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, 1998
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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
4, 1998 was 8,427,694.
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
----------------------------
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
---------------------------------------------
INDEX
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<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations (unaudited) for the
three months ended June 30, 1998 and 1997, and the six months
ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Common Stockholders'
Equity (unaudited) for the six months ended June 30, 1998 5
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1998 and 1997 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 17
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except per share data) June 30, December 31,
1998 1997
--------- ------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $9,471 $11,117
Receivables 2,218 2,428
Inventories 757 714
Prepaid expenses and other 1,244 750
------- -------
Total current assets 13,690 15,009
------- -------
Fixed assets, net 2,849 2,918
Drug licenses and related costs, net 928 691
Other non-current assets, net 1,778 2,425
------- -------
$19,245 $21,043
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $1,829 $1,493
Accrued expenses 1,848 1,723
Short term borrowings 496 1,140
Current portion of long term debt 5 5
------- -------
Total current liabilities 4,178 4,361
------- -------
Long term debt, net 5,381 5,329
------- -------
Other non-current liabilities 299 110
------- -------
Commitments and contingencies
Redeemable preferred stock, $1.00 par value,
authorized 2,000 shares:
Series A, issued and outstanding, 60 shares 2,406 2,338
------ -------
Common Stockholders' Equity:
Common stock, $.02 par value, authorized 35,000 shares,
issued and outstanding, 8,428 and 8,426 shares 168 168
Stock purchase warrants 556 192
Paid-in capital in excess of par value 81,322 81,382
Accumulated deficit (73,186) (70,982)
Cumulative foreign currency translation adjustment (1,879) (1,855)
------- -------
6,981 8,905
------- -------
$19,245 $21,043
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
3
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BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-------------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $3,358 $4,309 $6,858 $8,387
Cost of sales 1,385 2,440 2,895 4,728
----- ----- ----- -----
Gross margin 1,973 1,869 3,963 3,659
----- ----- ----- -----
Operating expenses:
Selling, general and administrative 2,171 2,076 4,095 3,980
Research and development 32 110 65 176
Depreciation and amortization 66 88 126 172
Nonrecurring charge 1,176 - 1,176 -
----- ------ ----- -----
Total operating expenses 3,445 2,274 5,462 4,328
----- ----- ----- -----
Loss from operations (1,472) (405) (1,499) (669)
Other (income) expenses:
Interest expense 265 325 535 645
Interest income (134) (3) (282) (20)
Loss on disposition of subsidiary - 348 - 591
Other (income) expense, net - 13 - 29
-------- --------- ------- -------
Loss before income taxes (1,603) (1,088) (1,752) (1,914)
Provision for income taxes 218 - 452 -
------- --------- -------- ------
Net loss (1,821) (1,088) (2,204) (1,914)
Other comprehensive (income) loss:
Foreign currency translation (gains) losses (92) 2 24 265
------- --------- -------- -----
Comprehensive loss ($1,729) ($1,090) ($2,228) ($2,179)
======== ========= ======== =======
Basic net loss per common share ($0.22) ($0.33) ($0.27) ($0.59)
======== ========= ======== =======
Weighted average common shares outstanding 8,428 3,356 8,428 3,351
======== ========= ======== =======
</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)
<TABLE>
<CAPTION>
(In thousands, except per share data)
$.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, 1997 8,426 $168 $81,382 ($70,982) ($1,663) $8,905
Exercise of stock options/warrants 2 - 8 - - 8
Issuance of stock options/warrants - - - - 364 364
Accrual of dividends-preferred stock - - (68) - - (68)
Foreign currency translation
adjustment - - - - (24) (24)
Net loss - - - (2,204) - (2,204)
----- ---- ------- -------- ------- ------
Balance at June 30, 1998 8,428 $168 $81,322 ($73,186) ($1,323) $6,981
===== ==== ======= ========= ======== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements
5
<PAGE>
BENTLEY PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
--------------
(In thousands) 1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,204) ($1,914)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 126 172
