1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 2000
2000 REGISTRATION NO. 333--
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BIOSHIELD TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-2181628
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
BIOSHIELD TECHNOLOGIES, INC.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
TIMOTHY C. MOSES
BIOSHIELD TECHNOLOGIES, INC.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
RAYMOND L. MOSS
SIMS MOSS KLINE & DAVIS LLP
400 NORTHPARK TOWN CENTER, SUITE 310
1000 ABERNATHY ROAD, N.E.
ATLANTA, GEORGIA 30328
(770) 481-7200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement until June
14, 2002, or until such time that all of the shares registered hereunder have
been sold.
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
2
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
Title of each class Amount Proposed maximum offering Proposed maximum
of to be price aggregate Amount of
Securities to be registered registered (1) per share (2) offering price (2) registration fee
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.001 per share 10,000,000 shares $1.422 $14,220,000 $3,754.08
- ----------------------------------------------------------------------------------------------------------------------------------
(1) The shares of Common Stock which may be offered by the selling shareholder
pursuant to this Registration Statement consist of shares issuable upon the
conversion of $10,000,000 principal amount of Series B Convertible Preferred
Stock and the exercise of warrants to purchase up to 79,281 shares of Common
Stock. In connection with the sale of the Series B Convertible Preferred Stock,
BioShield Technologies, Inc. agreed to file a registration statement covering
the shares of Common Stock issuable upon conversion of the Series B Convertible
Preferred Stock and exercise of the warrants. If all the Series B Convertible
Preferred Stock had been converted, and all the warrants exercised, as of
October 19, 2000, the conversion price for the Series B Convertible Preferred
Stock would have been approximately $1.61 per share of Common Stock, and
approximately 6.2 million shares of Common Stock would have been issuable as a
result of such conversion and exercise. This registration statement includes
additional shares of Common Stock in the event the actual number of shares
issuable upon conversion of the Series B Preferred Stock increases as a result
of adjustments in the conversion formula of the Series B Convertible Preferred
Stock. In addition to the shares set forth in the table above, the amount to be
registered includes an indeterminate number of shares of Common Stock issuable
upon conversion of the Series B Convertible Preferred Stock or the exercise of
the warrants as a result of stock splits, stock dividends and similar
transactions in accordance with Rule 416 of Regulation C under the Securities
Act of 1933, but does not include additional shares that may be issuable due to
the operation of the conversion formula applicable to the Series B Convertible
Preferred Stock. Rule 416 does not apply to any additional shares that would be
issuable to holders of the Series B Convertible Preferred Stock as a result of
changes in the market price of the Common Stock, and BioShield Technologies,
Inc. is not relying on Rule 416 to register any additional shares issuable as a
result of the operation of the conversion formula applicable to the Series B
Convertible Preferred Stock.
(2) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Registrant's common
stock as reported on the Nasdaq SmallCap Market(TM) on October 19, 2000, in
accordance with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES
THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
3
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 19, 2000
BIOSHIELD TECHNOLOGIES, INC.
10,000,000 SHARES OF COMMON STOCK
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" DESCRIBED BEGINNING ON PAGE __
IN DETERMINING WHETHER TO PURCHASE SHARES OF BIOSHIELD.
These shares of common stock are being offered by the selling
shareholder identified on page __ of this prospectus in the section entitled
"Selling Shareholder." The selling shareholder may sell these shares from time
to time:
- on the Nasdaq SmallCap Market(TM);
- on the over-the-counter market;
- in transactions directly with market makers; or
- in privately negotiated transactions.
We will not receive any portion of the proceeds from the sale of these
shares.
BioShield's common stock is quoted on the Nasdaq SmallCap Market under
the symbol "BSTI."
The selling shareholder will determine the price of the shares
independent of BioShield. On October 19, 2000, the last sale price of the common
stock on the Nasdaq SmallCap Market was $1.375 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is October 19, 2000
4
TABLE OF CONTENTS
PAGE
-----
Cautionary statement regarding forward-looking statements.......................................................................
Summary.........................................................................................................................
Risk factors....................................................................................................................
Use of proceeds.................................................................................................................
Issuance of shares to selling shareholder.......................................................................................
Selling shareholder.............................................................................................................
Plan of distribution............................................................................................................
Description of capital stock....................................................................................................
Transfer agent and registrar....................................................................................................
Legal matters...................................................................................................................
Experts.........................................................................................................................
Where you can find more information.............................................................................................
Information incorporated by reference...........................................................................................
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is current as of the date on the cover.
2
5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking information regarding
BioShield Technologies, Inc., a Georgia corporation, including our
majority-owned subsidiary, Electronic Medical Distribution, Inc., or eMD, a
Delaware corporation. The forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, including statements as to industry trends, future
economic performance, anticipated profitability, anticipated revenues and
expenses, anticipated transactions and closing dates for these transactions,
planned product development and products or service line growth may be
significantly impacted by risks and uncertainties, including, but not limited
to, failure of our industries to develop at anticipated rates, failure of our
existing and planned products and services to be timely developed or to gain
significant market acceptance, competition and other economic factors. You can
find many of these statements by looking for words such as "may", "will",
"believes", "expects", "anticipates", "intends", "could", "would", "estimates"
or similar expressions in this prospectus.
These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks outlined under "Risk
factors" beginning on page __, that may cause BioShield's or eMD's actual
results to differ from results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. You should carefully
consider the risks described in the "Risk factors" section, in addition to the
information contained in this prospectus and the documents incorporated by
reference.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither BioShield,
eMD or any other person assumes responsibility for the accuracy and completeness
of those statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results. All subsequent written and oral forward-looking statements
attributable to BioShield or any person acting on our behalf is expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section.
SUMMARY
This summary highlights selected information in this prospectus, and
may not contain all the information that is important to you. You should
carefully read this entire prospectus and the other documents we refer to for a
more complete understanding of this offering. Investment in our common stock
involves a high degree of risk. Investors should carefully consider the
information set forth under "Risk Factors" beginning on page __.
THE COMPANY. BioShield Technologies, Inc. is a Georgia corporation and
was organized in 1995. We historically have been engaged in research and
development, patent filings, regulatory issues and related activities geared
towards the sale of our retail, industrial and institutional products. Due
largely to recent Environmental Protection Agency, or EPA, approvals, we are
currently selling and marketing primarily cleaning and deodorizing products.
Many of these products provide long-term killing action of microorganisms
responsible for cross contamination and viral contamination, along with
inhibiting and controlling the growth of over 100 viral, bacteria, fungi and
yeast organisms.
In 1999, we created a subsidiary to develop electronic commerce via the
internet called Electronic Medical Distribution, Inc. or eMD. eMD integrates
services for healthcare providers with a comprehensive internet-based product
and healthcare website. These services include point of care medication
management, electronic patient charting, pharmaceutical fulfillment and
pharmaceutical care services. eMD launched its consumer and physician web site
in January 2000. As a result, BioShield currently operates in two distinct
business segments, antimicrobial and biostatic products for use within the
retail and institutional markets through BioShield and pharmaceutical healthcare
via the internet through eMD. BioShield is comprised of four business divisions
for the sale, distribution, and development of antimicrobial, biostatic, and
medical related products for the internet, retail, industrial and institutional,
and specialty chemical markets.
RECENT DEVELOPMENTS. On July 3, 2000, we announced that we would
acquire AHT Corporation, a national provider of internet-based e-commerce
solutions for clinical laboratories, pharmacy benefit managers, pharmacies and
physicians, and integrate AHT into eMD. It was expected that the combined entity
would offer comprehensive internet clinical transaction services. On September
7, 2000, AHT filed suit against us, claiming, among other things, that we had
fraudulently induced AHT to enter into the merger agreement. On September 22,
2000 AHT filed for protection from its creditors under chapter eleven of the
federal bankruptcy code. Also on September 22, 2000 we entered into a revised
asset purchase agreement with AHT, pursuant to which we have agreed to provide
AHT with up to $1,500,000 in emergency financing and to purchase the assets of
AHT for approximately $12,000,000 in cash and $3,000,000 in our common stock. In
exchange, AHT has agreed to stay the litigation and subsequently dismiss the
suit with prejudice. This asset purchase agreement is subject to the approval of
the bankruptcy court.
3
6
On July 7, 2000, we announced an agreement to acquire up to 85% of the
outstanding stock of Arrow Magnolia International, Inc. for a combination of
cash and stock, and integrate Arrow-Magnolia into our professional division.
Dallas-based Arrow Magnolia is engaged primarily in the manufacture and
distribution of specialty chemical products for use in cleaning and maintaining
equipment, and generalized maintenance and sanitation products. Subsequently, on
September 22, 2000, we amended our agreement to provide for payment for the
Arrow-Magnolia shares entirely in cash. BioShield will offer $5.00 per share for
up to 85% of the issued and outstanding common stock of Arrow-Magnolia. The
total transaction is valued at approximately $17.5 million. The transaction is
subject to satisfaction of the conditions set forth in the agreement, including
the completion of due diligence investigations.
THE OFFERING. On June 14, 2000, we completed a private placement for
cash of $10 million principal amount of our series B convertible preferred stock
and warrants to purchase 79,281 shares of common stock. We agreed to file the
registration statement which includes this prospectus to register for resale the
shares of our common stock issuable upon conversion of the preferred stock and
exercise of the warrants. If all the shares of series B preferred stock were
converted, and all the warrants exercised, as of October 16, 2000, we would be
required to issue approximately 2,514,600 shares of common stock, or
approximately 23% of the number of shares of common stock that would then be
outstanding. The total number of shares of common stock issuable upon the
conversion and exercise will vary, based upon the closing bid and ask prices of
our common stock. The terms of the preferred stock and the warrants, including
the conversion rights of the preferred stock, are more fully described in this
prospectus under "Description of Capital Stock" on page [ ].
RISK FACTORS
BioShield common stock can be a risky investment and may not be suited
to your investment objectives. The following is a summary of the most
significant risks to the purchase of BioShield common stock. For a fuller
understanding of BioShield and the other risks to investing in its common stock,
you should also carefully consider the information that we refer to in this
document. These documents are identified in the section entitled "Information
Incorporated By Reference " on page [ ].
