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, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
Commission File number: 0-19879
BioSpecifics Technologies Corp.
-------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3054851
-------- ----------
(State of Incorporation) (IRS Employer I.D. Number)
35 Wilbur St.
Lynbrook, NY 11563
------------------
(Address of principal executive offices)
(516) 593-7000
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,529,766 shares of Common
Stock, $0.001 par value as of September 1, 1999.
Transitional Small Business Disclosure Format (check one): Yes [_] No [x]
Page 1 of 14
<PAGE>
INDEX
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Page
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PART I - FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Consolidated Financial Statements:
Balance Sheets as of July 31, 1999 (unaudited)
and January 31, 1999 3
Statements of Cash Flows for the Three and Six Months
Ended July 31, 1999 and 1998 (unaudited) 4
Statements of Cash Flows for the Six Months Ended
July 31, 1999 and 1998 (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 13
SIGNATURES 14
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 1999 1999
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 5,639,470 $ 5,086,725
Marketable securities 861,625 2,102,951
Accounts receivable 1,107,517 1,202,003
Inventory 1,511,384 1,488,525
Deferred tax assets - net 605,351 348,206
Prepaid expenses & other current assets 261,030 135,623
Due from related party 367,189 75,000
------------ ------------
TOTAL CURRENT ASSETS 10,353,566 10,439,033
Property, plant, and equipment - net 786,374 713,716
Due from related parties 170,101 170,101
Other assets 28,811 53,693
------------ ------------
TOTAL ASSETS $ 11,338,852 $ 11,376,543
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,458,130 $ 1,179,900
Notes payable to related parties 12,760 12,510
Income taxes payable -- 78,566
Deferred revenue 175,000 175,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,645,890 1,445,976
Minority interest in subsidiaries 265,123 260,849
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 shares issued at July 31, 1999 and January 31, 1999 4,891 4,891
Additional paid-in capital 3,734,375 3,734,375
Retained earnings 7,603,550 7,667,141
Accumulated other comprehensive loss (3,740) (3,101)
------------ ------------
11,339,076 11,403,306
Less: Treasury stock - 361,380 and 310,780 shares, at
July 31, 1999 and January 31, 1999, respectively, at cost (1,911,237) (1,733,588)
------------ ------------
STOCKHOLDERS' EQUITY - NET 9,427,839 9,669,718
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,338,852 $ 11,376,543
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Biospecifics Technologies Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three months ended Six months ended
July 31, July 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 1,061,052 $ 1,064,785 $ 1,743,780 $ 2,288,328
Royalties 674,777 960,349 1,271,524 1,444,464
----------- ----------- ----------- -----------
1,735,829 2,025,134 3,015,304 3,732,792
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 605,345 553,222 1,013,216 1,099,979
Selling, general and administrative 820,477 478,833 1,467,681 908,668
Research and development 467,029 569,823 972,730 991,641
----------- ----------- ----------- -----------
1,892,851 1,601,878 3,453,627 3,000,288
----------- ----------- ----------- -----------
Income (loss) from operations (157,022) 423,256 (438,323) 732,504
Other income (expense)
Investment and other income 88,158 70,658 130,849 131,676
Interest expense (1,260) (1,741) (2,350) (3,384)
----------- ----------- ----------- -----------
86,898 68,917 128,499 128,292
----------- ----------- ----------- -----------
Income (loss) before taxes and minority interest (70,124) 492,173 (309,824) 860,796
Income tax expense (benefit) (150,000) 125,680 (250,510) 261,780
----------- ----------- ----------- -----------
Income (loss) before minority interest 79,876 366,493 (59,314) 599,016
Minority interest in net income (loss) of subsidiaries 6,375 17,260 4,275 21,160
----------- ----------- ----------- -----------
Net income (loss) $ 73,501 $ 349,233 ($ 63,589) $ 577,856
=========== =========== =========== ===========
Basic net income (loss) per common share $ 0.02 $ 0.07 ($ 0.01) $ 0.12
=========== =========== =========== ===========
Weighted-average common shares outstanding 4,538,266 4,779,170 4,550,916 4,782,220
=========== =========== =========== ===========
Diluted net income (loss) per common share $ 0.02 $ 0.07 ($ 0.01) $ 0.12
=========== =========== =========== ===========
Weighted-average common and dilutive
potential common shares outstanding 4,538,416 4,885,030 4,550,916 4,903,400
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
BioSpecifics Technologies Corp. and Subsidiaries (unaudited)
Consolidated Statements of Cash Flows Six months ended
July 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 63,589) $ 577,856
Adjustments to reconcile net income (loss)
to net cash provided by/(used in) operating activities:
Depreciation 95,750 94,152
(Gain) loss on marketable securities - net 12,559 18,554
Minority interest in income of subsidiaries 4,275 21,160
Costs associated with issuance of common stock grants -- 36,000
Changes in operating assets & liabilities:
