1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1999
REGISTRATION NO. 333-57767
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BIOSHIELD TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
GEORGIA 2842 58-2181628
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
BIOSHIELD TECHNOLOGIES, INC.
4405 INTERNATIONAL BOULEVARD, SUITE B-109
NORCROSS, GEORGIA 30093
(770) 925-3432
(Address and telephone number of principal
executive offices and principal place of business)
TIMOTHY C. MOSES
BIOSHIELD TECHNOLOGIES, INC.
4405 INTERNATIONAL BOULEVARD, SUITE B-109
NORCROSS, GEORGIA 30093
(770) 925-3432
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
RAYMOND L. MOSS, ESQ.
SIMS MOSS KLINE & DAVIS LLP
400 NORTHPARK TOWN CENTER, SUITE 310
1000 ABERNATHY ROAD, N.E.
ATLANTA, GEORGIA 30328
(770) 481-7200
(770) 481-7210 FAX
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
the effective date of the Registration Statement.
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. [ ]
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 SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PROSPECTUS
BIOSHIELD TECHNOLOGIES, INC.
1,300,000 Shares of
Common Stock
Issuable Upon Exercises of Redeemable Warrants
at $6.00 Per Share
- - The shares of common stock offered by this prospectus may be purchased by the
holders of our publicly-traded redeemable common stock purchase warrants at a
price of $6.00 per share. The company will receive all of the proceeds from
sales of these shares.
- - Our common stock is traded on the Nasdaq SmallCap Market under the symbol
BSTI. The redeemable warrants are traded on the Nasdaq SmallCap Market under
the symbol BSTIW.
- - We may redeem some or all of the redeemable warrants at a call price of $0.05
per warrant after at least 30 day's prior written notice if the closing bid
price of the common stock on the Nasdaq SmallCap Market has equaled or
exceeded $10.00 per share for ten consecutive days.
- - You may exercise redeemable warrants only if we have qualified our common
stock for sale or we have an exemption under the securities laws of the state
in which you reside. The residents of several states are not currently
permitted to exercise redeemable warrants. See "Risk Factors -- Possible
Inability to Exercise Warrants" on page .
- - On June 1, 1999, the closing bid price of our common stock on the Nasdaq
SmallCap Market was $14 3/8, and the closing bid price for the redeemable
warrants was $8 1/2.
- - You should obtain current market price quotations before deciding whether to
exercise your redeemable warrants.
Our principal executive offices are located at 4405 International
Boulevard, Suite 109, Norcross, Georgia 30093, and our telephone number is (770)
925-3432.
THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE REGULATORY AUTHORITIES
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 3, 1999
3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
prospectus. 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 4.
The italicized terms used in this prospectus are defined in the Glossary
beginning on page .
THE COMPANY
BioShield Technologies, Inc. is a development stage company that has not
yet generated enough sales to support its operations. We are engaged in the
development, marketing, and sale of surface modifying antimicrobials and
biostatic products. Our primary focus is to exploit our proprietary technology
to become the leader in topical antimicrobials and biocides for consumer,
industrial and institutional markets, environmental services, and medical device
markets. BioShield products are an easily applied reactive coating technology
that modifies surfaces of all types, by creating an invisible covalent bond
between surfaces and a variety of chemical agents.
We have also filed applications for patents with the United States Patent
and Trademark Office with respect to our proprietary technology. Specifically,
we have discovered and claimed a variety of new compositions and methods of
making and using our proprietary antimicrobial products. The mode of action of
the core microbial technology is to disrupt the microbial cell membrane. By
contrast, other antimicrobials rely on absorption of the antimicrobial by the
organisms, which in turn disrupts the metabolic systems. These characteristics
of our products combine to make the products ideal for use in a wide range of
medical, household, commercial, and industrial applications.
The largest near-term opportunity for our products is in the mass-market
retail outlets such as supermarkets, mass volume retailers, drug stores, and
home improvement superstores. We have distributed our BioShield Mold & Mildew
and Odor Protectant and BioShield Carpet and Upholstery Cleaner line of retail
products through supermarket chains such as Kroger, Winn Dixie, A&P, Cub Foods,
Drug Emporium, and Supervalue. Sales through these customers began in January
1998 and continue through the date of this prospectus. In April of 1999, the
company launched its OdorFree(TM) product, an odor remover and fabric freshener
in a number of food retailers located in the largest Texas markets. Shipments of
this product have been made to several major supermarket chains in the Dallas,
Houston, and San Antonio markets.
1
4
THE OFFERING
Securities offered......... 1,300,000 shares of common stock issuable upon
exercise of the redeemable warrants at a price per
share of $6.00.
The common stock........... Our common stock is traded on the Nasdaq SmallCap
Market under the symbol "BSTI." See "Description of
Securities."
Description of the
redeemable warrants........ Each redeemable warrant may currently be exercised
to purchase one share of common stock at an
exercise price of $6.00 per share. The redeemable
warrants are traded on the Nasdaq SmallCap Market
under the symbol "BSTIW." We may redeem the
redeemable warrants at $0.05 per warrant after at
least 30 day's prior written notice if the closing
bid price of the common stock on the Nasdaq
SmallCap Market has equaled or exceeded $10.00 per
share for ten (10) consecutive days in the last 30
days. See "Description of Securities."
Common stock to be
outstanding after the
offering (1)(2).......... Between 6,278,411 and 7,469,125 shares, depending
on the number of redeemable warrants exercised.
Use of proceeds............ We intend to use the net proceeds from redeemable
warrant exercises for working capital and general
corporate purposes. See "Use of Proceeds."
Risk factors............... The common stock is a speculative investment and
involves a high degree of risk and immediate
substantial dilution. Investors who cannot afford
to lose of their entire investment should not
purchase BioShield common stock. See "Risk Factors"
and "Dilution."
- ---------------
(1) Does not include 130,000 shares of common stock and warrants to purchase
another 65,000 shares issued to the underwriters of BioShield's initial
public offering calculated as of May 21, 1999.
(2) Does not include an aggregate of 174,167 shares of common stock reserved for
issuance upon exercises of outstanding warrants at a weighted average price
of $0.50 per share, 90 warrants to purchase a total of 450,000 shares of
common stock at an exercise price per share of $5.00, one warrant to
purchase 40,000 shares of common stock at an exercise price per share equal
to $5.50, options for the purchase of 4,000 shares at $8.94 per share issued
to a consultant, options to purchase 645,000 shares issued to employees
pursuant to the company's 1997 Stock Incentive Plan at various prices per
share, and options to purchase 250,000 shares issued under the 1996 Director
Stock Option Plan of which 120,000 are exercisable at $2.00 per share 10,000
are exercisable at $5.75 per share and 120,000 are exercisable at $5.00 per
share. See "Management" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
2
5
SELECTED FINANCIAL INFORMATION
The following selected financial data has been derived from our audited
balance sheets as of June 30, 1997 and 1998, audited income statements for the
fiscal periods ended June 30, 1998, 1997 and 1996, and unaudited financial
statements as of and for the nine-month periods ended March 31, 1999 and 1998.
This selected financial data should be read together with the our financial
statements and related notes included in this prospectus. See "Financial
Statements."
NINE-MONTH PERIODS
FISCAL PERIODS ENDED JUNE 30, ENDED MARCH 31,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- ----------- ---------- -----------
OPERATING DATA:
Net sales........................... $ 0 $ 775,315 $ 462,471 $ 324,270 $ 286,182
Cost of sales....................... 0 315,822 154,658 113,154 120,726
Gross profit........................ 0 459,493 307,813 211,116 165,456
Operating expenses.................. 386,217 987,353 1,764,909 1,162,443 1,758,639
Operating loss...................... (386,217) (527,860) (1,457,096) (951,327) (1,593,183)
Unrealized securities loss.......... -- -- -- -- (14,000)
Net loss............................ (356,316) (514,459) (1,471,929) (948,206) (1,536,020)
Basic net loss per common share..... $ (0.09) $ (0.12) $ (0.33) $ (0.22) $ (0.27)
AT JUNE 30, AT MARCH 31,
------------------------ ------------
1997 1998 1999
---------- ----------- ------------
BALANCE SHEET DATA:
Working capital (deficit)................................ $ 114,635 $(1,026,275) $ 3,067,523
Current assets........................................... 590,447 272,001 3,240,721
Total assets............................................. 692,938 437,623 3,476,512
Total liabilities........................................ 475,812 1,298,276 173,198
Accumulated deficit...................................... (870,775) (2,342,704) (3,878,724)
Shareholder's equity (deficit)........................... 217,126 (860,653) 3,303,314
Common shares outstanding................................ 4,364,421 4,395,040 6,144,125
3
6
RISK FACTORS
An investment in our common stock involves a high degree of risk.
Prospective investors should consider the following factors in addition to other
information set forth in the prospectus before purchasing the common stock.
SPECIAL NOTE ABOUT FORWARD LOOKING STATEMENTS
We make statements in this prospectus and in the documents we file with the
Commission that are considered "forward-looking statements" within the meaning
of the Securities Act and the Exchange Act. Sometimes these statements contain
words such as "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions or other similar
words. These statements are not guarantees of our future performance and are
subject to risks, uncertainties, and other factors that could cause our actual
performance or achievements to be materially different from those we project.
The following factors, among others, could cause materially different results
from those anticipated or projects:
- failure to obtain EPA or FDA approvals;
- inability to commercialize the company's technology in a cost-effective
manner;
- the introduction of equally or more effective products by competitors,
especially larger competitors with established distribution systems and
substantially greater financial resources;
- failure to obtain new customers or retain existing customers;
- inability to carry out marketing and sales plans;
- inability to obtain capital for future growth;
- loss of key executives; and
- general economic and business conditions.
We do not have a policy of updating or revising forward-looking statements
and thus it should not be assumed that silence by us over time means that actual
events are bearing out as estimated in such forward-looking statements.
WE ARE A DEVELOPMENT STAGE COMPANY ENGAGED IN PRODUCT DEVELOPMENT AND WITH
LIMITED OPERATING HISTORY
The company was organized in June 1995 and is a development stage company.
The company's long-term viability, profitability and growth will depend upon
successful commercialization of products resulting from our research and product
development activities. We may not be able to sell significant quantities of any
product, outside of retail distribution channels until such time, if ever, as we
receive regulatory approval to commercially market our products in the
industrial and medical markets. Many of our products will require laboratory and
clinical testing and investment prior to obtaining such approvals for any
product with the EPA and the FDA and prior to full commercialization. No
assurances can be given that any such approvals will be obtained. No FDA
applications or registrations have been filed to date. Moreover, with respect to
the FDA, adverse or inconclusive results in clinical trials could significantly
delay or ultimately preclude any such approvals. Even if we obtain approvals
there can be no assurance that any product approval will lead to the successful
commercialization of such product. Further, as a development stage company, 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, which
is characterized by an increasing number of market entrants, intense competition
and a high failure rate. In addition, significant challenges are often
encountered in shifting from development to commercialization of new products.
See "Business."
4
7
WE HAVE GENERATED LIMITED REVENUES TO DATE, HAVE A HISTORY OF SIGNIFICANT LOSSES
AND EXPECT CONTINUED LOSS
Through April 30, 1999, although we have recorded contract revenues, we
have generated only limited revenues from product sales and consulting of
$1,578,304 since 1995. Moreover, we have incurred significant losses, including
losses of $356,316, $514,459, and $1,471,929 for the years ended June 30, 1996,
1997, and 1998, respectively. For the years ended June 30, 1996, and 1997, and
1998, we recorded product sale revenues of $0, $775,315, and $462,471. Our net
sales during the nine months ended March 31, 1998, and 1999 were $324,270 and
$286,182, respectively, while net losses increased from $948,206 to $1,536,020
as we used the proceeds of our initial public offering to increase marketing
efforts.
Because we will continue to have a high level of research and development
and general and administrative expenses and will not have matching contract
revenues as such expenditures are incurred, we anticipate continued greater net
losses until such time, if ever, as we are able to generate sufficient revenues
to support our operations.
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 the success of the obtaining regulatory
registrations for the commercial sale of products, including approval of any
manufacturing facilities established or maintained by us or our suppliers that
produce such products. There can be no assurance that any of such events will
occur, that we will attain revenues from commercialization of our products or
that we will ever achieve profitable operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
Financial Statements.
YOU MAY LIVE IN A STATE WHERE YOU CANNOT EXERCISE WARRANTS
Our redeemable warrants can only be exercised when there is a current
effective registration statement covering the shares of common stock underlying
the warrants. If we do not maintain a current effective registration statement,
warrant holders will be unable to exercise their warrants and the warrants may
become valueless. In addition, because the warrants may be transferred, it is
possible that the warrants may be acquired by persons residing in states where
we have not registered the common stock under state securities laws or there is
not an available exemption from registration. As of the date of this prospectus,
warrants could not be exercised by residents of the following states: Michigan,
Minnesota, New Hampshire, Oklahoma, and Virginia.
In that event, those holders would not be permitted to exercise their
warrants. Warrant holders residing in those states would have no choice but to
attempt to sell their warrants or to let them expire unexercised. If we redeem
the warrants, which we are currently entitled to do, holders in those states who
do not sell prior to redemption would receive only $.05 per warrant.
CONTINUED EXISTENCE AS A GOING CONCERN IS ULTIMATELY DEPENDENT UPON THE SUCCESS
OF FUTURE OPERATIONS AND OUR ABILITY TO OBTAIN ADDITIONAL FINANCING
Our capital requirements have been and will continue to be significant. To
fund our capital requirements to date, we have been dependent primarily on:
- sales revenues generated primarily from the sale of products;
- the net cash proceeds of private placements of company securities; and
- the aggregate net proceeds of our initial public offering of
approximately $5.1 million.
We anticipate, based on our currently proposed plans and assumptions relating to
our operations, that current working capital and projected revenues will only be
sufficient to satisfy our estimated cash requirements through the third or
fourth calendar quarter of 1999. We expect to incur substantial costs over
approximately the next three years to complete our primary development of
products for the medical and industrial markets.
5
8
Therefore, unless we generate significant revenues during such period, we will
need additional financing to fully fund such development. We have no current
sources of additional financing and it is not anticipated that any of the
officers, directors or shareholders of the company 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. In addition, any additional
equity financing may involve substantial dilution to our then existing
shareholders. See "Use of Proceeds," "Dilution," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
"Certain Transactions."
A NEW VENTURE MAY DEPLETE OUR CAPITAL MORE QUICKLY
We have recently organized a wholly owned subsidiary named Allergy
Superstore.com, Inc., which will engage in the sale of drug and allergy related
products over the Internet. We anticipate requiring substantial capital well in
excess of what we now have available in order to complete the development and
implement the operation of Allergy Superstore.com, Inc.
THE COMPANY WILL NOT BE ABLE TO GROW IF OUR PRODUCTS ARE NOT APPROVED, AND WE
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 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 such products. There
can be no assurance that we will obtain regulatory approvals in the United
States or any other country to sell our products for such purposes.
WE ARE AT A COMPETITIVE DISADVANTAGE TO LARGE, WELL-ESTABLISHED COMPANIES
The markets for our products are competitive. Competition from companies
that produce antimicrobials for commercial use is intense and expected to
increase. There can be no assurance that other companies with the expertise or
resources that would encourage them to attempt to develop or market competing
products will not develop new products directly competitive with our products.
We are aware of several other companies that manufacture products that compete
directly with our products. Certain of these companies have well-established
reputations for success in the development, sale and service of conventional
antimicrobials and have substantially greater financial, technical, personnel
and other resources than we do. We compete on the basis of technological
suitability, quality, performance characteristics and price of our products, our
ability to meet customer specifications, and the quality of technical assistance
and service furnished to our customers. There can be no assurance 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 the we
will be able to successfully enhance our existing products or develop or acquire
new products. See "Business -- Competition."
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 do so, we
must effectively utilize and expand our research and development capabilities,
and, once developed, expeditiously convert new technology into products and
processes that we can commercialize. Our competitors may succeed in developing
technologies, products and processes that render our processes and products
obsolete. Certain entities, such as Emory University, have filed applications
for or have been issued patents and may obtain additional patents and
proprietary rights relating to products or processes competitive with or
otherwise related to ours. 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. See
"Business -- Competition."
6
9
OUR BUSINESS EXPOSES US TO POTENTIAL PRODUCT LIABILITY RISKS THAT ARE INHERENT
IN THE TESTING, MANUFACTURING, MARKETING AND SALE OF THERAPEUTIC PRODUCTS
While we will take precautions it deems appropriate; there can be no
assurance that it will be able to avoid significant product liability exposure.
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 aggregate limits of $5,000,000. There can be no assurance
that it will be able to obtain coverage 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 upon us.
THE MARKET MAY NOT ACCEPT OUR PRODUCTS
To date, we have generated limited revenues from sales of its products. We
have not yet commenced significant marketing activities, and we have limited
marketing experience and limited resources to independently undertake extensive
marketing activities. As is typically the case, the demand and market acceptance
for our newly introduced, innovative 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. There can be no assurance
that our efforts will result in successful product commercialization or initial
or continued market acceptance for 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 the company's founders, Co-Chairman
of the Board, President, and Chief Executive Officer; Jacques Elfersy, founder,
Co-Chairman of the Board, Senior Vice President, Secretary, Treasurer, and
Director; Dr. Joachim Berkner, Director of Research and Development, Organic
Chemistry, of the company. We employ Messrs. Moses and Elfersy under an
employment agreement expiring January 1, 2003. The loss of the services of any
of Mr. Moses, Mr. Elfersy, or Dr. Berkner would have a material adverse effect
on us. We are a beneficiary of key man life insurance policies, each in the
amount of $1,000,000, on each of Mr. Moses and Mr. Elfersy. We do not currently
own policies covering any other officer or employee. See "Management."
THE COMPANY IS CONTROLLED BY MESSRS. MOSES AND ELFERSY, WHOSE INTERESTS DO NOT
ALWAYS COINCIDE WITH YOURS
Even if all of the redeemable warrants are exercised and 1,300,000 shares
issued, Mr. Moses, Co-Chairman, President, and Chief Executive Officer of the
company, and Mr. Elfersy, Co-Chairman of the Board, Senior Vice President,
Treasurer, Secretary and Director, will beneficially own approximately 19.4%,
and approximately 21.3%, respectively, of the shares of common stock
outstanding. In the likely event that Mr. Moses and Mr. Elfersy were to act in
concert, they could generally control the affairs of the company. These two
shareholders may be able to control the outcome of shareholder votes, including
votes concerning the election of directors, the adoption of amendments to the
company's Articles of Incorporation or Bylaws and the approval of certain
mergers and other significant corporate transactions, including a sale of
substantially all of our assets. Their control could also have the effect of
delaying, deferring or preventing a change in control of the company that you
would prefer to occur. See "Risk Factors -- Anti-Takeover Provisions,"
"Principal Shareholders," and "Description of Common Stock."
ARBITRARY DETERMINATION OF EXERCISE PRICE
Prior to the initial public offering, there was no public trading market
for the common stock or warrants. Consequently, the exercise price of the
redeemable warrants was determined by negotiation between the company and the
underwriter and is not necessarily related to our asset value, net worth or
other criteria of value. Among the factors considered in determining the
offering price and exercise price of the warrants were our financial condition
and prospects, management, market prices of similar securities of comparable
publicly-traded companies, certain financial and operating information of
companies engaged in activities similar to
7
10
ours and the general condition of the securities market. There can be no
assurance that a regular trading market will be sustained.
THERE IS NO ASSURANCE OF A CONTINUED PUBLIC MARKET
The market prices for securities of biotechnology companies have been
volatile. 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 as
to the safety of biotechnology products and economic and other external factors,
as well as period-to-period fluctuations in financial results, may have a
significant impact on the market price of the common stock. 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. The common stock
of small and emerging growth companies such as ours that trade in the
over-the-counter market have experienced particularly wide price fluctuations
not necessarily related to the operating performance.
