1
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-24913
BIOSHIELD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2181628
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 February 10, 2000, there were 6,406,578 outstanding shares of the
Registrant's Common Stock, no par value per share.
2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
Statements of Operations for periods ended December 31, 1999 and 1998 (unaudited)
Statements of Operations from June 1, 1995 (inception) thru December 31, 1999 and 1998
(unaudited)
Statement of Changes in Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
EXHIBIT INDEX
3
BIOSHIELD TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Balance Sheets as of December 31, 1999 (unaudited) and September 30,
1999.
2. Statements of Operations for the three month periods ended December
31, 1999 and 1998 (unaudited)
3. Statements of Operations for six months periods ended December 31,
1999 and 1998 (unaudited)
4. Statements of Operations from June 1, 1995 (inception) through
December 31, 1999 and 1998 (unaudited)
5. Statement of Changes in Stockholders' Equity (Deficit) for the
period ended December 31, 1999 (unaudited)
6. Statements of Cash Flows for the six month periods ended December
31, 1999 and 1998 (unaudited) and from June 1, 1995 (inception) thru
December 31, 1999 and 1998 (unaudited)
7. Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-KSB
SIGNATURES
EXHIBIT INDEX
4
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
December 31, September 30,
1999 1999
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 378,655 $ 5,074,266
Marketable securities 71,750 87,500
Accounts receivable 292,065 107,492
Stockholders' subscription receivable -- --
Inventories 179,403 165,743
Prepaid expenses and other current assets 117,599 181,011
------------ ------------
Total current assets 1,039,473 5,616,012
PROPERTY AND EQUIPMENT, NET 1,306,141 523,928
DEPOSITS AND OTHER LONG-TERM ASSETS 4,892,654 630,242
------------ ------------
$ 7,238,268 $ 6,770,182
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 4,921,873 $ 723,736
Accrued liabilities 227,190 514,377
Accrued payroll 237,529 68,289
Accrued interest payable 839 839
------------ ------------
Total current liabilities 5,387,430 1,307,241
MINORITY INTEREST 6,244,024 6,124,750
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 50,000,000
shares authorized; 6,406,578 and 6,325,915
issued and outstanding at December 31, 1999
and September 30, 1999, respectively 7,377,888 7,357,888
Additional paid-in capital 2,560,987 1,977,300
Accumulated other comprehensive earnings (loss) (33,250) (17,500)
Deficit accumulated during the development stage (14,298,810) (9,979,497)
------------ ------------
(4,393,187) (661,809)
------------ ------------
$ 7,238,268 $ 6,770,182
============ ============
The accompanying notes are an integral part of these statements.
5
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(Unaudited) (Unaudited)
Three months ended June 1, 1995 (inception)
December 31, to December 31,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales $ 268,954 $ 144,842 $ 1,956,521 $ 1,470,482
Cost of sales 158,504 62,337 908,385 566,553
------------ ------------ ------------ ------------
Gross profit 110,450 82,505 1,048,136 903,929
Operating expenses
Marketing and selling 1,801,180 299,615 4,083,921 1,105,934
General and administrative 2,076,902 328,475 9,086,960 2,618,868
Research and development 767,473 74,982 2,642,471 528,912
------------ ------------ ------------ ------------
4,645,555 703,072 15,813,352 4,253,714
------------ ------------ ------------ ------------
Loss from operations (4,535,105) (620,567) (14,765,216) (3,349,785)
Other income (expense)
Royalty fees -- -- 75,000 --
Consulting income, net of consulting
expenses of $19,474 for the period
ended June 30, 1998 -- -- 39,908 39,908
Interest and dividend income 25,065 36,435 196,108 44,191
Interest expense -- (315) (35,337) (35,027)
------------ ------------ ------------ ------------
Net loss before income taxes and
minority interest (4,510,040) (584,447) (14,489,537) (3,300,713)
Income tax (expense) benefit -- -- -- --
Minority interest in loss of subsidiary 190,726 -- 190,726 --
------------ ------------ ------------ ------------
NET LOSS (4,319,314) (584,447) (14,298,810) (3,300,713)
