FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1999
COMMISSION FILE NUMBER 0-24913
BIOSHIELD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its
charter)
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GEORGIA |
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58-2181628 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(Address of principal executive offices and zip
code)
(770) 246-2000
(Registrant’s telephone number, including
area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) and has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 1999, there were 6,359,457 outstanding
shares of the Registrant’s Common Stock, no par value per
share.
TABLE OF CONTENTS
BIOSHIELD TECHNOLOGIES, INC.
TABLE OF CONTENTS
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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Financial Statements |
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1. |
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Balance Sheets as of September 30, 1999 (unaudited) and
June 30, 1999. |
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1 |
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2. |
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Statements of Operations for the three month periods ended
September 30, 1999 and 1998 (unaudited) |
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2 |
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3. |
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Statements of Operations from June 1, 1995 (inception)
thru September 30, 1999 and 1998 (unaudited) |
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2 |
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4. |
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Statement of Changes in Stockholders’ Equity (Deficit) for
the three month period ended September 30, 1999 (unaudited) |
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3 |
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5. |
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Statements of Cash Flows for the three month periods ended
September 30, 1999 and 1998 (unaudited) and from
June 1, 1995 (inception) thru September 30, 1999
and 1998 (unaudited) |
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4 |
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6. |
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Notes to Financial Statements |
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5 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
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8 |
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PART II. OTHER INFORMATION |
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Item 6. |
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Exhibits and Reports on Form 8-KSB |
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SIGNATURES |
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13 |
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EXHIBIT INDEX |
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14 |
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BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
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September 30, |
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June 30, |
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1999 |
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1999 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
5,074,266 |
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$ |
2,500,561 |
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Marketable securities |
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87,500 |
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103,250 |
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Accounts receivable |
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107,492 |
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102,013 |
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Stockholders’ subscription receivable |
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— |
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4,798,750 |
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Inventories |
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165,743 |
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151,403 |
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Prepaid expenses and other current assets |
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181,011 |
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171,073 |
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Total current assets |
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5,616,012 |
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7,827,050 |
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PROPERTY AND EQUIPMENT, NET |
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523,928 |
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202,400 |
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DEPOSITS AND OTHER LONG-TERM ASSETS |
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630,242 |
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194,293 |
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$ |
6,770,182 |
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$ |
8,223,743 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
723,736 |
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$ |
597,877 |
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Accrued liabilities |
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514,377 |
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195,044 |
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Accrued payroll |
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68,289 |
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58,085 |
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Accrued interest payable |
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839 |
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839 |
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Total current liabilities |
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1,307,241 |
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851,845 |
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MINORITY INTEREST |
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6,124,750 |
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4,798,750 |
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STOCKHOLDERS’ EQUITY (DEFICIT): |
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Common stock — no par value; 50,000,000 |
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shares authorized; 6,325,915 and 6,322,315 |
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issued and outstanding at September 30, 1999 |
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and June 30, 1999, respectively |
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7,357,888 |
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7,336,318 |
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Additional paid-in capital |
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1,977,300 |
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870,900 |
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Accumulated other comprehensive earnings (loss) |
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(17,500 |
) |
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(1,750 |
) |
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Deficit accumulated during the development stage |
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(9,979,497 |
) |
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(5,632,320 |
) |
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(661,809 |
) |
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2,573,148 |
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$ |
6,770,182 |
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$ |
8,223,743 |
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The accompanying notes are an integral part of these statements.
