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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 0-24913
BIOSHIELD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2181628
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 May 13, 1999, there were 6,147,591 outstanding shares of the
Registrant's Common Stock, no par value per share.
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BIOSHIELD TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Page
1) Balance Sheets as of March 31, 1999 (unaudited) and June 30, 1998.................................... 3
2) Statements of Operations for the three and nine month periods ended
March 31, 1999 and 1998 (unaudited).................................................................. 4
3) Statements of Operations from June 1, 1995 (inception) thru March 31,
1999 and 1998 (unaudited)............................................................................ 5
4) Statement of Changes in Stockholders' Equity (Deficit) for the nine month
period ended March 31, 1999 (unaudited).............................................................. 6
5) Statements of Cash Flows for the nine month periods ended March 31, 1999
and 1998 (unaudited) and from June 1, 1995 (inception) thru
March 31, 1999 and 1998 (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........................................................................ 14
ITEM 6. Exhibits and Reports on Form 8-KSB
Signatures................................................................................................. 15
Exhibit Index.............................................................................................. 16
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BioShield Technologies, Inc.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
(Unaudited)
March 31, June 30,
1999 1998
----------- -----------
CURRENT ASSETS
Cash $ 2,868,543 $ 1,636
Marketable securities 91,000 --
Accounts receivable 127,254 110,081
Inventories 100,350 157,784
Prepaid expenses and other current assets 53,574 2,500
----------- -----------
Total current assets 3,240,721 272,001
PROPERTY AND EQUIPMENT, NET 120,341 104,711
DEPOSITS AND OTHER LONG-TERM
ASSETS 115,450 60,911
----------- -----------
$ 3,476,512 $ 437,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ -- $ 450,000
Notes payable - other 12,500 205,000
Accounts payable 71,466 309,538
Accrued payroll 10,289 315,361
Accrued expenses and interest payable 78,943 18,377
----------- -----------
Total current liabilities 173,198 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 March 31, 1999,
and June 30, 1998, respectively 6,480,738 1,153,001
Additional paid-in capital 715,300 329,050
Accumulated other comprehensive losses (14,000) --
Deficit accumulated during the development stage (3,878,724) (2,342,704)
----------- -----------
3,303,314 (860,653)
----------- -----------
$ 3,476,512 $ 437,623
=========== ===========
The accompanying notes are an integral part of these statements.
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BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales $ 53,486 $ 115,658 $ 286,182 $ 324,270
Cost of sales 24,654 38,167 120,726 113,154
----------- ----------- ----------- -----------
Gross profit 28,832 77,491 165,456 211,116
Operating expenses
Marketing and selling 196,442 135,172 610,436 278,660
General and administrative 348,401 301,333 936,858 766,417
Research and development 98,561 37,887 211,345 117,366
----------- ----------- ----------- -----------
643,404 474,392 1,758,639 1,162,443
----------- ----------- ----------- -----------
Loss from operations (614,572) (396,901) (1,593,183) (951,327)
Other income (expense)
Interest income 36,870 880 74,123 3,121
Interest expense (308) -- (16,960) --
----------- ----------- ----------- -----------
Net loss before
income taxes (578,010) (396,021) (1,536,020) (948,206)
Income tax (expense) benefit -- -- -- --
----------- ----------- ----------- -----------
Net loss (578,010) (396,021) (1,536,020) (948,206)
Other comprehensive income (loss),
unrealized holding income (loss)
on securities 21,000 -- (14,000) --
----------- ----------- ----------- -----------
Comprehensive loss $ (557,010) $ (396,021) $(1,550,020) $ (948,206)
=========== =========== =========== ===========
Net loss per common share
Basic $ (0.09) $ (0.09) $ (0.27) $ (0.22)
=========== =========== =========== ===========
Weighted average shares 6,144,125 4,395,040 5,675,024 4,395,040
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
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BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
June 1, 1995 (inception)
to March 31,
1999 1998
----------- -----------
Net sales $ 1,523,968 $ 1,099,585
Cost of sales 591,207 428,976
----------- -----------
Gross profit 932,761 670,609
Operating expenses
Marketing and selling 1,302,376 497,655
General and administrative 2,967,269 1,662,116
Research and development 627,473 376,242
----------- -----------
4,897,118 2,536,013
----------- -----------
Loss from operations (3,964,357) (1,865,404)
Other income (expense)
Consulting income, net 39,908 39,908
Interest income 81,061 6,515
Interest expense (35,336) --
----------- -----------
Net loss before
income taxes (3,878,724) (1,818,981)
Income tax (expense) benefit -- --
----------- -----------
Net loss (3,878,724) (1,818,981)
Other comprehensive income (loss),
unrealized holding income (loss) on securities (14,000) --
----------- -----------
Comprehensive loss $(3,892,724) $(1,818,981)
=========== ===========
Net loss per common share
Basic $ (0.86) $ (0.43)
=========== ===========
Weighted average shares 4,512,746 4,215,400
=========== ===========
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 Nine Months Ended March 31, 1999
(Unaudited)
Deficit
Common stock Accumulated accumulated
no par value Additional other during the
------------------------- paid-in comprehensive development
Shares Amount capital income (loss) 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 5,103,195 -- -- -- 5,103,195
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 -- -- -- (14,000) -- (14,000)
Net loss - July 1, 1998
through March 31, 1999 -- -- -- -- (1,536,020) (1,536,020)
--------- ---------- -------- -------- ----------- -----------
Balance at March 31, 1999 6,144,125 $6,480,738 $715,300 $(14,000) $(3,878,724) $ 3,303,714
========= ========== ======== ======== =========== ===========
The accompanying notes are an integral part of these statements.
