SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED
EFFECTIVE OCTOBER 7, 1996.]
For the fiscal year ended January 31, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to __________________
Commission file number 0-19879
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BIOSPECIFICS TECHNOLOGIES CORP.
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(Exact name of small business in its charter)
Delaware 11-3054851
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
35 Wilbur Street, Lynbrook, New York 11563
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (516) 593-7000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
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Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $5,875,000. The
aggregate market value of common voting stock held by non-affiliates of the
Issuer was approximately $8,704,000 computed by reference to the last sale price
at which the stock was sold on March 31, 1997 as reported by Nasdaq. As of April
21, 1997, 4,883,396 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III by Items 9, 10, 11, and 12 is
incorporated by reference to the Registrant's proxy statement in connection with
the annual meeting of shareholders to be held on July 16, 1997, which will be
filed by the Registrant within 120 days after the close of its fiscal year.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company* engages in the business of producing and licensing
for sale by others a U.S. Food and Drug Administration ("FDA") approved
fermentation derived enzyme named Collagenase ABC, and researching, developing
and clinically testing additional products derived therefrom for potential use
as pharmaceuticals. The Company currently derives substantially all of its
revenues through a licensing agreement with a major pharmaceutical company. The
Company also has licensing agreements with other companies which will attempt to
market the product internationally when permitted by local governmental
authorities.
COLLAGENASE ABC
Description of Product
- ----------------------
The Company's principal drug product is an enzyme, Collagenase
ABC, that dissolves collagen (the body's principal connective tissue). The drug
is licensed by the FDA and currently used principally as a topical enzymatic
debridement treatment for dermal (i.e. skin) ulcers, such as pressure ulcers
(i.e. "bed sores"), and second and third degree burns. Since 1972, the Company
has marketed Collagenase ABC for distribution and sale throughout many
countries, principally through contracts with two major international
pharmaceutical companies, Knoll Pharmaceutical Company ("KPC") and Knoll AG
("KAG"), a German company affiliated with KPC.
The Company has special expertise in the production of
collagenase. The ability to remove the collagen that anchors necrotic (i.e. dead
or damaged) tissue to a wound is an important part of the healing process
associated with infected wounds, dermal ulcers, second and third degree burns,
and other conditions which produce dermal lesions (i.e., injuries to the skin)
in order to provide a healthy base for the growth of new tissue. In general,
necrotic tissue must either be removed surgically, or by enzyme, or by the much
slower natural process before proper healing can take place. The Company's
primary activities involve the sale of collagenase, its only commercial product,
and research and development of additional uses for collagenase.
Agreements for the Distribution of Collagenase ABC
- --------------------------------------------------
Currently, the Company does not directly market or sell
Collagenase ABC. It supplies Collagenase ABC to other companies that market and
sell the product. Pursuant to an agreement with KPC initially entered into in
1972 and supplemented several times thereafter, the Company supplies KPC with
Collagenase ABC in powder form, and controls the production of an ointment
containing the powder. KPC has marketed and sold the ointment under KPC's
registered trademark, Collagenase Santyl(R) in the United States since 1972, and
in Canada since 1994.
________________________________________________________________________________
* As used in this Report on Form 10-KSB, the terms "Company" and "Registrant"
are used interchangeably and denote BioSpecifics Technologies Corp., a holding
company for three related entities, Advance Biofactures Corp. ("ABC-NY"),
Advance Biofactures of Curacao, N.V. ("ABC-Curacao"), and Biospecifics Pharma
GmbH ("Bio Pharma"). The Company owns approximately 97.2% of the capital stock
of each of ABC-NY and ABC-Curacao, and 100% of Bio Pharma. Unless the context
indicates otherwise, references to the Company and the Registrant includes these
entities.
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The Company entered into a 10 year agreement with KPC ("KPC
Agreement") which runs through 2003 and automatically renews for another 10 year
period unless KPC notifies the Company of its intention to terminate at least 6
months prior to the renewal date. The KPC Agreement provides that KPC is the
Company's exclusive licensee to sell Collagenase ABC in the United States and
Canada so long as KPC shows a reasonable annual increase in sales and uses its
best efforts to increase sales. If sales for any year are level or fall below
that of the previous year's sales and if for the following 12 month period sales
levels are not reasonably increased, the Company may change the license granted
to KPC from an exclusive license to a non-exclusive license. KPC pays the
Company an annual royalty based upon KPC's net sales of Collagenase Santyl(R) in
increasing percentages as annual net sales reach certain amounts. Royalties for
fiscal 1997 and 1996 totaled approximately $2,069,000 and $1,845,000,
respectively. KPC pays the Company for the active Collagenase ABC ingredient
that the Company supplies, at a price that is subject to adjustment based upon
increases in the Company's actual manufacturing costs, not to exceed increases
in the consumer price index for certain items. As part of the KPC Agreement, KPC
and its U.S. affiliates have agreed not to seek or become a party to any license
or other agreement for the production or purchase of collagenase powder or
collagenase ointment from any source other than the Company, and will make no
efforts to achieve registration with the FDA for collagenase powder manufactured
by parties other than the Company, and will not collaborate with any third party
attempting to achieve such registration.
The Company also had an agreement with KAG, pursuant to which the
Company supplied KAG with Collagenase ABC in powder form which KAG sold in
ointment form in other countries under KAG's trademarked name, "Iruxol(R)." The
contract expired on December 31, 1992, although the Company continued to sell
collagenase ABC to KAG into fiscal 1994. KAG manufactures its own form of
collagenase ointment which it markets under its trademark outside the U.S.,
since it is not FDA approved for sale in the U.S.
KPC accounted for approximately $5,480,000 and $4,105,000 in
sales and royalties of the Company for the fiscal years ended January 31, 1997
and 1996, respectively. These amounts were approximately 93% and 92% of the
Company's revenues during the respective fiscal years. As of January 31, 1997,
the Company had approximately $1,000,000 of firm booked orders with KPC,
compared to approximately $1,700,000 of firm booked orders with KPC as of
January 31, 1996. The Company also sells Collagenase ABC to commercial customers
in two countries not covered by the agreements with KPC and also sells the
product, as well as purified collagenase, for research purposes.
In July 1996, the Company entered into an agreement to license
Collagenase ABC for sale in Germany to the German subsidiary of an international
pharmaceutical company. The agreement calls for an initial payment on signing
and further payments if and when marketing approval of Collagenase ABC ointment
is granted by the German health authority. During fiscal 1997, the Company
recognized $20,000 in license fees and deferred revenue of $40,000 from this
agreement. The Company's German subsidiary (see "Marketing") has submitted
collagenase ointment to the German health authority for marketing approval,
which decision is pending.
In June 1994, the Company entered into a multi-year license with
an Italian pharmaceutical company which has agreed to market Collagenase ABC in
Italy subject to the receipt of requisite Italian governmental approval. The
licensee has agreed to purchase Collagenase ABC in agreed minimum amounts
increasing in each of the three years following such approval. For the fiscal
years ended January 31, 1997 and 1996, the Company recognized no revenues from
this contract.
In July 1994, the Company entered into a license and supply
agreement with a Swiss pharmaceutical company to market Collagenase ABC in
several Middle Eastern and two European countries. The agreement runs for ten
years from first market introduction of the product in each country. In the
fiscal year ended January 31, 1996, the Company recognized $75,000 as non
refundable license fees from this agreement.
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The Company commenced marketing collagenase ointment in India
during 1995 through a licensee. The licensee purchased relatively small amounts
of Collagenase ABC during fiscal 1997 and 1996.
The Company completed preliminary clinical trials of Collagenase
ABC in Great Britain and is seeking a licensee for that region. The Company
continues to seek, where business conditions warrant, new licensees to market
Collagenase ABC in parts of the world not yet licensed.
PROPOSED PRODUCTS AND USES FOR PRODUCTS
Injectable Purified Collagenase ABC and Nucleolysin(R)
The Company has developed a non-patented proprietary process to
further purify Collagenase ABC. The Company has investigated using this purified
form of collagenase as an injectable to remove collagen tissue which interferes
with normal bodily functioning or is unsightly. The Company is clinically
testing in the U.S. injectable purified collagenase for treatment of Peyronie's
disease, Dupuytren's disease, and keloids. See "Investigational New Drug
Applications for Purified Collagenase ABC", below. The Company produces purified
collagenase at its facilities in Curacao and New York.
The Company has clinically tested in the U.S. and Europe the use
of injectable purified Collagenase ABC for the non-surgical treatment of
herniated spinal discs, for which the Company has been granted the registered
trademark Nucleolysin(R). The Company distributes Nucleolysin(R) to physicians
in the Netherlands Antilles and sells purified collagenase for non-human
research in the United States and other countries. The Company has not received
approval to sell Nucleolysin(R) from the FDA or a similar agency in any country
other than the Netherlands Antilles.