1
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
EARNINGS
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(Unaudited) |
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(Unaudited) |
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Three months ended |
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June 1, 1995 (inception) |
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September 30, |
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to September 30, |
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1999 |
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1998 |
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1999 |
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1998 |
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Net sales |
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$ |
144,445 |
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$ |
87,854 |
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$ |
1,687,567 |
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$ |
1,325,640 |
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Cost of sales |
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90,488 |
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33,736 |
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749,881 |
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504,216 |
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Gross profit |
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53,957 |
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54,118 |
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937,686 |
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821,424 |
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Operating expenses |
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Marketing and selling |
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805,467 |
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114,379 |
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2,282,741 |
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806,319 |
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General and administrative |
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3,023,654 |
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259,982 |
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7,010,058 |
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2,290,393 |
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Research and development |
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633,984 |
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37,802 |
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1,874,998 |
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453,930 |
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4,463,105 |
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412,163 |
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11,167,797 |
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3,550,642 |
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Loss from operations |
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(4,409,148 |
) |
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(358,045 |
) |
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(10,230,111 |
) |
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(2,729,218 |
) |
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Other income (expense): |
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Royalty fees |
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— |
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— |
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75,000 |
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— |
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Consulting income, net of consulting expenses of $19,474 for the
period ended June 30, 1998 |
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— |
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— |
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39,908 |
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39,908 |
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Interest and dividend income |
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61,971 |
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818 |
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171,043 |
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7,756 |
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Interest expense |
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— |
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(16,335 |
) |
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(35,337 |
) |
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(34,712 |
) |
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Net loss before income taxes |
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(4,347,177 |
) |
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(373,562 |
) |
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(9,979,497 |
) |
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(2,716,266 |
) |
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Income tax (expense) benefit |
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— |
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— |
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— |
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— |
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Net loss |
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(4,347,177 |
) |
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(373,562 |
) |
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(9,979,497 |
) |
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(2,716,266 |
) |
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Other comprehensive earnings (loss) |
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Unrealized holding loss on securities |
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(15,750 |
) |
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— |