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BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
Nine months ended June 1, 1995 (inception)
March 31, to March 31,
1999 1998 1999 1998
----------- --------- ----------- -----------
Cash flows from operating activities:
Net loss $(1,536,020) $(948,206) $(3,878,724) $(1,818,981)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation expense 16,762 10,288 49,228 28,328
Issuance of stock and stock
options for services rendered 61,250 58,200 340,300 180,600
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (17,173) (74,367) (127,254) (103,661)
Inventory 57,434 (18,699) (100,350) (160,893)
Deposits and other assets (105,613) 16,462 (184,129) (78,515)
Increase (decrease) in:
Accounts payable (238,072) 19,917 71,466 188,797
Accrued liabilities and
payroll (244,506) 13,195 89,232 320,127
----------- --------- ----------- -----------
Net cash used in operating
activities (2,005,938) (923,210) (3,740,231) (1,444,198)
----------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (105,000) -- (105,000) --
Capital expenditures (32,392) (72,368) (154,464) (117,960)
----------- --------- ----------- -----------
Net cash used in investing
activities (137,392) (72,368) (259,464) (117,960)
----------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt -- 630,000 655,000 630,000
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 (1,396,805) -- (1,396,805) --
Proceeds from warrants 224,542 -- 224,542 --
----------- --------- ----------- -----------
Net cash provided by
financing activities 5,010,237 817,500 6,868,238 1,783,001
----------- --------- ----------- -----------
Net increase (decrease) in cash 2,866,907 (178,078) 2,868,543 220,843
Cash at beginning of period 1,636 398,921 -- --
----------- --------- ----------- -----------
Cash at end of period $ 2,868,543 $ 220,843 $ 2,868,543 $ 220,843
=========== ========= =========== ===========
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
March 31, 1999
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are,
in the opinion of management, necessary to present fairly the financial
position as of March 31, 1999 and the results of operations and cash flows
for the period then ended. All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the Financial
Statements and notes for the fiscal year ended June 30, 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 were split apart and began to
trade separately on the NASDAQ Small Cap Market effective March 29, 1999.
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 $1,396,805. Net
proceeds of the Offering were $5,103,195.
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BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
March 31, 1999
NOTE E - STOCK OPTIONS AND WARRANTS
During the nine months ended March 31, 1999, the following changes occurred
in outstanding stock options and warrants:
Options outstanding at June 30, 1998 270,000
Options granted 592,000
Options cancelled --
Options exercised --
---------
Options outstanding at March 31, 1999 862,000
=========
Warrants outstanding at June 30, 1998 1,138,252
Warrants granted 1,365,000
Warrants cancelled --
Warrants exercised (449,085)
---------
Warrants outstanding at March 31, 1999 2,054,167
=========
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BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
March 31, 1999
NOTE F - 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
BioShield Technologies. Inc. (the "Company"), a Georgia Corporation organized
in June, 1995 has since inception been a development stage company engaged
primarily in research and development, patent filings, regulatory approvals and
related activities geared towards the sale of its retail, industrial and
institutional products. These products may provide long term killing action of
microorganisms responsible for cross contamination and viral contamination.
Many of these products inhibit and control the growth of over 100 viral,
bacteria, fungi and yeast organisms.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the three month period ended March 31, 1999 were $53,486, a
decrease of $62,172 over the same period last year. Net sales for the nine
month period ended March 31, 1999 were $286,182, a decrease of 12% compared to
the same period one year ago. The decrease in sales was due mainly to initial
shipments of products to stock new grocery chain customers during the same
periods in the previous year.
Gross profit as a percentage of net sales decreased to 54% for the three month
period ended March 31, 1999 from 67% for the same three month period last year.
Also, gross profit as a percentage of net sales decreased to 58% for the nine
month period ended March 31, 1999 from 65% for the same nine month period in
the prior year. These decreases were mainly due to a product mix weighed more
toward retail sales which have lower profit margins rather than industrial
sales which have higher profit margins during both the three and nine month
periods.
Marketing and selling expenses were $196,442 for the three month period and
$610,436 for the nine month period ended March 31, 1999. This represents an
increase of $61,270 and $331,776 over the same prior year periods. The increase
reflects the impact of additional staffing and related expenses to support the
retail and private label sales program as well as an increase in advertising
costs associated with the initial phases of the OdorFree(TM) product line
rollout. The OdorFree(TM) product line is designed to compete in the
multimillion dollar odor elimination packaged goods category.
