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 DECEMBER 31, 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 February 8, 1999, 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
PAGE
----
1) Balance Sheets as of December 31, 1998 (unaudited) and June 30, 1998 ......3
2) Statements of Operations for the three and six month periods ended
December 31, 1998 and 1997 (unaudited).....................................4
3) Statements of Operations from June 1, 1995 (inception) thru December 31,
1998 and 1997 (unaudited)..................................................5
4) Statement of Changes in Stockholders' Equity (Deficit) for the six month
period ended December 31, 1998 (unaudited).................................6
5) Statements of Cash Flows for the six month periods ended December
31, 1998 and 1997 (unaudited) and from June 1, 1995 (inception) thru
December 31, 1998 and 1997 (unaudited).....................................7
6) Notes to Financial Statements..............................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................11
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................................13
Signatures....................................................................13
Exhibit Index.................................................................14
2
3
BioShield Technologies, Inc.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Unaudited)
December 31, June 30,
1998 1998
----------- -----------
CURRENT ASSETS
Cash $ 3,525,550 $ 1,636
Marketable securities 70,000 --
Accounts receivable 166,847 110,081
Inventories 131,072 157,784
Prepaid expenses and other current assets 56,080 2,500
----------- -----------
Total current assets 3,949,549 272,001
PROPERTY AND EQUIPMENT, NET 121,130 104,711
DEPOSITS AND OTHER LONG-TERM
ASSETS 99,447 60,911
----------- -----------
$ 4,170,126 $ 437,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ -- $ 450,000
Notes payable - other 12,500 205,000
Accounts payable 192,427 309,538
Accrued payroll 30,402 315,361
Accrued expenses and interest payable 74,532 18,377
----------- -----------
Total current liabilities 309,861 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 December 31, 1998,
and June 30, 1998, respectively 6,480,678 1,153,001
Additional paid-in capital 715,300 329,050
Accumulated other comprehensive losses (35,000) --
Deficit accumulated during the development stage (3,300,713) (2,342,704)
----------- -----------
3,860,265 (860,653)
----------- -----------
$ 4,170,126 $ 437,623
=========== ===========
The accompanying notes are an integral part of these statements.
3
4
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net sales $ 144,842 $ 140,213 $ 232,697 $ 208,612
Cost of sales 62,337 52,142 96,072 74,987
----------- ----------- ----------- -----------
Gross profit 82,505 88,071 136,625 133,625
Operating expenses
Marketing and selling 299,615 79,737 413,994 143,488
General and administrative 328,475 168,573 588,457 465,084
Research and development 74,982 43,015 112,784 79,479
----------- ----------- ----------- -----------
703,072 291,325 1,115,235 688,051
----------- ----------- ----------- -----------
Loss from operations (620,567) (203,254) (978,610) (554,426)
Other income (expense)
Interest income 36,435 204 37,253 2,241
Interest expense (315) -- (16,652) --
----------- ----------- ----------- -----------
Net loss before
income taxes (584,447) (203,050) (958,009) (552,185)
Income tax (expense) benefit -- -- -- --
----------- ----------- ----------- -----------
Net loss (584,447) (203,050) (958,009) (552,185)
Other comprehensive loss,
unrealized holding loss
on securities (35,000) -- (35,000) --
----------- ----------- ----------- -----------
Comprehensive loss $ (619,447) $ (203,050) $ (993,009) $ (552,185)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.10) (0.05) $ (0.18) $ (0.13)
=========== =========== =========== ===========
Weighted average shares 6,144,125 4,395,040 5,445,573 4,395,040
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
4
5
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
June 1, 1995 (inception)
to December 31,
1998 1997
----------- -----------
Net sales $ 1,470,482 $ 983,927
Cost of sales 566,553 390,809
----------- -----------
Gross profit 903,929 593,118
Operating expenses
Marketing and selling 1,105,934 362,483
General and administrative 2,618,868 1,360,783
Research and development 528,912 338,355
----------- -----------
4,253,714 2,061,621
----------- -----------
Loss from operations (3,349,785) (1,468,503)
Other income (expense)
Consulting income, net 39,908 39,908
Interest income 44,191 5,635
Interest expense (35,027) --
----------- -----------
Net loss before
income taxes (3,300,713) (1,422,960)
Income tax (expense) benefit -- --
----------- -----------
Net loss (3,300,713) (1,422,960)
Other comprehensive loss,
unrealized holding loss on securities (35,000) --
----------- -----------
Comprehensive loss $(3,335,713) $(1,422,960)
=========== ===========
Net loss per common share
Basic $ (0.75) $ (0.34)
=========== ===========
Weighted average shares 4,400,666 4,198,291
=========== ===========
The accompanying notes are an integral part of these statements.