Accounts receivable 94,486 (219,938)
Marketable securities - net 1,228,767 1,283,165
Inventory (22,859) 141,118
Due from related party (292,189) --
Prepaid and other current assets (125,408) (135,080)
Deferred tax assets (257,145) --
Other assets 24,882 48,943
Accounts payable & accruals 278,230 (57,865)
Income taxes payable (78,566) 68,024
Due to related parties 250 250
Cumulative translation adjustment (641) 553
----------- -----------
Net cash provided by operating activities 898,802 1,876,892
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant, property and equipment (168,408) (46,127)
----------- -----------
Net cash used in investing activities (168,408) (46,127)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchases (177,649) (197,696)
Proceeds from stock option exercises -- 20,175
----------- -----------
Net cash used by financing activities (177,649) (177,521)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 552,745 1,653,244
CASH AND EQUIVALENTS:
Beginning of Period 5,086,725 4,431,055
----------- -----------
End of Period $ 5,639,470 $ 6,084,299
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during period for interest $ 2,351 $ 6,057
=========== ===========
Cash paid during period for income taxes $ 32,327 $ 174,371
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JULY 31, 1999
(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, is engaged in the business of producing
and licensing for sale by others a fermentation derived enzyme named Collagenase
ABC (the "product") which is approved by the U.S. Food and Drug Administration
("FDA"), and researching and developing additional products derived from this
enzyme for potential use as pharmaceuticals. The product is used principally as
a topical debridement treatment for dermal ulcers. The Company currently derives
all or substantially all revenues through a license agreement with a U.S.
pharmaceutical company, Knoll Pharmaceutical Company ("KPC"). Sales of the
product have been principally to KPC during the six months ended July 31, 1999.
The license with KPC expires in 2003. The non renewal of the license agreement
by KPC could have a material adverse impact on the financial condition of the
Company unless the Company secures other licensees. In the event that KPC were
to cancel the license agreement for cause, the financial condition of the
Company would be materially adversely affected unless the Company were to find a
similar licensee in the United States. The Company has licensing agreements with
a number of foreign companies, some of which are marketing the product and
others of which will attempt to market the product or products in development in
licensed territories when permitted by local governmental authorities. See
"Liquidity, Capital Resources, and Changes in Financial Condition" with respect
to issues raised by the FDA.
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, 1999, the
statements of operations for the three and six months ended July 31, 1999 and
1998, and statements of cash flows for the six months ended July 31, 1999 and
1998. 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, 1999.
6
<PAGE>
3. Net income (loss) per share
---------------------------
Basic net income (loss) per share ("EPS") excludes dilution and is computed by
dividing earnings (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the dilution that would occur if common stock equivalents were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. Dilutive common stock
options and warrants are included in the diluted EPS calculation using the
treasury stock method for the three months ended July 31, 1999 and the three and
six months ended July 31, 1998. As a result of the net loss for the six months
ended July 31, 1999, common stock options and warrants have not been included in
the diluted EPS calculation, as their effect would have been antidilutive.
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, timely development,
approval by 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, 1999.
Three months ended July 31, 1999 and 1998
-----------------------------------------
Net sales - Net sales for the three months ended July 31, 1999 and 1998 were
$1,061,052 and $1,064,785, respectively, representing a $3,733 or less than 1%
decrease. Sales of Collagenase ABC to KPC in the United States were up slightly,
offset by a slight decrease in sales to pharmaceutical companies in countries
outside the United States.
7
<PAGE>
Royalties - Royalties for the three months ended July 31, 1999 and 1998 were
$674,777 and $960,349, respectively, representing a $285,572, or 30% decrease.
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. Those record sales reflected inventory accumulation on the part of KPC's
customers, and diminished Collagenase Santyl(R) sales and royalty earned during
the subsequent three months ended October 31, 1998. While there can be no
assurance, the Company believes that sales of Collagenase Santyl(R) Ointment for
the year ended January 31, 2000 will be greater than those achieved in the year
ended January 31, 1999.
Cost of sales - Cost of sales for the three months ended July 31, 1999 and 1998
were $605,345 and $553,222, respectively, representing an increase of $52,123,
or 9%, due to an increase in production supervision staffing.