The Company has completed Phase 1 trials of Nucleolysin(R) in the
United States. Pending approval overseas, the Company is not planning further
clinical trials in the U.S. of Nucleolysin(R) for the treatment of herniated
spinal discs.
Agreements to Distribute Nucleolysin(R)
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In 1990, the Company entered into an agreement with an
unaffiliated Swiss company, pursuant to which such company had three years
(subject to a six month extension) to obtain the approval of the appropriate
agencies in Italy and Switzerland to market Nucleolysin(R) in such countries for
a period of 12 years from the date of its first commercial sale, subject to
automatic yearly renewals unless either party provides notice of non-renewal. In
May 1993, the Company and the licensee amended the agreement to provide for a
period of three years from their application to obtain the approvals for use of
Nucleolysin(R) for the treatment of herniated spinal discs. In consideration, in
addition to an advance payment of $50,000 previously received, the Company will
be paid a total of $210,000 at certain milestone dates. To date, the licensee
has paid $130,000 relating to the extension, which has been recorded as deferred
revenue. The advances are subject to certain credits and/or refund if the
Italian approval is not obtained, depending on the reasons therefor. The
licensee completed the equivalent of Phase 3 clinical trials in an unaffiliated
foreign clinic. The results of these trials and related data have been submitted
by the licensee to the Italian and other governments of the European Union
("EU").
In late 1994, the Company, through an agent, filed a new drug
application for final review and marketing approval of Nucleolysin(R) in
Germany. Comments from the German health authorities are pending.
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Investigational New Drug Applications ("INDs")for Purified Collagenase ABC
- --------------------------------------------------------------------------
The Company and its affiliates have received INDs from the FDA
and is in the pre-clinical and clinical testing process for additional products
using purified Collagenase ABC. The INDs permit the Company to test the drugs on
humans. None of these products has completed testing.
Peyronie's Disease
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The Company is developing a product for the treatment of Peyronie's
disease, a condition in which collagen plaques form on the shaft of the penis
and interfere with erection and sexual intercourse. Initial tests on
approximately 200 men have shown favorable results in dissolving the plaques by
injecting purified collagenase directly into such plaques. The Company has been
assigned a U.S. patent for this use and received "orphan drug" designation
status from the FDA in March 1996. The favorable findings of a Phase 2
double-blind clinical investigation appeared in the January 1993 Journal of
Urology of the American Urological Association and its use was also reported on
favorably at The International Conference on Peyronie's disease held in March
1993 at the National Institutes of Health in Bethesda, Maryland. The Company
believes that no other effective pharmaceutical treatment for this condition
exists in the present market. The Company is sponsoring a multi-center Phase 2
trial which began in early 1996.
Keloids
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In another use, high doses of purified collagenase has been
injected directly into keloids and hypertrophic scars. A keloid is a sharply
elevated, irregularly shaped, and progressively enlarging scar due to the
formation of excessive amounts of collagen during connective tissue repair.
Approximately 40 persons have been treated for this condition, with encouraging
results. The Company has been assigned a U.S. patent for this application of
purified collagenase. The Company is currently sponsoring a Phase 1 trial for
keloids at the University Hospital of the Albert Einstein School of Medicine. In
February 1997, positive preliminary results from the ongoing Phase 1 study were
reported at the annual International Burn Foundation Conference on advances in
wound healing, burn care, and infection control. In initial trials for both
keloids and Peyronie's disease, the Company has used very high doses of
injectable purified Collagenase ABC, at levels up to 100 times the
Nucleolysin(R) dosage used for herniated spinal discs. The Company is not aware
of any significant side effects or allergic reactions to these higher dosages,
even when the doses were administered over a period of several months.
Dupuytren's Disease
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Pre-clinical studies of the use of purified collagenase for the treatment
of Dupuytren's disease were conducted at State University at Stony Brook (NY)
School of Medicine and Sahlgren Hospital of the University of Goteborg, Sweden.
Dupuytren's disease is a deforming condition of the hand in which one or more
fingers, usually the ring and pinkie fingers, contract toward the palm, often
resulting in functional disability. The Company is currently collaborating with
clinicians at State University at Stony Brook School of Medicine in conducting
Phase 1 trials for this indication. The Company was granted a U.S. patent for
the use of its collagenase enzyme to treat this condition in February 1997. The
use of collagenase for the treatment of Dupuytren's disease has received "orphan
drug" designation from the FDA. The Company considers the preliminary Phase 1
clinical results to be very encouraging.
OTHER PROPOSED PRODUCTS AND USES FOR PRODUCTS
Treatment of Burns
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Collagenase Santyl(R) has received FDA approval for the treatment
of burns. A pilot study was conducted which compared the efficacy of Collagenase
Santyl(R) to standard treatment for deep second degree burns. The positive
results of this study were published in the Journal of the American Burn
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Association (January/February 1994 issue). Based on the successful results, a
multi-center study was conducted in which eight medical centers specializing in
the treatment of burns participated. The study, which involved 79 patients,
showed collagenase treatment resulted in faster cleaning and healing than deep
second degree burn wounds receiving the standard treatment. The study was
reported in the May/June 1995 issue of the Journal of the American Burn
Association and in the November/December 1995 issue of Wounds. A number of
favorable presentations were made on the effectiveness of Collagenase Santyl(R)
for burn treatment during the March 1996 annual meeting of the American Burn
Association in Nashville, TN. The February 1997 meeting of the International
Burn Foundation included positive presentations made by physicians who use
Collagenase Santyl(R) ointment for burns and ulcers.
Collagenase for Wound Healing
- -----------------------------
In vitro studies conducted at Tufts University Medical School
showed that collagenase treatment of skin cells significantly enhances cell
growth and migration after injury. An article relating to this development was
published in the March/April 1996 issue of Wounds. On the basis of these
findings, the Company plans to initiate Phase 1 trials on wound healing in the
latter part of 1997.
Treatment of the Eye
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The Company is exploring the possible use of purified injectable
Collagenase ABC for the treatment of opaque scar tissue in the vitreous humor of
the eye. The Company believes that such use will dissolve or loosen the scar
tissue in a short time. Accordingly, its use may assist in the surgical removal
of scar tissue without tearing the retina to which the tissue is attached. If
effective, this use will be beneficial in the treatment of blindness resulting
from diabetes and certain other causes. To date approximately 20 persons have
been treated with this product on an experimental basis. The Company has been
assigned a U.S. patent for this application. Other ophthalmic applications,
particularly for glaucoma, are being actively explored.
PRODUCT LIABILITY
The sale of Collagenase ABC, as well as the marketing of any
additional products of the Company, expose the Company to potential product
liability claims both directly from patients using the product as well as from
the Company's agreement to indemnify certain distributors of the products for
claims made against such distributors. The Company has product liability
insurance for the use of Collagenase Santyl(R) and clinical experiments in the
United States for its additional product candidates. To date, no product
liability claims have been made against the Company.
COMPETITION
The pharmaceutical industry is characterized by rapidly evolving
technology and intense competition. Many companies of all sizes, including major
pharmaceutical companies and specialized biotechnology companies, are engaged in
activities similar to those of the Company. Many of the Company's competitors
have substantially greater financial and other resources, larger research and
development staffs, and significantly greater experience in regulatory approval
procedures. The Company does not have comparable resources and does not intend
to compete with major pharmaceutical companies in drug marketing except in
possible niche marketing for one or more of the products if feasible.
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The Company's debriding product, Collagenase Santyl(R), competes
primarily with other available enzymatic debridement products in the United
States. Those currently available are manufactured by the Parke-Davis division
of the Warner-Lambert Company, the Dow B. Hickam division of Marion Labs,
Healthpoint Medical, and Rystan. A potential debridement agent is known to be
under development by Genzyme Tissue Repair Division, and other large drug
companies may also have debridement products under development. Debriding
products also compete with surgical debridement and mechanical debridement using
hydrotherapy. Surgical and mechanical debridement procedures are painful, labor
intensive and remove viable tissue along with necrotic tissue.
In December 1994, the Federal Agency for Health Care Policy and
Research ("AHCPR") issued Clinical Practice Guideline Number 15 entitled
"Treatment of Pressure Ulcers". Collagenase is the only product suggested for
enzymatic treatment of pressure ulcers by the guideline. Unlike the other
available enzymatic debriding products, the Company's is collagen specific.
