UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 1-10581
BENTLEY PHARMACEUTICALS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
FLORIDA No. 59-1513162
------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4830 W. Kennedy Blvd., Suite 548, Tampa, FL 33609
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 286-4401
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares of the Registrant's common stock outstanding as of August
12, 1996 was 3,331,468.
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
Part I. FINANCIAL INFORMATION PAGE
---------------------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 (unaudited)
and December 31, 1995 3
Consolidated Statements of Operations (unaudited) for the
three months ended June 30, 1996 and 1995, and the six
months ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Common Stockholders'
Equity (unaudited) for the six months ended June 30,
1996 5
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. OTHER INFORMATION 18
-----------------
2
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
(In thousands, except per share data) June 30, December 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 667 $ 1,120
Investments available for sale 2,628 161
Receivables 6,722 6,836
Inventories 1,049 1,054
Prepaid expenses and other 765 596
-------- --------
Total current assets 11,831 9,767
-------- --------
Fixed assets, net 3,652 4,084
Drug licenses and related costs, net 1,006 1,120
Other non-current assets, net 2,135 1,319
-------- --------
$ 18,624 $ 16,290
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 2,828 $ 3,883
Accrued expenses 1,741 1,572
Short term borrowings 1,178 1,197
Current portion of long term debt 5 2
-------- --------
Total current liabilities 5,752 6,654
-------- --------
Long term debt, net 5,071 1,354
-------- --------
Other non-current liabilities 597 898
-------- --------
Commitments and contingencies
Redeemable preferred stock, $ 1.00 par value, authorized 2,000 shares:
Series A, issued and outstanding, 60 shares 2,136 2,068
-------- --------
Common Stockholders'Equity:
Common stock, $.02 par value, authorized 35,000 shares,
issued and outstanding, 3,331 and 3,330 shares 66 66
Stock purchase warrants (to purchase 7,969 and 547
shares of common stock) 457 150
Paid-in capital in excess of par value 71,256 70,047
Stock subscriptions receivable (105) (105)
Accumulated deficit (65,623) (64,248)
Cumulative foreign currency translation adjustment (983) (594)
-------- --------
5,068 5,316
-------- --------
$ 18,624 $ 16,290
======== ========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these financial statements.
3
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
(In thousands, except per share data) Months Ended Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 4,678 $ 8,105 $ 14,376 $ 16,199
Cost of sales 2,894 6,313 10,530 12,956
-------- -------- -------- --------
Gross margin 1,784 1,792 3,846 3,243
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 1,995 2,253 3,895 3,849
Research and development 8 104 26 247
Depreciation and amortization 119 130 253 268
-------- -------- -------- --------
Total operating expenses 2,122 2,487 4,174 4,364
-------- -------- -------- --------
Loss from operations (338) (695) (328) (1,121)
Other (income) expenses:
Interest expense 323 61 1,012 126
Interest income (36) (1) (45) (1)
Other (income) expense, net 71 514 80 143
-------- -------- -------- --------
Net loss ($ 696) ($ 1,269) ($ 1,375) ($ 1,389)
======== ======== ======== ========
Net loss per common share ($ 0.22) ($ 0.44) ($ 0.43) ($ 0.49)
======== ======== ======== ========
Weighted average common shares outstanding 3,331 2,978 3,331 2,978
======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these financial statements.
4
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
$.02 Par Value
Common Stock Additional Other
---------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit Transactions Total
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,330 $ 66 $ 70,047 ($64,248) ($ 549) $ 5,316
Public offering of units -- -- 1,274 -- 307 1,581
Common stock issued as compensation 1 -- 3 -- -- 3
Accrual of dividends - preferred stock -- -- (68) -- -- (68)
Foreign currency translation adjustment -- -- -- -- (389) (389)
Net loss -- -- -- (1,375) -- (1,375)
----- -------- -------- -------- -------- -------
Balance at June 30, 1996 3,331 $ 66 $ 71,256 ($65,623) ($ 631) $ 5,068
===== ======== ======== ======== ======== =======
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these financial statements.
