U.S. Securities and Exchange Commission
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: October 31, 1996
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
Commission File number: 0-19879
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BioSpecifics Technologies Corp.
-------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3054851
-------- ----------
(State of Incorporation) (IRS Employer I.D. Number)
35 Wilbur St.
Lynbrook, NY 11563
------------------
(Address of principal executive offices)
(516) 593-7000
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,883,396 shares of Common
--------------------------
Stock, $0.001 par value as of December 1, 1996.
- -----------------------------------------------
Page 1 of 12
<PAGE>
INDEX
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Page
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PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Financial Statements:
Balance Sheets as of October 31, 1996 (unaudited) and January 31, 1996 3
Statements of Operations for the Three and Nine Months Ended October
31, 1996 and 1995 (unaudited) 4
Statements of Cash Flows for the Nine Months Ended October 31, 1996
and 1995 (unaudited) 5
Notes to Consolidated Interim Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BioSpecifics Technologies Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
October 31, January 31,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,469,244 $ 2,288,316
Marketable securities 2,058,077 2,395,534
Accounts receivable 1,067,195 1,186,526
Inventory 1,398,971 1,435,767
Prepaid expenses & other current assets 263,813 340,616
----------- -----------
Total current assets 8,257,300 7,646,759
Property, plant, and equipment - net 870,504 981,082
Other assets 587,510 639,046
----------- -----------
TOTAL ASSETS $ 9,715,314 $ 9,266,887
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 459,401 $ 993,577
Notes payable to related parties 11,275 10,570
Income taxes payable 205,440 140,090
Deferred revenue 175,000 130,000
----------- -----------
Total current liabilities 851,116 1,274,237
Minority interest in subsidiaries 170,708 148,458
STOCKHOLDERS' EQUITY
Series A Preferred stock, $.50 par value; 700,000
shares authorized; none outstanding -- --
Common stock, $.001 par value; 10,000,000 shares
authorized; 4,883,396 shares issued and outstanding
at October 31, 1996 and January 31, 1996 4,883 4,883
Additional paid-in capital 3,586,145 3,556,145
Retained earnings 5,284,972 4,465,674
----------- -----------
8,876,000 8,026,702
Less: Treasury stock - 10,000 shares at cost (182,510) (182,510)
----------- -----------
Stockholders' equity - net 8,693,490 7,844,192
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,715,314 $ 9,266,887
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements.
3
<PAGE>
Biospecifics Technologies Corp., and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Nine months ended
October 31, October 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 1,098,056 $ 520,955 $ 3,098,717 $ 1,671,090
Royalties 333,622 506,372 1,530,763 1,351,600
License fees -- 75,000 20,000 75,000
----------- ----------- ----------- -----------
Total Revenues 1,431,678 1,102,327 4,649,480 3,097,690
----------- ----------- ----------- -----------
Costs & Expenses:
Cost of sales 444,386 187,405 1,296,056 774,892
Selling, general and administrative 423,577 346,572 1,147,126 1,175,887
Research and development 322,137 499,510 1,084,724 1,438,459
----------- ----------- ----------- -----------
Total Costs and Expenses 1,190,100 1,033,487 3,527,906 3,389,238
----------- ----------- ----------- -----------
Income (loss) from operations 241,578 68,840 1,121,574 (291,548)
Other income (expense) - net
Investment & other income 118,998 75,382 190,502 354,104
Interest expense (892) (5,276) (4,178) (13,221)
----------- ----------- ----------- -----------
Total other income - net 118,106 70,106 186,324 340,883
----------- ----------- ----------- -----------
Income before provision for income taxes 359,684 138,946 1,307,898 49,335
Provision for income taxes (110,140) (93,645) (466,350) (119,590)
----------- ----------- ----------- -----------
Income (loss) before minority interest 249,544 45,301 841,548 (70,255)
Minority interest in net income of subsidiaries 3,125 2,080 22,250 60
----------- ----------- ----------- -----------
Net income (loss) $ 246,419 $ 43,221 $ 819,298 ($ 70,315)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ .05 $ 0.01 $ 0.17 ($ 0.01)
=========== =========== =========== ===========
Weighted average number of shares used in
computing net income (loss) per share: 4,930,000 4,929,599 4,930,000 4,922,328
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements
4
<PAGE>
BioSpecifics Technologies Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Nine months ended
October 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 819,298 ($ 70,315)
Adjustments to reconcile net income (loss)
to cash provided by/(used by)
operating activities:
depreciation 142,907 154,800
(gain) loss on marketable securities - net 12,623 (115,992)
minority interest in income of subsidiaries 22,250 60
issuance of stock options 30,000 20,000
Changes in operating assets & liabilities:
decrease in accounts receivable 119,331 868,354
proceeds from sales of marketable securities 780,413 976,258
