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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 2000
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BIOSHIELD TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 2842 58-2181628
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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: From time to time after
the effective date of the Registration Statement.
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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. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Amount Proposed maximum offering Proposed maximum
Title of each class of to be price aggregate Amount of
securities to be registered registered(1) per share offering price(2) registration fee
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<S> <C> <C> <C> <C>
Common Stock, no par value 2,500,000 shares $10.1875 $25,468,750 $6,723.75
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</TABLE>
(1) The shares of common stock set forth in the Calculation of Registration
Fee Table, and which may be offered pursuant to this Registration Statement,
includes, pursuant to Rule 416 of the Securities Act of 1933, as amended, such
additional number of shares of the Registrant's common stock that may become
issuable as a result of any stock split, stock dividend or similar event.
(2) Estimated solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low prices for the
Company's common stock as reported on the Nasdaq SmallCap Market(TM) on
January 5, 2000 in accordance with Rule 457 under the Securities Act of 1933.
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.
2,500,000 Shares of Common Stock
This prospectus relates to the resale of up to 2,500,000 shares of our common
stock, which we may sell to Jackson, LLC pursuant to the terms of a private
equity credit agreement.
Jackson LLC is an "underwriter" within the meaning of the Securities Act in
connection with the resale of the shares it receives pursuant to the private
equity credit agreement. Accordingly, the 20% discount on the purchase of the
common stock to be received by Jackson LLC will be an underwriting discount
under the Securities Act.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol BSTI.
On January 7, 2000, the closing bid price of our common stock on the Nasdaq
SmallCap Market was $10.375.
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.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is January 10, 2000
<PAGE> 4
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 5.
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, Bioshield 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
Under the equity line credit agreement, Bioshield is entitled to
periodically cause Jackson LLC to purchase shares of Bioshield common stock.
The following is a summary of the terms of that agreement:
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<S> <C>
Securities to be sold: Bioshield common stock
Maximum purchase price: $10,000,000
Period of sale: 24 months after the date of this
prospectus
Maximum amount of each draw: $1,500,000
Minimum amount of each draw: $ 250,000
Draw dates: Dates selected by Bioshield, but no
more frequently then once every 20
trading days.
Sale price per share to
Jackson LLC: 80% of average market price
Payment and delivery of shares: 20 trading days following a draw
Conditions to draws: - Average market price of our common
stock has been at least $1
- Our common stock must continue to be
traded on The Nasdaq SmallCap Market
- No more than a total of 1,263,831
shares may be issued to Jackson LLC by
Bioshield under the agreement and this
prospectus, unless we have secured
shareholder consent to exceed that
number
- Jackson LLC's ownership of our common
stock after each draw cannot exceed
9.9% of our outstanding shares
- The registration statement which
includes this prospectus must be
effective
Limits on short sales: Jackson LLC may engage in short sales
only after we have notified it of an
upcoming draw, and only with respect to
the number of shares covered by the
draw
Ability to immediately resell shares: Jackson LLC is able to immediately
resell to the public any shares it
acquires from us
Finder's fee: For arranging the sale to Jackson LLC,
we have agreed to pay to J.P. Carey
Securities, Inc., as agent, and
Greenfield Capital Partners LLC, as
subagent, the following fees:
- a aggregate of 4% of the cash
received from each draw;
- warrants equal to 6,666 shares
per each $1 million raised in
each draw. The warrants will have
an exercise price equal to the
fair market value of a share of
Bioshield's stock on the day
immediately prior to the draw,
and will have a term of 5 years.
</TABLE>
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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."
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL PERIODS ENDED JUNE 30, ENDED SEPTEMBER 30,
--------------------------------------------- ----------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
1998 1999 1999
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<S> <C> <C> <C>
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
</TABLE>
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 Bioshield'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;
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- 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.
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.
WE ARE A DEVELOPMENT STAGE COMPANY ENGAGED IN PRODUCT DEVELOPMENT AND WITH
LIMITED OPERATING HISTORY
Bioshield was organized in June 1995 and is a development stage
company. Bioshield'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.
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
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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.
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 Bioshield
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, together
with the anticipated proceeds of this offering, will be sufficient to satisfy
our estimated cash requirements for up to twelve months. 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 Bioshield 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.
We may also need to raise additional funds 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."
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.
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BIOSHIELD WILL NOT BE ABLE TO GROW IF OUR PRODUCTS ARE NOT APPROVED, AND WE
BEAR SUBSTANTIAL REGULATORY COSTS
The development, manufacture, testing and marketing of all of our
products are subject to extensive regulation by numerous authorities in the
United States and other countries. In the United States, before new
antimicrobial products for humans are permitted to be marketed commercially,
they must undergo extensive preclinical and clinical testing. Delays in
obtaining regulatory approvals may adversely affect the development, testing or
marketing of our products and our ability to generate revenues from the sale or
licensing of such products. There can be no assurance that we will obtain
regulatory approvals in the United States or any other country to sell our
products for such purposes.
WE ARE AT A COMPETITIVE DISADVANTAGE TO LARGE, WELL-ESTABLISHED COMPANIES
The markets for our products are competitive. Competition from
companies that produce antimicrobials for commercial use is intense and
expected to increase. There can be no assurance that other companies with the
expertise or resources that would encourage them to attempt to develop or
market competing products will not develop new products directly competitive
with our products. We are aware of several other companies that manufacture
products that compete directly with our products. Certain of these companies
have well-established reputations for success in the development, sale and
service of conventional antimicrobials and have substantially greater
financial, technical, personnel and other resources than we do. We compete on
the basis of technological suitability, quality, performance characteristics
and price of our products, our ability to meet customer specifications, and the
quality of technical assistance and service furnished to our customers. There
can be no assurance that we will be able to compete successfully, that
competitors will not develop technologies or products that render our products
obsolete or less marketable or that 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 we deem appropriate; there can be no
assurance that we 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 we 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 our
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.
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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 Bioshield'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 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."
BIOSHIELD IS CONTROLLED BY MESSRS. MOSES AND ELFERSY, WHOSE INTERESTS DO NOT
ALWAYS COINCIDE WITH YOURS
Mr. Moses, Co-Chairman, President, and Chief Executive Officer of
Bioshield, and Mr. Elfersy, Co-Chairman of the Board, Senior Vice President,
Treasurer, Secretary and Director, beneficially own approximately 22.7%, and
approximately 24.9%, 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 Bioshield. 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 Bioshield'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 Bioshield that you would prefer to occur. See
"Risk Factors -- Anti-Takeover Provisions," "Principal Shareholders," and
"Description of Common Stock."
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.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 11, 1999, there were 4,505,092 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
We have filed a registration statement covering 1,300,000 shares of
common stock issuable upon exercise of our publicly-traded redeemable warrants.
That registration statement also covers up to 130,000 shares of common stock
and 65,000 redeemable underwriters' warrants that may be purchased by the
underwriters of Bioshield's initial public offering and their assignees, and up
to 65,000 shares that may be purchased upon exercise of those redeemable
underwriters' warrants.
The shares of common stock underlying the warrants issued in our
February and March 1998 private placements 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.
Bioshield has agreed that, under certain circumstances, it will register under
federal and state
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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.COM 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 May 31, 2000, to exchange the shares for
freely tradeable registered shares of Bioshield over a minimum period of six
months thereafter at a pre-agreed discount to the then current market price of
Bioshield common stock. The effect of such exchanges, if triggered, may have a
negative impact on the trading prices of Bioshield's common stock, may enable
these investors to acquire a substantial ownership position in Bioshield and
may significantly dilute the interest of existing Bioshield shareholders.
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 Bioshield 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
Bioshield'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 Bioshield. Although
management has no present intention of issuing any shares of its authorized
preferred stock, Bioshield 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
Bioshield to deal directly with Bioshield's Board of Directors. Among the
features of Bioshield'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 Bioshield'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;
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- 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 Bioshield employees,
customers and suppliers and the communities where Bioshield
operates;
- requiring cause and a greater than majority vote of
shareholders to approve removal of directors and amendments
to Bioshield's articles of incorporation or bylaws and
providing for a greater than majority vote of shareholders in
certain circumstances relating to an acquisition of Bioshield
unless the amendment or acquisition have been approved by the
board of directors.
These anti-takeover provisions could also allow the board of directors to
impede or prevent an acquisition of Bioshield 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, Bioshield agreed to submit to its shareholders at its next annual
meeting a proposal to amend Bioshield's Articles and Bylaws to (i) provide that
holders of ten percent (10%) or more of the outstanding shares of Bioshield's
capital stock can call a special shareholders meeting and (ii) eliminate the
"Fair Price" requirements enacted by Bioshield 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 Bioshield's outstanding common stock
to seek approval of Bioshield'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
Bioshield's shareholders. In the event that these proposals are adopted,
Bioshield may be more vulnerable to, among other things, a hostile takeover or
other business combination or transaction that is not approved by Bioshield's
board of directors.