HOLDERS EXERCISING WARRANTS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
This offering involves an immediate and substantial dilution of at least
$4.51 (75%) between the pro forma net tangible book value per share of common
stock as of March 31, 1999, and the exercise price of $6.00 per share. That
assumes that all the redeemable warrants are exercised with a pro forma increase
in tangible book value per share from $0.54 to $1.49. If only a small number of
redeemable warrants are exercised, dilution would be approximately $5.37 per
share to new investors. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
As of May 21, 1999, there were 4,978,411 shares of common stock that were
restricted securities that will be eligible for resale under Rule 144 under the
Securities Act of 1933, subject to a "lock-up" agreement expiring in September
1999 and which may be released at the discretion of the underwriters. Sales of
significant amounts of those shares in the public market could adversely affect
the market price of the common stock. See "Shares Eligible for Future Sale,"
"Principal Shareholders," "Management's Discussion and Analysis of Financial
Condition and Operating Results," and "Liquidity and Capital Resources."
EFFECT OF OUTSTANDING WARRANTS AND UNDERWRITERS' WARRANTS
The shares of common stock underlying the warrants issued in our February
and March 1998 private placement and underwriters' warrants have certain
registration rights and anti-dilution provisions. The terms on which we might
obtain additional financing may be adversely affected by the existence of those
warrants. The company has agreed that, under certain circumstances, it will
register under federal and state securities laws the common stock underlying the
1998 warrants, underwriters' warrants, and/or related securities. Those
registrations could involve substantial expense and may adversely affect the
terms on which we may obtain financing. See "Description of Securities."
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
We have reserved 1,200,000 shares of common stock for issuance to key
employees, officers, directors and consultants pursuant to our 1997 stock
incentive plan and 1,000,000 shares of common stock for issuance to directors
pursuant to our 1996 directors' stock option plan. To date, 645,000 options have
been granted under the Incentive Plan, of which 355,000 are immediately
exercisable and 250,000 options have been granted under the Director Plan, of
which 210,000 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 the company and may result in sales of common stock to officers and
directors at prices well below the market price at the time of option exercise.
See "Management -- Stock Option Plan."
8
11
AUTHORIZATION OF PREFERRED STOCK
The company's articles of incorporation authorize the issuance of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the board of directors. Accordingly, our board
of directors is empowered, without shareholder 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
the common stock. In the event of issuance, the preferred stock could be used to
discourage, delay, or prevent a change in control of the company. Although
management has no present intention of issuing any shares of its authorized
preferred stock, the company may do so in the future. We will not offer
preferred stock to promoters except on the same terms as it is offered to all
other existing shareholders or to new shareholders.
ANTI-TAKEOVER PROVISIONS
Our articles of incorporation and bylaws contain numerous anti-takeover
provisions intended to encourage any potential acquiror of the company to deal
directly with the company's Board of Directors. Among the features of the
company's articles of incorporation and bylaws that could have anti-takeover
effects are:
- a classified board of directors with Board members serving staggered
three-year terms;
- prohibition of majority shareholder actions by written consent;
- restricting the power to call special meetings of shareholders to the
Chairman of the Board of Directors, President, board of directors or the
holders of two-thirds of the outstanding shares of the company's capital
stock entitled to vote generally in the election of directors not held by
an "Interested Shareholder" (generally, a shareholder that, together with
its affiliates, associates and any persons acting in concert with them,
acquires beneficial ownership of fifteen percent or more of the
outstanding shares of such voting stock after July 15, 1997);
- requiring advance notice of shareholder nominees to stand for election to
the board of directors or of shareholder introduced business to be
considered at a shareholders meeting;
- adoption of the requirements of Part 3 of Article 11 of the Georgia
Business Corporation Code regarding business combinations;
- express authorization of the board of directors to consider the effects
of a proposed acquisition on the company employees, customers and
suppliers and the communities where the company operates;
- requiring cause and a greater than majority vote of shareholders to
approve removal of directors and amendments to the company's articles of
incorporation or bylaws and providing for a greater than majority vote of
shareholders in certain circumstances relating to an acquisition of the
company unless the amendment or acquisition have been approved by the
board of directors.
These anti-takeover provisions could also allow the board of directors to impede
or prevent an acquisition of the company even if shareholders support the
acquisition, and could also serve to entrench incumbent management.
In connection with its initial public offering in the State of California,
the company agreed to submit to its shareholders at its next annual meeting a
proposal to amend the company's Articles and Bylaws to (i) provide that holders
of ten percent (10%) or more of the outstanding shares of the company's capital
stock can call a special shareholders meeting and (ii) eliminate the "Fair
Price" requirements enacted by the company pursuant to O.C.G.A.
sec.sec.14-2-1110 -- 1133, which are designed to encourage any person before
acquiring fifteen percent (15%) or more of the company's outstanding common
stock to seek approval of the company's board of directors for the terms of any
contemplated business combination. The effect of these existing provisions is to
prohibit, among other things, a business combination with an interested
shareholder for five (5) years, subject to certain exceptions, which include
obtaining board of directors' approval of the proposed transaction and in
certain cases shareholder approval. Messrs. Moses and Elfersy have agreed to
vote their shares in favor of the proposals at the next annual shareholders
meeting. Approval of these proposals will
9
12
require a majority vote of the company's shareholders. In the event that these
proposals are adopted, the company may be more vulnerable to, among other
things, a hostile takeover or other business combination or transaction that is
not approved by the company's board of directors.
THE COMPANY HAS NOT PAID DIVIDENDS AND IS NOT LIKELY TO PAY DIVIDENDS FOR AT
LEAST SEVERAL YEARS
To date, the company has not paid any cash dividends on its common stock
and it does not expect to declare or pay dividends on the common stock in the
foreseeable future. In addition, future agreements or credit facilities may
restrict dividend payments. See "Dividend Policy" and "Description of Common
Stock."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET; RISKS OF
LOW-PRICED STOCKS
While the common stock and warrants have met the current initial listing
requirements for inclusion in the Nasdaq SmallCap Market, there can be no
assurance that they will meet continued listing requirements. Under current
criteria for continued inclusion on the SmallCap Market:
- the company will have to maintain at least $2,000,000 in net tangible
assets or $35,000,000 market capitalization or achieve net income of
$500,000 for two of the last three years,
- the minimum bid price of the common stock will have to be $1.00 per
share,
- there must be at least 500,000 shares in the public float valued at
$1,000,000 or more,
- the common stock must have at least two active market makers, and
- the common stock must be held by at least 300 holders.
If the company is unable to satisfy the SmallCap Market's maintenance
requirements, its securities may be delisted. The common stock and warrants
would then be traded only in the over-the-counter market in the so-called "pink
sheets" or the NASD's OTC Bulletin Board. Consequently, the liquidity of the
company's securities could be impaired, not only in the number of securities
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 the company, and lower prices for our securities than might
otherwise be attained.
In addition, if the common stock is delisted from trading on the 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 Securities Exchange Act of 1934, which require
additional disclosure by broker-dealers in connection with any trades involving
a stock defined as "penny stock" (generally, any non-Nasdaq equity security that
has a market price of less than $5.00 per share, subject to certain exceptions).
Such rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and associated risks and
impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally defined as an investor with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with a spouse). For these
types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The broker-dealer also must disclose
the commissions payable to the broker-dealer, current bid and offer quotations
for the penny stock and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Such information must be provided to the customer orally or in
writing prior to effecting the transaction and in writing before or with the
customer's confirmation. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed on broker-dealers
by these requirements may discourage them from effecting transactions in the
common stock, which could severely limit the liquidity of the common stock and
the ability of purchasers in this offering to sell the common stock in the
secondary market.
10
13
USE OF PROCEEDS
We plan to use the net proceeds received, if any, from the sale of common
stock upon exercises of redeemable warrants for general corporate purposes and
working capital for the company as well and its wholly-owned subsidiary, Allergy
Superstore.com, Inc. See "Recent Developments" on page 31.
DIVIDEND POLICY
We do not anticipate paying dividends on the common stock at any time in
the foreseeable future. The board of directors plans to retain earnings for the
development and expansion of our business. The board of directors also plans to
regularly review the company's dividend policy. Any future determination as to
the payment of dividends will be at the discretion of the board of directors and
will depend on a number of factors, including future earnings, capital
requirements, financial condition and such other factors the board of directors
deems relevant.
DILUTION
As of March 31, 1999, the net tangible book value of the company was
$3,303,314 or $0.54 per share of common stock. The net tangible book value of
the company is the aggregate amount of its tangible assets less its total
liabilities. The net tangible book value per share represents the total tangible
assets, less total liabilities, divided by the number of shares of common stock
outstanding. If all of the warrants are exercised to purchase 1,300,000 shares
at $6.00 per share, the pro forma net tangible book value per share would
increase from $0.54 to $1.49. This represents an immediate increase in net
tangible book value of $0.95 per share to current shareholders and an immediate
dilution of $4.51 (75%) per share to new investors or, as illustrated in the
following table:
AMOUNT PERCENT
------ -------
Exercise price per share.................................... $6.00 100%
Net tangible book value per share before this offering...... 0.54 9
Increase per share attributable to new investors............ 0.95 16
Adjusted net tangible book value per share after this
offering.................................................. 1.49 25
----- ---
Dilution per share to new investors......................... $4.51 75%
===== ===
However, the dilution experienced by investors who exercise warrants will
be proportionately greater and up to $5.37 per share to the extent that fewer
than all of the warrants are exercised.
The following table sets forth as of March 31, 1999:
- the number of shares of common stock purchased from the company,
- the total consideration paid to the company net of offering expenses,
- the average price per share paid by the current shareholders,
- the number of shares of common stock that may be purchased from the
company pursuant to warrant exercises, and
- total consideration that would be paid by investors (before deducting
estimated expenses) if all the warrants are exercised at an assumed
exercise price of $6.00 per share.
11
14
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVG. PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
Current shareholders....................... 6,144,125 82.5% $ 7,196,038 48.0% $1.17
New investors.............................. 1,300,000 17.5 7,800,000 52.0 6.00
--------- ----- ----------- -----
Total............................ 7,444,125(1) 100.0% $14,996,038 100.0%
========= ===== =========== =====
- ---------------
(1) Does not include an aggregate of 1,783,167 shares of common stock issuable
upon the exercise of: (i) 130,000 shares of common stock and warrants to
purchase another 65,000 shares issued to underwriters in the initial public
offering; (ii) employee and director stock options; (iii) 90 warrants issued
to investors in a private placement to purchase 450,000 shares of common
stock at an exercise price equal to the initial public offering price or
$5.00 per share; (iv) one warrant to purchase 40,000 shares of common stock
at an exercise price of $5.50 per share; and (v) 199,167 shares of common
stock reserved for issuance upon the exercise of outstanding warrants at a
weighted average price of $.0.50 per share. To the extent that these options
and warrants are exercised, there will, in certain cases, be further share
dilution to new investors.
12
15
CAPITALIZATION
The following table sets forth capitalization as of March 31, 1999, and as
adjusted to give effect to sale of all of the 1,300,000 offered shares and
addition of the estimated net proceeds to the company's working capital. There
can be no assurance that any or all of the warrants will be exercised.
MARCH 31, 1999
-------------------------
AS ADJUSTED
-----------
Shareholder's equity: common stock, no par value, 50,000,000
shares authorized, 6,144,125 shares issued and
outstanding,
7,444,125 as adjusted (1)(2)(3)(4)........................ $ 6,480,738 $14,280,738
Additional paid in capital.................................. 715,300 715,300
Accumulated other comprehensive loss........................ (14,000) (14,000)
Deficit accumulated during the development stage............ (3,878,724) (3,878,724)
----------- -----------
Total shareholder's equity........................ $ 3,303,314 $11,103,314
=========== ===========
- ---------------
(1) Does not include an aggregate of 2,200,000 shares of common stock reserved
for issuance upon the exercise of stock options to be outstanding under the
company's 1997 Stock Incentive Plan, of which 645,000 options have been
issued and 355,000 of which options are currently exercisable, and the
company's 1996 Directors Stock Option Plan (the "Director Plan"), of which
250,000 options have been issued and 210,000 of which are currently
exercisable. See "Management -- Employment Agreements," Stock Option Plans,"
"Principal and Selling Shareholders," "Certain Transactions" and
"Underwriting."
(2) Does not include an aggregate of up to 130,000 shares issuable upon exercise
of the Underwriters warrants.
(3) Does not include the 65,000 warrants underlying the underwriters' warrants.
(4) Does not include an aggregate of 199,167 shares of common stock reserved for
issuance upon exercise of outstanding warrants at a weighted average price
of $0.50 per share, options to purchase 645,000 shares issued to employees
pursuant to the company's 1997 Stock Incentive Plan at various prices per
share, options for the purchase of 4,000 shares at $8.94 per share issued to
a consultant, 90 warrants to purchase 450,000 shares of common stock at an
exercise price equal to the initial public offering price, one warrant to
purchase 40,000 shares of common stock at $5.50 per share, and options to
purchase 250,000 shares issued under the Director Plan of which 120,000 are
exercisable at $2.00 per share, 10,000 are exercisable at $5.75 per share
and 120,000 are exercisable at $5.00 per share. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
13
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since June 1995, the company, a development stage company, has been engaged
almost exclusively in research and development, regulatory approvals, patent
filings and activities focused on developing its antimicrobial products.
RESULTS OF OPERATIONS
Comparison of the Three-Month and Nine-Month Periods Ended March 31, 1999, to
the Three-Month and Nine-Month Periods Ended March 31, 1998
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 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
towards retails sales rather than industrial sales 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.
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
private note holders. All such notes have been paid as of March 31, 1999.
Comparison of the Year Ended June 30, 1997, Compared to June 30, 1998, and
June 30, 1996, Compared to June 30, 1997
The company's net sales were $462,471 compared to $775,315 during the
period ending June 30, 1998, and June 30, 1997, respectively. There were no
sales made in 1996. The company began minimal sales activity in March 1997,
generating a significant portion of all revenues for its period ending June 30,
1997, with a significant one-month increase of June 1997, primarily due to an
initial order from one customer. The growth in sales was attributable to the
beginning commercialization of the company's technology.
14
17
Gross Profit for the period ending June 30, 1998, was $307,813 compared to
$459,493 for the same period ending in 1997. There was no gross profit in fiscal
year ended June 1996 due to the absence of sales. Total operating expenses
increased to $1,764,909 for the period ended June 30, 1998, compared to $987,353
for the period ended June 30, 1997, primarily due to a significant increase in
regulatory applications, testing, and patent filings, representing $987,353 in
1997 compared to $386,217 in 1996. Marketing and selling expenses increased
3,705% to $213,387 in 1997 from $5,608 in 1996, reflecting growth in the
company's market studies and preparation for product launch. In addition,
marketing and selling expenses during the period ended June 30, 1998, of
$472,945 compared to $213,387 during the period ended June 30, 1997, increased
due to the launch in Georgia of two retail consumer products. General and
administrative expenses increased from June 30, 1998, of $1,134,712 compared to
$700,184 for June 30, 1997, as a direct result of the company filing additional
patent applications, costs associated with the initial public offering, and
Regulatory applications. In addition, general and administrative expenses during
the fiscal year ended June 30, 1997, increased to $700,184 from $195,515 in 1996
to support growth of research and development and a build up of support
personnel.
Operating loss was $1,457,096 compared to $527,860 for the periods ending
June 30, 1998, and June 30, 1997, respectively, versus $386,217 in year ended
June 30, 1996. The larger operating loss for each of the more recent periods was
due to the increase in operating expenses as the company built up its
infrastructure to support future growth, patent application and regulatory
testing and applications. Other income was $13,401 in 1997 and $29,901 in 1996
and ($14,833) for the period ended June 30, 1998. The 1997 income was derived
from consulting services by the senior officers of the company, and the 1998 net
expense resulted from interest. Interest expense for 1998 was the result of
short-term interest from the sale of a private placement of the company. See
"Liquidity and Capital Resources."
The company incurred a net loss of $1,471,929 for the period of June 30,
1998 compared to $514,459 for the period ended June 30, 1997 and $356,316 for
the period ended June 30, 1996. The increase in net loss was due to the increase
in operating expenses as explained above. The company expects such losses to
continue for the foreseeable future and until such time as the company is able
to attain sales levels sufficient to support operations.
LIQUIDITY AND CAPITAL RESOURCES
The company has funded its activities to date through loans from principal
stockholders, debt and private placement offerings, and its initial public
offering. Cash at June 30, 1997, was $398,921 versus $25,066 for the fiscal year
ended June 30, 1996, compared to June 30, 1998, of $1,636. The increase in cash
for fiscal 1997 was due to cash infusions during the year 1997 from private
placements, and the percentage in cash for the year ended June 30, 1998, is
significantly lower due to increased expenses associated with testing, patents,
and legal.
Cash used in operating activities was ($430,554) for the fiscal year ended
June 30, 1997 compared to ($90,434) for the year ended June 30, 1996, and
($1,213,305) for the period ended June 30, 1998. The increase in cash used in
operations was primarily due to the increase in net loss and changes in current
assets and current liabilities, and additional patent, testing, and legal costs.
In February 1998, the company raised $450,000 from the sale of 90 units in
a private offering. Each unit consists of (i) a $5,000 Non-Negotiable Interest
Bearing Promissory Note due and payable on the earlier of the closing of an
initial public offering or three years from the date of issuance (the "Maturity
Date"), and (ii) a warrant to purchase up to 5,000 shares of common stock at the
initial public offering price.
In July 1997, the company received $187,500 in proceeds from the sale of
30,619 shares in a private placement offering. During the first two calendar
quarters of 1998, Mrs. Judy Turner, the mother-in-law of Timothy C. Moses (CEO
of the company), loaned the company a total of $80,000 payable at the earlier of
one year or an initial public offering at an interest rate of 8% per annum. The
company also received $125,000 in proceeds from a note payable to an individual
at an interest rate of 10%. The note matures the earlier of a successful initial
public offering or six months.
15
18
In June 1998, a principal stockholder made a capital contribution of
$50,000 for no further consideration. Subsequent to June 30, 1998, two principal
stockholders made a capital contribution totaling $325,000 for no further
consideration.
In November 1996, the company sold an aggregate of 149,723 common shares
and two warrants attached at a strike price of $1.50 (50% convertible in two
years and the remaining 50% in three years) for cash proceeds of $275,001. In
April 1997, the company sold an aggregate of 245,000 common shares and two
warrants at a strike price of $2.00 (50% convertible in two years and the
remaining 50% in three years), generating cash proceeds of $600,000. In December
1997, the company initiated a 2.45 for 3.00 reverse stock split and a reverse
split of 1.00 for 2.00 on the warrants and a reduction of the exercise price to
$0.50 per share.
Prior to June 30, 1996, the company sold an aggregate of 62,612 common
shares in a private placement for net cash proceeds of $115,000 to four
shareholders.
During the three periods ended June 30, 1998, the company has invested an
aggregate of $122,072 of cash in capital expenditures.
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 in September 1998. 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 as well as its
subsidiaries 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.
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 of becoming 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.
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 are 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.
16
19
BUSINESS
The italicized terms used in this prospectus are defined in the glossary
beginning on page .
GENERAL
BioShield Technologies, Inc. is a Georgia corporation formed in 1995, that
is a development stage company. We are engaged in the development, marketing,
and sale of surface modifying antimicrobials and biostatic products sold
primarily through third party licensing arrangements. Our primary focus is to
exploit our proprietary technology to become the leader in topical
antimicrobials and biocides for consumer, industrial and institutional markets,
environmental services, and medical device markets. BioShield products are an
easily applied reactive coating technology that modifies surfaces of all types,
by creating an invisible covalent bond between surfaces and a variety of
chemical agents. Through the cross linking technology, these antimicrobial
properties and other chemical agents can impart many performance-enhancing
characteristics, such as residual antimicrobial activity, removal of
(surface-borne and air-borne) allergens which may cause respiratory discomfort
or asthma, infection resistance, anti-inflamation, lubricity and drug delivery
onto many surfaces without changing the dimensions or physical properties of the
modified surfaces. The company believes that its antimicrobial technologies have
revolutionary properties that make its products significantly more durable,
effective, versatile, and safer than currently available conventional
antimicrobials for treatment of hard and soft surfaces, surface modified medical
devices, allergy and respiratory conditions and preservatives. The company
believes that certain manufacturers who utilize the company's technologies are
able to significantly improve the performance of their products and, in many
cases, differentiate their products in a highly competitive marketplace.