5
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six
(In thousands) Months Ended
June 30,
-----------------
1996 1995
------ ------
Cash flows from operating activities:
Net loss ($1,375) ($1,389)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 253 268
Gain on sale of Belmacina(R) -- (380)
Cancellation of Stock subscription receivable -- 533
Loss on disposal of fixed assets 78 --
Other non-cash items 609 (16)
(Increase) decrease in assets and
increase (decrease) in liabilities:
Receivables (223) (712)
Inventories (8) (59)
Prepaid expenses and other current assets (318) (171)
Other assets (26) 58
Accounts payable and accrued expenses (707) (196)
Other liabilities (241) (53)
------ ------
Net cash used in operating activities (1,958) (2,117)
------ ------
Cash flows from investing activities:
Proceeds from sale of investments 328 214
Purchase of investments (2,795) --
Net change in fixed assets (37) (253)
Proceeds from sale of Belmacina(R) -- 760
Investment in partnership -- (13)
------ ------
Net cash (used in) provided by investing activities (2,504) 708
------ ------
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these financial statements.
6
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
(unaudited)
<TABLE>
<CAPTION>
For the Six
(In thousands) Months Ended
June 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from financing activities:
Net increase in short term borrowings $ 40 $ 651
Proceeds from public offering of units 6,900 --
Offering costs (1,163) (31)
Collection of stock subscription receivable, net -- 562
Repayment of long term debt (1,758) --
Payments on capital leases (18) (17)
------- -------
Net cash provided by financing activities 4,001 1,165
------- -------
Effect of exchange rate changes on cash 8 (332)
------- -------
Net decrease in cash and cash equivalents (453) (576)
Cash and cash equivalents at beginning of period 1,120 1,321
------- -------
Cash and cash equivalents at end of period $ 667 $ 745
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Registrant paid cash during the period for (in thousands):
Interest $ 207 $ 128
======= =======
Taxes $ -- $ 6
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
The Registrant has issued Common Stock
in exchange for services as follows (in thousands):
Shares issued 1 9
======= =======
Amount $ 3 $ 3
======= =======
</TABLE>
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these financial statements.
7
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
BASIS OF CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements of Bentley Pharmaceuticals, Inc. (the
"Registrant"), at June 30, 1996 and 1995 included herein, have been prepared by
the Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the summary of significant
accounting policies and the audited consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
The consolidated financial statements include the accounts of the Registrant and
its wholly owned subsidiaries: Belmac Healthcare Corporation and its wholly
owned subsidiary - Belmac Hygiene, Inc., Belmac Health Corp., B.O.G.
International Finance, Inc., Belmac Jamaica, Ltd., Chimos/LBF S.A. and its
wholly owned subsidiary - Laboratorios Belmac S.A., and Belmac Holdings, Inc.
and its wholly owned subsidiary - Belmac A.I., Inc. All significant intercompany
balances have been eliminated in consolidation. The financial position and
results of operations of the Registrant's foreign subsidiaries are measured
using local currency as the functional currency. Assets and liabilities of
foreign subsidiaries are translated at the rate of exchange in effect at the end
of the period. Revenues and expenses are translated at the average exchange rate
for the period. Foreign currency translation gains and losses not impacting cash
flows are credited to or charged against Common Stockholders' Equity. Foreign
currency translation gains and losses arising from cash transactions are
credited to or charged against current earnings.
In the opinion of management, the accompanying unaudited consolidated financial
statements at June 30, 1996 and 1995 are presented on a basis consistent with
the audited consolidated financial statements for the year ended December 31,
1995 and contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Registrant's financial position as
of June 30, 1996, the results of its operations and its cash flows for the six
months ended June 30, 1996 and 1995. The results of operations for the six
months ended June 30, 1996 should not be considered indicative of the results to
be expected for the year.