RISKS RELATING TO BIOSHIELD AND ITS BUSINESS
WE MAY NOT BE ABLE TO FURTHER COMMERCIALIZE OUR PRODUCTS EVEN AFTER
RECEIPT OF REGULATORY APPROVALS TO DO SO. We were organized in June 1995 and
were a development stage company until regulatory approval was received for our
core product in February, 2000. BioShield's long-term viability, profitability
and growth will depend upon the successful commercialization of our core product
resulting from our research and product development activities. We may encounter
significant challenges in shifting from the development to commercialization of
our new products. We may not be able to sell significant quantities of any
product outside of retail distribution channels until the time we receive
expanded regulatory approval to commercially market our products in additional
industrial and medical markets. Any regulatory approvals we receive may be
limited in scope. Additionally, many of our products will require laboratory and
clinical testing and investment prior to obtaining regulatory approvals and
prior to full commercialization. We cannot assure you that these approvals will
be obtained. We have not filed any applications or registrations with the U.S.
Food and Drug Administration, or FDA, and none are anticipated to be filed in
the near future. In addition, with respect to the FDA, adverse or inconclusive
results in clinical trials could significantly delay or ultimately preclude any
regulatory approvals. Even if we obtain regulatory approvals, there can be no
assurance that any product approval will lead to the successful
commercialization of our products.
WE HAVE A LIMITED OPERATING HISTORY, HAVE NEVER BEEN PROFITABLE AND MAY
NEVER DEVELOP A COMMERCIALLY SUCCESSFUL PRODUCT. We have limited relevant
operating history upon which you can evaluate our prospects. Our prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered in establishing a new business in the evolving, heavily regulated
healthcare, drug, and medical device industry. This industry is characterized by
an increasing number of market entrants, intense competition and a high failure
rate. Additionally, we have just begun to incorporate our technologies into
commercial products.
WE HAVE GENERATED LIMITED REVENUE TO DATE, HAVE A HISTORY OF
SIGNIFICANT LOSSES AND EXPECT CONTINUED LOSSES. We have generated only limited
revenue from product sales and consulting to date. Although we have recorded
contract revenue, we have generated total revenue from product sales of only
approximately $2.5 million from inception through June 30, 2000. In addition, we
have incurred significant losses, including losses of $356,316, $514,459,
$1,471,929, $3,289,616 and $25,069,646 for the thirteen months ended June 30,
1996 and for the fiscal years ended June 30, 1997, 1998, 1999 and 2000. Because
we will continue to have high research and development and general and
administrative expenses for the foreseeable future without matching revenues, we
anticipate continued net losses until the time, if ever, as we are able to
generate sufficient revenues to support our operations.
OUR LOSSES WILL PROBABLY CONTINUE FOR AN INDEFINITE PERIOD. We believe
that our ability to generate sufficient revenues, aside from the retail market,
may depend on our success in obtaining regulatory registrations for the
commercial sale of additional
4
7
products. We cannot assure you that we will receive approval to sell additional
products, or that we will derive revenue from the commercialization of our
products. Additionally, we can not assure you that we will ever be profitable.
OUR CONTINUED EXISTENCE AS A GOING CONCERN IS DEPENDENT UPON THE
SUCCESS OF OUR FUTURE OPERATIONS AND OUR ABILITY TO OBTAIN ADDITIONAL FINANCING.
We currently have and will continue to have significant capital requirements to
fund our operations. To fund our capital requirements to date, we have been
dependent primarily on:
- sales revenue generated primarily from the sale of our
products;
- the net cash proceeds of private placements of BioShield and
eMD securities; and
- the proceeds of our initial public offering.
We anticipate, based on our currently proposed plans and assumptions
relating to our operations, that current working capital and projected revenues,
together with the proceeds of private placements of our convertible preferred
stock effected in January and June, 2000 and the availability of approximately
$58 million in the form of two private equity facilities, will be sufficient to
satisfy our estimated cash requirements through the end of 2001. We expect to
incur substantial costs to complete the primary development of our products for
the medical and industrial markets. Therefore, unless we generate significant
revenues during this period, we may need additional financing to fully fund this
development. We have no other current sources of additional financing and it is
not anticipated that any of the officers, directors or stockholders of BioShield
will provide any portion of our future financing requirements. We cannot assure
you that additional financing will be available on commercially reasonable
terms, or at all. Any inability to obtain additional financing when needed could
require us to significantly curtail or possibly cease operations. We may also
need to raise additional funds to respond to business contingencies, which may
include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- develop new or enhance existing editorial content, features or
services;
- enhance our operating infrastructure;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in connection with this offering. We cannot assure you that additional
financing will be available on terms favorable to us, or at all.
OUR BUSINESS MAY NOT GROW IF OUR PRODUCTS DO NOT RECEIVE ADDITIONAL
REGULATORY APPROVALS AND WE COULD BEAR SUBSTANTIAL REGULATORY COSTS. The
development, manufacture, testing and marketing of all of our products are
subject to extensive regulation by numerous authorities in the United States and
other countries. In the United States, before new antimicrobial products for
humans are permitted to be marketed commercially, they must undergo extensive
preclinical and clinical testing. Delays in obtaining additional regulatory
approvals may adversely affect the development, testing or marketing of our
products and our ability to generate revenues from the sale or licensing of our
products. We cannot assure you that we will obtain additional regulatory
approvals in the United States or any other country to sell our products for
these purposes.
WE ARE AT A COMPETITIVE DISADVANTAGE TO LARGE, WELL-ESTABLISHED
COMPANIES. The markets for our products are competitive. Competition from
companies that produce antimicrobial products for commercial use is intense and
we expect the competition to increase. We cannot assure you that other companies
will not develop new products that are directly competitive with our products.
We are aware of several other companies that currently manufacture products that
compete directly with our products. Some of these companies have
well-established reputations for success in the development, sale and service of
conventional antimicrobial products and have substantially greater financial,
technical, personnel and other resources than we do. We cannot assure you that
we will be able to compete successfully, that competitors will not develop
technologies or products that render our products obsolete or less marketable or
that we will be able to successfully enhance our existing products or develop or
acquire new products.
OUR PRODUCTS MAY BECOME OBSOLETE. The antimicrobial industry is subject
to rapid and significant technological change, and our ability to compete is
dependent in large part on continued improvements to our products and
technologies. In order to remain
5
8
competitive, we must effectively utilize and expand our research and development
capabilities, and, once developed, quickly convert new technology into products
and processes that we can sell to the public. Our competitors may succeed in
developing technologies, products and processes that render our processes and
products obsolete. Some entities have filed applications for or have been issued
patents and may obtain additional patents and proprietary rights relating to
products or processes that compete with or are related to our products. The
scope and viability of these patents, the extent to which we may be required to
obtain licenses under these patents or under other proprietary rights and the
cost and availability of licenses are unknown, but these factors may limit our
ability to market our products.
OUR BUSINESS POTENTIALLY EXPOSES US TO PRODUCT LIABILITIES THAT ARE
INHERENT IN THE TESTING, MANUFACTURING, MARKETING AND SALE OF THERAPEUTIC
PRODUCTS. While we will take precautions we deem appropriate, we cannot assure
you that we will be able to avoid significant exposure to product liability
lawsuits. We have obtained general liability insurance in the amount of
$1,000,000, which includes aggregate product coverage of $1,000,000. We also
have an umbrella liability policy with an aggregate limit of $5,000,000. We
cannot assure you that we will be able to obtain product liability coverage in
the future on acceptable terms or that any insurance policy will provide
adequate protection against potential claims. A successful claim brought against
us in excess of any insurance coverage could have a material adverse effect on
our business, financial condition and results of operations.
THE MARKET MAY NOT ACCEPT OUR PRODUCTS. To date, we have generated
limited revenue from sales of our products. We have not yet commenced
significant marketing activities, we have limited marketing experience and
limited resources to independently undertake extensive marketing activities. The
demand and market acceptance for our newly introduced products is highly
uncertain. Achieving market acceptance for our products will require substantial
marketing efforts and expenditure of significant funds to inform customers of
the distinctive characteristics and benefits of using our products. We cannot
assure you that our marketing efforts will result in successful
commercialization or market acceptance of our products.
WE ARE VERY DEPENDENT ON KEY PERSONNEL. Our success will be largely
dependent on the abilities and continued personal efforts of Timothy C. Moses,
one of BioShield's founders and chairman of the board of directors, president,
and chief executive officer of BioShield. We employ Timothy Moses under an
employment agreement which expires on January 1, 2003. The loss of the services
of Timothy Moses would have a material adverse effect on our business, financial
condition and results of operations. We are also a beneficiary of a key man life
insurance policy in the amount of $1,000,000 on Timothy Moses. We do not
currently own policies covering any other officer or employee.
THERE ARE SUBSTANTIAL STOCKHOLDERS OF BIOSHIELD. Timothy Moses, one of
BioShield's founders and chairman of the board of directors, president, and
chief executive officer of BioShield, beneficially owns approximately 20% of the
outstanding shares of BioShield common stock. Jacques Elfersy, one of
BioShield's founders and a former executive officer and director of BioShield,
owns approximately 17% of the outstanding shares of BioShield common stock. As a
result of their significant ownership, Timothy Moses and Jacques Elfersy may be
able to exert significant influence over the outcome of stockholder votes,
including votes concerning the election of directors, the adoption of amendments
to BioShield's articles of incorporation or bylaws and the approval of mergers
and other significant corporate transactions, including a sale of substantially
all of our assets. This influence could also have the effect of delaying,
deferring or preventing a change in control of BioShield that BioShield's
stockholders would favor.
WE CANNOT ASSURE YOU THAT THERE WILL BE A CONTINUED PUBLIC MARKET FOR
BIOSHIELD COMMON STOCK. The market prices for securities of biotechnology
companies, including BioShield, have been volatile. Many factors may have a
significant effect on the market price or liquidity of our common stock,
including:
- announcements of technological innovations or new products by
us or our competitors;
- developments concerning proprietary rights including patents
and litigation matters;
- publicity regarding actual or potential clinical testing
relating to products under development by us or others;
- regulatory developments in both the United States and foreign
countries;
- public concern regarding the safety of biotechnology products;
- economic and other external factors; and
- period-to-period fluctuations in financial results.
Additionally, in recent years, the stock market has experienced a high
level of price and volume volatility and market prices for the stock of many
companies, including BioShield.
6
9
A SIGNIFICANT NUMBER OF SHARES OF BIOSHIELD COMMON STOCK MAY BE RESOLD
IN THE PUBLIC MARKET. In September 1999, over 4.5 million shares of BioShield
common stock that were restricted securities became eligible for resale pursuant
to Rule 144 under the Securities Act after the expiration of a lock-up
agreement. Any sales of significant amounts of these shares in the public
markets could adversely affect the market price of BioShield common stock.
