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, 1997
------------------
[ ] 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: 4,886,096 shares of Common
Stock, $0.001 par value as of December 1, 1997.
<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, 1997 (unaudited) and 3
January 31, 1997
Statements of Income for the Three and Nine Months Ended
October 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the Nine Months Ended October
31, 1997 and 1996 (unaudited) 5
Notes to Consolidated Interim Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
SIGNATURES 11
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,
ASSETS 1997 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,564,738 $ 3,793,582
Marketable securities 2,720,391 1,812,974
Accounts receivable 1,573,442 900,956
Inventory 1,545,926 1,339,081
Prepaid expenses & other current assets 365,554 403,571
............ ............
Total current assets 8,770,051 8,250,164
Property, plant, and equipment - net 975,798 912,949
Other assets 663,673 743,183
............ ............
TOTAL ASSETS $ 10,409,522 $ 9,906,296
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 734,172 $ 540,899
Notes payable to related parties 11,885 11,510
Income taxes payable 25,510 10,350
Deferred revenue 175,000 175,000
............ ............
Total current liabilities 946,567 737,759
Minority interest in subsidiaries 201,158 186,043
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; 4,886,096 shares issued and outstanding
at October 31, 1997 and 4,883,396 at January 31, 1997 4,886 4,883
Additional paid-in capital 3,602,004 3,586,145
Retained earnings 6,169,159 5,591,591
Cumulative translation adjustment (17,910) (17,615)
............ ............
9,758,139 9,165,004
Less: Treasury stock - 70,800 shares at cost at
October 31, 1997 and 10,000 shares at January 31, 1997 (496,342) (182,510)
............ ............
Stockholders' equity - net 9,261,797 8,982,494
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,409,522 $ 9,906,296
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Biospecifics Technologies Corp., and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Nine months ended
October 31, October
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 948,094 $ 1,098,056 $ 2,513,520 $ 3,098,717
Royalties 596,316 333,622 1,734,435 1,530,763
License fees -- -- -- 20,000
...........................................................
Total Revenues 1,544,410 1,431,678 4,247,955 4,649,480
-----------------------------------------------------------
Costs & Expenses:
Cost of sales 445,603 444,386 1,095,640 1,296,056
Selling, general and administrative 393,598 423,577 1,168,885 1,147,126
Research and development 501,734 322,137 1,417,243 1,084,724
...........................................................
Total Costs and Expenses 1,340,935 1,190,100 3,681,768 3,527,906
...........................................................
Income from operations 203,475 241,578 566,187 1,121,574
Other income (expense) - net
Investment & other income 107,551 118,998 271,278 190,502
Interest expense (1,493) (892) (2,793) (4,178)
...........................................................
Total other income - net 106,058 118,106 268,485 186,324
Income before provision for income taxes 309,533 359,684 834,672 1,307,898
Provision for income taxes (102,770) (110,140) (241,990) (466,350)
...........................................................
Income before minority interest 206,763 249,544 592,682 841,548
Minority interest in net income of subsidiaries 4,680 3,125 15,115 22,250
...........................................................
Net income $ 202,083 $ 246,419 $ 577,567 $ 819,298
===========================================================
NET INCOME PER COMMON SHARE $ 0.04 $ 0.05 $ 0.12 $ 0.17
===========================================================
Weighted average number of shares used in
computing net income per share: 4,895,000 4,930,000 4,906,000 4,930,000
===========================================================
</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,
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
----------------------------
<S> <C> <C>
Net income $ 577,567 $ 819,298
Adjustments to reconcile net income
to cash provided by/(used by) operating activities:
depreciation 140,575 142,907
(gain) loss on marketable securities - net (44,447) 12,623
minority interest in income of subsidiaries 15,115 22,250
issuance of stock options 4,500 30,000
Changes in operating assets & liabilities:
(increase) decrease in accounts receivable (672,486) 119,331
proceeds from sales of marketable securities 267,361 780,413
purchases of marketable securities (1,130,331) (455,579)
(increase) decrease in inventory (206,845) 36,796
decrease in prepaid and other current assets 38,017 76,803
decrease in other assets 79,510 51,536
(increase) decrease in accounts payable & accruals 193,273 (534,177)
increase in deferred revenues -- 45,000
increase (decrease) in cumulative translation adjustment (295) --
increase in income taxes payable 15,160 65,350
............................
Net cash provided by (used in) operating activities (723,326) 1,212,551
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant, property and equipment (203,421) (32,328)
............................
