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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1999
REGISTRATION NO. 333-57767
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BIOSHIELD TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
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GEORGIA 2842 58-2181628
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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BIOSHIELD TECHNOLOGIES, INC.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(Address and telephone number of principal
executive offices and principal place of business)
TIMOTHY C. MOSES
BIOSHIELD TECHNOLOGIES, INC.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(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.
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PROSPECTUS
BIOSHIELD TECHNOLOGIES, INC.
1,300,000 Shares of Common
Stock Issuable Upon Exercises of Publicly-Traded Redeemable Warrants
130,000 Shares of Common Stock and 65,000 Redeemable Underwriters'
Warrants Issuable Upon Exercises of Underwriters' Unit Warrants
65,000 Shares of Common Stock Issuable Upon Exercises
of Underwriters' Redeemable Warrants
- - Up to 1,300,000 of the shares 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. Up to 130,000 shares and 65,000
redeemable underwriters' warrants offered by this prospectus may be
purchased by the underwriters of the company's initial public offering and
their assignees upon exercises of 65,000 underwriters' warrants at an
exercise price of $15.00 per unit warrant. The remainder of up to 65,000
shares offered by this prospectus may be purchased upon exercises of the
redeemable underwriters' warrants issuable upon underwriter unit warrant
exercises at an exercise price of $7.50 per share. The company will receive
all of the proceeds from sales of these shares and warrants.
- - Our common stock is traded on the Nasdaq SmallCap Market under the symbol
BSTI. The publicly-traded 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 November 19, 1999, the closing bid price of our common stock on the
Nasdaq SmallCap Market was $9 3/4, and the closing bid price for the
redeemable warrants was $5 1/2.
- - You should obtain current market price quotations before deciding whether
to exercise your redeemable warrants.
Our principal executive offices are located at 5655 Peachtree Parkway,
Norcross, Georgia 30092, and our telephone number is (770) 246-2000.
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 November 19, 1999
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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 since our
organization in 1995 in the development, marketing, and sale of surface
modifying antimicrobials and biostatic products. Our primary focus in this area
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 and one such
patent has been granted. 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 these products is in the mass-market
retail outlets such as supermarkets, mass volume retailers, drug stores, and
home improvement superstores. 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.
On April 7, 1999, we created a subsidiary to develop electronic commerce
via the Internet. This subsidiary will provide managed care solutions to
physicians and consumers over the internet. This business unit will seek to
integrate three product offerings for providers (point of care medication
management, electronic charting system, and pharmaceutical care services) with a
comprehensive healthcare web site. The subsidiary, currently named Electronic
Medical Distribution, Inc., (eMD.com) has not as yet commenced operations and
from its formation to date has been in the development stage, which means that
its primary focus has been organizational activities, raising capital,
regulatory approvals, research and development, and further investigation into
new markets.
As a result, we currently operate in two distinct business segments,
antimicrobial and biostatic products for use within the retail and institutional
markets through BioShield and pharmaceutical healthcare via the Internet through
eMD.com.
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THE OFFERING
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Securities offered................. 1,300,000 shares of common stock issuable upon exercise of the
publicly-traded redeemable warrants at a price per share of
$6.00. In addition, up to 130,000 shares and 65,000 redeemable
underwriters' warrants may be purchased by the underwriters of
the company's initial public offering and their assignees upon
exercise of 65,000 underwriters' warrants at an exercise price
of $15.00 per unit warrant. Up to 65,000 shares may be
purchased upon exercise of the redeemable underwriters'
warrants issuable upon underwriter unit warrant exercises at an
exercise price of $7.50 per share. The company will receive
all of the proceeds from sales of these shares and warrants.
The common stock................... Our common stock is traded on the Nasdaq SmallCap Market under
the symbol "BSTI." See "Description of Securities."
Description of the Each publicly-traded redeemable warrant may currently be
redeemable warrants................ exercised to purchase one share of common stock to an exercise
price of $6.00 per share. The redeemable underwriters'
warrants are exercisable at a price of $7.50 per share. The
publicly-traded redeemable warrants are traded on the Nasdaq
SmallCap Market under the symbol "BSTIW." We may redeem all of
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 exceeds $10.00 per
share for ten (10) consecutive days in the last 30 days. See
"Description of Securities."
Common stock to be Between 6,325,915 and 7,817,315 shares, depending on the number
outstanding after the of publicly-traded redeemable warrants, underwriters' unit
offering (1)(2).................... warrants and redeemable underwriters' warrants exercised.
Use of proceeds.................... We intend to use the net proceeds from redeemable warrant and
underwriters' 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 the loss of their entire investment
should not purchase BioShield common stock. See "Risk Factors"
and "Dilution."
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(1) 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 754,000 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."
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SELECTED FINANCIAL INFORMATION
The following selected financial data has been derived from our audited
balance sheets as of June 30, 1998 and 1999 and audited income statements for
the fiscal periods ended June 30, 1999, 1998, and 1997 and unaudited financial
statements as of and for the three month periods ended September 30, 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."
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<CAPTION>
THREE MONTHS
FISCAL PERIODS ENDED JUNE 30, ENDED SEPTEMBER 30,
---------------------------------------- -------------------------
1997 1998 1999 1998 1999
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OPERATING DATA:
Net sales ............... $ 775,315 $ 462,471 $ 305,336 $ 87,854 $ 144,445
Cost of sales ........... 315,822 154,658 188,913 33,736 90,488
Gross profit ............ 459,493 307,813 116,423 54,118 53,957
Operating expenses ...... 987,353 1,764,909 3,566,213 412,163 4,463,105
Operating loss .......... (527,860) (1,457,096) (3,449,790) (358,045) (4,409,148)
Net loss ................ (514,459) (1,471,929) (3,289,616) (373,562) (4,347,177)
Basic net loss per common
share ................... $ (0.12) $ (0.33) $ (0.57) $ (0.08) $ (0.69)
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<CAPTION>
AT JUNE 30,
--------------------------- AT SEPTEMBER 30,
1998 1999 1999
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BALANCE SHEET DATA:
Working capital (deficit) .... $(1,026,275) $ 6,975,205 $ 4,308,771
Current assets ............... 272,001 7,827,050 5,616,012
Total assets ................. 437,623 8,223,743 6,770,182
Total liabilities and minority
interest ..................... 1,298,276 5,650,595 7,431,991
Accumulated deficit .......... (2,342,704) (5,632,320) (9,979,497)
Shareholder's equity (deficit) (860,653) 2,573,148 (661,809)
Common shares outstanding .... 4,395,040 6,322,315 6,325,915
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RISK FACTORS
An investment in our securities 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 for antimicrobial and biostatic
products;
- inability to commercialize the company's antimicrobial and biostatic
technology in a cost-effective manner;
- the introduction of equally or more effective antimicrobial and
biostatic 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 or to establish
Electronic Medical Distribution as a widely-used Internet resource;
- 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. Any such approvals may however be limited in
scope. 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 and none are anticipated to be filed in the near future. 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.
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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."
WE HAVE GENERATED LIMITED REVENUES TO DATE, HAVE A HISTORY OF SIGNIFICANT LOSSES
AND EXPECT CONTINUED LOSS
Through September 30, 1999, although we have recorded contract revenues, we
have generated only limited revenues from product sales and consulting of
$1,727,475 since 1995. Moreover, we have incurred significant losses, including
losses of $356,316, $514,459, $1,471,929, and $3,289,616 for the years ended
June 30, 1996, 1997, 1998 and 1999, respectively. For the years ended June 30,
1996, 1997, 1998 and 1999, we recorded product sale revenues of $0, $775,315,
$462,471 and $305,336. Our net sales during the three months ended September 30,
1998 and 1999 were $87,854 and $144,445, respectively, while net losses
increased from $373,562 to $4,347,177 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.
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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 into the third fiscal
quarter of 2000. 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. 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 WILL DEPLETE OUR CAPITAL MORE QUICKLY
We have recently organized a subsidiary, eMD.com, which will engage in the
sale of drug and healthcare 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 eMD.com.
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
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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."
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; and Jacques Elfersy,
founder, Co-Chairman of the Board, Senior Vice President, Secretary, Treasurer,
and Director. We employ Messrs. Moses and Elfersy under an employment agreement
expiring January 1, 2003. The loss of the services of
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either Mr. Moses or Mr. Elfersy 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 warrants are exercised and 1,495,000 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 ____%, and
approximately ____%, 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 and underwriters' unit 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 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
$4.90 (82%) between the pro forma net tangible book value per share of common
stock as of September 30, 1999, and the exercise price of $6.00 per share for
the publicly-traded redeemable warrants, and at least $6.40 (85%) as regards the
redeemable underwriters' warrants. That assumes that all the redeemable warrants
are exercised with a pro forma increase in tangible book value per share from
$(0.10) to $1.10. If only a small number of redeemable warrants are exercised,
dilution would be
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up to $6.00 or $7.50 per share to new investors who exercise the publicly-traded
or underwriters' redeemable warrants, respectively. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
As of November ____, 1999, there were ___________ shares of common stock
that were restricted securities that became eligible for resale under Rule 144
under the Securities Act of 1933, after expiration of a "lock-up" agreement in
September 1999. 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
The shares of common stock underlying the warrants issued in our February
and March 1998 private placement 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,
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."
EFFECT OF EMD PRIVATE PLACEMENT FINANCING
The shares of common stock which were sold by emd.com to a group of
investors in connection with emd.com's $6,000,000 private placement of common
stock in June and July 1999 may enable the holders of the shares, in the event
that emd.com has not become a reporting company under the Securities and
Exchange Act of 1934, as amended by June 30, 2000 to exchange the shares for
freely tradeable registered shares of the Company over a minimum period of six
months thereafter at a pre-agreed discount to the then current market price of
the company common stock. The effect of such exchanges provides if triggered may
for example, have a negative impact on the trading prices of the company's
common stock, may enable these investors to acquire a substantial ownership
position in the company and may significantly dilute the interest of existing
company shareholders.
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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, 758,000 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."
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.
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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. ss.ss.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 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
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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.
RISKS PARTICULAR TO EMD.COM
eMD.com has not as yet commenced its internet and related operations and is
still in the process of developing the site and related business. The Company
intends to launch the consumer and physician portions of its website on or about
December 1999. Accordingly, we have an extremely limited operating history. An
investor must consider the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, including the
Internet market. These risks and difficulties include our ability with respect
to eMD.com to:
- attract a larger audience of users to our Internet-based consumer
healthcare network;
- increase awareness of our brand;
- strengthen user loyalty and increase the number of registered users;
- offer compelling on-line content, services and e-commerce
opportunities;
- maintain our current, and develop new, affiliate relationships;
- attract a large number of advertisers who desire to reach our users;
- respond effectively to the offerings of competitive providers of
healthcare information on the Internet;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
We also depend on the growing use of the Internet for advertising,
commerce and communication, and on general economic conditions. We cannot assure
you that our business strategy will be successful or that we will successfully
address these risks or difficulties. If we fail to address adequately any of
these risks or difficulties our business would likely suffer. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements for detailed information on our
extremely limited operating history and limited financial resources.
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OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. If we
have a shortfall in revenue in relation to our expenses, or if our expenses
precede increased revenues, then our business would be materially adversely
affected. This would likely affect the market price of our common stock in a
manner which may be unrelated to our long-term operating performance.
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Important factors which could cause eMD.com's results to fluctuate
materially include:
- our ability to attract and retain users;
- our ability to attract and retain advertisers and sponsors and
maintain advertiser and sponsor satisfaction;
- traffic levels on our Internet site;
- our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce offerings;
- new Internet sites, services or products introduced by us or our
competitors;
- the level of Internet and other on-line services usage;
- our ability to upgrade and develop our systems and infrastructure
and attract new personnel in a timely and effective manner;
- our ability to successfully integrate operations and technologies
from any acquisitions, joint ventures or other business
combinations or investments; and
- technical difficulties or system downtime affecting the operation
of our website.
eMD.com revenues for the foreseeable future will remain dependent on
user traffic levels, advertising and e-commerce activity on eMD.com and the
level of physician participation. Such future revenues are difficult to
forecast. In addition, we plan to increase our sales and marketing operations,
expand and develop content and upgrade and enhance our technology and
infrastructure development in order to support our growth. Many of the expenses
associated with these activities--for example, personnel costs and technology
and infrastructure costs--are relatively fixed in the short-term. We may be
unable to adjust spending quickly enough to offset any unexpected revenue
shortfall, in which case our results of operations would suffer. However, we
cannot assure you that we will ever achieve profitable operations for eMD.com.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRAND IN ORDER TO ATTRACT
USERS TO OUR NETWORK AND GENERATE ADVERTISING, SPONSORSHIP AND E-COMMERCE
REVENUE.
In order to expand our audience of users and increase our on-line
traffic, we must establish, maintain and strengthen our brand. For us to be
successful in establishing our brand, healthcare consumers must perceive us as a
trusted source of healthcare information, products and services, and
advertisers, merchants and manufacturers must perceive us as an effective
marketing and sales channel for their products and services. We expect that we
will need to increase substantially our marketing budget in our efforts to
establish brand recognition and brand loyalty. Our business could be materially
adversely affected if our marketing efforts are not productive or if we cannot
strengthen our brand.
WE HAVE COMMITTED AND WILL REQUIRE SIGNIFICANT FINANCIAL AND MARKETING
RESOURCES TO EXPAND OUR NETWORK; IF WE ARE UNABLE TO EARN REVENUES IN EXCESS OF
THESE COMMITMENTS, OUR BUSINESS WILL SUFFER.
In order to expand our network, we intend on entering into a number of
strategic partnerships which will involve the payment of significant funds for
prominent or exclusive carriage of our healthcare information and services.
These transactions are premised on the assumption that the traffic we obtain
from these arrangements will permit us to earn revenues in excess of the
payments made to partners. This assumption is not yet proven, and if we are
unsuccessful in generating sufficient resources to offset these expenditures, we
will likely be unable to operate our business.
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IN ORDER TO ATTRACT AND RETAIN OUR AUDIENCE OF USERS, WE MUST PROVIDE
HEALTHCARE CONTENT, TOOLS AND OTHER FEATURES WHICH MEET THE CHANGING DEMANDS OF
THOSE USERS.
One of our fundamental business objectives is for eMD.com to be a
trusted source for healthcare information, products, and services. As with any
form of consumer-oriented media, we have to provide editorial content,
interactive tools and other features that consumers demand in order to continue
to attract and retain our audience of users. We expect that competitive factors
will create a continuing need for us to retain, improve and add to our editorial
content, interactive tools and other features. We will not only have to expend
significant funds and other resources to continue to improve our network, but we
must also properly anticipate and respond to consumer preferences and demands.
Competition for content will likely increase the fees charged by high quality
content providers. The addition of new features will also require that we
continue to improve the technology underlying our website. These requirements
are significant, and we may fail to execute on them quickly and efficiently. If
we fail to expand the breadth of our offerings quickly, or these offerings fail
to achieve market acceptance, our business will suffer significantly.
OUR BUSINESS MODEL RELIES ON INTERNET ADVERTISING AND SPONSORSHIP ACTIVITIES
WHICH MAY NOT BE EFFECTIVE OR PROFITABLE MARKETING MEDIA.
Our future is highly dependent on increased use of the Internet as an
advertising medium. We expect to derive a portion of our revenues from
advertising and sponsorships. The Internet advertising market is new and rapidly
evolving, and we cannot yet predict its effectiveness as compared to traditional
media advertising. As a result, demand and market acceptance for Internet
advertising solutions are uncertain. Most of our current or potential
advertising customers have little or no experience advertising over the Internet
and have allocated only a limited portion of their advertising budgets to
Internet advertising. The adoption of Internet advertising, particularly by
those entities that have historically relied upon traditional media for
advertising, requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. Such customers may
find Internet advertising to be less effective for promoting their products and
services relative to traditional advertising media. We cannot assure you that
the market for Internet advertising will continue to emerge or become
sustainable. If the market for Internet advertising fails to develop or develops
more slowly than we expect, then our ability to generate advertising revenue
would be materially adversely affected.
Various pricing models are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenues. Our advertising revenues could be adversely affected if we are unable
to adapt to new forms of Internet advertising. Moreover, "filter" software
programs are available that limit or prevent advertising from being delivered to
an Internet user's computer. Widespread adoption of this software could
adversely affect the commercial viability of Internet advertising.
In order to execute our growth plan we must attract, retain and
motivate highly skilled employees, and we face significant competition from
other Internet and new media companies in doing so.
In addition, as our market develops, seasonal and cyclical patterns may
emerge. These patterns may affect our revenues. We cannot yet predict to what
extent our operations will prove to be seasonal.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS, MANY OF WHICH ARE SHORT-TERM OR
TERMINABLE, TO GENERATE ADVERTISING AND PROVIDE US WITH CONTENT.
We will depend, on a number of third-party relationships to increase
traffic on eMD.com and thereby generate advertising and other revenues. Outside
parties on which we depend include unrelated website operators that provide
links to eMD.com, providers of healthcare content and the on-line property
representation company which provides us with
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advertising sales services. Many of our arrangements with third-party Internet
sites and other third-party service providers are not exclusive and are
short-term or may be terminated at the convenience of either party. We cannot
assure you that third parties regard our relationship with them as important to
their own respective businesses and operations. They may reassess their
commitment to us at any time in the future and may develop their own competitive
services or products.
We intend to produce only a portion of the healthcare content that will
be found on the eMD.com network. We will rely on third-party organizations that
have the appropriate expertise, technical capability, name recognition,
reputation for integrity, and willingness to syndicate product content for
branding and distribution by others. As health-related content grows on the
Internet, we believe that there will be increasing competition for the best
product suppliers, which may result in a competitor acquiring a key supplier on
an exclusive basis, or in significantly higher content prices. Such an outcome
could make the eMD.com network less attractive or useful for an end user which
could reduce our advertising and e-commerce revenues.
We cannot assure you that we will be able to maintain relationships
with third parties that supply us with content, software or related products or
services that are crucial to our success, or that such content, software,
products or services will be able to sustain any third-party claims or rights
against their use. Also, we cannot assure you that the content, software,
products or services of those companies that provide access or links to our
website will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful product or service offerings or the generation
of significant revenues for us.
WE HAVE RECENTLY EXPERIENCED AND ARE CURRENTLY EXPERIENCING RAPID GROWTH IN
OUR BUSINESS, AND OUR INABILITY TO MANAGE THIS GROWTH COULD HARM OUR BUSINESS.
We have experienced and are currently experiencing a period of
significant growth. This growth has placed, and the future growth we anticipate
in our operations will continue to place, a significant strain on our resources.
As part of this growth, we will have to implement new operational and financial
systems and procedures and controls, expand, train and manage our employee base,
and maintain close coordination among our technical, accounting, finance,
marketing, sales and editorial staffs. If we are unable to manage our growth
effectively, our business, results of operations and financial condition could
be adversely affected.
Several members of our senior management joined us 1999, including
Sharon Allred, Senior Vice President and Timothy S. Heyerdahl, Chief Financial
Officer. These individuals are currently becoming integrated with the other
members of our management team. We cannot assure you that our management team
will be able to work together effectively or successfully manage our growth. We
believe that the successful integration of our management team is critical to
our ability to effectively manage our operations and support our anticipated
future growth.
