U.S. Securities and Exchange Commission
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
Commission File number: 0-19879
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BioSpecifics Technologies Corp.
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(Exact name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3054851
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(State of Incorporation) (IRS Employer I.D. Number)
35 Wilbur St.
Lynbrook, NY 11563
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(Address of principal executive offices)
(516) 593-7000
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(Issuer's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No____
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,891,146 shares of Common
Stock, $0.001 par value as of September 1, 1998.
Transitional Small Business Disclosure Format (check one): Yes___ No x
Page 1 of 11
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INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Financial Statements:
Balance Sheets as of July 31, 1998 (unaudited) and January 31, 1998 3
Statements of Income for the Three and Six Months Ended July 31, 1998
and 1997 (unaudited) 4
Statements of Cash Flows for the Six Months Ended July 31, 1998 and
1997 (unaudited) 5
Notes to Consolidated Interim Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Part II - Other Information 10
SIGNATURES 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BioSpecifics Technologies Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
July 31, January 31,
ASSETS 1998 1998
----------------- ------------------
<S> <C> <C>
Cash and cash equivalents $4,754,245 $4,431,055
Marketable securities 2,372,136 2,343,801
Accounts receivable 1,532,935 1,312,997
Inventory 1,341,602 1,482,720
Deferred tax assets - net 179,000 179,000
Prepaid expenses & other current assets 404,096 269,016
----------------- ------------------
Total current assets 10,584,014 10,018,589
Property, plant, and equipment - net 825,577 873,600
Other assets 257,508 306,451
----------------- ------------------
TOTAL ASSETS $11,667,099 $11,198,640
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $1,252,107 $1,309,972
Notes payable to related parties 12,260 12,010
Income taxes payable 129,864 61,840
Deferred revenue 175,000 175,000
----------------- ------------------
Total current liabilities 1,569,231 1,558,822
Minority interest in subsidiaries 241,508 220,349
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; 4,891,146 and 4,886,096 shares issued and out-
standing at July 31, 1998 and January 31, 1998, respectively 4,891 4,886
Additional paid-in capital 3,673,174 3,617,005
Retained earnings 7,005,291 6,427,433
Cumulative translation adjustment (2,799) (3,354)
----------------- ------------------
10,680,557 10,045,970
Less: Treasury stock - 132,380 and 96,800 shares, at cost (824,197) (626,501)
----------------- ------------------
Stockholders' equity - net 9,856,360 9,419,469
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,667,099 $11,198,640
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Biospecifics Technologies Corp. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Six months ended
July 31, July 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues:
Net sales $1,064,785 $706,616 $2,288,328 $1,565,426
Royalties 960,349 543,775 1,444,464 1,138,119
-------------------------------------------------------------------
Total Revenues 2,025,134 1,250,391 3,732,792 2,703,545
-------------------------------------------------------------------
Costs and Expenses:
Cost of sales 553,222 249,612 1,099,979 650,037
Selling, general and administrative 478,833 390,485 908,668 775,287
Research and development 569,823 491,552 991,641 915,509
-------------------------------------------------------------------
Total Costs and expenses 1,601,878 1,131,649 3,000,288 2,340,833
-------------------------------------------------------------------
Income from operations 423,256 118,742 732,504 362,712
Other income (expense)
Investment and other income 70,658 101,168 131,676 163,727
Interest expense (1,741) (741) (3,384) (1,300)
-------------------------------------------------------------------
Total other income - net 68,917 100,427 128,292 162,427
-------------------------------------------------------------------
Income before provision for income taxes 492,173 219,169 860,796 525,139
Provision for income taxes (125,680) (24,960) (261,780) (139,220)
-------------------------------------------------------------------
Income before minority interest 366,493 194,209 599,016 385,919
Less: minority interest in net income of subsidiaries 17,260 3,735 21,160 10,435
-------------------------------------------------------------------
Net income $349,233 $190,474 $577,856 $375,484
===================================================================
Basic net income per common share $0.07 $0.04 $0.12 $0.08
===================================================================
Weighted-average common shares outstanding 4,779,170 4,855,210 4,782,220 4,964,300
===================================================================
