1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-24913
BIOSHIELD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2181628
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4405 INTERNATIONAL BLVD.
SUITE B-109
NORCROSS, GEORGIA 30093
(Address of principal executive offices and zip code)
(770) 925-3432
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) and has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 1998, there were 6,144,125 outstanding shares of the
Registrant's Common Stock, no par value per share.
2
BIOSHIELD TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
1) Balance Sheets as of September 30, 1998 (unaudited) and June 30, 1998 3
2) Statements of Operations for the three months ended September 30,
1998 (unaudited) and from June 1, 1995 to September 30, 1997 (unaudited) 4
3) Statements of Cash Flows for the three and nine months ended September 30,
1998 (unaudited) and from June 1, 1995 to September 30, 1997 (unaudited) 6
4) Notes to Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
3
BioShield Technologies, Inc.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, June 30,
1998 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 5,739,061 $ 1,636
Accounts receivable 125,908 110,081
Inventories 172,719 157,784
Prepaid expenses and other current assets 2,500 2,500
----------- -----------
Total current assets 6,040,188 272,001
PROPERTY AND EQUIPMENT, NET 99,750 104,711
DEPOSITS AND OTHER LONG-TERM
ASSETS 18,794 60,911
----------- -----------
$ 6,158,732 $ 437,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 450,000 $ 450,000
Notes payable - other 142,500 205,000
Accounts payable 346,092 309,538
Accrued payroll 331,398 315,361
Accrued interest payable 33,609 18,377
----------- -----------
Total current liabilities 1,303,599 1,298,276
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000
shares authorized, 6,144,125 and 4,395,040
issued and outstanding at September 30, 1998,
and June 30, 1998, respectively 6,644,057 1,153,001
Additional paid-in capital 927,342 329,050
Deficit accumulated during the development
stage (2,716,266) (2,342,704)
----------- -----------
4,855,133 (860,653)
----------- -----------
$ 6,158,732 $ 437,623
=========== ===========
The accompanying notes are an integral part of these statements.
4
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three months ended June 1, 1995 (inception)
September 30, to September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales $ 87,854 $ 68,399 $ 1,325,640 $ 843,714
Cost of sales 33,736 22,845 504,216 338,667
----------- ----------- ----------- -----------
Gross profit 54,118 45,554 821,424 505,047
Operating expenses
Marketing and selling 114,379 63,751 806,319 282,746
General and administrative 259,982 296,511 2,290,393 1,192,210
Research and development 37,802 36,464 453,930 295,340
----------- ----------- ----------- -----------
412,163 396,726 3,550,642 1,770,296
----------- ----------- ----------- -----------
Loss from operations (358,045) (351,172) (2,729,218) (1,265,249)
Other income (expense)
Consulting income, net -- -- 39,908 39,908
Interest income 818 2,037 7,756 5,431
Interest expense (16,335) -- (34,712) --
----------- ----------- ----------- -----------
Net loss before
income taxes (373,562) (349,135) (2,716,266) (1,219,910)
Income tax (expense) benefit -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (373,562) $ (349,135) $(2,716,266) $(1,219,910)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.08) $ (0.08) $ (0.62) $ (0.29)
=========== =========== =========== ===========
Weighted average shares 4,747,021 4,181,339 4,421,626 4,154,022
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
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BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Three Months Ended September 30, 1998
(Unaudited)
Deficit
Common stock accumulated
no par value Additional during the
------------------------ paid-in development
Shares Amount capital stage Total
--------- ---------- -------- ----------- ---------
Balance at June 30, 1998 4,395,040 $1,153,001 $329,050 $(2,342,704) $ (860,653)
Net proceeds from initial public
offering of shares 1,300,000 5,491,056 - - 5,491,056
Contribution of capital - - 325,000 - 325,000
Issuance of stock warrants 449,085 - 224,542 - 224,542
Issuance of stock options for
services rendered - - 48,750 - 48,750
Net loss - July 1, 1998
through September 30, 1998 - - - (373,562) (373,562)
--------- ---------- -------- ----------- ----------
Balance at September 30, 1998 6,144,125 $6,644,057 $927,342 $(2,716,266) $4,855,133
========= ========== ======== =========== ==========
The accompanying notes are an integral part of these statements.