ANY FUTURE ACQUISITIONS WE MAKE OF COMPANIES OR TECHNOLOGIES MAY RESULT IN
DISRUPTIONS TO OUR BUSINESS AND/OR THE DISTRACTION OF OUR MANAGEMENT, DUE TO
DIFFICULTIES IN ASSIMILATING ACQUIRED PERSONNEL AND OPERATIONS.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we engage in discussions and negotiations with companies regarding our
acquiring or investing in such companies' businesses, products, services or
technologies, and we regularly engage in such discussions and negotiations in
the ordinary course of our business. Some of those discussions contemplate the
other party making an investment in our company. However, no assurance can be
given in this regard. We cannot assure you that we will be able to identify
future suitable acquisition or investment candidates, or if we do identify
suitable candidates, that we will be able to make such acquisitions or
investments on commercially acceptable terms or at all. If we acquire or invest
in another company, we could have difficulty in assimilating that company's
personnel, operations, technology and software. In addition, the key personnel
of the acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in integrating the acquired products,
services or technologies
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into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations. Furthermore, we may incur indebtedness or
issue equity securities to pay for any future acquisitions. The issuance of
equity securities would be dilutive to our existing stockholders. As of the date
of this prospectus, we have no agreement to enter into any material investment
or acquisition transaction.
IF OUR ABILITY TO EXPAND OUR NETWORK INFRASTRUCTURE IS CONSTRAINED IN ANY
WAY WE COULD LOSE CUSTOMERS AND SUFFER DAMAGE TO OUR OPERATING RESULTS.
Presently, our website is not yet operational. We must continue to
expand and adapt our network infrastructure to accommodate additional users,
increase transaction volumes and changing consumer and customer requirements. We
may not be able to accurately project the rate or timing of increases, if any,
in the use of our website or to expand and upgrade our systems and
infrastructure to accommodate such increases. Our systems may not accommodate
increased use while maintaining acceptable overall performance. Service lapses
could cause our users to instead use the on-line services of our competitors.
WE MAY HAVE LIABILITY FOR INFORMATION WE PROVIDE ON OUR WEBSITE OR WHICH IS
ACCESSED FROM OUR WEBSITE.
Because users of our website access health content and services
relating to a condition they may have or may distribute our content to others,
third parties may sue us for defamation, negligence, copyright or trademark
infringement, personal injury or other matters. We could also become liable if
confidential information is disclosed inappropriately. These types of claims
have been brought, sometimes successfully, against on-line services in the past.
Others could also sue us for the content and services that are accessible from
our website through links to other websites or through content and materials
that may be posted by our users in chat rooms or bulletin boards. While our
agreements, including those with content providers, in some cases provide that
we will be indemnified against such liabilities, such indemnification, if
available, may not be adequate. Our insurance may not adequately protect us
against these types of claims. Further, our business is based on establishing
the eMD.com network as a trustworthy and dependable provider of healthcare
information and services. Allegations of impropriety, even if unfounded, could
therefore have a material adverse effect on our reputation and our business.
ANY FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD
ADVERSELY AFFECT OUR ABILITY TO ESTABLISH OUR BRAND.
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
Federal registrations are pending for eMD.com as well as other service and
trademarks. If we lose our right to use the eMD.com name, we would be forced to
change our corporate name and adopt a new domain name. These changes could
confuse current and potential customers and would adversely impact our business.
We also rely on a variety of technologies that are licensed from third parties,
including our database and internet server software, which is used in the
eMD.com website to perform key functions. These third-party licenses may not be
available to us on commercially reasonable terms in the future.
YEAR 2000 PROBLEMS MAY DISRUPT OUR OPERATIONS WHICH COULD RESULT IN LOST
REVENUES AND INCREASED OPERATING COSTS.
Because our business depends on computer software, we have begun to
assess the Year 2000 readiness of our systems. We are also in the process of
contacting certain third-party vendors, licensors and providers of hardware,
software and services regarding their Year 2000 readiness. Following our Year
2000 assessment and after contacting these third parties, we will be able to
make a final evaluation of our state of readiness, potential risks and costs,
and to determine to what extent a contingency plan is necessary. Third-party
software, hardware or services incorporated into
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our systems may need to be revised or replaced, which could be time consuming
and expensive, potentially resulting in lost revenues and increased costs for
us. For a preliminary evaluation of the potential impact of these Year
2000-related issues on us, please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of the Year 2000."
OUR BUSINESS MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN
TO US WHICH COULD CAUSE OUR BUSINESS TO SUFFER.
In addition to the risks specifically identified in this Risk Factors
section or elsewhere in this prospectus, we may face additional risks and
uncertainties not presently known to us or that we currently deem immaterial
which ultimately impair our business, results of operations and financial
condition.
RISKS RELATED TO OUR INDUSTRY
CONSUMERS AND THE HEALTHCARE INDUSTRY MUST ACCEPT THE INTERNET AS A SOURCE
OF HEALTHCARE CONTENT AND SERVICES FOR OUR BUSINESS MODEL TO BE SUCCESSFUL.
To be successful, we must attract to our network a significant number of
consumers as well as other participants in the healthcare industry. To date,
consumers have generally looked to healthcare professionals as their principal
source for health and wellness information. Our business model assumes that both
physicians and consumers will use healthcare information and purchase goods and
services, including prescriptions drugs available on our network, that consumers
will access important healthcare needs through electronic commerce using our
website, and that local healthcare organizations will affiliate with us. This
business model is not yet proven, and if we are unable to successfully implement
our business model, our business will be materially adversely affected.
THE INTERNET INDUSTRY IS HIGHLY COMPETITIVE AND CHANGING RAPIDLY, AND
WE MAY NOT HAVE THE RESOURCES TO COMPETE ADEQUATELY.
The number of Internet websites offering users healthcare content,
products and services is vast and increasing at a rapid rate. These companies
compete with us for users, advertisers, e-commerce transactions and other
sources of on-line revenue. In addition, traditional media and healthcare
providers compete for consumers' attention both through traditional means as
well as through new Internet initiatives. We believe that competition for
healthcare consumers will continue to increase as the Internet develops as a
communication and commercial medium.
We compete directly for users, advertisers, e-commerce merchants,
syndication partners and other affiliates with numerous Internet and
non-Internet businesses, including:
- health-related on-line services or websites targeted at
consumers, such as accesshealth.com, ahn.com,
betterhealth.com, drkoop.com, drweil.com, healthcentral.com,
healthgate.com, intelihealth.com, mayohealth.org;
mediconsult.com, onhealth.com, thriveonline.com and
webmd.com;
- on-line and Internet portal companies, such as America
Online, Inc.; Microsoft Network; Yahoo! Inc.; Excite, Inc.;
Lycos Corporation and Infoseek Corporation;
- electronic merchants and conventional retailers that provide
healthcare goods and services competitive to those available
from links on our website;
- hospitals, HMOs, managed care organizations, insurance
companies and other healthcare providers and payors which
offer healthcare information through the Internet; and
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- other consumer affinity groups, such as the American
Association of Retired Persons, SeniorNet and ThirdAge
Media, Inc. which offer healthcare-related content to
specific demographic groups.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to our company, including:
- the ability to offer a wider array of on-line products and
services;
- larger production and technical staffs;
- greater name recognition and larger marketing budgets and
resources;
- larger customer and user bases; and
- substantially greater financial, technical and other
resources.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products and services, as well as our
sales and marketing channels. Increased competition could result in a loss of
our market share or a reduction in our prices or margins. Competition is likely
to increase significantly as new companies enter the market and current
competitors expand their services.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION RELATING TO THE
INTERNET WHICH COULD IMPAIR OUR OPERATIONS.
Because of the increasing use of the Internet as a communication and
commercial medium, the government has adopted and may adopt additional laws and
regulations with respect to the Internet covering such areas as user privacy,
pricing, content, taxation, copyright protection, distribution and
characteristics and quality of production and services.
Since we operate a healthcare network over the Internet, our business
is subject to government regulation specifically relating to medical devices,
the practice of medicine and pharmacology, healthcare regulation, insurance and
other matters unique to the healthcare area.
Laws and regulations have been or may be adopted with respect to the
provision of healthcare-related products and services on-line, covering areas
such as:
- the regulation of medical devices;
- the practice of medicine and pharmacology and the sale of
controlled products such as pharmaceuticals on-line;
- the regulation of government and third-party cost
reimbursement; and
- the regulation of insurance sales.
FDA REGULATION OF MEDICAL DEVICES. Some computer applications and
software are considered medical devices and are subject to regulation by the
United States Food and Drug Administration. We do not believe that our current
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<PAGE> 22
applications or services will be regulated by the FDA; however, our applications
and services may become subject to FDA regulation. Additionally, we may expand
our application and service offerings into areas that subject us to FDA
regulation. We have no experience in complying with FDA regulations. We believe
that complying with FDA regulations would be time consuming, burdensome and
expensive and could delay or prevent our introduction of new applications or
services.
REGULATION OF THE PRACTICE OF MEDICINE AND PHARMACOLOGY. The practice
of medicine and pharmacology requires licensing under applicable state law. We
have endeavored to structure our website and affiliate relationships to avoid
violation of state licensing requirements, but a state regulatory authority may
at some point allege that some portion of our business violates these statutes.
Any such allegation could result in a material adverse effect on our business.
Further, any liability based on a determination that we engaged in the practice
of medicine without a license may be excluded from coverage under the terms of
our current general liability insurance policy.
FEDERAL AND STATE HEALTHCARE REGULATION. We earn a service fee when
users on our website purchase prescription pharmacy products from certain of our
e-commerce partners. The fee is not based on the value of the sales
transaction. Federal and state "anti-kickback" laws prohibit granting or
receiving referral fees in connection with sales of pharmacy products that are
reimbursable under federal Medicare and Medicaid programs and other
reimbursement programs. Although there is uncertainty regarding the
applicability of these regulations to our e-commerce revenue strategy, we
believe that the service fees we receive from our e-commerce partners are for
the primary purpose of marketing and do not constitute payments that would
violate federal or state "anti-kickback" laws. However, if our program were
deemed to be inconsistent with federal or state law, we could face criminal or
civil penalties. Further, we would be required either not to accept any
transactions which are subject to reimbursement under federal or state
healthcare programs or to restructure our compensation to comply with any
applicable anti-kickback laws or regulations. In addition, similar laws in
several states apply not only to government reimbursement but also to
reimbursement by private insurers. If our activities were deemed to violate any
of these laws or regulations, it could cause a material adverse affect on our
business, results of operations and financial condition.
STATE INSURANCE REGULATION. In addition, we market insurance on-line,
offered by unrelated third parties, and receive referral fees from those
providers in connection with this activity. The use of the Internet in the
marketing of insurance products is a relatively new practice. It is not clear
whether or to what extent state insurance licensing laws apply to our
activities. If we were required to comply with such licensing laws, compliance
could be costly or not possible. This could have a material adverse effect on
our business.
THERE IS NO ESTABLISHED MARKET FOR THE CONSUMER HEALTHCARE E-COMMERCE
TRANSACTIONS WE FACILITATE.
We plan to develop relationships with retailers, manufacturers and
other providers to offer healthcare products and services through direct links
from our website to their website. Such a strategy involves numerous risks and
uncertainties. There is no established business model for the sale of healthcare
products or services over the Internet. Accordingly, we have limited experience
in the sale of products and services on-line and the development of
relationships with retailers, manufacturers or other providers of such products
and services, and we cannot predict the rate at which consumers will elect to
engage in this form of commerce or the compensation that we will receive for
enabling these transactions.
Consumers may sue us if any of the products or services that are sold
through our website are defective, fail to perform properly or injure the user,
even if such goods and services are provided by unrelated third parties. Some of
our agreements with manufacturers, retailers and other providers contain
provisions intended to limit our exposure to liability claims. These limitations
may not however prevent all potential claims, and our insurance may not
adequately protect us from these types of claims. Liability claims could require
us to spend significant time and money in litigation or to pay
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<PAGE> 23
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
INTERNET CAPACITY CONSTRAINTS MAY IMPAIR THE ABILITY OF CONSUMERS TO
ACCESS OUR WEBSITE, WHICH COULD HINDER OUR ABILITY TO GENERATE ADVERTISING
REVENUE.
Our success will depend, in large part, upon a robust communications
industry and infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial medium because of:
- inadequate development of the necessary infrastructure such
as a reliable network backbone;
- timely development of complementary products such as high
speed modems;
- delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet
activity; or
- increased government regulation.
If the Internet continues to experience significant growth in the
number of users and the level of use, then the Internet infrastructure may not
be able to continue to support the demands placed on it.
OUR BUSINESS IS DEPENDENT ON THE CONTINUOUS, RELIABLE AND SECURE
OPERATION OF OUR WEBSITE AND RELATED TOOLS AND FUNCTIONS WE PROVIDE.
We rely on the Internet and, accordingly, depend upon the continuous,
reliable and secure operation of Internet servers and related hardware and
software. Recently, several large Internet commerce companies have suffered
highly publicized system failures which resulted in adverse reactions to their
stock prices, significant negative publicity and, in certain instances,
litigation. We have also suffered service outages from time to time, although to
date none of these interruptions has materially adversely effected our business
operations or financial condition. To the extent that our service is
interrupted, our users will be inconvenienced, our commercial customers will
suffer from a loss in advertising or transaction delivery and our reputation may
be diminished. Some of these outcomes could directly result in a reduction in
our stock price, significant negative publicity and litigation. Our computer and
communications hardware are protected through physical and software safeguards.
However, they are still vulnerable to fire, storm, flood, power loss,
telecommunications failures, physical or software break-ins and similar events.
We do not have full redundancy for all of our computer and telecommunications
facilities and do not maintain a back-up data facility. Our business
interruption insurance may be inadequate to protect us in the event of a
catastrophe. We also depend upon third parties to provide potential users with
web browsers and Internet and on-line services necessary for access to our
website. In the past, our users have occasionally experienced difficulties with
Internet and other on-line services due to system failures, including failures
unrelated to our systems. Any sustained disruption in Internet access provided
by third parties could adversely impact our business.
We retain confidential customer information in our database. Therefore,
it is critical that our facilities and infrastructure remain secure and are
perceived by consumers to be secure. Despite the implementation of security
measures, our infrastructure may be vulnerable to physical break-ins, computer
viruses, programming errors or similar disruptive problems. A material security
breach could damage our reputation or result in liability to us.
RISKS RELATED TO THIS OFFERING
INVESTORS WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT REGARDING THE
USE OF PROCEEDS FROM THIS OFFERING.
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<PAGE> 24
Our management will have broad discretion with respect to the use of
the net proceeds from this offering, and investors will be relying on the
judgment of our management regarding the application of these proceeds.
Presently, anticipated uses include the funding of operating losses and for
general corporate purposes, of both the Company and eMD.com, including expansion
of our eMD.com network, advertising, brand promotion, content development and
working capital. We do not believe that the net proceeds form this offering will
be adequate to fund our continuing working capital needs. We may also use a
portion of the proceeds for strategic alliances and acquisitions and to repay
debt. We have not yet determined the amount of net proceeds to be used
specifically for each of the foregoing purposes. Please see "Use of Proceeds."
We currently anticipate that our available cash resources combined with
the net proceeds from this offering will not be sufficient to meet our
anticipated working capital and capital expenditure requirements for longer than
three (3) months after the date of this prospectus. We will need to raise
additional funds, however, to respond to business contingencies which may
include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- develop new or enhance existing editorial content, features or
services;
- enhance our operating infrastructure;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
editorial content, features or services, or otherwise respond to competitive
pressures would be significantly limited. Please see "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
Market prices of emerging Internet companies have been highly volatile,
and the market for our stock may exhibit volatility as well.
USE OF PROCEEDS
We plan to use the net proceeds received, if any, from the sale of common
stock upon exercises of redeemable warrants and underwriters' unit warrants for
general corporate purposes and working capital for the company as well and its
majority-owned subsidiary, eMD.com.
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<PAGE> 25
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 September 30, 1999, the net tangible book value (deficit) of the
company was $(661,809) or $(0.10) 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 underwriters' unit warrants are
exercised at $15.00 per unit and all of the redeemable warrants are exercised to
purchase 1,495,000 shares at $6.00 and $7.50 per share, the pro forma net
tangible book value (deficit) per share would increase from $(0.10) to $1.10.
This represents an immediate increase in net tangible book value of $1.20 per
share to current shareholders and an immediate dilution of $4.90 (82%) per share
to investors exercising publicly-traded redeemable warrants and $6.40 (85%) per
share to investors exercising underwriters' redeemable warrants. The following
table illustrates the dilution to holders of publicly-traded warrants:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
<S> <C> <C>
Exercise price per share............................................... $ 6.00 100%
Net tangible book value (deficit) per share before this offering....... (0.10) (2)%
Increase per share attributable to new investors....................... 1.20 20%
Adjusted net tangible book value per share after this offering........ 1.10 18%
--------- ------
Dilution per share to new investors.................................... $ 4.90 82%
========= ======
</TABLE>
However, the dilution experienced by investors who exercise warrants will be
proportionately greater and up to $6.00 per share to the extent that fewer than
all of the warrants are exercised.
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<PAGE> 26
The following table sets forth as of September 30, 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 unit warrants are exercised at $15.00 per
unit and the redeemable warrants are exercised at assumed exercise
prices of $6.00 and $7.50 per share.
<TABLE>
<CAPTION>
AVG. PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
---------------- ------------------- ---------
NUMBER PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Current shareholders................. 6,325,915 80.9% $7,357,888 44.0% $ 1.16
New investors........................ 1,495,000 19.1% 9,262,500 56.0% 6.20
--------- -------- ---------- --------- --------
Total........................... 7,820,915 100.0% $16,620,388 100.0%
========= ======== =========== =========
</TABLE>
- ----------
(1) Does not include an aggregate of 1,672,167 shares of common stock issuable
upon the exercise of: (i) employee and director stock options; (ii) 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; (iii) one warrant to purchase 40,000
shares of common stock at an exercise price of $5.50 per share; and (iv)
174,167 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.
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<PAGE> 27
CAPITALIZATION
The following table sets forth capitalization as of September 30, 1999, and
as adjusted to give effect to sale of all of the 1,495,000 offered shares and
warrants 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.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
AS ADJUSTED
-----------
<S> <C> <C>
Shareholder's equity: common stock, no par value, 50,000,000
shares authorized, 6,325,915 shares issued and
outstanding, 7,820,915 as adjusted (1)(2).................. $ 7,357,888 $16,620,388
Additional paid in capital................................. 1,977,300 1,977,300
Accumulated other comprehensive loss....................... (17,500) (17,500)
Deficit accumulated during the development stage........... (9,979,497) (9,979,497)
----------- -----------
Total shareholder's equity............................. $ (661,809) $ 8,600,691
=========== ===========
</TABLE>
- ----------
(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 758,000 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 174,167 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 758,000 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."
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<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL INFORMATION
BioShield was initially organized in Georgia in June 1995 to research,
develop, and implement the use of the company's antimicrobial and biostatic
products into multiple industries. In April 1999, the company created a new
subsidiary, eMD.com to provide medical managed care solutions to physicians and
consumers over the Internet. This business unit will seek to integrate three
product offerings for providers (point of care medication management, electronic
charting system, and pharmaceutical care services) with a comprehensive
healthcare web site. The company's web site and business unit is currently under
development and operations are currently expected to commence during the end of
the fourth calendar quarter of 1999. The company is a development stage company
engaged primarily in research and development, patent filings, regulatory
approvals and related activities geared towards the sale of products using its
core anti-viral chemical agent in multiple business divisions.