Diluted net income per common share $0.07 $0.04 $0.12 $0.08
===================================================================
Weighted-average common and dilutive
potential common shares outstanding 4,885,030 4,945,750 4,903,400 4,919,000
===================================================================
</TABLE>
4
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<TABLE>
<CAPTION>
BioSpecifics Technologies Corp. and Subsidiaries (unaudited)
Consolidated Statements of Cash Flows Six months ended
July 31,
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
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<S> <C> <C>
Net income $577,856 $375,484
Adjustments to reconcile net income
to cash provided by/(used by) operating activities:
Depreciation 94,152 94,274
(Gain) loss on marketable securities - net 18,554 (27,075)
Minority interest in income of subsidiaries 21,160 10,435
Costs associated with issuance of common stock grants 36,000 -
Changes in operating assets & liabilities:
Accounts receivable (219,938) (459,017)
Proceeds from sales of marketable securities 1,283,165 10,890
Purchases of marketable securities (1,330,054) (500,261)
Inventory 141,118 (185,739)
Prepaid and other current assets (135,080) (48,542)
Other assets 48,943 46,478
Accounts payable & accruals (57,865) (24,077)
Income taxes payable 68,024 5,620
Due to related parties 250 250
Cumulative translation adjustment 553 (5,802)
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Net cash provided (used) by operating activities 546,838 (707,082)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant, property and equipment (46,127) (192,294)
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Net cash used in investing activities (46,127) (192,294)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchases (197,696) (223,033)
Proceeds from stock option exercises 20,175 -
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Net cash used by financing activities (177,521) (223,033)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 323,190 (1,122,409)
CASH AND EQUIVALENTS:
Beginning of Period 4,431,055 3,793,582
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End of Period $4,754,245 $2,671,173
=================== ==================
SUPPLEMENTAL DISCLOSURE
Cash paid during period for interest $6,057 $1,300
=================== ==================
Cash paid during period for income taxes $174,371 $152,820
=================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JULY 31, 1998
(UNAUDITED)
1. Description of Business and Basis of Presentation - BioSpecifics Technologies
Corp. (the "Company") serves as a holding company for Advance Biofactures
Corporation (ABC-New York), Advance Biofactures of Curacao, N.V. and
subsidiaries (ABC-Curacao), and Biospecifics Pharma GmbH (Bio Pharma), Germany.
The Company, through its subsidiaries, engages in the business of producing and
licensing for sale by others a U.S. Food and Drug Administration ("FDA")
approved enzyme named Collagenase ABC, which is used principally as a topical
debridement treatment for dermal ulcers; and researching, developing and
clinically testing additional products derived from Collagenase ABC for
potential use as pharmaceuticals.
The Company currently derives substantially all of its revenues through a
license agreement with a major U.S. pharmaceutical company, Knoll Pharmaceutical
Company ("KPC"). Sales of Collagenase ABC have been principally to KPC, which
markets it as an ointment in the United States under its trademarked name
"Collagenase Santyl(R)". The license agreement with KPC expires in 2003. In the
event that KPC were to cancel the license agreement for cause, which the Company
believes is unlikely, the financial condition of the Company would be materially
adversely impacted unless the Company were to find another licensee in the
United States.
The Company has undertaken efforts to secure licensees outside the United
States. The Company has licensing agreements with foreign companies to market
Collagenase ABC, either as a topical product or an injectable, when permitted by
local governmental authorities. The Company sells relatively small amounts of
Collagenase ABC to pharmaceutical companies in countries outside the United
States.
2. Interim Financial Statements - In the opinion of management, the accompanying
consolidated financial statements of the Company reflect all adjustments
necessary to present fairly, in all material respects, the Company's balance
sheet as of July 31, 1998, the statements of income for the three and six months
ended July 31, 1998 and 1997, and statements of cash flows for the six months
ended July 31, 1998 and 1997. The results of operations for interim periods are
not necessarily indicative of the results to be expected for an entire fiscal
year, and the results for the current interim period are not necessarily
indicative of results to be expected in other interim periods. These interim
financial statements should be read in conjunction with the Company's Form
10-KSB for the fiscal year ended January 31, 1998.
