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: July 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: 4,884,896 shares of Common
Stock, $0.001 par value as of September 1, 1997.
Page 1 0f 11
<PAGE>
INDEX
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Page
----
PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Financial Statements:
Balance Sheets as of July 31, 1997 (unaudited) and January 3
31, 1997
Statements of Income for the Three and Six Months Ended
July 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the Six Months Ended July 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 7
Part II - Other Information 10
SIGNATURES 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BioSpecifics Technologies Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
July 31, January 31,
ASSETS 1997 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,671,173 $ 3,793,582
Marketable securities 2,329,420 1,812,974
Accounts receivable 1,359,973 900,956
Inventory 1,524,820 1,339,081
Prepaid expenses & other current assets 452,113 403,571
............ ............
Total current assets 8,337,499 8,250,164
Property, plant, and equipment - net 1,010,970 912,949
Other assets 696,705 743,183
............ ............
TOTAL ASSETS $ 10,045,174 $ 9,906,296
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 516,822 $ 540,899
Notes payable to related parties 11,760 11,510
Income taxes payable 15,970 10,350
Deferred revenue 175,000 175,000
............ ............
Total current liabilities 719,552 737,759
Minority interest in subsidiaries 196,478 186,043
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; 4,883,396 shares issued and outstanding
at July 31, 1997 and January 31, 1997 4,883 4,883
Additional paid-in capital 3,586,145 3,586,145
Retained earnings 5,967,076 5,591,591
Cumulative translation adjustment (23,417) (17,615)
............ ............
9,534,687 9,165,004
Less: Treasury stock - 54,000 shares at cost at
July 31, 1997 and 10,000 shares at January 31, 1997 (405,543) (182,510)
............ ............
Stockholders' equity - net 9,129,144 8,982,494
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,045,174 $ 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 Six months ended
July 31, July 31,
1997 1996 1997 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $706,616 $1,150,458 $1,565,426 $2,000,661
Royalties 543,775 726,844 1,138,119 1,197,141
License fees -- 20,000 -- 20,000
.........................................................
Total Revenues 1,250,391 1,897,302 2,703,545 3,217,802
---------------------------------------------------------
Costs & Expenses:
Cost of sales 249,612 454,371 650,037 851,670
Selling, general and administrative 390,485 356,103 775,287 723,549
Research and development 491,552 404,111 915,509 762,587
.........................................................
Total Costs & Expenses 1,131,649 1,214,585 2,340,833 2,337,806
---------------------------------------------------------
Income from operations 118,742 682,717 362,712 879,996
Other income (expense)
Investment & other income 101,168 41,475 163,727 71,504
Interest expense (741) (1,322) (1,300) (3,286)
.........................................................
Total other income - net 100,427 40,153 162,427 68,218
---------------------------------------------------------
Income before provision for income taxes 219,169 722,870 525,139 948,214
Provision for income taxes (24,960) (272,560) (139,220) (356,210)
.........................................................
Income before minority interest 194,209 450,310 385,919 592,004
Less: minority interest in net income of subsidiaries 3,735 15,000 10,435 19,125
.........................................................
Net income $190,474 $435,310 $375,484 $572,879
=========================================================
Net income per common share $0.04 $0.09 $0.08 $0.12
========================================================
Weighted average number of shares used in
computing net income per share: 4,919,332 4,925,543 4,905,790 4,921,558
========================================================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
BioSpecifics Technologies Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
Six Months ended
July 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 375,484 $ 572,879
Adjustments to reconcile net income
to cash provided by/(used by) operating activities:
Depreciation 94,274 100,257
(Gain) loss on marketable securities - net (27,075) 53,230
Minority interest in income of subsidiaries 10,435 19,125
Changes in operating assets & liabilities:
Increase in accounts receivable (459,017) (25,731)
Proceeds from sales of marketable securities 10,890 749,421
Purchases of marketable securities (500,261) (294,825)
Increase in inventory (185,739) (83,453)
Increase in prepaid and other current assets (48,542) (35,121)
Decrease in other assets 46,478 42,532
Decrease in accounts payable & accruals (24,077) (455,565)
Increase in income taxes payable 5,620 138,210
Increase in due to related parties 250 470
Increase in cumulative translation adjustment (5,802) --
........... ...........