Revenues generated from operations to date have primarily been limited to
test marketing of the company's antimicrobial products in all division areas.
In April, the company successfully processed the initial shipments of its
new OdorFree(TM) product line. This brand will compete in the multi-million
dollar odor elimination packaged goods category. The initial rollout was limited
to the Texas marketplace with shipments made to H. E. Butt Grocery, Grocers
Supply, Albertsons, Kroger and Randalls Food & Drugs during the fourth quarter.
The initial shipment of the company's private label odor elimination product was
also shipped during the quarter to Ingle's Markets.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of quarter ended September 30, 1999 to September 30, 1998
Net sales for the three month period ended September 30, 1999 were
$144,445, an increase of $56,591, or 64% over the same period last year. The
increase was due primarily to the expanded marketing of the OdorFree product
line in the retail markets.
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<PAGE> 29
Gross profit of $53,957 for the quarter ended September 30, 1999
represents 37% of net sales as compared to $54,118, or 62% of net sales, for the
quarter ended September 30, 1998. This decrease was due primarily to the shift
in product mix weighted more toward the retail market, which has a lower profit
margin than the industrial and institutional market.
Marketing and selling expenses were $805,467 for the quarter ended
September 30, 1999, an increase of $691,088 from $114,379 incurred during the
quarter ended September 30, 1998. This increase relates principally to the
rollout of the OdorFree product line. The increase consists of approximately
$400,000 in advertising and promotion activities, as well as $50,000 in slotting
fees for the OdorFree product line. Other cost increases consisted of
investments made in additional staff and the inception of branding promotions
for eMD.com.
Research and development expenses in the quarter ending September 30,
1999 were $633,984, compared to $37,802 during the quarter ending September 30,
1998. This represents an increase of $596,182 and was due primarily to
additional staff and costs associated with new product development as well as
testing and costs associated with EPA filings and registrations of current
products.
General and administrative expenses for the quarter ending September
30, 1999 were $3,023,654, or an increase of $2,763,672 over the same period
ending September 30, 1998. These higher costs were primarily due to (1) an
increase in staff and expenses of approximately $651,000 associated with
building the Company's infrastructure, (2) the start-up and organization costs
of approximately 340,000 directly related the web site development of eMD.com
and (3) expenses in the amount of $1,772,400 recorded pursuant to FAS 123
related to the issuance of common shares of eMD stock to iXL for professional
services rendered and stock warrants in BioShield granted to CLR & Associates
for professional services rendered. Please refer to Note E - Commitments and
Contingencies for additional information related to the accounting treatment.
The company's accounting policy for capitalization of internally developed
software is conservative, and all associated costs related to internal website
development have been expensed in the period incurred.
Interest dividend and income during the quarter ended September 30,
1999 was $61,971 as compared to $818 in the quarter ended September 30, 1998.
The increase was due to larger invested cash balances as a result of the
proceeds from private equity placements in the eMD.com subsidiary.
Interest expense of $16,335 in the quarter ended September 30, 1998
represented interest paid to private note holders who loaned the Company an
aggregate of $450,000. All such monies were repaid from the proceeds of the
initial public offering during the second quarter of 1999. There were no
borrowings, or interest expense incurred for the quarter ending September 30,
1999.
As a result of the reasons set forth above, the Company's operations
generated a net loss of $4,347,177 or ($ 0.69) per common share for the quarter
ending September 30, 1999 compared to a net loss of $373,562 or ($ 0.08) per
common share for the quarter ended September 30, 1998. Cumulative losses from
the inception of the Company to September 30, 1999 totaled $9,996,997 or ($2.12)
per common share.
Comparison of year ended June 30, 1999 to June 30, 1998
Fiscal year 1999 net sales of $305,336 were 34% lower than fiscal year 1998
net sales of $462,471. This decrease was caused primarily by initial shipments
of certain new products to chain store customers during 1998, which created an
initial surge in sales to fill the pipeline in fiscal 1998 and due to the slow
down in certain product sales due to the EPA's interpretation that the labeling
for certain products were outside of prior EPA approvals received. The company
also made initial shipments to certain industrial customers in fiscal 1998. In
fiscal 1999, the company reduced its marketing efforts for certain of the
products, which were sold in fiscal 1998
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<PAGE> 30
in order to analyze the market acceptance of these products and to launch new
products in test markets. The company's objective has been to identify the
proper product mix at retail before launching larger advertising programs to
boost sales.
Gross profit was $116,423 in fiscal year 1999, or 38% of net sales as
compared to $307,813 for fiscal year 1998, which was 67% of net sales. This
decrease was due primarily to the recall and relabeling of certain products as
required by the EPA and to a shift in product mix weighted more toward the
retail market, which traditionally has a lower profit margin than the industrial
market. Gross profit also declined as a result of inventory adjustments recorded
to write-off obsolete product.
Marketing and selling expenses were $780,566 in fiscal year 1999 compared to
$472,945 in fiscal year 1998. This change represents an increase of $307,621 or
39% over fiscal 1998. The increase reflects the investment made in additional
staff and related expenses to support the retail and private label sales program
as well as an increase in advertising and media production costs associated with
the initial phases of the OdorFree(TM) product line rollout.
General and administrative expenses for fiscal 1999 were $2,067,669; a 95%
increase over fiscal 1998 expenses $1,060,417. These higher costs were primarily
due to an increase in staff and expenses associated with building the company's
corporate infrastructure and the start-up and organization costs directly
related to eMD.com Included in eMD.com start-up expenses was approximately
$165,000 related to web site development and $300,000 related to increased
staffing and legal costs of organization.
Research and development expenses in fiscal year 1999 were $717,978 compared
to $231,547 in fiscal 1998. The $486,431 increase was due to additional staff
and costs associated with ongoing projects and testing related to future EPA
filings and applications.
Other income (expense) increased from $(14,833) in fiscal 1998 to $160,174
in fiscal 1999. During fiscal 1999, the company recognized royalty fees of
$75,000 and income from the sale of certain research and development of $16,667.
This income was the result of an exclusive sales and distribution agreement with
a third party entered into during 1998.
Interest and dividend income in fiscal 1999 was $102,134. This represents a
$98,590 increase over fiscal 1998 interest income of $3,544. The increase was
due to a larger invested cash balance as a result of proceeds from the initial
public offering completed in September, 1998.
Interest expense was $16,960 in fiscal year 1999 compared to $18,377 in
fiscal year 1998. The interest expense relates mainly to interest paid to
private note holders who loaned an aggregate of $450,000 to the company in the
third and fourth quarters of 1998. All such notes were repaid from proceeds of
the initial public offering during the second quarter of fiscal 1999.
As a result of the reasons set forth above, the company's operations
generated a net loss of $3,289,616 or ($ 0.57) per common share for the year
ended June 30, 1999 compared to a net loss of $1,471,929 or ($0.33) for the year
ended June 30, 1998. The company's operations have generated a cumulative net
loss from inception to June 30, 1999 of $5,632,320 or ($1.22) per common share.
LIQUIDITY
The Company's cash and cash equivalents totaled $5,074,266 at September
30, 1999 and $2,500,561 at June 30, 1999. The higher cash position is due to the
receipt of net proceeds of $5,458,750 from the sale of 1,284,797 common shares
of eMD.com at a price of $4.67 per share. The placement is to fund the initial
costs of the eMD.com website and was sold under a securities purchase agreement
eMD.com entered into on June 30, 1999. The agreement provides for the sale of up
to 3,218,884 shares of eMD common stock to investors at a price of $4.67 per
share. At September 30, 1999,
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<PAGE> 31
there were 29,670,664 issued and outstanding shares of eMD.com. In addition,
during the quarter the Company entered into an agreement to establish a
revolving equity line credit facility of $6.25 million with private investors
to be funded from the sale of securities by the Company. To date, the Company
has not drawn against it and will be unable to do so until a registration
relating to the sale of shares to fund the equity line credit facility has been
declared by the U.S. Securities and Exchange Commission. The Company believes
that it has sufficient resources to meet its short term operating needs.
However, the Company expects to continue to have a substantial need to
fund operating losses and the purchases of additional capital equipment for an
indefinite period. Accordingly, the Company will be required to obtain
additional capital in the very near future. The development of eMD.com, as well
as commercialization of the parent companies products will require additional
capital in order to successfully launch the site and related business. The
Company is actively seeking to obtain additional funds through public or private
equity or debt funding, strategic collaborative agreements, or from other
sources. The failure to raise the necessary additional capital in the very near
future will cause substantial delay or reduction of the scope of business. No
assurance can be given that either the Company or eMD.com will be successful in
its efforts to obtain additional capital, that capital will be available on
terms acceptable to the Company or eMD.com or on terms that will not
significantly dilute the interests of existing shareholders.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus, the words or phrases "will likely result",
"are expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as to the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements. The Company does not
undertake, and specifically disclaims any obligation, to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
YEAR 2000 ISSUES
Because our business depends on computer software, we have developed
and are implementing a plan to assess the Year 2000 readiness of our systems. We
rely heavily on third-party vendors, licensors and providers of hardware,
software and services. We have requested that these suppliers assure us that
their products are Year 2000 ready. Because our business is new and the
purchases were made long after problems associated with Year 2000 were discussed
and because we generally rely on large established vendors, we believe that
there will be minimal Year 2000 impact on us. There can be no absolute
assurances that the third-party software, hardware or services incorporated into
our systems will function fully, however, and some may need to be revised or
replaced, which could be time consuming and expensive, potentially resulting in
lost revenues and increased costs for the Company.
MANAGEMENT CHANGES
During the month of August 1999, two key employees left the Company.
Dr. Joachim Berkner, the company's Director of Research and Development, Organic
Chemistry, resigned to take a position with another company. The Company is
actively seeking a replacement for Dr. Berkner. Jeffrey A. Parker, the company's
Chief Operating Officer and Vice President of Marketing and Sales, also resigned
and his duties have been distributed to others. The Company also reached an
agreement with Mr. Parker which allows him to exercise certain of his options
and also continues his salary and benefits through December 31, 1999.
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<PAGE> 32
SUBSEQUENT EVENTS
In addition to its development and marketing of proprietary
antimicrobials, the Company is engaged in the sale and distribution of cleaning
and deodorizing products in the retail and industrial segments. These products
are exempt from regulation as "pesticides" under the Federal Insecticide,
Fungicide and Rodenticide Act, as amended ("FIFRA"). Like many other companies
engaged in the sale of these products, the Company has experienced regulatory
scrutiny from the United States Environmental Protection Agency ("EPA"), which
implements federal regulations under FIFRA regarding the labeling of these
products. The EPA alleged that certain claims on the labels were inappropriate
for these products in the absence of an EPA pesticide registration and required
the Company to revise the labels to remove alleged pesticidal claims. While the
Company did not agree with the EPA interpretation that the claims were
pesticidal, the Company voluntarily agreed to revise the labels for these
products. The EPA then authorized the sale of the products with the revised
labels. On September 27, 1999, the EPA filed an administrative complaint against
the Company seeking the assessment of a civil penalty in the amount of $97,340
relating to these alleged violations as well as an allegation that the Company
refused an EPA inspection in 1998. The Company maintains that these allegations
are without merit. However, in a demonstration of good faith and cooperation,
the Company, while denying the alleged violations, agreed to the payment of a
substantially reduced penalty on October 30, 1999 in the amount of $72,840. The
company had previously accrued for the potential penalty in fiscal 1999.
In the month of October 1999, the company continued to develop its
eMD.com business infrastructure. Significant contractual payment commitments of
approximately $4,000,000 have been made by the company to several equipment,
software and consulting business partners to complete the initial versions of
the internet products by December 1999. Total cash payment commitments of
approximately $3,000,000 are due by the end of December 1999. We are
currently seeking to raise additional capital to meet these commitments and to
fund operational deficits that are anticipated throughout the early operational
stages of the eMD.com strategy. No assurances can be given that we will be
successful in raising additional capital.
RECENTLY ISSUED ACCOUNTING STANDARDS
Recently Adopted Pronouncements
The company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, for its fiscal year ended June 30, 1999.
The statement establishes standards for reporting and presentation of
comprehensive earnings and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. The statement requires
retroactive application for all periods presented in the financial statements.
The adoption of SFAS No. 130 did not have a material effect on the company's
results of operations or its financial position.
The company adopted Statement of Financial Accounting Standards (SFAS) No.
131, Disclosure About Segments of An Enterprise and Related Information, for its
fiscal year ended June 30, 1999. SFAS No. 131 establishes standards for the way
in which information about operating segments is reported. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not have
a material effect on the company's results of operations or its financial
position.
During 1999, the company adopted Statement of Positions (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, which requires certain costs incurred in connection with developing or
obtaining internal-use software to be capitalized and other costs to be
expensed. During 1999, the company expensed $166,000 related to the development
of internet software.
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Recently Issued Pronouncements
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee (AcSEC) issued Statement of Position
No. SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
establishes standards on accounting for start-up and organization costs and, in
general, requires such costs to be expensed as incurred. This standard is
required to be adopted on July 1, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which must be adopted by July 1,
1999, with early adoption permitted. SFAS No. 133 requires that all derivative
financial instruments be recorded as either assets or liabilities on the balance
sheet and measure those instruments at their fair value. Changes in the fair
value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative as part of a hedge
transaction and, if it is, the type of hedge transactions.
The adoption of these two pronouncements is not expected to have a material
effect on the company's results of operations or financial position.
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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 currently operate in two distinct
business segments, antimicrobial and biostatic products for use within the
retail, industrial and institutional markets through BioShield and
pharmaceutical healthcare via the Internet through eMD.com.
BIOSHIELD
The company is engaged in the development, marketing, and sale of
surface modifying antimicrobials and biostatic products sold primarily through
third party licensing arrangements. Our primary focus in this area 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-inflammation, 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 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, several 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.
On April 7, 1999, we created a subsidiary to develop electronic
commerce via the Internet. The subsidiary, currently named Electronic Medical
Distribution, Inc. (emd.com), has not as yet commenced operations and from its
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formation to date has been in the development stage, which means that its
primary focus has been organizational activities, raising capital, regulatory
approvals, research and development, and further investigation into new markets.
EMD.COM
eMD.com's goal is to provide an Internet-based point of care medication
management service to providers that will allow it to capture the patient and
their prescription during the encounter with the physician. This provider
service will be integrated with our fulfillment services such that the
prescription will be "in the mail" when the patient leaves the provider's
office; requiring no further action by the patient. Additionally, we will
integrate a medical call center service that will seek to manage the
patient's use of their prescription medication. Our solution will be rounded out
with a healthcare Web site that offers health information and services to the
patient and the provider. All the information gathered throughout our solution
will be captured and made generally available to both the provider and the
patient.
Our ultimate goal is to be the largest provider of information,
services and products (prescription drugs, OTC medications, nutraceuticals, and
ancillary medical supplies) for consumers with chronic medical conditions and
their providers. We will seek to achieve this goal by building chronic
condition-specific Internet solutions that exceed the needs of target customer
segments. No assurances can be given that we will be successful in implementing
one or more of these products and services.
Initially, our focus will be on allergy, asthma, and upper respiratory
conditions in order to lever BioShield's allergy/respiratory knowledge base and
relationships with leading medical experts in these specialties. We will soon
integrate these individual chronic condition solutions into a comprehensive
health offering that creates scale advantages in systems, infrastructure and
contractual relationships. Underlying our consumer Web site will be a
personalization capability that will allow us to tailor our solution to the
unique needs of each individual.
eMD.com will seek to distinguish itself from other healthcare sites by
simultaneously providing consumers with access to content, community, and
commerce areas that specifically target the needs of people who deal with
chronic medical conditions. Peer reviewed content from reputable sources will be
provided to ensure that a high level of quality content is included on the site.
This content will be consistently maintained and updated to guarantee that the
site is the most current and comprehensive source for condition-specific
information. Community areas will provide consumers with the ability to interact
with other sufferers and experts in the field to learn more about managing their
medical conditions. Through targeted e-commerce offerings, the site will also
provide access to products and services that will seek to help consumers more
effectively cope with their health issues.
eMD.com will seek to generate revenue from several key sources:
- Prescription sales through the point of care medication management
service and the healthcare Web site
- Sales of OTC, nutraceutical, and ancillary products and services on
the healthcare Web site
- Advertising and sponsorships on the healthcare Web site
- Data mining
- Subscriptions from the online doctor service (to be offered free
initially and as a subscription service later)
The bulk of revenues will be driven by sales of pharmaceutical products through
the point of care medication management service. Thus, the company's efforts
will focus heavily on recruiting physicians into this network to drive revenues
and profitability. No assurances can be given that we will be successful in
these efforts. The company also expects to generate revenue from the healthcare
Web site and will focus on promoting the site heavily to increase awareness,
drive traffic, enroll subscribers, and increase sales.
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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 antimicrostatic 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 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 certain
applications for patents with the United States Patent and Trademark Office with
respect to its proprietary technology. To date, it has had one patent issued.
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 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 provides 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 company's 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 everyday cleaning is to remove visible soil and
invisible organisms from surfaces. Beginning shortly after the disinfection and
sanitation step, new bacteria and other microorganisms 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
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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 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 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 use the BioShield technology include surface-borne and air-borne products
which remove or eliminate certain allergens which may cause respiratory
discomfort or asthma, a number of 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, 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 variety of disposable products as the treated surface continues to kill
microorganisms for the life of the product.
REVENUE MODEL
OVERVIEW
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 for the lifetime of the treated
article. The original system has found many applications over the years, and
extensive data has been collected regarding the safety, application
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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. On
September 21, 1999, we were granted our first patent - number 5,954,869 - for
water-stable organosilane compounds, products, and compositions for treating
various substrates, articles treated with the compounds, products, and
compositions, and methods of treatment using the compounds, products, and
compositions.
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 that is more heat stable renders the entire system more heat 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.
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MARKETING AND SALES FOR BIOSHIELD
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 sale 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.
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MARKETING AND SALES FOR EMD.COM
The eMD.com sales organization will be focused on recruiting physicians
into the eMD.com network. Sales will also focus on strategic alliances and
business partner relationships that create additional content and revenue value.
The sales organization will initially consist of four major functions:
- Field Support - responsible for implementation, training, and
maintaining the point of care medication management services for
eMD.com network physicians.
- Inside Sales - responsible for making outbound calls to physicians.
- Outside Sales - responsible for making sales calls to physicians.
- Special Unit - responsible for handling specialized sales tasks on
an ad-hoc basis and for working to identify and recruit potential
strategic alliances and business partners interested in increasing
revenue and content to the point of care medication management
service.
PRODUCT MARKET SEGMENTS FOR EMD.COM
PATIENT CHARTING
As a natural extension of the development of the prescription drug
record and of the eMD.com-provider relationship, the company has an opportunity
to migrate into offering a limited web-based patient charting capability for
physicians. By focusing initially on provider types and prescription
information, eMD.com hopes in the future to be able to design a path to a
complete chart that adds value from day one. The company currently anticipates
that patient charting will be available in 2000.
