UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 1-10581
---------
BENTLEY PHARMACEUTICALS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida No. 59-1513162
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4830 W. Kennedy Blvd., Suite 550, Tampa, FL 33609
- ------------------------------------------- ---------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (813) 286-4401
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
The number of shares of the Registrant's common stock outstanding as of May 14,
1996 was 3,331,472.
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
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INDEX
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1996
and 1995 4
Consolidated Statement of Changes in Common
Stockholders' Equity (unaudited) for the
three months ended March 31, 1996 5
Consolidated Statements of Cash Flows
(unaudited) for the three months ended
March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12
Part II. OTHER INFORMATION 16
2
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data) March 31, December 31,
1996 1995
-------- --------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,200 $ 1,120
Investments available for sale 2,629 161
Receivables 8,631 6,836
Inventories 943 1,054
Prepaid expenses and other 514 596
-------- --------
Total current assets 13,917 9,767
-------- --------
Fixed assets, net 3,904 4,084
Drug licenses and related costs, net 1,069 1,120
Other non-current assets, net 2,161 1,319
-------- --------
$ 21,051 $ 16,290
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------
Current liabilities:
Accounts payable $ 4,231 $ 3,883
Accrued expenses 1,586 1,572
Short term borrowings 1,558 1,197
Current portion of long term debt 1 2
-------- --------
Total current liabilities 7,376 6,654
-------- --------
Long term debt, net 5,003 1,354
-------- --------
Other non-current liabilities 555 898
-------- --------
Commitments and contingencies
Redeemable preferred stock, $1.00 par
value, authorized 2,000 shares:
Series A, issued and outstanding, 60 shares 2,102 2,068
-------- --------
Common Stockholders' Equity:
Common stock, $.02 par value, authorized
20,000 shares, issued and outstanding,
3,330 shares 66 66
Stock purchase warrants (to purchase 7,944
and 547 shares of common stock) 457 150
Paid-in capital in excess of par value 71,287 70,047
Stock subscriptions receivable (105) (105)
Accumulated deficit (64,927) (64,248)
Cumulative foreign currency translation adjustment (763) (594)
-------- --------
6,015 5,316
-------- --------
$ 21,051 $ 16,290
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
3
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three
(In thousands, except per share data) Months Ended
March 31,
---------
1996 1995
---- ----
Sales $ 9,698 $ 8,094
Cost of sales 7,636 6,643
---------- ----------
Gross margin 2,062 1,451
---------- ----------
Operating expenses:
Selling, general and administrative 1,900 1,596
Research and development 18 143
Depreciation and amortization 134 138
---------- ----------
Total operating expenses 2,052 1,877
---------- ----------
Income (loss) from operations 10 (426)
Other (income) expenses:
Interest expense 689 65
Interest income (9) --
Other (income) expense, net 9 (371)
---------- ----------
Net loss ($ 679) ($ 120)
========== ==========
Net loss per common share ($ 0.21) ($ 0.05)
========== ==========
Weighted average common shares outstanding 3,330 2,977
========== ==========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
4
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
$.02 Par Value
Common Stock Additional Other
------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit Transactions Total
------ ------ ------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,330 $66 $70,047 ($64,248) ($549) $5,316
Public offering of units - - 1,274 - 307 1,581
Accrual of dividends - preferred
stock - - (34) - - (34)
Foreign currency translation
adjustment - - - - (169) (169)
Net loss - - - (679) - (679)
----- --- ------- -------- ----- ------
Balance at March 31, 1996 3,330 $66 $71,287 ($64,927) ($411) $6,015
===== === ======= ======== ===== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
5
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three
(In thousands) Months Ended
March 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 679) ($ 120)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 134 138
Gain on sale of Belmacina(R) -- (380)
Other non-cash items 597 --
(Increase) decrease in assets and
increase (decrease) in liabilities:
Receivables (2,007) (272)
Inventories 55 (419)
Prepaid expenses and other current assets (36) (294)
Other assets (43) 51
Accounts payable and accrued expenses 480 (460)
Other liabilities (333) --
--------- ---------
Net cash used in operating activities (1,832) (1,756)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of investments 160 --
Purchase of investments (2,629) (124)
Proceeds from sale of Belmacina(R) -- 760
Net change in fixed assets 14 12
Investment in partnership -- (13)
--------- ---------
Net cash (used in) provided by investing activities (2,455) 635
--------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
6
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
(Unaudited)
For the Three
(In thousands) Months Ended
March 31,
--------------------
1996 1995
--------- ---------
Cash flows from financing activities:
Net increase in short term borrowings $ 395 $ 700
Proceeds from public offering of units 6,900 --
Offering costs (1,163) --
Collection of stock subscription receivable, net -- 250
Repayment of long term debt (1,763) --
Payments on capital leases (8) (17)
--------- ---------
Net cash provided by financing activities 4,361 933
--------- ---------
Effect of exchange rate changes on cash 6 (85)
--------- ---------
Net increase (decrease) in cash and cash equivalents 80 (273)
Cash and cash equivalents at beginning of period 1,120 1,321
--------- ---------
Cash and cash equivalents at end of period $ 1,200 $ 1,048
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Registrant paid cash during the period for (in thousands):
Interest $ 167 $ 68
========= =========
Taxes -- --
========= =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Not applicable
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
7
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements of Bentley Pharmaceuticals, Inc. (the
"Registrant"), at March 31, 1996 and 1995 included herein, have been prepared by
the Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the summary of significant
accounting policies and the audited consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
The consolidated financial statements include the accounts of the Registrant and
its wholly owned subsidiaries: Belmac Healthcare Corporation and its wholly
owned subsidiary - Belmac Hygiene, Inc., Belmac Health Corp., B.O.G.