Net cash provided (used) by operating activities (707,082) 781,429
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant, property and equipment (192,294) (25,231)
........... ...........
Net cash used in investing activities (192,294) (25,231)
----------- -----------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Treasury stock purchases (223,033) --
........... ...........
Net cash used by financing activities (223,033) 0
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,122,409) 756,198
CASH AND EQUIVALENTS:
Beginning of Period 3,793,582 2,288,316
........... ...........
End of Period $ 2,671,173 $ 3,044,514
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during period for interest $ 1,300 $ 1,964
=========== ===========
Cash paid during period for income taxes $ 152,820 $ 248,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JULY 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 July 31, 1997, the statements of income for the three and
six months ended July 31, 1997 and 1996, and statements of cash flows for the
three months ended July 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 July 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.
Three months ended July 31, 1997 and 1996
-----------------------------------------
NET SALES - Net sales for the three months ended July 31, 1997 and 1996 were
$706,616 and $1,150,458 respectively, representing a $442,842 or 39% decrease.
The decrease was primarily due to lower sales of the Company's Collagenase ABC
enzyme product to KPC. Although there can be no assurance, the Company expects
higher sales of the product to KPC in the next fiscal quarter.
7
<PAGE>
ROYALTIES - Royalties for the three months ended July 31, 1997 and 1996 were
$543,775 and $726,844 respectively, representing a $183,069 or 25% decrease.
During the three months ended July 31, 1997, KPC announced a price increase for
Collagenase Santyl(R), effective the end of July 1996. KPC's customers responded
by buying record amounts during June and July 1996, in advance of the price
increase. In the subsequent 1996 quarter, sales declined. There was no price
increase announced in 1997, and sales of Collagenase Santyl(R) are more
consistent quarter to quarter, as reported to the Company by KPC.
LICENSE FEES - The Company earned a license fee during the quarter ended July
31, 1996 due to a product distribution agreement with a German pharmaceutical
company. There were no license fees earned during the quarter ended July 31,
1997 period.
COST OF SALES - Cost of sales for the three months ended July 31, 1997 and 1996
were $249,612 and $454,371 respectively, representing an decrease of $204,759 or
45%, due to lower net sales.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative
("SG&A") expenses for the three months ended July 31, 1997 and 1996 were
$390,485 and $356,103 respectively, representing an $34,382 or 10% increase. The
increase was primarily due to higher professional fees.
RESEARCH AND DEVELOPMENT - Research and development ("R&D") expenses for the
three months ended July 31, 1997 and 1996 were $491,552 and $404,111
respectively, representing an increase of $87,441 or 22%. The increase was due
to the costs associated with advancing clinical trials in the U.S., particularly
for Dupuytren's disease and Peyronie's disease. In Europe, clinical trials are
underway to support applications for marketing approval for various countries in
the European Union. The Company expects R&D expenses to equal or possibly exceed
the level incurred in the current quarter.
OTHER INCOME - NET - Other income - net for the three months ended July 31, 1997
and 1996 was $100,427 and $40,153 respectively. The increase of $60,274 was due
primarily to increasing value of fixed income securities held as trading
security investments by the Company, resulting from lower interest rates.
PROVISION FOR INCOME TAXES - The provision for income taxes for the three months
ended July 31, 1997 and 1996 was $24,960 and $272,560 respectively, a decrease
of $247,600. The decrease was due to lower profitability of the Company's United
States subsidiary, primarily as a result of lower net sales and royalty
revenues. 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.
8
<PAGE>
Six months ended July 31, 1997 and 1996
---------------------------------------
NET SALES - Net sales for the six months ended July 31, 1997 and 1996 were
$1,565,426 and $2,000,661 respectively, representing a $435,235 or 22% decrease.
The decrease in net sales was primarily due to lower sales of the Company's
Collagenase ABC enzyme product to KPC. Although there can be no assurance, the
Company expects higher sales of the product to KPC in the next fiscal quarter.