Approximately 75% of skin is collagen, making this enzyme particularly
appropriate for the debridement of necrotic tissue.
The Company, through its non-U.S. licensees for topical
collagenase, will compete with KAG in Europe if and when the licensees receive
marketing and pricing approval from their respective health agencies. See
"Agreements for the Distribution of Collagenase ABC".
Colleges, universities, governmental agencies and other public
and private research organizations continue to conduct research and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for use of technology that they have developed, some of which may be
directly competitive with that of the Company. The Company expects competition
to intensify as technological advances occur in the area of the development of
pharmaceutical products of biologic origin.
KAG, which formerly marketed Collagenase ABC, currently markets
Chymopapain(R) for the treatment of herniated disks, through its acquisition of
The Boots Company (USA). This drug will compete with Nucleolysin(R) (if and when
Nucleolysin(R) is approved for sale).
The Company believes that it can compete effectively through its licensing
agreements for Collagenase ABC. The Company believes that licensing is a more
effective strategy than directly marketing this product.
MARKETING
The Company does not have its own sales staff and instead relies upon its
licensees who have recognition and acceptance in the marketplace. By licensing
those companies which already have a strong marketing and sales force dedicated
to specialties, the Company has a very limited cost of selling, while the
licensee enhances the efficacy of its sales and marketing staff by adding
additional products. In the United States, the Company is gaining recognition as
the manufacturer of Collagenase Santyl(R) as its subsidiary's name is required
to appear on the end-use package sold by KPC.
The EU is now the largest pharmaceutical market in the world. The
Company is actively seeking approval to enter this market through its European
licensees. The Company believes that its contacts and licenses with a number of
European companies will be of substantial assistance to it in this regard,
although there is no assurance that the Company can make any substantial
penetration, or that its licensees will be successful in obtaining product
approvals.
In November 1995, the Company established a German subsidiary,
Biospecifics Pharma GmbH. Its purpose is to identify additional licensees,
assist the Company in achieving the clinical and scientific data necessary to
obtain product approvals in the EU, and assist licensees in registration of
products. See "Employees".
The Company may decide to market certain products under development,
particularly if the market is well defined and the number of specialists who
address the targeted indication is small.
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RESEARCH AND DEVELOPMENT
Since inception (1957 and 1976 for the New York and Curacao
subsidiaries, respectively), the Company has expended over $16.5 million in
research on collagenase and other products, and it is continuing to conduct
testing on such products. The Company incurred approximately $1,520,000 and
$1,835,000 in research and development activities during its fiscal years ended
January 31, 1997 and 1996, respectively.
GOVERNMENT REGULATION
Regulation in the United States
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All pharmaceutical manufacturers in the U.S. are subject to
extensive regulation by the federal government, principally the FDA, and, to a
lesser extent, by state governments. The Federal Food, Drug, and Cosmetic Act,
the Public Health Service Act, and other federal statutes and regulations govern
or influence the testing, approval, manufacture, safety, labeling, storage,
record keeping, advertising, promotion, sale and distribution of products.
Non-compliance with applicable requirements can result in fines, recall or
seizure of products, total or partial suspension of production and/or
distribution, refusal of the government to enter into supply contracts or to
approve new drug applications, and criminal prosecution. The FDA also has the
authority to revoke drug approvals previously granted.
The Company's products in development will require regulatory
clearance prior to commercialization. The nature and extent of regulation may
differ with respect to different products. In order to test, produce and market
certain therapeutic products in the United States, mandatory procedures and
safety standards, approval processes, and manufacturing and marketing practices
established by the FDA must be satisfied. Obtaining FDA approval has
historically been a costly and time-consuming process.
The Company is also licensed by, registered with, and subject to
periodic inspection and regulation by, the U.S. Department of Agriculture, the
New York State Department of Health and the New York State Board of Pharmacy,
pursuant to federal and state legislation relating to drugs and narcotics.
The Company's manufacturing facilities in New York and Curacao
are registered with, and licensed by, the FDA.
Foreign Regulation of Pharmaceutical Products
- ---------------------------------------------
The marketing of pharmaceutical products outside the United
States is subject to the regulatory requirements of the country in which the
product is marketed. Although these requirements may vary widely from country to
country, the international trend toward "harmonization" of regulations may
expedite local health agency approvals. Approval in foreign countries is
required regardless of whether FDA approval has been obtained in the United
States. Nevertheless the time required to obtain such approval may be longer or
shorter than required to obtain FDA approval, and there can be no guarantees
that such approvals will be granted.
ABC-Curacao produces the pharmaceutical substance "Collagenase
ABC (Sterile)" for incorporation into ointment. As this product is not a
pharmaceutical end product, it need not be officially registered with the Bureau
of Pharmaceutical Affairs of the Netherlands Antilles (the "Pharmaceutical
Bureau"). However, the manufacturing plant in which the product is produced and
the manufacturing process are subject to inspection by the Pharmaceutical Bureau
under the laws and regulations of the Netherlands Antilles.
The manufacturing plant of the Company's Curacao subsidiary
producing Nucleolysin(R) and the manufacturing process of Nucleolysin(R) are
subject to inspection by the Pharmaceutical Bureau. According to a certificate
of the Director of the Bureau dated March 7, 1991, such subsidiary conforms to
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requirements for good practices in the manufacture and quality control in
accordance with the pharmaceutical laws and regulations of the Netherlands
Antilles and as recommended by the World Health Organization, with respect to
products to be sold or distributed within the country of origin or to be
exported, and Nucleolysin(R) may be placed on the market for use in the
Netherlands Antilles. Further, such subsidiary has a license for the preparation
of medicine and the wholesale supply of medicine it prepares. This license was
issued by the Minister of Public Health and Environmental Hygiene in 1983 and
remains in effect until canceled or unless not used for an uninterrupted period
of 24 months.
PATENT AND TRADEMARK PROTECTION
Patents
- -------
The Company is the assignee or licensee of eleven U.S. patents.
The patents expire 17 years from the date of grant. The Company is not able to
ascertain whether these patents will provide it with any value either prior to
their expirations or at any time thereafter. The Company is the assignee of
additional U.S. patent rights that have expired as well as certain foreign
patent rights corresponding to some of the foregoing patents. The Company has
other patents under active preparation for filing. There can be no assurances
when, if ever, such patents will be issued, or that such patents, if issued,
will be of any value to the Company. The Company is obligated to engage in
research and development of certain products or uses underlying the patent
rights licensed or assigned to it.
Trademarks
- ----------
The Company has registered the name, Nucleolysin(R), as a
trademark in the United States and in other countries. The trademark
registration extends until 2001 in the United States. The Company has also
registered the name Salutyl(R) for its collagenase ointment in a number of
countries other than the United States. Trademarks for other countries are
protected for varying periods of time.
EMPLOYEES
The Company has 35 full-time employees, of which 7 are located in
Curacao, 1 in Germany, and 8 part-time employees. None of such employees is
represented by a union. The Company considers its relationship with its
employees to be excellent.
The Company has entered into confidentiality agreements with most
of its employees, other than its executive officers. Pursuant to such
agreements, each employee in New York agrees to keep all of the Company's
proprietary and other information secret and confidential and to return the same
to the Company upon termination. These employees further agree not to divulge
any trade secrets during their respective terms of employment and thereafter
without the Company's prior written consent and further to assign to the Company
all inventions, discoveries, and improvements which they make during the term of
employment, within one year thereafter, or utilizing any of the Company's trade
secrets. The agreement executed by Curacao employees provides that they will not
divulge any data connected with the production process in Curacao. There can be
no assurance that any particular court would enforce any or all of the terms of
any of such agreements.
The Company's new subsidiary in Germany, Bio Pharma, is managed
by Rainer Friedel, MD., Ph.D. Dr. Friedel has also been named to the Company's
board of directors. Dr. Friedel and the Company have executed an employment
agreement, as mandated by German law.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases two facilities, one in Lynbrook, New York and
one in Curacao, Netherlands Antilles. The New York facility, also the Company's
administrative headquarters, contains 1,500 square feet of office space and
6,500 square feet of laboratory, production, and storage facilities. The Company
leases this facility from the Wilbur Street Corporation, which is owned by The
S.J. Wegman Company, the principal stockholder of the Company and an affiliate
of Edwin H. Wegman, President of the Company. The lease was a five-year lease
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beginning February 1, 1989 for up to 10,000 square feet. The annual rent was
$78,000. The lease expired at the end of fiscal 1994. The lease currently runs
month to month at that rate. The Company expects to negotiate a new lease which
is expected to be at a higher rental but no greater than that charged by an
unaffiliated landlord for comparable facilities. The Company does not anticipate
that any rent increase will be retroactive. The Company subleases the remainder
of the space subject to such lease, to an unaffiliated entity for $24,000 per
year, pursuant to a verbal lease agreement.