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(17,500 |
) |
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— |
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COMPREHENSIVE LOSS |
|
$ |
(4,362,927 |
) |
|
$ |
(373,562 |
) |
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$ |
(9,996,997 |
) |
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$ |
(2,716,266 |
) |
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Net loss per common share: |
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Basic |
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$ |
(0.69 |
) |
|
$ |
(0.08 |
) |
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$ |
(2.12 |
) |
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$ |
(0.64 |
) |
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Weighted average common shares outstanding |
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6,325,915 |
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4,747,021 |
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4,717,026 |
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4,268,977 |
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The accompanying notes are an integral part of these statements.
2
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
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Deficit |
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Common stock |
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Accumulated |
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accumulated |
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no par value |
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Additional |
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other |
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during the |
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paid-in |
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comprehensive |
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development |
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Shares |
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Amount |
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capital |
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earnings (loss) |
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stage |
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Total |
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Balance at June 1, 1995 |
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— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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Proceeds from original issuance of shares |
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3,907,086 |
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500 |
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— |
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— |
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|
— |
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500 |
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Proceeds from issuance of shares
under private placement offering |
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62,612 |
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|
115,000 |
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|
— |
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— |
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— |
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115,000 |
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Stock warrants issued for services rendered |
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— |
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— |
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60,000 |
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|
— |
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— |
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60,000 |
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|
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Net loss — June 1, 1995 (inception) through
June 30, 1996 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(356,316 |
) |
|
|
(356,316 |
) |
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Balance at June 30, 1996 |
|
|
3,969,698 |
|
|
|
115,500 |
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|
60,000 |
|
|
|
— |
|
|
|
(356,316 |
) |
|
|
(180,816 |
) |
|
|
|
|
|
Proceeds from issuance of shares
under private placement offering |
|
|
149,723 |
|
|
|
275,001 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
275,001 |
|
|
|
|
|
|
Proceeds from issuance of shares
under private placement offering |
|
|
245,000 |
|
|
|
600,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
600,000 |
|
|
|
|
|
|
|
Stock issuance costs related to private placement offerings |
|
|
— |
|
|
|
(25,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,000 |
) |
|
|
|
|
|
|
Stock warrants issued for services rendered |
|
|
— |
|
|
|
— |
|
|
|
62,400 |
|
|
|
— |
|
|
|
— |
|
|
|
62,400 |
|
|
|
|
|
|
Net loss for the year ended
June 30, 1997 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(514,459 |
) |
|
|
(514,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 1997 |
|
|
4,364,421 |
|
|
|
965,501 |
|
|
|
122,400 |
|
|
|
— |
|
|
|
(870,775 |
) |
|
|
217,126 |
|
|
|
|
|
|
Proceeds from issuance of shares
under private placement offering |
|
|
30,619 |
|
|
|
187,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
187,500 |
|
|
|
|
|
|
|
Stock options issued for services rendered |
|
|
— |
|
|
|
— |
|
|
|
156,650 |
|
|
|
— |
|
|
|
— |
|
|
|
156,650 |
|
|
|
|
|
|
|
Contribution to capital |
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
|
|
— |
|
|
|
— |
|
|
|
50,000 |
|
|
|
|
|
|
Net loss for the year ended
June 30, 1998 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,471,929 |
) |
|
|
(1,471,929 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 1998 |
|
|
4,395,040 |
|
|
|
1,153,001 |
|
|
|
329,050 |
|
|
|
— |
|
|
|
(2,342,704 |
) |
|
|
(860,653 |
) |
|
|
|
|
|
Proceeds from issuance of shares
under initial public offering |