Nonrecurring charges 158 -
Loss on disposition of subsidiary - 591
Other non-cash items 211 155
(Increase) decrease in assets and increase (decrease) in liabilities:
Receivables 199 589
Inventories (48) 88
Prepaid expenses and other current assets (368) (414)
Other assets 105 117
Accounts payable and accrued expenses 474 (509)
Other liabilities 77 (42)
Capitalized acquisition costs 448 -
----- -----
Net cash used in operating activities (822) (1,167)
----- -----
Cash flows from investing activities:
Acquisition of Spanish drug licenses (138) (40)
(Additions to) disposals of fixed assets, net (24) 7
Proceeds from sale of investments - 166
Receivable related to disposition of subsidiary - (3,093)
----- -----
Net cash used in investing activities (162) (2,960)
----- -----
</TABLE>
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>
(In thousands) For the Six
Months Ended
June 30,
------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in short term borrowings ($641) $498
Proceeds from exercise of stock options/warrants, net 8 251
Payments on capital leases (2) (2)
------ ----
Net cash (used in) provided by financing activities (635) 747
------ ----
Effect of exchange rate changes on cash (27) (536)
------ ----
Net decrease in cash and cash equivalents (1,646) (3,916)
Cash and cash equivalents at beginning of period 11,117 4,425
------- -----
Cash and cash equivalents at end of period $9,471 $509
====== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Registrant paid cash during the period for (in thousands):
Interest $460 $477
====== =====
Taxes $406 $12
====== =====
SUPPLEMENTAL DISCOUSURES OF NON-CASH FINANCING ACTIVITIES
The Registrant has issued Common Stock in exchange for services as follows (in
thousands):
Shares issued - 1
===== ========
Amount - $ 2
===== ========
</TABLE>
The Registrant issued Warrants during the six months ended June 30, 1998 to
purchase 425,000 shares of Common Stock in exchange for services.
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, 1998 and 1997 included herein, have been prepared by
the Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principles have been condensed or omitted. 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, 1997.
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.,
Bentley Pharma, Inc., Pharma de Espana, Inc., Laboratorios Belmac, S.A.,
Chimos/LBF S.A. until its divestiture in June 1997, 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 divested its French subsidiary, Chimos/LBF, S.A. (referred to
herein as Chimos/LBF), in June 1997 for approximately $3,650,000. An escrow fund
in the amount of approximately $350,000, representing the balance due the
Registrant, has been established for certain contingent obligations or
liabilities. In the opinion of management, the resolution of these contingencies
will not have a material effect on the Registrant's financial position or
results of operations. The Registrant's operations in France consisted of the
low margin brokerage of fine chemicals, sourcing of raw materials and
pharmaceutical intermediaries and the distribution of biotechnology or orphan
drugs.
The Registrant's previously announced negotiations whereby the Registrant was
considering the purchase of domestic and international rights to a portfolio of
branded drugs and a manufacturing facility located in Mequon, Wisconsin from
Schwarz Pharma and whereby Schwarz Pharma was to acquire control of Bentley's
Spanish subsidiary, Laboratorios Belmac came to an end in May 1998 without
consummation of an agreement. Consequently, the Registrant has recorded a charge
during the quarter ended June 30, 1998 for all previously
8
<PAGE>
capitalized costs specific to this and other related potential acquisitions
totaling approximately $1,176,000, including $158,000 of non-cash items.
In the opinion of management, the accompanying unaudited consolidated financial
statements for the period ended June 30, 1998 and 1997 are presented on a basis
consistent with the audited consolidated financial statements for the year ended
December 31, 1997 and contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Registrant's financial
position as of June 30, 1998 and the results of its operations and its cash
flows for the six months ended June 30, 1998 and 1997. The results of operations
for the six months ended June 30, 1998 should not be considered indicative of
the results to be expected for the year.
CASH AND CASH EQUIVALENTS:
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.
