-----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, CYEilwDSPyE1fCXmE6mD1MkqGxTDl3914ckAcUo3Hs6J9CLUujO3DPlaWZHk5hy9 uCIM61aOnbJFozu8KQtpfQ== 0000225211-02-000007.txt : 20020414 0000225211-02-000007.hdr.sgml : 20020414 ACCESSION NUMBER: 0000225211-02-000007 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20020221 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: 1933 Act SEC FILE NUMBER: 333-83158 FILM NUMBER: 02555419 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: CORATOMIC INC DATE OF NAME CHANGE: 19861223 FORMER COMPANY: FORMER CONFORMED NAME: BIOCONTROL TECHNOLOGY INC DATE OF NAME CHANGE: 19920703 S-1 1 s1-022102.txt As filed with the Securities and Exchange Commission on February 21, 2002 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 Amount to Proposed Proposed Amount of Class of be Maximum Maximum Registration Securities to be Registered Offering Aggregate Fee Registered Price Per Offering Share Price Common Stock issuable upon the Conversion of Preferred 350,000,000(1) $0.02(2) $ 7,000,000 $ 644.00 Stock, Series G(1) Common Stock issuable upon the Conversion 62,500,000(1) $0.02(2) $ 1,250,000 $ 115.00 Of Preferred Stock, Series H(1) Common Stock issuable upon the Conversion 137,500,000(1) $0.02(2) $ 2,750,000 $ 253.00 of Preferred Stock, Series I(1) Common Stock issuable upon the Conversion 40,000,000(1) $0.02(2) $ 800,000 $ 73.60 of Preferred Stock, Series J(1) Common Stock issuable upon the Conversion 660,000,000(1) $0.02(2) $13,200,000 $1,214,40 of Preferred Stock, Series K(1) Total Common Stock 1,250,000,000 Total Registration Fee $2,300.00(3) (1)These shares are registered on behalf of selling stockholders. (2) Estimated SOLELY for purposes of calculating the registration fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended, and based on the average of the high and low sales prices of the common stock of Registrant on the electronic bulletin board on February 19, 2002 (3) A filing fee of $2,300 for these shares was paid on February 21, 2002 _____________________ 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. 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 PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED February 21, 2002 PRELIMINARY PROSPECTUS 1,250,000,000 shares BICO, INC. Common Stock This prospectus is for an offering of shares of BICO, Inc. common stock on behalf of certain selling stockholders. Some of these selling stockholders bought preferred stock from us that are convertible into common stock. We are registering that common stock for sale on behalf of those preferred stockholders under this prospectus. Of the total shares registered, the following are being registered for each class of preferred stock: 350 million shares issuable on conversion of our Series G preferred stock 62.5 million shares issuable on conversion of our Series H preferred stock 137.5 million shares issuable on conversion of our Series I preferred stock 40 million shares issuable on conversion of our Series J preferred stock 660 million shares issuable on conversion of our Series K preferred stock We estimated the number of shares we'll need to cover the conversions of our preferred stock 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 1.25 billion shares of stock we are offering on behalf of the selling stockholders. They will receive the proceeds from any sales. We will receive money when we issue our Series K preferred stock after this registration statement is declared effective. We will use that money to continue our operations, including funding our projects and executive salaries. You need to review our Use of Proceeds section beginning on page 14 before you decide whether to buy our common stock. OUR BUSINESS INVOLVES SIGNIFICANT RISKS. YOU NEED TO REVIEW THESE RISKS BEFORE YOU CONSIDER BUYING OUR COMMON STOCK. THESE RISKS ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 5. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. If anyone tells you otherwise, it's a criminal offense. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. THE INFORMATION IN THIS PROSPECTUS ISN'T COMPLETE. IT MIGHT CHANGE. WE'RE NOT ALLOWED TO SELL THE COMMON STOCK OFFERED BY THIS PROSPECTUS UNTIL THE REGISTRATION STATEMENT WE HAVE FILED WITH THE SEC BECOMES EFFECTIVE. THIS PROSPECTUS ISN'T AN OFFER TO SELL OUR COMMON STOCK, AND WE ARE NOT SOLICITING OFFERS TO BUY OUR COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT ALLOWED. FEBRUARY 21, 2002 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. Our manufacturing, research & development operations are located at 625 Kolter Drive in Indiana, Pennsylvania, 15701, and our administrative offices are located at 2275 Swallow Hill Road, Pittsburgh, Pennsylvania, 15220. Our primary business is the development of new devices, which include models of a noninvasive glucose sensor, procedures relating to the use of regional extracorporeal hyperthermia in the treatment of cancer, and environmental products, which help to clean up oil spills. Our noninvasive glucose sensor helps diabetics measure their glucose without pricking their fingers or having to draw blood. Regional extracorporeal hyperthermia is a system that circulates fluid in a specific area of the body after the fluid has been heated outside the body. The circulated fluid's higher temperature helps treat certain diseases by inducing an artificial fever that kills targeted cells. In 2001, we acquired the marketing rights to a rapid HIV test that can be used outside the laboratory to provide accurate and fast results. We have several subsidiaries that specialize in those different projects. Diasense, Inc. manages the noninvasive glucose sensor project. ViaCirq, Inc. handles the hyperthermia project, a technology called the ThermoChem System. Petrol Rem, Inc. handles our environmental products PRP, BIOSOK and BIOBOOM that help clean up oil spills and other pollutants in water. Our Biocontrol Technology division focuses on our biomedical projects and on contract manufacturing. Our Rapid HIV Detection Corp. subsidiary markets the family of rapid HIV tests. RISK FACTORS If you invest in our stock, you will be placing your money at a significant risk. Our projects are in the research and development phase, and none of our current products has produced any significant revenue to date. You should not invest money you are not prepared to lose - and you should carefully review the section captioned Risk Factors that begins on page 5 before you decide whether to invest in our stock. THE OFFERING Common stock to be issued upon conversion of our Series G preferred stock 350 million shares Common stock to be issued upon conversion of our Series H preferred stock 62.5 million shares Common stock to be issued upon conversion of our Series I preferred stock 137.5 million shares Common stock to be issued upon conversion of our Series J preferred stock 40 million shares Common stock to be issued upon conversion of our Series K preferred stock 660 million shares Common stock outstanding after this offering, if all shares are sold 3.7 billion 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, 2001, which was 2,450,631,119. OUR PREFERRED STOCK We have five classes of convertible preferred stock. We've already sold and issued our Series G, H, I and J preferred stock. In February 2002, we received and accepted a commitment to purchase $25 million of our Series K preferred stock, contingent on this registration statement being declared effective by the SEC. This means that we've already received funds totaling $6.64 million from selling our preferred stock, and that we will receive more money by delivering our Series K preferred stock later. All of our preferred stock is convertible at a price that is based on a discount to market price and none of our preferred stock has any minimum conversion price. This means that the lower our stock price is, the lower the conversion price will be, and the more common stock we will have to issue. You should review our Selling Stockholders and Plan of Distribution sections, as well as our Risk Factors, for more detailed information. SUMMARY CONSOLIDATED FINANCIAL DATA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2000 9/30/2001 12/31/00 Total Assets $20,409,788 $21,930,070 Long-Term Obligations $ 2,146,931 $ 2,211,537 Working Capital ($ 7,824,187) $ 754,368 (Deficit) Preferred Stock $ 0 $ 0 Net Sales $ 2,869,611 $ 340,327 TOTAL REVENUES $ 2,879,108 $ 345,874 Warrant Extensions $ 0 $ 5,233,529 Benefit (Provision) $ 0 $ 0 for Income Taxes Net Loss ($25,581,120) ($42,546,303) Net Loss Per Common Share Basic ($.015) ($.04) Diluted ($.015) ($.04) Cash Dividends Per Share: Preferred $0 $0 Common $0 $0 Constructive Dividend per $0 $0 Preferred Share FOR THE 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 (Deficit) Preferred $ 0 $ 720,000 $ 0 $ 0 $ 0 Stock Net Sales $ 340,327 $ 112,354 $ 1,145,968 $ 1,155,907 $ 597,592 TOTAL $ 345,874 $ 165,251 $ 1,196,180 $ 1,260,157 $ 600,249 REVENUES Warrant $ 5,233,529 $ 4,669,483 $ 0 $ 4,046,875 $ 9,175,375 Extensions Benefit (Provision) $ 0 $ 0 $ 0 $ 0 $ 0 for Income 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: $0 $0 $0 $0 $0 Preferred 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, and our Form 10-Q for the quarter ended September 30, 2001, 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 $249.3 million as of September 30, 2001 and $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. We've also made investments in other companies because we thought they would help us generate revenue - so far none have produced revenue except for INTCO. 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 never generated any material revenue. Our revenues have increased during 2001, but not enough to make any significant difference. 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. 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. Because we don't generate enough money from selling our products or manufacturing products for other companies, we will need to sell more securities - either convertible securities like the preferred stock we discuss in this prospectus, or regular common stock - in order to continue our business. 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. 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, and we will have to close some, or all, of our projects. Every time we raise money by selling our securities it causes 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 $45 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 over a dozen health care institutions, but we won't be able to sell the device until we begin manufacturing. Even when we are able to manufacture and sell these devices, we don't know how long it will be before they become profitable. So far, we have already invested over $45 million in various projects, other than our noninvasive glucose sensor, including the ViaCirq hyperthermia project, the Petrol Rem environmental products, the American Inter-Metallics propellant enhancement project, and a metal-coating project - and we still don't have any material revenues from any of those projects. The only material revenue we generated at all has been from the Petrol Rem products. Although Petrol Rem had gross revenues of $2.4 million through the first three quarters of 2001, those Petrol Rem revenues were primarily from INTCO - a subsidiary we acquired at the end of 2000 for a total investment of approximately $1.25 million. We borrowed money from INTCO's minority shareholder during the 4th quarter of 2001, and that loan is secured by our stock in INTCO. If we cannot repay the $700,000 loan when it's due in March and April 2002, we could lose our INTCO stock. 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 eligible for reimbursement, we will not succeed. WE HAVE ACQUIRED 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 have used part of the money is to acquire interests in other companies. So far, none of our investments in other companies have helped generate revenue, except for INTCO. We have also acquired 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. 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. We settled our class action lawsuit for a total of $3.675 million to settle that action. We have paid all but $425,000 of that settlement. WHEN WE SELL STOCK OR CONVERTIBLE SECURITES LIKE OUR PREFERRED STOCK, IT DILUTES OUR EXISTING STOCKHOLDERS. WE HAVE ALREADY SUFFERED SIGNIFICANT DILUTION AND WE KNOW THAT IT WILL CONTINUE. Each time we sell and issue stock, it dilutes the holdings of our existing stockholders. Since 1989, and through December 2001, we, along with Diasense, have raised over $190 million in private and public offerings. We have already issued over 1.5 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 NUMBER OF SHARES RAISED OUTSTANDING AT YEAR END 1999 $30.7 million 956,100,496 2000 $29.9 million 1,383,714,167 2001 $24.5 million 2,450,631,119 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. WE WILL NEED TO AUTHORIZE MORE STOCK, AND THAT WILL CAUSE MORE DILUTION. Our stock has been recently trading at prices around $.02 per share. If our stock price does not increase, and we have no way of knowing whether it will, we will need to authorize more stock so we can sell it to raise money. We received a commitment to purchase $25 million of our Series K preferred stock, and at our stock's current price, we know we will need to ask our shareholders to authorize more shares of stock just to cover those conversions. This also means that the shares included in this prospectus to cover our Series K conversions won't be enough, and we'll have to file another registration statement after we get more stock approved. Taking these steps - having a meeting to ask for more shares, and filing a new registration statement - will take time, and will delay our access to money from our Series K preferred stock. If our shareholders don't approve the additional stock, and we can't find other ways to raise money, we may not be able to continue to operate. WHEN WE ISSUE CONVERTIBLE SECURITIES LIKE OUR PREFERRED STOCK, THE NUMBER OF SHARES WE ISSUE UPON CONVERSION IS SIGNIFICANTLY DISCOUNTED FROM THE MARKET PRICE. One way we raise money is by selling convertible securities, like convertible debentures or convertible preferred stock. Our convertible securities have no minimum conversion price, so if our stock price is low when they are converted, we have to issue more stock than if our stock price was higher. Sometimes, our stock price is rising, so that when the securities are converted, the market price is higher than when we sold the securities - but if our stock price falls, the conversion price is lower than the stock price when we sold the securities. Our Series G, H and J preferred stock have minimum holding periods from 30 to 75 days, and are convertible into our common stock at discounts to our market price of 20% to 24%. The following table shows the total amount of our $5,265,000 Series G preferred stock, which is convertible at a 24% discount, and our $1 million Series H and $375,000 Series J preferred stock, both of which are convertible at a 20% discount, plus 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 $1,375,000 20% $.05 $.04 34,375,000 $1,375,000 20% $.01 $.008 171,875,000 $5,265,000 24% $.05 $.038 138,552,631 $5,265,000 24% $.01 $.007 752,142,857 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. This prospectus also includes common stock to cover conversions of our Series I preferred stock. The Series I preferred stock is convertible into common stock based on a 5-day average market price with no discount. The following table shows the total amount of our $2 million Series I preferred stock and examples of how many shares of stock we'd have to issue depending on our stock's market price. 5-day Number of Avg. Shares Market Conversion Issued Upon Amount Price Price Conversion $2,000,000 $.05 $.05 40,000,000 $2,000,000 $.01 $.01 200,000,000 Our Series K convertible preferred stock is convertible into our common stock at a 10% discount to an average market price of our common stock over the previous 22 days. Our Series K preferred will be issued in various amounts up to approximately $3 million per month. The following table shows examples of the number of shares we'd have to issue based on dollar amounts of $1 million to $3 million at different average market prices. Discount 22-day Number of Amount to Avg. Shares Market Market Conversion Issued Upon Price Price Price Conversion $1,000,000 10% $.05 $.045 22,222,222 $1,000,000 10% $.01 $.009 111,111,111 $2,000,000 10% $.05 $.045 44,444,444 $2,000,000 10% $.01 $.009 222,222,222 $3,000,000 10% $.05 $.045 66,666,666 $3,000,000 10% $.01 $.009 333,333,333 BECAUSE WE HAVE SOLD CONVERTIBLE PREFERRED STOCK, IT COULD HAVE A NEGATIVE IMPACT ON OUR STOCK PRICE. In addition, the potential dilution that occurs when we sell convertible securities can have other negative effects on our stock. If all of the preferred stock is 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 preferred stock conversions. None of our preferred stock has been converted as of the date of this prospectus 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 preferred stock, but we may not be able to do so, or we might not be able to redeem enough in time to make a difference. OUR COMPANY AND ITS AFFILIATES ARE SUBJECT TO CONFLICTS OF INTEREST. 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., ViaCirq, Inc., and Rapid HIV Detection Corp. 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, 99% of ViaCirq; and 75% of Rapid HIV Detection Corp. All of these 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; Mr. Keeling owns 100,000 shares of stock and warrants to purchase 300,000 shares at $.50 per share; and Mr. Thompson owns warrants to purchase 200,000 shares at $.50 per share. Petrol Rem - Mssrs. Cooper and Feola own warrants to purchase 1 million shares of stock at $.10 per share; Mr. 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 1.25 million 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 1.25 million shares of stock at $.10 per share; and Mr. Thompson owns warrants to purchase 100,000 shares of stock at $.10 per share. ViaCirq also has an Incentive Stock Option Plan; although the options have been authorized, the exercise price has not yet been set. Mr. Cooper owns options to purchase 100,000 shares of stock; Mr. Keeling owns options to purchase 125,000 shares of stock; and Mr. Thompson owns options to purchase 10,000 shares of stock. 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, Michael P. Thompson, our CFO, and Glenn Keeling, the CEO of ViaCirq. We do not have any key-man life insurance on these men, and our business would suffer if they left for any reason. WE ARE DEPENDENT UPON EMPLOYEES AND INDEPENDENT CONTRACTORS WHO ARE DIFFICULT TO REPLACE. Because we are developing new technologies, devices and engineering methods, we depend on certain employees and independent contractors who may not devote their full-time efforts to our operations. We depend on some of our employees who have a specific expertise that is not common. We also need independent contractors to assist us in areas where our employees do not have the necessary expertise. If we lose the services of any of these employees or independent contractors and are unable to replace them, our business could suffer. WE SOMETIMES NEED SUPPLIERS AND PARTS THAT ARE DIFFICULT TO FIND. Our products involve designs that are new, and we often need to have component parts fabricated especially for our experimentation, testing and development. Suppliers for these parts are not always readily available, or available at all, so we have to create the parts in-house. This can result in delays in our development - so far, these delays have not been material - - but we cannot assure you that they won't be material in the future. If we are unable to obtain a supplier or create the necessary parts ourselves, we have to redesign the product, which also results in significant delays. Although we try to minimize our dependence on custom parts when we design products, unforeseeable problems can arise which negatively affect our operations. WE HAVE LIMITED COMMERCIAL MANUFACTURING EXPERIENCE, WHICH MAKES IT HARDER FOR US TO COMPETE WITH MORE EXPERIENCED MANUFACTURERS. We have a contractual duty to manufacture our medical devices. We have leased space, which has been modified, for our manufacturing needs, but our current management team has limited experience with large-scale commercial manufacturing. If we are not able to hire the right people, or to provide manufacturing expertise ourselves, we will not be able to successfully manufacture our biomedical devices, even if they are approved for sale in the U.S., or even if we are able to make sales. WE CANNOT SELL PRODUCTS WITHOUT GOVERNMENT APPROVAL. WE HAVE BEEN, AND CONTINUE TO BE, INVOLVED IN A LONG, EXPENSIVE GOVERNMENTAL APPROVAL PROCESS THAT WE MUST COMPLETE BEFORE WE CAN SELL OUR NONINVASIVE GLUCOSE SENSOR. 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 continue through 2002, 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. TERRORISM AND OTHER INTERNATIONAL TRAGEDIES The tragedy of September 11, 2001 had a profound impact on everything, including the stock market. In addition to the risks we all face of death and property destruction due to acts of terrorism, we also face economic risks as a company. There is no way of knowing whether additional terrorist acts will occur, whether those acts will result in the closing of stock markets and the decline in overall market values, or what those impacts might mean to us. 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 $10,000,000 in product liability insurance. If a claim against us is successful and exceeds that amount, we could be liable for the balance. RISKS RELATED TO THIS OFFERING OUR COMMON STOCK MAY BE VOLITILE, WE DO NOT TRADE ON AN ESTABLISHED STOCK EXCHANGE, AND YOU MAY NOT BE ABLE TO SELL YOUR STOCK AT OR ABOVE YOUR PURCHASE PRICE. Our stock currently trades on the electronic bulletin board, which is not a formal stock exchange. As a result, it may be more difficult to obtain trading information than if our stock still traded on the Nasdaq. Because our stock price did not meet the Nasdaq Small-Cap market requirements implemented in 1998, we were delisted and we're no longer able to trade there. Although we have maintained acceptable trading volume since we left Nasdaq, we cannot assure you that our trading volume will continue. As a result, you may be unable to sell your stock when you want to sell it. In addition, our stock price has fluctuated significantly, and you may not be able to sell your stock at or above your purchase price when you are ready to sell OUR STOCK IS CONSIDERED PENNY STOCK, SO IT'S SUBJECT TO REGULATIONS THAT COULD MAKE IT MORE DIFFICULT FOR YOU TO SELL YOUR STOCK. Our stock is considered penny stock because of its low price. The penny stock low-priced securities regulations could affect the way you sell your stock, and the way our stock is sold. These regulations require broker-dealers to disclose the risk associated with buying penny stocks and to disclose their compensation for selling the stock. The regulations may have the effect of discouraging brokers from trading our stock. For example, brokers selling our stock have to obtain a written agreement from the purchaser and determine that our stock is a suitable investment for that purchaser. Many brokers will not want to bother with those requirements, so they won't sell our stock, and that could reduce the level of trading activity, making it more difficult for you to sell your stock. THE VOLATILITY OF OUR COMMON STOCK COULD EXPOSE US TO SECURITIES LITIGATION. In the past, following periods of volatility in the market price of a company's securities, securities class action suits have been filed. Due to the historic volatility of our common stock, we may be particularly susceptible to this kind of litigation. If it were to happen to us, the litigation would be expensive and would divert our management's attention from business operations. Any litigation that resulted in a finding of liability against us would adversely affect our business, prospects and financial condition, along with the price of our stock. We have already been the subject of one class action lawsuit, which was filed in 1996. We settled that lawsuit in 2000 for a total of $3,675,000,and we are still making payments to pay that amount. We have paid all but $425,000 of that settlement. INVESTORS WILL INCUR IMMEDIATE DILUTION. If you buy our stock from one of our selling shareholders, in this offering, you may suffer an immediate and substantial dilution in the net tangible book value per share from the price you pay for the stock. Each time our preferred stock is converted, we have to issue more shares, and that dilutes the interests of our stockholders. We also have a large number of outstanding warrants to purchase our common stock, and some of those warrants have prices below the market price of our stock. When we issue that additional stock, and to the extent those warrants are exercised, additional dilution will occur. THE WAY WE SELL AND ISSUE STOCK COULD HAVE AN ANTI-TAKEOVER EFFECT. We sold convertible preferred stock and we intend to continue to sell stock to raise money to fund our operations. When we issue those additional shares of common stock, either from conversions of preferred stock , or 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 for shares. We are registering our common stock on behalf of the selling stockholders, who bought our convertible preferred stock. If and when the preferred stockholders sell their stock, they will receive the proceeds. Once this registration statement is declared effective by the SEC, which should not be confused with any kind of SEC approval, we will issue our Series K convertible preferred stock. J.P. Carey Asset Management has made a commitment to purchase $25 million of our Series K preferred stock. Once this registration statement is declared effective, approximately once per month, we can request funds, up to $3 million, based on the following formula. Based on that formula, we could have requested about $1.5 million this month. If our stock price and/or our trading volume decrease, we would have to request less. First, compute the daily trading value for our stock: the closing bid price times that days' volume Second, compute that daily trading value for the 22 trading days prior to conversion Third, take the average of those 22 days trading value Finally, multiply that 22-day average by 6 We have been having cash flow problems, and you should review our Supplemental Financial Information section for more information on our current position and our plans. We plan to use this J.P. Carey commitment to obtain loans to help us continue our operations until we can begin receiving money from our Series K preferred stock. Once we begin receiving those funds, we will use them to pay our liabilities and continue funding our various projects. In the past, we have invested in companies because our board of directors and our management believed they would generate revenues. We have discontinued those types of investments and plan to stay focused on our core products: medical technology and environmental projects. Part of any proceeds we receive from our Series K preferred will also be used for general and administrative expenses, including salaries and bonuses. In 2001, we paid our executive officers and directors a total of approximately $3.6 million, which includes all payments from not only BICO, but also all of our subsidiaries. In the first quarter of 2001, we had to pay David L. Purdy approximately $900,000 when he left BICO. We've replaced him with someone who earns less than Mr. Purdy. DIVIDEND POLICY We have not paid cash dividends on our common stock or our preferred stock since our inception, and cash dividends are not presently contemplated at any time in the foreseeable future. In accordance with our Articles of Incorporation, cash dividends are restricted under certain circumstances. CAPITALIZATION The following table sets forth our capitalization as of September 30, 2001 and December 31, 2000. The September 30, 2001 information is taken from our unaudited financial statements, which are included in this prospectus. The December 31, 2000 information is taken from our audited financial statements, which are also included in this prospectus. September 30 ,2001 December 31, 2000 (1) (1) Stockholders' Equity Common Stock, par value $.10 per share; authorized 2.5 billion; shares issued and outstanding:2,450,631,119 $245,063,111 $138,370,417 at September 30, 2001 and 1,383,704,167 at December 31, 2000 Additional paid-in capital 2,482,952 87,035,096 Warrants 6,221,655 6,204,235 Accumulated Deficit (249,301,881) (223,720,761) ============= ============= Total Capitalization $4,465,837 $7,888,987 ============= ============= NOTE: Our shareholders authorized an increase of the number of our authorized shares of common stock to 4 billion at a special meeting held November 30, 2001. September 30, 2001 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 $.016 to $3.20 per share, expiring through 2006. 95,086,560 31,378,160 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 capital 85,608,192 87,035,096 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 February 19, 2002,9, the closing bid price for the common stock was $.14.$.02. The following table sets forth the high and low bid prices for our common stock during the calendar periods indicated, through December 31, 2001. 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 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 2001 First Quarter $.1355 $.05 Second Quarter $.072 $.037 Third Quarter $.057 $.01 Fourth Quarter $.049 $.02 We have approximately 135,000 holders, including those who hold in street name, of our common stock, and 41 holders of our preferred stock. DESCRIPTION OF SECURITIES Our authorized capital currently consists of 4 billion shares of common stock, par value $.10 per share and 500,000 shares of cumulative preferred stock, par value $10.00 per share. Preferred Stock Our Articles of Incorporation authorize the issuance of a maximum of 500,000 shares of cumulative convertible preferred stock, and authorize our board of directors to define the terms of each series of preferred stock. In 2001 and 2002, our board of directors authorized the creation of five new series of convertible preferred stock - series G, H, I, J and K. The certificates of designation for each series - the corporate document that defines the terms of those series of preferred stock - are all filed as exhibits to this registration statement. As of February 19, 2002 we had a total of 27,810 shares of our preferred stock outstanding, as follows: 10,530 shares of Series G 12,530 shares of Series H 4,000 shares of Series I 750 shares of Series J None of our convertible preferred stock is secured by any of our assets. Each share of our preferred stock has a designated value of $500 per share. There is no minimum conversion price, so the lower the bid price of our stock, the more shares we will need to issue when our preferred stock is converted - there is no limit on the number of shares of our common stock that our preferred stock can be converted into. This means that, if our stock price is low, the preferred stockholders could own a large percentage of our outstanding common stock - except that they have each agreed not to own more than 5% of our common stock at any one time. We only sold our preferred stock to accredited investors. We can redeem our preferred stock. This prospectus includes common stock that we will issue when our preferred stock is converted. You should carefully review our Risk Factors section for more risks associated with our preferred stock, and the impact of conversions on your stock. Each series of preferred stock has its own minimum holding period and each series defines its conversion price. Copies of our preferred stock documents are attached to this prospectus as exhibits. Our series G preferred stock has a minimum holding period of the earlier of: 60 days from issuance or the date this registration statement is declared effective by the SEC. The series G preferred is convertible into our common stock at a 24% discount to the 5-day average of our closing bid price immediately prior to conversion. Our series H preferred stock has a minimum holding period of the earlier of: 75 days from issuance or 35 days after the date this registration statement is declared effective by the SEC. The series H is convertible into our common stock at a 20% discount to the 5-day average of our closing bid price immediately prior to conversion. Our Series J preferred stock has a minimum holding period of 30 days from issuance and is convertible into our common stock at a 20% discount to the 5-day average of our closing bid price immediately prior to conversion. We raised a total of $6,640,000 from selling our series G, H and J preferred stock. We issued 4,000 shares of our series I preferred stock to Mr. and Mrs. Farrell Jones as part of a renegotiation and settlement of amounts due in connection with our purchase of ICTI back in 1998. Even though we wrote off that entire investment, we still owed the Joneses a total of $5,450,348. In December 2001, we finalized an agreement with the Joneses to decrease the amount owed to a total of $2,887,500. Of that total, $2 million was applied when we issued them the 4,000 shares of series I preferred stock. The series I preferred is convertible at any time into our common stock based on the 5-day average of our closing bid price immediately prior to conversion. None of the series I has been converted to date. We don't have any other relationship with the Joneses other than these remaining issues from the ICTI transaction. You should review our management's discussion and analysis section for more information on the settlement with the Joneses. In February 2002, we accepted a commitment to purchase $25 million of our Series K convertible preferred stock from J.P. Carey Asset Management, LLC, a Georgia corporation. J.P. Carey Asset Management has committed to buy our Series K preferred, and will begin paying for it once this registration statement is declared effective by the SEC. We agreed to register the underlying common stock for them, and that stock is included in this prospectus. They will pay for it as we request funds, based on the following formula. Based on that formula, we could have requested about $1.5 million in mid-February 2002. If our stock price and/or our trading volume decrease, we would have to request less. First, compute the daily trading value for our stock: the closing bid price times that days' volume Second, compute that daily trading value for the 22 trading days prior to conversion Third, take the average of those 22 days trading value Finally, multiply that 22-day average by 6. The conversion price for the Series K preferred is based on a 10% discount to the average of the lowest 3 consecutive closing bid prices during the 22 days prior to conversion. For example, if conversion had occurred on February 19, 2002, it would have been at a 10% discount to the average closing bid prices on February 13, 14 and 15, 2002. That price, after the discount, would be $0.1656 per share. If our stock price drops, the conversion price per share will also drop. We know, and so does J.P. Carey Asset Management, that if our stock price does not go up - and we have no way of knowing whether it will or not - we will not have enough shares in this prospectus to cover conversions of all $25 million of our Series K preferred. We agreed to ask our shareholders to authorize more shares if we need to, and to file another registration statement to cover those new shares. It will take time to get more shares authorized and to file another registration statement, and that will delay our ability to request funds from J.P. Carey Asset Management. We entered into securities purchase, registration rights and escrow agreements with J.P. Carey Asset Management on February 15, 2002, and copies of those agreements are attached to this registration statement as exhibits. All of the stock included in this prospectus is for our selling stockholders who purchased or committed to purchase our convertible preferred stock. When they convert their preferred stock and get our common stock, they may want to sell it, and you need to carefully review this prospectus before you decide whether to buy it from them. Common Stock Holders of our common stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of stockholders. Holders of our common stock do not have cumulative voting rights, and therefore the holders of a majority of the shares of common stock voting for the election of directors may elect all of the directors, and the holders of the remaining common stock would not be able to elect any of the directors. Subject to preferences that may be applicable to the holders of our preferred stock, if any, the holders of our common stock are entitled to receive dividends that may be declared by our board of directors. In the event of a liquidation, dissolution or winding up of our operations, whether voluntary or involuntary, and subject to the rights of any preferred stockholders, the holders of our common stock would be entitled to receive, on a pro rata basis, all of our remaining assets available for distribution to our stockholders. The holders of our common stock have no preemptive, redemption, conversion or subscription rights. As of December 31, 2001, we had 2,450,631,119 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. Employment Agreement Provisions Related to Changes in Control We have employment agreements with change in control provisions with the following officers: Fred E. Cooper, Anthony J. Feola, Glenn Keeling and Michael P. Thompson. 