BIOSHIELD HAS NOT PAID DIVIDENDS AND IS NOT LIKELY TO PAY DIVIDENDS FOR AT
LEAST SEVERAL YEARS
To date, Bioshield 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 has 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:
- Bioshield 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 Bioshield 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
Bioshield's securities could be impaired, not only in the number of securities
which could be bought and sold, but also through delays in the timing of
transactions, reduced numbers of security analysts' and the news media's
coverage of Bioshield, 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
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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.
Bioshield 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.
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.
Market prices of emerging Internet companies have been highly
volatile, and the market for our stock may exhibit volatility as well.
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.
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.
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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 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.
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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 Bioshield. 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 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
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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 potential risks and costs. Third-party software,
hardware or services incorporated into 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
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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
- 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 Bioshield, 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;
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- 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
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
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
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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;
- lack of 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
WE MAY NOT RECEIVE ALL OF THE PROCEEDS THAT WE ANTICIPATE FROM OUR AGREEMENT
WITH JACKSON LLC
Our agreement requires Jackson LLC to purchase up to $10,000,000 of our
shares, as we elect from time to time. We are registering 2,500,000 shares
under this prospectus to sell to Jackson LLC. Since the price at which we will
sell our shares to Jackson LLC is at a 20% discount to the average market price
of our common stock, if the average market price is less than $5.00 per share at
the time of sale, we will receive gross proceeds of less than $10,000,000,
unless we determine to file an additional registration statement. In addition,
under the rules of the NASDAQ Stock Market Inc., we cannot issue more than
1,263,831 shares unless we have obtained shareholder approval. Accordingly, if
we do not secure shareholder approval, and if the average market price is less
than approximately $9.9375 per share at the time of sale, we will receive gross
proceeds of less than $10,000,000. For additional information concerning our
agreement with Jackson LLC, see "Financing Agreement with Jackson LLC."
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<PAGE> 21
SHAREHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF SHARES TO
JACKSON LLC
As the market price for our common stock decreases, the number of
shares which may be sold to Jackson LLC will increase. If we were to require
Jackson LLC to purchase our shares at a time when our stock price is depressed,
our existing shareholders' interest in our company will be significantly
reduced. This prospectus covers 2,500,000 shares for sale to Jackson LLC.
If we determine to sell Jackson LLC more than a total of 2,500,000 shares, we
would need to file an additional registration statement. If we determine to sell
Jackson LLC more than a total of 1,263,831 shares, we would require approval of
our shareholders, which may not be obtainable. The following table sets forth
the number of shares that we would issue if we required Jackson LLC to purchase
the maximum amount of $10,000,000 permitted under the agreement, based on a
range of stock prices. The table also shows the percentage that these shares
would constitute, immediately after issuance, of the total number of shares
which would then be outstanding, based on the 6,359,457 shares of common stock
outstanding on November 10, 1999. The per share average market price of $10.75
was the closing bid price on January 3, 2000.
<TABLE>
<CAPTION>
Per Share Average Per Share Price Paid Number of Percentage of
Market Price by Jackson LLC Shares Issuable Outstanding
------------ -------------------- --------------- -----------
<S> <C> <C> <C>
$12.00 $9.60 1,041,667 14.07%
$10.75 $8.60 1,162,791 15.46%
$ 8.00 $6.40 1,562,500 19.72%
$ 6.00 $4.80 2,083,333 24.68%
$ 4.00 $3.20 3,125,000 32.95%
</TABLE>
THE RESALE BY JACKSON LLC OF OUR SHARES MAY LOWER THE MARKET PRICE OF OUR
COMMON STOCK
The resale by Jackson LLC of the common stock that it purchases from
us will increase the number of our publicly traded shares, which could lower
the market price of our common stock. Moreover, the shares that we sell to
Jackson LLC will be available for immediate resale, and the mere prospect of
this transaction also could lower the market price for our common stock
WE MAY NOT BE ABLE TO OBTAIN PAYMENT FROM JACKSON LLC
As discussed below in the section "Financing Arrangement with Jackson
LLC," Jackson LLC's obligation to purchase our shares is dependent upon various
conditions being satisfied. If these conditions are not satisfied, we cannot
require Jackson LLC to purchase our shares. Since the obligation of Jackson LLC
to complete its purchase is not secured or guaranteed, if Jackson LLC does not
have available funds at the time it is required to make a purchase or if
Jackson LLC otherwise refuses to honor its obligation to us, we may not be able
to force it to do so.
INVESTORS WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT REGARDING THE USE OF
PROCEEDS FROM THIS OFFERING.
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 Bioshield and eMD.com, including expansion
of our eMD.com network, advertising, brand promotion, content development and
working capital. 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."
USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock
by Jackson LLC. However, we will receive proceeds from our sale of common stock
to Jackson LLC under the private equity credit agreement. We could receive
proceeds of up to $10,000,000 under the agreement with Jackson LLC, before
payment of any expenses and fees, including the finder's fee to J.P. Carey
Securities, Inc. and Greenfield Capital Partners LLC. We cannot assure you that
we will, or will be allowed to, require Jackson LLC to purchase any of our
common stock. We plan to use the net proceeds received, if any, from the sale
of common stock to Jackson LLC under the
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private equity credit agreement for general corporate purposes and working
capital for Bioshield as well as its majority-owned subsidiary, eMD.com.
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 our 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.
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 our antimicrobial and biostatic products into
multiple industries. In April 1999, we 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. Our 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. We are a development stage Bioshield 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 our antimicrobial products in all division areas.
In April, 1999, we successfully processed the initial shipments of our
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 our 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.
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.
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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 Bioshield'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.
Bioshield'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 Bioshield
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, Bioshield'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 Bioshield 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.
Bioshield also made initial shipments to certain industrial customers in fiscal
1998. In fiscal 1999, Bioshield reduced its marketing efforts for certain of
the products, which were sold in fiscal 1998 in order to analyze the market
acceptance of these products and to launch new products in test markets.
Bioshield'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
Bioshield'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, Bioshield recognized royalty fees
of $75,000 and income from the sale of certain research and development of
$16,667. This income was the
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<PAGE> 24
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 Bioshield 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, Bioshield'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. Bioshield'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
Bioshield'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, there were
29,670,664 issued and outstanding shares of eMD.com. In addition, during the
quarter Bioshield entered into the private equity credit agreement with Jackson
LLC.
Bioshield believes that it has sufficient resources to meet
its short term operating needs. However, Bioshield expects to continue to have
a substantial need to fund operating losses and the purchases of additional
capital equipment for an indefinite period. Accordingly, Bioshield 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. Bioshield 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 Bioshield or eMD.com will be
successful in its efforts to obtain additional capital, that capital will be
available on terms acceptable to Bioshield 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 Bioshield's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in Bioshield's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. Bioshield wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as to
the date made. Bioshield wishes to advise readers that the factors listed above
could affect Bioshield's financial performance and could cause Bioshield's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
Bioshield 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 Bioshield.
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MANAGEMENT CHANGES
During the month of August 1999, two key employees left Bioshield. Dr.
Joachim Berkner, Bioshield's Director of Research and Development, Organic
Chemistry, resigned to take a position with another company. Bioshield is
actively seeking a replacement for Dr. Berkner. Jeffrey A. Parker, Bioshield's
Chief Operating Officer and Vice President of Marketing and Sales, also
resigned and his duties have been distributed to others. Bioshield 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.
SUBSEQUENT EVENTS
In addition to its development and marketing of proprietary
antimicrobials, Bioshield 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, Bioshield 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
Bioshield to revise the labels to remove alleged pesticidal claims. While
Bioshield did not agree with the EPA interpretation that the claims were
pesticidal, Bioshield 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
Bioshield seeking the assessment of a civil penalty in the amount of $97,340
relating to these alleged violations as well as an allegation that Bioshield
refused an EPA inspection in 1998. Bioshield maintains that these allegations
are without merit. However, in a demonstration of good faith and cooperation,
Bioshield, while denying the alleged violations, agreed to the payment of a
substantially reduced penalty on October 30, 1999 in the amount of $72,840.
Bioshield had previously accrued for the potential penalty in fiscal 1999.
In the month of October 1999, Bioshield continued to develop its
eMD.com business infrastructure. Significant contractual payment commitments of
approximately $4,000,000 have been made by Bioshield 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
Bioshield 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
Bioshield's results of operations or its financial position.
Bioshield 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 Bioshield's results of operations or its financial
position.
During 1999, Bioshield 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, Bioshield 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 Bioshield's results of operations or financial position.
BUSINESS
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
Bioshield 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. Bioshield 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.
Bioshield believes that certain manufacturers who utilize our technologies are
able to significantly improve the performance of their products and, in many
cases, differentiate their products in a highly competitive marketplace.
Bioshield 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 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. Bioshield 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 Bioshield will be
successful in commercializing any such applications or obtaining the required
regulatory approvals.