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, 1998 December 31, 1997
------------- -----------------
Raw Materials $349 $338
Finished goods 517 501
---- ---
866 839
Less: Allowance for slow moving or obsolete inventory (109) (125)
----- -----
$757 $714
===== =====
PROVISION FOR INCOME TAXES:
The Registrant has utilized all of its Spanish tax net operating loss
carryforwards. As a result, the Registrant recorded a provision for income taxes
totaling $452,000 for the six months ended June 30, 1998 as a result of its
taxable income in Spain. This amount differs from the amount computed by
applying the U.S. federal income tax rate of 34% to pretax income as a result of
certain nondeductible expenses in Spain. The Registrant paid $126,000 in income
taxes during the six months ended June 30, 1998 related to taxable income in
Spain and $280,000 in U.S. income taxes related to amounts accrued at December
31, 1997.
BASIC NET LOSS PER COMMON SHARE:
Basic net loss per common share is presented in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). FAS 128
provides for new accounting principles for use in the calculation of earnings
per share and is effective for financial statements for both interim and annual
periods ended after December 15, 1997. The Registrant has recalculated
9
<PAGE>
the basic net loss per common share for all periods presented to give effect to
FAS 128.
Basic net loss per common share is based on the weighted average number of
shares of common stock outstanding during each period adjusted for actual shares
issued during the period. Diluted loss per common share is not presented, as it
is antidilutive. The effect of the Registrant's outstanding stock options, stock
warrants and convertible debentures were considered in the diluted loss per
share calculation.
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, 1998 versus Three Months Ended June 30, 1997
- ------------------------------------------------------------------------
The Registrant reported revenues of $3,358,000 and a net loss of $1,821,000 or
$.22 per common share for the three months ended June 30, 1998 compared to
revenues of $4,309,000 and a net loss of $1,088,000 or $.33 per common share for
the same period in the prior year. Excluding the effect of the nonrecurring
charge of $1,176,000, representing the write-off of previously capitalized
acquisition costs, the Registrant's net loss would have been $645,000 or $.08
per common share for the three months ended June 30, 1998.
The 22% decrease in revenues is primarily attributable to the June 1997
divestiture of the Registrant's French subsidiary, Chimos/LBF, which generated
approximately $803,000 in revenues during the quarter ended June 30, 1997. The
Registrant's Spanish subsidiary, Laboratorios Belmac S.A., reported an increase
in revenues of 2% in local currency; however, fluctuations in foreign currency
exchange rates resulted in a 3% decrease to $3,308,000 in U.S. dollars in the
quarter ended June 30, 1998 compared to the same period in the prior year.
Gross margins for the quarter ended June 30, 1998 improved to 59% compared to
43% in the comparable period of the prior year, primarily as a result of: (i)
improvement in Laboratorios Belmac's gross margin from 49% to 59% and (ii) the
low gross margins associated with Chimos/LBF, which was divested in June 1997.
Selling, general and administrative expenses increased $95,000, or 5% to
$2,171,000 for the three months ended June 30, 1998 compared to $2,076,000 for
the same period in the prior year. A significant portion of these expenses are
marketing and selling costs, which are necessary for the Registrant's plans to
increase sales and market share in Spain. To the extent practical, however, the
Registrant intends to continue its efforts to control general and administrative
expenses as part of its austerity program in its effort to reach and maintain
profitability.
Research and development expenses were $32,000 for the quarter ended June 30,
1998 compared to $110,000 for the same period of the prior year. The minimal
expenditures in research and development reflects 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.
Included in operating expenses for the three months ended June 30, 1998 is a
nonrecurring charge of $1,176,000, which represents the previously capitalized
costs specific to the abandoned Schwarz Pharma and other related acquisitions.
These costs were written off
11
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during the second quarter of 1998 after negotiations ended during May of 1998.
Interest expense totaled $265,000 for the three months ended June 30, 1998
compared to $325,000 for the same period of the prior year. Interest income was
$134,000 for the three months ended June 30, 1998, compared to $3,000 for the
same period of the prior year. The increase was with respect to interest earned
on higher short-term interest bearing investment balances during the second
quarter of 1998, which resulted from the proceeds of the exercise of
approximately 4,900,000 Class A Warrants during the fourth quarter of 1997. As a
result of the June 1997 sale of Chimos/LBF, the Registrant recorded a provision
for loss on disposition of subsidiary, which totaled $348,000, including
realized exchange loss of $143,000, and a loss of $205,000 in the second quarter
of 1997. The Registrant recorded a provision for income taxes totaling $218,000
for the three months ended June 30, 1998 as a result of taxable income earned in
Spain.