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 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, 2001, we had outstanding warrants - most of which are not currently exercisable - to purchase 96,136,560 shares of our common stock. These warrants have exercise prices ranging from $.015 to $3.20 per share and expiration dates through December 4, 2006, and are held by members of our scientific advisory board, certain employees, officers, directors, loan guarantors, and consultants. As of December 31, 2001, many of our outstanding warrants were not currently exercisable - 86,996,898 warrants were subject to a lock-up arrangement where the warrant holders agreed not to exercise them until August 2002. 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 Mellon Investor 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. The selling shareholders listed are our preferred stock holders, and we've divided them into groups based on each series of preferred stock. None of the selling stockholders who own preferred stock have had a material relationship with us within the last three years, and they are not affiliated with us other than through their ownership interest in our preferred stock. Except as noted, none of the selling stockholders are affiliated with each other. Some stockholders listed are companies or investment funds, rather than individuals. Unless the investors who own those funds are numerous, we've listed the individual owners. We prepared the table below based on the information provided to us by the selling stockholders. You should know that, based on the agreements our selling stockholders signed when they bought our preferred stock, they are not permitted to own 5% or more of our stock, except for our Series K preferred stockholders. 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. If our stock price stays at around $.02, 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 third column in the table shows the percentage share ownership each selling shareholder would have, IF they converted all of their preferred stock when compared to the 2,450,631,119 shares we had outstanding as of December 31, 2001. As of the date of this prospectus, none of the selling shareholders had converted any of their preferred stock, so the figures in the column are for illustrative purposes only. The last column in the table shows the percentage of ownership of each selling shareholder 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, 2001. An asterisk - * - indicates less than one percent. Selling Stockholders Number of Beneficial Beneficial Shares Ownership Ownership Offered Prior to After Sale Sale PREFERRED STOCKHOLDERS Series G Preferred Cache Capital (USA) 99,717,860 4% * L.P. Quines Financial, SR 6,647,600 * * John C. Canouse (1) 13,295,200 * * 01144 Ltd. 13,295,200 * * Emuna Trust 19,942,800 * * Yokin Asset Management 39,885,600 1.6% * Arab Commerce Bank 6,647,600 * * Jara Group, owned by Michael and Rose 3,323,800 * * Koretsky (2) Michael Koretsky (2) 3,323,800 * * Mark Garfunkkel 5,318,080 * * Leon Kahn 1,661,900 * * Kurt Fichthorn 6,647,600 * * Jaime Radusky (3) 3,323,800 * * Rina Sugarman 3,323,800 * * Starling Corporation 6,647,600 * * Lawrence Abrams 9,971,400 * * Ted Liebowitz 33,238,000 1.4% * Joseph McGuire and W.C. 6,647,600 * * Rossi Chava Scharf 3,323,800 * * Yosef Davis 26,590,400 1% * Jacqueline Balough 1,661,900 * * Grahame Harding 9,971,400 * * Mark Barash 1,661,900 * * Michael Drescher 1,661,900 * * Claire Brook, IRA 7,977,120 * * Henry Radusky (3) 3,323,800 * * Stanley S. Raphael 1,661,900 * * Trust Miriam Hoffman (4) 1,661,900 * * Peter Hoffman (4) 1,661,900 * * Colin Broad 2,659,040 * * Jody Eisenman, IRA 1,661,900 * * Christopher Jacobsen 1,661,900 * * Series H Preferred Mendy Chmuel 6,250,000 * * Eli Itzinger 6,250,000 * * GPS America Fund 50,000,000 2% * Series I Preferred Farrell B. and Brenda 137,500,000 5.6% * K. Jones Series J Preferred Cache Capital 21,666,660 * * Atlantis Capital Fund 6,666,660 * * Arab Commerce Bank 6,666,660 * * Yokin Asset Management 3,333,350 * * BlueFin Partners 1,666,670 * * Series K Preferred J.P. Carey Asset 660,000,000 (5) * Management (1) (1) These selling stockholders are affiliated with each other through their ownership in entities other than us. (2) These selling stockholders are affiliated with each other through their ownership in entities other than us. (3) These selling stockholders are related (4) These selling shareholders are related (5) J.P. Carey Asset Management has committed to purchase our Series K preferred once this registration statement is declared effective. The following table shows, for our convertible preferred stock, certain information that might be helpful in making your investment decision. We listed the preferred stock investments in chronological order. As you can see, none of the preferred stock has been converted so far. The stock price listed is the closing bid price of our stock on the date listed. When we use a range of dates, we computed the stock price based on the average closing bid price for each day in the range. The most current information in the table is as of February 19, 2002, when our closing bid price was $.02. Type and Amount Number Issue Stock Number Number amount of Converted of Date Price on of of Investment Through Shares Issue Shares Shares 1/02 Issued Date/Range if if on Converted Converted Conversion on on 2/19/02 Issue Date Series G 0 0 10/24/01- $.038 138,552,631 263,250,000 Preferred Stock 10/25/01 $5,265,000 Series H 0 0 11/15/01- $.026 38,461,538 50,000,000 Preferred Stock 11/21/01 $1,000,000 Series I 0 0 11/28/01 $.025 80,000,000 100,000,000 Preferred Stock $2,000,000 Series J 0 0 12/18/01- $.025 15,000,000 18,750,000 Preferred Stock 1/28/01 $375,000 You should review our risk factors that begin "When we sell our stock or convertible securities like our debentures or preferred stock, it dilutes our existing stockholders."; "When we issue convertible securities like our debentures or preferred stock, the number of shares we issue upon conversion is significantly discounted from the market price"; and "Because we have sold convertible debentures and preferred stock, it could have a negative impact on our stock price on pages 9 and 10 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) 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 the stock is acquired by one of our affiliates. Affiliates generally include our officers and directors and any other person or entity that controls, is controlled by, or is under common control of BICO. Any affiliates who acquire stock from this offering will continue to be subject to the volume restrictions of Rule 144, as we describe below. In general, under Rule 144 as currently in effect, our affiliates and any person, or persons whose stock is aggregated, who has beneficially owned restricted stock for at least two years would be entitled to sell within any three-month period a number of shares of stock which does not exceed the greater of: 1% of the then outstanding shares of our common stock; or the average weekly trading volume of our common stock during the four calendar weeks preceding such sale. Rule 144 also requires those sales to be placed through a broker or with a market maker on an unsolicited basis and requires that there be adequate current public information available concerning our company. A person who is deemed not to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned restricted stock for at least one year, would be entitled to sell the stock under Rule 144(k) without regard to any of the limitations discussed above. Restricted stock properly sold in reliance on Rule 144 are thereafter freely tradable without restriction or registration, unless the stock is later held by an affiliate. We can't make any predictions as to the effect that sales of our common stock or the availability of stock for sale will have on the market price of our common stock. Nevertheless, sales of any substantial amounts of common stock in the public market will probably adversely affect the prevailing market price. SELECTED FINANCIAL DATA FOR THE QUARTER ENDED SEPTEMBER 30, 2001 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2000 9/30/2001 12/31/2000 Total Assets $20,409,788 $21,930,070 Long-Term Obligations $ 2,146,931 $ 2,211,537 Working Capital ($ 7,824,187) $ 754,368 (Deficit) Preferred Stock $ 0 $ 0 Net Sales $ 1,514,136 $ 340,327 TOTAL REVENUES $ 1,515,070 $ 345,874 Warrant $ 0 $ 5,233,529 Extensions Benefit (Provision) for Income Taxes $ 0 $ 0 Net Loss ($ 7,294,284) ($42,546,303) Net Loss Per Common Share Basic ($.003) ($.04) Diluted ($.003) ($.04) Cash Dividends Per Share: Preferred $0 $0 Common $0 $0 Constructive Dividend per $0 $0 Preferred Share YEARS ENDED DECEMBER 31st 2000 1999 1998 1997 1996 Total $21,930,070 $15,685,836 $ 9,835,569 $12,981,300 $14,543,991 Assets Long-Term $ 2,211,537 $ 1,338,387 $ 1,412,880 $ 2,697,099 $ 2,669,727 Obligations Working $ 754,368 $ 4,592,935 ($ 9,899,008) $ 888,082 $ 1,785,576 Capital Preferred $ 0 $ 720,000 $ 0 $ 0 $ 0 Stock Net $ 340,327 $ 112,354 $ 1,145,968 $ 1,155,907 $ 597,592 Sales TOTAL REVENUES $ 345,874 $ 165,251 $ 1,196,180 $ 1,260,157 $ 600,249 Other $ 589,529 $ 1,031,560 $ 182,000 $ 165,977 $ 176,478 Income Warrant Extensions$ 5,233,529 $ 4,669,483 $ 0 $ 4,046,875 $ 9,175,375 Benefit (Provision)$ 0 $ 0 $ 0 $ 0 $ 0 for Income Taxes Net Loss ($42,545,303)($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 29, and you should review that section. Liquidity and Capital Resources For the Nine months ended September 30, 2001 We continue to be dependent on security sales as our primary source of working capital. As of November 15, 2001, we had total authorized common stock of 2,500,000,000 shares of which 2,450,631,119 shares were issued and outstanding. We had a stockholders' meeting on November 30, 2001 and our stockholders authorized an additional 1,500,000,000 shares. Once the new shares were approved, we began selling convertible preferred stock in a private offering, as we have done in the past. Those new convertible securities will not be and have not been registered under the federal securities laws and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements. The convertible preferred stock is convertible into common stock after a period of time ranging from approximately 35 days to 75 days at a 20-24% discount to our stock's market price at the time of conversion with no minimum price. The terms of the deal require us to file a registration statement covering the common stock with the Securities and Exchange Commission within 90 days. The convertible preferred stock is not secured and we have the right to redeem them. When we sell these convertible securities, it could cause our stock price to fall significantly, and we don't have any control over that. Factors including the timing of conversions and the additional number of shares needed for conversion with no limit contribute to the downward pressure on our stock price. In addition, although the purchasers of our convertible preferred stock agree not to sell our stock short, if other investors sell short, it will further contribute to the decline of our stock price. In the past few years, we've sold both convertible securities and common stock in various offerings, all of which were on a best-efforts basis: We registered 800 million shares of common stock in the third quarter of 2001; We registered approximately 431 million shares in the third quarter of 2000, which included both common stock and conversion shares for convertible preferred stock and convertible debentures; We registered 375 million shares of common stock in the second quarter of 1999; and We registered 200 million shares of common stock in the last quarter of 1998. Selling more of these convertible securities will further dilute ownership of existing stockholders but, until we find another way of raising significant funds, we must continue to sell our stock. Our cash decreased to $1,349,907 as of September 30, 2001 from $7,844,807 as of December 31, 2000 primarily due to the factors discussed below. During the nine months ended September 30, 2001 our net cash flow used by operating activities was ($21,729,245). During the same period, our net cash flow used by investing activities was ($4,629,879) due primarily to the acquisition of property, plant and equipment, additional loans made to Practical Environmental Solutions, a company involved in the acquisition and management of environmental entities, loans to GAIFAR, the company which manufactures the HIV diagnostic tests which we are marketing, and additional investments in unconsolidated subsidiaries which we discuss in the following paragraphs. We made all of these investments because we believe that they will either generate revenue or will help us with our diabetes-related projects. During the first nine months of 2001, we made additional investments in unconsolidated subsidiaries. We invested an additional $190,000 in American Inter-Metallics, bringing our total investment in AIM's rocket propulsion project to $1,000,000. In addition, we loaned $110,000 to Anthony J. Delvicario, the president of American Inter-Metallics, Inc. and a member of Diasense's board of directors to help fund a transaction involving the creation of a distribution system in Europe to sell AIM's products which we believe will generate revenue. The original demand note was secured by 110,000 shares of American Inter-Metallics, Inc. common stock and bore interest at prime rate plus two percent. In November 2001, we converted the original note into a new note for $114,000 to reflect accrued interest. The new note is secured by an unconditional guaranty by American Inter-Metallics and all of American Inter-Metallics' assets, including all of its equipment. AIM informed us that they are in the final stage of closing the transaction, and they expect to repay the loan . We also increased our total investment in Insight Data Link.com, Inc. to $110,000 by investing an additional $10,000. We increased our investment in AIM and Insight Data Link because our management believes they will generate earnings. However, AIM has not yet generated any revenue, and Insight Data Link has only generated minimal revenues of approximately $2,000 to date. Our subsidiary, Diasense, Inc. also made investments in unconsolidated subsidiaries during the first nine months of 2001. Diasense invested an additional $600,000 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 September 30, 2001, Diasense had invested $1,600,000 in MicroIslet and owned approximately 20.2% of this company. 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 nine months of 2001, Diasense invested $293,948 in Diabecore increasing the total amount invested to $987,468 and its ownership in this company to approximately 24%. 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, Insight Data Link.com, MicroIslet and Diabecore Medical, our overall investment in unconsolidated subsidiaries increased from $2,061,439 as of December 31, 2000 to $2,507,865 at September 30, 2001. During the nine months ended September 30, 2001, our subsidiary, Petrol Rem, advanced an additional $1,169,341 to Practical Environmental Solutions, a Pennsylvania company that acquired technology used to safely convert municipal sludge to recyclables that comply with state and federal environmental laws. Petrol Rem has loaned a total of $3,083,704 to Practical Environmental as of September 30, 2001. Practical Environmental has made interest payments on the amount due. The loan, which was originally due on August 31, 2001 has been extended until May 31, 2002; no principal payments have been made to date. The loan is classified as a non-current asset as of September 30, 2001 because our management is considering whether to convert all or part of that loan to an equity investment - they are making that decision because Practical Environmental is willing to make that conversion and because Practical Environmental has been generating revenues since January 2001. As of September 30, 2001, although they are still operating at a loss, Practical Environmental's internal financial information shows revenues of $426,000. We may consider making additional loans or investments in Practical Environmental if those loans or investments could help increase earnings. During the nine months ended September 30, 2001 Petrol Rem also invested an additional $99,060 in Tireless LLC, which is another part of our Petrol Rem operations, bringing our total equity investment to $455,000. Tireless is a company that shreds and helps recycle tires, addressing some significant environmental issues that arise from large piles of used tires. We also loaned Tireless $461,610 during the nine months ended September 30, 2001, which was used primarily to purchase a mobile tire- shredding machine that is being used to fulfill a contract in Ohio. As of September 30, 2001, Tireless has not generated any revenues. In 2001, we formed Rapid HIV Detection Corp. to market rapid HIV tests. Those rapid HIV tests include: InstantScreen, which is the initial test for HIV; InstantConfirm, which is used to verify all positive results; and InstantDifferentiate, which indicates whether the patient has HIV-1 or HIV-2. HIV-1 is the most common form of HIV; HIV-2 is a less aggressive form found in some parts of the world, including West Africa. The InstantScreen test takes 30 seconds to produce results. Only a few drops of blood are needed, and the blood is drawn with a finger prick, rather than intravenously with a needle and vial of blood. No additional material or special knowledge is needed to administer the test, and only elementary level reading skills are required. The test can be produced in different formats, depending upon whether it will be used in a doctor's office, hospital or in the field. The InstantConfirm test takes about 8 minutes to perform and is the first rapid HIV test to use the Western-Blot type HIV confirmation technology. The Western-Blot is recognized as the gold standard of HIV confirmation. This phase of the test is critical, since false-positive results have been a significant historical problem with HIV testing. The InstantDifferentiate is used if the patient tests positive for HIV, in order to determine whether the patient is infected with HIV-1 or HIV-2. HIV-2 is a less aggressive form of HIV that causes AIDs after a longer period of time than HIV-1, and is prevalent in certain parts of the world, including West Africa. In order to acquire the exclusive, world-wide marketing rights to the rapid HIV tests, we entered into a marketing agreement with GAIFAR, a German company which owned all the rights to the tests, and Dr. Heinrich Repke, the man who developed the tests. The marketing rights were assigned to Rapid HIV Detection Corp - we own 75% and GAIFAR owns 25% of Rapid HIV's common stock. GAIFAR retained the manufacturing rights for the tests. We entered into the agreement in June 2001 and acquired the marketing rights at that time. The initial terms of the agreement allowed us a due diligence period of 8 weeks to withdraw from the agreement, but in July, all the parties agreed to extend that date until October 15, 2001. The parties also agreed that we would need to provide a copy of a resolution signed by our board of directors approving the contract. In October, we completed our due diligence period and our board provided their unanimous resolution, making the marketing agreement fully effective, which means that we no longer have a right to withdraw. The marketing agreement, which we filed as an exhibit to a Form 8-K filed October 15, 2001, has a minimum ten-year term and calls for total payments of $7,000,000 through the 3rd quarter of 2002. When the marketing agreement became effective in October 2001, $1 million of the funds previously loaned were applied to the total $7 million consideration. The original agreement called for a loan in the amount of $500,000 to the owner of the rapid HIV tests and technology, but we agreed to loan another $125,000 during the 2nd quarter while we continued our due diligence, so the total loans were $625,000 as of June 30, 2001. During the 3rd quarter of 2001, we loaned an additional $400,000 while we completed our due diligence; the total loan amount applied to the $7 million total due was $1 million. The remaining $25,000 loan will either be repaid or applied to a future payment obligation. The loan was made part of the consideration we paid to acquire the exclusive worldwide marketing rights to the rapid HIV tests and technology, and is now part of our investment in Rapid HIV. Therefore, the loan is classified as a non-current asset. The remaining $6 million in payments are due from October 20, 2001 through August 20, 2002. We made the $125,000 payment due in October, and the remaining payments include a range of $125,000 per month for November and December 2001 to $1 million per month for the 4 months from April - July of 2002. The original marketing agreement provided for payments through the 2nd quarter of 2002, and we renegotiated for a longer payment period in October 2001. We made our investment in Rapid HIV because we believe Rapid HIV will generate earnings. The money we spent investing in these companies came from notes payable, debentures payable and stock sales during 2000 and 2001. In July 2001, we announced that ViaCirq entered into a Memorandum of Understanding with Phoenix Hospital Mangagement to pursue a joint venture to market and sell ViaCirq products in China. In August we announced that negotiations were continuing. The tragic events of September 11, 2001 further delayed the travel and communication necessary to continue meaningful work on or to finalize the transaction. As of the date of this filing, due primarily to the international economic and trading instability resulting from the terrorist attacks and the military response to those attacks, we no longer believe this transaction is feasible and have discontinued negotiations. We may re-open negotiations in the future, but at this point, we do not believe the joint venture will occur. Accounts receivable, net of allowance for doubtful accounts, increased from $400,950 as of December 31, 2000 to $1,273,100 as of September 30, 2001. The increase is primarily attributable to the increase in revenues for INTCO, a consolidated subsidiary of Petrol Rem, and the timing of billings and collections related to these revenues. Our net inventory increased from $805,224 as of December 31, 2000 to $1,575,373 as of September 30, 2001. The increase was primarily due to an inventory build-up for the ThermoChem hyperthermia products and for other manufacturing projects being completed at our Indiana, PA facility. Current related party receivables increased during the nine-month period ended September 30, 2001 due to the $110,000 loan made to Anthony Delvicario (a member of Diasense's board of directors) which was previously discussed. This addition to current related party receivables was partially offset by repayments on other related party notes. Acquisitions of property, plant and equipment included increases of machinery and equipment of $1,130,359 for the nine months ended September 30, 2001 primarily due to additions of hyperthermia equipment for our ViaCirq subsidiary and the purchase of tire-shredding equipment for Petrol Rem's subsidiary, Tireless. Leasehold improvements increased by $170,342 primarily due to renovations made to the Indiana, PA facility. Accounts payable increased by $1,467,006 during the nine months ended September 30, 2001 due to the timing of payments that were slower than normal due to our shortage of working capital. Accrued liabilities increased by $446,530 during the same period due to accrued interest on notes payable and increased liabilities for accrued payroll and vacation. We also accrued an additional $225,000 for extending the due dates on the payments due on our class action settlement. Notes payable increased from zero at December 31, 2000 to $3,414,336 at September 30, 2001 due to $9,825,000 of notes payable issued in order to fund operations and investing activities and borrowings of $39,336 under a $50,000 line of credit agreement. In July 2001, $6,450,000 of the notes payable were repaid with proceeds from the sale of common stock subscriptions. Our current portion of long-term debt, decreased by $960,408 during the nine months ended September 30, 2001 primarily due to payments of $850,000 on a note payable related to Petrol Rem's acquisition of 51% interest in INTCO, Inc. and payments of monthly installments on debt related to commercial insurance premiums partially offset by additional debt of $117,235 acquired related to commercial insurance premiums. As of September 30, 2001, our current portion of long-term debt included $4,091,667 and our accrued liabilities included $1,261,683 in accrued interest, all of which is due in connection with ICTI. On October 11, 2001, Petrol Rem borrowed $500,000 from the minority owner of its subsidiary, INTCO, Inc., under a promissory note that bears interest at 7% per year and is due in April 2002. To secure payment of the note, Petrol Rem pledged all of its shares in INTCO, Inc. Debentures payable decreased by $2,400,000 during the nine months ended September 30, 2001 due to the conversion of $10,655,659 of debentures into common stock partially offset by the sale of $8,255,659 of convertible subordinated debentures to raise capital to fund operations. In July and August, the Company raised $11,164,000 through the sale of common stock subscriptions. As of September 30, 2001, 769,410,099 shares of stock had been issued to satisfy $9,900,000 of these subscriptions. In addition, the Company repurchased subscriptions totaling $1,264,000 for $1,453,600. As a result of the conversion of debentures and the issuance of common stock to satisfy stock subscriptions, our common stock balance increased to $245,063,111 as of September 30, 2001 compared to $138,370,417 as of December 31, 2000. Because the common stock was issued at prices below par value, our additional paid in capital decreased from $87,035,096 at December 31, 2000 to $2,482,952 at September 30, 2001. For the year ended December 31, 2000 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 2001, 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. 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 For the nine months ended September 30, 2001 Our sales and corresponding costs of products sold during the nine months increased to $2,869,611 and $2,082,021 respectively in 2001 from $98,831 and $132,644 in 2000. The increase was primarily due to sales of $2,419,659 by Petrol Rem's subsidiary, INTCO, which was acquired in the fourth quarter of 2000 and, therefore, not included in the first nine months of 2000 operations. Petrol Rem's increase also included an increase in bioremediation product sales to $75,801 during the first nine months of 2001 compared to $25,982 during the same period in 2000. Although we had anticipated revenue of $1.67 million from Petrol Rem during the 3rd quarter of 2001, actual revenues were approximately $1.33 million. During the 3rd quarter, Petrol Rem received a distribution agreement for approximately $125,000 per year from an Alaskan oil spill clean-up company called F.R.O.G. to distribute Petrol Rem products. The contract has an initial term of one year, with automatic renewals on a yearly basis. Due to recent international events, including the September 11th tragedy, the Alaskan company has been focused on other matters, and they've told us that they hope to begin selling our products soon. Through Tireless, LLC, we received a sub-contract to help clean up tire piles in Ohio. We began that project at the beginning of October, and we recently began billing for our services. We believe the Tireless sub-contract could generate revenue of at least $500,000 over the next year based on our equipment's capacity to shred tires over the one-year period of the contract. In addition, for the first nine months of 2001, we recognized sales of $208,284 from our hyperthermia products, which produced sales of $35,808 during the first nine months of 2000. The increase was due to placements and installations of ViaCirq's ThermoChemHT system and corresponding sales of disposables in several hospitals. Other product sales increased in total, but not significantly. We received $80,405 from CCTI's metal coating products compared with $28,098 in the first nine months of 2000. The increase in sales of metal coating products was due primarily to the introduction of a product line for sharpeners used for knives and other tools in the professional culinary field, for sportsmen's knives and fish hooks, for professional woodworkers and for household use. CCTI also continues to receive work from repeat customers who sent us more work once they were satisfied with our earlier performance. During the first nine months of 2001, we recognized sales of $49,403 for our theraPORT, an implantable device used by patients who have repeated injections of drugs. The theraPORT is implanted in the patient's chest and provides a fixed port for catheters used to deliver the drugs the patient needs. We also recognized sales of $36,000 for HIV tests marketed by Rapid HIV Corporation. Until we have significant and consistent sales, we can't predict any trends for future revenues. Our costs of products sold increased due to the increase in sales of our various products. During the 3rd quarter of 2001, our manufacturing division in Indiana, PA received contracts, which we anticipate will begin generating revenue during late 2001 and early 2002. Our Biocontrol Technology division received a $1.5 million manufacturing contract from the U.S. Army, and $238,000 manufacturing contract from a private company. We began work on the U.S. Army contract, which we believe will generate $1.5 million in revenue during the first year, beginning in the 4th quarter of 2001, with additional revenue for two additional years; we filed a copy of that contract as an exhibit to our Form 8-K/A filed October 15, 2001. Other income increased from zero during the first nine months of 2000 to $9,497 during the first nine months of 2001. The increase was primarily due to rental income. Research and Development expenses during the first nine months increased to $5,142,507 in 2001 from $5,082,319 in 2000. The increase was due to expenses incurred for the Diasensor clinical trials partially offset by reduced research activities on our hyperthermia products and the redeployment of resources from research activities to production of hyperthermia products. General and administrative expenses increased a total of approximately $4.3 million for the first nine months of 2001 as compared to 2000. Approximately $3.4 million of the increase is attributable to additional salaries, which include a $912,727 payment to David L. Purdy in connection with his resignation from the Company and its affiliates and new hiring at ViaCirq and Petrol Rem (including INTCO and Tireless, LLC). $1.3 million of the increase represents increased outside professional fees, approximately $500,000 of which was incurred in connection with ViaCirq's sales and marketing efforts for the ThermoChem system. Approximately $500,000 of the increase is due to increased travel expenses, primarily for ViaCirq's and Petrol Rem's increased marketing efforts. The above increases were partially offset by a decrease of approximately $600,000 in expense recognized in connection with the granting of warrants for services. Amortization of goodwill increased from $279,681 to $579,671 for the first nine months of 2000 to 2001. The increase is due to additional investments in unconsolidated subsidiaries as of September 30, 2001 compared with September 30, 2000. A portion of these investments is recognized as goodwill and amortized over a five-year period. Our loss in unconsolidated subsidiaries decreased to $221,407 for the first nine months of 2001 compared to $493,925 for the same period in 2000. This loss results because we absorb part of losses incurred by unconsolidated subsidiaries. Our share of the loss is determined by applying our ownership percentage to the total loss incurred. Debt issue costs increased from $985,000 to $1,741,886 for the first nine months of 2000 to 2001. The increase is due to additional debentures and notes payable during the first nine months of 2001 compared to the same period in 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 $2,063,915 of expense in connection with the issuance of our subordinated convertible debentures in the first nine 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. For the year ended December 31, 2000 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 2000 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 In February 2002, we accepted a commitment from J.P. Carey Asset Management to purchase $25 million of our Series K preferred stock. The commitment requires that we first have an effective registration statement covering the underlying shares of common stock before we will receive funding from that commitment. In addition, from October 2001 through January 2002, we raised funds aggregating approximately $6.64 million by selling our convertible preferred stock. This prospectus covers the common stock our preferred stockholders will receive when they convert their preferred stock. We discuss the specific terms of our classes of preferred stock in the Description of Securities section beginning on page 17 of this prospectus. Generally, the preferred stock is not secured by any assets and can be converted into common stock at prices ranging from 76-90% of our stock's average closing bid prices. There is no minimum conversion price. We are working to obtain bridge financing in the form of loans to help us meet our cash flow needs until this registration statement is declared effective and we begin receiving funding from J.P. Carey Asset Management. We filed a Form S-8 in December 2001 that included 125 million shares. The Form S-8 allows us to issue freely tradable stock to non-executive employees under our Equity Compensation plan and to certain consultants in lieu of paying them in cash. As of February 21, 2002, we've issued approximately 81.2 million shares of our common stock from the Form S-8. During the 4th quarter of 2001, we had significant cash flow problems. We believe those problems are in large part due to the overall economic recession, which was aggravated by the tragedies of September 11, 2001. The stock market's resulting decline and other factors beyond our control made it difficult for us to raise money by selling our preferred stock. We only raised $6.64 million, which is much less than we expected. As a result, our payroll and our accounts payable are seriously past due. In addition, we borrowed over $700,000 from the minority owner of INTCO, our Louisiana oil-spill clean-up company, and we secured that loan with our 51% ownership in INTCO. If we are unable to repay that loan when it's due in March and April 2002, we may lose our ownership interest in INTCO. We also have other serious obligations that are past due. We still owe $425,000 in connection with our class action settlement. Although we are working with the class action counsel to make payments on the amount due, we can't assure you how long they will continue to work with us. They could obtain an order from the judge demanding that we pay the balance, and if we can't, they could enter a judgment against us. We have not been able to make payments when due under our Rapid HIV Marketing Agreement. So far, the other parties to that agreement have not given us notice that we are in default. If they do, we will have 60 days to make the required payments, or we will lose our marketing rights. Now that we've received the funding commitment, we believe we can obtain bridge financing in the form of loans to help us bring our payroll and accounts payable more current, and to make the class action, loan and contract payments we need to make to avoid losing our INTCO stock and our Rapid HIV marketing rights. However, we can't assure you if that will happen, or if it will happen soon enough to avoid lawsuits against us. 