UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 (Fee Required) for the fiscal year ended December
31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 (No Fee Required) for the transition period from
__________ to ____________
Commission File Number 1-10581
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BENTLEY PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
Florida No. 59-1513162
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(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
4830 W. Kennedy Blvd., Suite 550, Tampa, FL 33609
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 286-4401
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Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.02 par value American Stock Exchange and Pacific Stock Exchange
Units American Stock Exchange and Pacific Stock Exchange
12% Convertible Senior
Subordinated Debentures American Stock Exchange and Pacific Stock Exchange
Class A Redeemable Warrants American Stock Exchange and Pacific Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Title of Class Aggregate Market Value As of the Close of Business on
- -------------- ---------------------- ------------------------------
Common Stock, $7,493,562 March 25, 1996
$.02 par value
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title of Class Shares Outstanding As of the Close of Business on
- -------------- ---------------------- ------------------------------
Common Stock, 3,330,472 March 25, 1996
$.02 par value
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1996 Annual Meeting of Stockholders - Incorporated by
Reference into Part III of this Form 10-K
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PART I
ITEM 1. BUSINESS
GENERAL
Bentley Pharmaceuticals, Inc., formerly known as Belmac Corporation, (the
"Registrant") is an international pharmaceutical and health care company engaged
primarily in the manufacturing, marketing and distribution of pharmaceutical
products in France and Spain, with limited distribution of health care products
and research and development activities in the United States. The Registrant's
operations in France consist of the brokerage of fine chemicals and the
marketing of ethical drugs. In Spain, the Registrant manufactures, packages and
distributes both its own and other companies' pharmaceutical products and has
recently begun to emphasize the manufacture of pharmaceuticals under contract.
In the United States, the Registrant markets disposable linens to emergency
health services which are manufactured under contract. The percentage of the
Registrant's total revenues for the year ended December 31, 1995 which are
attributable to its operations in France, Spain and the United States are
approximately 80%, 19% and 1%, respectively. Limited research and development
activities are conducted both in the United States and Europe. The Registrant's
chemical and pharmaceutical operations in France and Spain are a result of its
1991 acquisition of Chimos S.A. and the establishment of a pharmaceutical
subsidiary in France, Laboratoires Belmac S.A. ("Laboratoires Belmac") (these
two entities in France have since been merged into one entity named and referred
to herein as Chimos/LBF S.A.) and the 1992 acquisition of Rimafar S.A.
(subsequently renamed and referred to herein as "Laboratorios Belmac S.A."),
respectively.
The strategic focus of the Registrant has shifted in response to the evolution
of the global health care environment. The Registrant has moved from a research
and development-oriented pharmaceutical company, developing products from the
chemistry laboratory through marketing, to a company seeking to acquire
late-stage development compounds that can be marketed within one year, and
currently marketed products. As a result of this transition, the Registrant has
decreased its research and development expenses dramatically over the past few
years as well as implemented cost-cutting measures throughout the Registrant's
operations. The Registrant emphasizes product distribution in France and Spain,
strategic alliances and product acquisitions, which management of the Registrant
expects will move the Registrant closer to profitability in the near future.
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The Registrant's sales by its primary product lines are as follows (in
thousands):
For the Year Ended December 31,
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1995 1994 1993
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Pharmaceutical and Consumer Health Care Products $30,226 $26,100 $19,483
Disposable Linen Products 249 184 56
Other -0- -0- 310
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Total $30,475 $26,284 $19,849
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PRODUCT LINES
The Registrant currently manufactures, markets and sells pharmaceutical products
in Spain, distributes pharmaceutical and biotechnology products and brokers fine
chemicals in France, and markets and sells disposable linens in the United
States.
PHARMACEUTICAL MANUFACTURING AND MARKETING IN SPAIN
Laboratorios Belmac S.A., the Registrant's subsidiary in Spain ("Laboratorios
Belmac"), manufactures, markets and sells pharmaceutical products whose four
primary categories are cardiovascular, neurological, gastrointestinal and
antibiotic. The Registrant manufactures over 60 types of pharmaceuticals in its
facility in Zaragoza, Spain both for its own sales and under contract for
others. The manufacturing facility was recently renovated and brought into full
compliance with European Union Good Manufacturing Practices (GMPs). Among the
products Laboratorios Belmac manufactures, each of which is registered with
Spain's Ministry of Health, are:
Controlvas(R). Controlvas, whose generic name is enalapril, is an
angiotensin converting enzyme inhibitor useful in the treatment of hypertension
and congestive heart failure. Enalapril is marketed in the United States by
Merck & Company.
Belmazol(R). Belmazol, whose generic name is omeprazole, is used
primarily for hyperacidity problems related to ulcers and, secondarily, for the
treatment of gastroesophageal reflux disease. Omeprazole is a proton pump
inhibitor which inhibits the hydrogen/potassium ATPase enzyme system at the
secretory surface of the gastric parietal cell. Because this enzyme system is
regarded as an acid pump within the gastric mucosa, it has been characterized as
a gastric acid pump inhibitor in that it blocks the final step of acid
production. This compound has been used in combination with antibiotics for the
treatment of ulcers when it is suspected that Helicobacter pylori, a bacteria,
is the etiologic agent.
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Finedal(R). Finedal is an anti-obesity agent of the amphetamine class
for the treatment of obesity in conjunction with dietary control but with
reduced adverse effects common to that class of compounds.
Lopermida(R). Lopermida, whose generic name is loperamide
hydrochloride, a product launched by the Registrant in Spain in March 1995, is a
compound that inhibits gastrointestinal motility and is useful in the treatment
of diarrheal conditions and colitis. Loperamide hydrochloride is marketed in the
United States by several drug companies, including McNeil, Proctor & Gamble,
Novo Pharm and Geneva.
Lactoliofil(R). Lactoliofil is an anti-diarrheal agent whose mechanism
of action is the restoration of gastrointestinal flora.
Ergodavur(R), Neurodavur(R) and Neurodavur Plus(R). Ergodavur,
Neurodavur and Neurodavur Plus are compounds used for the enhancement of
activity in the central and peripheral nervous systems.
Diflamil(R). Diflamil is an anti-inflammatory analgesic used in the
treatment of arthritis.
Resorborina(R). Resorborina is a compound that has local anesthetic and
anti-inflammatory properties for the treatment of pharyngitis and mouth
infections.
Onico-Fitex(R) and Fitex E(R). Onico-Fitex and Fitex E are compounds
used to treat local fungal infections, especially around the nails.
Otogen(R). Otogen is a product used for the treatment of ear infections
and ear pain.
Spirometon(R). Spirometon is a combination of spironolactone and
bendroflumethazide useful in the treatment of congestive heart failure,
hypertension and edema. (Spirometon is a diuretic that preserves the body's
supply of potassium).
Anacalcit(R). Anacalcit is a calcium binding product used for the
treatment of kidney stones. The Spanish government has specifically requested
that Laboratorios Belmac continue to manufacture this product, as Laboratorios
Belmac is the only supplier of this type of product in Spain.
Clisemina(R). Clisemina (doxycycline) is a tetracycline antibiotic used
for a multitude of infectious diseases.
Amantadina Juventus(R). Amantadina Juventus is an oral anti-viral agent
used in the treatment of viral infections and also has applications in treating
Parkinson's Disease.
Belmacina(R). Belmacina is a ciprofloxacin antibiotic. The Registrant
sold its Spanish marketing rights to Belmacina to CEPA, a Spanish company, in
1994 for 200 million Spanish Pesetas
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(approximately $1,556,000) and the related trademark to CEPA for 50 million
Spanish Pesetas (approximately $380,000) in 1995. The Registrant maintains the
right to manufacture and export this product. Belmacina was acquired by the
Registrant in September 1992 for approximately $577,000. The gain on sale of the
marketing rights (approximately $884,000) was included in the Registrant's
income for the year ended December 31, 1994. The Registrant recorded the gain on
the sale of the related trademark (approximately $380,000) as deferred revenue
in its consolidated financial statements for the year ended December 31, 1994,
and recognized such revenue in 1995. See Note 6 of Notes to Consolidated
Financial Statements.
Rimafungol(R). Rimafungol is the Registrant's form of
cyclopiroxolamine, a broad-spectrum antifungal product for treating fungal
infections of the skin and vagina.
Rofanten(R). Rofanten is the Registrant's formulation of naproxen
sodium, an anti-inflammatory/analgesic.
Generic Antibiotics. Laboratorios Belmac produces directly or by
contract to others, various other types of generic antibiotics for which patent
protection no longer exists, such as amoxicillin, ampicillin (Bactosone
Retard(R)) and injectable forms of penicillin.
Controlvas and Belmazol, together, represent approximately 73% of the sales of
Laboratorios Belmac.
As the Spanish government did not recognize international conventions for patent
protection for pharmaceutical products until 1992, the Registrant, while owning
the right to manufacture the drugs described above as well as other
pharmaceuticals, will often be one of several companies which has the right to
manufacture and sell substantially similar products. The Spanish regulatory
authorities specify the amounts each company can charge for its products.
Therefore, the Registrant's competitors may sell similar products at the same,
higher or lower prices. Many of these competitors are larger, better capitalized
and have more developed sales networks than the Registrant.
The Registrant maintains an internal marketing and sales staff of approximately
53, including 34 employees and 19 independent sales representatives working on
commission in Spain to market the pharmaceuticals it produces. The Registrant's
sales force competes by emphasizing highly individualized customer service.
In 1995, the Registrant commenced the export of pharmaceuticals manufactured by
Laboratorios Belmac outside Spain through local distributors and brokers,
particularly in Eastern Europe and South America.
CONTRACT MANUFACTURING. Since Laboratorios Belmac currently utilizes less than
100% of its plant capacity to manufacture its own products, Laboratorios Belmac
has begun to act as a contract manufacturer of pharmaceuticals owned by other
companies such as Rhone-Poulenc's subsidiary Natterman S.A., Ciba Geigy's
subsidiary Zyma, Fournier, Italpharmaco, Beijing Pharmaceutical,
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Instituto Llorente and Laboratorios Juventus, S.A. Other contracts are
contemplated in the near future. The Registrant manufactures these
pharmaceuticals to its customers' specifications, packaging them with the
customers' labels. Occasionally, to assure product uniformity and quality,
employees of these customers will work at the Registrant's manufacturing
facility.
As a result of Spain's entry into the European Union, Spain implemented new
pharmaceutical manufacturing standards and the Registrant was required to modify
its facility to comply with these regulations. Such renovations were
accomplished by Laboratorios Belmac without interruption of sales or
distribution. After an inspection, in July 1995 the operating parts of the
facility were determined to be in compliance with European Good Manufacturing
Practices ("GMPs") by Spain's Ministry of Health.
PHARMACEUTICAL MARKETING AND SALES IN FRANCE
Chimos/LBF S.A., the Registrant's subsidiary in France ("Chimos"), is engaged in
the import and distribution of specialty pharmaceutical products to hospitals
and others in France. Chimos concentrates on the sale of "orphan drugs" (drugs
used for the treatment of rare diseases). The Registrant markets, throughout
France, over 26 pharmaceutical products from Europe and the United States.
Chimos is authorized by France's Ministry of Health to act as a distributor of
ethical drugs. The primary customer of Chimos is Pharmacie Centrale des
Hopitaux, which purchases drugs from Chimos. Among the products that Chimos has
been marketing in France is Ceredase, a drug used in the treatment of Gaucher's
Disease. Chimos has been marketing Ceredase in France since the drug became
available, approximately five years ago. Ceredase is manufactured by Genzyme
Corporation of Boston, Massachusetts, which has contracted with Chimos to
distribute it in France. The distribution agreement between Genzyme Corporation
and Chimos expires on March 31, 1996, and the Registrant has been informed that,
although Genzyme may need to rely on Chimos to continue its distribution of
Ceredase in April 1996 in order to fill March 1996 orders, such agreement is not
expected to be extended or renewed.
Consequently, the Registrant expects its sales in France to decline
significantly beginning in the second quarter of 1996 as a result of the
expiration of the distribution agreement. Notwithstanding the relative
significance of its sales volume, the Ceredase gross margins as a percentage of
sales have been minimal, therefore the impact on operating profits is not
expected to be material. The Registrant is exploring alternative uses for its
working capital that has historically supported the Ceredase distribution
arrangement.
Chimos, as one of the authorized distributors of Orphan Drugs in France, is
occasionally contacted by manufacturers of such products outside of France to
act as their distributor. In addition, the Registrant from time to time supplies
Chimos with a list of Orphan Drugs approved by the FDA in the United States and
Chimos contacts their manufacturers to seek becoming their distributor in
France.
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CHEMICAL BROKERAGE. Chimos is engaged in the import and supply in France of
approximately 39 fine chemicals, such as furosemide, phenobarbital and
trihexyphenidyl HCl, used in the manufacture of pharmaceuticals, from countries
such as Japan, Taiwan, China, Pakistan and several European countries. The
brokerage of fine chemicals by Chimos provides a necessary link between the
manufacturer and end-user. The manufacturer produces the chemicals to meet
product specifications and provides a certificate of analysis as to the purity
of the chemicals. The products are provided to the end-user, which generally
verifies the analysis with its own quality control procedures. Chimos generally
acts as agent for the manufacturer, arranging for shipping, import and customs
documentation, invoicing and collection of payments. Chimos also acts on
occasion on behalf of the end-user, which requests that Chimos source a
particular product from one of its sources or conduct a world-wide search for
the product.
MARKETING AND DISTRIBUTION OF DISPOSABLE LINENS IN THE UNITED STATES
The Registrant markets and distributes disposable linen products to the
emergency health care industry in the United States through Belmac Healthcare
Corporation, one of the Registrant's U.S. subsidiaries ("Healthcare"). These
disposable linens include products such as blankets, sheets and pillowcases.
Customers for these products include distributors to entities which are engaged
in the provision of emergency health care services, such as emergency rooms and
ambulance services, located primarily in the southwestern and northeastern
regions of the United States.
Healthcare receives orders for these products at the Registrant's headquarters
in Tampa, Florida. Healthcare subcontracts the manufacturing of the disposable
linens in accordance with Healthcare's specifications. The raw materials for
these products are provided by Healthcare and stored with one of the
manufacturers until needed. Once produced, the products are shipped directly to
the customer from the manufacturer or held in inventory in anticipation of
customer demand.
The supply of disposable linens to health care providers in the United States is
a highly competitive business. Large companies with significantly greater
resources than the Registrant, such as Kimberly-Clark Corporation, Minnesota
Mining & Mfg. Co., Johnson & Johnson, Owens & Minor Inc., General Medical Corp.
and Baxter International Inc., dominate the market. The Registrant concentrates
its marketing on the emergency services segment of the health care market, an
area which demands greater individual attention. Healthcare believes that it
competes on the basis of customer service.
Healthcare advertises this service nationwide through several mediums, such as
print advertisements, trade shows and direct mail (sales brochures). Sales from
disposable linens increased to $249,000 in 1995 from $184,000 in 1994 and from
$56,000 in 1993. The manufacture and sale of disposable linens is subject to
regulation by the FDA. The FDA monitors the composition and labeling of health
care products, such as disposable linens.
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PRODUCTS UNDER DEVELOPMENT
Although the Registrant significantly reduced its research and development
activities when it implemented its austerity program in 1993, the Registrant has
maintained its rights to a number of selected products. There can be no
assurance that the Registrant will have the resources to bring any of these
products to market or, if such resources are available, that the products can be
successfully developed, manufactured or marketed.