The company focuses on providing value added and unique antimicrobial
solutions to a variety of industries and product categories. Examples of
products in the market or under development that utilize the BioShield
technology include surface-borne and air-borne products which remove or
eliminate certain allergens from the air which may cause respiratory discomfort
or asthma, [nine (9)] consumer products exhibiting residual antimicrobial
efficacy, a powder form of add-mixture for the control of specialty
microorganisms, antimicrobial bio-barrier treatment for acute wound care, and
control of food borne contaminates. The company believes further opportunities
exist to commercialize its covalent bonding technology for other market
applications, such as acute and chronic wound sites, artificial synthetic skins,
cardiology and urinary catheters, timed released anti-inflammatory and the
promotion of host cell attachment and transplant/medical device anti-rejection.
However, no assurances can be given that the company will be successful in
commercializing any such applications or obtaining the required regulatory
approvals.
The company's objective is to exploit its proprietary technology patents,
technical and marketing property, and future regulatory approval from the EPA
and FDA to become the leader in topical antimicrobial and biocide products for
the consumer, industrial and institutional markets, environmental services, and
medical device markets. The company believes that its antimicrobial technologies
have revolutionary properties that make its products significantly more durable,
effective, and safer than currently available conventional antimicrobials,
non-antibiotics, preservatives, or biocides. No objectives can be given that the
company will be successful in meeting its objective.
MARKET NEEDS FOR MODIFIED ANTIMICROBIALS
The need to develop and provide protection against bacteria, fungi, algae,
yeast, and viruses has long been recognized. However, the use of long-lasting
bacteriostatic finishes has gained attention during the past decade. This is
magnified by the fact that the mortality rate from viruses and bacteria has,
according to The Centers for Disease Control and Prevention increased 58%
between 1980 and 1992 and is now the third major cause of mortality, ranking
behind only heart disease and cancer. Most recently, according to the New
England Journal of Medicine, certain forms of bacteria are being associated with
or are contributing factors to certain diseases including some forms of cancer.
Additionally, approximately 800,000 to 1.2 million commercial buildings might be
suffering from some form of "sick building syndrome," according to the
Occupational Safety and Health Association. More than 70 million workers might
suffer from health problems
17
20
caused by faulty buildings. The company believes that there has been a
significant increase in demand for environmental services.
ADVANTAGES
The company believes its technology is significantly different, and has
many advantages and advances over conventional antimicrobials, non-antibiotic
treatments, or biocides which, themselves, offer no residual activity, long term
solution or ability for performance enhancement and are prone to adaptation and
declining efficacy due to microbial mutations. The company's products contain no
heavy metals, mercury or formaldehyde. BioShield products are versatile
antimicrobials, easily applied, reactive coating technology that modifies
surfaces of all types, by creating an invisible covalent bond between surfaces
and a variety of chemical agents. The company believes that its antimicrobial
technology has revolutionary properties that make them significantly more
durable, effective, versatile and safer than currently available technologies.
Unlike other antimicrobial materials, the company's key active ingredient has,
to date, not been shown to cause genetic mutation or to be teratogenic (causing
physical defects in developing embryos). The company has filed (but has not yet
obtained) certain applications for patents with the United States Patent and
Trademark Office with respect to its proprietary technology. Specifically, the
company has discovered and claimed a variety of new compositions and methods of
making and using its proprietary antimicrobial products and the manipulation and
moiety of performance enhancing properties. The company intends to continue to
pursue patent protection in the United States and other commercially important
foreign countries for its core technologies, improvements thereon, and for
certain specific products that it develops.
The company's technology provide almost any surface with continuous
antimicrobial protection, killing a variety of viruses and bacteria as they come
in contact with the treated surface. Reapplication of the company's
antimicrobial technology is generally not needed for up to six months to a year
in some instances. Certain manufactured devices or products, with BioShield's
antimicrobial covalent technology, provide protection to a wide array of
disposable products as the treated surface continues in many cases to kill
microorganisms for the life of the product.
The company's technology can potentially be used to provide manufacturers
with the following surface properties.
Non Mutation. The Companies antimicrobial products take effect on contact
with the organism. It remains surface attached and is not absorbed or "ingested"
by the microorganism. As a result, to date no mutation-adaptation of
microorganisms involving the company's active ingredient have been reported, as
is frequently the case with antibiotic compounds.
Residual Activity. Antimicrobial cleaning and treatment of surfaces is of
great importance and benefit to most environments. Disinfection and sanitation
are required application steps in, for example food processing and hospital
environments. Part of every day cleaning is to remove visible soil and invisible
organisms from surfaces. Beginning shortly after the disinfection and sanitation
step new bacteria and other microorganism can reinfect most surfaces. The
company's antimicrobial coating converts surfaces to provide residual activity.
The residual activity allows the continuous destruction of microorganisms on the
treated surface. It continuously kills bacteria and other microorganisms that
come in contact with the surface long after the cleaning steps are completed.
The residual activity can last for six months or longer depending on the
environment.
Non Leaching. Antimicrobial treatments often migrate or leach from the
application site into the surrounding environment. This migration slowly
depletes the surface of active ingredient and possibly contaminates adjacent
sites. The company's unique technology is based on chemistry that binds the
company's active ingredient to the surface and has been shown to prevent the
active ingredient from leaching quickly into the environment. This ability to
localize the activity prevents the undesired spread into adjacent materials and
provides for a prolonged presence and antimicrobial activity at the application
site.
Contamination Resistance. Antimicrobial treatment of surfaces is
advantageous when the risk of infection is of concern. Uncontrolled growth of
microorganisms in the environment can be the source of
18
21
microorganisms that cause infections, diseases, allergies, spoilage of products,
and aesthetic devaluation. Lethal antibiotic-resistant organisms have become
endemic in U.S. hospitals. The company's technology has been shown in many cases
to reduce the extent of bacterial growth on treated versus untreated surfaces.
This reduction of surface organisms provides a cleaner environment and reduced
risk from surface contamination.
VERSATILITY
The company's surface conversion technology is an integrated technology. It
combines the chemistry and action of several individual molecules into one
application system. The company's integrated technology can be modified,
providing a versatility to design new coatings with a variety of properties
based on the original technology.
The company's long term viability, profitability, and growth will depend
upon successful commercialization of the products resulting from its research
and product development activities. The company will attempt to gain market
share by forming alliances with strong marketing partners. The company's goal is
to obtain new and broader approvals for its claims and products through the EPA
and through the FDA. Examples of products in the market or under development
that uses the BioShield technology include surface-borne and air-borne products
which remove or eliminate certain allergens which may cause respiratory
discomfort or asthma, number of consumer products exhibiting residual
antimicrobial efficacy, powder form of add-mixture for the control of specialty
microorganisms, antimicrobial bio-barrier treatment for acute wound care,
artificial synthetic skins cardiology and urinary catheters and control of food
borne contaminates. However, no assurances can be given that the company will be
successful in commercializing any such applications or obtaining the required
regulatory approvals.
The company's products provide most surfaces with continuous antimicrobial
protection, killing viruses, and bacteria as they come in contact with the
treated surface depending upon the environment. Reapplication of the company's
retail antimicrobial products is generally not needed for up to six months to a
year in some instances. Certain products provide protection to a wide array of
disposable products as the treated surface continues to kill microorganisms for
the life of the product.
OVERVIEW OF TECHNOLOGY
The company's products provide antimicrobial solutions based on reactive
silane quaternary ammonium salts. These salts, either independently or as part
of an integrated system, are comprised of up to two different silanes and a
suitable solvent, commonly an alcohol solvent and/or water. These integrated
systems are designed to bind to many surfaces forming an invisible antimicrobial
coating. This solution is antimicrobially active and provides protection against
microorganisms. Binding or strong interaction with the surface of a substrate
allows the antimicrobial to remain active on the surface, often for many
subsequent years, possibly the lifetime of the treated article. The original
system has found many applications over the years and extensive data have been
collected regarding the safety, application, and durability of the product. A
limitation of the product in its original form is the dependence on methanol as
a solvent. Methanol is a highly toxic, flammable substance and when misused may
cause blindness or death. In addition, dissolution in water is slow and aqueous
solutions of high concentrations have a limited shelf life. These limitations
prevented a broad scale distribution and application of the original integrated
system. The company's inventions overcame these limitations in creating
essentially non-toxic, water stable, aqueous solutions. This innovation allows
for many unique end use applications while the base technology continues to have
utility in a wide variety of other markets.
The company has filed four patents pertaining to the stabilization of the
silane integrated system in different systems including water. Based on the
water stabilized integrated antimicrobial silane system, the company has
developed numerous end use products and more products are under development.
FORWARD THINKING
The integrated system provides the flexibility to modify individual parts
of the system. For example, removing one component and replacing it with another
more heat stable renders the entire system more heat
19
22
stable. This is an important feature for incorporation of the system into
thermoplastic materials. This same flexibility is complemented by the large
amount of formulation experience. Modifications and mixtures that enhance
hydrophobic character, hydrophilic character, antisoiling, antistatic, dye
fastness, handle, and other favorable end-use substrate properties are available
both under certain patents and under proprietary knowledge.
In addition to providing improved antimicrobial properties, research into
new materials based on silane integrated systems is expected to provide new
products such as anti-rejection agents for use in human organ transplants. An
example is the problem of rejection of transplant organs or artificial implants
by the receiving body's immune system. Rejection is often based on the
recognition of the implant as a foreign body. This recognition is affected by
the surface of the implant. Silane treatment of implants may change the surface
and recognition of the implant. A possible modification of the silane is the
incorporation of body proteins to mask the implant or attachment of molecules
known to reduce the likelihood of rejection. However, no assurances can be given
that the company will be successful in commercializing any such applications or
obtaining the required regulatory approvals.
Although there has been an enormous interest in silane chemistry,
historically, product development has not been focused on end-use products
containing reactive silane, possibly because of the difficulty associated with
providing safe means of application, for example from aqueous solutions. By
providing water stable solutions of reactive silanes, a whole field of chemistry
research with many useful molecules synthesized and characterized is readily
available to the company for commercialization. However, no assurances can be
given that the company will obtain the required regulatory approvals or will be
successful in bringing any of these products to market.
In summary, the company has developed new technologies for the
stabilization of reactive silanes or silane integrated systems in user friendly
solvents, primarily water. This new technology allows the utilization of a
well-known antimicrobial system into medical and consumer products providing
durable treatments possibly otherwise unavailable.
MARKETING AND SALES
There are numerous product, process, and service uses for the company's
unique antimicrobial technologies. Viewed collectively, they form the basis of a
mini-industry built around a single key active ingredient chemistry that, like
penicillin, might change the way microbes are controlled in the future.
The largest number of opportunities require additional development
activities. In some, much of the technical work has been completed and generally
only regulatory work is required. In others, significant technical development
is still required.
The company intends to initially concentrate its efforts towards the
marketing and sales of products for the retail consumer and industrial markets.
The company believes that product market is comprised of four primary
segments as described below: Retail-Household Care products,
Industrial-Institutional products, Healthcare products, and Environmental
Services.
Technical development has been completed on several products, and many are
ready for commercialization in areas where regulatory requirements permit.
Initially, however, products are being commercialized by the company in the
retail consumer market and institutional and industrial marketplaces as
described below.
PRODUCTS MARKET SEGMENT
Retail-Household Care Market. The company believes that its largest
near-term opportunities for revenue generation exist in the mass-market retail
outlets including supermarkets, mass merchandisers, drug outlets, home
improvement centers, and selected chain specialty retailers. Household cleaners
and odor removers represent a retail market value in supermarkets alone of over
$1.5 billion per year.
20
23
To capitalize on this opportunity, the company is developing a network of
manufacturers' representative firms to assist in the marketing of its retail
products. These are primarily traditional food brokerage firms plus general
merchandise representatives. General merchandise representatives are frequently
more effective with drug and mass volume retailers, such as K-Mart, Target, and
CVS stores.
In the Texas markets, the company is utilizing the services of The Christal
Company and Marketing Specialists Sales Company to support the distributions and
marketing of its OdorFree(TM) product. Discussions are underway with Marketing
Specialists to represent the company in markets outside of Texas.
Within the southeastern United States, the company continues to utilize the
services of the Budd Mayer Company, a regional food brokerage firm to manage the
sales and distribution of its BioShield Mold & Mildew Cleaner products.
In April 1999, the company began shipping its OdorFree(TM) products, an
odor remover and fabric refreshener into Texas. In San Antonio, H.E.B.,
Albertson's, and Handy Andy who collectively dominate the market have all
ordered products. In Houston, the top 5 retailers, Kroger, Randall's, Fiesta,
H.E.B. and Albertson's have already authorized the product. The company is now
expanding into Dallas area. Kmart has committed to sell the product in its
Houston and San Antonio stores.
In addition, the company is actively pursuing the opportunity to provide
selected retailers with a private label product aimed to compete with the
OdorFree(TM) branded product. Private label merchandise is now being produced
for Ingles Supermarkets, a North Carolina retailer with over 200 outlets.
Discussions and product testing is currently underway with a number of other
North American food retailers.
Other products utilizing the technologies developed by the company such as
BioShield Mold & Mildew Cleaner are now being marketed in a number of
supermarket outlets in the Southeastern United States.
The company believes that the challenge of greatest magnitude for the
company is to develop consumer awareness of the products of the company, induce
first time purchase, and build brand awareness that translates into sustainable
sales.
The company will initially be required to expend a significant percentage
of revenues from these retail outlets toward media placement and advertising of
which local television programming will account for over 80% of the total
planned amount. The creative plan that is now being executed features a
digitally animated television commercial message supporting the OdorFree(TM)
product.
The company has entered into an agreement with Fritz-Firestone Advertising
Agency in Atlanta, Georgia, to support all creative activities required for the
introduction of the OdorFree(TM) product, including creative development,
graphic design, and media solution and buying.
INDUSTRIAL AND INSTITUTIONAL MARKETS
The company intends to follow a path taken by many other proprietary
chemical manufacturers and has targeted leading industrial and institutional
products companies that currently formulate and market to this industry.
The following products have been developed for sale to the industrial and
institutional markets but have not received regulatory approval. (See
"Government Regulation"):
BioShield AM500
- molecular bonding additive for formulating institutional industrial
disinfectants
- molecular bonding additive for formulating sanitizers and microbiocides
- for use in laundry additives
- additive for carpet treatment products
21
24
- for use in upholstery and drapery treatment products
- for use in building cleaning and treatment products
- additive for household cleaning products
- for use in food processing plants
BioShield AM36.OI
- molecular bonding additive for formulating institutional and industrial
disinfectants
- molecular bonding additive for formulating sanitizers and microbiocides
- for use in laundry additives
- for use additive for carpet treatment products
- for use in upholstery and drapery treatment products
- in building cleaning and treatment products
- additive for household cleaning products
- for use in food processing plants
- higher strength than BioShield AM500
BioShield AM3651P
- molecular bonding additive for formulating institutional and industrial
disinfectants
- can be used similar to BioShield AM36.OI
- produces coating with migrating properties
- for use as preservative in personal care product
TECHNOLOGY LICENSING ACTIVITIES
The company is seeking to finalize private label agreements with certain
manufacturers in the janitorial and sanitary supply industry. The manufacturing
and technology licensing program generally incorporates a licensing agreement
for an initial term of one to two years. This agreement allows licensees to
purchase BioShield industrial concentrates for private label use in either
BioShield supplied formulations or formulae that are developed independently by
the licensee. BioShield structures the agreement so that a royalty is collected
on each unit (quart, gallon, etc.) of product that is shipped by the licensee
which contains BioShield. In structuring the licensing agreements exclusivity in
certain market channels or product categories has not been given as a general
practice, however, agreements are being structured to allow a "market lead time
advantage" in certain segments so long as volume purchases of the industrial
concentrates by the licensee are met on a predetermined basis.
Initial discussions have occurred with several large direct industrial
prospect accounts. However, none have been consummated to date. Sales to these
direct accounts, as well as those through reselling distributors are expected to
be slow until approval of pending and future EPA registrations.
THE ENVIRONMENTAL SERVICES MARKET
The environmental services market describes the treatment of materials
in-place. The company will seek to exploit opportunities in the aftercare market
through two distribution channels. The first of these channels is the sale of
BioShield products through specialty distributors and is targeted at the small
operator that will treat residences and small commercial buildings. The second
distribution channel is being developed with bulk
22
25
sales, full technical training and support, and will target the large
restoration companies and other high volume users who see the value in the
technical support and the more technical market positioning sell.
Microbial contamination causes a variety of problems, ranging from odors,
staining, rotting and defacement of goods to allergies, illnesses, and other
health related problems. This may allow for the development of business
opportunities directed at solving specific problems. These include company
products to prevent musty odors and staining caused by mold, providing a
hypoallergenic environment for people with allergies, asthmatics, and persons
with respiratory ailments, and the prevention of algal and fungal deterioration
and staining of roofing shingles. The company believes that other potential
applications may include treatment of swimming pools and building exteriors to
provide additional market potential. These applications will require EPA
approval for antimicrobial claims. However, no assurances can be given that the
company will be successful in commercializing any of these products or will
receive EPA or other required regulatory approvals.
The Indoor Environmental Quality market includes all enclosed space that is
occupied by people, animals, plants, and valuable or perishable items. Microbial
problems within these structures are the prime focus of the company in this
segment of the antimicrobials marketplace. Within the large array of indoor
pollutants and mitigating factor, microorganisms are the only pollutants that
may produce a gas (VOC metabolic wastes), a particulate (spores and somatic
parts), or a toxin, which may result in human irritation, allergy sensitization,
or disease.
AGREEMENTS WITH QVC, HEALTHSAFE AND OTHERS
The company currently has several agreements in place for distribution
rights to its different antimicrobial technologies on an exclusive basis. The
company has entered into various sales distribution agreements for its products,
the most significant of which have been QVC, Inc. and HealthSafe Environmental
Products, Inc. Both of these agreements have been terminated by the company for
non-performance. Since the company's inception sales through QVC have accounted
for $225,000 in revenues and through HealthSafe of $330,000 in revenues.
The company has entered into an agreement with Sanitary Coating Systems,
which agreement conveys to Sanitary Coating Systems certain rights regarding the
sale and distribution of the company's BioSure 500 product within the coatings
industry and paint products in particular. The company will sell BioSure 500 at
a minimum price per pound to Sanitary Coating Systems. In exchange for these
rights, Sanitary Coating Systems agrees to make royalty payments to the company
for a period of ten years through December 31, 2009, the term of the agreement.
Sanitary Coating Systems may renew the agreement for unlimited terms of five
years each, subject to certain restrictions.
MANUFACTURING
The only manufacturing contemplated by the company is the production of its
antimicrobial concentrates. No special equipment is required other than typical
chemical manufacturing vessels, which are in abundant supply. The company is
currently producing its concentrates at its Lithonia, Georgia, location and does
not, in the foreseeable future, plan any additional manufacturing operations.
The company intends to use chemical compounders located around the U.S. and as
centrally located to the company's four U.S. market segments. The company may
elect to open distribution centers in these markets.
COMPETITION
The antimicrobial industry is an expanding and changing industry
characterized by intense competition. The key active ingredients used by the
industry have not changed significantly in the last twenty-five or more years.
Another characteristic of the modern antimicrobial industry is the increasing
involvement of foreign companies in the field. These companies have found the
USA regulatory climate very complex and costly (money and time) and their
products appear to be of the traditional leaching types where they utilize
reservoirs in fibers or coatings to try to extend the useful life of their
products. Others have entered the market
23
26
with slight modifications of old technologies that on some substrates extend the
life of their products but clearly fail to deal with all of the other problems
that are inherent in the active-ingredients list.
The company believes that its ability to compete will be dependent in large
part upon its ability to continually enhance and improve its products and
technologies and to build a tradename presence that obviates the nature of the
technologies. In order to do so, the company must effectively utilize and expand
its research and development capabilities and, once developed, expeditiously
convert new technology into products and processes that can be commercialized.
This must be complemented with the marketplace expansions encompassed in this
document.
The company's ability to compete is based primarily on scientific and
technological superiority, technical support, availability of patent protection,
access to adequate capital, the ability to develop, acquire, and market products
and processes successfully, the ability to obtain further governmental approvals
and the ability to serve the particular needs of commercial customers with
service, products, and tradenames. Corporations and institutions with greater
resources than the company may, therefore, have a significant competitive
advantage. The company's potential competitors include consumer products
companies, product based pharmaceutical companies, and biotechnology companies.