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 research, development and manufacturing 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, a quick and accurate test for HIV, and environmental products, which help to clean up oil spills. Regional extracorporeal hyperthermia is a system that circulates fluid in a specific area of the body after the fluid has been heated outside the body. The recirculated fluid's higher temperature helps treat certain diseases by inducing an artificial fever that kills targeted cells. The rapid HIV test is can be used to accurately test for HIV outside of a laboratory. Our noninvasive glucose sensor helps diabetics measure their glucose without pricking their fingers or having to draw blood. We have several subsidiaries that specialize in those different projects. Diasense, Inc. manages the noninvasive glucose sensor project. ViaCirq, Inc. handles the hyperthermia project, a technology called the ThermoChem Systemr. Rapid HIV Detection Corp. owns the marketing rights to the rapid HIV tests. Petrol Rem, Inc. handles our environmental products PRPr, BIOSOKr and BIOBOOM r 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 any claims pending against us; our ability to maintain a trading market for our common stock; and the dilution of our common stock. Description of Business ViaCirq's Extracorporeal Hyperthermia Project CURRENT STATUS OF OUR EXTRACORPOREAL HYPERTHERMIA PROJECT Our subsidiary, ViaCirq, is the developer and marketer of the ThermoChem HT System which received FDA clearance to market in January 2000. The Thermochem HT System heats and circulates sterile solution through inlet catheters with temperature probes placed in the upper region of the abdominal cavity with the sterile solution returning to the ThermoChem through outlet catheters placed in the lower region of the abdominal cavity. The continuous circulation of heated sterile solution raises the core temperature of the abdominal cavity to the range of 41C (105.8F) to 42C (107.6F). This procedure is known as intraperitoneal hyperthermia (IPH). Before intraperitoneal hyperthermia is administered in a surgical procedure, the surgeon performs a midline abdominal incision to expose the entire abdominal cavity. Tumors within the abdominal cavity are surgically removed to the extent as possible. Inlet and outlet catheters are placed and then intraperitoneal hyperthermia is administered with the ThermoChem HT System for 2 hours. At the surgeons choice, chemotherapy may be administered in the abdominal cavity during the intraperitoneal hyperthermia. The combination of cytoreductive surgery, chemotherapy, along with the synergism of heat, has been used to treat patients with advanced stages of gastric cancer, colorectal cancer, appendiceal cancer, ovarian cancer and mesothelioma that has spread to the lining of the abdominal cavity with positive surgical and quality of life outcomes. These results have been published in numerous medical journals including The American Surgeon, The American College of Surgeons and the European Journal of Surgical Oncology. This combined procedure was pioneered at institutions like Wake Forest University School of Medicine and is now offered as a standard-of-care for these advanced cancers. During 2001, we focused on marketing the system to health care institutions and to creating a working management team. In March 2001, we presented our technology at the annual Cancer Symposium Meeting of the Society of Surgical Oncologists in Washington, D.C. We also have created a management team including a chief operating officer, and vice presidents of marketing and sales. We have entered into long-term agreements with Wake Forest University Medical Center in Winston-Salem, NC; Zale Lipshy University Hospital at Southwestern Medical Center in Dallas, TX; University of Pittsburgh Medical Center in Pittsburgh, PA; Baylor University Medical Center in Dallas, TX; and Sharp Memorial Hospital in San Diego, CA to use the ThermoChem HT System to administer intraperitoneal hyperthermia as part of their surgical oncology program. We have entered into evaluation agreements in which the Company is paid on a per IPH procedure to evaluate the program. These institutions include; Veterans Affairs Medical Center in Pittsburgh, PA; Veterans Affairs Medical Center in Cincinnati, OH; Greenville Memorial Hospital in Greenville, SC; St. Agnes Healthcare in Baltimore, MD; Dekalb Medical Center in Atlanta, GA; Kettering Medical Center in Dayton, OH; the University of Washington Medical Center in Seattle, WA; and the University of Maryland Medical Center in Bethesda, Maryland. In 2001, ViaCirq's Board of Directors, along with their stockholders, including BICO, decided to split the two hyperthermia treatments into two separate companies. ViaCirq continues to develop, market and sell the regional hyperthermia equipment and products, and the newly-created ViaTherm will focus on the whole-body hyperthermia. Although we had hoped to enter into an agreement with a hospital group in China, the tragic events of September 11, 2001 and their impact on international travel, trade, and communications made such an arrangement impossible at this time. HISTORY AND DEVELOPMENT OF THE THERMOCHEM-HT SYSTEM 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 SystemT 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 43.5C (110.3F) 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. 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 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. 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. We've spent approximately $18.7 on this project through September 30, 2001. We have been funding this project since 1992 with money we raised selling our securities, including our stock or convertible debentures. Petrol Rem's Environmental Projects BIOREMEDIATION AND OIL SPILL CLEAN UP We are 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. In late 2000, Petrol Rem acquired 51% of INTCO, a Louisiana company that specializes in regional oil spill clean-ups, primarily on the Gulf coast of southeast Louisiana, for an investment of approximately $1.25 million, all of which was paid during 2001. INTCO has been using Petrol Rem's oil spill clean-up products in clean up projects. INTCO was generating income when we acquired our interest in 2000, and its revenues have helped Petrol Rem's revenue flow. Petrol Rem's revenues increased significantly during the first three quarters of 2001, due primarily to INTCO's revenues. Petrol Rem's total revenues for the first three quarters of 2001 were approximately $2.475 million. Of that, approximately $2.4 million was from INTCO and $75,000 was from bioremediation products. Petrol Rem received a distribution agreement for approximately $125,000 per year from Alaskan oil spill clean-up company called F.R.O.G. to distribute Petrol Rem products. The contract has an initial term of one year, with automatic renewals on a yearly basis. Due to the September 11th tragedy, the Alaskan company was initially focused on other matters, and they placed their first order in November 2001. Due to the extreme winter weather in Alaska, we expect additional orders to begin in the spring. 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 PRPr 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 PRPr 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 PRPr, 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. Petrol Rem 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. Petrol Rem also has an international market, with its primary customers in Indonesia and Europe. 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 $16.8 million on this project through September 30, 2001. We have been funding this project since 1992 with money we raised by selling our securities, including our stock or convertible debentures. TIRE PILE CLEANUP AND OTHER PROJECTS In 2000, 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. In 2001, Tireless obtained a portable tire shredder, which allows Tireless to go directly to the tire pile sites to coordinate shredding and recycling. In September 2001, Tireless received a sub-contract to remediate discarded tires at one of the nation's largest tire piles near Upper Sandusky, Ohio. Tireless is now shredding tires at that site, and we began billing during the third quarter of 2001. We believe the Tireless sub-contract could generate revenue of at least $500,000 over the next year based on our equipment's capacity to shred tires over the one- year period of the contract. During 2001, through our subsidiary Petrol Rem, we've also loaned money to Practical Environmental Solutions, Inc., a Pennsylvania company that acquired technology used to safely convert municipal sludge to recyclables that comply with state and federal environmental laws. Petrol Rem has loaned a total of $3.1 million to Practical Environmental as of September 30, 2001. Practical Environmental has made interest payments on the amount due. The loan, which was originally due on August 31, 2001 has been extended until May 31, 2002; no principal payments have been made to date. Our management is considering whether to convert all or part of that loan to an equity investment - they are making that decision because Practical Environmental is willing to make that conversion and because Practical Environmental has been generating revenues since January 2001. As of September 30, 2001, Practical Environmental's internal financial information shows revenues of $426,000; they are still operating at a loss. We don't currently intend to make any additional loans or investments in Practical Environmental, except for the possible conversion of the existing loan to equity. Rapid HIV Detection Corp.'s HIV Test Project In 2001, we formed Rapid HIV Detection Corp. to market rapid HIV tests. Those rapid HIV tests include: InstantScreen, which is the initial test for HIV; InstantConfirm, which is used to verify all positive results; and InstantDifferentiate, which indicates whether the patient has HIV-1 or HIV-2. HIV-1 is the most common form of HIV; HIV-2 is a less aggressive form found in some parts of the world, including West Africa. The InstantScreen test takes 30 seconds to produce results. Only a few drops of blood are needed, and the blood is drawn with a finger prick, rather than intravenously with a needle and vial of blood. No additional material or special knowledge is needed to administer the test, and only elementary level reading skills are required. The test can be produced in different formats, depending upon whether it will be used in a doctor's office, hospital or in the field. The InstantConfirm test takes about 8 minutes to perform and is the first rapid HIV test to use the Western-Blot type HIV confirmation technology. The Western-Blot is recognized as the gold standard of HIV confirmation. This phase of the test is critical, since false-positive results have been a significant historical problem with HIV testing. The InstantDifferentiate is used if the patient tests positive for HIV, in order to determine whether the patient is infected with HIV-1 or HIV-2. HIV-2 is a less aggressive form of HIV that causes AIDs after a longer period of time than HIV-1, and is prevalent in certain parts of the world, including West Africa. In order to acquire the exclusive, world-wide marketing rights to the rapid HIV tests, we entered into a marketing agreement with GAIFAR, a German company which owned all the rights to the tests, and Dr. Heinrich Repke, the man who developed the tests. The marketing rights were assigned to Rapid HIV Detection Corp - we own 75% and GAIFAR owns 25% of Rapid HIV's common stock. GAIFAR retained the manufacturing rights for the tests. We entered into the agreement in June 2001 and acquired the marketing rights at that time. The initial terms of the agreement allowed us a due diligence period of 8 weeks to withdraw from the agreement, but in July, all the parties agreed to extend that date until October 15, 2001. The parties also agreed that we would need to provide a copy of a resolution signed by our board of directors approving the contract. In October, we completed our due diligence period and our board provided their unanimous resolution, making the marketing agreement fully effective, which means that we no longer have a right to withdraw. The marketing agreement, which we filed as an exhibit to a Form 8-K filed October 15, 2001, has a minimum ten-year term and calls for total payments of $7,000,000 through the 3rd quarter of 2002. When the marketing agreement became effective in October 2001, all funds previously loaned were applied to the total $7 million consideration. The original agreement called for a loan in the amount of $500,000 to the owner of the rapid HIV tests and technology, but we agreed to loan another $125,000 during the 2nd quarter while we continued our due diligence, so the total loans were $625,000 as of June 30, 2001. During the 3rd quarter of 2001, we loaned an additional $375,000 while we completed our due diligence; therefore, the total loan amount applied to the $7 million total due was $1 million. That loan was made part of the consideration we paid to acquire the exclusive worldwide marketing rights to the rapid HIV tests and technology, and is now part of our investment in Rapid HIV. The remaining $6 million in payments are due from October 20, 2001 through August 20, 2002. The payments include a range of $125,000 per month for the 3 months from October- December 2001 to $1 million per month for the 4 months from April - July of 2002. The original marketing agreement provided for payments through the 2nd quarter of 2002, and we renegotiated for a longer payment period in October 2001. If we fail to make the payments when they are due, we will lose the marketing rights. Our management entered into the Marketing Agreement and plans to spend that money because they believe that the tests are superior, and that we will be able to sell them to generate revenue. The tests are priced according to the quantities purchased and the purchaser's intended use. For example, InstantScreen tests are priced at $5 or less - we plan to charge a research facility, like Walter Reed, less than $5, and charge commercial users closer to $5, depending upon the quantity. The InstantConfirm and InstantDifferentiate tests will probably be sold together, and we plan to charge between $12-15 for that package. Based on studies conducted by various health institutions, which are summarized in the next two bullet points, our management believes investing in Rapid HIV is in the best interest of our company: In approximately 200 tests performed by the Noguchi Memorial Institute for Medical Research in Ghana, as well as 250 samples in an evaluation by the World Health Organization, and 150 samples evaluated by the National Institute for Virology in South Africa, our rapid HIV test performed with 100% accuracy. Walter Reed Army Institute of Research completed its own evaluation of the our rapid HIV test - in nearly 600 samples, our rapid HIV test showed perfect results - 100% sensitivity and 100% specificity. Our management also believes that investing in Rapid HIV is a good use of our company's funds because they believe that our rapid HIV tests are superior overall to other available tests, including Determine, Oraquick and Medmira: One significant problem with other tests is that they have not performed as well in the field as they have in a laboratory. Our Rapid HIV tests can be used anywhere. This enables us to take the tests directly to the people who need it, rather than trying to convince them to travel distances to laboratories or hospitals. Another significant problem with HIV testing on a massive scale is time - only a rapid HIV test will work. The speed of our tests allows each patient to receive results immediately, without leaving the test site. Tests that require the patient to leave samples and return for them later not only jeopardize confidentiality - but those tests are also susceptible to an alarming but common occurrence - patients who never return for their test results. Our test does not require refrigeration and contains compounds that destroy the HIV cells and other infectious cells contained in test sample. Those cells are destroyed by one of the chemical agents included in the test solution for that purpose - those chemical agents can only destroy the cells in the test sample, and cannot help to cure HIV. This means our tests can be discarded without further sterilization or the need for toxic waste treatment. The result of our test can be permanently attached to the patients' file, allowing the patient to provide his HIV status at any time. Our tests are affordable - we plan to charge $5 or less in most instances for the InstantScreen test. Although our initial focus is marketing our rapid HIV tests outside the United States, we are also pursuing FDA approval to sell the test in the U.S. GAIFAR and Dr. Repke began the FDA process in November 2000 and we are currently working with GAIFAR to design the trials needed for a full submission. Our past experience with the FDA indicates that it will not be a quick or easy process. We began trying to obtain FDA approval for our noninvasive glucose sensor in 1994, and we still don't have FDA approval. We've conducted several sets of clinical trials in our effort to obtain FDA approval for our noninvasive glucose sensor, and the trials we began in October 2000 are continuing. We have not received any revenue from our noninvasive glucose sensor since 1999. Biocontrol Technology's Manufacturing Projects In 2001, our Biocontrol Technology division increased its efforts to obtain manufacturing contracts to utilize our manufacturing facility in Indiana, PA., while we are waiting for the clinical trials on the Diasensor to proceed. The division received a $1.5 million manufacturing contract from the U.S. Army, and $238,000 manufacturing contract from a private company. We believe the U.S. Army contract will generate $1.5 million in revenue during the first year, beginning in the 4th quarter of 2001, with additional revenue for two additional years. Diasense's Noninvasive Glucose Sensor Project CURRENT STATUS OF THE NONIVASIVE GLUCOSE SENSOR In August 1999, we hired Joslin Diabetes Center to help us with our FDA submission. 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 FDA approved Joslin's protocol for the clinical study in August 2000. 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 are being paid as the clinical trials continue. In February 1999 we submitted a PMA shell to the FDA for the Diasensor. The PMA shell is part of a revised 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. We'll make the final PMA submission when our clinical trials are completed, and that submission will include human clinical results and a summary of safety and effectiveness data. Clinical trials began in October 2000 at Joslin Diabetes Center in Boston. The trials are designed for a total of 200 diabetics, all of whom will participate for nine months. Trials will also be conducted at eight other sites: St. Luke's-Roosevelt Hospital Center in New York City; SUNY Health Science Center in Syracuse, New York; Hershey Medical Center in Hershey, Pennsylvania; Dr. David Huffman in Chattanooga, Tennessee; New Britain General Hospital in New Britain, Connecticut; Tulane Medical Center in New Orleans, Louisiana; and University of North Carolina in Chapel Hill, North Carolina; and the University of Maryland in Baltimore, Maryland. We are also working with Amarex, LLC, an independent research organization headquartered in Washington, D.C., which has experience in conducting clinical trials, to monitor our clinical trials. Amarex is collecting data, and providing training, data and site management, including statistics and report writing, at all nine sites. Working with Joslin and Amarex, we plan to submit data to the FDA when the trials are completed. As of November 2001, we have over 100 patients involved in the trials, and the trials are continuing. We can't report on our progress in the trials until they're completed, so we can't tell you how well they are going, or when we expect that they will be completed. We also plan to 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 that can be used with our DataCONN service to store and group the patient's glucose measurements over time. 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've discontinued our European marketing efforts. Based on contracts between BICO and Diasense, BICO has the exclusive right to manufacture the noninvasive glucose sensor. Diasense will pay BICO for manufacturing, and that's how BICO will 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. Diasense plans to market the noninvasive glucose sensor and the telemedicine program directly to diabetics, through their doctors' orders. We may set our 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. HISTORY AND DEVELOPMENT OF THE NONINVASIVE GLUCOSE SENSOR Along with Diasense, we've been working to develop a noninvasive glucose sensor for diabetics that is able to measure glucose without having to draw blood. Most 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 2001, a total of 14 U.S. patents and two foreign patents have been issued, with additional patent applications pending. We have the right to develop and manufacture sensors based on contracts with us. 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 Diasensorr1000. A 510(k) Notification is a type of FDA filing used to ask the FDA to approve a device for sale in the U.S. We based the submission on data obtained from the advanced research prototypes, since we believed that the production model would be identical to the advanced prototypes. In February 1996, the FDA convened a panel of advisors to make a recommendation regarding our 510(k) Notification. The majority of the panel members recommended that we conduct additional testing and clinical trials of a production model prior to marketing the Diasensor 1000. We, along with 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 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, although we have discontinued our marketing efforts 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 could be made as they were ready. We discuss our PMA submissions in the "Current Status of the Noninvasive Glucose Sensor" section, which follows. The Diasensor is a spectrophotometer, which is a machine capable of illuminating a small area of skin on a patient's arm with infrared light, and then making measurements from the infrared light that is reflected back into the device. The device then displays the measurement in a window on the top of the device for the user to read. The Diasensor uses internal mathematical calculations and customized software to calculate a glucose measurement. Since the Diasensor will be calibrated individually, each instrument will be sold 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. Other Projects Implantable Technology In April 1996, we received FDA approval to market our theraPORTr 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 theraPORTr 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 Coraflexr 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 Coraflexr 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. DataCONN In March 2001, Diasense launched its DataCONN service. Diasense has been developing this service as our telemedicine system to be used in combination with our Diasensor, but it can also be used currently by diabetics who monitor their blood glucose levels using an invasive device. Doctors and other professional caregivers can also have access to the information to make treatment decisions for their diabetic patients. The DataCONN service is available to anyone who has a touchtone telephone or access to the internet for a yearly subscription of $59. The patient enters blood glucose levels and the service includes 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 and his or her 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. Diabecore Medical, Inc. During fiscal 2000 and 2001, through Diasense, we 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 have invested a total of approximately $987,500 in Diabecore, and Diasense owns approximately 24% of Diabecore's stock. We currently have no plans to make additional investments in Diabecore MicroIslet, Inc. During fiscal 2000 and 2001, through Diasense, we 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 one year 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 is replicating the testing on 3 more primates to obtain additional data to support a planned request to the FDA to conduct human trials. We have invested a total of approximately $1.6 million in MicroIslet and Diasense owns approximately 20.2% of MicroIslet's stock. We currently have no plans to make additional investments in MicroIslet. Metal-Plating and Coating Technology CCTI, which stands for Ceramic Coatings Technologies, Inc., is a Florida company that developed a ceramic coating used for metal components. CCTI then developed a product line for sharpeners used for knives and other tools in the professional culinary field, for sportsmen's knives and fish hooks, for professional woodworkers and for household use. Although we've begun to receive revenues from CCTI, which aggregated approximately $80,000 for the first nine months of 2001, we have decided to sell CCTI and are in active negotiations with a buyer. In March 1998, we acquired an interest in a metal-plating company, because 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 discontinued operations and 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. In 2001, we reached an agreement with the people who sold us the interest - we still owed them money from the purchase. They agreed to restructure the total $5,450,348 due to them and to reduce the amount to $2,887,500. As of December 31, 2001, we had made payments totaling $387,500, and issued them $2 million of our series I convertible preferred stock. The common stock underlying that preferred stock is included in this prospectus. Internet Business Services We made investments in a company called B-A-Champ.com. That company evolved from an internet card-trading company to an internet business service provider and became TruePoints, Inc. TruePoints provides internet marketing retention and promotional services for businesses. You should visit TruePoints website at www.truepoints.com to see how TruePoints operates and the type of promotional and customer retention programs they provide. Fred Cooper, our CEO, owned stock in B-A-Champ but during 2001, he gave that stock to BICO. As of September 30, 2001, we had invested a total of $971,000 in the project since the beginning of 2000. 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 and $190,000 in 2001 for a total investment of $1 million, or 20% of AIM. AIM's product is in the research and development phase; we can't give any assurances that it will be successful or profitable. All this information regarding our projects is in summary form, and the status of each project is subject to constant change. We can't assure that any of our projects will be completed or successful. RESEARCH AND DEVELOPMENT We continue to be actively engaged in the research and development of new products. Our major emphasis has been the development of a noninvasive glucose sensor. In order to raise funds for the research and development of new products, we sell our stock and convertible securities. MARKETING AND DISTRIBUTION Petrol Rem began marketing of its bioremediation product, PRPr, 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 SystemT and related disposables used for regional cancer treatment. None of our current projects have generated any meaningful sales or revenue, although ICTI is generating revenue by providing environmental clean-up services by using our PRP products. 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 BICO's 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. Our patent relates only to noninvasive sensing of glucose but not to other blood constituents. We have filed corresponding patent applications in a number of foreign countries. As of November 2001, a total of 14 U.S. and two foreign 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. We or Diasense 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. We also rely upon trade secret protection for our 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 the our trade secrets, disclose such technology, or that we can meaningfully protect our trade secrets. We have registered our trademark "Diasensor ", which is intended for use in connection with the Diasensor models. We intend to apply, at the appropriate time, for registrations of other trademarks as 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 ThermoChemT 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 ThermoChemT-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 ThermoChemT 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 Coraflexr, which was originally granted in 1988. We also obtained trademark registration for the name theraPORTr. In October 1996, we obtained a patent for our heart valve product. Bioremediation In 1992 and 1993, Petrol Rem applied for patents in connection with its bioremediation product, all of which are still pending. Petrol Rem received trademark authorization for the use of the product names PRPr, BIO-SOKr, BIO-BOOMr, and Oil Busterr. 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 have developed noninvasive glucose sensors, and that others are still in the research & development phase, but we have limited knowledge about the actual technology or the stage of development for most of our competitors. We face the risk that some other group will complete the development of their device and penetrate the market before we do. If that happens, there is a significant chance that even if we receive FDA approval, our sensor will not be successful because our marketing efforts started too late. We don't believe there is any other company currently producing or marketing noninvasive sensors for the measurement of blood glucose that use the same technology as we do. 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. In addition, Abbott Laboratories introduced a new test in 2001 that allows diabetics to draw blood from areas other than their fingers, such as from their arms. Abbott's Sof-Tac test is part of their MediSense product line. 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. During 2001, Cygnus of Redwood, California received various FDA approvals, including for assembly and manufacturing for its GlucoWatch Biographer system that draws glucose through the skin through an electric current. The glucose triggers a reaction in a disposable pad. Although Cygnus claims that its device is noninvasive, the fact remains that, in addition to the use of electrical charges to draw fluid through the skin, each person must use finger prick technology to set and use the device. The device is being sold in the U.K., and Cygnus plans to launch their device in the U.S. in early 2002. We believe that the device does not work for everyone, especially those who perspire, and produces side effects including skin rashes that make regular use difficult for some patients. 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 - that the FDA rejected when we used it for our own panel review. At this point, we can't determine what effect, if any, the GlucoWatch Biographer will have on our marketing or sales potential, because we don't know how successful it will be. Among the companies investigating infrared technology to measure blood glucose levels noninvasively is CME Telemetrix in Waterloo, Ontario, Canada. CME is reportedly conducting tests with a device called a GlucoNIR via funding from Motorola, Inc. that uses one type of infrared wavelengths. CME Telemetrix recently reported that they were working to achieve acceptable accuracy levels before beginning human trials. OptiScan Biomedical in Alameda, California is developing a device that uses another type of infrared wavelengths; they are still in clinical trials and have not yet made an FDA submission. Johnson & Johnson's LifeScan division has an agreement with InLight Solutions, an Albuquerque company working on a device that uses near-infrared light to measure blood glucose. In November 2001, Johnson & Johnson also acquired diabetes technology from Inverness Medical Technology. Inverness is selling an electro-chemical glucose meter and is also in the test strip business. Rio Grande Medical Technologies of Albuquerque, New Mexico is designing a photo- based device. We believe Rio Grande is still being 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. SpectRx is also using the device to do optical scans. 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. In addition, SpectRx recently received additional funding from Abbott Laboratories and a third grant from the U.S. Centers for Disease Control to focus on research to use the device for children and the elderly. Last year, SpectRx reported that they had received expedited review status from the FDA for a three- module premarket approval filing for their diabetes detection device; and that clinical trials are underway. 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. In November 2000, MiniMed also announced that it had started human clinical trials of a long-term implantable glucose sensor developed by a company called MRG. In August 2001, Medtronic bought MiniMed and changed its name to Medtronic MiniMed. 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 Since our noninvasive glucose sensor is a medical device as defined by the Federal Food, Drug and Cosmetic Act, as amended, it is 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. 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 will not be making another FDA submission until our clinical trials are finished, and we don't know how much longer that will take. 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 to EN46001 for medical devices, and on June 23, 1998, we received the CE mark. The CE mark and the ISO certification are provided by the regulatory bodies or other approved companies of the European Union. The CE mark indicates that the device adheres to quality systems guidelines. Rigorous audits were conducted at our Indiana, Pennsylvania facility to certify that our development and manufacturing procedures, as well as the Diasensor 1000r itself met the international standards laid down by Europe's medical device directive. In order to maintain our approval to ship the device into the European Union, we must be vigilant in our adherence to our quality system. We will also be subject to annual audits to be sure that we continue to meet the required standards. Although we are not currently marketing our device in Europe, we will maintain our ISO certification status because we believe it provides a positive message regarding our facility and operations and in case we decide to market outside the U.S. in the future. Any changes in FDA or European procedures or requirements will require corresponding changes in our obligations in order to maintain compliance those standards. Those changes may result in additional delays or increased expenses. Depending on which other countries we target, our products may also be subject to additional foreign regulatory approval before we can sell our devices. Extracorporeal Hyperthermia In January 2000, HemoCleanse and ViaCirq received FDA approval to market the ThermoChem-HT System and related disposables, which are used to raise the core temperature of the abdominal cavity to the desired temperature in the 41 C (105.8 F) to 42 C (107.6 F) range by continuously bathing the abdominal cavity with circulating sterile solution. In 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, 2001, we had 119 full-time employees who were located primarily in either our Indiana or Pittsburgh locations. In addition, ViaCirq had 13 employees; and Petrol Rem had 30 employees, including 17 INTCO employees, as of December 31, 2001. We have employment contracts with some of our non-officer employees, most of whom are scientists and engineers employed in our research and development operations. Those contracts are typically for terms of five years and contain confidentiality provisions. We also employ consultants as needed; some of the consultants are employed based on consulting contracts, which contain confidentiality provisions. PROPERTY 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 2002. 