A SUBSTANTIAL NUMBER OF SHARES OF BIOSHIELD COMMON STOCK MAY BE ISSUED
AT A DISCOUNT TO THE MARKET PRICE FOR THOSE SHARES. We have filed a registration
statement covering up to 1,000,000 shares of our common stock which may be
issued in connection with the exchange of shares of eMD common stock and related
warrants. The exchange would be at a discount to the then-current market value
of our common stock. We have entered into private equity financing agreements
under which a total of up to $60 million in BioShield common stock may be issued
at a discount to the then-current market price, under which we have drawn down
$2 million to date. In addition, the series B convertible preferred stock is
convertible into BioShield common stock at a discount to the then-current market
value. See "Description of Capital Stock" at page ___. The effect of these
exchanges and conversions may have a negative impact on the trading price of our
common stock, may enable these investors to acquire a substantial ownership
position in BioShield and may significantly dilute the interest of existing
BioShield stockholders.
A SUBSTANTIAL NUMBER OF SHARES OF BIOSHIELD COMMON STOCK HAVE BEEN
RESERVED FOR ISSUANCE UPON THE CONVERSION OF OUTSTANDING OPTIONS. We have
reserved up to 3.2 million shares of BioShield common stock for issuance to our
key employees, officers, directors and consultants pursuant to our stock
incentive plan and 1 million shares of BioShield common stock for issuance to
directors pursuant to our directors' stock option plan. As of June 30, 2000,
options to purchase 640,500 shares were outstanding under the stock incentive
plan, of which 612,000 were immediately exercisable, and 595,000 options had
been granted under the directors' plan, all of which are immediately
exercisable. The existence of these options and any other options or warrants
may prove to be a hindrance to future equity financing by BioShield. In
addition, these options may result in sales of common stock to officers and
directors of BioShield at prices well below the market price at the time of
option exercise.
OUR DIRECTORS ARE AUTHORIZED TO ISSUE A SERIES OF BLANK CHECK PREFERRED
STOCK, WHICH, IF ISSUED, MAY HARM THE RIGHTS OF HOLDERS OF SHARES OF BIOSHIELD
COMMON STOCK. BioShield's articles of incorporation authorize the issuance of
blank check preferred stock with designations, rights and preferences that
BioShield's board of directors may determine. Accordingly, our board of
directors is empowered, without stockholder approval, to issue additional
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
shares of BioShield common stock. The issuance of a series of preferred stock
could be used to discourage, delay or prevent a change in control of BioShield,
to the harm of the stockholders. Although management has no present intention of
issuing any shares of its authorized preferred stock, BioShield may do so in the
future.
OUR ARTICLES OF INCORPORATION AND BYLAWS CONTAIN ANTI-TAKEOVER
PROVISIONS THAT MAY DISCOURAGE OR PREVENT POTENTIAL ACQUIRORS FROM ACQUIRING
BIOSHIELD. Our articles of incorporation and bylaws contain numerous
anti-takeover provisions that will encourage any potential acquiror of BioShield
to deal directly with BioShield's board of directors. These provisions include:
- a classified board of directors with directors serving
staggered three-year terms;
- a prohibition against majority stockholders taking actions by
written consent;
- restrictions on the power of stockholders to call special
meetings of the stockholders;
- requirements that the board of directors must have advance
notice of any business to be introduced at a stockholders'
meeting and nominees for election to the board of directors;
- adoption of provisions of Georgia law regarding business
combinations;
- authorization for BioShield's board of directors to consider
the effects of any proposed acquisition on employees,
customers, suppliers and the community;
- provisions requiring that directors can only be removed for
cause and by a greater than majority vote of stockholders; and
- provisions requiring that unless BioShield's board of
directors has approved an acquisition, a greater than majority
vote of the stockholders is required in order to approve the
acquisition.
These anti-takeover provisions could allow BioShield's board of
directors to impede or prevent an acquisition of BioShield even if stockholders
support the acquisition. These provisions could also serve to entrench incumbent
management.
7
10
BIOSHIELD HAS NEVER PAID DIVIDENDS TO ITS STOCKHOLDERS AND DOES NOT
FORESEE PAYING DIVIDENDS IN THE FORESEEABLE FUTURE. To date, BioShield has never
paid any cash dividends on its common stock and it does not expect to declare or
pay dividends on its common stock in the foreseeable future. In addition, future
agreements or credit facilities may restrict dividend payments.
WE MAY FAIL TO RETAIN OUR LISTING ON THE NASDAQ SMALLCAP MARKET. While
BioShield's common stock currently meets the current initial listing
requirements for inclusion in the Nasdaq SmallCap Market, we cannot assure you
that we will continue to meet the listing requirements. If BioShield is unable
to satisfy the Nasdaq SmallCap Market's requirements for continued listing, our
common stock may be delisted. If our common stock is delisted, our common stock
would then be traded only in the over-the-counter market in the so-called "pink
sheets" or the NASD's OTC Bulletin Board. As a result, the liquidity of
BioShield's common stock could be impaired, not only in the number of shares of
BioShield common stock which could be bought and sold, but also through delays
in the timing of transactions, reduced numbers of security analysts' and the
news media's coverage of BioShield and lower prices for our securities than
might otherwise be attained.
In addition, if our common stock is delisted from trading on the Nasdaq
SmallCap Market and the trading price of the common stock falls below $5.00 per
share, trading in the common stock would be subject to the requirements of
certain rules promulgated under the Exchange Act. These rules would require
broker-dealers to provide additional disclosure in connection with any sales of
BioShield common stock. These rules would also require broker-dealers to sell
these securities only to established customers, accredited investors, as defined
in the Securities Act, or other investors who give prior written consent before
purchasing or selling their shares of BioShield common stock. The additional
burdens imposed on broker-dealers by these requirements may discourage them from
effecting transactions in BioShield common stock, which could severely limit the
liquidity of the BioShield common stock.
WE MAY NOT BE ABLE TO OBTAIN CASH THAT WE EXPECT TO HAVE ACCESS TO
THROUGH OUR PRIVATE EQUITY CREDIT AGREEMENTS. Our business plans rely in part
upon the receipt of part of the remaining $58 million in financing provided for
under our private equity credit agreements. However, there are circumstances
under which we may not receive all or any part of that financing, including:
- If we do not effect or maintain the effectiveness of the
required registration statements with the SEC, or any of the
other conditions contained in the private equity credit
agreements are not satisfied or waived, we will not be able to
cause the investor to purchase the shares under the private
equity credit agreements;
- We currently cannot issue more than 19.99% of the shares
outstanding immediately prior to the execution of either of
the private equity credit agreements, unless we secure
stockholder approval of the issuance of the shares.
Accordingly, depending on the market price of our shares, in
the absence of stockholder approval, we may not receive all
the anticipated proceeds of the private equity credit
agreements; and
- The obligations of the private investor under the private
equity credit agreements are not secured or guaranteed, and if
the investor does not have available funds or otherwise refuse
to honor its obligations to us, we may not be able to force it
to do so.
Further, if we are successful in selling shares under the private
equity credit agreements, those sales will likely be at a discount to the
current market price, and the existing stockholders of BioShield may experience
significant dilution. As the market price for our common stock decreases, the
number of shares which may be sold to the investor will increase. If we require
the investor to purchase our shares at a time when our stock price is depressed,
our existing stockholders' interest in our company will be significantly
reduced.
ANY FUTURE ACQUISITIONS WE MAKE OF COMPANIES OR TECHNOLOGIES MAY RESULT
IN DISRUPTIONS TO OUR BUSINESS OR THE DISTRACTION OF OUR MANAGEMENT. We may
acquire or make investments in complementary businesses, technologies, services
or products if appropriate opportunities arise. From time to time we engage in
discussions and negotiations with companies regarding our acquiring or investing
in those companies' businesses, products, services or technologies, and we
regularly engage in these discussions and negotiations in the ordinary course of
our business. Some of those discussions contemplate the other party making an
investment in BioShield or eMD. However, we cannot give you any assurance that
investments will be made. We cannot assure you that we will be able to identify
future suitable acquisition or investment candidates, or if we do identify
suitable candidates, that we will be able to make any acquisitions or
investments on commercially acceptable terms or at all. If we acquire or invest
in another company, we could have difficulty in assimilating that company's
personnel, operations, technology and software. In addition, the key personnel
of the acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in integrating the acquired products,
services or technologies into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and adversely affect our results of operations. Furthermore, we may
incur indebtedness or issue equity securities to pay for any future
acquisitions. The issuance of equity securities would be dilutive to our
existing stockholders. As of the date of this prospectus, other than the
proposed acquisition of the assets of
8
11
AHT Corporation and the proposed acquisition of up to 85% of the outstanding
stock of Arrow-Magnolia International, Inc., we have no agreement to enter into
any material investment or acquisition transaction.
OUR BUSINESS MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US WHICH COULD CAUSE OUR BUSINESS TO SUFFER. In addition to the risks
specifically identified in this Risk factors section or elsewhere in this
prospectus, we may face additional risks and uncertainties not presently known
to us or that we currently deem immaterial which ultimately impair our business,
results of operations and financial condition.
RISKS PARTICULAR TO EMD
EMD WILL DEPLETE OUR CAPITAL MORE QUICKLY THAN OUR TRADITIONAL
BUSINESS. We may require substantial capital in excess of what we now have
available in order to complete the development and implement the operation of
eMD.
CONSUMERS AND THE HEALTHCARE INDUSTRY MUST ACCEPT THE INTERNET AS A
SOURCE OF HEALTHCARE CONTENT AND SERVICES FOR OUR BUSINESS MODEL TO BE
SUCCESSFUL. To be successful, we must attract to our network a significant
number of consumers as well as other participants in the healthcare industry. To
date, consumers have generally looked to healthcare professionals as their
principal source for health and wellness information. Our business model assumes
that both physicians and consumers will use healthcare information and purchase
goods and services, including prescriptions drugs available on our network, that
consumers will access important healthcare needs through electronic commerce
using our website, and that local healthcare organizations will affiliate with
us. This business model is not yet proven, and if we are unable to successfully
implement our business model, our business will be materially adversely
affected.