Other comprehensive earnings (loss)
Unrealized holding loss on securities -- (35,000) (17,500) (35,000)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (4,319,314) $ (619,447) $ 14,316,310 $ (3,335,713)
============ ============ ============ ============
Net loss per common share
Basic $ (0.67) $ (0.10) $ 2.98 $ (0.76)
============ ============ ============ ============
Weighted average common
shares outstanding 6,406,578 6,144,125 4,809,825 4,400,666
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
6
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(Unaudited)
Six months ended
December 31,
--------------------------
1999 1998
----------- -----------
Net sales $ 413,399 $ 232,697
Cost of sales 248,992 96,072
----------- -----------
Gross profit 164,407 136,625
Operating expenses
Marketing and selling 2,606,647 413,994
General and administrative 5,100,556 588,457
Research and development 1,401,457 112,784
----------- -----------
9,108,660 1,115,235
----------- -----------
Loss from operations (8,944,253) (978,610)
Other income (expense)
Interest and dividend income 87,036 37,253
Interest expense -- (16,652)
----------- -----------
Net loss before income taxes and
minority interest (8,857,217) (958,009)
Income tax (expense) benefit -- --
Minority interest in loss of subsidiary 190,726 --
----------- -----------
NET LOSS (8,666,491) (958,009)
Other comprehensive earnings (loss)
Unrealized holding loss on securities (15,750) (35,000)
----------- -----------
COMPREHENSIVE LOSS $(8,682,241) $ (993,009)
=========== ===========
Net loss per common share
Basic $ (1.37) $ (0.18)
----------- -----------
Weighted average common shares outstanding 6,352,802 5,445,573
=========== ===========
The accompanying notes are an integral part of these statements.
7
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Deficit
Common stock Accumulated accumulated
no par value Additional other during the
--------------------- paid-in comprehensive development
Shares Amount capital earnings (loss) stage Total
--------- --------- ---------- --------------- ----------- -----------
Balance at June 1, 1995 -- $ -- $ -- $ -- $ -- $ --
Proceeds from original issuance of shares 3,907,086 500 -- -- -- 500
Proceeds from issuance of shares under
private placement offering 62,612 115,000 -- -- -- 115,000
Stock warrants issued for services
rendered -- -- 60,000 -- -- 60,000
Net loss - June 1, 1995 (inception)
through June 30, 1996 -- -- -- -- (356,316) (356,316)
--------- --------- ---------- --------------- ---------- -----------
Balance at June 30, 1996 3,969,698 115,500 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
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BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) - CONTINUED
Deficit
Common stock Accumulated accumulated
no par value Additional other during the
---------------------- paid-in comprehensive development
Shares Amount capital earnings (loss) stage Total
--------- ---------- ---------- -------------- ------------- -----------
Proceeds from exercise of warrants
(unaudited) 3,600 21,570 -- -- -- 21,570
Stock warrants issued for services
rendered (unaudited) -- -- 1,106,400 -- -- 1,106,400
Unrealized loss on securities (unaudited) -- -- -- (15,750) -- (15,750)
Net loss for the quarter ended
September 30, 1999 (unaudited) -- -- -- -- (4,347,177) (4,347,177)
--------- ---------- ---------- ------------- ------------- -----------
Balance at September 30, 1999
(unaudited) 6,325,915 $7,357,888 $1,977,300 $ (17,500) $ (9,979,497) $ (661,809)
========= ========== ========== ============= ============= ===========
Proceeds from exercise of warrants
(unaudited) 10,000 5,000 -- -- -- 5,000
Stock warrants issued for services
rendered (unaudited) -- -- 257,000 -- -- 257,000
Proceeds from exercise of stock options
(unaudited) 70,663 15,000 326,687 -- -- 341,687
Unrealized loss on securities (unaudited) -- -- -- (15,750) -- (15,750)
Net loss for the quarter ended
December 31, 1999 (unaudited) -- -- -- -- (4,319,314) (4,319,314)
--------- ---------- ---------- ------------- ------------- -----------
Balance at December 31, 1999
(unaudited) 6,406,578 $7,377,888 $2,560,987 $ (33,250) $ (14,298,810) $(4,393,187)
========= ========== ========== ============= ============= ===========
The accompanying notes are an integral part of these statements.