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 $3,250,000 toward the settlement to date. During the 3rd quarter of 2001, the parties agreed to extend the payments on the remaining balance. A balance of $425,000 is due, including $225,000 for extending the due dates. 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 Name Age Director Position Since Fred E. Cooper 56 1989 Chief Executive Officer, Executive Vice President, Director Anthony J. Feola 53 1990 Chief Operating Officer, Director Michael P. Thompson 51 Chief Financial Officer Glenn Keeling 50 1991 Senior Vice President, Director Ben Johnson 57 Executive Vice President Stan Cottrell 58 1998 Director Paul W. Stagg 54 1998 Director FRED E. COOPER, 56, 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 Rapid HIV Detection Corp., and a director of Petrol Rem and Coraflex. ANTHONY J. FEOLA, 53, is our chief operating officer; he rejoined BICO 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 the secretary of Rapid HIV Detection Corp. and a director of Diasense, Coraflex, and Petrol Rem. MICHAEL P. THOMPSON, 51, 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 2000, when Mr. Thompson joined us as interim CFO. He has been a CPA for over 25 years. He is also the chief financial officer for Diasense and Petrol Rem, and a director of ViaCirq. GLENN KEELING, 50, joined our board of directors in April 1991. Mr. Keeling currently is a full-time employee of BICO in the position of senior vice president; his primary responsibilities are to manage our ViaCirq operations. From 1976 through 1991, he was a vice president in charge of new business development at Equitable Financial Management, Inc., a regional equipment lessor. His responsibilities included initial contacts with banks and investment firms to open new lines of business referrals in connection with financing large equipment transactions. He is also president and a director of ViaCirq. BEN JOHNSON, 57, joined BICO in 2001 as our executive vice president and the director of our Washington, DC office. Prior to joining us, he spent from 1993-2001 on the staff for the President of the United States. From 1999-2001, he was the assistant to the President and director of the President's Initiative for One America, the first freestanding White House office in history to focus on closing the opportunity gap that exists for minorities in the U.S. From 1997-1999, he was deputy assistant to the President and deputy director of public liaison. From 1993-1997, he served as special assistant to the President and associate director of public liaison, the primary liaison to the national African-American community. He also serves as an officer and director of Rapid HIV Detection Corp. STAN COTTRELL, 58, 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, 54, 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 coordinating 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. 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 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 our current officers, Fred E. Cooper, Anthony J. Feola and Glenn Keeling, and approved an employment agreement for Michael P. Thompson in August 2000. Fred E. Cooper, chief executive officer, executive vice president and a director, is a director of Diasense, Petrol Rem, and Rapid HIV Detection Corp. He is also the CEO of Rapid HIV Detection Corp and the president of Diasense. Mr. Cooper devotes approximately 60% of his time to BICO and 40% to Diasense. Anthony J. Feola, chief operating officer and a director, is also the secretary of Rapid HIV Detection Corp, and a director of Diasense, and Petrol Rem. Glenn Keeling is our senior vice president and a director. Mr. Keeling is also the president and a director of ViaCirq. Michael P. Thompson is our chief financial officer. He is also the chief financial officer for Diasense and Petrol Rem, and a director of ViaCirq. Ben Johnson, executive vice president and director of our Washington, D.C. office, is also the executive vice president and a director of Rapid HIV Detection Corp. 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, 2003. 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. The property was sold in October 2000 for $475,000, and each of the partners received $12,698, after the mortgage was paid. 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 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 chief operating officer and a director; 2,000,000 to Glenn Keeling, our senior vice president and a director; 4,000,000 to David L. Purdy, our former chairman and director; 250,000 to Stan Cottrell, a director; and 250,000 to Paul Stagg, a director. The exercise price of $.129 per share was equal to the market price on April 28, 1999. 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 January 11, 2001, we granted warrants to purchase 500,000 shares of our common stock at $.073 per share until January 11, 2006 to Ben Johnson, our executive vice president. The exercise price of $.073 per share was equal to the market price on January 11, 2001. 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, a director. The exercise price of $.102 per share was equal to the market price on February 1, 2001. On May 23, 2001, we granted warrants to purchase our common stock at $.0525 per share until May 23, 2006 in the following amounts: 15 million to Fred E. Cooper, our chief executive officer and a director; 10 million to Anthony J. Feola, our chief operating officer and a director; 8 million to Glenn Keeling, our senior vice president and a director; 3 million to Michael P. Thompson, our chief financial officer; 1 million to Stan Cottrell, a director and 1 million to Paul Stagg, a director. The exercise price of $.0525 per share exceeded the market price on May 23, 2001. On July 30, 2001, we granted warrants to purchase 1 million shares of common stock at $.05 per share until July 30, 2006 to Ben Johnson, our executive vice president. The exercise price of $.05 per share exceeded the market price on July 30, 2001. On December 3, 2001, we granted warrants to purchase 500,000 shares of common stock at $.05 per share until December 3, 2006 to Ben Johnson, our executive vice president. The exercise price of $.05 per share exceeded the market price on December 3, 2001. 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 December 31, 2001 was $678,021. Our disinterested directors - with Mssrs. Cooper, Feola and Keeling abstaining with respect to their individual transactions- approved these loans because the disinterested directors believed 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 when the loans were in default. Mr. Cooper's individual loans, along with Msrrs. Feola and Keeling's loans, had been, for period beginning in March 1996, secured by BICO certificates of deposits. Those CDs were released in February 1998, when Mssrs. Cooper, Feola and Keeling obtained loans from BICO. The disinterested directors believed that if Mr. Cooper and the other directors had been forced to sell their 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 2001, Mr. Cooper gave his stock in B-A-Champ.com to BICO; he no longer owns any interest in B-A-Champ.com. 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 December 31, 2001 was $197,570. Our disinterested directors - with Mssrs. Feola, Cooper and Keeling abstaining with respect to their individual transactions- approved these loans because the disinterested directors believed they were for a good business purpose. The business purposes was to refinance loans secured by BICO stock, so the stock wouldn't have to be sold when the loans were in default. Mr. Feola's individual loan, along with Msrrs. Cooper and Keeling's loans, had been, for period beginning in March 1996, secured by BICO certificates of deposits. Those CDs were released in February 1998, when Mssrs. Cooper, Feola and Keeling obtained loans from BICO. The disinterested directors believed that if Mr. Feola and the other directors had been forced to sell their 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 December 31, 2001 was $150,161. Our disinterested directors - with Mssrs. Keeling, Feola and Cooper abstaining with respect to their individual transactions- approved these loans because the disinterested directors believed they were for a good business purpose. The business purposes was to refinance loans secured by BICO stock, so the stock wouldn't have to be sold when the loans were in default. Mr. Keeling's individual loan, along with Msrrs. Cooper and Feola's loans, had been, for period beginning in March 1996, secured by BICO certificates of deposits. Those CDs were released in February 1998, when Mssrs. Cooper, Feola and Keeling obtained loans from BICO. The disinterested directors believed that if Mr. Keeling and the other directors had been forced to sell their 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 December 31, 2001, the balance was $24,394. 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, who 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, 2001, 2000 and 1999. The executive officers included are those people who, as of December 31, 2001 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) 2001 $989,265 $0 $0 | 0 $0 2000 $646,795 $200,000(6) $0 | 0 $0 1999 $450,000 $0 $0 | 4,000,000(4) $0 - ------------------------------------------------------------------------------ Fred E. 2001 $977,115 $0 $0 | 15,000,000(4) $0 Cooper, 2000 $939,000 $383,746(8) $0 | 0 $0 CEO (7) 1999 $821,242 $200,000 $0 | 4,000,000(4) $0 - ------------------------------------------------------------------------------ Anthony J. 2001 $660,248 $0 $0 | 8,000,000(4) $0 Feola , Sr. 2000 $633,850 $268,190(10) $0 | 0 $0 Vice Pres.(9) 1999 $500,886 $0 $0 | 2,000,000(4) $0 - ------------------------------------------------------------------------------ Glenn 2001 $483,732 $0 $0 | 8,000,000(4) $0 Keeling, VP 2000 $500,000 $93,190(12) $0 | 0 $0 (11) 1999 $302,083 $0 $0 | 2,000,000(4) $0 - ------------------------------------------------------------------------------ Michael P. 2001 $317,375 $0 $0 | 3,000,000(4) $0 Thompson, 2000 $103,243 $0 $0 | 1,000,000(4) $0 Chief Financial Officer (13) - ------------------------------------------------------------------------------ R. Ben 2001 $191,171 $0 $0 | 1,500,000(4) $0 Johnson, Executive VP (14) (1) We do not currently have a Long-Term Incentive Plan, and no payouts were made under to any LTIP during the years 2001, 2000 or 1999. We issued warrants during those three years, which we also discuss in Note 4. 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, 2001, 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) On May 23, 2001, we granted Mssrs. Cooper, Feola, Keeling and Thompson warrants to purchase the number of shares listed. All the warrants are exercisable at $.0525 per share - a price greater than our trading price on May 23, 2001, until May 23, 2006. During 2001, we also issued warrants to R. Ben Johnson, our new executive vice president. We granted him warrants on July 30, 2001 that give him the right to purchase 1 million shares of our common stock at $.05 per share, until July 30, 2006; we also issued him warrants on December 3, 2001 that give him the right to purchase 500,000 shares of our common stock at $.05 per share until December 3, 2006. The $.05 exercise price on Mr. Johnson's loans exceeds the market price on the dates we issued the warrants. 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 2001, we paid Mr. Purdy $912,727 by BICO, most of which was a severance payment he demanded when he resigned. We also paid him $26,923 from our Biocontrol Technology division, and $49,615 from Diasense. 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. 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 2001, we paid Mr. Cooper $336,281 by BICO; $414,167 by Diasense; $80,000 each by Petrol Rem and ViaCirq; and $66,667 by Rapid HIV. Due to our cash flow problems in the last quarter of 2001, Mr. Cooper agreed to accrue a total of $271,531 due him from all of the companies combined, rather than collect that amount in 2001. 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 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, ViaCirq and Rapid HIV 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 2001, we paid Mr. Feola $472,748 by BICO and $187,500 by Diasense. Due to our cash flow problems in the last quarter of 2001, Mr. Feola agreed to accrue a total of $157,729 due him from both companies, rather than collect that amount in 2001. 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 2001, 57% of the amounts paid were allocated to ViaCirq. Due to our cash flow problems in the last quarter of 2001, Mr. Keeling agreed to accrue $283,184 due him rather than collect that amount in 2001. 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, and then appointed chief financial officer in 2001. Due to our cash flow problems in the last quarter of 2001, Mr. Thompson agreed to accrue $52,474 due him rather than collect that amount in 2001. We pay him based on his employment agreement. (14) Mr. Johnson was appointed our executive vice president when he joined us in January 2001. Option/Warrant/SAR Grants in Last Fiscal Year POTENTIAL REALIZED VALUE AT ASSUMED ANNUAL RATES OF STOCK INDIVIDUAL GRANTS (1) PRICE APPRECIATION FOR OPTION TERM (3) Percent of Number of Total Securities Options/SAR's Exercise Underlying Granted to or Expiration Options/ Employees in Base Date 5%($) 10%($) 0%($) Name SAR's Fiscal Year Price Granted (2) ($/Sh) (#) Fred E. Cooper 15,000,000 31% $.0525 5/23/06 $0 $172,500 $0 Anthony J. Feola 10,000,000 21% $.0525 5/23/06 $0 $115,000 $0 Glenn Keeling 8,000,000 16% $.0525 5/23/06 $0 $ 92,000 $0 Michael P. Thompson 3,000,000 6% $.0525 5/23/06 $0 $ 34,500 $0 R. Ben Johnson 1,000,000 3% $0.05 7/30/06 $0 $ 0 $0 500,000 12/03/06 $0 $ 0 $0 (1) The warrants in this table were granted during 2001. The warrants granted the executive officers the right to purchase the number of shares of common stock shown in the table at a the price shown for five years. (2) For purposes of calculating this percentage, the total number of warrants granted to employees during 2001 was 48.5 million. (3) Potential realizable values reflect the difference between the warrant exercise price at the end of 2001 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% 05/23/01: $0.04 05/23/06 $0.051 $0.064 07/30/01: $0.02 07/30/06 $0.025 $0.032 12/03/01: $.025 12/03/06 $0.032 $0.040 The foregoing values do not reflect appreciation actually realized by executive officers. For more information on the warrants, review the next table. (4) The -0- amounts reflect the fact that, even at the end of the warrant term, based on the appreciation rate, the market price will be less than the exercise price. AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/WARRANT/SAR VALUE TABLE Number of Value of Securities Unexercised Underlying In-the-Money Unexercised Options/SARs Options/SARs at at 12/31/01 ($) 12/31/01 (#) Name Shares Value Exercisable/ Exercisable/ Acquired Realized Unexerciseable Unexercisable on ($)(2) (3) (4) Exercise (#)(1) David L. 0 $ 0 3,767,200 $ 0 Purdy (5) (11) Fred E. 0 $ 0 19,300,000 $ 0 Cooper (6) (11) Anthony 0 $ 0 12,550,000 $ 0 J. Feola (7) (11) Glenn 0 $ 0 10,100,000 $ 0 Keeling (8) (11) Michael P. 0 $ 0 4,000,000 $ 0 Thompson (9) (11) R. Ben Johnson 0 $ 0 1,500,000 $ 0 (10) (11) __________________ (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 million 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; 4 million shares of common stock at $.129 per share until April 28, 2004; and 15 million shares of common stock at $.0525 per share until May 23, 2006. (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; 2 million shares of common stock at $.129 per share until April 28, 2004; and 10 million shares of common stock at $.0525 per share until May 23, 2006. (8) Includes warrants to purchase: 100,000 shares of common stock at $1.48 per share until August 26, 2001; 2 million shares of common stock at $.129 per share until April 28, 2004; and 8 million shares of common stock at $.0525 per share until May 23, 2006. (9) Includes warrants to purchase 1 million shares of common stock at $.125 per share until August 28, 2005; and 3 million shares of common stock at $.0525 per share until May 23, 2006. (10) Includes warrants to purchase 1,000,000 shares of common stock at $.05 per share until July 30, 2006 and 500,000 shares of common stock at $.05 per share until December 3, 2006. (11) Because the market price as of the last trading day of December 2001 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, 2001 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, 2001, we had 2,450,631,119 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, 2001. The left-hand column sets forth the percentage of the total number of shares of common stock outstanding as of December 31, 2001, 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 Address Amount and Percent of Beneficial of Beneficial Nature of Ownership of Owner Beneficial Total Outstanding Ownership (1) Common Stock (2) Fred E. Cooper 21,076,200 (3) * 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 Stan Cottrell 1,350,000 (4) * 4619 Westhampton Drive Tucker, GA 30084 Anthony J. Feola 13,404,000 (5) * 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 Robert B. Johnson 1,500,000 (6) * 1140 Connecticut Ave., NW 11th Floor Washington, D.C. 20036 Glenn Keeling 10,738,500 (7) * 2275 Swallow Hill Road Building 2500, 2nd Floor Pittsburgh, PA 15220 Paul Stagg 1,570,000 (8) * 168 LaLanne Road Madisonville, LA 70447 Michael P. Thompson 4,000,000 (9) * 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 All directors 53,638,700 (10) 2.1% and executive officers as a group (7 people) NOTE: The officers and directors listed above entered into agreements not to exercise the warrants set forth below until August 2002. This means that the warrants are only currently exercisable after that time. (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 June 30, 2001. For individual computation purposes, the total number of shares of common stock outstanding as of June 30, 2001 has been increased by the number of additional shares which would be outstanding if the person or group exercised all outstanding warrants. (3) Includes warrants to purchase the following: 300,000 shares of common stock at $.25 per share until May 1, 2003; 4,000,000 shares of common stock at $.129 per share until April 28, 2004; and 15,000,000 shares of common stock at $.0525 per share until May 23, 2006. In addition, Mr. Cooper is entitled to certain shares of common stock upon a change of control of BICO as defined in his employment agreement. (4) Includes warrants to purchase 250,000 shares of common stock at $.129 per share until April 28, 2004; and warrants to purchase 1,000,000 shares of common stock at $.0525 until May 23, 2006. (5) Includes 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, 2003; 350,000 shares of common stock at $.50 per share until October 11, 2002; 2,000,000 shares of common stock at $.129 per share until April 28, 2004; and 10,000,000 shares of common stock at $.0525 per share until May 23, 2006. In addition, Mr. Feola is entitled to certain shares of common stock upon a change of control of BICO as defined in his employment agreement. (6) Includes warrants to purchase the following: 500,000 shares of common stock at $.0730 per share until January 11, 2006; and 1,000,000 shares of common stock at $.05 per share until July 30, 2006. (7) Includes warrants to purchase 100,000 shares of common stock at $1.48 per share until August 26, 2003; 2,000,000 shares of common stock at $.129 per share until April 28, 2004; and 8,000,000 shares of common stock at $.0525 per share until May 23, 2006. 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. (8) Includes warrants to purchase 20,000 shares of common stock at $.06 per share until April 27, 2003; 250,000 shares of common stock at $.129 per share until April 28, 2004; 200,000 shares of common stock at $.102 per share until February 1, 2006; and 1,000,000 shares of common stock at $.0525 per share until May 23, 2006. (9) Includes warrants to purchase 1,000,000 shares of common stock at $.125 per share until August 28, 2005; and 3,000,000 shares of common stock at $.0525 per share until May 23, 2006. 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. (10) Includes shares of common stock available under warrants to purchase an aggregate 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 owns warrants to purchase 3 million shares of our common stock at $.05 per share until May 23, 2006; and warrants to purchase 200,000 shares of Diasense, Inc., one of our affiliates, at $.50 per share until April 23, 2006. Thomas E. Sweeney, Jr., Esq., a former partner, currently holds approximately 5,000 shares of our common stock and warrants to purchase the following shares of Diasense, Inc., 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. 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 22, 2001 F-1 BICO, Inc. and Subsidiaries Consolidated Balance Sheets
(Unaudited) Sept. 30, 2001 Dec. 31, 2000 Dec. 31, 1999 -------------- ------------- ------------- CURRENT ASSETS Cash and equivalents (note A) $1,349,907 $ 7,844,807 $ 10,827,631 Accounts receivable - net of allowance for doubtful accounts of $43,664 at Sept. 30, 2001 and Dec. 31, 2000 and $63,679 at Dec. 31, 1999 1,273,100 400,950 27,263 Inventory - net of valuation allowance (notes A and D) 1,575,373 805,224 10,308 Related party notes receivable (notes C,N, and S) 142,278 87,706 - Notes receivable (note C) - 1,926,363 200,000 Notes receivable-Practical Environmental Solutions, Inc. - 1,914,363 - Interest receivable (note C) 97,826 48,252 2,701 Prepaid expenses (note E) 1,017,322 988,354 192,246 Advances - Officers - - 125,290 Other current assets 62,270 47,268 - --------- ----------- ----------- TOTAL CURRENT ASSETS 5,518,076 12,148,924 11,385,439 PROPERTY, PLANT AND EQUIPMENT (notes A and J) Building 2,529,176 2,529,176 1,207,610 Land 246,250 246,250 133,750 Leasehold improvements 2,019,016 1,848,674 1,435,319 Machinery and equipment 7,535,953 6,405,594 4,676,330 Furniture, fixtures & equipment 935,516 921,195 841,308 ----------- ----------- ----------- Subtotal 13,265,911 11,950,889 8,294,317 Less accumulated depreciation 6,010,467 5,288,910 4,704,539 ----------- ----------- ----------- 7,255,444 6,661,979 3,589,778 OTHER ASSETS Related Party Receivables Notes receivable (notes C and N) 1,128,455 1,174,738 1,491,261 Interest receivable (notes C and N) 8,918 13,463 22,023 ----------- ---------- ----------- 1,137,373 1,188,201 1,513,284 Allowance for related party receivables (1,137,373) (1,188,201) (1,340,560) ----------- ---------- ----------- - - 172,724 Notes receivable (note C) 138,646 200,000 12,000 Notes receivable - Practical Environmental Solutions, Inc. (Note S) 3,083,704 - - Notes receivable - GAIFAR (Note S) 1,025,000 - - Interest receivable - - 4,235 Goodwill, net of amortization (notes A and Q) 635,129 694,895 - Investment in unconsolidated subsidiaries(notes A,G and S) 2,507,865 2,061,439 485,284 Other assets 245,924 162,833 36,376 ----------- ---------- ----------- 7,636,268 3,119,167 710,619 ----------- ---------- ----------- TOTAL ASSETS $20,409,788 $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)
(Unaudited) Sept. 30, 2001 Dec. 31,2000 Dec. 31, 1999 -------------- ------------ ------------- CURRENT LIABILITIES Accounts payable $2,045,526 $ 578,520 $ 759,733 Note payable (note S) 3,414,336 Current portion of long-term debt (note I) 4,222,375 5,182,783 4,159,684 Current portion of capital lease obligations (note J) 79,031 98,788 76,017 Debentures payable (notes K and S) - 2,400,000 - Accrued liabilities (note F) 3,578,295 3,131,765 1,794,370 Escrow payable (note L) 2,700 2,700 2,700 ---------- ----------- ------------- TOTAL CURRENT LIABILITIES 13,342,263 11,394,556 6,792,504 LONG-TERM LIABILITIES Capital lease obligations (note J) 2,145,698 2,203,673 1,336,147 Long-term debt (note I) 1,233 7,864 2,240 --------- ----------- ------------- 2,146,931 2,211,537 1,338,387 COMMITMENTS AND CONTIGENCIES (note O) UNRELATED INVESTORS'INTEREST IN SUBSIDIARY (note A) 454,757 434,990 - STOCKHOLDERS' EQUITY (notes L and S) Common stock, par value $.10 per share, authorized 2,500,000,000 shares, issued and outstanding 2,450,631,119 at Sept. 30, 2001, 1,383,704,167 at Dec. 31, 2000 and 956,100,496 at Dec. 31, 1999 245,063,111 138,370,417 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 Sept. 30, 2001 and December 31, 2000 and 72,000 at December 31, 1999. - - 720,000 Additional paid-in capital 2,482,952 87,035,096 85,608,192 Warrants 6,221,655 6,204,235 6,791,161 Accumulated deficit (249,301,881) (223,720,761) (181,174,458) ------------- ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 4,465,837 7,888,987 7,554,945 ------------- ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,409,788 $ 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
For the nine months ended Year Ended December 31, Sept. 30, Sept. 30, 2001 2000 2000 1999 1998 ------------ ------------- ------------ ------------- ------------- Revenues Net sales $ 2,869,611 $ 98,831 $ 340,327 $ 112,354 $ 1,145,968 Other income 9,497 - 5,547 52,897 50,212 --------- ---------- ------------ ----------- ------------ 2,879,108 98,831 345,874 165,251 1,196,180 Costs and expenses Cost of products sold 2,082,021 132,644 354,511 147,971 587,821 Research and development (notes A,L and M) 5,142,507 5,082,319 6,651,471 4,430,819 6,340,676 General and administrative (note L) 16,217,485 11,962,387 21,407,472 12,884,237 10,673,265 Amortization of goodwill (notes A,G and S) 579,671 279,681 392,307 39,716 887,080 Impairment loss - - - 5,060,951 - ---------- --------- ------------ ----------- ------------- 24,021,684 17,457,031 28,805,761 22,563,694 18,488,842 ---------- ---------- ------------ ----------- ------------- Loss from operations (21,142,576) (17,358,200) (28,459,887) (22,398,443) (17,292,662) Other income Interest 478,399 449,559 589,529 1,031,560 182,033 Other expense Debt issue costs (note A) 1,741,886 985,000 1,005,000 3,458,300 1,865,682 Beneficial convertible debt feature(notes A&K) 2,063,915 2,462,500 3,062,500 7,228,296 3,799,727 Warrant extensions (note L) - 6,390 5,233,529 4,669,483 - Interest expense 690,948 1,343,393 1,924,873 1,373,404 481,025 Loss on unconsolidated subsidiaries(notes A&G) 221,407 493,925 158,183 - - Loss on disposal of assets 18,635 15,874 122,857 376 531,066 Unusual Item (notes O and S) 225,000 3,450,000 3,450,000 - - ---------- ---------- ------------ ------------ ------------- 4,961,791 8,757,082 14,956,942 16,729,859 6,677,500 ---------- ---------- ------------ ------------ ------------- Loss before unrelated investors' interest (25,625,968) (25,665,723) (42,827,300) (38,096,742) (23,788,129) Unrelated investors' interest in net loss of subsidiaries 44,848 54,222 280,997 24,164 1,385,485 ----------- ---------- ----------- ----------- ------------ Net loss $(25,581,120) $(25,611,501) $(42,546,303) $(38,072,578) $(22,402,644) ============ ========== =========== ============ ============ Loss per common share - Basic: Net Loss $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08) Less: Preferred stock dividends 0.000 0.000 (0.00) (0.00) (0.00) ------------ -------- ---------- ------------- ------------- Net loss attributable to common stockholders: $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08) ============ ======== ========== ============= ============= Loss per common share - Diluted: Net Loss $ (0.015) $ (0.026) $ (0.04) $ (0.05) $ (0.08) Less: Preferred stock dividends 0.000 0.000 (0.00) (0.00) (0.00) ------------ --------- --------- ------------- ------------ Net loss attributable to common stockholders: $ (0.015) $ (0.026) $ (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 - 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) - - 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 - - Net loss - - - - - - - (42,546,303)(42,546,303) ------- ------- ------------- ----------- ---------- ------- ---------- ----------- ----------- Balance at Dec. 31, 2000 - $ - 1,383,704,167 $138,370,417 $6,204,235 $ - $87,035,096 $(223,720,761)$ 7,888,987 ------- ------- ------------- ----------- ---------- -------- ---------- ----------- ----------- Proceeds from stk offering - - 769,410,092 76,941,009 - - (67,702,009) - 9,239,000 Proceeds from sale of Preferred stk.-Series F - - - - - - - - - Conversion of preferred stk.- Series F - - - - - - - - - Conversion of debentures - - 297,516,852 29,751,682 - - (19,096,026) - 10,655,659 Warrants exercised - - - - - - - - - Warrants granted and extended-subsidiaries - - - - - - (1,331) - (1,331) Issuance of convertible debt - - - - - - 2,058,970 - 2,058,970 Common stk. issued for serv. - - - - - - - - - Common stk. issued-subs. - - - - - - - - - Warrants granted - - - - 17,420 - 188,252 - 205,672 Warrants expired - - - - - - - - - Net loss - - - - - - - (25,581,120)(25,581,120) ------- ------- ------------ ----------- ---------- ------- ---------- ----------- ----------- Balance at Sep. 30, 2000 - $ - 2,450,631,111 $245,063,111 $6,221,655 $ - $ 2,482,952 $(249,301,881)$ 4,465,837 ======= ======= ============= =========== ========== ======= ========== =========== =========== The accompanying notes are an integral part of these statements.
F-5 BICO, Inc. and Subsidiaries Consolidated Statements of Cash Flows
For the nine months ended Year ended December 31, Sep. 30, Sep. 30, 2001 2000 2000 1999 1998 ---------- ---------- ------------- ------------- ------------- Cash flows used by operating activities: Net loss $(25,581,120) $(25,611,501) $(42,546,303) $(38,072,578) $(22,402,644) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation 749,526 397,778 689,762 773,696 815,125 Amortization 579,671 279,681 392,307 42,149 891,412 Loss on disposal of assets 18,635 15,874 122,857 177,000 531,066 Loss on unconsolidated subsidiaries 221,407 110,723 158,183 - - Unrelated investors' interest in susidiaries (44,848) 8,523 (280,997) (24,164) (1,385,485) Stock issued in exchange for services - 338,000 338,000 148,484 (22,063) Stock issued in exchange for services by subsidiary - - 225,000 - - Debenture interest converted to stock - 120,547 120,547 211,503 106,894 Premium for extension on debenture - - - - 680,500 Beneficial convertible debt feature 2,063,915 2,462,500 3,062,500 7,228,296 3,799,727 Warrants granted 17,420 322,028 608,655 403,135 - Warrants granted and extended by subsidiaries 188,252 1,598,936 11,184,858 5,897,332 - (Decrease)increase in allowance for losses on accounts receivable - - (20,015) 36,620 12,128 Provision for (recovery of)allownace for related party note (50,828) (90,333) (152,359) 70,253 1,270,307 (Increase) decrease in accounts receivable (872,150) (38,266) (25,148) (7,924) 268,195 (Increase) decrease in inventories (2,329,114) 134,373 101,480 90,052 987,948 Increase (decrease) in inventory valuation allowance 1,558,965 (891,321) (859,283) (25,845) 779,050 (Increase) in prepaid expenses (28,968) (300,945) (651,305) (21,702) (31,495) (Increase) decrease in other assets (133,544) (186) 33,834 (146,408) 36,927 Increase (decrease) in accounts payable 1,467,006 (523,111) (296,657) (949,578) 1,078,124 Increase in other liabilities 446,530 1,270,377 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 (21,729,245) (20,396,323) (26,681,873) (18,411,002) (11,855,294) ------------ ------------ ------------- ------------- ------------- Cash flows from investing activities: Purchase of property, plant and equipment (1,361,626) (2,499,808) (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 (2,385,341) (1,034,500) (1,939,073) (337,928) (31,493) Payments received on notes receivable 256,065 88,524 378,817 141,974 - (Increase) in interest receivable (45,029) (3,084) (32,756) (25,774) (97,929) Acquisition of unconsolidated subsidiaries (1,093,948) (1,725,784) (2,078,520) (525,000) - ------------ ------------- ------------- ------------- ------------- Net cash used by investing activites (4,629,879) (5,174,652) (6,455,166) (1,213,099) (1,270,638) ------------ ------------- ------------- ------------- ------------- Cash flows from financing activities: Proceeds from public offering 10,692,600 17,026,106 18,604,650 900,000 - Proceeds from warrants exercised - 899,420 615,658 86,018 - Proceeds from sale of preferred stock-Series F - 4,275,000 4,275,000 810,000 - Proceeds from debentures payable 8,255,659 9,850,000 12,250,000 33,150,000 10,720,000 Payments on debentures payable - - (5,850,000) (4,130,000) - Redemptions of Stock Subscriptions (1,453,600) - - - - Increase in notes payable 9,866,650 - 855,801 75,396 550,000 Decrease in notes payable (6,452,314) - (53,125) (465,650) (675,393) Increase on long term debt 117,235 - - - - Payments on long term debt (1,084,274) (15,915) - - - Redemptions of debentures - (5,850,000) - - - Additional capital lease obligations - 1,434,066 - - - Payments on capital lease obligations (77,732) (522,457) (543,769) (99,777) (101,997) ------------ ------------ ------------- ------------- ------------- Net cash provided by financing activities 19,864,224 27,096,220 30,154,215 30,325,987 10,492,610 ____________ ____________ _____________ _____________ _____________ Net increase (decrease) in cash (6,494,900) 1,525,245 (2,982,824) 10,701,886 (2,633,322) ------------- ------------ -------------- ------------- ------------ Cash and cash equivalents, beginning of year 7,844,807 10,827,631 10,827,631 125,745 2,759,067 ------------- ------------ ------------- ------------- ------------- Cash and cash equivalents, end of year $ 1,349,907 $ 12,352,876 $ 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)