International Finance, Inc., Belmac Jamaica, Ltd., Chimos/LBF S.A. and its
wholly owned subsidiary - Laboratorios Belmac S.A., and Belmac Holdings, Inc.
and its wholly owned subsidiary - Belmac A.I., Inc. All significant intercompany
balances have been eliminated in consolidation. The financial position and
results of operations of the Registrant's foreign subsidiaries are measured
using local currency as the functional currency. Assets and liabilities of
foreign subsidiaries are translated at the rate of exchange in effect at the end
of the period. Revenues and expenses are translated at the average exchange rate
for the period. Foreign currency translation gains and losses not impacting cash
flows are credited to or charged against Common Stockholders' Equity. Foreign
currency translation gains and losses arising from cash transactions are
credited to or charged against current earnings.
In the opinion of management, the accompanying unaudited consolidated financial
statements at March 31, 1996 and 1995 are presented on a basis consistent with
the audited consolidated financial statements for the year ended December 31,
1995 and contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Registrant's financial position as
of March 31, 1996, the results of its operations and its cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 should not be considered indicative of the
results to be expected for the year.
CASH AND CASH EQUIVALENTS/INVESTMENTS AVAILABLE FOR SALE:
The Registrant considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents for purposes of
the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
Investments in securities which do not meet the definition of cash equivalents
are classified as investments available for sale in the Consolidated
8
<PAGE>
Balance Sheets. Investments available for sale of $2,629,000 at March 31, 1996
are reported at approximate market value.
INVENTORIES:
Inventories are stated at the lower of cost or market, cost being determined on
the first in, first out ("FIFO") method and are comprised of the following (in
thousands):
March 31, December 31,
1996 1995
------- -------
Raw materials $ 439 $ 374
Work in process -- 1
Finished goods 1,358 1,498
------- -------
1,797 1,873
Less: Allowance for slow moving or obsolete inventory (854) (819)
------- -------
$ 943 $ 1,054
======= =======
DEBT:
The Registrant completed a public offering (the "Public Offering") of its
securities in February 1996, whereby it sold 6,900 Units, each Unit ("Unit")
consisting of a One Thousand Dollars ($1,000) Principal Amount 12% Convertible
Senior Subordinated Debenture due February 13, 2006 ("Debenture") and 1,000
Class A Redeemable Warrants, each to purchase one share of Common Stock and one
Class B Redeemable Warrant. Two Class B Redeemable Warrants entitle a holder to
purchase one share of Common Stock. The Debenture and Class A Redeemable
Warrants presently trade only as a Unit and may not be detached within six
months of issuance without the underwriter's prior consent. Interest is payable
quarterly.
The Debentures are convertible prior to maturity, unless previously redeemed, at
any time commencing February 14, 1997 ("the Anniversary Date") into shares of
Common Stock at a conversion price per share of the lesser of $2.50 or 80% of
the average closing price of the Common Stock on the American Stock Exchange for
the 20 consecutive trading days immediately preceding the Anniversary Date.
9
<PAGE>
Gross and net proceeds (after deducting underwriting commissions and the other
expenses of the offering), were approximately $6,900,000 and $5,700,000,
respectively, a portion of which were used to retire $1,770,000 principal
balance of debt incurred in the October 1995 private placements.
Of the Unit purchase price of $1,000, for financial reporting purposes, the
consideration allocated to the Debenture is $722, to the conversion discount
feature of the Debenture is $224 and to the 1,000 Class A Warrants is $54. None
of the Unit purchase price is allocated to the Class B Warrants. Such allocation
is based upon the relative fair values of each security on the date of issuance.