Due to the expense and time commitment required to bring a pharmaceutical
product to market, the Registrant is seeking co-marketing, licensing and
promotional arrangements and other collaborations with other international or
national pharmaceutical companies. Generally, management believes that the
Registrant can compete more effectively in certain markets through collaborative
arrangements with companies that have an established presence in a particular
geographic area and greater resources than those of the Registrant. The
Registrant is currently seeking partners to assist in the further development
and marketing of Biolid(R) and Alphanon(R).
BIOLID(R)
Biolid(R) is a non-crystalline form of erythromycin with a potential for
enhanced bioavailability (quantity absorbed in blood over time compared to dose
received). Initially, Biolid was produced in Europe in a sachet formulation,
which is a powder formulation contained in a packet, which is mixed with water
prior to oral administration. This formulation for drugs is more popular in
Europe than in the United States, necessitating the Registrant's development of
a tablet formulation for marketing in the United States. The Registrant was
granted a United States patent for Biolid in June 1992. An international patent
application covering ten additional countries was granted in January 1994.
Regulatory approval was recently received in Spain and an Investigational New
Drug Application ("IND") is on file with the FDA.
Initial Sachet Formulation Studies. Five double blind clinical studies of
Biolid, using its sachet formulation, were completed in 1992 in a total of 612
patients in France, Germany, Belgium and Holland. Four studies used
roxithromycin (Rulid, Hoescht-Roussel) as a reference drug, and Biolid showed
equal efficacy and tolerance in both lower and upper respiratory tract
infections in three of the four studies. In the fifth study, Biolid was compared
to a third generation oral cephalosporin, cefpodoxime (Cefodox,
Hoescht-Roussel), in upper respiratory tract infections, and again, equal
efficacy and tolerance were observed.
France. The Registrant began marketing the sachet formulation of Biolid in
France in 1992 after its approval by France's Ministry of Health. During a
periodic review of the dossier of Biolid by the Ministry in 1993 which was
completed shortly after the Registrant had negotiated the sale of the
Registrant's rights to the sachet formulation in France, the Ministry required
the suspension of marketing of Biolid pending the provision by the Registrant of
additional clinical data regarding the mechanisms for the comparatively enhanced
absorption of the Biolid sachet. This suspension was unrelated to safety or
efficacy issues. The sale of the rights to Biolid did not occur. The Registrant
believes that once the additional technical information requested has been
provided to the French
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regulators, the regulators should agree to the continued marketing of the sachet
formulation. However, due to the cost of such a study, at this time the
Registrant will not fund additional clinical studies of the sachet formulation
in France without a collaborative partner. The Registrant believes that the
likelihood of obtaining a partner in France is currently remote. See Note 6 of
Notes to Consolidated Financial Statements.
Spain. The Registrant received approval by Spain's Ministry of Health in 1994
for marketing the sachet formulation of Biolid in Spain at a price lower than
that requested by the Registrant. In 1995, the Ministry approved a higher price
level, pending delivery of the results of a further clinical study demonstrating
enhanced bioavailability of Biolid. In addition, once the initial production of
a quantity of Biolid has been produced by Laboratorios Belmac in Spain, which
will be done using raw materials supplied to Laboratorios Belmac from Chimos,
Laboratorios Belmac will use the same clinical study to demonstrate that the
manufacturing process used in Spain is substantially similar to that which was
successfully used in France and that the formulation produced in Spain yields a
final product which meets all regulatory standards. The Registrant currently
expects that the clinical study will be performed in two phases. First, a pilot
study of six persons will be performed and then, if the results of the pilot
study are positive, a larger population will be tested in compliance with the
requirements of the Ministry. There can be no assurance that either the pilot
study or, if the pilot study is successful, the full study will demonstrate
either enhanced bioavailability or substantial similarity. Management of the
Registrant does not have sufficient data to be able to accurately predict the
outcome of these studies at this time. However, such studies have not been
scheduled as a result of the Registrant's strategy that encompasses controlled
and prioritized spending with respect to research and development activities.
United States. The Registrant has determined to direct its marketing efforts for
Biolid in the United States to the twice-a-day tablet formulation rather than
the sachet formulation. The Registrant has performed several pilot studies
between 1992 and 1994, the most recent of which indicated that the tablet, given
with a high fat meal, had bioavailability which was approximately 25% better
when compared on a milligram for milligram basis with a competitive U.S. tablet
of erythromycin. These results did not achieve the same level of bioavailability
as the initial studies of the sachet formulation. Because of wide variations in
the data, an additional study with a larger number of subjects will be required
to definitively determine the relative bioavailability of the tablet formulation
as compared to standard erythromycin. A study plan was reviewed by the FDA.
There can be no assurance that this study will demonstrate enhanced
bioavailability. Management of the Registrant does not have sufficient data to
be able to accurately predict the outcome of the studies at this time. The
Registrant intends to seek collaborative partners to assist in completion of the
development and subsequent marketing of this product.
ALPHANON(R)
Alphanon, the Registrant's original product, was designed for the systemic
treatment of hemorrhoids. The drug was originally developed as a liquid
formulation for intra-navel transdermal application. A double blind placebo
controlled study conducted in France in the late 1980's in 220 patients
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demonstrated that Alphanon was effective in the treatment of hemorrhoids and
hemorrhoidal bleeding. This study was not conducted in complete compliance with
Good Clinical Practices.
A transdermal patch, a more convenient formulation, has been developed with ALZA
Corporation, and an IND is on file with the FDA. The Registrant satisfactorily
completed a Phase I clinical study in December 1992 and is evaluating its
alternatives which include continuing development, co-development or
divestiture. The Registrant has discontinued all sales and marketing efforts as
well as further research and development related to Alphanon pending a decision
regarding such alternatives.
OTHER PRODUCTS
Azaquinone Analogues. The development of the original azaquinone compound was
discontinued by the Registrant in 1994, however, numerous analogues were
synthesized by the Registrant as part of the development process. Initial in
vitro screening showed promising activity against Mycobacterium avium complex
(MAC). The Registrant plans to continue limited additional research on these
analogues. The Kuzell Institute in San Francisco, California, under a grant from
the National Institutes of Health, is currently conducting research into the
efficacy of azaquinone. Should the results of this testing show that an
azaquinone analogue has enough unique qualities to distinguish it from other
similar products, the Registrant plans to apply for a patent, and ultimately
sell the rights to this compound.
Phenantramine Analogue. Phenantramine analogue is a pre-clinical stage
antimalarial which has shown effectiveness against sensitive and resistant
strains of Plasmodium falciparum. It is currently being reviewed for possible
co-development by an unrelated third party. The Registrant is planning no
additional in-house research and development activity at this time with respect
to this compound.
PARTNERSHIP VENTURE
In March 1994 the Registrant formed a partnership, through Healthcare's
wholly-owned subsidiary, Belmac Hygiene, Inc., with a wholly-owned subsidiary of
Maximed Corporation, which is headquartered in New York City, and planned to
market, through this partnership, a range of hydrogel based feminine health care
products, including a contraceptive, an antiseptic, an antifungal and an
antibacterial. In December 1994, the Registrant commenced litigation against its
partner claiming interference in the management of the partnership and
misrepresentation under the partnership agreement. On January 12, 1996 the Court
ruled that the Registrant's reliance on its partner's misrepresentation was not
justified and that the Registrant had performed its obligations under the
agreement with its partner. Accordingly, the Registrant's claims as well as the
counterclaims of its partner were dismissed. Pending resolution of this dispute,
the partnership is not actively engaged in the development of any products. The
Registrant believes that while introduction of the first product, a
contraceptive, is possible in 1996, such introduction is dependent upon a prompt
and favorable resolution of the Registrant's dispute with its partner which
would include the receipt by the Registrant of the rights to such products.
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SOURCES AND AVAILABILITY OF RAW MATERIALS
The Registrant purchases, in the ordinary course of business, necessary raw
materials and supplies essential to the Registrant's operations from numerous
suppliers. There have been no availability problems or supply shortages nor are
any anticipated.
PATENTS, TRADEMARKS, LICENSES AND REGISTRATIONS
Although few of the products currently being sold by the Registrant are
protected by patents owned by the Registrant, the Registrant believes that
patent and trademark protection of the results of the Registrant's research and
development efforts will be an essential component to the future success of the
Registrant. Accordingly, where possible, patents and trademarks will be sought
and obtained in the United States and in all countries of principal marketing
interest to the Registrant.
The Registrant has filed numerous patent applications and has been granted a
number of patents. However, there can be no assurance that its pending
applications will be issued as patents or that any of its issued patents will
afford adequate protection to the Registrant or its licensees. In addition, the
Registrant also relies on unpatented proprietary technology in the development
and commercialization of its products. There is no assurance that others may not
independently develop the same or similar technology or obtain access to the
Registrant's proprietary technology.
The Registrant also relies upon trade secrets, unpatented proprietary know-how
and continuing technological innovations to develop its competitive position.
However, there can be no assurance that others may not acquire or independently
develop similar technology or, if patents in all major countries are not issued
with respect to the Registrant's products, that the Registrant will be able to
maintain information pertinent to such research as proprietary technology or
trade secrets.
Patents for Biolid were granted in the U.S. in June 1992 and in the following
European countries in January 1994: Austria, Belgium, Italy, Liechtenstein,
Netherlands, Sweden, Switzerland, U.K., Germany and France. A patent for Biolid
in Venezuela was granted in September 1995. A U.S. patent for Phenantramine was
granted in October 1993. Trademarks for Biolid are currently registered in
France, Ireland, Portugal, Sweden and the U.K. Alphanon trademarks are currently
registered in the U.S. and Australia.
In addition, Laboratorios Belmac owns 50 trademarks for pharmaceutical products
and one patent for enalapril (which expires in 2005) which were granted by
Spain's Bureau of Patents and Trademarks. In Spain, patents expire after 20
years and trademarks expire after 10 years, but can be renewed. All prescription
pharmaceutical products marketed by Laboratorios Belmac in Spain have been
registered with and approved by Spain's Ministry of Health. To register a
pharmaceutical with the Ministry requires the submission of a registration
dossier which includes all pre-clinical, clinical and manufacturing information.
The registration process generally takes approximately two years.
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There can be no assurance that a competitor has not or will not submit
additional registrations for products substantially similar to those marketed by
Laboratorios Belmac.
COMPETITION
All of the Registrant's current and future products face competition both from
existing drugs and products and from new drugs and products being developed by
others. This competition potentially includes national and multi-national
pharmaceutical and health care companies of all sizes. Many of these other
pharmaceutical and health care concerns have greater financial resources,
technical staffs and manufacturing and marketing capabilities than the
Registrant. Acceptance by hospitals, physicians and patients is crucial to the
success of a pharmaceutical or health care product.
The Registrant competes primarily in France and Spain, which are large,
developed population centers in Europe with populations of approximately
58,000,000 and 39,000,000 people, respectively. In addition, since both
countries are members of the European Union, the Registrant expects to be able
to target the European Union's larger population of approximately 442,000,000 as
integration eliminates the barriers between countries.
Laboratorios Belmac competes with both large multinational companies and local
companies, which produce most of the products Laboratorios Belmac manufactures,
on the basis of service and its concentration on select product lines. For
example, there are currently 23 companies which market and sell omeprazole, such
as Schering-Plough, S.A. Similarly, 20 companies currently sell enalapril, with
Merck, Sharp & Dome de Espana, S.A. being the product leader. Others of the
products sold by Laboratorios Belmac, such as Onico-Fitex, are more unusual and
have fewer competitors. The contract manufacturing performed by Laboratorios
Belmac has a number of competitors, including Tadec Meiji Farma, Bama Geve,
ReigJofre, Aristegui, and Fournier, S.A.
Chimos, as a distributor and broker of fine chemicals, pharmaceutical
intermediates and biotechnology products, competes with numerous multinational
companies as well as companies in France, resulting in low product margins
despite high volume. Competition in the supply and distribution of
pharmaceutical intermediates is particularly strong from a large number of small
companies located in Italy, India, Pakistan and China. Certain large
multinational companies also compete in the distribution of fine chemicals
including Abbott Laboratories--Chemicals Division, The UpJohn Co. and Bayer A.G.
The biotechnology industry is currently less competitive as many of such
products are Orphan Drugs with low volumes.
CUSTOMERS
The incidence of certain infectious diseases which occur at various times in
different areas of the world affects the demand for the Registrant's antibiotic
products when they are marketed in each area. Orders for the Registrant's
products are generally filled on a current basis, and no order backlog existed
at December 31, 1995. Sales of approximately $7,300,000, $8,000,000 and
$4,500,000 to Pharmacie Centrale des Hopitaux accounted for approximately 24%,
30% and 23% of the
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Registrant's sales for the years ended December 31, 1995, 1994 and 1993,
respectively. Due to the March 31, 1996 expiration of the Registrant's
distribution agreement with Genzyme Corporation for the distribution of
Ceredase, the Registrant expects a significant decrease in sales to this
customer in 1996 and beyond (see "--Pharmaceutical Marketing and Sales in
France"). The Registrant expects that the loss of this customer would have
a material short-term adverse effect on the Registrant's business. No material
portion of the Registrant's business is subject to renegotiation of profits or
termination of contracts at the election of any governmental authority.
RESEARCH AND DEVELOPMENT
In addition to various executive and administrative functions, the Tampa,
Florida headquarters of the Registrant serves as a site for direction of limited
research and development activities. Research and development activities have
also been performed, under contract, by various universities and consulting
research laboratories. The Registrant has a research and development portfolio
of four pharmaceutical products, with a primary focus on anti-infectives. See
"--Products under Development." These products are protected by two patents and
one patent application in the United States. Patent and patent applications have
also been filed in other countries of marketing interest to the Registrant. INDs
are on file with the FDA for the macrolide antibiotic, Biolid, and the
transdermal anti-hemorrhoidal patch, Alphanon.
The Registrant spent $444,000, $759,000 and $1,555,000 in the years ended
December 31, 1995, 1994 and 1993, respectively, on research and development to
discover and develop new products and processes and to improve existing products
and processes. Expenditures were concentrated in the development of products for
the treatment of infectious diseases. These decreases are a result of a thorough
review of research and development activities with the establishment of
priorities based on both technical and commercial criteria. The Registrant
intends to continue to carefully manage such expenditures in view of its limited
resources.
Laboratorios Belmac is engaged in limited research of drug delivery systems
("DDS"), such as sustained release and time release formulations, through a
collaborative venture with a customer.
REGULATION
The development, manufacture, sale, and distribution of the Registrant's
products are subject to comprehensive government regulation, and the general
trend is toward more stringent regulation. Government regulation, which includes
detailed inspection of and controls over research laboratory procedures,
clinical investigations, and manufacturing, marketing, and distribution
practices by various federal, state, and local agencies, substantially increases
the time, difficulty and cost incurred in obtaining and maintaining the approval
to market newly developed and existing products.
United States. The steps required before a pharmaceutical agent may be marketed
in the United States include (i) preclinical laboratory and animal tests, (ii)
the submission to the FDA of an IND, which must become effective before human
clinical trials may commence, (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug, (iv) the submission of
a New Drug Application ("NDA") to the FDA, and (v) the FDA approval of the NDA
prior to any commercial sale or shipment of the drug. In addition to obtaining
FDA approval for each product,
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<PAGE>
each domestic drug manufacturing establishment must be registered with the FDA.
Domestic manufacturing establishments are subject to biennial inspections by the
FDA and must comply with current GMPs for drugs. To supply products for use in
the United States, foreign manufacturing establishments must comply with GMPs
and are subject to periodic inspection by the FDA or by regulatory authorities
in such countries under reciprocal agreements with the FDA.
Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance, metabolism, excretion and clinical pharmacology. Phase II
involves studies in a limited patient population to determine the efficacy of
the pharmaceutical for specific targeted indications, to determine dosage
tolerance and optimal dosage and to identify possible adverse side effects and
safety risks. Once a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
evaluate clinical efficacy further and to further test for safety within an
expanded patient population at multiple clinical study sites. The FDA reviews
both the clinical plans and the results of the trials and may discontinue the
trials at any time if there are significant safety issues.
The results of the preclinical and clinical trials are submitted to the FDA in
the form of a NDA for marketing approval. The approval process is affected by a
number of factors, including the severity of the disease, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested during the
FDA review process and may delay marketing approval. After FDA approval for the
initial indications, further clinical trials would be necessary to gain approval
for the use of the product for any additional indications. The FDA may also
require post-marketing testing to monitor for adverse effects, which can involve
significant expense.
Under the Orphan Drug Act, the FDA may designate a product or products as having
Orphan Drug status to treat a "rare disease or condition," which is a disease or
condition that affects populations of less than 200,000 individuals in the
United States or, if victims of a disease number more than 200,000, the sponsor
establishes that it does not realistically anticipate its product sales will be
sufficient to recover its costs. If a product is designated an Orphan Drug, then
the sponsor is entitled to recover its costs and the sponsor is entitled to
receive certain incentives to undertake the development and marketing of the
product, including limited tax credits and high-priority FDA review of an NDA.
In addition, the sponsor that obtains the first marketing approval for a
designated Orphan Drug for a given indication is eligible to receive marketing
exclusivity for a period of seven years.
Spain. As a manufacturer in Spain, which is a member of the European Union,
Laboratorios Belmac is subject to the regulations enacted by the European Union.
Prior to Spain's entry into the European Union in 1993, the pharmaceutical
regulations in Spain were less stringent and Laboratorios Belmac, along with all
Spanish companies, have had to modify their procedures to adapt to the new
regulations, which are nearly identical to the regulations promulgated by the
United States Food & Drug Administration discussed above. In general, these
regulations are consistent with the FDA and require a manufacturer of a proposed
pharmaceutical to show efficacy and safety. The development
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<PAGE>
process in Spain goes through the same phases (e.g. I, II, III) as in the United
States to assure their safety and efficacy. A dossier on each pharmaceutical is
prepared which takes approximately two years for review by the Ministry of
Health. They then can only be sold to the public with a prescription from a
medical doctor.
As most of the pharmaceuticals Laboratorios Belmac produces are subject to this
regulatory process, its business can be materially affected by any change in
existing regulations. Currently, Laboratorios Belmac has submitted two products
for regulatory review by the Spanish Ministry of Health, cisapride and
diclofenac, which will be marketed once approved. In addition, Laboratorios
Belmac markets 14 products and has two products which have been approved and are
in pre-marketing stages.
France. Most of the activities of Chimos are not regulated by France's Ministry
of Health, since pharmaceuticals in France are regulated at the level of the
manufacturer, as they produce the products, and pharmacists, as they distribute
the products to the public. Chimos' distribution activities are not regulated.
Chimos has had one regulatory submission at the Ministry of Health for Biolid.
See "--Products under Development--Biolid."
General. Continuing studies of the utilization, safety, and efficacy of health
care products and their components are being conducted by industry, government
agencies, and others. Such studies, which employ increasingly sophisticated
methods and techniques, can call into question the utilization, safety, and
efficacy of previously marketed products and in some cases have resulted, and
may in the future result, in the discontinuance of such products and give rise
to claims for damages from persons who believe they have been injured as a
result of their use. The Registrant has product liability insurance for such
potential claims, however, no such claims have ever been asserted against the
Registrant.
The cost of human health care continues to be a subject of investigation and
action by governmental agencies, legislative bodies, and private organizations.
In the United States, most states have enacted generic substitution legislation
requiring or permitting a dispensing pharmacist to substitute a different
manufacturer's version of a drug for the one prescribed. Federal and state
governments continue their efforts to reduce costs of subsidized heath care
programs, including restrictions on amounts agencies will reimburse for the use
of products. Efforts to reduce health care costs are also being made in the
private sector. Health care providers have responded by instituting various cost
reduction and containment measures of their own. It is not possible to predict
the extent to which the Registrant or the health care industry in general might
be affected by the matters discussed above.
Many countries, directly or indirectly through reimbursement limitations,
control the selling price of certain health care products. Furthermore, many
developing countries limit the importation of raw materials and finished
products. In western Europe, efforts are under way by the European Union to
harmonize technical standards for many products, including drugs and medical
devices, and to make more uniform the requirements for marketing approval from
the various ministries of health.
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<PAGE>
Although the Registrant recently began marketing disposable linen products in
the United States, the majority of the Registrant's sales are in France and
Spain. International operations are subject to certain additional risks inherent
in conducting business outside the United States, including price and currency
exchange controls, changes in currency exchange rates, limitations on foreign
participation in local enterprise, expropriation, nationalization, and other
governmental action.
To the best of its knowledge, the Registrant is presently in substantial
compliance with all existing applicable environmental laws and does not
anticipate that such compliance will have a material effect on its future
capital expenditures, earnings or competitive position with respect to any of
its operations.
EMPLOYEES
The Registrant and its subsidiaries employ approximately 85 people, 8 of whom
are employed in the United States, 5 in France and 72 in Spain as of March 25,
1996. Of such employees, approximately 30 are principally engaged in
manufacturing activities, 34 in sales and marketing, 2 in research and
development and 19 in management and administration. In general, the Registrant
considers its relations with its employees to be good.
FINANCIAL INFORMATION RELATING TO GEOGRAPHIC AREAS AND FOREIGN
OPERATIONS
For information regarding the Registrant's foreign operations, see Note 12 of
Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
UNITED STATES
The Registrant's corporate headquarters are located at One Urban Centre, Suite
550, 4830 West Kennedy Boulevard, Tampa, Florida 33609 and presently include
14,000 square feet which are occupied in accordance with lease agreements which
expire in 1998; however, the Registrant is presently negotiating with its
landlord to reduce its office space and consolidate operations into 5,000 square
feet of such space.
SPAIN
Manufacturing is performed at the Registrant's facilities in Zaragoza, Spain.
These facilities were renovated in 1995 to comply with the requirements for Good
Manufacturing Practices (GMPs). The facilities, which are owned by the
Registrant, consist of approximately 45,000 square feet located in a prime
industrial park and seated on sufficient acreage that would allow for future
expansion. The manufacturing facility is capable of producing tablets, capsules,
suppositories, creams, ointments, lotions, liquids and sachets, as well as
microgranulated and microencapsulated products. The facility
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<PAGE>
also includes analytical chemistry, quality control and quality assurance
laboratories. The GMPs certification allows the Registrant to undertake contract
manufacturing for a number of international pharmaceutical companies either
engaged in or contemplating emergence into the Spanish market. The Registrant's
administrative offices in Spain are located in Madrid in approximately 3,000
square feet of newly renovated, leased offices which leases expire in 1998.
FRANCE
Chimos is located in Paris, France in leased office space of approximately 2,000
square feet which leases expire in 1998. Manufacturing is contracted out to
SPNE, a semiprivate/government organization, outside of Paris.
The Registrant's facilities are deemed suitable and provide adequate productive
capacity for the foreseeable future. In the event the Registrant considers it
necessary or appropriate, the Registrant is of the opinion that comparable
facilities can be located.
ITEM 3. LEGAL PROCEEDINGS
Michael M. Harshbarger, a former member of the Registrant's Board of Directors
and its former President and Chief Executive Officer filed a suit against the
Registrant in November 1993, in the Circuit Court of the Thirteenth Judicial
Circuit, State of Florida, Hillsborough County Civil Division, alleging wrongful
termination. The plaintiff is seeking monetary damages in excess of $1,400,000.
The Registrant views his claim as meritless and intends to vigorously oppose it.
The Registrant has filed a counterclaim against Harshbarger for wrongful
conversion and civil theft, fraud and deceit, and breach of contract, seeking
the return of corporate assets removed by Harshbarger and for restitution
related to expenses of a personal nature that he charged to the Registrant's
accounts. The Registrant is currently amending its counterclaim to include
breach of fiduciary duty. The Registrant is seeking damages from Harshbarger
relating to its counterclaim in excess of $1,000,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders of the Registrant was held on December 8,
1995, for the purpose of voting on proposals to amend the Registrant's Articles
of Incorporation to increase the number of its authorized shares of Common
Stock, $.02 par value, from 5,000,000 to 20,000,000, and to change the
Registrant's name to Bentley Pharmaceuticals, Inc. Proxies for the meeting were
solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and there was no solicitation in opposition.
The proposal to increase the number of its authorized shares of Common Stock was
approved by the following vote:
For Against Non Votes/Abstentions
------- ---------- ---------------------
2,169,574 (86.6%) 326,097 (13.0%) 10,965 (0.4%)
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The proposal to change the Registrant's name to Bentley Pharmaceuticals, Inc.
was approved by the following vote:
For Against Non-Votes/Abstentions
------- ------------ ---------------------
2,379,710 (94.9%) 113,856 (4.6%) 13,540 (0.5%)
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
On July 31, 1990 and March 27, 1996, the Registrant's Common Stock began trading
on the American Stock Exchange and the Pacific Stock Exchange, respectively. It
is traded under the symbol BNT. The following table sets forth the high and low
sales prices for the Common Stock as reported on the American Stock Exchange for
the periods indicated. All prices for the period prior to July 25, 1995 have
been adjusted to give retroactive effect to a one-for-ten reverse stock split of
the Registrant's Common Stock effected on that date.
Quarter Ended High Sales Price Low Sales Price
- ------------- ---------------- ---------------
March 31, 1994 $28.75 $16.25
June 30, 1994 18.75 9.38
September 30, 1994 11.88 6.88
December 31, 1994 9.38 5.00
March 31, 1995 $7.50 $ 3.13
June 30, 1995 9.38 3.75
September 30, 1995 8.63 4.13
December 31, 1995 4.63 2.06
As of March 25, 1996 there were 2,216 holders of record of the Common Stock. No
dividends have ever been declared or paid on the Registrant's Common Stock. The
closing price of the Registrant's Common Stock on March 25, 1996 was $2.25 per
share.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Registrant and its
subsidiaries has been derived from the Registrant's consolidated financial
statements. The selected financial data should be read in conjunction with the
Registrant's consolidated financial statements and the notes thereto, which
should be read in their entirety and are included elsewhere in this Annual
Report on Form 10-K. All per share information prior to July 25, 1995 has been
adjusted to give retroactive effect to a one-for-ten reverse stock split of the
Registrant's Common Stock effected on that date. (See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
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<PAGE>
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended Fiscal Year
December 31, December 31, Ended June 30,
----------------------------------- ----------- --------------------
(In thousands, except per share data) 1995(1) 1994(1) 1993(2) 1992(3) 1992(4) 1991
-------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales $30,475 $26,284 $19,849 $ 9,708 $13,138 $ 0
Cost of sales 24,927 21,464 15,100 5,899 8,871 0
-------- -------- --------- --------- --------- --------
Gross margin 5,548 4,820 4,749 3,809 4,267 0
Operating expenses 8,198 9,050 14,722 23,493 14,758 2,506
Other (income) expense (324) (652) 263 (153) 320 (30)
-------- -------- --------- --------- --------- --------
Net income (loss) $(2,326) $(3,578) $(10,236) $(19,531) $(10,811) $(2,476)
======== ======== ========= ========= ========= ========
Net income (loss) per Common Share $ ( .83) $ (1.56) $ (6.32) $ (16.60) $ (11.12) $ (3.56)
======== ========= =========== ========== ========== ========
Weighted average number of Common
Shares outstanding 2,999 2,395 1,655 1,203 997 695
======== ========= ========== ========== ========== =========
</TABLE>
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
At December 31, At June 30,
-------------------------------------------------------- ------------------------
(in thousands) 1995(1) 1994(1) 1993(2) 1992(3) 1992(4) 1991
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency) $ 3,113 $ 1,928 $ 2,043 $(3,842) $ 8,449 $ (631)
Non-current assets 6,523 5,644 5,937 13,497 18,643 2,955
Total assets 16,290 16,332 16,160 21,953 38,753 3,244
Non-current liabilities 2,252 336 2,821 2,349 2,626 93
Redeemable Preferred Stock 2,068 2,256 2,218 7,401 7,164 0
Common Stockholders' Equity
(deficit) 5,316 4,980 2,941 (95) 17,352 2,231
</TABLE>
(1) The Registrant sold its Spanish marketing rights to its ciprofloxacin
antibiotic, Belmacina(R), in 1994 and included the gain thereon
(approximately $884,000) in Other (Income) Expense in the year ended
December 31, 1994 and recorded the anticipated gain on sale of the
related trademark of $380,000 as deferred revenue as of December 31,
1994 which was recognized in the year ended December 31, 1995. Other
(Income) Expense for the year ended December 31, 1995 also includes
the recognition of income of $360,000 from the commercialization of a
certain drug provided by the Registrant's former Chairman and Chief
Executive Officer, $533,000 of expense related to the settlement of
litigation with the Registrant's former Chief Financial Officer and
income of $375,000 due to the reversal of an over-accrual for a
liability. See Notes 6, 10, 13 and 14 of Notes to Consolidated
Financial Statements.
(2) The year ended December 31, 1993 includes the effects of writing off
capitalized costs with respect to the sachet formulation of Biolid(R),
its noncrystalline form of erythromycin and a charge to earnings for
the settlement of class action litigation. See Notes 6 and 10 of Notes
to Consolidated Financial Statements.
(3) The Registrant changed its fiscal year end to December 31 effective
December 31, 1992 and sold its marketing rights in France to Amodex(R)
on January 20, 1993. The six months ended December 31, 1992 include
other non-recurring charges totaling $9,321,000.
(4) The Registrant acquired 100% of the shares of Chimos in August 1991
and, accordingly, for accounting purposes, was no longer considered in
the development stage of operations. The Registrant also acquired 100%
of the shares of Laboratorios Belmac in February 1992, as well as
Amodex(R) trademark and licensing rights in France in December 1991.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Registrant is an international pharmaceutical and health care company with
its primary focus on the development and marketing of pharmaceutical and health
care products. Substantially all of its revenues have come from its operations
in France and Spain; however, the Registrant markets disposable linens to
emergency health services in the United States.
The Registrant incurred a net loss of $2,326,000 for the year ended December 31,
1995. The Registrant intends to continue to focus its efforts on business
activities which management believes should result in operating profits in the
future, of which there can be no assurance. To improve its results, the
Registrant's management will focus on increasing higher margin pharmaceutical
and health care product sales, controlling expenses through its austerity
program, careful prioritization of research and development projects resulting
in continued low overall research and development expenditures, and potentially
acquiring marketable products or profitable companies in the United States or
Europe that are compatible with the Registrant's strategy for growth. See
"--Liquidity and Capital Resources." Currently, the profit margins for the
products sold by the Registrant's subsidiary in Spain are significantly higher
than those generated by the Registrant's subsidiary in France. For business
segment information on the Registrant's operations outside the United States,
see Note 12 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1995 VERSUS FISCAL YEAR ENDED DECEMBER 31, 1994
The Registrant reported revenues of $30,475,000 and a net loss of $2,326,000 or
$.83 per common share for the year ended December 31, 1995 compared to revenues
of $26,284,000 and a net loss of $3,578,000 or $1.56 per common share for the
prior year.
Sales and Cost of Sales. The 16% increase in revenues is primarily attributable
to an increase in sales by the Registrant's subsidiary in France, Chimos, which
distributes specialty pharmaceutical products and fine chemicals in France.