Net cash used in investing activities (203,421) (32,328)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from redemption of long term securities -- --
Proceeds from notes with related parties 375 705
Treasury stock purchases (313,832)
Exercise of stock options 11,360 --
............................
Net cash (used) provided by financing activities (302,097) 705
----------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,228,844) 1,180,928
CASH AND EQUIVALENTS:
Beginning of Period 3,793,582 2,288,316
............................
End of Period $ 2,564,738 $ 3,469,244
============================
SUPPLEMENTAL DISCLOSURE
Cash paid during period for interest $ 2,793 $ 4,179
============================
Cash paid during period for income taxes $ 152,820 $ 378,000
============================
</TABLE>
See accompanying notes to consolidated
financial statements
5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
OCTOBER 31, 1997
(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 most of its revenues through a license agreement
with a major US pharmaceutical company, Knoll Pharmaceutical Company ("KPC").
Since February 1, 1996, 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.
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, 1997, the statements of income for the three and nine
months ended October 31, 1997 and 1996, and statements of cash flows for the
three months ended October 31, 1997 and 1996. 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, 1997.
6
<PAGE>
3. NET INCOME PER COMMON SHARE - Net income per common share is based on net
income available to common stockholders divided by the weighted average number
of common shares and common stock equivalent shares outstanding, if dilutive,
during the period of presentation.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 128 "Earnings Per Share" ("SFAS No. 128") which is
effective for financial statements issued for periods ending after December 15,
1997. SFAS No. 128 requires the disclosure of basic and diluted earnings per
share. For the periods ended October 31, 1997 and 1996, the amount reported as
net income per common and common equivalent share is not materially different
than that which would have been reported for basic and diluted earnings per
share in accordance with SFAS No. 128.
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
- --------------------------------------------------------------------------------
Information provided by the Company or statements contained in this report or
made by its employees, if not historical, is forward looking information which
involve uncertainties and risk. 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 and approval by the FDA and foreign health authorities of potential
products, market acceptance of the Company's potential products, and other risks
detailed herein and in other filings the Company makes with the Securities and
Exchange Commission. Further, any forward looking statement or statements speak
only as of the date on which such statements were made, and the Company
undertakes no obligation to update any forward looking statement or statements
to reflect events or circumstances after the date on which such statement or
statements were made.
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, 1997.
7
<PAGE>
Three months ended October 31, 1997 and 1996
--------------------------------------------
NET SALES - Net sales for the three months ended October 31, 1997 and 1996 were
$948,094 and $1,098,056 respectively, representing a $149,962 or 14% decrease.
The decrease is due to the timing of sales of collagenase ABC to KPC, as well as
KPC's continual efforts to maintain as small an inventory as possible.
ROYALTIES - Royalties for the three months ended October 31, 1997 and 1996 were
$569,316 and $333,622 respectively, representing a $262,694 or 79% increase.
Besides a general increase in sales of Collagenase Santyl(R) in fiscal 1998
versus 1997, Collagenase Santyl(R) sales had declined during last year's quarter
ended October 31, 1996 due, in turn, to unusually high Collagenase Santyl(R)
sales in the quarter prior to that, ended July 31, 1996. The Company believes
that the fluctuations 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.
COST OF SALES - Cost of sales for the three months ended October 31, 1997 and
1996 were $445,603 and $444,386 respectively, representing an increase of
$1,219, due to higher depreciation costs and slight increases in salaries.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
("SG&A") expenses for the three months ended October 31, 1997 and 1996 were
$393,598 and $423,577 respectively, representing a $29,979 or 7% decrease. The
decrease was primarily due to lower professional fees incurred.
RESEARCH AND DEVELOPMENT - Research and development ("R&D") expenses for the
three months ended October 31, 1997 and 1996 were $501,734 and $322,137
respectively, representing a increase of $179,597 or 56%. The Company is
currently sponsoring Phase 2 clinical trials of injectable collagenase for
Dupuytren's and Peyronie's diseases, for which the FDA has granted Orphan Drug
status; keloids, and pre-clinical research of other uses of collagenase. The
Company is also sponsoring clinical trials of its collagenase in Europe, but to
a lesser financial extent.
OTHER INCOME - NET - Other income - net for the three months ended October 31,
1997 and 1996 was $106,058 and $118,106 respectively. The decrease of $12,048
was due primarily to a slightly less favorable investment environment during the
more current period.