CASH AND CASH EQUIVALENTS/INVESTMENTS AVAILABLE FOR SALE:
The Registrant considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents for purposes of
the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
Investments in securities which do not meet the definition of cash equivalents
are classified as investments available for sale in the Consolidated
8
<PAGE>
Balance Sheets. Investments available for sale of $2,628,000 at June 30, 1996
are reported at approximate market value.
INVENTORIES:
Inventories are stated at the lower of cost or market, cost being determined on
the first in, first out ("FIFO") method and are comprised of the following (in
thousands):
June 30, December 31,
1996 1995
------- -------
Raw materials $ 522 $ 374
Work in process -- 1
Finished goods 1,306 1,498
------- -------
1,828 1,873
Less: Allowance for slow moving or obsolete inventory (779) (819)
------- -------
$ 1,049 $ 1,054
======= =======
DEBT:
The Registrant completed a public offering (the "Public Offering") of its
securities in February 1996, whereby it sold 6,900 Units, each Unit ("Unit")
consisting of a One Thousand Dollars ($1,000) Principal Amount 12% Convertible
Senior Subordinated Debenture due February 13, 2006 ("Debenture") and 1,000
Class A Redeemable Warrants, each to purchase one share of Common Stock and one
Class B Redeemable Warrant. Two Class B Redeemable Warrants entitle a holder to
purchase one share of Common Stock. Interest is payable quarterly.
On May 29, 1996, the Debentures and Class A Redeemable Warrants began trading
separately. The Units, however, have also continued to trade. The
characteristics of the Debentures and the Class A Redeemable Warrants are
consistent with their description as components of the Units.
9
<PAGE>
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 October 1995 private placements.
Of the Unit purchase price of $1,000, for financial reporting purposes, the
consideration allocated to the Debenture is $722, to the conversion discount
feature of the Debenture is $224 and to the 1,000 Class A Warrants is $54. None
of the Unit purchase price is allocated to the Class B Warrants. Such allocation
is based upon the relative fair values of each security on the date of issuance.
Such allocation resulted in recording a discount on the Debentures of
$1,918,000.
The original issue discount and the costs related to the issuance of the
Debentures are being amortized to interest expense using the effective interest
method over the lives of the related Debentures. The effective interest rate on
the Debentures is 18.1%.
NET LOSS PER COMMON SHARE:
Primary loss per common share is computed by dividing the net loss (adjusted for
accrued dividends on redeemable preferred stock) by the weighted average number
of shares of Common Stock outstanding during each period. Common Stock
equivalents were not included in the calculation of primary loss per share as
they were determined to be antidilutive.
The Registrant effected a one for ten reverse stock split of its Common Stock on
July 25, 1995 as a result of an amendment to its Articles of Incorporation which
was approved by the Stockholders at the Registrant's Annual Stockholders'
Meeting held on June 9, 1995. The Registrant has retroactively restated all
information with respect to common shares and earnings per common share as if
such reverse stock split had been effective for all periods presented.
NEW ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("FAS 121") effective for fiscal years beginning after December 15, 1995. FAS
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
10
<PAGE>
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Registrant adopted FAS 121 effective January 1, 1996. The
adoption of FAS 121 did not have a material impact on the financial condition or
the results of operations of the Company.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123") effective for
transactions entered into after December 15, 1995. FAS 123 provides alternatives
for the methods used by entities to record compensation expense associated with
its stock-based compensation plans. Additionally, FAS 123 provides further
guidance on the disclosure requirements relating to stock-based compensation
plans. The Registrant adopted FAS 123 effective January 1, 1996. The adoption of
FAS 123 did not have a material impact on the financial condition or the results
of operations of the Company.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with the current
period's presentation format. These reclassifications are not material to the
consolidated financial statements.
11
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ----------------------
Three Months Ended June 30, 1996 versus Three Months Ended June 30, 1995
- ------------------------------------------------------------------------
The Registrant reported revenues of $4,678,000 and a net loss of $696,000 or
$.22 per common share for the three months ended June 30, 1996 compared to
revenues of $8,105,000 and a net loss of $1,269,000 or $.44 per common share for
the same period in the prior year.