Consolidated gross margins for the year ended December 31, 1995 remained
consistent at 18% when compared to the prior year, including the effect of a
$571,000 charge to cost of sales in the year ended December 31, 1995,
representing an increase in the Registrant's reserves for slow moving or
obsolete inventory in Europe. The Registrant's distribution operations in France
(Chimos) (whose sales accounted for approximately 80% of revenues) generate
relatively low gross margins as opposed to the Registrant's Spanish subsidiary,
Laboratorios Belmac (whose sales accounted for approximately 19% of revenues),
and is experiencing substantially higher margins. The Registrant expects sales
in 1996 to decline as a result of the March 31, 1996 expiration of its
distribution agreement for the product, Ceredase, which accounted for
approximately 60% of
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its revenues in 1995. Ceredase gross margins, as a percent of sales, have been
minimal; therefore, the impact on operating profits is not expected to be
material.
Operating Expenses. Selling, general and administrative expenses were
$7,204,000, or 24% of sales, for the year ended December 31, 1995 compared to
$7,716,000, or 29% of sales, for the prior year. The decrease from 29% to 24% of
sales is primarily attributable to cost control measures implemented by the
Registrant. The Company 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 $444,000 for the year ended December 31,
1995 compared to $759,000 for the prior year. The 42% decrease reflects the
results of a thorough review of all research and development activities and the
establishment of priorities based upon both technical and commercial criteria.
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.
Depreciation and amortization expenses remained relatively unchanged at $550,000
for the year ended December 31, 1995 compared to $575,000 in the prior year.
Other Income/Expense. Interest expense was $563,000 for the year ended December
31, 1995 compared to $423,000 for the prior year. The 33% increase reflects
approximately $348,000 of fourth quarter interest arising primarily from the
Notes sold by the Registrant in its October 1995 private placements and, to a
lesser degree, interest on higher average outstanding balances on short term
borrowings, which are used to finance working capital needs. Interest income was
$3,000 for the year ended December 31, 1995 compared to $123,000 for the prior
year. The $120,000 decrease reflects the Registrant's use of its resources for
working capital needs, resulting in reduced earnings on liquid assets. Interest
expense and interest income will both be higher in 1996 than in 1995 as a result
of the Registrant's February 1996 public offering of Units (as hereinafter
defined) (See "--Liquidity and Capital Resources -- Financings"). Other
income/expense, net, of $884,000 for the year ended December 31, 1995 is
primarily comprised of income of $360,000 related to a settlement of litigation
(see Note 13 of Notes to Consolidated Financial Statements) and the $380,000
gain recognized upon the sale of the Registrant's Belmacina trademark in Spain,
which was previously reflected in the Registrant's consolidated financial
statements as deferred revenue as of December 31, 1994. The Registrant has since
transferred the trademark to the purchaser and collected the balance of the
related receivable in the fourth quarter of 1995. Other income/expense, net,
also includes the effect of a reversal of an overaccrual of a liability related
to the proposed sale of Biolid, which did not occur, in the amount of $375,000.
Also included is income from the Registrant's contract manufacturing
arrangements with several pharmaceutical concerns, offset by a charge of
$533,000 for cancellation of the stock subscription receivable and related
interest from a former officer of the Registrant. One-half of the loss
(approximately $37,000) incurred by Maximed Pharmaceuticals, the Registrant's
partnership with Maximed Corporation, is also included in other income/expense,
net, in the year ended December 31, 1995. Although the Registrant is in a
dispute with its partner, and
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<PAGE>
has ceased funding the partnership's activities until such dispute is resolved,
appropriate operating costs have been accrued and charged to operations during
the year ended December 31, 1995.
FISCAL YEAR ENDED DECEMBER 31, 1994 VERSUS FISCAL YEAR ENDED DECEMBER 31, 1993
The Registrant reported sales of $26,284,000 and a net loss of $3,578,000 or
$1.56 per common share for the fiscal year ended December 31, 1994, compared to
sales of $19,849,000 and a net loss of $10,236,000 or $6.32 per common share for
the prior year.
Sales and Cost of Sales. The 32% increase in sales is primarily a result of
increased sales by the Registrant's French subsidiary, Chimos. Gross margins for
the year ended December 31, 1994 averaged 18% compared with 24% in the prior
year. The lower margins are primarily a result of the lower gross margins
experienced by Chimos' distribution operations, whose sales accounted for
approximately 77% of revenues, compared with 68% in the prior year. The lower
gross margins experienced by the Registrant in France were only partially offset
in Spain, where Laboratorios Belmac experienced margins substantially higher
than those in France.
Operating Expenses. Selling, general and administrative expenses were
$7,716,000, or 29% of sales, for the year ended December 31, 1994 compared with
$9,170,000 or 46% of sales for the prior year. The decrease from 46% to 29% of
sales is primarily attributable to adjustments to accruals for tax
contingencies, related primarily to product registration taxes, totalling
$1,645,000, which are no longer considered probable and to cost control measures
implemented by the Registrant and reduced marketing costs in France due to the
suspension of marketing of Biolid(R) during the fourth quarter of 1993.
Notwithstanding these efforts, selling and marketing costs continue to be
significant and necessary expenses in connection with the Registrant's plans to
increase 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.
Research and development expenses were $759,000 for the year ended December 31,
1994 compared to $1,555,000 in the prior year. The 51% decrease reflects the
results of a thorough review of all research and development activities and the
establishment of priorities based upon both technical and commercial criteria.
During 1994, the Registrant did not commence any new research and development
programs. It did, however, continue certain programs already in progress,
including a Biolid(R) pharmacokinetic trial. The Registrant intends to continue
to carefully manage its research and development expenditures in the future in
view of its limited resources.
Depreciation and amortization expenses were $575,000 for the year ended December
31, 1994 compared to $756,000 for the prior year. The 24% decrease is primarily
attributable to the write-off of Drug Licenses and Product Rights as of December
31, 1993, and the 1994 sale of its Spanish ciprofloxacin antibiotic,
Belmacina(R), resulting in reduced amortization charges.
23
<PAGE>
Other Income/Expense. Other income/expense for the year ended December 31, 1994
included the gain recognized upon the 1994 sale of the Registrant's Spanish
rights to its ciprofloxacin antibiotic, Belmacina(R) of approximately $884,000.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total assets decreased from $16,332,000 at December 31, 1994 to $16,290,000 at
December 31, 1995, while Common Stockholders' Equity increased 7% from
$4,980,000 at December 31, 1994 to $5,316,000 at December 31, 1995. The increase
in Common Stockholders' Equity reflects primarily the collection of stock
subscription receivables of $562,000, net proceeds of $470,000 from issuance of
251,000 shares of Common Stock which were included as components of two private
placements in October 1995, conversion of 10,000 shares of Series A Preferred
Stock, resulting in $340,000 of additional Common Stockholders' Equity,
conversion of stock purchase warrants to purchase 90,000 shares of Common Stock,
resulting in $214,000 of additional Common Stockholders' Equity and fluctuation
in the exchange rates of European currencies compared to the U.S. Dollar of
$507,000, offset by the net loss of $2,326,000 incurred by the Registrant during
the year ended December 31, 1995.
The Registrant's working capital increased from $1,928,000 at December 31, 1994
to $3,113,000 at December 31, 1995. Receivables decreased from $7,609,000 at
December 31, 1994 to $6,836,000 at December 31, 1995 primarily as a result of
collecting $1,140,000 during 1995, from the 1994 sale of Belmacina(R) in Spain.
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 $1,247,000 at
December 31, 1994 to $1,054,000 at December 31, 1995 primarily due to an
increase in the Registrant's reserves for slow-moving or obsolete inventory in
Europe of $571,000. The combined total of accounts payable and accrued expenses
were reduced from $7,656,000 at December 31, 1994 to $5,455,000 at December 31,
1995. The $2,201,000 decrease reflects a liquidation of such amounts using the
proceeds of the October 1995 private placements, a portion of which balance at
December 31, 1995 is included in long-term debt as a result of refinancing such
obligations with long term borrowings in February 1996, and a portion of which
is reflected as part of Common Stockholders' Equity. Short-term borrowings at
December 31, 1995 totaled $1,197,000, compared to $663,000 at December 31, 1994
and was used for working capital purposes (primarily the purchase of inventories
in France and Spain, and short-term borrowings used to finance factory
renovations in Spain).
Investing activities, including the collection of approximately $1,140,000 from
the 1994 sale of Belmacina and proceeds from the sale of investments available
for sale of $214,000, as well as an investment in the Registrant's Spanish
manufacturing facilities of approximately $603,000, in investments available for
sale of $147,000 and the acquisition of a Spanish product license for $156,000,
provided net cash of $435,000 during the year ended December 31, 1995. Financing
activities (primarily private placements of promissory notes and shares of
Common Stock, which provided net proceeds of approximately $1,583,000,
collection of a stock subscription receivable, net, of $506,000, net proceeds of
approximately $214,000 from conversion of a stock purchase warrant, and proceeds
from other borrowings) provided net proceeds of $2,744,000 for the year ended
December 31, 1995. See additional discussion of financing activities below.
Operating activities for the year ended December 31, 1995 required net cash of
$3,337,000.
25
<PAGE>
The Registrant continues to experience negative cash flows from operating
activities, and 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 in February 1996 to provide further liquidity.
See "--Financings" below and Note 15 of Notes to Consolidated Financial
Statements. 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
1997.
Seasonality. In the past, the Registrant has experienced lower sales in the
fourth calendar quarter of each year. Should the Registrant begin large sales of
a pharmaceutical product whose sales are seasonal, seasonality of its sales may
become more significant.
Currency. 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 year ended
December 31, 1995 was an increase of $507,000, and the cumulative historical
effect at December 31, 1995 was a decrease of $594,000, as reflected in the
Registrant's Consolidated Balance Sheets in the "Liabilities and Stockholders'
Equity" section. Although exchange rates fluctuated significantly in recent
months, 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.
Financings. 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
26
<PAGE>
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 (the
"Public Offering"). Each Unit ("Unit") consists 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.
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
$1,915,000. The effective interest rate on the Debentures is 18.1%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
27
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE REGISTRANT
The following information is furnished with respect to each director and
executive officer of the Registrant.
Year
Positions First
the Registrant Class of Became
Name Age Presently Held Director Director
- ---- --- -------------- -------- --------
James R. Murphy 46 Chairman, President, III 1993
Chief Executive Officer
and Director
Robert M. Stote, M.D. 56 Senior Vice President, III 1993
Chief Science Officer and
Director
Michael D. Price 38 Vice President, II 1995
Chief Financial Officer,
Treasurer, Secretary and
Director
Randolph W. Arnegger 51 Director II 1994
Charles L. Bolling 72 Director II 1991
Doris E. Wardell 57 Director I 1994
JAMES R. MURPHY became President and Chief Operating Officer of the Registrant
on September 7, 1994, was named Chief Executive Officer effective January 1,
1995 and became Chairman of the Board on June 9, 1995. Prior to rejoining the
Registrant, Mr. Murphy served as Vice President of Business Development at
MacroChem Corporation, a publicly owned pharmaceutical company, from March 1993
through September 1994. From September 1992 until March 1993, Mr. Murphy served
as a Consultant to the pharmaceutical industry with his primary efforts directed
toward product licensing. Prior thereto, Mr. Murphy served as Director -
Worldwide Business Development and Strategic Planning of the Registrant from
December 1991 to September 1992. Mr. Murphy previously spent 14 years in basic
pharmaceutical research and product development with SmithKline Corporation and
in business development with contract research laboratories. Mr. Murphy received
a B.A. in Biology from Millersville University.
ROBERT M. STOTE, M.D. became Senior Vice President and Chief Science Officer of
the Registrant in March 1992. Prior to joining the Registrant, Dr. Stote was
employed for 20 years by SmithKline Beecham Corporation serving as Senior Vice
President and Medical Director, Worldwide Medical Affairs from 1989 to 1992, and
Vice President-Clinical Pharmacology-Worldwide from 1987 to 1989. From 1984 to
1987 Dr. Stote was Vice President-Phase I Clinical Research, North America. Dr.
28
<PAGE>
Stote was Chief of Nephrology at Presbyterian Medical Center of Philadelphia
from 1972 to 1989 and was Clinical Professor of Medicine at the University of
Pennsylvania. Dr. Stote received a B.S. in Pharmacy from the Albany College of
Pharmacy, an M.D. from Albany Medical College and is Board Certified in Internal
Medicine and Nephrology. He was a Fellow in Nephrology and Internal Medicine at
the Mayo Clinic and is currently a Fellow of the American College of Physicians.
MICHAEL D. PRICE became Chief Financial Officer, Vice President/Treasurer and
Secretary of the Registrant in October 1993, April 1993 and November 1992,
respectively. He has served the Registrant in other capacities since March 1992.
Prior to joining the Registrant, he was employed as a financial and management
consultant with Carr Financial Group in Tampa, Florida from March 1990 to March
1992. Prior thereto, he was employed as Vice President of Finance with Premiere
Group, Inc., a real estate developer in Tampa, Florida from June 1988 to
February 1990. Prior thereto, Mr. Price was employed by Price Waterhouse in
Tampa, Florida from January 1982 to June 1988 where his last position with that
firm was as an Audit Manager. Mr. Price received a B.S. in Business
Administration with a concentration in Accounting from Auburn University and an
M.B.A. from Florida State University. Mr. Price is a Certified Public Accountant
in the State of Florida.
RANDOLPH W. ARNEGGER is the President of Vantage Point Marketing a developer and
producer of continuing medical education programs, medically oriented direct
mail programs and medical convention programs, a position he has held since
1986. Prior thereto, Mr. Arnegger served as Vice President of Account Services
for Curtin & Pease/Peneco, a national direct mail firm, and Vice President for
Pro Clinica, a medical advertising agency in New York.
CHARLES L. BOLLING served from 1968 to 1973 as Vice President of Product
Management and Promotion (U.S.), from 1973 to 1977 as Vice President of
Commercial Development and from 1977 to 1986 as Director of Business Development
(International) at SmithKline & French Laboratories. Mr. Bolling has been
retired since 1986.
DORIS E. WARDELL has been a consultant in the health care industry since July
1995, assisting clients with solutions with respect to patient care and nurse
satisfaction issues. Prior thereto, she was Assistant Professor/Clinical
Services Coordinator at the University of Utah College of Nursing from April
1994 to July 1995, and was previously involved in Integrated Care special
projects at Allegheny General Hospital, serving as Acting Vice President of
Nursing at Allegheny General Hospital from September 1992 to June 1994 and
Assistant Vice President of Nursing from December 1989 to September 1992. Prior
thereto, Mrs. Wardell served as Vice President of Administration at Beaver
Medical Center from April 1987 to November 1989. From March 1980 to April 1987,
she was employed by Chestnut Hill Hospital as Vice President of Nursing and
Director of Nursing Services from August 1978 to March 1980.
The Registrant is currently in arrears on two annual dividend payments on its
Series A Preferred Stock and, therefore, the holders of the Series A Preferred
Stock have the right, as a class, to elect two additional members of the
Registrant's Board of Directors. As of the date hereof, the holders have not
exercised such right.