purchases of marketable securities (455,579) (942,260)
(increase) decrease in inventory 36,796 (165,625)
(increase) decrease in prepaid and other current assets 76,803 (200,320)
(increase) decrease in other assets 51,536 (217,822)
decrease in accounts payable & accruals (534,177) (128,639)
increase in deferred revenues 45,000 60,000
increase in income taxes payable 65,350 18,968
----------- -----------
Net cash provided by (used in) operating activities 1,212,551 257,467
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant, property and equipment (32,328) (50,703)
----------- -----------
Net cash (used in) investing activities (32,328) (50,703)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from redemption of long term securities -- 460,000
Proceeds from (payments of) notes with related parties 705 --
Exercise of stock options -- 6,150
----------- -----------
Net cash provided by financing activities 705 466,150
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,180,928 672,914
CASH AND EQUIVALENTS:
Beginning of Period 2,288,316 1,438,368
----------- -----------
End of Period $ 3,469,244 $ 2,111,282
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during period for interest $ 4,179 $ 13,178
=========== ===========
Cash paid during period for income taxes $ 378,000 $ 194,000
=========== ===========
</TABLE>
See accompanying notes to consolidated
financial statements
5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION - BioSpecifics
Technologies Corp. (the "Company") serves as a holding company for Advance
Biofactures Corporation (ABC-New York), Advance Biofactures of Curacao, N.V.
and subsidiaries (ABC-Curacao), and Biospecifics Pharma GmbH (Bio Pharma),
Germany, which was established in November 1995.
The Company, through its subsidiaries, engages in the business of producing and
licensing for sale by others a U.S. Food and Drug Administration ("FDA")
approved enzyme named Collagenase ABC, which is used principally as a topical
debridement treatment for dermal ulcers; and researching, developing and
clinically testing additional products derived from Collagenase ABC for
potential use as pharmaceuticals.
The Company currently derives substantially all of its revenues through a
license agreement with a major US pharmaceutical company, Knoll Pharmaceutical
Company ("KPC"). Since February 1, 1995, sales of Collagenase ABC have been
principally to KPC, which markets it as an ointment in the United States under
its trademarked name "Collagenase Santyl(R)". The license agreement with KPC
expires in 2003. In the event that KPC were to cancel the license agreement for
cause, which the Company believes is unlikely, the financial condition of the
Company would be materially adversely impacted unless the Company were to find
another licensee in the United States.
The Company has undertaken efforts to secure licensees outside the United
States. The Company has licensing agreements with foreign companies to market
collagenase, either as a topical product or an injectable, when permitted by
local governmental authorities. The Company sells Collagenase ABC to
pharmaceutical companies in Latin America and India, in relatively small
amounts.
6
<PAGE>
2. INTERIM FINANCIAL STATEMENTS - In the opinion of management, the accompanying
consolidated financial statements of the Company reflect all adjustments
necessary to present fairly, in all material respects, the Company's balance
sheet as of October 31, 1996, the results of operations for the three and nine
months ended October 31, 1996 and 1995, and cash flows for the nine months ended
October 31, 1996 and 1995. The results of operations for interim periods are not
necessarily indicative of the results to be expected for an entire fiscal year,
and the results for the current interim period are not necessarily indicative of
results to be expected in other interim periods. These interim financial
statements should be read in conjunction with the Company's Form 10-KSB for the
fiscal year ended January 31, 1996.
3. NET INCOME PER SHARE - Net Income per share is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding during the period. The dilutive effect of outstanding stock
options and warrants was included in the calculation for the three and nine
months ended October 31, 1996. Net loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
period. Options and warrants are not included in any period when the effect
would be anti-dilutive.
4. ACCOUNTING FOR STOCK BASED COMPENSATION - In October 1995, The Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS 123 also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. SFAS 123 encourages, but does not require, a fair value based
method of accounting for employee stock options or similar equity instruments.
Entities electing not to adopt a fair value method must make pro-forma
disclosures of net income and earnings per share as if a fair value based method
had been applied. SFAS 123 requires a fair value method for stock options or
similar equity instruments issued to non employees. SFAS 123 is effective for
fiscal year 1997. The Company does not expect that it will adopt a fair value
based method and therefore does not expect the adoption of SFAS 123 to have
material impact on its financial position or results of operations.
