<PAGE> 1
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 0-24913
BIOSHIELD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2181628
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(Address of principal executive offices and zip code)
(770) 246-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) and has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 14, 2000, there were 10,807,533 outstanding shares of the
Registrant's Common Stock, no par value per share.
<PAGE> 2
BIOSHIELD TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
1. Consolidated Balance Sheets as of September 30, 2000
(unaudited) and June 30, 2000 1
2. Consolidated Statements of Operations for the three month
periods ended September 30, 2000 and 1999 (unaudited) 3
3. Consolidated Statements of Cash Flows for the three month
periods ended September 30, 2000 and 1999 (unaudited) 4
4. Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX
</TABLE>
<PAGE> 3
BioShield Technologies, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
2000 2000
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,207,902 $ 6,172,914
Marketable securities 47,250 28,000
Accounts receivable 475,670 198,597
Inventories 149,737 103,456
Prepaid expenses and other current assets 507,720 156,440
------------ ------------
Total current assets 3,388,279 6,659,407
WEB SITE DEVELOPMENT AND OTHER
PROPERTY AND EQUIPMENT, NET 6,250,400 5,778,388
DEPOSITS AND OTHER LONG-TERM ASSETS 396,186 96,186
------------ ------------
$ 10,034,865 $ 12,533,981
============ ============
</TABLE>
1
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
2000 2000
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Contracts payable $ 986,882 $ 1,429,254
Note payable 2,000,000 --
Accounts payable 2,830,725 1,106,958
Officer loan payable 12,000 110,000
Accrued liabilities 1,300,293 1,200,000
Accrued compensation 223,878 905,897
------------ ------------
Total current liabilities 7,353,778 4,752,109
MINORITY INTEREST 5,107,630 5,926,093
STOCKHOLDERS' EQUITY
Contributed capital
Preferred stock
Series A Convertible Preferred Stock -- --
Series B Convertible Preferred Stock 10,000,000 10,000,000
Common stock - no par value; 50,000,000 shares authorized; 8,903,533 and
8,354,073 issued and outstanding at September 30
and June 30, 2000, respectively 23,261,912 20,472,038
Additional paid-in capital 3,520,600 3,492,600
------------ ------------
36,782,512 33,964,638
Accumulated other comprehensive loss (57,750) (77,000)
Accumulated deficit (38,614,405) (31,494,959)
Less 35,000 shares of common stock in treasury -
at cost (536,900) (536,900)
------------ ------------
(2,426,543) 1,855,779
------------ ------------
$ 10,034,865 $ 12,533,981
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
BioShield Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net sales $ 478,159 $ 144,445
Cost of sales 264,045 90,488
----------- -----------
Gross profit 214,114 53,957
Operating expenses
Marketing and selling 1,614,964 805,467
General and administrative 5,677,622 3,023,654
Research and development 244,730 633,984
----------- -----------
7,537,316 4,463,105
----------- -----------
Loss from operations (7,323,202) (4,409,148)
Other income
Interest and dividend income 65,287 61,971
----------- -----------
Net loss before income taxes and minority interest (7,257,915) (4,347,177)
Income tax (expense) benefit -- --
----------- -----------
Net loss before minority interest (7,257,915) (4,347,177)
Minority interest in loss of subsidiary 138,469 121,936
----------- -----------
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS $(7,119,446) $(4,225,241)
=========== ===========
Net loss per common share
Basic $ (0.98) $ (0.67)
=========== ===========
Weighted average common
shares outstanding 7,297,942 6,325,915
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
BioShield Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(7,119,446) $(4,225,241)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 569,970 15,884
Minority interest in loss of subsidiary (138,469) (121,936)
Issuance of stock, stock options and stock
warrants for services rendered 28,000 1,772,400
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (277,073) (5,479)
Inventory (46,281) (14,340)
Prepaid expenses and
other current assets (408,780) (9,938)
Deposits and other assets (300,000) (435,949)
Increase (decrease) in:
Accounts payable 1,723,767 125,859
Officer loan payable (98,000) --
Accrued liabilities and compensation (581,726) 329,537
----------- -----------
Net cash used in operating activities (6,648,038) (2,569,203)
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,041,982) (337,412)
----------- -----------
Net cash used by investing activities (1,041,982) (337,412)
----------- -----------
</TABLE>
4
<PAGE> 7
BioShield Technologies, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the three months ended September 30,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from debt $ 2,000,000 $ --
Repayment of debt (442,372) --
Proceeds from stock warrants exercised 125,000 21,570
Proceeds from stock options exercised 542,380 --
Proceeds from common stock issuances, net 1,500,000 --
Proceeds from common stock issuances
of subsidiary, net -- 5,458,750
----------- -----------
Net cash provided by financing activities 3,725,008 5,480,320
----------- -----------
Net increase (decrease) in cash (3,965,012) 2,573,705
Cash and cash equivalents at beginning of period 6,172,914 2,500,561
----------- -----------
Cash and cash equivalents at end of period $ 2,207,902 $ 5,074,266
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period
for interest $ -- $ --
</TABLE>
Non-cash investing and financing activities
During the three month period ended September 30, 2000, the stockholders of
eMD converted 145,609 shares of eMD.com. class B common stock into 90,460
shares of BSTI common stock.