Almost all of these potential competitors have substantially greater capital
resources, research and development capabilities, manufacturing and marketing
resources, and experience than the company. The company's competitors may
succeed in developing products or processes that are more effective or less
costly than any that may be developed by the company, or that gain regulatory
approval prior to the company's products. The company also expects that the
number of its competitors and potential competitors will increase as more
antimicrobial products receive commercial marketing approvals from the EPA, FDA
or analogous foreign regulatory agencies. Any of these competitors may be more
successful than the company in manufacturing, marketing and distributing its
products. There can be no assurance that the company will be able to compete
successfully.
PATENTS AND PROPRIETARY RIGHTS
The company seeks patent protection for its technology and products. It
typically files United States patent applications and related foreign patent
applications as soon as such technology and products are developed. The company
files foreign patent applications on some of its technology and products in
countries where, in the company's opinion, business considerations warrant such
filings. The foreign countries in which the company files patent applications
usually include Japan, Canada, Australia, and countries of the European Economic
Community.
The company has applied for four United States patents on its core
technology of novel composition and one joint patent with Emory University with
respect to methods for producing water-stable organosilanes and methods of using
these compositions.
In addition, the company intends to file additional patent applications in
the future for improvements in its core technologies and for specific products
that it develops. There can be no assurance, however, that the company's patent
applications will mature into issued patents, or, if issued, that such patents
will be adequate to protect the company's products or processes. In addition,
there can be no assurance that the company will be able to obtain any necessary
or desired additional licenses to patents or technologies of others or that the
company will be able to develop its own additional patentable technologies.
PATENT CLAIMS MADE BY OTHERS
The company entered into a Research Agreement with Emory University on
December 22, 1995. As a result of work performed pursuant to this Research
Agreement, Emory University has filed at least two patent applications, one
composition patent independently and the other an end-use patent jointly with
the company. The Emory Application discloses and claims technologies developed
in conjunction with the company that are different from, but similar to, only
one of the three technologies developed solely by the company and on which the
company is actively pursuing its own patents. If patents ultimately issue out of
the Emory Application, Emory may in the future seek to assert to the company
that the manufacture, sale, and use of
24
27
certain antimicrobial products may infringe certain claims of their Emory
Application patent and/or foreign counterparts thereof.
The company believes that its current products would not infringe any
claims that might issue from the Emory Application. However, any determination
in the future that one or more company products infringe in the Emory
Application patent could have a material adverse effect on the business and
operations of the company.
In addition, there can be no assurance that the company is aware of all
patents or patent applications that may materially affect the company's ability
to make, use, or sell any products. United States patent applications are
confidential while pending in the United States Patent and Trademark Office, and
patent applications filed in foreign countries are often first published six
months or more after filing. Any conflicts resulting from third-party patent
applications and patents could significantly reduce the coverage of the patents
or patent applications licensed to the company and limit the ability of the
company to obtain meaningful patent protection. If patents are issued to other
companies that contain competitive or conflicting claims, the company may be
required to obtain licensees to these patents or to develop or obtain
alternative technology. There can be no assurance that the company will be able
to obtain any such license on acceptable terms or at all. If such licenses are
not obtained, the company could be delayed in or prevented from the development
or commercialization of its product candidates, which would have a material
adverse effect on the company. See "Business -- Patents" and "Proprietary
Rights" and "Certain Transactions."
The company believes that its patent position involves complex legal and
factual questions. There can be no assurance that any future patent applications
or any patents issued to the company will provide it with competitive advantages
or that the company's use of its technology will not be challenged as infringing
upon the patents or proprietary rights of others, or that the patents or
proprietary rights of others will not have an adverse effect on the ability of
the company to do business. Furthermore, there can be no assurance that others
will not independently develop similar technology or that others will not design
technology to circumvent the company's existing or future patents or proprietary
rights. In the event that the company's technology were deemed to be infringing
upon the rights of others, the company could be subject to damages or enjoined
from using such technology or the company could be required to obtain licenses
to utilize such technology. No assurance can be given that any such licenses
would be made available on terms acceptable to the company, or at all. If the
company were to be unable to obtain such licenses, it could encounter
significant delays in introducing products to the market while it attempts to
design around the patents or rights infringed upon, or the company's
development, manufacture and sale of products requiring such licenses could be
foreclosed. In addition, the company could experience a loss of revenues and may
incur substantial costs in defending itself and indemnifying its strategic
partners in patent infringement or other actions based on proprietary rights
violations brought against it or its strategic partners. The company could also
incur substantial costs in the event it finds it necessary to assert claims
against third parties to prevent the infringement of its patents and proprietary
rights by others.
In March of 1997, the company filed trademark applications for Duralast and
BioShield with the United States Patent and Trademark Office. The company is
presently aware of a prior trademark filing for the name "BioShield," which the
company believes has not been used in interstate commerce and has been
abandoned. The company has instituted a cancellation proceeding with the U.S.
Patent and Trademark Office with respect to such prior trademark filing. No
assurances can be given that the company will be successful in such cancellation
proceeding or in securing a trademark for the name BioShield.
The company relies on proprietary know-how and confidential information and
employs various methods, such as entering into confidentiality and
non-competition agreements with its current employees and with third parties to
whom it has divulged proprietary information, to protect the processes,
concepts, ideas and documentation associated with its technologies. Such methods
may afford incomplete protection, and there can be no assurance that the company
will be able to protect adequately its trade secrets or that other companies
will not acquire information that the company considers proprietary. The company
will be materially adversely affected if it cannot maintain its proprietary
technologies.
25
28
GOVERNMENT REGULATION
Environmental Protection Agency. The company's research and development,
manufacturing, distribution, and sales activities are subject to comprehensive
regulation by numerous governmental authorities in the United States and other
countries. The company's current products and products in short-term
development, where pest control claims are made, are regulated by the EPA. The
key applicable regulations governing pesticide products are the Federal
Insecticide, Fungicide, and Rodenticide Act and Federal Food, Drug, and Cosmetic
Act (FFDCA) as amended by the Food Quality Protection Act of August 3, 1996, and
other federal statutes and regulations, and certain state, local and tribal
regulations. These statues and regulations govern the development, testing,
formulation, manufacture, labeling, storage, record keeping, quality control,
advertising, promotion, sale, distribution and approval of pesticide products.
Failure to comply with applicable requirements can result in fines, recall or
seizure of products, total or partial suspension of production, refusal by the
government to approve marketing of the product, and criminal prosecution.
In order to obtain EPA approval of a new product, the company and its
strategic partners, if any, must submit proof of safety, efficacy, purity, and
stability, and the company must demonstrate validation of its manufacturing
process. The testing and application process is expensive and time consuming,
often taking years to complete. There is no assurance that the EPA will act
favorably or quickly in reviewing applications. With respect to patented
products, processes, or technologies, delays imposed or caused by the
governmental approval process may materially reduce the period during which the
company will have the exclusive right to exploit them. Delays could also affect
the commercial advantages derived from the proprietary processes. There is no
assurance that the regulatory agencies will find present or future submissions
of the company to be adequate.
The company's planned pesticide products include certain antimicrobial
products for non-agricultural uses. EPA's Office of Pesticide Programs recently
has been extensively reorganized. Among other things, OPP has recently
established a new Antimicrobial Division (AD) to manage the registration and
reregistration of antimicrobial products with non-agricultural uses. This
interdisciplinary approach will allow most registration and reregistration
activities to be consolidated within a single division and may yield
efficiencies and shorten review times. However, the reorganization can be
expected to cause substantial delays at first as new policies and procedures are
implemented by persons who in many cases will be somewhat unfamiliar with the
responsibilities of their new positions.
Food and Drug Administration. The company's research and development
activities are subject to comprehensive regulation by numerous governmental
authorities in the United States and other countries. If the company is able to
produce and market products, such production and marketing will place the
company under continued regulation. Among the applicable regulations in the
United States, pharmaceutical and over-the-counter drugs products are subject to
the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, other
federal statutes and regulations, and certain state and local regulations. These
statutes and regulations govern the development, testing, formulation,
manufacture, labeling, storage, record keeping, quality control, advertising,
promotion, sale, distribution and approval of drug products. Failure to comply
with applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production, refusal by the government to approve
marketing of the product and criminal prosecution. As the proprietary silane
chemistry is not considered an over-the-counter drug, all products for human
application will be considered new drugs.
A new drug or medical device may not be legally marketed for commercial use
in the United States without FDA approval. In addition, upon approval, a drug
may only be marketed for the indications, in the formulations and at the dosage
levels approved by the FDA. The FDA also has the authority to withdraw approval
of drugs or devices in accordance with applicable statutes and regulations.
Analogous foreign regulators impose similar approval requirements relating to
commercial marketing of a drug or medical device in their respective countries
and may impose similar restrictions and limitations after approval.
In order to obtain FDA approval of a new drug product, the company and its
strategic partners, if any, must submit proof of safety, efficacy, purity, and
stability and validation of its manufacturing process. The testing and
application process is expensive and time consuming, often taking years to
complete. There is no
26
29
assurance that the FDA will act favorably or quickly in reviewing applications.
With respect to patented products, processes or technologies, delays imposed or
caused by the governmental approval process may materially reduce the period
during which the company will have the exclusive right to exploit them. Delays
could also affect the commercial advantages derived from proprietary processes.
The FDA has recently increased its scrutiny and regulation of antimicrobial and
antiviral agents. There is no assurance that the regulatory agencies will find
present or future submissions of the company to be adequate.
To obtain approval of medical devices, a premarket notification (510(k)) or
premarket approval (PMA) application must be submitted to FDA that proves the
device is as safe and effective or substantially equivalent to a legally
marketed device. There is no assurance that the FDA will act favorably or
quickly in reviewing applications. With respect to patented products, processes
or technologies, delays imposed or caused by the governmental approval process
may materially reduce the period during which the company will have the
exclusive right to exploit them. Delays could also affect the commercial
advantage derived from proprietary processes. There is no assurance that the
regulatory agencies will find present or future submissions of the company to be
adequate.
The company is currently considering numerous applications for the
proprietary technology, which may require multiple IND and NDA submissions prior
to commercial sale. The development of the appropriate pre-clinical safety,
efficacy, and chemistry testing may require a minimum of one (1) year to produce
and will not be funded from the proceeds of this Offering. Portions of this data
may be appropriate for support of numerous IND applications for each proposed
use-pattern (for example, anti-acne/wrinkle facial preparation, wound care
products, body sanitizer, and synthetic skin.) The IND application may become
effective thirty (30) days following receipt by the FDA. Although there is no
assurance that the FDA will grant the IND.
Human clinical trials are typically conducted in three sequential phases
with some amount of overlap allowed. Preclinical tests must be conducted by
laboratories that comply with FDA Good Clinical Practices regulations governing
the testing of drugs in humans and animals,. Phase 1 trials normally consist of
testing the product in a small number of patient volunteers for establishing
safety (adverse effects), dosage tolerance, metabolism, distribution, excretion
and clinical pharmacology. In Phase 2, the continued safety and initial efficacy
of the product are evaluated in a somewhat larger patient population, and
appropriate dosage amounts and treatment intervals are determined. Phase 3
trials typically involve more definitive testing of the appropriate dose for
safety and clinical efficacy in an expanded patient population at multiple
clinical testing centers. A clinical plan or "protocol," accompanied by the
approval of the research center's Institutional Review Board, must be submitted
to the FDA prior to commencement of each clinical trial. The Clinical Research
and Development phases on the average last 5 years.
The Institutional Review Board ("IRB") evaluates the protocol and monitors
the conduct of the study to protect the rights and safety of the human subjects.
An IRB may require changes in a protocol, and there can be no assurance that an
IRB will permit any given study to be initiated or completed. In addition, the
FDA may order the temporary or permanent discontinuation of clinical trials at
any time. In light of this process, the company must necessarily rely on other
persons and institutions to conduct studies. The company cannot guarantee that
such persons and institutions will conduct studies properly. There also can be
no assurance that Phase 1, Phase 2 and Phase 3 testing of the company's products
will be completed successfully within any specified time period, if at all.
All the results of the preclinical and clinical studies on a pharmaceutical
or device product are submitted to the FDA in the form of an NDA or PMA, for
approval to commence commercial distribution. Submission of an NDA or PMA does
not assure FDA approval for marketing. The application review process takes more
than two years on average to complete. However, the process may take
substantially longer if the FDA has questions or concerns about a product or
studies regarding the product. In general, the FDA requires at least two
adequate and well-controlled clinical studies demonstrating efficacy with
sufficient levels of statistical assurance. However, additional support may be
required. The FDA also may request additional information relating to safety or
efficacy, such as long-term toxicity studies. In responding to NDA or a PMA, the
FDA may grant marketing approval, require additional testing and/or information
or deny the application. Accordingly, there can be no assurance about any
specific time frame for approval, if any, of products by the
27
30
FDA. The FDA also may require post-marketing testing and surveillance to monitor
the safety record of a product and its continued compliance with regulatory
requirements.
The facilities of each pharmaceutical and device manufacturer must be
registered with and approved by the FDA as compliant with the agency's good
manufacturing practice regulations ("GMP"). In order to comply with GMP,
manufacturers must continue to expend time, money and effort in production,
record keeping and quality control. In addition, manufacturers must be
registered with the United States Environmental Protection Agency and similar
state and local regulatory authorities if they generate toxic or dangerous waste
streams. Other regulatory agencies, such as the Occupational Safety and Health
Administration, also monitor manufacturing facilities for compliance with
workplace safety regulations. Each of these organizations conducts periodic
establishment inspections to confirm continued compliance with its regulations.
Failure to comply with any of these regulations could mean fines, interruption
of production and even criminal prosecution.
For foreign markets, the company is subject to regulatory requirements,
review procedures and product approvals which, generally, may be as extensive,
if not more extensive, as those in the United States. Although the technical
descriptions of the clinical trials are different, the trials themselves are
often substantially the same as those in the United States. Approval of a
product by regulatory authorities of foreign countries must be obtained prior to
commencing commercial product marketing in those countries, regardless of
whether FDA approval has been obtained. The time and cost required to obtain
market approvals in foreign countries may be greater than required for FDA
approval and may be subject to delay. There can be no assurance that regulatory
authorities of foreign countries will grant approval.
There are a number of anticipated applications that require listing with
the Cosmetics, Toiletries, and Fragrances Association (CTFA) inventory. This is
largely a procedural process but one that will have to be done before the
company can fully capitalize on the use of its active ingredient or its
formulations in the personal care industry.
FILINGS MADE WITH THE EPA TO DATE AND CURRENT APPLICATIONS AND FUTURE FILINGS
In October 1998, the EPA conditionally registered certain uses for AM500
and AM500I. The EPA approved AM500I for use in formulating for laundry
additives, carpet treatment products, upholstery and drapery treatment products
to impart bacteriostatic/fungistatic activity in many of the foregoing products
and others. The EPA also approved the use of AM500 against fungi (including mold
and mildew) as a static agent. EPA approved AM500 and AM500I to be used to
impart durable, broad-spectrum microbiostatic protection to substrates for the
following applications:
air filters/materials; aquarium filter material; bed sheets, blankets and
bedspreads; buffer pads (abrasive and polishing); carpets and draperies;
fiberfill; fiberglass ductboard; fire hose fabric; humidifier belts;
mattress pads and ticking; men's underwear and outerwear; non-woven
disposable diapers; non-woven polyester; outerwear apparel; disposable
polyurethane foam cushions for Lapidus Airfloat Systems; polyurethane and
polyethylene foam, when covered; polyurethane foam for packaging and
cushioning in non-food contact applications; roofing materials; sand bags,
tents, tarpaulins, sails, and ropes; athletic and causal shoes; shoe
insoles; shower curtains; socks; throw rugs; toilet tank and seat covers;
umbrellas; upholstery vacuum cleaner bags and filters; women's hosiery; and
women's intimate apparel.
The company has also requested EPA approval for three products that are
based on the AM500I. These products are water based products and are called BST
Protectant Concentrate C15, BST Protectant 75 and BST Protectant 50. These
products provide bacteriostatic and fungistatic protection to substrates noted
above.
FUTURE FILINGS
The company intends to submit applications to the EPA for registration of
BioShield AM36.OI and AM3651P, to enable it to make certain claims regarding the
antimicrobial or microbiostatic properties of the products. The company's
industrial strength products AM36.OI and AM3651P are new, and the company
28
31
believes are unique products. Whereas both are new formulations of the
silane-integrated system, neither product is water based. However, AM36.OI and
AM3651P provide stable aqueous solutions.
The primary use claims, intended to be included in the application for
AM36.OI are to give a surface durable microbiostatic treatment effective against
a wide variety of bacteria, fungi, algae and yeast. The primary use claims,
intended to be included in the application for AM3651P, are as an active
ingredient for formulating disinfectants and sanitizers for use on hard
non-porous surfaces, and as a microbiocide for use in laundry additives, carpet
treatment products, upholstery and drapery treatment products, and treatment
products, and to give surface microbiostatic treatment effective against a wide
variety of bacteria, fungi, algae and yeast. The following features are planned
as descriptions of the products in the application:
Whereas AM36.OI is a concentrate designed for ease of application and
durability, the strength of AM3651P lies in its intended use in sanitizers and
disinfectants. AM3651P is a blend of active ingredients chosen for their
performance. The interplay of the ingredients of the active blend provides high
efficiency in small concentrations. The company believes that because of this
interplay of the ingredients and the resulting independence from toxic compounds
such as chlorine, formaldehyde or formaldehyde donors, AM3651P is ideally suited
as a preservative and as active components of sanitizers and disinfectants.
Materials treated with formulations containing the microbiostatic agent
AM36.OI or antimicrobial agent AM3651P are preserved by the bacteriostatic,
fungistatic and action imparted by the active ingredient. AM36.OI and AM3651P
inhibit the growth of microorganisms that are responsible for causing odor,
discoloration and deterioration. They also provide residual inhibition of
microorganisms to aid in the control of these deleterious effects. AM36.OI and
AM3651P form a coating on a wide variety of substrates and microbiostatic action
is exhibited on contact.
The company intends to seek approval that AM36.OI and AM36.51P can be used
to impart durable, broad-spectrum, microbiostatic protection to substrates for
the following applications:
air filters/materials; aquarium filter material; bed sheets, blankets, and
bedspreads; buffer pads (abrasive and polishing); carpets and draperies;
fiberfill; fiberglass ductboard; fire hose fabric; humidifier belts;
mattress pads and ticking; men's underwear and outerwear; non-woven
disposable diapers; non-woven polyester; outerwear apparel; disposable
polyurethane foam cushions for Lapidus Airfloat Systems; polyurethane foam
polyethylene foam, polyurethane foam used as a growth medium for non-food
crops and plants; roofing materials; sand bags, tents, tarpaulins, sails,
and ropes; athletic and casual shoes; shoe insoles; shower curtains; socks;
toilet tank and seat covers; umbrellas; upholstery vacuum cleaner bags and
filters; vinyl wallpaper and wallpaper for non-food contact surfaces;
women's hosiery; and women's intimate apparel.
The company also intends to seek approval on AM3651P as a disinfectant and
sanitizer on hard non-porous surfaces or to be incorporated into formulations.
AM3651 can be used to disinfect and sanitize hard surfaces in areas such as
homes, offices, hospitals, institutions, schools, restaurants, locker rooms,
medical facilities and other like areas that are prone to bacteria and odors.
AM3651P disinfects and sanitizes hard surfaces such as: sinks; tiles; tubs;
toilets: countertops: bathroom fixtures; stoves; exercise equipment; walls;
doorknobs; telephones; garbage cans; floors; cabinets; and shower stalls.
It is also planned to seek approval for use of BioShield products as
preservatives in FDA regulated products, including cosmetic articles, such as
skin creams; hair treatment products, for example shampoos; non-regulated
products, including detergents and detergent formulations; other preservative
applications, such as interior and exterior paints, latex, machine oils, and
lubricants; cutting fluids; water for cooling systems and swimming pools which
may require EPA registration. However, no assurances can be given that the
company will be successful in commercializing any of these products or will
receive any of the required regulatory approvals.
The company also seeks approval on its concentrated active ingredient, AMS
1860. This active ingredient is highly concentrated and is solvent based. It can
be used to formulate antimicrobials and microbiostatic agents and will be the
company's own source of active ingredient for formulated BioShield products. It
will be
29
32
manufactured by the company and eliminate the need to obtain this active
ingredient from other registered sources.
RESEARCH AND DEVELOPMENT
Research and development activities are performed principally by Dr.
Joachim Berkner, Director of Research and Development, Organic Chemistry, of the
company.