5
6
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Six Months Ended December 31, 1998
(Unaudited)
Deficit
Common stock Accumulated accumulated
no par value Additional other during the
------------------------ paid-in comprehensive development
Shares Amount capital losses 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 5,103,135 -- -- -- 5,103,135
Contribution of capital -- -- 325,000 -- -- 325,000
Exercise of stock warrants 449,085 224,542 -- -- -- 224,542
Issuance of stock options for
services rendered -- -- 61,250 -- -- 61,250
Unrealized loss on securities -- -- -- (35,000) -- (35,000)
Net loss - July 1, 1998
through December 31, 1998 -- -- -- -- (958,009) (958,009)
--------- ---------- -------- -------- ----------- -----------
Balance at December 31, 1998 6,144,125 $6,480,678 $715,300 $(35,000) $(3,300,713) $ 3,860,265
========= ========== ======== ======== =========== ===========
The accompanying notes are an integral part of these statements.
6
7
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
Six months ended June 1, 1995 (inception)
December 31, to December 31,
1998 1997 1998 1997
----------- --------- ----------- -----------
Cash flows from operating activities:
Net loss $ (958,009) $(552,185) $(3,288,213) $(1,422,960)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation expense 10,347 6,151 42,813 24,191
Issuance of stock and stock
options for services rendered 61,250 -- 327,800 122,400
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (56,766) (32,228) (166,847) (61,522)
Inventory 26,712 (30,443) (131,072) (172,637)
Deposits and other assets (92,116) 5,286 (170,632) (89,691)
Increase (decrease) in:
Accounts payable (117,111) 106,517 192,427 275,397
Accrued liabilities and
payroll (228,804) (2,583) 104,934 304,349
----------- --------- ----------- -----------
Net cash used in operating
activities (1,354,497) (499,485) (3,088,790) (1,020,473)
----------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (105,000) -- (105,000) --
Capital expenditures (26,766) (72,368) (148,838) (117,960)
----------- --------- ----------- -----------
Net cash used in investing
activities (131,766) (72,368) (253,838) (117,960)
----------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt -- -- 655,000 --
Principal payments on debt (642,500) -- (642,500) --
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 (1,396,865) -- (1,396,865) --
Proceeds from warrants 224,542 -- 224,542 --
----------- --------- ----------- -----------
Net cash provided by
financing activities 5,010,177 187,500 6,868,178 1,153,001
----------- --------- ----------- -----------
Net increase (decrease) in cash 3,523,914 (384,353) 3,525,550 14,568
Cash at beginning of period 1,636 398,921 -- --
----------- --------- ----------- -----------
Cash at end of period $ 3,525,550 $ 14,568 $ 3,525,550 $ 14,568
=========== ========= =========== ===========
The accompanying notes are an integral part of these statements.
7
8
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 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 December 31, 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
regulations established by the Securities Act of 1934 ("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 until six months
from September 29, 1998, unless earlier separated upon ten day's written
notice from the Representatives to the Company.
The entire 650,000 Units offered were purchased by investors at $10.00 per
Unit. The gross proceeds of $6,500,000 were reduced by costs associated with
the Offering. Costs associated with the Offering totaled $1,396,865, with
$1,008,944 recorded during the first quarter ended September 30, 1998 and
$387,921 recorded during the second quarter ended December 31, 1998. Net
proceeds of the Offering were $5,103,135.
8
9
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 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.
NOTE F - STOCK OPTIONS AND WARRANTS
During the six months ended December 31, 1998, the following changes occurred
in outstanding stock options and warrants:
Options outstanding at June 30, 1998 270,000
Options granted 560,000
Options cancelled -
Options exercised -
---------
Options outstanding at December 31, 1998 830,000
=========
Warrants outstanding at June 30, 1998 1,138,252
Warrants granted 1,300,000
Warrants cancelled -
Warrants exercised (449,085)
---------
Warrants outstanding at December 31, 1998 1,989,167
=========
9
10
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
NOTE G - COMPREHENSIVE LOSS
The Company was required to adopt SFAS No. 130, Reporting Comprehensive
Income, for its fiscal year beginning July 1, 1998. The statement establishes
standards for reporting and display of comprehensive income or loss and their
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements.