The accompanying notes are an integral part of these statements.
5
<PAGE> 8
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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, 2000 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, 2000.
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.
At September 30, 2000, options and warrants for the purchase of 1,771,281 shares
of BSTI were outstanding and potentially dilutive. Additionally, there were
1,139,188 eMD.com shares outstanding at September 30, 2000 that were convertible
into BSTI shares based on a conversion formula.
6
<PAGE> 9
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE D - STOCK OPTIONS AND WARRANTS
During the three months ended September 30, 2000, the following changes occurred
in outstanding employee stock options.
<TABLE>
<CAPTION>
BSTI eMD.com
-------- ----------
<S> <C> <C>
Options outstanding at June 30, 2000 640,500 6,491,750
Options granted 240,000 949,702
Options cancelled (10,000) (98,454)
Options exercised (35,000) --
-------- ----------
Options outstanding at September 30, 2000 860,500 7,342,998
======== ==========
</TABLE>
As of June 30, 2000, there were 180,000 options to purchase BSTI stock issued to
advisory board members. During the three months ended September 30, 2000,
109,000 of these options were exercised. No options were granted or cancelled
during the quarter ended September 30, 2000 for advisory board members. As of
June 30, 2000, there were 8,000 options to purchase BSTI stock issued to a
non-employee for consulting services. No options were granted, cancelled or
exercised during the quarter ended September 30, 2000 for consulting services.
As of June 30, 2000, there were 90,000 options to purchase eMD. common
stock issued to members of the eMD.com medical advisory board members. No
options were granted, cancelled or exercised during the quarter ended
September 30, 2000 for medical advisory board members.
During the three months ended September 30, 2000, the following changes
occurred in outstanding warrants.
<TABLE>
<CAPTION>
BSTI eMD.com
-------- ----------
<S> <C> <C>
Warrants outstanding at June 30, 2000 882,281 370,098
Warrants granted -- 5,720
Warrants cancelled -- --
Warrants exercised (25,000) --
-------- ----------
Warrants outstanding at September 30, 2000 857,281 375,818
======== ==========
</TABLE>
7
<PAGE> 10
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE E - SEGMENT INFORMATION
The following information is presented in accordance with SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
was adopted by the Company during 1999.
BSTI operates primarily in the antimicrobial and biostatic products segment.
During 1999, the Company established a subsidiary, eMD.com which operates 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.
The following tables provide summarized information concerning the Company's
reportable segments.
<TABLE>
<CAPTION>
Antimicrobial
and Biostatic Pharmaceutical
Products Distribution Total
----------- ------------ ------------
<S> <C> <C> <C>
As of September 30, 2000
------------------------
Segment assets $ 3,240,888 $ 6,793,977 $ 10,034,865
As of June 30, 2000
-------------------
Segment assets $ 818,847 $ 11,715,134 $ 12,533,981
Three months ended September 30, 2000
-------------------------------------
Revenues from products/services $ 445,953 $ 32,206 $ 478,159
Gross profit 206,415 7,699 214,114
Segment profit (loss) (3,114,409) (4,005,037) (7,119,446)
Interest income 43,499 21,788 65,287
Interest expense -- -- --
Depreciation and amortization 21,841 548,129 569,970
</TABLE>
8
<PAGE> 11
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE E - SEGMENT INFORMATION - Continued
<TABLE>
<CAPTION>
Antimicrobial
and Biostatic Pharmaceutical
Products Distribution Total
----------- ------------ ------------
<S> <C> <C> <C>
Three months ended September 30, 1999
-------------------------------------
Revenues from products/services $ 144,445 $ -- $ 144,445
Gross profit 53,957 -- 53,957
Segment profit (loss) (2,499,714) (1,725,527) (4,225,241)
Interest income 22,603 39,368 61,971
Interest expense -- -- --
Depreciation and amortization 14,059 1,825 15,884
</TABLE>
NOTE F - PRIVATE EQUITY CREDIT AGREEMENTS
On June 30, 1999, BSTI entered into an equity agreement with an investor whereby
the Company may issue and sell to the investor, from time to time, up to
$6,250,000 of the Company's s common stock. Subsequently, this agreement was
amended to increase the issuance limit to $10,000,000 of the Company's common
stock.