|
|
1,300,000 |
|
|
|
5,102,794 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,102,794 |
|
|
|
|
|
|
|
Proceeds from exercise of stock warrants |
|
|
612,275 |
|
|
|
1,065,523 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,065,523 |
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,000 |
|
|
|
|
|
|
|
Stock options issued for services rendered |
|
|
— |
|
|
|
— |
|
|
|
95,250 |
|
|
|
— |
|
|
|
— |
|
|
|
95,250 |
|
|
|
|
|
|
|
Compensation related to previously issued options |
|
|
— |
|
|
|
— |
|
|
|
121,600 |
|
|
|
— |
|
|
|
— |
|
|
|
121,600 |
|
|
|
|
|
|
|
Contribution to capital |
|
|
— |
|
|
|
— |
|
|
|
325,000 |
|
|
|
— |
|
|
|
— |
|
|
|
325,000 |
|
|
|
|
|
|
|
Unrealized loss on securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,750 |
) |
|
|
— |
|
|
|
(1,750 |
) |
|
|
|
|
|
Net loss for the year ended
June 30, 1999 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,289,616 |
) |
|
|
(3,289,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 1999 |
|
|
6,322,315 |
|
|
|
7,336,318 |
|
|
|
870,900 |
|
|
|
(1,750 |
) |
|
|
(5,632,320 |
) |
|
|
2,573,148 |
|
|
|
|
|
|
|
Proceeds from exercise of warrants |
|
|
3,600 |
|
|
|
21,570 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,570 |
|
|
|
|
|
|
|
Stock warrants issued for services rendered |
|
|
— |
|
|
|
— |
|
|
|
1,106,400 |
|
|
|
— |
|
|
|
— |
|
|
|
1,106,400 |
|
|
|
|
|
|
|
Unrealized loss on securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,750 |
) |
|
|
— |
|
|
|
(15,750 |
) |
|
|
|
|
|
Net loss for the quarter ended
September 30, 1999 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,347,177 |
) |
|
|
(4,347,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,325,915 |
|
|
$ |
7,357,888 |
|
|
$ |
1,977,300 |
|
|
$ |
(17,500 |
) |
|
$ |
(9,979,497 |
) |
|
$ |
(661,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
3
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
June 1, 1995 (inception) |
|
|
September 30, |
|
to September 30, |
|
|
|
|
|
|
|
1999 |
|
1998 |
|
1999 |
|
1998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(4,347,177 |
) |
|
$ |
(373,562 |
) |
|
$ |
(9,979,497 |
) |
|
$ |
(2,716,266 |
) |
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
15,884 |
|
|
|
5,078 |
|
|
|
76,565 |
|
|
|
37,544 |
|
|
|
|
|
|
|
|
Issuance of stock and stock warrants for services rendered |
|
|
1,772,400 |
|
|
|
48,750 |
|
|
|
2,268,300 |
|
|
|
327,800 |
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(5,479 |
) |
|
|
(15,827 |
) |
|
|
(107,492 |
) |
|
|
(125,908 |
) |
|
|
|
|
|
|
|
|
Inventory |
|
|
(14,340 |
) |
|
|
(14,935 |
) |
|
|
(165,743 |
) |
|
|
(172,719 |
) |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
(9,938 |
) |
|
|
— |
|
|
|
(195,253 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
Deposits and other assets |
|
|
(435,949 |
) |
|
|
42,000 |
|
|
|
(631,105 |
) |
|
|
(36,516 |
) |
|
|
|
|
|
|
|
|
Increase in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
125,859 |
|
|
|
36,554 |
|
|
|
723,736 |
|
|
|
346,092 |
|
|
|
|
|
|
|
|
|
Accrued liabilities and payroll |
|
|
329,537 |
|
|
|
31,269 |
|
|
|
583,505 |
|
|
|
365,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(2,569,203 |
) |
|
|
(240,673 |
) |
|
|
(7,426,984 |
) |
|
|
(1,974,966 |
) |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(337,412 |
) |
|
|
— |
|
|
|
(585,388 |
) |
|
|
(122,072 |
) |
|
|
|
|
|
|
Purchase of marketable securities |
|
|
— |
|
|
|
— |
|
|
|
(105,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(337,412 |
) |
|
|
— |
|
|
|
(690,388 |
) |
|
|
(122,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
— |
|
|
|
— |
|
|
|
655,000 |
|
|
|
655,000 |
|
|
|
|
|
|
|
Repayment of debt |
|
|
— |
|
|
|
(62,500 |
) |
|
|
(655,000 |
) |
|
|
(62,500 |
) |
|
|
|
|
|
|
Contribution to capital |
|
|
— |
|
|
|
325,000 |
|
|
|
375,000 |
|
|
|
375,000 |
|
|
|
|
|
|
|
Proceeds from stock warrants exercised |
|
|
21,570 |
|
|
|
224,542 |
|
|
|
1,087,093 |
|
|
|
224,542 |
|
|
|
|
|
|
|
Stock issued under stock option plan |
|
|
— |
|
|
|
— |
|
|
|
15,000 |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from stock issuances, net |
|
|
5,458,750 |
|
|
|
5,491,056 |
|
|
|
11,714,545 |
|
|
|
6,644,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
5,480,320 |
|
|
|
5,978,098 |
|
|
|
13,191,638 |
|
|
|
7,836,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
2,573,705 |
|
|
|
5,737,425 |
|
|
|
5,074,266 |
|
|
|
5,739,061 |
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
2,500,561 |
|
|
|
1,636 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
5,074,266 |
|
|
$ |
5,739,061 |
|
|
$ |
5,074,266 |
|
|
$ |
5,739,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
34,498 |
|
|
$ |
— |
|
The accompanying notes are an integral part of these statements.
4
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note A. Basis of Presentation
The interim financial statements included herein have been
prepared by the Company without audit. These statements reflect
all adjustments, which are, in the opinion of management,
necessary to present fairly the financial position as of
September 30, 1999 and the results of operations and cash
flows for the period then ended. All such adjustments are of a
normal recurring nature. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements
and notes for the fiscal year ended June 30, 1999.
Note B. Inventories
Inventories consist primarily of raw materials, work in progress
and finished goods, which are stated at the lower of cost or
market. Cost is determined under the first-in, first-out
(FIFO) valuation method.
Note C. Loss Per Common Share
The Company has adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128), Earnings Per Share. Basic loss
per common share is based upon the weighted average number of
common shares outstanding during the period. Diluted loss per
common share is not disclosed because the effect of the exchange
or exercise of common stock equivalents would be antidilutive.
Note D. Stock Options and Warrants
During the three months ended September 30, 1999, the
following changes occurred in outstanding stock options and
warrants.
