a five-day average trading price. There is no minimum conversion price. In February 2001, we entered into an agreement with David L. Purdy in connection with his resignation from our affiliates and us. The agreement required us to pay Mr. Purdy an aggregate of $912,727 plus $100,000 to be placed in an escrow account for his future attorney's fees. The agreement contains confidentiality and release provisions for both Mr. Purdy and us. In February 2001, we filed a preliminary proxy because we'll be having a shareholders meeting in May, where we'll ask the shareholders to approve an increase of our authorized shares to 2,500,000,000. BICO's BUSINESS General Development of Business BICO, Inc. was incorporated in the Commonwealth of Pennsylvania in 1972 as Coratomic, Inc. In June 2000, we changed our corporate name from Biocontrol Technology, Inc. to BICO, Inc. Our operations are located at 625 Kolter Drive in Indiana, Pennsylvania, 15701, and our administrative offices are located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania, 15220. Our primary business is the development and manufacture of new devices, which include models of a noninvasive glucose sensor, procedures relating to the use of regional extracorporeal hyperthermia in the treatment of cancer, and environmental products, which help to clean up oil spills. Our noninvasive glucose sensor helps diabetics measure their glucose without pricking their fingers or having to draw blood. Regional extracorporeal hyperthermia is a system that recirculates the patient's blood in a specific area of the body after the blood has been heated outside the body. The recirculated blood's higher temperature helps treat certain diseases by inducing an artificial fever that kills targeted cells. We have several subsidiaries that specialize in those different projects. Diasense, Inc. manages the noninvasive glucose sensor project. ViaCirQ, Inc. - formerly IDT - handles the hyperthermia project, a technology called the ThermoChem System, that induces an artificial fever to help treat diseases. Petrol Rem, Inc. handles our environmental products PRP, BIOSOK and BIOBOOM that help clean up oil spills and other pollutants in water. Forward-Looking Statements From time to time, we may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities, the regulatory approval process, specifically in connection with the FDA marketing approval process, and similar matters. You need to know that a variety of factors could cause our actual results to differ materially from the anticipated results or other expectations we expressed in our forward-looking statements. The risks and uncertainties that may affect our operations, performance, research and development and results include the following: additional delays in the research, development and FDA marketing approval of the noninvasive glucose sensor; delays in the manufacture or marketing of our other products and medical devices; our future capital needs and the uncertainty of additional funding; competition and the risk that the noninvasive glucose sensor or our other products may become obsolete; our continued operating losses, negative net worth and uncertainty of future profitability; potential conflicts of interest; the status and risk to our patents, trademarks and licenses; the uncertainty of third-party payor reimbursement for the sensor and other medical devices and the general uncertainty of the health care industry; our limited sales, marketing and manufacturing experience; the amount of time or funds required to complete or continue any of our various products or projects; the attraction and retention of key employees; the risk of product liability; the uncertain outcome and consequences of the lawsuits pending against us; our ability to maintain a trading market for our common stock; and the dilution of our common stock. Description of Business Development of the Noninvasive Glucose Sensor Along with Diasense, we have completed the development of the first commercial noninvasive glucose sensor, which is able to measure the concentration of glucose in human tissue without requiring the drawing of blood. Currently available glucose monitors require the drawing of blood by means of a finger prick. Our initial research and development with insulin pumps led to a theory by which blood glucose levels could be detected noninvasively by correlating points on the infrared spectrum that are reflected by electromagnetic energy through the skin. We studied this method in 1986 and 1987 using laboratory instruments and working with consultants at Battelle Memorial Institute in Columbus, Ohio. The results of the studies provided information regarding the use of infrared light in the noninvasive measurement of glucose. The information from the studies, along with later additional work, led to a patent application by our research team in 1990. A patent covering the method was granted to our research team and assigned to Diasense in December 1991. Diasense purchased those patent rights from us under a purchase agreement. We filed a second patent application in December 1992, which was granted in January 1995. That second filing contained new claims, which extended the coverage of the patent based on additional discoveries and data obtained since the original patent was filed. We assigned the rights to that patent to Diasense. We developed additional concepts to improve the capability of the instrument to recognize blood glucose, and, in May 1993, filed corresponding patent applications. As of November 2000, a total of 13 patents have been issued, with additional patent applications pending. We have the right to develop and manufacture sensors based on contracts with Diasense. Our research team advanced this technology base through the development of several research prototypes, which were tested in human clinical trials. We conducted a trial on 110 human subjects in March 1992. In that trial, we recorded spectral, blood and chemical data for analysis in order to develop calibration data for the noninvasive glucose sensor. We conducted a second trial on 40 human subjects in July 1992 that indicated that the device did not have a satisfactory signal-to- noise ratio to allow for sufficient accuracy to be acceptable for patient use. Signal-to-noise ratio is determined by the relationship of the signal, which is the glucose level, and the noise, which are the random interferences, such as differences in skin surfaces. We conducted other trials at several testing sites under the guidance of the sites' Institutional Review Board using prototypes, which addressed the signal -to-noise problem. We designed and constructed those prototypes to simulate production models. On January 6, 1994, we submitted the initial 510(k) Notification to the Food and Drug Administration for approval to market the production model, the Diasensor 1000. A 510(k) Notification is a type of FDA filing used to ask the FDA to approve a device for sale in the U.S. We based the submission on data obtained from the advanced research prototypes, since we believed that the production model would be identical to the advanced prototypes. In February 1996, the FDA convened a panel of advisors to make a recommendation regarding our 510(k) Notification. The majority of the panel members recommended that we conduct additional testing and clinical trials of a production model prior to marketing the Diasensor 1000. We, along with Diasense, announced that we would remain committed to bringing the Diasensor 1000 to diabetics, and that additional research, development and testing would continue. Due to continued delays in the FDA approval process, and while continuing to work with the FDA and conduct its mandated testing, we turned our focus to other markets for the Diasensor 1000 besides the U.S. In 1998, we, as designer and manufacturer of the device, were awarded International Organization for Standardization certification by TUV Rheinland, a German company authorized to conduct such audits, which was contracted to perform an audit of our quality system. We were awarded ISO Certification to the 9001 standard, which is evidence that we have, in place, a total quality system for the design, development and manufacture of our products. We were also awarded EN46001 Certification, indicating we meet European standards for medical devices. Once the ISO 9001 certification was approved, and a technical file was submitted and approved by TUV Rheinland, we received approval to apply a CE mark to the device. Much like an Underwriters Laboratory "UL" mark, the CE mark is provided by the regulatory bodies of the European Community, or by authorized private bodies, such as TUV Rheinland, to indicate that the device adheres to "quality systems" of the ISO and the European Committee for Standardization. The CE mark permits us to sell the Diasensor in Europe. With regard to marketing the device within the United States, we continued to work with the FDA to obtain approval. After discussions with the FDA, we submitted a revised 510(k) Notification in October 1996, which was followed by continued discussions with the FDA. During 1997 and 1998, we continued to meet with the FDA, and established a protocol for in-home testing of the Diasensor 1000. Due to our cash flow problems during 1998, testing did not proceed at the pace originally anticipated, and completion of the testing was delayed. We continued various aspects of the Diasensor development, which resulted in a method that will allow the patient to transmit the readings generated by the noninvasive glucose sensor to the patient's clinic or physician. Following an in-depth marketing study, we determined that the machines with this capability are more attractive to the patient, since there is the possibility of selling a telemedicine service which includes the machine, the patient, and his or her physician. This model of the Diasensor has been named the Diasensor 2000 to differentiate between the earlier models. Based on advice from the FDA, we decided it was in our best interest to submit a PreMarket Approval Application to the FDA, rather than continue with the 510(k) Notification process, in order to seek FDA approval for the Diasensor 2000. In 1999 the FDA implemented a new PMA system. Under the new system, individual modules - or parts - of a PMA submission can be made, as they are ready. We discuss our PMA submissions in the "Current Status of the Noninvasive Glucose Sensor" section, which follows. The Diasensor is a spectrophotometer, which is a machine capable of illuminating a small area of skin on a patient's arm with infrared light, and then making measurements from the infrared light that is reflected back into the device. The device then displays the measurement in a window on the top of the device for the user to read. The Diasensor uses internal mathematical calculations and customized software to calculate a glucose measurement. Since the Diasensor will be calibrated individually, each instrument will be sold in the U.S. by prescription only and will be calibrated in the patient's home. This feature may limit the marketability of the Diasensor, and if the device is unable to qualify for third-party reimbursement - which means if the health insurance companies won't pay for it -we will have a hard time marketing and selling the device. Current Status of the Noninvasive Glucose Sensor We were hampered by cash flow problems during 1998, so we didn't make as much progress on the noninvasive glucose sensor project as we planned. Once we raised more money, we restarted our discussions with the FDA. We hired Joslin Diabetes Center to help us with the FDA in August 1999. Joslin Diabetes Center designed and is conducting the clinical trials the FDA requires before they will give us approval to market the sensor. Our contract with Joslin calls for Joslin's representatives to conduct a clinical study on the effectiveness of the Diasensor 2000. The study is contingent upon FDA approval of the Joslin protocol for the clinical study, which we obtained in August 2000. We had a meeting with the FDA in October 1999 to focus on the protocol, and we made revisions to the protocol to comply with the FDA's recommendations. In the Joslin contract, we agreed to pay for the study, and Joslin agreed to provide us with a report on the data gathered. Joslin also has the right, subject to confidentiality provisions, to publish the results of the clinical trials. The Joslin contract requires us to pay fees for their services - those fees will be paid when we pay for the clinical trials and will be based on the number of patients enrolled in the study. We are negotiating similar agreements with four additional sites. In addition to the agreement with Joslin, we took other significant steps toward FDA approval. In February 1999 we submitted a PMA shell to the FDA for the Diasensor. The PMA shell is part of a relatively new FDA procedure, which divides submissions into modules, or parts. These modules, which were designed to facilitate and expedite FDA review, contain different pieces of the full PMA submission. However, from both our own experience and by observing other module submissions, we do not believe that the FDA intends to "approve" the PMA one module at a time. Rather, we have had meetings with the FDA, including the October 1999 meeting, where requirements for the "next step" in the process have been discussed without a specific FDA finding on prior submissions. In May 1999, we submitted the first module, which covered manufacturing methods and procedures for the Diasensor 2000. The FDA asked for additional information in September 1999, and we responded. We filed the second module in May 2000. The second module contained information regarding electrical and mechanical standards for the FDA's requirements on safety and effectiveness, and a description of how our noninvasive glucose sensor will be used by patients. Future modules will include raw data and laboratory study methods and test results. The final PMA submission will include human clinical results and a summary of safety and effectiveness data. We met with the FDA in October 1999, and at that meeting, the FDA made further recommendations regarding the protocol for the upcoming clinical trials. In November 1999, the FDA requested further information. With the help of our outside consultants, we finished compiling all that additional information, and in July 2000 we submitted an Investigational Device Exemption to the FDA that included the protocol for our clinical trials. An Investigational Device Exemption is a request to the FDA for approval to conduct clinical trials on a device that is not FDA-approved. The FDA approved the protocol for our clinical trials in August 2000. Clinical trials began in October 2000 at Joslin Diabetes Center in Boston. The trials were designed for a total of 125 diabetics, all of whom will participate for 9 months. We are currently amending our study protocol to add additional patients, bringing the total to 200 in both device using and control groups. We submitted protocol amendments to the FDA to change some of the criteria we'll use to select patients for the trials, and the FDA approved those amendments in March 2001. Trials will also be conducted at two other sites: St. Luke's-Roosevelt Hospital Center in New York City and SUNY Health Science Center in Syracuse, New York. We expect to add 2 to 4 additional sites in the near future. We hired Amarex, LLC, an independent research organization headquartered in Washington, D.C., which has experience in conducting clinical trials, to monitor our clinical trials. Amarex will also collect data, and provide training, data and site management, including statistics and report writing, at all three sites. Working with Joslin and Amarex, we plan to submit data to the FDA when the trials are completed. We will also work with outside biomedical consultants to help us obtain FDA approval following these clinical trials; however, we can't assure you when or if that will happen. The Diasensor 2000 will be used as part of a system of care that includes home use of the Diasensor with regular evaluation of the patient's blood glucose trends as determined by the device. The Diasensor also contains a telemedicine feature - a software program that automatically transmits the patient's glucose measurements to a secure website via the Internet, where they can be viewed and evaluated by the patient's health care provider. The data can be graphed and displayed in a variety of ways and for a variety of time periods as needed. 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. In March 2001, we announced that Diasense launched its DataCONN program, which is the on-line telemedicine service. Diabetics who monitor blood glucose levels using an invasive meter can use the DataCONN program. Professional caregivers who make treatment decisions for their diabetic patients based on invasive meter readings can also use DataCONN. Users can use the Internet at www.diasensor.com or a touchtone telephone to record or access glucose measurements. The service can also provide physicians an electronic record of the patient's progress over time. The service costs $59 for a one-year subscription. As with all other FDA-related activities, we cannot provide any assurances as to the date when we'll complete our studies, when we'll submit our next PMA module, or when the FDA will complete its review of our submission. Although our research and development team continues to have discussions with the FDA, due to the complex, technical nature of the information being evaluated by the FDA, it is impossible for us to estimate how much longer the FDA approval process will take. FDA approval is necessary to market the Diasensor in the United States. In 1999, we also focused additional effort on the European market; since no material sales have occurred, we decided to reassess our marketing plan. In connection with adjusting our marketing plan, we are currently reevaluating our pricing structure for the Diasensor in Europe. Based on contracts between Diasense and us, we have the exclusive right to manufacture the noninvasive glucose sensor. Diasense will pay us for manufacturing, and that's how we'll make money if we ever successfully market and sell the noninvasive glucose sensor. Diasense is responsible for the marketing and sales of the noninvasive glucose sensor. The current marketing plan is to market the noninvasive glucose sensor and the telemedicine program directly to diabetics, through their doctors' orders. Prescriptions are not needed in Europe. The telemedicine program will involve a monthly fee for the use of both the sensor and the service. We may set those prices too high, which will limit our sales, unless we can convince health insurance companies to pay for them. Because the health insurance industry is in a constant state of change, we can't predict whether - when - or if - we will convince them to pay for our noninvasive glucose sensor or the telemedicine program. We have estimated, based on information from the American Diabetes Association, that there are about 15.7 million diabetics in the United States, but not all diabetics will be suitable users of our noninvasive glucose sensor. Those diabetics who require and benefit from frequent glucose monitoring and whose physicians adjust their insulin dosages based on glucose averages over time make up the potential market for our sensor, and we can't accurately estimate the size of that market at this time. Extracorporeal Hyperthermia ViaCirQ was incorporated on October 23, 1992 as IDT, Inc. ViaCirQ focused on the research and development of the ThermoChem technology and associated disposables as a delivery system for perfusion induced systemic hyperthermia, known as PISH, a form of whole body hyperthermia and regional hyperthermia in the treatment of certain types of cancers and AIDS/HIV. Perfusion induced hyperthermia is the elevation of the body's temperature, which is like inducing an artificial fever. Perfusion-induced hyperthermia can be used to raise the temperature of a regional part of the body - called regional hyperthermia; and can raise the temperature of the entire body - called systemic hyperthermia. Extracorporeal means outside the body - so extracorporeal hyperthermia uses a device to circulate blood outside the body and return it to the patient to raise the patient's temperature. Perfusion involves circulating blood. Perfusion-induced extracoroporeal hyperthermia heats blood outside the body then circulates the blood back through the body to raise the body's temperature. In 1993, ViaCirQ formed an alliance with HemoCleanse, Inc. located in Lafayette, Indiana. HemoCleanse, Inc., founded in 1989, designs, manufacturers and markets medical devices and disposables for the treatment of blood outside the body. HemoCleanse's core product was the BioLogic System, which consists of a sophisticated, computer controlled multi-treatment device and a series of single-use disposable treatment kits. HemoCleanse's unique technology is based on special chemical sorbents that selectively remove toxins from the blood while balancing critical blood chemistries. The BioLogic System received clearance by the FDA in 1994 as a detoxifier for treatment of drug overdose; in 1996 the BioLogic System received FDA clearance for use in treating patients with liver failure. We believed that HemoCleanse's core technology was essential in developing a safe delivery system for whole body hyperthermia. In 1993, we entered into a license agreement with HemoCleanse to develop the ThermoChem technology for delivering extracorporeal hyperthermia. Under the license agreement, we received worldwide rights to market the ThermoChem technology and disposables while HemoCleanse retained worldwide manufacturing rights for ThermoChem technology and disposables. We funded HemoCleanse's development of a prototype of the ThermoChem System for PISH. The prototype was used in pre- clinical trials and subsequently in the first ever FDA approved clinical trial. The ThermoChem System consists of two components: ThermoChem-HT System and ThermoChem-SB System that are necessary for delivering PISH, a form of whole body hyperthermia. ThermoChem-HT System is a fully integrated system that heats, circulates and maintains desired blood/fluid temperatures in delivery of whole body hyperthermia or regional hyperthermia. ThermoChem-SB System is used in conjunction with the ThermoChem-HT System to deliver whole body hyperthermia by balancing blood chemistries on a real-time basis while removing toxins. It is common knowledge that higher temperatures of the body, like natural fevers, can serve to control infections. Using this concept, the ThermoChem System induces an artificial fever to 107.6 F, which is hyperthermia. During hyperthermia, however, blood chemistries shift potentially causing severe organ damage and possibly death. The ThermoChem System is a unique system that incorporates the features of the ThermoChem-HT, but also automatically balances electrolytes and important nutrients using the chemical exchange characteristics of the ThermoChem-SB, while simultaneously removing many small toxins. The electrolytes and nutrients flow from the sorbent to the blood until equilibrium is reached. Unbound toxins flow freely from the blood and bind to the charcoal of the suspension. There are many methods for inducing whole body hyperthermia including radiant heat chambers, microwave heat chambers, water blankets and perfusion induced systemic hyperthermia PISH. We believe that PISH allows for a more uniform heating of the body and a higher sustained body temperature. Perfusion Induced Systemic Hyperthermia Utilizing the ThermoChem System Perfusion induced systemic hyperthermia, known as PISH, is achieved through extracorporeal blood heating which involves heating the patient's blood outside the body to a maximum of 118.4 F and returning it back to the body, thus raising the body's core temperature to the desired treatment temperature up to a current maximum of 108.4 F for 2 hours. Catheters are placed in two venous access sites and attached to the disposable tubing of the ThermoChem-HT. Blood passes a roller pump that sends it onward to the heat exchanger where indirect heating of the blood occurs, raising the outside blood temperature to a maximum of 118.4 F. A portion of the blood passes through a T- connection to the ThermoChem-SB, located between the roller pump and the heat exchanger, where it is chemically balanced on a real- time basis and then returned to the blood flow path before it reaches the heat exchanger. Continually circulating blood is returned to the patient at approximately 114.8 F, gradually raising the patient's core body temperature to the desired temperature, which is measured by various temperature probes throughout the body. Intraperitoneal Hyperthermia Utilizing the ThermoChem-HT System In a surgical procedure cancerous growths are surgically removed from the patient's abdomen and pelvis; while all spaces and lining surfaces are opened, inlet and outlet catheters are placed. The ThermoChem-HT System raises the temperature of the abdominal cavity to a target temperature of up to 43.5 C (110.3 F) by continuously circulating sterile solution throughout the abdominal cavity. The ThermoChem-HT is a system of specially integrated subsystems and devices for fluid control and precise temperature maintenance. All operating parameters of the system are monitored by a computer and displayed and managed through an interactive video touch screen display. The operator can access all system controls and operations, in-put all necessary patient data, and define and adjust treatment parameters with just a touch of a finger. Intraperitoneal hyperthermia offers a new choice to combat peritoneal cancers arising from gastrointestinal, pancreatic, ovarian and other metastatic tumors. Physicians have known that cancer cells are sensitive to heat, but only recently have the mechanisms of hyperthermia on cancer cells been understood. The vascular structure in tumors restricts blood supply so a tumor will retain heat, which destroys cellular components essential for a tumor to exist. Heat also makes cancer cell membranes more permeable to certain chemotherapeutic drugs while certain chemotherapeutic drugs are strengthened by heat. Beginning in 1994, the safety and efficacy of hyperthermia utilizing the ThermoChem technology was evaluated in the following FDA institutional review board clinical and pre- clinical approved trials. St. Elizabeth Hospital - Lafayette, Indiana 1. Phase I completed under protocol entitled "Evaluation of Whole-Body Hyperthermia Utilizing the ThermoChem technology in the Treatment of Kaposi's Sarcoma with AIDS." This was the first FDA approved whole body hyperthermia study and was published in The Journal of Acquired Immunodeficiency Syndrome and Human Retrovirology. 