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, 1997
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
14, 1997 was 3,448,195.
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
Part I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited)
for the three months ended June 30, 1997 and 1996,
and the six months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Common
Stockholders' Equity (unaudited) for the
six months ended June 30, 1997 5
Consolidated Statements of Cash Flows
(unaudited) for the six months ended
June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Part II. OTHER INFORMATION 18
-----------------
2
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except per share data) June 30, December 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 509 $ 4,425
Investments available for sale -- 166
Receivables 5,690 3,632
Inventories 764 945
Prepaid expenses and other 899 644
-------- --------
Total current assets 7,862 9,812
-------- --------
Fixed assets, net 3,033 3,544
Drug licenses and related costs, net 761 1,475
Other non-current assets, net 1,711 1,727
-------- --------
$ 13,367 $ 16,558
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,181 $ 2,998
Accrued expenses 1,135 1,530
Short term borrowings 1,330 1,014
Current portion of long term debt 5 5
-------- --------
Total current liabilities 4,651 5,547
-------- --------
Long term debt, net 5,258 5,164
-------- --------
Other non-current liabilities 272 349
-------- --------
Commitments and contingencies
Redeemable preferred stock, $1.00 par value,
authorized 2,000 shares:
Series A, issued and outstanding, 60 shares 2,271 2,203
-------- --------
Common Stockholders' Equity:
Common stock, $.02 par value, authorized 35,000 shares
issued and outstanding, 3,448 and 3,345 shares 69 67
Stock purchase warrants (to purchase 8,228 and 8,304
shares of common stock) 285 435
Paid-in capital in excess of par value 71,479 71,146
Stock subscriptions receivable (105) (105)
Accumulated deficit (69,081) (67,167)
Cumulative foreign currency translation adjustment (1,732) (1,081)
-------- --------
915 3,295
-------- --------
$ 13,367 $ 16,558
======== ========
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,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 4,309 $ 4,678 $ 8,387 $ 14,376
Cost of sales 2,440 2,894 4,728 10,530
-------- -------- -------- --------
Gross margin 1,869 1,784 3,659 3,846
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 2,076 1,995 3,980 3,895
Research and development 110 8 176 26
Depreciation and amoritization 88 119 172 253
-------- -------- -------- --------
Total operating expenses 2,274 2,122 4,328 4,174
-------- -------- -------- --------
Loss from operations (405) (338) (669) (328)
Other (income) expenses:
Interest expense 325 323 645 566
Interest income (3) (36) (20) (45)
Loss on disposition of subsidiary 348 -- 591 --
Other (income) expense, net 13 71 29 80
-------- -------- -------- --------
Loss before extraordinary item (1,088) (696) (1,914) (929)
Extradordinary item-extinguishment of debt -- -- -- 446
-------- -------- -------- --------
Net loss ($ 1,088) ($ 696) ($ 1,914) ($ 1,375)
======== ======== ======== ========
Loss per common share before extraordinary item ($ .33) ($ .22) ($ .59) ($ .30)
Extraordinary item-extinguishment of debt -- -- -- (.13)
Net loss per common share ($ .33) ($ 0.22) (.59) ($ 0.43)
======== ======== ======== ========
Weighted average common shares outstanding 3,356 3,331 3,351 3,331
======== ======== ======== ========
</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> <C> <C>
Balance at December 31, 1996 3,345 $ 67 $ 71,146 ($67,167) ($ 751) $ 3,295
Common stock issued as compensation 1 -- 2 -- -- 2
Exercise of stock options/warrants 102 2 399 -- (150) 251
Accrual of dividends-preferred stock -- -- (68) -- -- (68)
Foreign currency translation adjustment -- -- -- -- (651) (651)
Net loss -- -- -- (1,914) -- (1,914)
-------- -------- -------- -------- -------- --------
Balance at June 30, 1997 3,448 $ 69 $ 71,479 ($69,081) ($ 1,552) $ 915
======== ======== ======== ======== ======== ========
</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)
(In thousands) For the Six
Months Ended