7
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
The Company cautions readers that important factors may affect the Company's
actual results and could cause such results to differ materially from
forward-looking statements made by or on behalf of the Company. Such factors
include, but are not limited to, changing market conditions, the impact of
competitive products and pricing, the timely development, approval by the FDA
and foreign health authorities, and market acceptance, of the Company's products
in development, the Company's dependence on KPC, and other risks detailed herein
and in other filings the Company makes with the Securities and Exchange
Commission.
The Company incorporates by reference the Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in its Form 10-KSB
for the fiscal year ended January 31, 1996.
Three months ended October 31, 1996 and 1995
--------------------------------------------
NET SALES - Net sales for the three months ended October 31, 1996 and 1995 were
$1,098,056 and $520,955 respectively, representing a $577,101 or 111% increase.
The increase was primarily due to higher sales of collagenase to KPC in the US
and to a lesser extent to a pharmaceutical company in Latin America.
ROYALTIES - Royalties for the three months ended October 31, 1996 and 1995 were
$333,622 and $506,372 respectively, representing a $172,750 or 34% decrease.
Sales of Collagenase Santyl(R) in the US declined during the quarter ended
October 31, 1996 due to unusually high Collagenase Santyl(R) sales in the prior
quarter, ended July 31, 1996, which the Company believes, resulted from advance
buying by KPC's customers in anticipation of a price increase in Collagenase
Santyl(R), as reported to the Company by KPC.
LICENSE FEES - The Company earned a license fee during the quarter ended October
31, 1995 due to a product distribution agreement with a European pharmaceutical
company. There were no license fees earned during the quarter ended October 31,
1996.
8
<PAGE>
COST OF SALES - Cost of sales for the three months ended October 31, 1996 and
1995 were $444,386 and $187,405 respectively, representing an increase of
$256,981 or 137%, due to higher net sales. Cost of sales in the 1995 period were
reduced by the waiver of an FDA fee which had been previously accrued.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
("SG&A") expenses for the three months ended October 31, 1996 and 1995 were
$423,577 and $346,572 respectively, representing a $77,005 or 22% increase. The
increase was due to higher professional fees incurred in the more recent
quarter, and the SG&A expenses of the Company's subsidiary Bio Pharma, which did
not exist during the second quarter of 1995.
RESEARCH AND DEVELOPMENT - Research and development ("R&D") expenses for the
three months ended October 31, 1996 and 1995 were $322,137 and $499,510
respectively, representing a decrease of $177,373 or 36%. The decrease was due
to completion of most R&D activities in Europe for Collagenase ABC and
Nucleolysin(R) in 1995. Most R&D expenses in the more recent period were
incurred in the United States, for clinical trials of injectable collagenase for
Peyronie's disease, keloids, and Dupuytren's contracture, and for pre-clinical
research of other uses of collagenase.
OTHER INCOME - NET - Other income - net for the three months ended October 31,
1996 and 1995 was $118,106 and $70,106 respectively. The increase of $48,000 was
due primarily to realized and unrealized gains on fixed income trading
securities in the 1996 period, due to declining interest rates during the
period.
PROVISION FOR INCOME TAXES - The provision for income taxes for the three months
ended October 31, 1996 and 1995 was $110,140 and $93,645 respectively, an
increase of $16,495. The increase was due to higher profitability of the
Company's Curacao, Netherlands Antilles subsidiary, primarily the result of
higher sales of collagenase. The principal reason for the difference between the
United States Federal statutory tax rate of 34% and the Company's effective tax
rate is the additional provision required for state income taxes where the
Company's US subsidiary is domiciled, offset by lower tax rates in Curacao.
9
<PAGE>
Nine months ended October 31, 1996 and 1995
-------------------------------------------
NET SALES - Net sales for the nine months ended October 31, 1996 and 1995 were
$3,098,717 and $1,671,090 respectively, representing a $1,427,627 or 85%
increase. The increase in net sales was primarily due to significantly higher
sales of collagenase to KPC in the first nine months of the October 31, 1996
fiscal period versus 1995. Net sales in the 1995 period were negatively impacted
by KPC's implementation of a "just in time" inventory policy which resulted in
lower purchases of collagenase. Also, the Company's Latin America and India
pharmaceutical customers purchased more collagenase in the 1996 period.
ROYALTIES - Royalties for the nine months ended October 31, 1996 and 1995 were
$1,530,763 and $1,351,600 respectively, representing a $179,163 or 13% increase,
due to higher sales of Collagenase Santyl(R) in the United States, as reported
to the Company by KPC.