The company's core technologies are in aqueous reactive silanes and
antimicrobial products. Combinations of both technologies are producing
compounds with new properties and are setting new standards. The company's new
product releases in the near future will be based on these core technologies.
Research on silane based and non-silane based antimicrobials will expand
application of antimicrobial company products from pesticides to medications and
treatments to preventive care. Research on silane based durable products will
provide the applicator with the opportunity to give surfaces new desired
properties.
Future development efforts are anticipated to focus on development of
antimicrobial products for medical applications, specifically, human and animal
skin treatments, new formaldehyde-free product preservatives, agricultural and
food antimicrobials, and new active ingredients and formulations useful in the
markets currently providing antimicrobial products. Products ranging from
antimicrobial absorbents to cleaning solutions and disinfectants and household
products. Products in this category include materials treated by the
manufacturer, for example socks, shower curtains and carpets. Product
development in this category is anticipated on a market-need basis in
collaboration with the manufacturers. In addition, a number of new applications
based on the uniqueness of the company's products are anticipated. There can be
no assurance that the company will be successful in developing these or other
products.
During the fiscal years ended June 30, 1997, and 1998, the company incurred
expenses of $74,000 and $157,000, respectively, resulting from company-sponsored
research and development activities. Research and development is expected to
remain a significant component of the company's business. However, the company
may abandon or de-emphasize its research and development activities with respect
to the primary development projects and expand research and development of other
products as circumstances warrant. The company has contracted out a substantial
part of its research and intends to continue to do so while utilizing its staff
for monitoring such research.
1. Antimicrobial Biobarriers: Burn Care/Synthetic Skin
Commonly, the greater the skin damage, the greater the risk of infection.
The skin damage and the risk of infection are especially serious in burn
victims. To this day, proper treatment of burn patients remains a challenge to
the healthcare professional. In addition to direct wound application, the
company believes that the company's technology may, under certain conditions, be
appropriate for application to skin grafts, either manufactured or from cadavers
and most importantly, animal collagen matrixes. Collagen matrix based products
are frequently applied graft materials. In addition to their importance as skin
grafts, their chemical composition is such that a very favorable bonding with
the company antimicrobial products and the graft may be possible. The company
believes that the unique properties of the company's core technology may, under
certain circumstances, allow certain products based upon its technology to form
a bound protective layer that allows the grafted skin to breath and transport
liquids, but reduce/prohibit the entry of microorganisms.
Integration of the company's products and research may lead to new skin
treatment products that the company believes may provide effective skin
condition treatment. Adverse skin conditions caused by microbes may be
susceptible to treatment by the company's products. However, no assurances can
be given that the company will be successful in commercializing any of these
products or will receive any of the required regulatory approvals.
2. Transplant/Medical Device Treatments
A common problem in the transplant of organs or artificial implants is
rejection by the receiving body's immune system. The rejection is often based on
the recognition of the implant as a foreign body. This
30
33
recognition is affected by the surface of the implant. Silane treatment of
implants changes the surface of the implant. The treatment can be to be durable
or temporary. One approach may be to chemically bond currently available
anti-rejection medication to the silane. This application will require FDA
approval prior to clinical testing and commercial introduction. However, no
assurances can be given that the company will be successful in commercializing
any of these products or will receive any of the required regulatory approvals.
3. Quaternary Ammonium Salts of Phosphate Esters as Pesticidal Polymer
Additives
Phosphate esters have long been known to be effective pesticides. Over the
years, these compounds developed into especially useful additives for polymers
by reacting to the free acid of the phosphate ester with tertiary amines. The
antimicrobial activity of the amine is secondary in this approach. The primary
function of the amine is to "solubilize" the phosphate ester amine salt in the
polymer, allowing the active ingredient to migrate in the polymer.
A potential new invention may be the use of a quaternary ammonium as the
cation in the phosphate ester salt. The quaternary ammonium salt would be
distinguished from the amine salts used in the previous inventions by having
four alkyl chains attached to the nitrogen atom. According to a preliminary
literature review, this is a novel idea and similar products have only been
disclosed for antimicrobial active quaternary ammonium phosphate ester salts for
cleaning applications. This new compound may perform similarly or better than
the previously disclosed compounds. However, no assurances can be given that the
company will be successful in commercializing any of these products or will
receive any of the required regulatory approvals.
4. Cleaning and Maintenance Products
The residual activity of the company products provides protection to many
surfaces. Application of the products is primarily to clean surfaces.
Integration of the company products into new cleaning products may lead to new
products providing protection to surfaces and equipment while cleaning. These
new cleaning and maintenance products will be developed for industrial and
institutional applications, for example, hospitals, food processing plants and
commercial cleaning and consumer applications, for example, bathroom, carpet and
kitchen cleaning. However, no assurances can be given that the company will be
successful in commercializing any of these products or will receive any of the
required regulatory approvals.
RECENT DEVELOPMENTS
In April 1999, the company formed a 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
quarters of 1999. The company anticipates requiring substantial capital in order
to complete the development and implement the operation of this subsidiary.
While some of the proceeds of this offering may be utilized for such funding,
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.
PROPERTY
The company's executive and administrative offices are located at 4405
International Blvd., Suite B109, Norcross, Georgia in a 6,900 square foot
facility leased by the company. The building contains offices, meeting rooms,
and an organic chemistry lab with biological storage area. In addition the
company currently leases a 5,000 square foot manufacturing facility in Lithonia,
Georgia for the production of the company's active antimicrobial agent. The
company believes that the facility is no longer adequate for its present and
anticipated uses and intends on leasing a new facility for its operations as
well as the operations of its Allergy Superstore subsidiary in the very near
future.
31
34
EMPLOYEES
The company and its subsidiary currently have seventeen employees, four of
whom are executive officers, three of whom is involved in research and
development, three of whom are in marketing and sales, four of whom are involved
in website and content development and three of whom are administrative and
clerical staff. The company believes that its relations with its employees are
good. None are covered by a collective bargaining agreement with the company.
LEGAL PROCEEDINGS
The company is not a party to any material legal proceedings.
32
35
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information regarding the directors,
executive officers, and significant employees of the company:
NAME AGE POSITION
- ---- --- --------
Timothy C. Moses........................... 42 Co-Chairman of the Board, President, Chief
Executive Officer and Director
Jacques Elfersy............................ 49 Co-Chairman of the Board, Senior Vice
President, Secretary, Treasurer and
Director
Jeffrey A. Parker.......................... 41 Chief Operating Officer and Vice President
of Marketing and Sales
Daniel E. Swaye............................ 47 Chief Financial Officer
Dr. Joachim Berkner........................ 32 Director of Research and Development,
Organic Chemistry
Carl T. Garner............................. 51 Director
Michel Azran............................... 54 Director
Mr. Timothy C. Moses, a Director and Founder, is the company's Co-Chairman,
President, and Chief Executive Officer, and Director of Marketing and Sales. For
over a decade, Mr. Moses has been an independent businessman and entrepreneur
with Mr. Elfersy, the Senior Vice President of the company. His career has
spanned from sales and marketing to Director of Securities and Investment. He
has developed knowledge in the chemical and chemical siloxane industry and
business since leaving his former employer, Dow Corning Corporation in 1986,
where he acted as liaison between management and technical sales in the role of
new product planning and launches. As President of his former company, DCI,
Inc., a silicone and siloxane based technology company, Mr. Moses was
instrumental in seeking and raising of investment capital as well as Director of
Marketing and Sales to clients on a direct basis. Mr. Moses co-developed a new
antimicrobial silicone based coating system for textile applications and
coordinated sales from the European Economic Community countries to the United
States. Mr. Moses is also a co-inventor of three inventions for which patent
applications have been filed by the company on its core antimicrobial
technologies. Mr. Moses is a graduate of a division of Georgia Institute of
Technology where he received his B.S. degree in 1980.
Mr. Jacques Elfersy, a Director and Founder/Co-Founder, is the company's
Co-Chairman, Senior Vice President, acting Chief Financial Officer, Secretary,
and Treasurer. Mr. Elfersy has been instrumental in the discovery, development,
and patent filing of the company's core antimicrobial technology. In addition to
his duties, Mr. Elfersy continues to oversee the company's research and
development activities and objectives. Mr. Elfersy is a graduate of the McGill
University where he earned his Bachelor's Degree in Civil Engineering in 1979.
For a decade, Mr. Elfersy has been an independent businessman and entrepreneur.
His career reflects extensive knowledge of silicone-based technology and
silane-based antimicrobial (as a result of his past employment and business
relationship with Dow Corning) program management and supervision of large-
scale projects and installations, contract negotiations and implementation, and
customer support services and communications. As Executive Vice President of his
former company, DCI, Inc., a silicone-based technology and silane-based
antimicrobial, Mr. Elfersy was instrumental in the implementation of research
and development on projects requiring antimicrobial-based coating processes and
production application. In addition, he acted as senior management of
engineering and production and was responsible for meeting critical time frames
and budgets as well as manpower constraint requirements.
Mr. Jeffrey A. Parker has agreed to become the Chief Operating Officer and
Vice President of Marketing and Sales for the company upon completion of the
proposed Initial Public Offering. Mr. Parker began his career in 1981 at Oscar
Mayer Foods Corporation where he was promoted through a variety of positions
from Sales Representative, Corporate Recruiting Manager, Assistant Product
Manager, and Product Manager in
33
36
just three and one-half years. In 1985, he joined Schering-Plough Corporation
for approximately one year as Product Manager for Seasonal Products. In 1986, he
was recruited and joined Con Agra Incorporation to become General Manager,
Frozen Convenience Foods. In his three years with Con Agra, Mr. Parker was
promoted to Division General Manager. In 1989, Mr. Parker joined Sara Lee
Corporation, Bryan Foods Grocery Division where he became President and Chief
Executive Officer of Sweet Sue Kitchens after its acquisition by Sara Lee.
Additionally, he assumed presidency at Bryan Grocery Products in January 1991.
In 1992, Mr. Parker joined Foster Farm as the Vice President and General
Manager, Food Service, Processed Meats and Turkey Products. In 1995, Mr. Parker
became President and Chief Executive Officer of Crider Incorporated and Crider
Poultry Incorporated where he was instrumental in improving product mix and
profitability. Mr. Parker received his Bachelors' degree in Business
Administration in 1980 and his Masters in Public Administration in 1981 from
Jacksonville State University.
Mr. Daniel E. Swaye has been the Company's Chief Financial Officer since
November, 1998. Mr. Swaye began his career in 1974 as an auditor with Arthur
Andersen & Co. In 1976 he was recruited and joined U.S. Specialty Retailing to
manage the financial and retail accounting departments. In 1979 he joined
Scientific Atlanta, Inc. as the Corporate Internal Audit Supervisor. During his
six years with that company, Mr. Swaye was promoted to the positions of Division
Controller and International Group Controller. In 1985 he joined Dental One,
Inc. as Corporate Controller and in 1987 joined Delta International Marketing,
Ltd. as General Manager. In 1988, he joined AVL Scientific Corporation as
Corporate Controller where he was a key member of the Senior Management Team
responsible for all strategies and major decisions. Mr. Swaye received a
Bachelors' of Science degree in Accounting in 1974 from Lehigh University. He
received his CPA Certificate in 1976.
Dr. Joachim Berkner is a significant employee and has been Director of
Research and Development, Organic Chemistry, of the company since January 1996.
Dr. Berkner has served as consultant to Alpha Gamma Research; a company involved
in cancer research since 1992 and as a consultant to Chemical Products
Technology, a company involved in dye synthesis and process development since
1995. He has published several articles on Organic Chemistry and polymers and
has co-authored several sections of the Encyclopedia of Reagents for Organic
Synthesis. Dr. Berkner received his Ph.D. in Chemistry and BioChemistry from the
Georgia Institute of Technology in the fall of 1996 and received his valdiplom
in Chemistry from Philipps Univeritat Marburg in Marburg, Germany, in 1990.
Carl T. Garner has been a Director of the company since 1996. Since 1995,
Mr. Garner has been a partner in Garner and Nevins (a division of Nevins
Marketing Group, Inc.), a promotional and advertising agency based in Atlanta,
Georgia. Mr. Garner received a B.S. in Business/Accounting from Jacksonville
State University in 1969, a masters degree in Management from Georgia College in
1977, and a masters degree in Business Administration from Jacksonville State
University in 1978. Mr. Garner also acts as an Advisory Director to the company.
Mr. Michel M. Azran has been a Director of the company since December 1997.
Since August 1994, he has been a partner at J.C. Bradford & Co., a securities
and brokerage firm. From 1982 through 1994, Mr. Azran was employed by The
Robinson-Humphrey Company, Inc. and last served in the capacity of Senior Vice
President -- Investments. He holds an Accounting and Finance degree from
University of Lyons (1967) and Paris (1975) and was in public accounting in
France until October 1977.
The company's directors are divided into three classes which serve
staggered three-year terms or until their successors have been duly elected and
qualified. Currently, Michel M. Azran is serving in Class I with a term ending
at the company's 1998 annual meeting of shareholders, Carl T. Garner is serving
in Class II with a term expiring at the company's 1999 annual meeting of
shareholders, and Jacques Elfersy and Timothy C. Moses are serving in Class III
directors with a term expiring at the 2000 annual meeting of shareholders. The
company currently pays directors who are not employees of the company a fee of
(i) $1,000 per regularly scheduled Board meeting attended (or $250 for
participation in a regularly scheduled Board meeting by conference telephone)
and (ii) $12,000 annually. The company also reimburses all directors for their
expenses in connection with their attendance at such meetings.
34
37
The company maintains an audit committee that consists of its two
independent directors, Michel M. Azran and Carl T. Garner. The company will
maintain at least two independent directors on the board of directors.
Officers are elected annually by the board of directors and serve at the
discretion of the Board.
The company currently maintains $1,000,000 key man life insurance policies
on the lives of each of Mr. Moses and Mr. Elfersy.
EXECUTIVE COMPENSATION
The following table sets forth for the three years ended June 30, 1998,
compensation paid by the company to its Co-Chairman of the Board, Chief
Executive Officer, and Director and its Co-Chairman of the Board, Senior Vice
President, Acting Chief Financial Officer, Secretary, Treasurer, and Director.
None of the company's other executive officers had annual compensation in excess
of $100,000 for services rendered during any of the three years ended June 30,
1998, 1997 or 1996.
SUMMARY COMPENSATION TABLE
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------- ----- ------------
Timothy C. Moses............................................ 1998 120,000 -- --
Co-Chairman of the Board, 1997 120,000 -- --
President, Chief Executive 1996 120,000 -- --
Officer and Director
Jacques Elfersy............................................. 1998 120,000 -- --
Co-Chairman of the Board, 1997 120,000 -- --
Executive, Vice President, 1996 120,000 -- --
Acting Chief Financial Officer,
Director of Regulatory Affairs,
Secretary, Treasurer, and Director
EMPLOYMENT AGREEMENTS
The company has entered into Employment Agreements, each dated January 1,
1998, with Mr. Moses and Mr. Elfersy. The agreements have an initial term
commencing January 1, 1998, and expiring December 31, 2003. However, the
remaining term of each agreement will be extended automatically for one year on
each July 1, beginning July 1, 2001, so that each agreement expires three (3)
years from such date, unless either party notifies the other party in writing of
an intent not to renew at least ninety (90) days prior to the applicable July
1st. Under the agreements, each of Mr. Moses and Mr. Elfersy is required to
devote their full business time to the affairs of the company. The agreements
also contain certain non-compete provisions, which provisions a state court may
determine not to enforce or only to partially enforce.
Each agreement currently provides for a base salary at the rate of
$175,000. The base salaries are then subject to increase, but not decrease, as
of January 1, in the case of Messrs. Moses and Elfersy, of each year during the
term of the agreements as determined by the company's Board of Directors. Each
agreement also provides for an annual performance bonus based upon a matrix of
dollar sales levels and dollar before-tax profitability. Cells within the matrix
represent specific combinations of sales and profits, with performance falling
within a particular cell resulting in a bonus to the Mr. Moses or Mr. Elfersy
expressed as a percent of his base salary. This matrix, which allows for bonuses
running from 0% to 150% of base salary, is constructed to reward the executive
for reaching specific combinations of sales and profit levels with higher sales
and profit resulting in a larger bonus. The maximum amount paid to either Mr.
Moses or Mr. Elfersy pursuant to the matrix cannot exceed $50,000 per year.
In addition, each agreement provides a severance package in the event the
executive is terminated other than for cause (as defined) or the executive
terminates his agreement for good reason (as defined) an amount
35
38
equal to the sum of (A) the greater of two (2) years of the base salary
applicable to the executive on the date of termination or the base salary
(assuming no increases) payable for remaining term of his agreement assuming no
termination, plus (B) two (2) times the average of the annual bonuses paid or
payable to the executive during the term of his agreement, payable in six (6)
equal, consecutive monthly installments commencing no later than thirty (30)
days after the date of termination. In addition, all outstanding options, stock
grants, share of restricted stock or any other equity, incentive compensation
shall be and become fully vested and nonforfeitable and the executive and the
executive's family will be entitled to receive welfare plan benefits (other than
continued group long-term disability coverage) generally available to executives
with comparable responsibilities or positions for a period of two (2) years from
the date of termination at the same cost to the executive as is charged to such
executives from time to time for comparable coverage.
The company has entered into an employment agreement, dated as of September
18, 1998, with Mr. Parker. The agreement has an initial term commencing upon the
closing of the initial public offering of the company, and expiring on the third
anniversary thereof. Under the agreement, Mr. Parker is required to devote his
substantially full time and attention to the affairs of the company. The
agreements also contain certain non-compete provisions, which provisions a state
court may determine not to enforce or only to partially enforce. The agreement
provides for a base salary at the rate of $150,000. In addition, the agreement
provides a severance package in the event Mr. Parker is terminated other than
for cause (as defined) or the executive terminates his agreement for good reason
(as defined) an amount equal to the lessor of (i) the remaining unexpired term
of the agreement or (ii) one year from the date of termination. He shall also be
entitled to medical insurance, benefits provided to other executives and the
issuance by the company, upon each of the first three anniversary dates of his
employment, of options to acquire 50,000 shares of the company's common stock.
Such options shall be exercisable at five dollars per share and which will also
be subject to certain additional terms, conditions, and restrictions.
The company has entered into an employment agreement, dated as of October
8, 1998, with Mr. Swaye. The agreement has an initial term commencing on October
27, 1998, and expiring on the third anniversary thereof. Under the agreement,
Mr. Swaye is required to devote his substantially full time and attention to the
affairs of the company. The agreements also contain certain non-compete
provisions, which provisions a state court may determine not to enforce or only
to partially enforce. The agreement provides for a base salary at the rate of
$130,000. In addition, the agreement provides a severance package in the event
Mr. Swaye is terminated other than for cause (as defined) or the executive
terminates his agreement for good reason (as defined) an amount equal to the
lessor of (i) the remaining unexpired term of the agreement or (ii) nine months
from the date of termination. He shall also be entitled to medical insurance,
benefits provided to other executives and the issuance by the company, upon each
of the first two anniversary dates of his employment, of options to acquire
30,000 shares of the company's common stock and options to acquire 40,000 shares
of the company's common stock on the third anniversary date of his employment.
Such options shall be exercisable at five dollars per share and which will also
be subject to certain additional terms, conditions, and restrictions.
ADVISORY BOARD
The company's advisory board was organized to review and evaluate the
company's research and development programs and to advise the company generally
in addressing various scientific and business issues. The company generally
selects for membership persons who have experience in finance, marketing and
science. Members of the advisory board may meet as a group or individually with
management of the company. They are not employed by the company and may have
commitments to, or consulting or advisory agreements with, other entities that
may limit their availability to the company. These entities may also be
competitors of the company. The company is not aware of any conflict of interest
between work performed by advisors on behalf of the company and work performed
by them on behalf of other parties. The company requires each advisor to execute
a confidentiality agreement upon the commencement of his or her relationship
with the company. The agreements generally provide that all confidential
information made known to the individual during the term of the relationship is
the exclusive property of the company and shall
36
39
be kept confidential and not disclosed to third parties. The current members of
the advisory board are as follows:
Mr. Martin Savarick, age 60, is currently President of The Printstar Group,
Inc., a marketing and management consulting firm. He has been the Chairman of
the Board, President, and Chief Executive Officer of two publicly traded
companies -- Beacon Photo Service, Inc. and Imprint Products, Inc. Both
companies dealt with retail customers throughout the United States exclusively
on a mail-order basis. The companies employed various innovative marketing
techniques to advertise and sell its products. Mr. Savarick also served as
President of a fund raising organization and of a direct mail marketing
consulting firm.
