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, 2000
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
Commission File number: 0-19879
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BioSpecifics Technologies Corp.
-------------------------------
(Exact name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3054851
-------- ----------
(State of Incorporation) (IRS Employer I.D. Number)
35 Wilbur St.
Lynbrook, NY 11563
------------------
(Address of principal executive offices)
(516) 593-7000
--------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,529,766 shares of Common
Stock, $0.001 par value as of September 1, 2000.
Transitional Small Business Disclosure Format (check one): Yes No x
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<PAGE>
INDEX
<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, 2000 (unaudited) and January 31, 2000 3
Statements of Operations for the Three and Six Months Ended July 31, 2000
and 1999 4
Statements of Cash Flows for the Six Months Ended July 31, 2000 and 1999
(unaudited) 5
Notes to Consolidated Interim Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Part II - Other Information 13
SIGNATURES 14
</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 2000 2000
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 3,157,040 $ 4,221,447
Marketable securities 872,781 951,398
Accounts receivable 1,009,830 1,484,326
Inventory 1,671,900 1,779,531
Deferred tax assets - net 745,172 686,206
Prepaid expenses and other current assets 208,057 268,942
------------ ------------
Total current assets 7,664,780 9,391,850
Property, plant, and equipment - net 2,840,883 1,221,337
Due from related parties 128,280 119,780
Other assets 28,812 28,812
------------ ------------
TOTAL ASSETS $ 10,662,755 $ 10,761,779
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,189,611 $ 1,516,915
Notes payable to related parties 13,260 13,010
Income taxes payable 59,574 3,970
Deferred revenue 466,978 45,000
------------ ------------
Total current liabilities 1,729,423 1,578,895
Minority interest in subsidiaries 277,348 271,448
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, 2000 and January 31, 2000 4,891 4,891
Additional paid-in capital 3,734,375 3,734,375
Retained earnings 7,848,309 7,826,810
Accumulated other comprehensive income 6,506 7,412
------------ ------------
11,594,081 11,573,488
Less: Treasury stock - 361,380 shares, at cost (1,911,237) (1,911,237)
Notes receivable from chairman (1,026,860) (750,815)
------------ ------------
Stockholders' equity 8,655,984 8,911,436
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,662,755 $ 10,761,779
============ ============
</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,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 1,585,578 $ 1,061,052 $ 2,575,383 $ 1,743,780
Royalties 478,813 674,777 928,011 1,271,524
----------- ----------- ----------- -----------
2,064,391 1,735,829 3,503,394 3,015,304
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales 763,570 605,345 1,243,357 1,013,216
Selling, general and administrative 702,225 820,477 1,254,552 1,467,681
Research and development 364,951 467,029 776,630 972,730
----------- ----------- ----------- -----------
1,830,746 1,892,851 3,274,539 3,453,627
----------- ----------- ----------- -----------
Income (loss) from operations 233,645 (157,022) 228,855 (438,323)
Other income (expense)
Investment and other income (loss) (144,994) 88,158 (201,509) 130,849
Interest expense (1,262) (1,260) (2,845) (2,350)
----------- ----------- ----------- -----------
(146,256) 86,898 (204,354) 128,499
----------- ----------- ----------- -----------
Income (loss) before taxes and minority interest 87,389 (70,124) 24,501 (309,824)
Income tax benefit 5,930 150,000 2,900 250,000
----------- ----------- ----------- -----------
Income (loss) before minority interest 93,319 79,876 27,401 (59,824)
Minority interest in net income or loss of subsidiaries (5,900) (6,375) (5,900) 4,275
----------- ----------- ----------- -----------
Net income (loss) $ 87,419 $ 73,501 $ 21,501 ($ 64,099)
=========== =========== =========== ===========
Basic net income (loss) per common share $ 0.02 $ 0.02 $ 0.01 ($ 0.01)
=========== =========== =========== ===========
Weighted-average common shares outstanding 4,529,766 4,538,266 4,529,766 4,550,916
=========== =========== =========== ===========
Diluted net income (loss) per common share $ 0.02 $ 0.02 $ 0.00 ($ 0.01)
