<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 2000
REGISTRATION NO. 333-35660
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BIOSHIELD TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
GEORGIA 58-2181628
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
BIOSHIELD TECHNOLOGIES, INC.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
COPIES TO:
<TABLE>
<S> <C>
TIMOTHY C. MOSES RAYMOND L. MOSS
BIOSHIELD TECHNOLOGIES, INC. SIMS MOSS KLINE & DAVIS LLP
5655 PEACHTREE PARKWAY 400 NORTHPARK TOWN CENTER, SUITE 310
NORCROSS, GEORGIA 30092 1000 ABERNATHY ROAD, N.E.
(770) 246-2000 ATLANTA, GEORGIA 30328
(770) 481-7200
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock par value $0.001 per share......... 1,646,667 shares $13.9375 $22,950,421 $6,058.91
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares of common stock which may be offered by selling stockholders pursuant
to this Registration Statement consist of (a) up to 1,000,000 shares
issuable upon the exchange of 1,284,797 shares of common stock of the
Registrant's majority-owned subsidiary, Electronic Medical Distribution,
Inc. ("eMD"), a Delaware corporation; (b) 125,000 shares held by CLR
Associates, Inc., and an investor and (c) up to 521,667 shares issuable
pursuant to the exercise of warrants to purchase common stock (the
"Warrants"). In connection with the sale of the common stock of eMD, the
Registrant agreed to file a registration statement covering at least
1,000,000 shares of common stock issuable upon exchange of the common stock
of eMD. If all 1,284,797 shares of eMD common stock held by the selling
stockholders had been exchanged as of July 12, 2000, the exchange rate would
have been 0.475 shares of the Registrant's common stock per share of eMD
common stock, and therefore approximately 610,278 shares of common stock
would have been issuable as a result of such conversion. This registration
statement covers a further 389,722 shares of common stock in the event the
actual number of shares issuable upon conversion of the eMD common stock
increases as a result of adjustments in the exchange rate. In addition to
the shares set forth in the table, the amount to be registered includes an
indeterminate number of shares issuable upon exchange of the eMD common
stock or exercise of the Warrants as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416. The
Registrant is not, however, relying on Rule 416 to register any shares
issuable as a result of changes to the exchange rate applicable to the eMD
common stock.
(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 Registrant's
common stock as reported on the Nasdaq SmallCap Market(TM) on April 25,
2000, in accordance with Rule 457 under the Securities Act of 1933.
(3) Previously paid.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
BIOSHIELD TECHNOLOGIES, INC.
1,646,667 SHARES OF COMMON STOCK
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" DESCRIBED BEGINNING ON PAGE 4 IN
DETERMINING WHETHER TO PURCHASE SHARES OF BIOSHIELD.
These shares of common stock are being offered by the selling shareholders
identified on page 21 of this prospectus in the section entitled "Selling
Shareholders." The selling shareholders may sell these shares from time to time:
- on the Nasdaq SmallCap Market(TM);
- on the over-the-counter market;
- in transactions directly with market makers; or
- in privately negotiated transactions.
We will not receive any portion of the proceeds from the sale of these
shares.
BioShield's common stock is quoted on the Nasdaq SmallCap Market under the
symbol "BSTI."
The selling shareholders will determine the price of the shares independent
of BioShield. On July 12, 2000, the last sale price of the common stock on the
Nasdaq SmallCap Market was $9.75 per share.
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 13, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 18
Issuance of Shares to Selling Shareholders.................. 18
Selling Shareholders........................................ 20
Plan of Distribution........................................ 21
Description of Capital Stock................................ 22
Legal Matters............................................... 24
Experts..................................................... 24
Where You Can Find More Information......................... 24
Information Incorporated by Reference....................... 25
</TABLE>
------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is current as of the date on the cover.
i
<PAGE> 4
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus. Investment in our common
stock involves a high degree of risk. Investors should carefully consider the
information set forth under "Risk Factors" beginning on page 4.
THE COMPANY
BioShield Technologies, Inc. is a Georgia corporation organized in June,
1995 and has, since inception, been a development stage company engaged
primarily in research and development, patent filings, regulatory approvals and
related activities geared towards the sale of its retail, industrial and
institutional products. Most of the products which have been commercialized are
in the cleaning and deodorizing segment. Some of these products provide
long-term killing action of microorganisms responsible for cross contamination
and viral contamination. Many of these products inhibit and control the growth
of over 100 viral, bacteria, fungi and yeast organisms. The Company has
continued to successfully build brand recognition and market penetration of its
new "OdorFree" product line. Currently OdorFree is sold through several major
supermarket chains throughout the United States.
On April 7, 1999, the company created a subsidiary to develop electronic
commerce via the internet, Electronic Medical Distribution, Inc. or eMD.com.
eMD.com seeks to integrate four product offerings for providers (point of care
medication management, electronic medical records, pharmaceutical fulfillment
and pharmaceutical care services) with a comprehensive healthcare website.
eMD.com launched its consumer and physician web site in January 2000. Prior to
launch, eMD.com was in the development stage, which means its primary focus has
been organizational activities, raising capital, gaining 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.
On July 3, 2000, we announced an agreement to acquire, through a
wholly-owned subsidiary, AHT Corporation, a national provider of internet-based
e-commerce solutions for clinical laboratories, pharmacy benefit managers,
pharmacies and physicians. The transaction has been structured as a
stock-for-stock merger, which calls for BioShield to exchange, subject to a
contractual collar provision, $1.75 worth of BioShield common stock for each
outstanding share of AHT Corporation. The number of shares of BioShield common
stock to be issued to AHT Corporation shareholders will fluctuate within the
collar so that each holder of a share of AHT Corporation will receive $1.75
worth of BioShield common stock if the average closing trading price of
BioShield common stock, as determined in accordance with the merger agreement,
is between $6.00 and $18.00 per share. The exchange ratio outside of the collar
will be fixed, and AHT shareholders will receive .29167 of a share of BioShield
common stock for each share of AHT Corporation common stock if the price of a
share of BioShield common stock is $6.00 or less and .09722 BioShield shares if
the price of a share of BioShield common stock is $18.00 or above. The
transaction is valued at approximately $20 million, based on the current number
of outstanding shares of common stock of AHT Corporation. Upon consummation of
the merger, AHT Corporation will be merged into and will become a wholly-owned
subsidiary of BioShield. The merger is subject to conditions specified in the
merger agreement, including the approval by shareholders of BioShield and AHT
Corporation.