June 30,
------------------
1997 1996
------- -------
Cash flows from operating activities:
Loss before extraordinary item ($1,914) ($ 929)
Adjustments to reconcile loss before extraordinary item
to net cash used in operating activities:
Depreciation and amortization 172 253
Extraordinary item-extinguishment of debt -- (446)
Loss on disposition of subsidiary 591 --
Cancellation of stock subscription receivable -- 78
Other non-cash items 155 609
(Increase) decrease in assets and
increase (decrease) in liabilities:
Receivables 589 (223)
Inventories 88 (8)
Prepaid expenses and other current assets (414) (318)
Other assets 117 (26)
Accounts payable and accrued expenses (509) (707)
Other liabilities (42) (241)
------- -------
Net cash used in operating activities (1,167) (1,958)
------- -------
Cash flows from investing activities:
Proceeds from sale of investments 166 328
Purchase of investments -- (2,795)
Receivable related to disposition of subsidiary (3,093) --
Net change in fixed assets 7 (37)
Acquistion of Spanish drug license (40) --
------- -------
Net cash used in investing activities (2,960) (2,504)
------- -------
The accompnaying 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>
(In thousands) For the Six
Months Ended
June 30,
------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from financing activities:
Net increase in short term borrowings $ 498 $ 40
Proceeds from public offering of units -- 6,900
Offering costs -- (1,151)
Proceeds from exercise of stock options/warrants, net 251 --
Repayments of long term debt -- (1,770)
Payments on capital leases (2) (18)
------- -------
Net cash provided by financing activities 747 4,001
------- -------
Effect of exchange rate changes on cash (536) 8
------- -------
Net decrease in cash and cash equivalents (3,916) (453)
Cash and cash equivalents at beginning of period 4,425 1,120
------- -------
Cash and cash equivalents at end of period $ 509 $ 667
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid cash during the period for (in thousands):
Interest $ 477 $ 207
======= =======
Taxes $ 12 --
======= =======
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
The Company has issued Common Stock in exchange for
services as follows (in thousands):
Shares issued 1 1
======= =======
Amount $ 2 $ 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, 1997 and 1996 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, 1996.
The consolidated financial statements include the accounts of the Registrant and
its wholly owned subsidiaries: Bentley Healthcare Corporation (f/k/a Belmac
Healthcare Corporation) and its wholly owned subsidiary - Belmac Hygiene, Inc.,
Belmac Health Corp., B.O.G. International Finance, Inc., Belmac Jamaica, Ltd.,
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.
The Registrant completed, on June 26, 1997, previously announced negotiations
regarding the sale of its French subsidiary, Chimos/LBF S.A. to the Marsing
Group, a European conglomerate, for approximately $3,600,000. The Registrant has
received approximately $3,000,000 subsequent to June 30, 1997, of which
approximately $500,000 was used to repay indebtedness to the former subsidiary.
The Registrant will also receive three monthly installments in the second half
of 1997 of aproximately $90,000 each. An escrow fund in the amount of
approximately $370,000 has been established for certain contingent obligations
or liabilities. The Registrant recorded a loss of $591,000 on this transaction,
including $348,000 in the qurarter ended June 30, 1997 and $243,000 which was
recognized in the quarter ended March 31, 1997.
In the opinion of management, the accompanying unaudited consolidated financial
statements at June 30, 1997 and 1996 are presented on a basis consistent with
the audited consolidated financial statements for the year ended December 31,
1996 and contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Registrant's financial position as
of June 30, 1997 and the results of its operations and its cash flows for the
8
<PAGE>
six months ended June 30, 1997 and 1996. The results of operations for the six
months ended June 30, 1997 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 Balance
Sheets.