Pursuant to the agreement, the Company may exercise a put by giving notice to
the investor of the investment amount that the Company intends to require the
investor to purchase. The number of shares which the investor will receive is
determined by dividing the investment amount by the purchase price, determined
as the market price of the common stock on the date that the notice of the put
is delivered to the investor less 20% of the market price - which was
subsequently amended to 10% following the initial $1,000,000 put on the equity
line which was accomplished in a prior period. Under the applicable rules of
NASDAQ, no more than 19.99% of the outstanding common stock may be issued and
sold under this agreement without shareholder approval.
The Company must reserve at all times the maximum number of common shares to
enable the Company to issue a sufficient number of shares having an aggregate
purchase price of the lesser of $10,000,000 or number of shares having an
aggregate purchase price of the lesser of $10,000,000 less the number of shares
actually delivered under the agreement. Additionally, the average market bid
prices for the twenty trading days preceding the Company's notice to put the
shares to the investor must equal or exceed $1.00 per share. During the quarter
ended September 30, 2000, the Company issued 300,000 shares at prices ranging
from $5.00 to $10.00 per share under this agreement.
9
<PAGE> 12
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE F - PRIVATE EQUITY CREDIT AGREEMENTS - Continued
On June 14, 2000, BSTI entered into another equity agreement with the same
investor whereby the Company may issue and sell to the investor, from time to
time, up to $50,000,000 of BSTI's common stock.
This agreement has terms similar to the $10,000,000 agreement with the following
exceptions. The purchase price for the put is determined as the market price of
the common stock on the date that the notice of the put is delivered to the
investor less 10% of the market price. The aggregate average daily trading
volume must equal or exceed 500,000 shares and the average of the market bid
prices must equal or exceed $7.50 per share for the ten trading days immediately
preceding both the date of the Company's notice to put the shares to the
investor and the date of the closing of the sale of shares to the investor (see
Note G). As of September 30, 2000, no shares have been put under this agreement.
The Company has reserved 2,200,000 shares of BSTI common stock at September 30,
2000 related to these agreements.
NOTE G - SUBSEQUENT EVENTS
Private Equity Credit Agreements
Subsequent to September 30, 2000, the Company has issued an additional 1,450,000
shares to investors under its $10,000,000 private equity agreement at prices
ranging from $1.00 to $8.00 per share.
In order to comply with the rules of the National Association of Securities
Dealers, Inc., no more than 19.99% of the outstanding common stock may be issued
and sold under either of the private equity credit agreements without first
obtaining the approval of the Company's shareholders. Accordingly, unless that
shareholder approval is received, if the Company were to issue more than 19.99%
of its outstanding shares under the equity credit agreements, the Company's
common stock could be delisted from the NASDAQ Small Cap market.
In October 2000, the Company's stock price fell below the $7.50 per share
minimum market price required by the $50,000,000 equity credit agreement. The
terms of the equity credit agreements are currently under renegotiation.
Loan Agreement
On September 22, 2000, the Company entered into a loan agreement with a private
trust. The agreement provided for a term loan in the principal sum of
$14,000,000 bearing interest at 9.50% per annum and maturing on September 23,
2001.
In October 2000, the private trust withdrew its loan commitment without funding.
The Company has terminated its relationship with this financial institution.
10
<PAGE> 13
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE G - SUBSEQUENT EVENTS - Continued
Mergers and Acquisitions
On July 7, 2000, BSTI entered into an agreement to acquire up to 85% of the
issued and outstanding common stock of Arrow-Magnolia Corporation
("Arrow-Magnolia") for a combination of cash and BSTI common stock and to
integrate Arrow-Magnolia into its professional division. On September 22, 2000,
BSTI and Arrow-Magnolia amended the agreement for BSTI to purchase 85% of
Arrow-Magnolia common stock at $5.00 per share in cash.