On July 7, 2000, we announced an agreement to acquire up to 85% of the
outstanding stock of Arrow-Magnolia International, Inc. for cash and stock.
Dallas-based Arrow-Magnolia is engaged primarily in the manufacture and
distribution of specialty chemical products for use in cleaning and maintaining
equipment, and generalized maintenance and sanitation products. We have agreed
to purchase 85%, or 2,761,281 shares, of Arrow-Magnolia's outstanding common
stock for a purchase price per share of $4.41 cash and .05221 of a share of
BioShield common stock, which represents $0.59 in value based upon the average
closing bid price for a share of BioShield common stock for the five day period
prior to the announcement of the transaction. We have also agreed to purchase
all the outstanding options and warrants of Arrow-Magnolia for $4.75 cash, net
of
1
<PAGE> 5
strike price, and we estimate the total cost of the transaction to be
approximately $15.6 million cash and $1.6 million in stock. The transaction is
subject to satisfaction of the conditions set forth in the agreement.
THE OFFERING
The eMD.com Financing. In three separate private placements effected in
June, August and September, 1999, we issued a total of 1,284,797 shares of
common stock of eMD.com to four investors for a total of $6 million before
deduction of fees and expenses. The agreements governing the issuance and sale
of the eMD.com common stock provide that, because eMD.com has not consummated an
initial public offering of its common stock, any holder of the eMD.com common
stock may exchange the eMD.com common stock for shares of common stock of
BioShield.
Each share of eMD.com common stock is exchangeable, at the option of the
holder, into a number of shares of BioShield common stock determined by
multiplying the issue price of the eMD.com common stock, or $4.66, as that price
is adjusted for stock splits and similar events, by 1.25, and dividing the
resulting number by the average closing bid prices for a share of BioShield
common stock for the twenty consecutive trading days prior to the date that a
notice of exchange is given by a holder. In the event that any holder seeks to
exchange shares of eMD.com common stock for BioShield common stock, we have the
right, in our sole discretion, to pay to that holder the sum of $5.825 for each
share so exchanged, as that price is adjusted for stock splits and similar
events.
Pursuant to registration rights granted to the investors in the private
placements, we were obligated to file a registration statement under the
Securities Act of 1933 with respect to a minimum of 1,000,000 shares of
BioShield common stock issuable upon exchange of the eMD.com common stock. This
prospectus forms a part of that registration statement.
We may, at our option, redeem any or all of the eMD.com common stock in our
sole discretion at a price of $5.825 for each share so redeemed, as that price
is adjusted for stock splits and similar events. We may not redeem shares of
eMD.com common stock having a value of less than $500,000; and we must have
cash, credit or standby underwriting facilities available to fund the
redemption.
The Shares. In 1998, we issued 100,000 shares of our common stock to CLR
Associates, Inc. in exchange for financial and advisory services, and 25,000
shares to an investor. Those shares have been included in the registration
statement of which this prospectus forms a part.
The Warrants. On February 27, March 16, and March 24, 1998, we 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. 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 under the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the Act.
Pursuant to the terms of the warrants issued to the investors, the holders
of a majority of the total shares of common stock issuable pursuant to the
warrants may demand one registration of a public offering of common stock by a
written request delivered to the Company no sooner than 11 months and no later
than 23 months following consummation of the Company's initial public offering.
The holders have exercised that right, and the 450,000 shares of BioShield
common stock issuable upon exercise of the warrants have been included in the
registration statement of which this prospectus forms a part.
Pursuant to the terms of the warrants issued to First Atlanta, at any time
through the third anniversary of the Company's initial public offering, the
holder of the warrants has a one-time right to require the Company to prepare
and file a registration statement under the Securities Act covering all or any
portion of the warrants and or the common stock for which the Warrants are
exercisable. The holders have exercised that right, and
2
<PAGE> 6
the 40,000 shares of BioShield common stock issuable upon exercise of the
warrants have been included in the registration statement of which this
prospectus forms a part.
In addition, the Company issued warrants to purchase a total of 31,667
shares to two investors prior to its initial public offering. Those shares have
been included in the registration statement of which this prospectus forms a
part.
3
<PAGE> 7
RISK FACTORS
An investment in our securities involves a high degree of risk. Prospective
investors should consider the following factors in addition to the other
information set forth in this prospectus before purchasing our securities.
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 continue 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;
- loss of key executives; and
- general economic and business conditions.
We do not have a policy of updating or revising forward-looking statements
and thus it should not be assumed that silence by us over time means that actual
events are bearing out as estimated in such forward-looking statements.
WE ARE A DEVELOPMENT STAGE COMPANY ENGAGED IN PRODUCT DEVELOPMENT AND WITH
LIMITED OPERATING HISTORY
BioShield was organized in June 1995 and was a development stage company
until EPA approval was received for its core product in February, 2000.
BioShield's long-term viability, profitability and growth will depend upon
successful commercialization of products resulting from our research and product
development activities. We still may not be able to sell significant quantities
of any product outside of retail distribution channels until such time, if ever,
as we receive expanded regulatory approval to commercially market our products
in additional 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
4
<PAGE> 8
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.