6
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
Three months ended June 1, 1995 (inception)
September 30, to September 30,
1998 1997 1998 1997
----------- --------- ----------- -----------
Cash flows from operating activities:
Net loss $ (373,562) $(349,135) $(2,716,266) $(1,219,910)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization
expense 5,078 6,505 37,544 24,545
Issuance of stock and stock
options for services rendered 48,750 -- 327,800 122,400
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (15,827) (1,371) (125,908) (30,665)
Inventory (14,935) (40,176) (172,719) (182,370)
Deposits and other assets 42,000 425 (36,516) (94,552)
Increase (decrease) in:
Accounts payable 36,554 (13,765) 346,092 155,115
Accrued liabilities and
payroll 31,269 (6,051) 365,007 300,881
----------- --------- ----------- -----------
Net cash used in operating
activities (240,673) (403,568) (1,974,966) (924,556)
----------- --------- ----------- -----------
Cash flows from investing activities:
Capital expenditures -- (62,673) (122,072) (108,265)
----------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt -- -- 655,000 --
Principal payments on debt (62,500) -- (62,500) --
Contribution to capital 325,000 -- 375,000 --
Private offering of stock, net -- 187,500 1,153,001 1,153,001
Proceeds of public offering 6,500,000 -- 6,500,000 --
Stock issuance costs (1,008,944) -- (1,008,944) --
Proceeds from warrants 224,542 -- 224,542 --
----------- --------- ----------- -----------
Net cash provided by
financing activities 5,978,098 187,500 7,836,099 1,153,001
----------- --------- ----------- -----------
Net increase (decrease) in cash 5,737,425 (278,741) 5,739,061 120,180
Cash at beginning of period 1,636 398,921 -- --
----------- --------- ----------- -----------
Cash at end of period $ 5,739,061 $ 120,180 $ 5,739,061 $ 120,180
=========== ========= =========== ===========
The accompanying notes are an integral part of these statements.
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BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are,
in the opinion of management, necessary to present fairly the financial
position as of September 30, 1998 and the results of operations and cash
flows for the period then ended. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these financial statements be read in conjunction with the
Financial Statements and notes for the fiscal year ended June 30, 1998.
NOTE B - INVENTORIES
Inventories consist primarily of raw materials, work in progress and finished
goods, which are stated at the lower of cost or market. Cost is determined
under the first-in, first-out (FIFO) valuation method.
NOTE C - LOSS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings Per Share. Basic loss per common share is based upon the
weighted average number of common shares outstanding during the period.
Diluted loss per common share is not disclosed because the effect of the
exchange or exercise of common stock equivalents would be antidilutive.
NOTE D - INITIAL PUBLIC OFFERING
On September 29, 1998, the Company offered 650,000 Units for sale pursuant to
an initial public offering pursuant to the Securities Act of 1933, as amended
("the Offering"). Each Unit consists of two shares of common stock ("the
Shares") no par value, and two Redeemable Common Stock Purchase Warrants
("the Warrants"). The initial public offering price of the Units was $10.00
per Unit. The Shares and Warrants included in the Units may not be separately
traded without the consent of the underwriters until six months from
September 29, 1998.
The entire 650,000 Units offered were purchased by investors at $10.00 per
Unit. The gross proceeds of $6,500,000 was reduced by costs associated with
the Offering. Costs associated with the Offering totaled $1,008,944. This
resulted in net proceeds from the issuance of Units of $5,491,056.
The accompanying financial statements have been prepared as if the Company
received the net proceeds on the effective date of the Offering. The actual
settlement date occurred on October 2, 1998.