PROVISION FOR INCOME TAXES - The provision for income taxes for the three months
ended October 31, 1997 and 1996 was $102,770 and $110,140 respectively, a
decrease of $7,370. The decrease was due to lower taxable profit in the current
period. The principal reason for the difference between the United States
Federal statutory tax rate of 34% and the Company's effective tax rate is due to
a 2% income tax rate applicable to earnings of the Company's primary production
facility in Curacao, partially offset by the additional provision required for
state income taxes where the Company's US subsidiary is domiciled.
8
<PAGE>
Nine months ended October 31, 1997 and 1996
-------------------------------------------
NET SALES - Net sales for the nine months ended October 31, 1997 and 1996 were
$2,513,520 and $3,098,717 respectively, representing a $585,197 or 19% decrease.
The decrease is due to KPC's continual efforts to reduce and maintain as small
an inventory as possible.
ROYALTIES - Royalties for the nine months ended October 31, 1997 and 1996 were
$1,734,435 and $1,530,763 respectively, representing a $203,672 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. There were no license fees earned during the
more current period.
COST OF SALES - Cost of sales for the nine months ended October 31, 1997 and
1996 were $1,095,640 and $1,296,056 respectively, representing a decrease of
$200,416 or 15% due to lower net sales of collagenase ABC as described above.
SELLING, GENERAL AND ADMINISTRATIVE - SG&A expenses for the nine months ended
October 31, 1997 and 1996 were $1,168,885 and $1,147,126 respectively,
representing a $21,759 or 2% increase. The slight increase was due to higher
professional fees and salaries incurred in the more recent nine months.
RESEARCH AND DEVELOPMENT - Research and development expenses for the nine months
ended October 31, 1997 and 1996 were $1,417,243 and $1,084,724 respectively,
representing an increase of $332,519 or 31%. The Company is currently developing
injectable collagenase treatments for two conditions for which FDA has granted
FDA Orphan Drug Status. During the current period, the Company completed Phase 1
and advanced to Phase 2 clinical trials of Cordase(TM) injectable collagenase
for Dupuytren's disease. The Company is also sponsoring a Phase 2 trial for
Peyronie's disease, Phase 1 trial for keloids, and pre-clinical research of
other uses of collagenase. The Company is also sponsoring clinical trials of its
collagenase in Europe, but to a much lesser financial extent.
OTHER INCOME - net - Other income - net for the nine months ended October 31,
1997 and 1996 was $268,485 and $186,324 respectively. The increase of $82,161
was due primarily to realized and unrealized gains on trading securities in the
more current period, due to a more favorable environment for fixed income
securities.
9
<PAGE>
PROVISION FOR INCOME TAXES - The provision for income taxes for the nine months
ended October 31, 1997 and 1996 was $241,990 and $466,350 respectively, a
decrease of $224,360. The decrease was due to lower taxable profit. The
principal reason for the difference between the United States Federal statutory
tax rate of 34% and the Company's effective tax rate is due to a 2% income tax
rate applicable to earnings of the Company's primary production facility in
Curacao, partially offset by 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, 1997, the
Company had working capital of approximately $8.0 million which includes cash
and cash equivalents and marketable securities of approximately $5.3 million.
As of October 31, 1997, the Company's cash balance declined by approximately
$1.2 million versus January 31, 1997. The principal uses of cash during the nine
months ended October 31, 1997 includes purchases of marketable securities, net
of sales, of approximately $863,000; the purchase of treasury stock
approximating $314,000; and expenditures of $203,000 for plant, property and
equipment. At October 31, 1997 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.
10
<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, 1997
----------------
By: /s/Edwin H. Wegman
------------------
Edwin H. Wegman
Chairman and President
Date: December 12, 1997
By: /s/Albert Horcher
-----------------
Albert Horcher
Treasurer, Principal Financial and
Chief Accounting Officer
11
<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, 1997, 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-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 2,564,738
<SECURITIES> 2,720,391
<RECEIVABLES> 1,573,442
<ALLOWANCES> 0
<INVENTORY> 1,545,926
<CURRENT-ASSETS> 8,770,051
<PP&E> 3,139,878
<DEPRECIATION> 2,164,080
<TOTAL-ASSETS> 10,409,522
<CURRENT-LIABILITIES> 946,567
<BONDS> 0
0
0
<COMMON> 4,886
<OTHER-SE> 9,771,163
<TOTAL-LIABILITY-AND-EQUITY> 10,409,522
<SALES> 4,247,955
<TOTAL-REVENUES> 4,247,955
<CGS> 1,095,640
<TOTAL-COSTS> 1,095,640
<OTHER-EXPENSES> 1,417,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,793
<INCOME-PRETAX> 834,672
<INCOME-TAX> 241,990
<INCOME-CONTINUING> 577,567
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577,567
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