On November 8, 2000, Arrow-Magnolia and BSTI mutually agreed to terminate the
transaction as a result of issues arising from due diligence activities
conducted over the period since the agreement was originally signed, as well as
current market conditions.
Litigation
On September 7, 2000, AHT Corporation filed suit against the Company and certain
of its officers alleging breach of contract related to the June 30, 2000
acquisition agreement and asserting damages of $70,000,000. On September 21,
2000, the Company filed its Answer and Counterclaim. On September 22, 2000, AHT
filed for protection from its creditors under Chapter Eleven of the Federal
Bankruptcy Code. Also on September 22, 2000, the Company entered into a revised
asset purchase agreement with AHT Corporation whereby the Company has agreed to
provide AHT with up to $1,500,000 in emergency financing and to purchase the
assets of AHT for approximately $12,000,000 in cash and $3,000,000 in BSTI's
common stock. In exchange, AHT has agreed to stay litigation and subsequently
dismiss the suit with prejudice, subject to the closing of the purchase
transaction. The asset purchase agreement is subject to the approval of the
Bankruptcy Court.
At September 30, 2000, AHT had requested and received $378,338 from BSTI under
the emergency financing arrangement. Subsequent to September 30, 2000, AHT had
requested and received an additional $1,121,662 under the agreement. There is no
assurance that the Company will have sufficient cash financing available to it
to complete the purchase transaction.
11
<PAGE> 14
BioShield Technologies, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUE
September 30, 2000
NOTE H - 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 $38,614,000 from June 1, 1995 (inception) to
September 30, 2000. Through September 30, 2000, the Company had raised
$41,890,000 of capital, including $5,108,000 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.
The Company's private equity credit agreements have been adversely affected by
recent market conditions (see Note F). In order to continue to raise capital
under these agreements, the Company must either (i) accept the delisting of its
common stock; or (ii) receive approval from its shareholders to issue shares in
excess of 19.99% of the outstanding common stock of the Company and negotiate
the reduction or elimination of the $1.00 and $7.50 minimum market value per
share under the $10,000,000 and $50,000,000 private equity credit agreements,
respectively. The Company must also successfully register the additional shares
to be issued under these agreements if shareholder approval is obtained. In the
event that the Company does not receive shareholder approval to exceed the
19.99% threshold, does not accept the de-listing of its common stock, or fails
to successfully re-negotiate the equity credit agreements, it may be forced to
dramatically curtail or cease operations.
The Company also plans to reduce its cash operating requirements through a
disposition of eMD.com. In the event that the company is unable to successfully
complete the proposed disposition of eMD.com, it may be forced to curtail or
cease eMD-related operations.
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BioShield Technologies, Inc. is a Georgia corporation and was organized
in 1995. We historically have been engaged in research and development, patent
filings, regulatory issues and related activities geared towards the sale of our
retail, industrial and institutional products. Due largely to recent
Environmental Protection Agency, or EPA, approvals, we are currently selling and
marketing primarily cleaning and deodorizing products. Many of these products
provide long-term killing action of microorganisms responsible for cross
contamination and viral contamination, along with inhibiting and controlling the
growth of over 100 viral, bacteria, fungi and yeast organisms.
In 1999, we created a subsidiary to develop electronic commerce via the
internet called Electronic Medical Distribution, Inc. or eMD. eMD integrates
services for healthcare providers with a comprehensive internet-based product
and healthcare website. These services include point of care medication
management, electronic patient charting, pharmaceutical fulfillment and
pharmaceutical care services. eMD launched its consumer and physician web site
in January 2000. As a result, BioShield currently operates 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. BioShield is comprised of four business divisions
for the sale, distribution, and development of antimicrobial, biostatic, and
medical related products for the internet, retail, industrial and institutional,
and specialty chemical markets.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales for the three month period ended September 30, 2000 were
$478,000, an increase of $334,000 or 231% over the same period last year. The
increase was a result of increased distribution of the OdorFree(TM) product,
primarily in the mid and south-western United States, along with the
introduction of two sizes of Hypoallergenic OdorFree(TM). During the last
quarter of fiscal 2000, the Company also gained new market penetration in the
southeastern United States. As of September 30, 2000, the Company had
distribution in over 6,000 retail outlets with its product. Gross profit of
$214,000 for the quarter ended September 30, 2000 represents 45% of net sales as
compared to $54,000, or 37% of net sales, for the quarter ended September 30,
1999. The increase in gross margin is a result of the change in product mix and
packaging year over year, combined with the continuous improvement in finding
new ways to do business. The Company is gaining momentum as it enters new retail
markets. The Company settled its outstanding claim with the EPA related to
product labeling and, in fact gained EPA approval of its core products in
February 2000. BioShield has continues to make breakthroughs in product
development and testing. These events have bolstered the confidence of our
retail customers and have prompted a significant increase in sales that the
Company projects will continue throughout fiscal 2001.