=========== =========== =========== ===========
Weighted-average common and dilutive
potential common shares outstanding 4,557,671 4,538,416 4,586,121 4,550,916
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
BioSpecifics Technologies Corp. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
July 31,
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) $ 21,501 ($ 63,589)
Adjustments to reconcile net income (loss)
to net cash provided by/(used in) operating activities:
Depreciation 76,242 95,750
(Gain) loss on marketable securities - net 344,122 12,559
Minority interest in income of subsidiaries 5,900 4,275
Deferred tax assets (58,966) (257,145)
Cumulative translation adjustment (906) (641)
Changes in operating assets & liabilities:
Accounts receivable 474,496 94,486
Marketable securities - net (265,505) 1,228,767
Inventory 107,631 (22,859)
Due from related party -- (292,189)
Prepaid and other current assets 60,885 (125,408)
Other assets 0 24,882
Accounts payable & accruals (327,304) 278,230
Income taxes payable 55,604 (78,566)
Increase in deferred revenue 421,978 --
----------- -----------
Net cash provided by operating activities 915,678 898,552
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to chairman (276,045) --
Advances to related parties (8,250) 250
Expenditures for plant, property and equipment (1,695,790) (168,408)
----------- -----------
Net cash used in investing activities (1,980,085) (168,158)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock purchases -- (177,649)
----------- -----------
Net cash used by financing activities 0 (177,649)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,064,407) 552,745
CASH AND EQUIVALENTS:
Beginning of Period 4,221,447 5,086,725
----------- -----------
End of Period $ 3,157,040 $ 5,639,470
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid during period for interest $ 2,845 $ 2,351
=========== ===========
Cash paid during period for income taxes $ 9,414 $ 32,327
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
BIOSPECIFICS TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JULY 31, 2000
(UNAUDITED)
1. Description of Business and Basis of Presentation
-------------------------------------------------
The accompanying consolidated financial statements include the accounts of
BioSpecifics Technologies Corp. (the "Company"), its majority-owned
subsidiaries, Advance Biofactures Corp. ("ABC - New York") and Advance
Biofactures of Curacao N.V. ("ABC - Curacao") and its wholly-owned subsidiary,
Biospecifics Pharma GmbH ("Bio Pharma") of Germany. All significant intercompany
transactions and balances have been eliminated in consolidation.
The Company produces a fermentation-derived enzyme named Collagenase ABC (the
"product" or "enzyme") which is licensed by the U.S. Food and Drug
Administration (the "FDA") and is indicated for topical debridement of dermal
ulcers and burn wounds. The Company operates a production facility in Lynbrook,
New York (the "Lynbrook Plant or Facility") and in Curacao, Netherlands Antilles
(the "Curacao Plant or Facility"). The Company is also researching and
developing additional products derived from this enzyme for potential use as
pharmaceuticals.
The Company derives most of its net sales of product revenues and all of its
royalty revenues from one customer, Knoll Pharmaceutical Company ("KPC"). KPC
acts as the Company's contract manufacturer by compounding the product into
Collagenase Santyl(R) (Santyl(R)), an ointment used to treat various types of
skin wounds, particularly chronic dermal ulcers and severely burned areas. The
Company and KPC are parties to a licensing agreement expiring in August 2003
providing KPC with exclusive rights to market Santyl(R) ointment in North
America in exchange for purchases of the product and royalties on KPC's
Santyl(R) sales to distributors. The license agreement has an automatic ten-year
renewal clause unless KPC elects not to renew the agreement. The rest of the
Company's revenues come from product sales to pharmaceutical companies in Brazil
and India.
On January 31, 2000, pursuant to a sublicense and assignment agreement, to which
ABC is not a party, KPC sublicensed its rights to Smith & Nephew, Inc. ("S&N")
with the consent of ABC. Under the sublicense, KPC will continue to purchase the
product from the Company and manufacture the ointment. S&N will market the
ointment. In connection with the sublicense, the Company entered into several
agreements with KPC and S&N.