9
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
Six months ended June 1, 1995 (inception)
December 31, to December 31,
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
Cash flows from operating activities:
Net loss $(8,666,490) $ (958,009) $(14,298,810) $(3,288,213)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 39,300 10,347 84,877 42,813
Issuance of stock and stock
warrants for services rendered 257,000 61,250 1,642,450 327,800
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (190,052) (56,766) (292,065) (166,847)
Subscription receivable 4,798,750 -- -- --
Inventory (28,000) 26,712 (179,403) (131,072)
Prepaid expenses and
other current assets 53,474 -- (117,599) --
Deposits and other assets (4,698,361) (92,116) (4,892,654) (170,632)
Increase in:
Accounts payable 4,323,996 (117,111) 4,921,873 192,427
Accrued liabilities and payroll 211,590 (228,804) 465,558 104,934
----------- ----------- ------------ -----------
Net cash used in operating activities (3,898,794) (1,354,497) (12,665,774) (3,088,790)
Cash flows from investing activities:
Capital expenditures (1,143,041) (105,000) (1,391,018) (148,838)
Accumulated other income/loss (31,500) -- (31,500) --
Purchase of marketable securities 31,500 (26,766) (73,500) (105,000)
----------- ----------- ------------ -----------
Net cash used in financing activities (1,143,041) (131,766) (1,498,016) (253,838)
----------- ----------- ------------ -----------
Cash flows from financing activities:
Proceeds from debt -- -- 655,000 655,000
Repayment of debt -- (642,500) (655,000) (642,500)
Contribution to capital 1,433,087 325,000 1,433,087 375,000
Proceeds from stock warrants exercised 0 224,542 224,542
Stock issued under stock option plan 41,568 -- -- --
Proceeds from stock issuances, net 1,445,274 5,327,677 13,107,360 6,256,136
----------- ----------- ------------ -----------
Net cash provided by
financing activities 2,919,929 5,010,177 14,540,447 6,868,178
----------- ----------- ------------ -----------
Net increase (decrease) in cash (2,121,906) 3,523,914 378,655 3,525,550
Cash at beginning of period 2,500,561 1,636 -- --
----------- ----------- ------------ -----------
Cash at end of period $ 378,655 $ 3,525,550 $ 378,655 $ 3,525,550
=========== =========== ============ ===========
Supplemental disclosure of cash flow information:
10
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 December 31, 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 December 31, 1999, the following changes
occurred in outstanding stock options and warrants.
Options outstanding at September 30, 1999 1,008,000
Options granted 50,000
Options cancelled (150,000)
Options exercised (140,000)
---------
Options outstanding at December 31, 1999 768,000
=========
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BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
NOTE D - STOCK OPTIONS AND WARRANTS - Continued
Warrants outstanding at September 30, 1999 2,127,377
Warrants granted 71,845
Warrants cancelled --
Warrants exercised (10,000)
---------
Warrants outstanding at December 31, 1999 2,189,222
=========
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 provided
strategic planning, and marketing advice in exchange for 600,000 shares of
eMD.com common stock.. In September 1999, 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. 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 December 31, 1999, the
Company had paid $862,000 to iXL. Required additional payments in Calendar year
2000 are approximately $1,000,000.
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.
During the quarter ended December 31, 1999, the Company entered into an
agreement with Broadvision, Inc. to purchase software for the eMD.com website.
Payments of $225,000 have been made as of December 31, 1999. Required additional
payments in calendar year 2000 are $637,000.