10
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
BioShield Technologies. Inc. (the "Company"), a Georgia Corporation organized in
June, 1995 has since inception been a development stage company engaged
primarily in research and development, patent filings, regulatory approvals and
related activities geared towards the sale of its retail, industrial and
institutional products.
The Company is engaged in the research, development and commercialization of
antimicrobial products to provide long term killing action of microorganisms
responsible for cross contamination and viral contamination. These products
inhibit and control the growth of over 100 viral, bacteria, fungi and yeast
organisms.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the three month period ended December 31, 1998 were $144,842, an
increase of 3% over the equivalent period one year ago. Net sales for the six
month period ended December 31, 1998 were $232,697, an increase of 12% over the
same period last year. The increase in sales was due mainly to initial shipments
of products to Jittney Jungle Stores of America and Bruno's, Inc., two new
grocery chain customers.
Gross profit as a percentage of net sales decreased to 59% during the six month
period ended December 31, 1998 from 64% for the same six month period last year.
The decrease was principally due to the concentration of sales in the retail
product area during the period.
Marketing and selling expenses of $413,994 for the six month period ended
December 31, 1998 were $270,506 higher than for the first half of last year. The
increase reflects the impact of additional staffing and related expenses to
support retail sales as well as the implementation of a private label sales
program.
General and administrative expenses of $588,457 for the six month period ended
December 31, 1998 were $123,373, 27% higher than the same period last year. The
increase was primarily due to an increase in staff and expenses associated with
building a corporate infrastructure.
Research and development expenses of $112,784 for the six month ended December
31, 1998 were $33,305, 42% higher than the first half of last year. The increase
was due to additional staff and costs associated with ongoing projects and
filings.
Interest income of $37,253 for the six month ended December 31, 1998 was $35,012
higher than the interest income for the equivalent period last year. The
increase was due to a larger cash balance as a result of the initial public
offering.
Interest expense was $16,652 for the six month period and $315 for the three
month period ended December 31, 1998. The interest expense relates primarily to
payment of interest due to private note holders. All such notes have been paid
as of December 31, 1998.
11
12
LIQUIDITY
The Company's cash and cash equivalents totaled $3,525,550 on December 31, 1998,
an amount $3,523,914 higher than at the end of the previous fiscal year due to
the completion of the initial public offering during the period. The Company
believes that it has sufficient resources to meet its short term operating
needs. The Company expects to continue to incur substantial operating losses
and use substantial sums of cash in its operations for an indefinite period.
Accordingly, the Company will be required to obtain additional capital within
the next twelve months. No assurance can be given that the Company will be
successful in its efforts to obtain additional capital, that capital will be
available on terms acceptable to the Company or on terms that will not
significantly dilute the interests of existing stockholders.
FORWARD-LOOKING STATEMENTS
When used in this form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as to the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements. The Company does not
undertake, and specifically disclaims any obligation, to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
YEAR 2000 READINESS
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 third party manufacturers and a
network of third party distributors, greatly limits the direct financial impact
on the Company to become fully Year 2000 compliant.
The Company's management believes that the risks facing the Company related to
Year 2000 issues are minimal. The Company is currently upgrading all computers
and software to insure Year 2000 compliance. Critical raw material and
manufacturing requirements are available from multiple sources and the Company
can serve its customers without reliance on computers.
12
13
RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (FAS 133). FAS 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999
(July 1, 1999 for the Company). FAS 133 requires that all derivatives
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that, due to its limited use of derivative instruments,
the adoption of FAS 133 will not have a significant effect on the Company's
results of operations or its financial position.
PART II. OTHER INFORMATION
ITEMS 1-5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSB
(a) Exhibits
27.1 Financial Data Schedule (For SEC use only)
(b) Reports on Form 8-KSB
None.
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: February 12, 1999 /s/TIMOTHY C. MOSES
--------------------------
TIMOTHY C. MOSES
President and
Chief Executive Officer
Date: February 12, 1999 /s/DANIEL E. SWAYE
--------------------------
DANIEL E. SWAYE
Vice President Finance
(Principal Financial Officer)
13
14
BIOSHIELD TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
27 Financial Data Schedule (For SEC Use Only)
----
14