Cost of sales was $264,000 or 55% of sales and $90,000 or 63% of sales
for the three-month period ended September 30, 2000 and 1999, respectively. The
lower cost of sales for the three month period ended September 30, 2000 was
attributable to higher sales of the Hypoallergenic OdorFree(TM) product during
the period, partially offset by efficiencies attained in the production of the
Company's antimicrobial products and also due to the change in product mix,
combined with the continuous improvement in finding new ways to do business.
The Company's research and development expenses decreased to $245,000
in the quarter ending September 30, 2000 from $634,000 for the quarter ending
ended September 30, 1999. The decreased expenses related primarily to lower
formulation development costs of the Company's antimicrobial products and other
products under development in medical and clinical trials combined with a
reduction in development cost paid to outside parties. All related research and
development expenses for the quarter ending September 30, 2000 were directly
related to BioShield Technologies, Inc.
13
<PAGE> 16
Web site development cost net of related amortization in the amount of
$4,180,000 as of September 30, 2000 were directly related to eMD.com (eMD.com
began operation in April 1999 and incurred no significant start-up cost as of
September 30, 1999). This includes third party programming, software and
hardware purchases which were capitalized during the quarter ending September
30, 2000. These costs are amortized over a three year period.
Total marketing and selling expenses in the quarter ending September
30, 2000 were $1,615,000. Marketing and selling expenses related to BioShield
were $805,000 for the quarter ended September 30, 2000, an increase of $50,000
from $805,000 incurred during the quarter ended September 30, 1999. This slight
increase relates principally to the rollout of the OdorFree(TM) product line,
repackaging efforts and other one-time setup charges for certain retail accounts
related to slotting charges. Marketing and selling expenses related to eMD.com
totaled $760,000 for the quarter ended September 30, 2000 as compared to zero
for the same period in prior year (eMD.com began operation in April 1999 and
incurred no significant start-up cost as of September 30, 1999). The increase is
a result of pre-selling activities targeting physicians and physician groups in
support of the new website. Significant costs include initial development of
marketing materials and costs related to focus testing of the web site.
Total general and administrative expenses for the quarter ending
September 30, 2000 were $5,678,000. General and administration expenses for
BioShield were $2,265,000, an increase of $572,000 over the same period ending
September 30, 1999. There were no borrowings or interest expense incurred for
the quarter ending September 30, 2000. General and administrative expenses
related to eMD.com totaled $3,567,000 as compared to $1,331,000 for the same
period in prior year (eMD.com began operation in April 1999 and incurred no
significant start-up cost as of September 30, 1999). These higher costs related
primarily to an increase in personnel cost, legal and regulatory fees,
consulting services and facility costs. A significant portion of the expenses
incurred in the quarter will not be recurring in future periods as staff levels
have increased to eliminate expensive consultant activity.
As a result of the reasons set forth above, the Company's operations
generated a net loss of $7,323,000 or $1.00 per common share for the quarter
ending September 30, 2000 compared to a net loss of $4,409,000 or $.69 per
common share for the quarter ended September 30, 1999.
LIQUIDITY
The Company had cash and cash equivalents totaling $2,208,000 for the
quarter ending September 30, 2000 compared to $5,074,000 for the quarter ending
September 30, 1999. The Company's primary sources of cash included, but was not
limited to, the redemption of the outstanding warrants attached to the Company's
initial public offering which was completed on February 22, 2000 for $8,402,000,
completion of convertible series A and series B preferred stock offerings
totaling $14,000,000 in January 2000 and June 2000, respectively, and a
$2,000,000 put on the Company's existing equity line in May 2000.
The Company's primary uses of cash to date have been in operating
activities to fund research and development including clinical trials, and
marketing and selling and general and administrative expenses. As of September
30, 2000, the Company's investment in equipment, website development cost and
leasehold improvement, net of depreciation and amortization was $6,250,000.