During the quarter ended December 31, 1999, the Company entered into a
time and materials contract with Oracle Corporation for the development of
portions of the eMD.com website. No payments had been made as of December 31,
1999. Required payments in calendar year 2000 will be approximately $1.2
million.
NOTE G. SEGMENT INFORMATION
Since April 1999, eMD.com has been in a research and development stage
to develop a consumer web site. There have been significant allocations of
resources to eMD.com and, accordingly, the following table shows key financial
results of the individual segments of BioShield and eMD.com.
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SEGMENT INFORMATION
KEY FINANCIAL DATA
BALANCE SHEET
As of December 31, 1999
(Unaudited)
BioShield eMD.com
------------ ------------
Current assets $ 486,150 553,323
Property and equipment, net 235,488 1,070,653
Deposits and other long term assets 111,350 4,781,304
------------ ------------
Total assets $ 832,988 6,405,280
============ ============
Total liabilities 490,646 4,896,784
Total minority interest and equity 342,342 1,508,496
------------ ------------
Total liabilities & equity $ 832,988 6,405,280
============ ============
INCOME STATEMENT
Three Months Ended December 31, 1999
BioShield eMD.com
------------ ------------
Sales $ 269,954 0
Cost of goods sold 158,504
------------ ------------
Gross margin 110,450 0
Cost of goods sold
Marketing and selling 935,180 866,013
General and administrative 989,054 1,087,848
Research and development 89,238 678,235
------------ ------------
Total expenses 2,013,472 2,632,096
Loss from operations (1,903,022) (2,632,096)
============ ============
STATEMENT OF CASH FLOWS
Inception to Date Period ended December 31, 1999
BioShield eMD.com
------------ ------------
Cash flows from operating activities $ (7,520,039) $ (5,145,735)
Cash flows from investing activities (414,677) (1,081,339)
Cash flows from financing activities 8,105,697 6,434,750
------------ ------------
Net increase (decrease) in cash $ 170,981 $ 207,676
============ ============
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NOTE G. SUBSEQUENT EVENTS
On January 11, 2000, the Company filed a Registration Statement on Form
SB-2 with the Securities and Exchange Commission (the "SEC") for the
registration of common stock issuable pursuant to a $10 million equity line of
credit agreement. Under the equity line of credit agreement, for a period of two
years, BioShield is entitled to periodically cause the investor, Jackson LLC, to
purchase shares of BioShield common stock at a price equal to 80% of the average
market price prior to the draw. For arranging the sale to Jackson LLC, BioShield
will pay to J.P. Carey Securities, Inc., as agent, and Greenfield Capital
Partners LLC, as subagent, an aggregate of 4% of the cash received from each
draw and common stock purchase warrants for 6,666 shares of common stock per
each $1 million raised in each draw. The warrants will have an exercise price
equal to the fair market value of a share of BioShield stock on the day
immediately prior to the draw, and will have a term of five years.
On January 13, 2000, the Company completed a private placement for
cash of $4,000,000 principal amount of our Series A Convertible Preferred Stock
and warrants to purchase 200,000 shares of common stock of eMD.com. On January
26, 2000, the Company filed a Registration Statement on Form SB-2 with the SEC
for the registration of common stock issuable pursuant to the conversion of the
Series A Preferred Stock.
On January 21, 2000, the Company served public notice of its intent to
retire all outstanding shares of publicly traded redeemable common stock
purchase warrants on February 22, 2000. Warrant holders have until February 22,
2000 to either exercise their warrants or allow them to expire. The Company has
an obligation to purchase all unexercised warrants for $.05 per warrant. The
Company has received approximately $500,000 as of February 11, 2000 in exercise
proceeds pursuant to this notice.