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,
1997 1996
------- -------
Raw materials $ 355 $ 515
Work in process -- --
Finished goods 547 1,257
------- -------
902 1,772
Less: Allowance for slow moving or obsolete inventory (138) (827)
------- -------
$ 764 $ 945
======= =======
EXTRAORDINARY ITEM:
The Registrant recorded an extraordinary charge of $446,000, or $.13 per common
share, in February 1996 upon the extinguishment of debt that it had incurred in
its October 1995 private placements, representing unamortized discount and
issuance costs at the date of repayment.
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.
9
<PAGE>
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.
SUBSEQUENT EVENTS:
Upon the Registrant's sale of its French subsidiary, Chimos/LBF S.A. to the
Marsing Group, a European conglomerate, for approximately $3,600,000, this
amount was reflected on the balance sheet of the Registrant at June 30, 1997 as
a receivable. Subsequent to June 30, 1997, and through August 13, 1997, the
Registrant had received approximately $3,000,000 of this receivable.
The Registrant has entered into a negotiated letter of intent to purchase
domestic and international rights to a portfolio of branded drugs, with an
emphasis in gastrointestinal products, and a manufacturing facility located in
Meqon, Wisconsin, from Schwarz Pharma, Inc. The letter of intent, dated July 21,
1997, will serve as the basis for negotiations for the definitive agreements.
The transaction is subject to the execution of such definitive agreements and
the Registrant securing the funds necessary to complete the purchase. Upon
executing the letter of intent, the Registrant was required to remit a
non-refundable $100,000 deposit.
10
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ----------------------
Three Months Ended June 30, 1997 versus Three Months Ended June 30, 1996
- ------------------------------------------------------------------------
The Registrant reported revenues of $4,309,000 and a net loss of $1,088,000 or
$.33 per common share for the three months ended June 30, 1997 compared to
revenues of $4,678,000 and a net loss of $696,000 or $.22 per common share for
the same period in the prior year.
The 8% decrease in revenues is primarily attributable to a 50% decrease in sales
by the Registrant's French subsidiary, Chimos/LBF (which was divested on June
26, 1997), to $802,000, which was partially offset by a 26% increase in sales
(using local currency) by the Registrant's Spanish subsidiary, Laboratorios
Belmac S.A. However, fluctuation in foreign currency exchange rates reduced the
increase in sales to 11% in U.S. dollars, to $3,407,000. Overall gross margins
for the quarter ended June 30, 1997 improved to 43%, compared to 38% in the
comparable period of the prior year, primarily as a result of the higher
proportion of sales from Laboratorios Belmac, whose sales generate significantly
higher gross margins than sales Chimos/LBF generated. The Registrant's former
distribution operations in France, Chimos/LBF, generated relatively low gross
margins (approximately 20% for the quarter ended June 30, 1997) compared to the
Registrant's Spanish subsidiary, Laboratorios Belmac, which is experiencing
substantially higher margins (approximately 49% for the quarter ended June 30,
1997).
Selling, general and administrative expenses increased to $2,076,000, or 48% of
sales, for the three months ended June 30, 1997 compared to $1,995,000, or 43%
of sales, for the same period in the prior year. The increase in general and
administrative expenses is primarily the result of establishment of a reserve
for the Registrant's investment in the Belmac/Maximed Partnership. With the
passage of time, the Registrant beleives that this investment is becoming less
valuable due to progress being made in development of competitive technology. 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,
1997, when compared to the same period in the prior year. A significant portion
of selling, general and administrative expenses are marketing and selling costs,
which are necessary for the Registrant's plans to increase sales and market
share in Spain. To the extent practical, however, the Registrant intends to
continue its efforts to control general and administrative expenses as part of
its austerity program in its effort to reach and maintain profitability.
Research and development expenses were $110,000 for the quarter ended June 30,
1997 compared to $8,000 for the same period of the prior year. The research and
development expenditures in the quarter ended June 30, 1997 were primarily
related to bio-equivalency studies which are necessary in order to obtain
approval to export products from Spain to other
11
<PAGE>
countries. The modest expenditures in research and development reflect the
Registrant's continued de-emphasis of basic research and redirection of its
resources to developmental expenses necessary for expansion of its portfolio of
marketed products. 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 $88,000 for the three months ended
June 30, 1997, compared to $119,000 for the same period of the prior year. The
decrease is primarily due to (i) the December 31, 1996 provision for goodwill
impairment which terminated future related amortization; and (ii) the disposal
of certain fixed assets during the quarters ended June 30 and September 30, 1996
as a result of the Registrant's move to smaller, more cost effective office
space.