These included an agreement allocating responsibility under the KPC Agreement
among ABC, KPC, and S&N for both the sublicense and license period. Another
agreement imparts certain obligations upon ABC to address the FDA issues
concerning the Curacao and Lynbrook manufacturing facilities. (See "Liquidity,
Capital Resources, and Changes in Financial Condition".) KPC will assign its
license rights in the KPC Agreement to S&N in the event of FDA approval of a
compliance program being undertaken by ABC. If the license rights are assigned
to S&N, the KPC agreement will be automatically extended at that time until
2013.
6
<PAGE>
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, 2000, the
statements of operations for the three and six months ended July 31, 2000 and
1999, and statements of cash flows for the six months ended July 31, 2000 and
1999. 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, 2000.
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 and six months ended July 31, 2000 and the
three months ended July 31, 1999. During the three and six months ended July 31,
2000, dilutive common stock options included in diluted EPS were 27,905 and
56,355, respectively. During the three months ended July 31, 1999, dilutive
common stock options included in diluted EPS were 150. 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.
4. Segment Information
-------------------
The Company is engaged in one segment, specifically research, development and
production of pharmaceutical products. Operations in this business segment take
place in one location in North America, one location in South America, and one
location in Europe. As of July 31, 2000, identifiable assets in North America
approximated $5.1 million and identifiable assets in South America and Europe
approximated $5.6 million. As of January 31, 2000, identifiable assets in North
America approximated $5.1 million and identifiable assets in South America and
Europe approximated $5.7 million. For the three and six months ended July 31,
2000, total revenues derived in North America approximated $1,830,000 and
$3,021,000, respectively, and $234,000 and $482,000 in South America and Europe.
For the three and six months ended July 31, 1999, total revenues derived in
North America approximated $1,735,000 and $2,763,000, respectively, and $0 and
$252,000 in South America and Europe.
7
<PAGE>
5. Stockholders' equity and other comprehensive income
---------------------------------------------------
The only change to stockholders' equity during the periods presented were
increases (decreases) to retained earnings due to net income (loss). Other
comprehensive income represents gains and losses resulting from translation of
foreign subsidiaries' assets, liabilities, revenues and expenses into the U.S.
dollar at period-end exchange rates. Gains and losses from currency translation
were immaterial for the periods presented.
6. Contingencies
-------------
See "Liquidity, Capital Resources, and Changes in Financial Condition" for a
discussion about the Company's response to FDA inspectional observations.
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, are 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, government regulation,
the ability of the Company to complete the renovation of its production
facilities and comply with the Form 483 and FDA Letter, the Company's estimate
that its inventory of product is sufficient until the renovated facilities can
produce again, changing market conditions, the impact of competitive products
and pricing, the timely development and approval by the FDA and foreign health
authorities of potential products, market acceptance of the Company's potential
products, and other risks detailed herein and in other filings the Company makes
with the Securities and Exchange Commission. Further, any forward looking
statement or statements speak only as of the date on which such statements were
made, and the Company undertakes no obligation to update any forward looking
statement or statements to reflect events or circumstances after the date on
which such statement or statements were made.
The Company incorporates by reference the Management's Discussion and Analysis
of Financial Condition and Results of Operations set forth in its Form 10-KSB
for the fiscal year ended January 31, 2000.
8
<PAGE>
Three months ended July 31, 2000 and 1999
-----------------------------------------
Net sales - Net sales for the three months ended July 31, 2000 and 1999 were
$1,585,578 and $1,061,052 respectively, representing an increase of $524,526 or
49%. The entire increase is from higher deliveries of Collagenase ABC to KPC
during the current three-month period. As reported to the Company by KPC, the
higher deliveries to KPC are due to KPC's intention to build up an inventory of
Collagenase Santyl(R) Ointment, which it will in turn sell to S&N. Sales of
Collagenase ABC to pharmaceutical companies in countries outside the United
States remained the same.
Royalties - Royalties for the three months ended July 31, 2000 and 1999 were
$478,813 and $674,777, respectively, representing a $195,964 or 29% decrease. As
reported to the Company by KPC, during the three months ended July 31, 2000, S&N
sold lower amounts of Collagenase Santyl(R), on which the royalty is earned,
than did KPC in the year ago period. The Company believes the decline is due to
the transition of the Collagenase Santyl(R) marketing from KPC to S&N, as
discussed in Note 1 to the Company's Consolidated Interim Financial Statements.