The 42% decrease in revenues is primarily attributable to a 75% decrease in
sales by the Registrant's French subsidiary, Chimos/LBF S.A., to $1,599,000,
which was partially offset by an 82% increase in sales by the Registrant's
Spanish subsidiary, Laboratorios Belmac S.A., to $3,069,000. As previously
reported, the Registrant expected its revenues to decline beginning in the
second quarter of 1996, due to the March 31, 1996 expiration of its distribution
agreement for the product, Ceradase, which accounted for approximately 60% of
its revenues in 1995 and approximately 54% if its revenues in the quarter ended
March 31, 1996. Ceradase gross margins, as a percent of sales, were
approximately 5% during the quarter ended March 31, 1996; therefore, the impact
on operating profits is not considered to be material. Overall gross margins for
the quarter ended June 30, 1996 improved to 38%, compared to 22% in the
comparable period of the prior year, primarily as a result of the more rapid
rate of growth in sales at Laboratorios Belmac, whose sales generate
significantly higher gross margins than those of Chimos/LBF, as well as the loss
of low-margin Ceradase sales. The Registrant's distribution operations in
France, Chimos/LBF, generate relatively low gross margins (approximately 16% for
the quarter ended June 30, 1996) compared to the Registrant's Spanish
subsidiary, Laboratorios Belmac, which is experiencing substantially higher
margins (approximately 50% for the quarter ended June 30, 1996).
Selling, general and administrative expenses were $1,995,000, or 43% of sales,
for the three months ended June 30, 1996 compared to $2,253,000, or 28% of
sales, for the same period in the prior year. As a direct result of the decline
in revenues, selling, general and administrative expenses as a percent of
revenues increased during the quarter ended June 30, 1996, as compared to the
same period in the prior year; however, total selling, general and
administrative expenses actually decreased by 11% when compared to the same
period of the prior year. This decrease is the result of lower administrative
expenses at the Chimos/LBF subsidiary as a result of the loss of Ceredase sales
effective March 31, 1996. A significant portion of these expenses are marketing
and selling costs, which are necessary for the Registrant's plans to increase
sales and market share in Spain. To the extent practical, however, the
Registrant intends to continue its efforts to control general and administrative
expenses as part of its austerity program in its effort to reach and maintain
profitability.
12
<PAGE>
Research and development expenses were $8,000 for the quarter ended June 30,
1996 compared to $104,000 for the same period of the prior year. The 92%
decrease reflects the Registrant's de-emphasis of basic research and redirection
of its resources to expand its portfolio of marketed products. During this
period, the Registrant did not commence any new research and development
programs. The Registrant intends to continue to carefully manage its research
and development expenditures in the future in view of its limited resources.
Depreciation and amortization expenses remained relatively unchanged at $119,000
for the three months ended June 30, 1996, compared to $130,000 for the same
period of the prior year.
Interest expense was $323,000 for the three months ended June 30, 1996 compared
to $61,000 for the same period of the prior year. The $262,000 increase reflects
interest expense arising primarily from the Debentures sold in the February 1996
public offering. Interest income was $36,000 for the three months ended June 30,
1996, compared to $1,000 for the same period of the prior year. The increase was
with respect to interest earned on the proceeds of the public offering which
have been invested in short term interest bearing investments.
Other (income) expense, net of $71,000 for the three months ended June 30, 1996
is primarily comprised of the loss recognized upon the disposition of certain
unnecessary fixed assets and leasehold improvements associated with the
Registrant's relocation to smaller, more cost effective, office space in April
1996.