Interest expense remained relatively constant at $325,000 for the three months
ended June 30, 1997 compared to $323,000 for the same period of the prior year.
Interest expense is primarily comprised of interest arising from the Debentures
sold in the February 1996 public offering. Interest income was $3,000 for the
three months ended June 30, 1997, compared to $36,000 for the same period of the
prior year. The decrease is due to higher short-term interest bearing investment
balances in the prior year, which resulted from the proceeds of the public
offering.
Other (income) expenses for the quarter ended June 30, 1997 include a provision
for loss on disposition of subsidiary which totalled $348,000, including
realized exchange loss of $143,000, due to fluctuations in the currency exchange
rates used to translate the foreign currency financial statements, and a loss of
$205,000 recognized upon the sale of Chimos/LBF. Prior year's other (income)
expenses are primarily comprised of the loss of approximately $71,000 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.
The Registrant reported a loss from operations for the quarter ended June 30,
1997 of $405,000 compared to a loss from operations of $338,000 in the same
period of the prior year, which was the combined result of lower sales, higher
gross margins and higher operating expenses. The effect of combining
non-operating items, primarily (i) interest expense of $325,000; and (ii) the
loss of $348,000 on the disposition of the Registrant's French subsidiary,
resulted in a net loss of $1,088,000, or $.33 per common share for the quarter
ended June 30, 1997. Non-operating items in the comparable period of the prior
year included primarily interest expense of $323,000 and a loss recognized upon
the disposition of certain unnecessary fixed assets and leasehold improvements
of approximately $71,000, which when combined with the loss from operations,
resulted in a net loss of $696,000, or $.22 per common share.
Six Months Ended June 30, 1997 versus Six Months Ended June 30, 1996
- --------------------------------------------------------------------
The Registrant reported revenues of $8,387,000 and a net loss of $1,914,000 or
$.59 per common share for the six months ended June 30, 1997 compared to
revenues of $14,376,000 and a net loss of $1,375,000 or $.43 per common share
for the same period in the prior year.
12
<PAGE>
The 42% decrease in revenues is primarily attributable to a 78% decrease in
sales by the Registrant's French subsidiary, Chimos/LBF (which was divested on
June 26, 1997), to $1,897,000, which was partially offset by a 29% increase in
sales (using local currency) by the Registrant's Spanish subsidiary,
Laboratorios Belmac. However, fluctuation in foreign currency exchange rates
reduced the increase in sales to 14% in U.S. dollars, to $6,322,000. 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, 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%. Gross margins for
the six months ended June 30, 1997 improved to 44% when compared to gross
margins of 27% in the comparable period of the prior year, primarily as a result
of the higher proportion of sales from 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 former distribution operations in
France, Chimos/LBF, generated relatively low gross margins (approximately 21%
for the six months ended June 30, 1997) compared to the Registrant's Spanish
subsidiary, Laboratorios Belmac, which is experiencing substantially higher
margins (approximately 51% for the six months ended June 30, 1997).
Selling, general and administrative expenses were $3,980,000 for the six months
ended June 30, 1997 compared to $3,895,000 for the same period in the prior
year. The 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, 1997 and
establishment of a reserve for the Registrant's investment in the Belmac/Maximed
Partnership. With the passage of time, the Registrant believes that this
investment is becoming less valuable due to progress being made in development
of competitive technology. This increase was partially offset by a decrease in
selling, general and administrative expenses by Chimos/LBF, primarily due to the
loss of Ceredase sales, during the six months ended June 30, 1997. 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 $176,000 for the six months ended June
30, 1997 compared to $26,000 for the same period of the prior year. The research
and development expenditures in the quarter ended June 30, 1997 were primarily
related to bio-equivalency studies which are necessary in order to obtain
approval to export products from Spain to other countries. The modest
expenditures in research and development reflect the Registrant's continued
de-emphasis of basic research and redirection of its resources to developmental
expenses necessary for expansion of its portfolio of marketed products. The
Registrant intends to continue to carefully manage its research and development
expenditures in view of its limited resources.