2. Phase II trial completed under protocol entitled "Extracorporeal Whole-Body Hyperthermia Treatments for HIV Infections and AIDS" with results published in American Society for Artificial Internal Organs (ASAIO) Journal. The University of Texas M.D. Anderson Cancer Center Pre-clinical studies in preparation for a Phase I trial involving thermo chemotherapy of patients with lower extremity cancers of different types has been completed at the University of Texas M.D. Anderson Cancer Center. These animal studies were used to develop the surgical techniques necessary for a clinical trial on humans and to train and familiarize the center's staff in the use of ThermoChem technology. University of Texas Medical Branch at Galveston Human trials are ongoing under an Investigational Device Exemption utilizing the ThermoChem System and disposables to deliver perfusion induced systemic hyperthermia for patients with non-small cell lung cancer. Non-small cell lung cancer remains a major cause of cancer morbidity and mortality in the United States and Europe. In February 2000, the FDA approved a continued clinical trial to include stage IIIb patients with non- small cell lung cancer. One of the objectives of this trial is to evaluate the ThermoChem technology for treatment of metastatic non-small cell lung cancer with regard to patient selection, tumor response, patient performance status, and patient survival. The follow-up of the patients is patterned after the Southwest Oncology protocols, which are considered state-of-the-art to follow response of cancer to the therapy. Results of this study have been accepted for publication in Annals of Thoracic Surgery; Perfusion; and American Society of Artificial Organs. Wake Forest University School of Medicine In May 1998, the FDA approved an Investigational Device Exemption to allow human clinical trials utilizing the ThermoChem-HT and related disposables for intraperitoneal hyperthermia. Intraperitoneal hyperthermia is used as an adjunctive therapy with surgery and chemotherapy. In a surgical procedure all cancerous growths are surgically removed from the patient's abdomen and pelvis; while all spaces and lining surfaces are opened, the abdomen is perfused utilizing the ThermoChem-HT System with a heated physiologic solution circulating for a 2 hour period. ViaCirQ and the surgeons at Wake Forest believe that the ThermoChem-HT System can make the technique more effective with better temperature monitoring and control. This procedure is offered as a standard-of-care for treatment of patients with advanced ovarian and gastrointestinal cancers. In November 2000, we began a study with Wake Forest using the ThermoChem-HT System and disposables to deliver intraperitoneal hyperthermia in combination with surgery and chemotherapy as a primary treatment of ovarian cancer. The study will involve the use of hyperthermia as an adjunct to chemotherapy following a hysterectomy and surgery to remove as much of the cancer as possible, and the hyperthermia will be repeated 6 months later during second-look surgery if the patient has no residual disease. MEDICAL ADVISORY BOARD ViaCirQ has a medical and scientific advisory board that is made up of these professionals. Advisory Board members do not receive a fee for serving on the board, but are reimbursed for expenses incurred. Brian Loggie, MD is under a separate consultant agreement with ViaCirQ that has been approved by the University of Texas Southwest to help expand the use of intraperitoneal hyperthermia with the ThermoChem-HT System. B. Loggie, M.D. Surgical Oncology; University of Texas Southwestern Intraperitoneal hyperthermia focus S. Tomasovic, Ph.D. Tumor Biology; UT/M.D. Anderson Cancer biology focus R. Fleming, Ph.D. Pharmacology Hematology/oncology focus S. Ash, M.D. Internal Medicine; Nephrology; St. Elizabeth Hospital Extracorporeal blood therapy systems focus C. Steinhart, M.D., Ph.D. Internal Medicine; Immunology; Mercy Hospital HIV specialty M. Yatvin, Ph.D. Radiation; Thermal Biology; Oregon Health Sciences University (Retired) HIV Specialty In January 1998, ViaCirQ and HemoCleanse modified their original license agreement whereby ViaCirQ would acquire the manufacturing rights to the ThermoChem-HT System and related disposables for use in regional hyperthermia. The ThermoChem-HT System and ThermoChem-SB work together to perform whole body hyperthermia with all commands originating from the ThermoChem-HT System. In order for the ThermoChem-HT System to be used in regional hyperthermia, the ThermoChem-HT had to be reconfigured to operate independently of the ThermoChem-SB System since blood chemistry balancing is not necessary in regional hyperthermia. ViaCirQ contracted with our Biocontrol Technology division, to develop and manufacture the ThermoChem-HT System to operate independently from the ThermoChem-SB System for regional hyperthermia. In March 1999, ViaCirQ entered into a license agreement with Wake Forest University in which ViaCirQ licensed all proprietary developments, data and information owned by Wake Forest relating to a method of heated perfusion of chemotherapy drug in treatment of intraperitoneal and other cancers. In April 1999, a study was completed at Wake Forest University School of Medicine utilizing the ThermoChem-HT System for intraperitoneal hyperthermia in combination with surgery and chemotherapy in patients with advanced ovarian and gastrointestinal cancer. We submitted the ThermoChem-HT to the FDA for clearance to market. In January 2000, HemoCleanse and ViaCirQ received FDA clearance to market the ThermoChem-HT System and related disposables, which are used to raise the core temperature of the abdominal cavity to the desired temperature in the 41 C (105.8 F) to 42 C (107.6 F) range by continuously bathing the abdominal cavity with circulating sterile solution. ViaCirQ progressed during 1999 and 2000 from product development and clinical trials to an operational company that will market the ThermoChem-HT System and related disposables. In February 2000, ViaCirQ formed a strategic and corporate development alliance with Capital Management to position ViaCirQ for growth, development and partnerships. Joseph Kozikowski, M.D. is leading the ViaCirQ/Capital Management team strategies for additional clinical trial designs, development plans for expanded intended uses of the ThermoChem technology and implementation of a quality system with a build-out of operating infrastructure. In April 2000, ViaCirQ formed an alliance with The Egan Group to help develop an operating and marketing plan, establish a sales and customer training program, assist in marketing support and promotional materials for ThermoChem-HT System and recruit a national vice president of sales to staff 10 product specialists to launch the ThermoChem-HT System to targeted regions across the United States in the first quarter of 2001. In March 2001, ViaCirQ announced the introduction of the ThermoChem-HT System at the 54th Annual Cancer Symposium and Exhibition meeting of the Society of Surgical Oncology Symposium in Washington, D.C. ViaCirQ also announced its executive management team, which includes members of the Egan Group as chief operating officer and vice president of sales, along with a national sales manager. In August 2000, ViaCirQ entered into a 3-year agreement with North Carolina Baptist Hospitals to provide our ThermoChem-HT System and disposables to Wake Forest University Baptist Medical Center. In November 2000, ViaCirQ entered into a contract to provide our ThermoChem-HT System and disposables to Zale Lipshy University Hospital. In June 2000, ViaCirQ amended the license agreement with HemoCleanse whereby HemoCleanse granted ViaCirQ a limited, exclusive worldwide, fully paid-up, irrevocable, perpetual license limited to the relevant field of use in hyperthermia to manufacture the ThermoChem-SB and SB treatment kits. All patents and patent applications in whole body hyperthermia owned by HemoCleanse were assigned to ViaCirQ, the consideration for the above was 1,042,253 shares of HemoCleanse common stock. Since 1994, we invested $2,460,065 in HemoCleanse stock. Of the $2,460,065 invested in HemoCleanse common stock, approximately $1,018,750 was invested in 1994; $1,310,822 in 1995; and $130,493 in 1998. These investments were considered speculative throughout the term of the investment because HemoCleanse was continually operating at a deficit due to its research and development activities. Throughout those periods, HemoCleanse incurred net losses, accumulated deficiencies in assets, and no net tangible assets. Our management considered all HemoCleanse funding to be research and development expenditures and did not recognize any goodwill due to the absence of a proven technology. Due to HemoCleanse's financial condition and the absence of a fair market value for the HemoCleanse common stock, all amounts invested in HemoCleanse were expensed when the investments were made. We spent approximately $15,625,073 on this project through December 31, 2000. We have been funding this project since 1992 with money we raised selling our securities, including our stock or convertible debentures. Bioremediation We are also involved in the field of biological remediation, or bioremediation, development. Bioremediation technology uses naturally occurring microorganisms or bacteria to convert various types of contamination, like oil spills, to carbon dioxide and water. The product, PRP, which stands for Petroleum Remediation Product, is designed as an environmental microbial microcapsule, which is used to collect, contain and separate oil-type products in or from water. The product's purpose is to convert the contaminant, with no leftover residue in need of disposal. When the PRP comes in contact with the petroleum substances like oil spills, the oil spills become bound or attached to the PRP, and they stay afloat. Because the product contains the necessary nutrients and microorganisms, the bioremediation process begins immediately, which limits secondary contamination of the air or surrounding wildlife. Eventually, the product will break down both the petroleum and itself, leaving nothing but carbon dioxide and water. Part of Petrol Rem's initial research and development involved field-testing supervised by the National Environmental Technology Applications Corporation. That group, which is known as NETAC, is endorsed by the Environmental Protection Agency to determine whether products are effective. As a result of their testing, NETAC reported positive results regarding the effectiveness of the product. PRP is now being manufactured and marketed for use in water and on solid surfaces in the form of Petrol Rem's OIL BUSTER product, which is used for small oil cleanups on hard surfaces such as the floors of manufacturing facilities, garages and machine shops, or as a container for heavy petroleum sludges. The product is listed on the EPA's National Contingency Plan Product Schedule, and is available in free-flowing powder or absorbent socks. In 1995, the EPA required that all products previously listed on the National Contingency Plan Product Schedule be submitted to additional testing. Because PRP successfully passed the test conducted by NETAC, the product was requalified for listing on the EPA's product schedule. In addition, PRP was one of only fourteen products listed after the 1996 Alternative Response Tool Evaluation System was implemented. In April 1993, Petrol Rem entered into a lease for a facility in the Pittsburgh, Pennsylvania area, which is used to manufacture PRP. The current lease has a renewable three-year term, with monthly rental payments of $4,661 plus utilities and applicable business privilege taxes. Petrol Rem purchased equipment, which has the capability to produce PRP in quantities of 2,000 pounds per day, and has built an adequate inventory. Petrol Rem also completed development of a new spray applicator for its PRP product. The new applicator is a lightweight, portable unit, which provides a more continuous flow of product. The lighter weight and smaller size will allow easier access to remote sites, which were impossible to reach with the previous applicator. In addition to PRP, Petrol Rem also developed other products. In order to address water pollution issues at marinas, Petrol Rem introduced the BIOSOK, which is PRP contained in a 10" fabric tube, and is designed and used to aid in the cleaning of boat bilges. Bilges are commonly cleaned out with detergents and other chemicals, which cause the oil pumped out of the bilge to sink to the bottom of the water, where it is harmful to marine life, and becomes difficult to collect. In addition, it is illegal to dump oil or fuel into the water. The BIOSOK, when placed in the bilge, absorbs and biodegrades the oil or fuel on contact, which significantly reduces or eliminates the pollution; then the product biodegrades itself. As a result, BIOSOK helps to keep waters clear. In addition, BIOSOK helps eliminate the chore of bilge cleanup, and helps users such as boaters and marinas to avoid fines for pumping oil and fuel into the waterways, which is prohibited. The U.S. Coast Guard is using the BIOSOK in certain regions on their vessels and maintains a sufficient supply to provide continuing availability. Petrol Rem's BIOBOOM product is used in water clean-up projects. The product is a 3" x 10' fabric tube which is filled with PRP, and is used to both contain and biodegrade contaminants in water. BIOBOOM is a superior product to most containment products because, in addition to containing the oil or fuel spill, or restricting the spread of an anticipated spill, it also biodegrades the contaminant, and then biodegrades itself. These features act to virtually eliminate secondary contaminants, thereby reducing disposal and clean-up costs. During 1998 and 1999, the majority of Petrol Rem's sales were from the BIOSOK and BIOBOOM products. Sales were approximately $45,000 in 1998 and declined to approximately $27,000 in 1999. In 2000, we had sales of $217,722, which included sales of our other products. The decline from 1998 to 1999 was due to several factors: Petrol Rem was unable to effectively penetrate the market with products other than the BIOSOK and BIOBOOM; due to cash flow problems in 1998, Petrol Rem stopped funding its sales efforts and lost employees; and in 1999, Petrol Rem restructured its management, operations and pricing structure - during that time, sales efforts slowed until the new management and funding was in place. By the end of 1999, Petrol Rem had its management and marketing team in place. Effective August 2000, Petrol Rem entered into a national marketing agreement with International Consultants, Inc., an international marketing firm from Phoenix, Arizona. International Consultants, Inc. has regional representation in 12 states in addition to their home office in Phoenix. Part of Petrol Rem's marketing strategy involved re-pricing its products. Petrol Rem now markets the BIOSOK and BIOBOOM at wholesale prices ranging from $11-$13, and $110-$130, respectively, depending on the quantity purchased. Petrol Rem is marketing PRP through trade shows, magazines, direct mail advertising, and direct contacts with companies and consultants specializing in petroleum clean-up, as well as marketing directly to municipalities and corporations with needs for the product. During 1999, Petrol Rem focused efforts on the international market, and entered into joint venture or distributorship agreements for Chile, Brazil, Uruguay, Paraguay, Bolivia and Indonesia. Although there can be no assurances that PRP will be successfully marketed, we believe, based on their scientific determinations, the results of recent NETAC testing, and the favorable response at the retail level, that PRP will be a viable product in the bioremediation marketplace. Petrol Rem currently markets PRP at wholesale prices ranging from $14-$20 per pound, depending upon the quantity purchased. During 2000, Petrol Rem acquired INTCO, a Louisiana company that specializes in regional oil spill clean-ups, primarily on the Gulf coast of southeast Louisiana. Petrol Rem's oil spill clean-up products have been shipped to Louisiana warehouse sites, where they are being used in clean up projects. In addition, Petrol Rem formed a joint venture called Tireless, LLC, which was formed to handle the environmental and business concerns arising from scrap and discarded tires. Tireless expects to take delivery of a portable tire shredder, which will allow Tireless to go directly to the tire pile sites to coordinate shredding and recycling. Petrol Rem also funded Practical Environmental Solutions, a Pennsylvania company involved in the acquisition and management of environmental companies. Petrol Rem made these investments because they believe the two companies will help Petrol Rem generate revenue. We believe that we have spent all of the funds necessary to complete the development of its bioremediation products, and to build up sufficient inventory pending additional orders. We expect that our expenses going forward will be for marketing and sales. We spent approximately $13,863,409 on this project through December 31, 2000. We have been funding this project since 1992 with money we raised by selling our securities, including our stock or convertible debentures. Other Projects Implantable Technology In April 1996, we received FDA approval to market our theraPORT Vascular Access System. The approval was granted in response to our 510(k) Notification filed in January 1996. The device is made up of a reservoir, which is implanted beneath the skin in the chest region with a catheter inserted in a vein and provides a delivery system for patients who require continual injections. Because such repeated injections can cause veins to shut down and collapse, the theraPORT offers an improved delivery system by eliminating that trauma. If necessary to accommodate multiple drug therapy with incompatible drugs, dual ports can be implanted. Such devices are frequently used in cancer drug therapy. We began selling the standard ports during the second quarter of 1997. A second device with a low profile was developed for pediatric use, and a 510(k) was submitted to the FDA in November 1997 for marketing approval. In early February 1998, we submitted a supplement to the FDA in response to a request for additional information, and the FDA granted its approval that same month. We are currently developing a dual port device and plan to submit another 510(k) for that device; however, our biomedical efforts continue to be focused on the Diasensor, so it is impossible for us to estimate when that submission might occur. Through our subsidiary, Coraflex Inc., we are engaged in the development of a polyurethane heart valve, which we believe may not have the disadvantages of the mechanical and other synthetic valves currently being marketed. The Coraflex valve, which resembles the human heart's aortic valve, is made by means of a proprietary manufacturing process. We believe that the polyurethane we use to make our heart valve is stronger and more resistant to fatigue compared to other valves. In vitro testing, some of which has been performed through the Children's Hospital of Pittsburgh, of the Coraflex valve to date has demonstrated that our valve has superior fatigue resistance and flow characteristics compared to other devices. We must conduct additional development and testing before we can submit our valve to the FDA to begin testing it on humans. We'll need additional funding to do that, and we don't know when, or if, and FDA submission or testing will occur. We also developed technology for other implantable devices, such as hemodialysis ports, implantable insulin dispensers and rate-adaptive pacemakers. Because we decided to focus most of our resources on the noninvasive glucose sensor, we haven't made any real progress on these other projects, so they are all in very preliminary stages of development Functional Electrical Stimulator Project We had to discontinue our functional electrical stimulator project when we lost our contract with NeuroControl, the sole purchaser. Functional electrical stimulators, known as FES, are implanted under the skin of patients who are disabled as a result of spinal cord injury, stroke, head injury or other neurological disorder. The FES uses low levels of electrical stimulation to activate nerves and muscles to assist the patient with grasping, arm movement or standing. Because these products accounted for the majority of our sales revenues in recent years, the loss of the contract, and the end of the project, was significant. However, we continue to work with the FES Center at Case Western Reserve University on a new 16-channel device. Metal-Plating Technology When we acquired an interest in a metal-plating company, we estimated that the product would generate revenue and profit. We were wrong - the actual results were very different from our original estimates. The project did not generate any revenue during 1998 or 1999. Our early estimates were based upon our assessment not only of the marketability of the product, but on our ability to penetrate the metal finishing market using the features of the product. Our actual experience shows that it is much more difficult to exploit the existing market, regardless of whether or not the product has superior features. As a result, we had to adjust our marketing strategy. As a result, we can no longer estimate whether we will ever receive any revenue or profit from this technology, and we made the appropriate adjustments to our financial statements to reduce the value of this investment, which totaled $4.6 million - we funded that investment through sales of our securities including our debentures. American Inter-Metallics During 1999, we made our initial investment in American Inter-Metallics, Inc. AIM has its operations in Rhode Island, and is developing a product that enhances the performance of propellants. AIM is developing specialized equipment and a process for producing a product, which AIM believes will increase the burn rates of current propellant formulas. AIM believes that, by increasing the burn rate of propellants, its product will improve the performance of rockets and other machinery. During 2000, AIM completed its prototype and is now testing the equipment. We invested $525,000 in AIM during 1999, and made additional investments of $285,000 during 2000 for a total investment of $810,000, or 16.2% of AIM. In 2001, we invested an additional $110,000, which brought our ownership interest to 18.4%. If AIM continues to perform as promised, we may invest additional funds during 2001, for a total maximum investment of $1 million. If we invest the entire $1 million, using funds we raised by selling our stock and debentures, we will own 20% of AIM. AIM's product is in the research and development phase; we can't give any assurances that it will be successful or profitable. Diabecore Medical, Inc. During 2000, we, through Diasense, invested in Diabecore Medical, Inc., a Canadian company that is conducting research and working with other research institutions to develop a new type of insulin to treat diabetes. In preliminary studies, this new insulin has demonstrated effectiveness in controlling hyperglycemia without risk of severe hypoglycemia. Laboratory tests indicate that this new insulin, when administered in large doses, extends the duration of insulin action for improved control of glucose levels, rather than producing hypoglycemia. Those tests also have shown the new insulin to be 3 to 4 times less hypoglycemic when compared to presently available insulin. William D. Lougheed and Kusiel Perlman, M.D. are developing Diabecore's insulin with the support of the Research Institute of the Hospital for Sick Children in Toronto, where insulin was discovered, and the Loyal True Blue and Orange Research Institute in Richmond Hill, Ontario. We invested a total of $693,520 in Diabecore during 2000, and owned 20.8% as of December 31, 2000. In