Cost of sales - Cost of sales for the three months ended July 31, 2000 and 1999
were $763,570 and $605,345, respectively, representing an increase of $158,225,
or 26%, due to higher net sales. Gross profit margin improved to 52% from 43%
due to higher net sales volume, into which fixed costs are more quickly
absorbed, resulting in a higher gross profit.
Selling, general and administrative - Selling, general and administrative
("SG&A") expenses for the three months ended July 31, 2000 and 1999 were
$702,225 and $820,477, respectively, representing a decrease of $118,252 or 14%.
During the prior year quarter ended July 31, 1999, the Company engaged, to a
greater extent over the current period, 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 more highly involved in the response effort as well in the prior year
period as compared to the current period, resulting in some level of production
inactivity. Those costs usually allocated to production were included in SG&A.
The Company anticipates that into the foreseeable future there will be
considerable consultation costs and involvement of its lab personnel in
responding to the 483s. 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, 2000 and 1999 were $364,951 and $467,029,
respectively, representing a decrease of $102,078, or 22%. During the quarter
ended July 31, 1999, higher clinical trial costs were incurred for clinical
trials in the U.S. for Dupuytren's disease and Peyronie's disease. During the
quarter ended July 31, 2000, those trials were at or near completion, hence
lower costs were incurred. 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.
9
<PAGE>
Other income (loss)- net - Other income (loss)- net for the three months ended
July 31, 2000 and 1999 was $(146,256) and $86,898 respectively. The decrease of
$233,154 was due primarily to decreasing values of equity securities held as
trading security investments in the current year period versus the prior period.
The decrease is also due to lower levels of funds available for investment in
the current period versus the year ago period.
Income tax benefit - The income tax benefit for the three months ended July 31,
2000 and 1999 was $5,930 and $150,000, respectively, a decrease of $144,070. The
Company recorded a higher tax benefit generated by orphan drug tax credits for
the three months ended July 31, 1999 as a result of greater research
expenditures for Dupuytren's and Peyronie's diseases versus the three months
ended July 31, 2000. The benefit is available as a carryback/carryforward
against income taxes paid in prior/future periods.
Six months ended July 31, 2000 and 1999
---------------------------------------
Net sales - Net sales for the six months ended July 31, 2000 and 1999 were
$2,575,383 and $1,743,780, respectively, representing an $831,603, or 48%
increase. The increase in net sales was due to a 41% increase in deliveries of
Collagenase ABC to KPC in the United States, and a 100% increase in deliveries
to pharmaceutical companies in countries outside the United States. As reported
to the Company by KPC, the higher deliveries are due to KPC's intention to build
up an inventory of Collagenase Santyl(R) Ointment, which it will in turn sell to
S&N.
Royalties - Royalties for the six months ended July 31, 2000 and 1999 were
$928,011 and $1,271,524, respectively, representing a $343,513 or 27% decrease.
As reported to the Company by KPC, during the six months ended July 31, 2000,
S&N sold lower amounts of Collagenase Santyl(R), on which the royalty is earned,
than did KPC in the year ago period. The Company believes the decline is due to
the transition of the Collagenase Santyl(R) marketing from KPC to S&N, which
took place January 31, 2000, as discussed in Note 1 to Consolidated Interim
Financial Statements.
Cost of sales - Cost of sales for the six months ended July 31, 2000 and 1999
were $1,243,357 and $1,013,216, respectively, representing an increase of
$230,141 or 23% due to higher net sales. Gross profit margin improved to 52%
from 42% due to higher net sales volume, into which fixed costs are more quickly
absorbed, resulting in a higher gross profit.
Selling, general and administrative - SG&A expenses for the six months ended
July 31, 2000 and 1999 were $1,254,552 and $1,467,681, respectively,
representing a $213,129, or 15% decrease. As explained above, during the period
ended July 31, 1999, the Company engaged consultants to a greater extent than in
the current year period, to assist in responding to 483's, the cost of which are
included in SG&A. In addition, in the 1999 period production lab personnel were
highly involved in the response effort as well, compared to the current period,
resulting in a some level of production inactivity. Those costs usually
allocated to production are included in SG&A.