WE HAVE GENERATED LIMITED REVENUES TO DATE, HAVE A HISTORY OF SIGNIFICANT LOSSES
AND EXPECT CONTINUED LOSS
Through March 31, 2000, although we have recorded contract revenues, we
have generated only limited revenues from product sales and consulting of
approximately $2.2 million 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 nine months ended
March 31, 1999 and 2000 were $286,182 and $737,182, respectively, while net
losses increased from $1,536,020 to $13,640,267 as we used the proceeds of our
initial public offering and other financings 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 additional commercial sale of products. There can be no
assurance that any of such events will occur, that we will attain revenues from
commercialization of our products or that we will ever achieve profitable
operations.
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 and eMD.com
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 proceeds of private placements of our convertible preferred
stock effected in January and June, 2000 and the availability of approximately
$58 million in the form of two private equity facilities, will be sufficient to
satisfy our estimated cash requirements through calendar year 2001. 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 may
need additional financing to fully fund such development. We have no other
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.
5
<PAGE> 9
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.
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 may require
substantial capital in excess of what we now have available in order to complete
the development and implement the operation of eMD.com.
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 additional 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.
6
<PAGE> 10
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.
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.
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 and Chairman
of the Board, President, and Chief Executive Officer. We employ Mr. Moses under
an employment agreement expiring January 1, 2003. The loss of the services of
Mr. Moses would have a material adverse effect on us. We are a beneficiary of a
key man life insurance policy in the amount of $1,000,000, on Mr. Moses. We do
not currently own policies covering any other officer or employee. See
"Management."
MR. MOSES IS A SUBSTANTIAL SHAREHOLDER OF BIOSHIELD
Mr. Moses, Chairman, President, and Chief Executive Officer of BioShield,
beneficially owns approximately 19% of the shares of common stock outstanding.
As a result of his ownership of shares, Mr. Moses may be able to exert
significant influence over 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. This influence could also have the effect of delaying, deferring
or preventing a change in control of BioShield that you would prefer to occur.
7
<PAGE> 11
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
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.
EFFECT OF EMD.COM PRIVATE PLACEMENT FINANCING
This prospectus covers up to 1,000,000 shares of BioShield common stock
which may be issued in connection with the exchange of shares of eMD.com common
stock. That exchange is at a rate that represents a discount to the then-current
market value 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, 921,000 options have
been granted under the Incentive Plan, of which 480,000 are immediately
exercisable, and 595,000 options have been granted under the Director Plan, all
of which 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.
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.
8
<PAGE> 12
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;
- 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. sec.sec.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. Mr. Moses and Jacques Elfersy, a substantial stockholder, 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.
9
<PAGE> 13
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 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 is still in the initial stages of its internet and related
operations and is in the process of further developing its site and related
business. We launched the consumer and physician portions of our website in
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;
10
<PAGE> 14
- offer compelling on-line content, services and e-commerce opportunities;
- maintain our current, and develop new, affiliate relationships;
- 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 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.
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.
Important factors which could cause eMD.com's results to fluctuate
materially include:
- our ability to attract and retain users;
- 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 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
11
<PAGE> 15
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.
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.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS, MANY OF WHICH ARE SHORT-TERM OR
TERMINABLE, TO PROVIDE US WITH CONTENT AND GENERATE REVENUE.
We will depend on a number of third-party relationships to increase traffic
on eMD.com and thereby generate revenues. Outside parties on which we depend
include unrelated website operators that provide links to eMD.com and providers
of healthcare content. 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 e-commerce revenues.
We cannot assure you that we will be able to maintain relationships with
third parties that supply us with content, software or related products or
services that are crucial to our success, or that such content, software,
products or services will be able to sustain any third-party claims or rights
against their use. Also, we cannot assure you that the content, software,
products or services of those companies that provide access or links to our
website will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that
12
<PAGE> 16
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 in 1999 and 2000,
including Sharon Allred, Senior Vice President, Scott Parliament, Chief
Financial Officer and Geoffrey Faux, President of eMD.com. 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.
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.
13
<PAGE> 17
WE MAY HAVE LIABILITY FOR INFORMATION WE PROVIDE ON OUR WEBSITE OR WHICH IS
ACCESSED FROM OUR WEBSITE.
Because users of our website access health content and services relating to
a condition they may have or may distribute our content to others, third parties
may sue us for defamation, negligence, copyright or trademark infringement,
personal injury or other matters. We could also become liable if confidential
information is disclosed inappropriately. These types of claims have been
brought, sometimes successfully, against on-line services in the past. Others
could also sue us for the content and services that are accessible from our
website through links to other websites or through content and materials that
may be posted by our users in chat rooms or bulletin boards. While our
agreements, including those with content providers, in some cases provide that
we will be indemnified against such liabilities, such indemnification, if
available, may not be adequate. Our insurance may not adequately protect us
against these types of claims. Further, our business is based on establishing
the eMD.com network as a trustworthy and dependable provider of healthcare
information and services. Allegations of impropriety, even if unfounded, could
therefore have a material adverse effect on our reputation and our business.
ANY FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD
ADVERSELY AFFECT OUR ABILITY TO ESTABLISH OUR BRAND.
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
Federal registrations are pending for eMD.com as well as other service and
trademarks. If we lose our right to use the eMD.com name, we would be forced to
change our corporate name and adopt a new domain name. These changes could
confuse current and potential customers and would adversely impact our business.
We also rely on a variety of technologies that are licensed from third parties,
including our database and internet server software, which is used in the
eMD.com website to perform key functions. These third-party licenses may not be
available to us on commercially reasonable terms in the future.
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
14
<PAGE> 18
consumers' attention both through traditional means as well as through new
Internet initiatives. We believe that competition for healthcare consumers will
continue to increase as the Internet develops as a communication and commercial
medium.
We compete directly for users, 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;
15
<PAGE> 19
- 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.
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.
