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 September 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 November
14, 1997 was 5,293,327.
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Part I. FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Operations (unaudited)
for the three months ended September
30, 1997 and 1996, and the nine months
ended September 30, 1997 and 1996 4
Consolidated Statement of Changes in Common
Stockholders' Equity (unaudited) for the
nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
September 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) September 30, December 31,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 1,975 $ 4,425
Investments available for sale -- 166
Receivables 2,789 3,632
Inventories 680 945
Prepaid expenses and other 756 644
-------- --------
Total current assets 6,200 9,812
-------- --------
Fixed assets, net 2,970 3,544
Drug licenses and related costs, net 728 1,475
Other non-current assets, net 1,938 1,727
-------- --------
$ 11,836 $ 16,558
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,810 $ 2,998
Accrued expenses 861 1,530
Short term borrowings 1,102 1,014
Current portion of long term debt 5 5
-------- --------
Total current liabilities 3,778 5,547
-------- --------
Long term debt, net 5,305 5,164
-------- --------
Other non-current liabilities 266 349
-------- --------
Commitments and contingencies
Redeemable preferred stock, $1.00 par value,
authorized 2,000 shares:
Series A, issued and outstanding, 60 shares 2,305 2,203
-------- --------
Common Stockholders' Equity:
Common stock, $.02 par value, authorized
35,000 shares issued and outstanding, 3,455
and 3,345 shares 69 67
Stock purchase warrants (to purchase 8,214 and 8,304
shares of common stock) 335 435
Paid-in capital in excess of par value 71,411 71,146
Stock subscriptions receivable (105) (105)
Accumulated deficit (69,740) (67,167)
Cumulative foreign currency translation adjustment (1,788) (1,081)
-------- --------
182 3,295
-------- --------
$ 11,836 $ 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 Nine
(in thousands, except per share data) Months Ended Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 3,141 $ 4,049 $ 11,528 $ 18,425
Cost of sales 1,617 2,349 6,345 12,879
-------- -------- -------- --------
Gross margin 1,524 1,700 5,183 5,546
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 1,666 1,976 5,646 5,871
Research and development 130 2 306 28
Depreciation and amortization 60 133 232 386
-------- -------- -------- --------
Total operating expenses 1,856 2,111 6,184 6,285
-------- -------- -------- --------
Loss from operations (332) (411) (1,001) (739)
Other (income) expenses:
Interest expense 318 331 963 897
Interest income (14) (34) (34) (79)
Loss on disposition of subsidiary -- -- 591 --
Other (income) expense, net 23 2 52 82
-------- -------- -------- --------
Loss before extraordinary item (659) (710) (2,573) (1,639)
Extraordinary item-extinguishment of debt -- -- -- 446
-------- -------- -------- --------
Net loss ($ 659) ($ 710) ($ 2,573) ($ 2,085)
======== ======== ======== ========
Loss per common share before extraordinary item ($ .20) ($ .22) ($ .79) ($ .53)
Extraordinary item-extinguishment of debt -- -- -- (.13)
Net loss per common share ($ .20) ($ 0.22) ($ .79) ($ 0.66)
======== ======== ======== ========
Weighted average common shares outstanding 3,453 3,332 3,385 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>
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 109 2 365 _ (101) 266
Accrual of dividends-preferred stock -- -- (102) _ _ (102)
Foreign currency translation adjustment -- -- _ _ (706) (706)
Net loss -- -- -- (2,573) -- (2,573)
-------- -------- -------- -------- -------- --------
Balance at September 30, 1997 3,455 $ 69 $ 71,411 ($69,740) ($ 1,558) $ 182
======== ======== ======== ======== ======== ========
</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 Nine
Months Ended
September 30,
------------------
1997 1996
------- -------
Cash flows from operating activities:
Loss before extraordinary item ($2,573) ($1,639)
Adjustments to reconcile loss before extraordinary item
to net cash (used in) provided by operating activities:
Depreciation and amortization 232 386
Loss on disposition of subsidiary 591 --
Extraordinary item - extinguishment of debt -- (446)
Loss on disposal of fixed assets -- 79
Other non-cash items 305 838
(Increase) decrease in assets and
increase (decrease) in liabilities:
Receivables 803 3,087
Inventories 143 213
Prepaid expenses and other current assets (230) (46)
Other assets (136) 3
Accounts payable and accrued expenses (1,203) (1,879)
Other liabilities (45) (261)
------- -------
Net cash (used in) provided by operating activities (2,113) 335
------- -------
Cash flows from investing activities:
Proceeds from sale of investments 166 3,115
Purchase of investments -- (7,853)
Receivable related to disposition of subsidiary (501) --
Net change in fixed assets (2) (80)
Acquisition of Spanish drug license (40) --
------- -------
Net cash used in investing activities (377) (4,818)
------- -------
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)
(In thousands) For the Nine
Months Ended
September 30,
------------------
1997 1996
------- -------
Cash flows from financing activities:
Net increase in short term borrowings $ 255 $ 107
Proceeds from exercise of stock options/warrants, net 266 --
Proceeds from public offering of units -- 6,900
Offering costs -- (1,177)
Repayments of long term debt -- (1,770)
Payments on capital leases (4) (27)
------- -------
Net cash provided by financing activities 517 4,033
------- -------
Effect of exchange rate changes on cash (477) (9)
------- -------
Net decrease in cash and cash equivalents (2,450) (459)
Cash and cash equivalents at beginning of period 4,425 1,120
------- -------
Cash and cash equivalents at end of period $ 1,975 $ 661
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid cash during the period for (in thousands):
Interest $ 717 $ 660
======= =======
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 15
======= =======
Amount $ 2 $ 51
======= =======
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 September 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 the sale of its French subsidiary, Chimos/LBF S.A. to
the Marsing Group, a European conglomerate, for approximately $3,600,000 on June
26, 1997. The Registrant has since received approximately $3,200,000, of which
approximately $500,000 was used to repay indebtedness to the former subsidiary.