Although the Registrant reported a 42% decrease in sales, the improved gross
margins of 38% and controlled spending with respect to operating expenses in the
quarter ended June 30, 1996, resulted in a $357,000 improvement in its loss from
operations from $695,000 in the same period of the prior year to $338,000 for
the current quarter. This improvement, as well as the $216,000 decrease in other
(income) expenses, resulted in a total net loss of $696,000, or $.22 per common
share for the quarter ended June 30, 1996, compared to $1,269,000, or $.44 per
common share for the same period in the prior year.
Six Months Ended June 30, 1996 versus Six Months Ended June 30, 1995
- --------------------------------------------------------------------
The Registrant reported revenues of $14,376,000 and a net loss of $1,375,000 or
$.43 per share for the six months ended June 30, 1996 compared to revenues of
$16,199,000 and a net loss of $1,389,000 or $.49 per share for the same period
in the prior year.
The 11% decrease in revenues is primarily attributable to a 32% decrease in
sales by the Registrant's French subsidiary, Chimos/LBF, to $8,709,000 which was
partially offset by a 73% increase in sales by the Registrant's Spanish
subsidiary, Laboratorios Belmac to $5,563,000 for the six months ended June 30,
1996. As previously reported, the Registrant expected its revenues to decline
beginning in the second quarter of 1996, due to the March 31, 1996 expiration of
its distribution agreement for the product, Ceredase, which accounted for
approximately 60% of its revenues in the year ended December 31, 1995. Ceredase
gross margins, as a percent of sales, were approximately 5%; therefore, the
impact on operating
13
<PAGE>
profits is not considered to be material. Gross margins for the six months ended
June 30, 1996 improved to 27% when compared to gross margins of 20% in the
comparable period of the prior year, primarily as a result of the more rapid
rate of growth in sales at Laboratorios Belmac, whose sales generate
significantly higher gross margins than those of Chimos/LBF, as well as the loss
of low-margin Ceredase sales. The Registrant's distribution operations in
France, Chimos/LBF generate relatively low gross margins (approximately 10% for
the six months ended June 30, 1996) as opposed to the Registrant's Spanish
subsidiary, Laboratorios Belmac, which is experiencing substantially higher
margins (approximately 50% for the six months ended June 30, 1996).
Selling, general and administrative expenses were $3,895,000 for the six months
ended June 30, 1996 compared to $3,849,000 for the same period in the prior
year. The slight increase over the prior year can be attributed to a combination
of factors, including increased selling expenses incurred by the Spanish
subsidiary which are necessary in order to sustain the increase in sales volume
the Spanish sales force has generated in the six months ended June 30, 1996.
This increase was offset by a decrease in selling, general and administrative
expenses by Chimos/LBF, primarily due to the loss of Ceredese sales, during the
six months ended June 30, 1996. The Registrant intends to continue its efforts
to control general and administrative expenses as part of its austerity program
in its effort to reach and maintain profitability.
Research and development expenses were $26,000 for the six months ended June 30,
1996 compared to $247,000 for the same period of the prior year. The 89%
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 $253,000
for the six months ended June 30, 1996, compared to $268,000 for the same period
of the prior year.
Interest expenses was $1,012,000 for the six months ended June 30, 1996 compared
to $126,000 for the same period of the prior year. The $886,000 increase
reflects interest expense arising primarily from (i) the Notes sold by the
Registrant in its October 1995 private placements (including $446,000 of
unamortized discount and issuance costs at the date of repayment), which Notes
were paid with the proceeds of the public offering completed in February 1996,
(ii) the Debentures sold in the February 1996 public offering and, (iii) to a
lesser degree, higher outstanding balances on short term borrowings which are
used to finance working capital needs. Interest income was $45,000 for the six
months ended June 30, 1996 compared to $1,000 for the same period of the prior
year. The increase was with respect to interest earned on the proceeds of the
public offering which have been invested in short term, interest bearing
investments.
Other (income) expense, net of $80,000 for the six months ended June 30, 1996 is
primarily comprised of the loss recognized upon the disposition of certain
unnecessary fixed assets and leasehold improvements associated with the
Registrant's relocation to smaller, more cost
14
<PAGE>
effective, office space in April 1996.