LICENSE FEES - The Company earned part of the advance payment from a product
distribution license agreement with a German pharmaceutical company during the
nine months ended October 31, 1996. A portion of the advance payment relating to
this agreement was added to deferred revenues and will be earned as certain
milestones are reached. During the nine months ended October 31, 1995, the
Company earned a $75,000 license fee from a product distribution license
agreement with another licensee in Europe.
COST OF SALES - Cost of sales for the nine months ended October 31, 1996 and
1995 were $1,296,056 and $774,892 respectively, representing an increase of
$521,164 or 67% due to higher net sales as described above. Cost of sales in the
1995 period were reduced by the waiver of an FDA fee which had been previously
accrued.
SELLING, GENERAL AND ADMINISTRATIVE - SG&A expenses for the nine months ended
October 31, 1996 and 1995 were $1,147,126 and $1,175,887 respectively,
representing a $28,761 or 2% decrease. The decrease was due to lower
professional fees incurred in the more recent nine months, the effect of which
was partially offset by the SG&A expenses of the Company's subsidiary Bio
Pharma, which did not exist during the first nine months of 1995.
10
<PAGE>
RESEARCH AND DEVELOPMENT - Research and development expenses for the nine months
ended October 31, 1996 and 1995 were $1,084,724 and $1,438,459 respectively,
representing a decrease of $353,735 or 25%. The decrease was due to completion
of most R&D activities in Europe for Collagenase ABC and Nucleolysin(R) in 1995.
Most R&D expense in the more recent period was incurred in the United States,
for clinical trials of injectable collagenase for Peyronie's disease, keloids,
and Dupuytren's contracture, and for pre-clinical research of other uses of
collagenase.
OTHER INCOME - NET - Other income - net for the nine months ended October 31,
1996 and 1995 was $186,324 and $340,883 respectively. The decrease of $163,602
was due primarily to realized and unrealized gains on trading securities in the
1995 period. Gains were not as extensive in the more current nine months, nor
are they expected to be in the future.
PROVISION FOR INCOME TAXES - The provision for income taxes for the nine months
ended October 31, 1996 and 1995 was $466,350 and $119,590 respectively, an
increase of $346,760. The increase was due to profitability of the Company's
United States and Curacao subsidiaries, due to higher sales and royalties. The
principal reason for the difference between the United States Federal statutory
tax rate of 34% and the Company's effective tax rate is the additional provision
required for state income taxes where the Company's US subsidiary is domiciled.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
- ---------------------------------------------------------------
The Company's primary source of working capital is from operating activities,
including sales, royalties, and new license fees. As of October 31, 1996, the
Company had working capital of approximately $7.4 million which includes cash
and cash equivalents and marketable securities of approximately $5.5 million.
The principal source of cash during the nine months ended October 31, 1996 was
approximately $1.2 million from operating activities, which includes proceeds
from sales of investments, net of purchases, of approximately $324,800. At
October 31, 1996 the Company had no material commitments for capital
expenditures.
Although there can be no assurance, management believes that in view of the
Company's working capital position and anticipated positive cash flow from
operating activities, the Company has sufficient liquidity and capital resources
to meet its immediate operating needs. The Company believes that cash on hand
and cash from operations will be sufficient to meet the Company's cash needs on
an ongoing basis.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BioSpecifics Technologies Corp.
(The Registrant)
Date: December 12, 1996
-----------------
By:/s/Edwin H. Wegman
------------------
Edwin H. Wegman
Chairman and President
Date: December 12, 1996
-----------------
By:/s/Albert Horcher
-----------------
Albert Horcher
Controller, Principal Financial and
Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BIOSPECIFICS TECHNOLOGIES CORP. FOR THE NINE MONTHS
ENDED OCTOBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 3,469,244
<SECURITIES> 2,058,077
<RECEIVABLES> 1,067,195
<ALLOWANCES> 0
<INVENTORY> 1,398,971
<CURRENT-ASSETS> 8,257,300
<PP&E> 2,872,378
<DEPRECIATION> 2,001,874
<TOTAL-ASSETS> 9,715,314
<CURRENT-LIABILITIES> 851,116
<BONDS> 0
0
0
<COMMON> 4,883
<OTHER-SE> 8,871,117
<TOTAL-LIABILITY-AND-EQUITY> 9,715,314
<SALES> 4,629,480
<TOTAL-REVENUES> 4,649,480
<CGS> 1,296,056
<TOTAL-COSTS> 1,296,056
<OTHER-EXPENSES> 1,084,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,178
<INCOME-PRETAX> 1,307,898
<INCOME-TAX> 466,350
<INCOME-CONTINUING> 819,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 819,298
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