16
<PAGE> 20
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 PRIVATE EQUITY OFFERINGS
In June 1999, we entered into a private equity credit agreement, under
which we can require a private investor to purchase up to $10,000,000 of our
common stock at a 20% discount to the average market price of our common stock.
There are conditions to any drawdown under the private equity credit agreement,
including that a registration statement covering the resale of the shares sold
to the investor be effective with the Securities and Exchange Commission. We
have filed a registration statement covering 2,500,000 shares of common stock
issuable pursuant to the private equity credit agreement, and that registration
statement is now effective. We have drawn down $2 million under that agreement,
and have renegotiated the terms of that agreement to provide for a 10% discount
to market price for additional drawdowns.
17
<PAGE> 21
In June 2000, we entered into a similar private equity agreement under
which we can require the private investor to purchase up to $50 million of our
common stock at a 10% discount to the average market price. There are conditions
to any drawdown under that agreement, including that a registration statement
covering the resale of the shares sold to the investor be effective with the
Securities and Exchange Commission, as well as a requirements of $500,000 in
minimum average daily trading volume and a $7.50 minimum trading price of our
shares for the ten trading days prior to such drawdown. While our business plans
rely in part upon the receipt of the remaining $58 million in financing provided
for under the private equity credit agreements, there are certain circumstances
under which we may not receive all or any part of that financing, including:
- If we do not effect or maintain the effectiveness of the required
registration statements with the Securities and Exchange Commission, or
any of the other conditions to drawdown contained in the private equity
credit agreements are not satisfied or waived, we will be unable to cause
the investor to purchase the shares under the private equity credit
agreements.
- Under the rules of the NASDAQ Stock Market Inc., we cannot issue more
than 19.99% of the shares outstanding immediately prior to the execution
of either of the private equity credit agreements, unless we secure
shareholder approval of the issuance of the shares. Accordingly,
depending on the market price of our shares, in the absence of such
shareholder approval, we may not receive all the anticipated proceeds of
the private equity credit agreements.
- The obligations of the private investor under the private equity credit
agreements are not secured or guaranteed, and if the investor does not
have available funds or otherwise refuse to honor its obligations to us,
we may not be able to force it to do so.
Further, if we are successful in selling shares under the private equity
credit agreements, the existing shareholders of BioShield may experience
significant dilution. As the market price for our common stock decreases, the
number of shares which may be sold to the investor will increase. If we were to
require the investor to purchase our shares at a time when our stock price is
depressed, our existing shareholders' interest in our company will be
significantly reduced.
The resale by the investor 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. Further, the shares that we sell to the
investor will be available for immediate resale, and the mere prospect of this
transaction also could lower the market price for our common stock.
USE OF PROCEEDS
The proceeds from the sale of the shares covered by this prospectus are
entirely for the benefit of the selling shareholders. We will not receive any
proceeds from the sale of the shares from the selling shareholders. We may
receive proceeds from the exercise of the warrants, which proceeds will be used
for general corporate purposes.
ISSUANCE OF SHARES TO SELLING SHAREHOLDERS
eMD.com Financing. In three separate private placements effected in June,
August and September, 1999, we issued a total of 1,284,797 shares of common
stock of eMD.com to four investors for a total of $6 million before deduction of
fees and expenses. The eMD.com common stock was sold in reliance on Rule 506 of
the Securities Act of 1933, which provides an exemption from registration for
sales to accredited investors, as defined by Rule 501 under Regulation D of the
Securities Act. The agreements governing the issuance and sale of the eMD.com
common stock provide that, because eMD.com has not consummated an initial public
offering of its common stock, any holder of the eMD.com common stock may
exchange the eMD.com common stock for shares of common stock of BioShield, as
described below.
Each share of eMD.com common stock is exchangeable, at the option of the
holder, into a number of shares of BioShield common stock determined by
multiplying the issue price of the eMD.com common stock, or $4.66, as that price
is adjusted for stock splits and similar events, by 1.25, and dividing the
resulting number by the average closing bid prices for a share of BioShield
common stock for the twenty consecutive trading
18
<PAGE> 22
days prior to the date that a notice of exchange is given by a holder. In the
event that any holder seeks to exchange shares of eMD.com common stock for
BioShield common stock, we have the right, in our sole discretion, to pay to
that holder the sum of $5.825 for each share so exchanged, as that price is
adjusted for stock splits and similar events).
Pursuant to certain registration rights granted to the investors in the
private placements, we were obligated to file a registration statement under the
Securities Act of 1933 with respect to a minimum of 1,000,000 shares of
BioShield common stock issuable upon exchange of the eMD.com common stock. This
prospectus forms a part of that registration statement.
We may, at our option, redeem any or all of the eMD.com common stock in our
sole discretion at a price of $5.825 for each share so redeemed, as that price
is adjusted for stock splits and similar events. We may not redeem shares of
eMD.com common stock having a value of less than $500,000; and we must have
cash, credit or standby underwriting facilities available to fund the
redemption.
The rights of the holders to exchange the eMD.com common stock for
BioShield common stock will be suspended so long as eMD.com becomes a reporting
company under the Securities Exchange Act of 1934, eMD.com has a Form 8A
declared effective by the SEC, and the trading price of the eMD.com common stock
equals or exceeds $6.19 per share.
Under the terms of the agreements governing the issuance and sale of the
eMD.com common stock, so long as the common stock of BioShield is listed on the
NASDAQ Small Cap Market or the NASDAQ National Market, we may not issue shares
of BioShield common stock upon exchange of the eMD.com common stock to the
extent that the number of shares issued upon the exchange would equal or exceed
20% of outstanding BioShield common stock at the time of the issuance of the
eMD.com common stock., unless we obtains stockholder approval for the issuance.
A holder of the eMD.com common stock may not in any event exchange shares so
that, after giving effect to such exchange, the total number of shares
beneficially owned by the holder and its affiliates would exceed 4.9% of the
outstanding shares of common stock of BioShield, or exchange more than 10% of
the total number of shares of eMD.com common stock issued to such holder in any
30-day period.