Although the Registrant reported an 11% decrease in sales, the improved gross
margins of 27% and controlled spending with respect to operating expenses in the
six months ended June 30, 1996, resulted in a $793,000 improvement in its loss
from operations from $1,121,000 in the same period of the prior year to $328,000
for the six months ended June 30, 1996. This improvement, offset by interest
expense associated with: the Notes sold by the Registrant in its October 1995
private placements; the Debentures sold in the February 1996 public offering
and; to a lesser degree, higher outstanding balances on short term borrowings
which are used to finance working capital needs, resulted in a total net loss of
$1,375,000, or $.43 per common share for the six months ended June 30, 1996,
compared to $1,389,000, or $.44 per common share for the same period in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Total assets increased from $16,290,000 at December 31, 1995 to $18,624,000 at
June 30, 1996, while Common Stockholders' Equity decreased from $5,316,000 at
December 31, 1995 to $5,068,000 at June 30, 1996. The decrease in Common
Stockholders' Equity reflects primarily the February 1996 public offering of
Units, offset by a fluctuation in the exchange rates of European currencies
compared to the U.S. Dollar and the loss incurred by the Registrant for the six
months ended June 30, 1996.
The Registrant's working capital increased from $3,113,000 at December 31, 1995
to $6,079,000 at June 30, 1996. The increase in working capital is primarily
attributable to the February 1996 public offering of Units.
Cash and cash equivalents decreased from $1,120,000 at December 31, 1995 to
$667,000 at June 30, 1996; however, the Registrant invested $2,795,000 of its
cash in short term investments, of which $2,628,000 are reflected on the
Registrant's Consolidated Balance Sheets as investments available for sale at
June 30, 1996.
Receivables remained relatively constant, $6,836,000 at December 31, 1995
compared to $6,722,000 at June 30, 1996, due to a combination of factors,
including the continued growth in sales volume at the Registrant's Spanish
subsidiary which partially compensated for the decline in sales by the French
subsidiary as a result of the expiration of the Ceradase distribution contract
as of March 31, 1996. The Registrant reduced its receivables by $1,909,000
during the quarter ended June 30, 1996 by collecting receivables for sales of
Ceradase, which were utilized to reduce accounts payable balances by $1,403,000
and to reduce the amount of short-term borrowings by $380,000 during the quarter
ended June 30, 1996. 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
also remained relatively constant at $1,049,000 at June 30, 1996 compared to
$1,054,000 at December 31, 1995. Prepaid expenses and other current assets
increased from $596,000 at December 31, 1995
15
<PAGE>
to $765,000 at June 30, 1996, primarily as a result of a prepayment of
advertising material by the Spanish subsidiary as well as an advance made by the
Spanish subsidiary to Juventos, with whom the Spanish subsidiary entered into a
contract manufacturing arrangement, during the quarter ended March 31, 1996, in
order for Juventos to procure certain raw materials needed for production
purposes.
Although the combined total of accounts payable and accrued expenses decreased
only 16% from $5,455,000 at December 31, 1995 to $4,569,000 at June 30, 1996 and
short term borrowings decreased slightly from $1,197,000 at December 31, 1995 to
$1,178,000 at June 30, 1996, as discussed above, such balances are significantly
reduced below their March 31, 1996 balances, as a result of application of cash
collected from receivables during the period.
Fixed assets, net, decreased from $4,084,000 at December 31, 1995 to $3,652,000
at June 30, 1996 partly due to a fluctuation in foreign currency exchange rates
and partly due to the disposal of certain unnecessary fixed assets and write-off
of leasehold improvements by the Registrant associated with its relocation to
smaller, more cost effective, office space in April 1996.
Other non-current assets increased 62% from $1,319,000 at December 31, 1995 to
$2,135,000 at June 30, 1996 and long term debt increased 275% from $1,354,000 at
December 31, 1995 to $5,071,000 at June 30, 1996, as a result of the public
offering of Units in February 1996.