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 related to this divestiture.
In the opinion of management, the accompanying unaudited consolidated financial
statements at September 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 September 30, 1997 and the results of its operations and its cash flows for
the nine months ended September 30, 1997 and 1996. The results of operations for
the nine months ended September 30, 1997 should not be considered indicative of
the results to be expected for the year.
8
<PAGE>
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):
September 30, December 31,
1997 1996
------- -------
Raw materials $ 325 $ 515
Work in process -- --
Finished goods 484 1,257
------- -------
809 1,772
Less: Allowance for slow moving or obsolete inventory (129) (827)
------- -------
$ 680 $ 945
======= =======
PROPOSED ACQUISITION:
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
Mequon, 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 execution of the letter of intent, the Registrant was required to
remit a non-refundable deposit in the amount of $100,000. The Registrant has
also capitalized other costs totaling approximately $398,000 related to this
proposed acquisition and has included them in other non-current assets, net.
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.
9
<PAGE>
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.
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:
The Registrant has temporarily reduced the exercise price of its currently
outstanding Series A and Series B redeemable warrants to $2.00 and $3.00,
respectively. This adjustment to the exercise price commenced on September 16,
1997 and will be in effect until 5:00 p.m. on November 17, 1997 for the Series A
warrants and until 5:00 p.m. on January 13, 1998 for the Series B warrants. In
each case, if the warrants are not exercised during these periods, the terms
will revert back to the original exercise price of $3.00 for the Series A
warrants, due to expire on February 14, 1999, and $5.00 for the Series B
warrants, due to expire on February 14, 2001. Subsequent to September 30, 1997
and through the date of filing this document, 1,832,000 Series A warrants have
been exercised, generating $3,664,000 in gross proceeds, the effect of which has
been to increase cash and Common Stockholder's Equity by the same amounts. As a
result, 1,832,000 Series B warrants have been issued and are outstanding. No
Series B warrants have been exercised.
10
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ----------------------
Three Months Ended September 30, 1997 versus Three Months Ended September 30,
- --------------------------------------------------------------------------------
1996
- ----
The Registrant reported revenues of $3,141,000 and a net loss of $659,000 or
$.20 per common share for the three months ended September 30, 1997 compared to
revenues of $4,049,000 and a net loss of $710,000 or $.22 per common share for
the same period in the prior year.
The 22% decrease in revenues is primarily attributable to the divestiture of the
Registrant's French subsidiary, Chimos/LBF, which occurred on June 26, 1997,
which contributed no sales during the third quarter. This decrease was partially
offset by a 17% increase in sales (using local currency) by the Registrant's
Spanish subsidiary, Laboratorios Belmac S.A. However, fluctuation in foreign
currency exchange rates offset the increase. Overall gross margins for the
quarter ended September 30, 1997 improved to 49%, compared to 42% in the
comparable period of the prior year, as the third quarter of the current year
included primarily Laboratorios Belmac's sales, which generate significantly
higher gross margins than sales of Chimos/LBF. The Registrant's former
distribution operations in France, Chimos/LBF, generated relatively low gross
margins (approximately 20% for the quarter ended June 30, 1997, the last full
quarter in which it had sales) compared to the Registrant's Spanish subsidiary,
Laboratorios Belmac, which is experiencing substantially higher margins
(approximately 50% for the quarter ended September 30, 1997).
