10-Q 1 b10q301.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 2001 Commission file number 0-10822 BICO, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-1229323 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification no.) 2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, PA 15220 (Address of principal executive offices) (Zip Code) (412) 429-0673 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of March 31, 2001, 1,383,704,167 shares of BICO, Inc. common stock, par value $.10 were outstanding. 1 BICO, Inc. and Subsidiaries Consolidated Balance Sheets
Mar. 31, 2001 Dec. 31, 2000 (Unaudited) (Note A) ------------- ------------- CURRENT ASSETS Cash and equivalents $ 5,453,362 $ 7,844,807 Accounts receivable - net of allowance for doubtful accounts of $43,664 at Mar. 31, 2001 and Dec. 31, 2000 406,527 400,950 Inventory - net of valuation allowance 954,584 805,224 Related party notes receivable 58,940 87,706 Notes receivable 3,018,166 1,926,363 Interest receivable 96,530 48,252 Prepaid expenses 986,566 988,354 Other current assets 47,268 47,268 ------------ ------------- TOTAL CURRENT ASSETS 11,021,943 12,148,924 PROPERTY, PLANT AND EQUIPMENT Building 2,529,176 2,529,176 Land 246,250 246,250 Leasehold improvements 1,931,395 1,848,674 Machinery and equipment 6,598,789 6,405,594 Furniture, fixtures & equipment 930,537 921,195 ------------- ------------- Subtotal 12,236,147 11,950,889 Less accumulated depreciation 5,492,828 5,288,910 ------------- ------------- 6,743,319 6,661,979 OTHER ASSETS Related Party Receivables Notes receivable 1,147,871 1,174,738 Interest receivable 8,604 13,463 -------------- ------------ 1,156,475 1,188,201 Allowance for related party receivables (1,156,475) (1,188,201) ------------- ------------ - - Notes receivable 190,806 200,000 Goodwill, net of amortization 684,032 694,895 Investment in unconsolidated subsidiaries 2,612,099 2,061,439 Other assets 161,638 162,833 ------------- ------------- 3,648,575 3,119,167 ------------- ------------- TOTAL ASSETS $ 21,413,837 $ 21,930,070 ============= ============= The accompanying notes are an integral part of these statements.
2 BICO, Inc. and Subsidiaries Consolidated Balance Sheets (Continued)
Mar. 31, 2001 Dec. 31, 2000 (Unaudited) (Note A) ------------- ------------- CURRENT LIABILITIES Accounts payable $ 445,959 $ 578,520 Current portion of long-term debt 4,623,577 5,182,783 Current portion of capital lease obligations 91,583 98,788 Debentures payable 10,655,659 2,400,000 Accrued liabilities 3,437,591 3,131,765 Escrow payable 2,700 2,700 ------------- ------------- TOTAL CURRENT LIABILITIES 19,257,069 11,394,556 LONG-TERM LIABILITIES Capital lease obligations 2,181,826 2,203,673 Long - term debt 3,343 7,864 ------------- ------------- 2,185,169 2,211,537 UNRELATED INVESTORS' INTEREST IN SUBSIDIARY 404,940 434,990 STOCKHOLDERS' EQUITY Common stock, par value $.10 per share, authorized 1,700,000,000 shares, issued and outstanding 1,383,704,167 at Mar. 31, 2001 and Dec. 31, 2000 138,370,417 138,370,417 Additional paid-in capital 89,094,066 87,035,096 Warrants 6,221,649 6,204,235 Accumulated deficit (234,119,473) (223,720,761) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY (433,341) 7,888,987 TOTAL LIABILITIES AND ------------- ------------- STOCKHOLDER' EQUITY $ 21,413,837 $ 21,930,070 ============= ============= The accompanying notes are an integral part of these statements.