As an integral part of this service, eMD.com will seek to provide a
mechanism for physicians to chart the patient encounter and capture related
medical information electronically. Drug information will automatically be
entered into the system when drugs are prescribed using the eMD.com point of
care medication management service. In addition, with a web based architecture
we will seek to store the chart at the eMD.com Data Center. Certain electronic
based information can be included in the eMD.com medical records for both the
patient and their physicians subject to applicable law.
Recognizing the patient and provider concerns regarding
confidentiality, the system designed or selected will seek to incorporate
encryption and security to ensure confidential operations and will seek to
adhere to HIPPA guidelines.
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PHARMACEUTICAL CARE SERVICES
eMD.com will offer pharmaceutical care services for the patient's of
providers and insurance companies choosing to utilize this service. Initially,
the pharmaceutical care services will be focused on prescription medications,
we currently anticipate that usage, side effects, reactions, etc.
Typically, providers of pharmaceutical care services will need to
demonstrate a track record of improved outcomes to obtain reimbursement from a
payor. Based on the performance of other medical call centers, it will take a
minimum of at least 12 months or more before a successful track record can be
demonstrated and reimbursement can be obtained. The exact timing of this
reimbursement approval process cannot be predicted.
CONDITION-SPECIFIC CONSUMER WEB SITE
eMD.com is developing an Internet solution for consumers suffering
from specific disease conditions or caregivers wanting information to better
care for those sufferers. Our Web site will have "sub Web sites" that provide a
consumer with a specific condition with disease specific information. We will
start with "sub Web sites" focused on allergy, asthma, upper respiratory
conditions. We will continue to develop new sub Web sites dedicated to the
needs of target consumer segments as physician acceptance of our solution
grows. We anticipate adding at least one "sub Web site" periodically, focusing
on conditions requiring expensive chronic medications, involving large
populations, and not covered well by other sites.
Each sub Web site will seek to provide high quality information, a
community of like interests and needs, an online store for purchasing products
and services specifically relevant to the condition, and a record of purchasing
patterns (password protected). Products are expected to include prescription
drugs, OTC medications, nutraceuticals, and home/life support products and
devices (i.e., disinfectants, allergy pillows, etc.) The company believes that
this approach will differentiate eMD.com by providing more depth than other
online sites and creating a holistic solution for consumers wanting to focus on
a specific disease condition. In addition, we believe that our solution will
use strong personalization capabilities and deep healthcare knowledge to tailor
each sub Web site to meet the complete healthcare needs of the individual
consumer.
POINT OF CARE MEDICATION MANAGEMENT
The company believes that its Internet-based point of care medication
management service, provided free of charge, will enhance the prescribing
process by
- eliminating handwritten prescriptions,
- performing real-time drug interaction and allergy reviews to confirm
the patient can more safely take the medication prescribed, and
- validating the medication approved for reimbursement by the
patient's insurance plan.
The database underlying this system will seek to capture and retain the
prescribing history for each patient, and when our fulfillment services are
used, will maintain a compliance record for each therapy prescribed. The ready
access to information during the prescribing process reduces the time physicians
spend clarifying and changing prescriptions and enables them to better manage
financial risk. The follow up on refill patterns is anticipated to improve the
patient's ability to be compliant and will allow the provider greater
information to understand and influence their compliance.
The Company believes that the point of care medication management
solution also has the potential to provide the physician's patient with a new
level of convenience. If desired by the patient, the system will link with the
eMD.com fulfillment center to direct
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ship the patient's medication to their home. A three-day supply of medication
may be provided from the physician's office until their mail order medication
arrives. Insurance interfacing will be done through the eMD.com point of care
medication management system, including patient eligibility verification and
product formulary match.
The Company believes that these features of the point of care
medication management service may create significant benefit for patients who
receive medication at the physician's office and who wish to receive the balance
of their medication with no further action on their part. Refills can
automatically be provided as their prescription is used or the patient can place
a refill request through the consumer Web site. The system will also be able to
print or email a prescription for the patient to deliver to a pharmacy of their
choice subject to applicable law.
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PRODUCTS MARKET SEGMENT FOR BIOSHIELD
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 eliminator products represent a retail market value in supermarkets
alone of over $l.5 billion per year.
To capitalize on this opportunity, the company is aggressively seeking
to acquire additional retail product lines with the mass food and drug
categories and is also developing a network of manufacturers' representative
firms to assist in the marketing of its own retail products as well as all brand
additions acquired from future acquisition of existing consumer brands. The
company has made no such acquisition to date.
The company is also currently marketing its unique odor eliminator
products primarily under the OdorFree(TM) brand in most outlets and under the
DuraLast(TM) brand within selected channels and outlets. New consumer products
are being developed for use in virtually all mass-market channels and outlets.
In April 1999, the company began shipping its OdorFree(TM) product, an
odor eliminator and fabric refresher, into its initial test markets within
Texas. OdorFree(TM) products are now available in all major Supermarket
customers in Texas, Oklahoma and Louisiana. In addition, OdorFree(TM) products
are available in Kmart Stores in most of Texas.
The company is aggressively pursuing the opportunity to provide a
private label fabric refresher to selected retailer customers. Private label
fabric refresher produced by the company is currently available in over 1000
outlets operated by two customers, Ingle's Supermarkets and the A&P Company.
Product testing and introductory discussions are currently underway with a
number of other North American food retailers.
The company will initially be required to expend a significant
percentage of revenues from these retail outlets towards slotting fees and trade
promotions. The creative plan that is now being executed features a digitally
animated television commercial message supporting the OdorFree(TM) product. The
advertising plan incorporates both cable and local spot television as well as
in-store trade promotion to give the product added value.
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
company does not anticipate generating significant revenues until EPA approval
has been obtained for these products.
The following products have been developed for sale to the industrial
and institutional markets but have not received regulatory approval (see
"Government Regulation"). No assurances can be given that EPA approvals will be
obtained and in what time frame.
BioShield AM500
- molecular bonding additive for formulating institutional and industrial
disinfectants
- molecular bonding additive for formulating sanitizers and
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- microbiocides for use in laundry additives
- additive for carpet treatment products
- 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
- additive for carpet treatment products
- 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
- 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 products
TECHNOLOGY LICENSING ACTIVITIES
The company will seek private label agreements with certain
manufacturers in the janitorial and sanitary supply industry.
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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 registration.
THE ENVIRONMENTAL SERVICES MARKET
The environmental services market describes the treatment of materials
in-place. The company will seek to exploit opportunities in the after-care
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 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 and 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 factors, 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.
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MANUFACTURING
The company currently uses a contractor to manufacture its products.
Should sales warrant increased production, the company may enter into additional
manufacturing relationships or, perhaps, develop its own manufacturing facility.
No decision in this regard has been made as yet.
COMPETITION
ANTIMICROBIAL INDUSTRY. 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 U.S. 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 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 in the antimicrobial
industry will be dependent in large part upon its ability to continually enhance
and improve its products and technologies and to build a trade name 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 upon scientific and
technological superiority, technical support, availability of patent protection,
access to adequate capital, the ability to develop, acquire and market products
sand processes successfully, the ability to obtain further governmental
approvals and the ability to serve the particular needs of commercial customers
with service, products, and trade names. 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.
INTERNET OFFERINGS. We face competition from players pursuing each
individual business model and potentially from some players attempting to
imitate our vertically integrated strategy. eMD.com's competitors fall into
several categories:
- Traditional Healthcare Information Technology Companies (HIT)
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- Healthcare Portals (consumer and professional)
- On-line Retail Players (dot.coms and PBMs)
- Professional Transaction Portals
The traditional HIT segment represents significant competition for eMD.com
because of their existing portfolio of physician solutions and their installed
base of clients. This provides a foundation for expanding into the markets
served by eMD.com. The HIT competitors that pose the greatest threat to eMD.com
are actually comprised of three sub-segments:
- Hospital Information System (HIS) vendors
- Physician Practice Management (PPM) vendors
- Niche ambulatory Electronic Medical Record (EMR) competitors
Many of the competitors are well funded and may, in certain instances,
offer more comprehensive healthcare solutions.
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. On September 21, 1999, we were granted our first patent -
number 5,954,869 - for water-stable organosilane compounds, products, and
compositions for treating various substrates, articles treated with the
compounds, products and compositions, and methods of treatment using the
compounds, products, and 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.
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 certain antimicrobial products may
infringe certain claims of their Emory application patent and/or foreign
counterparts thereof.
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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 has currently received one U.S. Patent and one foreign
patent covering its core technology of water soluble organosilane antimicrobial
compounds. 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.
The company filed trademark applications for Duralast and BioShield
with the United States Patent and Trademark Office and has received a federal
registration for the Duralast trademark. 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. Also, the company has been contacted by a
manufacturer which claims that it owns the BioShield trademark. We are seeking
more information about the use of the BioShield name by this company. Finally,
in October 1999, the company filed a trademark application for eMD.com and logo.
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.
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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 statutes 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - General
information." Also, the reorganization may cause EPA to review and revise its
policies and practices related to the need for registration and the process of
registration for certain products.
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. The company has no current plans to
make any such application to the FDA or to any agency or other governmental
entity for any products for human application.
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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 future applications that may 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.
HEALTHCARE LAWS. The Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions and identifiers, security
and other provisions regarding healthcare issues on the Internet by the end of
the year 2000. It will be necessary for eMD.com's platform and for the
applications that eMD.com provides to be in compliance with the proposed
regulations. The proposed Health Information Modernization and Security Act
would provide for establishing standards and requirements for the electronic
transmission of health information. Both federal and state laws prohibit the
offer, payment or receipt of remuneration to induce referrals to entities
providing healthcare services or goods. Although the applicability of these laws
to eMD.com's services is unclear, a state or federal regulatory agency may
allege that eMD.com's relationship with one or more of its strategic partners
that sponsor eMD.com subscriptions and that deliver healthcare services or goods
violate any of these laws. In the event that this determination is made, eMD.com
could be subjected to fines and other costs and could be required to revise or
terminate that portion of its business. Privacy and confidentiality related
regulation. Internet user privacy has become an issue both in the United States
and abroad. The Federal Trade Commission is considering adopting regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing web sites. Any legislation or regulations of
this nature could affect the way eMD.com conducts its business, especially its
collection or use of personal information, and could harm its business. Numerous
state and federal laws govern the collection, dissemination use and
confidentiality of patient identifiable health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the Health Insurance Portability and
Accountability Act of 1996 mandates the Secretary of the Department of Health
and Human Services to promulgate federal regulations addressing the online
collection, dissemination, use and confidentiality of patient identifiable
health information. The application of these laws to the personal information
eMD.com collects could create potential liability under such laws.
REGULATION OF THE PRACTICE OF MEDICINE. The practice of medicine
requires licensing under applicable state law. eMD.com attempted to structure
its web site and strategic relationships to avoid violating state licensing
requirements. A state regulatory authority may, however, allege that some
portion of eMD.com's business violates these statutes and seek to have us
discontinue those portions or cause us to suffer financial damage. Further,
eMD.com's insurance may not cover any liability based on a determination that we
engaged in the practice of medicine without a license.
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INTERNET LAWS. There are currently few laws or regulations that
specifically regulate communications or commerce on the Internet. However, laws
and regulations may be adopted in the future that address issues such as online
content, user privacy, pricing and quality of products and services. For
example, local exchange carriers have petitioned the Federal Communications
Commission to regulate Internet service providers and online service providers
in a manner similar to long distance telephone carriers. The local exchange
carriers want the Federal Communications Commission to impose access fees on
those providers because the growing popularity and use of the Internet has
burdened the existing telecommunications infrastructure. In addition, it may
take years to determine the extent to which existing laws governing issues such
as property ownership, libel, negligence and personal privacy are applicable to
the Internet. The requirement that eMD.com comply with any new legislation or
regulation, or any unanticipated application or interpretation of existing laws,
could harm eMD.com's business. The tax treatment of the Internet and e-commerce
is currently unsettled. A number of proposals have been made at the federal,
state and local level and by certain foreign governments that could impose taxes
on the sale of goods and services and certain other Internet activities. A
recently passed law places a temporary moratorium on certain types of taxation
on Internet commerce. eMD.com cannot predict the effect of current attempts to
tax or regulate commerce over the Internet. Any legislation that substantially
impairs the growth of e-commerce could harm eMD.com's business.
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, bacteriostatic and fungistatic 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 has also requested EPA approval for three products with the
same active ingredient as AM500. These products are water-based products and are
called BST RTU Concentrate C15, BST RTU 75 and BST RTU 50. These products
provide bacteriostatic and fungistatic protection to substrates noted above.
The company has submitted, for EPA registration, its concentrated
active ingredient, AMS 1860. This active ingredient is highly concentrated and
is solvent based. It can be used to formulate microbiostatic agents and will be
the company's own source of active ingredient for formulated BioShield products.
It will be manufactured by the company and eliminate the need to obtain this
active ingredient from other registered sources.
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.
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The company believes AM36.OI and AM3651 are unique products. Whereas both are
formulations of the silane-integrated system, neither product is water based.
However, AM36.OI and AM3651P provide stable aqueous solutions.
The intended use to be included in the application for AM36.OI is to give a
surface durable microbiostatic treatment. 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.
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, 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, concrete materials,
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.
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RESEARCH AND DEVELOPMENT
Until his resignation in August 1999, research and development activities
were performed principally by Dr. Joachim Berkner who was Director of Research
and Development, Organic Chemistry, for the company. The company is actively
seeking a successor for Dr. Berkner. Researchers employed by the company and
certain of the company's strategic partners continue limited research and
development activities.
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.
Subject to adequate funding, future development efforts are currently
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 range 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, 1998, and 1999, the company incurred
expenses of approximately $232,000 and $718,000, 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.
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 harvested
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's 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.
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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.
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
recognition is affected by the surface of the implant. Silane treatment of
implants changes the surface of the implant. The treatment can 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.
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. OdorFree(TM) is a new odor eliminator product
that was recently developed which does not require regulatory approval. The
product incorporates one of BioShield's proprietary chemical additives and is
available for household use on upholstery, rugs and clothing. Odorfree(TM) is
effective in eliminating odors, which include odors associated with food,
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cigarette smoke, tobacco and fire smoke; mold or mildew (musty), certain human
body odors (on fabrics) and garbage odors, among others. Odorfree(TM) is
available in regular and extra strength. OdorFree(TM) has been clinically tested
and is hypoallergenic.
PROPERTY
In July 1999, the company entered into a contract to lease 55,300
square feet in a free standing building in a high-tech executive office park.
The facility is located at 5655 Peachtree Parkway, Atlanta, Georgia. This
building contains offices, meeting rooms, computer facilities and an area for a
pharmacy. The executive officers and staff of the Company and eMD.com have moved
into the facility. The company believes that these facilities are adequate for
its present and anticipated needs.
The Company also maintains sales, marketing and research offices 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 a biological storage area. [In addition, the
company currently leases a 5,000 square foot manufacturing facility in Lithonia,
Georgia, for the production and storage of the company's active antimicrobial
agent.]
EMPLOYEES
The company and its subsidiary on November 1, 1999, had forty-eight
full-time equivalent employees.
LEGAL PROCEEDINGS
The company is not a party to any material legal proceedings.
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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:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Timothy C. Moses 43 Co-Chairman of the Board, Chief Executive Officer
and Director
Jacques Elfersy 50 Co-Chairman of the Board, Senior Vice President,
Secretary, Treasurer and Director
Timothy S. Heyerdahl 38 Executive Vice President and Chief Financial Officer
Carl T. Garner 51 Director
Michel Azran 54 Director
</TABLE>
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<PAGE> 57
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 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.
Timothy S. Heyerdahl was hired in October 1999 as Executive Vice President
and Chief Financial Officer of the company. For the prior eleven years Mr.
Heyerdahl held a number of positions with HBO & Company, most recently as Senior
Vice President of Finance and Treasury. His responsibilities included mergers
and acquisitions, treasury management, strategic budgeting and forecasting and
facility management. Prior to joining HBOC Mr. Heyerdahl spent five years with
Hattori Seiko Corporation. He received his BA degree in Business Administration
from Indiana University. Mr. Heyerdahl is a Certified Public Accountant.
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<PAGE> 58
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 1999 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.
The company maintains an audit committee that consists of its two
independent directors, Michel M. Azran and Carl T. Garner. Messrs. Azran and
Garner are also member of the Board's Compensation Committee, which administers
the stock option and incentive plans as well as other executive compensation
matters. 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.
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<PAGE> 59
EXECUTIVE COMPENSATION
The following table sets forth for the three years ended June 30, 1999,
compensation paid by the company to its Co-Chairman of the Board, Chief
Executive Officer, and Director, and Mr. Elfersy, its Co-Chairman of the Board,
Senior Vice President, Secretary, Treasurer and Director. Mr. Heyerdahl joined
the company in October 1999. 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, 1999, 1998 or 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------- -------------------------------------
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- ------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Timothy C. Moses, 1999 $140,000 -- $10,000 150,000 --
Co-Chairman of the 1998 120,000 -- -- -- --
Board, President, Chief 1997 120,000 -- -- -- --
Executive Officer and
Director
Jacques Elfersy, 1999 140,000 -- 10,200 150,000 --
Co-Chairman of the 1998 120,000 -- -- -- --
Board, Executive Vice 1997 120,000 -- -- -- --
President, Director of
Regulatory Affairs,
Secretary, Treasurer,
and Director
Jeff Parker 1999 102,000 -- -- 150,000 --
Chief Operating Officer
</TABLE>
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<PAGE> 60
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN
NAME OPTIONS/SARS FISCAL YEAR
---- ------------ -----------
<S> <C> <C> <C> <C>
Timothy C. Moses............. 150,000 20% $ 2.94 2/1/03
Jacques Elfersy.............. 150,000 20% $ 2.94 2/1/03
Jeff Parker.................. 150,000 20% $ 5.00 10/8/03
</TABLE>
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 $250,000.
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 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 entered into an employment agreement, dated as of September 18,
1998, with Jeffrey A. Parker. The agreement had 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 was required to
devote his substantially full time and attention to the affairs of the company.
The agreements also contained 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
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<PAGE> 61
terminated other than for cause (as defined) or the executive terminates his
agreement for good reason (as defined) an amount equal to the lesser of (i) the
remaining unexpired term of the agreement or (ii) one year from the date of
termination. In August 1999 Mr. Parker resigned from the company and the company
has reached a settlement with Mr. Parker as to its future obligations. Mr.
Parker will remain on the payroll of the company until December 31, 1999 or
until he obtains other employment, whichever is earlier. Mr. Parker has also
exercised an employee stock option for 50,000 shares of stock with an exercise
of $5.00 per share. Mr. Parker chose to have shares of stock withheld to pay for
the exercise price and the withholding taxes and he was issued 14,142 shares of
stock.
The company also entered into an employment agreement, dated as of October
8, 1998, with Daniel Swaye as the company's Chief Financial Officer. As
mentioned earlier Mr. Heyerdahl is now the company's Chief Financial Officer but
Mr. Swaye remains with the company. Mr. Swaye's employment 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
agreement also contains 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 lesser 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. Mr. Swaye had his agreement terminated for good
reason and that accordingly he plans to leave the employment of the company at
the end of the calendar year.