January 2001, we invested an additional $146,755, which increased Diasense's ownership to 24% of Diabecore. Through Diasense, we have the option to invest a total of approximately $1.6 million in Diabecore, for a total ownership of 35% of Diabecore's stock. MicroIslet, Inc. During 2000, we, through Diasense, also invested in MicroIslet, Inc. MicroIslet is a California company that is developing several diabetes research technologies with Duke University that focus on optimizing microencapsulated islets for transplantation. The current research involves the use of microencapsulated pancreatic cells, which are transplanted into diabetic animals. The initial trial on a non-human primate continues to provide very encouraging results. The diabetic animal achieved and maintained normal glucose readings for over 8 months following the transplant. MicroIslet believes that there are several benefits to using the microencapsulated islets for transplants, rather than transplanting human pancreatic cells. One benefit is the supply; the only source of human cells is from deceased organ donors, and more than one donor is needed for each transplant. In addition, human transplants involve a serious course of immuno-suppression therapy so the human recipient does not reject the transplanted cells. Dr. Emmanuel Opara, Ph.D. is the director of islet transplantation research at Duke University Medical Center, and he is heading up the research team. Dr. Opara's team plans to replicate the testing on 3 more primates to obtain additional data to support a planned request to the FDA to conduct human trials. We invested a total of $1,000,000 in MicroIslet during 2000, and owned 15% as of December 31, 2000. In January 2001, we invested an additional $250,000 and increased Diasense's ownership to 17.5% of MicroIslet. Through Diasense, we plan to invest a total of approximately $1.5 million in MicroIslet, and will own 20% of MicroIslet's stock. All this information regarding our projects is in summary form, and the status of each project is subject to constant change. We can't assure that any of our projects will be completed or successful. RESEARCH AND DEVELOPMENT We continue to be actively engaged in the research and development of new products. Our major emphasis has been the development of a noninvasive glucose sensor. In order to raise funds for the research and development of new products, we sell our stock and convertible securities. MARKETING AND DISTRIBUTION Petrol Rem began marketing of its bioremediation product, PRP, in mid-1993, and is now sold in quality marine supply stores in the coastal areas of the United States, Canada, Europe and South East Asia. ViaCirQ received FDA approval to market its ThermoChem-HT System and related disposables used for regional cancer treatment. None of our current projects have generated any meaningful sales or revenue. PATENTS, TRADEMARKS AND LICENSES We own patents on certain products and we file applications to obtain patents on new inventions when practical. Additionally, we try to obtain licenses from others when we think it's necessary to conduct our business. We rely on trade secret protection for our confidential and proprietary information. Although we and our affiliates, Diasense, ViaCirQ and Petrol Rem, take all reasonable steps to protect such information, including the use of confidentiality agreements and similar provisions, we can't assure that others will not independently develop substantially equivalent proprietary information or techniques, otherwise gain access to our trade secrets, disclose such technology, or we can meaningfully protect its trade secrets. Noninvasive Glucose Sensor Diasense owns a patent entitled "Non-Invasive Determination of Glucose Concentration in Body of Patients" which covers certain aspects of a process for measuring blood glucose levels noninvasively. That patent was awarded to our research team in December 1991 and was sold to Diasense under a purchase agreement dated November 18, 1991. The patent will expire, if all maintenance fees are paid, no earlier than the year 2008. If clinical testing or regulatory review delays marketing of a product made under the patent, we may be able to obtain an extension of the term of the patent. The patent relates only to noninvasive sensing of glucose but not to other blood constituents. Diasense has filed corresponding patent applications in a number of foreign countries. We filed a second patent application in December 1992, which was assigned to Diasense. 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, our research teams filed four additional patent applications related to the methods, measurement and noninvasive determination of analyte concentrations in blood. As of February 2001, a total of 13 patents have been issued, all of which have been assigned to Diasense, and additional patents are pending. Corresponding patent applications have been filed in foreign countries where we anticipate marketing the noninvasive glucose sensor. Our research team continues to file patent applications, provisional patent applications, some of which are being converted into PCTs - Patent Cooperative Treaty - that reflect the continued research and development and additional refinements to the noninvasive glucose sensor. Diasense 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. We know that competitors 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 those patents may require us 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. Diasense also relies upon trade secret protection for confidential and proprietary information. Although we, along with Diasense, 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 our trade secrets, disclose such technology, or that we can meaningfully protect our trade secrets. Diasense has registered the trademark "Diasensor ", which is intended for use in connection with the Diasensor models. Diasense intends to apply, at the appropriate time, for registrations of other trademarks as to any future products. Extracorporeal Hyperthermia In September 1992, a research team funded by us applied for a domestic patent in connection with the use of perfusion-induced extracorporeal hyperthermia and the treatment of HIV-positive patients; the patent has been assigned to ViaCirQ. In October 1994, ViaCirQ received notification that the patent application for its specialized method for whole-body hyperthermia has been issued. The patent entitled "Specialized Perfusion Protocol for Whole-Body Hyperthermia" contains seventeen claims for the hyperthermia procedure, including the method of heating all of the blood in the extracorporeal blood circuit to raise the patient's core temperature to approximately 42 degrees centigrade. A continuation in part, which was filed by ViaCirQ and included the ThermoChem System, was allowed in July 1995 and was issued in December 1995. In May 1999 and early 2000, ViaCirQ filed provisional patents for its use of the ThermoChem-HT System and related disposables, and for use of the device for regional hyperthermia procedures. In June 2000, HemoCleanse assigned all patents and patent applications to ViaCirQ relating to the ThermoChem technology in hyperthermia. One of those patents was issued in December 2000, and another was allowed in January 2001. Implantable Technology During 1995, we renewed our U.S. trademark registration for the name Coraflex, which was originally granted in 1988. We also obtained trademark registration for the name theraPORT. In October 1996, we obtained a patent for our heart valve product. Bioremediation In 1992 and 1993, Petrol Rem applied for patents in connection with its bioremediation product, all of which are still pending. Petrol Rem received trademark authorization for the use of the product names PRP, BIO-SOK, BIO-BOOM, and Oil Buster. WARRANTIES AND PRODUCT LIABILITY Our current product liability insurance coverage is $1,000,000 in the aggregate, and we believe that's sufficient due to our discontinuance of sales of certain products, including our former pacemaker line and our functional electrical stimulators, as well as our potential exposure to liability. SOURCE OF SUPPLY In connection with the manufacture the noninvasive glucose sensor and the ThermoChem System, we will be dependent upon suppliers for some of the components required to manufacture the device. We plan to assemble the devices, but will need to purchase components, including some components that will be custom made for us by certain suppliers. These components will not be generally available, and we may become dependent upon those suppliers, which do provide such specialized products. If we successfully develop other new products, and receive regulatory approvals to manufacture such products, we may become dependent on certain suppliers for custom parts. COMPETITION Noninvasive Glucose Sensor With the rapid progress of medical technology, and in spite of continuing research and development programs, our developmental products are always subject to the risk of obsolescence if some other company introduces a better product or technique. We are aware that other research groups are developing noninvasive glucose sensors, but we have limited knowledge about the actual technology or the stage of development for most of our competitors. There is a risk that some other group will complete the development of their devices before we do. There is no other company currently producing or marketing noninvasive sensors for the measurement of blood glucose similar to ours. Competitive success in the medical device field is dependent upon product characteristics including performance, reliability, and design innovations. Our noninvasive glucose sensor will compete with existing invasive glucose sensors. Although we believe that the features of our noninvasive glucose sensor, particularly its convenience and the fact that no blood samples are required, will compete favorably with existing invasive glucose sensors, we can't assure that it will succeed. Most currently available invasive glucose sensors yield accuracy levels of plus or minus 25% to 30%, range in price from $80 to $200, not including monthly costs for disposable supplies and accessories, and are produced and marketed by eight to ten sizable companies. Those companies include Bayer, Inc., Boehringer Mannheim Diagnostics, and Lifescan, an affiliate of Johnson & Johnson. Those companies have established marketing and sales forces, and represent established entities in the industry. Certain competitors, including their corporate or joint venture partners or affiliates, currently marketing invasive glucose sensors have substantially greater financial, technical, marketing and other resources and expertise than we do, and may have other competitive advantages over us, based on any one or more competitive factors such as accuracy, convenience, features, price or brand loyalty. Additionally, competitors marketing existing invasive glucose sensors may from time to time improve or refine their products, or otherwise make them more price competitive, so as to enhance their marketing competitiveness over our noninvasive glucose sensor. As a result, we can't make any guarantees that our sensor will be able to compete successfully. We face more direct competition from other companies who are currently researching and developing noninvasive glucose sensors. We have very limited knowledge as to the stage of development of these other devices; however, if another company successfully develops a noninvasive glucose sensor, obtains FDA approval, and reaches the market before we do, we would suffer. Among the other companies investigating infrared technology to measure blood glucose levels noninvasively is CME Telemetrix in Waterloo, Ontario, Canada. CME is reportedly conducting tests with a desktop monitor that uses one type of infrared wavelengths. OptiScan Biomedical in Alameda, California is developing a device that uses another type of infrared wavelengths. Rio Grande Medical Technologies of Albuquerque, New Mexico is designing a photo-based device. Rio Grande is currently funded by Johnson & Johnson. Other companies claim that they are designing systems that are semi-invasive. SpectRx in Norcross, Georgia is using a laser to create small holes in the skin without the invasive penetration of a metal needle or lancet. The device, called the Accu-Chek D-Tector, then gives a glucose reading from the fluid collected from the holes in the skin. SpectRx has partnered with Roche Diagnostics, and reported in November 2000 that they had received expedited review status from the FDA for a three-module pre-market approval filing for their diabetes detection device; we don't know whether they've filed any modules or how the FDA has responded, but we believe their clinical trials are continuing. Cell Robotics International, Inc. in Albuquerque, New Mexico is also using a laser device that pierces the skin. Called the Lasette, a laser makes a small hole in the fingertip to draw blood for glucose testing. A continuous glucose monitoring system from MiniMed, Inc. in Sylmar, California received FDA approval in June 1999. The device includes a tube with a small sensor at its tip that is inserted through the skin, sending readings via a small wire to a sensor. A new sensor must be reinserted under the skin every two to three days. Cygnus of Redwood, California recently underwent an FDA panel review for its GlucoWatch that draws fluid through the skin through an electric needle. The fluid triggers a reaction in a disposable pad. Although Cygnus claims that its device is noninvasive, the fact remains that, in addition to the use of electrical charges to draw fluid through the skin, each person must use finger prick technology every day to set and use the device. The FDA approved the device in March 2001. We were interested to learn that the FDA panel accepted Cygnus' use of the same error grid data analysis - a specific method for displaying data - which the FDA rejected when we used it for our own panel review. Certain organizations are also researching and developing technologies that may regulate the use or production of insulin or otherwise affect or cure the underlying causes of diabetes. We are not aware of any new or anticipated technology that would effectively render our noninvasive glucose sensor obsolete or otherwise not marketable. However, future technological developments or products could make our noninvasive glucose sensor significantly less competitive or, in the case of the discovery of a cure for diabetes, even obsolete. Bioremediation Although our bioremediation products compete with other oil- spill clean-up products, there is no direct competition for the type of product we produce. The EPA recently created a separate category for its NCP listing, for enzyme additives, and PRP is the only product listed in that category. GOVERNMENT REGULATIONS Since most of our products are medical devices as defined by the Federal Food, Drug and Cosmetic Act, as amended, they are subject to the regulatory authority of the FDA. The FDA regulates the testing, marketing and registration of new medical devices, in addition to regulating manufacturing practices, labeling and record keeping procedures. The FDA can inspect our facilities and operations and may also audit our record keeping procedures at any time. The FDA's Quality System Regulation specifies various requirements for our manufacturing processes and the way we must maintain certain records. In 1997, Congress passed legislation that addresses the regulation of pharmaceutical and medical devices. Although the impact of the FDA Administration Modernization Act of 1997 was expected to reduce the quantity of information a company must submit for approval of devices that has not been our experience. Noninvasive Glucose Sensor Because the FDA regulates our noninvasive glucose sensor, we have to meet all FDA requirements before we can market and sell our device in the United States. These requirements include clinical testing, which must be supervised by the chosen hospitals. During 1999, the FDA recommended we file a Pre-Market Application and conduct an additional clinical study. We are in the process of submitting a modular PMA, which allows us to submit parts of the submission to the FDA over a period of time. This modular PMA is a new method of submitting information to the FDA, and resulted from the passage of FDA legislation in 1997. We have submitted the first two parts of the PMA and we began our clinical trials in October 2000, after the FDA approved our submission that included the testing protocol. We don't know how long it will take for the FDA to accept our filings or approve our device, if ever. In June of 1998, the FDA instituted a new Quality System Regulation that took the place of Good Manufacturing Practices. These regulations align closely with similar guidelines required by the European Union and have added control of the design process as well as the manufacturing process. There are different requirements for selling our device in Europe. On January 14, 1998, we received certification to ISO 9001, and on June 23, 1998, we received the CE mark. The CE mark and the ISO certification are provided by the regulatory bodies or other approved companies of the European Union. The CE mark indicates that the device adheres to quality systems guidelines. Rigorous audits were conducted at our Indiana, Pennsylvania facility to certify that our development and manufacturing procedures, as well as the Diasensor 1000 itself met the international standards laid down by Europe's medical device directive. In order to maintain our approval to ship the device into the European Union, we must be vigilant in our adherence to our quality system. We will also be subject to annual audits to be sure that we continue to meet the required standards. Any changes in FDA or European procedures or requirements will require corresponding changes in our obligations in order to maintain compliance with those standards. Those changes may result in additional delays or increased expenses. Depending on which other countries we target, our products may also be subject to additional foreign regulatory approval before we can sell our devices. Extracorporeal Hyperthermia In January 2000, HemoCleanse and ViaCirQ received FDA approval to market the ThermoChem-HT System and related disposables, which are used to raise the core temperature of the abdominal cavity to the desired temperature in the 41 C (105.8 F) to 42 C (107.6 F) range by continuously bathing the abdominal cavity with circulating sterile solution. In addition, in February 2000, the FDA approved continued clinical trials at the University of Texas Medical Branch using the ThermoChem technology in whole-body hyperthermia to treat patients with certain types of end-stage lung cancer. Bioremediation The EPA and the Pennsylvania Department of Environmental Resources regulate our bioremediation products. In addition, each state in which the bioremediation products are used has its own environmental regulations. Regional response teams consisting of representatives from the National Oceanic and Atmospheric Administration, the U.S. Coast Guard and the EPA govern our oil spill clean-up products. Human Resources As of December 31, 2000, we had 109 full-time employees who were located primarily in either our Indiana or Pittsburgh locations. In addition, ViaCirQ had six employees; Diasense had one employee; and Petrol Rem had eleven employees as of December 31, 2000. We have employment contracts with some of our non-officer employees, most of whom are scientists and engineers employed in our research and development operations. Those contracts are typically for terms of five years and contain confidentiality provisions. We also employ consultants as needed; some of the consultants are employed based on consulting contracts, which contain confidentiality provisions. Financial Information About Foreign and Domestic Operations and Export Sales Our operations are located primarily in the United States of America. In 1994, we incorporated a majority-owned foreign subsidiary, Diasense U.K. Limited, in order to facilitate the opening of our office in London, England. Although we have taken some orders from our distributor in the U.K. and have delivered devices for patient use, we have had no material sales, foreign or domestic, since our inception. We are in the process of applying to receive approval to market our device in Canada. PROPERTY Due to cash flow problems, Diasense sold its office condominium in 1999, and they now lease the same space for administrative offices. We, along with our subsidiaries, continue to lease a portion of that office at a monthly rental amount of $5,175 plus one-half of the utilities. Prior to 1999, our research and development operations were located in a 20,000 square foot one-story building at 300 Indian Springs Road, Indiana, PA. We leased that building from the 300 Indian Springs Road Real Estate Partnership, which was owned in part by some of our current and former officers and directors. Of the eight members of the partnership, two are currently officers or directors - Fred E. Cooper and Glenn Keeling. Each member of the partnership personally guaranteed the payment of lease obligations to the bank providing the funding, and in return received warrants to buy 100,000 shares of our stock at $.33 per share. In addition to rent, we paid all taxes, utilities, insurance, and other expenses related to our operations at that location. In 1999, after all our Indiana, PA operations were moved out of 300 Indian Springs Road location to Kolter Drive, the property was put up for sale. The property was sold in October 2000 for $475,000, and each of the partners received $12,698, after the mortgage was paid. In September 1992, we entered into a ten-year lease agreement with the Indiana County Board of Commissioners for 35,000 square feet of space on Kolter Drive that we reconfigured to our manufacturing specifications. During 1998 and 1999, we moved the balance of our Indiana, Pennsylvania operations to this space. During 2000, we obtained an additional 33,000 square feet of manufacturing space, which is being completed for manufacturing. That space, which was originally obtained in 1995, was vacated in 1998 in return for the lessor's agreement not to pursue legal action against us for nonpayment of rent. In 2000, we settled all the pending legal issues with the lessor when we reacquired the space. This facility contains sufficient additional space to accommodate our projected Indiana operations through 2001. As of February 2001, Diasense has an office in London, England for the purpose of taking orders for the Diasensor 1000. We believe that our existing facilities will be sufficient to meet our needs through 2001. If we require additional space, we believe such space will be available at reasonable commercial rates. LEGAL PROCEEDINGS In May 1996, we, along with Diasense and our current and former individual directors, including David Purdy, Fred Cooper, and Anthony J. Feola, who are also current and former Diasense officers and directors, were served with a federal class action lawsuit based on alleged misrepresentations and violations of federal securities laws. In 2000, even though we don't believe any violations of the securities laws occurred, we agreed to settle the lawsuit. The parties reached a settlement, and we have paid an aggregate of $2,150,000 toward the settlement to date. An additional $1,300,000 is due in July 2001. Although we don't know whether the class action plaintiffs have been formally notified of the settlement, or if they have accepted its terms, we believe the existing settlement agreement will end this matter. In April 1998, we, along with our corporate affiliates, were served with subpoenas requesting documents in connection with an investigation by the U.S. Attorneys' office for the U.S. District Court for the Western District of Pennsylvania. We continue to submit various scientific, financial and contractual documents in response to their requests. In April 1996, the Pennsylvania Securities Commission commenced a private investigation into sales of Diasense common stock in a public offering in an effort to determine whether any sales were made improperly to Pennsylvania residents. We cooperated fully with the state and provided all of the information requested. As of the date of this filing, no determinations had been made, and no orders have been issued. DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company as of March 2001 were as follows: Name Age Director Position Since Fred E. Cooper 54 1989 Chief Executive Officer, Executive Vice President, Director Anthony J. Feola 52 1990 Senior Vice President, Director Michael P. Thompson 50 Chief Financial Officer Glenn Keeling 49 1991 Vice President, Director Stan Cottrell 57 1998 Director Paul W. Stagg 53 1998 Director FRED E. COOPER, 54, is our chief executive officer, executive vice president and a director; he devotes approximately 60% of his time to BICO, and 40% to Diasense. Prior to joining us, Mr. Cooper co-founded Equitable Financial Management, Inc. of Pittsburgh, PA, where he was the executive vice president until he left in August 1990. Our board of directors appointed him chief executive officer in January 1990. He is also an officer and director of Diasense and a director of Petrol Rem and Coraflex. ANTHONY J. FEOLA, 52, rejoined BICO as our senior vice president in April 1994, after serving as Diasense's vice president of marketing and sales from January 1992 until April 1994. Prior to January 1992, he was our vice president of marketing and sales. Prior to joining us in November 1989, Mr. Feola was vice president and chief operating officer with Gateway Broadcasting in Pittsburgh in 1989, and national sales manager for Westinghouse Corporation, also in Pittsburgh, from 1980 until 1989. He was elected a director in February 1990, and also serves as a director of Diasense, Coraflex, and Petrol Rem. MICHAEL P. THOMPSON, 50, joined BICO as our interim chief financial officer in August 2000, and was elected our chief financial officer by our board of directors in January 2001. Prior to joining us, he was a partner in Thompson Dugan, P.C., the CPA firm that served as our outside auditors until August, when Mr. Thompson joined us as interim CFO. He has been a CPA for over 25 years. GLENN KEELING, 49, joined our board of directors in April 1991. Mr. Keeling currently is BICO's vice president of marketing and ViaCirQ's president and chief executive officer. He devotes 50% of his time to BICO and 50% to ViaCirQ. From 1976 through 1991, he was a vice president in charge of new business development at Equitable Financial Management, Inc., a regional equipment lessor. His responsibilities included initial contacts with banks and investment firms to open new lines of business referrals in connection with financing large equipment transactions. He is also president and a director of ViaCirQ. STAN COTTRELL, 57, was appointed to our board of directors in 1998. Mr. Cottrell is the chairman and founder of Cottrell Associates International, Inc., which provides international business development, brokerage, specialty marketing and promotional services. He is a former director of marketing for Inhalation Therapy Services and was employed by Boehringer Ingelheim, Ltd. as a national product manager. Mr. Cottrell is a world ultra-distance runner and the author of several books. PAUL W. STAGG, 53, was appointed to our board of directors in 1998. Mr. Stagg is the owner of P.C. Stagg, LLC. Prior to his current position, he was the marketing manager for the Wholesale Division of First Financial Resources, Inc., where he was responsible for marketing, underwriting, sorting and coordination various types of financing for institutional investors. Prior to his current position, he was district distributor of marketing for Ginger Mae, a division of United Companies of Baton Rouge, LA. Item 405 of Regulation S-K requires us to make disclosures regarding timely filings required by Section 16(a) of the Securities and Exchange Act. Based solely on our review of copies of forms received and written representations from certain reporting persons, we believe that all of our officers, directors and greater than ten percent beneficial owners complied with applicable filing requirements. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We share common officers and directors with our subsidiaries. In addition, BICO and Diasense have entered into several intercompany agreements including a purchase agreement, a research and development agreement and a manufacturing agreement, which we describe later in this section. Our management believes that it was in our the best interest to enter into those agreements and that the transactions were based upon terms as fair as those which may have been available in comparable transactions with third parties. However, we did not hire any unaffiliated third party to determine independently the fairness of those transactions. Our policy concerning related party transactions requires the approval of a majority of the disinterested directors of both the corporations involved, if applicable. Employment Relationships Our board of directors approved employment agreements on November 1, 1994 for its officers, David L. Purdy, Fred E. Cooper, Anthony J. Feola and Glenn Keeling, and approved an employment agreement for Michael P. Thompson in August 2000. We discuss those agreements in the executive compensation section. David L. Purdy, the president, treasurer and a director of BICO until June 2000, was a director of Diasense, and the chairman and chief scientist of Diasense. In June 2000, he resigned his positions with BICO in order to head up our Biocontrol Technology division and devote all of his efforts to our noninvasive glucose sensor project. In November 2000 he resigned from his other positions with BICO and Diasense effective February 2001. Fred E. Cooper, chief executive officer, executive vice president and a director, is a director of Diasense, and Petrol Rem. He is also the president of Diasense. Mr. Cooper devotes approximately 60% of his time to BICO and 40% to Diasense. Anthony J. Feola, senior vice president and a director, is also a director of Diasense, and Petrol Rem. Glenn Keeling is a vice president and a director. Mr. Keeling is also the president and a director of ViaCirQ, formerly IDT. Michael P. Thompson is our new chief financial officer. He is also the chief financial officer for Diasense, and Petrol Rem, and a director of ViaCirQ. Property Two of our current executive officers and/or directors and three former directors are members of the nine-member 300 Indian Springs Road Real Estate Partnership that in July 1990 purchased our real estate in Indiana, Pennsylvania. Each member of the partnership personally guaranteed the payment of lease obligations to the bank providing the funding. The five members of the partnership who are also current or former officers and/or directors of BICO, David L. Purdy, Fred E. Cooper, Glenn Keeling, Jack H. Onorato and C. Terry Adkins, each received warrants on June 29, 1990 to purchase 100,000 shares of our common stock at an exercise price of $.33 per share until June 29, 1995. Those warrants still outstanding as of the original expiration date were extended until June 29, 2001. Mr. Purdy, who was a director and executive officer at the time of the transaction, resigned from our board of directors on June 1, 2000, and resigned as an officer in November 2000, effective February 2001. Mr. Adkins, who was a director at the time of the transaction, resigned from our board of directors on March 30, 1992. Mr. Keeling, who was not a director at the time of the transaction, joined our board of directors on May 3, 1991. Mr. Onorato, who was not a director at the time of the transaction, was a BICO director from September 1992 until April 1994. Like all our warrants, the warrants issued to the members of 300 Indian Springs Road Real Estate Partnership had exercise prices equal to or above the current quoted market price of our common stock on the date of issuance. Warrants This section discusses the warrants we granted to our executive officers and directors from 1998 through 2000. We recognize warrants granted based upon the minimum value method. Under this method, the warrants are valued by comparing the current market price of our common stock to the present value of the warrants' exercise price. Our policy is to set exercise prices for our warrants that is equal to or above the current quoted market price of our stock on the date issued. On April 28, 1999, we granted warrants to purchase our common stock at $.129 per share until April 28, 2004 in the following amounts: 4,000,000 to Fred E. Cooper, our chief executive officer and a director; 2,000,000 to Anthony J. Feola, our senior vice president and a director; 2,000,000 to Glenn Keeling, our vice president and a director; 4,000,000 to David L. Purdy, our chairman and a director; 250,000 to Stan Cottrell, our director; and 250,000 to Paul Stagg, a director. The exercise price of $.129 per share was equal to the market price on April 28, 1999. On August 28, 2000, we granted warrants to purchase 1,000,000 shares of our common stock at $.125 per share until August 28, 2005 to Michael P. Thompson, our chief financial officer. The exercise price of $.125 per share was equal to the market price on August 28, 2000. On February 1, 2001, we granted warrants to purchase 200,000 shares of our common stock at $.102 per share until February 1, 2006 to Paul Stagg, one of our directors. Loans In 1999, we consolidated all of Fred E. Cooper's outstanding loans from us, including accrued interest, into one loan in the amount of $777,399.80 at 8% interest. Mr. Cooper began repaying the loans in May of 1999. The loan balance as of January 31, 2001 was $710,864. Our board of directors - with Mr. Cooper abstaining - approved these loans because they were for a good business purpose. The business purposes were: to provide Mr. Cooper with funds during his initial years with BICO, when he waived a salary; and to refinance loans secured by BICO stock, so the stock wouldn't have to be sold. We believe that if Mr. Cooper had been forced to sell his stock, and to disclose the sale, it would have hurt our stock price because many people view insider stock sales as a negative message. In addition, Mr. Cooper owns 30% of a corporation called B-A-Champ.com, an Internet company. During 1999 and 2000, we loaned B-A-Champ.com an aggregate of $55,256 at 6% interest. In 2000, we converted that outstanding loan to common stock and invested an additional $400,000, - we now own 4,789,291 shares of stock, resulting in BICO's total ownership of 51% ownership of B-A-Champ.com. The business purpose of the loan and the conversion was that we received an equity interest in that company, which expects to generate revenues. In 1999, we consolidated all of Anthony J. Feola's outstanding loans from us, including accrued interest, into one loan in the amount of $259,476.82 at 8% interest. Mr. Feola began repaying the loans in May of 1999. The loan balance as of January 31, 2001 was $219,758. Our board of directors approved these loans - with Mr. Feola abstaining - because they were for a good business purpose. The business purpose was to refinance loans secured by BICO stock, so the stock wouldn't have to be sold. We believe that if Mr. Feola had been forced to sell his stock, and to disclose the sale, it would have hurt our stock price because many people view insider stock sales as a negative message. In 1999, we consolidated all of Glenn Keeling's outstanding loans from us, including accrued interest, into one loan in the amount of $296,358.07 at 8% interest. Mr. Keeling began repaying the loans in May of 1999. The loan balance as of January 31, 2001 was $235,804. Our board of directors approved these loans - - with Mr. Keeling abstaining - because they were for a good business purpose. The business purpose was to refinance loans secured by BICO stock, so the stock wouldn't have to be sold. We believe that if Mr. Keeling had been forced to sell his stock, and to disclose the sale, it would have hurt our stock price because many people view insider stock sales as a negative message. In September 1995, we granted a loan in the amount of $250,000 to Allegheny Food Services in the form of a one-year renewable note bearing interest at prime rate as reported by the Wall Street Journal plus 1%. Interest and principal payments have been made on the note, and as of January 31, 2001, the balance was $77,723. Our board of directors approved this loan because of its business purpose - in return for granting the loan, we received an option to purchase a franchise owned by Joseph Kondisko, a former director of Diasense, is a principal owner of Allegheny Food Services. The franchise generates revenue, which is why we made the investment - until our products begin to generate significant revenues; we investigate other ways to generate revenue to fund our operations. We have not exercised the option, which has an exercise price of $200,000, but it remains valid until 2005. All future loans to officers, directors and their affiliates will also be made only after board approval, and for good business purposes. Intercompany Agreements Our management believes that the agreements between BICO and Diasense, which are summarized below, were based upon terms, which were as favorable as those that may have been available in comparable transactions with third parties. However, we did not retain any unaffiliated third party to determine independently the fairness of such transactions. License and Marketing Agreement. Diasense 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 Diasense's common stock. That agreement was canceled through a cancellation agreement dated November 18, 1991, and superseded by a purchase agreement dated November 18, 1991. The cancellation agreement provides that BICO will retain the 8,000,000 shares of Diasense common stock, which BICO received under the license and marketing agreement. Purchase agreement. BICO and Diasense entered into a purchase agreement dated November 18, 1991 whereby BICO gave Diasense its entire right, title and interest in the noninvasive glucose sensor and its development, including its extensive knowledge, technology and proprietary information. Those transfers included BICO's patent received in December 1991. In consideration of the conveyance of its entire right in the noninvasive glucose sensor and its development, BICO received $2,000,000. In addition, Diasense may try, at its own expense, to obtain patents on other inventions relating to the noninvasive glucose sensor. Diasense also guaranteed BICO the right to use that patented technology in the development of BICO's proposed implantable closed-loop system, a related system in the early stages of development. In December 1992, BICO and Diasense 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 Diasense in connection with any sales by BICO of its proposed closed-loop system. Research and Development Agreement. Diasense and BICO entered into an agreement dated January 20, 1992 in connection with the research and development of the noninvasive glucose sensor. Under the agreement, BICO will continue the development of the noninvasive glucose sensor, including the fabrication of prototypes, the performance of clinical trials, and the submission to the FDA of all necessary applications in order to obtain market approval for the noninvasive glucose sensor. BICO will also manufacture the models of the noninvasive glucose sensor to be delivered to Diasense for sale under the terms of a manufacturing agreement. Upon the delivery of the completed models, the research and development phase of the noninvasive glucose sensor will be deemed complete. Diasense 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 Diasense agreed to suspend billings, accruals of amounts due and payments under to the research and development agreement pending the FDA's review. Manufacturing Agreement. BICO and Diasense 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. Diasense will provide BICO with purchase orders for the products and will endeavor to provide projections of future quantities needed. The original manufacturing agreement called for the products to be manufactured and sold at a price to be determined in accordance with the following formula: Cost of Goods, including actual or 275% of overhead, whichever is lower, plus a fee of 30% of cost of goods. In July 1994, the formula was amended to be as follows: costs of goods sold was defined as BICO's aggregate cost of materials, labor and associated manufacturing overhead + a fee equal to one third of the difference between the cost of goods sold and Diasense's sales price of each sensor. Diasense's sales price of each sensor is defined as the price paid by any purchaser, whether retail or wholesale, directly to Diasense for each sensor. Subject to certain restrictions, BICO may assign its manufacturing rights to a subcontractor with Diasense's written approval. The term of the agreement is fifteen years. EXECUTIVE COMPENSATION The following table contains information on our executive officer's annual and long-term compensation for their services to us in all capacities for the years ended December 31, 2000, 1999 and 1998. The executive officers included are those people who, as of December 31, 2000, were: our chief executive officer, and our other most highly compensated executive officers who were paid more than $100,000. In addition, we included information regarding David L. Purdy, who was an executive officer and director until June 2000, and the president of our Biocontrol Technology division during 2000. In November 2000, Mr. Purdy resigned effective February 2001. SUMMARY COMPENSATION TABLE ============================================================================== Annual Compensation | (1)Long Term Compensation - ------------------------------------------------------------------------------ | Awards Name and | Securities Principal Bonus($) Other | Underlying (4) All other Position Year Salary($) (2) ($)(3) | Warrants(#) Compensation ============================================================================== David L. | Purdy (5) 2000 $646,795 $200,000(6) $0 | * $0 1999 $450,000 $0 $0 | 4,000,000(4) $0 1998 $166,802 $0 $0 | 0 $0 - ------------------------------------------------------------------------------ Fred E. 2000 $939,000 $383,746(8) $0 | * $0 Cooper, 1999 $821,242 $200,000 $0 | 4,000,000(4) $0 CEO (7) 1998 $556,173 $0 $0 | 0 $0 - ------------------------------------------------------------------------------ Anthony J. 2000 $633,850 $268,190(10) $0 | * $0 Feola , Sr. 1999 $500,886 $0 $0 | 2,000,000(4) $0 Vice Pres.(9) 1998 $326,912 $0 $0 | 0 $0 - ------------------------------------------------------------------------------ Glenn 2000 $500,000 $93,190(12) $0 | * $0 Keeling, VP 1999 $302,083 $0 $0 | 2,000,000(4) $0 (11) 1998 $180,003 $0 $0 | 0 $0 - ------------------------------------------------------------------------------ Michael P. 2000 $103,243 $0 $0 | 1,000,000(4) $0 Thompson, Chief Financial Officer (13) (1) We do not currently have a Long-Term Incentive Plan, and no payouts were made under to any LTIP during the years 2000, 1999 or 1998. We issued warrants during 1999 and 2000, which we also discuss in Note 3. We do not have any retirement, pension or profit-sharing programs for the benefit of our directors, officers or other employees. (2) The amounts shown include both cash bonuses and dollar amounts reflecting stock bonuses. The footnotes that follow break down the total amount for each executive officer. The dollar amount shown for stock bonuses equals the number of shares of stock granted multiplied by the stock price on the grant date. This valuation does not take into account the diminution in value attributable to the restrictions applicable to the shares based on short-swing profit or other restrictions. (3) During the year ended December 31, 2000, the executive officers received medical benefits under our group insurance policy, including disability and life insurance benefits. The total combined amount of all those benefits was less than 10% of the total annual salary and bonus reported for each executive officer. (4) During 2000, we issued warrants to Michael P. Thompson, our new chief financial officer. We granted the warrants on August 28, 2000 that give him the right to purchase 1 million shares of our common stock at $.125 per share, which was the market price on the grant date, until August 28, 2005. During 1999, we issued warrants to the executive officers listed. All of the warrants were issued on April 28, 1999 at $.129 per share, which was the market price on the date of the warrant grant. For more detailed information, please refer to the "Option/Warrant/SAR Grants in Last Fiscal Year" table, below. (5) In 2000, we paid Mr. Purdy $196,795 by BICO and $450,000 by Diasense. In 1999, he was paid $183,333 by BICO and $266,667 by Diasense. In 1998, he was paid $66,802 by BICO and $100,000 by Diasense. All amounts are included in the table above. Mr. Purdy is paid by BICO based on his employment agreement. Diasense paid Mr. Purdy based on its board of director's decisions for services performed on its behalf. In June 2000, Mr. Purdy resigned as a BICO director and executive officer and became the president of our Biocontrol Technology division. In November 2000, he resigned from that position effective February 2001. (6) In 2000, we paid Mr. Purdy a cash bonus of $200,000 from BICO. (7) In 2000, we paid Mr. Cooper $250,000 by BICO; $497,000 by Diasense; and $96,000 each by Petrol Rem and ViaCirQ. Part of his salary from 1998 was deferred and paid in 1999, and all amounts are included in the table above. In 1999, he was paid $272,617 by BICO; $340,625 by Diasense and $104,000 each by Petrol Rem and IDT, which is now ViaCirQ. In 1998, in addition to his BICO salary of $250,000, Diasense paid him $150,000 and Petrol Rem and IDT, which is now ViaCirQ, paid him $96,000. All amounts are included in the table above. Mr. Cooper is paid by BICO based on his employment agreement. Amounts paid to Mr. Cooper by Diasense, Petrol Rem and ViaCirQ are determined by the boards of directors of those companies based upon services performed on their behalf. (8) In 2000, we paid Mr. Cooper a cash bonus of $200,000 from BICO. In addition, we gave him a stock bonus of 1 million shares of our common stock. We determined the value of his stock bonus, $183,746, using the stock price on the date of the bonus, even though he hasn't sold the stock. (9) In 2000, we paid Mr. Feola $408,850 by BICO and $225,000 by Diasense. Part of his salary from 1998 was deferred and paid in 1999, and all amounts are included in the table above. In 1999, Mr. Feola was paid $425,886 by BICO and $75,000 by Diasense. All amounts are included in the table above. Mr. Feola is paid by BICO based on his employment agreement. Diasense paid Mr. Feola based on its board of director's decisions for services performed on its behalf. (10) In 2000, we paid Mr. Feola a cash bonus of $175,000 by BICO. In addition, we gave him a stock bonus of 500,000 shares of our common stock. We determined the value of his stock bonus, $93,190, using the stock price on the date of the bonus, even though he hasn't sold the stock. (11) We pay Mr. Keeling based on his employment agreement. In 2000, 50% of his salary was allocated to ViaCirQ. In 1999, 87% of his salary was allocated to IDT, now ViaCirQ, based upon the time he devoted to its operations. (12) In 2000, we gave Mr. Keeling a stock bonus of 500,000 shares of our common stock. We determined the value of his stock bonus using the stock price on the date of the bonus, even though he hasn't sold the stock. (13) Mr. Thompson was appointed our interim chief financial officer when he joined us in August 2000. We pay him based on his employment agreement. Option/Warrant/SAR Grants in Last Fiscal Year POTENTIAL REALIZED VALUE AT ASSUMED ANNUAL RATES OF STOCK INDIVIDUAL GRANTS (1) PRICE APPRECIATION FOR OPTION TERM (3) Number of Percent of Securities of Total Underlying Options/SAR's Exercise Options/ Granted to or Expiration SAR's Employees in Base Date 5%($) 10%($) 0%($) Name Granted Fiscal Year Price (#) (2) ($/Sh) Michael P. Thompson 1,000,000 100% $0.125 8/28/05 $159,000 $201,000 $0 (1) The warrants in this table were granted during 2000. The warrants granted the executive officer the right to purchase the number of shares of common stock shown in the table at a price of $0.125 per share for five years. (2) For purposes of calculating this percentage, the total number of warrants granted to employees during 2000 was 1,000,000. (3) Potential realizable values reflect the difference between the warrant exercise price at the end of 2000 and the fair value of our common stock price from the date of the grant until the expiration of the warrant. The 5% and 10% appreciation rates, compounded annually, are assumed under to the rules adopted by the SEC and do not reflect actual historical or projected rates of appreciation of our common stock. Assuming such appreciation, the following illustrates the per share value on the dates set forth, which are the expiration dates for the warrants, assuming the values set forth, which are the closing bid price on the date of the grant as reported by the electronic bulletin board: STOCK PRICE ON EXPIRATION DATE OF GRANT DATE 5% 10% 08/28/00:$0.125 08/28/05 $0.159 $0.201 The foregoing values do not reflect appreciation actually realized by executive officers. For more information on the warrants, review the next table. AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE Number of Value of Securities Unexercised Underlying In-the-Money Unexercised Options/SARs Options/SARs at Shares at 12/31/00 ($) Acquired 12/31/00 (#) Name On Value Exercisable/ Exercisable/ Exercise Realized Unexerciseable Unexercisable (#) (1) ($)(2) (3) (4) David L. 0 $ 0 3,767,200 $ 0 Purdy (5) (10) Fred E. 0 $ 0 4,300,000 $ 0 Cooper (6) (10) Anthony 0 $ 0 2,550,000 $ 0 J. Feola (7) (10) Glenn 0 $ 0 2,100,000 $ 0 Keeling (8) (10) Michael P. 0 $ 0 1,000,000 $ 0 Thompson (9) (10) __________________ (1) This figure represents the number of shares of common stock acquired by each executive officer upon the exercise of warrants. None of the executive officers exercised warrants during 2000. (2) The value realized of the warrants exercised is computed by determining the difference between the market value of our common stock on the exercise date minus the exercise price of the warrant. (3) All warrants held by the executive officers are currently exercisable. (4) The value of unexercised warrants was computed by subtracting the exercise price of the outstanding warrants from the closing sales