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Bioshield'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. Bioshield 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 Bioshield 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
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, our 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. eMD also expects to generate revenue from the
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healthcare Web site and will focus on promoting the site heavily to increase
awareness, drive traffic, enroll subscribers, and increase sales.
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. Bioshield believes that there has been a significant increase in
demand for environmental services.
ADVANTAGES
Bioshield 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.
Bioshield'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.
Bioshield 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, Bioshield's key active ingredient has, to date, not been shown to
cause genetic mutation or to be teratogenic (causing physical defects in
developing embryos). Bioshield 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, Bioshield 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. Bioshield 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.
Bioshield'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 Bioshield'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.
Bioshield's technology can potentially be used to provide
manufacturers with the following surface properties.
Non-Mutation. Bioshield'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 Bioshield'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. Bioshield's antimicrobial coating converts surfaces to provide
residual activity. The residual activity allows the continuous destruction of
microorganisms on the treated surface. It continuously kills bacteria and other
microorganisms that come in contact with the surface long after the cleaning
steps are completed. The residual activity can last for six months or longer
depending on the environment.
Non-Leaching. Antimicrobial 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. Bioshield'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.
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VERSATILITY
Bioshield's surface conversion technology is an integrated
technology. It combines the chemistry and action of several individual
molecules into one application system. Bioshield's integrated technology can be
modified, providing a versatility to design new coatings with a variety of
properties based on the original technology.
Bioshield's long-term viability, profitability and growth
will depend upon successful commercialization of the products resulting from
its research and product development activities. Bioshield will attempt to gain
market share by forming alliances with strong marketing partners. Bioshield'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 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
Bioshield will be successful in commercializing any such applications or
obtaining the required regulatory approvals.
Bioshield'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
Bioshield'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
Bioshield'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
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.
Bioshield'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.
Bioshield 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,
Bioshield 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
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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 Bioshield
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 Bioshield for commercialization. However,
no assurances can be given that Bioshield will obtain the required regulatory
approvals or will be successful in bringing any of these products to market.
In summary, Bioshield has developed new technologies for the
stabilization of reactive silanes or silane integrated systems in user-friendly
solvents, primarily water. This new technology allows the utilization of a
well-known antimicrobial system into medical and consumer products providing
durable treatments possibly otherwise unavailable.
MARKETING AND SALES FOR BIOSHIELD
There are numerous product, process and service uses for
Bioshield'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.
Bioshield intends to initially concentrate its efforts
towards the marketing and sale of products for the retail consumer and
industrial markets.
Bioshield 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 Bioshield in
the retail consumer market and institutional and industrial marketplaces as
described below.
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.
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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, we have 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. We currently anticipate 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.
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.). We
believe 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.
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POINT OF CARE MEDICATION MANAGEMENT
We believe that our 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.
We believe 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 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.
We believe 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.
PRODUCTS MARKET SEGMENT FOR BIOSHIELD
Retail-Household Care Market. Bioshield 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, Bioshield 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.
Bioshield has made no such acquisition to date.
Bioshield 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, Bioshield 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.
Bioshield is aggressively pursuing the opportunity to provide
a private label fabric refresher to selected retailer customers. Private label
fabric refresher produced by Bioshield 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.
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Bioshield 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.
Bioshield 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
Bioshield 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. Bioshield 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
- 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
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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
Bioshield will seek private label agreements with certain
manufacturers in the janitorial and sanitary supply industry.
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. Bioshield 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
Bioshield 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. Bioshield 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 Bioshield 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 Bioshield 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.
MANUFACTURING
Bioshield currently uses a contractor to manufacture its
products. Should sales warrant increased production, Bioshield 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.
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Bioshield 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, Bioshield 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.
Bioshield'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 Bioshield may, therefore, have a
significant competitive advantage. Bioshield'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 Bioshield.
Bioshield's competitors may succeed in developing products or processes that
are more effective or less costly than any that may be developed by Bioshield
or that gain regulatory approval prior to Bioshield's products. Bioshield 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 Bioshield in manufacturing, marketing
and distributing its products. There can be no assurance that Bioshield 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)
- 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
Bioshield 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. Bioshield files foreign patent applications on some of its
technology and products in countries where, in Bioshield's opinion, business
considerations warrant such filings. The foreign countries in which Bioshield
files patent applications usually include Japan, Canada, Australia, and
countries of the European Economic Community.
Bioshield 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, Bioshield 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
Bioshield's patent applications will mature into issued patents, or, if issued,
that such patents will be adequate to protect Bioshield's products or
processes. In addition, there can be no assurance that Bioshield will be able
to obtain any necessary or desired additional licenses to patents or
technologies of others or that Bioshield will be able to develop its own
additional patentable technologies.
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Bioshield 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 Bioshield. The Emory application discloses and claims
technologies developed in conjunction with Bioshield that are different from,
but similar to, only one of the three technologies developed solely by
Bioshield and on which Bioshield is actively pursuing its own patents. If
patents ultimately issue out of the Emory application, Emory may in the future
seek to assert to Bioshield that the manufacture, sale, and use of certain
antimicrobial products may infringe certain claims of their Emory application
patent and/or foreign counterparts thereof.
Bioshield 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 Bioshield products infringe in the
Emory application patent could have a material adverse effect on the business
and operations of Bioshield.
In addition, there can be no assurance that Bioshield is
aware of all patents or patent applications that may materially affect
Bioshield'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 Bioshield and limit
the ability of Bioshield to obtain meaningful patent protection. If patents are
issued to other companies that contain competitive or conflicting claims,
Bioshield may be required to obtain licensees to these patents or to develop or
obtain alternative technology. There can be no assurance that Bioshield will be
able to obtain any such license on acceptable terms, or at all. If such
licenses are not obtained, Bioshield could be delayed in or prevented from the
development or commercialization of its product candidates, which would have a
material adverse effect on Bioshield. See "Business - Patents" and "Proprietary
Rights" and "Certain Transactions."
Bioshield has currently received one U.S. Patent and one
foreign patent covering its core technology of water soluble organosilane
antimicrobial compounds. Bioshield 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 Bioshield will provide it with
competitive advantages or that Bioshield'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 Bioshield 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 Bioshield's existing or future
patents or proprietary rights. In the event that Bioshield's technology were
deemed to be infringing upon the rights of others, Bioshield could be subject
to damages or enjoined from using such technology or Bioshield 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
Bioshield, or at all. If Bioshield 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
Bioshield's development, manufacture and sale of products requiring such
licenses could be foreclosed. In addition, Bioshield 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.
Bioshield 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.
Bioshield 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. Bioshield is presently aware
of a prior trademark filing for the name "BioShield," which Bioshield believes
has not been used in interstate commerce and has been abandoned. Bioshield 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
Bioshield will be successful in such cancellation proceeding or in securing a
trademark for the name BioShield. Also, Bioshield 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, Bioshield filed a trademark application for eMD.com and logo.
Bioshield 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 Bioshield will be able to protect adequately its trade secrets or that
other companies will not acquire information that Bioshield considers
proprietary. Bioshield will be materially adversely affected if it cannot
maintain its proprietary technologies.
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GOVERNMENT REGULATION
ENVIRONMENTAL PROTECTION AGENCY. Bioshield'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. Bioshield'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, Bioshield and its
strategic partners, if any, must submit proof of safety, efficacy, purity, and
stability, and Bioshield 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
Bioshield 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 Bioshield to be adequate.
Bioshield'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. Bioshield's research and development
activities are subject to comprehensive regulation by numerous governmental
authorities in the United States and other countries. If Bioshield is able to
produce and market products, such production and marketing will place Bioshield
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. Bioshield 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.
For foreign markets, Bioshield 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
Bioshield 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
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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.
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.
Bioshield has also requested EPA approval for three products
with the same active ingredient as AM500. These products are
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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.
Bioshield 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 Bioshield's own source of active ingredient for formulated
BioShield products. It will be manufactured by Bioshield and eliminate the need
to obtain this active ingredient from other registered sources.
FUTURE FILINGS
Bioshield 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. Bioshield
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. Bioshield 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.
Bioshield 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.
Bioshield 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.
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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 Bioshield will be successful in commercializing any of these
products or will receive any of the required regulatory approvals.
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 Bioshield. Bioshield is
actively seeking a successor for Dr. Berkner. Researchers employed by Bioshield
and certain of Bioshield's strategic partners continue limited research and
development activities.
Bioshield'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. Bioshield'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 Bioshield 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 Bioshield's
products are anticipated. There can be no assurance that Bioshield will be
successful in developing these or other products.
During the fiscal years ended June 30, 1998, and 1999, Bioshield
incurred expenses of approximately $232,000 and $718,000, respectively,
resulting from Bioshield-sponsored research and development activities.
Research and development is expected to remain a significant component of
Bioshield's business. However, Bioshield 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. Bioshield 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, Bioshield believes that its 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 our antimicrobial products and the graft may
be possible. Bioshield believes that the unique properties of our core
technology may, under certain circumstances, allow certain products based upon
its technology to form a bound protective layer that allows the grafted skin to
breath and transport liquids, but reduce/prohibit the entry of microorganisms.