Dr. Cecil R. Smith, age 46, is currently Chief Executive Officer and
Director in BioShield Research Corporation, a company based in Powell, Ohio,
which conducts biohazard control evaluations for indoor environmental quality of
such buildings and develops contamination control protocols for the
biotechnology/pharmaceutical industry and provides site safety analysis. Since
1987, Dr. Smith has also been Assistant Vice President of Environmental Health
and Safety of the Ohio State University. In that capacity, Dr. Smith is
responsible for the administration of an environmental, occupational health and
radiation safety program that includes biological/chemical safety, safety
engineering, industrial hygiene, infectious/hazardous waste management, safety
training and environmental compliance. Since 1991, Mr. Smith has also served as
Assistant Professor to the Ohio State University, School of Public Health. Dr.
Smith received his Ph.D. in Public Health and Masters Degree in Public Health
from the University of North Carolina. In 1983 and 1980, respectively, Dr. Smith
received his B.S. in Microbiology from North Dakota State University in 1977 and
his B.A. in Biology and Natural Science from Gustavus Adolphus College in 1975.
Advisors receive reimbursement of travel expenses, connected with company
business, and stock options, for consultation services, which include assisting
the company in the development of a marketing plan as well as research plan to
elucidate the biological effects, safety and efficacy of the company's products
and assisting the company in analyzing data from research trials and other
studies concerning the company's products. The company anticipates that each
advisor will devote approximately six days per year to the affairs of the
company in his capacity as an advisor, consisting of approximately three one-day
meetings of the advisory board to be held each year and preparation for such
meetings.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The company's bylaws provide for the company to indemnify each director and
officer of the company against liabilities imposed upon him (including
reasonable amounts paid in settlement) and expenses incurred by him in
connection with any claim made against him or any action, suit or proceeding to
which he may be a party by reason of his being or having been a director or
officer of the company. The company has also entered into Indemnification
Agreements with each officer and director pursuant to which the company will, in
general, indemnify such persons to the maximum extent permitted by the company's
bylaws and the laws of the State of Georgia against any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with any actual or threatened action or proceeding to which such
director or officer is made or threatened to be made a party by reason of the
fact that such person is or was a director or officer of the company. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from suing
directors for breaches of their duty of care, even though such an action, if
successful, might otherwise benefit the company and its shareholders.
Insofar as indemnification of liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, or persons controlling the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 his counsel the matter
has been settled
37
40
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 Act and will be governed by the final adjudication of such
issue.
STOCK OPTION PLANS
In December 1997, the board of directors adopted and the shareholders of
the company approved the 1997 Stock Incentive Plan. The board of directors and
shareholders approved the 1996 Directors Stock Option Plan in 1996 and amended
on the plan in December 1998. The incentive plan was amended by the board of
directors in December 1998 to increase the number of shares which could be
issued thereunder to 1,200,000. In May 1999, the company registered the shares
subject to the incentive plan with the Commission on Form S-8.
TERMS OF INCENTIVE PLAN
The incentive plan provides the company with increased flexibility to grant
equity-based compensation to key employees, officers and consultants of the
company. The purpose of the incentive plan is to: (i) provide incentives to
stimulate individual efforts toward the company's long-term growth and
profitability; (ii) encourage stock ownership by officers, key employees and
consultants by enabling them to acquire a proprietary interest in the company in
the form of shares of common stock or to receive compensation based on
appreciation in the value of the common stock; and (iii) provide a means of
obtaining, rewarding and retaining key personnel. The company has reserved
1,200,000 shares of common stock for issuance pursuant to awards that may be
made under the incentive plan. As of May 21, 1999, awards of 645,000 shares of
common stock have been granted under the incentive plan to key employees of
which 55,000 options are currently exercisable at a price of $1.00 per share and
300,000 are currently exercisable at $2.94 per share.
The nature, terms and conditions of awards under the incentive plan will be
determined by the stock option committee of the board of directors. The members
of the committee are selected by the board of directors. The current members of
the committee are Messrs. Garner and Azran. The incentive plan permits the
committee to make awards of common stock, incentive or non-qualified stock
options with the following terms and conditions:
Terms and Conditions of all Stock Incentives. The number of shares of
common stock as to which a stock incentive may be granted will be determined by
the committee in its sole discretion. Each stock incentive will either be
evidenced by a stock incentive agreement or stock incentive program, in each
case containing such terms, conditions and restrictions as the committee may
deem appropriate. Stock incentives are not transferable or assignable except by
will or by the laws of descent and distribution and are exercisable only by the
recipient during his or her lifetime or by the recipient's legal representative
in the event of the recipient's death or disability.
Stock Awards. The number of shares of common stock, subject to a stock
award and restrictions or conditions on such shares, if any, will be determined
by the committee. The committee may require a cash payment from the recipient in
an amount no greater than the aggregate fair market value of the shares of
common stock awarded, as determined at the date of grant.
Options. Options may be either incentive stock options, as described in
Section 422 of the Code, or non-qualified stock options. The exercise price of
each option will be determined by the committee and set forth in a stock
incentive agreement but may not be less than the fair market value of the common
stock on the date the option is granted. The exercise price for an incentive
stock option may not be less than 110% of the fair market value of the common
stock on the date the option is granted. The exercise price may not be changed
after the option is granted, and options may not be surrendered in consideration
of, or exchanged for, a grant of a new option with a lower exercise price.
Incentive stock options will expire 10 years after the date of grant.
Non-qualified stock options will expire on the date set forth in the respective
stock incentive agreement. Payment for shares of common stock purchased upon
exercise of an option may be made in any form or manner authorized by the
committee in the stock incentive agreement or by amendment thereto. In the event
of a recipient's termination of employment, the option or unexercised portion
thereof will expire no later than
38
41
three months after the date of termination, except that in the case of the
recipient's death or disability, such period will be extended to one year. The
committee may set forth longer time limits in the stock incentive agreement,
although in such cases incentive stock option treatment will not be available
under the Code.
TERMINATION AND AMENDMENT OF THE INCENTIVE PLAN
The board of directors may amend or terminate the incentive plan without
stockholder approval at any time; provided, however, that the board may
condition any amendment on the approval of the stockholders if such approval is
necessary or advisable with respect to tax, securities or other applicable laws.
No such termination or amendment without the consent of the holder of a stock
incentive may adversely affect the rights of a holder under the terms of that
stock incentive. The incentive plan was amended by the board in December of
1998, to increase the total number of shares that may be issued to 1,200,000 and
to permit 10% or more shareholders/officers to participate in the plan.
CHANGES IN CAPITALIZATION
The incentive plan provides for an adjustment of the number of shares of
common stock reserved and subject to awards issued pursuant to the incentive
plan and of the exercise price of options granted under the incentive plan in
the event of any increase or decrease in the number of issued shares of common
stock resulting from a subdivision or combination of shares or the payment of a
stock dividend in shares of common stock or any other increase or decrease in
the number of shares of common stock outstanding effected without receipt of
consideration by the company. In the event of a merger, consolidation or other
reorganization of the company or a tender offer for its shares of common stock,
the committee may take such action as it deems necessary or appropriate to
reflect the effect of the applicable transaction, including but not limited to:
(i) the substitution, adjustment or acceleration of awards; (ii) the removal of
restrictions on awards; or (iii) the termination of outstanding awards in
exchange for the cash value of the vested portion of the award.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion outlines generally the federal income tax
consequences of the receipt of options under the incentive plan. Individual
circumstances may vary these results. The federal income tax laws and
regulations are frequently amended, and each participant should rely on his or
her own tax counsel for advice regarding federal income tax treatment under the
incentive plan. If the recipient is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended, special rules may apply to determine the
federal income tax consequences of certain option exercises. Participants in the
incentive plan should consult their own tax advisors as to the specific tax
consequences applicable to them and to the tax consequences applicable to other
types of stock incentives that may be awarded under the incentive plan.
Incentive Stock Options. The recipient of an incentive stock option is not
subject to any federal income tax upon the grant of such an option pursuant to
the incentive plan, nor does the grant of an incentive stock option result in an
income tax deduction for the company. Further, a recipient will not recognize
income for federal income tax purposes and the company normally will not be
entitled to any federal income tax deduction as a result of the exercise of an
incentive stock option and the related transfer of shares of common stock to the
recipient. However, the excess of the fair market value of the shares
transferred upon the exercise of the incentive stock option over the exercise
price for such shares generally will constitute an item of alternative minimum
tax adjustment to the recipient for the year in which the option is exercised.
Thus, certain recipients may increase their federal income tax liability as a
result of the exercise of an incentive stock option under the alternative
minimum tax rules under the Code. If the shares of common stock transferred
pursuant to the exercise of an incentive stock option are disposed of within two
years from the date the option is granted or within one year from the date the
option is exercised, the recipient generally will recognize ordinary income
equal to the lesser of (1) the gain recognized (i.e., the excess of the amount
realized on the disposition over the exercise price) or (2) the excess of the
fair market value of the shares transferred upon exercise over the exercise
price for such shares. The balance, if any, of the recipient's gain over the
amount treated as ordinary income on disposition generally will be treated as
long- or short-term capital gain depending upon whether the holding period
applicable to long-term capital assets is satisfied. The company
39
42
normally would be entitled to a federal income tax deduction equal to any
ordinary income recognized by the recipient, provided the company satisfies
applicable federal income tax withholding requirements. If the shares of common
stock transferred upon the exercise of an incentive stock option are disposed of
after the holding periods have been satisfied, such disposition will result in a
long-term capital gain or loss treatment with respect to the difference between
the amount realized on the disposition and the exercise price. The company will
not be entitled to a federal income tax deduction as a result of a disposition
of such shares after these holding periods have been satisfied.
Non-Qualified Options. A recipient will not recognize income upon the
grant of a non-qualified option or at any time prior to the exercise of the
option or a portion thereof. At the time the recipient exercises a non-
qualified option or portion thereof, he or she will recognize compensation
taxable as ordinary income in an amount equal to the excess of the fair market
value of the common stock on the date the option is exercised over the price
paid for the common stock, and the company will then be entitled to a
corresponding deduction. Depending upon the period for which shares of common
stock are held after exercise, the sale or other taxable disposition of shares
acquired through the exercise of a non-qualified option generally will result in
a short- or long-term capital gain or loss equal to the difference between the
amount realized on such disposition and the fair market value of such shares
when the non-qualified option was exercised. Special rules apply to a
participant who exercises a non-qualified option by paying the exercise price in
whole or in part by a transfer of shares of common stock to the company.
DIRECTOR PLAN
The purpose of the director plan is to provide an incentive to outside
directors and members of the company's advisory board for continuous association
with the company and to reinforce the relationship between participants' rewards
and shareholder gains. The company has reserved 1,000,000 shares of common stock
pursuant to awards that may be made under the director plan. Awards of options
for 10,000 shares of common stock have been issued by the company in fiscal
1999; options for 120,000 shares of common stock were issued by the company in
fiscal 1998; and options for 120,000 shares of common stock were issued by the
company in 1996. Pursuant to the director plan, options vest in three stages,
20,000 shares at date of grant and 20,000 shares on the first and second
anniversary of the date of the stock option agreement. 210,000 of such options
are currently exercisable pursuant to the director plan.
CONSULTANTS
The company has entered into a consulting agreement in November 1997 with
R.T. Consulting, Inc., to provide the company with various consulting services,
including rendering strategic and financial advice, developing marketing plans
and materials, financial plans and budgets, and initiating strategic business
initiatives. Pursuant to its agreement with the company, R.T. receives $3,000
per calendar month for a period of four (4) calendar years commencing on
September 29, 1998.
In May 1998, the company entered into an agreement with Revere Financial
Group, Inc. to provide edgarization, pre-press services, and assistance with the
roadshow presentation in connection with this Offering in exchange for a fee
equal to $50,000. Revere is a company affiliated with Tejas Securities Group,
Inc., one of the underwriters in the initial public offering.
On October 21 1998, the company entered into a consulting agreement with
C.L.R. Associates to provide financial public relations assistance. C.L.R.
receives a monthly retainer of $1,000 plus expenses. The agreement is for a term
of one year, commencing December 31, 1998, and is terminable upon thirty days
written notice by either party.
On April 1, 1999, the company entered into a consulting agreement with John
T. Adams to provide advice relating to the development of business and marketing
plans as well as strategic planning. The agreement has a term of three months
and is automatically renewable by either party unless terminated for cause on
thirty (30) days written notice. Mr. Adams receives a cash fee of $3,000 per
month, plus $17,000 worth of five year options valued based upon the closing
price of the company's common stock on Nasdaq SmallCap Market(TM) at the end of
each month of service.
40
43
On April 1, 1999, the company entered into a financial advisory and
consulting agreement with Grayson Financial, LLC. Pursuant to the Agreement,
Grayson has been retained to (i) provide sponsorship and exposure in connection
with the dissemination of corporate information regarding the company to the
investment community at large, (ii) assist in the company's public relations,
and (iii) provide financial advice to the company. The term of the agreement is
three months, and Grayson is entitled to receive a monthly fee of $5,000 payable
in arrears. At the end of the engagement period, the company may determine in
its sole discretion to award Grayson, as additional compensation, a warrant to
purchase up to 160,000 shares of common stock. The warrant, if and when issued,
shall be exercisable for a period of five years at an exercise price of $5.00
per share, subject to proportional adjustment in the event of a stock split.
On April 1, 1999, the company entered into a financial advisory and
consulting agreement with C.L.R. Associates. Pursuant to the Agreement, C.L.R.
has been retained to (i) provide sponsorship and exposure in connection with the
dissemination of corporate information regarding the company to the investment
community at large, (ii) assist in the company's public relations, and (iii)
provide financial advice to the company. The term of the agreement is three
months and C.L.R. is entitled to receive a monthly fee of $5,000 payable in
arrears. At the end of the engagement period, the company may determine, in its
sole discretion, to award, as additional compensation, a warrant to purchase up
to 240,000 shares of common stock. The warrant, if and when issued, shall be
exercisable for a period of five years at an exercise price of $5.00 per share,
subject to proportional adjustment in the event of a stock split.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of May 21, 1999 based upon
information obtained from the persons named below, relating to the beneficial
ownership of shares of common stock by (i) each person known to the company to
own five percent or more of the outstanding common stock, (ii) each director of
the company, and (iii) all officers and directors of the company as a group.
PERCENT
OWNED
NAME AND ADDRESS OF
OF BENEFICIAL OWNER(1) SHARES CLASS
- ---------------------- --------- -------
Timothy C. Moses(2)......................................... 1,507,930 22.7%
405 North Errol Court, N.W
Atlanta, Georgia 30327
Jacques Elfersy(2).......................................... 1,655,117 24.9
1771 East Clifton Road
Atlanta, Georgia 30307
Carl T. Garner.............................................. 60,000 *
Michel Azran................................................ 10,000 *
All officers and directors as a group(6 persons)............ 3,233,447 48.6
- ---------------
* Less than 1%
(1) A person is deemed to be a beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus upon
the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options held by such person (but
not those held by any other person) and that are exercisable within 60 days
from the date of this prospectus have been exercised as of May 21, 1999.
(2) Does not include 138,834 shares of common stock owned by each of the wives
of Messrs. Moses and Elfersy for which each of them disclaim beneficial
ownership.
41
44
CERTAIN TRANSACTIONS
In June 1998, Timothy C. Moses and Jacques Elfersy contributed
approximately $50,000 of capital to the company. Subsequent to June 30, 1998,
Messrs. Moses and Elfersy contributed an additional $325,000 of capital to the
company. Such contributions were funded by the private sale to accredited
investors of 124,995 shares of common stock of the company owned by such persons
since 1995 at a purchase price of $3.00 per share.
In January, March, and June 1998, Judith B. Turner, the mother-in-law of
Timothy C. Moses, lent the company $30,000, $25,000, and $25,000, respectively.
The company has agreed to repay such sums to Mrs. Turner pursuant to three
promissory notes, dated January 16, 1998, February 27, 1998, and June 5, 1998.
The Notes were paid off by the company from the proceeds of the initial public
offering.
Upon consummation of the initial public offering, Messrs. Moses and Elfersy
received $307,133 in the aggregate from the company representing repayment of
accrued and unpaid salary due and payable by the company to such persons for
their employment for the period June 1995 through June 30, 1998.
In May of 1999, the board of directors granted to each of Messrs. Moses and
Elfersy five year fully vested options to purchase 1,500,000 shares of its
subsidiary Allergy Superstore.com, Inc. at a price of $2.00 per share.
Although the company believes that the foregoing transactions were on terms
no less favorable to the company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. The company will comply with Sections VII A and
B of the NASAA Statement of Policy Regarding Loans and Other Material Affiliated
Transactions, amended November 18, 1997, regarding future material affiliated
transactions. Pursuant to these Sections, the company represents that (i) all
future material affiliated transactions and loans will be made or entered into
on terms that are no less favorable to the company than those that could be
obtained from unaffiliated third parties and (ii) all future material affiliated
transactions and loans, and any forgiveness of loans, will be approved by a
majority of the company's independent directors who do not have an interest in
the transactions and who will have access, at the company's expense, to the
company's counsel or to independent legal counsel. There can be no assurance,
however, that future transactions or arrangements between the company and its
affiliates will be advantageous, that conflicts of interest will not arise with
respect thereto or that if conflicts do arise, that they will be resolved in
favor of the company.
PLAN OF DISTRIBUTION
The common stock offered by the company pursuant to warrant exercises is
being offered directly by the company pursuant to the terms of the warrants. The
common stock has been qualified for sale or is exempt from qualification
requirements throughout the United States except the states of Michigan,
Minnesota, New Hampshire, Oklahoma, and Virginia. See "Risk Factors -- Possible
Inability to Exercise warrants." The company has paid the expenses of this
offering.
DESCRIPTION OF SECURITIES
COMMON STOCK
The company is authorized to issue 50,000,000 shares of common stock,
without par value, and 10,000,000 of blank check preferred stock. As of May 21,
1999, there were 6,278,411 shares of common stock issued. There were
approximately 1,504 holders of record of common stock as of May 14, 1998.
The holders of outstanding shares of all classes of common stock are
entitled to share ratably in any dividends paid on the common stock when, as and
if declared by the board of directors out of funds legally available. Each
holder of common stock is entitled to one vote for each share held of record.
The common stock is not entitled to cumulative voting or preemptive rights and
is not subject to redemption. Upon liquidation, dissolution or winding-up of the
company, the holders of common stock are entitled to share ratably in the net
assets legally available for distribution. All outstanding shares of common
stock are fully paid and non-assessable.
42
45
WARRANTS
The warrants have been issued in registered form under, governed by, and
subject to the terms of a warrant agreement between the company and the American
Securities Transfer & Trust, Inc. as warrant agent. The following statements are
brief summaries of certain provisions of the warrant agreement. Copies of the
warrant agreement may be obtained from the company or the warrant agent and have
been filed with the Commission as an exhibit to the registration statement of
which this prospectus is a part.
Each warrant entitles the holder thereof to purchase at any time one share
of common stock at an exercise price per share of $6.00 at any time until
September 29, 2003. The right to exercise the warrants will terminate at the
close of business on September 29, 2003. The warrants contain provisions that
protect the warrant holders against dilution by adjustment of the exercise price
in certain events, including but not limited to stock dividends, stock splits,
reclassification or mergers. A warrant holder does not possess any rights as a
shareholder of the company. Shares of common stock, when issued upon the
exercise of the warrants, in accordance with the terms thereof, will be fully
paid and non-assessable.
The company may redeem some or all of the warrants at a call price of $0.05
per warrant, upon thirty (30) day's prior written notice if the closing sale
price of the common stock on The Nasdaq SmallCap Market has equaled or exceeded
$10.00 per share for ten (10) consecutive days. The company may determine, in
its sole discretion, to call the warrants for redemption at any time after
meeting that price requirement.