THE INTERNET INDUSTRY IS HIGHLY COMPETITIVE AND CHANGING RAPIDLY, AND
WE MAY NOT HAVE THE RESOURCES TO COMPETE ADEQUATELY. The number of internet
websites offering users healthcare content, products and services is vast and
increasing at a rapid rate. These companies compete with us for users,
e-commerce transactions and other sources of on-line revenue. In addition,
traditional media and healthcare providers compete for consumers' attention both
through traditional means as well as through new internet initiatives. We
believe that competition for healthcare consumers will continue to increase as
the internet develops as a communication and commercial medium.
We compete directly for users, e-commerce merchants, syndication
partners and other affiliates with numerous internet and non-internet
businesses, including:
- health-related on-line services or websites targeted at
consumers, such as accesshealth.com, ahn.com,
betterhealth.com, drkoop.com, drweil.com, healthcentral.com,
healthgate.com, intelihealth.com, mayohealth.org;
mediconsult.com, onhealth.com, thriveonline.com and webmd.com;
- on-line and internet portal companies, such as America Online,
Inc.; Microsoft Network; Yahoo! Inc.; Excite, Inc.; Lycos
Corporation and Infoseek Corporation;
- electronic merchants and conventional retailers that provide
healthcare goods and services competitive to those available
from links on our website;
- hospitals, HMOs, managed care organizations, insurance
companies and other healthcare providers and payors which
offer healthcare information through the internet; and
- other consumer affinity groups, such as the American
Association of Retired Persons, SeniorNet and ThirdAge Media,
Inc. which offer healthcare-related content to specific
demographic groups.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to eMD, including:
- the ability to offer a wider array of on-line products and
services;
- larger production and technical staffs;
- greater name recognition and larger marketing budgets and
resources;
- larger customer and user bases; and
- substantially greater financial, technical and other
resources.
9
12
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products and services, as well as our
sales and marketing channels. Increased competition could result in a loss of
our market share or a reduction in our prices or margins. Competition is likely
to increase significantly as new companies enter the market and current
competitors expand their services.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION RELATING TO THE
INTERNET WHICH COULD IMPAIR OUR OPERATIONS. Because of the increasing use of the
internet as a communication and commercial medium, the government has adopted
and may adopt additional laws and regulations with respect to the internet
covering areas such as user privacy, pricing, content, taxation, copyright
protection, distribution and characteristics and quality of production and
services. Since we operate a healthcare network over the internet, our business
is subject to government regulation specifically relating to medical devices,
the practice of medicine and pharmacology, healthcare regulation, insurance and
other matters unique to the healthcare area. Laws and regulations have been or
may be adopted with respect to the provision of healthcare-related products and
services on-line, covering areas such as:
- the regulation of medical devices;
- the practice of medicine and pharmacology and the sale of
controlled products such as pharmaceuticals on-line; and
- the regulation of government and third-party cost
reimbursement.
WE MAY BECOME SUBJECT TO REGULATION BY THE FDA. Some computer
applications and software are considered medical devices and are subject to
regulation by the FDA. We do not believe that our current applications or
services will be regulated by the FDA; however, our applications and services
may become subject to FDA regulation. Additionally, we may expand our
application and service offerings into areas that subject us to FDA regulation.
We have no experience in complying with FDA regulations. We believe that
complying with FDA regulations would be time consuming, burdensome and expensive
and could delay or prevent our introduction of new applications or services.
WE MAY BECOME SUBJECT TO LICENSING REQUIREMENTS UNDER STATE LAW. The
practice of medicine and pharmacology requires licensing under applicable state
law. We have endeavored to structure our website and affiliate relationships to
avoid violation of state licensing requirements, but a state regulatory
authority may at some point allege that some portion of our business violates
these statutes. Any allegation of this type could result in a material adverse
effect on our business. In addition, any liability based on a determination that
we engaged in the practice of medicine without a license may be excluded from
coverage under the terms of our current general liability insurance policy.
FEDERAL AND STATE LAWS PROHIBIT RECEIPT OF REFERRAL FEES FOR SOME KINDS
OF PHARMACY PRODUCTS. We earn a service fee when users on our website purchase
prescription pharmacy products from certain of our e-commerce partners. The fee
is not based on the value of the sales transaction. Federal and state
anti-kickback laws prohibit granting or receiving referral fees in connection
with sales of pharmacy products that are reimbursable under federal medicare and
medicaid programs and other reimbursement programs. Although there is
uncertainty regarding the applicability of these regulations to our e-commerce
revenue strategy, we believe that the service fees we receive from our
e-commerce partners are for the primary purpose of marketing and do not
constitute payments that would violate federal or state anti-kickback laws.
However, if our program were deemed to be inconsistent with federal or state
law, we could face criminal or civil penalties. Further, we would be required
either not to accept any transactions which are subject to reimbursement under
federal or state healthcare programs or to restructure our compensation to
comply with any applicable anti-kickback laws or regulations. In addition,
similar laws in several states apply not only to government reimbursement but
also to reimbursement by private insurers. If our activities were deemed to
violate any of these laws or regulations, it could cause a material adverse
affect on our business, results of operations and financial condition.
THERE IS NO ESTABLISHED MARKET FOR THE CONSUMER HEALTHCARE E-COMMERCE
TRANSACTIONS WE FACILITATE. We plan to develop relationships with retailers,
manufacturers and other providers to offer healthcare products and services
through direct links from our website to their website. This strategy involves
numerous risks and uncertainties. There is no established business model for the
sale of healthcare products or services over the internet. Accordingly, we have
limited experience in the sale of products and services on-line and the
development of relationships with retailers, manufacturers or other providers of
these products and services, and we cannot predict the rate at which consumers
will elect to engage in this form of commerce or the compensation that we will
receive for enabling these transactions. Consumers may sue us if any of the
products or services that are sold through our website are defective, fail to
perform properly or injure the user, even if these goods and services are
provided by unrelated third parties. Some of our agreements with manufacturers,
retailers and other providers contain provisions intended to limit our exposure
to liability claims. These limitations may not however prevent all potential
claims, and our insurance may not adequately protect us from these types of
claims. Liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any claims of this
nature, whether or not successful, could seriously damage our reputation and our
business.
10
13
INTERNET CAPACITY CONSTRAINTS MAY IMPAIR THE ABILITY OF CONSUMERS TO
ACCESS OUR WEBSITE, WHICH COULD HINDER OUR ABILITY TO GENERATE TRANSACTION AND
E-COMMERCE REVENUE. Our success will depend, in large part, upon a robust
communications industry and infrastructure for providing internet access and
carrying internet traffic. The internet may not prove to be a viable commercial
medium because of:
- inadequate development of the necessary infrastructure such as
a reliable network backbone;
- lack of timely development of complementary products such as
high speed modems;
- delays in the development or adoption of new standards and
protocols required to handle increased levels of internet
activity; or
- increased government regulation.
If the internet continues to experience significant growth in the
number of users and the level of use, then the internet infrastructure may not
be able to continue to support the demands placed on it.
OUR BUSINESS IS DEPENDENT ON THE CONTINUOUS, RELIABLE AND SECURE
OPERATION OF OUR WEBSITE AND RELATED TOOLS AND FUNCTIONS WE PROVIDE. We rely on
the internet and, accordingly, depend upon the continuous, reliable and secure
operation of internet servers and related hardware and software. Recently,
several large internet commerce companies have suffered highly publicized system
failures which resulted in adverse reactions to their stock prices, significant
negative publicity and, in certain instances, litigation. We have also suffered
service outages from time to time, although to date none of these interruptions
has materially adversely effected our business operations or financial
condition. To the extent that our service is interrupted, our users will be
inconvenienced, our commercial customers will suffer from a loss in transaction
delivery and our reputation may be diminished. Some of these outcomes could
directly result in a reduction in our stock price, significant negative
publicity and litigation.
Our computer and communications hardware are protected through physical
and software safeguards. However, they are still vulnerable to fire, storm,
flood, power loss, telecommunications failures, physical or software break-ins
and similar events. We do not have full redundancy for all of our computer and
telecommunications facilities and do not maintain a back-up data facility. Our
business interruption insurance may be inadequate to protect us in the event of
a catastrophe. We also depend upon third parties to provide potential users with
web browsers and internet and on-line services necessary for access to our
website. In the past, our users have occasionally experienced difficulties with
internet and other on-line services due to system failures, including failures
unrelated to our systems. Any sustained disruption in internet access provided
by third parties could adversely impact our business. We retain confidential
customer information in our database. Therefore, it is critical that our
facilities and infrastructure remain secure and are perceived by consumers to be
secure. Despite the implementation of security measures, our infrastructure may
be vulnerable to physical break-ins, computer viruses, programming errors or
similar disruptive problems. A material security breach could damage our
reputation or result in liability to us.
EMD IS STILL IN THE INITIAL STAGES OF ITS OPERATIONS AND HAS A LIMITED
OPERATING HISTORY. eMD is still in the initial stages of its internet and
related operations and is in the process of further developing its site and
related business. We launched the consumer and physician portions of eMD's
website in January 2000. Accordingly, eMD has an extremely limited operating
history. You should consider the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, including the
internet market. These risks and difficulties include our ability to:
- attract a larger audience of users to our eMD website than our
competitors are able to attract;
- increase awareness of our brand;
- strengthen user loyalty and increase the number of registered
users;
- offer compelling on-line content, services and e-commerce
opportunities;
- maintain our current, and develop new, affiliate
relationships;
- respond effectively to the offerings of competitive providers
of healthcare information on the internet;
- continue to develop and upgrade our technology;
11
14
- attract, retain and motivate qualified personnel; and
- increase the number of prescriptions and laboratory
transactions processed through our website.
We also depend on the growing use of the internet for commerce and
communication, and on general economic conditions. We cannot assure you that our
business strategy will be successful or that we will successfully address these
risks or difficulties. If we fail to address adequately any of these risks or
difficulties, our business will likely suffer.
OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE. Our revenue and
operating results may vary significantly from quarter to quarter due to a number
of factors, not all of which are in our control. If we have a shortfall in
revenue, or if our expenses precede increased revenues, then our business would
be materially adversely affected. This would likely affect the market price of
our common stock in a manner which may be unrelated to our long-term operating
performance. Important factors which could cause eMD's results to fluctuate
materially include:
- our ability to attract and retain users;
- traffic levels on our internet site;
- our ability to attract and retain customers and maintain
customer satisfaction for our existing and future e-commerce
offerings;
- new internet sites, services or products introduced by us or
our competitors;
- the level of internet and other on-line services usage;
- our ability to upgrade and develop our systems and
infrastructure and attract new personnel in a timely and
effective manner;
- our ability to successfully integrate operations and
technologies from any acquisitions, joint ventures or other
business combinations or investments; and
- technical difficulties or system downtime affecting the
operation of our website.
eMD revenue for the foreseeable future will remain dependent on user
traffic levels and e-commerce activity on eMD and the level of physician
participation. This future revenue is difficult to forecast. In addition, we
plan to increase our sales and marketing operations, expand and develop content
and upgrade and enhance our technology and infrastructure development in order
to support our growth. Many of the expenses associated with these activities --
for example, personnel costs and technology and infrastructure costs -- are
relatively fixed in the short-term. We may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall, in which case our results of
operations would suffer. However, we cannot assure you that we will ever achieve
profitable operations for eMD.
In addition, market prices of emerging internet companies have been
highly volatile, and the market for our stock may exhibit volatility as well.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRAND IN ORDER TO
ATTRACT USERS TO OUR NETWORK AND GENERATE SPONSORSHIP AND E-COMMERCE REVENUE. In
order to expand our audience of users and increase our on-line traffic, we must
establish, maintain and strengthen our brand. For us to be successful in
establishing our brand, healthcare consumers must perceive us as a trusted
source of healthcare information, products and services, and advertisers,
merchants and manufacturers must perceive us as an effective marketing and sales
channel for their products and services. We expect that we will need to
substantially increase our marketing budget in our efforts to establish brand
recognition and brand loyalty. Our business could be materially adversely
affected if our marketing efforts are not productive or if we cannot strengthen
our brand.
WE HAVE COMMITTED AND WILL REQUIRE SIGNIFICANT FINANCIAL AND MARKETING
RESOURCES TO EXPAND OUR NETWORK. If we are unable to earn revenues in excess of
these commitments, our business will suffer. In order to expand our network, we
intend to enter into a number of strategic partnerships which will involve the
payment of significant funds for prominent or exclusive carriage of our
healthcare information and services. These transactions are premised on the
assumption that the traffic we obtain from these arrangements will permit us to
earn revenues in excess of the payments made to partners. This assumption is not
yet proven, and if we are unsuccessful in generating sufficient resources to
offset these expenditures, we will likely be unable to continue to operate our
business.
12
15
IN ORDER TO ATTRACT AND RETAIN OUR AUDIENCE OF USERS, WE MUST PROVIDE
HEALTHCARE CONTENT, TOOLS AND OTHER FEATURES WHICH MEET THE CHANGING DEMANDS OF
THOSE USERS. One of our fundamental business objectives is for eMD to be a
trusted source for healthcare information, products, and services. As with any
form of consumer-oriented media, we have to provide editorial content,
interactive tools and other features that consumers demand in order to continue
to attract and retain our audience of users. We expect that competitive factors
will create a continuing need for us to retain, improve and add to our editorial
content, interactive tools and other features. We will not only have to expend
significant funds and other resources to continue to improve our network, but we
must also properly anticipate and respond to consumer preferences and demands.
Competition for content will likely increase the fees charged by high quality
content providers. The addition of new features will also require that we
continue to improve the technology underlying our website. These requirements
are significant, and we may fail to execute on them quickly and efficiently. If
we fail to expand the breadth of our offerings quickly, or these offerings fail
to achieve market acceptance, our business will suffer significantly.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS, MANY OF WHICH ARE SHORT-TERM OR
TERMINABLE, TO PROVIDE US WITH CONTENT AND GENERATE REVENUE. We will depend on a
number of third-party relationships to increase traffic on eMD and thereby
generate revenues. Outside parties on which we depend include unrelated website
operators that provide links to eMD and providers of healthcare content. Many of
our arrangements with third-party internet sites and other third-party service
providers are not exclusive and are short-term or may be terminated at the
convenience of either party. We cannot assure you that third parties regard our
relationship with them as important to their own respective businesses and
operations. They may reassess their commitment to us at any time in the future
and may develop their own competitive services or products.
We intend to produce only a portion of the healthcare content that will
be found on the eMD website. We will rely on third-party organizations that have
the appropriate expertise, technical capability, name recognition, reputation
for integrity, and willingness to syndicate product content for branding and
distribution by others. As health-related content grows on the internet, we
believe that there will be increasing competition for the best product
suppliers, which may result in a competitor acquiring a key supplier on an
exclusive basis, or in significantly higher content prices. Such an outcome
could make the eMD website and related services less attractive or useful for an
end user which could reduce our e-commerce revenues.
We cannot assure you that we will be able to maintain relationships
with third parties that supply us with content, software or related products or
services that are crucial to our success, or that this content, software,
products or services will be able to sustain any third-party claims or rights
against their use. Also, we cannot assure you that the content, software,
products or services of those companies that provide access or links to our
website will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful product or service offerings or the generation
of significant revenues for us.
WE HAVE RECENTLY EXPERIENCED AND ARE LIKELY TO CONTINUE TO EXPERIENCE
RAPID GROWTH IN OUR BUSINESS. We have experienced and are likely to continue to
experience significant growth. Our ability to manage this growth is critical to
our business. This growth has placed, and the future growth we anticipate in our
operations will continue to place, a significant strain on our resources. As
part of this growth, we will have to implement new operational and financial
systems and procedures and controls, expand, train and manage our employee base,
and maintain close coordination among our technical, accounting, finance,
marketing, sales and editorial staffs. If we are unable to manage our growth
effectively, our business, results of operations and financial condition could
be adversely affected.
Several members of our senior management joined us in 1999 and 2000,
including Sharon Allred, Senior Vice President, Scott Parliament, Chief
Financial Officer and Geoffrey Faux, President of eMD. These individuals are
currently becoming integrated with the other members of our management team. We
cannot assure you that our management team will be able to work together
effectively or successfully manage our growth. We believe that the successful
integration of our management team is critical to our ability to effectively
manage our operations and support our anticipated future growth.
IF WE CANNOT EXPAND OUR NETWORK INFRASTRUCTURE, WE COULD LOSE
CUSTOMERS. We must continue to expand and adapt our network infrastructure to
accommodate additional users, increase transaction volumes and meet changing
consumer and customer requirements. We may not be able to accurately project the
rate or timing of increases, if any, in the use of our website or to expand and
upgrade our systems and infrastructure to accommodate these increases. Our
systems may not accommodate increased use while maintaining acceptable overall
performance. Service lapses could cause our users to instead use the on-line
services of our competitors. Any service lapses may have a material adverse
effect on our business.
WE MAY HAVE LIABILITY FOR INFORMATION WE PROVIDE ON OUR WEBSITE OR
WHICH IS ACCESSED FROM OUR WEBSITE. Because users of our website access health
content and services relating to a condition they may have or may distribute our
content to others, third parties may sue us for defamation, negligence,
copyright or trademark infringement, personal injury or other matters. We could
also become liable if we improperly or wrongfully disclose confidential
information. These types of claims have been brought, sometimes successfully,
against on-line services in the past. Others could also sue us for the content
and services that are accessible from our website through links to other
websites or through content and materials that may be posted by our users in
chat rooms or bulletin boards. While our agreements, including those with
content providers, in some cases provide that we will be indemnified against
13
16
these liabilities, this indemnification, if available, may not be adequate. Our
insurance may not adequately protect us against these types of claims. Further,
our business is based on establishing the eMD network as a trustworthy and
dependable provider of healthcare information and services. Allegations of
impropriety, even if unfounded, could therefore have a material adverse effect
on our reputation and our business.
ANY FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
COULD ADVERSELY AFFECT OUR ABILITY TO ESTABLISH OUR BRAND. Our intellectual
property is important to our business. We rely on a combination of copyright,
trademark and trade secret laws, confidentiality procedures and contractual
provisions to protect our intellectual property. Federal registrations are
pending for eMD as well as other service and trademarks. If we lose our right to
use the eMD name, we would be forced to change our corporate name and adopt a
new domain name. These changes could confuse current and potential customers and
would adversely impact our business. We also rely on a variety of technologies
that are licensed from third parties, including our database and internet server
software, which is used in the eMD website to perform key functions. These
third-party licenses may not be available to us on commercially reasonable terms
in the future.
RISKS RELATING TO THE AHT ACQUISITION
THE COMBINED COMPANY MAY NOT ACHIEVE THE BENEFITS EXPECTED FROM THE AHT
ACQUISITION . Achieving the benefits of the acquisition of the assets of AHT
Corporation, if completed, will depend in part on our ability to realize the
anticipated growth opportunities and synergies from combining the businesses of
BioShield's eMD internet healthcare subsidiary and AHT. The integration of eMD
and AHT will be a complex, time-consuming and expensive process and may disrupt
both companies' businesses if not completed in a timely and efficient manner.
The challenges involved in this integration include the following:
- combining product offerings effectively and quickly;
- successfully promoting and selling the combined products and
services of eMD and AHT;
- retaining the existing customers of each company;
- offering products and services of eMD and AHT to each other's
customers;
- retaining and integrating management and other key employees
of both BioShield and AHT; and
- maintaining adequate focus on our core business during our
transition period in order to take advantage of competitive
opportunities and respond to competitive challenges.
It is not certain that eMD and AHT can be successfully integrated in a
timely manner, or at all, or that the anticipated benefits will be realized.
Risks to the successful integration of the companies include:
- the failure to realize anticipated growth in revenue, earnings
and cash flow expected from the acquisition ;
- the potential disruption of the combined company's ongoing
business and distraction of its management;
- potential unforeseen difficulties in the integration of the
technologies and product offerings of eMD and AHT; and
- unanticipated expenses related to the integration of the two
companies.
The combined company may not succeed in addressing these risks or any
other problems encountered in connection with the acquisition. Further, neither
BioShield nor AHT can assure you that the growth rate of the combined company
will equal the historical growth rates experienced by AHT or eMD.
WE WILL HAVE TO AMORTIZE GOODWILL THAT WILL INCREASE OUR NET LOSSES. If
the AHT acquisition is completed, the combined company's reported financial
results will suffer as a result of purchase accounting treatment of the AHT
acquisition and the impact of amortization of goodwill and other intangibles
relating to the acquisition. BioShield will account for the acquisition as a
purchase of AHT using the purchase method of accounting. As a result, BioShield
will record the fair value of the consideration given for AHT common stock and
for options to purchase AHT common stock assumed by BioShield, plus the amount
of direct transaction costs as the cost of acquiring AHT. BioShield will
allocate these costs to the individual AHT assets acquired and liabilities
assumed, including intangible assets. Intangible assets, including goodwill,
will be generally amortized over a three- to seven-year period.