During the quarter ended September 30, 2000, the Company spent $1,042,000 in
capital expenditures. The Company has approximately $8,000,000 available to draw
upon at September 30, 2000 under an existing equity line of credit (which
availability depends, among other things, upon the price of the Company's common
stock being above $1 per share), and an additional $50 million under another
equity line of credit available upon the effectiveness of a registration
statement covering the issuance of shares and an increase in the price of the
Company's common stock to above $7.50. The terms of those equity credit
agreements are currently under renegotiation. We cannot assure you that we will
be able to renegotiate the terms of the equity credit agreements or obtain
additional capital from this or other investors. Our inability to successfully
renegotiate these agreements could cause the company to dramatically curtail or
cease operations.
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The Company's ability to fund its operating requirements and maintain
an adequate level of working capital until it achieves positive cash flows will
depend primarily on its ability to borrow, raise capital in the public equity
markets, and generate substantial growth in sales of its antimicrobial products
combined with transaction, prescription and internet lab testing through its
majority owned subsidiary, eMD.com. In order to raise working capital, the
Company is negotiating with potential equity funding sources. The successful
completion of a transaction with one or more of these sources of working capital
is essential to the Company's ability to maintain operations. 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.
The Company expects to continue to have a substantial need to fund
operating losses and the purchases of additional capital equipment for an
indefinite period. Accordingly, the Company will be required to obtain
additional capital in the near future. The development of eMD.com, as well as
commercialization of the parent company's antimicrobial products will require
additional capital. The Company's failure to generate substantial growth in the
sales of its antimicrobial and its e-commerce healthcare products; progress in
research and development programs; the cost and timing of seeking regulatory
approvals of the Company's product under development; the Company's ability to
manufacture products at an economically feasible cost; cost in filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights and changes in economic, regulatory, or competitive conditions
or the Company's planned business could cause the Company to require additional
capital prior to obtaining positive cash flows and substantial delay or
reduction of the scope of business. There can be no assurance that the Company
or eMD.com will be successful in its efforts to obtain additional capital, and
that capital will be available on terms acceptable to the Company or eMD.com or
on terms that will not significantly dilute the interests of existing
shareholders.
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FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking information regarding
BioShield, including our majority-owned subsidiary, eMD. The forward-looking
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements, including
statements as to industry trends, future economic performance, anticipated
profitability, anticipated revenues and expenses, anticipated transactions and
closing dates for these transactions, planned product development and products
or service line growth may be significantly impacted by risks and uncertainties,
including, but not limited to:
- inability to obtain required capital for operations and future
growth
- failure of our industries to develop at anticipated rates
- failure of our current and planned products and services to be
timely developed or to gain significant market acceptance
- failure to obtain regulatory approvals for antimicrobial and
biostatic products
- inability to commercialize our antimicrobial and biostatic
technology in a cost-effective manner
- the introduction of equally or more effective antimicrobial
and biostatic products by competitors, particularly larger
competitors with established distribution systems and
substantially greater financial resources
- failure to obtain new customers or retain existing customers
- inability to dispose of eMD or to carry out marketing and
sales plans or to establish eMD as a widely-used internet
resource
- loss of key executives
- delays in customer acceptance of our products and services,
and
- general economic and business conditions, competition and
other economic factors.
You can find many of these statements by looking for words such as
"may", "will", "believes", "expects", "anticipates", "intends", "could",
"would", "estimates" or similar expressions in this prospectus.
These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, that may cause our actual results to
differ from results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither BioShield nor
eMD, nor or any other person or entity, assumes responsibility for the accuracy
and completeness of those statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results. All subsequent written and oral forward-looking
statements attributable to BioShield, eMD or any person acting on our behalf is
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. 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.
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YEAR 2000 ISSUES
The Company experienced no adverse effect from the Year 2000 millennium
bug. All operations have proceeded without incident.
MANAGEMENT CHANGES
Effective November 20, 2000, the Company accepted the resignation of
Mr. Timothy Moses, former President and Chief Executive Officer. Mr. Moses will
remain as Chairman of the Board of Directors. The Board has appointed Edward U.
("Ted") Miller, currently the COO of BioShield, as interim President and CEO.
Effective November 17, 2000, the Company has accepted the resignation
of Mr. Scott Parliament, former Chief Financial Officer.