For the nine months ended Year ended December 31, Sept. 30, Sept. 30, 2001 2000 2000 1999 1998 ----------- ------------ ------------- ------------- ------------- Supplemental Information: Interest paid $ 130,379 $1,026,435 $ 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 $ 112,500 $ - $ - Equipment - - - - 24,050 Building - 1,321,566 1,321,566 - - ----------- ----------- ------------- ----------- ------------ $ - $1,434,066 $ 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 $ 5,580,168 $ - $ - =========== ============ ============ =========== ============ Preferred stock dividend paid in common stock $ - $ 121,825 $ 121,825 $ - $ - =========== ============ ============ ============ ============ Constructive dividend on convertible preferred stock $ - $1,883,333 $ 1,883,333 $ - $ - =========== ============ ============ ============ ============ Conversion of debentures for common stock $10,655,659 $4,000,000 $ 4,000,000 $31,845,000 $ 11,876,780 ============ ============ ============ ============ ============ Conversion of stock subscriptions for common stock $ 9,900,000 $ - $ - $ - $ - ============ ============ ============ ============ ============ 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 100% 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 this investment's value 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 Current 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. $ 22,574 $48,405 $ 553,220 $436,879 $ 575,794 $485,284 Insight Data Link.com 28,409 0 60,000 0 88,409 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 $ 152,329 $48,405 $1,828,348 $436,879 $1,980,677 $485,284 ========= ======== ========= ========= ========== ======== The amounts recognized as amortization of goodwill and income (loss) on unconsolidated subsidiaries for each investment for the years ended December 31, 1999 and 2000 are as follows: Income (Loss) on Unconsolidated Amortization of Unconsolidated Subsidiary Goodwill Subsidiaries 2000 1999 2000 1999 American Inter- Metallics, Inc. $ 118,837 $ 39,716 $ (75,654) $ 0 Insight Data Link.com 15,000 0 3,409 0 MicroIslet, Inc. 152,628 0 (108,133) 0 Diabecore Medical,Inc. 72,049 0 (44,235) 0 _________ _________ __________ _______ Total $358,514 $ 39,716 $(224,613) $ 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 0 (39,222) 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 Building $ 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. 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. NOTE L - STOCKHOLDERS' EQUITY 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 connection with the granting of warrants, the Company recognized $324,897 of general and administrative expense. 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 406,700 226,700 351,482 180,000 1991 1,251,482 900,000 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 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 $5,897,332 ========= ========= =========== ========== ========= ========= 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. Diasensor.com, Inc. Warrants During 1998, Diasensor.com, Inc. extended the exercise date of warrants to purchase 825,000 shares of common stock to certain officers, directors, employees and consultants. The warrant shares were originally granted at an exercise price of $.50 and extended at the same price. No expense was charged to operations since the market price of the stock was less than the present value of the warrant exercise price. 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 2000 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., 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 Biocontrol common stock (fair market value of $250,000), a warrant to purchase 1,000,000 shares of Biocontrol stock for $2 per share anytime through March 4, 2003; and the guarantee by Biocontrol of a promissory note for $1,300,000 payable by ICTI to the seller. The Company recognized $5,310,501 of goodwill in connection with 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 - Unaudited Notes to Financial Statements for September 30, 2001 1. - Related Party Notes Receivable In April 2001, the Company loaned $70,000 to Pascal M. Nardelli, President and Chief Executive Officer of Petrol Rem, Inc. In August 2001, this demand note and accrued interest of $2,110 were paid in full. In May 2001, the Company loaned $110,000 to Anthony J. Delvicario, the president of the Company's unconsolidated subsidiary, American Inter-Metallics, Inc., and a member of Diasense's board of directors. The original demand note was secured by 110,000 shares of American Inter-Metallics, Inc. common stock and bore interest at prime rate plus two percent. In November 2001, the note was converted into a new note for $114,000 to reflect accrued interest, with a due date of December 17, 2001. The new note is secured by an unconditional guaranty by American Inter-Metallics and all of American Inter-Metallics' assets, including all of its equipment. 2. - Notes Receivable - Practical Environmental Solutions, Inc. During the nine months ended September 30, 2001, Petrol Rem, Inc. (a 75% owned subsidiary) loaned an additional $1,169,341 to Practical Environmental Solutions, Inc., a company involved in the acquisition and management of environmental entities. The loan, which has a principal balance of $3,083,704 as of September 30, 2001, bears interest at a rate of 10% per year and is due on demand on or before January 21, 2002. The loan is collateralized by a security interest and lien on all of Practical Environmental'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. The note is classified as a noncurrent asset as of September 30, 2001 because the management of Petrol Rem intends to convert all or part of this note into a controlling equity interest in Practical Environmental Solutions with the balance of the note being converted to a term loan. 3. - Notes Receivable - GAIFAR In June 2001, the Company entered into a marketing agreement with GAIFAR, a German company that owned all the rights to certain rapid HIV tests, and Dr. Heinrich Repke, the man who developed the tests. The marketing rights were assigned to Rapid HIV Detection Corp, of which the Company owns 75% and GAIFAR owns 25%. GAIFAR retained the manufacturing rights for the tests. The agreement, as amended, provided for a due diligence period until October 15, 2001 and approval by the Company's board of directors. In October 2001, the due diligence period was completed and the Company's board provided their unanimous resolution, making the marketing agreement fully effective. The marketing agreement has a minimum ten-year term and calls for total payments of $7,000,000 through the third quarter of 2002. When the marketing agreement became effective in October 2001, $1,000,000 previously loaned to GAIFAR was applied to the $7 million consideration. The original agreement called for a loan of $500,000 to the owner of the rapid HIV tests and technology, but the Company agreed to loan another $125,000 during the second quarter while the due diligence was continuing. During the third quarter, the Company loaned an additional $400,000 while the due diligence was completed. Of these funds loaned to GAIFAR, $1 million was made part of the consideration paid to acquire the exclusive worldwide marketing rights to the rapid HIV tests and technology and is now part of the Company's investment in Rapid HIV Detection Corp. The remaining $6 million in payments are due from October 20, 2001 through August 20, 2002. The payments include $125,000 per month for the three months from October through December 2001, $200,000 in January 2002, $250,000 in February 2002, $500,000 in March 2002, $1 million per month for the four months from April through July of 2002 and a final payment of $675,000 in August 2002. 4.- Investments in Unconsolidated Subsidiaries During the third quarter of 2001, the Company invested an additional $10,000 in Insight Data Link.com, Inc. ("IDL"), an unconsolidated subsidiary interest initially acquired in 2000. With this additional investment, the Company has invested $110,000 in IDL and its ownership percentage is approximately 27%. During the nine months ended September 30, 2001 the Company invested an additional $190,000 in American Inter-Metallics, Inc. ("AIM") an unconsolidated subsidiary interest initially acquired during 1999. With this additional investment, the Company has invested $1,000,000 in AIM and its ownership is approximately 20%. During the nine months ended September 30, 2001, Diasense invested an additional $600,000 in MicroIslet, Inc., an unconsolidated subsidiary interest initially acquired during 2000. With this additional investment, Diasense has invested $1,600,000 in MicroIslet and its ownership is approximately 20.2%. During the nine months ended September 30, 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 $987,468 in Diabecore and owns approximately 24% of this unconsolidated subsidiary. These investments are being reported on the equity basis and differences between the investment and the underlying net assets of the unconsolidated subsidiaries are being amortized as goodwill over a 5-year period. The Company's investment in the underlying assets and the unamortized goodwill of each unconsolidated subsidiary as of September 30, 2001 are as follows: Investment Unconsolidated in Unamortized Total Subsidiary Underlying Goodwill Net Assets American Inter- $313,400 $ 435,122 $ 748,522 Metallics, Inc. Insight Data Link.com 7,603 44,920 52,523 MicroIslet, Inc. 11,335 966,238 977,573 Diabecore Medical, Inc. 172,695 556,552 729,247 -------- ---------- ---------- Total $505,033 $2,002,832 $2,507,865 ======== ========== ========== 5.- Notes Payable During the nine months ended September 30, 2001, the Company issued promissory notes totaling $9,825,000. As of September 30, 2001, promissory notes totaling $6,450,000 had been repaid with proceeds from the sale of common stock subscriptions. The outstanding notes payable of $3,375,000 at September 30, 2001 bear interest at a rate of 10% per year and are payable on various dates in January 2002. Also during this nine-month period, the Company obtained a $50,000 line of credit with PNC Bank. As of September 30, 2001, $39,336 was outstanding under this line of credit. The outstanding balance bears interest at a rate of 6.75% per year. 6. - Subordinated Convertible Debentures At December 31, 2000, the Company had subordinated 4% convertible debentures outstanding totaling $2,400,000. During the first quarter of 2001 the Company issued additional 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. During the nine months ended September 30, 2001, all of these debentures totaling $10,655,659 were converted into 297,516,846 shares of common stock. 7. - Stockholders Equity During the third quarter of 2001, the Company raised $11,164,000 through the sales of common stock subscriptions. As of September 30, 2001, 769,410,099 shares of common stock had been issued to satisfy $9,900,000 of these subscriptions. In addition, subscriptions totaling $1,264,000 were repurchased by the Company for the original subscription amount plus a premium of $189,600. 8 - Legal Proceedings and Contingencies As of September 30, 2001, $2,150,000 has been paid toward the settlement of a class action law suit (See Note O). During the third quarter of 2001, the parties agreed to extend the payments on the remaining balance. An additional $1,525,000 is included in accrued liabilities, including $225,000 for extending the due dates, and is due in the fourth quarter of 2001. 9. - Impact of Recently Issued Accounting Standards. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, "Business Combinations." SFAS 141 supersedes APB Opinion No. 16 and FASB Statement No. 38 and requires that all business combinations be accounted for using the purchase method. The provisions of this statement apply to all business combinations initiated after June 30, 2001. The Company is in the process of assessing the impact of this pronouncement on its financial statements. Also in June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." SFAS 142 supersedes APB Opinion No. 17 and addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under this provision, goodwill and certain intangible assets will no longer be amortized. These assets will be evaluated on a periodic basis to determine if an impairment loss needs to be recorded. The provisions of this statement will be effective for the Company's fiscal year ending December 31, 2002. The Company is in the process of assessing the impact of this pronouncement on its financial statements. 10.- Reclassification Certain items included in the financial statements of prior periods have been reclassified to conform to classifications in the 2001 financial statements. Such reclassifications had no effect on prior period reported net losses. NOTE S - Subsequent Events During the 4th quarter of 2001 and to date, we have continued to have significant cash flow problems. Although we authorized an additional 1.5 million shares of common stock in November 2001, we have only raised $6.64 million through February 21, 2002. As a result, our payroll and our accounts payable are seriously past due. Accounts payable as of February 21, 2002 were approximately $4,500,000. In addition, we borrowed over $700,000 from INTCO, our Louisiana oil- spill clean-up company and the minority owner of INTCO, and we secured that loan with our 51% ownership in INTCO. If we are unable to repay that loan when it's due in March and April 2002, we may lose our ownership interest in INTCO. We also have other serious obligations that are past due. We still owe $425,000 in connection with our class action settlement. Although we are working with the class action counsel to make payments on the amount due, we can't assure you how long they will continue to work with us. They could obtain an order from the judge demanding that we pay the balance, and if we can't, they could enter a judgment against us. We have not been able to make payments when due under our Rapid HIV Marketing Agreement. So far, the other parties to that agreement have not given us notice that we are in default. If they do, we will have 60 days to make the required payments, or we will lose our marketing rights. We filed a form S-8 in December 2001 that included 125 million shares. The Form S-8 allows us to issue freely tradable stock to non- executive employees under our Equity Compensation plan and to certain consultants in lieu of paying them in cash. As of February 21, 2002, we've issued approximately 81.2 million shares of our common stock from the Form S-8. In February 2002, we accepted a commitment from J.P. Carey Asset Management to purchase $25 million of our Series K preferred stock. The commitment requires that we first have an effective registration statement covering the underlying shares of common stock before we will receive funding from that commitment. We are working to obtain bridge financing in the form of loans to help us meet our cash flow needs until this registration statement is declared effective and we begin receiving funding from J.P. Carey Asset Management. Now that we've received the funding commitment, we believe we can obtain bridge financing in the form of loans to help us bring our payroll and accounts payable more current, and to make the class action, loan and contract payments we need to make to avoid losing our INTCO stock and our Rapid HIV marketing rights. However, we can't assure you if that will happen, or if it will happen soon enough to avoid lawsuits against us. Notes payable of $3,375,000 were repaid during the 4th quarter with proceeds from our sales of convertible preferred stock. As of September 30, 2001, the Company' current portion of long-term debt included $4,091,667 due in connection with debt incurred when ICTI was purchased. In addition, $1,358,681 was accrued for interest related to the ICTI debt. In the fourth quarter, the Company finalized an agreement to make payments of $725,000, issue 4,000 shares of convertible preferred stock valued at $2,000,000, issue 50,000 shares of the common stock of the Company's subsidiary, ViaCirq, valued at $150,000 and issue 25,000 shares of the common stock of the Company's subsidiary, Petrol Rem, valued at $12,500 as settlement for the amounts due. As a result of this agreement, the Company recognized $2,562,848 in debt forgiveness in the fourth quarter. From October 2001 through January 2002, we raised funds aggregating approximately $6.64 million by selling our convertible preferred stock. Generally, the preferred stock is not secured by any assets and can be converted into common stock at prices ranging from 76-90% of our stock's average closing bid prices. There is no minimum conversion price. 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 1.25 billion shares jurisdiction in which such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. __________________________ BICO, INC. TABLE OF CONTENTS Page Common Stock Summary 3 Risk Factors 5 Where You Can Find More Information 14 Prospectus Delivery ____________________ Requirements 14 Use of Proceeds 14 P R O S P E C T U S Dividend Policy 15 ____________________ Capitalization 15 Market Price for Common Stock 16 February 21, 2002 Description of Securities 17 Selling Stockholders 20 Plan of Distribution 22 Stock Eligible for Future Sale 23 Management's Discussion and Analysis 24 Business 35 Legal Proceedings 56 Directors and Executive Officers 57 Executive Compensation 61 Security Ownership 67 Interests of Named Experts and Counsel 69 Experts 69 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 2,300 Accounting Fees 5,000 ------- Total $34,800 ======= 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., ViaCirq, Inc. and Rapid HIV Detection Corp. 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. 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. In November 2001 through February 2002, BICO sold shares of its convertible preferred stock; the shares of common stock underlying that convertible preferred are being registered in connection with this registration statement on Form S-1. The sales, raised an aggregate of $8.64 million for BICO that were used to continue to fund BICO's projects and investments and to provide working capital, including salaries and other administrative expenses. 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(10) Amendment to Articles filed May 17, 2001 N/A 3.14 Amendment to Articles filed November 30, 2001 116 3.15 Certificate of Designation of Series G Preferred Stock....................................... 119 3.16 Certificate of Designation of Series H Preferred Stock........................................ 126 3.17 Certificate of Designation of Series I Preferred Stock......................................... 133 3.18 Certificate of Designation of Series J Preferred Stock......................................... 140 3.19 Certificate of Designation of Series K Preferred Stock......................................... 147 5.1 Legal Opinion of Sweeney & Associates P.C..... 154 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) Marketing Agreement by and between BICO, Rapid HIV Detection Corp., GAIFAR and Dr. Heinrich Repke.............................. N/A 10.15 (11) Contract between Biocontrol Technology and U.S. Army Assistance........................ N/A 10.16 Securities Purchase Agreement dated February 15, 2002........................... 156 10.17 Registration Rights Agreement dated February 15, 2002........................... 171 10.18 Escrow Agreement dated February 15, 2002 182 16.1(7) Disclosure and Letter Regarding Change in Certifying Accountants dated 1/25/95 N/A 24.1 Consents of Goff Backa Alfera & Company LLC, Independent Certified Public Accountants 187 24.2 Consent of Counsel Included in Exhibit 5.1 above.................................... 154 25.1 Power of Attorney of Fred E. Cooper.......... 115 (included under "Signatures") (1) Incorporated by reference from Exhibit with this title filed with the Company'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 S-1 filed July 9, 2001 (11) Incorporated by reference from Exhibit with this title to Form 8-K/A filed October 15, 2001 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 February 21, 2002.0 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 senior vice president, February 21, 2002 Anthony J. Feola director /s/ Michael P. Thompson Principal Accounting Officer, February 21, 2002 Michael P. Thompson Principal Financial Officer /s/Glenn Keeling director February 21, 2002 Glenn Keeling /s/Stan Cottrell director February 21, 2002 Stan Cottrell /s/Paul W. Stagg director February 21, 2002 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 February 21, 2002 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 February 21, 2002, 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 4,000,000,000 shares of common stock of which 2,450,631,119 shares of common stock were outstanding as of December 31, 2001; (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, 2001accompanying 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 February 21, 2002 EX-1 3 seriesks.txt Exhibit 10.16 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of February 15, 2002, by and among BICO, Inc, a Pennsylvania corporation, with headquarters located at 2275 Swallow Hill Road, Bldg. 2500, Pittsburgh, Pennsylvania 15220 (the "Company"), and J.P. Carey Asset Management, a Georgia corporation, with headquarters located at 3343 Peachtree Road, Suite 500; Atlanta, Georgia 30326 ("Buyer"). WHEREAS: A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration pursuant to Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended (the "1933 Act"), B. The Company has offered to sell to the Buyer 4% Series K Convertible Preferred Stock (the "Preferred Stock") of the Company. The terms of the Preferred Stock, including the terms on which the Preferred Stock may be converted into the common stock of the Company, $0.10 par value, are set forth in the Certificate of Designation of Series K Preferred Stock, in substantially the form attached as Exhibit "A" hereto. C. The Buyer has agreed to purchase, upon the terms and conditions stated in this Agreement, an aggregate principal amount of $25,000,000 of Preferred Stock; D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit "B" (the "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws, and an Escrow Agreement substantially in the form attached hereto as Exhibit "C" (the "Escrow Agreement"); NOW THEREFORE, the Company and the Buyer hereby agree as follows: 1 . PURCHASE AND SALE OF PREFERRED STOCK. a. Purchase of Preferred Stock. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to the Buyer and the Buyer shall purchase from the Company an aggregate principal amount of Preferred Stock set forth above (the "Closing"). b. Closing Dates. The date and time of the Closings (the "Closing Date") shall be 10:00 a.m. Eastern Standard Time, beginning one (1) business day following the date that the Registration Statement on Form S-1 to be filed by the Company in February 2002 is declared effective by the U.S. Securities and Exchange Commission, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyer in writing). Each Closing Date shall occur as follows: (i) Following the initial Closing Date, the Company will provide notice to the Buyer, from time to time, of its request for funds (the "Company's Notice") which shall be a sum not greater than: the amount set forth in this Section 1, paragraph 1(b)(ii), set forth below, or three million dollars ($3,000,000); (ii) Upon receipt of the Company's Notice, the Buyer shall purchase an amount of Preferred Stock to be determined as follows: six (6) times the average of the "Daily Trading Values" during the twenty-two (22) trading days prior to the Company's Notice. The Daily Trading Value shall mean the closing bid price multiplied by the day's trading volume of the Common Stock. In the event that the average of the Daily Trading Values is less than $50,000 for any ten (10) day period, then the Buyer shall not be obligated to purchase pursuant to the Company's Notice. c. Form of Payment. On each Closing Date, (i) the Escrow Agent shall pay the Purchase Price to the Company for the Preferred Stock to be issued and sold to such Buyer at such Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, and (ii) the Escrow Agent shall deliver to each Buyer, certificates representing such Preferred Stock which such Buyer is then purchasing, duly executed on behalf of the Company and registered in the name of such Buyer or its designee (the "Certificates"), as further set forth in the Escrow Agreement. 2. BUYER'S REPRESENTATIONS AND WARRANTEES. Each Buyer represents and warrants: a. Investment Purpose. Such Buyer (i) is acquiring the Preferred Stock and, (ii) upon conversion of the Preferred Stock will acquire the Conversion Shares then issuable, for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any Preferred Stock or Conversion Shares for any minimum or other specific term and reserves the right to dispose of Preferred Stock or Conversion Shares at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Neither the Buyer nor any of its affiliates have or will, directly or indirectly, maintain any short position in any securities of the Company or its affiliates until the later of: the date that all of the Conversion Shares have been distributed; or 150 days from the date of this Agreement. Prior to the end of such time period, neither the Buyer nor its affiliates shall, directly or indirectly, engage in any other hedging transaction in connection with the securities of the Company or its affiliates, including but not limited to options, swaps, or other derivative transactions. b. Accredited Investor/Tax Status. Such Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC"). Such Buyer is not subject to U.S. withholding tax or other similar state tax. c. Reliance on Exemptions. Such Buyer understands that the Preferred Stock and Conversion Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties,agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such securities. That at the time of this offer and sale of the Securities, the Buyer was not aware of and did not participate in any transaction in contravention of the U.S. securities laws, and that it is not and will not be part of any plan or scheme to evade the Securities Act or its registration provisions. d. Information. The Buyer and its advisors, if any, have been furnished with all appropriate materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Preferred Stock and Conversion Shares, which have been requested by such Buyer. The Buyer specifically acknowledges receiving and reviewing the Company's SEC Documents (as defined herein) including but not limited to its Form 10-K for the year ended December 31, 2000; Form 10-Qs for the quarters ended March 31, June 30, and September 30, 2001; its Form 8- Ks filed since December 31, 2000, and its November 2001 Proxy Statement. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. Such Buyer understands that its investment in the Preferred Stock and the Conversion Shares involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Preferred Stock and the Conversion Shares. e. No Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Preferred Stock, the Conversion Shares, or the fairness or suitability of the investment in the Preferred Stock and the Conversion Shares, nor have such authorities passed upon or endorsed the merits of the offering of the Preferred Stock, and the Conversion Shares. f. Transfer or Resale. Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Preferred Stock and the Conversion Shares have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless such sale, assignment, or transfer is approved (unless to an affiliate or successor entity) by the Company and (a) subsequently registered thereunder, (b) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (c) such Buyer provides the Company with reasonable assurance that such securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule thereto); (ii) any sale of such securities made in reliance on Rule 144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. g. Legends. Such Buyer understands that the certificates or other instruments representing the Preferred Stock, until such time as the sale of the Conversion Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Conversion Shares shall bear a restrictive legend in substantially the following form (and a stop transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Preferred Stock and the Conversion Shares, upon which it is stamped, if, unless otherwise required by state securities laws, (i) the sale of the Conversion Shares is registered under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, reasonably satisfactory to the Company, to the effect that a public sale, assignment or transfer of the Preferred Stock and the Conversion Shares may be made without registration under the 1933 Act, or (iii) such holder provides the Company with reasonable assurances that the Preferred Stock or the Conversion Shares can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. h. Authorization, Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable in accordance with its terms, subject as enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency and Affiliations. The Buyer represents that it is a resident of that state and country specified in its address set forth herein, that it is not an affiliate of the Company as defined in the U.S. Securities Act of 1933 (the "Securities Act"), and that following the purchase of the Securities, and the conversion of same, neither the Buyer nor any of its affiliates will be affiliates of the Company. j. Review and Compliance. The Buyer covenants that it has reviewed this transaction with its legal counsel and advisors, and covenants that such purchase is in compliance with its national and local securities laws or regulations, and agrees to advise the Company if such laws or regulations require the Company to place any legends or restrictions on the certificates representing the Securities. Such Buyer undertakes to take all steps necessary to ensure that any purchase, offer or sale of the Securities will comply with the laws and regulations of all necessary state, federal or foreign regulatory or self-regulatory authorities. 3 . REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Buyer that: a. Organization and Qualification. The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. b. Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement and any related agreements, and to issue the Preferred Stock, the Conversion Shares, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement, the Escrow Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Preferred Stock and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion or exercise thereof, have been duly authorized by the Company's Board of Directors and, no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement, the Escrow Agreement and any related agreements have been duly executed and delivered by the Company, and (iv) this Agreement, the Registration Rights Agreement, the Escrow Agreement, and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. c. Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 4,000,000,000 shares of Common Stock, par value $0.10 per share, and 500,000 shares of Preferred Stock, par value $0.10 per share. All of such outstanding shares have been validly issued and are fully paid and nonassessable. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Preferred Stock or the Conversion Shares as described in this Agreement. Upon request of the Buyer, the Company has furnished to the Buyer true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. d. Issuance of Securities. The Preferred Stock is duly authorized and, upon issuance in accordance with the terms hereof, shall be (i) validly issued, fully paid and nonassessable, are free from all taxes, liens and charges with respect to the issue thereof and are entitled to the rights and preferences set forth in the Certificate of Designation of Preferred Stock. The Conversion Shares issuable upon conversion of the Preferred Stock shall be duly authorized and reserved for issuance. Upon conversion or exercise in accordance with the Preferred Stock, the Conversion Shares will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. e. No Conflicts. Except as disclosed in the SEC Documents, the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation or By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the principal market or exchange on which the Common Stock is traded or listed) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Neither the Company nor its subsidiaries is in violation of any term of or in default under its Certificate of Incorporation or Bylaws or their organizational charter or by-laws, respectively. The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any law, ordinance, regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, to the best of the Company=s knowledge, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement and the Registration Rights Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. f. SEC Documents. Since January 1, 2001, the Company had filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and being hereinafter referred to as the "SEC Documents"). g. Absence of Certain Changes. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or its subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. h. No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Preferred Stock or the Conversion Shares. i. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. j. Environmental Laws. To the best of the Company=s knowledge, the Company and its subsidiaries are (i) in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval. k. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole. l. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. m. Tax Status. The Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. n. Dilutive Effect. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Preferred Stock will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Stock in accordance with this Agreement and the Preferred Stock, in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. o. Fees and Rights of First Refusal. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents, or other third parties. 4. COVENANTS. a. Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. b. Reporting Status. Until the earlier of (i) the date as of which the Investors (as that term is defined in the Registration Rights Agreement) may sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date on which (A) the Investors shall have sold all the Conversion Shares and (B) none of the Preferred Stock are outstanding (the "Registration Period"), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. c. Use of Proceeds. The Company will use the proceeds from the sale of the Preferred Stock for working capital and research and development. The Buyer acknowledges reviewing the Company's SEC Documents, including but not limited to its November 2001 Proxy materials, for more detailed information regarding the way the Company uses its funds, as well as its plans for future funds. d. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 100% of the number of shares of Common Stock needed to provide for the issuance of the Conversion Shares, which could be issued at any time. In the event that the Company does not have a sufficient number of shares available to provide for the issuance of the Conversion Shares, it will take the appropriate steps necessary to obtain the approval of its shareholders to authorize a sufficient number of additional shares. e. Expenses. Each of the Company and the Buyer shall pay all costs and expenses incurred by such party in connection with the negotiation, investigation, preparation, execution and delivery of this Agreement and the Registration Rights Agreement. 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Buyer, for the Conversion Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of the Preferred Stock (the "Irrevocable Transfer Agent Instructions"). Prior to registration of the Conversion Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified herein. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2 herein (in the case of the Conversion Shares, prior to registration of such shares under the 1933 Act) will be given by the Company to its transfer agent and that the Preferred Stock and the Conversion Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement or the Registration Rights Agreement. Nothing in this Section 5 shall affect in any way the Buyer's obligations and agreement to comply with all applicable securities laws upon resale of the Preferred Stock or the Conversion Shares. If the Buyer provides the Company with an opinion of counsel, reasonably satisfactory in form, and substance to the Company, that registration of a resale by the Buyer of any of the Preferred Stock or the Conversion Shares is not required under the 1933 Act, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Preferred Stock to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. The Buyer shall have executed this Agreement, the Registration Rights Agreement, and the Escrow Agreement and delivered the same to the Company. b. The Buyer shall have delivered to the Escrow Agent the Purchase Price for the Preferred Stock being purchased by the Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date. 7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The obligation of the Buyer hereunder to purchase the Preferred Stock at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer's sole benefit and may be waived by the Buyer at any time in its sole discretion: a. The Company shall have executed this Agreement, the Registration Rights Agreement, and the Escrow Agreement and delivered the same to the Buyer. b. The representations and warranties of the Company shall be true and correct in all material respects (except to the extent that any of such representations and warranties is already qualified as to materiality in Section 3 above, in which case, such representations and warranties shall be true and correct without further qualification) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. c. The Company shall have executed and delivered to the Buyer the Certificates (in such denominations as the Buyer shall request) for the Preferred Stock being purchased by the Buyer at the Closing. 