F-3 BICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 2001 2000 (Unaudited) (Unaudited) ---------- ----------- Revenues Net Sales $ 599,007 $ 18,998 Other income 7,418 - ---------- ----------- 606,425 18,998 Costs and expenses Cost of products sold 424,092 30,660 Research and development 1,285,222 2,150,323 General and administrative 6,238,852 3,203,967 Amortization of goodwill 182,715 77,207 ---------- ----------- 8,130,881 5,462,157 ---------- ----------- Loss from operations (7,524,456) (5,443,159) Other income Interest 124,600 164,318 Other expense Debt issue costs 679,174 985,000 Beneficial convertible debt feature 2,063,915 2,462,500 Interest expense 229,194 151,757 Loss on unconsolidated subsidiaries 72,192 8,750 Loss on disposal of assets 18,311 15,874 ---------- ----------- 3,062,786 3,623,881 ---------- ----------- Loss before unrelated investors' interest (10,462,642) (8,902,722) Unrelated investors' interest in net loss of subsidiary 63,930 (228,824) ---------- ----------- Net loss $(10,398,712) $(9,131,546) ========== =========== Loss per common share - Basic: Net Loss $ (0.01) $ (0.01) Less: Preferred stock dividends (0.00) (0.00) ---------- ----------- Net loss attributable to common stockholders $ (0.01) $ (0.01) ========== =========== Loss per common share - Diluted: Net Loss $ (0.01) $ (0.01) Less: Preferred stock dividends (0.00) (0.00) ---------- ----------- Net loss attributable to common stockholders $ (0.01) $ (0.01) ========== =========== The accompanying notes are an integral part of these statements.
4 BICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended March 31, 2001 March 31, 2000 -------------- -------------- Cash flows used by operating activities: Net loss $(10,398,712) $( 9,131,546) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 228,528 157,056 Amortization 182,715 77,207 Loss on disposal of assets 18,311 15,874 Loss on unconsolidated subsidiaries 72,192 8,750 Unrelated investors' interest in subsidiaries (63,934) 228,824 Beneficial convertible debt feature 2,063,915 2,462,500 Warrants granted 17,414 190,298 Warrants and warrant extensions by subsidiaries 0 281,493 Allowance for related party note receivable (31,726) (11,162) (Increase) decrease in accounts receivable (5,577) (15,497) (Increase) decrease in inventories (299,360) 821,880 Increase (decrease) in inventory valuation allowance 150,000 (814,373) (Increase) decrease in prepaid expenses 1,788 (79,195) (Increase) decrease in other assets (10,622) (500,250) Increase (decrease) in accounts payable (132,561) 4,948 Increase (decrease) in other liabilities 305,826 (484,714) ------------ ------------ Net cash flow used by operating activities (7,901,803) (6,787,907) ------------ ------------ Cash flows from investing activities: Purchase of property, plant and equipment (328,179) (242,401) (Increase) decrease in notes receivable (1,082,609) (55,000) Payments received on notes receivable 55,633 35,285 (Increase) decrease in interest receivable (43,419) 1,690 Acquisition of unconsolidated subsidiary interests (753,948) (1,223,784) -------------- ------------ Net cash provided (used) by investing activities (2,152,522) (1,484,210) -------------- ------------ Cash flows from financing activities: Proceeds from warrants exercised 0 899,420 Proceeds from sale of Preferred stock-Series F 0 4,275,000 Proceeds from debentures payable 8,255,659 9,850,000 Payments on notes payable (563,727) (37,906) Payments on capital lease obligations (29,052) (20,334) -------------- ------------ Net cash provided by financing activities 7,662,880 14,966,180 -------------- ------------ Net increase (decrease) in cash (2,391,445) 6,694,063 Cash and cash equivalents, beginning of year 7,844,807 10,827,631 ------------- ----------- Cash and cash equivalents, end of year $ 5,453,362 $17,521,694 ============== ============ The accompanying notes are an integral part of these statements. BICO, INC. NOTES TO FINANCIAL STATEMENTS NOTE A - Basis of Presentation The accompanying consolidated financial statements of BICO, Inc. (the "Company") and its 89.9% owned subsidiary, Coraflex, Inc., and its 52% owned subsidiary, Diasense, Inc., and its 75% owned subsidiary, Petrol Rem, Inc., and its 99.1% owned subsidiary, ViaCirQ, Inc., and its 58.4% owned subsidiary, ICTI, Inc., and its 100% owned subsidiary, Ceramic Coatings Technologies, Inc., and its 51% owned subsidiary, B-A- Champ.com, Inc., have been prepared in accordance with generally accepted accounting principles for interim financial information, and with the instructions to Form 10-Q and Rule 10-O Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 