Investing activities, including the purchase of investments available for sale
of $2,795,000, used net cash of $2,504,000 during the six months ended June 30,
1996. Financing activities (primarily the sale of Units in a public offering in
February 1996 and proceeds from borrowings on lines of credit) provided net
proceeds of $4,001,000 for the six months ended June 30, 1996. Operating
activities for the six months ended June 30, 1996 required net cash of
$1,958,000. Included in cash used in investing activities is $111,000 which
represents the book value of the fixed assets disposed of as the result of the
Registrant's relocation to smaller, more cost effective, office space in April
1996. The loss on the disposal of fixed assets and write-off of leasehold
improvements associated with the Registrant's relocation was $78,000.
A substantial amount of the Registrant's business is conducted in France and
Spain and is therefore influenced by the extent to which there are fluctuations
in the dollar's value against such countries' currencies. The effect of foreign
currency fluctuations on long lived assets for the six months ended June 30,
1996 was a decrease of $389,000 and the cumulative historical effect was a
decrease of $983,000, as reflected in the Registrant's Consolidated Balance
Sheets in the "Liabilities and Stockholders' Equity" section. Although exchange
rates fluctuated significantly in recent years, the Registrant does not believe
that the effect of foreign currency fluctuation is material to the Registrant's
results of operations as the expenses related to much of the Registrant's
foreign currency revenues are in the same currency as such revenues. The
Registrant relies primarily upon financing activities to fund the operations of
the Registrant in the United States and has not transferred significant amounts
into or out of the United States in the recent past. In the event that the
Registrant is required to fund United States operations with funds generated in
France or Spain, currency rate fluctuations in the future could have a
significant impact on the Registrant. However, at the present time, the
Registrant does not anticipate altering its business plans and practices to
compensate for future currency fluctuations.
16
<PAGE>
To finance its operations, in October 1995 the Registrant conducted two private
placements of its securities. In the first placement, the Registrant sold to
certain purchasers for an aggregate purchase price of $720,000, 120,000 shares
of the Registrant's Common Stock and 12% promissory notes in the aggregate
principal amount of $720,000 which became payable in full upon the earlier of
July 31, 1996 or the closing of a public offering of the Registrant's
securities. In the second placement, the Registrant sold to certain purchasers
for an aggregate purchase price of $1,050,000, 131,250 shares of Common Stock
and 12% promissory notes in the aggregate principal amount of $1,050,000 which
became payable in full upon the earlier of September 30, 1996 or the completion
of a public offering. A public offering was completed in February 1996 and all
of such notes were repaid at that time or converted into Units.
An aggregate of 6,900 Units were sold in the February 1996 public offering. Each
Unit consists of a One Thousand Dollars ($1,000) Principal Amount 12%
Convertible Senior Subordinated Debenture due February 13, 2006 and 1,000 Class
A Redeemable Warrants, each to purchase one share of Common Stock and one Class
B Redeemable Warrant. Two Class B Redeemable Warrants entitle a holder to
purchase one share of Common Stock. The Debentures and Class A Redeemable
Warrants initially traded only as a Unit but began trading separately on May 29,
1996. Interest is payable quarterly. The Debentures are convertible prior to
maturity, unless previously redeemed, at any time commencing February 14, 1997
(the "Anniversary Date") into shares of Common Stock at a conversion price per
share of the lesser of $2.50 or 80% of the average closing price of the Common
Stock on the American Stock Exchange for the 20 consecutive trading days
immediately preceding the Anniversary Date. Gross and net proceeds (after
deducting underwriting commissions and the other expenses of the offering), were
approximately $6,900,000 and $5,700,000, respectively, a portion of which were
used to retire $1,770,000 principal balance of debt incurred in the private
placements discussed above.
Of the Unit purchase price of $1,000, for financial reporting purposes, the
consideration allocated to the Debenture is $722, to the conversion discount
feature of the Debenture is $224 and to the 1,000 Class A Warrants is $54. None
of the Unit purchase price is allocated to the Class B Warrants. Such allocation
is based upon the relative fair values of each security on the date of issuance.