Integration of Bioshield's products and research may lead to new skin
treatment products that Bioshield believes may provide effective skin condition
treatment. Adverse skin conditions caused by microbes may be susceptible to
treatment by Bioshield's products. However, no assurances can be given that
Bioshield will be successful in commercializing any of these products or will
receive any of the required regulatory approvals.
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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 Bioshield 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 Bioshield products provides
protection to many surfaces. Application of the products is primarily to clean
surfaces. Integration of Bioshield 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 Bioshield
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,
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, Bioshield 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 Bioshield and eMD.com have moved into the
facility. Bioshield believes that these facilities are adequate for its present
and anticipated needs.
Bioshield also maintains sales, marketing and research offices at 4405
International Blvd., Suite B109, Norcross, Georgia in a 6,900 square foot leased
facility. The building contains offices, meeting rooms and an organic chemistry
lab with a biological storage area. In addition, Bioshield currently leases a
6,000 square foot manufacturing facility in Atlanta, Georgia, but is not
currently using the building.
EMPLOYEES
Bioshield and its subsidiary on November 1, 1999, had forty-eight
full-time equivalent employees.
LEGAL PROCEEDINGS
Bioshield is not a party to any material legal proceedings.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information regarding the
directors, executive officers, and significant employees of Bioshield:
<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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Mr. Timothy C. Moses, a Director and Founder, is Bioshield'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 Bioshield. 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 Bioshield'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 Bioshield's core antimicrobial technology. In addition to
his duties, Mr. Elfersy continues to oversee Bioshield's research and
development activities and objectives. Mr. Elfersy is a graduate of 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 Bioshield. 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.
Carl T. Garner has been a Director of Bioshield 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
Bioshield.
Mr. Michel M. Azran has been a Director of Bioshield 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.
Bioshield'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 Bioshield's 1999 annual meeting of shareholders, Carl T. Garner is serving
in Class II with a term expiring at Bioshield'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.
Bioshield currently pays directors who are not employees of Bioshield 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. Bioshield also reimburses all directors for their
expenses in connection with their attendance at such meetings.
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Bioshield 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. Bioshield 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.
Bioshield currently maintains $1,000,000 key man life insurance
policies on the lives of each of Mr. Moses and Mr. Elfersy.
EXECUTIVE COMPENSATION
The following table sets forth for the three fiscal years ended June
30, 1999, compensation paid by Bioshield 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
Bioshield in October 1999. None of Bioshield'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>
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN OR BASE EXPIRATION
NAME OPTIONS/SARS FISCAL YEAR PRICE DATE
---- ------------ ------------ --------- ----------
<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
Bioshield 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
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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 Bioshield. 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 Bioshield'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.
Bioshield 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 Bioshield, 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 Bioshield.
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 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 Bioshield and Bioshield has reached a
settlement with Mr. Parker as to its future obligations. Mr. Parker will remain
on the payroll of Bioshield 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.
Bioshield also entered into an employment agreement, dated as of
October 8, 1998, with Daniel Swaye as Bioshield's Chief Financial Officer. As
mentioned earlier Mr. Heyerdahl is now Bioshield's Chief Financial Officer but
Mr. Swaye remains with Bioshield. 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 Bioshield. 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 Bioshield, upon each of the first two
anniversary dates of his employment, of options to acquire 30,000 shares of
Bioshield's common stock and options to acquire 40,000 shares of Bioshield'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 Bioshield 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 Bioshield. The agreement also contains certain non-compete
provisions, which provisions a state court may determine not to
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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 Bioshield will recommend Mr. Heyerdahl be
granted an option to purchase 50,000 shares of Bioshield'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).
ADVISORY BOARD
Bioshield's advisory board was organized to review and evaluate
Bioshield's research and development programs and to advise Bioshield generally
in addressing various scientific and business issues. Bioshield 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 Bioshield. They are not employed by Bioshield and may have
commitments to, or consulting or advisory agreements with, other entities that
may limit their availability to Bioshield. These entities may also be
competitors of Bioshield. Bioshield is not aware of any conflict of interest
between work performed by advisors on behalf of Bioshield and work performed by
them on behalf of other parties. Bioshield requires each advisor to execute a
confidentiality agreement upon the commencement of his or her relationship with
Bioshield. The agreements generally provide that all confidential information
made known to the individual during the term of the relationship is the
exclusive property of Bioshield 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 Savarick
Consulting Group, a marketing and management consulting firm. From 1994 through
1998, he was 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 Bioshield in the development of a marketing plan as well as research
plan to elucidate the biological effects, safety and efficacy of Bioshield's
products and assisting Bioshield in analyzing data from research trials and
other studies concerning Bioshield's products. Bioshield anticipates that each
advisor will devote approximately six days per year to the affairs of Bioshield
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
Bioshield's bylaws provide for Bioshield to indemnify each director
and officer of Bioshield 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 Bioshield. Bioshield has also entered into indemnification
agreements with each officer and director pursuant to which Bioshield will, in
general, indemnify such persons to the maximum extent permitted by Bioshield's
bylaws and the laws of the State of Georgia against any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with any actual or threatened action or proceeding to which such
director or officer is made or threatened to be made a party by reason of the
fact that such person is or was a director or officer of Bioshield. The
foregoing provisions may reduce the likelihood of derivative litigation
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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 Bioshield and its shareholders.
Insofar as indemnification of liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling
Bioshield pursuant to the foregoing provisions, or otherwise, Bioshield 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 Bioshield 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, Bioshield 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 Bioshield 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, Bioshield registered the shares
subject to the incentive plan with the Commission on Form S-8.
TERMS OF INCENTIVE PLAN
The incentive plan provides Bioshield with increased flexibility to
grant equity-based compensation to key employees, officers and consultants of
Bioshield. The purpose of the incentive plan is to: (i) provide incentives to
stimulate individual efforts toward Bioshield'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 Bioshield 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. Bioshield has reserved
1,200,000 shares of common stock for issuance pursuant to awards that may be
made under the incentive plan. As of May 21, 1999, awards of 645,000 shares of
common stock have been granted under the incentive plan to key employees of
which 55,000 options are currently exercisable at a price of $1.00 per share
and 300,000 are currently exercisable at $2.94 per share.
The nature, terms and conditions of awards under the incentive plan
will be determined by the stock option committee of the board of directors. The
members of the committee are selected by the board of directors. The current
members of the committee are Messrs. Garner and Azran. The incentive plan
permits the committee to make awards of common stock, incentive or
non-qualified stock options with the following terms and conditions:
Terms and Conditions of all Stock Incentives. The number of shares of
common stock as to which a stock incentive may be granted will be determined by
the committee in its sole discretion. Each stock incentive will either be
evidenced by a stock incentive agreement or stock incentive program, in each
case containing such terms, conditions and restrictions as the committee may
deem appropriate. Stock incentives are not transferable or assignable except by
will or by the laws of descent and distribution and are exercisable only by the
recipient during his or her lifetime or by the recipient's legal representative
in the event of the recipient's death or disability.
Stock Awards. The number of shares of common stock, subject to a stock
award and restrictions or conditions on such shares, if any, will be determined
by the committee. The committee may require a cash payment from the recipient
in an amount no greater than the aggregate fair market value of the shares of
common stock awarded, as determined at the date of grant.
Options. Options may be either incentive stock options, as described
in Section 422 of the Code, or non-qualified stock options. The exercise price
of each option will be determined by the committee and set forth in a stock
incentive agreement but may not be less than the fair market value of the
common stock on the date the option is granted. The exercise price for an
incentive stock option may not be less than 110% of the fair market value of
the common stock on the date the option is granted. The exercise price may not
be changed after the option is granted, and options may not be surrendered in
consideration of, or exchanged for, a grant of a new option with a lower
exercise price. Incentive stock options will expire 10 years after the date of
grant. Non-qualified stock options will expire on the date set forth in the
respective stock incentive agreement. Payment for shares of common stock
purchased upon exercise of an option may be made in any form or manner
authorized by the committee in the stock incentive agreement or by amendment
thereto. In
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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 Bioshield. In the event of a merger, consolidation or other
reorganization of Bioshield or a tender offer for its shares of common stock,
the committee may take such action as it deems necessary or appropriate to
reflect the effect of the applicable transaction, including but not limited to:
(i) the substitution, adjustment or acceleration of awards; (ii) the removal of
restrictions on awards; or (iii) the termination of outstanding awards in
exchange for the cash value of the vested portion of the award.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion outlines generally the federal income tax
consequences of the receipt of options under the incentive plan. Individual
circumstances may vary these results. The federal income tax laws and
regulations are frequently amended, and each participant should rely on his or
her own tax counsel for advice regarding federal income tax treatment under the
incentive plan. If the recipient is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended, special rules may apply to determine the
federal income tax consequences of certain option exercises. Participants in
the incentive plan should consult their own tax advisors as to the specific tax
consequences applicable to them and to the tax consequences applicable to other
types of stock incentives that may be awarded under the incentive plan.