Depreciation and amortization expenses were $172,000 for the six months ended
June 30, 1997, compared to $253,000 for the same period of the prior year. The
decrease is primarily due to (i) the December 31, 1996 provision for goodwill
impairment which terminated future related amortization; and (ii) the disposal
of certain fixed assets during the quarters ended June 30 and September 30, 1996
as a result of the Registrant's move to smaller, more cost effective office
space.
13
<PAGE>
Interest expense was $645,000 for the six months ended June 30, 1997 compared to
$566,000 for the same period of the prior year. The increase reflects interest
expense on (i) the Debentures sold in the February 1996 public offering which
were outstanding for a full six months in 1997, and (ii) to a lesser degree,
higher outstanding balances on short term borrowings which are used to finance
working capital needs. Interest income was $20,000 for the six months ended June
30, 1997 compared to $45,000 for the same period of the prior year. The decrease
is due to interest earned on higher short-term interest bearing investment
balances in the prior year, which resulted from the proceeds of the public
offering.
Other (income) expenses for the six months ended June 30, 1997 include a
provision for loss on disposition of subsidiary, which totals $591,000,
including realized exchange loss of $386,000, due to fluctuations in the
currency exchange rates used to translate the foreign currency financial
statements and a loss of $205,000 recognized upon the sale of Chimos/LBF. Prior
year's other (income) expenses are primarily comprised of the loss of
approximately $71,000 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.
The Registrant recorded an extraordinary charge of $446,000, or $.13 per common
share, in February 1996 upon the extinguishment of debt that it had incurred in
its October 1995 private placements, representing unamortized discount and
issuance costs at the date of repayment.
The Registrant reported a loss from operations for the six months ended June 30,
1997 of $669,000 compared to a loss from operations of $328,000 in the same
period of the prior year, which was the combined result of lower sales, higher
gross margins, and higher operating expenses. The effect of combining
non-operating items, primarily (i) interest expense of $645,000, and (ii) the
loss of $591,000 on the disposition of the Registrant's French subsidiary
resulted in a net loss of $1,914,000, or $.59 per common share for the six
months ended June 30, 1997. Non-operating items in the comparable period of the
prior year included primarily (i) interest expense of $566,000, and (ii) a loss
recognized upon the extinguishment of debt of approximately $446,000, which,
when combined with the loss from operations, resulted in a net loss of
$1,375,000, or $.43 per common share for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Total assets decreased from $16,558,000 at December 31, 1996 to $13,367,000 at
June 30, 1997, while Common Stockholders' Equity decreased from $3,295,000 at
December 31, 1996 to $915,000 at June 30, 1997. The decrease in Common
Stockholders' Equity reflects primarily the 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, 1997, partially offset by the
effect of warrants and options which were exercised during the period.
The Registrant's working capital decreased from $4,265,000 at December 31, 1996
to $3,211,000 at June 30, 1997. The decrease in working capital is primarily
attributable to the fluctuation of foreign currency exchange rates, the loss
incurred by the Registrant and disposition of the Registrant's French
subsidiary, Chimos/LBF.
14
<PAGE>
Cash and cash equivalents decreased from $4,425,000 at December 31, 1996 to
$509,000 at June 30, 1997, primarily as the combined result of (i) the sale of
the Registrant's French subsidiary, Chimos/LBF, which as of December 31, 1996
had cash and cash equivalents balances of $3,200,000. As of June 30, 1997, these
amounts have effectively been converted into a receivable (for the sale price
agreed to for the sale of Chimos) of $3,600,000 of which approximately
$3,000,000 has been collected subsequent to June 30, 1997; and (ii) cash used
for operational purposes. The terms of the Chimos/LBF sale agreement calls for
collection of the balance of the sale price by the Registrant in three monthly
installments in the second half of 1997. Included in cash and cash equivalents
are approximately $211,000 of short-term investments considered to be cash
equivalents.