The Shares. In 1998, we issued 100,000 shares of our common stock to CLR
Associates, Inc. in exchange for financial and advisory services, and 25,000
shares to an investor. Those shares have been included in the registration
statement of which this prospectus forms a part.
The Warrants. On February 27, March 16, and March 24, 1998, we 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. 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 under the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the Act.
Pursuant to the terms of the warrants issued to the investors, the holders
of a majority of the total shares of common stock issuable pursuant to the
warrants may demand one registration of a public offering of common stock by a
written request delivered to the Company no sooner than 11 months and no later
that 23 months following consummation of the Company's initial public offering.
The holders have exercised that right, and the 450,000 shares of BioShield
common stock issuable upon exercise of the warrants have been included in the
registration statement of which this prospectus forms a part.
Pursuant to the terms of the warrants issued to First Atlanta, at any time
through the third anniversary of the Company's initial public offering, the
holder of the warrants has a one-time right to require the Company to prepare
and file a registration statement under the Securities Act covering all or any
portion of the warrants and or the common stock for which the Warrants are
exercisable. The holders have exercised that right, and
19
<PAGE> 23
the 40,000 shares of BioShield common stock issuable upon exercise of the
warrants have been included in the registration statement of which this
prospectus forms a part.
In addition, the Company issued warrants to purchase a total of 31,667
shares to two investors prior to its initial public offering. Those shares have
been included in the registration statement of which this prospectus forms a
part.
SELLING SHAREHOLDERS
The following table presents information known to us with respect to
beneficial ownership of our common stock as of June 29, 2000 by each selling
stockholder. The number of shares in the table represents an estimate of the
number of shares of common stock to be offered by the selling stockholders, if
the holders were to exchange all of their eMD.com common stock as of July 12,
2000 and offer all the resulting shares of common stock for sale. In accordance
with the terms of the agreements governing the exchange of the eMD.com common
stock, if exchanged on July 12, 2000, each of the 1,284,797 shares of eMD.com
common stock held by the selling shareholders would be exchangeable for 0.475 of
a share of BioShield common stock, for a total of 610,278 shares of BioShield
common stock. The actual number of shares of common stock issuable upon exchange
of the eMD.com common stock is indeterminate, and could be materially less or
more than the amount estimated due to the exchange rate adjustments explained in
this prospectus. We have agreed to register, under a registration statement on
Form S-3 of which this prospectus is a part, 1,000,000 shares; the additional
shares covered by this prospectus for sale by the selling stockholders are to
accommodate the possibility that the actual number of shares issuable upon
exchange of the eMD.com common stock increases as a result of adjustments in the
exchange rate. This table, however, assumes no adjustment in the exchange rate.
We cannot assure you that the selling stockholders will exchange any of their
shares of eMD.com common stock or sell any or all of the shares that they may
acquire upon any exchange of the eMD.com common stock.
<TABLE>
<CAPTION>
SHARES OF EMD.COM SHARES OFFERED
COMMON PURSUANT TO
STOCK EXCHANGE OF EMD.COM
SELLING STOCKHOLDERS BENEFICIALLY OWNED COMMON STOCK
-------------------- ------------------ -------------------
<S> <C> <C>
Jackson, LLC(1)........................................... 1,070,664 508,565
Cache Capital (USA) L.P................................... 85,653 40,685
GPS America Fund Ltd...................................... 42,827 20,343
Atlantis Capital Fund Limited............................. 85,653 40,685
Total........................................... 1,284,797 610,278
</TABLE>
---------------
(1) Jackson LLC is the investor under two equity credit facilities under which
the Company may cause Jackson LLC to purchase an indeterminate number of
shares of common stock. In addition, an affiliate of Jackson LLC is the
owner of 500 shares of our series B convertible preferred stock, which is
convertible into common stock based on fluctuating market prices in
accordance with its terms.
20
<PAGE> 24
<TABLE>
<CAPTION>
SHARES SHARES
OFFERED OFFERED
PURSUANT PURSUANT
TO THIS TO EXERCISE
SELLING STOCKHOLDERS PROSPECTUS OF WARRANTS
-------------------- ---------- -----------
<S> <C> <C>
Robert L. and Mary A. Stanley............................... -- 45,000
Bruce P. Rothman............................................ -- 20,000
David A. Brady.............................................. -- 150,000
Alan McKeon................................................. -- 25,000
Richard Wunderlich.......................................... -- 50,000
Leo Thompson................................................ -- 25,000
CLR Associates.............................................. 100,000 --
Raymond L. Moss............................................. 25,000 --
Sheldon Geftman............................................. -- 19,167
Robert Brickerman........................................... -- 12,500
Neal P. Surbey.............................................. -- 25,000
Dr. Myron A. Leon........................................... -- 25,000
Will Brantley............................................... -- 25,000
Robert and Sarah Anne Benninger, Jr. ....................... -- 25,000
Bruce P. and Sharon G. Rothman.............................. -- 25,000
Elaine O. Martin............................................ -- 25,000
Ralph L. Anderson........................................... -- 25,000
</TABLE>
PLAN OF DISTRIBUTION
Shares covered by this prospectus may be offered and sold from time to time
by the selling shareholders. The selling shareholders will act independently of
BioShield in making decisions with respect to the timing, manner and size of
each sale. The selling shareholders may sell the shares:
- on the Nasdaq SmallCap Market(TM);
- at prices and at terms then prevailing or at prices related to the then
current market price; or
- in private sales at negotiated prices directly or through brokers.