Incentive Stock Options. The recipient of an incentive stock option is
not subject to any federal income tax upon the grant of such an option pursuant
to the incentive plan, nor does the grant of an incentive stock option result
in an income tax deduction for Bioshield. Further, a recipient will not
recognize income for federal income tax purposes and Bioshield 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. Bioshield normally would
be entitled to a federal income tax deduction equal to any ordinary income
recognized by the recipient, provided Bioshield 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. Bioshield 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.
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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 Bioshield 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 Bioshield.
DIRECTOR PLAN
The purpose of the director plan is to provide an incentive to outside
directors and members of Bioshield's advisory board for continuous association
with Bioshield and to reinforce the relationship between participants' rewards
and shareholder gains. Bioshield 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 Bioshield in fiscal 1999;
options for 120,000 shares of common stock were issued by Bioshield in fiscal
1998; and options for 120,000 shares of common stock were issued by Bioshield
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
Bioshield has entered into a consulting agreement in November 1997
with R.T. Consulting, Inc., to provide Bioshield 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 Bioshield, R.T.
receives $3,000 per calendar month for a period of four (4) calendar years
commencing on September 29, 1998.
In May 1998, Bioshield 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, Bioshield 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, Bioshield 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 Bioshield's common stock on Nasdaq SmallCap Market(TM) at the
end of each month of service.
On April 1, 1999, Bioshield 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 Bioshield to the
investment community at large, (ii) assist in Bioshield's public relations, and
(iii) provide financial advice to Bioshield. 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, Bioshield 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, Bioshield 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 Bioshield to the
investment community at large, (ii) assist in Bioshield's public relations, and
(iii) provide financial advice to Bioshield. 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, Bioshield may determine, in its
sole discretion, to award, as additional
46
<PAGE> 49
compensation, a warrant to purchase up to 240,000 shares of common stock. The
warrant, if and when issued, shall be exercisable for a period of five years at
an exercise price of $5.00 per share, subject to proportional adjustment in the
event of a stock split.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of December 9, 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
Bioshield to own five percent or more of the outstanding common stock, (ii)
each director of Bioshield, and (iii) all officers and directors of Bioshield
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.
CERTAIN TRANSACTIONS
In June 1998, Timothy C. Moses and Jacques Elfersy contributed
approximately $50,000 of capital to Bioshield. Subsequent to June 30, 1998,
Messrs. Moses and Elfersy contributed an additional $325,000 of capital to
Bioshield. Such contributions were funded by the private sale to accredited
investors of 124,995 shares of common stock of Bioshield 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 Bioshield $30,000, $25,000, and $25,000,
respectively. Bioshield 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 Bioshield 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 Bioshield representing
repayment of accrued and unpaid salary due and payable by Bioshield 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 Bioshield believes that the foregoing transactions were on
terms no less favorable to Bioshield than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. Bioshield 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, Bioshield represents that
(i) all future material affiliated transactions and loans will be made or
entered into on terms that are no less favorable to Bioshield 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 Bioshield's independent directors who do not have an
interest in the
47
<PAGE> 50
transactions and who will have access, at Bioshield's expense, to Bioshield's
counsel or to independent legal counsel. There can be no assurance, however,
that future transactions or arrangements between Bioshield 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
Bioshield.
SELLING SHAREHOLDER
The shares being offered by Jackson LLC consist of shares of
common stock that it may purchase from us pursuant to the private equity credit
agreement. For additional information about the agreement, see "Financing
Arrangement with Jackson LLC." The address of Jackson LLC is c/o Citco Trustees
(Cayman) Ltd., Corporate Centre, Windwood One, West Bay Road, Grand Cayman,
Cayman Islands. The director of Jackson LLC is Navigator Management Ltd.,
Harbour House, 2nd Floor, Waterfront Drive, P.O. Box 972, Road Town, Tortola,
British Virgin Islands, and the President of Navigator Management Ltd. is David
Sims.
We have agreed to pay all the expenses we incur in connection
with the registration of the shares. Jackson LLC will pay all broker
commissions and other selling expenses it incurs, as well as any legal and
other expenses it may incur in the registration or sale of its shares. Except
for these relationships, Jackson LLC has not had a material relationship with
us or any of our affiliates within the past three years.
The following table sets forth information about the
ownership of our common stock by Jackson LLC as of December 31, 1999.
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK STOCK TO BE
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED SHARES OF COMMON BENEFICIALLY OWNED
PRIOR TO THE OFFERING STOCK BEING OFFERED(1) AFTER THE OFFERING(1)
- --------------------------- ---------------------- ------------------- ---------------------
<S> <C> <C> <C>
JACKSON LLC(2) 2,500,000 2,500,000 0
- -----------------------
</TABLE>
(1) Assumes the sale of all the shares of common stock which are being
offered pursuant to this prospectus.
(2) Excludes an indeterminate number of shares of common stock that may be
issuable pursuant to the conversion of shares of eMD.com, our majority-
owned subsidiary, in the event that eMD.com has not become a reporting
company under the Securities and Exchange Act of 1934, as amended, by
May 31, 2000.
PLAN OF DISTRIBUTION
Manner of sales; Broker-dealer compensation.
Jackson LLC may resell any shares of common stock that it
acquires from us pursuant to the private equity credit agreement. It may elect
to sell any of these shares in privately negotiated transactions or in the
over-the-counter market through brokers and dealers. These brokers and dealers
may act as agent or as principals and may receive compensation in the form of
discounts, concessions or commissions from Jackson LLC or from the purchasers
of its shares of common stock for whom the broker-dealers may act as agent or
to whom the broker-dealers may sell as principal, or both. Jackson LLC also may
sell the shares in reliance upon Rule 144 under the Securities Act from time to
time if it is eligible to do so. We have been advised by Jackson LLC that it
has not made any arrangements for the distribution of the shares.
Broker-dealers who effect sales for Jackson LLC may arrange for other
broker-dealers to participate. Broker-dealers engaged by Jackson LLC will
receive commissions or discounts from it in amounts to be negotiated prior to
the sale.
Filing of a post-effective amendment in some instances.
If Jackson LLC notifies us that it has entered into a
material arrangement (other than a customary brokerage account agreement) with
a broker or dealer for the sale of shares of common stock under this prospectus
through a block trade, purchase by a
48
<PAGE> 51
broker or dealer or similar transaction, we will file a post-effective
amendment to the registration statement under the Securities Act. This
post-effective amendment will disclose:
- - the name of each broker-dealer.
- - the number of shares involved.
- - the price at which those shares were sold.
- - the commissions paid or discounts or concessions allowed to the
broker-dealer(s).
- - if applicable, that the broker-dealer(s) did not conduct any
Investigation to verify the information contained or incorporated by
reference in this prospectus, as amended
- - any other facts material to the transaction.
Persons deemed to be underwriters
Jackson LLC is an "underwriter" within the meaning of the
Securities Act in connection with the sale of the shares it may receive
pursuant to the agreement. Accordingly, the 20% discount on the purchase of the
common stock to be received by Jackson LLC will be an underwriting discount
under the Securities Act. In addition, any broker-dealers that participate with
Jackson LLC in the sale of those shares also will be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
these sales. Accordingly, any discounts, concessions or commissions received by
any of these broker-dealers acting on behalf of Jackson LLC and any profits
received by them on the resale of the shares of common stock will be deemed to
be underwriting discounts and commissions under the Securities Act.
Regulation M
We have informed Jackson LLC that Regulation M promulgated
under the Securities Exchange Act may be applicable to it with respect to any
purchase or sale of our common stock. In general, Rule 102 under Regulation M
prohibits any person connected with a distribution of our common stock from
directly or indirectly bidding for, or purchasing for any account in which it
has a beneficial interest, any of our common stock or any right to purchase our
common stock for a period of one business day before and after completion of
its participation in the distribution.
During any distribution period, Regulation M prohibits
Jackson LLC and any other persons engaged in the distribution from engaging in
any stabilizing bid or purchasing our common stock except for the purpose of
preventing or retarding a decline in the open market price of our common stock.
No person may effect any stabilizing transaction to facilitate any offering at
the market. Inasmuch as Jackson LLC will be reoffering and reselling our common
stock at the market, Regulation M prohibits it from effecting any stabilizing
transaction in contravention of Regulation M with respect to our common stock.
Jackson LLC and related parties may be entitled, under
agreements entered into with us, to indemnification against liabilities under
the Securities Act, the Securities Exchange Act and otherwise.
FINANCING ARRANGEMENT WITH JACKSON LLC
On June 30, 1999, we entered into the private equity credit
agreement with Jackson LLC. Pursuant to the agreement, Jackson LLC has agreed
to purchase our common stock during the 24-month period commencing on the date
of this prospectus. From time to time during the term of the agreement, but no
more frequently than once every 20 trading days, we can require Jackson LLC to
purchase between $250,000 and $1,500,000 of our common stock until all the
purchases total $10,000,000. The purchase price for each share will equal 80% of
the average closing bid price of our common stock during the twenty trading
days immediately following the day we notify Jackson LLC of a purchase
obligation.