| |
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 1999 |
|
|
1,008,000 |
|
|
|
|
|
|
|
Options granted |
|
|
— |
|
|
|
|
|
|
|
Options cancelled |
|
|
— |
|
|
|
|
|
|
|
Options exercised |
|
|
— |
|
|
|
|
|
|
|
Options outstanding at September 30, 1999 |
|
|
1,008,000 |
|
|
|
|
|
|
| |
|
Warrants outstanding at June 30, 1999 |
|
|
1,890,977 |
|
|
|
|
|
|
|
Warrants granted |
|
|
240,000 |
|
|
|
|
|
|
|
Warrants cancelled |
|
|
— |
|
|
|
|
|
|
|
Warrants exercised |
|
|
(3,600 |
) |
|
|
|
|
|
|
Warrants outstanding at September 30, 1999 |
|
|
2,127,377 |
|
|
|
|
|
|
Note E. Commitments and Contingencies
On July 9, 1999, Electronic Medical Distribution, Inc.,
(“eMD.com”), a subsidiary of the Company, entered into
an agreement with iXL Enterprises, Inc. (iXL), a subsidiary of
iXL, Inc. Under the agreement, iXL will provide strategic
planning, and marketing advice in exchange for 600,000 shares of
eMD.com common stock. The Company recorded a charge of $666,000
based on the fair market value of the eMD.com common stock issued
to iXL. Fair market value was determined based on recent sales
of eMD.com common stock in private placement offerings. On
September 29, 1999, the Company recorded a charge of
$1,106,400 for warrants granted for purchase of 240,000 shares of
common stock. The warrants were granted for services rendered by
CLR and Associates. The fair market value of the warrants was
determined using the
5
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Black-Scholes model. The total for the non-cash charges related
to the issuance of both common stock of eMD.com and warrants
during the quarter was $1,772,400. The eMD.com common stock
issued to iXL increased minority interest by $666,000 and the
issuance of warrants to CLR increased additional paid-in capital
by $1,106,400.
The Company also entered into a separate agreement with iXL for
the design and development of an internet website. Under the
agreement, eMD.com will pay iXL a total of approximately
$1,890,700 as work progresses on the development of the website.
Through September 30, 1999, the Company had paid and
expensed approximately $520,000 related to this agreement.
On July 6, 1999, the Company entered into a lease agreement
with an unrelated party to lease an office building for a term of
ten years. Required minimum lease payments under this lease is
approximately $45,000 per month for the year ending June 30,
2000.
Note F. Subsequent Events
In addition to its development and marketing of proprietary
antimicrobials, the Company is engaged in the sale and
distribution of cleaning and deodorizing products in the retail
and industrial segments. These products are exempt from
regulation as “pesticides” under the Federal
Insecticide, Fungicide and Rodenticide Act, as amended
(“FIFRA”). Like many other companies engaged in the
sale of these products, the Company has experienced regulatory
scrutiny from the United States Environmental Protection Agency
(“EPA”), which implements federal regulations under
FIFRA regarding the labeling of these products. The EPA has
alleged that certain claims on the labels
were inappropriate for these products in the absence of an EPA
pesticide registration and has required the Company to revise the
labels. While the Company did not agree with the EPA
interpretation that the product claims were pesticidal, the
Company voluntarily agreed to revise the labels. The EPA then
authorized the sale of the products with the revised label. On
September 27, 1999, the EPA filed an administrative complaint
against the Company seeking the assessment of a civil penalty in
the amount of $97,340 relating to these alleged violations as
well as to an allegation that the Company refused an EPA
inspection in 1998. The Company maintains that these allegations
are without merit. However, in a demonstration of good faith and
cooperation, the Company, while denying the alleged violations,
agreed to the payment of a substantially reduced penalty on
October 30, 1999 in the amount of $72,840.
In the month of October 1999, the company continued to develop
its eMD.com business infrastructure. Significant contractual
payment commitments of approximately $4,000,000 have been made by
the company to several equipment, software and consulting
business partners to complete the initial versions of the
internet products by December 1999. Total cash payment
commitments of approximately $3,000,000 are due by the end of
December 1999. Management is currently raising additional
investment capital to meet these commitments and to fund
operational deficits that are anticipated throughout the early
operational stages of the eMD.com strategy.
Note J. Continued Operations
The Company’s continued existence as a going concern is
ultimately dependent upon the success of future operations and
its ability to obtain additional financing. As shown in the
financial statements, the Company has incurred cumulative
comprehensive losses of $9,996,997 from June 1, 1995
(inception) to September 30, 1999. The Company is a
development stage company primarily engaged in research and
development, patent filings, regulatory approvals and related
activities. Through September 30, 1999, the Company had
raised $15,459,938 of capital, including $6,124,750 classified as
minority interest, through its initial public offering and other
private offerings of its securities. The Company is actively
seeking to obtain
6
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
additional funds through public and private equity, debt funding,
strategic collaborative agreements, or from other sources. The
failure to raise the necessary additional capital in the future
may cause substantial delays or reduction of the scope of the
Company’s business plan. The Company’s continuation as
a going concern is dependent upon its ability to generate or
raise sufficient cash flow to meet its obligations on a timely
basis, and ultimately to attain profitability.