2000. NOTE B - Notes Receivable During the three months ended March 31, 2001, Petrol Rem, Inc. (a 75% owned subsidiary) loaned an additional $1,091,803 to a company involved in the acquisition and management of environmental entities. The loan, which bears interest at a rate of 10% per annum is due on August 31, 2001, and is collateralized by a security interest and lien on all of the company's assets including its rights to any and all contracts, options or claims of that company to purchase or acquire the assets of any environmental company. NOTE C - Investments in Unconsolidated Subsidiaries In 2000, the Company acquired a twenty-five percent (25%) interest in Insight Data Link.com, Inc. for $100,000. The Company made no additional investments in Insight Data Link.com, Inc. in the three months ended March 31, 2001. 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. During the three months ended March 31, 2001 the Company invested an additional $110,000 in American Inter-Metallics, Inc. ("AIM") an unconsolidated subsidiary interest initially acquired during 1999. With this additional investment, the Company has invested $920,000 in AIM and its ownership is approximately 18.4%. 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 three months ended March 31, 2001, Diasense invested an additional $350,000 in MicroIslet, Inc., an unconsolidated subsidiary interest initially acquired during 2000. With this additional investment, Diasense has invested $1,350,000 in MicroIslet and its ownership is approximately 18.5%. Diasense has an option to purchase an additional 1.5% interest in MicroIslet and holds a seat on the board of directors of this unconsolidated subsidiary. 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. During the three months ended March 31, 2001, Diasense invested an additional $293,948 in Diabecore Medical, Inc., an unconsolidated subsidiary interest initially acquired during 2000. With this additional investment, Diasense has invested $987,472 in Diabecore and owns approximately 28.2% of this unconsolidated subsidiary. Diasense also owns warrants to purchase additional shares of Diabecore, which, if exercised, will increase the company's ownership to 35%. Diasense holds a seat on the board of directors of Diabecore. Diabecore is a Toronto-based company working to develop a new insulin for the treatment of diabetes. 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 March 31, 2001 and December 31, 2000 are as follows: Investment Unconsolidated in Unamortized Subsidiary Underlying Goodwill Total Net Assets Mar.31, Dec. 31, Mar.31, Dec. 31, Mar.31, Dec. 31, 2001 2000 2001 2000 2001 2000 American Inter- Metallics, Inc. $273,446 $222,912 $ 466,967 $ 441,004 $ 740,413 $ 663,916 Insight Data 27,003 28,503 49,262 52,546 76,265 81,049 Link.com MicroIslet,Inc. 78,992 50,731 908,472 688,508 987,464 739,239 Diabecore 129,148 50,615 678,809 526,620 807,957 577,235 ------- ------- ------- ------- ------- ------- Total $508,589 $352,761 $2,103,510 $1,708,678 $2,612,099 $2,061,439 NOTE D- Subordinated Convertible Debentures During the first quarter of 2001 the Company issued subordinated 4% convertible debentures totaling $8,255,659. Such convertible debentures were issued pursuant to Regulation D, and /or Section 4(2), and have a one-year maturity and are not saleable or convertible for a minimum of 90 days from issuance. A $2,063,915 expense was recognized upon issuance for the beneficial conversion feature of these debentures. NOTE E - Legal Proceedings During April 1998, the Company and its affiliates were served with subpoenas by the U.S. Attorneys' office for the U.S. District Court for the Western District of Pennsylvania. The subpoenas requested certain corporate, financial and scientific documents and the Company continues to provide documents in response to such requests. On April 30, 1996, a class action lawsuit was filed against the Company, Diasense, Inc., and individual officers and directors. The suit, captioned Walsingham v. Biocontrol Technology,et al., was certified as a class action in the U.S. District Court for the Western District of Pennsylvania. The suit alleged misleading disclosures in connection with the Noninvasive Glucose Sensor and other related activities, which the company denies. Without agreeing to the alleged charges or acknowledging any liability or wrongdoing, the company agreed to settle the lawsuit for a total amount of $3,450,000. As of March 31, 2001, $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. NOTE F - Subsequent Events In April 2001, the Company made an additional investment of $80,000 in American