49
<PAGE> 52
Jackson LLC's obligation to purchase shares of our common stock is
subject to various conditions, the principal conditions being:
- - The average closing bid price of our common stock has been at least
$1.00 per share for the 20 trading days preceding the date of our
notice of purchase to Jackson LLC.
- - Our common stock continues to be traded on The Nasdaq Stock Market.
- - The total number of shares that we may sell to Jackson LLC under the
agreement cannot exceed 1,263,831 shares, unless we have obtained
shareholder approval as required by the rules of The Nasdaq Stock
Market, Inc.
- - The number of shares we may sell to Jackson LLC on any draw date, when
aggregated with all other shares then owned by Jackson LLC, cannot
exceed 9.9% of the total common stock we then have outstanding.
- - This prospectus must continue to be available to permit Jackson LLC to
publicly resell the shares that it acquires from us under the
agreement.
We may terminate the agreement without any further obligation
to Jackson LLC at any time after we have sold it at least $250,000 of common
stock. If we terminate the agreement prior to that time, we must pay Jackson
LLC a penalty of up to $50,000, depending upon the amount of the shortfall.
Jackson LLC has agreed not to engage in any short sales of our common stock,
except that it may engage in short sales after it receives a purchase notice
from us, but only for the number of shares of common stock covered by our
purchase notice.
Under a related registration rights agreement, we have agreed
to file and maintain the effectiveness of a registration statement for the
resale by Jackson LLC of the shares it purchases under the agreement. If, after
the registration statement becomes effective, we fail to maintain the
effectiveness, Jackson LLC may require us to pay a penalty equal to 1% of the
purchase price of the shares of common stock then held by Jackson LLC for each
30-day period that the registration statement is not effective.
In connection with the agreement, we agreed to pay to J.P.
Carey Securities, Inc., as agent, and Greenfield Capital Partners LLC, as
subagent, a aggregate of 4% of the cash received from each draw; and warrants
equal to 6,666 shares per each $1 million raised in each draw. The warrants
will have an exercise price equal to the fair market value of a share of
Bioshield's stock on the day immediately prior to the draw, and will have a
term of 5 years.
Jackson LLC is an "underwriter" within the meaning of the
Securities Act in connection with its resale of shares of our common stock
under this prospectus.
DESCRIPTION OF SECURITIES
COMMON STOCK
Bioshield 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.
50
<PAGE> 53
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
Bioshield, 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
We have filed a registration statement covering 1,300,000 shares of
common stock issuable upon exercise of our publicly-traded redeemable warrants.
That registration statement also covers up to 130,000 shares of common stock
and 65,000 redeemable underwriters' warrants that may be purchased by the
underwriters of Bioshield's initial public offering and their assignees, and up
to 65,000 shares that may be purchased upon exercise of those redeemable
underwriters' 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 Bioshield 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
Bioshield or the warrant agent and have been filed with the Commission as an
exhibit to the registration statement covering those securities.
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 Bioshield. 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.
Bioshield 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. Bioshield 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, Bioshield 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. Bioshield
may amend the terms of the warrants, but only by extending the termination date
or lowering the exercise price thereof. Bioshield has no present intention of
amending such terms. However, there can be no assurances that Bioshield will
not alter its position in the future with respect to this matter.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar, for Bioshield's common stock and the
warrants, is American Stock Transfer & Trust Co., 40 Wall Street, New York, New
York 10005.
UNDERWRITERS' WARRANTS
In connection with its initial public offering, Bioshield 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.
51
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
As of November 10, 1999, Bioshield 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 Bioshield. The remaining 4,978,411 shares are
or were "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 Bioshield or any affiliate of Bioshield. 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 Bioshield's common stock
(approximately 63,000 shares as of November 10, 1999) or the average weekly
trading volume in Bioshield'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
Bioshield 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 Bioshield or any affiliate of Bioshield. Shares held
by persons who are deemed to be affiliated with Bioshield are subject to such
volume limitations regardless of how long they have been owned or how they were
acquired.
Without consideration of contractual restrictions described below, an
aggregate of 4,505,092 shares of common stock, representing 70.8% of the
outstanding shares of the common stock, are eligible for sale in the public
market pursuant to Rule 144. Bioshield is unable to estimate the number of
shares that may be sold from time to time under Rule 144, since such number
will depend upon the market price and trading volume for the common stock, the
personal circumstances of the sellers and other factors.
Executive officers, directors and senior management own 3,233,947
shares of the common stock. Bioshield'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.
Bioshield 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 Bioshield to raise capital through the issuance of
additional equity securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, DC, New York, New York, and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from the Securities and
Exchange Commission's website at "http://www.sec.gov."
We have filed a registration statement on Form SB-2 with the
Securities and Exchange Commission to register the offering of the shares of
common stock offered pursuant to this prospectus. This prospectus is part of
that registration statement and, as permitted by the Securities and Exchange
Commission's rules, does not contain all of the information included in the
registration statement. For further information about us, this offering and our
securities, you may refer to the registration statement and its exhibits and
schedules as well as the documents described below. You can review and copy
these documents at the public reference facilities maintained by the Securities
and Exchange Commission or on the Securities and Exchange Commission's website
as described above.
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.
52
<PAGE> 55
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 Bioshield 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 25,000 shares of common stock of
Bioshield 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.
53
<PAGE> 56
CONSOLIDATED FINANCIAL STATEMENTS
BIOSHIELD TECHNOLOGIES, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
September 30, 1999 and June 30, 1999
F-1
<PAGE> 57
C O N T E N T S
<TABLE>
<S> <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> 58
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> 59
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> 60
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> 61
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
OTHER ACCUMULATED
COMMON STOCK ADDITIONAL COMPREHENSIVE DURING THE
NO PAR VALUE 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
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-6
<PAGE> 62
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.
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).
F-7
<PAGE> 63
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.
Estimated service lives are as follows:
<TABLE>
<S> <C>
Office equipment................ 3 years
Machinery, leasehold improvements,
furniture and equipment......... 5-10 years
</TABLE>
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
F-8
<PAGE> 64
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:
<TABLE>
<S> <C>
Common stock..... 2.45 for 3.00
Warrants......... 1 for 2
</TABLE>
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:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Raw Materials..... $ 83,482 $ 60,273
Work in Process... 42,893 47,993
Finished Goods.... 31,409 43,137
--------- ---------
$ 157,784 $ 151,403
========= =========
</TABLE>
F-9
<PAGE> 65
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
<S> <C> <C>
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
========= =========
</TABLE>
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:
<TABLE>
<CAPTION>
BSTI EMD.COM TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
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
========= ========== ==========
</TABLE>
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
======== ======== ======== ========
Options exercisable at year end............. 90,000 410,000
Weighted average fair value of options
granted during the year..................... $ 3.88 $ 3.15
</TABLE>
F-10
<PAGE> 66
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.
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
F-11
<PAGE> 67
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:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
--------- -----------
<S> <C> <C>
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 $ -- $ --
========= ===========
</TABLE>
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.
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
allowance .............................................. 557,695) (1,246,115)
----------- -----------
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.
F-12
<PAGE> 68
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.
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.
F-13
<PAGE> 69
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.
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.
F-14
<PAGE> 70
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.
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-15
<PAGE> 71
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-16
<PAGE> 72
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-17
<PAGE> 73
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-18
<PAGE> 74
<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-19
<PAGE> 75
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)
------------- ------------- ------------- -------------
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-20
<PAGE> 76
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.
<TABLE>
<S> <C>
Options outstanding at June 30, 1999 1,008,000
Options granted --
Options cancelled --
Options exercised --
---------
Options outstanding at September 30, 1999 1,008,000
=========
</TABLE>
F-21
<PAGE> 77
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE D - STOCK OPTIONS AND WARRANTS - Continued
<TABLE>
<S> <C>
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
=========
</TABLE>
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
$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.
F-22
<PAGE> 78
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-23
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14-2-202(b)(4) of the Georgia Business Corporation Code provides
that a corporation's articles of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of duty of care or other
duty as a director. This Section also provides, however, that such a provision
shall not eliminate or limit the liability of a director (i) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (ii) for acts or omissions involving intentional misconduct or a
knowing violation of law, (iii) for certain other types of liability set forth
in the Code, and (iv) for transactions from which the director derived an
improper personal benefit. Article VI of the Registrant's Articles of
Incorporation contains a provision eliminating or limiting the personal
liability of a director of the Registrant to the fullest extent authorized by
the Georgia Business Corporation Code.