The selling shareholders and any underwriter, dealer or agent who
participates in the distribution of the shares may be deemed to be underwriters
under the Securities Act, and any discount, commission or concession received by
these persons might be deemed to be an underwriting discount or commission under
the Securities Act. We have agreed to indemnify the selling shareholders against
some liabilities arising under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions from the selling shareholders, and, if acting as agent for the
purchaser of the shares, from the purchaser). Usual and customary brokerage fees
will be paid by the selling shareholders. Broker-dealers may agree with the
selling shareholders to sell a specified number of shares at a stipulated price
per share, and, to the extent the broker-dealer is unable to do so acting as
agent for the selling shareholders, to purchase as principal any unsold shares
at the price required to fulfill the broker-dealer commitment to the selling
shareholders. Broker-dealers who acquire shares as principal may then resell the
shares from time to time in transactions in the over-the-counter market, in
negotiated transactions or by a combination of these methods of sale, at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with resales may pay to or receive from the purchasers of the shares commissions
as described above.
21
<PAGE> 25
We have advised the selling shareholders that the anti-manipulation rules
under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling shareholders and their affiliates. The selling
shareholders have advised BioShield that during the time as the selling
shareholders may be engaged in the attempt to sell shares registered under this
prospectus, they will:
- not engage in any stabilization activity in connection with any of the
shares;
- not bid for or purchase any of the shares or any rights to acquire the
shares, or attempt to induce any person to purchase any of the shares or
rights to acquire the shares other than as permitted under the Securities
Exchange Act;
- not effect any sale or distribution of the shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to describe the terms of the sale or distribution; and
- effect all sales of shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with market
makers, or in privately negotiated transactions where no broker or other
third party, other than the purchaser, is involved.
The selling shareholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against some liabilities,
including liabilities arising under the Securities Act. Any commissions paid or
any discounts or concessions allowed to any broker-dealers, and any profits
received on the resale of shares, may be deemed to be underwriting discounts and
commissions under the Securities Act if the broker-dealers purchase shares as
principal.
In order to comply with the securities laws of some states, if applicable,
the shares will be sold in some jurisdictions only through registered or
licensed brokers or dealers. In some states, the shares may not be sold unless
the shares have been registered or qualified for sale in the applicable state or
an exemption from the registration or qualification requirement is available and
is complied with.
There can be no assurance that the selling shareholders will sell all or
any of the shares offered under this prospectus.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
BioShield is authorized to issue 40,000,000 shares of common stock, without
par value, and 10,000,000 of blank check preferred stock. As of June 29, 2000,
there were 8,339,073 shares of common stock issued and outstanding.
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.
SERIES B CONVERTIBLE PREFERRED STOCK
Pursuant to our certificate of incorporation, the board has classified 500
shares of preferred stock as series B convertible preferred stock with the
rights, preferences, privileges and terms set forth in the amendment to our
certificate of incorporation filed with the State of Georgia. Of the 500 shares
authorized by the board, 500 are outstanding as of the date of this prospectus.
The stated value per share of the series B preferred stock is $20,000. All
shares of common stock are of junior rank to all series B preferred shares in
respect to the preferences as to distributions and payments upon the
liquidation, dissolution, and winding up. The rights of the shares of common
stock are subject to the preferences and relative rights of the series B
22
<PAGE> 26
preferred shares. The series B preferred shares will be of greater rank than any
series of common or preferred stock issued by us in the future. Without the
prior express written consent of the holders of at least a majority of the then
outstanding series B preferred shares, we will not authorize or issue capital
stock that is of senior or equal rank to the series B preferred shares regarding
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of BioShield. Without the prior express written
consent of the holders of not less than a majority of the then outstanding
series B preferred shares, we will not hereafter authorize or make any amendment
to our certificate of incorporation or bylaws, or make any resolution of the
board of directors with the Georgia Secretary of State containing any provisions
which would materially and adversely affect or impair the rights or relative
priority of the holders of the series B preferred shares relative to the holders
of the common stock or the holders of any other class of capital stock. In the
event of our merger or consolidation with or into another corporation, the
series B preferred shares shall maintain their relative powers, designations,
and preferences, and no merger may result that is inconsistent with this
provision.
Holders of the series B preferred stock are not entitled to receive
dividends. If any series B preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series B preferred shares, directly or indirectly declare, pay or
make any dividends or other distributions upon any of the common stock unless
written notice thereof has been given to holders of the series B preferred
shares at least thirty days prior to the earlier of (a) the record date taken
for or (b) the payment of the dividend or other distribution. We may declare and
pay a dividend in cash with respect to the common stock so long as we pay
simultaneously to each holder of series B preferred shares an amount in cash
equal to the amount the holder would have received had all of the holder's
series B preferred shares been converted to common stock one business day before
the record date for the dividend, and after giving effect to the payment of any
dividend and any other required payments, including required payments to the
holders of the series B preferred shares, we have in cash or cash equivalents an
amount equal to the aggregate of:
- all of our liabilities reflected on our most recently available balance
sheet;
- the amount of any indebtedness incurred by us or any of our subsidiaries
since our most recent balance sheet; and
- 120% of the amount payable to all holders of any shares of any class of
preferred stock assuming a liquidation as the date of our most recently
available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up, the holders of the series B preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to our stockholders, before any amount shall be paid
to the holders of any of our capital stock of any class junior in rank to the
series B preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series B preferred share equal to the sum of (i) $20,000 and (ii) a premium of
5% per year of the stated value from the date of issuance of the series B
preferred stock; provided that, if the funds are insufficient to pay the full
amount due to the holders of series B preferred shares and holders of shares of
other classes or series of preferred stock that are of equal rank with the
series B preferred shares as to payments of this type, then each holder of
series B preferred shares and other preferred shares will share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law will not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of our assets will be deemed to be
a liquidation, dissolution or winding up.