price of our common stock on the last trading day of December 2000 as reported by the electronic bulletin board, which was $.049. (5) Includes warrants to purchase: 187,200 shares of common stock at $.25 per share until April 24, 2001; 500,000 shares of common stock at $.25 per share until May 1, 2001; 80,000 shares of common stock at $.33 per share until June 29, 2003; and 3,000,000 shares of common stock at $.129 per share until April 28, 2004. (6) Includes warrants to purchase: 300,000 shares of common stock at $.25 per share until May 1, 2001; and 4,000,000 shares of common stock at $.129 per share until April 28, 2004. (7) Includes warrants to purchase: 100,000 shares of common stock at $.25 per share until May 1, 2001; 100,000 shares of common stock at $.25 per share until November 26, 2003; 350,000 shares of common stock at $.50 per share until October 11, 2002; and 2,000,000 shares of common stock at $.129 per share until April 28, 2004. (8) Includes warrants to purchase: 100,000 shares of common stock at $1.48 per share until August 26, 2001; and 2,000,000 shares of common stock at $.129 per share until April 28, 2004. (9) Includes warrants to purchase 1,000,000 shares of common stock at $.125 per share until August 28, 2005. (10) Because the market price as of the last trading day of December 2000 was less than the exercise price of the warrants, none of the warrants were in the money. Employment Agreements We have employment agreements with our executive officers, Fred E. Cooper, Anthony J. Feola and Glenn Keeling effective November 1, 1994, and Michael P. Thompson effective August 16, 2000. Under those agreements, they are currently entitled to receive annual salaries of $400,000, $558,850, $250,000 and $300,000 respectively, which are subject to review and adjustment. The initial term of the agreements with Mr. Cooper was renewed in October 1999 for an additional three-year term, which will automatically renew for additional three-year terms unless one of the parties gives proper notice of non-renewal; in November 2000, Mr. Purdy resigned effective February 2001. The initial term of the agreements with Messrs. Feola and Keeling was renewed in October 1999 for an additional two-year term, which will automatically renew for additional two-year terms unless one of the parties gives proper notice of non-renewal. The initial term of Mr. Thompson's agreement will expire on August 31, 2005 and will also automatically renew for additional two-year periods unless one of the parties gives proper notice of non-renewal. The agreements also provide that in the event of a "change of control", we are required to issue the following shares of common stock, represented by a percentage of our total outstanding shares of common stock immediately after the change in control: 5% to Mr. Cooper; 4% to Mr. Feola; 3% to Mr. Keeling; and 2% to Mr. Thompson. In general, a change of control would occur for purposes of the agreements if: 20% or more of our outstanding voting stock is acquired by any person; if 1/3 or more of our directors are not continuing directors, as defined in the agreement; or when a controlling influence over our management or policies is exercised by any person or by persons acting as a group within the meaning of Section 13(d) of the Securities Exchange Act of 1934. In addition, if there is a change in control during the term of the agreements, or within one year afterwards, Messrs. Cooper, Feola, Keeling and Thompson are entitled to receive severance payments in amounts equal to: 100% of their most recent annual salary for the first three years following termination; 50% of their most recent annual salary for the next two years; and 25% of their most recent salary for the next five years. We are also required to continue medical insurance coverage for Messrs. Cooper, Feola, Keeling and Thompson and their families during those periods. Those severance payments will terminate in the event of the employee's death. In the event that Mr. Cooper becomes disabled, as defined in his agreements, he will be entitled to the following payments, in lieu of salary. The disability payments would be reduced by any amount paid directly to him under a disability insurance policy if we provided one: 100% of his most recent annual salary for the first three years; and 70% of his most recent salary for the next two years. In the event that either Mr. Feola, Mr. Keeling or Mr. Thompson becomes disabled, as defined in their agreements, he will be entitled to similar payments: 100% of his most recent annual salary for the first year; and 70% of his most recent salary for the second year. Under the employment agreements, Messrs. Cooper, Feola, Keeling and Thompson are required to protect our confidential information during the term of the agreements and they are restricted from competing with us for a period of one year in specified states following the expiration or termination of the agreements. In addition to the employment agreements we just described, we have employment agreements with two of our non-executive officer employees effective November 1, 1994. The terms of such agreements are similar to those described for Messrs. Feola and Keeling above, with the following amendments: the term of one agreement is from November 1, 1994 through October 31, 2002, and is renewable for successive two-year terms; the term of the other agreement was renewed for an additional two-year term in October 1999, and will automatically renew for additional two-year terms unless one of the parties terminates the agreement. In the event of a change in control, we are required to issue both employees shares of common stock equal to 2% of our outstanding shares of common stock immediately after the change in control. Purdy Agreement In February 2001, we entered into an agreement with David L. Purdy in connection with his resignation from our affiliates and us. The agreement required us to pay Mr. Purdy an aggregate of $912,727 plus $100,000 to be placed in an escrow account for his future attorney's fees. The agreement contains confidentiality and release provisions for both Mr. Purdy and us. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the indicated information as of December 31, 2000 with respect to each person who we know is beneficial owner of more than 5% of the outstanding common stock, each of our directors and executive officers, and all of our directors and executive officers as a group. As of December 31, 2000, we had 1,383,704,167 shares of our common stock outstanding. The table below shows the common stock currently owned by each person or group, including common stock underlying warrants, all of which are currently exercisable, as of December 31, 2000. The left-hand column sets forth the percentage of the total number of shares of common stock outstanding as of December 31, 2000, which would be owned by each named person or group if they exercised of all of their warrants, together with common stock they currently owned. An asterisk - * - means less than 1%. Except as otherwise indicated, each person has the sole power to vote and dispose of each of the shares listed in the columns opposite his name. Name and Amount and Percent of Beneficial Address of Nature of Ownership of Beneficial Beneficial Total Outstanding Owner Ownership (1) Common Stock (2) David L. Purdy (3) 4,167,340 (4) * Box 121A R.D. #2 Marion Center, PA 15759 Fred E. Cooper 6,076,200 (5) * 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 Stan Cottrell 350,000 (6) * 4619 Westhampton Drive Tucker, GA 30084 Anthony J. Feola 3,404,000 (7) * 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 Glenn Keeling 2,738,500 (8) * 2275 Swallow Hill Road Building 2500,2nd Floor Pittsburgh, PA 15220 Paul Stagg 370,000 (9) * 168 LaLanne Road Madisonville, LA 70447 Michael P. Thompson 1,000,000(10) * 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 All directors 18,106,040(11) 1.3% and executive officers as a group (7 people) (1) Includes ownership of all shares of common stock which each named person or group has the right to acquire, through the exercise of warrants, within sixty (60) days, together with the common stock currently owned. (2) Represents total number of shares of common stock owned by each person, which each named person or group has the right to acquire, through the exercise of warrants within sixty (60) days, together with common stock currently owned, as a percentage of the total number of shares of common stock outstanding as of December 31, 2000. For individual computation purposes, the total number of shares of common stock outstanding as of December 31, 2000 has been increased by the number of additional shares which would be outstanding if the person or group exercised all outstanding warrants. (3) Does not include shares held by Mr. Purdy's adult children. Mr. Purdy disclaims any beneficial interest to shares held by members of his family. In November 2000, Mr. Purdy resigned effective February 2001. (4) Includes currently exercisable warrants to purchase the following: 187,200 shares of common stock at $.25 per share until April 24, 2001; 80,000 shares of common stock at $.33 per share until June 29, 2003; 500,000 shares of common stock at $.25 per share until May 1, 2001; and 3,000,000 shares of common stock at $.129 per share until April 28, 2004. (5) Includes currently exercisable warrants to purchase the following: 300,000 shares of common stock at $.25 per share until May 1, 2001; and 4,000,000 shares of common stock at $.129 per share until April 28, 2004. In addition, Mr. Cooper is entitled to certain shares of common stock upon a change of control of BICO as defined in his employment agreement. (6) Includes currently exercisable warrants to purchase 250,000 shares of common stock at $.129 per share until April 28, 2004. (7) Includes currently exercisable warrants to purchase the following: 100,000 shares of common stock at $.25 per share until November 26, 2003; 100,000 shares of common stock at $.25 per share until May 1, 2001; 350,000 shares of common stock at $.50 per share until October 11, 2002; and 2,000,000 shares of common stock at $.129 per share until April 28, 2004. In addition, Mr. Feola is entitled to certain shares of common stock upon a change of control of BICO as defined in his employment agreement. (8) Includes currently exercisable warrants to purchase 100,000 shares of common stock at $1.48 per share until August 26, 2001; and 2,000,000 shares of common stock at $.129 per share until April 28, 2004. In addition, Mr. Keeling is entitled to certain shares of common stock upon a change of control of BICO as defined in his employment agreement. (9) Includes currently exercisable warrants to purchase 20,000 shares of common stock at $.06 per share until April 27, 2003; and 250,000 shares of common stock at $.129 per share until April 28, 2004. (10) Includes currently exercisable warrants to purchase 1,000,000 shares of common stock at $.125 per share until August 28, 2005. In addition, Mr. Thompson is entitled to certain shares of common stock upon a change of control of BICO as defined in his employment agreement. (11) Includes shares of common stock available under currently exercisable warrants to purchase an aggregate of as set forth above. INTERESTS OF NAMED EXPERTS AND COUNSEL Sweeney & Associates, P.C. of Pittsburgh, PA, our securities counsel, will pass on the validity of the shares in this offering. M. Kathryn Sweeney, the owner, currently holds, along with her husband, warrants to purchase the following shares of Diasense, one of our affiliates: 40,000 shares at $.50 per share until October 23, 2003 and 60,000 shares at $1.00 per share until January 6, 2003. She also owns warrants to purchase 100,000 shares of ViaCirQ common stock at $.10 per share until December 29, 2005; and warrants to purchase 200,000 shares of Petrol Rem common stock at $.50 per share until November 8, 2005. EXPERTS Our consolidated financial statements as of December 31, 2000, 1999 and 1998, all of which included an explanatory paragraph referring to an uncertainty regarding our ability to continue as a going concern, included in this prospectus, have been audited by Goff Backa Alfera & Company, LLC, independent certified public accountants, as stated in their report for the year ended December 31, 2000 and have been included in reliance upon that report given upon the authority of that firm as experts in auditing and accounting. Goff Backa Alfera & Company, LLC CERTIFIED PUBLIC ACCOUNTANTS 3325 Saw Mill Run Blvd. Pittsburgh, Pa Report of Independent Accountants The Board of Directors and Stockholders BICO, Inc. We have audited the accompanying consolidated balance sheets of BICO, Inc. and its subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 2000. 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BICO, Inc. and its subsidiaries at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 has incurred losses from operations and negative cash flows from operations for each of the three years in the period ended December 31, 2000, and these conditions are expected to continue through 2001, raising substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also discussed 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. /s/ Goff Backa Alfera & Company, LLC Pittsburgh, Pennsylvania February 27, 2001 F-1 BICO, Inc. and Subsidiaries Consolidated Balance Sheets
Dec. 31, 2000 Dec. 31, 1999 ------------- ------------- CURRENT ASSETS Cash and equivalents (note A) $ 7,844,807 $ 10,827,631 Accounts receivable - net of allowance for doubtful accounts of $43,664 at Dec. 31, 2000 and $63,679 at Dec. 31, 1999 400,950 27,263 Inventory - net of valuation allowance (notes A and D) 805,224 10,308 Related party notes receivable (notes C and N) 87,706 0 Notes receivable (note C) 1,926,363 200,000 Interest receivable (note C) 48,252 2,701 Prepaid expenses (note E) 988,354 192,246 Advances - Officers 0 125,290 Other current assets 47,268 0 ------------- ------------- TOTAL CURRENT ASSETS 12,148,924 11,385,439 PROPERTY, PLANT AND EQUIPMENT (notes A and J) Building 2,529,176 1,207,610 Land 246,250 133,750 Leasehold improvements 1,848,674 1,435,319 Machinery and equipment 6,405,594 4,676,330 Furniture, fixtures & equipment 921,195 841,308 ------------- ------------- Subtotal 11,950,889 8,294,317 Less accumulated depreciation 5,288,910 4,704,539 ------------- ------------- 6,661,979 3,589,778 OTHER ASSETS Related Party Receivables Notes receivable - (notes C and N) 1,174,738 1,491,261 Interest receivable - (notes C and N) 13,463 22,023 ------------- ------------- 1,188,201 1,513,284 Allowance for related party receivables (1,188,201) (1,340,560) ------------- ------------ 0 172,724 Notes receivable - (note C) 200,000 12,000 Interest receivable 0 4,235 Goodwill, net of amortization - (notes A and Q) 694,895 0 Investment in unconsolidated subsidiaries-(notes A and G) 2,061,439 485,284 Other assets 162,833 36,376 ------------- ------------- 3,119,167 710,619 ------------- ------------- TOTAL ASSETS $21,930,070 $15,685,836 ============= ============= The accompanying notes are an integral part of these statements.
F-2 BICO, Inc. and Subsidiaries Consolidated Balance Sheets (Continued)
Dec. 31,2000 Dec. 31, 1999 ------------ ------------- CURRENT LIABILITIES Accounts payable $ 578,520 $ 759,733 Current portion of long-term debt (note I) 5,182,783 4,159,684 Current portion of capital lease obligations (note J) 98,788 76,017 Debentures payable (note K) 2,400,000 0 Accrued liabilities (note F) 3,131,765 1,794,370 Escrow payable (note L) 2,700 2,700 ------------ ------------- TOTAL CURRENT LIABILITIES 11,394,556 6,792,504 LONG-TERM LIABILITIES Capital lease obligations (note J) 2,203,673 1,336,147 Long-term debt (note I) 7,864 2,240 ------------- ------------- 2,211,537 1,338,387 COMMITMENTS AND CONTIGENCIES (note O) UNRELATED INVESTORS'INTEREST IN SUBSIDIARY (note A) 434,990 0 STOCKHOLDERS' EQUITY (note L) Common stock, par value $.10 per share, authorized 1,700,000,000 shares, issued and outstanding 1,383,704,167 at Dec. 31, 2000 and 956,100,496 at Dec. 31, 1999 138,370,417 95,610,050 Series F 4% convertible preferred stock, par value $10 per share, authorized 500,000 shares issuable in series, shares issued and outstanding none at December 31, 2000 and 72,000 at December 31, 1999. 0 720,000 Additional paid-in capital 87,035,096 85,608,192 Warrants 6,204,235 6,791,161 Accumulated deficit (223,720,761) (181,174,458) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 7,888,987 7,554,945 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,930,070 $ 15,685,836 ============= ============= The accompanying notes are an integral part of these statements.
F-3 BICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 2000 1999 1998 ------------- ------------- ------------- Revenues Net sales $ 340,327 $ 112,354 $ 1,145,968 Other income 5,547 52,897 50,212 ------------- ------------- ------------- 345,874 165,251 1,196,180 Costs and expenses Cost of products sold 354,511 147,971 587,821 Research and development (notes A,L and M) 6,651,471 4,430,819 6,340,676 General and administrative (note L) 21,407,472 12,884,237 10,673,265 Amortization of goodwill (notes A and G) 392,307 39,716 887,080 - Impairment loss - 5,060,951 - ------------- ------------- ------------- 28,805,761 22,563,694 18,488,842 ------------- ------------- ------------- Loss from operations (28,459,887) (22,398,443) (17,292,662) Other income Interest 589,529 1,031,560 182,033 Other expense Debt issue costs (note A) 1,005,000 3,458,300 1,865,682 Beneficial convertible debt feature(notes A&K) 3,062,500 7,228,296 3,799,727 Interest expense 1,924,873 1,373,404 481,025 Warrant extensions (note L) 5,233,529 4,669,483 - Loss on unconsolidated subsidiaries(notes A&G) 158,183 - - Loss on disposal of assets 122,857 376 531,066 Unusual Item (note O) 3,450,000 - - ------------- ------------- ------------- 14,956,942 16,729,859 6,677,500 ------------- ------------- ------------- Loss before unrelated investors' interest (42,827,300) (38,096,742) (23,788,129) Unrelated investors' interest in net loss of subsidiaries 280,997 24,164 1,385,485 ------------- -------------- ------------- Net loss $(42,546,303) $(38,072,578) $(22,402,644) ============= ============== ============= Loss per common share - Basic: Net Loss $ (0.04) $ (0.05) $ (0.08) Less: Preferred stock dividends (0.00) (0.00) (0.00) ------------- ------------- ------------- Net loss attributable to common stockholders: $ (0.04) $ (0.05) $ (0.08) ============= ============= ============= Loss per common share - Diluted: Net Loss $ (0.04) $ (0.05) $ (0.08) Less: Preferred stock dividends (0.00) (0.00) (0.00) ------------- ------------- ------------- Net loss attributable to common stockholders: $ (0.04) $ (0.05) $ (0.08) ============= ============= ============= The accompanying notes are an integral part of these statements.
F-4 BICO, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficiency)
Note rec. Preferred Stock Common Stock issued for Additional --------------- ---------------- Common Stk Paid in Accumulated Shares Amount Shares Amount Warrants Rel Party Capital Deficit Total ------- -------- --------- ---------- ---------- --------- ----------- -------------- ---------- Balance at Dec. 31, 1997 - $ - 138,583,978 $13,858,398 $6,396,994$(25,000)$104,932,920 $(120,699,236)$ 4,464,076 -------- ------- ---------- ---------- ---------- ------- ---------- ------------ ---------- Proceeds from stock offering - - 2,055,000 205,500 - - 22,423 - 227,923 Conversion of debentures - - 280,134,590 28,013,459 - - (16,029,785) - 11,983,674 Issuance of convertible debt - - - - - - 3,799,727 - 3,799,727 Net Loss - - - - - - - (22,402,644)(22,402,644) -------- ------- ---------- ---------- ---------- -------- ---------- ------------ ----------- Balance at Dec. 31, 1998 - - 420,773,568 42,077,357 6,396,994 (25,000) 92,725,285 (143,101,880) (1,927,244) -------- ------- ---------- ---------- ---------- -------- ---------- ------------ ---------- Proceeds from stk offering - - 19,625,691 1,962,569 - - (914,485) - 1,048,084 Proceeds from sale of Preferred stk.-Series F 72,000 720,000 - - - - 90,000 - 810,000 Conversion of debentures - - 515,013,737 51,501,374 - - (19,444,872) - 32,056,502 Warrants granted and extended-subsidiaries - - - - - - 5,897,332 - 5,897,332 Issuance of convertible debt - - - - - - 7,228,296 - 7,228,296 Repayment of subscriptio recv. - - - - - 25,000 - - 25,000 Warrants exercised - - 687,500 68,750 (8,968) - 26,636 - 86,418 Warrants granted - - - - 403,135 - - - 403,135 Net loss - - - - - - - (38,072,578)(38,072,578) -------- ------- ---------- ---------- --------- ------- --------- ----------- ----------- Balance at Dec. 31,1999 72,000 720,000 956,100,496 95,610,050 6,791,161 0 85,608,192 (181,174,458) 7,554,945 -------- -------- ---------- ---------- --------- ------- --------- ----------- ---------- Proceeds from stk offering - - 327,615,231 32,761,523 - - (14,156,873) - 18,604,650 Proceeds from sale of Preferred stk.-Series F 380,000 3,800,000 - - - - 475,000 - 4,275,000 Conversion of preferred stk.- Series F (452,000)(4,520,000) 56,679,610 5,667,961 - - (1,147,961) - 0 Conversion of debentures - - 36,294,340 3,629,434 - - 491,113 - 4,120,547 Warrants exercised - - 4,414,490 441,449 (307,581) - 481,790 - 615,658 Warrants granted and extended-subsidiaries - - - - - - 11,084,555 - 11,084,555 Issuance of convertible debt - - - - - - 3,062,500 - 3,062,500 Common stk. issued for serv. - - 2,600,000 260,000 - - 78,000 - 338,000 Common stk. issued-subs. - - - - - - 170,780 - 170,780 Warrants granted - - - - 608,655 - - - 608,655 Warrants expired - - - - (888,000) - 888,000 - 0 Net loss - - - - - - - (42,546,303)(42,546,303) ------- ------- ------------- ----------- ---------- ------- ---------- ----------- ----------- Balance at Dec. 31, 2000 0 $ 0 1,383,704,167 $138,370,417 $6,204,235 $ 0 $87,035,096 $(223,720,761)$ 7,888,987 ======= ======= ============= =========== ========== ======= ========== =========== =========== The accompanying notes are an integral part of these statements.
F-5 BICO, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31, 2000 1999 1998 ------------- ------------- ------------- Cash flows used by operating activities: Net loss $(42,546,303) $(38,072,578) $(22,402,644) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 689,762 773,696 815,125 Amortization 392,307 42,149 891,412 Loss on disposal of assets 122,857 177,000 531,066 Loss on unconsolidated subsidiaries 158,183 - - Unrelated investors' interest in susidiaries (280,997) (24,164) (1,385,485) Stock issued in exchange for services 338,000 148,484 (22,063) Stock issued in exchange for services by subsidiary 225,000 - - Debenture interest converted to stock 120,547 211,503 106,894 Premium for extension on debenture - - 680,500 Beneficial convertible debt feature 3,062,500 7,228,296 3,799,727 Provision for (recovery of)potential loss on notes receivable (152,359) 70,253 1,270,307 Warrants granted 608,655 403,135 - Warrants granted and extended by subsidiaries 11,184,858 5,897,332 - (Decrease)increase in allowance for losses on accounts receivable (20,015) 36,620 12,128 (Increase) decrease in accounts receivable (25,148) (7,924) 268,195 (Increase) decrease in inventories 101,480 90,052 987,948 Increase (decrease) in inventory valuation allowance (859,283) (25,845) 779,050 (Increase) decrease in prepaid expenses (651,305) (21,702) (31,495) (Increase) decrease in other assets 33,834 (146,408) 36,927 Increase (decrease) in accounts payable (296,657) (949,578) 1,078,124 Increase in other liabilities 1,112,211 697,726 845,136 (Decrease) in deferred revenue - - (116,146) Impairment loss - 5,060,951 - ------------- ------------- ------------- Net cash flow used by operating activities (26,681,873) (18,411,002) (11,855,294) ------------- ------------- ------------- Cash flows from investing activities: Purchase of property, plant and equipment (1,388,508) (641,371) (111,216) Disposal of property, plant and equipment - 175,000 - Acquisitions, net of cash acquired (1,395,126) - (1,030,000) (Increase) in notes receivable (1,939,073) (337,928) (31,493) Payments received on notes receivable 378,817 141,974 - (Increase) in interest receivable (32,756) (25,774) (97,929) Acquisition of unconsolidated subsidiaries (2,078,520) (525,000) - ------------- ------------- ------------- Net cash used by investing activites (6,455,166) (1,213,099) (1,270,638) ------------- ------------- ------------- Cash flows from financing activities: Proceeds from stock offering 18,604,650 900,000 - Proceeds from warrants exercised 615,658 86,018 - Proceeds from sale of preferred stock-Series F 4,275,000 810,000 - Proceeds from debentures payable 12,250,000 33,150,000 10,720,000 Payments on debentures payable (5,850,000) (4,130,000) - Payments on notes payable (53,125) (465,650) (675,393) Increase in notes payable 855,801 75,396 550,000 Payments on capital lease obligations (543,769) (99,777) (101,997) ------------- ------------- ------------- Net cash provided by financing activities 30,154,215 30,325,987 10,492,610 _____________ _____________ _____________ Net increase (decrease) in cash (2,982,824) 10,701,886 (2,633,322) Cash and cash equivalents, beginning of year 10,827,631 125,745 2,759,067 ------------- ------------- ------------- Cash and cash equivalents, end of year $ 7,844,807 $ 10,827,631 $ 125,745 ============= ============= ============= The accompanying notes are an integral part of these statements.