In addition, Sections 14-2-851 and 14-2-857 of the Georgia Business
Corporation Code, provides for indemnification of directors and officers of the
Registrant for liability and expenses reasonably incurred by them in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding in which they may become involved by reason of being a director or
officer of the Registrant. Indemnification is permitted if the director or
officer acted in a manner which he believed in good faith to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe his
conduct to be unlawful; provided that the Registrant may not indemnify any
director or officer (i) in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
(ii) in connection with any other proceeding in which he was adjudged liable on
the basis that personal profit was improperly received by him, except as
determined by a court of competent jurisdiction. Article 9 of the Registrant's
Bylaws contains a provision providing for the indemnification of officers and
directors and advancement of expenses to the fullest extent authorized by the
Georgia Business Corporation Code.
The Registrant may seek to purchase and maintain directors and officers
liability insurance which insures against liabilities that directors and
officers of the Registrant may incur in such capacities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being
registered other than underwriting discounts:
<TABLE>
<S> <C>
Securities and Exchange Commission filing........................ $ 6,723.75
NASDAQ fee ...................................................... 7,500*
Printing and engraving expenses.................................. 5,000*
Legal Fees and expenses.......................................... 40,000*
Accounting fees and expenses..................................... 15,000*
Blue sky fees and expenses....................................... 5,000*
Miscellaneous.................................................... 2,500*
Total.................................................. $81,723.75
</TABLE>
- ----------
* Estimated.
II-1
<PAGE> 80
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In November 1996, the company sold 10 units to accredited investors,
pursuant to the exemption from the registration requirements of the Securities
Act afforded by ss.4(2) of the Act, each unit consisting of 16,667 shares, and
two warrants, each warrant consisted of a right to purchase 16,667 shares of
common stock at a purchase price of $1.50, totaling $250,001, pursuant to a
private placement memorandum.
From December 1996 to April 1997, the company sold 24 units to accredited
investors, pursuant to the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) of the Act, totaling $600,000. Each
unit consisted of 12,500 common shares and two warrants, each warrant consisted
of a right to purchase 12,500 shares of common stock at a purchase price of
$2.00 per share, pursuant to a private placement memorandum.
In July 1997, the company sold 7 1/2 units to accredited investors pursuant
to the exemption from the registration requirements of the Securities Act
afforded by Section 4(2) of the Act. Each unit consisted of 5,000 shares of
common stock and one warrant to purchase 5,000 shares at $5.00 per share
totaling $187,500, pursuant to a private placement memorandum.
Prior to June 30, 1996, the company sold an aggregate of 62,612 common
shares to accredited investors pursuant to the exemption from the registration
requirements of the securities Act afforded by S4(2) of the Act for cash of
$115,000. On December 11, 1997, the company effected a 2.45-for-3 reverse stock
split of its common stock and each outstanding warrant was adjusted 1 for 2 and
to reduce the exercise price to $.50 per share of common stock. The shares
issued in the reverse split did not require registration under the Securities
Act in that the reverse split and warrant adjustment was not a "sale," "offer
for sale" or "offer" as such terms are defined in the Securities Act.
On February 27, March 16, and March 24, 1998, the company sold 90 units to
12 investors for an aggregate of $450,000 or $5,000 per unit, with each unit
consisting of (i) a $5,000 non-negotiable promissory note payable on the
earlier of an initial public offering or three years from the date of issuance,
and (ii) a warrant to purchase up to 5,000 shares of common stock at the
initial public offering price beginning six months after the offering and
ending five years after issuance (for a total of 90 warrants exercisable into
450,000 shares of common stock). First Atlanta Securities, LLC acted as the
company's placement agent with respect to the placement of the units and
received $40,000 in cash and a warrant to purchase 40,000 shares of common
stock at a price per share equal to 110% of the initial public offering price.
The units and related placement agent's warrants were issued pursuant to the
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Act. All of such investors were accredited and were
provided with a connection with the company's proposed offering, the 1998
warrants are subject to an unconditional one-year lock-up from the first
trading day of this Offering which prevents a holder of the 1998 warrants from
exercising such warrants or otherwise transferring, conveying, or assigning
such warrants for such one-year period.
ITEM 27. EXHIBITS
<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)
</TABLE>
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<PAGE> 81
<TABLE>
<S> <C> <C>
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 (1)
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)
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)
</TABLE>
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<PAGE> 82
<TABLE>
<S> <C> <C>
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)
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)
</TABLE>
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<PAGE> 83
<TABLE>
<S> <C> <C>
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)
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C> <C>
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 (2)
10.100 -- Amendment dated January 6, 2000 to Private Equity Credit Agreement by and between Jackson LLC and
Bioshield Technologies, Inc. (1)
10.101 -- Financial Advisory and Consulting Agreement dated January 1, 2000 between Electronic Medical
Distribution, Inc. and J. P. Carey Securities, Inc. (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) Filed as the corresponding exhibit to the Company's Registration
Statement on Form SB-2 (Registration number 333-57767).
(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:
II-6
<PAGE> 85
(a) Include any prospectus required under Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in this
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the company
pursuant to the provisions described under Item 24 above, or otherwise, the
company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the company
of expenses incurred or paid by a director, officer or controlling person of
the company in the successful defense of any action, suit or proceeding) is
asserted 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.
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<PAGE> 86
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
January 7, 2000.
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ TIMOTHY C. MOSES
----------------------------------------
Timothy C. Moses
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy C. Moses and Jacques Elfersy,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorney-in-fact or his substitute or substitutes, January lawfully do or cause
to be done by virtue hereof.
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; January 7, 2000
------------------- Director (Principal Executive Officer)
Timothy C. Moses
/s/ Jacques Elfersy Chairman of the Board; Vice President of January 7, 2000
------------------------ Operations and Director of Regulatory
Jacques Elfersy Affairs
/s/ Timothy S. Heyerdahl Executive Vice President and Chief January 7, 2000
------------------------ Financial Officer (Principal Financial
Timothy S. Heyerdahl and Accounting Officer)
/s/ Carl T. Garner Director January 7, 2000
------------------------
Carl T. Garner
/s/ Michel Azran Director January 7, 2000
------------------------
Michel Azran
</TABLE>
II-8
<PAGE> 1
EXHIBIT 5.1
January 10, 2000
BioShield Technologies, Inc.
Suite B-109
4405 International Boulevard
Norcross, Georgia 30083
Gentlemen:
At your request, we have examined the Registration Statement on Form SB-2
under the Securities Act of 1933, as amended (the "Securities Act"), by
BioShield Technologies, Inc., a Georgia corporation (the "Company"), with the
Securities and Exchange Commission on January 10, 2000 (the "Registration
Statement"), relating to the registration under the Securities Act of 2,500,000
shares of common stock, no par value.
As counsel to the Company, we have examined such corporate records,
documents, instruments, certificates of public officials and of the Company and
such questions of law as we have deemed necessary for the purpose of rendering
the opinions set forth herein. In our examination of such materials, we have
assumed the genuineness of all signatures and the authenticity of all
agreements, documents, signatures, and instruments submitted to us as originals
and the conformity with the originals of all agreements, instruments,
documents, and certificates submitted to us as copies.
We are of the opinion that the securities to be offered and sold pursuant
to the Registration Statement have been duly authorized and, when issued and
sold by the selling shareholders in the manner described in the Registration
Statement, will be legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement and any amendment thereto.
Very truly yours,
/s/ SIMS MOSS KLINE & DAVIS LLP
<PAGE> 1
Exhibit 10.100
AMENDMENT TO
PRIVATE EQUITY CREDIT AGREEMENT
Amendment to that certain Private Equity Credit Agreement dated as of
the 30th day of June, 1999 (the "Agreement"), by and between JACKSON, LLC, an
entity organized and existing under the laws of the Cayman Islands ("Investor"),
and BioShield Technologies, Inc., a corporation organized and existing under the
laws of the State of Georgia (the "Company").
WHEREAS, the parties desire that the Agreement be amended so that,
subject to the terms and conditions contained therein, the Company shall issue
and sell to Investor, from time to time, and Investor shall purchase, up to ten
million dollars ($10,000,000) of the Common Stock (as defined in the Agreement).
NOW, THEREFORE, the parties hereto agree as follows:
1. The definition of " Maximum Commitment Amount " contained in Article
I of the Agreement shall be amended to read in its entirety as follows:
"Maximum Commitment Amount" shall mean ten million dollars
($10,000,000), subject to increase as agreed to by the Company and Investor."
2. Except as expressly amended by this Amendment, the Agreement shall
remain in full force and effect in all respects.
3. This Amendment shall be governed by and interpreted in accordance
with the laws of the State of Georgia without regard to the principles of
conflicts of law. Each of the Company and Investor hereby submit to the
exclusive jurisdiction of the United States Federal and state courts located in
Atlanta, Georgia with respect to any dispute arising under this Amendment.
4. This Amendment is intended for the benefit of the Company and
Investor and their respective successors and permitted assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any other person.