The Registrant reported a loss from operations of $1,472,000 for the quarter
ended June 30, 1998 compared to $405,000 in the same period of the prior year,
primarily due to the 1998 nonrecurring charge of $1,176,000 representing the
write-off of previously capitalized costs specific to the abandoned Schwarz
Pharma and other related acquisitions. Excluding the effect of the nonrecurring
charge, the Registrant's loss from operations for the three months ended June
30, 1998 would have been $296,000. The effect of combining non-operating items,
primarily interest expense of $265,000, interest income of $134,000 and
provision for income taxes of $218,000 resulted in a net loss of $1,821,000, or
$.22 per common share for the quarter ended June 30, 1998, compared to the net
loss in the comparable period of the prior year, of $1,088,000, or $.33 per
common share. Excluding the nonrecurring charge, the net loss would have been
$645,000 or $.08 per common share for the three months ended June 30, 1998.
Six Months Ended June 30, 1998 versus Six Months Ended June 30, 1997
- --------------------------------------------------------------------
The Registrant reported revenues of $6,858,000 and a net loss of $2,204,000 or
$.27 per common share for the six months ended June 30, 1998 compared to
revenues of $8,387,000 and a net loss of $1,914,000 or $.59 per common share for
the same period in the prior year. Excluding the effect of the nonrecurring
charge of $1,176,000, representing the write-off of previously capitalized
acquisition costs, the Registrant's net loss would have been $1,028,000 or $.13
per common share for the six months ended June 30, 1998.
The 18% decrease in revenues is primarily attributable to the June 1997
divestiture of the Registrant's French subsidiary, Chimos/LBF, which generated
approximately $1,898,000 in revenues during the six months ended June 30, 1997.
The Registrant's Spanish subsidiary, Laboratorios Belmac S.A., reported an
increase in revenues of 15% in local currency in the six months ended June 30,
1998 compared to the same period in the prior year; however, fluctuations in
foreign currency exchange rates reduced the increase to 7% or $6,763,000 when
expressed in U.S. dollars.
Gross margins for the six months ended June 30, 1998 improved to 58% compared to
gross margins of 44% in the comparable period of the prior year, primarily as a
result of: (i)
12
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improvement in Laboratorios Belmac's gross margin from 51% to 58% and (ii) the
low gross margins associated with Chimos/LBF, which was divested in June 1997.
Selling, general and administrative expenses increased by $115,000 or 3% to
$4,095,000 for the six months ended June 30, 1998 compared to $3,980,000 for the
same period in the prior year. A significant portion of these expenses are
marketing and selling costs, which are necessary for the Registrant's plans to
increase sales and market share in Spain. To the extent practical, however, the
Registrant intends to continue its efforts to control general and administrative
expenses as part of its austerity program in its effort to reach and maintain
profitability.
Research and development expenses were $65,000 for the six months ended June 30,
1998 compared to $176,000 for the same period of the prior year. The minimal
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.
Included in operating expenses for the six months ended June 30, 1998 is a
nonrecurring charge of $1,176,000, which represents the previously capitalized
costs specific to the abandoned Schwarz Pharma and other related acquisitions.
These costs were written off during the second quarter of 1998 after
negotiations ended during May of 1998.
Interest expense totaled $535,000 for the six months ended June 30, 1998
compared to $645,000 for the same period of the prior year. Interest income was
$282,000 for the six months ended June 30, 1998 compared to $20,000 for the same
period of the prior year. The increase was with respect to interest earned on
higher short-term interest bearing investment balances during the six months
ended June 30, 1998, which resulted from the proceeds of the exercise of
approximately 4,900,000 Class A Warrants during the fourth quarter of 1997. As a
result of the June 1997 sale of Chimos/LBF, the Registrant recorded a provision
for loss on disposition of subsidiary, which totaled $591,000, including
realized exchange loss of $386,000, and a loss of $205,000 during the six months
ended June 30, 1997. The Registrant recorded a provision for income taxes
totaling $452,000 for the six months ended June 30, 1998 as a result of taxable
income earned in Spain.