F-6 BICO, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Continued)
Year ended December 31, 2000 1999 1998 ------------- ------------- ------------- Supplemental Information: Interest paid $ 1,485,286 $ 966,713 $ 364,716 ============= ============ ============ Supplemental schedule of non-cash investing and financing activities: Acquisition of ICTI with note payable $ - $ - $ 3,350,000 ============= =========== ============ Acquisition of property under a capital lease: Land $ 112,500 $ - $ - Equipment - - 24,050 Building 1,321,566 - - ------------- ---------- ------------ $ 1,434,066 $ - $ 24,050 ============= =========== ============ Capital Lease Termination: Reduction of capital lease obligation $ - $ - $ 1,184,288 ============= =========== ============ Reduction of property Construction in progress $ - $ - $ 1,459,110 Land - - 112,500 ------------- ------------- ------------ $ - $ - $ 1,571,610 ============= ============= ============ Conversion of preferred stock for common stock $ 5,580,168 $ - $ - ============= ============= ============ Preferred stock dividend paid in common stock $ 121,825 $ - $ - ============= ============= ============ Constructive dividend on convertible preferred stock $ 1,883,333 $ - $ - ============= ============= ============ Conversion of debentures for common stock $ 4,000,000 $ 31,845,000 $ 11,876,780 ============= ============= ============ The accompanying notes are an integral part of these statements.
BICO, Inc. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Organization BICO, Inc. (the Company) and its subsidiaries are engaged in the development, manufacturing and marketing of biomedical products and biological remediation products. In June 2000, the Company changed its name from Biocontrol Technology, Inc. to BICO, Inc. 2. Principles of Consolidation The consolidated financial statements include the accounts of: Diasensor.com, Inc., a 52% owned subsidiary as of December 31, 2000 and 1999; Petrol Rem, Inc., a 75% owned subsidiary as of December 31, 2000 and 1999, ViaCirQ, Inc. (formerly IDT, Inc.), a 99% owned subsidiary as of December 31, 2000 and 1999; International Chemical Technologies, Inc., a 58.4% owned subsidiary as of December 31, 2000 and 1999, Barnacle Ban Corporation, a 100% owned subsidiary as of December 31, 2000 and 1999, Ceramic Coatings Technologies, Inc., a 98% owned subsidiary as of December 31, 2000 and 1999 and B-A-Champ.com, Inc., a 51% owned subsidiary as of December 31, 2000. All significant intercompany accounts and transactions have been eliminated. Subsidiary losses in excess of the unrelated investors' interest are charged against the Company's interest. Changes in the Company's proportionate share of subsidiary equity resulting from the additional equity raised by the subsidiary are accounted for as equity transactions in consolidation with no gain recognition due to the development stage of the subsidiaries and uncertainty regarding the subsidiary's ability to continue as a going concern. 3. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at acquisition to be cash equivalents. 4. Inventory Inventory is valued at the lower of cost (first-in, first-out method) or market. An inventory valuation allowance is provided against finished goods and raw materials for products for which a market has not yet been established. 5. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives, ranging from 3 to 39 years, on a straight-line basis. Amortization of assets recorded under capital leases is included with depreciation expense. Impairment losses are recognized when management determines that operating conditions raise doubts about the ability to recover the carrying value of particular assets. The amount of impairment loss is determined by comparing the present value of the estimated future cash inflows of such assets to their net carrying value. 6. Goodwill Goodwill, which represents the excess cost of purchased companies over the fair value of their net assets at dates of acquisition, is amortized on a straight-line basis over five years. Goodwill associated with assets determined to be impaired is correspondingly written down. 7. Investment in Unconsolidated Subsidiaries During 1999 and 2000, the Company made investments in unconsolidated subsidiaries (see Note G). These investments are being reported on the equity basis due to the Company's ownership percentage, options to purchase additional shares and membership on the boards of directors of each unconsolidated subsidiary as discussed in Note G. The difference between the amount invested and the underlying equity in the unconsolidated subsidiary's net assets is being amortized as goodwill over a 5-year period. Declines in these investment values that are determined by Management to be other than temporary are recognized as losses on a current basis. 8. Loss Per Common Share Net loss per common share is based upon the weighted average number of common shares outstanding. The loss per share does not include common stock equivalents since the effect would be antidilutive. The weighted average shares used to calculate the loss per share amounted to 1,037,254,759 in 2000, 695,400,191 in 1999 and 266,362,526 in 1998. The net losses attributable to common shareholders for the years ended December 31, 2000, 1999 and 1998 were $44,510,398, $38,072,578 and $22,402,644, respectively, which include constructive dividends to preferred stockholders of $1,883,333, $0 and $0, respectively. 9. Research and Development Costs Research and development costs are charged to operations as incurred. Machinery, equipment and other capital expenditures, which have alternative future use beyond specific research and development activities, are capitalized and depreciated over their estimated useful lives. 10. Income Taxes The Company previously adopted Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes, which requires the asset and liability method of accounting for income taxes. Enacted statutory tax rates are applied to temporary differences arising from the differences in financial statement carrying amounts and the tax bases of existing assets and liabilities. Due to the uncertainty of the realization of income tax benefits (Note M), the adoption of FAS 109 had no effect on the financial statements of the Company. 11. Interest The Company follows the policy of capitalizing interest as a component of the cost of property, plant and equipment constructed for its own use. Total interest incurred for the periods December 31, 2000, 1999, and 1998 was $1,924,873, $1,373,404, and $589,300, respectively, of which $1,924,873, $1,373,404, and $481,025, respectively, was charged to operations. 12. Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has established allowances based upon management's evaluation of inventories, accounts receivable, and receivables from related parties and amortizes intangible assets such as goodwill and patents over estimated useful lives. 13. Common Stock Warrants The Company recognizes cost on warrants granted or extended based upon the minimum value method. Under this method, the warrants are valued by reducing the current market price of the underlying shares by the present value of the exercise price discounted, at an estimated risk-free interest rate of 5% and assuming no dividends. The value of warrants is recalculated when warrants are extended and any increase in value over the value recorded at the time the warrant was granted is recognized at the time the warrant is extended. 14. Debt Issue Costs The Company follows the policy of expensing debt issue costs on debentures during the period of debenture issuance. Total debt issue costs incurred for the periods December 31, 2000, 1999 and 1998 were $1,225,000, $3,458,300 and $1,865,682, respectively. 15. Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash investments at commercial banks, receivables from officers and directors of the Company and investments in unconsolidated subsidiaries. Cash and cash equivalents are temporarily invested in interest bearing accounts in financial institutions, and such investments may be in excess of the FDIC insurance limit. Receivables from directors and officers of the Company (Notes C and N) are unsecured and represent a concentration of credit risk due to the common employment and financial dependency of these individuals on the Company. 16. Comprehensive Income The Company's consolidated net income (loss) is substantially the same as comprehensive income to be disclosed under Statement of Financial Accounting Standards No. 130. 17. Beneficial Convertible Debt Feature Beneficial conversion terms included in the Company's convertible debentures are recognized as expense and credited to additional paid in capital at the time the associated debentures are issued. 18. Beneficial Conversion Feature of Preferred Stock The Company's Series F 4% convertible preferred stock includes a beneficial conversion feature providing the preferred stockholder a discount of 25% upon conversion to the Company's common stock after 120 days. The value of this beneficial conversion feature is determined by reducing the market price of the Company's common stock by the discounted conversion price on the date of commitment. This discount is recognized as a reduction in the preferred stock recorded at par and is amortized as constructive dividends to the preferred stockholders over the 120-day period using the effective interest method. 19. Advertising Costs Advertising costs are charged to operations when incurred. Advertising expenses for 2000, 1999 and 1998 were $208,617, $4,851 and $43,901, respectively. NOTE B - OPERATIONS AND LIQUIDITY The Company and its subsidiaries have incurred substantial losses in 2000 and in prior years and have funded their operations and product development primarily through the sale of common and preferred stock and issuance of debt instruments. Until such time that products can be successfully developed and marketed, the Company and its subsidiaries will continue to need to fulfill working capital requirements through the sale of stock and issuance of debt. The inability of the Company to continue its operations as a going concern would impact the recoverability and classification of recorded asset amounts. The ability of the Company to continue in existence is dependent on its having sufficient financial resources to complete the research and development necessary to successfully bring products to market and for marketplace acceptance. As a result of its significant losses, negative cash flows from operations and significant accumulated deficits for each of the periods ending December 31, 2000, 1999, and 1998, there is substantial doubt about the Company's ability to continue as a going concern. In order to meet its projected expenditures for 2001, Management believes that additional funds will need to be raised from sales of stock and future debt issuance. NOTE C - NOTES RECEIVABLE Notes receivable due from various related and unrelated parties consisted of: Dec. 31, 2000 Dec. 31, 1999 Related Parties Note receivable from Fred E. Cooper, Chief Executive Officer, dated April 28, 1999, in the amount of $777,400, payable in monthly installments of $9,427 with a final balloon payment on May 31, 2002. Interest is accrued at a rate of 8% per annum. $ 715,693 $ 747,087 Note receivable from Glenn Keeling, Director, dated April 28, 1999, in the amount of $296,358, payable in monthly installments of $4,184 with a final balloon payment on May 1, 2002. Interest is accrued at a rate of 8% per annum. 237,737 275,869 Note Receivable from T.J. Feola, Director, dated April 28, 1999, in the amount of $259,477, payable in monthly installments of $3,676 with a final balloon payment on May 31, 2002. Interest is accrued at a rate of 8% per annum. 221,308 245,581 Note receivable from Allegheny Food Services, Inc. of which Joseph Kondisko, a former director, is principal owner, payable in monthly installments of $3,630, including interest at 9.25%, with a final balloon payment on April 1, 2001. 87,706 172,724 Note receivable from B-A- Champ.com, a company substantially owned by Fred E. Cooper, Chief Executive Officer. Note was due on November 8, 2000. Interest accrued at a rate of 6% per annum. - 50,000 Unrelated Parties Demand note receivable from a corporation on a $3,100,000 line of credit agreement. Principal plus interest accrued at a rate of 10% per annum is payable upon demand. Note is secured by a pledge of 100% of the borrower's common stock and security interests in all assets of the borrower. 1,914,363 - Note receivable from an individual, due on November 15, 2002 with interest at prime plus 2% (11.5% at December 31, 2000). 200,000 200,000 Note receivable from an individual, payable upon demand with 8.75% interest. 12,000 12,000 ____________ ____________ 3,388,807 1,703,261 Less current notes receivable 2,014,069 200,000 ____________ ____________ Noncurrent $ 1,374,738 $ 1,503,261 ============ ============ Accrued interest receivable on the related party notes as of December 31, 2000 and 1999 was $13,463 and $22,023, respectively. Due to the financial dependency of the above officers and directors on the Company, an allowance of $1,188,201 and $1,340,560 has been provided as of December 31, 2000 and 1999, respectively. NOTE D - INVENTORY Inventories consisted of the following as of: Dec. 31, 2000 Dec. 31, 1999 Raw materials $ 3,212,053 $ 3,504,708 Finished goods 1,087,093 858,805 ____________ ____________ 4,299,146 4,363,513 Less valuation allowance (3,493,922) (4,353,205) ____________ ____________ $ 805,224 $ 10,308 ============ ============ NOTE E - PREPAID EXPENSES Prepaid expenses consisted of the following as of: Dec. 31, 2000 Dec. 31, 1999 Prepaid insurance $ 304,229 $ 73,172 Prepaid professional fees 234,961 87,112 Prepaid debt issue costs 220,000 0 Employee advances 32,549 3,208 Prepaid taxes 31,200 0 Security deposits 14,799 1,543 Other prepaid expenses 150,616 27,211 ____________ ____________ $ 988,354 $ 192,246 ============ ============ NOTE F - ACCRUED LIABILITIES Accrued liabilities consisted of the following as of: Dec. 31, 2000 Dec. 31, 1999 Accrued interest $ 1,120,655 $ 681,068 Accrued payroll 373,821 1,027,147 Accrued payroll taxes and withholdings 24,303 35,362 Accrued vacation 66,445 33,038 Accrued class action settlement (note O) 1,300,000 0 Other accrued liabilities 246,541 17,755 ____________ ____________ $ 3,131,765 $ 1,794,370 ============ ============ NOTE G - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES In January 2000, the Company acquired a twenty-five percent (25%) interest in Insight Data Link.com, Inc. for $100,000. Insight is a Pennsylvania corporation formed to engage in the business of acting as an internet clearinghouse for persons seeking to acquire, and persons having available, shopping mall space, as well as software development for related projects. Also, during the year ended December 31, 2000 the Company invested an additional $285,000 in American Inter-Metallics, Inc. ("AIM") an unconsolidated subsidiary interest initially acquired during 1999. With this additional investment, the Company owns 16.2% of AIM. Upon completion of funding, the Company's ownership will increase to 20%. AIM has its operations in Rhode Island, and is developing a product that enhances performance in rockets and other machinery by increasing the burn rate of propellants. During the year ended December 31, 2000, Diasensor.com acquired a fifteen percent (15%) interest in MicroIslet, Inc. for an investment of $1,000,000. The company has an option to purchase an additional 5% interest in MicroIslet. The company also holds a seat on the board of directors of MicroIslet. MicroIslet is a California company, which has licensed several diabetes research technologies from Duke University with a specific focus on optimizing microencapsulated islets for transplantation. In March 2000, Diasensor.com acquired a 20.8% equity interest in Diabecore Medical, Inc., a Toronto-based company working to develop a new insulin for the treatment of diabetes, for $693,520. The company also owns warrants to purchase additional shares of Diabecore, which, if exercised, will increase the company's ownership to 35%. The company holds a seat on the board of directors of Diabecore. These investments are being reported on the equity basis and differences between the investment and the underlying net assets of the unconsolidated subsidiaries are being amortized as goodwill over a 5-year period. The Company's investment in the underlying assets and the unamortized goodwill of each unconsolidated subsidiary as of December 31, 2000 and December 31, 1999 are as follows: Investment in Unconsolidated Underlying Net Unamortized Subsidiary Assets Goodwill Total 2000 1999 2000 1999 2000 1999 American Inter- Metallics, Inc. $ 222,912 $48,405 $ 441,004 $436,879 $ 663,916 $485,284 Insight Data Link.com 28,503 0 52,546 0 81,049 0 MicroIslet, Inc. 50,731 0 688,508 0 739,239 0 Diabecore Medical,Inc 50,615 0 526,620 0 577,235 0 _________ ________ _________ _________ __________ ________ Total $ 352,761 $48,405 $1,708,678 $436,879 $2,061,439 $485,284 ========= ======== ========= ========= ========== ======== The amounts recognized as amortization of goodwill and income (loss) on unconsolidated subsidiaries for each investment for the years ended December 31, 2000 and 1999 are as follows: Income (Loss) on Unconsolidated Amortization of Unconsolidated Subsidiary Goodwill Subsidiaries 2000 1999 2000 1999 American Inter- Metallics, Inc. $ 106,369 $ 39,716 $ 0 $ 0 Insight Data Link.com 13,136 0 (5,815) 0 MicroIslet, Inc. 152,628 0 (108,133) 0 Diabecore Medical,Inc. 72,049 0 (44,235) 0 _________ _________ __________ _______ Total $ 344,182 $ 39,716 $(158,183) $ 0 ========= ========= ========== ======= NOTE H- BUSINESS SEGMENTS The Company operates in two reportable business segments: Biomedical devices, which includes the operations of BICO, Inc., Diasensor.com, Inc. and ViaCirQ, Inc. and Bioremediation, which includes the operations of Petrol Rem, Inc. Following is summarized financial information for the Company's reportable segments: Biomedical 2000 Devices Bioremedication All Other Consolidated Sales to external customers $ 81,954 $ 217,722 $ 40,651 $ 340,327 Cost of products sold 47,862 179,446 127,203 354,511 Gross profit (loss) 34,092 38,276 (86,552) (14,184) Identifiable assets 16,628,619 4,385,100 835,589 21,849,308 Capital expenditures 2,788,454 0 34,120 2,822,574 Depreciation and amortization 979,083 74,120 43,198 1,096,401 Interest Income 543,457 46,072 0 589,529 Interest Expense 1,811,665 0 113,208 1,924,873 1999 Sales to external customers $ 82,056 $ 26,693 $ 3,599 $ 112,348 Cost of products sold 133,288 14,683 0 147,971 Gross profit(loss) (51,232) 12,010 3,599 (35,623) Identifiable asset 15,018,258 226,760 440,818 15,685,836 Capital expenditures 262,954 0 378,417 641,371 Depreciation and amortization 5,108,855 34,351 96,060 5,239,266 Interest Income 1,031,560 0 0 1,031,560 Interest Expense 1,373,404 0 0 1,373,404 1998 Sales to external customers $ 1,028,484 $ 45,382 $ 72,102 $ 1,145,968 Cost of products sold 483,388 33,061 71,372 587,821 Gross profit (loss) 545,096 12,321 730 558,147 Identifiable assets 8,614,498 168,315 1,052,756 9,835,569 Capital expenditures 105,827 0 5,389 111,216 Depreciation and amortization 1,563,366 36,061 111,442 1,710,869 Interest Income 182,033 0 0 182,033 Interest Expense 481,025 0 0 481,025 NOTE I- LONG-TERM DEBT Long-term debt consisted of the following as of: Dec. 31, Dec. 31, 2000 1999 ------------- ----------- Note Payable in connection with stock purchase agreement for 58.4% interest in International Chemical Technologies, Inc.(ICTI). The note bears interest at a rate of 10% per annum and is collateralized by the shares of ICTI purchased in the transaction. At December 31, 1999 and 2000, the Company was, and continues to be, in default on the terms of this loan and the note holder has made demand for payment. Accordingly, the unpaid balance is classified as due and payable. $ 2,900,000 $ 2,900,000 Note Payable by the Company's subsidiary, International Chemical Technologies, Inc. (ICTI) to, it's former shareholder. The loan bears interest at a rate of 9.5% per annum and is guaranteed by the Company and collateralized by all tangible and intangible assets of ICTI, and assignment of ICTI's interest in its lease for its production facilities. At December 31, 1999 and 2000, the Company was, and continues to be in default on the terms of this loan and the note holder has made demand for payment. Accordingly, the unpaid balance is classified as due and payable. 1,191,667 1,191,667 Promissory Note of Intco, Inc., a 51% owned subsidiary of the Company's subsidiary, Petrol Rem, Inc. The loan is collateralized by certain Intco equipment. Principal and interest at 9.5% per annum are payable in 25 equal monthly installments of $1,500 each commencing February 27, 2000 with a final payment of all remaining principal and interest due on March 27, 2002. 20,351 - Commercial Premium Finance Agreement of Intco, Inc., a 51% owned subsidiary of the Company's subsidiary, Petrol Rem, Inc. Amounts are payable in nine monthly installments of $11,342 including interest at 9.47% per annum beginning October 1, 2000. 66,209 - Promissory Note of Intco, Inc., a 51% owned subsidiary of the Company's subsidiary, Petrol Rem, Inc. The loan is collateralized by certain Intco equipment. Principal and interest at 9% per annum are payable in 35 equal monthly installments of $320 each commencing February 25, 2000 with a final payment of all remaining principal and interest due on February 25, 2003. 7,263 - Note Payable by the Company's subsidiary, Petrol Rem, Inc., in connection with the stock purchase agreement for 51% interest in Intco, Inc. The note is payable without interest in installments as follows: (i) on the first day of each calendar month from January 1, 2001 through and including April 1, 2001, a principal payment of $150,000 and (ii) $250,000 on May 1, 2001. 850,000 - Commercial Premium Finance Agreement payable in nine monthly installments of $9,697 including interest at 7.62% per annum beginning November 1, 1999. 66,187 Commercial Premium Finance Agreement payable in eight monthly installments of $13,208 including interest at 8.5% per annum beginning December 1, 2000. 77,317 - Commercial Premium Finance Agreement payable in nine monthly installments of $9,903 including interest at 12.63% per annum beginning December 10, 2000. 75,600 - Note Payable to a bank in monthly payments of $433 including interest at 8.75% per annum. The loan in collateralized by equipment. 2,240 4,070 ___________ ___________ 5,190,647 4,161,924 Current portion of long-term debt 5,182,783 4,159,684 ___________ ___________ Long-term debt $ 7,864 $ 2,240 =========== =========== NOTE J- LEASES Operating Leases Until October 2000, the Company was committed under a non- cancelable operating lease for its research and product development facility. The lease between the Company and a group of investors (lessor), which includes four of the Company's Executive Officers and/or Directors, was for a period of 240 months beginning September 1, 1990. Monthly rental under the terms of the lease was $8,810 for a period of 119 months to August 1, 2000. In October 2000, after the Company's research and development operations had been moved from the facility, the building was sold by the investor group and the lease was terminated. Total rent expense was $70,480 in 2000 and $105,720 in each of the years 1999 and 1998. The Company and its related subsidiaries also lease other office facilities, various equipment and automobiles under operating leases expiring in various years through 2004. Total lease expense related to these leases was $534,235, $425,654 and $279,329 in the years ended December 31, 2000, 1999 and 1998, respectively. Capital Leases During 1996, the Company leased two manufacturing buildings under capital leases expiring in various years through 2011. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lower of their related lease terms or their estimated productive lives. Depreciation of assets under capital leases is included in depreciation expense. During 1998, the Company terminated the lease of one of its two manufacturing buildings in response to the filing of a judgement for nonpayment under the terms of the lease. The Company recognized a loss of $387,321 based upon the difference between the remaining lease obligation and the property relinquished. In July 2000, the Company entered into a new capital lease replacing the lease on its manufacturing facility terminated in 1998. Under the terms of the lease, the Company will make total payments of $1,602,221 through December 2010, at which time title to the property will be transferred to the Company. Management recognized this property and the corresponding capital lease obligation at the present value of the lease payments, which was $1,434,066 at the inception of the lease, using an imputed rate of 9% per annum. The following is a summary of property held under capital leases: Dec. 31, 2000 Dec. 31, 1999 Buildings $ 2,527,326 $ 1,207,610 Land 246,250 133,750 Equipment 264,490 229,565 ______________ ______________ Sub Total 3,038,066 1,570,925 Less: Accumulated Depreciation 529,286 378,885 ______________ ______________ Total Property under Capital Leases $ 2,508,780 $ 1,192,040 ============== ============== Minimum future lease payments under capital leases and noncancelable operating leases are as follows: Capital Operating Leases Leases 2001 $ 241,877 $ 318,062 2002 336,562 228,237 2003 333,654 181,594 2004 338,413 53,825 2005 352,066 16,500 Thereafter 2,105,169 - ___________ ___________ Total minimum lease payments 3,707,741 $ 798,218 =========== Less amounts representing interest 1,405,280 ___________ Present value of net minimum lease payments $ 2,302,461 =========== NOTE K - SUBORDINATED CONVERTIBLE DEBENTURES During 2000, 1999 and 1998, the Company issued subordinated 4% convertible debentures totaling $12,250,000, $33,150,000 and $10,720,000, respectively. Such convertible debentures were issued pursuant to Regulation S, Regulation D, and/or Section 4(2) and have a one-year mandatory maturity and are not saleable or convertible for a minimum of 45 to 90 days from issuance. At December 31, 2000 and 1999, the subordinated convertible debentures totaled $2,400,000 and $0, respectively. The debentures issued in 1999 and 2000 included beneficial conversion features providing a discount on the acquisition of common stock at discounts ranging from 12% to 22%. As of December 31, 2000, the conversion price of the debentures would have been approximately $.0421 per share, based upon a formula, which applies a discount to the average market price for the previous week and is determined by the length of the holding period. As of December 31, 2000, the number of shares issuable upon conversion of all outstanding debentures was approximately 57 million shares, which would have reflected discounts of approximately 20%. No debentures were outstanding as of December 31, 1999. NOTE L - STOCKHOLDERS' EQUITY Preferred Stock The Board of Directors of the Company may issue up to 500,000 shares of preferred stock in series, which would have rights as determined by the Board. During 1999, 400,000 shares of the preferred stock were authorized as "4% Cumulative Convertible Preferred Stock, Series F". 72,000 shares of this preferred stock were issued in 1999 and 452,000 shares were issued in 2000 and these shares include a beneficial conversion feature providing the preferred stockholder a discount of 25% upon conversion to the Company's common stock after 120 days. The total value of this beneficial conversion feature was $1,883,333 and was recognized as constructive dividends charged to additional paid in capital during the year ended December 31, 2000. During 2000, all shares of preferred stock were converted to common stock. In addition, a preferred stock dividend of $121,824 was distributed to preferred shareholders upon conversion. Common Stock Warrants During 2000, warrants ranging from $.070 to $.250 per share to purchase 5,941,998 shares of common stock were granted at exercise prices that were equal to or above the current quoted market price of the stock on the date issued. In 1999, warrants to purchase 23,017,500 shares were granted at exercise prices ranging from $.123 to $.23 per share. In connection with the granting of warrants, the Company recognized $324,897 and $403,134 of general and administrative expense in 2000 and 1999 respectively. Warrants to purchase 31,378,160 shares of common stock were exercisable at December 31, 2000. The per share exercise prices of these warrants are as follows: Shares Exercise Price 20,000 $.060 160,000 $.070 35,000 $.080 1,700,000 $.100 85,000 $.103 1,000,000 $.125 19,910,500 $.129 1,110,200 $.130 600,000 $.140 400,000 $.144 125,000 $.155 236,798 $.160 10,000 $.220 2,826,700 $.250 80,000 $.330 50,000 $.380 1,482 $.450 350,000 $.500 884,000 $1.000 150,000 $1.480 1,375,000 $2.000 94,000 $2.125 69,480 $2.250 35,000 $2.410 20,000 $2.750 25,000 $3.000 25,000 $3.200 ____________ Total 31,378,160 ============ The fiscal years in which common stock warrants were granted and the various expiration dates by fiscal year are as follows: Fiscal Warrants Warrants Expire during Fiscal Year Year Granted 2001 2002 2003 2004 2005 1990 406,700 226,700 180,000 1991 1,251,482 900,000 351,482 1992 0 1993 154,000 144,000 10,000 1994 130,000 20,000 85,000 25,000 1995 0 1996 594,480 535,000 59,480 1997 1,444,000 500,000 944,000 1998 1,420,000 1,420,000 1999 20,035,500 20,035,500 2000 5,941,998 5,941,998 __________ _________ ________ __________ ___________ ___________ 31,378,160 2,305,700 1,315,482 1,695,000 20,119,980 5,941,998 ========== ========= ======== ========== =========== =========== The following is a summary of the warrant transactions during 2000: Outstanding at beginning of period 29,896,662 Granted during the twelve-month period 5,941,998 Canceled during the twelve-month period (46,000) Exercised during the twelve-month period (4,414,500) Outstanding and eligible for exercise at ___________ end of period 31,378,160 =========== The following is a summary of expenses recognized in connection with warrants granted or extended during 2000 and 1999: 2000 1999 Granted Extended Total Granted Extended Total Parent Company $ 324,897 $ 0 $ 324,897 $ 403,134 $ 0 $ 403,134 Subsidiaries: Petrol Rem 0 0 0 54,981 20,160 75,141 Diasensor.com 230,178 0 230,178 229,642 272,078 501,720 ViaCirQ 5,885,069 5,233,529 11,118,598 943,226 4,377,245 5,320,471 _________ _________ ___________ _________ _________ _________ 6,115,247 5,233,529 11,348,776 1,227,849 4,669,483 5,897,332 _________ _________ __________ _________ _________ _________ Total $6,440,144 $5,233,529 $11,673,673 $1,630,983 $4,669,483 $6,300,466 ========= ========= =========== ========== ========= ========= During 2000 and 1999, expenses recognized on warrants granted are included in the Statement of Operations as general and administrative expenses of $6,071,961 and $1,189,171, respectively and research and development expenses of $368,183 and $441,812, respectively. Warrant Extensions During 2000, the Company did not extend the exercise date of any warrants. During 1999, the Company extended the exercise date of warrants to purchase 540,962 shares of common stock to certain officers, employees and consultants. The warrant shares were originally granted at exercise prices ranging from $.45 to $2.75, and were extended at the original grant price. No expense was charged to operations since the market price of the stock was less than the present value of the warrant exercise price. During 1998, the Company extended the exercise date of warrants to purchase 1,510,180 shares of common stock to certain officers, employees and consultants. The warrant shares were originally granted at exercise prices ranging from $.25 to $3.20, and were extended at the original grant price. No expense was charged to operations since the market price of the stock was less than the present value of the warrant exercise price. Diasensor.com, Inc. Common Stock At December 31, 2000, warrants to purchase 10,387,013 shares of Diasensor.com, Inc. common stock were exercisable. The per share exercise price is $.50 for 7,380,000 shares, $1.00 for 2,160,463 shares and $3.50 for 846,550 shares. The warrants expire at various dates through 2005. To the extent that all warrants were exercised, the Company's proportionate ownership would be diluted from 52% at December 31, 2000 to 36%. Diasensor.com, Inc. Warrants During 2000, Diasensor.com, Inc. granted warrants to purchase 2,075,000 shares of its common stock and extended the exercise date of warrants to purchase 2,483,050 shares of common stock to certain officers, directors, employees and consultants. A charge of $230,178 is included in general and administrative expenses for warrants granted during 2000. The extended warrants were originally granted at an exercise price ranging from $1.00 to $3.50 and extended at the same price. No expense was charged to operations since the estimated market price of the stock was less than the present value of the warrant exercise price. During 1999, Diasensor.com, Inc. granted warrants to purchase 2,080,000 shares of its common stock and extended the exercise date of warrants to purchase 3,070,213 shares of common stock to certain officers, directors, employees and consultants. A charge of $229,642 is included in general and administrative expenses for warrants granted during 1999. The extended warrants were originally granted at an exercise price ranging from $.50 to $3.50 and extended at the same price. Diasensor.com, Inc. recorded a $272,078 expense for these extended warrants. Petrol Rem, Inc. Common Stock At December 31, 2000, warrants to purchase 6,290,000 shares of Petrol Rem common stock were exercisable. The per share exercise price is $.10 for 3,940,000 shares, $.50 for 2,150,000 shares and $1.00 for 200,000 shares. The warrants expire at various dates through 2005. To the extent that all the warrants were exercised, the Company's proportionate ownership would be diluted from 75% at December 31, 2000 to 57%. Petrol Rem Warrants During 2000, Petrol Rem, Inc. granted warrants to purchase 1,950,000 shares of its common stock to certain officers, directors, employees and consultants. No expense was charged to operations since the market price of the stock was less than the present value of the warrant exercise price. Petrol Rem did not extend the exercise dates of any warrants during 2000. During 1999, Petrol Rem, Inc. granted warrants to purchase 2,690,000 shares of its common stock and extended the exercise date of warrants to purchase 1,450,000 shares of common stock to certain officers, directors, employees and consultants. A charge of $54,981 is included in general and administrative expenses for the warrants granted during 1999. The extended warrants were originally granted at an exercise price of $.10 and were extended at the same price. Petrol Rem, Inc. recorded a $20,160 expense for these extended warrants. ViaCirQ, Inc. Common Stock At December 31, 2000, warrants to purchase 6,713,000 shares of ViaCirQ common stock were exercisable. The per share exercise price is $.10 for 6,363,000 shares and $.50 for 20,000 shares, $1.00 for 310,000 shares, $2.00 for 5,000 shares and $3.00 for 15,000 shares. The warrants expire at various dates through 2005. To the extent that all the warrants were exercised, the Company's proportionate ownership would be diluted from 99% at December 31, 2000 to 69.1%. ViaCirQ, Inc. Warrants During 2000, ViaCirQ, Inc. granted warrants to purchase 2,128,000 shares of its common stock and extended the exercise date of warrants to purchase 3,125,000 shares of common stock to certain officers, directors, employees and consultants. Charges of $5,516,886 and $368,183 are included in general and administrative expenses and research and development expenses, respectively, for the warrants granted during 2000. The extended warrants were originally granted at an exercise price ranging from $0.10 to $3.00 and extended at the same price. ViaCirQ, Inc. recorded a $5,233,529 expense for these extended warrants. During 1999, ViaCirQ, Inc. granted warrants to purchase 295,000 shares of its common stock and extended the exercise date of warrants to purchase 1,505,000 shares of common stock to certain officers, directors, employees and consultants. Charges of $501,414 and $441,812 are included in general and administrative expenses and research and development expenses, respectively, for these warrants granted during 1999. The extended warrants were originally granted at an exercise price of $0.10 and extended at the same price. ViaCirQ, Inc. recorded a $4,377,245 expense for these extended warrants. NOTE M - INCOME TAXES As of December 31, 2000, the Company and its subsidiaries except Diasensor.com, Inc., Petrol Rem, and ICTI, have available approximately $132,500,000 of net operating loss carryforwards for federal income tax purposes. These carryforwards are available, subject to limitations, to offset future taxable income, and expire in tax years 2001 through 2021. The Company also has research and development credit carryforwards available to offset federal income taxes of approximately $1,775,000, subject to limitations, expiring in tax years 2005 through 2021. As of September 30, 2000, the end of its fiscal year, Diasensor.com, Inc. had available approximately $25,500,000 of net operating loss carryforwards for federal income tax purposes. These carryforwards, which expire during the years 2005 through 2020, are available, subject to limitations, to offset future taxable income. Diasensor.com, Inc. also has research and development credit carryforwards available for federal income tax purposes of approximately $700,000, subject to limitations, expiring in the years 2005 through 2012. As of December 31, 2000, Petrol Rem had available approximately $14,000,000 of net operating loss carryforwards for federal income tax purposes. These carryforwards, which expire during the years 2008 through 2021, are available, subject to limitations, to offset future taxable income. Petrol Rem also has research and development credit carryforwards available for federal income tax purposes of approximately $15,000. As of December 31, 2000, ICTI had available approximately $1,400,000 of net operating loss carryforwards for federal income tax purposes. These carryforwards, which expire in years 2019 and 2021, are available, subject to limitations, to offset future taxable income. Certain items of income and expense are recognized in different periods for financial and income tax reporting purposes. In the year ended December 31, 1999, a warrant exercise adjustment of $50,625 was reported for tax purposes. The fair market value of warrant extentions have been recorded and expenses of $6,092,562 and $11,118,598 have been recognized for financial statement purposes in the years ended December 31, 1999 and 2000, respectively. The Company has not reflected any future income tax benefits for these temporary differences or for net operating loss and credit carryforwards because of the uncertainty as to realization. Accordingly, the adoption of FAS 109 had no effect on the financial statements of the Company. The following is a summary of the composition of the Company's deferred tax asset and associated valuation allowance at December 31, 2000, December 31, 1999 and December 31, 1998: Dec.31,2000 Dec.31,1999 Dec.31,1998 Net Operating Loss $ 45,050,000 $ 37,672,000 $ 28,294,800 Warrant Expense 8,593,191 4,812,868 2,741,397 Tax Credit Carryforward 1,775,000 1,370,000 1,100,000 ____________ ____________ ____________ 55,418,191 43,854,868 32,136,197 Valuation Allowance (55,418,191) (43,854,868) (32,136,197) ____________ ____________ ____________ Net Deferred Tax Asset $ 0 $ 0 $ 0 ============ ============ ============ The deferred tax benefit and the associated increase in the valuation allowance are summarized in the following schedule: Increase in Deferred Valuation Tax Benefit Allowance Net Year-ended December 31, 2000 $(11,563,323) $ 11,563,323 $ 0 Year-ended December 31, 1999 $(11,718,671) $ 11,718,671 $ 0 Year-ended December 31, 1998 $( 7,306,400) $ 7,306,400 $ 0 From March 20, 1972 (inception) Through December 31, 2000 $(55,418,191) $ 55,418,191 $ 0 NOTE N - RELATED PARTY TRANSACTIONS Research and Development Activities The Company is currently performing research and development activities related to the non-invasive glucose sensor (the Sensor) under a Research and Development Agreement with Diasensor.com, Inc.. If successfully developed, the Sensor will enable users to measure blood glucose levels without taking blood samples. Diasensor.com, Inc. acquired the rights to the Sensor, including one United States patent from BICO for $2,000,000 on November 18, 1991. Such patent covers the process of measuring blood glucose levels non-invasively. Approval to market the Sensor is subject to federal regulations including the Food and Drug Administration (FDA). The Sensor is subject to clinical testing and regulatory approvals by the FDA. BICO is responsible for substantially all activities in connection with the development, clinical testing, FDA approval and manufacturing of the Sensor. As discussed in Note B, BICO finances its operations from the sales of stock and issuance of debt and was reimbursed for costs incurred under the terms and conditions of the Research and Development Agreement for the research and development of the Sensor by Diasensor.com, Inc.. If BICO is unable to perform under the Research and Development or Manufacturing Agreements, Diasensor.com, Inc. would need to rely on other arrangements to develop and manufacture the Sensor or perform these efforts itself. BICO and Diasensor.com, Inc. have entered into a series of agreements related to the development, manufacturing and marketing of the Sensor. BICO is to develop the Sensor and carry out all steps necessary to bring the Sensor to market including 1) developing and fabricating the prototypes necessary for clinical testing; 2) performing the clinical investigations leading to FDA approval for marketing; 3) submitting all applications to the FDA for marketing approval; and 4) developing a manufacturable and marketable product. Diasensor.com, Inc. is to conduct the marketing of the Sensor. The following is a brief description of the agreements: Manufacturing Agreement The manufacturing agreement between BICO and Diasensor.com, Inc. was entered into on January 20, 1992. BICO is to act as the exclusive manufacturer of production units of the Sensor upon the completion of the Research and Development Agreement and sell the units to Diasensor.com, Inc. at a price determined by the agreement. The term of the agreement is fifteen years. Research and Development Agreement Under a January 1992 agreement between BICO and Diasensor.com, Inc., beginning in April 1992, BICO received $100,000 per month, plus all direct costs for the research and development activities of the Sensor. This agreement replaced a previous agreement dated May 14, 1991. The term of the new agreement is fifteen years. In July 1995, BICO and Diasensor.com, Inc. agreed to suspend billings, accruals of amounts due and payments pursuant to the research and development agreement pending the FDA's review of the Sensor. Purchase Agreement In November 1991, BICO entered into a Purchase Agreement with Diasensor.com, Inc. under which Diasensor.com, Inc. acquired BICO's rights to the Sensor for a cash payment of $2,000,000. This agreement permits BICO to use Sensor technology for the manufacture and sale by BICO of a proposed implantable closed loop system. BICO will pay Diasensor.com, Inc. a royalty equal to five percent of the net sales of such implantable closed loop system. Real Estate Activities Four of the Company's Executives and/or Directors are members of an eight-member partnership that in July 1990 purchased the Company's real estate in Indiana, Pennsylvania, and each personally guaranteed the payment of lease obligations to the bank providing the funding. For their personal guarantees, the four individuals each received warrants to purchase 100,000 shares of the Company's common stock at an exercise price of $.33 per share until June 29, 1995. Those warrants still outstanding as of the original expiration date were extended until June 29, 2001. In 1999, after all operations were relocated from this site, the property was offered for sale. The property was sold in October 2000 and the lease was terminated. Amounts due from Officers On April 28, 1999, Fred E. Cooper, CEO and Director, consolidated various outstanding obligations into a term loan totaling $777,400 payable in monthly installments of $9,427 with a final balloon payment on May 31, 2002. Interest on this loan is accrued at a rate of 8% per annum. Total amounts due from Mr. Cooper at December 31, 1999 and December 31, 2000, include balances of $747,087 and $715,963, respectively, on the term loan discussed above plus accrued interest of $10,813 and $9,163, respectively. On April 28, 1999, Glenn Keeling, a Director, consolidated various outstanding obligations into a term loan totaling $296,358 payable in monthly installments of $4,184 with a final balloon payment on May 1, 2002. Interest on this loan is accrued at a rate of 8% per annum. Total amounts due from Mr. Keeling at December 31, 1999 and December 31, 2000, include balances of $275,869 and $237,737, respectively, on the term loan discussed above plus accrued interest of $3,668 and $3,668, respectively. On April 28, 1999, T.J. Feola, Senior Vice President and Director, consolidated various outstanding obligations into a term loan totaling $259,477 payable in monthly installments of $3,676 with a final balloon payment on May 31, 2002. Interest on this loan is accrued at a rate of 8% per annum. Total amounts due from Mr. Feola at December 31, 1999 and December 31, 2000 include balances of $245,581 and $221,308, respectively, on the term loan discussed above plus accrued interest of $4,536 and $631, respectively. As of December 31, 1999 and 2000 the Company had a note receivable from Allegheny Food Services, Inc. of which Joseph Kondisko, a former director, is principal owner. The loan, which bears interest at a rate of 9.25%, is payable in monthly installments of $3,630 with a final balloon payment on April 1, 2001. The outstanding balance on this loan was $172,724 at December 31, 1999 and $87,706 at December 31, 2000. During 1999 the Company made various