The Company also leases from a company wholly-owned by the
Insular Territory of Curacao a building in Brievengat, Curacao, Netherlands
Antilles. This building is the Company's principal manufacturing facility, and
is licensed by the FDA to produce Collagenase ABC. The facility has
approximately 15,750 square feet of usable space. The lease, which was
originally entered into with the Insular Territory of Curacao on January 1,
1977, is automatically renewable upon the same terms every five years, unless
either party gives notice of termination three months prior to the expiration of
the five-year period. The lessor is entitled to revalue the rent for each
successive five-year period, and the lease has been automatically renewed
through March 1, 2001. The current rent is approximately $30,000 per year.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq National Market
tier of the Nasdaq Stock Market ("Nasdaq") under the Symbol "BSTC". The
Company's Common Stock commenced trading on November 14, 1991. On April 21,
1997, the closing price for the Company's Common Stock was $3.125. The table
below sets forth the high and low bid prices for the Company's Common Stock for
the period April 30, 1995 through January 31, 1996, and the high and low sales
prices for the Company's Common Stock for the period April 30, 1996 through
January 31, 1997, as reported by Nasdaq.
Quarter Ended High Low
------------- ---- ---
April 30, 1995 $8-5/8 $6-3/4
July 31, 1995 $7 $4-7/8
October 31, 1995 $5-1/2 $3-5/8
January 31, 1996 $5 $2-1/2
April 30, 1996 $5-7/8 $3
July 31, 1996 $6-1/8 $3-1/8
October 31, 1996 $5-1/8 $3-3/4
January 31, 1997 $5-1/4 $3-1/4
On April 21, 1997, there were 123 stockholders of record of the
Company's Common Stock. The Company believes it has approximately 1,000
beneficial owners of its Common Stock.
It is the Company's current policy to retain earnings to finance
the growth and development of its business. Any payment of cash dividends in the
future will depend upon the financial condition, capital requirements and
earnings of the Company as well as such other factors as the Board of Directors
may deem relevant.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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.
RESULTS OF OPERATIONS
Net sales were $3,786,429 and $2,527,875 for the fiscal years
ended January 31, 1997 and 1996, respectively, an increase of $1,258,554 or 50%.
During fiscal 1996, KPC lowered its purchases of Collagenase ABC to bring its
inventory in line with its new policy standards of "just in time" deliveries and
reduction of finished goods. Fiscal 1997 was not affected by the policy. At the
end of fiscal 1997, KPC expanded the number of clinical nurse consultants who
act as expert sales representatives for Collagenase Santyl(R) throughout the
U.S. This expansion in sales representatives, in response to the growth of
product sales in existing territories, is not expected to result in increases in
sales until the second half of fiscal 1998.
Royalties earned on after market sales of Collagenase Santyl(R)
ointment were $2,068,560 and $1,844,647 for the fiscal years ended January 31,
1997 and 1996, respectively, representing an increase of $223,913, or 12%. The
increase in Collagenase Santyl(R) sales in the United States continues to be the
result of the emerging awareness of the problem of pressure ulcers in the health
care industry, and of the efficacy of collagenase in their treatment. As a
result, hospitals and skilled nursing facilities give more immediate recognition
and treatment to pressure ulcers. (See "Competition").
License fees earned for products in development were $20,000 and
$75,000 for the fiscal years ended January 31, 1997 and 1996, respectively. See
"Agreements for the Distribution of Collagenase ABC".
Cost of sales was $1,699,677 and $1,178,573, respectively, in
fiscal 1997 and 1996. Cost of sales as a percentage of net sales remained
approximately constant, at 45% in fiscal 1997 and 46% in fiscal 1996.
During fiscal 1996, the Company recorded a charge to operations
of $500,000 representing costs reimbursed to its major customer relating to
quantities of the Company's product that were not used. The liability pertaining
to this charge was paid in fiscal 1997.
Selling, general and administrative expenses ("SG&A") were
$1,512,246 and $1,770,738, respectively, in fiscal 1997 and 1996, a decrease of
$258,492, or 15%. During fiscal 1996, the Company extended the exercise
expiration date for underwriter's warrants from November 21, 1996 to November
21, 1999. The warrants are for the purchase up to 120,000 shares of the
Company's common stock at an exercise price of $3.75 per share. In connection
11
<PAGE>
with the extension of the exercise period, the Company recorded a non-cash
charge of $300,000 in fiscal 1996. Net of this charge, SG&A increased in fiscal
1997 versus 1996 due to costs incurred in attempting to obtain new license
agreements, and the inclusion of a full year's operations of the Company's
subsidiary in Germany, which commenced operations November 1995, versus a
partial year's operations in fiscal 1996.
Research and development expenses ("R&D") were $1,582,935 and
$1,821,922, respectively, in fiscal 1997 and 1996, a decrease of $238,987 or
13%. During fiscal 1997, the Company began the sponsorship of clinical trials
for injectable collagenase in the U.S., and limited R&D activity in Europe.
Fiscal 1998 R&D expense may exceed that of fiscal 1997, as these and other
clinical trials are ongoing and planned.
Other income, net was $383,721 and $515,273, respectively, in
fiscal 1997 and 1996, a decrease of $131,552. The higher amount in fiscal 1996
was due to the recovery of valuations for the Company's marketable securities
portfolio, particularly its government and corporate bond holdings, the result
of declining interest rates in calendar 1995 and strength in the bond market in
general.
The Company's provision for income taxes was $300,350 and
$39,870, respectively, in fiscal 1997 and 1996. 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% tax rate applicable to pre-tax
earnings of the Company's subsidiary in Curacao. In fiscal 1996, the Company's
Curacao subsidiary was not profitable. In addition, the non-cash charge of
$300,000 in fiscal 1996 for the warrant expiration date extension discussed
earlier was not deductible for income tax purposes for that year.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
The Company's primary source of working capital is from
operations, which includes sales of product, royalties, and periodic license
fees. At January 31, 1997, the Company had working capital of approximately
$7,512,000 which includes cash and cash equivalents, and marketable securities
of approximately $5,607,000. The principal source of cash in fiscal 1997 was
approximately $1,607,000 from operating activities. At January 31, 1997 the
Company had no material commitments for capital expenditures.
In view of the Company's working capital position and anticipated
future profitable operations, although there can be no assurance, management
believes that the Company has sufficient liquidity and capital resources to meet
its immediate operating needs. The Company believes that cash on hand and cash
provided by operations will be sufficient to meet its cash needs on an ongoing
basis.
ITEM 7. FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ........................................... F-1
Consolidated Balance Sheet as of January 31, 1997 ....................... F-2
Consolidated Statements of Operations for Years ended January 31, 1997
and 1996 ............................................................... F-3
Consolidated Statements of Cash Flows for Years ended January 31, 1997
and 1996 ............................................................... F-4
Consolidated Statements of Stockholders' Equity for Years ended January
31, 1997 and 1996 ...................................................... F-5
Notes to Consolidated Financial Statements ............................... F-6
12
<PAGE>
Independent Auditors' Report
----------------------------
The Stockholders and Board of Directors
Biospecifics Technologies Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Biospecifics
Technologies Corp. and subsidiaries as of January 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the two-year period ended January 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biospecifics
Technologies Corp. and subsidiaries at January 31, 1997 and the results of their
operations and their cash flows for each of the years in the two-year period
ended January 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in the accounting policies note to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standards
No.123, "Accounting for Stock-Based Compensation" in fiscal year 1997.