Inter-Metallics, Inc. This additional investment increased the Company's ownership percentage to 20%. In May 2001, the Company's subsidiary, Diasense, made an additional investment of $150,000 in MicroIslet, Inc. This addition investment increased Diasense's ownership percentage to 20%. In April 2001, the Company registered 284,217,673 shares of common stock on Form S-1 on behalf of the selling shareholders. These shares are issuable upon conversion of $10,655,659 of 4% subordinated convertible debentures. Through May 10, 2001, 104,413,700 shares of common stock were issued when $4,256,706 of these debentures were converted. Management's Discussion and Analysis of Financial Condition and Cash Flows Liquidity and Capital Resources Our cash decreased to $5,453,362 as of March 31, 2001 from $7,844,807 as of December 31, 2000 primarily due to the factors discussed below. During the three months ended March 31, 2001 our net cash flow used by operating activities was ($7,901,803). During the same period, our net cash flow used by investing activities was ($2,152,522) due primarily to the acquisition of property, plant and equipment, additional loans made to a company involved in the acquisition and management of environmental entities, and additional investments in unconsolidated subsidiaries which we discuss in the following three paragraphs. During the first three months of 2001, we made additional investments in unconsolidated subsidiaries. BICO invested an additional $110,000 in American Inter-Metallics, bringing our total investment in AIM's rocket propulsion project to $920,000. We increased our investment in AIM because our management believes this company will generate revenue. Our subsidiary, Diasense, Inc. also made investments in unconsolidated subsidiaries during the first quarter of 2001. An additional $350,000 was invested in MicroIslet, Inc., a company working with Duke University on several diabetes research technologies that focus on optimizing microencapsulated islets for transplantation. The project is in the research and development phase. As of March 31, 2001, Diasense had invested $1,350,000 in MicroIslet and owned approximately 18.5% of this company. The company has an option to increase its ownership to 20%. Diasense also increased its investment in Diabecore Medical, Inc. Diabecore is a company in Toronto working with other research institutions to develop a new insulin to treat diabetes. In the first quarter of 2001, Diasense invested $293,948 in Diabecore increasing the total amount invested to $987,472 and its ownership in this company to approximately 28.2%. This project is also in the research and development phase. Diasense increased 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 additional investments in American Inter- Metallics, MicroIslet and Diabecore Medical, our overall investment in unconsolidated subsidiaries increased from $2,061,439 as of December 31, 2000 to $2,612,099 at March 31, 2001. The money we spent investing in these companies came from stock and debenture sales during 2000 and 2001. Acquisitions of property, plant and equipment included increases of machinery and equipment of $193,195 for the quarter March 31, 2001 primarily due to additions of hyperthermia equipment for our ViaCirQ subsidiary. Leasehold improvements increased by $82,721 primarily due to renovations made to the Indiana, PA facility. Current - short-term - notes receivable increased during the three months ended March 31, 2001 when our subsidiary, Petrol Rem, advanced an additional $1,091,803 to Practical Environmental Solutions, an unaffiliated company involved in the acquisition and management of environmental companies. Interest receivable increased from $48,252 as of December 31, 2000 to $96,530 at March 31, 2001 due to additional interest accrued on notes receivable. Our net inventory increased from $805,224 as of December 31, 2000 to $954,584 as of March 31, 2001. The increase was due to an inventory build-up for the ThermoChem hyperthermia products and our noninvasive glucose sensor product. Current related party receivables decreased by $28,766 during the three-month period ended March 31, 2001 due to scheduled repayments on related party notes. Accounts payable decreased by $132,561 during the quarter ended March 31, 2001 due to additional payments in the ordinary course of business. Accrued liabilities increased by $305,826 during the same period due to accrued interest on notes payable and debentures and increased liabilities for accrued payroll and vacation. Debentures payable of $8,255,659 were recorded during the three months ended March 31, 2001 because