Such allocation resulted in recording a discount on the Debentures of
$1,918,000. The effective interest rate on the Debentures is 18.1%.
The Registrant continues to experience negative cash flows from operating
activities and, as discussed above, completed private placements of its
securities totaling $1,770,000 during October 1995 in order to fund its
operations and completed a public offering of its securities totaling $6,900,000
in February 1996 to provide further liquidity. Management expects that as a
result of completing its recent financings and by carefully prioritizing
research and development activities and continuing its austerity program, the
Registrant should have sufficient liquidity to fund operations into early 1997.
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 under development and the sale of certain of the assets of, or one or
more of its subsidiaries.
17
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Registrant was held on June 14, 1996
for the purpose of electing two directors, voting on a proposal to amend the
Registrant's Articles of Incorporation in order to increase the number of its
authorized shares of Common Stock and voting on a proposal to approve the grant
of stock options to the Company's Executive Officers. Proxies for the meeting
were solicited pursuant to Regulation 14D of the Securities Exchange Act of
1934, as amended, and there was no solicitation in opposition. The following
members were elected to the Registrant's Board of Directors.
Shares
Term Shares Voted
Nominee Expiring Voted For Against
------- -------- --------- -------
James R. Murphy 1999 2,641,308 104,285
Robert M. Stote, M.D. 1999 2,642,047 103,546
Directors whose terms of office continued after the meeting are as follows:
Name Term Expiring
---- -------------
Randolph W. Arnegger 1998
Charles L. Bolling 1998
Michael D. Price 1998
Doris E. Wardell 1997
The proposal to amend the Registrant's Articles of Incorporation in order to
increase the number of its authorized shares of Common Stock, $.02 par value,
from 20,000,000 to 35,000,000 shares was approved by the following vote:
Broker Non-Votes and
Shares Voted For Shares Voted Against Shares Abstaining
- ---------------- -------------------- -----------------
2,375,764 288,241 81,588
(86.5%) (10.5%) (3.0%)
18
<PAGE>
The proposal to grant stock options to the Company's Executive Officers was
approved by the following vote:
Broker Non-Votes and
Shares Voted For Shares Voted Against Shares Abstaining
- ---------------- -------------------- -----------------
659,956 327,236 36,448
(64.4%) (32.0%) (3.6%)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June
30, 1996:
None
The Registrant has not filed any reports on Form 8-K subsequent to
June 30, 1996.
All other items required in Part II have been previously filed or are not
applicable for the quarter ended June 30, 1996.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BENTLEY PHARMACEUTICALS, INC.
Registrant
August 13, 1996 By: /s/ James R. Murphy
-------------------
James R. Murphy
Chairman, President and Chief
Executive Officer (principal
executive officer)
August 13, 1996 By: /s/ Michael D. Price
--------------------
Michael D. Price
Vice President, Chief Financial
Officer, Treasurer and Secretary
(principal financial and
accounting officer)
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description Page Number
------ ----------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000821616
<NAME> BENTLEY PHARMACEUTICALS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 667
<SECURITIES> 2,628
<RECEIVABLES> 6,662
<ALLOWANCES> (62)
<INVENTORY> 1,049
<CURRENT-ASSETS> 11,831
<PP&E> 5,297
<DEPRECIATION> (1,640)
<TOTAL-ASSETS> 18,624
<CURRENT-LIABILITIES> 5,752
<BONDS> 5,071
2,136
0
<COMMON> 66
<OTHER-SE> 5,002
<TOTAL-LIABILITY-AND-EQUITY> 18,624
<SALES> 14,376
<TOTAL-REVENUES> 14,421
<CGS> 10,530
<TOTAL-COSTS> 14,704
<OTHER-EXPENSES> 80
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,012
<INCOME-PRETAX> (1,375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,375)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