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BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1998
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued the following
Statement of Financial Accounting Standards (SFAS):
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, which is effective for financial statements for periods
beginning after December 15, 1997. SFAS 131 requires companies to report
information about an entity's different types of business activities and the
different economic environments in which it operates, referred to as
operating segments.
Additionally, the AICPA Accounting standards Executive Committee has issued
Statement of Position (SOP) 98-1, Costs of Software for Internal Use and
Related Reengineering Costs, which is effective for fiscal years beginning
after December 15, 1998. SOP 98-1 segments an internal use software project
into stages and the accounting is based on the stage in which the cost in
incurred.
Management does not expect the adoption of the Statement of Financial
Accounting Standards and SOP 98-1, referred to above, to have a material
impact on the Company's results of operations or financial position
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which addresses the
accounting for derivative instruments and provides for matching the timing of
gain or loss recognition on the hedging instrument. Guidance on identifying
derivative instruments is also provided as well as additional disclosures.
SFAS 133 becomes effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. Earlier application is permitted with certain
exceptions. Management does not anticipate that adoption of SFAS 133 will
have a material impact on the financial condition or results of operations of
the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BioShield Technologies, Inc. (the "Company"), a Georgia corporation
organized in June, 1995 has since inception been a development stage company
engaged primarily in research and development, patent filings, regulatory
approvals and related activities geared towards the sales of its retail,
industrial and institutional products.
The Company is engaged in the research, development and
commercialization of antimicrobia products to provide log term killing action of
microorganisms responsible for cross contamination, viral contamination and the
control of over 100 viral, bacteria, fungi and yeast organisms.
The Company's retail consumer products, BioShield Protectant and
BioShield Carpet & Upholstery Cleaner are currently available in supermarket
chains including Kroger, A&P, Winn Dixie, and Cub Foods/Super Valu in Georgia
and Winn Dixie in north Florida, and under the Duralast brand through
independent distributors in the industrial and institutional market. These
retail consumer products provide long-term protection against mold, mildew,
stains, and odors.
On October 19, 1998 the Company announced the EPA approval of the
registrations of two of its core active antimicrobials, AM 500 and AM500I. These
first two core active ingredients are capable of bonding to surfaces for a
significant period of time and can, in many cases, provide a self-sanitizing
surface depending on the type of surface. With these first approvals of its
first two core antimicrobial active concentrates, the Company is in the process
of developing a full line of industrial, institutional and related products to
be introduced beginning in calendar year 1999.
RESULTS OF OPERATIONS.
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30,
1997.
The Company's net sales increased to $87,854 from $68,399 during the
period ending September 30, 1998, when compared to the quarter ending September
30, 1997. The Company continued minimum sales within the United States in its
original test market areas and anticipates a significant broadening of the
Company's sales due primarily to the effect of receiving EPA approval on two
core active molecules and an anticipated nationwide product launch into two
primary market segments (i.e....Industrial & Institutional and Retail).
Gross profit for the quarter ending September 30, 1998 was $54,118
compared to $45,554 for the same period ending September 30, 1997. Total
operating expenses were $412,163 and $396,726 for the periods ending September
30, 1998 and September 30, 1997, respectively. The change was primarily due to
increased marketing and selling costs. Marketing and selling expenses increased
to $114,379 from 63,751 for the periods ending September 30, 1998 and September
30, 1997, respectively, in anticipation of EPA regulatory approvals of the
Company's first two antimicrobial active concentrates for product launches in
1999. General and administration expenses decreased from $296,511 to $259,982
for the quarter ended September 30, 1997 to the quarter ended September 30, 1998
due mainly to a reduction in regulatory consulting. Research and development
stayed at basically the same level as the prior year's quarter.
The Company's net loss modestly increased for the quarter ending
September 30, 1998 compared to September 30, 1997. The net loss for the quarter
ending September 30, 1998 was $373,562 compared to $349,135 for the same quarter
in the previous year. Interest income for three month period ending September
30, 1998 was $818, but was offset by interest expense from private note holders
of $16,335.