we sold convertible subordinated debentures during the first quarter to raise capital to fund operations. Results of Operations Our sales and corresponding costs of products sold during the three months were $599,007 and $424,092 respectively in 2001 compared to $18,998 and $30,660 in 2000. The increase in sales was primarily due to sales of $516,089 for Petrol Rem's subsidiary, Intco, which was acquired in the fourth quarter of 2000 and therefore not included in the first three months of 2000 operations. In addition, we recognized sales of $48,838 from our hyperthermia products and $21,776 from our metal coating products, neither of which produced sales in the first quarter of 2000. The increase in sales of metal coating products 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. Our costs increased due to the increase in sales of our various products. Our other product sales decreased in total, but not significantly. Bioremediation product sales totaled $16,024 during the first three months of 2000, with a decrease to $4,089 during the first three months of 2001. This decrease is primarily due to the timing of orders being placed. During the first three months of 2000 and 2001, sales of $5,450 and $8,225, 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. Other income increased from zero during the first three months of 2000 to $7,418 during the first three months of 2001. The increase was primarily due to rental income. Interest income decreased during the first three months to $124,600 in 2001 from $164,318 in 2000. The decrease occurred because we had less funds to invest. Research and Development expenses during the first three months decreased to $1,285,222 in 2001 from $2,150,323 in 2000. The decrease was due to reduced research activities on our hyperthermia products and the redeployment of resources from research activities to production of the hyperthermia products. General and Administrative expenses during the first three months increased from $4,188,967 in 2000 to $6,238,852 in 2001. The increase is primarily due to increases in salaries, professional services and travel expenses as well as $912,727 paid under an agreement with David L. Purdy in connection with his resignation from the Company and its affiliates. Amortization of goodwill increased from $77,207 to $182,715 for the first three months of 2000 to 2001. The increase is due to additional investments in unconsolidated subsidiaries as of March 31, 2001 compared with March 31, 2000. A portion of these investments is recognized as goodwill and amortized over a five-year period. Our loss in unconsolidated subsidiaries increased to $72,192 for the first quarter of 2001 compared to $8,750 for the same period in 2000 due to the increased investments in unconsolidated subsidiaries. This loss resulted because we absorbed part of losses incurred by unconsolidated subsidiaries. Our share of the loss is determined by applying our ownership percentage to the total loss incurred. Beneficial conversion terms included in our convertible debentures are recognized as expense and credited to additional paid in capital at the time the associated debentures are issued. We recognized $2,063,915 of expense in connection with the issuance of our subordinated convertible debentures in the first three months of 2001 compared to $2,462,500 for the same period in 2000. The amount decreased primarily because we issued fewer debentures this year compared to last year. PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits (B) Reports on Form 8-K A report on form 8-K filed March 12, 2001 for the event dated March 12, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed March 15, 2001 for the event dated March 15, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed March 23, 2001 for the event dated March 22, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed March 27, 2001 for the event dated March 27, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed April 30, 2001 for the event dated April 26, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed May 2, 2001 for the event dated May 1, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed May 10, 2001 for the event dated May 4, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. A report on form 8-K filed May 10, 2001 for the event dated May 9, 2001. The items listed were Item 5, Other Events, and Item 7(c), Exhibits. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 14th day of November 2000. BICO, INC. By /s/ Fred E. Cooper Fred E. Cooper CEO and Director By /s/ Michael P. Thompson (Principal Financial Officer and Principal Accounting Officer)