Selling, general and administrative expenses decreased to $1,666,000, or 53% of
sales, for the three months ended September 30, 1997 compared to $1,976,000, or
49% of sales, for the same period in the prior year. As a direct result of the
decline in revenues, selling, general and administrative expenses, although
$310,000 lower in total, increased as a percent of revenues, during the quarter
ended September 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 $130,000 for the quarter ended September
30, 1997 compared to $2,000 for the same period of the prior year. The research
and development expenditures in the quarter ended September 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
11
<PAGE>
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 $60,000 for the three months ended
September 30, 1997, compared to $133,000 for the same period of the prior year.
The decrease is primarily due to (i) the divestiture of its French subsidiary,
Chimos/LBF; 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 $318,000 for the three months
ended September 30, 1997 compared to $331,000 for the same period of the prior
year. Interest expense is primarily comprised of interest payable under the
Debentures sold in the February 1996 public offering. Interest income was
$14,000 for the three months ended September 30, 1997, compared to $34,000 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 September 30, 1997 were $23,000
compared to $2,000 for the same period of the prior year. Other (income)
expenses for the three months ended September 30, 1997 primarily includes a net
realized exchange loss of approximately $28,000, due to fluctuations in the
currency exchange rates used to translate the funds received by the Registrant
from the sale of Chimos/LBF.
The Registrant reported a loss from operations for the quarter ended September
30, 1997 of $332,000 compared to a loss from operations of $411,000 in the same
period of the prior year, which was the combined result of lower sales, higher
gross margins and lower operating expenses. The effect of combining
non-operating items, primarily interest expense of $318,000, resulted in a net
loss of $659,000, or $.20 per common share for the quarter ended September 30,
1997. Non-operating items in the comparable period of the prior year included
primarily interest expense of $331,000, which when combined with the loss from
operations, resulted in a net loss of $710,000, or $.22 per common share.
Nine Months Ended September 30, 1997 versus Nine Months Ended September 30, 1996
- --------------------------------------------------------------------------------
The Registrant reported revenues of $11,528,000 and a net loss of $2,573,000 or
$.79 per common share for the nine months ended September 30, 1997 compared to
revenues of $18,425,000 and a net loss of $2,085,000 or $.66 per common share
for the same period in the prior year.
The 37% decrease in revenues is primarily attributable to a 79% decrease in
sales by the Registrant's French subsidiary, Chimos/LBF, to $2,028,000. The
divestiture of Chimos/LBF occurred on June 26, 1997,thereby contributing no
sales during the third quarter. This decrease was partially offset by a 25%
increase in sales (using local currency) by the Registrant's Spanish subsidiary,
Laboratorios Belmac. However, fluctuation in foreign currency exchange rates
12
<PAGE>
reduced the increase in sales to 8% in U.S. dollars, to $9,253,000. 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 nine months ended September 30, 1997 improved to 45% when compared to gross
margins of 30% 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 nine months ended September 30, 1997) compared to the Registrant's
Spanish subsidiary, Laboratorios Belmac, which is experiencing substantially
higher margins (approximately 50% for the nine months ended September 30, 1997).
Selling, general and administrative expenses were $5,646,000 for the nine months
ended September 30, 1997 compared to $5,871,000 for the same period in the prior
year. The decrease over the prior year can be attributed to a combination of
factors, including decreased selling, general and administrative expenses by
Chimos/LBF, primarily due to the Registrant's divestiture of Chimos/LBF during
the second quarter of 1997 and the loss of Ceredase sales, during the nine
months ended September 30, 1997. This decrease was partially offset by 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 nine months ended September 30, 1997 and establishment of a reserve for the
Registrant's investment in the Belmac/Maximed Partnership. 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 $306,000 for the nine months ended
September 30, 1997 compared to $28,000 for the same period of the prior year.
The research and development expenditures in the quarter ended September 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 $232,000 for the nine months ended
September 30, 1997, compared to $386,000 for the same period of the prior year.
The decrease is primarily due to (i) the divestiture of its French subsidiary,
Chimos/LBF; and (ii) the disposal of certain fixed assets during 1996 as a
result of the Registrant's move to smaller, more cost effective office space.
Interest expense was $963,000 for the nine months ended September 30, 1997
compared to $897,000 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 nine
13
<PAGE>
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 $34,000 for the nine months ended September 30, 1997 compared to
$79,000 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 nine months ended September 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 nine months ended
September 30, 1997 of $1,001,000 compared to a loss from operations of $739,000
in the same period of the prior year, which was the combined result of lower
sales, higher gross margins and lower operating expenses. The effect of
combining non-operating items, primarily (i) interest expense of $963,000, and
(ii) the loss of $591,000 on the disposition of the Registrant's French
subsidiary resulted in a net loss of $2,573,000, or $.79 per common share for
the nine months ended September 30, 1997. Non-operating items in the comparable
period of the prior year included primarily (i) interest expense of $897,000,
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 $2,085,000, or $.66 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 $11,836,000 at
September 30, 1997, while Common Stockholders' Equity decreased from $3,295,000
at December 31, 1996 to $182,000 at September 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 nine months ended September 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 $2,422,000 at September 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
$1,975,000 at September 30, 1997, primarily as the combined result of (i) cash
used for operational purposes and, (ii) the effect of foreign exchange rate
changes, offset by proceeds from short-term borrowings and stock
options/warrants exercises. Included in cash and cash equivalents are
approximately $1,617,000 of short-term investments considered to be cash
equivalents.