The holders of series B preferred shares have no voting rights, except as
required by law, including the Corporation Law of the State of Georgia. Each
share of series B preferred stock is convertible into the number of shares of
our common stock, equal to the stated value ($20,000) plus a premium of 5% per
year of the stated value from the date of issuance of the series B preferred
stock, divided by the conversion price. The conversion price is equal to 90% of
the average lowest of the closing bid and ask prices of the common stock for any
three trading days in the ten trading day period prior to the conversion. If all
the outstanding shares of series B preferred stock were converted as of July 10,
2000, based upon the trading prices of the shares prior to that date, under the
conversion formula of the series B preferred stock the conversion price for the
shares
23
<PAGE> 27
would be set at a price of approximately $10.73 per share, and the 500
outstanding shares of series B preferred stock would be convertible into
approximately 931,966 shares of common stock, or approximately 11.2% of the
shares that would then be outstanding (based on the number of shares outstanding
as of June 29, 2000). The following table includes the total number of shares
that would be issued upon conversion of all the series B preferred stock, and
the percentage of the issued and outstanding shares (based on the number of
shares outstanding as of June 29, 2000) that such number of shares would then
represent, under the following assumptions:
(a) assuming the current conversion price of $10.73 per share; (b)
assuming a conversion price 25% below a conversion price based upon the
closing sale price as of July 7, 2000 of $11.50 per share, or $8.625 per
share; (c) assuming a conversion price 50% below a conversion price based
upon the closing sale price as of July 7, 2000 of $11.50 per share, or
$5.75 per share; and (d) assuming a conversion price 75% below a conversion
price based upon the closing sale price as of July 7, 2000 of $11.50 per
share, or $2.875 per share.
The Series A Preferred Shares Would Convert Into:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OUTSTANDING
--------- -----------
<S> <C> <C>
At the Current Conversion Price............................. 931,966 11.2
At 25% below the Current Market Price....................... 1,159,420 13.9
At 50% below the Current Market Price....................... 1,739,130 20.8
At 75% below the Current Market Price....................... 3,478,260 41.7
</TABLE>
Under the conversion price formula, there is no ceiling on the number of
shares of common stock into which the outstanding shares of series B preferred
stock can be converted. As a result, as the price of the common stock decreases,
the number of shares of common stock underlying the outstanding shares of series
B preferred stock continues to increase. Under the conversion price formula, the
series B preferred stock is likely to be convertible at a rate at or below the
common stock's market price. The lower the common stock's market price at the
time the holder converts his outstanding shares of series B preferred stock, the
more shares of common stock the holder will get in the conversion. To the extent
the holder of shares of series B preferred stock converts and then sells the
shares of common stock, the common stock's market price may decrease due to the
additional shares in the market, allowing the selling holder to convert other
shares of series B preferred stock into greater amounts of common stock, the
sale of which could further depress the market price for the common stock. The
downward pressure on the market price of the common stock as a holder of the
series B preferred stock converts and sells material amounts of common stock
could encourage short sales by other holders or others, placing further downward
pressure on the market price of the common stock. The conversion of the
outstanding shares of series B preferred stock may result in substantial
dilution to the interest of other common stockholders, since the holder of the
outstanding shares of series B preferred stock may ultimately convert and sell
the full amount of common stock issuable upon conversion.
The holders of the series B preferred shares are limited with respect to
the number of shares that they can convert at any one time. In particular, they
are not entitled to convert shares that would result in their owning in excess
of 4.9% of the outstanding common stock following conversion.
The issuance of the series B preferred stock is also subject to the NASDAQ
National Market's Market Place Rule 4460(i). Pursuant to the terms of this rule,
we have agreed with the holder of the series B preferred stock that so long as
we are subject to this rule or any rule substantially similar to this rule, we
will not issue more than 19.99% of the common stock outstanding on the date the
series B preferred stock was issued upon conversion of the series B preferred
stock in the absence of:
- the approval of the issuance by our stockholders; or
- a waiver by NASDAQ of the provisions of that rule.
At any time after the earlier of ninety days after issuance of the series B
preferred or the effective date of a registration statement covering the shares
of common stock issuable upon conversion of the series B
24
<PAGE> 28
preferred stock, we have the right, in our sole discretion, to redeem, from time
to time, any or all of the series B preferred stock; provided that specified
conditions are met, including that we have cash, credit or standby underwriting
facilities available to fund the redemption. The redemption price is calculated
as 125% of the original purchase price. All series B preferred stock outstanding
as of June 14, 2003 will be automatically converted in accordance with the
conversion provisions of the series B preferred stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for BioShield's common stock is American
Stock Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
LEGAL MATTERS
The validity of the shares offered under this prospectus will be passed
upon by Sims Moss Kline & Davis LLP, Atlanta, Georgia, counsel to BioShield.
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 consolidated financial statements incorporated in this prospectus by
reference to BioShield's annual report on Form 10-KSB for the year ended June
30, 1999, have been so incorporated in reliance on the reports of Grant Thornton
LLP, independent accountants, given on the authority of that firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission. Some information in the
registration statement has been omitted from this prospectus as permitted by the
rules of the SEC. We file the annual, quarterly and special reports, proxy
statements and other information with the SEC. You can inspect and copy the
registration statement as well as reports, proxy statements and other
information we have filed with the SEC at the public reference room maintained
by the SEC at 450 Fifth Street, NW, Washington, D.C. 20549, and at the following
Regional Offices of the SEC: Seven World Trade Center, New York, New York 10048,
and Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
You can obtain copies from the public reference room of the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549 upon payment of copying fees. You can call
the SEC at 1-800-732-0330 for further information about the public reference
room. We are also required to file electronic versions of these documents with
the SEC, which may be accessed through the SEC's World Wide Web site at
http://www.sec.gov. Our common stock is quoted on The Nasdaq SmallCap
Market(TM). Reports, proxy and information statements and other information
concerning BioShield. may be inspected at The Nasdaq Stock Market at 1735 K
Street, NW, Washington, D.C. 20006.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference some of our publicly-filed
documents into this prospectus, which means that information included in these
documents is considered part of this prospectus. Information that we file with
the SEC subsequent to the date of this prospectus will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 until the selling shareholders
have sold all the shares.