On January 14, 2000, the Company received notice that the United States
Environmental Protection Agency ("EPA") had registered the Company's patented
non-leaching antimicrobial compound for inclusion in retail products designed
for homeowner use. Pending EPA approval of BioShield's direction labels
outlining proper consumer use, the Company anticipates developing a host of new
retail products to fully exploit its expanded consumer market opportunity. This
EPA approval culminates a two-and-a-half year process to get this proprietary
compound registered for consumer use, a period of time during which the Company
could not introduce products for homeowner-approved applications.
In the EPA science review of BioShield's proposed "home use" of the
compound, the federal agency found no associated risk concerns. The
antimicrobial agent (BioShield AM 500) renders a surface biostatic, effectively
inhibiting the growth of bacteria, fungi (including mold and mildew) and algae.
With this EPA registration in hand, BioShield's proprietary technology can be
easily applied to a broad range of consumer products, providing long-lasting
protection against microbial contamination.
On January 19, 2000, the Company officially went live nationally on its
consumer and physician web site signaling the launch of eMD.com. The Company has
capitalized approximately $5 million for the development of the eMD.com
platforms. The Company will begin amortizing this asset over a five year period
beginning in fiscal third quarter.
14
On January 21st and 25th 2000, the Company announced the addition of
two new executive officers. Dr. Kevin Smith joined the Company as Chief Medical
Officer, and Charles Largay joined the Company as Chief Technology Officer.
NOTE H, 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 $(14,298,810) from June 1, 1995
(inception) to December 31, 1999. The Company is a development stage company
primarily engaged in research and development, patent filings, regulatory
approvals and related activities. Through December 31, 1999, the Company had
raised $16,182,899 of capital, including $6,244,024 classified as minority
interest, through its initial public offering and other private offerings of its
securities. As noted above in subsequent events, the Company successfully raised
an additional $14 million in capital in January 2000 and will continue to
actively seek 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.
15
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The
Company has 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.
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"), eMD.com seeks to integrate four
product offerings for providers (point of care medication management, electronic
medical records, pharmaceutical fulfillment and pharmaceutical care services)
with a comprehensive healthcare website. eMD.com launched its consumer and
physician web site in early January 2000. Prior to launch, the Company 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.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the three month period ended December 31, 1999 were
$269,000, an increase of $125,000 or 86%? over the same period last year. The
increase was a result of increased distribution of the OdorFree(TM) product,
primarily in the mid-western United States, along with the introduction of two
sizes of Hypoallergenic OdorFree(TM). Gross profit of $110,000 for the quarter
ended December 31,1999 represents 41% of net sales as compared to $83,000, or
58% of net sales, for the quarter ended December 31, 1998. The reduction in
gross margin relates to a change in product mix and packaging year over year.
The Company is gaining momentum as it reintroduces itself to the retail markets.
The Company settled its outstanding claim with the EPA related to product
labeling and has continues to make breakthroughs in product development and
testing. These events have bolstered the confidence of our retail customers and
have prompted a significant increase in sales that the Company projects will
continue throughout calendar year 2000.
Total marketing and selling expenses increased to $1,800,000 for the
quarter. Marketing and selling expenses related to BioShield were $935,000 for
the quarter ended December 31, 1999, an increase of $636,000 from $299,000
incurred during the quarter ended December 31, 1998. This increase relates
principally to the rollout of the OdorFree product line, repackaging efforts,
one time setup charges for certain retail accounts and a one time expense of
$187,000 for the acceleration of stock options for Jeffrey Parker pursuant to
his employment agreement. Marketing and selling expenses related to eMD.com
16
totaled $866,000 for preselling activities targeting physicians and physician
groups in support of the new website. Significant costs include initial
development of marketing materials and costs related to beta testing of the web
site.
Total research and development expenses in the quarter ending
December 31, 1999 were $767,000 for the quarter. Research and development
expenses related to BioShield were $89,000, compared to $75,000 during the
quarter ending December 31, 1998. This represents an increase of $14,000,
nearly flat run rates year over year. Research and development expenses related
to eMD.com were $678,000 primarily related to internal staff salaries and
external business partner development activities related to the web site. All
third party costs not directly related to the development of the web site were
expensed as incurred. Third party programming, software and hardware purchases
have been captured as work in process and will be capitalized in January 2000
with amortization of costs over a five year period.