29
<PAGE>
The Registrant's Articles of Incorporation and By-Laws provide for a classified
Board of Directors. The Board is divided into three classes, designated Class I,
Class II and Class III. The director included in Class I above will hold office
until the 1997 Annual Meeting of Stockholders. The directors included in Class
II above will hold office until the 1998 Annual Meeting of Stockholders. The
directors included in Class III above will hold office until the 1996 Annual
Meeting of Stockholders.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Registrant's executive officers and directors, and any persons who own more than
10% of any class of the Registrant's equity securities, to file certain reports
relating to their ownership of such securities and changes in such ownership
with the Securities and Exchange Commission and the American Stock Exchange and
to furnish the Registrant with copies of such reports. To the Registrant's
knowledge during the year ended December 31, 1995, all Section 16(a) filing
requirements have been satisfied.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference to the
Registrant's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated by reference to the
Registrant's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference to the
Registrant's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page Herein
(a) The following documents are filed as a part -----------
of this report:
(1) Financial Statements:
Independent Auditors' Reports F-1 to F-2
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994 F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, December 31, 1994 and
December 31, 1993 F-4
Consolidated Statements of Changes in Common
Stockholders' Equity for the years ended December 31,
1995, December 31, 1994 and December 31, 1993 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, December 31, 1994 and
December 31, 1993 F-6 to F-7
Notes to Consolidated Financial Statements F-8
(2) Financial Statement Schedule:
Independent Auditors' Reports on
Financial Statement Schedule F-28-F-29
Schedule II - Valuation and qualifying accounts
and reserves F-30
All other schedules have been omitted because
they are inapplicable or are not required, or the
information is included elsewhere in the
consolidated financial statements or notes thereto.
31
<PAGE>
EXHIBIT INDEX
(3) Exhibits filed as part of this report:
Exhibit
Number Description
- ------- -----------------------------------------------------------------
3.1 Articles of Incorporation of the Registrant, as amended and
restated. (Reference is made to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, Commission File No. 33-65125,
which exhibit is incorporated herein by reference.)
3.2 By-Laws of the Registrant, as amended and restated. (Reference is
made to Exhibit 3.2 to the Registrant's Form 10-K filed June 30,
1989, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
3.3 Amendment to By-Laws of the Registrant. (Reference is made to
Exhibit 3.2(a) to the Registrant's Amendment No. 1 on Form S-3 to
Form S-1 Registration Statement, Commission File No. 33-35941,
which exhibit is incorporated herein by reference.)
4.1 Registrant's Incentive Stock Option Plan. (Reference is made to
Exhibit 4.3 to the Registrant's Registration Statement on Form
S-18, Commission File No. 33-17201, which exhibit is incorporated
herein by reference.)
4.2 Registrant's Non-Qualified Stock Option Plan. (Reference is made
to Exhibit 4.4 to the Registrant's Form 10-K filed June 30, 1989,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
4.3 Form of Incentive Stock Option Agreement under the Registrant's
Incentive Stock Option Plan. (Reference is made to Exhibit 4.6 to
the Registrant's Form 10-K filed June 30, 1989, Commission File
No. 1-10581, which exhibit is incorporated herein by reference.)
4.4 Form of Director's Incentive Stock Option Agreement under the
Registrant's Incentive Stock Option Plan. (Reference is made to
Exhibit 4.6(a) to the Registrant's Form 10-K filed June 30,
1989, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.5 Form of Non-Qualified Stock Option Agreement under the
Registrant's Non-Qualified Stock Option Plan. (Reference is made
to Exhibit 4.7(a) to the Registrant's Form 10-K filed June 30,
1989, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
32
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------------------
4.6 Form of Director's Non-Qualified Stock Option Agreement under the
Registrant's Non-Qualified Stock Option Plan. (Reference is made
to Exhibit 4.7(a) to the Registrant's Form 10-K filed June 30,
1989, Commission File No. 1-10581, which exhibit is incorporated
herein by reference.)
4.7 Form of Subscription Agreement between the Registrant and each
purchaser in connection with the Registrant's October 1991 sales
of its $2.25 Convertible Exchangeable Preferred Shares, Series A.
(Reference is made to Exhibit 4.1 to the Registrant's Form 8-K
filed October 17, 1991, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.8 Indenture relating to the Registrant's 9% Convertible
Subordinated Debentures due 2016 (with the Form of Debenture
attached thereto as Exhibit A.) (Reference is made to Exhibit 4.2
to the Registrant's Form 8-K filed October 17, 1991, Commission
File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.9 Specimen Certificate of the Registrant's $2.25 Convertible
Exchangeable Preferred Shares, Series A. (Reference is made to
Exhibit 4.3 to the Registrant's Form 8-K filed October 17, 1991,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
4.10 Registrant's 1991 Stock Option Plan. (Reference is made to
Exhibit 4.6 to the Registrant's Form 8-K filed October 17, 1991,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
4.11 Amendment to Registrant's 1991 Stock Option Plan. (Reference is
made to Exhibit 4.17 to the Registrant's Form 10-K for the
Transition Period Ended December 31, 1992, Commission File No.
1-10581, which exhibit is incorporated herein by reference.)
4.12 Amendment to Registrant's 1991 Stock Option Plan as approved by
the shareholders on June 9, 1994. (Reference is made to Exhibit
4.16 to the Registrant's Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.13 Form of Non-qualified Stock Option Agreement under the
Registrant's 1991 Stock Option Plan. (Reference is made to
Exhibit 4.25 to the Registrant's Form 10-K dated June 30, 1992,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
33
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------------------
4.14 Subscription Agreement between the Registrant and Bodel Inc.
dated November 23, 1993. (Reference is made to Exhibit 4.20 to
the Registrant's Form 10-K filed December 31, 1993, Commission
File No. 1-10581, which exhibit is incorporated herein by
reference.)
4.15 Subscription Agreement between the Registrant and E.C. Morgan,
dated May 10, 1993. (Reference is made to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-3, Commission File
No. 33-69946, which exhibit is incorporated herein by reference.)
4.16 Form of Subscription Agreement between the Registrant and various
subscribers to its common stock entered into by each of the
Selling Stockholders other than E.C. Morgan, Rossignol, Ferraris,
and Huguet. (Reference is made to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-3, Commission File No. 33-69946,
which exhibit is incorporated herein by reference.)
4.17 Warrants issued by the Registrant to Grant Harshbarger, dated
November 11, 1993 and November 17, 1993, respectively. (Reference
is made to Exhibit 4.8 to the Registrant's Registration Statement
on Form S-3, Commission File No. 33-69946, which exhibit is
incorporated herein by reference.)
4.18 Warrants issued by the Registrant to Healthcare Capital
Investments, Inc., dated November 11, 1993 and November 17, 1993,
respectively. (Reference is made to Exhibit 4.9 to the
Registrant's Registration Statement on Form S-3, Commission File
No. 33-69946, which exhibit is incorporated herein by reference.)
4.19 Subscription Agreement between the Registrant and Western Slops,
Ltd. dated March 29, 1994. (Reference is made to Exhibit 4.29 to
the Registrant's Form 10-K for the year ended December 31, 1994,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
4.20 Form of Subscription Agreement between the Registrant and various
subscribers to its Common Stock for the purchase of shares in a
1994 private placement. (Reference is made to Exhibit 4.30 to the
Registrant's Form 10-K for the year ended December 31, 1994,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
4.21 Form of Subscription Agreement between the Registrant and various
subscribers to its Common Stock for the purchase of units in a
1994 private placement. (Reference is made to Exhibit 4.31 to the
Registrant's Form 10-K for the year ended December
34
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------------------
31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.22 Subscription Agreement between the Registrant and Shulmit
Pritziker dated December 7, 1994. (Reference is made to Exhibit
4.32 to the Registrant's Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.23 Warrants issued by the Registrant to Baytree Associates, Inc.
dated October 18, 1995. (Reference is made to Exhibit 4.23 to the
Registrant's Registration Statement on Form S-1, Commission File
No. 33-65125, which exhibit is incorporated herein by reference.)
4.24 Form of Subscription Agreement between the Registrant and various
purchasers of Units consisting of one note and 10,000 shares of
Common Stock in an October 1995 private placement. (Reference is
made to Exhibit 4.1 to the Registrant's Form 8-K filed November
29, 1995, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.25 Form of Note dated September 30, 1995 issued by the Registrant to
the purchasers of Units in an October 1995 private placement.
(Reference is made to Exhibit 4.2 to the Registrant's Form 8-K
filed November 29, 1995, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.26 Form of Subscription Agreement between the Registrant and various
purchasers of Units consisting of one note and 7,500 shares of
Common Stock in an October 1995 private placement. (Reference is
made to Exhibit 4.3 to the Registrant's Form 8-K filed November
29, 1995, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
4.27 Form of Note dated October 25, 1995 issued by the Registrant to
the purchasers of Units in an October 1995 private placement.
(Reference is made to Exhibit 4.4 to the Registrant's Form 8-K
filed November 29, 1995, Commission File No. 1-10581, which
exhibit is incorporated herein by reference.)
4.28 Form of Indenture relating to the Registrant's $1,000 Principal
Amount 12% Senior Convertible Subordinated Debentures due
February 13, 2006 (with the Form of Debenture attached thereto as
Exhibit A.) (Reference is made to Exhibit 4.28 to the
Registrant's Registration Statement on Form S-1, Commission File
No. 33-65125, which exhibit is incorporated herein by reference.)
35
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------------------
4.29 Form of Warrant Agreement, including form of Class A and Class B
Warrant. (Reference is made to Exhibit 4.29 to the Registrant's
Registration Statement on Form S-1, Commission File No. 33-65125,
which exhibit is incorporated herein by reference.)
4.30 Form of Underwriter Warrant. (Reference is made to Exhibit 4.30
to the Registrant's Registration Statement on Form S-1,
Commission File No. 33-65125, which exhibit is incorporated
herein by reference.)
4.31 Form of Unit Certificate. (Reference is made to Exhibit 4.31 to
the Registrant's Registration Statement on Form S-1, Commission
File No. 33-65125, which exhibit is incorporated herein by
reference.)
10.1 Employment Agreement dated as of June 12, 1995 between the
Registrant and James R. Murphy. (Reference is made to Exhibit
10.1 to the Registrant's Registration Statement on Form S-1,
Commission File No. 33-65125, which exhibit is incorporated
herein by reference.)
10.2 Employment Agreement dated as of June 12, 1995 between the
Registrant and Robert M. Stote, M.D. (Reference is made to
Exhibit 10.2 to the Registrant's Registration Statement on Form
S-1, Commission File No. 33-65125, which exhibit is incorporated
herein by reference.)
10.3 Employment Agreement dated as of June 12, 1995 between the
Registrant and Michael D. Price. (Reference is made to Exhibit
10.3 to the Registrant's Registration Statement on Form S-1,
Commission File No. 33-65125, which exhibit is incorporated
herein by reference.)
10.4 Partnership Agreement dated March 11, 1994 of Belmac/Maximed
Partnership. (Reference is made to Exhibit 10.1 to the
Registrant's Form 10-Q for the quarter ended March 31, 1994,
Commission File No. 1-10581, which exhibit is incorporated herein
by reference.)
10.5 Contract for Sale and Transfer of Belmacina(R)Know-How and
Trademark between Laboratorios Belmac S.A. and CEPA, together
with English Summary. (Reference is made to Exhibit 2.1 to the
Registrant's Form 8-K dated February 1, 1995, Commission File No.
1-10581, which exhibit is incorporated herein by reference.)
21.1 Subsidiaries of the Registrant. (Reference is made to Exhibit
21.1 to the Registrant's Form 10-K for the year ended December
31, 1994, Commission File No. 1-10581, which exhibit is
incorporated herein by reference.)
36
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------------------
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of Price Waterhouse LLP.
27.1* Financial Data Schedule.
- ---------------
* Filed herewith.
(b) Reports on Form 8-K filed during the fiscal quarter ended
December 31, 1995:
Report on Form 8-K filed November 29, 1995, regarding
private placements of its securities (Items 5 and 7).
Report on Form 8-K filed December 19, 1995 regarding
settlement of an arbitration proceeding and
litigation. (Items 5 and 7).
Subsequent to December 31, 1995, the Registrant filed the
following Reports on Form 8-K:
None.
37
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ James R. Murphy
----------------------------------
James R. Murphy
Chairman, President and
Chief Executive Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ James R. Murphy Chairman, President, March 29, 1996
- ------------------------ Chief Executive Officer,
James R. Murphy and Director (principal
executive officer)
/s/ Robert M. Stote Senior Vice President, March 29, 1996
- ------------------------ Chief Science Officer and
Robert M. Stote, M.D. Director
/s/Michael D. Price Vice-President, March 29, 1996
- ------------------------ Chief Financial Officer,
Michael D. Price Treasurer, Secretary and
Director (principal
financial and accounting officer)
/s/ Randolph W. Arnegger Director March 29, 1996
- ------------------------
Randolph W. Arnegger
/s/ Charles L. Bolling Director March 29, 1996
- ------------------------
Charles L. Bolling
/s/ Doris E. Wardell Director March 29, 1996
- ------------------------
Doris E. Wardell
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Bentley Pharmaceuticals, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheets of Bentley
Pharmaceuticals, Inc., (formerly Belmac Corporation) and subsidiaries (the
"Company") as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in common stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1994, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 15 of Notes to Consolidated Financial Statements,
the Company completed a public offering of its securities in February 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Tampa, FL
March 29, 1996
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Bentley Pharmaceuticals, Inc.
In our opinion, the accompanying consolidated statement of operations, of
changes in common stockholders' equity, and of cash flows present fairly, in all
material respects, the results of operations and cash flows of Bentley
Pharmaceuticals, Inc. (formerly Belmac Corporation) and its subsidiaries for the
year ended December 31, 1993, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Bentley
Pharmaceuticals, Inc. (formerly Belmac Corporation), for any period subsequent
to December 31, 1993.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Tampa, Florida
March 30, 1994
F-2
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands except per share data) December 31,
----------------------------------------------
1995 1994
-------------------- --------------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $1,120 $1,321
Investments available for sale 161 215
Receivables 6,836 7,609
Inventories 1,054 1,247
Prepaid expenses and other 596 296
-------------------- --------------------
Total current assets 9,767 10,688
-------------------- --------------------
Fixed assets, net 4,084 3,618
Drug licenses and related costs, net 1,120 968
Other non-current assets, net 1,319 1,508
-------------------- --------------------
$16,290 $16,332
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $3,883 $5,374
Accrued expenses 1,572 2,282
Short term borrowings 1,197 663
Current portion of long term debt 2 61
Deferred revenue - 380
-------------------- --------------------
Total current liabilities 6,654 8,760
-------------------- --------------------
Long term debt, net 1,354 -
-------------------- --------------------
Other non-current liabilities 898 336
-------------------- --------------------
Commitments and contingencies
Redeemable preferred stock, $1.00 par value authorized
2,000 shares:
Series A, issued and outstanding, 60 shares at
December 31, 1995 and 70 shares at December 31, 1994 2,068 2,256
-------------------- --------------------
Common stockholders' equity:
Common stock, $.02 par value, authorized 20,000 shares,
issued and outstanding, 3,330 and 2,977 shares 66 60
Stock purchase warrants (to purchase 547 and 477
shares of common stock) 150
Paid-in capital in excess of par value 70,047 69,493
Stock subscriptions receivable (105) (1,550)
Accumulated deficit (64,248) (61,922)
Cumulative foreign currency translation adjustment (594) (1,101)
-------------------- --------------------
5,316 4,980
-------------------- --------------------
$16,290 $16,332
==================== ====================
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
F-3
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands except per share data) For the Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993
------------------- -------------------- --------------------
<S> <C> <C> <C>
Sales $30,475 $26,284 $19,849
Cost of sales 24,927 21,464 15,100
------------------- -------------------- --------------------
Gross Margin 5,548 4,820 4,749
Operating expenses:
Selling, general and administrative 7,204 7,716 9,170
Research and development 444 759 1,555
Depreciation and amortization 550 575 756
Write-off of Biolid(R)and related costs - - 2,241
Settlement of class action litigation - - 1,000
------------------- -------------------- --------------------
Total operating expenses 8,198 9,050 14,722
------------------- -------------------- --------------------
Loss from operations (2,650) (4,230) (9,973)
Other (income) expenses:
Interest expense 563 423 271
Interest income (3) (123) (91)
Other (income) expense, net (884) (952) 83
------------------- -------------------- --------------------
Net loss ($2,326) ($3,578) ($10,236)
=================== ==================== ====================
Net loss per common share ($0.83) ($1.56) ($6.32)
=================== ==================== ====================
Weighted average common shares outstanding 2,999 2,395 1,655
=================== ==================== ====================
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
F-4
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
$.02 Par Value
(In thousands except per share data) 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, 1992 1,261 $25 $50,880 ($48,108) ($2,892) ($95)
Private placement of common stock, net 733 15 7,370 - - 7,385
Stock subscription receivable - - - - (856) (856)
Stock subscription received - - - - 1,700 1,700
Conversion of redeemable preferred stock 36 1 5,401 - - 5,402
Conversion of stock purchase warrants 9 - 97 - - 97
Common stock issued as compensation 15 - 330 - - 330
Miscellaneous 16 - 44 - - 44
Accretion/accrual of dividends -
preferred stock - - (220) - - (220)
Foreign currency translation adjustment - - - - (610) (610)
Net loss - - - (10,236) - (10,236)
-------- -------- ---------- --------- --------- --------
Balance at December 31, 1993 2,070 41 63,902 (58,344) (2,658) 2,941
Private placement of common stock, net 826 17 4,776 - - 4,793
Stock subscriptions receivable - - - - (1,596) (1,596)
Stock subscriptions received - - - - 693 693
Conversion of redeemable preferred stock 1 - 129 - - 129
Conversion of stock purchase warrants 2 - 34 - - 34
Repurchase of common stock (41) (1) (620) - 621 -
Sale of treasury stock 42 1 294 - - 295
Common stock issued as compensation 7 - 146 - - 146
Common stock issued to settle litigation 70 2 998 - - 1,000
Accrual of dividends - preferred stock - - (166) - - (166)
Foreign currency translation adjustment - - - - 289 289
Net loss - - - (3,578) - (3,578)
-------- -------- ---------- --------- --------- --------
Balance at December 31, 1994 2,977 60 69,493 (61,922) (2,651) 4,980
Private placements of common stock, net 251 5 465 - - 470
Stock subscription received - - - - 562 562
Stock subscription revaluation/cancellation - - (351) - 883 532
Conversion of redeemable preferred stock 3 - 340 - - 340
Issuance of stock purchase warrants - - - - 150 150
Conversion of stock purchase warrants 90 2 212 - - 214
Common stock issued as compensation 9 - 58 - - 58
Miscellaneous - (1) (18) - - (19)
Accrual of dividends - preferred stock - - (152) - - (152)
Foreign currency translation adjustment - - - - 507 507
Net loss - - - (2,326) - (2,326)
-------- -------- ---------- --------- --------- --------
Balance at December 31, 1995 3,330 $66 $70,047 ($64,248) ($549) $5,316
======== ======== ========== ========= ========= ========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these financial statements.