8. INDEMNIFICATION. In consideration of the Buyer's execution and delivery of this Agreement and acquiring the Preferred Stock and the Conversion Shares, hereunder and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Buyer and each other holder of the Preferred Stock, the Conversion Shares, and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Preferred Stock or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, the Preferred Stock, the Registration Rights Agreement, or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Indemnitee by any third party and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Indemnities, any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Preferred Stock or the status of the Buyer or holder of the Preferred Stock, the Conversion Shares, as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. 9. GOVERNING LAW: MISCELLANEOUS. a. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Pennsylvania without regard to the principles of conflict of laws. The parties expressly consent to the jurisdiction and venue of the Common Pleas Court of Allegheny County, Pennsylvania, and the United States District Court for the Western District of Pennsylvania for the adjudication of any civil action asserted pursuant to this Paragraph. b. Acknowledgment Regarding Buyer=s Purchase of Preferred Stock. The parties acknowledge and agree that the Buyer is acting solely in the capacity of an arm's length purchaser with respect to this Agreement and the transactions contemplated hereby. The parties further acknowledge that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by the Buyer or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to such Buyer's purchase of the Preferred Stock or the Conversion Shares. The parties further acknowledge Buyer that the Company=s decision to enter into this Agreement has been based solely on the independent evaluation by the Company and its representatives. c. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. Signatures delivered by facsimile transmission shall be deemed to have the same force as an original signature. d. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. e. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. f. Entire Agreement, Amendments. This Agreement supersedes all other prior oral or written agreements between the Buyer, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. g. Notices. Any notices consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (I) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: BICO, Inc. Building 2500, 2nd Floor 2275 Swallow Hill Road Pittsburgh, Pennsylvania 15220 Attn: Michael P. Thompson, CFO Telephone: (412) 429-0673 Facsimile: (412) 279-9694 If to the Buyer: J.P. Carey Asset Management Atlanta Financial Center, East Tower 3343 Peachtree Road, Suite 500 Atlanta, Georgia 30326 Attn: James Canouse Telephone: (404) 816-5339 Facsimile: (404) 816-6268 If to the Transfer Agent: Mellon Investor Services 44 Wall Street, 6th Floor New York, New York 10005 Attn: Yvonne Benn Telephone: (917) 320-6244 Facsimile: (917) 320-6318 Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number. h. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. i. No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. j. Survival. Unless this Agreement is terminated under Section 9(m), the representations and warranties of the Company and the Buyer contained in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9, the indemnification provisions set forth in Section 8, shall survive the Closing. The Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. k. Publicity. The Company shall have the right to approve before issuance any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or other public disclosure with respect to such transactions as is required by applicable law and regulations. l. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. m. Termination. In the event that the Closing shall not have occurred with respect to the Buyer on or before the Closing Date due to the Company's or the Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party. Prior to the Closing Date, the Company may terminate this Securities Purchase Agreement and its related obligations pursuant to the Registration Rights Agreement, the Escrow Agreement and any related agreements upon thirty (30) days written notice to the Buyer. o. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. ACOMPANY@ BICO, INC. By: /s/ Fred E. Cooper Name: Fred E. Cooper Title: CEO "BUYER" J.P. CAREY ASSET MANAGEMENT By:/s/ Joseph C. Canouse Name: Joseph C. Canouse EX-2 4 serieskr.txt Exhibit 10.17 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 15, 2002, by and among BICO, Inc., a Pennsylvania corporation, with headquarters at 2275 Swallow Hill Road, Building 2500, Pennsylvania 15220 (the "Company"), and J.P. Carey Asset Management, a Georgia Corporation, with headquarters at 3343 Peachtree Road, Suite 500, Atlanta, Georgia 30326 (the "Buyer"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties of even date herewith (the "Purchase Agreement"), the Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, (i) to issue and sell to the Buyer=s shares of the Company's 4% Series K Convertible Preferred Stock (the "Preferred Stock"), which will be convertible into shares of the Company's common stock, $0.10 par value per share (the "Common Stock") (as converted, the "Conversion Shares") in accordance with the terms of the Preferred Stock; and B. To induce the Buyer to execute and deliver the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 Act"), and applicable state securities laws: NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyer hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: a. "Investor" means the Buyer and any transferee or assignee thereof to whom the Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement. b. "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. c. "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933 Act and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). d. "Registrable Securities" means the Conversion Shares issued or issuable upon conversion of the Preferred Stock and any shares of capital stock issued or issuable with respect to the Conversion Shares or the Preferred Stock as a result of any stock split, stock dividend, recapitalization, exchange, or similar event. e."Registration Statement" means a registration statement of the Company filed under the 1933 Act. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set for the in the Securities Purchase Agreement. 2. REGISTRATION. The Company shall prepare, and, on or prior to twenty (20) days after the execution of the Purchase Agreement, file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-1 (the "Registration Filing Deadline"). 3 . RELATED OBLIGATIONS. Whenever an Investor has requested that any Registrable Securities be registered pursuant to Section 2 or at such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2, the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: a. The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities no later than the Registration Filing Deadline and use its best efforts to cause such Registration Statement(s) relating to Registrable Securities to become effective as soon as possible after such filing, and keep the Registration Statement(s) effective at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on which (A) the Investors shall have sold all the Registrable Securities and (B) none of the Preferred Stock is outstanding (the "Registration Period"). b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement(s) and the prospectus(es) used in connection with the Registration Statement(s), which prospectus(es) are to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep the Registration Statement(s) effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement(s) until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement(s). In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient in the reasonable opinion of a majority of the Buyers to cover all of the Registrable Securities, the Company shall promptly amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover all of the Registrable Securities, in each case, as soon as practicable, but in any event within ninety (90) days after the necessity therefor arises (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issued or issuable upon conversion of the Preferred Stock is greater than the quotient determined by dividing the number of shares of Common Stock available for resale under such Registration Statement by one. For purposes of the calculation set forth in the foregoing sentence, any restrictions on the convertibility of the Preferred Stock shall be disregarded and such calculation shall assume that the Preferred Stock are then convertible into shares of Common Stock at the then prevailing Conversion Rate (as defined in the Preferred Stock). c. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction (acknowledging that, to date, no such registrations have been made) and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold (and, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. d. Other than the name of the Investor, and its affiliates, if they are also investors, to be included in the Registration Statement, the Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, or in response to an SEC comment (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. e. The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, any managing underwriter or underwriters, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or, if there is no managing underwriter or underwriters, the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request. Not later than the date on which any Registration Statement registering the resale of Registrable Securities is declared effective, the Company shall deliver to its transfer agent instructions, accompanied by any reasonably required opinion of counsel, that permit sales of unlegended securities in a timely fashion that complies with then mandated securities settlement procedures for regular way market transactions. f. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. g. The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of such Registration Statement. h. If requested by the managing underwriters (if any) or an Investor, the Company shall immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the Investors agree should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post- effective amendment; and supplement or make amendments to any Registration Statement if requested by a shareholder or any underwriter of such Registrable Securities. i. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. 4. OBLIGATIONS OF THE INVESTORS. a. Each Investor by such Investor's acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement(s) hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. b. Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3, such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement(s) covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3 and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. c. No Investor may participate in any underwritten registration hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements approved by the Investors entitled hereunder to approve such arrangements, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be borne by the Company. The fees and disbursements of counsel for the Investors shall be borne by each Investor. 6. INDEMNIFICATION In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor who holds such Registrable Securities, the directors, officers, partners, employees, agents and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 Act"), and any underwriter (as defined in the 1933 Act) for the Investors, and the directors and officers of, and each Person, if any, who controls, any such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "Claims") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(d) with respect to the number of legal counsel, the Company shall reimburse the Investors and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3; (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or mission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company (i) and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. c. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in any distribution, to the same extent as provided above, with respect to information such persons so furnished in writing expressly for inclusion in the Registration Statement. d. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Company shall pay reasonable fees for only one separate legal counsel for the Investors, and such legal counsel shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person, which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. e. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. f. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6; (ii) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (iii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the investors to sell such securities pursuant to Rule 144 without registration. 9. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who hold two-thirds of the Registrable Securities. Any amendment or waiver affected in accordance with this Section shall be binding upon each Investor and the Company. 10. MISCELLANEOUS. a. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (d) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company:BICO, Inc. Building 2500, 2nd Floor 2275 Swallow Hill Road Pittsburgh, Pennsylvania 15220 Att: Michael P. Thompson, CFO Facsimile: (412) 279-9694 If to the Buyer: J.P. Carey Asset Management Atlanta Financial Center, East Tower 3343 Peachtree Road, Suite 500 Atlanta, Georgia 30326 Att: James Canouse Facsimile: (404) 816-6268 Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Pennsylvania without regard to the principles of conflict of laws. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. This Agreement, the Securities Purchase Agreement and the Escrow Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement and the Escrow Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of this Agreement shall inure to the benefit and of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in two or more identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. Signatures received via facsimile shall have the same force as an original signature. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: BUYER: BICO, INC. J.P. CAREY ASSET MANAGEMENT By: /s/ Fred E. Cooper By: /s/ Joseph C. Canouse Name: Fred E. Cooper Name: Joseph C. Canouse EX-3 5 serieske.txt Exhibit 10.18 ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of February 15, 2002 ("Escrow Agreement") is by and between J.P. Carey Asset Management a Georgia corporation ("Depositor"), BICO, Inc., a Pennsylvania corporation ("BICO"), and Houston Harbaugh, P.C., a Pennsylvania Professional Corporation as Escrow Agent hereunder ("Escrow Agent"). WHEREAS, Depositor and BICO have entered into an Agreement (as amended, the "Underlying Agreement"), dated as of February 15, 2002, pursuant to which Depositor is purchasing BICO Series J Series K convertible preferred stock (the "Shares"); and WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the purchase price for the Shares from Depositor, and the Shares from BICO deposited with it in accordance with the terms of this Escrow Agreement; and WHEREAS, in order to establish the escrow account and to effect the provisions of the Underlying Agreement, the parties hereto have entered into this Escrow Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows: 1. Definitions: The following terms shall have the following meanings used herein: "Written Direction" shall mean a written direction executed by the Depositor or BICO and directing Escrow Agent to disburse all or a portion of the funds or the Shares or take or refrain from taking any action pursuant to this Escrow Agreement. Copies of all written directions shall be immediately forwarded via telefax to all parties to this Escrow Agreement. 2. Appointment of and Acceptance by Escrow Agent. Depositor and BICO hereby appoint Escrow Agent to serve as escrow agent hereunder. Escrow Agent hereby accepts such appointment and upon receipt by transfer of the funds from Depositor and the Shares from BICO, agrees to hold and disburse the funds and the Shares in accordance with this Escrow Agreement. 3. Creation of Escrow and Deposit of Funds and Shares. (i) Depositor will cause to be transferred to the following account the funds for payment of the BICO Shares: PNC Bank, Steel Plaza, Pittsburgh, Pennsylvania Account Holder: Houston Harbaugh, P.C. ABA # 8888888 ACCT. # 88888888888 for Escrow Account Notify: Thomas J. Miller (412) 288-1847 (ii) Depositor shall notify the Escrow Agent when Depositor has authorized the wire of the funds to the Escrow Agent's escrow account as set forth in paragraph (i) above. (iii) BICO will cause to be transferred to the possession of the Escrow Agent the Shares to be purchased by Depositor. (iv) The Escrow Agent shall hold both the funds from Depositor and the Shares from BICO until the date on which the Escrow Agent receives Written Direction to disburse the funds and the Shares, as described in paragraph 4 hereof. Such Written Direction will be provided to the Escrow Agent by BICO and the Depositor at any time beginning on the date that BICO's Registration Statement on Form S-1 (to be filed in February 2002) is declared effective by the U.S. Securities and Exchange Commission. Such Registration Statement shall include shares of common stock into which the Shares may be converted. The Escrow Agent shall notify BICO immediately via fax when it has received Written Direction from both parties. 4. Disbursement of Funds and Shares. (i) Written Direction. Escrow Agent shall disburse or transfer the funds, at any time and from time to time, in accordance with a Written Direction from the Depositor. Escrow Agent shall distribute the Shares, at any time and from time to time, in accordance with a Written Direction from BICO. In the event that separate Written Directions to disburse funds and distribute Shares are not received by the Escrow Agent within a period of two (2) consecutive business days, the Escrow Agent may request additional Written Directions from both Depositor and BICO, in order to facilitate simultaneous distributions of funds and Shares. (ii) Depositor's Option to Convert Immediately. At Depositor's Option, its Written Direction may include a Notice of Conversion as set forth in the Certificate of Designation of Series K Preferred Stock. In that event, the Escrow Agent shall distribute the Shares directly to BICO for conversion; BICO shall honor such Notice of Conversion and shall notify its transfer agent to distribute the applicable number of shares of common stock to Depositor's brokerage account via DTC within one business day. (iii) Expiration of Escrow Period. Upon the expiration of the Escrow Period, Escrow Agent shall distribute, as promptly as practicable, the funds to Depositor, and the Shares to BICO, except to the extent the funds and Shares are directed to be distributed otherwise pursuant to a Written Direction, without any further instruction or direction from the Depositor or BICO. 5. Resignation and Removal of Escrow Agent. Escrow Agent may resign from the performance of its duties hereunder at any time giving ten (10) days, prior written notice to the Depositor and BICO or may be removed, with or without cause, by BICO acting by furnishing a Written Direction to Escrow Agent, at any time by the giving of ten (10) days' prior written notice to Escrow Agent, with a copy of such notice to Depositor. Such resignation or removal shall take effect upon the appointment of a successor Escrow Agent as provided herein below. Upon any such notice of resignation or removal, the Depositor and BICO jointly shall appoint a successor Escrow Agent hereunder. Upon acceptance in writing of any appointment as Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from its duties and obligations under this Escrow Agreement, but shall not be discharged from any liability for actions taken as Escrow Agent hereunder prior to such succession. After any retiring Escrow Agent's resignation or removal, the provisions of this Escrow Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Escrow Agent under this Escrow Agreement. 6. Liability of Escrow Agent. Escrow Agent shall have no liability or obligation with respect to the escrowed funds or Shares except for Escrow Agent's willful misconduct or gross negligence. Escrow Agent's sole responsibility shall be for the safekeeping and disbursement of the funds and the Shares in accordance with the terms of this Escrow Agreement. Escrow Agent shall have no implied duties or obligations and shall not be charged with knowledge or notice of any fact or circumstance not specifically set forth herein. Escrow Agent may rely upon any instrument, not only as to its due execution, validity and effectiveness, but also as to the truth and accuracy of any in formation contained therein, which Escrow Agent shall in good faith believe to be genuine, to have been signed or presented by the person or parties purporting to sign the same and to conform to the provisions of this Escrow Agreement. In no event shall Escrow Agent be liable for incidental, indirect, special, consequential or punitive damages. Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with this Escrow Agreement, the Underlying Agreement, the funds or Shares or to appear in, prosecute or defend any such legal action or proceeding. Escrow Agent may consult legal counsel selected by it in the event of any other agreement or of its duties hereunder, and shall incur no liability and shall be fully protected from any liability whatsoever in acting in accordance with the opinion or instruction of such counsel. Depositor and BICO shall promptly pay, upon demand, the reasonable fees and expenses of any such counsel. 7. Fees and Expenses of Escrow Agent. BICO shall compensate Escrow Agent for its services hereunder in accordance the Escrow Agent's standard fees and, in addition, shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses, including telephone and facsimile transmission costs, telex, postage (including express mail and overnight delivery charges), copying charges and the like. The obligations of BICO under this Section shall survive any termination of this Escrow Agreement and the resignation or removal of Escrow Agent. 8. Consent to Jurisdiction and Venue. In the event that any party hereto commences a lawsuit or other relating to or arising from this Agreement, the parties hereto agree that the United States District Court for the Western District of Pennsylvania shall have the sole and exclusive jurisdiction over any such proceeding. If all such courts lack federal subject matter jurisdiction, the parties agree that the Allegheny County, Pennsylvania Court of Common Pleas shall have sole and exclusive jurisdiction. Any of these courts shall be the proper venue for any such lawsuit or judicial proceeding and the parties hereto waive any objection to such venue. The parties hereto consent to and agree to submit to the jurisdiction of any courts specified herein and agree to accept services or process to vest personal jurisdiction over them in any of these courts. 9. Notice. All notices and other communications hereunder shall be in writing and shall be deemed to have been validly served, given or delivered five (5) days after deposit in the United States mails, by certified mail with return receipt requested and postage prepaid, when delivered personally, one (1) day after delivery to any overnight courier, or when transmitted by facsimile transmission facilities, and addressed to the party to be notified as follows: If to Depositor: James Canouse J.P. Carey Asset Management Atlanta Financial Center, East Tower 3343 Peachtree Road, Suite 500 Atlanta, GA 30326 FAX: (404) 816-6268 If to BICO: Michael P. Thompson, CFO BICO, Inc. 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 FAX: (412) 279-9694 If to the Escrow Agent: Houston Harbaugh, P.C. 12th Floor Pittsburgh, PA 15219 FAX: (412) 281-4499 Attention: Thomas J. Miller, Esq. or to such other address as each party may designate for itself by like notice. 10. Amendment or Waiver. This Escrow Agreement may be changed, waived, discharged or terminated only by writing signed by the Depositor, BICO and Escrow Agent. No delay or omission by any party in exercising any right with respect hereto shall operate as a waiver. A waiver on any one occasion shall not be construed as a bar to, or waiver of, any right or remedy on any future occasion. 11. Severability. To the extent any provision of this Escrow Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Escrow Agreement. 12. Governing Law. This Escrow Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws principles thereof. 13. Entire Agreement. This Escrow Agreement constitutes the entire agreement between the parties relating to the holding investment and disbursement of the Escrowed funds and Shares and sets forth in their entirety the obligations and duties of Escrow Agent. 14. Binding Effect. All of the terms of this Escrow Agreement, as amended from to time, shall be binding upon, inure to the benefit of and be enforceable by the respective heirs and representatives of the parties hereto. 15. Execution of Counterparts. This Escrow Agreement and any Written Direction may be executed in two or more counterparts, which when executed shall constitute one and the same agreement or direction. 16. Termination. This Escrow Agreement shall terminate upon the later of the following events: upon the disbursement of all funds and Shares pursuant to Written Directions; or one hundred eighty (180) days from the date this Escrow Agreement is executed (the "Escrow Period"). Upon termination, Escrow Agent shall have no further obligation or liability whatsoever with respect to this Escrow Agreement, the funds or the Shares. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have executed this Escrow Agreement. BICO, INC. February 15, 2002 /s/ Fred E. Cooper Date Fred E. Cooper, CEO J.P. CAREY ASSET MANAGEMENT February 15, 2002 /s/ Joseph C. Canouse Date HOUSTON HARBAUGH, P.C. February 15, 2002 /s/ Thomas J. Miller Date Thomas J. Miller, Esq. EX-4 6 amendart.txt Exhibit 3.14 Microfilm Number__________ Filed with the Department of State on___________ Entity Number __________ ___________________________________________ Secretary of the Commonwealth ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 90) In compliance with the requirements of 15 Pa.C.S. 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: BICO, Inc. __________________________________________ 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): The Bourse, Building 2500 (a) 2275 Swallow Hill Road Pittsburgh PA 15220 Allegheny Number and Street City State Zip County (b)c/o:_____________________________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is Act of May 5, 1933, P.L. 364, as amended 4. The date of its incorporation is: March 30, 1972 5. (Check, and if appropriate complete, one of the following): X The amendment shall be effective upon filing these Articles of Amendment in the Department of State. ___ The amendment shall be effective on: ____________at________________ Date Hour 6. (Check one of the following): X The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. 1914(a) and (b). The amendment was adopted by the board of directors pursuant to 15 Pa.C.S. 1914(c). 7. (Check, and if appropriate complete, one of the following): _X_ The amendment adopted by the corporation, set forth in full, is as follows: The first paragraph of Article 5 shall be amended to read as follows: 5. The aggregate number of shares which the Company shall have authority to issue is 500,000 shares of Cumulative Preferred Stock, par value $10.00 per share and 4,000,000,000 shares of Common Stock, par value $.10 per share. The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. DSCB:15-1915 (Rev 90)-2 8. (Check if the amendment restates the Articles): ____The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 30TH day of November, 2001. BICO, INC. (Name of Corporation) BY:/s/Fred E. Cooper (Signature) TITLE:Fred E. Cooper, Chief Executive Officer EX-5 7 seriesgc.txt Exhibit 3.15 CERTIFICATE OF DESIGNATIONS OF THE 4.0% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES G (Par Value, $10.00 Per Share) OF BICO, INC. ______________________________ Pursuant to Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania ______________________________ The undersigned duly authorized officer of BICO, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Corporation" or the "Company"), in accordance with the provisions of Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, DOES HEREBY CERTIFY: That the Articles of Incorporation of the Corporation authorize the creation of up to Five Hundred Thousand (500,000) shares of the Corporation's preferred stock, par value $10.00 per share (such preferred stock, together with all other preferred stock of the Corporation, the creation of which is authorized by the Articles of Incorporation, the "Preferred Stock"); and That pursuant to the authority conferred upon the Board of Directors (the "Board") by the Articles of Incorporation of the Corporation, the Board, on October 22, 2001, adopted the following resolution creating a series of One Hundred Thousand (100,000) shares of Preferred Stock designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the Articles of Incorporation of the Corporation, as amended (the "Articles of Incorporation"), and the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, the issuance of a series of Preferred Stock, which shall consist of One Hundred Thousand (100,000) shares of the Five Hundred Thousand (500,000) shares of Preferred Stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the Board hereby fixes the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Articles of Incorporation which may be applicable to the Preferred Stock) authorized by this resolution as follows: Series G Cumulative Convertible Preferred Stock: Section 1. Designation and Rank. The designation of such series of Preferred Stock authorized by this resolution shall be "Series G Cumulative Convertible Preferred Stock" (the "Series G Preferred Stock"). The number of shares constituting the Series G Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series G Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series G Preferred Stock. Section 2. Conversion Rights. (a) Each holder of shares of Series G Preferred Stock shall have the option to convert any or all of the shares issued to such holder at any time after the earlier of (i) the sixtieth (60th) day following the date on which such shares of Series G Preferred Stock were first issued (the "Original Issuance Date"), or (ii) the date after the Original Issue Date on which a registration statement to be filed by the Corporation with the United States Securities and Exchange Commission with respect to shares of its Common Stock becomes effective. (b) Each share of Series G Preferred Stock may be converted at the option of the holder thereof at the times set forth herein, and without the payment of any additional consideration, into the number of fully paid, nonassessable shares of common stock, $.10 par value per share, of the Corporation (the "Common Stock"), as is determined by applying the following formula (the "Conversion Formula"): divide the Original Issue Price (as defined in subsection 7(a) hereof) by 76% of the average closing bid price (as reported by The OTC or Electronic Bulletin Board) of the Common Stock for the five (5) consecutive trading days ending on the trading day immediately preceding the date of receipt by the Corporation of the notice of conversion (the date upon which notice of conversion is received by the Corporation is hereinafter referred to as the "Date of Conversion", and the foregoing formula price as hereinafter referred to as the "Conversion Price"). In the event that any shares of Series G Preferred Stock remain outstanding and unconverted on the fifth (5th) anniversary of the Original Issuance Date, such shares shall automatically be converted at that time in accordance with the Conversion Formula. Section 3. Mechanics of Conversion. (a) No fractional shares of Common Stock shall be issued upon conversion of Series G Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall round up to the nearest whole share. In order to convert Series G Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, to the office of the Corporation, and shall give written notice to the Corporation at such office that the holder elects to convert the same, the number of shares of Series G Preferred Stock so converted and a calculation of the appropriate Conversion Price (with an advance copy of the certificate(s) and the notice by facsimile); provided, however, that the Corporation shall not be obligated to issue certificates evidencing shares of Common Stock issuable upon such conversion unless such shares of Series G Preferred Stock are delivered to the Corporation as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation and its transfer agent to indemnify the Corporation from any loss incurred by it in connection with such certificates. (b) Within two (2) business days after the notice of conversion is delivered in accordance with the procedures set forth above, the Cooperation shall instruct the transfer agent to issue shares of its Common Stock and to forward the same to the holder, together with the certificate or certificates for the Preferred Stock to be converted as described above. (c) In no event shall any of the holders of record of the Series G Preferred Shares be entitled to convert such outstanding shares to the extent such conversion would result in any such holder beneficially owning more than four and nine tenths percent (4.9%) of the outstanding shares of the Corporation's Common Stock. For these purposes, beneficial ownership shall be defined and calculated in accordance with Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as amended. Section 4. Dividend Provisions. The holders of record of shares of Series G Preferred Stock shall be entitled to receive when, as, and if declared by the Board of Directors cumulative dividends at the rate of four percent (4.0%) of the Original Issue Price per share per annum, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation. The dividends shall accrue from the Original Issuance Date and be payable, in arrears, quarter-yearly on the first day of January, April, July and October of each year. No quarterly dividend shall be declared on the Series G Preferred Stock by the Board of Directors in excess of one-fourth of the net earnings of the Corporation as reported in the annual financial statement of the Corporation for the immediately preceding fiscal year. Each declared dividend shall be payable to the holders of record as they appear on the stock books of the Corporation at the close of business on such record dates, not more than sixty (60) calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Corporation or a duly authorized committee thereof. Notwithstanding the foregoing, in lieu of a cash dividend payment, the Corporation may elect to distribute shares of Common Stock as payment of any dividend then due and payable. If the Corporation elects to pay dividends in Common Stock in lieu of cash, the Corporation shall issue to such holder such number of fully paid and non-assessable shares of Common Stock as shall have an aggregate Conversion Price value (determined as of the date such dividend is payable) equal in amount to the cash dividend payable. Section 5. Corporate Events. (a) In the event of (i) any declaration by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation and any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of record of Series G Preferred Stock at least ten (10) days prior to the record date specified herein, a notice specifying (A) the date on which any such record date is to be declared for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) become eligible to receive securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution or winding up. Notwithstanding the foregoing, the Corporation shall not be required to disclose to the holders of the Series G Preferred Stock any information which is "non-public" for the purposes of the rules and regulations of the Securities Exchange Commission. (b) The closing bid price used to determine the Conversion Price shall be appropriately adjusted to reflect, as deemed equitable and appropriate by the Corporation, any stock dividend, stock split or share combination of the Common Stock. In the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), the Series G Preferred Stock shall be assumed by the acquiring entity and thereafter the Series G Preferred Stock shall be convertible into such class and type of securities as the holder would have received had the holder converted the Series G Preferred Stock immediately prior to such Corporate Change, as appropriately adjusted to equitably reflect the Conversion Price and any stock dividend, stock split or share combination of the Common Stock after such corporate event. Section 6. Reservation of Stock Issuable Upon Conversion. Immediately following the authorization of additional shares at the Special Meeting of Shareholders scheduled for November 2001, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series G Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series G Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series G Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 7. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of record of shares of Series G Preferred Stock shall be entitled to receive, immediately prior and in preference to any distribution to the holders of the Corporation's equity securities, an amount per share equal to the sum of (i) Five Hundred Dollars ($500) (the "Original Issue Price") and (ii) any accrued and unpaid dividends on the Series G Preferred Stock. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series G Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series G Preferred Stock, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series G Preferred Stock, pro rata, based on the liquidation amounts to which such holders are entitled. (b) Upon the completion of the distribution required by subsection 7(a), if assets remain in this Corporation, they shall be distributed to holders of parity securities (unless holders of parity securities have received distributions pursuant to subsection 7(a) above) and junior securities in accordance with the Corporation's Articles of Incorporation including any duly adopted Articles of Amendment of the Articles of Incorporation. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or distribution of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 7, but shall instead be treated in accordance with Section 5 hereof. Section 8. Redemption Rights. (a) The Series G Preferred Stock may be redeemed at the Corporation's option, in whole or in part, at any time and from time to time thirty (30) days after the Original Issuance Date, at a redemption price per share equal to one and two tenths (1.2) times the Original Issue Price of such share, plus any accrued and unpaid dividends on the shares to be redeemed (such sum is hereinafter referred to as the "Redemption Price"); provided, however, that if there are any accrued quarter-yearly dividends on the Series G Preferred Stock which have not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not redeem any shares of Series G Preferred Stock unless all then outstanding shares of such stock are so redeemed. (b) At least thirty (30) days but not more than sixty (60) days prior to the date on which the Corporation wishes to effect a redemption pursuant to subsection 8(a) (the "Redemption Date"), written notice shall be sent via telecopy (with a copy to be mailed, first class postage prepaid), to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series G Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). The date upon which the Corporation issues the Redemption Notice shall be the "Redemption Notice Date". Each holder of Series G Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable by wire transfer of immediately available funds to an account designated in writing by such holder and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after the Redemption Notice Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of shares of Series G Preferred Stock designated for redemption in the Redemption Notice as holders of Series G Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation, or converted to shares of Common Stock, or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series G Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series G Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series G Preferred Stock. The shares of Series G Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series G Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed. (d) On or prior to each Redemption Date and after giving the Redemption Notice, the Corporation may deposit the Redemption Price of all shares of Series G Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation organized under the laws of the United States of America or the Commonwealth of Pennsylvania, doing business in the City of Pittsburgh and having aggregate capital and surplus of at least $5,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered its share certificate to the Corporation pursuant to Section 8(b) above. As of the date of deposit of the Redemption Price as aforesaid (the "Deposit Date"), the deposit shall constitute full payment of the shares to their holders, and from and after the Deposit Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except (i) the right to exercise before the close of business on the second full business day prior to the Redemption Date any right of conversion to which they might be entitled under Section 2(a) hereof and (ii) the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the Corporation pursuant to this Section 8(d) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 2(a) hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section 8(d) remaining unclaimed at the expiration of six (6) years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. Section 9. Voting Rights. The holders of Series G Preferred Stock will have voting rights as set forth below or as otherwise from time to time required by law. To the extent that under Pennsylvania law the vote of the holders of the Series G Preferred Stock, voting separately as a class, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series G Preferred Stock shall constitute the approval of such action by the class. On all other matters, the holders of Series G Preferred Stock shall be entitled to vote with the holders of Common Stock, voting together as one class, and each share of Series G Preferred Stock shall be entitled to one vote. Holders of the Series G Preferred Stock shall be entitled to notice of all shareholders meetings or written consents with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's by-laws and applicable statutes. Section 10. Protective Provisions. So long as shares of Series G Preferred Stock are outstanding, the Corporation shall not take any action that would impair the rights of the holders of the Series G Preferred Stock set forth herein and shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series G Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of the Series G Preferred Stock or any other securities so as to affect adversely the Series G Preferred Stock; (b) create any new class or series of stock having a preference over the Series G Preferred Stock with respect to distributions pursuant to Section 7 above; or (c) do any act or thing which would result in taxation of the holders of shares of the Series G Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereinafter from time to time amended). /s/Fred E. Cooper Chief Executive Officer ATTEST: /s/Anthony J. Feola Secretary EX-6 8 serieshc.txt Exhibit 3.16 CERTIFICATE OF DESIGNATIONS OF THE 4.0% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES H (Par Value, $10.00 Per Share) OF BICO, INC. ______________________________ Pursuant to Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania ______________________________ The undersigned duly authorized officer of BICO, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Corporation" or the "Company"), in accordance with the provisions of Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, DOES HEREBY CERTIFY: That the Articles of Incorporation of the Corporation authorize the creation of up to Five Hundred Thousand (500,000) shares of the Corporation's preferred stock, par value $10.00 per share (such preferred stock, together with all other preferred stock of the Corporation, the creation of which is authorized by the Articles of Incorporation, the "Preferred Stock"); and That pursuant to the authority conferred upon the Board of Directors (the "Board") by the Articles of Incorporation of the Corporation, the Board, on October 22, 2001, adopted the following resolution creating a series of Three Hundred Ninety- Six Thousand (396,000) shares of Preferred Stock designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the Articles of Incorporation of the Corporation, as amended (the "Articles of Incorporation"), and the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, the issuance of a series of Preferred Stock, which shall consist of Three Hundred Ninety-Six Thousand (396,000) shares of the Five Hundred Thousand (500,000) shares of Preferred Stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the Board hereby fixes the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Articles of Incorporation which may be applicable to the Preferred Stock) authorized by this resolution as follows: Series H Cumulative Convertible Preferred Stock: Section 1. Designation and Rank. The designation of such series of Preferred Stock authorized by this resolution shall be "Series H Cumulative Convertible Preferred Stock" (the "Series H Preferred Stock"). The number of shares constituting the Series H Preferred Stock shall be 396,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series H Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series H Preferred Stock. Section 2. Conversion Rights. (a) Each holder of shares of Series H Preferred Stock shall have the option to convert any or all of the shares issued to such holder at any time after the earlier of (i) the seventy- fifth (75th) day following the date on which such shares of Series H Preferred Stock were first issued (the "Class B Original Issuance Date"), or (ii) thirty five (35) days after the date after the Original Issue Date on which a registration statement to be filed by the Corporation with the United States Securities and Exchange Commission with respect to shares of its Common Stock becomes effective. (b) Each share of Series H Preferred Stock may be converted at the option of the holder thereof at the times set forth herein, and without the payment of any additional consideration, into the number of fully paid, nonassessable shares of common stock, $.10 par value per share, of the Corporation (the "Common Stock"), as is determined by applying the following formula (the "Conversion Formula"): divide the Original Issue Price (as defined in subsection 7(a) hereof) by 80% of the average closing bid price (as reported by The OTC or Electronic Bulletin Board) of the Common Stock for the five (5) consecutive trading days ending on the trading day immediately preceding the date of receipt by the Corporation of the notice of conversion (the date upon which notice of conversion is received by the Corporation is hereinafter referred to as the "Date of Conversion", and the foregoing formula price as hereinafter referred to as the "Conversion Price"). In the event that any shares of Series H Preferred Stock remain outstanding and unconverted on the fifth (5th) anniversary of the Original Issuance Date, such shares shall automatically be converted at that time in accordance with the Conversion Formula. Section 3. Mechanics of Conversion. (a) No fractional shares of Common Stock shall be issued upon conversion of Series H Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall round up to the nearest whole share. In order to convert Series H Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, to the office of the Corporation, and shall give written notice to the Corporation at such office that the holder elects to convert the same, the number of shares of Series H Preferred Stock so converted and a calculation of the appropriate Conversion Price (with an advance copy of the certificate(s) and the notice by facsimile); provided, however, that the Corporation shall not be obligated to issue certificates evidencing shares of Common Stock issuable upon such conversion unless such shares of Series H Preferred Stock are delivered to the Corporation as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation and its transfer agent to indemnify the Corporation from any loss incurred by it in connection with such certificates. (b) Within two (2) business days after the notice of conversion is delivered in accordance with the procedures set forth above, the Corporation shall instruct the transfer agent to issue shares of its Common Stock and to forward the same to the holder, together with the certificate or certificates for the Preferred Stock to be converted as described above. (c) In no event shall any of the holders of record of the Series H Preferred Shares be entitled to convert such outstanding shares to the extent such conversion would result in any such holder beneficially owning more than four and nine tenths percent (4.9%) of the outstanding shares of the Corporation's Common Stock. For these purposes, beneficial ownership shall be defined and calculated in accordance with Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as amended. Section 4. Dividend Provisions. The holders of record of shares of Series H Preferred Stock shall be entitled to receive when, as, and if declared by the Board of Directors cumulative dividends at the rate of four percent (4.0%) of the Original Issue Price per share per annum, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation. The dividends shall accrue from the Original Issuance Date and be payable, in arrears, quarter-yearly on the first day of January, April, July and October of each year. No quarterly dividend shall be declared on the Series H Preferred Stock by the Board of Directors in excess of one-fourth of the net earnings of the Corporation as reported in the annual financial statement of the Corporation for the immediately preceding fiscal year. Each declared dividend shall be payable to the holders of record as they appear on the stock books of the Corporation at the close of business on such record dates, not more than sixty (60) calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Corporation or a duly authorized committee thereof. Notwithstanding the foregoing, in lieu of a cash dividend payment, the Corporation may elect to distribute shares of Common Stock as payment of any dividend then due and payable. If the Corporation elects to pay dividends in Common Stock in lieu of cash, the Corporation shall issue to such holder such number of fully paid and non-assessable shares of Common Stock as shall have an aggregate Conversion Price value (determined as of the date such dividend is payable) equal in amount to the cash dividend payable. Section 5. Corporate Events. (a) In the event of (i) any declaration by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation and any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of record of Series H Preferred Stock at least ten (10) days prior to the record date specified herein, a notice specifying (A) the date on which any such record date is to be declared for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) become eligible to receive securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution or winding up. Notwithstanding the foregoing, the Corporation shall not be required to disclose to the holders of the Series H Preferred Stock any information which is "non-public" for the purposes of the rules and regulations of the Securities Exchange Commission. (b) The closing bid price used to determine the Conversion Price shall be appropriately adjusted to reflect, as deemed equitable and appropriate by the Corporation, any stock dividend, stock split or share combination of the Common Stock. In the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), the Series H Preferred Stock shall be assumed by the acquiring entity and thereafter the Series H Preferred Stock shall be convertible into such class and type of securities as the holder would have received had the holder converted the Series H Preferred Stock immediately prior to such Corporate Change, as appropriately adjusted to equitably reflect the Conversion Price and any stock dividend, stock split or share combination of the Common Stock after such corporate event. Section 6. Reservation of Stock Issuable Upon Conversion. Immediately following the authorization of additional shares at the Special Meeting of Shareholders scheduled for November __, 2001, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series H Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series H Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series H Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 7. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of record of shares of Series H Preferred Stock shall be entitled to receive, immediately prior and in preference to any distribution to the holders of the Corporation's equity securities, an amount per share equal to the sum of (i) Five Hundred Dollars ($500) (the "Original Issue Price") and (ii) any accrued and unpaid dividends on the Series H Preferred Stock. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series H Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series H Preferred Stock, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series H Preferred Stock, pro rata, based on the liquidation amounts to which such holders are entitled. (b) Upon the completion of the distribution required by subsection 7(a), if assets remain in this Corporation, they shall be distributed to holders of parity securities (unless holders of parity securities have received distributions pursuant to subsection 7(a) above) and junior securities in accordance with the Corporation's Articles of Incorporation including any duly adopted Articles of Amendment of the Articles of Incorporation. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or distribution of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 7, but shall instead be treated in accordance with Section 5 hereof. Section 8. Redemption Rights. (a) The Series H Preferred Stock may be redeemed at the Corporation's option, in whole or in part, at any time and from time to time thirty (30) days after the Original Issuance Date, at a redemption price per share equal to one and two tenths (1.2) times the Original Issue Price of such share, plus any accrued and unpaid dividends on the shares to be redeemed (such sum is hereinafter referred to as the "Redemption Price"); provided, however, that if there are any accrued quarter-yearly dividends on the Series H Preferred Stock which have not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not redeem any shares of Series H Preferred Stock unless all then outstanding shares of such stock are so redeemed. (b) At least thirty (30) days but not more than sixty (60) days prior to the date on which the Corporation wishes to effect a redemption pursuant to subsection 8(a) (the "Redemption Date"), written notice shall be sent via telecopy (with a copy to be mailed, first class postage prepaid), to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series H Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). The date upon which the Corporation issues the Redemption Notice shall be the "Redemption Notice Date". Each holder of Series H Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable by wire transfer of immediately available funds to an account designated in writing by such holder and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after the Redemption Notice Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of shares of Series H Preferred Stock designated for redemption in the Redemption Notice as holders of Series H Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation, or converted to shares of Common Stock, or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series H Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series H Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series H Preferred Stock. The shares of Series H Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series H Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed. (d) On or prior to each Redemption Date and after giving the Redemption Notice, the Corporation may deposit the Redemption Price of all shares of Series H Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation organized under the laws of the United States of America or the Commonwealth of Pennsylvania, doing business in the City of Pittsburgh and having aggregate capital and surplus of at least $5,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered its share certificate to the Corporation pursuant to Section 8(b) above. As of the date of deposit of the Redemption Price as aforesaid (the "Deposit Date"), the deposit shall constitute full payment of the shares to their holders, and from and after the Deposit Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except (i) the right to exercise before the close of business on the second full business day prior to the Redemption Date any right of conversion to which they might be entitled under Section 2(a) hereof and (ii) the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the Corporation pursuant to this Section 8(d) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 2(a) hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section 8(d) remaining unclaimed at the expiration of six (6) years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. Section 9. Voting Rights. The holders of Series H Preferred Stock will have voting rights as set forth below or as otherwise from time to time required by law. To the extent that under Pennsylvania law the vote of the holders of the Series H Preferred Stock, voting separately as a class, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series H Preferred Stock shall constitute the approval of such action by the class. On all other matters, the holders of Series H Preferred Stock shall be entitled to vote with the holders of Common Stock, voting together as one class, and each share of Series H Preferred Stock shall be entitled to one vote. Holders of the Series H Preferred Stock shall be entitled to notice of all shareholders meetings or written consents with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's by-laws and applicable statutes. Section 10. Protective Provisions. So long as shares of Series H Preferred Stock are outstanding, the Corporation shall not take any action that would impair the rights of the holders of the Series H Preferred Stock set forth herein and shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series H Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of the Series H Preferred Stock or any other securities so as to affect adversely the Series H Preferred Stock; (b) create any new class or series of stock having a preference over the Series H Preferred Stock with respect to distributions pursuant to Section 7 above; or (c) do any act or thing which would result in taxation of the holders of shares of the Series H Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereinafter from time to time amended). /s/Fred E. Cooper Chief Executive Officer ATTEST: /s/Anthony J. Feola Secretary EX-7 9 seriesic.txt Exhibit 3.17 CERTIFICATE OF DESIGNATIONS OF THE 4.0% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES I (Par Value, $10.00 Per Share) OF BICO, INC. ______________________________ Pursuant to Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania ______________________________ The undersigned duly authorized officer of BICO, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Corporation" or the "Company"), in accordance with the provisions of Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, DOES HEREBY CERTIFY: That the Articles of Incorporation of the Corporation authorize the creation of up to Five Hundred Thousand (500,000) shares of the Corporation's preferred stock, par value $10.00 per share (such preferred stock, together with all other preferred stock of the Corporation, the creation of which is authorized by the Articles of Incorporation, the "Preferred Stock"); and That pursuant to the authority conferred upon the Board of Directors (the "Board") by the Articles of Incorporation of the Corporation, the Board, on October 22, 2001, adopted the following resolution creating a series of Four Thousand (4,000) shares of Preferred Stock designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the Articles of Incorporation of the Corporation, as amended (the "Articles of Incorporation"), and the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, the issuance of a series of Preferred Stock, which shall consist of Four Thousand (4,000) shares of the Five Hundred Thousand (500,000) shares of Preferred Stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the Board hereby fixes the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Articles of Incorporation which may be applicable to the Preferred Stock) authorized by this resolution as follows: Series I Cumulative Convertible Preferred Stock: Section 1. Designation and Rank. The designation of such series of Preferred Stock authorized by this resolution shall be "Series I Cumulative Convertible Preferred Stock" (the "Series I Preferred Stock"). The number of shares constituting the Series I Preferred Stock shall be 4,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series I Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series I Preferred Stock. Section 2. Conversion Rights. (a) Each holder of shares of Series I Preferred Stock shall have the option to convert any or all of the shares issued to such holder at any time after the date on which such shares of Series I Preferred Stock were first issued (the "Original Issuance Date"). (b) Each share of Series I Preferred Stock may be converted at the option of the holder thereof without the payment of any additional consideration, into the number of fully paid, nonassessable shares of common stock, $.10 par value per share, of the Corporation (the "Common Stock"), as is determined by applying the following formula (the "Conversion Formula"): divide the Original Issue Price (as defined in subsection 7(a) hereof) by the average closing bid price (as reported by The OTC or Electronic Bulletin Board) of the Common Stock for the five (5) consecutive trading days ending on the trading day immediately preceding the date of receipt by the Corporation of the notice of conversion (the date upon which notice of conversion is received by the Corporation is hereinafter referred to as the "Date of Conversion", and the foregoing formula price as hereinafter referred to as the "Conversion Price"). In the event that any shares of Series I Preferred Stock remain outstanding and unconverted on the fifth (5th) anniversary of the Original Issuance Date, such shares shall automatically be converted at that time in accordance with the Conversion Formula. Section 3. Mechanics of Conversion. (a) No fractional shares of Common Stock shall be issued upon conversion of Series I Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall round up to the nearest whole share. In order to convert Series I Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, to the office of the Corporation, and shall give written notice to the Corporation at such office that the holder elects to convert the same, the number of shares of Series I Preferred Stock so converted and a calculation of the appropriate Conversion Price (with an advance copy of the certificate(s) and the notice by facsimile); provided, however, that the Corporation shall not be obligated to issue certificates evidencing shares of Common Stock issuable upon such conversion unless such shares of Series I Preferred Stock are delivered to the Corporation as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation and its transfer agent to indemnify the Corporation from any loss incurred by it in connection with such certificates. (b) Within two (2) business days after the notice of conversion is delivered in accordance with the procedures set forth above, the Corporation shall instruct the transfer agent to issue shares of its Common Stock and to forward the same to the holder, together with the certificate or certificates for the Preferred Stock to be converted as described above. (c) In no event shall any of the holders of record of the Series I Preferred Shares be entitled to convert such outstanding shares to the extent such conversion would result in any such holder beneficially owning more than four and nine tenths percent (4.9%) of the outstanding shares of the Corporation's Common Stock. For these purposes, beneficial ownership shall be defined and calculated in accordance with Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as amended. Section 4. Dividend Provisions. The holders of record of shares of Series I Preferred Stock shall be entitled to receive when, as, and if declared by the Board of Directors cumulative dividends at the rate of four percent (4.0%) of the Original Issue Price per share per annum, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation. The dividends shall accrue from the Original Issuance Date and be payable, in arrears, quarter-yearly on the first day of January, April, July and October of each year. No quarterly dividend shall be declared on the Series I Preferred Stock by the Board of Directors in excess of one-fourth of the net earnings of the Corporation as reported in the annual financial statement of the Corporation for the immediately preceding fiscal year. Each declared dividend shall be payable to the holders of record as they appear on the stock books of the Corporation at the close of business on such record dates, not more than sixty (60) calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Corporation or a duly authorized committee thereof. Notwithstanding the foregoing, in lieu of a cash dividend payment, the Corporation may elect to distribute shares of Common Stock as payment of any dividend then due and payable. If the Corporation elects to pay dividends in Common Stock in lieu of cash, the Corporation shall issue to such holder such number of fully paid and non-assessable shares of Common Stock as shall have an aggregate Conversion Price value (determined as of the date such dividend is payable) equal in amount to the cash dividend payable. Section 5. Corporate Events. (a) In the event of (i) any declaration by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation and any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of record of Series I Preferred Stock at least ten (10) days prior to the record date specified herein, a notice specifying (A) the date on which any such record date is to be declared for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) become eligible to receive securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution or winding up. Notwithstanding the foregoing, the Corporation shall not be required to disclose to the holders of the Series I Preferred Stock any information which is "non-public" for the purposes of the rules and regulations of the Securities Exchange Commission. (b) The closing bid price used to determine the Conversion Price shall be appropriately adjusted to reflect, as deemed equitable and appropriate by the Corporation, any stock dividend, stock split or share combination of the Common Stock. In the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), the Series I Preferred Stock shall be assumed by the acquiring entity and thereafter the Series I Preferred Stock shall be convertible into such class and type of securities as the holder would have received had the holder converted the Series I Preferred Stock immediately prior to such Corporate Change, as appropriately adjusted to equitably reflect the Conversion Price and any stock dividend, stock split or share combination of the Common Stock after such corporate event. Section 6. Reservation of Stock Issuable Upon Conversion. Immediately following the authorization of additional shares at the Special Meeting of Shareholders scheduled for November __, 2001, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series I Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series I Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series I Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 7. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of record of shares of Series I Preferred Stock shall be entitled to receive, immediately prior and in preference to any distribution to the holders of the Corporation's equity securities, an amount per share equal to the sum of (i) Five Hundred Dollars ($500) (the "Original Issue Price") and (ii) any accrued and unpaid dividends on the Series I Preferred Stock. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series I Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series I Preferred Stock, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series I Preferred Stock, pro rata, based on the liquidation amounts to which such holders are entitled. (b) Upon the completion of the distribution required by subsection 7(a), if assets remain in this Corporation, they shall be distributed to holders of parity securities (unless holders of parity securities have received distributions pursuant to subsection 7(a) above) and junior securities in accordance with the Corporation's Articles of Incorporation including any duly adopted Articles of Amendment of the Articles of Incorporation. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or distribution of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 7, but shall instead be treated in accordance with Section 5 hereof. Section 8. Redemption Rights. (a) The Series I Preferred Stock may be redeemed at the Corporation's option, in whole or in part, at any time and from time to time thirty (30) days after the Original Issuance Date, at a redemption price per share equal to the Original Issue Price of such share, plus any accrued and unpaid dividends on the shares to be redeemed (such sum is hereinafter referred to as the "Redemption Price"); provided, however, that if there are any accrued quarter-yearly dividends on the Series I Preferred Stock which have not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not redeem any shares of Series I Preferred Stock unless all then outstanding shares of such stock are so redeemed. (b) At least thirty (30) days but not more than sixty (60) days prior to the date on which the Corporation wishes to effect a redemption pursuant to subsection 8(a) (the "Redemption Date"), written notice shall be sent via telecopy (with a copy to be mailed, first class postage prepaid), to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series I Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). The date upon which the Corporation issues the Redemption Notice shall be the "Redemption Notice Date". Each holder of Series I Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable by wire transfer of immediately available funds to an account designated in writing by such holder and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after the Redemption Notice Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of shares of Series I Preferred Stock designated for redemption in the Redemption Notice as holders of Series I Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation, or converted to shares of Common Stock, or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series I Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series I Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series I Preferred Stock. The shares of Series I Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series I Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed. (d) On or prior to each Redemption Date and after giving the Redemption Notice, the Corporation may deposit the Redemption Price of all shares of Series I Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation organized under the laws of the United States of America or the Commonwealth of Pennsylvania, doing business in the City of Pittsburgh and having aggregate capital and surplus of at least $5,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered its share certificate to the Corporation pursuant to Section 8(b) above. As of the date of deposit of the Redemption Price as aforesaid (the "Deposit Date"), the deposit shall constitute full payment of the shares to their holders, and from and after the Deposit Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except (i) the right to exercise before the close of business on the second full business day prior to the Redemption Date any right of conversion to which they might be entitled under Section 2(a) hereof and (ii) the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the Corporation pursuant to this Section 8(d) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 2(a) hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section 8(d) remaining unclaimed at the expiration of six (6) years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. Section 9. Voting Rights. The holders of Series I Preferred Stock will have voting rights as set forth below or as otherwise from time to time required by law. To the extent that under Pennsylvania law the vote of the holders of the Series I Preferred Stock, voting separately as a class, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series I Preferred Stock shall constitute the approval of such action by the class. On all other matters, the holders of Series I Preferred Stock shall be entitled to vote with the holders of Common Stock, voting together as one class, and each share of Series I Preferred Stock shall be entitled to one vote. Holders of the Series I Preferred Stock shall be entitled to notice of all shareholders meetings or written consents with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's by-laws and applicable statutes. Section 10. Protective Provisions. So long as shares of Series I Preferred Stock are outstanding, the Corporation shall not take any action that would impair the rights of the holders of the Series I Preferred Stock set forth herein and shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series I Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of the Series I Preferred Stock or any other securities so as to affect adversely the Series I Preferred Stock; (b) create any new class or series of stock having a preference over the Series I Preferred Stock with respect to distributions pursuant to Section 7 above; or (c) do any act or thing which would result in taxation of the holders of shares of the Series I Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereinafter from time to time amended). /s/ Fred E. Cooper Chief Executive Officer ATTEST: /s/ Anthony J. Feola Secretary EX-8 10 seriesjc.txt Exhibit 3.18 CERTIFICATE OF DESIGNATIONS OF THE 4.0% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES J (Par Value, $10.00 Per Share) OF BICO, INC. ______________________________ Pursuant to Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania ______________________________ The undersigned duly authorized officer of BICO, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Corporation" or the "Company"), in accordance with the provisions of Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, DOES HEREBY CERTIFY: That the Articles of Incorporation of the Corporation authorize the creation of up to Five Hundred Thousand (500,000) shares of the Corporation's preferred stock, par value $10.00 per share (such preferred stock, together with all other preferred stock of the Corporation, the creation of which is authorized by the Articles of Incorporation, the "Preferred Stock"); and That pursuant to the authority conferred upon the Board of Directors (the "Board") by the Articles of Incorporation of the Corporation, the Board, on December 3, 2001, adopted the following resolution creating a series of Fifty Thousand (50,000) shares of Preferred Stock designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the Articles of Incorporation of the Corporation, as amended (the "Articles of Incorporation"), and the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, the issuance of a series of Preferred Stock, which shall consist of Fifty Thousand (50,000) shares of the Five Hundred Thousand (500,000) shares of Preferred Stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the Board hereby fixes the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Articles of Incorporation which may be applicable to the Preferred Stock) authorized by this resolution as follows: Series J Cumulative Convertible Preferred Stock: Section 1. Designation and Rank. The designation of such series of Preferred Stock authorized by this resolution shall be "Series J Cumulative Convertible Preferred Stock" (the "Series J Preferred Stock"). The number of shares constituting the Series J Preferred Stock shall be 50,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series J Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series J Preferred Stock. Section 2. Conversion Rights. (a) Each holder of shares of Series J Preferred Stock shall have the option to convert any or all of the shares issued to such holder at any time after the earlier of (i) the thirtieth (30th) day following the date on which such shares of Series J Preferred Stock were first issued (the "Original Issuance Date"). (b) Each share of Series J Preferred Stock may be converted at the option of the holder thereof at the times set forth herein, and without the payment of any additional consideration, into the number of fully paid, nonassessable shares of common stock, $.10 par value per share, of the Corporation (the "Common Stock"), as is determined by applying the following formula (the "Conversion Formula"): divide the Original Issue Price (as defined in subsection 7(a) hereof) by 80% of the average closing bid price (as reported by The OTC or Electronic Bulletin Board) of the Common Stock for the five (5) consecutive trading days ending on the trading day immediately preceding the date of receipt by the Corporation of the notice of conversion (the date upon which notice of conversion is received by the Corporation is hereinafter referred to as the "Date of Conversion", and the foregoing formula price as hereinafter referred to as the "Conversion Price"). In the event that any shares of Series J Preferred Stock remain outstanding and unconverted on the fifth (5th) anniversary of the Original Issuance Date, such shares shall automatically be converted at that time in accordance with the Conversion Formula. Section 3. Mechanics of Conversion. (a) No fractional shares of Common Stock shall be issued upon conversion of Series J Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall round up to the nearest whole share. In order to convert Series J Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, to the office of the Corporation, and shall give written notice to the Corporation at such office that the holder elects to convert the same, the number of shares of Series J Preferred Stock so converted and a calculation of the appropriate Conversion Price (with an advance copy of the certificate(s) and the notice by facsimile); provided, however, that the Corporation shall not be obligated to issue certificates evidencing shares of Common Stock issuable upon such conversion unless such shares of Series J Preferred Stock are delivered to the Corporation as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation and its transfer agent to indemnify the Corporation from any loss incurred by it in connection with such certificates. (b) Within two (2) business days after the notice of conversion is delivered in accordance with the procedures set forth above, the Corporation shall instruct the transfer agent to issue shares of its Common Stock and to forward the same to the holder, together with the certificate or certificates for the Preferred Stock to be converted as described above. (c) In no event shall any of the holders of record of the Series J Preferred Shares be entitled to convert such outstanding shares to the extent such conversion would result in any such holder beneficially owning more than four and nine tenths percent (4.9%) of the outstanding shares of the Corporation's Common Stock. For these purposes, beneficial ownership shall be defined and calculated in accordance with Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as amended. Section 4. Dividend Provisions. The holders of record of shares of Series J Preferred Stock shall be entitled to receive when, as, and if declared by the Board of Directors cumulative dividends at the rate of four percent (4.0%) of the Original Issue Price per share per annum, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation. The dividends shall accrue from the Original Issuance Date and be payable, in arrears, quarter-yearly on the first day of January, April, July and October of each year. No quarterly dividend shall be declared on the Series J Preferred Stock by the Board of Directors in excess of one-fourth of the net earnings of the Corporation as reported in the annual financial statement of the Corporation for the immediately preceding fiscal year. Each declared dividend shall be payable to the holders of record as they appear on the stock books of the Corporation at the close of business on such record dates, not more than sixty (60) calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Corporation or a duly authorized committee thereof. Notwithstanding the foregoing, in lieu of a cash dividend payment, the Corporation may elect to distribute shares of Common Stock as payment of any dividend then due and payable. If the Corporation elects to pay dividends in Common Stock in lieu of cash, the Corporation shall issue to such holder such number of fully paid and non-assessable shares of Common Stock as shall have an aggregate Conversion Price value (determined as of the date such dividend is payable) equal in amount to the cash dividend payable. Section 5. Corporate Events. (a) In the event of (i) any declaration by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation and any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of record of Series J Preferred Stock at least ten (10) days prior to the record date specified herein, a notice specifying (A) the date on which any such record date is to be declared for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) become eligible to receive securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution or winding up. Notwithstanding the foregoing, the Corporation shall not be required to disclose to the holders of the Series J Preferred Stock any information which is "non-public" for the purposes of the rules and regulations of the Securities Exchange Commission. (b) The closing bid price used to determine the Conversion Price shall be appropriately adjusted to reflect, as deemed equitable and appropriate by the Corporation, any stock dividend, stock split or share combination of the Common Stock. In the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), the Series J Preferred Stock shall be assumed by the acquiring entity and thereafter the Series J Preferred Stock shall be convertible into such class and type of securities as the holder would have received had the holder converted the Series J Preferred Stock immediately prior to such Corporate Change, as appropriately adjusted to equitably reflect the Conversion Price and any stock dividend, stock split or share combination of the Common Stock after such corporate event. Section 6. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series J Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series J Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series J Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 7. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of record of shares of Series J Preferred Stock shall be entitled to receive, immediately prior and in preference to any distribution to the holders of the Corporation's equity securities, an amount per share equal to the sum of (i) Five Hundred Dollars ($500) (the "Original Issue Price") and (ii) any accrued and unpaid dividends on the Series J Preferred Stock. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series J Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series J Preferred Stock, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series J Preferred Stock, pro rata, based on the liquidation amounts to which such holders are entitled. (b) Upon the completion of the distribution required by subsection 7(a), if assets remain in this Corporation, they shall be distributed to holders of parity securities (unless holders of parity securities have received distributions pursuant to subsection 7(a) above) and junior securities in accordance with the Corporation's Articles of Incorporation including any duly adopted Articles of Amendment of the Articles of Incorporation. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or distribution of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 7, but shall instead be treated in accordance with Section 5 hereof. Section 8. Redemption Rights. (a) The Series J Preferred Stock may be redeemed at the Corporation's option, in whole or in part, at any time and from time to time thirty (30) days after the Original Issuance Date, at a redemption price per share equal to one and one tenth (1.1) times the Original Issue Price of such share, plus any accrued and unpaid dividends on the shares to be redeemed (such sum is hereinafter referred to as the "Redemption Price"); provided, however, that if there are any accrued quarter-yearly dividends on the Series J Preferred Stock which have not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not redeem any shares of Series J Preferred Stock unless all then outstanding shares of such stock are so redeemed. (b) At least thirty (30) days but not more than sixty (60) days prior to the date on which the Corporation wishes to effect a redemption pursuant to subsection 8(a) (the "Redemption Date"), written notice shall be sent via telecopy (with a copy to be mailed, first class postage prepaid), to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series J Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). The date upon which the Corporation issues the Redemption Notice shall be the "Redemption Notice Date". Each holder of Series J Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable by wire transfer of immediately available funds to an account designated in writing by such holder and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after the Redemption Notice Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of shares of Series J Preferred Stock designated for redemption in the Redemption Notice as holders of Series J Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation, or converted to shares of Common Stock, or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series J Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series J Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series J Preferred Stock. The shares of Series J Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series J Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed. (d) On or prior to each Redemption Date and after giving the Redemption Notice, the Corporation may deposit the Redemption Price of all shares of Series J Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation organized under the laws of the United States of America or the Commonwealth of Pennsylvania, doing business in the City of Pittsburgh and having aggregate capital and surplus of at least $5,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered its share certificate to the Corporation pursuant to Section 8(b) above. As of the date of deposit of the Redemption Price as aforesaid (the "Deposit Date"), the deposit shall constitute full payment of the shares to their holders, and from and after the Deposit Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except (i) the right to exercise before the close of business on the second full business day prior to the Redemption Date any right of conversion to which they might be entitled under Section 2(a) hereof and (ii) the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the Corporation pursuant to this Section 8(d) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 2(a) hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section 8(d) remaining unclaimed at the expiration of six (6) years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. Section 9. Voting Rights. The holders of Series J Preferred Stock will have voting rights as set forth below or as otherwise from time to time required by law. To the extent that under Pennsylvania law the vote of the holders of the Series J Preferred Stock, voting separately as a class, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series J Preferred Stock shall constitute the approval of such action by the class. On all other matters, the holders of Series J Preferred Stock shall be entitled to vote with the holders of Common Stock, voting together as one class, and each share of Series J Preferred Stock shall be entitled to one vote. Holders of the Series J Preferred Stock shall be entitled to notice of all shareholders meetings or written consents with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's by-laws and applicable statutes. Section 10. Protective Provisions. So long as shares of Series J Preferred Stock are outstanding, the Corporation shall not take any action that would impair the rights of the holders of the Series J Preferred Stock set forth herein and shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series J Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of the Series J Preferred Stock or any other securities so as to affect adversely the Series J Preferred Stock; (b) create any new class or series of stock having a preference over the Series J Preferred Stock with respect to distributions pursuant to Section 7 above; or (c) do any act or thing which would result in taxation of the holders of shares of the Series J Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereinafter from time to time amended). /s/ Fred E. Cooper Chief Executive Officer ATTEST: /s/ Anthony J. Feola Secretary EX-9 11 serieskc.txt Exhibit 3.19 CERTIFICATE OF DESIGNATIONS OF THE 4.0% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES K (Par Value, $10.00 Per Share) OF BICO, INC. ______________________________ Pursuant to Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania ______________________________ The undersigned duly authorized officer of BICO, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Corporation" or the "Company"), in accordance with the provisions of Section 1522 of the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, DOES HEREBY CERTIFY: That the Articles of Incorporation of the Corporation authorize the creation of up to Five Hundred Thousand (500,000) shares of the Corporation's preferred stock, par value $10.00 per share (such preferred stock, together with all other preferred stock of the Corporation, the creation of which is authorized by the Articles of Incorporation, the "Preferred Stock"); and That pursuant to the authority conferred upon the Board of Directors (the "Board") by the Articles of Incorporation of the Corporation, the Board, on February 15, 2002, adopted the following resolution creating a series of One Hundred Thousand (100,000) shares of Preferred Stock designated as set forth below: RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the Articles of Incorporation of the Corporation, as amended (the "Articles of Incorporation"), and the Business Corporation Law of 1988 of the Commonwealth of Pennsylvania, the issuance of a series of Preferred Stock, which shall consist of One Hundred Thousand (100,000) shares of the Five Hundred Thousand (500,000) shares of Preferred Stock which the Corporation now has authority to issue, be, and the same hereby is, authorized, and the Board hereby fixes the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions of the shares of such series (in addition to the powers, designations, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Articles of Incorporation which may be applicable to the Preferred Stock) authorized by this resolution as follows: Series K Cumulative Convertible Preferred Stock: Section 1. Designation and Rank. The designation of such series of Preferred Stock authorized by this resolution shall be "Series K Cumulative Convertible Preferred Stock" (the "Series K Preferred Stock"). The number of shares constituting the Series K Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series K Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series K Preferred Stock. Section 2. Conversion Rights. (a) Each holder of shares of Series K Preferred Stock shall have the option to convert any or all of the shares issued to such holder at any time beginning on the date upon which the Registration Statement registering the common stock underlying the Series K Preferred Stock is declared effective by the U.S. Securities and Exchange Commission. (b) Each share of Series K Preferred Stock may be converted at the option of the holder thereof at the times set forth herein, and without the payment of any additional consideration, into the number of fully paid, nonassessable shares of common stock, $.10 par value per share, of the Corporation (the "Common Stock"), as is determined by applying the following formula (the "Conversion Formula"): divide the Original Issue Price (as defined in subsection 7(a) hereof) by ninety percent (90%) of the average of the lowest three (3) consecutive Closing Bid Prices during the twenty two (22) days immediately preceding the date of receipt by the Corporation of the notice of conversion (the date upon which notice of conversion is received by the Corporation is hereinafter referred to as the "Date of Conversion", and the foregoing formula price as hereinafter referred to as the "Conversion Price"). In the event that any shares of Series K Preferred Stock remain outstanding and unconverted on the third (3rd) anniversary of the date they were issued, such shares shall automatically be converted at that time in accordance with the Conversion Formula. Section 3. Mechanics of Conversion. (a) No fractional shares of Common Stock shall be issued upon conversion of Series K Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall round up to the nearest whole share. In order to convert Series K Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, to the office of the Corporation, and shall give written notice to the Corporation at such office that the holder elects to convert the same, the number of shares of Series K Preferred Stock so converted and a calculation of the appropriate Conversion Price (with an advance copy of the certificate(s) and the notice by facsimile); provided, however, that the Corporation shall not be obligated to issue certificates evidencing shares of Common Stock issuable upon such conversion unless such shares of Series K Preferred Stock are delivered to the Corporation as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation and its transfer agent to indemnify the Corporation from any loss incurred by it in connection with such certificates. (b) Within two (2) business days after the notice of conversion is delivered in accordance with the procedures set forth above, the Corporation shall instruct the transfer agent to issue shares of its Common Stock and to forward the same to the holder, together with the certificate or certificates for the Preferred Stock to be converted as described above. (c) In no event shall any of the holders of record of the Series K Preferred Shares be entitled to convert such outstanding shares to the extent such conversion would result in any such holder beneficially owning more than four and nine tenths percent (4.9%) of the outstanding shares of the Corporation's Common Stock. For these purposes, beneficial ownership shall be defined and calculated in accordance with Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as amended. Section 4. Dividend Provisions. The holders of record of shares of Series K Preferred Stock shall be entitled to receive when, as, and if declared by the Board of Directors cumulative dividends at the rate of four percent (4.0%) of the Original Issue Price per share per annum, out of any funds legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation. The dividends shall accrue from the date the Preferred Shares were issued and be payable, in arrears, quarter- yearly on the first day of January, April, July and October of each year. No quarterly dividend shall be declared on the Series K Preferred Stock by the Board of Directors in excess of one- fourth of the net earnings of the Corporation as reported in the annual financial statement of the Corporation for the immediately preceding fiscal year. Each declared dividend shall be payable to the holders of record as they appear on the stock books of the Corporation at the close of business on such record dates, not more than sixty (60) calendar days preceding the payment dates therefor, as are determined by the Board of Directors of the Corporation or a duly authorized committee thereof. Notwithstanding the foregoing, in lieu of a cash dividend payment, the Corporation may elect to distribute shares of Common Stock as payment of any dividend then due and payable. If the Corporation elects to pay dividends in Common Stock in lieu of cash, the Corporation shall issue to such holder such number of fully paid and non-assessable shares of Common Stock as shall have an aggregate Conversion Price value (determined as of the date such dividend is payable) equal in amount to the cash dividend payable. Section 5. Corporate Events. (a) In the event of (i) any declaration by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation and any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of record of Series K Preferred Stock at least ten (10) days prior to the record date specified herein, a notice specifying (A) the date on which any such record date is to be declared for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) become eligible to receive securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution or winding up. Notwithstanding the foregoing, the Corporation shall not be required to disclose to the holders of the Series K Preferred Stock any information which is "non-public" for the purposes of the rules and regulations of the Securities Exchange Commission. (b) The closing bid price used to determine the Conversion Price shall be appropriately adjusted to reflect, as deemed equitable and appropriate by the Corporation, any stock dividend, stock split or share combination of the Common Stock. In the event of a merger, reorganization, recapitalization or similar event of or with respect to the Corporation (a "Corporate Change") (other than a Corporate Change in which all or substantially all of the consideration received by the holders of the Corporation's equity securities upon such Corporate Change consists of cash or assets other than securities issued by the acquiring entity or any affiliate thereof), the Series K Preferred Stock shall be assumed by the acquiring entity and thereafter the Series K Preferred Stock shall be convertible into such class and type of securities as the holder would have received had the holder converted the Series K Preferred Stock immediately prior to such Corporate Change, as appropriately adjusted to equitably reflect the Conversion Price and any stock dividend, stock split or share combination of the Common Stock after such corporate event. Section 6. Reservation of Stock Issuable Upon Conversion. Except as set forth below, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series K Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of Series K Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series K Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. Section 7. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of record of shares of Series K Preferred Stock shall be entitled to receive, immediately prior and in preference to any distribution to the holders of the Corporation's equity securities, an amount per share equal to the sum of (i) Five Hundred Dollars ($500) (the "Original Issue Price") and (ii) any accrued and unpaid dividends on the Series K Preferred Stock. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series K Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amounts due to the holders of the Series K Preferred Stock, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series K Preferred Stock, pro rata, based on the liquidation amounts to which such holders are entitled. (b) Upon the completion of the distribution required by subsection 7(a), if assets remain in this Corporation, they shall be distributed to holders of parity securities (unless holders of parity securities have received distributions pursuant to subsection 7(a) above) and junior securities in accordance with the Corporation's Articles of Incorporation including any duly adopted Articles of Amendment of the Articles of Incorporation. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations, or a sale, conveyance or distribution of all or substantially all of the assets of the Corporation or the effectuation by the Corporation of a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of, shall not be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 7, but shall instead be treated in accordance with Section 5 hereof. Section 8. Redemption Rights. (a) The Series K Preferred Stock may be redeemed at the Corporation's option, in whole or in part, at any time and from time to time thirty (30) days after the date the Series K Preferred Stock was issued, at a redemption price per share equal to one and two tenths (1.2) times the Original Issue Price of such share, plus any accrued and unpaid dividends on the shares to be redeemed (such sum is hereinafter referred to as the "Redemption Price"); provided, however, that if there are any accrued quarter-yearly dividends on the Series K Preferred Stock which have not been paid or declared and a sum sufficient for the payment thereof set apart, the Corporation may not redeem any shares of Series K Preferred Stock unless all then outstanding shares of such stock are so redeemed. (b) At least thirty (30) days but not more than sixty (60) days prior to the date on which the Corporation wishes to effect a redemption pursuant to subsection 8(a) (the "Redemption Date"), written notice shall be sent via telecopy (with a copy to be mailed, first class postage prepaid), to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series K Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained, and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). The date upon which the Corporation issues the Redemption Notice shall be the "Redemption Notice Date". Each holder of Series K Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable by wire transfer of immediately available funds to an account designated in writing by such holder and each surrendered certificate shall be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after the Redemption Notice Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holder of shares of Series K Preferred Stock designated for redemption in the Redemption Notice as holders of Series K Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation, or converted to shares of Common Stock, or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series K Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series K Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of Series K Preferred Stock. The shares of Series K Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series K Preferred Stock, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed. (d) On or prior to each Redemption Date and after giving the Redemption Notice, the Corporation may deposit the Redemption Price of all shares of Series K Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation organized under the laws of the United States of America or the Commonwealth of Pennsylvania, doing business in the City of Pittsburgh and having aggregate capital and surplus of at least $5,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of notification from the Corporation that such holder has surrendered its share certificate to the Corporation pursuant to Section 8(b) above. As of the date of deposit of the Redemption Price as aforesaid (the "Deposit Date"), the deposit shall constitute full payment of the shares to their holders, and from and after the Deposit Date the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except (i) the right to exercise before the close of business on the second full business day prior to the Redemption Date any right of conversion to which they might be entitled under Section 2(a) hereof and (ii) the rights to receive from the bank or trust corporation payment of the Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the Corporation pursuant to this Section 8(d) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 2(a) hereof prior to the Redemption Date shall be returned to the Corporation forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section 8(d) remaining unclaimed at the expiration of six (6) years following the Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. Section 9. Voting Rights. The holders of Series K Preferred Stock will have voting rights as set forth below or as otherwise from time to time required by law. To the extent that under Pennsylvania law the vote of the holders of the Series K Preferred Stock, voting separately as a class, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the outstanding shares of the Series K Preferred Stock shall constitute the approval of such action by the class. On all other matters, the holders of Series K Preferred Stock shall be entitled to vote with the holders of Common Stock, voting together as one class, and each share of Series K Preferred Stock shall be entitled to one vote. Holders of the Series K Preferred Stock shall be entitled to notice of all shareholders meetings or written consents with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's by-laws and applicable statutes. Section 10. Protective Provisions. So long as shares of Series K Preferred Stock are outstanding, the Corporation shall not take any action that would impair the rights of the holders of the Series K Preferred Stock set forth herein and shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series K Preferred Stock: (a) alter or change the rights, preferences or privileges of the shares of the Series K Preferred Stock or any other securities so as to affect adversely the Series K Preferred Stock; (b) create any new class or series of stock having a preference over the Series K Preferred Stock with respect to distributions pursuant to Section 7 above; or (c) do any act or thing which would result in taxation of the holders of shares of the Series K Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereinafter from time to time amended). /s/ Fred E. Cooper Chief Executive Officer ATTEST: /s/ Anthony J. Feola Secretary BICO, INC. Series K Preferred Stock NOTICE OF CONVERSION TO: BICO, Inc. (the "Company") 2275 Swallow Hill Road Bldg. 2500, 2nd Floor Pittsburgh, PA 15220 Fax: (412) 279-9694 This Notice of Conversion may be transferred to the Company via mail or via overnight courier or delivery service. The date of the Notice of Conversion and the Conversion Date shall be the date upon which the Company receives such Notice and original, duly endorsed Preferred Stock Certificate. All computations made in connection with this Notice shall be made by rounding to the fifth decimal point. The undersigned, the holder of the Company's Series K Preferred Stock (the "Preferred Stock") dated ___________, 2002 hereby converts $________________ of the Preferred Stock into shares of Common Stock of the Company as provided in the Certificate of Designations and the Subscription Agreement. The original, duly endorsed, Preferred Stock Certificate is attached to this Notice; otherwise this Notice is incomplete and will not be honored. The date of the Company's receipt of this Notice, which is also the Conversion Date, is: _____________________. The undersigned acknowledges that the Common Stock certificate shall be registered in the name and address contained in the Subscription Agreement dated __________, 2002. Preferred Stock Holder: ___________________________ -----END PRIVACY-ENHANCED MESSAGE-----