Total general and administrative expenses for the quarter ending
December 31, 1999 were $2,0770,000. General and administration expenses for
BioShield were $989,000 or an increase of $661,000 over the same period ending
December 31, 1998. These higher costs related primarily to a one time, non
recurring expense of $355,000 for the acceleration of stock options for Daniel
Swaye pursuant to employment agreement and $257,000 expense pursuant to FAS 123
related to issuance of common stock warrants to White Capital Group for services
rendered in 1999 using the Black Shoales method of valuation. There were no
borrowings or interest expense incurred for the quarter ending December 31,
1999. General and administrative expenses related to eMD.com totaled 1,087,000.
Significant costs include $275,000 in staff costs, 200,000 in legal and
regulatory fees, 340,000 in consulting services and the balance in facility
costs. A significant portion of the expenses incurred in the quarter will not be
recurring in future periods as staff levels have increased to eliminate
expensive consultant activity. True eMD.com run rates for general and
administrative expenses is approximately $600,000 before amortization of the
website development.
As a result of the reasons set forth above, the Company's operations
generated a net loss of ($4,319,314) or ($0.67) per common share for the quarter
ending December 31, 1999 compared to a net loss of ($619,447) or ($0.10) per
common share for the quarter ended December 31, 1998. Cumulative losses from the
inception of the Company to December 31, 1999 totaled ($14,136,310) or ($2.98)
per common share.
LIQUIDITY
The Company's cash and cash equivalents totaled $378,655 at December 31,
1999 and $5,074,266 at September 30, 1999. The lower cash position is due to
significant development activity of the eMD web site and the continued
activities of BioShield developmental efforts and sales penetration into
expanded retail markets. On December 21, 1999, the Company completed a private
placement for cash of $310,000 proceeds from the sale of 66,381 common shares of
eMD.com at a price of $4.67 per share to private investors.
In addition, during the quarter the Company filed a registration
statement with the U.S. Securities and Exchange Commission for up to 1,300,000
shares of BioShield Common Stock for potential purchase by our publicly traded
redeemable common stock purchase warrants. The company issued public notice of
redemption in January 2000 with an expiration date of February 22, 2000. No cash
proceeds were received by December 31, 1999. If all outstanding publicly traded
warrants are converted, the company would raise over$7 million. The Company also
began negotiations in December to modify the revolving credit facility of up to
$6.25 million with a private investors group, Jackson, LLC. The Company
completed negotiations
17
in early January with Jackson, LLC to increase the credit facility to $10
million and filed a registration statement form SB-2 on January 11, 2000 with
the U.S. Securities and Exchange Commission On January 13, 2000 the Company
completed a private placement for cash of $4 million principal amount of Series
A convertible preferred stock and warrants to purchase 200,000 shares of common
stock of eMD.com.
The impact of BioShield warrant redemption notice, the equity line of
credit and the private placement preferred stock has the full potential to raise
an additional $21 million in the calendar year 2000 to fund operations into
calendar year 2001.
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 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 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.
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
The Company experienced no adverse effect from the Year 2000 millennium
bug. All operations have proceeded without incident.
MANAGEMENT CHANGES
During the quarter ended December, 31, 1999, the company completed
termination negotiations with Jeffrey Parker, former Chief Operating Officer for
BioShield Technologies. Also during the quarter, the company accepted the
resignation of Daniel E. Swaye, former Chief Financial Officer for BioShield.