6
<PAGE>
3. Basic and Diluted Income per Share - Basic earnings per share ("EPS")
excludes dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding during
the periods of presentation. Diluted EPS reflects the dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Information provided by the Company or statements contained in this report or
made by its employees, if not historical, is forward-looking information which
involves 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, approval by the FDA and foreign health authorities, and market
acceptance, of the Company's products in development, the Company's dependence
on KPC, and other risks detailed herein and in other filings the Company makes
with the Securities and Exchange Commission. Further, any forward-looking
statement or statements speak only as of the date on which such statements were
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement or statements were made.
The Company incorporates by reference the Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in its Form 10-KSB
for the fiscal year ended January 31, 1998.
Three months ended July 31, 1998 and 1997
Net sales - Net sales for the three months ended July 31, 1998 and 1997 were
$1,064,785 and $706,616, respectively, representing a $358,169 or 51% increase.
The increase was primarily due to higher sales of Collagenase ABC to KPC in the
United States, and to pharmaceutical companies in countries outside the United
States.
7
<PAGE>
Royalties - Royalties for the three months ended July 31, 1998 and 1997 were
$960,349 and $543,775, respectively, representing a $416,574 or 77% increase. As
reported to the Company by KPC, during the three months ended July 31, 1998, KPC
sold a record amount of Collagenase Santyl(R), on which the royalty is earned.
The Company believes that the record sales may reflect some inventory
accumulation. While sales of Collagenase Santyl(R) subsequent to the July 1998
quarter's end, as reported to the Company by KPC, have been quite satisfactory,
the Company does not believe the royalty earned in the current quarter can be
projected as a forecast for the rest of the fiscal year.
Cost of sales - Cost of sales for the three months ended July 31, 1998 and 1997
were $553,222 and $249,612, respectively, representing an increase of $303,610
or 122%, due to higher net sales, higher occupancy costs, and maintenance.
Selling, general and administrative - Selling, general and administrative
("SG&A") expenses for the three months ended July 31, 1998 and 1997 were
$478,833 and $390,485, respectively, representing an increase of $88,348 or 23%.
The increase was primarily due to higher professional and consulting fees.
Research and development - Research and development ("R&D") expenses for the
three months ended July 31, 1998 and 1997 were $569,823 and $491,552,
respectively, representing an increase of $78,271 or 16%. The increase was due
to the costs associated with advancing clinical trials in the U.S., particularly
for Dupuytren's disease and Peyronie's disease. In Europe, costs are being
incurred to support applications for marketing approval in various countries in
the European Union. The Company expects future R&D expenses to equal or possibly
slightly exceed the level incurred in the current quarter.
Other income - net - Other income - net for the three months ended July 31, 1998
and 1997 was $68,917 and $100,427, respectively. The decrease of $31,510 was due
primarily to increasing values of fixed income securities held as trading
security investments in the previous year period versus the current period.
Provision for income taxes - The provision for income taxes for the three months
ended July 31, 1998 and 1997 was $125,680 and $24,960, respectively, an increase
of $100,720. The increase was due to higher profitability, especially of the
Company's United States subsidiary, the result of higher net sales and royalty
revenues. The principal reason for the difference between the United States
Federal statutory tax rate of 34% and the Company's effective tax rate is due to
a 2% income tax rate applicable to earnings of the Company's primary production
facility in Curacao.
8
<PAGE>
Six months ended July 31, 1998 and 1997
Net sales - Net sales for the six months ended July 31, 1998 and 1997 were
$2,288,328 and $1,565,426, respectively, representing a $722,902 or 46%
increase. The increase in net sales was primarily due to higher sales of
Collagenase ABC to KPC in the United States, and to pharmaceutical companies in
countries outside the United States.
Royalties - Royalties for the six months ended July 31, 1998 and 1997 were
$1,444,464 and $1,138,119, respectively, representing a $306,345 or 27%
increase, due to higher sales of Collagenase Santyl(R) in the United States, as
reported to the Company by KPC, for reasons explained above.
Cost of sales - Cost of sales for the six months ended July 31, 1998 and 1997
were $1,099,979 and $650,037, respectively, representing an increase of $449,942
or 69% due to higher net sales, higher occupancy costs, and maintenance.