F-5
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) For the Year Ended
December 31,
---------------------------------------------------------------------
1995 1994 1993
---------------- ----------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($2,326) ($3,578) ($10,236)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 550 575 756
Gain on sale of Belmacina(R) (380) (884) -
Other non-cash items 552 108 (10)
Stock issued as compensation 58 146 375
Cancellation of stock subscription receivable 532 - -
Write-off of Biolid(R)and related costs - - 2,241
Settlement of class action litigation - - 1,000
(Increase) decrease in assets and
increase (decrease) in liabilities:
Receivables 150 124 (2,160)
Inventories (297) 154 1,066
Prepaid expenses and other current assets (270) 20 (10)
Other assets (160) 349 286
Accounts payable and accrued expenses (2,246) 228 (2,936)
Other liabilities 500 (657) -
------------ ------------- -------------
Net cash used in operating activities (3,337) (3,415) (9,628)
------------ ------------- -------------
Cash flows from investing activities:
Proceeds from sale of Belmacina(R) 1,140 651 -
Proceeds from sale of investments 214 1,040 555
Purchase of investments (147) (116) (1,118)
Net change in fixed assets (603) - (133)
Acquisition of Spanish drug license (156) - -
Investment in partnership (13) (648) -
(Repayment to) received from Evans - (793) 532
Proceeds from sale of Amodex(R)rights - - 3,260
Other investments - - (20)
------------ ------------- -------------
Net cash provided by investing activities 435 134 3,076
------------ ------------- -------------
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
F-6
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Concluded)
<TABLE>
<CAPTION>
(In thousands) For the Year Ended
December 31,
-------------------------------------------------------------------
1995 1994 1993
--------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in short term borrowings $533 ($397) $391
Proceeds from private placements:
Common stock 544 3,761 8,711
Promissory notes 1,226 - -
Offering costs of private placements (187) (377) (2,096)
Collection of stock subscription receivable, net 506 693 1,700
Proceeds from exercise of stock warrants, net 214 34 97
Repayments of long term debt (59) (203) (221)
Payments on capital leases (33) (72) (81)
------------ ------------- -------------
Net cash provided by financing activities 2,744 3,439 8,501
------------ ------------- -------------
Effect of exchange rate changes on cash (43) (389) (997)
------------ ------------- -------------
Net increase (decrease) in cash and
cash equivalents (201) (231) 952
Cash and cash equivalents at beginning of
period 1,321 1,552 600
------------ ------------- -------------
Cash and cash equivalents at end of period $1,120 $1,321 $1,552
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Registrant paid cash during the period for (in thousands):
Interest $222 $263 $309
============ ============= =============
Taxes - $6 -
============ ============= =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
The Registrant has issued Common Stock in exchange for services,
rights or in settlement of litigation as follows (in thousands):
Shares issued 9 99 38
============ ============= =============
Amount $58 $1,290 $820
============ ============= =============
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these
financial statements.
F-7
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--HISTORY AND OPERATIONS
Bentley Pharmaceuticals, Inc., formerly known as Belmac Corporation, (the
"Company") is an international pharmaceutical and health care company engaged
primarily in the manufacturing, marketing and distribution of pharmaceutical
products in France and Spain, with limited distribution of health care products
and research and development activities in the United States. The Company's
operations in France consist of the import and distribution of fine chemicals
and the marketing of specialty pharmaceutical products. In Spain, the Company
manufactures, packages and distributes both its own and other companies'
pharmaceutical products. In the United States, the Company markets disposable
linens to emergency health services which are manufactured under contract.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the consolidated
financial statements, the Company has incurred net losses as well as negative
operating cash flows for all periods presented.
In order to fund operations, the Company primarily has issued Common Stock and
other securities. During the year ended December 31, 1995, the Company completed
private placements of its securities, which generated net proceeds of
approximately $1,583,000. In February 1996, the Company completed a public
offering of its securities, which generated net proceeds of approximately
$5,700,000, a portion of which was used to retire $1,770,000 principal balance
of debt incurred in the private placements mentioned above (see Note 15). The
balance of the net proceeds are to be used for working capital needs, limited
research and development activities, and possible acquisitions of complementary
products, technologies and/or businesses. Management believes that it now has
sufficient resources to fund its operations into 1997.
The Company's ultimate success is dependent upon its ability to attain
profitable operations and positive cash flows. Management has shifted the
Company's strategic focus from a research and development-oriented
pharmaceutical company to a company seeking to acquire late-stage development
compounds that can be marketed in one year, and currently marketed products. As
a result, the Company has decreased its research and development budget, and is
carefully managing its operating costs, which it has recently reduced via cost
cutting measures throughout its operations. Management of the Company is now
emphasizing product manufacturing and distribution in France and Spain,
strategic alliances and product acquisitions.
F-8
<PAGE>
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries: Chimos/LBF S.A. (formerly known as the separate
entities of Laboratoires Belmac S.A. and Chimos S.A.) and its wholly owned
subsidiary, Laboratorios Belmac S.A.; Belmac Healthcare Corporation and its
wholly owned subsidiary, Belmac Hygiene, Inc.; Belmac Holdings, Inc. (formerly
known as Pharmacin Holdings, Inc.), and its wholly owned subsidiary, Belmac
A.I., Inc. (formerly known as Pharmacin Corp.); B.O.G. International Finance,
Inc.; and Belmac Jamaica, Ltd. Belmac Hygiene, Inc. entered into a 50/50
partnership with Maximed Corporation of New York in March 1994. Belmac Hygiene's
participation in the partnership is accounted for using the equity method. All
significant intercompany balances have been eliminated in consolidation. The
financial position and results of operations of the Company'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.
CASH AND CASH EQUIVALENTS
The Company 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 Balance
Sheets.
INVESTMENTS AVAILABLE FOR SALE
Investments available for sale 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.
F-9
<PAGE>
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the following estimated economic lives of the assets:
Years
-----
Buildings 30
Equipment 5 - 7
Furniture and fixtures 5 - 7
Other 5
Leasehold improvements are depreciated over the life of the respective lease.
Expenditures for replacements and improvements that significantly add to
productive capacity or extend the useful life of an asset are capitalized, while
expenditures for maintenance and repairs are charged against operations as
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
recognized currently.
DRUG LICENSES AND RELATED COSTS
Drug licenses and related costs incurred in connection with acquiring licenses,
patents, and other proprietary rights related to the Company's commercially
developed products are capitalized. Capitalized drug licenses and related costs
are being amortized on a straight-line basis over fifteen years from the dates
of acquisition. Costs of acquiring pharmaceuticals requiring further development
are expensed as purchased research and development. Carrying values of such
assets are reviewed annually by the Company and are adjusted for any diminution
in value.
INVESTMENT IN PARTNERSHIP
Belmac Hygiene, Inc., a wholly-owned subsidiary of the Company entered into a
50/50 partnership in March 1994 with Maximed Corporation ("Maximed") to develop
and market feminine health care products. Maximed contributed the hydrogel-based
technology and the Company, through its subsidiary, is responsible for providing
financing and funding of the partnership's activities. The investment in the
partnership is accounted for using the equity method.
In December 1994, the Company commenced litigation against its partner claiming
interference in the management of the partnership and misrepresentation under
the partnership agreement. The Court ruled that the Company's reliance on its
partner's misrepresentation was not justified and that the Company had performed
its obligations under the agreement with its partner. Accordingly, the Company's
claims as well as the counterclaims of its partner were dismissed. Pending
resolution of this dispute, the partnership is not actively engaged in the
development of any products. The Company believes that while introduction of the
first product, a contraceptive, is possible in 1996,
F-10
<PAGE>
such introduction is dependent upon a prompt and favorable resolution of the
Company's dispute with its partner which would include the receipt by the
Company of the rights to such products. (See Note 13). In the opinion of
management, the carrying value of its investment in the partnership, accounted
for using the equity method, of $513,000 and $501,000 as of December 31, 1995
and 1994, respectively, is not impaired and no reserve is considered necessary.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
USES OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimated.
ORIGINAL ISSUE DISCOUNT/DEBT ISSUANCE COSTS
Original issue discount related to the issuance of debt is amortized to interest
expense using the effective interest method over the lives of the related debt.
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the lives of the
related debt.
AMORTIZATION OF GOODWILL
Costs of investments in purchased companies in excess of the underlying fair
value of net identifiable assets at date of acquisition are recorded as goodwill
and included in other non-current assets which are amortized over fifteen years
on a straight-line basis. Carrying values of such assets are reviewed annually
by the Company and are adjusted for any diminution in value.
REVENUE RECOGNITION
Sales of products are recognized by the Company when the products are shipped to
customers. The Company allows sales returns in certain situations, but does not
reserve for returns and allowances based upon the Company's favorable historical
experience.
INCOME TAXES
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (FAS 109) mandates the liability method in accounting for the effects of
income taxes for financial reporting
F-11
<PAGE>
purposes. The Company adopted FAS 109 effective January 1, 1993; however, this
statement did not have a material impact on the Company's consolidated financial
statements as a result of establishing a valuation allowance equal to the
deferred tax asset arising primarily from its net operating loss carryforwards.
NET LOSS PER COMMON SHARE
Primary loss per common share is computed by dividing the net loss (adjusted for
accretion of discount and accrued dividends on mandatorily 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 Company effected a one-for-ten reverse 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 Company's Annual
Stockholders' Meeting held on June 9, 1995. All information with respect to per
share data and number of common shares has been retroactively adjusted to give
effect to the reverse stock split.
NEW ACCOUNTING STANDARDS
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. Management believes that the adoption of FAS 121 will 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 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. Management believes that the adoption of FAS 123 will not have a material
impact on the financial condition or the results of operations of the Company.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year's presentation format. Such reclassifications are not material to the
consolidated financial statements.
F-12
<PAGE>
NOTE 3--RECEIVABLES
Receivables consist of the following (In Thousands):
December 31,
-----------------------
1995 1994
------ -----
Trade receivables $6,510 $6,360
Sale of Belmacina(R) - 1,140
Other (Notes 6 and 13) 487 233
--------- -------
6,997 7,733
Less-allowance for doubtful accounts (161) (124)
--------- -------
$6,836 $7,609
========= =======
NOTE 4--INVENTORIES
Inventories consist of the following (In Thousands):
December 31,
-----------------------
1995 1994
------ -----
Raw materials $ 374 $ 149
Work in process 1 3
Finished goods 1,498 1,343
--------- -------
1,873 1,495
Less-allowance for slow-moving or
obsolete inventory (819) (248)
--------- -------
$1,054 $1,247
========= =======
F-13
<PAGE>
NOTE 5--FIXED ASSETS
Fixed assets consist of the following (In Thousands):
December 31,
------------------------
1995 1994
------ ------
Land $ 1,212 $ 1,121
Buildings 2,675 1,810
Equipment 973 916
Furniture and fixtures 642 675
Leasehold improvements 335 340
Equipment under capital lease 149 221
-------- -------
5,986 5,083
Less-accumulated depreciation (1,902) (1,465)
-------- -------
$4,084 $3,618
======== =======
Depreciation expense was $424,000, $434,000 and $489,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
NOTE 6--DRUG LICENSES AND RELATED COSTS, NET
Drug licenses and related costs consist of the following (In Thousands):
December 31,
------------------------
1995 1994
------ ------
Drug licenses and related costs $1,526 $1,259
Less-accumulated amortization (406) (291)
------- -------
$1,120 $ 968
======= =======
In September 1992, the Company, through its Spanish subsidiary Laboratorios
Belmac, acquired the Spanish license and product rights to Belmacina(R), a
ciprofloxacin antibiotic, for approximately $577,000. The Company sold its
Spanish license and product rights to Belmacina(R) in 1994 for approximately
$1,556,000 and sold the related trademark for approximately $380,000 in 1995.
The Company received approximately $651,000 in cash in 1994, net of transaction
costs and a receivable of approximately $1,140,000, which included amounts
related to the sale of the trademark. The gain
F-14
<PAGE>
on sale of the license and product rights of approximately $884,000 was included
in Other income/expense, net for the year ended December 31, 1994 and the gain
on the sale of the related trademark was recorded as a receivable and as
deferred revenue as of December 31, 1994. The Company recognized the gain on the
sale of the related trademark upon the transfer of the trademark to the buyer in
1995.
In September 1993 the Company entered into an agreement to sell its rights to
the sachet formulation of Biolid(R) in France and related inventories to Evans
Medical S.A. for approximately $2,245,000. The Company received approximately
$950,000 cash upon execution of the agreement including approximately $350,000
for promotion and marketing of the product. The Company recorded a receivable of
approximately $1,550,000 as of September 30, 1993, representing the balance of
the purchase price which was due upon transfer of the French AMM (license to
market the product) to Evans. This transaction was subject to approval, by a
French regulatory authority, of the transfer of the French AMM to Evans. The
French regulatory authority subsequently requested additional information prior
to approving this transfer and requested marketing of Biolid(R) be suspended
pending the additional data. The Company discontinued marketing this product,
which is a sachet formulation.