18
SUBSEQUENT EVENTS
On January 11, 2000, the Company filed a Registration Statement on Form
SB-2 with the Securities and Exchange Commission (the "SEC") for the
registration of common stock issuable pursuant to a $10 million equity line of
credit agreement. Under the equity line of credit agreement, for a period of two
years, BioShield is entitled to periodically cause the investor, Jackson LLC, to
purchase shares of BioShield common stock at a price equal to 80% of the average
market price prior to the draw. For arranging the sale to Jackson LLC, BioShield
will pay to J.P. Carey Securities, Inc., as agent, and Greenfield Capital
Partners LLC, as subagent, an aggregate of 4% of the cash received from each
draw and common stock purchase warrants for 6,666 shares of common stock per
each $1 million raised in each draw. The warrants will have an exercise price
equal to the fair market value of a share of BioShield stock on the day
immediately prior to the draw, and will have a term of five years.
On January 13, 2000, the Company completed a private placement for
cash of $4,000,000 principal amount of our Series A Convertible Preferred Stock
and warrants to purchase 200,000 shares of common stock of eMD.com. On January
26, 2000, the Company filed a Registration Statement on Form SB-2 with the SEC
for the registration of common stock issuable pursuant to the conversion of the
Series A Preferred Stock.
On January 21, 2000, the Company served public notice of its intent to
retire all outstanding shares of publicly traded redeemable common stock
purchase warrants on February 22, 2000. Warrant holders have until February 22,
2000 to either exercise their warrants or allow them to expire. The Company has
an obligation to purchase all unexercised warrants for $.05 per warrant. The
Company has received approximately $500,000 as of February 11, 2000 in exercise
proceeds pursuant to this notice.
On January 14, 2000, the Company received notice that the United States
Environmental Protection Agency ("EPA") had registered the Company's patented
non-leaching antimicrobial compound for inclusion in retail products designed
for homeowner use. Pending EPA approval of BioShield's direction labels
outlining proper consumer use, the Company anticipates developing a host of new
retail products to fully exploit its expanded consumer market opportunity. This
EPA approval culminates a two-and-a-half year process to get this proprietary
compound registered for consumer use, a period of time during which the Company
could not introduce products for homeowner-approved applications.
In the EPA science review of BioShield's proposed "home use" of the
compound, the federal agency found no associated risk concerns. The
antimicrobial agent (BioShield AM 500) renders a surface biostatic, effectively
inhibiting the growth of bacteria, fungi (including mold and mildew) and algae.
With this EPA registration in hand, BioShield's proprietary technology can be
easily applied to a broad range of consumer products, providing long-lasting
protection against microbial contamination.
On January 19, 2000, the Company officially went live nationally on its
consumer and physician web site signaling the launch of eMD.com. The Company has
capitalized approximately $5 million for the development of the eMD.com
platforms. The Company will begin amortizing this asset over a five year period
beginning in fiscal third quarter.
On January 21st and 25th 2000, the Company announced the addition of
two new executive officers. Dr. Kevin Smith joined the Company as Chief Medical
Officer, and Charles Largay joined the Company as Chief Technology Officer
19
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
- ------- -----------
10.110 -- Employment agreement between the Company and Charles L. Largay and
Electronic Medical Distribution, Inc. dated January 10, 2000.
10.111 -- Unit Purchase Warrant agreement between the Company and Herman Blank,
CPA Profit 1 Sharing Plan dated September 29, 1999.
10.112 -- Amendment to White Capital Warrant agreement dated January 10, 2000
27 -- Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
20
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: February 15, 2000 /s/ TIMOTHY C. MOSES
-------------------------------------
TIMOTHY C. MOSES
President and Chief Executive Officer
Date: February 15, 2000 /s/ TIMOTHY S. HEYERDAHL
-------------------------------------
TIMOTHY S. HEYERDAHL
Chief Financial Officer
21
BIOSHIELD TECHNOLOGIES, INC
EXHIBIT INDEX
Exhibits
Number Description
- -------- ------------
10.110 -- Employment agreement between the Company and Charles L. Largay and
Electronic Medical Distribution, Inc. dated January 10, 2000.
10.111 -- Unit Purchase Warrant agreement between the Company and Herman Blank,
CPA Profit Sharing Plan dated September 29, 1999.
10.112 -- Amendment to White Capital Warrant agreement dated January 10, 2000