Selling, general and administrative - Selling, general and administrative
("SG&A") expenses for the three months ended July 31, 1999 and 1998 were
$820,477 and $478,833, respectively, representing an increase of $341,644 or
71%. During the quarter ended July 31, 1999, the Company continued to engage
consultants to assist in responding to FDA inspectional observations on FDA's
Form 483 ("483's") from FDA inspectors, the cost of which are included in SG&A.
In addition, production lab personnel were highly involved in the response
effort as well, resulting in a some level of production inactivity. Those costs
usually allocated to production are included in SG&A. The Company anticipates
that there will be considerable consultation costs and involvement of its lab
personnel, in responding to the 483s, into the foreseeable future. See
"Liquidity, Capital Resources, and Changes in Financial Condition".
Research and development - Research and development ("R&D") expenses for the
three months ended July 31, 1999 and 1998 were $467,029 and $569,823,
respectively, representing a decrease of $102,794, or 18%. During the quarter
ended July 31, 1998 higher clinical trial costs were incurred for clinical
trials in the U.S. for Dupuytren's disease and Peyronie's disease. Also during
the quarter ended July 31, 1998, costs were incurred to support applications for
marketing approval in various countries in the European Union. The Company
expects future R&D expenses to equal or slightly exceed the level incurred in
the current quarter, as trials for Dupuytren's and Peyronie's diseases advance
to new phases.
Other income - net - Other income - net for the three months ended July 31, 1999
and 1998 was $86,898 and $68,917, respectively. The increase of $17,981 was due
primarily to increasing values of equity securities held as trading security
investments in the current year period versus the previous period.
8
<PAGE>
Income tax expense (benefit) - The income tax expense (benefit) for the three
months ended July 31, 1999 and 1998 was $(150,000) and $125,680, respectively, a
decrease of $275,680. The Company recorded a tax benefit for the three months
ended July 31, 1999 as a result of the generation of orphan drug tax credits
from continued research expenditures for Dupuytren's and Peyronie's diseases.
The benefit is available as a carryback/carryforward against income taxes paid
in prior/future periods.
Six months ended July 31, 1999 and 1998
---------------------------------------
Net sales - Net sales for the six months ended July 31, 1999 and 1998 were
$1,743,780 and $2,288,328, respectively, representing a $544,548, or 24%
decrease. The decrease in net sales was due to a decline in sales of Collagenase
ABC to both KPC in the United States, and to pharmaceutical companies in
countries outside the United States. The decline in sales to KPC is due to the
timing of its purchases from the Company. While there can be no assurance, the
Company expects sales of Collagenase ABC to KPC and its foreign customers in
fiscal year ended January 31, 2000 to approximate levels achieved in the fiscal
year ended January 31, 1999.
Royalties - Royalties for the six months ended July 31, 1999 and 1998 were
$1,271,524 and $1,444,464, respectively, representing a $172,940, or 12%
decrease. As explained above, during the three months ended July 31, 1998, KPC
sold a record amount of Collagenase Santyl(R), on which the royalty is earned.
Those record sales reflected inventory accumulation on the part of KPC's
customers, and diminished Collagenase Santyl(R) sales and royalty earned during
the subsequent three months ended October 31, 1998. While there can be no
assurance, the Company believes that sales of Collagenase Santyl(R) Ointment for
the year ended January 31, 2000 will be greater than those achieved in the year
ended January 31, 1999.
Cost of sales - Cost of sales for the six months ended July 31, 1999 and 1998
were $1,013,216 and $1,099,979, respectively, representing a decrease of $86,763
or 8% due to lower net sales. The decrease was not commensurate with the lower
net sales due to higher production costs, particularly supervisory personnel
staffing costs.
Selling, general and administrative - SG&A expenses for the six months ended
July 31, 1999 and 1998 were $1,467,681 and $908,668, respectively, representing
a $559,013, or 62% increase. As explained above, during the period ended July
31, 1999, the Company engaged consultants to assist in responding to 483's, the
cost of which are included in SG&A. In addition, production lab personnel were
highly involved in the response effort as well, resulting in a some level of
production inactivity. Those costs usually allocated to production are included
in SG&A. The Company anticipates that there will be considerable consultation
costs and involvement of its lab personnel, in responding to the 483s, into the
foreseeable future. See "Liquidity, Capital Resources, and Changes in Financial
Condition".