Finally, eMD.com has entered into an employment agreement, dated
November 17, 1999, with Timothy S. Heyerdahl as the Chief Financial Officer. Mr.
Heyerdahl's employment agreement has an initial term commencing on October 11,
1999, and expiring on the third anniversary thereof. Under the agreement, Mr.
Heyerdahl is required to devote his substantially full time and attention to the
affairs of the company. The agreement also contains 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
$240,000 per year. The agreement also calls for Mr. Heyerdahl to be eligible for
bonuses in an amount up to 100% of his annual salary. He is also entitled to
medical insurance and other benefits provided to executives. In connection with
his employment the Company will recommend Mr. Heyerdahl be granted an option to
purchase 50,000 shares of the company's stock and another option to purchase
200,000 shares of eMD.com stock. The exercise prices will be fair value of the
time of grant. One third of the stock under each option vests on each of the
first, second and third anniversaries of the date of his agreement. The options
are subject to certain additional terms, conditions, and restrictions. Finally,
the agreement provides a severance package in the event Mr. Heyerdahl is
terminated other than for cause (as defined) or the executive terminates his
agreement for good reason (as defined).
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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 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
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<PAGE> 63
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 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
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<PAGE> 64
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 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.
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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 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
64
<PAGE> 66
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.
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.
65
<PAGE> 67
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of November ____, 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.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT OWNED OF CLASS
- --------------------------------------- ------ ----------------------
<S> <C> <C>
Timothy C. Moses(2)
405 North Errol Court, N.W
Atlanta, Georgia 30327............................................1,512,930 22.7%
Jacques Elfersy(2)
1771 East Clifton Road
Atlanta, Georgia 30307............................................1,655,117 24.9
Carl T. Garner.......................................................60,000 *
Michel Azran.........................................................10,000 *
All officers and directors as a group(6 persons)..................3,233,947 48.6
</TABLE>
- ----------
* 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 November 10,
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.
66
<PAGE> 68
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 EMD.com 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 and redeemable underwriters' warrants offered by the
company pursuant to warrant exercises is being offered directly by the company
pursuant to the terms of the respective 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.
67
<PAGE> 69
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 November
11, 1999, there were 6,359,457 shares of common stock issued and held by
approximately 68 holders of record.
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.
PUBLICLY-TRADED REDEEMABLE WARRANTS
The publicly-traded warrants have been issued in registered form under and
are governed by and subject to the terms of a warrant agreement between the
company and the American Transfer & Trust Co. 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 Stock Transfer & Trust Co., 40 Wall Street, New York, New
York 10005.
68
<PAGE> 70
UNDERWRITERS' WARRANTS
In connection with the initial public offering, the company sold to the
underwriters, for nominal consideration, underwriters' unit warrants to purchase
up to 65,000 redeemable underwriters' warrants and 130,000 shares in units.
These units are substantially similar to the units sold in the initial public
offering and are now exercisable for warrants and shares rather than units. 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. The redeemable
warrants issuable pursuant to the terms of the unit warrants have an exercise
price of $7.50 per share rather than $6.00, and are subject to redemption on the
same terms as the publicly-traded warrants.
69
<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
As of November 10, 1999, the company had 6,359,457 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 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 November 10, 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 ______ shares of common stock, representing ____% 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 _______ shares of
the common stock. The company's shareholders and directors entered into an
agreement with the underwriters providing that they would not sell or otherwise
dispose of any shares of common stock held by them, that were issued prior to
the initial public offering until September 29, 1999. The 1998 warrants were
subject to an unconditional one-year lock-up until September 29, 1999, which
prevented 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."
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<PAGE> 72
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.
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 Wayne Roberts, BioShield Technologies, Inc., 5655 Peachtree Parkway,
Norcross, Georgia 30092, (770) 246-2000.
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 eMD.com. Other partners of the firm own
75,000 shares in the aggregate of eMD.com.
EXPERTS
The financial statements for each of the three fiscal years in the period
ended June 30, 1999, 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.
71
<PAGE> 73
CONSOLIDATED FINANCIAL STATEMENTS
BIOSHIELD TECHNOLOGIES, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
September 30, 1999 and June 30, 1999
F-1
<PAGE> 74
C O N T E N T S
<TABLE>
<CAPTION>
<S> <C> <C>
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 1999
AND JUNE 30, 1999 (UNAUDITED) F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE EARNINGS (UNAUDITED) F-5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
INTERIM FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999
(UNAUDITED) AND JUNE 30, 1999 F-19
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
EARNINGS FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) AND
(UNAUDITED) JUNE 1, 1995 (INCEPTION) TO SEPTEMBER 30, 1999
AND 1998 F-20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED) F-21
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) AND JUNE 1, 1995
(INCEPTION) TO SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) F-23
NOTES TO (INTERIM) FINANCIAL STATEMENTS, SEPTEMBER 30, 1999
F-25
</TABLE>
F-2
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BioShield Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BioShield
Technologies, Inc. and Subsidiary as of June 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended and for the period June 1, 1995 (inception) to
June 30, 1999. 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 consolidated financial position of BioShield
Technologies, Inc. and Subsidiary as of June 30, 1998 and 1999, and the
consolidated results of their operations and their cash flows for the years
then ended and for the period June 1, 1995 (inception) to June 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Atlanta, Georgia
August 19, 1999 (except for Note N for
which the date is September 2, 1999)
F-3
<PAGE> 76
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,636 $ 2,500,561
Marketable securities........................................... -- 103,250
Accounts receivable............................................. 110,081 102,013
Stockholders' subscription receivable........................... - 4,798,750
Inventories..................................................... 157,784 151,403
Prepaid expenses and other current assets....................... 2,500 171,073
----------- -----------
Total current assets.................................... 272,001 7,827,050
PROPERTY AND EQUIPMENT, NET....................................... 104,711 202,400
DEPOSITS AND OTHER LONG-TERM ASSETS............................... 60,911 194,293
----------- -----------
$ 437,623 $ 8,223,743
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable................................................... $ 450,000 $ --
Notes payable - other........................................... 205,000 --
Accounts payable................................................ 309,538 597,877
Accrued liabilities............................................. -- 195,044
Accrued payroll................................................. 315,361 58,085
Accrued interest payable........................................ 18,377 839
----------- -----------
Total current liabilities............................... 1,298,276 851,845
MINORITY INTEREST................................................. -- 4,798,750
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 50,000,000 shares
authorized; 4,395,040 and 6,322,315 issued and
outstanding at June 30, 1998 and 1999, respectively.......... 1,153,001 7,336,318
Additional paid-in capital...................................... 329,050 870,900
Accumulated other comprehensive earnings (loss)................. -- (1,750)
Deficit accumulated during the development stage................ (2,342,704) (5,632,320)
----------- -----------
(860,653) 2,573,148
$ 437,623 $ 8,223,743
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 77
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
JUNE 1, 1995 YEAR ENDED YEAR ENDED
(INCEPTION) TO JUNE 30, JUNE 30,
JUNE 30, 1999 1998 1999
------------- ----------- -----------
<S> <C> <C> <C>
Net sales................................... $ 1,543,122 $ 462,471 $ 305,336
Cost of sales............................... 659,393 154,658 188,913
----------- ----------- -----------
Gross profit...................... 883,729 307,813 116,423
Operating expenses
Marketing and selling..................... 1,472,506 472,945 780,566
General and administrative................ 4,023,785 1,060,417 2,067,669
Research and development.................. 1,208,401 231,547 717,978
----------- ----------- -----------
6,704,692 1,764,909 3,566,213
----------- ----------- -----------
Loss from operations.............. (5,820,963) (1,457,096) (3,449,790)
Other income (expense)
Royalty fees.............................. 75,000 -- 75,000
Consulting income, net of consulting
expenses of $19,474 for the period
ended June 30, 1997...................... 39,908 -- -
Interest and dividend income.............. 109,072 3,544 102,134
Interest expense.......................... (35,337) (18,377) (16,960)
----------- ----------- -----------
188,643 (14,833) 160,174
----------- ----------- -----------
Net loss before income taxes...... (5,632,320) (1,471,929) (3,289,616)
Income tax (expense) benefit................ -- -- --
-- -- --
NET LOSS.......................... (5,632,320) (1,471,929) (3,289,616)
Other comprehensive earnings (loss)
Unrealized holding loss on securities..... (1,750) -- (1,750)
----------- ----------- -----------
COMPREHENSIVE LOSS................ $(5,634,070) $(1,471,929) $(3,291,366)
=========== =========== ===========
Net loss per common share
Basic..................................... $ (1.22) $ (0.33) $ (0.57)
=========== =========== ===========
Weighted average common shares outstanding.. 4,617,751 4,395,040 5,814,191
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 78
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
COMMON STOCK OTHER ACCUMULATED
NO PAR VALUE ADDITIONAL COMPREHENSIVE DURING THE
----------------------- PAID-IN EARNINGS DEVELOPMENT
SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
------ ------ ---------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1995 ............... -- $ -- $ -- $ -- $ -- $ --
Proceeds from original issuance of
shares ................................ 3,907,086 500 -- -- -- 500
Proceeds from issuance of shares
under private placement offering....... 62,612 115,000 -- -- -- 115,000
Stock warrants issued for services
rendered .............................. -- -- 60,000 -- -- 60,000
Net loss - June 1, 1995 (inception)
through June 30, ...................... -- -- -- -- (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 private placement offering....... 149,723 275,001 -- -- -- 275,001
Proceeds from issuance of shares
under private placement offering....... 245,000 600,000 -- -- -- 600,000
Stock issuance costs related to
private placement offerings ........... -- (25,000) -- -- -- (25,000)
Stock warrants issued 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
</TABLE>
F-6
<PAGE> 79
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Proceeds from issuance of shares
under private placement offering ...... 30,619 187,500 -- -- -- 187,500
Stock options issued for
services rendered ..................... -- -- 156,650 -- -- 156,650
Contribution to capital ............... -- -- 50,000 -- -- 50,000
Net loss for the year 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)
Proceeds from issuance of
shares under initial public
offering .............................. 1,300,000 5,102,794 -- -- -- 5,102,794
Proceeds from exercise of stock
warrants .............................. 612,275 1,065,523 -- -- -- 1,065,523
Proceeds from exercise of stock
options ............................... 15,000 15,000 -- -- -- 15,000
Stock options issued for
services rendered ..................... -- -- 95,250 -- -- 95,250
Compensation related to
previously issued options ............. -- -- 121,600 -- -- 121,600
Contribution to capital ............... -- -- 325,000 -- -- 325,000
Unrealized loss on securities ......... -- -- -- (1,750) -- (1,750)
Net loss for the year ended June
30, 1999 .............................. -- -- -- -- (3,289,616) (3,289,616)
--------- ----------- -------- ------- ----------- -----------
Balance at June 30, 1999 .............. 6,322,315 $ 7,336,318 $870,900 $(1,750) $(5,632,320) $ 2,573,148
========= =========== ======== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 80
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 1, 1995 YEAR ENDED YEAR ENDED
(INCEPTION) TO JUNE 30, JUNE 30,
JUNE 30, 1999 1998 1999
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $(5,632,320) $(1,471,929) $(3,289,616)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 60,681 14,426 28,215
Issuance of stock and stock options for
services rendered ............................. 495,900 156,650 216,850
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ....................... (102,013) (80,787) 8,068
Inventory ................................. (151,403) (15,590) 6,381
Prepaid expenses and other current
assets ................................... (185,315) 17,568 (168,573)
Deposits and other assets ................. (195,156) (1,107) (133,382)
Increase in:
Accounts payable .......................... 597,877 140,658 288,339
Accrued liabilities and payroll ........... 253,968 26,806 (79,770)
----------- ----------- -----------
Net cash used in operating activities ..... (4,857,781) (1,213,305) (3,123,488)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures .............................. (247,976) (76,480) (125,904)
Purchase of marketable securities ................. (105,000) -- (105,000)
----------- ----------- -----------
Net cash used by investing activities ..... $ (352,976) $ (76,480) $ (230,904)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt ................................ $ 655,000 $ 655,000 $ --
Repayment of debt ................................. (655,000) -- (655,000)
Contribution to capital ........................... 375,000 50,000 325,000
Proceeds from stock warrants exercised ............ 1,065,523 -- 1,065,523
Stock issued under stock option plan .............. 15,000 -- 15,000
Proceeds from stock issuances, net ................ 6,255,795 187,500 5,102,794
----------- ----------- -----------
Net cash provided by financing
activities ............................... 7,711,318 892,500 5,853,317
----------- ----------- -----------
Net increase (decrease) in cash ........... 2,500,561 (397,285) 2,498,925
Cash at beginning of period ......................... -- 398,921 1,636
----------- ----------- -----------
Cash at end of period ............................... $ 2,500,561 $ 1,636 $ 2,500,561
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .......... $ 34,498 $ -- $ 34,498
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 81
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999
NOTE A - NATURE OF OPERATIONS
BioShield Technologies, Inc. ("BSTI"), was incorporated on June 1, 1995.
BSTI was formed to develop, manufacture and distribute certain antimicrobial
agents and products. Patents for these new agents and products are currently
pending. BSTI is in the process of developing distribution channels for these
products throughout the United States and internationally. On April 27, 1999,
BSTI formed a subsidiary, Electronic Medical Distribution, Inc. (formerly known
as Allergy Superstore.com, Inc.) ("eMD.com") to develop electronic commerce in
the medical industry (see Note M).
BSTI and eMD.com are in the development stage and their efforts though June
30, 1999, have been principally devoted to organizational activities, raising
capital, regulatory approvals, research and development and further
investigation into new markets.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The consolidated financial statements include the accounts of BSTI, and its
majority owned (95%) subsidiary, EMD.com, from the date of its formation
(collectively, the "company"). All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
2. 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.
3. Marketable securities
The company categorizes marketable securities as available-for-sale
securities, as defined by the Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." A
separate component of stockholders' equity reports the net amount of unrealized
holding gains and losses until realized.
4. 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.
5. 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 $14,000 and $28,000 for the years ended June 30, 1998 and
1999, respectively.
F-9
<PAGE> 82
Estimated service lives are as follows:
Office equipment...................... 3 years
Machinery, leasehold improvements,
furniture and equipment............... 5-10 years
6. 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.
7. 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.
8. 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.
9. Research and development costs
The costs of research and development include, among other things,
consumable supplies and materials to be used for the development of the
company's intended products, and the cost of testing and consulting related to
filing with the Environmental Protection Agency (EPA) and patent filings.
Research and development costs are expensed when incurred and amounted to
$231,547 and $717,978 for the years ending June 30, 1998 and 1999,
respectively.
10. 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 $228,192 and $597,550 for the years ended June 30, 1998
and 1999, respectively. Advertising expense for the year ended June 30, 1999
included the creation of media advertising materials of $158,000.
11. 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
F-10
<PAGE> 83
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 warrant amounts have been restated
retroactively to reflect these reverse splits.
12. 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-11. Diluted loss per common share is
not disclosed because the effect of the exchange or exercise of common stock
equivalents would be antidilutive.
13. Stock-Based Compensation
Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The company has
chosen to continue to account for stock-based compensation using the intrinsic
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the company's stock at the date of the grant over the
amount an employee must pay to acquire the stock (see Note F).
14. Reclassifications
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 presentation.
NOTE C - INVENTORIES
Inventories consist of the following:
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
Raw Materials................ $ 83,482 $60,273
Work in Process.............. 42,893 47,993
Finished Goods............... 31,409 43,137
---------- --------
$157,784 $151,403
========== ========
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
Leasehold improvements......... $ 33,385 $ 33,385
Office furniture and equipment. 28,433 125,891
Machinery and equipment........ 60,254 88,700
------------- --------------
Total property and equipment... 122,072 247,976
Less accumulated depreciation.. (17,361) (45,576)
------------- --------------
$ 104,711 $ 202,400
============= ==============
F-11
<PAGE> 84
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
2009 and require the company to pay all maintenance costs. Rent expense under
these leases was $64,835 and $72,082 for the years ended June 30, 1998 and
1999, respectively.
Commitments under noncancelable operating leases including leases entered
into after June 30, 1999 are summarized as follows:
BSTI EMD.COM TOTAL
---- ------- ----------
Fiscal Year:
2000........... $143,106 $ 359,606 $ 502,712
2001........... 60,798 733,596 794,394
2002........... -- 748,534 748,534
2003........... -- 763,471 763,471
2004........... -- 778,962 778,962
Thereafter..... -- 4,134,363 4,134,363
-- --------- ----------
Total.. $203,904 $7,518,532 $7,722,436
======== ========== ==========
NOTE F - STOCK OPTIONS AND WARRANTS
The company's Board of Directors has approved two stock options plans.
Under the 1997 Stock Incentive Plan, the company may grant options to officers
and key employees for up to 1,200,000 shares of common stock. This plan
provides for the expiration of options ten years from the date of grant, with
the exception of options issued to an over 10% owner, for which expiration is
five years from the date of grant. The exercise price of options granted must
equal at least 100% of the market value, or 110% of the market value for over
10% owners, on the date granted. Under the 1996 Directors' Stock Option Plan,
the company may grant options to directors of the company for up to 1,000,000
shares of common stock. This plan provides for options to be immediately
exercisable and provides for the expiration of options five years from the date
of grant. The plan requires initial options to be granted at an exercise price
of $2.00 per share. Subsequent options are issued at market value.
Employee stock option transactions for the years ended June 30, 1999 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1999
--------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of period....... 60,000 $2.00 90,000 $ 1.67
Granted................................ 30,000 1.00 745,000 6.27
Exercised.............................. -- -- (15,000) 1.00
Forfeited.............................. -- -- -- --
-- -- -- --
Outstanding, end of year............... 90,000 $1.67 820,000 $ 5.87
====== ===== ======= ======
</TABLE>
F-12
<PAGE> 85
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Options exercisable at year end........ 90,000 410,000
Weighted average fair value of options
granted during the year................ $ 3.88 $ 3.15
</TABLE>
The following table summarizes information about employee stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER WEIGHTED
OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICE JUNE 30, 1999 LIFE (YEARS) PRICE JUNE 30, 1999 EXERCISE PRICE
- ----------------------- ------------- ------------ ----- ------------- --------------
<S> <C> <C> <C> <C> <C>
$1.00................ 40,000 4.25 $ 1.00 40,000 $1.00
2.00-3.00............ 360,000 3.94 2.78 360,000 2.78
5.00................. 267,000 4.30 5.00 -- --
5.75-6.00............ 20,000 4.75 5.88 10,000 5.75
12.25-19.06.......... 133,000 4.94 17.41 -- --
------- ---- ------ -- --
820,000 4.25 $ 5.87 410,000 $2.68
======= ==== ====== ======= =====
</TABLE>
The company follows the practice of recording amounts received upon the
exercise of certain options by crediting common stock. No charges are reflected
in the statements of operations as a result of the grant or exercise of options
to or by employees. The company realizes an income tax benefit from the
exercise of certain stock options and the exercise and early disposition of the
shares acquired via certain other stock options. This benefit results in a
reduction to income taxes payable and an increase to additional paid-in
capital.