As a result of the regulatory action, the Company entered into an agreement with
Evans in March 1994 which canceled the previous sales agreement and the Company
agreed to refund approximately $532,000 deposited by Evans and an additional
$175,000 of the promotional costs paid by Evans. Accordingly, the Company
reversed the sale of the rights to the sachet formulation of Biolid(R) and
removed the previously recorded gain and receivable from its books, effective
December 31, 1993. As a result of the decision to withdraw the sachet
formulation of Biolid(R) from the French market and the subsequent agreement
with Evans, the Company recorded an expense of $2,241,000 in the fourth quarter
of 1993 reflecting the write-off of the sachet formulation of Biolid(R)
intangible asset, the Biolid(R) inventories and the reimbursement of Evans'
promotional costs.
The Company owns all rights, title and interest to Alphanon(R), a camphor based
anti-hemorrhoidal drug. In connection with the acquisition of Alphanon(R), the
Company agreed to pay for the longer of fifteen years from the first marketing
of Alphanon(R) in each country or the life of an Alphanon(R) patent in each
country, a royalty fee of 5% of the gross profit from the manufacture and sale
of the product and 5% of the net royalty payments received from any licensing
agreements of the product.
Amortization expense for drug licenses and related costs was approximately
$88,000, $102,000 and $227,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
F-15
<PAGE>
NOTE 7--ACCRUED EXPENSES
Accrued expenses consist of the following (In Thousands):
December 31,
------------------------
1995 1994
------ ------
Accrued expenses $1,189 $1,914
Accrued payroll and severance benefits 383 368
------- -------
$1,572 $2,282
======= =======
NOTE 8--DEBT
Short term borrowings consist of the following (in Thousands):
December 31,
-----------------------
1995 1994
------ ------
Trade receivables discounted (with a Spanish
financial institution), with recourse, effective
interest rate on the note is 16.8% $705 $463
Revolving line of credit (with a French financial
institution), interest rate 7.5% 380 -
Short term loan (with a French financial
institution), matured in January 1995, average
interest rate 7.3% - 200
Other 112 -
-------- -------
Total short term borrowings $1,197 $663
======== =======
F-16
<PAGE>
Long-term debt consists the following (In Thousands):
December 31,
------------------
1995 1994
---- ----
Promissory notes (issued in a private placement),
matured February 1996, stated rate of interest 12%
(net of $175 discount) $545 $-
Promissory notes (issued in a private placement),
matured February 1996, stated rate of interest of
12% (net of $241 discount) 809 -
First mortgage loan, matured February 1995,
collateralized by land and buildings in Spain.
Interest is based on the Madrid Interbank
Offering Rate (MIBOR*) plus 1.45% - 37
Capitalized lease obligations, relating to various
equipment used by the Company 2 24
----- -----
1,356 61
Less current portion (2) (61)
------ -----
Total long term debt $1,354 $ 0
====== =====
- ---------------
* MIBOR at December 31, 1995 and 1994 was 10.5% and 8.7%, respectively.
The weighted average interest rate on borrowings outstanding at December 31,
1995 and 1994 was 12.2% and 8.6%, respectively.
The Company has a $1,000,000 revolving line of credit with a French financial
institution, which is collateralized by trade receivables. At December 31, 1995,
advances outstanding under the line of credit were approximately $380,000. The
interest rate at December 31, 1995 was 7.5%, and is payable quarterly.
In October 1995, the Company conducted two private placements of its securities.
In the first placement, the Company sold to certain purchasers, for an aggregate
purchase price of $720,000, 120,000 shares of the Company's Common Stock and 12%
promissory notes in the aggregate principal amount of $720,000 (the "A Notes")
which became payable in full upon the earlier of July 31, 1996 or the closing of
a public offering of the Company's securities (a "Public Offering"). The A Notes
were subject to mandatory conversion at a conversion price of $3.00 per share if
no Public Offering was completed by July 31, 1996. The purchase price has been
allocated between the A Notes and the shares of the Company's Common Stock based
upon the relative fair values of these securities on the date of issuance. Such
allocation resulted in recording a discount on the A Notes of approximately
$250,000. The effective interest rate on the A Notes is 83%. The A Notes were
paid in full in February 1996, upon the completion of the Public Offering. As a
result of refinancing
F-17
<PAGE>
the A Notes with Long Term Debt, the A Notes have been classified as long term
debt on the Consolidated Balance Sheets as of December 31, 1995 (See Note 15).
In the second placement, the Company 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 (the "B Notes") which
became payable in full upon the earlier of September 30, 1996 or the completion
of a Public Offering. The B Notes were subject to mandatory conversion, at a
conversion price equal to the average closing price for the Common Stock quoted
on the American Stock Exchange for the five trading days immediately preceding
September 30, 1996. The purchase price has been allocated between the B Notes
and the shares of the Company's Common Stock based upon the relative fair values
of these securities on the date of issuance. Such allocation resulted in
recording a discount on the B Notes of approximately $294,000. The effective
interest rate on the B Notes is 75%. The B Notes were paid in full in February
1996, upon the completion of the Public Offering. As a result of refinancing the
B Notes with Long Term Debt, the B Notes have been classified as long term debt
on the Consolidated Balance Sheets as of December 31, 1995 (See Note 15).
NOTE 9--REDEEMABLE PREFERRED STOCK
During 1991, the Company issued 290,000 shares of $1 par value Series A
Convertible Exchangeable Preferred Stock (the "Series A Preferred Stock") and
340,000 shares of $1 par value Series B Convertible Exchangeable Preferred Stock
(the "Series B Preferred Stock") at $25 per share. The issuance of these shares
provided aggregate proceeds to the Company of $15,750,000. Since the Preferred
Stock meets the definition of Mandatorily Redeemable Preferred Stock, it has
been excluded from the Common Stockholders' Equity section of the Consolidated
Balance Sheets. As of December 31, 1995 and December 31, 1994, 230,000 and
220,000 shares, respectively, of the Series A Preferred Stock had been converted
into 51,200 and 48,100 shares, respectively, of Common Stock and all shares of
the Series B Preferred Stock had been converted into 56,100 shares of Common
Stock.
The shares of Series A and B Preferred Stock were convertible at the option of
the holders into Common Stock at any time prior to the close of business on the
date fixed for redemption or exchange, at an initial conversion price for the
Series A Preferred Stock of $115.00 per share (at an initial conversion rate of
approximately .21739 shares of Common Stock for each share of Series A Preferred
Stock) and for the Series B Preferred Stock of $160.00 per share (at an initial
conversion rate of .15625 shares of Common Stock for each share of Series B
Preferred Stock). The conversion rates were adjusted by the Company, in lieu of
paying cumulative dividends of 9% per annum to .3088 and .1703 for the Series A
and B Preferred Stock, respectively. The dividend payment date for Series A
Preferred Stock is October 15. The Series A Preferred Stock has a liquidation
preference equal to $25.00 per share, plus accrued and unpaid dividends up to
the liquidation date. The Series A Preferred Stock is redeemable for cash at the
option of the Company. The Series A Preferred Stock is also redeemable for cash
at the option of the holder upon certain major stock acquisitions or business
combinations at $25.00 per share, plus accrued and unpaid dividends through the
redemption
F-18
<PAGE>
dates. The holders of Preferred Stock have no voting rights except as required
by applicable law and except that if the equivalent of two full annual cash
dividends shall be accrued and unpaid, the holders of the Series A Preferred
Stock shall have the right, as a class, to elect two additional members of the
Company's Board of Directors. As of the date hereof, the holders of the Series A
Preferred Stock have not exercised their right to appoint such directors.
The Series A Preferred Stock is exchangeable in whole, but not in part, at the
option of the Company on any dividend payment date beginning October 15, 1993,
for 9% Convertible Subordinated Debentures of the Company due 2016. Holders of
Series A Preferred Stock will be entitled to $25 principal amount of Debentures
for each share of Series A Preferred Stock.
The Series A Preferred Stock is recorded at redemption value, which is $25.00
per share plus cumulative dividends of 9% per annum. The following table
summarizes activity of the Series A Preferred Stock:
(In Thousands)
Series A
-----------------------
Shares Amounts
------ -------
Balance at December 31, 1993 74 $2,218
Converted to Common Stock (4) (128)
Accrual of 9% dividends - 166
----- -------
Balance at December 31, 1994 70 2,256
Converted to Common Stock (10) (340)
Accrual of 9% dividends - 152
----- -------
Balance at December 31, 1995 60 $2,068
===== =======
NOTE 10--COMMON STOCKHOLDERS' EQUITY
At December 31, 1995 the Company had the following Common Stock reserved for
issuances under various plans and agreements:
Common Shares
-------------
For conversion of Series A Preferred Stock (Note 9) 15,000
For stock purchase warrants 547,000
For stock options 380,000
For other 3,000
--------
945,000
========
F-19
<PAGE>
See Note 15 for additional reserves established subsequent to December 31, 1995
as a result of a public offering of its securities.
The Company has never paid any dividends on its Common Stock. The current policy
of the Board of Directors is to retain earnings to finance the operation of the
Company's business. Accordingly, it is anticipated that no cash dividends will
be paid to the holders of the Common Stock in the foreseeable future. Under the
terms of the Series A Preferred Stock, the Company is restricted from paying
dividends on its Common Stock so long as there are arrearages on dividend
payments on the Series A Preferred Stock. There currently are such arrearages.
STOCK PURCHASE WARRANTS
At December 31, 1995, stock purchase warrants to purchase an aggregate of
547,000 shares of Common Stock were outstanding, which were exercisable at
prices ranging from $2.50 to $120.00 per share, of which 251,000 warrants have
an exercise price of $2.50 per share. The warrants expire through December 2004.
During the year ended December 31, 1995, the Company issued stock purchase
warrants to purchase an aggregate of 177,000 shares of the Company's Common
Stock, of which warrants to purchase 77,000 shares were granted at exercise
prices which were equal to or greater than the market price of the Company's
Common Stock on the dates of grant. The Company issued 100,000 warrants at an
exercise price of $2.50 per share, which represented a discount from the market
price of the Company's Common Stock of an aggregate of $150,000. Such discount
has been included in Common Stockholders' Equity and Debt issuance costs and
will be amortized to interest expense over the life of the related debt. During
the year ended December 31, 1995, stock purchase warrants were converted into
90,000 shares of the Company's Common Stock at $2.50 per share. Such conversions
yielded net proceeds of $214,000 during the year ended December 31, 1995. During
the year ended December 31, 1994, stock purchase warrants were converted into
2,500 shares of the Company's Common Stock at $13.75 per share. Such conversions
yielded net proceeds of $34,000 to the Company in the year ended December 31,
1994. During the year ended December 31, 1993, stock purchase warrants were
converted into 8,700 shares of the Company's Common Stock at prices ranging from
$10.00 to $13.75 per share. Such conversions yielded net proceeds of $97,000 to
the Company in the year ended December 31, 1993.
COMMON STOCK TRANSACTIONS
During the year ended December 31, 1995, the Company issued 251,000 shares of
Common Stock and 12% promissory notes in the aggregate principal amount of
$1,770,000 in private placement transactions, with total net proceeds of
$1,583,000, which were allocated between the notes and the Common Stock based
upon the relative fair values of each on the dates of issuance. Also 10,000
shares of the Company's Series A Preferred Stock were converted into 3,100
shares of Common Stock at the conversion price of $110.00 per share. The Company
also issued 800 shares of Common Stock to Directors as compensation during the
year ended December 31, 1995.
During the year ended December 31, 1994, the Company issued 845,800 shares of
Common Stock in private placement transactions, with total net proceeds of
$4,944,000 ($1,596,000 of such proceeds were recorded as stock subscriptions
receivable in the Common Stockholders' Equity section of the Consolidated
Balance Sheets). Also, 4,000 shares of the Company's Series A Preferred Stock
were converted into 1,100 shares of Common Stock at the conversion price of
$115.00 per share. The Company also awarded 7,000 shares of Common Stock to
Directors as compensation and settled litigation with shareholders of the
Company by issuing to them an aggregate of 70,200 shares of Common Stock in the
year ended December 31, 1994.
F-20
<PAGE>
During the year ended December 31, 1993, the Company issued 733,400 shares of
Common Stock in private placement transactions, with total net proceeds of
$7,385,000 ($770,000 of such proceeds were recorded as stock subscriptions
receivable in the Common Stockholders' Equity section of the Consolidated
Balance Sheets). Also, 212,000 shares of the Company's Series B Preferred Stock
were converted into 36,100 shares of Common Stock at the conversion price of
$160.00 per share. The Company also awarded 1,900 shares of Common Stock to
employees as incentive compensation and settled litigation with two former
officers of the Company by issuing to them an aggregate of 14,700 shares of
Common Stock in the year ended December 31, 1993.
STOCK SUBSCRIPTIONS RECEIVABLE
Stock subscriptions receivable at December 31, 1995 relate to a subscription
agreement whereby the subscriber has entered into a subscription agreement with
the Company and delivered promissory notes for the purchase of the shares. The
shares have been issued in the name of the individual but were pledged to the
Company to secure payment for such shares under the promissory notes. The shares
are released from the pledge as they are paid for. Under the terms of the
subscription agreement and the related promissory note, the purchase price for
the stock is set at the closing price for the Company's Common Stock on the date
that the subscriber makes the payment for shares to be delivered and payment is
made to the Company under the promissory notes. The stock subscription
receivable and additional paid in capital were reduced by $350,000 during the
year ended December 31, 1995 to reflect the current trading price for the
Company's Common Stock.
Stock subscriptions receivable at December 31, 1994 include an amount owed to
the Company by Marc S. Ayers, a former officer and director of the Company for
the exercise of various warrants and options to purchase 6,570 shares of the
Company's Common Stock at prices ranging from $38.10 to $105.00 per share
totaling $412,000. The notes accrued interest at the rate of 8.5% per annum.
Such accrued interest totaled $121,000 at December 31, 1994. The Company
canceled the promissory notes receivable together with interest due on such
notes aggregating approximately $533,000 in May 1995 as a result of a jury
verdict. (See Note 14). Additionally, amounts owed to the Company by subscribers
of shares of Common Stock which were issued, in private placements totaled
$1,017,000 and were included in the December 31, 1994 balance.
STOCK OPTION PLANS
The Company has in effect Stock Option Plans (the "Plans"), pursuant to which
directors, officers, and employees of the Company who contribute materially to
the success and profitability of the Company are eligible to receive grants of
options for the Company's Common Stock. An aggregate of 380,000 shares of Common
Stock have been reserved for issuance under the Plans, of which 215,000 are
outstanding as of and December 31, 1995. Options may be granted for terms not
exceeding ten years from the date of grant except for stock options which are
granted to persons owning more than 10% of the total combined voting power of
all classes of stock of the Company. For these individuals, options may be
granted for terms not exceeding five years from the date of grant. Options may
not be granted at a price which is less than 100% of the fair market value on
the
F-21
<PAGE>
date the options are granted (110% in the case of persons owning more than 10%
of the total combined voting power of the Company). Holders of stock options
exercised no options during the years ended December 31, 1995 or 1994.
In addition, the Company has granted options and warrants outside of the Plans
in connection with private placements of its securities and as consideration for
various services. These options and warrants have been granted for terms not
exceeding ten years from the date of grant. The table below summarizes all
activity for the years ended December 31, 1993, 1994 and 1995.