Selling, general and administrative - SG&A expenses for the six months ended
July 31, 1998 and 1997 were $908,668 and $775,287, respectively, representing a
$133,381 or 17% increase. The increase was primarily due to higher professional
and consulting fees.
Research and development - R&D expenses for the six months ended July 31, 1998
and 1997 were $991,641 and $915,509, respectively, representing an increase of
$76,132 or 8%. The increase was due to the costs associated with advancing
clinical trials in the U.S., particularly for Dupuytren's disease and Peyronie's
disease. In Europe, costs are being incurred to support applications for
marketing approval in various countries in the European Union. The Company
expects future R&D expenses to equal or possibly slightly exceed the level
incurred in the current period.
Other income - net - Other income - net for the six months ended July 31, 1998
and 1997 was $128,292 and $162,427, respectively. The decrease of $34,135 was
due primarily to increasing values of fixed income securities held as trading
security investments in the previous year period versus the current period.
9
<PAGE>
Provision for income taxes - The provision for income taxes for the six months
ended July 31, 1998 and 1997 was $261,780 and $139,220, respectively, an
increase of $122,560. The increase was due to higher profitability, especially
of the Company's United States subsidiary, the result of higher net sales and
royalty revenues. The principal reason for the difference between the United
States Federal statutory tax rate of 34% and the Company's effective tax rate is
due to a 2% income tax rate applicable to earnings of the Company's primary
production facility in Curacao.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
The Company's primary source of working capital is from operating activities,
including sales, royalties and new license fees. As of July 31, 1998, the
Company had working capital of approximately $9,015,000 which included cash and
cash equivalents and marketable securities of approximately $7,100,000. The
principal source of cash during the six months ended July 31, 1998 was
approximately $547,000 from operating activities. The principal uses of cash
during the period were expenditures for plant, property and equipment of
approximately $46,000 and repurchases of Company stock of approximately
$198,000. At July 31, 1998 the Company had commitments for capital expenditures
of approximately $150,000.
Although there can be no assurance, management believes that in view of the
Company's working capital position and anticipated positive cash flow from
operating activities, the Company has sufficient liquidity and capital resources
to meet its immediate operating needs. The Company believes that cash on hand
and cash from operations will be sufficient to meet the Company's cash needs on
an ongoing basis for the foreseeable future.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a.) The annual meeting of stockholders was held July 15, 1998. The purpose of
the meeting was to elect two directors of the Company.
(b.) The directors elected at the stockholders' meeting were Henry Morgan and
Sherman C. Vogel, whose terms expire in 2001. The other directors whose terms of
office as director continued after the meeting are Edwin H. Wegman and Rainer
Friedel, MD., whose terms of office expire in 1999, and Thomas L. Wegman and
Paul A. Gitman, MD., whose terms of office expire in 2000.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BioSpecifics Technologies Corp.
(Registrant)
Date: September 15, 1998
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By:/s/Edwin H. Wegman
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Edwin H. Wegman
Chairman and President
Date: September 15, 1998
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By:/s/Albert Horcher
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Albert Horcher
Treasurer, Principal Financial and
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-START> Feb-01-1998
<PERIOD-END> Jul-31-1998
<CASH> 4,754,245
<SECURITIES> 2,372,136
<RECEIVABLES> 1,532,935
<ALLOWANCES> 0
<INVENTORY> 1,341,602
<CURRENT-ASSETS> 404,096
<PP&E> 3,090,525
<DEPRECIATION> 2,264,948
<TOTAL-ASSETS> 11,667,099
<CURRENT-LIABILITIES> 1,252,107
<BONDS> 0
0
0
<COMMON> 4,891
<OTHER-SE> 10,678,465
<TOTAL-LIABILITY-AND-EQUITY> 11,667,099
<SALES> 3,732,792
<TOTAL-REVENUES> 3,732,792
<CGS> 1,099,979
<TOTAL-COSTS> 1,099,979
<OTHER-EXPENSES> 991,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,384
<INCOME-PRETAX> 860,796
<INCOME-TAX> 261,780
<INCOME-CONTINUING> 577,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 577,856
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