KPMG PEAT MARWICK LLP
Jericho, New York
April 18, 1997
F-1
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Balance Sheet
January 31, 1997
Assets
Current assets:
Cash and cash equivalents $ 3,793,582
Marketable securities 1,812,974
Accounts receivable 900,956
Inventories 1,339,081
Prepaid expenses and other current assets 403,571
-----------
Total current assets 8,250,164
Property, plant and equipment, net 912,949
Other assets 743,183
-----------
$ 9,906,296
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 540,899
Notes payable to related parties 11,510
Income taxes payable 10,350
Deferred revenue 175,000
-----------
Total current liabilities 737,759
Minority interest in subsidiaries 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
outstanding January 31, 1997 4,883
Additional paid-in capital 3,586,145
Retained earnings 5,591,591
Cumulative translation adjustment (17,615)
-----------
9,165,004
Less treasury stock, 10,000 shares at cost (182,510)
-----------
Total stockholders' equity 8,982,494
-----------
Commitments and contingencies
$ 9,906,296
===========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended January 31, 1997 and 1996
1997 1996
---- ----
Revenues:
Net sales $ 3,786,429 2,527,875
Royalties 2,068,560 1,844,647
License fees 20,000 75,000
----------- -----------
5,874,989 4,447,522
Costs and expenses:
Cost of sales 1,699,677 1,178,573
Non-recurring charge -- 500,000
Selling, general and administrative 1,512,246 1,770,738
Research and development 1,582,935 1,821,922
----------- -----------
4,794,858 5,271,233
Income (loss) from operations 1,080,131 (823,711)
Other income (expense):
Investment and other income 388,133 529,737
Interest expense (4,412) (14,464)
----------- -----------
383,721 515,273
Income (loss) before provision for income taxes
and minority interest 1,463,852 (308,438)
Provision for income taxes 300,350 39,870
----------- -----------
Income (loss) before minority interest 1,163,502 (348,308)
Minority interest in income of subsidiaries 37,585 160
----------- -----------
Net income (loss) $ 1,125,917 (348,468)
=========== ===========
Net income (loss) per common share $ .23 (.07)
=========== ===========
Weighted average number of shares used
in computing net income (loss) per share 4,923,582 4,882,371
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended January 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,125,917 (348,468)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 169,792 179,321
Costs associated with issuance of common stock grants and
extension of exercise date for warrants 30,000 320,000
Gain on sales of marketable securities, net (25,267) (173,189)
Minority interest in income of subsidiaries 37,585 160
Changes in operating assets and liabilities:
Decrease in accounts receivable 285,570 778,158
(Increase) decrease in inventories 96,686 (253,509)
Increase in prepaid expenses and other current assets (62,955) (108,580)
Increase in other assets (104,137) (68,069)
Net sales (purchases) of marketable securities 607,827 (135,850)
Increase (decrease) in accounts payable and accrued expenses (452,679) 251,127
Increase in deferred revenue 45,000 60,000
Increase in due to related parties 940 858
Decrease in income taxes payable (129,740) (43,749)
Increase in cumulative translation adjustment (17,615) --
----------- -----------
Net cash provided by operating activities 1,606,924 458,210
----------- -----------
Cash flows from investing activities:
Redemptions of held to maturity marketable securities -- 460,000
Expenditures for property, plant and equipment (101,658) (74,412)
----------- -----------
Net cash provided by (used in) investing activities (101,658) 385,588
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 6,150
----------- -----------
Net cash provided by financing activities -- 6,150
----------- -----------
Increase in cash and cash equivalents 1,505,266 849,948
Cash and cash equivalents at beginning of year 2,288,316 1,438,368
----------- -----------
Cash and cash equivalents at end of year $ 3,793,582 2,288,316
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4,412 6,453
=========== ===========
Income taxes $ 421,000 197,265
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended January 31, 1997 and 1996
Additional Cumulative
Common stock paid-in Retained translation Treasury
Shares Amount capital earnings adjustment stock Total
------ ------ ------- -------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1995 4,881,346 $4,881 $3,229,997 $4,814,142 - $(182,510) $7,866,510
Options exercised 2,050 2 6,148 - - - 6,150
Options granted to consultants - - 20,000 - - - 20,000
Warrant related costs - - 300,000 - - - 300,000
Net loss - - - (348,468) - - (348,468)
--------- ------ ---------- -------- --------- ----------- --------
Balance at January 31, 1996 4,883,396 4,883 3,556,145 4,465,674 - (182,510) 7,844,192
Options granted to consultants - - 30,000 - - - 30,000
Cumulative translation adjustment - - - - (17,615) - (17,615)
Net income - - - 1,125,917 - - 1,125,917
--------- ------ ---------- ---------- --------- ---------- -----------
Balance at January 31, 1997 4,883,396 $4,883 $3,586,145 5,591,591 $(17,615) $(182,510) $ 8,982,494
========= ====== ========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1997 and 1996
(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 on November 1, 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 derived from collagenase, named
Collagenase ABC, and researching, developing and clinically testing
additional products derived therefrom for potential use as
pharmaceuticals. In general, the Company currently derives revenues
through a licensing agreement with a major pharmaceutical company (note
11). Sales in fiscal 1997 and 1996 of such product have been principally
to that pharmaceutical manufacturer and distributor in the United
States. The license with this United States customer expires in 2003.
The cancellation of the sales agreement by the United States customer
could have a material adverse impact upon the financial condition of the
Company unless the Company is successful in its active effort to secure
other licensees. The Company also has licensing agreements with foreign
companies which will attempt to market the product when permitted by
local governmental authorities.
(2) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries, ABC-New York and
ABC-Curacao, and its wholly owned subsidiary, Bio Pharma. All
significant inter company transactions and balances have been eliminated
in consolidation.
Marketable Securities
---------------------
Marketable securities include investments in stocks and bonds. The Company
accounts for marketable securities under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS 115, the Company
classifies its debt and marketable equity securities as trading
securities. Trading securities are bought and held principally for the
purpose of selling them in the near term and are recorded at fair value.
Unrealized holding gains and losses on trading securities are included
in operations.
Inventories
-----------
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
F-6
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are carried at cost. Depreciation and
amortization of property, plant and equipment is computed by the
straight-line method over the following estimated useful lives:
Machinery, equipment, furniture and fixtures 5 to 10 years
Automobiles 5 to 10 years
Leasehold improvements lesser of the anticipated useful
life of the leasehold improvement
or the term of the lease
Other Assets
------------
Other assets include the costs of patents filed and applied for. These
costs are amortized on a straight line basis over 4 to 6 years. Patent
application costs are expensed when a patent is denied or abandoned.
Income Taxes
------------
The Company accounts for income taxes using the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all
temporary investments and time deposits with original maturities of
three months or less to be cash equivalents.
Cumulative translation adjustment
---------------------------------
Assets and liabilities of ABC-Curacao and Bio Pharma are translated into
the U.S. dollar at year-end exchange rates and income and expense items
are translated at average exchange rates for the period. Gains and
losses resulting from translation are included in stockholders' equity.
Royalties and License Fee Income
--------------------------------
The Company enters into licensing agreements with pharmaceutical concerns
and others regarding the sale of approved and potential products.
Royalties on the approved product are recognized as income in the year
earned.
F-7
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
License fees on potential products are recognized as income in the year
applicable agreements are entered into if related license fees are
non-refundable and the Company is not responsible for the obtaining of
government approvals for the sale of such products. License fees
attributable to agreements which contain refund provisions or require
significant participation by the Company in the obtaining of government
approvals for product sales are deferred until all provisions of the
agreements are fulfilled.
Research and Development
------------------------
The Company conducts various research and development activities for
potential products. Research and development costs are charged to
expense when incurred. These costs amounted to $1,582,935 and $1,821,922
in 1997 and 1996, respectively.
Net Income (Loss) Per Share
---------------------------
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares and common equivalent
shares (when applicable) outstanding during the year.
Stock Based Compensation
------------------------
In the fiscal year ended January 31, 1997, the Company adopted Financial
Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation", which gives companies the choice to adopt the fair value
method for expense recognition of employee stock options or continue to
account for stock options and stock based awards using the intrinsic
value method as outlined under Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and to make pro
forma disclosure of net income (loss) and net income (loss) per share as
if the fair value method had been applied. The Company has elected to
continue to apply APB 25 for future stock options and stock based awards
and has disclosed pro forma net income (loss) and net income (loss) per
share for the years ended January 31, 1997 and 1996 as if the fair value
method had been applied.
Use of estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
Fair value of Financial Instruments
-----------------------------------
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of cash, accounts receivable, prepaid
assets, other assets, accounts payable, and accrued expenses approximate
fair value because of the short maturity of those instruments. The fair
value of notes receivable from officers and notes payable to related
parties approximates the carrying value as their stated interest rate is
similar to other rates currently offered by local institutions for
similar term loans.
F-8
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Marketable Securities
---------------------
Marketable securities at January 31, 1997 consist of trading securities. Fair
values are based upon quoted market prices. The gross unrealized holding
gain (loss) and fair value of trading securities by major types at January
31, 1997 were as follows:
Gross unrealized
holding (loss) Fair Value
-------------- ----------
U.S. Government obligations $ (11,229) $1,096,472
Common stocks (10,667) 159,184
Preferred stocks (1,375) 198,500
Corporate bonds (5,338) 358,818
------- -------
$ (28,609) $1,812,974
========== ==========
Maturities of investment securities as of January 31, 1997 were as follows:
Due in less than 1 year $ 60,880
Due after one year through five years 1,071,472
Due after five years through fifteen years 322,983
---------
$ 1,455,290
===========
(4) Inventories
Inventories at January 31, 1997 consist of:
Raw materials $ 74,894
Work-in-process 716,445
Finished goods 547,742
-------
$1,339,081
==========
F-9
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Property, Plant and Equipment, net
Property, plant and equipment at January 31, 1997 consist of:
Machinery and equipment $ 1,913,763
Furniture and fixtures 252,567
Leasehold improvements 483,072
Automobiles 110,799
Rental property 99,434
------
2,859,635
Less accumulated depreciation
and amortization (1,946,686)
----------
$ 912,949
===========
Depreciation and amortization expense amounted to $169,792 and $179,321 for
fiscal years ending January 31, 1997 and 1996 respectively.