The warrants may be exercised only if a current prospectus relating to the
underlying common stock is then in effect and only if the shares are qualified
for sale or exempt from registration under the securities laws of the state or
states in which the purchaser resides. So long as the warrants are outstanding,
the company has undertaken to file all post-effective amendments to the
Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the warrants were initially offered to permit the issuance and
resale of the common stock issuable upon exercise of the warrants. However,
there can be no assurance that the company will be in a position to effect such
action, and the failure to do so may cause the exercise of the warrants and the
resale or other disposition of the common stock issued upon such exercise to
become unlawful. Residents of the following states are not currently eligible to
exercise warrants: Michigan, Minnesota, New Hampshire, Oklahoma, and Virginia.
See "Risk Factors -- You May Live in a State Where You Cannot Exercise
Warrants." The company may amend the terms of the warrants, but only by
extending the termination date or lowering the exercise price thereof. The
company has no present intention of amending such terms. However, there can be
no assurances that the company will not alter its position in the future with
respect to this matter.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar, for the units, the common stock and the
warrants, is American Securities Transfer & Trust, Inc., 1825 Lawrence Street,
Suite 444, Denver, Colorado 80202.
UNDERWRITERS' WARRANTS
In connection with the initial public offering, the company sold to the
underwriters, for nominal consideration, underwriters' warrants to purchase up
to 65,000 units. These units are substantially similar to the units sold in the
initial public offering. The underwriters' warrants may not be sold,
transferred, assigned or hypothecated for one year, except to the officers of
the underwriters and their successors and dealers participating in the initial
public offering and/or their partners or officers. The underwriters' warrants
are exercisable at $15.00 per unit, subject to adjustment in certain events to
protect against dilution, for a four-year period commencing one year from
September 29, 1998.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 21, 1999, the company had 6,278,411 shares of common stock
outstanding. Of these shares, the 1,300,000 shares sold in the initial public
offering are freely tradable in the public market without restriction under the
Securities Act, except shares purchased by an "affiliate" (as defined in the
Securities
43
46
Act) of the company. The remaining 4,978,411 shares are "restricted shares"
within the meaning of the Securities Act and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as those provided by Rule 144 under the
Securities Act.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell restricted shares if at least
one year has passed since the later of the date such shares were acquired from
the company or any affiliate of the company. Rule 144 provides, however, that,
within any three-month period, such person may only sell up to the greater of 1%
of the then outstanding shares of the company's common stock (approximately
63,000 shares as of May 21, 1999) or the average weekly trading volume in the
company's common stock during the four calendar weeks immediately preceding the
date on which the notice of the sale is filed with the Commission. Sales
pursuant to Rule 144 also are subject to certain other requirements relating to
manner of sale, notice of sale and availability of current public information.
Any person who has not been an affiliate of the company for a period of ninety
(90) days preceding a sale of restricted shares is entitled to sell such shares
under Rule 144 without regard to such limitations if at least two years have
passed since the later of the date such shares were acquired from the company or
any affiliate of the company. Shares held by persons who are deemed to be
affiliated with the company are subject to such volume limitations regardless of
how long they have been owned or how they were acquired.
Without consideration of contractual restrictions described below, an
aggregate of 4,978,411 shares of common stock, representing 79.3% of the
outstanding shares of the common stock, are eligible for sale in the public
market pursuant to Rule 144. The company is unable to estimate the number of
shares that may be sold from time to time under Rule 144, since such number will
depend upon the market price and trading volume for the common stock, the
personal circumstances of the sellers and other factors.
Executive officers, directors and senior management own 3,233,447 shares of
the common stock. The company's shareholders and directors entered into an
agreement with the Underwriters providing that they will not sell or otherwise
dispose of any shares of common stock held by them, which were issued prior to
the initial public offering, until September 29, 1999, without the prior written
consent of the Underwriters. The 1998 warrants are subject to an unconditional
one-year lock-up until September 29, 1999, which prevents a holder of the 1998
warrants from exercising such warrants or otherwise transferring, conveying, or
assigning such warrants for such one-year period.
The company can make no prediction as to the effect, if any, that offers or
sales of these shares would have on the market price of the common stock.
Nevertheless, sales of significant amounts of restricted shares in the public
markets could adversely affect the fair market price of common stock, as well as
impair the ability of the company to raise capital through the issuance of
additional equity securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, DC, New York, New York, and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from the Securities and
Exchange Commission's website at "http://www.sec.gov."
We have filed a registration statement on Form SB-2 with the Securities and
Exchange Commission to register the offering of the shares of common stock
offered pursuant to this prospectus. This prospectus is part of that
registration statement and, as permitted by the Securities and Exchange
Commission's rules, does not contain all of the information included in the
registration statement. For further information about us, this offering and our
securities, you may refer to the registration statement and its exhibits and
schedules as well as the documents described below. You can review and copy
these documents at the public reference facilities maintained by the Securities
and Exchange Commission or on the Securities and Exchange Commission's website
as described above.
44
47
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.
You may request a copy of these filings, at no cost, by writing to or
calling Timothy C. Moses, BioShield Technologies, Inc., 4405 International
Boulevard, Suite B-109. Norcross, Georgia 30093, (770) 925-3432.
LEGAL MATTERS
The validity of the issuance of the common stock upon exercises of the
redeemable warrants has been passed upon for the company by Sims Moss Kline &
Davis LLP, Atlanta, Georgia. Raymond L. Moss, a partner with Sims Moss Kline &
Davis LLP, owns or has the right to acquire 35,209 shares of common stock of the
company and owns 225,000 shares of Allergy Superstore.com, Inc. Other partners
of the firm own 75,000 shares in the aggregate of Allergy Superstore.com, Inc.
EXPERTS
The financial statements for each of the three fiscal years in the period
ended June 30, 1998, included in this prospectus have been so included in
reliance on the report of Grant Thornton LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
45
48
GLOSSARY
Alkyl Groups -- Univalent groups derived from alkanes by removal of a
hydrogen atom from any carbon atom: C(n)H(2n+1-). See also cycloalkyl groups.
Cf. hydrocarbyl groups.
Antimicrobial -- Harmful to microorganisms by either killing or inhibiting
growth. Antimicrobial pesticides comprise a broad range of products designed to
control undesirable microorganisms such as bacteria, viruses, or algae on
non-living (inanimate) objects or surfaces(1), and on raw fruits and vegetables.
Antimicrobial products are marketed in several formulations, including sprays,
liquids, concentrated powders, and gases. Uses range from swimming pools to
medical equipment to sinks and toilets to wood preservatives to drinking water
for humans and livestock. Antimicrobial products can be divided into public
health uses and non-public health uses.
Antimicrobial agent -- A chemical that kills or inhibits the growth of
microorganisms.
Bacteriostatic -- Antimicrobial agent that is capable of inhibiting
bacterial growth without killing.
Biostatic -- A term loosely used for bacteriostatic.
EPA -- Environmental Protection Agency
Ester -- An organic compound formed by the reaction of acid and alcohol.
FDA -- United States Food and Drug Administration
Hydrocarbyl group -- Univalent (having a valence of one) groups formed by
removing a hydrogen atom from a hydrocarbon.
Lyophilic -- A general term ("solvent loving") applied to a specific solute
and solvent mixed together, indicating the solubility relationship between the
two. A highly water soluble material such as acetone would be termed lyophilic
in water.
Lyophobic -- The opposite of lyophilic ("solvent hating"). A hydrocarbon,
for example, would be lyophobic in relation to water. If the solvent in question
were changed to octane, the hydrocarbon would then become lyophilic.
Phosphate Ester -- Synonym for phosphoric acid ester.
Polymers -- A long series of molecules.
Quaternary ammonium -- Derivatives of ammonium compounds, NH(4)(+)Y(-), in
which all four of the hydrogens bonded to nitrogen have been replaced with
hydrocarbyl groups.
Silane -- Saturated silicon hydrides, analogues of the alkanes; i.e.
compounds of the general formula Si(n)H(2n+2). Silanes may be subdivided into
silane, oligosilanes and polysilanes. Note: hydrocarbyl derivatives and other
derivatives are often referred to loosely as silanes.
Substrate -- The material to be treated or applied to.
Surface active agent -- The descriptive generic term for soaps and other
materials that preferentially adsorb at interfaces as a result of the presence
of both lyophilic and lyophobic structural units, the adsorption generally
resulting in the alteration of the surface or interfacial properties of the
system.
Surfactant -- The term for "surface active agents."
Tertiary amine -- Derivatives of ammonia, NH(3), in which all three of the
hydrogens bonded to nitrogen have been replaced with hydrocarbyl groups. E.g.
(CH(3))(3)N trimethylamine.
46
49
CONTENTS
PAGE
----
Report of Independent Certified Public Accountants.......... F-
Financial Statements
Balance Sheets as of June 30, 1996, 1997, and 1998........ F-
Statements of Operations for the year ended June 30, 1996,
1997, and 1998......................................... F-
Statement of Stockholders Equity (deficit) for the year
ended June 30, 1996, 1997, and 1998.................... F-
Statements of Cash Flows for the year ended June 30, 1996,
1997, and 1998......................................... F-
Notes to Financial Statements, Years ended June 30, 1996,
1997 and 1998.......................................... F-
Interim Financial Statements
Balance Sheets as of March 31, 1999 (unaudited) and June
30, 1998............................................... F-
Statements of Operations for the three and nine months
ended March 31, 1999 and 1998 (unaudited).............. F-
Statements of Operations (Unaudited) June 1, 1995
(inception) to March 31, 1999 and 1998................. F-
Statements of Changes in Stockholder's Equity (Deficit)
for the nine months ended March 31, 1999 (unaudited)... F-
Statements of Cash Flows for the nine-month period ended
March 31, 1999 (unaudited) and (unaudited) June 1, 1995
(inception) to March 31, 1999 and 1998................. F-
Notes to (Interim) Financial Statements, March 31, 1999... F-
47
50
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BioShield Technologies, Inc.
We have audited the accompanying balance sheets of BioShield Technologies,
Inc., as of June 30, 1996, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioShield Technologies, Inc.
as of June 30, 1996, 1997 and 1998, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
August 5, 1998
The foregoing auditor's report is in the form which will be signed upon
effectiveness of the offering contemplated and described in Note A to the
financial statements.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
August 5, 1998
F-1
51
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF JUNE 30, 1996, 1997, AND 1998
JUNE 30,
-----------------------------------
1996 1997 1998
--------- --------- -----------
ASSETS
CURRENT ASSETS
Cash..................................................... $ 25,066 $ 398,921 $ 1,636
Accounts receivable...................................... -- 29,294 110,081
Inventories.............................................. 38,034 142,194 157,784
Prepaid expenses and other current assets................ 11,791 20,068 2,500
--------- --------- -----------
Total current assets..................................... 74,891 590,477 272,001
PROPERTY AND EQUIPMENT, NET................................ -- 42,657 104,711
DEPOSITS AND OTHER LONG-TERM ASSETS........................ 2,847 59,804 60,911
--------- --------- -----------
$ 77,738 $ 692,938 $ 437,623
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable............................................ $ -- $ -- $ 450,000
Notes payable -- other................................... -- -- 205,000
Accounts payable......................................... 44,951 168,880 309,538
Accrued payroll.......................................... 213,603 306,932 315,361
Accrued interest payable................................. -- -- 18,377
--------- --------- -----------
Total current liabilities................................ 258,554 475,812 1,298,276
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock -- no par value; 50,000,000 shares
authorized, 3,969,698, 4,364,421 and 4,395,040 issued
and outstanding at June 30, 1996, 1997 and 1998,
respectively.......................................... 115,500 965,501 1,153,001
Additional paid-in capital............................... 60,000 122,400 329,050
Deficit accumulated during the development stage......... (356,316) (870,775) (2,342,704)
--------- --------- -----------
(180,816) 217,126 (860,653)
--------- --------- -----------
$ 77,738 $ 692,938 $ 437,623
========= ========= ===========
The accompanying notes are an integral part of these statements.
F-2
52
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1997, AND 1998
JUNE 1, 1995 (INCEPTION)
TO JUNE 30, YEAR ENDED YEAR ENDED
------------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1997 1998
---------- ---------- ----------- ---------- -----------
Net sales.......................... $ -- $ 775,315 $ 1,237,786 $ 775,315 $ 462,471
Cost of sales...................... -- 315,822 470,480 315,822 154,658
---------- ---------- ----------- ---------- -----------
Gross profit..................... -- 459,493 767,306 459,493 307,813
Operating expenses
Marketing and selling............ 5,608 218,995 691,940 213,387 472,945
General and administrative....... 195,515 895,699 2,030,411 700,184 1,134,712
Research and development......... 185,094 258,876 416,128 73,782 157,252
---------- ---------- ----------- ---------- -----------
386,217 1,373,570 3,138,479 987,353 1,764,909
---------- ---------- ----------- ---------- -----------
Loss from operations..... (386,217) (914,077) (2,371,173) (527,860) (1,457,096)
Other income (expense)
Consulting income, net of
consulting expenses of $19,474
and $62,227 for the periods
ended June 30, 1997 and 1996,
respectively.................. 29,901 39,908 39,908 10,007 --
Interest income.................. -- 3,394 6,938 3,394 3,544
Interest expense................. -- -- (18,377) -- (18,377)
---------- ---------- ----------- ---------- -----------
29,901 43,302 28,469 13,401 (14,833)
---------- ---------- ----------- ---------- -----------
Net loss before income
taxes.................. (356,316) (870,775) (2,342,704) (514,459) (1,471,929)
Income tax (expense) benefit....... -- -- -- -- --
---------- ---------- ----------- ---------- -----------
Net loss................. $ (356,316) $ (870,775) $(2,342,704) $ (514,459) $(1,471,929)
========== ========== =========== ========== ===========
Net loss per common share
Basic............................ $ (0.09) $ (0.21) $ (0.53) $ (0.12) $ (0.33)
========== ========== =========== ========== ===========
Weighted average common shares
outstanding...................... 3,917,177 4,150,720 4,395,040 4,150,720 4,395,040
========== ========== =========== ========== ===========
The accompanying notes are an integral part of these statements.
F-3
53
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
DEFICIT
COMMON STOCK ACCUMULATED
NO PAR VALUE ADDITIONAL DURING THE
---------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- ---------- ---------- ----------- -----------
Balance at June 1, 1995.............. -- $ -- $ -- $ -- $ --
Proceeds from original issuance of
shares............................. 3,907,086 500 -- -- 500
Proceeds from issuance of shares
under a private placement
offering........................... 62,612 115,000 -- -- 115,000
Issuance of stock warrants for
services rendered.................. -- -- 60,000 -- 60,000
Net loss -- June 1, 1995 (inception)
through June 30, 1996.............. -- -- -- (356,316) (356,316)
--------- ---------- -------- ----------- -----------
Balance at June 30, 1996............. 3,969,698 115,500 60,000 (356,316) (180,816)
Proceeds from issuance of shares
under a private placement
offering........................... 149,723 275,001 -- -- 275,001
Proceeds from issuance of shares
under a private placement
offering........................... 245,000 600,000 -- -- 600,000
Stock issuance costs related to
private placement offerings........ -- (25,000) -- -- (25,000)
Issuance of stock warrants for
services rendered.................. -- -- 62,400 -- 62,400
Net loss for the year ended
June 30, 1997...................... -- -- -- (514,459) (514,459)
--------- ---------- -------- ----------- -----------
Balance at June 30, 1997............. 4,364,421 965,501 122,400 (870,775) 217,126
Proceeds from issuance of shares
under private placement offering... 30,619 187,500 -- -- 187,500
Issuance of stock options for
services rendered.................. -- -- 156,650 -- 156,650
Contribution to capital.............. -- -- 50,000 -- 50,000
Net loss for the period ended June
30, 1998........................... -- -- -- (1,471,929) (1,471,929)
--------- ---------- -------- ----------- -----------
Balance at June 30, 1998............. 4,395,040 $1,153,001 $329,050 $(2,342,704) $ (860,653)
========= ========== ======== =========== ===========
The accompanying notes are an integral part of these statements.
F-4
54
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
JUNE 1, 1995 (INCEPTION)
TO JUNE 30, YEAR ENDED YEAR ENDED
----------------------------------- JUNE 30, JUNE 30,
1996 1997 1998 1997 1998
--------- --------- ----------- ---------- -----------
Cash flows from operating
activities:
Net loss.......................... $(356,316) $(870,775) $(2,342,704) $(514,459) $(1,471,929)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization
expense...................... 1,504 18,040 32,466 16,536 14,426
Issuance of stock and stock
options for services
rendered..................... 60,000 122,400 279,050 62,400 156,650
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable....... -- (29,294) (110,081) (29,294) (80,787)
Inventory................. (38,034) (142,194) (157,784) (104,160) (15,590)
Prepaid expenses and other
current assets.......... (12,862) (34,310) (16,742) (21,448) 17,568
Stock issuance costs...... -- 42,000 (42,000) (42,000) --
Deposits and other
assets.................. (3,280) (18,667) (19,774) (15,387) (1,107)
Increase in:
Accounts payable.......... 44,951 168,880 309,538 123,929 140,658
Accrued liabilities and
payroll................. 213,603 306,932 333,738 93,329 26,806
--------- --------- ----------- --------- -----------
Net cash used in operating
activities.............. (90,434) (520,988) (1,734,293) (430,554) (1,213,305)
--------- --------- ----------- --------- -----------
Cash flows from investing
activities:
Capital expenditures.............. -- (45,592) (122,072) (45,592) (76,480)
--------- --------- ----------- --------- -----------
Cash flows from financing
activities:
Proceeds from debt................ -- -- 655,000 -- 655,000
Contribution to capital........... 50,000 50,000
Private offering of stock, net.... 115,500 965,501 1,153,001 850,001 187,500
--------- --------- ----------- --------- -----------
Net cash provided by
financing activities.... 115,500 965,501 1,858,001 850,001 892,500
--------- --------- ----------- --------- -----------
Net increase (decrease) in
cash.................... 25,066 398,921 1,636 383,855 (397,285)
Cash at beginning of period......... -- -- -- 25,066 398,921
--------- --------- ----------- --------- -----------
Cash at end of period............... $ 25,066 $ 398,921 $ 1,636 $ 398,921 $ 1,636
========= ========= =========== ========= ===========
The accompanying notes are an integral part of these statements.
F-5
55
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
NOTE A -- NATURE OF OPERATIONS
BioShield Technologies, Inc. (the "company") was incorporated on June 1,
1995. The company was formed to develop, manufacture and distribute certain
antimicrobial agents and products. Patents for these new agents and products are
currently pending. The company is in the process of developing distribution
channels for these products throughout the United States and internationally.
The company is in the development stage and its efforts though June 30,
1998, have been principally devoted to organizational activities, raising
capital, regulatory approvals, research and development and further
investigation into new markets.
During the next fiscal year, the company is planning an initial public
offering.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. CASH AND CASH EQUIVALENTS
The company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the relatively short-term nature of
the instruments.
2. REVENUE RECOGNITION
The company recognizes revenue and provides for the estimated cost of
returns and allowances in the period the products are shipped and title
transfers to the customer.
3. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily of
raw materials, work in progress and finished goods.
4. PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives on a straight-line basis.
Depreciation expense related to property and equipment charged to operations was
approximately $0, $3,000 and $14,000 for the periods ended 1996, 1997 and 1998,
respectively.
Estimated service lives are as follows:
Office Equipment............................................ 3 years
Machinery, leasehold improvements, furniture and
equipment................................................. 5-10 years
5. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-6
56
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred
tax assets when it is more likely than not that the asset will not be realized.
7. RESEARCH AND DEVELOPMENT COSTS
The costs of research and development and consumable supplies and materials
to be used for the development of the company's intended products are expensed
when incurred. Research and development expense was $185,094, $73,782 and
$157,252 for the periods ending June 30, 1996, 1997 and 1998, respectively.
Research and development expense for the period ended June 30, 1996, included
$120,000 of certain officers' compensation that related to conceptual
formulation, testing and design of product alternatives.
8. ADVERTISING COSTS
The company expenses the cost of advertising the first time advertising
takes place. Costs of developing advertising materials are expensed at the time
the advertising materials are produced and distributed to customers. Advertising
expense was $0, $69,932 and $228,192 for the periods ended June 30, 1996, 1997
and 1998, respectively.
9. GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs include, among other things, the cost of
testing and consulting related to filings with the Environmental Protection
Agency (EPA) and patent filings as well as professional fees associated with
private placement offerings and the company's proposed initial public offering.