7
|
|
| Item 2. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Introduction
BioShield Technologies, Inc. (“the Company”), a Georgia
Corporation organized in June, 1995 has, since inception, been a
development stage company engaged primarily in research and
development, patent filings, regulatory approvals and related
activities geared towards the sale of its retail, industrial and
institutional products. Most of the products which have been
commercialized are in the cleaning and deodorizing segment. Some
of these products may provide long-term killing action of
microorganisms responsible for cross contamination and viral
contamination. Many of these products inhibit and control the
growth of over 100 viral, bacteria, fungi and yeast organisms.
Revenues generated from operations to date have primarily been
limited to test marketing of the Company’s antimicrobial
products in all division areas.
During the quarter the Company was granted a patent by The U.S.
Patent and Trademark Office for one of its water-based,
non-leaching anti-microbial compounds. This represents a
significant step in the commercialization of the Company’s
products and will provide enhanced opportunities to engage
partners in the consumer, industrial and OEM markets to
commercialize its product development and enter into distribution
agreements.
Also during the quarter, the Company continued to successfully
build brand recognition and market penetration of its new
“OdorFree” product line. This brand will compete in the
multi-million dollar odor elimination packaged goods category.
The national rollout is conservatively proceeding by establishing
its market presence within each individual market. Currently
OdorFree is sold through several major super market chains in the
states of Texas, Louisiana and Florida. The Company was also
chosen to market and deliver A&P’s America’s Choice
private label odor eliminator product. This is in addition to
the prior quarter’s addition of the Laura Lynn private label
of Ingle’s Markets.
On April 7, 1999, the company created a subsidiary to
develop electronic commerce via the internet. Electronic Medical
Distribution, Inc. (“the subsidiary”, doing business as
“eMD.com”), has not yet commenced operations and from
its formation to date has been in the development stage, which
means its primary focus has been organizational activities,
raising capital, gaining regulatory approvals, research and
development and further investigation into new markets. eMD.com
will seek to integrate three product offerings for providers
(point of care medication management, electronic medical records,
and pharmaceutical care services) with a comprehensive
healthcare website. eMD.com is scheduled to rollout its web
products for both physicians and consumers in December 1999.
Financial Condition and Results of Operations
Net sales for the three month period ended September 30,
1999 were $144,445, an increase of $56,591, or 64% over the same
period last year. The increase was due primarily to the expanded
marketing of the OdorFree product line in the retail markets.
Gross profit of $53,957 for the quarter ended September 30,
1999 represents 37% of net sales as compared to $54,118, or 62%
of net sales, for the quarter ended September 30, 1998. This
decrease was due primarily to the shift in product mix weighted
more toward the retail market, which has a lower profit margin
than the industrial and institutional market.
Marketing and selling expenses were $805,467 for the quarter
ended September 30, 1999, an increase of $691,088 from
$114,379 incurred during the quarter ended September 30,
1998. This increase relates principally to the rollout of the
OdorFree product line. The increase consists of approximately
$400,000 in advertising and promotion activities, as well as
$50,000 in slotting fees for the OdorFree product line. Other
cost increases consisted of investments made in additional staff
and the inception of branding promotions for eMD.com.
Research and development expenses in the quarter ending
September 30, 1999 were $633,984, compared to $37,802 during
the quarter ending September 30, 1998. This represents an
increase of $596,182 and was due
8
primarily to additional staff and costs associated with new
product development as well as testing and costs associated with
EPA filings and registrations of current products.
General and administrative expenses for the quarter ending
September 30, 1999 were $3,023,654, or an increase of
$2,763,672 over the same period ending September 30, 1998.