(6) Accounts Payable and Accrued Expenses
-------------------------------------
Accounts payable and accrued expenses at January 31, 1997 consist of:
Accounts payable $319,428
Accrued legal and professional fees 86,263
Accrued payroll and related costs 135,208
-------
$540,899
========
(7) Income Taxes
------------
The provision for income taxes consists of the following:
1997 1996
---- ----
Current:
Federal $151,000 $(88,400)
State 18,000 5,350
Foreign 10,350 8,920
------ -----
179,350 (74,130)
Deferred:
Federal 110,000 94,000
State 11,000 20,000
------ ------
121,000 114,000
------- -------
$300,350 $ 39,870
======== =======
F-10
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The effective income tax rate of the Company differs from the federal
statutory tax rate of 34% in 1997 and 1996 as a result of the effect of
the following items:
1997 1996
---- ----
Computed tax provision at statutory rate $497,710 $(104,900)
Extension of exercise period for warrants - 102,000
Tax effect of foreign sourced (income) loss, net (201,295) 31,450
of foreign taxes
State income taxes, net of federal benefit 19,140 3,500
Other, net (15,205) 7,820
-------- -----
$300,350 $39,870
======== =======
The Company intends to reinvest the undistributed earnings of its foreign
subsidiaries and does not currently plan to repatriate such
undistributed earnings (approximately $4,167,000 as of January 31, 1997)
to the Company.
The provision for deferred taxes of $121,000 and $114,000 in 1997 and
1996, respectively resulted principally from the capitalization of
certain inventory costs and certain expenses that are currently
non-deductible for tax purposes. The deferred tax asset of $101,000 at
January 31, 1997 is included with prepaid expenses and other current
assets in the accompanying consolidated balance sheet. The Company has
not recorded a valuation allowance against these deferred tax assets as
the Company believes that it is more likely than not that such amounts
will be recovered.
(8) Line of Credit
--------------
The Company, through its subsidiary, maintains a line of credit with a
Netherlands Antilles bank under which the bank will lend up to $782,000
(NAf 1,400,000) to the Company, with interest, at the bank's prime
lending rate (12% at January 31, 1997). Drawings under the line of
credit would be secured by substantially all of the assets of the
Company and would be payable upon demand. The Company would be required
to maintain compensating balances comprised of cash, cash equivalents
and marketable securities equal to one half of the amount borrowed under
the line of credit. There were no borrowings under such line of credit
at January 31, 1997.
(9) Stockholders' Equity
--------------------
Series A Preferred Stock
------------------------
The Company's Series A preferred stock consists of 700,000 authorized
shares, par value $.50 per share, of which 150,000 shares were issued on
July 30, 1991 for $75,000. At the time of issuance, each share of
preferred stock was convertible, at the option of the holder or the
Company, into one share of common stock. Subsequent to the two-for-one
stock split distributed in April 1992, each share of preferred stock
became convertible into two shares of common stock. As of February 1,
1996 all of the previously issued shares of Series A preferred stock
issued were converted into 300,000 shares of common stock.
F-11
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Stock Option Plans
------------------
In April 1991, the Company established a stock option plan (the "1991
plan") for eligible key employees, directors, independent agents, and
consultants who make a significant contribution toward the Company's
success and development and to attract and retain qualified employees.
Under the 1991 plan, qualified incentive stock options and non-qualified
stock options may be granted to purchase up to an aggregate of 220,000
shares of the Company's common stock, subject to certain anti-dilution
provisions. The option price per common share may not be less than 100%
(110% for qualified incentive stock options granted to stockholders
owning at least 10% of common shares) of the fair market value of common
shares on the date of grant. In general, the options will vest and
become exercisable in four equal annual installments following the date
of grant, although the Board, at its discretion, may provide for
different vesting schedules, and expire ten years (five years for
qualified incentive stock options granted to stockholders owning at
least 10% of common shares) after such date.
In July 1994, stockholders approved a stock option plan (the "1993 plan")
with terms identical to the 1991 plan. The 1993 plan authorizes the
granting of awards of up to an aggregate of 200,000 shares of the
Company's common stock, subject to certain anti-dilution provisions.
The Company applies APB 25 and related interpretations in accounting for
its stock option plans. Had compensation cost been recognized consistent
with SFAS 123, the Company's consolidated net income in fiscal 1997
would have been reduced to $1,064,752 and consolidated net loss in
fiscal 1996 would have been increased to ($419,383). Earnings (loss) per
share in fiscal 1997 and 1996 would have been reduced (increased) to
$.22 per share, and (.09) per share, respectively.
The per share weighted average value of stock options issued by the
Company during 1997 and 1996 was $5.18 and $4.24, respectively, on the
date of grant. In 1997 and 1996, the assumptions of no dividends,
expected volatility of 58.2%, and an average expected life of 5 years
were used by the Company in determining the fair value of the stock
options granted using the Black Scholes option pricing model. In
addition, the calculations assumed a risk free interest rate of 6.25% in
fiscal 1997 and fiscal 1996.
The summary of the stock options activity is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 256,300 $5.44 229,450 $5.58
Options granted 38,525 5.18 30,700 4.24
Options exercised - - (2,050) 3.00
Options canceled or expired (87,350) 3.46 (1,800) 5.21
-------- -------
Outstanding at end of year 207,475 6.20 256,300 5.44
------- -------
Options exercisable at year end 202,475 6.26 255,925 5.44
Shares available for future grant 137,075 88,250
</TABLE>
F-12
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During fiscal 1997, the Company granted a total of 15,000 options to the
co-medical directors of the Company at prices ranging from $3.75 to
$9.125 per share. The medical directors' options are all exercisable one
year from the date of grant. In connection with the options granted to
the medical directors, the Company recorded an expense of $30,000 and
$20,000 representing the estimated value of the options vested in fiscal
1997 and 1996 (for options granted in 1995), respectively. During fiscal
1997 and 1996, the Company granted 23,525 and 30,700 options,
respectively, to employees of the Company at prices ranging from $3.875
to $4.625.
Options for 202,475 shares are currently exercisable with a weighted
average exercise price of $6.26 and a weighted average remaining
contractual life of 7 years. The remaining 5,000 options outstanding
have an exercise price of $3.75 and a remaining contractual life of 10
years.
Warrants
--------
The Company has underwriter's warrants outstanding to purchase up to
120,000 shares of common stock at an exercise price of $3.75 per share.
During fiscal 1996, the Company extended the period for which the
warrants are exercisable from November 21, 1996 to November 21, 1999. In
connection with the extension of the exercise period, the Company
recorded an expense in selling, general and administrative costs of
$300,000 in fiscal 1996.
(10) Commitments and Contingencies
-----------------------------
(a) Lease Agreements
----------------
The Company's operations are principally conducted in leased premises.
Future minimum annual rental payments required under a noncancellable
operating lease are as follows:
Year ending January 31,
1998 $30,167
1999 30,167
2000 30,167
2001 30,167
2002 30,167
Rent expense under all operating leases amounted to approximately $108,000
for each of the years ended January 31, 1997 and 1996. The S.J. Wegman
Company, which is owned by the Company's President and certain
relatives, is the 100% shareholder of the Wilbur Street Corporation,
which owns and leases a facility to ABC-New York. The lease expired on
January 31, 1994. The Company is currently leasing the building under a
month to month arrangement, and paid $78,000 in rent in both fiscal 1997
and 1996. The Company expects to negotiate a new lease which is expected
to be at a higher rental but no greater than the amount that would be
charged by an unaffiliated landlord for comparable facilities. The
Company does not expect that any rent increase will be retroactive.
F-13
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
ABC-Curacao leases a building in Brievengat, Curacao, Netherlands Antilles
from a company wholly owned by the Insular Territory of Curacao. The
lease term, which originally commenced on January 1, 1977 is
automatically renewed upon the same terms every five years, unless either
party gives three months notice prior to the expiration of the five-year
period. The lessor is entitled to revalue the rent for each successive
five-year period. The lease has been renewed through March 1, 2001. Rent
expense amounted to $30,167 for each of the years ended January 31, 1997
and 1996.