(In thousands except per share data)
Number of Price
Common Shares Per Share
------------- ---------
Outstanding at December 31, 1992 244
Granted 171 $10.00 to $45.00
Exercised (9) $10.00 to $13.75
Canceled (110) $37.50 to $300.00
-----
Outstanding at December 31, 1993 296
Granted 359 $2.50 to $20.00
Exercised (2) $13.75
Canceled (10) $13.75 to $71.25
-----
Outstanding at December 31, 1994 643
Granted 299 $2.50 to $7.50
Exercised (90) $2.50
Canceled (90) $5.00 to $177.50
-----
Outstanding at December 31, 1995 762
=====
Options and warrants outstanding include 547,000 warrants, all of which are
exercisable, and 215,000 options, of which 89,000 are vested and exercisable at
December 31, 1995.
NOTE 11--PROVISION FOR INCOME TAXES
The Company adopted FAS 109, "Accounting for Income Taxes" effective January 1,
1993, and began recognizing income tax benefits for net operating loss
carryforwards, credit carryforwards and certain temporary differences for which
tax benefits have not previously been recorded. As a result of the adoption of
FAS 109, the Company has recognized approximately $21,000,000 as a deferred
F-22
<PAGE>
tax asset; however, the Company has established a valuation allowance equal to
the full amount of the deferred tax asset, as future operating profits cannot be
assured. The Company expects to recognize the benefit of the asset when
financial reporting and taxable income is generated.
At December 31, 1995, the Company has net operating loss (the "NOL")
carryforwards of approximately $36,000,000 available to offset future U.S.
taxable income. The Company calculates that its use of the NOL may be limited to
approximately $3,000,000 each year as a result of stock, option and warrant
issuances during prior fiscal years resulting in an ownership change of more
than 50% of the Company's outstanding equity. If not offset against future
taxable income, the NOL carryforwards will expire in tax years 1996 through
2010.
In addition, Chimos/LBF S.A. and Laboratorios Belmac S.A. have NOL carryforwards
of approximately $15,000,000 and $3,700,000 available to offset future taxable
income for income tax purposes in France and Spain, respectively. If not offset
against taxable income, the NOL carryforwards will expire in various years
ending 2000.
NOTE 12--BUSINESS SEGMENT INFORMATION ON FOREIGN OPERATIONS
The following is a summary of the results of operations and identifiable assets
of the Company's wholly-owned foreign subsidiaries as of and for the years ended
December 31, 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
(In Thousands)
Year Ended December 31, 1995
----------------------------------------------------------------------------------------------
France Spain U.S. Consolidated
------ ----- ----- ------------
<S> <C> <C> <C> <C>
Revenue $24,452 $ 5,774 $ 249 $30,475
Net income (loss) $ 1,268 $ (313) $(3,281) $(2,326)
Identifiable assets $ 7,100 $ 6,829 $ 2,361 $16,290
(In Thousands)
Year Ended December 31, 1994
----------------------------------------------------------------------------------------------
France Spain U.S. Consolidated
------ ----- ----- ------------
Revenue $20,257 $ 5,843 $ 184 $26,284
Net income (loss) $ 595 $ (405) $(3,768) $(3,578)
Identifiable assets $ 6,476 $ 7,833 $ 2,023 $16,332
F-23
<PAGE>
(In Thousands)
Year Ended December 31, 1993
---------------------------------------------------------------------------------------------
France Spain U.S. Consolidated
------ ----- ----- ------------
Revenue $15,155 $ 4,328 $ 366 $ 19,849
Net income (loss) $ (811) $(1,655) $(7,770) $ (10,236)
Identifiable assets $ 7,023 $ 6,873 $ 2,264 $ 16,160
</TABLE>
Total liabilities attributable to foreign operations were $5,607,000, $8,428,000
and $8,358,000 at December 31, 1995, 1994 and 1993 respectively. There were no
dividends from foreign subsidiaries, and net foreign currency gains (losses)
reflected in results of operations for the years ended December 31, 1995, 1994
and 1993 were approximately $3,000, $66,000 and ($133,000), respectively. Sales
in France for the years ended December 31, 1995, 1994 and 1993 include
approximately $7,300,000, $8,000,000, and $4,500,000, respectively, to Pharmacie
Centrale des Hopitaux.
NOTE 13-COMMITMENTS AND CONTINGENCIES
On July 15, 1993, Michael M. Harshbarger was discharged for cause from the
Company as President and Chief Executive Officer. At the time of his discharge,
Harshbarger owed the Company approximately $121,000 as a result of expenses of a
personal nature which he charged to the Company's accounts and removal of
corporate assets for personal use. Harshbarger has sued the Company for wrongful
termination, seeking damages in excess of $1,400,000 and the Company has
countersued for wrongful conversion and civil theft, fraud and deceit, and
breach of contract, in an effort to recover the amounts owed by Harshbarger. The
Company is amending a counterclaim against Harshbarger for breach of fiduciary
duty and is seeking damages in excess of $1,000,000. In the opinion of current
management, the amounts are collectable and this litigation will have no
material effect on the financial position or results of operations of the
Company.
Belmac Hygiene, Inc. ("Hygiene"), a subsidiary of the Company, filed an action
on December 9, 1994 in the United States District Court for the Southern
District of New York against Medstar, Inc. ("Medstar"), Maximed, Inc.
("Maximed") and Robert S. Cohen. The defendants are Hygiene's partners (or such
partner's control persons) in the Company's partnership with Maximed (the
"Partnership"), which was formed for the development and ultimate sale of
Maximed's intra-vaginal controlled release products. The action sought (i) to
enjoin the defendants from interfering with the management of the Partnership by
Hygiene's representatives, and (ii) to recover damages as a result of
defendants' misrepresentations and breach of warranty in the Partnership
agreement. The defendants filed a counterclaim against Hygiene. Medstar also
filed a separate action on May 4, 1995 in the United States District Court for
the Southern District of New York against the Company alleging that Hygiene
failed to fund the Partnership and seeking $10,000,000 from the Company pursuant
to its guaranty of Hygiene's obligations. The issues were tried, without a jury,
on August 21 through 23, 1995. Thereafter, post-trial briefs and proposed
findings of fact and conclusions of
F-24
<PAGE>
law were submitted, and argument was heard on October 25, 1995. On January 12,
1996, the Court ruled that the Company's reliance on defendants'
misrepresentation was not justified and that the Company had performed its
obligations under the Partnership agreement. Accordingly, the Court rendered its
decision dismissing all claims and counter-claims asserted by the parties. The
Company filed a notice of appeal on March 19, 1996.
The Company has determined that it is exposed to certain contingencies with
respect to its operations in Spain totaling approximately $650,000 and has
accrued $130,000 for such contingencies that are considered probable and
included such amount in other non-current liabilities as of December 31, 1995.
The Company is also obligated to pay royalties on sales of the drug Alphanon(R)
(Note 6).
An agreement entered into between the Company and Jean-Francois Rossignol, its
former Chairman and Chief Executive Officer, in August 1993, entitled the
company to receive aggregate payments of $360,000 upon the commercialization of
a certain drug. The Company received $160,000 of such amount in December 1995
and the remaining $200,000 in 1996. The Company has recorded the entire $360,000
as other income in the year ended December 31, 1995.
The Company leases certain of its assets under noncancellable operating leases.
Total charges to operations under operating leases were approximately $493,000,
$360,000 and $598,000, for the years ended December 31, 1995, 1994 and 1993,
respectively. Future minimum lease payments under operating leases are as
follows:
(In Thousands)
Year Ending December 31,
----------------------------
1996 $451
1997 336
1998 249
1999 and thereafter -0-
NOTE 14--RELATED PARTY TRANSACTIONS
See Note 10 for stock subscriptions receivable from former officers and Note 13
for additional disclosures related to former officers.
On May 30, 1991 Jean-Francois Rossignol exercised options to purchase 11,120
shares of Common Stock at an average exercise price of $38.30 per share and Marc
S. Ayers exercised options to purchase 4,674 shares at an exercise price of
$45.60 per share. On September 6, 1991, Ayers exercised options to purchase
1,896 shares of Common Stock at an exercise price of $105.00 per
F-25
<PAGE>
share. Rossignol and Ayers exercised their options through the issuance of
promissory notes (the "Notes") in the principal amounts of $426,000 and
$412,000, respectively, representing the aggregate exercise prices for such
options. Each of the Notes accrued interest at the rate of 8.5% per annum which
was payable through the issuance of additional promissory notes having the same
terms as the Notes. In November 1992, Rossignol prepaid his note down to
$271,000 (including accrued interest) through the offset of payments from the
Company. On February 26, 1993, Rossignol resigned as Chief Executive Officer and
Chairman of the Board and the Company agreed to forgive $271,000 of his Note
balance (including accrued interest) due to the Company and to release his
Belmac Holdings, Inc. (formerly Pharmacin Holdings, Inc.) stock which was held
as collateral by the Company.
On November 30, 1992, Ayers resigned as Chief Financial Officer of the Company
and effective December 17, 1992, resigned as a member of the Board of Directors.
At December 31, 1994 Ayers owed the Company $412,000 plus $121,000 accrued
interest under two stock subscription notes receivable, both of which had
matured and remained unpaid. Ayers sued the Company alleging breach of contract
and the Company countersued Ayers. This matter was tried in 1994 and a jury
verdict rendered on August 18, 1994, found in favor of Ayers on one issue and in
favor of the Company on another issue. The judge ordered a new trial on all
issues and no judgement was entered in the case. After a jury trial in May 1995,
the jury found no binding contract was made between the Company and Ayers while
awarding Ayers a recovery of approximately $27,000 for consulting services
rendered and cancellation of the promissory notes and interest thereon. The
cancellation of the promissory notes and related interest has been included in
other income/expense, net, for the year ended December 31, 1995.
Healthcare Capital Investments ("Healthcare"), a registered broker-dealer which
is 80% owned by Harshbarger, a former Director and former President and Chief
Executive Officer of the Company and his wife, acted as placement agent for the
Company on private placements of the Company's securities. Healthcare and its
affiliates received fees during the year ended December 31, 1993 totaling
$242,000 and four- and five-year warrants to purchase an aggregate of 9,600
shares of Common Stock at an exercise price of $22.00 per share. Fees paid in
connection with the above private placements have been charged to
additional-paid-in-capital. Receivables at December 31, 1995 and 1994 include
approximately $121,000 owed by Harshbarger (See Note 13).
NOTE 15--SUBSEQUENT EVENTS (unaudited)
PUBLIC OFFERING
In February 1996, the Company completed a public offering of its securities,
whereby an aggregate of 6,900 Units were sold. Each Unit consists of 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 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
F-26
<PAGE>
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. Approximately $1,770,000 of the net proceeds were used to retire
the principal balance of debt incurred in private placements (see Note 8). The
balance of the net proceeds, approximately $4,000,000, will be available for
working capital needs.
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
$1,915,000. The effective interest rate on the Debentures is 18.1%.
If the public offering of the 6,900 Units had been completed on December 31,
1995, the effect on the Company's consolidated financial statements at December
31, 1995 would have been: an increase in cash and cash equivalents of
$4,000,000, an increase in other non-current assets of $1,000,000, and a
resulting increase in total assets of $5,000,000; as well as an increase in
long-term debt of $3,600,000, and an increase in common stockholders' equity of
$1,400,000.
EXPIRATION OF DISTRIBUTION AGREEMENT
Chimos has been marketing a drug in France, which is produced by Genzyme
Corporation, for treatment of Gaucher's Disease. The distribution agreement
between Genzyme Corporation and Chimos expires on March 31, 1996, and the
Company has been informed that, although Genzyme may need to rely on Chimos to
continue its distribution of Ceredase in April 1996 in order to fill March 1996
orders, such agreement is not expected to be extended or renewed.
Consequently, the Company expects its sales to decline significantly beginning
in the second quarter of 1996 as a result of the expiration of the distribution
agreement. Notwithstanding the relative significance of its sales volume, the
Ceredase gross margins as a percentage of sales have been minimal, therefore the
impact on operating profits is not expected to be material. The Company is
exploring alternative uses for its working capital that has historically
supported the Ceredase distribution arrangement.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Bentley Pharmaceuticals, Inc.
Tampa, Florida
We have audited the consolidated financial statements of Bentley
Pharmaceuticals, Inc. (formerly Belmac Corporation) and subsidiaries (the
"Company") as of December 31, 1995 and 1994, and for the years then ended, and
have issued our report thereon dated March 29, 1996, which report expresses an
unqualified opinion and includes an emphasis paragraph referring to a
significant subsequent event, such consolidated financial statements and report
are included elsewhere in this Annual Report on Form 10-K. Our audits also
included the financial statement schedule of the Company listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Tampa, Florida
March 29, 1996
F-28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Bentley Pharmaceuticals, Inc.
Our audit of the consolidated financial statements referred to in our report
dated March 30, 1994 appearing in the Form 10-K also included an audit of the
Financial Statement Schedule listed in Item 14(a) of this form. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Tampa, Florida
March 30, 1994
F-29
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------- --------- ----------------------------- -------- -----------
Additions
-----------------------------
Balance at Charged to Charged to
beginning costs and other accounts- Deductions- Balance at
Description of period expenses describe describe end of period
----------- --------- ---------- --------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Drug licenses and related costs:
For the year ended December 31, 1995 $291,000 $88,000 $27,000(a) $406,000
For the year ended December 31, 1994 247,000 102,000 $58,000 (b) 291,000
For the year ended December 31, 1993 434,000 227,000 414,000 (c) 247,000
Goodwill:
For the year ended December 31, 1995 148,000 38,000 186,000
For the year ended December 31, 1994 108,000 40,000 148,000
For the year ended December 31, 1993 68,000 40,000 108,000
Reserve for inventory obsolescence:
For the year ended December 31, 1995 248,000 571,000 819,000
For the year ended December 31, 1994 0 248,000 248,000
For the year ended December 31, 1993 0 0 0
</TABLE>
- --------------------------------
(a) Effect of exchange rate fluctuation.
(b) Due to the Registrant's sale of its Spanish marketing rights to
Belmacina(R), the drug license and related accumulated amortization of
approximately $81,000 were removed from the accounts and includes the
effect of exchange rate fluctuation.
(c) Due to the Registrant's sale of its French marketing rights to Amodex(R),
the drug license and related accumulated amortization of approximately
$66,000 were removed from the accounts, and includes the effect of exchange
rate fluctuation. Due to the agreement with Evans dated March 25, 1994,
whereby the Registrant agreed to return to Evans the 25% deposit and
one-half of the promotion campaign monies paid and to release from escrow
the balance of the purchase price, the capitalized costs relating to
Biolid(R) and the related accumulated amortization of approximately
$387,000 were written off, which includes the effect of exchange rate
fluctuation.
F-30
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements (Nos.
33-35941, 33-43868, 33-43866, 33-45994, 33-45142, 33-54382, 33-69946 and
33-75088) of Bentley Pharamceuticals, Inc. (formerly Belmac Corporation) and
subsidiaries (the "Company") on Form S-3 and the Registration Statement No.
33-85154 of the Company on Form S-8 of our reports dated March 29, 1996, which
reports express an unqualified opinion and include an emphasis paragraph
referring to a significant subsequent event, appearing in the Annual Report on
Form 10-K of the Company for the years ended December 31, 1995 and 1994.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Tampa, Florida
March 29, 1996
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (Nos. 33-35941,
33-43868, 33-43866, 33-45994, 33-45142, 33-54382, 33-69946 and 33-75088) and on
Form S-8 (No. 33-85154) of Bentley Pharmaceuticals, Inc. (formerly Belmac
Corporation) and subsidiaries of our report dated March 30, 1994 appearing on
page F-2 of this Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears in this Form 10-K.
/s/ Price Waterhouse, LLP
Price Waterhouse, LLP
Tampa, Florida
March 29, 1996
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