Accounts receivable increased from $3,632,000 at December 31, 1996 to $5,690,000
at June 30, 1997 due to a combination of the disposition of the Registrant's
French subsidiary and foreign currency exchange rate fluctuations, which were
offset by higher receivables resulting from increased sales in Spain. The
Registrant has not experienced any material delinquent accounts. Inventories
decreased to $764,000 at June 30, 1997 compared to $945,000 at December 31,
1996, due to the disposition of the Registrant's French subsidiary and the
fluctation of foreign currency exchange rates, which were offset by an increase
in inventory levels in Spain to accomodate the increase in sales volume.
Prepaid expenses and other current assets increased from $644,000 at December
31, 1996 to $899,000 at June 30, 1997 due to a combination of the disposition of
the Registrant's French subsidiary and the effect of foreign currency exchange
rate fluctuations, which were offset by a combination of expenditures for
marketing and promotional items which will be utilized by the Registrant's
Spanish subisidary during the remainder of the current year and the next fiscal
year, as well as pre-payment for certain bio-equivalency studies which are
scheduled to take place during the remainder of the current year.
Accounts payable and accrued expenses decreased from $4,528,000 at December 31,
1996 to $3,316,000 at June 30, 1997 due to the combined effect of the (i)
disposition of the Registrant's French subsidiary; (ii) the effect of foreign
currency exchange rate fluctuations; and (iii) the reversal of an amount owed
for a drug license in Spain, for which the proposed purchase by the Registrant
was cancelled. However, these decreases were partially offset by an overall
increase in accounts payable in Spain due to the increase in business activity.
Fixed assets, net decreased from $3,544,000 at December 31, 1996 to $3,033,000
at June 30, 1997, due to recurring depreciation charges and a fluctuation in
foreign currency exchange rates.
Drug licenses and related costs, net decreased from $1,475,000 at December 31,
1996 to $761,000 at June 30, 1997, due to a combination of recurring
amortization charges, the effect of foreign currency exchange rate fluctuations
and the cancellation of the proposed purchase of a drug license in Spain.
Other non-current assets decreased slightly from $1,727,000 at December 31, 1996
to $1,711,000 at June 30, 1997 and long term debt increased from $5,164,000 at
December 31, 1996 to $5,258,000 at June 30, 1997, due primarily to accretion
recorded on the Debentures issued in the February 1996 public offering.
15
<PAGE>
Investing activities used net cash of $2,960,000 during the six months ended
June 30, 1997. Financing activities for the six months ended June 30, 1997
provided net cash of $747,000 and operating activities for the six months ended
June 30, 1997 used net cash of $1,167,000.
A substantial amount of the Registrant's business is conducted in Spain and is
therefore influenced by the extent to which there are fluctuations in the
dollar's value against its currency. The effect of foreign currency fluctuations
on long lived assets for the six months ended June 30, 1997 was a decrease of
$651,000 and the cumulative historical effect was a decrease of $1,732,000, as
reflected in the Registrant's Consolidated Balance Sheets in the "Liabilities
and Stockholders' Equity" section. As a result of the sale of Chimos/LBF, the
Registrant recognized unrealized exchange losses of $386,000. Although exchange
rates fluctuated significantly recently, the Registrant does not believe that
the effect of foreign currency fluctuation over time 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 has historically relied primarily upon financing
activities to fund the operations of the Registrant in the United States and
with the exception of proceeds from the sale of Chimos/LBF, 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 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.