SUBSEQUENT EVENTS
1. The Company has previously disclosed it had entered into a
collateralized loan agreement with the Corey Channing Trust.
Due to the decline in the Company's common stock price and
other general market conditions the Trust was unable to fund
the loan. The Company has not received nor does it expect to
receive any funds under the agreements.
2. The Company and Arrow-Magnolia International, Inc. have
mutually agreed to terminate their agreement as of November 8,
2000, and BioShield's tender offer for up to 85% of the common
stock of Arrow-Magnolia will not be filed. Management of both
companies has determined that it is not in the best interest
of their respective shareholders to pursue the transaction at
the present time. The parties have mutually agreed to
terminate the transaction over issues arising from due
diligence activities conducted over the period since the
agreement was originally signed as well as current market
conditions. The agreement permits the companies to mutually
terminate the contract under certain circumstances. There will
be no breakup or termination fee paid by either party.
3. The Company has signed a nonbinding letter of intent with a
group of the current management of Electronic Medical
Distribution, Inc. ("eMD") to purchase a controlling interest
in eMD from BioShield. It is anticipated that BioShield will
retain an ownership stake in eMD as a result of the buyout.
There is no assurance that any transaction involving eMD will
be consummated. If the Management group is unable to obtain
independent funding for eMD and/or the Company is uanable to
sell the eMD business to a third party the Company may be
forced to curtail or cease eMD-related operations.
4. Timothy C. Moses, Chairman of the Board of Directors of the
Company, has been subject to a margin call against certain
pledged securities, including his holdings of Company common
stock, and some of his holdings have been sold as a result of
the margin call. As of November 2, 2000, Mr. Moses equity
holdings in Company common stock, including indirect
beneficial ownership, was 598,770 shares. This represents a
downward change from Mr. Moses' reported holdings as of June
30, 2000 previously reported by the Company on its Form 10K
and its Definitive Proxy Statement.
5. On October 23, 2000, Mr. Hugh Lamle resigned from the Board of
Directors for personal reasons.
6. BioShield's common stock is currently listed on the Nasdaq
SmallCap Market. We cannot assure you that we will meet the
requirements for continued listing. Those requirements include
that we have net tangible assets of at least $2 million or a
market capitalization of at least $35 million. Subsequent to
September 30, 2000, the Company received correspondence from
the NASD related to several issues, including but not limited
to the current market price of the Company's common stock and
the ability of the Company to maintain its listing on the
NASDAQ small cap market. The Company intends to fully respond
to the NASD inquiries. There is no assurance that the Company
will be able to maintain its NASDAQ listing. If BioShield is
unable to satisfy the Nasdaq SmallCap Market's requirements
for continued listing, our common stock may be delisted. If
our common stock is delisted, our common stock would then be
traded only in the over-the-counter market in the so-called
"pink sheets" or the NASD's OTC Bulletin Board. As a result,
the liquidity of BioShield's common stock could be impaired,
not only in the number of shares of BioShield common stock
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 our common stock is delisted from trading on the
NASDAQ SmallCap Market and the trading price of the common
stock remains below $5.00 per share, trading in the common
stock would be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934. These
rules would require broker-dealers to provide additional
disclosure in connection with any sales of BioShield common
stock. These rules would also require broker-dealers to sell
these securities only to established customers, accredited
investors, as defined in the Securities Act, or other
investors who give prior written consent before purchasing or
selling their shares of BioShield common stock. The additional
burdens imposed on broker-dealers by these requirements may
discourage them from effecting transactions in BioShield
common stock, which could severely limit the liquidity of the
BioShield common stock.
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PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
10.141 Termination Letter between the Company and Arrow
Magnolia, Inc. dated November 8, 2000
10.142 Resignation Agreement as President and CEO of Timothy
C. Moses dated November 10, 2000
10.143 Letter of Intent between certain eMD management
members and the Company dated November 10, 2000
10.144 Consulting Agreement Between The Company and Terance
Byrne effective November 3, 2000
10.145 Consulting Agreement Between The Company and Douglas
Furth effective November 3, 2000
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSHIELD TECHNOLOGIES, INC.
Date: November 17, 2000 /s/ TIMOTHY C. MOSES
--------------------------------------------
TIMOTHY C. MOSES
President and Chief Executive Officer
Date: November 17, 2000 /s/ SCOTT PARLIAMENT
--------------------------------------------
SCOTT PARLIAMENT
Chief Financial Officer
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