9
<PAGE>
Research and development - R&D expenses for the six months ended July 31, 1999
and 1998 were $972,730 and $991,641, respectively, representing a decrease of
$18,911 or 2%. During both the six month periods ended July 31, 1999 and 1998,
clinical trial costs were incurred as trials for Dupuytren's disease and
Peyronie's disease advanced in the U.S. Also during the quarter ended July 31,
1998, costs were incurred to support applications for marketing approval in
various countries in the European Union. The Company expects future R&D expenses
to equal or slightly exceed the level incurred in the current period, as trials
for Dupuytren's and Peyronie's diseases advance to new phases.
Other income - net - Other income - net for the six months ended July 31, 1999
and 1998 was $128,499 and $128,292, respectively. During the current period,
higher income from increasing values of equity securities was offset by lower
income from fixed income securities held as trading security investments as the
Company's overall level of investments in securities was reduced in the six
month period ended July 31, 1999.
Income tax expense (benefit) - The income tax expense (benefit) for the six
months ended July 31, 1999 and 1998 was $(250,510) and $261,780, respectively, a
decrease of $512,290. As explained above, the Company recorded a tax benefit for
the six months ended July 31, 1999 partially as a result of its pretax loss. In
addition, the Company generated orphan drug tax credits as a result of continued
research expenditures for Dupuytren's and Peyronie's diseases. The benefit is
available as a carryback/carryforward against income taxes paid in prior/future
periods.
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, 1999, the
Company had working capital of approximately $8,708,000 which included cash and
cash equivalents and marketable securities of approximately $6,500,000. The
principal source of cash during the six months ended July 31, 1999 was
approximately $899,000 from operating activities. The principal uses of cash
during the period were expenditures for plant, property and equipment of
approximately $168,000 and repurchases of Company stock of approximately
$178,000. At July 31, 1999 the Company had commitments for capital expenditures
of approximately $500,000. The Company plans to invest a total of between $1.5
million and $2.0 million in new equipment at its Lynbrook, New York, and
Curacao, Netherlands Antilles facilities.
In January and March of 1999, the Company was issued a List of Inspectional
Observations on FDA Form 483 from FDA inspectors, citing numerous inspectional
observations relating to deficiencies in the Company's "good manufacturing
practice" at its Lynbrook, New York and Curacao, Netherlands Antilles
facilities. In addition, on May 10, 1999, the Company received a letter from the
FDA (the "FDA Letter") citing certain inspectional observations relating to
deficiencies at its Lynbrook, New York facility, Curacao, Netherlands Antilles
facility, and contract manufacturing facility.
10
<PAGE>
The FDA Letter advised the Company that the FDA will institute formal
proceedings to revoke the Company's license to manufacture Collagenase Santyl(R)
Ointment unless the Company provides satisfactory assurances to the FDA,
including submitting to the FDA a detailed, comprehensive plan of corrective
action within 30 days, and undertakes significant remedial action to address the
observations listed in the 483s and the FDA Letter, and otherwise demonstrates
compliance with applicable regulatory requirements.
The Company has provided the FDA with its plan of corrective action and met
twice with the FDA to discuss the plan of corrective action. The Company has
hired outside consultants, has employed additional staff for the Quality Control
department, and will continue to seek to employ additional staff for the Quality
Control and Quality Assurance departments to assist in further developing and
executing the plan of corrective action, and is taking steps to reorganize the
Quality Control and Quality Assurance departments.
With regard to an agreement with KPC, pursuant to which KPC will continue to
produce Santyl(R) Ointment from collagenase enzyme provided by the Company after
April 23, 1999, in the event the FDA does not permit the Company to release into
the marketplace such ointment prepared by KPC, the Company would be liable to
reimburse KPC an amount estimated by the Company to be approximately $500,000
for the material and direct labor manufacturing costs of such ointment lots.
Such a charge would apply to the current fiscal year, and would have a material
adverse effect on the fiscal year's results. To date, the FDA has permitted the
Company to release into the marketplace Santyl(R) Ointment from collagenase
enzyme provided by the Company after April 23, 1999, and therefore no charge has
been taken with regard to this agreement.
The Company plans to invest between $1.5 million and $2.0 million in new
equipment at its Lynbrook, New York, and Curacao, Netherlands Antilles
facilities. This investment is intended to address pertinent observations in the
483s and the FDA Letter and position the Company to ensure the efficiency of its
production process. The Company estimates it could spend between $500,000 to
$800,000 for professional fees and other expenses in connection with the
remediation of the FDA's deficiency observations.