5. This Amendment contains the entire understanding of the Company and
Investor with respect to the matters covered herein. No provision of this
Amendment may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
6. This Amendment may be executed in multiple counterparts, each of
which may be executed by less than all of the Company and Investor and shall be
deemed to be an original instrument which shall be enforceable against the
parties actually executing such counterparts and all of which together shall
constitute one and the same instrument. This Amendment, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy hereof bearing the signature of the parties so delivering this Amendment.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
BIOSHIELD TECHNOLOGIES, INC.
By:
---------------------------------------
Name:
Title:
JACKSON, LLC
BY: SOUTHRIDGE CAPITAL MANAGEMENT LLC,
GENERAL PARTNER
By:
---------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.101
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This agreement ("Agreement") is made and entered into this 1st day of
January, 2000, between Electronic Medical Distribution, Inc., a Delaware
corporation (the "Company") and J.P.
Carey Securities, Inc. (the "Consultant").
In consideration of and for the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Purpose. The Company hereby retains the Consultant on a
non-exclusive basis during the term specified to render consulting advice to the
Company as the Company may reasonably request to financial and similar matters,
upon the terms and conditions as set forth herein.
2. Term and Compensation. This Agreement shall be effective
commencing on the date first written above (the "Engagement Period"). The
Company agrees to award to Consultant as compensation 30,000 shares of Company
common stock.
3. Duties of Consultant. During the term of this Agreement, the
Consultant will provide the Company with such regular and customary
non-exclusive consulting advice as is reasonably requested by the Company,
provided that the Consultant shall not be required to undertake duties not
reasonable within the scope of the consulting advisory services contemplated by
this Agreement. In performance of these duties, the Consultant shall provide the
Company with the benefits of its best judgment and efforts. It is understood and
acknowledged by the parties that the value of the Consultant's advice is not
measurable in any quantitative manner, and that the Consultant shall not be
obligated to spend any specific amount of time doing so. The Consultant's duties
may at the direction of the Company include, but not necessarily be limited to
on a non-exclusive basis:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company
to the investment community at large.
B. Assisting in the Company's financial public relations,
including discussions between the Company and the financial
community.
C. Advice regarding the financial structure of the Company and
its divisions or any programs and projects, as such issues
relate to the public market for the Company's equity
securities.
D. Rendering advice with respect to any acquisition program of
the Company, as such program relates to the public market for
the Company's equity securities.
1
<PAGE> 2
E. Rendering advice regarding the public market for the Company's
securities and the timing and structure of any future public
offering of the Company's equity securities.
It is expressly understood that no actual or express authority on
behalf of the Company is granted by the Company hereunder to the Consultant.
4. Relationships with others. The Company acknowledges that the
Consultant or its affiliates is in the business of providing, among other
things, financial services and consulting advice (of all types contemplated by
this Agreement) to others. Nothing herein contained shall be construed to limit
or restrict the Consultant in conducting such business with respect to others,
or in rendering such advice to others. In connection with the rendering of
services hereunder, Consultant has been or will be furnished with confidential
information concerning the Company including, but not limited to, financial
statements and information, cost and expense data, production data, trade
secrets, marketing and customer data, and such other information not generally
obtained from public or published information or trade sources. Such information
shall be deemed "Confidential Material" and, except as specifically provided
herein, shall not be disclosed by Consultant or its employees or agents without
prior written consent of the Company. In the event Consultant is required by
applicable law or legal process to disclose any of the Confidential Material, it
is agreed that Consultant will deliver to the Company immediate notice of such
requirement prior to disclosure of same to permit the Company to seek an
appropriate protective order and/or waive compliance of this provision. If. in
the absence of a protective order or receipt of written waiver, Consultant is
nonetheless, in the reasonable written opinion of Consultant's counsel,
compelled to disclose any Confidential Material, Consultant may do so without
liability hereunder provided that notice of such prospective disclosure is
delivered to the Company at least five (5) days prior to actual disclosure.
Following the termination of this Agreement, Consultant shall deliver to the
Company all Confidential Material. Neither party hereto will issue any public
announcement concerning this Agreement without the approval of the other party,
provided however that nothing shall prevent the Company from fulfilling its
obligations to disclose the contents of this Agreement with the U.S. Securities
& Exchange Commission (the "SEC").
5. Consultant's Liability. The Consultant agrees to defend,
indemnify, and hold the Company, its officers, directors, employees, advisors,
attorneys and agents harmless from and shall indemnify the foregoing persons and
entities against any and all costs, expenses and liability (including reasonable
attorney's fees paid in connection with the investigations and/or the defense of
the such entities and persons) which may in any way result from a breach of any
representation, warranty or covenant made by Consultant or from any services
rendered by the Consultant pursuant to or in any connection with this Agreement.
6. Expenses. The Company, upon receipt of appropriate supporting
documentation, shall reimburse the Consultant for any and all reasonable and
actual out-of-pocket expenses
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incurred in connection with services provided to the Company, subject in each
case to prior written approval of the Company.
7. Limitation Upon the Use of Advice and Services.
(a) No person or entity, other than the Company or any of its
directors or officers shall be entitled to make use of or rely
upon the advice of the Consultant to be given hereunder.
(b) It is clearly understood that the Consultant, for services
rendered under this Agreement, makes no commitment whatsoever
as to recommend or advise its clients to purchase the
securities of the Company. Research reports or corporate
finance reports that may be prepared by the Consultant will,
when and if prepared, be done solely on the merits or judgment
of analysis of the Consultant or any senior finance personnel
of the Consultant.
(c) Use of the Consultant's name in annual reports or any other
report of the Company or releases by the Company must have the
prior approval of the Consultant unless the Company is
required by law to include Consultant's name in such annual
reports, other report or release of the Company, in which
event Consultant will be furnished with copies of such annual
reports or other reports or releases using Consultant's name
in advance of publication by the Company.
8. Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is deemed unlawful or invalid for
any reason whatsoever, such unlawfulness or invalidity shall not affect the
validity of this Agreement. At the sole discretion of the Company, this
Agreement may be terminated with a thirty (30) day notice.
9. Miscellaneous.
(a) Any notice of other communication between the parties hereto
shall be sufficiently given if sent by certified or registered
mail, postage prepaid, or faxed and confirmed if to the
Company, addressed to it at Electronic Medical Distribution,
Inc., Attention: Timothy C. Moses, 5655 Peachtree Parkway,
Norcross, Georgia 30092 or if to the Consultant, addressed to
it at J.P. Carey Securities, Inc., Attention: Janet Muller,
Atlanta Financial Center, East Tower 3343 Peachtree Road,
Suite 500, Atlanta, Georgia 30326. Such notice or other
communication shall be deemed to be given on the date of
receipt.
(b) If the Consultant shall cease to do business, the provisions
hereof relating to duties of the Consultant and all
compensation to be paid by the Company as it applies to the
Consultant shall thereupon terminate and cease to be in
effect.
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(c) This Agreement embodies the entire agreement and understanding
between the Company and the Consultant and supersedes any and
all negotiations, prior discussions and preliminary and prior
agreements and understandings related to the central subject
matter hereof.
(d) This Agreement has been duly authorized, executed and
delivered by and on behalf of the Company and the Consultant.
(e) The validity, interpretation and construction of this
Agreement will be governed by the laws of the State of Georgia
applicable to contract entered into and performed entirely
with said state without regard to the principles of conflict
of laws. Any dispute or controversy between the parties
arising in connection with this Agreement shall be resolved by
arbitration before a three-member panel of the American
Arbitration Association in accordance with the commercial
arbitration rules of said forum and the Federal Arbitration
Act 9 U.S.C. I et seq., with the resulting award being final
and conclusive. Said arbitrators shall be empowered to award
all forms of relief and damages claimed, including but not
limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest. The
parties further agree that any arbitration action between them
shall be heard in Atlanta, Georgia. Notwithstanding anything
contained herein to the contrary, nothing contained herein
shall prevent either party from initiating a civil action for
temporary or permanent injunctive and other equitable relief
against the other for breach of this Agreement. The parties
expressly consent to the jurisdiction and venue of the
Superior Court of Fulton County, Georgia, and the United
States District Court for the Northern District of Georgia,
Atlanta Division for the adjudication of any civil action
asserted pursuant to this Paragraph.
(f) There is no relationship or partnership, agency, employment,
franchise, or joint venture between the parties. Neither party
has the authority to bind the other or incur any obligation on
its behalf.
(g) This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law or merger) and shall
be binding upon and inure to the benefit of the parties and
their respective successors, assigns and legal
representatives.
(h) Consultant is not a party to any proceeding or action which
would prevent it from performing services pursuant to this
Agreement.
(i) Sections 4 and 5 shall survive the expiration or termination
of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date hereof.
ELECTRONIC MEDICAL DISTRIBUTION, INC.
By:
----------------------------------
Name: Timothy C. Moses
Title: CEO
J.P. CAREY SECURITIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT 23.1
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. and Subsidiary
contained in the Registration Statement and Prospectus on Form SB-2. We hereby
consent to the use of the aforementioned report in 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
January 7, 2000