The company uses the intrinsic value method in accounting for stock options
issued to employees and directors. In applying this method, compensation cost
of $116,250 and $61,250 has been recognized for the years ended June 30, 1998
and 1999, respectively. Had compensation cost for the company's option plans
been determined based on the fair value at the grant dates for awards under
those plans, the company's net loss and loss per share would have resulted in
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30,1999
------------- ------------
<S> <C> <C> <C>
Net loss................. As reported $ (1,471,929) $ (3,291,366)
Pro forma (1,471,929) (4,045,637)
Basic net loss per
common share............. As reported $ (0.33) $ (0.57)
Pro forma (0.33) (0.70)
</TABLE>
The fair values were estimated using the Black Scholes options-pricing
model with the following weighted average assumptions for 1998 and 1999:
expected dividend yield of 0.0%, expected price volatility of 84.96%, risk-free
rate of return of 6.5%, and expected life of options of 3.0 years.
Stock Options Issued to Non-Employees
As of the beginning of fiscal 1998, options to purchase 60,000 shares of
common stock were outstanding related to options issued to a member of the
company's advisory board during 1996. These options vest over a three-year
period allowing the optionee to acquire 20,000 shares beginning on each
anniversary date of the grant date and expiring five years from the date of
grant.
F-13
<PAGE> 86
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. Compensation
cost of $121,600 and $40,400 has been recognized in the accompanying financial
statements for the years ended June 30, 1998 and June 30, 1999.
During the year ended June 30, 1999, the company issued options to purchase
4,000 shares of common stock at an exercise price of $8.94 per share and 4,000
shares of common stock at an exercise price of $14.81 per share to a
non-employee for consulting services. These options vest one year from the
grant date and expire five years from the grant date. Compensation cost of
$34,000 has been recognized for the year ended June 30, 1999 related to these
options.
Warrants
At June 30, 1997, warrants for the purchase of 959,004 shares were issued
in connection with various private placement offerings. In connection with the
reverse split discussed in Note B-11, 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 $5.00 to $5.25 expiring April 2003. Also, during
the year ended June 30, 1998, warrants for the purchase of 18,750 shares were
issued in connection with private placement offerings. These warrants have a
five-year term and an exercise price of $0.50.
In connection with its initial public offering during the year ended June
30, 1999, warrants for the purchase of 1,365,000 shares were issued with an
exercise price ranging from $6.00 to $7.50 expiring September 2003. Also during
the year ended June 30, 1999, warrants for the purchase of 612,275 shares were
exercised. The number of warrants outstanding as of June 30, 1999, including
150,000 issued for services in lieu of cash, was 1,890,977.
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 are summarized as
follows:
JUNE 30, JUNE 30,
1998 1999
--------- ----------
Deferred income tax assets:
Operating loss carryforwards......... $ 658,883 $ 1,867,560
Payroll tax accruals................. 119,837 121,080
Options for services................. 106,039 142,234
--------- -----------
Gross deferred tax assets............ 884,759 2,130,874
Deferred tax asset valuation
allowance............................ (884,759) (2,130,874)
--------- -----------
Net deferred income tax asset........ $ -- $ --
========= ===========
The income tax provisions for the years ended June 30, 1998 and 1999,
differ from the amounts determined by applying the applicable U.S. statutory
federal income tax rate to pretax results of operations. These differences are
the result of applying valuation allowances against the deferred tax assets.
F-14
<PAGE> 87
Reconciliations of statutory Federal tax rates to the effective tax rate
for the years ended June 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
---------- -----------
<S> <C> <C>
Income tax benefit at applicable Federal rate of 34% $ 500,456 $ 1,118,469
State tax benefit, net of Federal income tax effect 58,877 131,585
Other............................................. (1,638) (3,939)
---------- ------
557,695 1,246,115
Increase in deferred income tax asset valuation (557,695) (1,246,115)
---------- -----------
allowance.........................................
Net income tax benefit............................ $ -- $ --
========== ===========
</TABLE>
At June 30, 1999, the company had operating loss carryforwards for U.S.
income tax purposes of approximately $4,400,000 available to reduce future
taxable income. These loss carryforwards will expire in fiscal years 2004
through 2019.
The company has experienced a change in control, as defined under Section
382 of the Internal Revenue Code, during 1999. As a result, the utilization of
the net operating losses that expire in 2019 and prior will be limited to a
maximum amount annually as defined by the Internal Revenue Code. As a result of
these limitations, a significant portion of the tax loss carryforwards could
expire unused.
NOTE H - SIGNIFICANT CUSTOMERS
During 1997, the company entered into sales agreements with two customers
that included provision for certain exclusive marketing rights and preferential
payment terms. The customers terminated these agreements during 1999. Sales to
two customers totaled approximately $151,000 or 33% of total sales for the year
ended June 30, 1998. Sales to four customers totaled approximately $185,000 or
61% of total sales during the year ended June 30, 1999. No other customer
represented more than 10% of sales during the periods presented.
NOTE I - NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
The company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, for its fiscal year ended June 30, 1999.
The statement establishes standards for reporting and presentation of
comprehensive earnings and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. The statement
requires retroactive application for all periods presented in the financial
statements. The adoption of SFAS No. 130 did not have a material effect on the
company's results of operations or its financial position.
The company adopted Statement of Financial Accounting Standards (SFAS) No.
131, Disclosure About Segments of An Enterprise and Related Information, for
its fiscal year ended June 30, 1999. SFAS No. 131 establishes standards for the
way in which information about operating segments is reported. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not have
a material effect on the company's results of operations or its financial
position.
F-15
<PAGE> 88
During 1999, the company adopted Statement of Positions (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires certain costs incurred in connection with
developing or obtaining internal-use software to be capitalized and other costs
to be expensed. During 1999, the company expensed $166,000 related to the
development of internet software.
Recently Issued Pronouncements
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee (AcSEC) issued Statement of Position
No. SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
establishes standards on accounting for start-up and organization costs and, in
general, requires such costs to be expensed as incurred. This standard is
required to be adopted on July 1, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which must be adopted by July 1,
1999, with early adoption permitted. SFAS No. 133 requires that all derivative
financial instruments be recorded as either assets or liabilities on the
balance sheet and measure those instruments at their fair value. Changes in the
fair value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative as part of a hedge
transaction and, if it is, the type of hedge transactions.
The adoption of these two pronouncements is not expected to have a material
effect on the company's results of operations or financial position.
NOTE J - NOTES PAYABLE
Notes payable consisted of ninety $5,000 notes payable to individuals
totaling $450,000 at June 30, 1998. 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, warrants for the purchase of 450,000 shares at an exercise price of
$5.00 per share (see 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 consisted of a $80,000 note payable to a relative of a
principle stockholder bearing interest at 8% and a $125,000 note payable to an
individual bearing interest at prime plus 2%.
The company repaid all notes payable that were outstanding as of June 30,
1998 upon receiving the proceeds of the initial public offering.
NOTE K - SEGMENT INFORMATION
The following information is presented in accordance with SFAS No. 131,
which was adopted by the company during 1999.
The company operates primarily in the antimicrobial and biostatic products
segment. During 1999, the company established a subsidiary, EMD.com which will
operate in the pharmaceutical distribution segment via the internet.
The company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The company evaluates
performance based on gross profit.
F-16
<PAGE> 89
See Note H regarding sales to significant customers. Sales reported in Note
H relate to the antimicrobial and biostatic products segment only.
The following table provides summarized information concerning the
company's reportable segments.
<TABLE>
<CAPTION>
ANTIMICROBIAL
AND BIOSTATIC PHARMACEUTICAL
PRODUCTS DISTRIBUTION TOTAL
------------- -------------- -----------
<S> <C> <C> <C>
Revenues from products/services...... $ 305,336 $ - $ 305,336
Gross profit......................... 116,423 - 116,423
Segment profit (loss)................ (2,824,391) (465,225) (3,289,616)
Interest income...................... 102,134 - 102,134
Interest expense..................... 16,960 - 16,960
Depreciation and amortization........ 26,857 1,358 28,215
Segment assets....................... 3,239,449 4,984,294 8,223,743
</TABLE>
For the years ended June 30, 1998, all operations and assets related to the
antimicrobial and biostatic products segment.
NOTE L - RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENT
During 1998, the company entered an exclusive sales and distributorship
agreement with a related party. Under this agreement, the company receives
royalty payments based on the level of sales of its products made by the
distributor. Royalty payments are subject to an annual minimum amount. In
addition, the distributor has agreed to pay the company $50,000 in monthly
installments over two years to be used by the company to continue its research
and development of products, product improvement and patent execution. Payments
related to this agreement did not begin until 1999. The company recorded
$75,000 related to royalties which is reported as royalty fees in the financial
statements. The company recorded income of $16,667 related to research and
development under this agreement and has been netted against research and
development expense in the accompanying financial statements.
At June 30, 1999, the company had $79,667 due from related parties included
in accounts receivable.
During 1999, two principal stockholders contributed $325,000 to additional
paid-in capital of the company without further consideration. In June 1998, a
principal stockholder contributed $50,000 to additional paid-in capital of the
company without further consideration.
NOTE M - FORMATION OF EMD.COM
On April 27, 1999, the company acquired 99% of the outstanding common stock
of a newly formed entity, Allergy Superstore.com, Inc. The corporate name of
the newly acquired subsidiary was subsequently changed to eMD.com. On June 30,
1999, eMD.com, BSTI, and certain investors entered into a securities purchase
agreement whereby eMD.com would sell up to an aggregate of 3,218,884 shares of
common stock to the investors at a price of $4.67 per share. As of June 30,
1999, investors had purchased 1,070,664 shares for an aggregate purchase price
of $5,000,000 under this agreement. The net proceeds of $4,798,750, which was
received from escrow on July 6, 1999, was included in current assets under the
caption Stockholder subscription receivable at June 30, 1999. In connection
with the purchase of stock, the investors also received warrants for the
purchase of 100,000 shares of eMD.com common stock at an exercise price of
$5.126 per share. These warrants have a five year term. At June 30, 1999, there
were 29,070,664 of issued and outstanding shares of eMD.com.
F-17
<PAGE> 90
The securities purchase agreement provides for a conversion feature which
allows the holder of eMD.com common stock to exchange their shares for BSTI
common stock at a predetermined exchange rate provided eMD.com has not
consummated an initial public offering within twelve months of the purchase of
stock under this agreement. BioShield has agreed to reserve the number of
shares of common stock needed in connection with the conversion right and
warrants issued by eMD.com.
eMD.com has also granted options for the purchase of 4,740,000 shares of
common stock pursuant to various stock options plans to members of its board of
directors and members of its advisory board. All options have a 5 year term and
an exercise price of $2.00 per share.
NOTE N - SUBSEQUENT EVENTS
As of September 2, 1999, investors had purchased an additional 214,133
shares of eMD.com common stock for an aggregate purchase price of $1,000,000
under the aforementioned securities purchase agreement (Note M). Warrants for
the purchase of 60,000 shares of eMD.com common stock at an exercise price of
$5.126 per share were issued in connection with the eMD.com securities purchase
agreements.
On July 9, 1999, eMD.com entered into an agreement with iXL Enterprises,
Inc. (iXL), a subsidiary of iXL, Inc. Under the agreement, iXL will provide
strategic planning and marketing advice in exchange for 600,000 shares of
eMD.com common stock. The company also entered into a separate agreement with
iXL, Inc for the design and development of an internet website. Under the
agreement, eMD.com will pay iXL a total of approximately $1,890,700 as work
progresses on the development of the website.
On July 6, 1999, the company entered into a lease agreement with an unrelated
party to lease an office building for a term of ten years (see Note E for
future minimum lease payments).
F-18
<PAGE> 91
INTERIM FINANCIAL STATEMENTS
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1999 1999
------------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................... $ 5,074,266 $ 2,500,561
Marketable securities ....................................................... 87,500 103,250
Accounts receivable ......................................................... 107,492 102,013
Stockholders' subscription receivable ....................................... -- 4,798,750
Inventories ................................................................. 165,743 151,403
Prepaid expenses and other current assets ................................... 181,011 171,073
----------- -----------
Total current assets .................................................. 5,616,012 7,827,050
PROPERTY AND EQUIPMENT, NET .................................................... 523,928 202,400
DEPOSITS AND OTHER LONG-TERM ASSETS ............................................ 630,242 194,293
----------- -----------
$ 6,770,182 $ 8,223,743
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable ............................................................ $ 723,736 $ 597,877
Accrued liabilities ......................................................... 514,377 195,044
Accrued payroll ............................................................. 68,289 58,085
Accrued interest payable .................................................... 839 839
----------- -----------
Total current liabilities ............................................. 1,307,241 851,845
MINORITY INTEREST .............................................................. 6,124,750 4,798,750
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 50,000,000
shares authorized; 6,325,915 and 6,322,315
issued and outstanding at September 30, 1999
and June 30, 1999, respectively ........................................... 7,357,888 7,336,318
Additional paid-in capital .................................................. 1,977,300 870,900
Accumulated other comprehensive earnings (loss) ............................. (17,500) (1,750)
Deficit accumulated during the development stage ............................ (9,979,497) (5,632,320)
----------- -----------
(661,809) 2,573,148
$ 6,770,182 $ 8,223,743
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 92
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended June 1, 1995 (inception)
September 30, to September 30,
---------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net sales .............................. $ 144,445 $ 87,854 $ 1,687,567 $ 1,325,640
Cost of sales .......................... 90,488 33,736 749,881 504,216
----------- ------------ ------------ -----------
Gross profit ...................... 53,957 54,118 937,686 821,424
Operating expenses
Marketing and selling ............... 805,467 114,379 2,282,741 806,319
General and administrative .......... 3,023,654 259,982 7,010,058 2,290,393
Research and development ............ 633,984 37,802 1,874,998 453,930
----------- ------------ ------------ -----------
4,463,105 412,163 11,167,797 3,550,642
----------- ------------ ------------ -----------
Loss from operations ............ (4,409,148) (358,045) (10,230,111) (2,729,218)
Other income (expense)
Royalty fees ........................ -- -- 75,000 --
Consulting income, net of consulting
expenses of $19,474 for the period
ended June 30, 1998 ............... -- -- 39,908 39,908
Interest and dividend income ........ 61,971 818 171,043 7,756
Interest expense .................... -- (16,335) (35,337) (34,712)
----------- ------------ ------------ -----------
Net loss before income taxes .. (4,347,177) (373,562) (9,979,497) (2,716,266)
Income tax (expense) benefit ........... -- -- -- --
----------- ------------ ------------ -----------
Net loss ...................... (4,347,177) (373,562) (9,979,497) (2,716,266)
Other comprehensive earnings (loss)
Unrealized holding loss on securities (15,750) -- (17,500) --
----------- ------------ ------------ -----------
COMPREHENSIVE LOSS ............ $(4,362,927) $ (373,562) $ (9,996,997) $(2,716,266)
=========== ============ ============ ===========
Net loss per common share
Basic ............................... $ (0.69) $ (0.08) $ (2.12) $ (0.64)
=========== ============ ============ ===========
Weighted average common
shares outstanding .................. 6,325,915 4,747,021 4,717,026 4,268,977
=========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 93
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated Deficit
Common stock other accumulated
no par value Additional comprehensive during the
---------------------- paid-in earnings development
Shares Amount capital (loss) stage Total
------ ------ ----------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1995 .............. -- $ -- $ -- $ -- $ -- $ --
Proceeds from original issuance
of shares ........................... 3,907,086 500 -- -- -- 500
Proceeds from issuance of shares under
private placement offering ........ 62,612 115,000 -- -- -- 115,000
Stock warrants issued 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 private placement offering .. 149,723 275,001 -- -- -- 275,001
Proceeds from issuance of shares
under private placement offering .. 245,000 600,000 -- -- -- 600,000
Stock issuance costs related to
private placement offerings ....... -- (25,000) -- -- -- (25,000)
Stock warrants issued 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
Stock options issued for services
rendered ............................ -- -- 156,650 -- -- 156,650
Contribution to capital .............. -- -- 50,000 -- -- 50,000
Net loss for the year 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)
Proceeds from issuance of shares
under initial public offering ..... 1,300,000 5,102,794 -- -- -- 5,102,794
Proceeds from exercise of stock
warrants ........................... 612,275 1,065,523 -- -- -- 1,065,523
Proceeds from exercise of stock
options ............................. 15,000 15,000 -- -- -- 15,000
Stock options issued for services
rendered ............................ -- -- 95,250 -- -- 95,250
Compensation related to previously
issued options ...................... -- -- 121,600 -- -- 121,600
Contribution to capital .............. -- -- 325,000 -- -- 325,000
Unrealized loss on securities ........ -- -- -- (1,750) -- (1,750)
Net loss for the year ended
June 30, 1999 ....................... -- -- -- -- (3,289,616) (3,289,616)
--------- ----------- -------- ------- ----------- -----------
Balance at June 30, 1999 ............. 6,322,315 7,336,318 870,900 (1,750) (5,632,320) 2,573,148
</TABLE>
F-21
<PAGE> 94
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) - CONTINUED
<TABLE>
<CAPTION>
Accumulated Deficit
Common stock other accumulated
no par value Additional comprehensive during the
---------------------- paid-in earnings development
Shares Amount capital (loss) stage Total
------ ------ ----------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from exercise of warrants 3,600 21,570 -- -- -- 21,570
Stock warrants issued for services
rendered ....................... -- -- 1,106,400 -- -- 1,106,400
--------- ----------- ---------- --------- ----------- -----------
Unrealized loss on securities .... -- -- -- (15,750) -- (15,750)
Net loss for the quarter ended
September 30, 1999 ............ -- -- -- -- (4,347,177)
--------- ----------- ---------- --------- ----------- -----------
6,325,915 $7,357,888 $1,977,300 $ (17,500) $(9,979,497) $ (661,809)
========== ========== ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 95
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended June 1, 1995 (inception)
September 30, to September 30,
---------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- --------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,347,177) $ (373,562) $ (9,979,497) $ (2,716,266)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 15,884 5,078 76,565 37,544
Issuance of stock and stock
warrants for services rendered 1,772,400 48,750 2,268,300 327,800
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (5,479) (15,827) (107,492) (125,908)
Inventory (14,340) (14,935) (165,743) (172,719)
Prepaid expenses and
other current assets (9,938) -- (195,253) --
Deposits and other assets (435,949) 42,000 (631,105) (36,516)
Increase in:
Accounts payable 125,859 36,554 723,736 346,092
Accrued liabilities and payroll 329,537 31,269 583,505 365,007
----------- ----------- ------------ ------------
Net cash used in operating activities (2,569,203) (240,673) (7,426,984) (1,974,966)
Cash flows from investing activities:
Capital expenditures (337,412) -- (585,388) (122,072)
Purchase of marketable securities -- -- (105,000) --
----------- ----------- ------------ ------------
Net cash used by investing activities (337,412) -- (690,388) (122,072)
------------ ----------- ------------ ------------
</TABLE>
F-23
<PAGE> 96
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended June 1, 1995 (inception)
September 30, to September 30,
---------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from debt -- - 655,000 655,000
Repayment of debt -- (62,500) (655,000) (62,500)
Contribution to capital -- 325,000 375,000 375,000
Proceeds from stock warrants exercised 21,570 224,542 1,087,093 224,542
Stock issued under stock option plan -- -- 15,000 --
Proceeds from stock issuances, net 5,458,750 5,491,056 11,714,545 6,644,057
----------- ---------- ----------- ------------
Net cash provided by
financing activities 5,480,320 5,978,098 13,191,638 7,836,099
----------- ---------- ----------- ------------
Net increase (decrease) in cash 2,573,705 5,737,425 5,074,266 5,739,061
Cash at beginning of period 2,500,561 1,636 -- --
----------- ---------- ----------- ------------
Cash at end of period $ 5,074,266 $5,739,061 $ 5,074,266 $ 5,739,061
=========== ========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period
for interest $ 34,498 $ -- $ 34,498 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE> 97
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 September 30, 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, 1999.