Such allocation resulted in recording a discount on the Debentures of
$1,918,000.
The original issue discount and the costs related to the issuance of the
Debentures are being amortized to interest expense using the effective interest
method over the lives of the related Debentures. The effective interest rate on
the Debentures is 18.1%.
NET LOSS PER COMMON SHARE:
Primary loss per common share is computed by dividing the net loss (adjusted for
accrued dividends on redeemable preferred stock) by the weighted average number
of shares of Common Stock outstanding during each period. Common Stock
equivalents were not included in the calculation of primary loss per share as
they were determined to be antidilutive.
The Registrant effected a one for ten reverse stock split of its Common Stock on
July 25, 1995 as a result of an amendment to its Articles of Incorporation which
was approved by the Stockholders at the Registrant's Annual Stockholders Meeting
held on June 9, 1995. The Registrant has retroactively restated all information
with respect to common shares and earnings per common share as if such reverse
stock split had been effective for all periods presented.
NEW ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("FAS 121") effective for fiscal years beginning after December 15, 1995. FAS
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Registrant adopted FAS 121 effective January 1, 1996. The
adoption of FAS 121 did not have a material impact on the financial condition or
the results of operations of the Company.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123") effective for
transactions entered into
10
<PAGE>
after December 15, 1995. FAS 123 provides alternatives for the methods used by
entities to record compensation expense associated with its stock-based
compensation plans. Additionally, FAS 123 provides further guidance on the
disclosure requirements relating to stock-based compensation plans. The
Registrant adopted FAS 123 effective January 1, 1996. The adoption of FAS 123
did not have a material impact on the financial condition or the results of
operations of the Company.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with the current
period's presentation format. These reclassifications are not material to the
consolidated financial statements.
11
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ---------------------
Three Months Ended March 31, 1996 versus Three Months Ended March 31, 1995
- --------------------------------------------------------------------------
The Registrant reported revenues of $9,698,000 and a net loss of $679,000 or
$.21 per share for the three months ended March 31, 1996 compared to revenues of
$8,094,000 and a net loss of $120,000 or $.05 per share for the same period in
the prior year.
The 20% increase in revenues is primarily attributable to a 10% increase in
sales by the Registrant's French subsidiary, Chimos/LBF S.A., to $7,110,000, and
a 63% increase in sales by the Registrant's Spanish subsidiary, Laboratorios
Belmac S.A., to $2,494,000. Gross margins for the quarter ended March 31, 1996
improved to 21% compared to 18% in the comparable period of the prior year,
primarily as a result of the more rapid rate of growth in sales at Laboratorios
Belmac, whose sales generate higher gross margins than those of Chimos. The
Registrant's distribution operations in France, Chimos/LBF, S.A., generate
relatively low gross margins (approximately 9%) as opposed to the Registrant's
Spanish subsidiary, Laboratorios Belmac S.A., which is experiencing
substantially higher margins (approximately 56%). The Registrant expects sales
to decline beginning in the second quarter of 1996 as a result of the March 31,
1996 expiration of its distribution agreement for the product, Ceredase, which
accounted for approximately 60% of its revenues in 1995 and approximately 54% of
its revenues in the quarter ended March 31, 1996. Ceredase gross margins, as a
percent of sales, have been minimal; therefore, the impact on operating profits
is not expected to be material.
Selling, general and administrative expenses were $1,900,000, or 20% of sales,
for the three months ended March 31, 1996 compared to $1,596,000, or 20% of
sales, for the same period in the prior year. A significant portion of these
expenses are marketing and selling costs, which are necessary for the
Registrant's plans to increase sales and market share in Spain. To the extent
practical, however, the Registrant intends to continue its efforts to control
general and administrative expenses as part of its austerity program in its
effort to reach and maintain profitability.
Research and development expenses were $18,000 for the quarter ended March 31,
1996 compared to $143,000 for the same period of the prior year. The 87%
decrease reflects the Registrant's de-emphasis of basic research and redirection
of its resources to expand its portfolio of marketed products. During this
period, the Registrant did not commence any new research and development
programs. The Registrant intends to continue to carefully manage its research
and development expenditures in the future in view of its limited resources.
12
<PAGE>
Depreciation and amortization expenses remained relatively unchanged at $134,000
for the three months ended March 31, 1996, compared to $138,000 for the same
period of the prior year.