14
17
The amount of purchase cost allocated to goodwill and other intangibles
is estimated to be $__ million. If goodwill and other intangible assets were
amortized in equal quarterly amounts following completion of the acquisition ,
the accounting charge attributable to these items would be approximately $__
million per quarter or $__ million per fiscal year. As a result, purchase
accounting treatment of the acquisition will result in a net loss for BioShield
in the foreseeable future which could have a material and adverse effect on the
market value of BioShield common stock following completion of the acquisition .
Additionally, because we will issue shares of BioShield common stock in
connection with the consummation of the acquisition, and since AHT has
historically not been profitable, the acquisition may cause our loss per share
to increase.
THE ISSUANCE OF SHARES OF BIOSHIELD COMMON STOCK IN THE AHT ACQUISITION
WILL RESULT IN IMMEDIATE DILUTION OF THE OUTSTANDING BIOSHIELD COMMON STOCK.
Upon completion of the AHT acquisition , approximately $3 million in BioShield
common stock will be issued or reserved for issuance for holders of AHT common
stock and warrants, options or other rights to purchase or acquire AHT common
stock. The resulting dilution of BioShield's common stock could have a negative
impact on its market price.
THE AHT ACQUISITION MAY DISRUPT OUR EXISTING BUSINESS, DISTRACT OUR
MANAGEMENT AND DIVERT OUR RESOURCES. The integration of AHT into eMD may take
management time and resources that will have to be diverted from the main
business of the combined company. This diversion of time and resources could
have a material adverse effect on our business, financial condition and results
of operations, which may cause our stock price to decrease.
COMPLETION OF THE AHT ACQUISITION MAY CAUSE A BREACH UNDER AGREEMENTS
TO WHICH AHT IS A PARTY. The completion of the acquisition may violate the terms
of agreements to which AHT is a party, or may permit the counterparties to these
agreements to exercise their contractual remedies, such as acceleration of
rights or termination. We will attempt to obtain the consent or waiver of the
counterparties to these agreements, but we may be unsuccessful in our attempts.
In addition, various persons with whom AHT historically has had business
relationships may attempt to be released from, or fail to perform their
obligations under, their contracts as a result of the acquisition, even if the
terms of their contracts with AHT do not allow a release. If we are not able to
obtain consents or waivers from the counterparties to AHT's contracts, or if a
sufficient number of AHT's business partners refuse to perform their
obligations, our business, financial condition and results of operations may be
adversely affected.
BECAUSE THE COMBINED COMPANY WILL BE A NEWLY INTEGRATED ENTITY, THE
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS OF BIOSHIELD MAY BE OF LIMITED
VALUE IN EVALUATING OUR FUTURE PERFORMANCE. The combination of eMD and AHT will
result in a new enterprise that has not operated before as a single integrated
unit. As a result, the financial information available for AHT, BioShield and
the combined entity may be of limited value in evaluating our financial and
operating prospects in the future.
RISKS RELATING TO THE ARROW-MAGNOLIA ACQUISITION
THE INTEGRATION OF ARROW-MAGNOLIA INTERNATIONAL, INC. INTO OUR
OPERATIONS MAY NOT BE SUCCESSFUL, AND MAY DISRUPT OUR EXISTING BUSINESS. On July
7, 2000, we announced an agreement to acquire up to 85% of the outstanding stock
of Arrow-Magnolia International, Inc., a company engaged primarily in the
manufacture and distribution of specialty chemical products for use in cleaning
and maintaining equipment and generalized maintenance and sanitation products,
for cash and stock. The success of that acquisition, if consummated, will depend
in part on our ability to realize the anticipated growth opportunities and
synergies from combining the businesses of BioShield and Arrow-Magnolia. Among
other things, the integration of Arrow-Magnolia's and BioShield's business may
result in disruption of our existing business, distraction of our management and
diversion of other resources.
WE WILL HAVE TO AMORTIZE GOODWILL THAT WILL INCREASE OUR NET LOSSES. If
the Arrow-Magnolia acquisition is completed, the combined company's reported
financial results will suffer as a result of purchase accounting treatment of
the Arrow-Magnolia acquisition and the impact of amortization of goodwill and
other intangibles relating to the acquisition . BioShield will account for the
Arrow-Magnolia acquisition as a purchase of Arrow-Magnolia using the purchase
method of accounting. As a result, BioShield will record the fair value of the
consideration given for Arrow-Magnolia common stock and for options to purchase
Arrow-Magnolia common stock, plus the amount of direct transaction costs, as the
cost of acquiring Arrow-Magnolia. BioShield will allocate these costs to the
individual Arrow-Magnolia assets acquired and liabilities assumed, including
intangible assets. Intangible assets, including goodwill, will be generally
amortized over a three- to seven-year period.
The amount of purchase cost allocated to goodwill and other intangibles
is estimated to be $__ million. If goodwill and other intangible assets were
amortized in equal quarterly amounts following completion of the acquisition,
the accounting charge attributable to these items would be approximately $__
million per quarter or $__ million per fiscal year. As a result, purchase
accounting treatment of the Arrow-Magnolia acquisition will result in a net loss
for BioShield in the foreseeable future which could have a material and adverse
effect on the market value of BioShield common stock following completion of the
acquisition .
COMPLETION OF THE ARROW-MAGNOLIA TRANSACTION MAY CAUSE A BREACH UNDER
AGREEMENTS TO WHICH ARROW-MAGNOLIA IS A PARTY. The completion of the
Arrow-Magnolia acquisition may violate the terms of agreements to which
Arrow-Magnolia is a party, or may permit the counterparties to these agreements
to exercise their contractual remedies, such as acceleration of rights or
termination. We will attempt to obtain the consent or waiver of the
counterparties to these agreements, but we may be unsuccessful in
15
18
our attempts. In addition, various persons with whom Arrow-Magnolia historically
has had business relationships may attempt to be released from, or fail to
perform their obligations under, their contracts as a result of the acquisition
, even if the terms of their contracts with Arrow-Magnolia do not allow a
release. If we are not able to obtain consents or waivers from the
counterparties to Arrow-Magnolia's contracts, or if a sufficient number of
Arrow-Magnolia's business partners refuse to perform their obligations, our
business, financial condition and results of operations may be adversely
affected.
THE SUCCESS OF ARROW-MAGNOLIA IS DIRECTLY ATTRIBUTABLE TO ITS
RELATIONSHIPS WITH CONTRACTORS AND CUSTOMERS THAT MAY BE ADVERSELY AFFECTED BY
COMPLETION OF THE ACQUISITION. Most of the sales of Arrow-Magnolia are made on
open account without long term commitments or contracts and are attributable to
the efforts of its independent sales representatives and their contacts with the
end users of products sold by Arrow-Magnolia. If these relationships are
adversely affected by the offer or changes implemented by BioShield after
completion of the offer, the business, financial condition and results of the
combined entity may be adversely affected.
BECAUSE THE COMBINED COMPANY WILL BE A NEWLY INTEGRATED ENTITY, THE
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS OF BIOSHIELD MAY BE OF LIMITED
VALUE IN EVALUATING OUR FUTURE PERFORMANCE. The combination of BioShield and
Arrow-Magnolia will result in a new enterprise that has not operated before as a
single integrated unit. As a result, the financial information available for
Arrow-Magnolia, BioShield and the combined entity may be of limited value in
evaluating our financial and operating prospects in the future.
USE OF PROCEEDS
The proceeds from the sale of the shares covered by this prospectus are
entirely for the benefit of the selling shareholder. We will not receive any
proceeds from the sale of the shares from the selling shareholder. We will
receive proceeds from any exercise of the warrants equal to the exercise price,
and those proceeds will be used for general corporate purposes.
ISSUANCE OF SHARES TO THE SELLING SHAREHOLDER
On June 14, 2000, we completed a private placement of $10,000,000
principal amount of our series B convertible preferred stock and warrants to
purchase up to 79,281 shares of common stock. The preferred stock and warrants
were sold in a private placement in reliance on Rule 506 of the Securities Act
of 1933, which provides an exemption from registration for sales to accredited
investors, as defined by Rule 501 under Regulation D of the Securities Act. We
agreed to file the registration statement which includes this prospectus
registering the resale of the shares of common stock issuable upon the
conversion of the preferred stock and the exercise of the warrants.
Each share of preferred stock is convertible into the number of shares
of BioShield common stock equal to its stated value, $20,000, plus a 5% premium
of the stated value each year from the date the preferred stock was issued,
divided by the conversion price. The conversion price is equal to 90% of the
average lowest of the closing bid and ask prices of our common stock for any
three trading days in the ten trading day period before the conversion, but may
not exceed $19.70. The preferred stock is redeemable at BioShield's option, at a
price of 125% of its principal amount. The warrants entitle the investor to
purchase up to 79,281 shares of common stock at the option of the holder until
June 14, 2005, and have an exercise price of $18.92 per share, subject to
adjustment under some circumstances.
If all the shares of BioShield preferred stock were converted, and all
the warrants exercised, as of October 19, 2000, BioShield would be required to
issue approximately 6.2 million shares of BioShield common stock, or
approximately 43% of the number of shares of BioShield common stock that would
then be outstanding, without giving effect to the AHT acquisition. The total
number of shares of BioShield common stock issuable upon the conversion and
exercise will vary, based upon the closing bid and ask prices of the BioShield
common stock.
SELLING SHAREHOLDER
The selling shareholder is Wilson LLC, a Cayman Islands limited
liability company. We have agreed to pay all the expenses we incur in connection
with the registration of the shares. Wilson LLC will pay all broker commissions
and other selling expenses it incurs, as well as any legal and other expenses it
may incur in the registration or sale of its shares.