(b) Royalty and License Agreements
------------------------------
The Company's major royalty and license agreements are for its FDA
approved product, Collagenase ABC, and for Nucleolysin(R), a product in
development.
The Company's principal Collagenase ABC agreement, with a United States
licensee, was renewed in 1993 on terms similar to the prior agreement.
It extends for ten years with automatic renewal for a like period unless
the licensee notifies the Company of its intention to terminate 6 months
prior to renewal date. The agreement provides that the license is
exclusive in the United States and Canada provided there are reasonable
annual increases in Santyl(R) sales and best efforts are made to
increase sales. The licensee pays the Company for the product and an
annual royalty calculated as a percent of net sales of Collagenase
Santyl(R) ointment. The minimum annual royalty is $60,000 per year.
In fiscal 1997, the Company entered into an agreement to license
Collagenase ABC for sale in Germany to the German subsidiary of an
international pharmaceutical company. The agreement calls for an initial
payment on signing and further payments if and when marketing approval
of Collagenase ABC ointment is granted by the German health authority.
During fiscal 1997, the Company recognized $20,000 in non-refundable
license fees and recorded deferred revenue of $40,000 from this
agreement. The deferred revenue is refundable if approval in Germany
is not obtained.
In fiscal 1996, the Company entered into a license and supply agreement
with a Swiss pharmaceutical company which has agreed to market
Collagenase ABC in several Middle Eastern and European countries
(excluding Italy). The agreement is multi year and runs from first
market introduction of the product in each country. In fiscal 1996, the
Company recognized $75,000 as license fees from this contract.
The Company has a distribution agreement with another unaffiliated Swiss
company pursuant to which that company will attempt to obtain approval
from the appropriate agencies in certain countries to sell
Nucleolysin(R)The agreement provides for exclusive rights within the
countries. To date, the licensee has paid $130,000 (of which $60,000 was
paid in fiscal 1996), which has been recorded as deferred revenue. The
advance payments are subject to certain credits and/or refund if
approval in Italy is not obtained, depending on the reasons therefor.
The agreement with the Swiss company is multi-year, subject to automatic
yearly renewals unless either party provides notice of non-renewal.
Royalties and license fee income with respect to all agreements in effect
follows:
January 31, 1997 January 31, 1996
---------------- ---------------
Royalty for existing product $2,068,560 $1,844,647
License fees for potential products 20,000 75,000
---------- ----------
$2,088,560 $1,919,647
========== ==========
F-14
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(c) Scientific Advisory Board
-------------------------
The Company has a ten member Scientific Advisory Board ("the Board") that
provides research and consultation services for the Company. For the
years ended January 31, 1997 and 1996, the Company has recorded $40,000
and $48,000, respectively, representing payments to Board members under
these agreements. Effective January 1, 1997, the Company has oral
agreements with three of the ten members of the Board providing for
honoraria of approximately $6,000 each, terminable at the option of the
Company.
(d) Potential Product Liability
---------------------------
The sale of Collagenase ABC, as well as the testing and marketing of any
additional products of the Company, exposes the Company to potential
product liability claims both directly from patients using the product
as well as from the Company's agreement to indemnify certain
distributors of the product for claims made by others. The Company has
product liability insurance which covers the use of the licensed product
(Collagenase Santyl) in the United States and clinical experiments of
additional products. No known claims are pending against the Company at
the current time.
(e) Employment Agreement
--------------------
The Company has an employment agreement with the managing director of its
German subsidiary, Bio Pharma. The contract can be terminated by the
Company or the managing director upon one year's written notice. The
agreement provides for an annual salary of $150,000 and a like severance
payment if the agreement is terminated by the Company without cause.
(11) Segment Information
-------------------
(a) Major Customer
--------------
Substantially all of the Company's revenues were earned from one
pharmaceutical manufacturer and distributor in the United States for the
years ended January 31, 1997 and 1996, respectively.
F-15
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
(b) Operations by Geographic Area
-----------------------------
The Company is engaged in one industry, specifically research, development, production and
distribution of pharmaceutical products. Operations in this business segment are summarized
below by geographic area. All unaffiliated revenues from South America are made by ABC-Curacao
and primarily represent export sales made to South America and India.
South
America
North and
Year ended January 31, 1997: America Europe Eliminations Consolidated
- ---------------------------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated customers $5,479,609 $395,380 $5,874,989
Intercompany revenue between
geographic regions $1,093,940 (1,093,940) -
Operating income 838,226 710,601 (468,696) 1,080,131
Identifiable assets 6,258,121 3,972,821 (324,646) 9,906,296
Capital expenditures 67,460 34,198 101,658
Depreciation and amortization 75,618 94,174 169,792
South
America
North and
Year ended January 31, 1996: America Europe Eliminations Consolidated
- ---------------------------- ------- ------ ------------ ------------
Revenues from unaffiliated
customers $4,147,422 $300,100 $4,447,522
Intercompany revenue between
geographic regions 526,388 (526,388) --
Operating loss (351,464) (359,317) (112,930) (823,711)
Identifiable assets 5,014,090 4,331,772 (78,975) 9,266,887
Capital expenditures 37,610 36,802 74,412
Depreciation and amortization 70,610 108,711 179,321
</TABLE>
F-16
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The information presented above may not be indicative of results if the
geographic areas were independent organizations. Intercompany
transactions are made at transfer prices which are believed to be
equivalent to those made at arms length. Revenue from foreign operations
were less than 10% of consolidated revenues in 1997 and 1996. In fiscal
1997 and 1996, approximately 92% of the Company's revenues were from one
licensee.
(12) Related Party Transactions
--------------------------
Included in "prepaid expenses and other current assets" at January 31,
1997 is a promissory note from the Company's president for $56,820,
payable to ABC-New York. The note is payable upon demand and bears
interest at 9% per annum.
Included in "other assets" at January 31, 1997 is a promissory note for
$286,376 executed by the Company's president on January 30, 1995. The
note bears interest at prime plus 1% and is due and payable on January
30, 1998. The note is collateralized with 20,000 shares of the Company's
common stock owned by the President. In fiscal 1997, the Company
recorded approximately $89,000 of interest from this note, included in
"investment and other income". The Company did not recognize interest
income from these notes in fiscal 1996 as its policy is to recognize the
interest when paid. Also included in "other assets" at January 31, 1997
is approximately $46,800 in other borrowings from the Company's
president and a 9% non-amortizing mortgage from Wilbur Street
Corporation (note 10) in the amount of $82,606.
ABC-New York has notes payable to a director of the Company and to a
partner of the S.J. Wegman Company, an affiliate, amounting to $11,510
at January 31, 1997. The notes, which bear interest at 9% per annum, are
payable on demand.
(13) Employee Benefit Plan
---------------------
ABC - New York has a 401(k) Profit Sharing Plan for employees who meet
minimum age and service requirements. Contributions to the plan by ABC -
New York are discretionary and subject to certain vesting provisions.
The Company made no contributions to this plan for the years ended
January 31, 1997 and 1996.
(14) Non-recurring Item
------------------
During fiscal 1996, the Company recorded a charge to operations of
$500,000 representing costs reimbursed to its major customer relating to
quantities of the Company's product that were not used.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this Item 9 as to directors is
incorporated by reference to the information captioned "Election of Directors"
included in the Registrant's definitive proxy statement in connection with the
meeting of shareholders to be held on July 16, 1997. The information regarding
compliance with Section 16 of the Securities and Exchange Act of 1934 and the
Rules promulgated thereunder is incorporated by reference therein to the
Company's definitive proxy statement in connection with the meeting of
shareholders to be held on July 16, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this Item 10 is incorporated by
reference to the information captioned "Remuneration and Other Transactions with
Management" included in the Registrant's definitive proxy statement in
connection with the meeting of shareholders to be held on July 16, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 11 is incorporated by
reference to the information captioned "Voting Securities" included in the
Registrant's definitive proxy statement in connection with the meeting of
shareholders to be held on July 16, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 12 is incorporated by
reference to the information captioned "Remuneration and Other Transactions with
Management" included in the Registrant's definitive proxy statement in
connection with the meeting of shareholders to be held on July 16, 1997.
30
<PAGE>
PART IV
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Exhibits Filed
Exhibit 3.1 Certificate of Amendment of Certificate of Incorporation of
Registrant, as amended. (Previously filed with Registrant's
Registration Statement on Form S-18 ["Registration Statement"]
and incorporated herein by reference.)