General and administrative expenses were $348,401 for the three month and
$936,858 for the nine month periods ending March 31, 1999. These amounts
represent a $47,068 increase for the three month and $170,441 increase for the
nine month periods compared to last year. These higher costs were primarily due
to an increase in staff and expenses associated with staffing the Company's
corporate infrastructure.
Research and development expenses of $98,561 for the three months ended March
31, 1999 were $60,674 higher than the same quarter last year. For the nine
month period ended March 31, 1999, these costs increased $93,979 when compared
to the prior year. The increase was due to additional staff and costs
associated with ongoing projects and testing related to future EPA
applications.
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Interest income was $36,870 for the three month and $74,123 for the nine month
periods ended March 31, 1999. This represents an increase of $35,990 and
$71,002 over the respective period last year. The increase was due to a larger
invested cash balance as a result of the initial public offering.
Interest expense was $308 for the three month period and $16,960 for the nine
month period ended March 31, 1999. The interest expense relates mainly to
interest paid to private note holders who loaned an aggregate of $450,000 to
the Company in the first and second quarter of 1998. All such notes have been
paid as of March 31, 1999.
LIQUIDITY
The Company's cash and cash equivalents totaled $2,868,543 on March 31, 1999,
an amount $2,866,907 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 near future. 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 shareholders.
FORWARD-LOOKING STATEMENTS
When used in this form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties including
changes in economic conditions in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as to
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements. The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
YEAR 2000 ISSUES
The Company 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
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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.
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 derivative 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.
SUBSEQUENT EVENTS
In April 1999, the Company formed a wholly-owned subsidiary named Allergy
Superstore.com, Inc. to sell drugs, certain of the Company's products and other
allergy related products to consumers over the internet. This subsidiary is
still in its organization stages. The Company expects that this subsidiary will
commence sales of allergy products over the internet in the third or fourth
calendar quarters of 1999. The Company will initially fund the development
costs of this subsidiary. However, the Company anticipates requiring
substantial capital in order to complete the development and implement the
operation of this subsidiary. The Company anticipates raising additional
capital for this new venture through a private placement of securities in the
very near future. The terms and structure of such a private placement
transaction have not as yet been determined.
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PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4, AND 5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSB.
(a) Exhibits
10.21 Employment Agreement between the Company and Daniel E. Swaye,
dated October 8, 1998 (1)
10.22 Amendment to Exclusive Sales and Distribution Agreement between
the Company and Sanitary Coating Systems, LLP, dated as of
February 12, 1999 (1)
10.23 Agreement between the Company and John T. Adams, dated April 1, 1999 (1)
10.24 Financial Advisory and Consulting Agreement between the Company
and Grayson Financial Services, LLP, dated as of April 1, 1999
(1)
10.25 Financial Advisory and Consulting Agreement between the Company
and C.L.R. Associates, dated as of April 1, 1999 (1)
10.26 Certificate of Incorporation of Allergy Superstore.com, Inc. (1)
10.27 Bylaws of Allergy Superstore.com, Inc. (1)
10.28 1999 Directors Stock Option Plan of Allergy Superstore.com, Inc. (1)
10.29 Form of Directors Nonqualified Initial Stock Option Grant of Allergy
Superstore.com, Inc. (1)
10.30 Form of Directors Nonqualified Succeeding Stock Option Grant of
Allergy Superstore.com, Inc. (1)
27 Financial Data Schedule (for SEC use only)
- ------------------------
(1) Filed herewith
(b) Reports on Form 8-KSB
None.
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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: May 13, 1999 /s/ Timothy C. Moses
----------------------------------------
TIMOTHY C. MOSES
President and Chief Executive Officer
Date: May 13, 1999 /s/ Daniel E. Swaye
----------------------------------------
DANIEL E. SWAYE
Vice President Finance
(Principal Financial Officer)
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BIOSHIELD TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
10.21 Employment Agreement between the Company and Daniel E. Swaye, dated
October 8, 1998
10.22 Amendment to Exclusive Sales and Distribution Agreement between the
Company and Sanitary Coating Systems, LLP, dated as of February 12, 1999
10.23 Agreement between the Company and John T. Adams, dated April 1, 1999
10.24 Financial Advisory and Consulting Agreement between the Company and
Grayson Financial Services, LLP, dated as of April 1, 1999
10.25 Financial Advisory and Consulting Agreement between the Company and
C.L.R. Associates, dated as of April 1, 1999
10.26 Certificate of Incorporation of Allergy Superstore.com, Inc.
10.27 Bylaws of Allergy Superstore.com, Inc.
10.28 1999 Directors Stock Option Plan of Allergy Superstore.com, Inc.
10.29 Form of Directors Nonqualified Initial Stock Option Grant of Allergy
Superstore.com, Inc.
10.30 Form of Directors Nonqualified Succeeding Stock Option Grant of Allergy
Superstore.com, Inc.
27 Financial Data Schedule (for SEC use only)
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