These higher costs were primarily due to (1) an increase in
staff and expenses of approximately $651,000 associated with
building the Company’s infrastructure, (2) the start-up
and organization costs of approximately 340,000 directly related
the web site development of eMD.com and (3) expenses in the
amount of $1,772,400 recorded pursuant to FAS 123 related to the
issuance of common shares of eMD stock to iXL for professional
services rendered and stock warrants in BioShield granted to CLR
& Associates for professional services rendered. Please refer
to Note E — Commitments and Contingencies for
additional information related to the accounting treatment. The
company’s accounting policy for capitalization of internally
developed software is conservative, and all associated costs
related to internal website development have been expensed in the
period incurred.
Interest dividend and income during the quarter ended
September 30, 1999 was $61,971 as compared to $818 in the
quarter ended September 30, 1998. The increase was due to
larger invested cash balances as a result of the proceeds from
private equity placements in the eMD.com subsidiary.
Interest expense of $16,335 in the quarter ended
September 30, 1998 represented interest paid to private note
holders who loaned the Company an aggregate of $450,000. All
such monies were repaid from the proceeds of the initial public
offering during the second fiscal quarter of 1999. There were no
borrowings or interest expense incurred for the quarter ending
September 30, 1999.
As a result of the reasons set forth above, the Company’s
operations generated a net loss of $4,347,177 or ($ 0.69) per
common share for the quarter ending September 30, 1999
compared to a net loss of $373,562 or ($ 0.08) per common share
for the quarter ended September 30, 1998. Cumulative losses
from the inception of the Company to September 30, 1999
totaled $9,996,997 or ($2.12) per common share.
Liquidity
The Company’s cash and cash equivalents totaled $5,074,266
at September 30, 1999 and $2,500,561 at June 30, 1999.
The higher cash position is due to the receipt of net proceeds of
$5,458,750 from the sale of 1,284,797 common shares of eMD.com
at a price of $4.67 per share. The placement is to fund the
initial costs of the eMD.com website and was sold under a
securities purchase agreement eMD.com entered into on
June 30, 1999. The agreement provides for the sale of up to
3,218,884 shares of eMD common stock to investors at a price of
$4.67 per share. At September 30, 1999, there were
29,274,090 issued and outstanding shares of eMD.com. In addition,
during the quarter the Company entered into a revolving credit
facility of up to $6.25 million with private investors. The
credit facility is to be repaid in the common stock of the
Company based upon an agreed formula. To date, the Company has
not drawn against it and it may not until our registration
statement for shares of common stock is filed and declared
effective by the U.S. Securities and Exchange Commission. The
Company believes that it has sufficient resources to meet its
short term operating needs.
However, the Company expects to continue to have a substantial
need to fund operating losses and the purchases of additional
capital equipment for an indefinite period. Accordingly, the
Company will be required to obtain additional capital in the very
near future. The development of eMD.com, as well as
commercialization of the parent companies products will require
additional capital in order to successfully launch the site and
related business. The Company is actively seeking to obtain
additional funds through public or private equity or debt
funding, strategic collaborative agreements, or from other
sources. The failure to raise the necessary additional capital in
the very near future will cause substantial delay or reduction
of the scope of business. No assurance can be given that either
the Company or eMD.com will be successful in its efforts to
obtain additional capital, that capital will be available on
terms acceptable to the Company or eMD.com or on terms that will
not significantly dilute the interests of existing shareholders.
9
Forward Looking Statements
When used in this form 10-QSB, the words or phrases “will
likely result”, “are expected to,” “will
continue,” “is anticipated,” “estimate,”
“project,” or similar expressions are intended to
identify “forward looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company’s
market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in the
Company’s market area and competition, that could cause
actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such
forward-looking statements, which speak only as to the date made.
The Company wishes to advise readers that the factors listed
above could affect the Company’s financial performance and
could cause the Company’s actual results for future periods
to differ materially from any opinions or statements expressed
with respect to future periods in any current statements. The
Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
Year 2000 Issues
Because our business depends on computer software, we have
developed and are implementing a plan to assess the Year 2000
readiness of our systems. We rely heavily on third-party vendors,
licensors and providers of hardware, software and services. We
have requested that these suppliers assure us that their products
are Year 2000 ready. Because our business is new and the
purchases were made long after problems associated with Year 2000
were discussed and because we generally rely on large
established vendors, we believe that there will be minimal Year
2000 impact on us. There can be no absolute assurances that the
third-party software, hardware or services incorporated into our
systems will function fully, however, and some may need to be
revised or replaced, which could be time consuming and expensive,
potentially resulting in lost revenues and increased costs for
the Company.