The Registrant reported a loss from operations of $1,499,000 for the six months
ended June 30, 1998 compared to $669,000 in the same period of the prior year,
primarily due to the 1998 nonrecurring charge of $1,176,000 representing the
write-off of previously capitalized costs specific to the Schwarz Pharma and
other related acquisitions. Excluding the effect of the nonrecurring charge, the
Registrant's loss from operations for the six months ending June 30, 1998 would
have been $323,000. The effect of combining non-operating items, primarily
interest expense of $535,000, interest income of $282,000 and provision for
income taxes of $452,000 resulted in a net loss of $2,204,000, or $.27 per
common share for the six months ended June 30, 1998, compared to the net loss in
the comparable period of the prior year, of $1,914,000, or $.59 per common
share. Excluding the nonrecurring charge, the net loss would have been
$1,028,000 or $.13 per common share for the six months ended June 30, 1998.
13
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LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Total assets decreased from $21,043,000 at December 31, 1997 to $19,245,000 at
June 30, 1998, while Common Stockholders' Equity decreased from $8,905,000 at
December 31, 1997 to $6,981,000 at June 30, 1998. The decrease in Common
Stockholders' Equity reflects primarily the loss incurred by the Registrant for
the six months ended June 30, 1998.
The Registrant's working capital decreased from $10,648,000 at December 31, 1997
to $9,512,000 at June 30, 1998, primarily as a result of the loss from
operations incurred by the Registrant during the period.
Cash and cash equivalents decreased from $11,117,000 at December 31, 1997 to
$9,471,000 at June 30, 1998, primarily as a result of using cash for operating
activities (including costs associated with the abandoned acquisition attempt),
repayment of short-term borrowings during the period and the acquisition of drug
licenses in Spain. Included in cash and cash equivalents at June 30, 1998 are
approximately $9,109,000 of short-term investments considered to be cash
equivalents.
Accounts receivable decreased from $2,428,000 at December 31, 1997 to $2,218,000
at June 30, 1998 as a result of collection of receivables. The Registrant has
not experienced any material delinquent accounts. Inventories increased slightly
to $757,000 at June 30, 1998 compared to $714,000 at December 31, 1997. Prepaid
expenses and other current assets increased from $750,000 at December 31, 1997
to $1,244,000 at June 30, 1998, primarily as the result of issuance of stock
purchase warrants and prepayment of marketing costs in Spain. The value of the
warrants are being amortized over the life of the underlying contract for
services.
Although the combined total of accounts payable and accrued expenses increased
from $3,216,000 at December 31, 1997 to $3,677,000 at June 30, 1998, primarily
as a result of the costs incurred relating to the abandoned Schwarz Pharma
acquisition, short-term borrowings decreased from $1,140,000 at December 31,
1997 to $496,000 at June 30, 1998, as a result of lower outstanding balances on
lines of credit used for operating purposes in Spain, resulting in 4% lower
total current liabilities at June 30, 1998 than at December 31, 1997.
Fixed assets, net decreased from $2,918,000 at December 31, 1997 to $2,849,000
at June 30, 1998, due primarily to recurring depreciation charges.
Drug licenses and related costs, net increased from $691,000 at December 31,
1997 to $928,000 at June 30, 1998, primarily due to the purchase of drug
licenses in Spain, offset by recurring amortization charges.
Other non-current assets decreased from $2,425,000 at December 31, 1997 to
$1,778,000 at June 30, 1998, primarily due to the write-off of previously
capitalized acquisition costs specific to the abandoned Schwarz Pharma and other
related acquisitions and recurring amortization charges.
14
<PAGE>
Long term debt increased from $5,329,000 at December 31, 1997 to $5,381,000 at
June 30, 1998, due primarily to accretion recorded on the Debentures issued in
the Registrant's February 1996 public offering. Other non-current liabilities
increased from $110,000 at December 31, 1997 to $299,000 at June 30, 1998,
primarily as a result of recording an obligation to issue 62,000 shares of
Common Stock to a consulting firm for services rendered.