ROYALTIES - Royalties for the six months ended July 31, 1997 and 1996 were
$1,138,119 and $1,197,141 respectively, representing a $59,022 or 5% decrease,
due to lower sales of Collagenase Santyl(R) in the United States, as reported to
the Company by KPC, for reasons explained above.
LICENSE FEES - The Company earned a license fee during the six months ended July
31, 1996 due to a product distribution agreement with a German pharmaceutical
company. There were no license fees earned in the six month period ended July
31, 1997.
COST OF SALES - Cost of sales for the six months ended July 31, 1997 and 1996
were $650,037 and $851,670 respectively, representing a decrease of $201,633 or
24% due to lower net sales as described above.
SELLING, GENERAL AND ADMINISTRATIVE - SG&A expenses for the six months ended
July 31, 1997 and 1996 were $775,287 and $723,549 respectively, representing a
$51,738 or 7% increase. The increase was due primarily to higher professional
fees incurred in the more recent six months.
RESEARCH AND DEVELOPMENT - R&D expenses for the six months ended July 31, 1997
and 1996 were $915,509 and $762,587 respectively, representing an increase of
$152,922 or 20%. The increase was due to the costs associated with advancing
clinical trials in the U.S., particularly for Dupuytren's disease and Peyronie's
disease. The Company expects R&D expenses to equal or possibly exceed the level
incurred in the current six month period.
OTHER INCOME - NET - Other income - net for the six months ended July 31, 1997
and 1996 was $162,427 and $68,218 respectively. The increase of $94,209 was due
primarily to the increasing value of fixed income securities held as trading
security investments by the Company, resulting from lower interest rates.
9
<PAGE>
PROVISION FOR INCOME TAXES - The provision for income taxes for the six months
ended July 31, 1997 and 1996 was $139,220 and $356,210 respectively, a decrease
of $216,990. The decrease was due to lower profitability of the Company's United
States subsidiary, primarily as a result of lower net sales and royalty
revenues, explained previously. 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.
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 July 31, 1997, the
Company had working capital of approximately $7,617,000 which included cash and
cash equivalents and marketable securities of approximately $5,000,000. The
principal use of cash during the six months ended July 31, 1996 was
approximately $707,000 for operating activities, expenditures for plant,
property and equipment of approximately $192,300 and repurchases of Company
stock of approximately $233,000. At July 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 for the foreseeable future.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a.) The annual meeting of stockholders was held July 16, 1997. The purpose of
the meeting was to elect two directors of the Company and approve the Company's
1997 Stock Option Plan.
(b.) The directors elected at the stockholders' meeting were Thomas L. Wegman
and Paul A. Gitman, MD., whose terms expire in 2000. The other directors whose
terms of office as director continued after the meeting are Henry Morgan and
Sherman Vogel, whose terms of office expire in 1998, and Edwin H. Wegman and
Rainer Friedel, MD., whose terms of office expire in 1999.
The Company's 1997 Stock Option plan was approved by a vote of the stockholders.
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.
(Registrant)
Date: September 12, 1997
By: /s/Edwin H. Wegman
-------------------
Edwin H. Wegman
Chairman and President
Date: September 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 SIX MONTHS ENDED
JULY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 2,671,173
<SECURITIES> 2,329,420
<RECEIVABLES> 1,359,973
<ALLOWANCES> 0
<INVENTORY> 1,524,820
<CURRENT-ASSETS> 8,337,499
<PP&E> 3,128,751
<DEPRECIATION> 2,117,781
<TOTAL-ASSETS> 10,045,174
<CURRENT-LIABILITIES> 719,552
<BONDS> 0
0
0
<COMMON> 4,883
<OTHER-SE> 9,553,221
<TOTAL-LIABILITY-AND-EQUITY> 10,045,174
<SALES> 2,703,545
<TOTAL-REVENUES> 2,703,545
<CGS> 650,037
<TOTAL-COSTS> 650,037
<OTHER-EXPENSES> 915,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,300
<INCOME-PRETAX> 525,139
<INCOME-TAX> 139,220
<INCOME-CONTINUING> 375,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375,484
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