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 - STOCK OPTIONS AND WARRANTS
During the three months ended September 30, 1999, the following changes
occurred in outstanding stock options and warrants.
Options outstanding at June 30, 1999 1,008,000
Options granted --
Options cancelled --
Options exercised --
------------
Options outstanding at September 30, 1999 1,008,000
============
F-25
<PAGE> 98
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE D - STOCK OPTIONS AND WARRANTS - Continued
Warrants outstanding at June 30, 1999 1,890,977
Warrants granted 240,000
Warrants cancelled --
Warrants exercised (3,600)
------------
Warrants outstanding at September 30, 1999 2,127,377
============
NOTE E - COMMITMENTS AND CONTINGENCIES
On July 9, 1999, eMD.com, a subsidiary of the Company, entered into an
agreement with iXL Enterprises, Inc. (iXL), a subsidiary of iXL, Inc. Under
the agreement, iXL will provide strategic planning, and marketing advice in
exchange for 600,000 shares of eMD.com common stock. The Company recorded a
charge of $666,000 based on the fair market value of the eMD.com common
stock issued to iXL. Fair market value was determined based on recent sales
of eMD.com common stock in private placement offerings. On September 29,
1999, the Company recorded a charge of $1,106,400 based on the fair market
value of the eMD.com common stock issued to CLR & Associates. Fair market
value was determined based on the Black Scholes model. The total for the
non-stock charges related to issuance of both stock and warrants was
$1,772,400. The iXL common stock issuance increased Minority Interests by
$666,000 and the CLR warrant issuance increased Paid-in-Capital by
1,106,400.
The Company also entered into a separate agreement with iXL for the design
and development of an internet website. Under the agreement, eMD.com will
pay iXL a total of approximately $1,890,700 as work progresses on the
development of the website. Through September 30, 1999, the Company had paid
and expensed approximately $520,000 related to this agreement.
On July 6, 1999, the Company entered into a lease agreement with an
unrelated party to lease an office building for a term of ten years.
Required minimum lease payments under this lease is approximately $45,000
per month for the year ending June 30, 2000.
NOTE F - SUBSEQUENT EVENTS
In addition to its development and marketing of proprietary antimicrobials, the
Company is engaged in the sale and distribution of cleaning and deodorizing
products in the retail and industrial segments. These products are exempt from
regulation as "pesticides" under the Federal Insecticide, Fungicide and
Rodenticide Act, as amended ("FIFRA"). Like many other companies engaged in the
sale of these products, the Company has experienced regulatory scrutiny from
the United States Environmental Protection Agency ("EPA"), which implements
federal regulations under FIFRA regarding the labeling of these products. The
EPA alleged that certain claims on the labels were inappropriate for these
products in the absence of an EPA pesticide registration and required the
Company to revise the labels to remove alleged pesticidal claims. While the
Company did not agree with the EPA interpretation that the claims were
pesticidal, the Company voluntarily agreed to revise the labels for these
products. The EPA then authorized the sale of the products with the revised
labels. On September 27, 1999, the EPA filed an administrative complaint
against the Company seeking the assessment of a civil penalty in the amount of
F-26
<PAGE> 99
$97,340 relating to these alleged violations as well as an allegation that the
Company refused an EPA inspection in 1998. The Company maintains that these
allegations are without merit. However, in a demonstration of good faith and
cooperation, the Company, while denying the alleged violations, agreed to the
payment of a substantially reduced penalty on October 30, 1999 in the amount of
$72,840. The company had previously accrued for the potential penalty in fiscal
1999.
In the month of October 1999, the company continued to develop its eMD.com
business infrastructure. Significant contractual payment commitments of
approximately $4,000,000 have been made by the company to several equipment,
software and consulting business partners to complete the initial versions of
the internet products by December 1999. Total cash payment commitments of
approximately $3,000,000 are due by the end of December 1999. Management is
currently raising additional investment capital to meet these commitments and
to fund operational deficits that are anticipated throughout the early
operational stages of the eMD.com strategy.
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 has incurred
cumulative comprehensive losses of $9,996,997 from June 1, 1995 (inception)
to September 30, 1999. The Company is a development stage company primarily
engaged in research and development, patent filings, regulatory approvals
and related activities. Through September 30, 1999, the Company had raised
$15,459,938 of capital, including $6,124,750 classified as minority
interest, through its initial public offering and other private offerings of
its securities. The Company is actively seeking to obtain additional funds
through public and private equity, debt funding, strategic collaborative
agreements, or from other sources. The failure to raise the necessary
additional capital in the future may cause substantial delays or reduction
of the scope of the Company's business plan. The Company's continuation as a
going concern is dependent upon its ability to generate or raise sufficient
cash flow to meet its obligations on a timely basis, and ultimately to
attain profitability. No assurances can be given that the Company will be
successful in raising additional finances.
F-27
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
[TO BE UPDATED]
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:
<TABLE>
<CAPTION>
<S> <C>
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*
</TABLE>
- ----------
* Estimated.
II-1
<PAGE> 101
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.
II-2
<PAGE> 102
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
<S> <C> <C>
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)
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
Norcross, Georgia, dated April 24, 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)
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
<S> <C> <C>
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 -- 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)(3)
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)
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 Electronic Medical Distribution, Inc. (2)
10.27 -- Bylaws of Electronic Medical Distribution, Inc. (2)
</TABLE>
II-4
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
<S> <C> <C>
10.28 -- 1999 Directors Stock Option Plan of Electronic Medical Distribution, Inc. (2)
10.29 -- Form of Directors Nonqualified Initial Stock Option Grant of Electronic
Medical Distribution, Inc. (2)
10.30 -- Form of Directors Nonqualified Succeeding Stock Option Grant of Electronic
Medical Distribution, Inc. (2)
10.31 -- 1997 Stock Incentive Plan, as amended (2)
10.31a -- Amended 1999 Directors Stock Option Plan of Allergy Superstore.com, Inc. (4)
10.32 -- Amended Form of Directors Non-Qualified Initial Stock Option Grant of Allergy
Superstore.com, Inc. (4)
10.33 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Carl T. Garner (4)
10.34 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Michel M. Azran (4)
10.35 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to Kevin Smith (4)
10.36 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to Chip Howes (4)
10.37 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
U. Bertram Ellis, Jr. (4)
10.38 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Duncan James (4)
10.39 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Mark Spargo (4)
10.40 -- Amended 1999 Medical Advisory Directors Stock Option Plan for Allergy Superstore.com, Inc. (4)
10.41 -- Form of Medical Advisory Directors Non-Qualified Initial Stock Option Grant for Allergy
Superstore.com, Inc. (4)
10.42 -- Form of Non-Qualified Succeeding Stock Option Grant for Allergy Superstore.com, Inc. (4)
10.43 -- Allergy Superstore.com, Inc. Initial Medical Advisory Directors Non-Qualified Stock Option
Grant for Gerald Vanderpool (4)
10.44 -- Allergy Superstore.com, Inc. Initial Medical Advisory Directors Non-Qualified Stock Option
Grant for Scott Carroll (4)
10.45 -- Allergy Superstore.com, Inc. Initial Medical Advisory Directors Non-Qualified Stock Option
Grant for Richard Stout (4)
10.46 -- Allergy Superstore.com, Inc. Form of 1999 Equity Incentive Plan (4)
10.47 -- Allergy Superstore.com, Inc. Form of 1999 Equity Incentive Plan Stock Option Agreement (4)
10.48 -- Allergy Superstore.com, Inc. Stock Option Agreement, dated as of May 6, 1999, to
Jacques Elfersy for 2,250,000 Option Shares of Allergy Superstore.com, Inc. (4)
10.49 -- Allergy Superstore.com, Inc. Stock Option Agreement, dated as of May 6, 1999, to Timothy C.
Moses for 2,250,000 Option Shares of Allergy Superstore.com, Inc. (4)
10.50 -- Allergy Superstore.com, Inc. 1999 Employee Stock Purchase Plan (4)
10.51 -- BioShield Technologies, Inc. Directors Stock Option Agreement for the grant to
Michel M. Azran of 10,000 shares of common stock, dated as of April 1, 1999 (4)
10.52 -- BioShield Technologies, Inc. Stock Incentive Agreement, dated as of December 1, 1998 for an
option to purchase 150,000 shares for Jacques Elfersy (4)
10.53 -- BioShield Technologies, Inc. Stock Incentive Agreement, dated as of December 1, 1998 for an
option to purchase 150,000 shares for Timothy C. Moses (4)
10.54 -- Employment letter for Maggie M. Perritt, dated as of May 20, 1999 (4)
10.55 -- Employment Agreement for John T. Adams, dated as of June 14, 1999 (4)
10.56 -- iXL Master Service Agreement between iXL, Inc. and BioShield Technologies, Inc., dated as of
June 7, 1999 (4)
10.57 -- Strategic Alliance Agreement between iXL Enterprises, Inc. and Allergy Superstore.com, Inc.,
dated as of July 9, 1999 (4)
10.58 -- Securities Purchase Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackson, LLC (4)
10.59 -- Registration Rights Agreement, dated as of June 30, 1999 by and among BioShield Technologies
and Jackson, LLC (4)
10.60 -- Registration Rights Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackson, LLC (4)
10.61 -- Transfer Agent Instructions, dated as of June 30, 1999 (4)
10.62 -- Warrant Agreement, dated as of June 30, 1999 by and among Allergy Superstore.com, Inc. and
Jackon, LLC (4)
10.63 -- Securities Purchase Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and Cache Capital (USA) L.P. (4)
10.64 -- Registration Rights Agreement, dated as of August 25, 1999 by and among BioShield
Technologies and Cache Capital (USA) L.P. (4)
10.65 -- Registration Rights Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and Cache Capital (USA) L.P. (4)
10.66 -- Transfer Agent Instructions, dated as of August 25, 1999 (4)
10.67 -- Warrant Agreement, dated as of August 25, 1999 by and among Allergy Superstore.com, Inc.
and Cache Capital (USA) L.P. (4)
10.68 -- Securities Purchase Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and GPS America Fund Ltd (4)
10.69 -- Registration Rights Agreement, dated as of August 25, 1999 by and among BioShield
Technologies and GPS America Fund Ltd (4)
10.70 -- Registration Rights Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and GPS America Fund Ltd (4)
10.71 -- Transfer Agent Instructions, dated as of August 25, 1999 (4)
10.72 -- Warrant Agreement, dated as of August 25, 1999 by and among Allergy Superstore.com, Inc.
and GPS America Fund Ltd (4)
10.73 -- Securities Purchase Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and Atlantis Capital Fund Limited (4)
10.74 -- Registration Rights Agreement, dated as of September 2, 1999 by and among BioShield
Technologies and Atlantis Capital Fund Limited (4)
10.75 -- Registration Rights Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and Atlantis Capital Fund Limited (4)
10.76 -- Transfer Agent Instructions, dated as of September 2, 1999 (4)
10.77 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy Superstore.com, Inc.
and Atlantis Capital Fund Limited (4)
10.78 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy Superstore.com, Inc.
and J.P. Carey Securities, Inc. (4)
10.79 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy Superstore.com, Inc.
and Greenfield Capital Partners, LLC (4)
10.80 -- Legal Opinion of Sims Moss Kline & Davis LLP, dated as of June 30, 1999 (4)
10.81 -- Placement Agent Agreement, dated as of June 30, 1999 between Allergy Superstore.com, Inc.
and J.P. Carey Securities, Inc. (4)
10.82 -- Private Equity Credit Agreement by and between Jackson, LLC and BioShield Technologies,
Inc., dated as of June 30, 1999 (4)
10.83 -- Registration Rights Agreement, dated as of June 30, 1999 between BioShield Technologies, Inc. (4)
10.84 -- Transfer Agent Letter, dated as of June 30, 1999 (4)
10.85 -- Lease Agreement with Technology Park, dated as of July 6, 1999 (4)
10.86 -- Guaranty of BioShield Technologies, Inc. to Lease Agreement, dated as of July 7, 1999 (4)
10.87 -- Financial Advisory and Consulting Agreement, dated as of August 1, 1999 between BioShield
Technologies, Inc. and White Capital Group, Ltd. (4)
10.88 -- Harwood House Contract for Interior Design, dated as of August 18, 1999 (4)
10.89 -- Summit Marketing Group, Inc. Marketing Proposal, dated as of August 19, 1999 (4)
10.90 -- Employment Agreement dated as of August 30, 1999 between eMD.com, Inc. and Sharon Kay Allred (4)
10.91 -- Contract for Purchase of NDC Managed Care Mail Order Pharmacy System, dated as of
September 7, 1999 (4)
10.92 -- Offer of Employment to Eric B. Adams, dated as of June 12, 1999 (4)
10.93 -- Employment agreement, dated as of September 10, 1999 between eMD.com, Inc. and
Wayne A. Roberts (4)
10.94 -- Construction Agreement between Beers Construction Company and eMD.com, Inc., dated as of
September 13, 1999 (4)
10.95 -- Employment Agreement between the Company and Timothy S. Heyerdahl dated October 11, 1999 (5)
10.96 -- Employee Stock Option Agreement between the Company and Timothy S. Heyerdahl dated
October 11, 1999 for BioShield Technologies, Inc. common stock. (5)
10.97 -- Employee Stock Option Agreement between the Company and Timothy S. Heyerdahl dated
October 11, 1999 for Electronic Medical Distribution, Inc. common stock. (5)
10.98 -- Warrant Agreement between the Company and CLR & Associates dated September 29, 1999. (5)
10.99 -- Employment Agreement between Electronic Medical Distribution, Inc. and Timothy S. Heyerdahl dated
November 17, 1999 (1)
23.1 -- Form of Consent by Grant Thornton, LLP (1)
23.2 -- Consent of Sims Moss Kline & Davis LLP (included in Exhibit 5.1)
</TABLE>
- ----------
(1) Filed herewith
(2) Previously Filed
(3) Confidential treatment has been requested with respect to portions of this
document. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(4) Filed as the corresponding exhibit to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1999 and incorporated herein by
reference.
(5) Filed as the corresponding exhibit to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1999 and incorporated
herein by reference.
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
II-5
<PAGE> 105
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 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-6
<PAGE> 106
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 November
19, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Timothy C. Moses President; Chief Executive Officer; November 19, 1999
- ----------------------------- Director (Principal Executive Officer)
Timothy C. Moses
/s/ Jacques Elfersy Chairman of the Board; Vice President of November 19, 1999
- --------------------------- Operations and Director of Regulatory
Jacques Elfersy* Affairs
/s/ Timothy S. Heyerdahl Executive Vice President and Chief November 19, 1999
- --------------------------- Financial Officer (Principal Financial
Timothy S. Heyerdahl and Accounting Officer)
/s/ Carl T. Garner Director November 19, 1999
- ---------------------------
Carl T. Garner*
/s/ Michel Azran Director November 19, 1999
- ---------------------------
Michel Azran*
*By Power of Attorney /s/ Timothy C. Moses
---------------------
Timothy C. Moses
</TABLE>
II-7
<PAGE> 1
EXHIBIT 10.99
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of October 11,
1999, between ELECTRONIC MEDICAL DISTRIBUTION, INC. D/B/A EMD.COM, a Delaware
corporation (the "Company"), and TIMOTHY S. HEYERDAHL (the "Executive").
1. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to be employed by the Company, on
the terms and conditions set forth herein.
2. Term.
(a) The "Initial Term" of the employment of the Executive
by the Company as provided in Section 1 will commence on October 11,
1999 (the "Effective Date") and will terminate at 11:59 p.m. on
October 11, 2002 (the "Expiration Date") unless extended or sooner
terminated as hereinafter provided (such period, the "Employment
Period").
(b) The "Employment Period" may be extended beyond the
Initial Term by the mutual agreement of the parties in writing (the
"Extended Term").
(c) The "Business" of the Company is the provision of
medical and health-related products, services and information to
consumers and healthcare providers predominantly over the internet.
3. Position, Duties and Responsibilities.
(a) Position. The Executive hereby agrees to serve as
Chief Financial Officer of the Company and of the Company's parent,
BioShield Technologies, Inc., a Georgia corporation.
(b) Place of Employment. During the term of this
Agreement, the Company's headquarters shall be located in the Atlanta,
Georgia area.
(c) Other Activities. Except with the prior written
approval of the Board of Directors of the Company (the "Board") (which
the Board may grant or withhold in its sole and absolute discretion),
the Executive, during the Employment Period, will not (i) accept any
other employment, or (ii) engage, directly or indirectly, in any other
business activity (whether or not pursued for pecuniary advantage)
that is or may be competitive with or that might place him in a
competing position to, that of the Company or any of its affiliates.
Notwithstanding the foregoing, the Company agrees that the Executive
(or affiliates of the Executive) shall be permitted: (i) to make any
passive personal investments that are not in a business activity that
is directly or indirectly competitive with the Company (ii) to
participate in industry organizations, (iii) with the consent of the
Board of Directors of the Company, to be a member of Boards of
Directors of other entities which do not directly compete with the
Company, and (iv) to participate in charitable or educational
activities.
- 1 -
<PAGE> 2
4. Compensation and Related Matters.
(a) Salary. During the Employment Period, the Company
shall pay the Executive a salary of Two hundred forty thousand DOLLARS
($240,000.00) annually (the "Salary").
(b) Bonus. The Executive shall also be eligible for an
annual bonus up to 100% of the Executive's Salary. The President and
Chief Executive Officer of the Company shall recommend to the
Compensation Committee of the Board of Directors whether Executive
shall receive a bonus and, if so, the amount of such bonus, based upon
quantifiable deliverables and objectives determined by the President
and Chief Executive Officer and/or the Compensation Committee of the
Board of Directors. Executive understands and agrees that the
Compensation Committee of the Board of Directors has sole discretion
to determine if Executive will receive a bonus and, if so, the amount
of such bonus.
(c) Stock Options. The Company shall recommend to the
Compensation Committee of the Board of Directors of the Company that
Executive be granted as of the date of this Agreement an option to
purchase 200,000 shares of the Company's common stock at a price to be
determined by such committee with the shares to be exercisable in one
third increments on the first, second and third anniversaries of
grant, respectively. The Company shall also recommend to the
Compensation Committee of the Board of Directors of BioShield
Technologies, Inc. that Executive be granted as of November 17, 1999,
an option to purchase 50,000 shares of the common stock of BioShield
Technologies, Inc. at an exercise price per share of the mean between
the high and low sales price of the stock on the date of grant with
the shares to be exercisable in one third increments on the first,
second and third anniversaries of grant, respectively.
(d) Vacation. During the Employment Period Executive shall
be entitled to twenty days of vacation during each calendar year.
These days of vacation shall be non-cumulative which means that he
receives the twenty days of vacation at the beginning of each calendar
year for use during the calendar year. Days of vacation not used
during a calendar year shall not carry over and shall be forfeited. In
the event, the Executive requests time off between signing of this
agreement and December 31, 1999, the Executive can discuss the request
with the Chief Executive Officer.