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. However, if the Company is unable to address and remedy the observations
listed in the 483s and the FDA Letter, it will be required to suspend or
terminate operations. Due to the uncertainty of the outcome of the FDA issue,
the Company's former independent auditors, KPMG LLP, have noted in their report
on the Company's consolidated financial statements as of and for the year ended
January 31, 1999 that the FDA Letter raises substantial doubt about the
Company's ability to continue as a going concern. See Part II Other Information
- - Item 6 - Exhibits and Reports on Form 8-K.
11
<PAGE>
Year 2000 Compliance
- --------------------
The Company is preparing its computer systems and hardware to contend with the
issues related to the year 2000 ("Year 2000"). The Year 2000 issue results from
computer programs being written using two digits rather than four to define the
applicable year and to assume that the first two digits of a year were 19. As
the year 2000 approaches, systems using such programs may recognize a date
ending in "00" as the year 1900 rather than the year 2000, and so may not
accurately process certain date-based information. To the extent that the
Company's software applications contain source code that is unable to interpret
appropriately the upcoming calendar year 2000 and beyond, some level of
modification or replacement of such applications will be necessary to avoid
system failures and the temporary inability to process transactions or engage in
other normal business activities.
The initial phase of the Company's preparation for the Year 2000 consists of
assessment and planning. The assessment phase includes the assessment of all
computer hardware, software, systems and processes ("IT systems") and
non-information technology systems and other equipment containing embedded
microprocessor technology ("non-IT systems").
The Company believes that all of its mission-critical computer programs and
hardware are currently Year 2000 compliant. The Company has also assessed the
risk relating to manufacturing equipment which may be impacted by the Year 2000
issue. The Company believes that its manufacturing equipment will not be
affected by the Year 2000 issue because its manufacturing equipment's embedded
chips and software programs, if any, are not date critical. In addition to the
assessment of the IT systems and non-IT systems, the Company has identified
relationships with third parties, including customers, vendors, suppliers and
service providers, which the Company believes are critical to its business
operations. The Company has one significant customer, which represents
approximately 90% of its fiscal 1999 revenues. Based on its assessment to date
of the Year 2000 readiness of its key customers, suppliers, including vendors,
service providers and other third parties on which it relies for business
operations, the Company believes that these third parties are taking action
related to the Year 2000. However, the Company has limited ability to test and
control such third parties' Year 2000 readiness, and it cannot provide assurance
that failure of such third parties to address the Year 2000 issue will not cause
an interruption of the Company's business. The Company will continue to monitor
the progress of these third parties in resolving Year 2000 issues. The cost of
ensuring Year 2000 compliance is not expected to be material. The Company
believes that under a worst-case scenario, it could continue its normal business
activities on a manual basis, however, the Company believes its internal
computer systems will be Year 2000 compliant. With respect to potential Year
2000 failures of its vendors and suppliers, the Company plans to mitigate this
risk by purchasing and storing critical raw materials used in the production
process in advance, which the Company believes will enable it to continue normal
operations for several months.
12
<PAGE>
There can be no assurance that the Company will fully achieve Year 2000
compliance in a timely manner, that the Company will not have to increase
significantly its expenditures relating to any such non-compliance, or that its
business will not be materially adversely affected by any such non-compliance.
New Reporting Standard
- ----------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management does not believe the adoption of this statement will have a material
effect on the Company's consolidated financial statements. This statement will
not be adopted until February 1, 2001, the start of fiscal year 2002.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity, Capital Resources, and Change in Financial
Condition."
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
(a.) The annual meeting of stockholders was held August 4, 1999. The
purpose of the meeting was to elect two directors of the Company.
(b.) The directors elected at the stockholders' meeting were Edwin H. Wegman and
Rainer Friedel, MD., whose terms expire in 2002. The other directors whose terms
of office as director continued after the meeting are Thomas L. Wegman and Paul
A. Gitman, MD., whose terms of office expire in 2000, and Henry Morgan and Louis
Lasagna, MD., whose terms of office expire in 2001.
Item 6. Exhibits and Reports on Form 8-K
On September 2, 1999, the Company filed Form 8-K for purposes of disclosing the
dismissal of KPMG LLP as its independent accountants, and the appointment of
Grant Thornton LLP as its new independent accountants.
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BioSpecifics Technologies Corp.
(Registrant)
Date: September 15, 1999
------------------
By: /s/ Edwin H. Wegman
------------------------------
Edwin H. Wegman
Chairman and President
Date: September 15, 1999
------------------
By: /s/ Albert Horcher
------------------------------
Albert Horcher
Treasurer, Principal Financial and
Chief Accounting Officer
14
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