25
<PAGE> 29
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our annual report on Form 10-KSB and Amendment No. 1 thereto for
the year ended June 30, 1999 (File No. 0-24913).
2. Our Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000.
3. Our Current Reports on Form 8-K, filed with the SEC on May 10,
1999, April 13, 1999, April 1, 1999, June 28, 2000 and July 3, 2000.
We will furnish without charge to you, on written or oral request, a copy
of any or all of the documents incorporated by reference, other than exhibits to
the documents. You should direct any requests for documents to Scott Parliament,
BioShield Technologies, Inc., 5655 Peachtree Parkway, Norcross, Georgia 30092,
(770) 246-2000.
26
<PAGE> 30
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant will bear no expenses in connection with any sale or other
distribution by the selling shareholders of the shares being registered other
than the expenses of preparation and distribution of this Registration Statement
and the prospectus included in this Registration Statement. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission ("SEC") registration fee and the NASD
listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 6,058.91
Legal fees and expenses..................................... 15,000.00
Accounting fees and expenses................................ 10,000.00
NASD listing fee............................................ 7,500.00
Miscellaneous expenses...................................... 1,000.00
----------
Total............................................. $39,558.91
==========
</TABLE>
ITEM 15. 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 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <C> <S>
4.2 -- Forms of Investor Warrants(1)
5.1 -- Opinion of Sims Moss Kline & Davis LLP(3)
</TABLE>
II-1
<PAGE> 31
<TABLE>
<C> <C> <S>
10.58 -- Securities Purchase Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackson, LLC(2)
10.59 -- Registration Rights Agreement, dated as of June 30, 1999 by and among
BioShield Technologies and Jackson, LLC(2)
10.60 -- Registration Rights Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackson, LLC(2)
10.61 -- Transfer Agent Instructions, dated as of June 30, 1999(2)
10.62 -- Warrant Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackon, LLC(2)
10.63 -- Securities Purchase Agreement, dated as of August 25, 1999 by and among
Allergy Superstore.com, Inc. and Cache Capital (USA) L.P.(2)
10.64 -- Registration Rights Agreement, dated as of August 25, 1999 by and among
BioShield Technologies and Cache Capital (USA) L.P.(2)
10.65 -- Registration Rights Agreement, dated as of August 25, 1999 by and among
Allergy Superstore.com, Inc. and Cache Capital (USA) L.P.(2)
10.66 -- Transfer Agent Instructions, dated as of August 25, 1999(2)
10.67 -- Warrant Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and Cache Capital (USA) L.P.(2)
10.68 -- Securities Purchase Agreement, dated as of August 25, 1999 by and among
Allergy Superstore.com, Inc. and GPS America Fund Ltd(2)
10.69 -- Registration Rights Agreement, dated as of August 25, 1999 by and among
BioShield Technologies and GPS America Fund Ltd(2)
10.70 -- Registration Rights Agreement, dated as of August 25, 1999 by and among
Allergy Superstore.com, Inc. and GPS America Fund Ltd(2)
10.71 -- Transfer Agent Instructions, dated as of August 25, 1999(1)
10.72 -- Warrant Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and GPS America Fund Ltd(2)
10.73 -- Securities Purchase Agreement, dated as of September 2, 1999 by and among
Allergy Superstore.com, Inc. and Atlantis Capital Fund Limited(2)
10.74 -- Registration Rights Agreement, dated as of September 2, 1999 by and among
BioShield Technologies and Atlantis Capital Fund Limited(2)
10.75 -- Registration Rights Agreement, dated as of September 2, 1999 by and among
Allergy Superstore.com, Inc. and Atlantis Capital Fund Limited(2)
10.76 -- Transfer Agent Instructions, dated as of September 2, 1999(2)
10.77 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and Atlantis Capital Fund Limited(2)
10.78 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and J.P. Carey Securities, Inc.(2)
10.79 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and Greenfield Capital Partners, LLC(2)
10.80 -- Legal Opinion of Sims Moss Kline & Davis LLP, dated as of June 30, 1999(2)
10.81 -- Placement Agent Agreement, dated as of June 30, 1999 between Allergy
Superstore.com, Inc. and J.P. Carey Securities, Inc.(2)
23.1 -- Consent of Grant Thornton LLP, Independent Accountants
23.2 -- Consent of Sims Moss Kline & Davis LLP (included in Exhibit 5.1)
</TABLE>
II-2
<PAGE> 32
<TABLE>
<C> <C> <S>
24.1 -- Power of Attorney (see page II-3)
</TABLE>
---------------
(1) Filed as the corresponding exhibit to the Company's Registration Statement
on Form SB-2 filed with the Commission on June 26, 1998.
(2) 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.
(3) Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement 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.
II-3
<PAGE> 33
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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 Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of 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.
II-4
<PAGE> 34
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 S-3 and authorized this registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Norcross, State of Georgia, on July 12, 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, shall 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
--------- ----- ----
<C> <S> <C>
/s/ TIMOTHY C. MOSES President; Chief Executive July 12, 2000
----------------------------------------------------- Officer; Director (Principal
Timothy C. Moses Executive Officer)
/s/ SCOTT PARLIAMENT Chief Financial Officer July 12, 2000
----------------------------------------------------- (Principal Financial and
Scott Parliament Accounting Officer)
/s/ CARL T. GARNER Director July 12, 2000
-----------------------------------------------------
Carl T. Garner
/s/ TED MILLER Director July 12, 2000
-----------------------------------------------------
Ted Miller
/s/ MARTIN SAVARICK Director July 12, 2000
-----------------------------------------------------
Martin Savarick
</TABLE>
II-5
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<C> <S> <C>
23.1 -- Consent of Grant Thornton LLP, Independent Accountants
</TABLE>
II-6