Accounts receivable decreased from $3,632,000 at December 31, 1996 to $2,789,000
at September 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 $680,000 at September 30, 1997 compared to $945,000 at December 31,
1996, due to the disposition of the Registrant's French subsidiary and the
fluctuation of foreign currency exchange rates, which were partially offset by
an increase in inventory levels in Spain to accommodate the increase in sales
volume.
Prepaid expenses and other current assets increased from $644,000 at December
31, 1996 to $756,000 at September 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 subsidiary 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 $2,671,000 at September 30, 1997 due to the combined effect of (i) the
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 canceled.
Fixed assets, net decreased from $3,544,000 at December 31, 1996 to $2,970,000
at September 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 $728,000 at September 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 increased from $1,727,000 at December 31, 1996 to
$1,938,000 at September 30, 1997 primarily due to capitalization of
approximately $398,000 of pre-acquisition costs, including a non-refundable
$100,000 deposit paid for the proposed acquisition of Schwarz Pharma, Inc.
assets and other possible acquisitions, offset by amortization costs related to
the 1996 Public Offering. 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 Mequon, Wisconsin, from Schwarz Pharma, Inc. The letter of
intent, dated July 21, 1997, will serve as the basis for
15
<PAGE>
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. Long term debt increased from $5,164,000 at
December 31, 1996 to $5,305,000 at September 30, 1997, due primarily to
accretion recorded on the Debentures issued in the February 1996 public
offering.
Investing activities used net cash of $377,000 during the nine months ended
September 30, 1997. Financing activities for the nine months ended September 30,
1997 provided net cash of $517,000 and operating activities for the nine months
ended September 30, 1997 used net cash of $2,113,000.
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 nine months ended September 30, 1997 was a decrease
of $707,000 and the cumulative historical effect was a decrease of $1,788,000,
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 and
warrant exercises, by carefully prioritizing research and development activities
and continuing its austerity program, the Registrant should have sufficient
liquidity to fund operations through 1998. The Registrant, is exploring 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. As discussed above,
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
- -----------------
The Registrant has temporarily reduced the exercise price of its currently
outstanding Series A and Series B redeemable warrants to $2.00 and $3.00,
respectively. This adjustment to the exercise price commenced on September 16,
1997 and will be in effect until 5:00 p.m. on
16
<PAGE>
November 17, 1997 for the Series A warrants and until 5:00 p.m. on January 13,
1998 for the Series B warrants. In each case, if the warrants are not exercised
during these periods, the terms will revert back to the original exercise price
of $3.00 for the Series A warrants, due to expire on February 14, 1999, and
$5.00 for the Series B warrants, due to expire on February 14, 2001. Subsequent
to September 30, 1997 and through the date of filing this document, 1,832,000
Series A warrants have been exercised, generating $3,664,000 in gross proceeds,
the effect of which has been to increase cash and Common Stockholders' Equity by
the same amounts. As a result, 1,832,000 Series B warrants have been issued and
are outstanding. No Series B warrants have been exercised.
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-3 (SEC Commission file No. 333-28593) declared effective by the
Securities and Exchange Commission on June 10, 1997 and any amendments thereto.
17
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
In the suit between the Registrant and Medstar, Inc., Maximed, Inc. and Robert
Cohen, on August 22, 1997, the United States Court of Appeals for the Second
Circuit affirmed in part and vacated and remanded in part the judgment of the
United States District Court for the Southern District of New York which
followed a non-jury trial. The appeals court order vacated that portion of the
district court judgment that dismissed the Registrant's claim of fraud and
remanded the claim to the district court for further proceedings. Those portions
of the district court judgment which dismissed the Registrant's contract claim
for breach of warranty, the defendants' counterclaim for fraud and breach of
contract and Medstar, Inc.'s action for breach of an alleged guaranty were
affirmed.
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 September 30,
1997:
None
All other items required in Part II have been previously filed or are not
applicable for the quarter ended September 30, 1997.
18
<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
November 13, 1997 By: /s/ James R. Murphy
-----------------------------
James R. Murphy
Chairman, President and Chief
Executive Officer (principal
executive officer)
November 13, 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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