Exhibit 3.2 Registrant's by-laws as amended. (Previously filed as Exhibit 3.2
and 3.2(a) to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 4.1 Copy of Promissory Note executed by Edwin H. Wegman in favor of
Advance Biofactures Corporation. (Previously filed as Exhibit
28.1 to Registrant's Registration Statement and incorporated
herein by reference.)
Exhibit 4.2 Copy of Promissory Note executed by Edwin H. Wegman in favor of
Sherman C. Vogel and Clarification of Loan executed by Edwin H.
Wegman, Sherman C. Vogel, and Advance Biofactures Corporation.
(Previously filed as Exhibit 28.2 to Registrant's Registration
Statement and incorporated herein by reference.)
Exhibit 4.3 Copy of Promissory Note executed by Advance Biofactures
Corporation in favor of Myron E. Wegman. (Previously filed as
Exhibit 28.3 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.1 Form of 1991 Stock Option Plan of the Registrant. (Previously
filed as Exhibit 10.1 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.2 Form of 1993 Stock Option Plan of Registrant. (Previously filed
on the Registrant's Form S- 8 Registration No. 33-95116 dated
July 27, 1995 and incorporated herein by reference.)
Exhibit 10.3 Copy of Agreement between Advance Biofactures Corporation and
Knoll Pharmaceutical Company, without exhibits. (Previously filed
as exhibit 10.3 to Registrant's 10-KSB for the year ended January
31, 1995 and incorporated herein by reference.)
Exhibit 10.4 Copy of Lease between Advance Biofactures Corporation and the
Wilbur Street Corporation. (Previously filed as Exhibit 10.4 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.5 Copy of Lease between the Curacao Industrial and International
Trade Development Company (Curinde) N.V. and Advance Biofactures
Corporation of Curacao, N.V. (English translation). (Previously
filed as Exhibit 10.5 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.6 Copy of Agreement between Advance Biofactures of Curacao, N.V.
and a Swiss company regarding a license for Nucleolysin(R) for
Switzerland and Italy, without exhibits. (Previously filed as
Exhibit 10.7 to Registrant's Registration Statement and
incorporated herein by reference.)
31
<PAGE>
Exhibit 10.7 Copy of Agreement between Advance Biofactures Corporation and
Bernard J. Sussman, as amended. (Previously filed as Exhibit 10.8
to Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.8 Copy of Agreement between Advance Biofactures of Curacao, N.V.
and physician regarding testing of Nucleolysin(R). (Previously
filed as Exhibit 10.9 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.9 Form of Financial Consulting Agreement between the Company and
S.D. Cohn & Co., Inc. (Previously filed as Exhibit 10.10 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.10 Copy of Employment Agreement dated March 7, 1977 between Advance
Biofactures of Curacao, N.V. and Edward Bakhuis. (Previously
filed as Exhibit 10.11 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.11 Copy of Agreement dated July 14, 1989 between Advance Biofactures
Corporation and Arnold Brossi regarding colchicine. (Previously
filed as Exhibit 10.12 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.12 Copy of Agreement dated November 4, 1985 between Advance
Biofactures Corporation and Arnold Brossi regarding Scientific
Advisory Board. (Previously filed as Exhibit 10.14 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.13 Copy of License Agreement between Advance Biofactures Corporation
and The Regents of the University of California. (Previously
filed as Exhibit 10.15 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.14 Copy of Agreement between Advance Biofactures of Curacao, N.V.
and Lou Ann Cope Moorhead, MD., as amended. (Previously filed as
Exhibit 10.16 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.15 Copy of Agreement between Bio-Specifics N.V. (a wholly-owned
subsidiary of Advance Biofactures of Curacao, N.V.) and Sheldon
R. Pinnell, MD. (Previously filed as Exhibit 10.17 to
Registrant's Registration Statement and incorporated herein by
reference.)
Exhibit 10.16 Copy of Agreement between Advance Biofactures Corporation and
Karel Wiesner. (Previously filed as Exhibit 10.18 to Registrant's
Registration Statement and incorporated herein by reference.)
Exhibit 10.17 Copy of License Agreement between Advance Biofactures Corporation
and National Technical Information Service. (Previously filed as
Exhibit 10.19 to Registrant's Registration Statement and
incorporated herein by reference.)
Exhibit 10.18 Copy of Employment agreement with Dr. Rainer Friedel (English
summary attached)
32
<PAGE>
Exhibit 10.19 Copy of agreement to extend expiration of Underwriter's warrants
and Assignee of Warrants among Registrant, S.D. Cohn & Co., and
John C. Dello- Iacono.
Exhibit 10.20 Copy of Collagenase ABC license agreement between Advance
Biofactures of Curacao, N.V. and an Italian company, without
exhibits. (Previously filed as exhibit 29.1 to Registrant's
10-KSB for the year ended January 31, 1995 and incorporated
herein by reference.)
Exhibit 10.21 Copy of Collagenase ABC license agreement between Advance
Biofactures of Curacao, N.V. and a Swiss company, without
exhibits. (Previously filed as exhibit 29.2 to Registrant's
10-KSB for the year ended January 31, 1995 and incorporated
herein by reference.)
Exhibit 10.22 Copy of Promissory Note executed by Edwin H. Wegman in favor of
Advance Biofactures Corp. (Previously filed as exhibit 29.3 to
Registrant's 10-KSB for the year ended January 31, 1995 and
incorporated herein by reference.)
Exhibit 22 Subsidiaries of the Registrant.
Exhibit 23.1 Consent of KPMG Peat Marwick LLP.*
Exhibit 27.1 Financial Data Schedule*
(b) Reports on Form 8-K
None.
____________________________
* Filed herewith
33
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
BIOSPECIFICS TECHNOLOGIES CORP.
-------------------------------
(Registrant)
Date: April 30, 1997 By: Edwin H. Wegman
---------------------------------------
Edwin H. Wegman, Chairman and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Edwin H. Wegman Chairman of the Board, President and April 30, 1997
- -------------- Director (Principal Executive Officer)
Edwin H. Wegman
Albert Horcher Controller, Principal Financial and April 30, 1997
- -------------- Chief Accounting Officer
Albert Horcher
Harold Stern Executive Vice President April 30, 1997
- ------------ and Director
Harold Stern
Thomas L. Wegman Secretary, Treasurer and Director April 30, 1997
- ----------------
Thomas L. Wegman
Paul A. Gitman, MD. Director April 30, 1997
- -------------------
Paul A. Gitman, MD.
Henry Morgan Director April 30, 1997
- -----------
Henry Morgan
Sherman C. Vogel Director April 30, 1997
- ----------------
Sherman C. Vogel
Rainer Friedel Director April 30, 1997
- --------------
Rainer Friedel
34
<PAGE>
EXHIBIT INDEX
Exhibit Page
------- ----
Exhibit 23.1 Consent of KPMG Peat Marwick LLP 36
Exhibit 27.1 Financial Data Schedule 37
35
Independent Auditors' Consent
-----------------------------
The Board of Directors
Biospecifics Technologies Corp.:
We consent to incorporation by reference in the Registration Statement (No.
33-95116) on Form S-8 of Biospecifics Technologies Corp. of our report dated
April 18, 1997, relating to the consolidated balance sheet of Biospecifics
Technologies Corp. as of January 31, 1997 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended January 31, 1997, which report appears in the January 31,
1997 annual report on Form 10-KSB of Biospecifics Technologies Corp.
Our report refers to the Company's adoption of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" in fiscal year 1997.
Jericho, New York
ApriI 30, 1997
KPMG PEAT MARWICK LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BIOSPECIFICS TECHNOLOGIES CORP. FOR THE TWELVE MONTHS
ENDED JANUARY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 3,793,582
<SECURITIES> 1,812,974
<RECEIVABLES> 900,956
<ALLOWANCES> 0
<INVENTORY> 1,339,081
<CURRENT-ASSETS> 8,250,164
<PP&E> 2,859,635
<DEPRECIATION> 1,946,686
<TOTAL-ASSETS> 9,906,296
<CURRENT-LIABILITIES> 737,759
<BONDS> 0
0
0
<COMMON> 4,883
<OTHER-SE> 9,177,736
<TOTAL-LIABILITY-AND-EQUITY> 9,906,296
<SALES> 5,854,989
<TOTAL-REVENUES> 5,874,989
<CGS> 1,699,677
<TOTAL-COSTS> 1,699,677
<OTHER-EXPENSES> 1,582,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,412
<INCOME-PRETAX> 1,463,852
<INCOME-TAX> 300,350
<INCOME-CONTINUING> 1,125,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,125,917
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