The following table sets forth information about the ownership of our
common stock by Wilson LLC as of October 19, 2000. The number of shares in the
table represents an estimate of the number of shares of common stock to be
offered by Wilson LLC, if it had converted all the series B preferred stock as
of October 19, 2000 and exercised all the warrants and offered all the resulting
shares
16
19
of common stock for sale. If converted as of October 19, 2000, the series B
preferred stock would have converted at approximately $1.61 per share of common
stock into approximately 6,201,550 shares of common stock. If all the warrants
were exercised, we would be obligated to issue an additional 79,281 shares, or a
total of approximately 6,280,831 shares. The actual number of shares of common
stock issuable upon conversion of the preferred stock is indeterminate, and
could be materially less or more than the amount estimated due to the conversion
price adjustments explained in the section of this prospectus entitled
"Description of Capital Stock" on page __.
We agreed to register at least 1,500,000 shares in connection with the
issuance of the preferred shares and the warrants; the additional shares covered
by this prospectus for sale by the selling shareholder are to accommodate the
possibility that the actual number of shares issuable upon conversion of the
preferred stock increases as a result of adjustments in the conversion price. We
cannot assure you that Wilson LLC will sell any or all of the shares that it may
acquire upon its conversion of the preferred stock or exercise of the warrants
The selling shareholder's determination whether to hold or convert the preferred
stock and exercise the warrants and sell the resulting shares, will depend upon
many factors, including BioShield's prospects, general market conditions and the
prevailing price of the common stock.
SHARES OF COMMON STOCK SHARES OF SHARES BENEFICIALLY
NAME OF SELLING BENEFICIALLY OWNED COMMON STOCK OWNED AFTER THE
SHAREHOLDER PRIOR TO THE OFFERING BEING OFFERED(1) OFFERING(1)
- ------------------------------------------------------------------------------------------------------------
Wilson LLC(2) 6,280,831 6,280,831 0
(1) Assumes the sale of all the shares of common stock which are being
offered pursuant to this prospectus.
(2) Excludes an indeterminate number of shares of common stock issuable in
connection with the conversion of shares of eMD, our majority owned
subsidiary. Also excludes an indeterminate number of shares of common
stock that may be issuable under two private equity credit agreements
to Jackson LLC, a Cayman Islands limited liability company that is
affiliated with Wilson LLC.
PLAN OF DISTRIBUTION
Shares covered by this prospectus may be offered and sold from time to
time by the selling shareholder. The selling shareholder will act independently
of BioShield in making decisions with respect to the timing, manner and size of
each sale. The selling shareholder may sell the shares:
- on the Nasdaq SmallCap Market(TM);
- at prices and at terms then prevailing or at prices related to
the then current market price; or
- in private sales at negotiated prices directly or through
brokers.
The selling shareholder and any underwriter, dealer or agent who
participates in the distribution of the shares may be deemed to be underwriters
under the Securities Act, and any discount, commission or concession received by
these persons might be deemed to be an underwriting discount or commission under
the Securities Act. We have agreed to indemnify the selling shareholder against
some liabilities arising under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions from the selling shareholders, and, if acting as agent for the
purchaser of the shares, from the purchaser. Usual and customary brokerage fees
will be paid by the selling shareholder. Broker-dealers may agree with the
selling shareholder to sell a specified number of shares at a stipulated price
per share, and, to the extent the broker-dealer is unable to do so acting as
agent for the selling shareholder, to purchase as principal any unsold shares at
the price required to fulfill the broker-dealer commitment to the selling
shareholder. Broker-dealers who acquire shares as principal may then resell the
shares from time to time in transactions in the over-the-counter market, in
negotiated transactions or by a combination of these methods of sale, at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with resales may pay to or receive from the purchasers of the shares commissions
as described above.
We have advised the selling shareholder that the anti-manipulation
rules under the Exchange Act may apply to sales of shares in the market and to
the activities of the selling shareholder and their affiliates. The selling
shareholder has advised BioShield that during the time as the selling
shareholder may be engaged in the attempt to sell shares registered under this
prospectus, it will:
- not engage in any stabilization activity in connection with
any of the shares;
17
20
- not bid for or purchase any of the shares or any rights to
acquire the shares, or attempt to induce any person to
purchase any of the shares or rights to acquire the shares
other than as permitted under the Exchange Act;
- not effect any sale or distribution of the shares until after
the prospectus shall have been appropriately amended or
supplemented, if required, to describe the terms of the sale
or distribution; and
- effect all sales of shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with
market makers, or in privately negotiated transactions where
no broker or other third party, other than the purchaser, is
involved.
The selling shareholder may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against some
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any broker-dealers,
and any profits received on the resale of shares, may be deemed to be
underwriting discounts and commissions under the Securities Act if the
broker-dealers purchase shares as principal.
In order to comply with the securities laws of some states, if
applicable, the shares will be sold in some jurisdictions only through
registered or licensed brokers or dealers. In some states, the shares may not be
sold unless the shares have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
18
21
BioShield has agreed to use its best efforts to maintain the
effectiveness of this registration statement with respect to the shares until
the earlier of the sale of the shares or June 14, 2002. No sales may be made
under this prospectus after that date unless we amend or supplement this
prospectus to indicate that we have agreed to extend the period of
effectiveness.
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our capital stock is not meant to
be complete and is qualified by reference to our articles of incorporation and
bylaws and the Georgia Business Corporation Code. Copies of BioShield's articles
of incorporation and bylaws are incorporated by reference and will be sent to
stockholders upon request. For information on where to obtain a copy of
BioShield's articles of incorporation and bylaws, see "Where you can find more
information" on page __ of this prospectus.
AUTHORIZED CAPITAL STOCK
Under our articles of incorporation, we are authorized to issue
40,000,000 shares of common stock, without par value, and 10,000,000 shares of
preferred stock with rights to be determined by our board of directors. Five
hundred shares of preferred stock have been designated series B convertible
preferred stock.
COMMON STOCK
COMMON STOCK OUTSTANDING. As of June 30, 2000, there were 8,339,073
shares of common stock issued and outstanding. Additionally, 35,000 shares of
common stock were held in the treasury and 3 million shares of common stock were
reserved for issuance in accordance with our employee benefit plans.
VOTING RIGHTS. Each holder of common stock is entitled to one vote for
each share of common stock held of record on the applicable record date on all
matters submitted to a vote of stockholders.
DIVIDEND RIGHTS. The holders of common stock share in any dividends
paid on the common stock if the board of directors declares dividends out of
funds that are legally available.
RIGHTS UPON LIQUIDATION. In the event of liquidation, each share of
common stock is entitled to share pro rata in any distribution of assets after
payment or providing for the payment of liabilities and the liquidation
preference of any outstanding preferred stock.
RANK. All shares of common stock rank junior to all shares of series B
preferred stock regarding preferences for distributions and payments in the
event of liquidation.
PREEMPTIVE RIGHTS. Holders of common stock have no preemptive rights to
purchase, subscribe for or otherwise acquire any unissued or treasury shares or
other securities.
REDEMPTION. No redemption provisions apply to the common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
SERIES B CONVERTIBLE PREFERRED STOCK OUTSTANDING. As of the date of
this prospectus, our board of directors has classified 500 shares of preferred
stock as series B convertible preferred stock and all 500 shares of preferred
stock are outstanding.
VOTING RIGHTS. The holders of the preferred stock are not entitled to
vote, except as required by law.
DIVIDEND RIGHTS. Holders of the preferred stock are not entitled to
receive dividends. If any shares of the preferred stock are outstanding, we may
not declare, pay or make any dividends or other distributions on any of the
common stock unless we gives written notice to the holders of the preferred
stock at least thirty days before either the record date taken for the dividend
payment or another distribution and we obtain the written consent of the holders
of a majority of the outstanding shares of preferred stock.
BioShield may declare and pay a dividend in cash on its common stock if
BioShield meets two conditions. First, BioShield must pay to each holder of
shares of preferred stock cash equal to the amount the holder would have
received if the holder's shares of preferred stock had been converted to common
stock one business day before the record date for the dividend. Second, after
making any required payments, including payments to the holders of shares of
preferred stock, BioShield must have in cash or cash equivalents an amount equal
to the sum of:
19
22
- - all of our liabilities on our most recently available balance sheet;
- - the amount of any indebtedness we or any of our subsidiaries incur
since our most recent balance sheet; and
- - 120% of the amount payable to all holders of any shares of any class of
BioShield preferred stock assuming a liquidation as the date of our
most recently available balance sheet.
RIGHTS UPON LIQUIDATION. If there is a liquidation or dissolution of
BioShield, each holder of preferred stock will receive a liquidation preference
prior to any payments made to holders of any class of our capital stock that
ranks junior to the preferred stock. This preference is an amount per share
equal to the sum of:
- - $20,000, the stated value of the preferred stock; and
- - a premium of 5% per year of the stated value of the preferred stock
from the date of its issuance.
If there are insufficient funds to pay the full amount due to the
holders of preferred stock and other classes of BioShield preferred stock rank
equally with the preferred stock regarding these payments, then each holder of
preferred stock will share equally in any available funds according to their
liquidation preferences.
BioShield's purchase or redemption of its stock in any manner permitted
by law will not be regarded as a liquidation or dissolution of BioShield.
Similarly, BioShield's consolidation or merger with or into any other person and
the sale or transfer by us of less than substantially all of our assets will be
not deemed to be a liquidation or dissolution.
RANK. The preferred stock will rank greater than any series of common
or preferred stock issued by BioShield in the future. We may not authorize or
issue capital stock that ranks senior or equal to the preferred stock without
the written consent of the holders of at least a majority of the outstanding
shares of the series B convertible preferred stock. Without the written approval
of at least a majority of the outstanding shares of the series B convertible
preferred stock, we may not amend our articles of incorporation or bylaws, or
make any resolution of the board of directors with the Georgia Secretary of
State containing provisions that may materially and adversely affect or impair
the rights of the holders of shares of preferred stock relative to the holders
of our common stock or holders of any other class of our capital stock. If we
merge or consolidate with or into another corporation, the preferred stock must
retain its relative rights.
PREEMPTIVE RIGHTS. Holders of the preferred stock have no preemptive
rights to purchase, subscribe for or otherwise acquire any unissued or treasury
shares or other securities.
REDEMPTION. We have the right to redeem the preferred stock if we meet
some conditions. These conditions include that we have cash, credit or standby
underwriting facilities available to fund the redemption. The redemption price
is calculated as 125% of the original purchase price. All preferred stock
outstanding as of June 14, 2003 will be automatically converted according to the
conversion provisions of the series B convertible preferred stock.