Management expects that as a result of completing its financings in the last
fiscal year along with the proceeds from the sale of its French subsidiary, by
carefully prioritizing research and development activities and continuing its
austerity program, the Registrant should have sufficient liquidity to fund
operations into 1998. 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. As discussed
below, the Registrant has entered into a letter of intent to acquire
pharmaceutical products and a manufacturing facility in the United States. The
Registrant must finance the acquisition of these assets and is exploring various
options intended to secure such financing.
SUBSEQUENT EVENTS
Upon the Registrant's sale of its French subsidiary, Chimos/LBF S.A. to the
Marsing Group, a European conglomerate, for approximately $3,600,000, this
amount was reflected on the balance sheet of the Registrant at June 30, 1997 as
a receivable. Subsequent to June 30, 1997, and through the date of filing this
document, the Registrant has received approximately $3,000,000 of this
receivable.
The Registrant has entered into a negotiated letter of intent to purchase
domestic and international rights to a portfolio of branded drugs, with an
emphasis in gastrointestinal products, and a manufacturing facility located in
Meqon, Wisconsin, from Schwarz Pharma, Inc. The letter
16
<PAGE>
of intent, dated July 21, 1997, will serve as the basis for negotiations for the
definitive agreements. The transaction is subject to the execution of such
definitive agreements and the Registrant securing the funds necessary to
complete the purchase. Upon executing the letter of intent, the Registrant was
required to remit a non-refundable $100,000 deposit.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Quarterly Report on Form 10-Q which are not
historical facts contain forward looking information with respect to plans,
projections or future performance of the Registrant, the occurrence of which
involve certain risks and uncertainties that could cause the Registrant's actual
results to differ materially from those expected by the Registrant, including
the history of operating losses; uncertainty of future financial results;
possible negative cash flow from operating activities; additional financing
requirements; no assurance of successful and timely development of new products;
risks inherent in pharmaceutical development; dependance on regulatory
approvals; uncertainty of pharmaceutical pricing or profitability;
unpredictability of patent protection; rapid technological change; competition;
and other uncertainties detailed in the Registrant's Registration Statement on
Form S-1 (SEC Commission file No. 33-65125) declared effective by the Securities
and Exchange Commission on February 14, 1996 and any amendments thereto.
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 6, 1997
for the purpose of electing two directors, and voting on a proposal to adopt
amendments to Registrant's 1991 Stock Option Plan to increase the number of
shares of Common Stock for which options may be granted and to eliminate the
Non-Employee Director formula option grants and certain provisions relating
thereto. 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.
Term Shares Shares Voted
Nominee Expiring Voted For Against
------- -------- --------- -------
Ehud D. Laska 2000 2,900,420 101,387
Michael D. Price 2000 2,911,384 90,423
Directors whose terms of office continued after the meeting are as follows:
Name Term Expiring
---- -------------
Randolph W. Arnegger 1998
Charles L. Bolling 1998
James R. Murphy 1999
Robert M. Stote, M.D. 1999
The proposal to adopt amendments to the Registrant's 1991 Stock Option Plan to
increase the number of shares of Common Stock, for which options may be granted
under the 1991 plan from 240,000 to 500,000 and to eliminate the Non-Employee
Director formula option grants and certain provisions relating thereto as set
forth in the 1991 Plan was approved by the following vote:
Broker Non-Votes and
Shares Voted For Shares Voted Against Shares Abstaining
---------------- -------------------- -----------------
917,781 210,168 26,197
79.5% 18.2% 2.3%
18
<PAGE>
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, 1997:
Report on Form 8-K dated June 26, 1997 regarding
disposition of the Registrant's French subsidiary,
Chimos/LBF S.A. (Items 2 and 7).
All other items required in Part II have been previously filed or are not
applicable for the quarter ended June 30, 1997.
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 14, 1997 By: /s/ James R. Murphy
----------------------------------
James R. Murphy
Chairman, President and Chief Executive
Officer (principal executive officer)
August 14, 1997 By: /s/ Michael D. Price
----------------------------------
Michael D. Price
Vice President, Chief Financial Officer,
Treasurer and Secretary (principal
financial and accounting officer)
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