Interest expense was $689,000 for the three months ended March 31, 1996 compared
to $65,000 for the same period of the prior year. The $624,000 increase reflects
interest expense arising primarily from: the Notes sold by the Registrant in its
October 1995 private placements (including $446,000 of unamortized discount and
issuance costs at the date of repayment), which Notes were paid with the
proceeds of the public offering completed in February 1996; the debentures sold
in the February 1996 public offering; and, to a lesser degree, higher
outstanding balances on short term borrowings, which are used to finance working
capital needs. Interest income was $9,000 for the three months ended March 31,
1996, compared to zero for the same period of the prior year. Other
(income)/expense, net of $(365,000) for the three months ended March 31, 1995 is
primarily comprised of the gain recognized upon the 1995 sale of the
Registrant's Belmacina(R) trademark in Spain.
Although the Registrant reported a 20% increase in sales, improved gross
margins, and controlled spending with respect to operating expenses in the
quarter ended March 31, 1996, its net loss increased from $120,000, or $.05 per
share, to $679,000, or $.21 per share, primarily as a result of significantly
higher interest expense during the quarter ended March 31, 1996. Interest
expense in the quarter ended March 31, 1996 included a $446,000 non-recurring,
non-cash charge for unamortized discount and debt issuance costs related to debt
that was repaid by the Registrant in February 1996. This one-time non-cash
charge had the effect of increasing the loss per share by $.13 in the quarter
ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Total assets increased from $16,290,000 at December 31, 1995 to $21,051,000 at
March 31, 1996, while Common Stockholders' Equity increased from $5,316,000 at
December 31, 1995 to $6,015,000 at March 31, 1996. The increase in Common
Stockholders' Equity reflects primarily the February 1996 public offering of
Units (defined below), offset in part by a fluctuation in the exchange rates of
European currencies compared to the U. S. Dollar and the loss incurred by the
Registrant for the period.
The Registrant's working capital was $6,541,000 at March 31, 1996 compared to
$3,113,000 at December 31, 1995. The increase in working capital is primarily
attributable to the February 1996 public offering of Units.
Cash and cash equivalents remained relatively constant at $1,200,000 at March
31, 1996, compared to $1,120,000 at December 31, 1995; however, the Registrant
invested $2,629,000 of its cash in short term investments, which are reflected
on the Registrant's Consolidated Balance Sheets as investments available for
sale at March 31, 1996.
Receivables increased from $6,836,000 at December 31, 1995 to $8,631,000 at
March 31, 1996 due to the continued growth in sales volume at the Registrant's
French and Spanish subsidiaries. A significant portion of the Registrant's trade
receivables arise from sales of pharmaceutical and health care products to the
French government. Payment terms for such sales are typically 90 to 100 days.
The Registrant has not experienced any material delinquent accounts. Inventories
decreased from $1,054,000 at December 31, 1995 to $943,000 at March 31, 1996 in
the ordinary course of business, and prepaid expenses and other current assets
decreased from $596,000 at December 31, 1995 to $514,000 at March 31, 1996,
primarily as a result of writing off certain deferred costs associated with the
Notes sold by the Registrant in its October 1995 private placements, which were
paid with the proceeds of the February 1996 public offering.
13
<PAGE>
The combined total of accounts payable and accrued expenses increased 7% from
$5,455,000 at December 31, 1995 to $5,817,000 at March 31, 1996 and short term
borrowings increased 30% from $1,197,000 to $1,558,000 due to higher balances on
lines of credit, in France and Spain, used for working capital purposes.
Other non-current assets increased 64% from $1,319,000 at December 31, 1995 to
$2,161,000 at March 31, 1996 and long term debt increased 269% from $1,354,000
at December 31, 1995 to $5,003,000 at March 31, 1996, as a result of the public
offering of Units in February 1996.
Investing activities, including the purchase of investments available for sale
of $2,629,000, used net cash of $2,455,000 during the three months ended March
31, 1996. Financing activities (primarily the sale of Units in a public offering
in February 1996 and proceeds from borrowings on lines of credit) provided net
proceeds of $4,361,000 for the three months ended March 31, 1996. Operating
activities for the three months ended March 31, 1996 required net cash of
$1,832,000.