LIQUIDITY AND CAPITAL RESOURCES
Upon the completion of the Company's Initial Public offering on
September 29, 1998 the net proceeds to the Company was $5,491,056 after payment
of the non accountable expense allowance, underwriters discount, blue-sky
registrations and attorneys fees, leaving the Company with a net cash position
of $5,739,061 at September 30, 1998 as compared to $1,636 at June 30, 1998.
Cash used in operating activities was $240,673 compared to $403,568 for
the three month periods ending September 30, 1998 and 1997 respectively. The
decrease in cash consumption was due to a significant decrease in EPA regulatory
cost associated with required regulatory testing and the establishment of
protocols. The Company anticipates a significant increase in reserach and
development activities in the next fiscal year. The Company believes that it has
adequate cash on hand to fund its operations for the next 12 months
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phrases "will likely
result," "are expected to, " "will continue," "is anticipated," "estimate,"
"project," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market area, changes
in policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-
10
looking statements, which speak only as to the date made. The Company wishes to
advise readers that the factors listed above could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements. The Company does not
undertake, and specifically disclaims any obligation, to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
YEAR 2000 ISSUES
The Company has developed and is implementing a comprehensive plan to
address issues related to Year 2000. The organizational simplicity of the
Company's business structure, which relies heavily on few manufacturers
and a network of third party distributors, greatly limits the direct financial
impact on the Company to become fully Year 2000 compliant.
Following its initial Public Offering, the Company upgraded its network
of computers and software to become Year 2000 compliant. All computer software
and hardware as well as laboratory and analytical instrumentation purchased by
the Company will be Year 2000 compliant.
Lastly, the Company is in the process of surveying each of its raw
material suppliers, manufacturing resources and distributors to assure their
Year 2000 readiness.
The Company's management believes that the risks facing the Company
relating to Year 2000 issues are minimal. All business related computer systems
are fully Year 2000 compatible. Critical raw materials and manufacturing
requirements are available from multiple sources and the Company can serve its
distributors without reliance on computers.
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PART II. OTHER INFORMATION
ITEMS 1, 3, 4 AND 5. NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Use of proceeds for the period ending September 30, 1998.
(1) Effective Date: September 28, 1998
SEC File Number: 333-57767
(2) Offering Date: September 29, 1998
(4) (i) The offering has terminated; all securities registered
were sold.
(4) (ii) Managing Underwriter: Tejas Securities Group, Inc.
(4) (iii) Title of Securities: Units
(4) (iv) Amount Registered: 750,000
Aggregate Offering Price: $6,500,000
Amount Sold: 750,000
Aggregate Offering Price Sold: $6,500,000
(4) (v) Underwriting Discount and Commissions $650,000
Other Expenses $415,000
Total Expenses $1,065,000
(4) (vi) Net Offering Proceeds $5,435,000
(4) (vii) Use of Net Offering Proceeds:
Debt and Liabilities Retirement $892,133
EPA testing $736,635
FDA Update for Master File $244,549
Marketing $785,745
Leasehold Improvements & Lab Equipment $205,000
Advertising Campaign (Retail) $818,500
Regulatory Consulting $432,950
Research and Development $712,080
Working Capital and general corporate purposes $607,408
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSB
(a) Exhibits
27 - Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-KSB
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BioShield Technologies, Inc.
Date: November 13, 1998 /s/TIMOTHY C. MOSES
------------------------------------
TIMOTHY C. MOSES
President and
Chief Executive Officer
Date: November 13, 1998 /s/DANIEL SWAYE
------------------------------------
DANIEL SWAYE
Vice President Finance
(Principal Financial Officer)
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BIOSHIELD TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
Number Description Page
- - ------ ----------- ----
27 Financial Data Schedule (For SEC Use only)