Management Changes
During the month of August 1999, two key employees left the
Company. Dr. Joachim Berkner, the Company’s Director of
Research and Development, Organic Chemistry, resigned to take a
position with another company. The Company is actively seeking a
replacement for Dr. Berkner. Jeffrey A. Parker, the
company’s Chief Operating Officer and Vice President of
Marketing and Sales, also resigned and his duties have been
distributed to others. The Company also reached an agreement with
Mr. Parker which allows him to exercise certain of his
options and also continues his salary and benefits through
December 31, 1999.
Subsequent Events
In addition to its development and marketing of proprietary
antimicrobials, the Company is engaged in the sale and
distribution of cleaning and deodorizing products in the retail
and industrial segments. These products are exempt from
regulation as “pesticides” under the Federal
Insecticide, Fungicide and Rodenticide Act, as amended
(“FIFRA”). Like many other companies engaged in the
sale of these products, the Company has experienced regulatory
scrutiny from the United States Environmental Protection Agency
(“EPA”), which implements federal regulations under
FIFRA regarding the labeling of these products. The EPA alleged
that certain claims on the labels were inappropriate for these
products in the absence of an EPA pesticide registration and
required the Company to revise the labels to remove alleged
pesticidal claims. While the Company did not agree with the EPA
interpretation that the claims were pesticidal, the Company
voluntarily agreed to revise the labels for these products. The
EPA then authorized the sale of the products with the revised
labels. On September 27, 1999, the EPA filed an
administrative complaint against the Company seeking the
assessment of a civil penalty in the amount of $97,340 relating
to these alleged violations as well as an allegation that the
Company refused an EPA inspection in 1998.
10
The Company maintains that these allegations are without merit.
However, in a demonstration of good faith and cooperation, the
Company, while denying the alleged violations, agreed to the
payment of a substantially reduced penalty on October 30,
1999 in the amount of $72,840.
In the month of October 1999, the company continued to develop
its eMD.com business infrastructure. Significant contractual
payment commitments of approximately $4,000,000 have been made by
the company to several equipment, software and consulting
business partners to complete the initial versions of the
internet products by December 1999. Total cash payment
commitments of approximately $3,000,000 are due by the end of
December 1999. Management is currently seeking to raise
additional investment capital to meet these commitments and to
fund operational deficits that are anticipated throughout the
early operational stages of the eMD.com strategy. And no
assurances can be given that the Company will be successful in
raising additional capital.
11
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, and 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
| |
|
|
|
|
|
|
| Exhibit |
|
|
|
|
| Number |
|
|
|
Description |
|
|
|
|
|
|
10.95 |
|
|
— |
|
Warrant Agreement between the Company and CLR & Associates
dated September 29, 1999. |
|
27 |
|
|
— |
|
Financial Data Schedule (for SEC use only). |
(b) Reports on Form 8-K
None.
12
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
| |
|
|
|
|
BIOSHIELD TECHNOLOGIES, INC. |
| |
|
Date: November 15, 1999 |
|
/s/ TIMOTHY C. MOSES
TIMOTHY C. MOSES
President and Chief Executive Officer |
| |
|
Date: November 15, 1999 |
|
/s/ TIMOTHY S. HEYERDAHL
TIMOTHY S. HEYERDAHL
Chief Financial Officer |
13
BIOSHIELD TECHNOLOGIES, INC
EXHIBIT INDEX
| |
|
|
|
|
|
|
| Exhibits |
|
|
|
|
| Number |
|
|
|
Description |
|
|
|
|
|
|
10.95 |
|
|
— |
|
Warrant Agreement between the Company and CLR & Associates
dated September 29, 1999. |
|
27 |
|
|
— |
|
Financial Data Schedule (for SEC use only). |
14