(e) Business Expenses. The Company will reimburse the
Executive for reasonable bona fide business expenses incurred on
behalf of the Company in the ordinary course of business, provided,
however, that the expense is otherwise deductible by the Company as an
ordinary and necessary business expense for federal income tax
purposes.
(f) General Benefits. The Executive shall generally be
entitled to participate in or receive health, long-term disability
insurance, and similar benefits as the Company provides from time to
time to its executives. The Executive shall cooperate with the
issuance of a key man term life insurance policy for the benefit of
the Company, if so requested by the Company.
- 2 -
<PAGE> 3
(g) Professional Dues and Fees. The Executive shall be
entitled to reimbursement for his professional dues and any expenses
related to the educational requirements to maintain his status as a
Certified Public Accountant.
(h) Health Club. Executive shall receive reimbursement for
the monthly dues of a Health Club of his choice up to $300.00 per
month; provided, however, that no reimbursement will be paid to
Executive unless such a payment may be deducted by the Company as an
ordinary business expense.
(i) Withholding. All salary, bonus payments, stock option
exercises, benefit payments and other payments due to Executive under
this Agreement shall be paid in a manner consistent with the standard
payroll practices of the Company. The Company may withhold from any
payment any required taxes or other governmental withholdings,
insurance or benefit payments and similar items.
5. Termination or Resignation.
(a) Termination. The Executive's employment hereunder
shall be, or may be, as the case may be, terminated and shall
constitute a "Termination" under the following circumstances:
(i) Death. The Executive's employment hereunder
shall terminate upon his death.
(ii) Disability. The Executive's employment
hereunder shall terminate on the Executive's physical or
mental disability or infirmity which, in the opinion of a
competent physician selected by the Board, renders the
Executive unable to perform his duties under this Agreement
for more than 30 days during any 120-day period.
(iii) With Cause. The Company may terminate the
Executive's employment hereunder for Cause. "Cause" shall
mean (i) Employee's material breach of any of the terms of
this Agreement, (ii) his conviction of a crime involving
moral turpitude or constituting a felony under the laws of
any state, the District of Columbia or of the United States,
(iii) his gross negligence, willful misconduct or fraud in
the performance of his duties hereunder; (iv) his repeated
failure or refusal to follow the directives of the Board; or
(v) inappropriate business conduct that is directly related
to Executive's activities on behalf of the Company that may
cause material harm to the business interests of the Company.
(iv) By the Company for Any Other Reason. The
Company may terminate the Executive's employment hereunder at
any time for any reason other than the Executive's Death or
Disability or for Cause.
(v) Termination by Executive for Good Reason.
The Executive may terminate his employment with the Company
at any time for "Good Reason." "Good Reason" shall mean
without the express written consent of the Executive the
occurrence of any of the following events unless such events
are substantially corrected within thirty (30) days following
written notification by Executive to the
- 3 -
<PAGE> 4
Company that he intends to terminate his employment hereunder
for one of the following reasons: (i) any material reduction
or diminution in the duties, responsibilities and status of
Executive's position; (ii) a material breach by the company
of any provision of this Agreement; (iii) a relocation by the
Company of its principal place of business to another city or
state more than fifty (50) miles from Norcross, Georgia and
the Company requires Executive to relocate to such new
principal place of business; and (iv) the occurrence of a
Change in Control. The Executive understands, acknowledges
and agrees that any voluntary resignation by him shall not
constitute Good Reason. Further Executive understands,
acknowledges and agrees that if the Company is separated from
its parent BioShield Technologies, Inc. through an initial
public offering, stock dividend or otherwise and he no longer
serves as chief financial officer of BioShield Technologies,
Inc., this will not constitute Good Reason under this
Agreement.
As used in this Agreement, "Change of Control" means
the occurrence of any of the following: (i) the adoption of a
plan relating to the liquidation or dissolution of the
Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result
of which is that any person or group, other than Jacques
Elfersy or Timothy C. Moses or their affiliates (the
"Principals"), becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of 1934), directly or indirectly, of more than
fifty percent (50%) of the total voting power of the total
outstanding shares of the Company on a fully diluted basis,
or (iii) the consummation of the first transaction
(including, without limitation, any merger or consolidation)
the result of which is that any person or group, other than
the Principals, becomes the beneficial owner, directly or
indirectly, of more than fifty percent (50%) of the total
voting power of the total outstanding voting stock of the
Company on a fully diluted basis.
Notwithstanding anything to the contrary above the
sale of the Company's stock to the public in an initial
public offering or otherwise shall not constitute a Change in
Control.
(vi) Termination by Executive for Any Reason
Other Than Good Reason. The Executive may voluntarily resign
his position and terminate his employment and Salary with the
Company at any time, with or without cause, by delivery of a
written notice of resignation to the Company (the "Notice of
Resignation"). The Notice of Resignation shall set forth the
date such resignation shall become effective (the "Date of
Resignation"), which date shall, in any event, be at least
thirty (30) days and no more than sixty (60) days from the
date the Notice of Resignation is delivered to the Company.
At its option, the Company may reduce such notice period to
any length, upon written notice to the Executive.
(b) Notice of Termination by Company. Any termination of
the Executive's employment by the Company shall be communicated by
written Notice of Termination to the Executive. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied
upon and shall set forth, if applicable, in reasonable detail the
facts and circumstances claimed to
- 4 -
<PAGE> 5
provide a basis for termination of the Executive's employment under
the provision so indicated. "Date of Termination" shall mean (i) if
the Executive's employment is terminated by his death, the date of his
death, (ii) if the Executive's employment is terminated by reason of
his disability, the date of the opinion of the physician referred to
in Section 5(a)(ii), above, (iii) if the Executive's employment is
terminated by the Company for Cause pursuant to subsection 5(a)(iii)
above or without Cause pursuant to subsection 5(a)(iv) above, the date
specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(c) above, the date of the
Notice of Resignation.
(c) Executive is Employee-At-Will. Notwithstanding the
Term of this Agreement and the annual salary to be paid to the
Executive during his employment with the Company, nothing in this
Agreement should be construed as to confer any right of the Executive
to be employed by the Company for a fixed or definite term. Subject to
Section 6 hereof, the Executive hereby agrees that the Company may
dismiss him under subsection 5(a) hereof without regard (i) to any
general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to
any statements made to the Executive, whether made orally or contained
in any document, pertaining to the Executive's relationship with the
Company. The Executive's employment with the Company is at will and
may be terminated by the Company at any time by delivery of a Notice
of Termination to the Executive, for any reason, with or without
cause, without liability except with respect to the payments provided
for by Section 6(d).
(d) Termination Obligations. In exchange for the Company
entering into the Agreement and payment of the Severance Payments
provided for in Sections 6(b) and 6(e) herein, the Executive agrees
that, at the time of his resignation or termination from the Company:
(i) The Executive will promptly return to the
Company all personal property, both tangible and intangible,
furnished to or prepared by the Executive in the course of or
incident to his employment, the Executive hereby
acknowledging and agreeing that such property belongs to the
Company, such that following termination the Executive will
not retain any written or other tangible material containing
any proprietary information of the Company. "Personal
property" includes, without limitation, all computers,
cellular phones, company credit cards, access keys, books,
manuals, records, reports, notes, contracts, lists and other
documents or materials, or copies thereof (including computer
files), and all other proprietary information relating to the
business of the Company.
(ii) The Executive will tender his resignation
from all offices and directorships then held with the
Company.
(iii) The Executive will execute a release
acceptable to the Company of all liability of the Company,
and its directors, officers, shareholders, employees, agents
and attorneys, to the Executive in connection with or arising
out of his employment with the Company, except with respect
to any Severance Payments under Sections 6(b) or 6(d) which
may be payable to him under the terms of the Agreement.
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<PAGE> 6
(iv) The representations and warranties contained
herein and the Executive's obligations under Sections 5(d),
7, 8, 9 and 15 through 18 shall survive termination of the
Employment Period and the expiration of this Agreement.
6. Compensation Upon Termination. Upon the occurrence of any of
the events described Section 5(a)(i) through 5(d)(vi) of this Agreement, the
Executive shall be entitled, unless otherwise provided herein, to the following
remuneration in respect of such Termination (the "Severance Payments") for the
period of time specified therein (the "Severance Period"):
(a) Death. If the Executive's employment shall be
terminated pursuant to Section 5(a)(i), the Company shall pay the
Executive's personal representative his Salary payable pursuant to
Section 4(a) through the Date of Termination. At the Executive's own
expense, the Executive's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable
law.
(b) Disability. If the Executive's employment shall be
terminated by reason of disability pursuant to Section 5(a)(ii), the
Executive shall receive his Salary payable pursuant to Section 4(a) up
to the Date of Termination and for 30 days thereafter; provided that
payments so made to the Executive during the disability shall be
reduced by the sum of the amounts, if any, payable to the Executive at
or prior to the time of any such payment under any disability benefit
plan of the Company. At the Executive's own expense, the Executive and
his dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be
terminated for Cause pursuant to Section 5(a)(iii) hereof, the Company
shall pay the Executive his Salary then payable pursuant to Section
4(a) through the Date of Termination. At the Executive's own expense,
the Executive and his dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable
law.
(d) Voluntary Resignation. If the Executive terminates his
employment with the Company pursuant to Section 5(a)(vi) hereof, the
Company shall have no obligation to compensate the Executive following
the Date of Resignation, except for the payment of accrued and unpaid
salary pursuant to Section 4(a) through the Date of Resignation. In
any event, at the Executive's own expense, the Executive and his
dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
(e) Termination Without Cause by Company and Termination
For Good Reason by Executive. If the Company terminates Executive's
employment with the Company pursuant to Section 5(a)(iv) or the
Executive terminates his employment with the Company pursuant to
Section 5(a)(vi) hereof, the Company shall pay to Executive all Salary
payable pursuant to Section 4(a), as Severance Payments through a
period ending twelve (12) months following the Date of Termination.
Further beginning one month after the Date of Termination the Company
shall pay to Executive in six monthly installments an amount equal to
the average of all annual bonuses paid or payable to Executive during
the Term of this agreement prior to the Date of Termination. In
addition for the period that the Severance Payments are being paid to
the Executive, the Executive and the Executive's family shall be
entitled to receive welfare plan benefits (other than continued group
long-term disability coverage) generally available to executives of
the Company with comparable
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<PAGE> 7
responsibilities or positions at the same cost to the Executive as is
charged to such similar executives from time to time for comparable
coverage. The Company shall have no other obligation to compensate the
Executive following the Date of Termination.
(f) Any Severance Payments made pursuant to this Section 6
shall be payable in accordance with the Company's regular payroll
practices. The obligation of the Company to make the Severance
Payments to the Executive is expressly conditioned upon the Executive
complying and continuing to comply with his obligations and covenants
under Sections 5(d), 7 and 8 of this Agreement following termination
of his employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
(a) Confidentiality. In addition to the agreements set
forth in Section 5(e), the Executive hereby agrees that the Executive
will not, during the Employment Period or at any time thereafter
directly or indirectly disclose or make available to any person, firm,
corporation, association or other entity for any reason or purpose
whatsoever, any Confidential Information (as defined below). The
Executive agrees that, upon Termination of his employment with the
Company, all Confidential Information in his possession that is in
written or other tangible form (together with all copies or duplicates
thereof, including computer files) shall be returned to the Company
and shall not be retained by the Executive or furnished to any third
party, in any form except as provided herein; provided, however, that
the Executive shall not be obligated to treat as confidential, or
return to the Company copies of any Confidential Information that (i)
was publicly known at the time of disclosure to the Executive, (ii)
becomes publicly known or available thereafter, but prior to the Date
of Termination, other than by any means in violation of this Agreement
or any other duty owed to the Company by any person or entity or (iii)
is lawfully disclosed to the Executive by a third party. As used in
this Agreement the term "Confidential Information" means: information
disclosed to the Executive or known by the Executive as a consequence
of or through his relationship with the Company, about the directors,
officers, shareholders, customers, employees, investors, business
methods, public relations methods, organization, procedures or
finances, including, without limitation, information of or relating to
shareholder , customer or investor lists of the Company and any
affiliate.
(b) Non-Solicitation. In addition, the Executive hereby
agrees that during the Employment Period, and for a period of one (1)
year thereafter, regardless of the reason or circumstances of
Termination of employment with the Company, the Executive will not,
directly or indirectly, solicit or attempt to solicit away from
Company any of its officers or employees or offer employment to any
person who, at any time during the six (6) months immediately
preceding the Date of Termination, is or was an officer or employee of
Company.
8. Covenant Not to Compete. The Executive agrees that during the
Employment Period he will devote full-time to the business of the Company and
not engage in any type of business which engages in the medical internet,
online pharmacy and information services or any other related businesses,
including but not limited to all aspects of the Business. Subject to such
full-time requirement and the restrictions set forth below in this Section 8
and Section 3(c) above, the Executive shall be permitted to continue his
existing business investments and activities and may pursue additional business
investments; provided that the Executive not serve as a director or
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<PAGE> 8
officer of any public company resulting from such business investments. The
Executive agrees that, from the end of the Employment Period through a one (1)
year period thereafter, he shall not, within the Protected Territory (as
defined hereinafter), (i) invest in, manage, consult or participate in any way
in any other business in competition with the Business (in either an active or
passive manner), (ii) participate in or advise any business which has business
activities similar to the Business, or (iii) act for or on behalf of any
business that intends to enter or participate in any business which has any
business activities similar to the Business, in each case unless the
independent members of the Company's Board determines that such action is in
the best interests of the Company. Notwithstanding the foregoing, the Executive
may purchase stock as a stockholder in any publicly traded company, including
any company which is involved in the development or operation of a medical
internet site in the Protected Territory; provided that the Executive does not
own (together or separately or through his affiliates) more than five percent
(5%) of any company (other than the Company) engaged in a business which is
competitive with the Business of the Company within the Protected Territory. In
addition, the Executive shall not invest (directly or indirectly) in any
business which is competitive with the Business operating within the Protected
Territory unless the independent members of the Company's Board determines that
such an investment is in the best interests of the Company. For purposes of
this Agreement, the "Protected Territory" shall mean that area within a one
hundred (100) mile radius of the principal offices of the Company at the Date
of Termination.
9. Injunctive Relief and Enforcement. In the event of breach by
the Executive of the terms of Sections 5(d), 7 or 8, if the Company believes it
is suffering irreparable injury, then the Company shall, notwithstanding the
requirement of final and binding arbitration contemplated in Section 16 below,
be entitled to institute legal proceedings to enforce the specific performance
of this Agreement by the Executive and to enjoin the Executive from any further
violation of Sections 5(d), 7 or 8 and to exercise such remedies cumulatively
or in conjunction with all other rights and remedies provided by law and not
otherwise limited by this Agreement. The Executive acknowledges, however, that
the remedies at law for any breach by him of the provisions of Sections 5(d), 7
or 8 may be inadequate. In addition, in the event the covenants set forth in
Sections 5(d), 7 or 8 shall be determined by any court of competent
jurisdiction to be unenforceable by reason of extending for too great a period
of time or over too great a geographical area, by reason of being too
restrictive or expansive, or by constituting an unlawful restraint of trade in
any other respect, each such covenant shall be interpreted to extend over the
maximum period of time and over a maximum geographical area for which it may be
enforceable, and to the maximum extent in all other respects as to which it may
be enforceable, and enforced as so interpreted, all as determined by such court
in such action.
10. Notice. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with written confirmation of transmission and receipt,
three (3) days after deposit in the U.S. mail, first class, with adequate
postage thereon, or one (1) day after delivery to an overnight air courier
guaranteeing next day delivery, addressed as follows:
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<PAGE> 9
If to the Executive: Mr. TIMOTHY S. HEYERDAHL
2340 Blackheath Trace
Alpharetta, Georgia 30005
If to the Company: eMD.COM
5655 Peachtree Parkway
Norcross, Georgia 30093
Attention: President
With a copy to: Schreeder, Wheeler & Flint, LLP
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Attention: Edward H. Brown, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt as provided above.
11. Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect; provided, however, that if any one or more of the terms
contained in Sections 5(d), 7 or 8 hereto shall for any reason be held by any
court of competent jurisdiction to be unenforceable by reason of extending for
too great a period of time or over too great a geographical area, by reason of
being too restrictive or expansive, or by constituting an unlawful restraint of
trade in any other respect, then such covenant shall not be deleted but shall
be reformed and constructed in a manner to enable it to be enforced to the
extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the
Executive, but may be assigned by the Company to any successor to its business
and will inure to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Headings. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of Georgia (without reference to the choice of law provisions of
Georgia), except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
16. Arbitration. Absent any irreparable injury being suffered by
the Company entitling the Company to seek injunctive relief against the
Executive pursuant to Section 9 hereof, in the
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<PAGE> 10
event there shall be a dispute among the parties arising out of or relating to
this Agreement, or the breach thereof, the parties agree that such dispute shall
be resolved by final and binding arbitration in Atlanta, Georgia under the rules
of the American Arbitration Association. Any award issued as a result of such
arbitration shall be final and binding between the parties thereto, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought. The fees and expenses relating to such arbitration (with
the exception of the Executive's attorneys' fees, if any) or any action to
enforce an arbitration award shall be shared equally by the Company and the
Executive.
15. Entire Agreement. This Agreement contains the entire
agreement and understanding between the Company and the Executive with respect
to the employment of the Executive by the Company as contemplated hereby, and
no representations, promises, agreements or understandings, written or oral,
not herein contained shall be of any force or effect. This Agreement shall not
be changed unless in writing and signed by both the Executive and the Board of
the Company.
18. Board Approval. In any case in which this Agreement provides
for the approval, review or determination of the Board in connection with the
Executive's compensation, benefits, termination or compliance with restrictive
covenants herein expressed, then such approval, review or determination shall
be deemed a "Director's conflicting interest transaction", subject to the
procedures required by O.C.G.A. ss. 14-2-860 et seq.
19. The Executive's Acknowledgment. The Executive acknowledges he
has had the opportunity to consult with independent counsel
of his own choice concerning this Agreement, and he has read
and understands the Agreement, is fully aware of its legal
effect, and has entered into it freely based on his own
judgment.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the date and year first above written.
ELECTRONIC MEDICAL DISTRIBUTION, INC.
d/b/a eMD.com
By: /s/ Jacques Elfersy
------------------------------------
Title: Date: November 17, 1999
---------------------------------- -----------------
/s/ Timothy S. Heyerdahl Date: November 17, 1999
- ---------------------------------------- -----------------
TIMOTHY S. HEYERDAHL
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<PAGE> 1
ACCOUNTANTS AND [GRANT THORNTON LOGO]
MANAGEMENT CONSULTANTS GRANT THORNTON LLP
The US Member Firm of
Grant Thornton International
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BioShield Technologies, Inc.
Atlanta, Georgia
We have issued our report dated August 19, 1999, accompanying the financial
statements and schedules of BioShield Technologies, Inc. contained in the
Registration Statement and Prospectus on Form SB-2. We hereby consent to the
use of the aforementioned report in the Post-Effective Amendment No. 2 to the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
/s/ GRANT THORNTON LLP
Atlanta, Georgia
November 22, 1999