A substantial amount of the Registrant's business is conducted in France and
Spain and is therefore influenced by the extent to which there are fluctuations
in the dollar's value against such countries' currencies. The effect of foreign
currency fluctuations on long lived assets for the three months ended March 31,
1996 was a decrease of $169,000 and the cumulative historical effect was a
decrease of $763,000, as reflected in the Registrant's Consolidated Balance
Sheets in the "Liabilities and Stockholders' Equity" section. Although exchange
rates fluctuated significantly in recent years, the Registrant does not believe
that the effect of foreign currency fluctuation is material to the Registrant's
results of operations as the expenses related to much of the Registrant's
foreign currency revenues are in the same currency as such revenues. The
Registrant relies primarily upon financing activities to fund the operations of
the Registrant in the United States and has not transferred significant amounts
into or out of the United States in the recent past. In the event that the
Registrant is required to fund United States operations with funds generated in
France or Spain, currency rate fluctuations in the future could have a
significant impact on the Registrant. However, at the present time, the
Registrant does not anticipate altering its business plans and practices to
compensate for future currency fluctuations.
To finance its operations, in October 1995 the Registrant conducted two private
placements of its securities. In the first placement, the Registrant sold to
certain purchasers for an aggregate purchase price of $720,000, 120,000 shares
of the Registrant's Common Stock and 12% promissory notes in the aggregate
principal amount of $720,000 which became payable in full upon the earlier of
July 31, 1996 or the closing of a public offering of the Registrant's
securities. In the second placement, the Registrant sold to certain purchasers
for an aggregate purchase price of $1,050,000, 131,250 shares of Common Stock
and 12% promissory notes in the aggregate principal amount of $1,050,000 which
became payable in full upon the earlier of September 30, 1996 or the completion
of a public offering. A public offering was completed in February 1996 and all
of such notes were repaid at that time or converted into Units.
An aggregate of 6,900 Units were sold in the February 1996 Public Offering. Each
Unit consists of a One Thousand Dollars ($1,000) Principal Amount 12%
Convertible Senior Subordinated Debenture due February 13, 2006 and 1,000 Class
A Redeemable Warrants, each to purchase one
14
<PAGE>
share of Common Stock and one Class B Redeemable Warrant. Two Class B Redeemable
Warrants entitle a holder to purchase one share of Common Stock. The Debentures
and Class A Redeemable Warrants presently trade only as a Unit and may not be
detached within six months of issuance without the underwriter's prior consent.
Interest is payable quarterly. The Debentures are convertible prior to maturity,
unless previously redeemed, at any time commencing February 14, 1997 (the
"Anniversary Date") into shares of Common Stock at a conversion price per share
of the lesser of $2.50 or 80% of the average closing price of the Common Stock
on the American Stock Exchange for the 20 consecutive trading days immediately
preceding the Anniversary Date. Gross and net proceeds (after deducting
underwriting commissions and the other expenses of the offering), were
approximately $6,900,000 and $5,700,000, respectively, a portion of which were
used to retire $1,770,000 principal balance of debt incurred in the private
placements discussed above.
Of the Unit purchase price of $1,000, for financial reporting purposes, the
consideration allocated to the Debenture is $722, to the conversion discount
feature of the Debenture is $224 and to the 1,000 Class A Warrants is $54. None
of the Unit purchase price is allocated to the Class B Warrants. Such allocation
is based upon the relative fair values of each security on the date of issuance.
Such allocation resulted in recording a discount on the Debentures of
$1,918,000. The effective interest rate on the Debentures is 18.1%.
The Registrant continues to experience negative cash flows from operating
activities and, as discussed above, completed private placements of its
securities totaling $1,770,000 during October 1995 in order to fund its
operations and completed a public offering of its securities totaling $6,900,000
in February 1996 to provide further liquidity. The Registrant may seek to enter
into a partnership or other collaborative funding arrangement with respect to
future clinical trials of its products under development. The Registrant,
however, continues to explore alternative sources for financing its business. In
appropriate situations, that will be strategically determined, the Registrant
may seek financial assistance from other sources, including contribution by
others to joint ventures and other collaborative or licensing arrangements for
the development, testing, manufacturing and marketing of products and the sale
of a minority interest in, or certain of the assets of, one or more of its
subsidiaries. Management expects that as a result of completing its recent
financings and by carefully prioritizing research and development activities and
continuing its austerity program, the Registrant should have sufficient
liquidity to fund operations into early 1997.
15
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PART II. OTHER INFORMATION
-----------------
All items required in Part II have been previously filed or are not applicable
for the quarter ended March 31, 1996.
16
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BENTLEY PHARMACEUTICALS, INC.
-----------------------------
Registrant
May 14, 1996 By: /s/ James R. Murphy
-------------------------------
James R. Murphy
Chairman, President and Chief Executive Officer
(principal executive officer)
May 14, 1996 By: /s/ Michael D. Price
-------------------------------
Michael D. Price
Vice President, Chief Financial Officer,
Treasurer, and Secretary (principal financial
and accounting officer)
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<NAME> BENTLEY PHARMACEUTICALS, INC.
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