10. REVERSE STOCK SPLIT
Effective December 11, 1997, the company's shareholders approved a reverse
split, which had the following effect on all outstanding securities:
Common stock................................................ 2.45 for 3.00
Warrants.................................................... 1 for 2
The exercise price on all warrants issued prior to December 11, 1997 was
reduced to $0.50 in connection with the reverse split.
All share and per share amounts and option and warrant amounts have been
restated retroactively to reflect these reverse splits.
11. LOSS PER COMMON SHARE
Basic loss per common share has been calculated using the weighted average
number of shares of common stock outstanding during each period as adjusted for
the reverse split as discussed in Note B-10. Diluted loss per common share is
not disclosed because the effect of the exchange or exercise of common stock
equivalents would be anti-dilutive.
F-7
57
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
Inventories consist of the following:
JUNE 30, JUNE 30, JUNE 30,
1996 1997 1998
-------- -------- --------
Raw Materials........................................... $27,155 $100,146 $ 83,482
Work in Progress........................................ 10,879 30,828 42,893
Finished Goods.......................................... -- 11,220 31,409
------- -------- --------
$38,034 $142,194 $157,784
======= ======== ========
NOTE D -- PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
JUNE 30, JUNE 30, JUNE 30,
1996 1997 1998
-------- -------- --------
Leasehold improvements.................................... $-- $ -- $ 33,385
Office furniture and equipment............................ -- 23,890 28,433
Machinery and equipment................................... -- 21,702 60,254
--- ------- --------
Total property and equipment.............................. -- 45,592 122,072
Less accumulated depreciation............................. -- (2,935) (17,361)
--- ------- --------
$-- $42,657 $104,711
=== ======= ========
NOTE E -- COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The company leases certain office and operating facilities and certain
equipment under operating lease agreements that expire on various dates through
2000 and require the company to pay all maintenance costs. Rent expense under
these leases was $0, $16,133 and $64,835 for the years ended June 30, 1996, 1997
and 1998, respectively.
Commitments under noncancelable operating leases are summarized as follows:
Fiscal Year:
1999...................................................... $ 67,833
2000...................................................... 61,770
2001 and Thereafter....................................... 4,860
--------
Total............................................. $134,463
========
NOTE F -- STOCKHOLDERS' EQUITY
WARRANTS
At June 30, 1997, warrants for the purchase of 959,004 shares had been
issued in connection with various private placement offerings. In connection
with the reverse split discussed in Note B-10, the restated number of warrants
outstanding at June 30, 1997 was 479,502, with an exercise price of $0.50. The
expiration date was also restated to reflect a five-year term expiring in April
2003. In connection with a private placement offering during the year ended June
30, 1998, warrants for the purchase of 490,000 shares were issued with an
exercise price ranging from $5.25 (Initial Public Offering Price) to $5.78 (110%
of Initial Public Offering Price) expiring April 2003. Also, during the year
ended June 30, 1998, warrants for the purchase of 18,750 shares
F-8
58
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
were issued in connection with private placement offerings. These warrants have
a five-year term and an exercise price of $0.50.
WARRANTS ISSUED FOR SERVICES IN LIEU OF CASH
During the year ended June 30, 1997, warrants to purchase 150,000 shares
were issued to consultants at an exercise price of $0.50. The company recorded
$62,400 of expense during the year ended June 30, 1997, as a result of issuing
these warrants.
OPTIONS
During 1996, the company implemented a directors' stock option plan
covering all members of the company's board of directors. The provisions of this
plan included a grant of options to acquire 120,000 shares of common stock at an
exercise price of $2.00 per share for the period ended June 30, 1996. The
company recorded $60,000 of expense during the period ended June 30, 1996 as a
result of granting these options.
No options were granted during the year ended June 30, 1997.
During the year ended June 30, 1998, the company issued options to purchase
120,000 shares of common stock at an exercise price of $5.00 per share to two
members of its advisory board. The options vest over a three-year period
allowing each optionee to acquire 20,000 shares beginning on each anniversary
date of the grant and expiring five years from the date of grant.
The company also issued options to employees for 30,000 shares of common
stock at an exercise price of $1.00 per share. The company uses the intrinsic
value method in accounting for its stock option plan. In applying this method,
compensation cost of $156,650 has been recognized in the accompanying financial
statements for the year ended June 30, 1998. No compensation cost was recognized
for the period ended June 30, 1997. Had compensation cost for the company's
stock options plans been determined based on the fair value at the grant dates
for awards under this plan, the company's net loss and loss per share would have
resulted in the pro forma amounts indicated below:
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
Net loss
As reported.................................... $(356,316) $(514,459) $(1,471,929)
Pro forma...................................... (371,616) (527,847) (1,471,929)
Net loss per common share
As reported.................................... $ (0.09) $ (0.12) $ (0.33)
Pro forma...................................... (0.09) (0.12) (0.33)
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated by reference to other equity instruments issued during the
period to non-employees.
In addition, warrants to purchase 75,000 shares of common stock have been
reserved for the company's underwriters in connection with the company's
proposed initial public offering. The vesting of these warrants is contingent
upon a certain level of net proceeds obtained from the offering.
F-9
59
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option and warrant transactions are summarized as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1998
------------------ ------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- --------- --------
Outstanding, beginning of
period....................... -- $ -- 120,000 $2.00 749,502 $0.74
Issued in connection with
private placement
offerings.................... -- -- 479,502 0.50 450,000 6.50
Issued in connection with
private placement offering... -- -- -- -- 40,000 7.15
Issued in connection with
private placement offering... -- -- -- -- 18,750 0.50
Issued to non-employees for
services rendered............ -- -- 150,000 0.50 -- --
Issued to employees............ -- -- -- -- 30,000 1.00
Issued to advisory board....... 120,000 2.00 -- -- 120,000 5.00
Exercised...................... -- -- -- -- -- --
Canceled....................... -- -- -- -- -- --
------- ----- ------- ----- --------- -----
Outstanding, end of period..... 120,000 $2.00 749,502 $0.74 1,408,252 $3.15
======= ===== ======= ===== ========= =====
The weighted average remaining contractual life of options and warrants
outstanding is approximately 4.5 years as of June 30, 1998.
NOTE G -- INCOME TAXES
The company's temporary differences result in a deferred income tax asset
which is reduced to zero by a related valuation allowance, summarized as
follows:
JUNE 30, JUNE 30, JUNE 30,
1996 1997 1998
--------- --------- ---------
Deferred income tax assets:
Operating loss carry forwards..................... $ 30,767 $ 163,918 $ 658,883
Payroll accruals.................................. 81,169 116,634 119,837
Options for services................................ 22,800 46,512 106,039
--------- --------- ---------
Gross deferred tax assets...................... 134,736 327,064 884,759
Deferred tax asset valuation allowance......... (134,736) (327,064) (884,759)
--------- --------- ---------
Net deferred income tax asset.................. $ -- $ -- $ --
========= ========= =========
The income tax provisions for the years ended June 30, 1996, June 30, 1997
and 1998, differ from the amounts determined by applying the applicable U.S.
statutory federal income tax rate to pretax results of operations. These
differences are a result of applying valuation allowances against the deferred
tax assets.
F-10
60
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation's of statutory Federal tax rates to the effective tax rate
for the years ended June 30, 1996, 1997 and 1998 are as follows:
JUNE 30, JUNE 30, JUNE 30,
1996 1997 1998
--------- --------- --------
Income tax benefit at applicable Federal rate of
34%................................................ $ 121,147 $ 174,916 $500,456
State tax benefit, net of Federal income tax
effect............................................. 14,253 20,578 58,877
Other................................................ (664) (3,166) (1,638)
--------- --------- --------
Increase in deferred income tax asset valuation
allowance.......................................... (134,736) (192,328) (557,695)
--------- --------- --------
Net income tax benefit............................... $ -- $ -- $ --
========= ========= ========
At June 30, 1998, the company had operating loss carryforwards for U.S.
income tax purposes of approximately $1,700,000 available to reduce future
taxable income. These loss carryforwards will expire in fiscal years 2011
through 2013.
NOTE H -- SIGNIFICANT CUSTOMERS
During 1997, the company entered into sales agreements with two customers
that include provisions for certain exclusive marketing rights and preferential
payment terms. These agreements range from one to three years and provide for
minimum purchase commitments on behalf of these customers. Sales to these
customers totaled approximately $555,000 or 72% of total sales during the year
ended June 30, 1997. Sales to two customers totaled approximately $151,000 or
33% of total sales for the year ended June 30, 1998. No other customer
represented more than 10% of sales during this period.
NOTE I -- NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards (SFAS) 131, Disclosure About
Segments of An Enterprise and Related Information, which is effective for fiscal
years beginning after December 15, 1997 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.
Management does not expect the adoption of this SFAS to have a material impact
on the company's results of operations or its financial condition.
NOTE J -- CONTINUED OPERATIONS
The company's continued existence as a going concern is ultimately
dependent upon the success of future operations and its ability to obtain
additional financing. As shown in the financial statements, the company incurred
losses of $356,316, $514,459 and $1,471,929 for the periods ended June 30, 1996,
1997 and 1998, respectively. Management believes that its ability to generate
sufficient revenues may depend on the success of a proposed initial public
offering. The company is dependent on the proceeds of this offering in order to
continue operations.
NOTE K -- NOTES PAYABLE
Notes payable consist of ninety $5,000 notes payable to individuals
totaling $450,000 at June 30, 1998. The notes are due the earlier of the
completion of a successful initial public offering or March 2001. The notes bear
interest at 10% per annual during the first twelve months, 13% per annum during
the second twelve months, and 15% per annum during the third twelve months. In
connection with these notes, 90 warrants for the purchase of 450,000 shares at
an exercise price of $5.50 (Initial Public Offering Price) were issued (see
F-11
61
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Note F). The value attributable to these warrants is not significant to the
accompanying financial statements and accordingly, the value has not been
included therein.
Other notes payable consists of a $80,000 note payable to a relative of a
principle stockholder bearing interest at 8% and maturing the earlier of a
successful initial public offering or May 1999. Other notes payable also
includes a $125,000 note payable to an individual bearing interest at prime plus
2% and maturing the earlier of a successful initial public offering or six
months.
The carrying value of notes payable approximates fair value due to the
relatively short maturities of the notes.
NOTE L -- RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENT
In June 1998, a principal stockholder contributed $50,000 to additional
paid-in capital of the company without further consideration.
Subsequent to June 30, 1998, two principal stockholders contributed
$325,000 to additional paid-in capital of the company without further
consideration.
Subsequent to June 30, 1998, warrants for the purchase of 449,085 shares
were exercised at an exercise price of $0.50 per share generating additional
equity of $224,542.
F-12
62
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
MARCH 31, JUNE 30,
1999 1998
----------- -----------
(UNAUDITED)
ASSETS
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.
F-13
63
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.
F-14
64
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.
F-15
65
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.
F-16
66
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.
F-17
67
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-18
68
BIOSHIELD TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
=========
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.
F-19
69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. 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 may seek to purchase and maintain directors and officers
liability insurance which insures against liabilities that directors and
officers of the Registrant may incur in such capacities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being registered
other than underwriting discounts and commissions and the Underwriter's
non-accountable expense allowance:
Securities and Exchange Commission filing................... $ 7,967
NASDAQ fee.................................................. 7,738*
National Association of Securities Dealers, Inc. filing
fee....................................................... 3,201
Printing and engraving expenses............................. 45,000*
Legal Fees and expenses..................................... 145,000*
Registrar and transfer agent fees........................... 5,000*
Accounting fees and expenses................................ 30,000*
Non-Accountable expense allowance........................... 157,500
Blue sky fees and expenses.................................. 15,000*
Miscellaneous............................................... 5,000*
Total............................................. $421,406*
- ---------------
* Estimated.
II-1
70
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In November 1996, the company sold 10 units to accredited investors,
pursuant to the exemption from the registration requirements of the Securities
Act afforded by ss.4 (2) of the Act, each unit consisting of 16,667 shares, and
two warrants, each warrant consisted of a right to purchase 16,667 shares of
common stock at a purchase price of $1.50, totaling $250,001, pursuant to a
private placement memorandum.
From December 1996 to April 1997, the company sold 24 units to accredited
investors, pursuant to the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Act, totaling $600,000. Each unit
consisted of 12,500 common shares and two warrants, each warrant consisted of a
right to purchase 12,500 shares of common stock at a purchase price of $2.00 per
share, pursuant to a private placement memorandum.
In July 1997, the company sold 7 1/2 units to accredited investors pursuant
to the exemption from the registration requirements of the Securities Act
afforded by Section 4(2) of the Act. Each unit consisted of 5,000 shares of
common stock and one warrant to purchase 5,000 shares at $5.00 per share
totaling $187,500, pursuant to a private placement memorandum.
Prior to June 30, 1996, the company sold an aggregate of 62,612 common
shares to accredited investors pursuant to the exemption from the registration
requirements of the securities Act afforded by S4 (2) of the Act for cash of
$115,000. On December 11, 1997, the company effected a 2.45-for-3 reverse stock
split of its common stock and each outstanding warrant was adjusted 1 for 2 and
to reduce the exercise price to $.50 per share of common stock. The shares
issued in the reverse split did not require registration under the Securities
Act in that the reverse split and warrant adjustment was not a "sale," "offer
for sale" or "offer" as such terms are defined in the Securities Act.
On February 27, March 16, and March 24, 1998, the company sold 90 units to
12 investors for an aggregate of $450,000 or $5,000 per unit, with each unit
consisting of (i) a $5,000 non-negotiable promissory note payable on the earlier
of an initial public offering or three years from the date of issuance, and (ii)
a warrant to purchase up to 5,000 shares of common stock at the initial public
offering price beginning six months after the offering and ending five years
after issuance (for a total of 90 warrants exercisable into 450,000 shares of
common stock). First Atlanta Securities, LLC acted as the company's placement
agent with respect to the placement of the units and received $40,000 in cash
and a warrant to purchase 40,000 shares of common stock at a price per share
equal to 110% of the initial public offering price. The units and related
placement agent's warrants were issued pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of the
Act. All of such investors were accredited and were provided with a connection
with the company's proposed offering, the 1998 warrants are subject to an
unconditional one-year lock-up from the first trading day of this Offering which
prevents a holder of the 1998 warrants from exercising such warrants or
otherwise transferring, conveying, or assigning such warrants for such one-year
period.
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 -- Form of Underwriting Agreement(2)
1.2 -- Form of Underwriters' Warrants(2)
3.1 -- Amended and Restated Articles of Incorporation of the
company, dated February 13, 1998(2)
3.2 -- Bylaws of the company(2)
4.1 -- Form of Stock Certificate(2)
4.2 -- Form of Unit Certificate(2)
II-2
71
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.3 -- Form of Unit Warrant Certificate(2)
4.4 -- Form of February/March 1998 Private Placement Investor
Warrant(2)
4.5 -- First Atlanta Warrant(2)
4.6 -- Form of Public Investor Warrant Agreement(2)
4.7 -- Form of November 1996 and December 1996 -- April 1996
Private Placement Warrant(2)
4.8 -- Form of July 1997 Private Placement Warrant(2)
5.1 -- Opinion of Sims Moss Kline & Davis(2)
10.1 -- Employment Agreement between the company and Timothy C.
Moses, dated January 1, 1998(2)
10.2 -- Employment Agreement between the company and Jacques
Elfersy, dated January 1, 1998(2)
10.3 -- Employment Agreement between the company and Joachim
Berkner, dated January 1, 1998(2)
10.4 -- Employment Agreement between the company and William O.
Hitt, dated March 11, 1998(2)
10.5 -- Material Lease between the company and Weeks Realty for
Property in Norcross, Georgia, dated April 24, 1997(2)
10.6 -- Material Lease between the company and Selig Enterprises for
property in Atlanta, Georgia, dated September 4, 1997(2)
10.7 -- Marketing and Distribution Agreement between the company and
QVC, Inc., dated November 5, 1997(2)
10.8 -- Sales Agreement between the company and HealthSafe
Environmental Products, Inc., dated February 6, 1997(2)
10.9 -- Sales and Distribution Agreement between the company and
Concrete MicroTech, Inc., dated February 7, 1997(2)
10.10 -- Sales Agreement between the company and Sanitary Coating
Systems, Inc., dated November 13, 1997(2)
10.11 -- Consulting Agreement between the company and R.T.Consulting,
dated December 5, 1997(2)
10.12 -- Promissory Note between the company and Stephen M. Dale,
dated May 12, 1998(2)
10.13 -- Agreement to provide edgarization services between the
company and Revere Financial Group, Inc., dated May
28,1998(2)
10.14 -- Three Promissory Notes between the company and in favor of
Judy Turner, dated January 16, 1998, May 27, 1998, and June
5, 1998(2)
10.15 -- 1996 Director's Stock Option Plan and 1996 Director's Stock
Option Agreement Pursuant to 1996 Director's Stock Option
Plan(2)
10.16 -- 1997 Stock Incentive Plan(2)
10.17 -- Patent Assignment Agreements by and among Jacques Elfersy,
Joachim Berkner, Timothy C. Moses, and the company, dated
February 5, 1998(2)(4)
10.18 -- Letter Agreement with Moran Marketing company, Inc., dated
September 8, 1998(2)
10.19 -- Employment Agreement between the company and Jeffrey A.
Parker, dated September 17, 1998(2)
10.20 -- Transfer Agent Agreement between the company and American
Securities Transfer & Trust, Inc., dated August 27, 1998(2)
10.21 -- Employment Agreement between the company and Daniel E.
Swaye, dated October 8, 1998(2)
10.22 -- Amendment to Exclusive Sales and Distribution Agreement
between the company and Sanitary Coating Systems, LLP, dated
as of February 12, 1999(2)
10.23 -- Agreement between the company and John T. Adams, dated April
1, 1999(2)
II-3
72
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.24 -- Financial Advisory and Consulting Agreement between the
company and Grayson Financial Services, LLP, dated as of
April 1, 1999(2)
10.25 -- Financial Advisory and Consulting Agreement between the
company and C.L.R. Associates, dated as of April 1, 1999(2)
10.26 -- Certificate of Incorporation of Allergy Superstore.com,
Inc.(2)
10.27 -- Bylaws of Allergy Superstore.com, Inc.(2)
10.28 -- 1999 Directors Stock Option Plan of Allergy Superstore.com,
Inc.(2)
10.29 -- Form of Directors Nonqualified Initial Stock Option Grant of
Allergy Superstore.com, Inc.(2)
10.30 -- Form of Directors Nonqualified Succeeding Stock Option Grant
of Allergy Superstore.com, Inc.(2)
10.31 -- 1997 Stock Incentive Plan, as amended(2)
23.1 -- Form of Consent by Grant Thornton, LLP(1)
23.2 -- Consent of Sims Moss Kline & Davis LLP (included in Exhibit
5.1)
- ---------------
(1) Filed herewith
(2) Previously Filed
(3) To be filed by amendment
(4) Confidential treatment has been requested with respect to portions of this
document. Omitted portions have been filed separately with the Securities
and Exchange Commission.
ITEM 28. UNDERTAKINGS
The company hereby undertakes that
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(a) Include any prospectus required under Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(c) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the company
pursuant to the provisions described under Item 24 above, or otherwise, the
company has been advised that in the opinion of the Securities and Exchange
Commission 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 company of expenses incurred or paid by a director, officer or
controlling person of the company in the successful defense of any action,
suit or proceeding) is asserted
II-4
73
against the company by such director, officer or controlling person in
connection with the securities being registered, the company 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.
The company hereby undertakes that (i) for purposes of determining
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part
of this Registration Statement as of the time it was declared effective; and
(ii) for purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus 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
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
II-5
74
SIGNATURES
In accordance with 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 SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Atlanta, State of Georgia, on June 3, 1999.
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ TIMOTHY C. MOSES
------------------------------------
Timothy C. Moses
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President; Director June 3, 1999
- ----------------------------------------------------- Chief Executive Officer
Timothy C. Moses
* Chairman of the Board; Vice June 3, 1999
- ----------------------------------------------------- President of Operations and
Jacques Elfersy Director of Regulatory Affairs;
Chief Financial Officer
* Director June 3, 1999
- -----------------------------------------------------
Carl T. Garner
* Director June 3, 1999
- -----------------------------------------------------
Michael Azran
*By: /s/ TIMOTHY C. MOSES
------------------------------------------------
Timothy C. Moses
Power of Attorney
II-6