Investing activities, primarily the purchase of drug licenses in Spain, used net
cash of $162,000 during the six months ended June 30, 1998. Financing
activities, primarily repayment of short-term borrowings, for the six months
ended June 30, 1998 required net cash of $635,000 and operating activities
including the write off of pre-acquisition costs for the six months ended June
30, 1998 used net cash of $822,000.
A substantial amount of the Registrant's business is conducted in Europe and is
therefore affected by the extent to which there are fluctuations in the dollar's
value against other currencies. The effect of foreign currency fluctuations on
long lived assets for the six months ended June 30, 1998 was a decrease of
$24,000 and the cumulative historical effect was a decrease of $1,879,000, 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. However, the carrying value
of assets and reported values can be materially impacted by foreign currency
translation. The Registrant relies primarily upon financing activities to fund
the operations of the Registrant in the United States. In the event that the
Registrant is required to fund United States operations or cash needs 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.
Given the Registrant's current liquidity and significant cash balances and
considering its future strategic plans, the Registrant should have sufficient
liquidity to fund operations and further its immediate strategic objectives. 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.
The Registrant utilizes software and related technologies throughout its
business that will be affected by the "Year 2000 problem" which is common to
most businesses, and concerns the inability of information systems, primarily
computer software programs, to recognize and process date sensitive information
properly as the year 2000 approaches. An internal study is currently under way
to determine the full scope and related costs of the Year 2000 problem to ensure
that the Registrant's systems continue to meet its internal needs and those of
its customers. The Registrant currently believes it will be able to modify or
replace its affected systems in time to minimize any detrimental effects on
operations.
15
<PAGE>
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; dependence 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.
16
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
On June 24, 1998, the Circuit Court of the Thirteenth Judicial Circuit, State of
Florida, Hillsborough County Civil Division formally dismissed all claims that
had been asserted against the Registrant by Michael M. Harshbarger, a former
member of the Registrant's Board of Directors and its former President and Chief
Executive Officer. The Circuit Court Judge ordered Harshbarger's pleadings, in
which he was seeking alleged monetary damages in excess of $1,400,000, stricken
after Harshbarger failed to appear at a court ordered mediation conference on
May 14, 1998 and failed to appear at a court ordered Case Management Conference
on May 27, 1998. Harshbarger had also failed to appear at his deposition in
January 1998. Harshbarger originally filed suit in November 1993 alleging
wrongful termination. The Registrant has always viewed Harshbarger's claims as
meritless.
The Judge's order also set this matter for trial on August 24 through 26, 1998
for the purpose of trying the Registrant's counterclaims against Harshbarger,
which include charges of wrongful conversion and civil theft, fraud and deceit,
and breach of contract and seeking the return of corporate assets removed by
Harshbarger as well as for restitution related to expenses of a personal nature
that Harshbarger charged to the Registrant's accounts. The Registrant's amended
counterclaim includes breach of fiduciary duty and seeks damages from
Harshbarger in excess of $1,000,000.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Registrant was held on July 29, 1998
for the purpose of electing three directors. 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.
Nominee Term Expiring Shares Voted For Shares Voted Against
- ------- ------------- ---------------- --------------------
Charles L. Bolling 2001 8,035,911 50,931
Robert J. Gyurik 2001 8,035,911 50,931
Michael McGovern, J.D., C.P.A. 2000 8,035,911 50,931
Directors whose terms of office continued after the meeting are as follows:
Name Term Expiring
- ---- -------------
James R. Murphy 1999
Robert M. Stote 1999
Michael D. Price 2000
17
<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, 1998:
None.
The Registrant has not filed any reports on Form 8-K subsequent to
June 30, 1998.
All other items required in Part II have been previously filed or are not
applicable for the quarter ended June 30, 1998.
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
August 11, 1998 By: /s/ James R. Murphy
-------------------
James R. Murphy
Chairman, President and Chief Executive
Officer (principal executive officer)
August 11, 1998 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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