CONVERSION. Each share of series B convertible preferred stock is
convertible into the number of shares of BioShield common stock equal to its
stated value, $20,000, plus a 5% premium of the stated value each year from the
date the preferred stock was issued divided by the conversion price. The
conversion price is equal to 90% of the average lowest of the closing bid and
ask prices of our common stock for any three trading days in the ten trading day
period before the conversion.
If all the series B preferred stock were converted, it would convert
into:
PERCENT OF SHARES
APPROXIMATE OUTSTANDING AFTER
NUMBER OF SHARES CONVERSION
---------------- ------------------
At the conversion price in effect on October 19, 2000...... 6,201,550 43%
At 25% below the October 19, 2000 closing market price..... 9,696,970 54%
At 50% below the October 19, 2000 closing market price..... 14,545,455 64%
At 75% below the October 19, 2000 closing market price..... 29,090,909 78%
Under the conversion price formula, there is no ceiling on the number
of shares of common stock into which the preferred stock can be converted, and,
as the price of the common stock decreases, the number of shares of common stock
underlying the shares of preferred stock continues to increase. The preferred
stock is likely to be converted at a rate at or below the common stock's market
price, and the lower the common stock's market price at the time the holder
converts, the more shares of common stock the holder will
20
23
get in the conversion. To the extent a holder of preferred stock converts and
then sells the shares of common stock, the common stock's market price may
decrease due to the additional shares in the market, allowing the selling holder
to convert other preferred stock into greater amounts of common stock, the sale
of which could further depress the market price for the common stock. The
downward pressure on the market price of the common stock as a holder of the
preferred stock converts and sells common stock could encourage short sales by
others, placing further downward pressure on the market price of the common
stock. The conversion of the outstanding shares of preferred stock may result in
substantial dilution to the interest of other common stockholders.
Please see BioShield's articles of incorporation for more detailed
information about BioShield's preferred stock. You may obtain a copy of
BioShield's articles of incorporation by following the instructions in the
section titled "Where you can find more information" that begins on page __ of
this prospectus.
The holders of the preferred shares are limited with respect to the
number of shares that they can convert at any one time. In particular, they are
not entitled to convert shares that would result in their owning in excess of
4.9% of the outstanding common stock following conversion. In addition, the NASD
requires its members, including BioShield, to get the approval of a majority of
the total votes cast before BioShield can issue common stock, or securities
convertible into or exercisable for common stock, if the common stock issued
would be more than 20% of the common stock outstanding, or would have more than
20% of the voting power outstanding before the issuance. The shares of preferred
stock are not convertible into common stock to the extent the number of shares
of common stock issuable upon the conversion would exceed 19.99% of the shares
of common stock outstanding as of the time of issuance of the preferred stock,
unless our stockholders subsequently approve the issuance. Under the terms of
the agreements governing the issuance of the preferred stock and the warrants,
BioShield has agreed to submit for stockholder approval a proposal to ratify the
issuance of the preferred stock and the shares of common stock issuable upon
conversion of preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for BioShield's common stock is
American Stock Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
LEGAL MATTERS
The validity of the shares offered under this prospectus will be passed
upon by Sims Moss Kline & Davis LLP, Atlanta, Georgia, counsel to BioShield.
Raymond L. Moss, a partner with Sims Moss Kline & Davis LLP, owns or has the
right to acquire 25,000 shares of common stock of BioShield and owns 225,000
shares of eMD.com. Other partners of the firm own 75,000 shares in the aggregate
of eMD.com
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to BioShield's annual report on Form 10-KSB for the year ended June
30, 2000, have been so incorporated in reliance on the report of Grant Thornton
LLP, independent accountants, given on the authority of that firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission. Some information in the
registration statement has been omitted from this prospectus as permitted by the
rules of the SEC. We file the annual, quarterly and special reports, proxy
statements and other information with the SEC. You can inspect and copy the
registration statement as well as reports, proxy statements and other
information we have filed with the SEC at the public reference room maintained
by the SEC at 450 Fifth Street, NW, Washington, D.C. 20549, and at the following
Regional Offices of the SEC: Seven World Trade Center, New York, New York 10048,
and Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
You can obtain copies from the public reference room of the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549 upon payment of copying fees. You can call
the SEC at 1-800-732-0330 for further information about the public reference
room. We are also required to file electronic versions of these documents with
the SEC, which may be accessed through the SEC's World Wide Web site at
http://www.sec.gov. Our common stock is quoted on The Nasdaq SmallCap
Market(TM). Reports, proxy and information statements and other information
concerning BioShield. may be inspected at The Nasdaq Stock Market at 1735 K
Street, NW, Washington, D.C. 20006.
21
24
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference some of our
publicly-filed documents into this prospectus, which means that information
included in these documents is considered part of this prospectus. Information
that we file with the SEC subsequent to the date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the selling shareholder has sold all the shares.
The following documents filed with the SEC are incorporated by
reference in this prospectus:
1. Our annual report on Form 10-KSB for the year ended June 30,
2000 (File No. 0-24913).
2. Our Current Reports on Form 8-K, filed with the SEC on June
28, 2000 and July 3, 2000.
We will furnish without charge to you, on written or oral request, a
copy of any or all of the documents incorporated by reference, other than
exhibits to the documents unless the exhibit is specifically incorporated by
reference as an exhibit in this prospectus. You should direct any requests for
documents to Scott Parliament, BioShield Technologies, Inc., 5655 Peachtree
Parkway, Norcross, Georgia 30092, (770) 246-2000.
22
25
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant will bear no expenses in connection with any sale or
other distribution by the selling shareholder of the shares being registered
other than the expenses of preparation and distribution of this Registration
Statement and the prospectus included in this Registration Statement. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the Securities and Exchange Commission ("SEC") registration fee
and the NASD listing fee.
SEC registration fee $ 3,754.08
Legal fees and expenses 15,000.00
Accounting fees and expenses 10,000.00
NASD listing fee 7,500.00
Miscellaneous expenses 1,000.00
Total $ 37,254.08
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code provides
that a corporation's articles of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of duty of care or other
duty as a director. This Section also provides, however, that such a provision
shall not eliminate or limit the liability of a director (i) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (ii) for acts or omissions involving intentional misconduct or a
knowing violation of law, (iii) for certain other types of liability set forth
in the Code, and (iv) for transactions from which the director derived an
improper personal benefit. Article VI of the Registrant's Articles of
Incorporation contains a provision eliminating or limiting the personal
liability of a director of the Registrant to the fullest extent authorized by
the Georgia Business Corporation Code.
In addition, Sections 14-2-851 and 14-2-857 of the Georgia Business
Corporation Code, provides for indemnification of directors and officers of the
Registrant for liability and expenses reasonably incurred by them in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding in which they may become involved by reason of being a director or
officer of the Registrant. Indemnification is permitted if the director or
officer acted in a manner which he believed in good faith to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe his
conduct to be unlawful; provided that the Registrant may not indemnify any
director or officer (i) in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
(ii) in connection with any other proceeding in which he was adjudged liable on
the basis that personal profit was improperly received by him, except as
determined by a court of competent jurisdiction. Article 9 of the Registrant's
Bylaws contains a provision providing for the indemnification of officers and
directors and advancement of expenses to the fullest extent authorized by the
Georgia Business Corporation Code.
The Registrant also maintains directors and officers liability insurance
which insures against liabilities that directors and officers of the Registrant
may incur in such capacities.
ITEM 16. EXHIBITS.
EXHIBITS
---------
5.1 Opinion of Sims Moss Kline & Davis LLP
23.1 Consent of Grant Thornton, LLP
23.2 Consent of Sims Moss Kline & Davis LLP (included in Exhibit
5.1)
24.1 Power of Attorney (see signature page)
10.109 Securities Purchase Agreement dated as of June 14, 2000, by
and among BioShield Technologies, Inc., and Wilson LLC. (previously filed as
Exhibit No. 10.86 to the Company's Current Report on Form 8-K filed with the SEC
on July 3, 2000 - SEC File No. 0-24913 (the "Form 8-K"))
II-1
26
10.110 Registration Rights Agreement dated as of June 14, 2000, by
and among BioShield Technologies, Inc., and Wilson LLC. (previously filed as
Exhibit No. 10.87 to the Form 8-K)
10.111 Placement Agency Agreement dated as of June 14, 2000, by and
among BioShield Technologies, Inc., and J.P.Carey Securities, Inc. (previously
filed as Exhibit No. 10.88 to the Form 8-K)
10.112 Warrant Agreement dated as of June 14, 2000, by and among
BioShield Technologies, Inc., and Wilson LLC. (previously filed as Exhibit No.
10.89 to the Form 8-K)
10.113 Letter Agreement dated as of June 14, 2000, by and among
BioShield Technologies, Inc., Wilson LLC and Jackson LLC (previously filed as
the corresponding Exhibit No. 10.90 to the Form 8-K)
10.114 Officer's Certificate of BioShield Technologies, Inc. dated as
of June 14, 2000 (previously filed as Exhibit No. 10.91 to the Form 8-K)
10.115 Transfer Agent Instructions (previously filed as Exhibit No.
10.92 to the Form 8-K)
10.116 Articles of Amendment to the Articles of Incorporation of
BioShield Technologies, Inc. (previously filed as Exhibit No. 10.93 to the Form
8-K)
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
27
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norcross, State of Georgia, on the 17th day of
October, 2000.
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses
--------------------------------
Timothy C. Moses, Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Timothy C. Moses and Scott Parliament, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign this registration statement (including all
pre-effective and post-effective amendments thereto and all registration
statements filed pursuant to Rule 462(b) which incorporate this registration
statement by reference), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on October 17th,
2000 in the capacities indicated below.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Timothy C. Moses President; Chief Executive October 17, 2000
- ---------------------------------- Officer; Director (Principal
Timothy C. Moses Executive Officer)
/s/ Scott Parliament Chief Financial Officer October 17, 2000
- ---------------------------------- (Principal Financial and
Scott Parliament Accounting Officer)
/s/ Carl T. Garner Director October 17, 2000
- ----------------------------------
Carl T. Garner
/s/ Edward U. Miller Director October 17, 2000
- ----------------------------------
Edward U. Miller
/s/ Martin Savarick Director October 17, 2000
- ----------------------------------
Martin Savarick
/s/ Hugh R. Lamle Director October 17, 2000
- ----------------------------------
Hugh R. Lamle
II-3
28
INDEX TO EXHIBITS
5.1 Opinion of Sims Moss Kline & Davis LLP
23.1 Consent of Grant Thornton, LLP
II-4