demand loans totaling $150,000 to B-A-Champ.com, Inc., a company substantially owned by Fred E. Cooper, CEO. As of December 31, 1999, these loans had been repaid to a balance of $50,000 with an accrued interest of $3,006. As of December 31, 1999, the Company owned approximately 6.5% of the outstanding stock of B-A- Champ.com, Inc. In 2000, the Company provided additional funding of $400,000 in exchange for additional shares of B-A- Champ.com, Inc. In addition, the Company converted a note receivable of $50,000 from B-A-Champ.com, Inc. plus accrued interest of $5,256 to common stock. As a result of these additional investments, the Company owned 51% of the outstanding stock of B-A-Champ.com, Inc. as of December 31, 2000 and included B-A-Champ.com, Inc. as a consolidated subsidiary in the December 31, 2000 financial statements. As of December 31, 2000, Fred E. Cooper, Chief Executive Officer of the Company, owned approximately 30% of the outstanding common stock of B-A-Champ.com, Inc. Employment Contracts The Company has employment contracts with three officers and two employees that commenced November 1, 1994 and were renewed on October 31, 1999. There is an additional contract with an officer that commenced August 16, 2000. These employment contracts set forth annual basic salaries aggregating approximately $2,125,000 in 2000 and expiring in periods beginning October 2001 through 2005, which are subject to review and adjustment. The contracts may be extended for successive two to three year periods. In the event of change in control in the Company and termination of employment, continuation of annual salaries at 100% decreasing to 25% are payable in addition to the issuing of shares of common stock as defined in the contracts. The contracts also provide for severance, disability benefits and issuances of BICO common stock under certain circumstances. NOTE O - COMMITMENTS AND CONTINGENCIES Litigation On April 30, 1996, a class action lawsuit was filed against the Company, Diasensor.com, Inc., and individual officers and directors. The suit, captioned Walsingham v. Biocontrol Technology, et al., was certified as a class action in the U.S. District Court for the Western District of Pennsylvania. The suit alleged misleading disclosures in connection with the Noninvasive Glucose Sensor and other related activities, which the Company denies. Without agreeing to the alleged charges or acknowledging any liability or wrongdoing, the Company agreed to settle the lawsuit for a total amount of $3,450,000. As of December 31, 2000, $2,150,000 has been paid toward the settlement. An additional $1,300,000 is included in accrued liabilities and will be paid in July 2001. Although it is not known whether the class action plaintiffs have been formally notified of the settlement, or if they have accepted its terms, the Company believes that the existing settlement will end this matter. Pennsylvania Securities Commission The Pennsylvania Securities Commission is conducting a private investigation of the Company and its subsidiary, Diasensor.com, Inc., in connection with the sale of securities. The Companies have cooperated with and provided information to the Pennsylvania Securities Commission in connection with the private investigation. As the Commission's investigation is not yet complete, there can be no estimate or evaluation of the likelihood of an unfavorable outcome in this matter or the range of possible loss, if any. Additional Legal Proceedings In April 1998, the Company and its affiliates were served with subpoenas requesting documents in connection with an investigation by the U.S. Attorneys' office for the U.S. District Court for the Western District of Pennsylvania. The Company continues to submit various scientific, financial and contractual documents in response to such requests. NOTE P - EMPLOYEE BENEFIT PLAN The Company has a defined contribution plan with 401(k) provisions, which covers all employees meeting certain age and period of service requirements. Employer contributions are discretionary as determined by the Board of Directors. There have been no employer contributions to the plan through December 31, 2000. NOTE Q -STOCK ACQUISITIONS ICTI, Inc. Effective March 4, 1998, pursuant to a Stock Purchase Agreement dated February 20, 1998, the Company acquired 58.4% of International Chemical Technologies, Inc. (ICTI) a development stage corporation. ICTI commenced operations in May 1997 and planned to engage in the business of manufacturing and marketing, and licensing rights with respect to certain corrosion/wear-resistant metal alloy coating compositions. Consideration for the purchase of the 58.4% interest in ICTI included a cash payment of $1,030,000; a promissory note for $3,350,000 at 8%; 2,000,000 shares of BICO common stock (fair market value of $250,000), a warrant to purchase 1,000,000 shares of BICO stock for $2 per share anytime through March 4, 2003; and the guarantee by BICO of a promissory note for $1,300,000 payable by ICTI to the seller. The Company recognized $5,310,501 of goodwill in connection with the ICTI Stock Purchase Agreement. For purposes of amortizing this goodwill, management had determined a useful life of 5 years. Accumulated amortization on this goodwill was $887,080 at December 31, 1998. Based upon a reevaluation of this goodwill, the remaining balance of $4,423,421 was included in an impairment charge recognized in 1999. Management's reevaluation was reached due to failure of the investment to perform as anticipated and the decision that future cash flow was unlikely. For these same reasons an impairment charge was recorded to write off associated plant and equipment. B-A-Champ.com Effective August 1, 2000, the Company acquired an additional 44.5% of B-A-Champ.com, Inc., a development stage corporation. This additional investment increased the Company's ownership of B-A-Champ.com, Inc. to 51%. B-A- Champ.com, Inc. commenced operations in 1999 and plans to engage in various internet promotional activities. Consideration for the purchase of the additional 44.5% interest in B-A-Champ.com, Inc. included a cash payment of $400,000 and the conversion of a $50,000 note receivable from B-A-Champ.com, Inc. plus accrued interest of $5,256 into common stock. The Company recognized $259,964 of goodwill in connection with the acquisition of of B-A-Champ.com, Inc. For purposes of amortizing this goodwill, management has determined a useful life of 5 years. Accumulated amortization on this goodwill was $21,664 at December 31, 2000. INTCO, Inc. Pursuant to a Stock Purchase Agreement dated November 1, 2000, Petrol Rem, Inc. acquired 51% of INTCO, Inc. INTCO, Inc. was incorporated on February 5, 1981 and engages in oil- spill cleanup and the treatment of oil wells and also charters out self-propelled barges for maintenance work. Consideration for the purchase of 51% on INTCO, Inc. included a cash payment of $250,000 and a promissory note for $1 million. As of December 31, 2000, the outstanding balance on the promissory note was $850,000. The Company recognized $310,567 of goodwill in connection with the INTCO Stock Purchase Agreement. For purposes of amortizing this goodwill, management has determined a useful life of 5 years. Accumulated amortization on this goodwill was $10,352 at December 31, 2000. Tireless, LLC In October 2000, Petrol Rem, Inc. and Universal Scrap Tire Company, LLC (an unaffiliated company) formed a joint venture called Tireless, LLC (Tireless) with Petrol Rem, Inc. and Universal Scrap Tire Company, LLC owning 51% and 49%, respectively. Tireless is a development stage company that plans to engage in the acquisition, shredding and disposal of tires and tire parts. Consideration for the 51% ownership in Tireless included an agreement by Petrol Rem to provide working capital funding of $455,000 to Tireless. As of December 31, 2000, Petrol Rem had made cash payments of $335,940 to fund the operating and capital needs of Tireless. Petrol Rem recognized $164,611 of goodwill in connection with the investment in Tireless. For purposes of amortizing this goodwill, management has determined a useful life of 5 years. Accumulated amortization on this goodwill was $8,231 as of December 31, 2000. NOTE R - SUBSEQUENT EVENTS The Company made additional investments in American Inter- Metallics, Inc. of $35,000 in January 2001 and $75,000 in February 2001. These additional investments increased the Company's ownership in American Inter-Metallics, Inc. to 18.4%. From January through late February 2001, the Company raised net funds aggregating approximately $3,900,000 from the sale of its convertible debentures. In January 2001, Diasensor.com made additional investments of $250,000 in MicroIslet, Inc. and $293,951 in Diabecore Medical, Inc. These additional investments increased Diasensor.com's ownership percentage to approximately 17.5% and 27% in MicroIslet and Diabecore, respectively. In February 2001, the Company entered into an agreement with David L. Purdy in connection with his resignation from the Company and its2 affiliates. The agreement required the Company to pay Mr. Purdy an aggregate of $912,727 and place $100,000 in an escrow account for Mr. Purdy's future attorney fees. No dealer, salesman or other person has been authorized to give any information or to make any representation other than those contained in this prospectus and you may not rely upon that information. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs or operations since the date of this prospectus. This prospectus does not constitute an offer to sell or solicitation of an offer to buy any securities offered in any jurisdiction in which such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. __________________________ TABLE OF CONTENTS Page 284,217,673 Shares Summary 3 Risk Factors 4 Where You Can Find More Information 12 Prospectus Delivery Requirements 12 Use of Proceeds 12 Dividend Policy 12 BICO, INC. Capitalization 12 Market Price for Common Stock 13 Description of Securities 14 Common Stock Selling Stockholders 15 Plan of Distribution 18 Stock Eligible for Future Sale 18 Management's Discussion and Analysis 19 Business 25 Legal Proceedings 43 Directors and Executive -------------------- Officers 44 P R O S P E C T U S Executive Compensation 48 -------------------- Security Ownership 53 Interests of Named March 29, 2001 Experts and Counsel 54 Experts 54 PART II INFORMATION NOT REQUIRED IN PROSPECTUS EXPENSES OF ISSUANCE AND DISTRIBUTION The following sets forth our estimated expenses incurred in connection with the issuance and distribution of the securities described in the prospectus other than underwriting discounts and commissions: Printing and Copying $ 2,500 Legal Fees 25,000 SEC Registration Fees 5,530 Accounting Fees 5,000 ------- Total $38,030 ======= INDEMNIFICATION OF DIRECTORS AND OFFICERS Except as set forth herein, we have no provisions for the indemnification of its officers, directors or control persons. Fred E. Cooper, Anthony J. Feola, Glenn Keeling and Michael P. Thompson have employment contracts, which include indemnification provisions, which indemnify them to the extent permitted by law. BICO and its affiliates Diasense, Inc., Coraflex, Inc., Petrol Rem, Inc., and ViaCirQ, Inc. are incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania. Section 1741, et seq. of said law, in general, provides that an officer or director shall be indemnified against reasonable and necessary expenses incurred in a successful defense to any action by reason of the fact that he serves as a representative of the corporation, and may be indemnified in other cases if he acted in good faith and in a manner he reasonably believed was in, or not opposed to, the best interests of the corporation, and if he had no reason to believe that his conduct was unlawful, except that no indemnification is permitted when such person has been adjudged liable for recklessness or misconduct in the performance of his duty to the corporation, unless otherwise permitted by a court of competent jurisdiction. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the 1933 Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. RECENT SALES OF UNREGISTERED SECURITIES BICO recently completed sales of unregistered securities as summarized below. Unless otherwise indicated, all offers and sales were made pursuant to the "private offering" exemption under Section 4(2) of the 1933 Act. Accordingly, because the shares sold constitute "restricted securities" within the meaning of Rule 144 under the 1933 Act, stop-transfer instructions were given to the transfer agent, and the stock certificates evidencing the shares bear a restrictive legend. During 1996 through March 1998, BICO entered into agreements with several entities, which agreed to use their best efforts to sell BICO's common stock to foreign investors subject to the requirements set forth in Regulation S of the Securities Act of 1933. Those entities undertook to ensure compliance with Regulation S, which among other things, limits a foreign investor's ability to trade BICO's stock in the United States. In addition to sales of common stock pursuant to Regulation S, BICO has also sold convertible preferred stock and convertible debentures. The debentures mandatorily convert to common stock at prices that are discounted to the market price, but cannot be converted for periods of 45 to 90 days following the purchase of the debentures; such holding periods were enforced via the use of stop transfer instructions and other notices. The following funds were raised pursuant to Regulation S offerings during the years noted: approximately $21.6 million in 1996, approximately $22 million in 1997, and approximately $6.9 million in 1998. In August 1998, BICO sold convertible debentures pursuant to Regulation D; each debenture had mandatory conversion provisions and was convertible beginning ninety days from purchase. Proceeds of the sales were used to continue to fund BICO's research and development projects and to provide working capital for BICO and its subsidiaries. Beginning in December 1999, BICO sold $5,650,000 of its Series F Convertible Preferred Stock, and $9,850,000 of its subordinated convertible debentures in private offerings. Both the preferred stock and the debentures have holding periods of ninety to one hundred twenty days prior to conversion and are convertible into common stock at prices that are discounted to the market price. Proceeds of the sales were used to continue to fund BICO's projects, and to provide working capital. Beginning in December 2000, BICO sold $10,655,659 of its subordinated convertible debentures in private offerings. The debentures have ninety day holding periods prior to conversion and are convertible into common stock at a 20% discount to the market price. Proceeds of the sales were used to continue to fund BICO's projects and to provide working capital. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post- effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes to supplement the prospectus, after the expiration of the subscription period, to set forth the results of the subscription offer and the terms of any subsequent reoffering thereof. If any public offering is to be made on terms differing from those set forth on the cover page of the prospectus, a post-effective amendment will be filed to set forth the terms of such offering. EXHIBIT TABLE Exhibit Sequential Page No. 3.1(4) Articles of Incorp. as filed March 20, 1972... N/A 3.2(4) Amendment to Articles filed May 8,1972...... N/A 3.3(4) Restated Articles filed June 19,1975......... N/A 3.4(4) Amendment to Articles filed February 4,1980.. N/A 3.5(4) Amendment to Articles filed March 17,1981.... N/A 3.6(4) Amendment to Articles filed January 27,1982.. N/A 3.7(4) Amendment to Articles filed November 22,1982. N/A 3.8(4) Amendment to Articles filed October 30,1985.. N/A 3.9(4) Amendment to Articles filed October 30,1986. N/A 3.10(4) By-Laws...................................... N/A 3.11(5) Amendment to Articles filed December 28,1992. N/A 3.12(8) Amendment to Articles filed February 7, 2000 N/A 3.13 Amendment to Articles filed June 14, 2000 N/A 5.1 Legal Opinion of Sweeney & Associates P.C..... 97 10.1(1) Manufacturing Agreement...................... N/A 10.2(1) Research and Development Agreement........... N/A 10.3(1) Termination Agreement........................ N/A 10.4(1) Purchase Agreement........................... N/A 10.5(2) Sublicensing Agreement and Amendments........ N/A 10.6(3) Lease Agreement with 300 Indian Springs Partnership......................... N/A 10.7(4) Lease Agreement with Indiana County.......... N/A 10.8(5) First Amendment to Purchase Agreement dated December 8, 1992.................. N/A 10.9(6) Fred E. Cooper Employment Agreement dated 11/1/94............ N/A 10.10(6) David L. Purdy Employment Agreement dated 11/1/94........... N/A 10.11(6) Anthony J. Feola Employment Agreement dated 11/1/94........... N/A 10.12(6) Glenn Keeling Employment Agreement dated 11/1/94........... N/A 10.13(9) David L. Purdy resignation as a director letter dated 6/1/00........... N/A 10.14(11) Michael P. Thompson Employment Agreement dated 8/16/00............................ N/A 16.1(7) Disclosure and Letter Regarding Change in Certifying Accountants dated 1/25/95 N/A 16.2(10) Disclosure and Letter Regarding Change in Certifying Accountants dated 8/24/00 N/A 24.1 Consents of Goff Backa Alfera & Company, LLC Independent Certified Public Accountants 99 24.2 Consent of Counsel (Included in Exhibit 5.1 above) 97 25.1 Power of Attorney of Fred E. Cooper 96 (included under "Signatures") (1) Incorporated by reference from Exhibit with this title filed with BICO's Form 10-K for the year ended December 31, 1991 (2) Incorporated by reference from Exhibit with this title to Form 8-K dated May 3, 1991 (3) Incorporated by reference from Exhibit with this title to Form 10-K for the year ended December 31, 1990 (4) Incorporated by reference from Exhibits with this title to Registration Statement on Form S-1 filed on December 1, 1992 (5) Incorporated by reference from Exhibits with this title to Amendment No. 1 to Registration Statement on Form S-1 filed on February 8, 1993 (6) Incorporated by reference from Exhibit with this title to Form 10-K for the year ended December 31, 1994 (7) Incorporated by reference from Exhibit with this title to Form 8-K dated January 25, 1995 (8) Incorporated by reference from Exhibit with this title to Form 10-K dated March 27, 2000 (9) Incorporated by reference from Exhibit with this title to Form 8-K dated June 2, 2000 (10)Incorporated by reference from Exhibit with this title to Form 8-K filed August 24, 2000 (11)Incorporated by reference from Exhibit with this title to Form 10-K for the year ended December 31, 2000 Exhibit 25.1 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration Statement to be signed on its behalf by the undersigned on March 29, 2001. BICO, INC. By: /s/ Fred E. Cooper Fred E. Cooper, director, CEO, (principal executive officer) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Fred E. Cooper his true and lawful attorney-in-fact and agent with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post- effective amendments) to this registration Statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration Statement has been signed by the following persons in the capacities indicated on the dates indicated. Signature Title Date /s/ Anthony J. Feola Chief Operating Officer, March 29, 2001 Anthony J. Feola director /s/ Michael P. Thompson Principal Accounting March 29, 2001 Michael P. Thompson Officer, Principal Financial Officer /s/ Glenn Keeling director March 29, 2001 Glenn Keeling /s/ Stan Cottrell director March 29, 2001 Stan Cottrell /s/ Paul W. Stagg director March 29, 2001 Paul W. Stagg Exhibit 5.1 SWEENEY & ASSOCIATES, P.C. ATTORNEYS AT LAW 7300 PENN AVENUE TELEPHONE (412) 731-1000 PITTSBURGH, PA 15208 FACSIMILE (412) 731-9190 March 29, 2001 To the Board of Directors BICO, Inc. 2275 Swallow Hill Road Building 2500; 2nd Floor Pittsburgh, PA 15220 Gentlemen: We have examined the corporate records and proceedings of BICO, Inc., formerly Biocontrol Technology, Inc, a Pennsylvania corporation (the "Company"), with respect to: The organization of the Company; The legal sufficiency of all corporate proceedings of the Company taken in connection with the creation, issuance, the form and validity, and full payment and non-assessability, of all the present outstanding and issued common stock of the Company; and The legal sufficiency of all corporate proceedings of the Company, taken in connection with the creation, issuance, the form and validity, and full payment and non-assessability, when issued, of shares of the Company's common stock (the "Shares"), to be issued by the Company covered by this registration statement (hereinafter referred to as the "Registration Statement") filed with the Securities and Exchange Commission March 29, 2001, file number 333- __________ (in connection with which Registration Statement this opinion is rendered.) We have also examined such other documents and such questions of law as we have deemed to be necessary and appropriate, and on the basis of such examinations, we are of the opinion: (a) That the Company is duly organized and validly existing under the laws of the Commonwealth of Pennsylvania; (b) That the Company is authorized to have outstanding 1,700,000,000 shares of common stock of which 1,383,704,167 shares of common stock were outstanding as of December 31, 2000; (c) That the Company has taken all necessary and required corporate proceeding in connection with the creation and issuance of the said presently issued and outstanding shares of common stock and that all of said stock so issued and outstanding has been validly issued, is fully paid and non-assessable, and is in proper form and valid; (d) That when the Registration Statement shall have been declared effective by order of the Securities and Exchange Commission, after a request for acceleration by the Company, and the Shares shall have been issued and sold upon the terms and conditions set forth in the Registration Statement, then the Shares will be validly authorized and legally issued, fully paid and non-assessable. We hereby consent (1) to be named in the Registration Statement, and in the prospectus, which constitutes a part thereof, as the attorneys who will pass upon legal matters in connection with the sale of the Shares, and (2) to the filing of this opinion as Exhibit 5.1 of the Registration Statement. Sincerely, Sweeney & Associates, P.C. Exhibit 24.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS We have issued our report dated February 27, 2001, accompanying the consolidated financial statements of BICO, Inc., formerly Biocontrol Technology, Inc. and subsidiaries appearing in the 2000 Annual Report on Form 10-K for the year ended December 31, 2000. We consent to the inclusion in this Registration Statement of the aforementioned report and to the use of our name, as it appears under the caption "EXPERTS". Our report on the consolidated financial statements referred to above includes an explanatory paragraph, which discusses going concern considerations as to BICO, Inc. /s/ Goff Backa Alfera & Company, LLC Pittsburgh, Pennsylvania March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----