10
<PAGE>
The Company anticipates that into the foreseeable future there will be
considerable consultation costs and involvement of its lab personnel in
responding to the 483s. See "Liquidity, Capital Resources, and Changes in
Financial Condition".
Research and development - R&D expenses for the six months ended July 31, 2000
and 1999 were $776,630 and $972,730, respectively, representing a decrease of
$196,100 or 20%. During the six month period ended July 31, 1999, higher
clinical trial costs were incurred as trials for Dupuytren's disease and
Peyronie's disease advanced in the U.S. 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 (loss) - net - Other income (loss) - net for the six months ended
July 31, 2000 and 1999 was $(204,354) and $128,499, respectively. The decrease
of $332,853 was due primarily to decreasing values of equity securities held as
trading security investments in the current year period versus the prior period.
The decrease is also due to lower levels of funds available for investment in
the current period versus the year ago period.
Income tax benefit - The income tax benefit for the six months ended July 31,
2000 and 1999 was $2,900 and $250,510, respectively, a decrease of $247,610. The
Company recorded a higher tax benefit generated by orphan drug tax credits for
the six months ended July 31, 1999 as a result of greater research expenditures
for Dupuytren's and Peyronie's diseases versus the six months ended July 31,
2000. 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 operations, which
includes sales of product, royalties, and new license fees. At July 31, 2000,
the Company had working capital of approximately $5.9 million which includes
cash and cash equivalents, and marketable securities of approximately $4.0
million. Net cash provided by operating activities during the six months ended
July 31, 2000 was approximately $915,000, partially due to an increase of
$422,000 in deferred revenue. KPC agreed to pay the Company in advance for a
portion of its planned purchases of the enzyme in calendar 2000 as part of the
agreement between the Company and KPC concerning KPC's sublicense of its
exclusive marketing rights to S&N. The advance payment was received during the
six months ended July 31, 2000. During the six months ended July 31, 2000, the
Company expended almost $1.7 million for plant, property and equipment,
primarily for the renovation of its production plant in Curacao.
In 1999, the Company was issued a list of inspectional observations made by the
FDA in Form 483 citing numerous deficiencies in the Company's compliance with
FDA regulations at its manufacturing plants in Lynbrook and Curacao and at KPC's
contract manufacturing facility.
11
<PAGE>
The FDA advised the Company that they would revoke the Company's license to
manufacture the enzyme and ointment unless the Company could immediately provide
satisfactory assurance to the FDA (including submitting a comprehensive plan of
corrective action) addressing the FDA's observations and otherwise demonstrate
compliance with the applicable regulations. The Company responded to the FDA by
submitting a comprehensive plan of corrective action providing for (i) the
renovation of the Lynbrook and Curacao manufacturing plants, (ii) the
reorganization of the Company's quality control and quality assurance
departments, (iii) an upgrade of quality control standards and procedures and
(iv) the hiring of additional personnel in the quality control and quality
assurance departments. The Company has retained an outside consulting firm with
expertise in FDA regulatory compliance matters to assist in developing and
implementing the corrective action plan.
The Company started renovating the Curacao plant in March 2000 and as a result
suspended the production of enzyme at that location. The Curacao plant will not
resume the production of enzyme until construction is complete, the plant is
validated and the FDA permits the Company to resume operations and approves the
product itself. The Company also voluntarily suspended the production of enzyme
at its Lynbrook facility, although final-stage production and testing continue
there. Renovations at the Lynbrook facility are planned to begin in the fourth
quarter of calendar 2000. In anticipation of the renovations and suspension of
manufacturing operations, the Company accumulated an inventory of the product
which it estimates KPC can use to contract manufacture Santyl(R) into the second
quarter of calendar 2001. In the opinion of the Company, this would permit KPC
to supply S&N with Santyl(R) through the second quarter of calendar 2002.
Management estimates that the Company will spend approximately $3.5 million to
remediate both plants. Approximately $2.5 million of that amount has been spent
since inception of renovations through July 2000 on new equipment related to the
renovation in Curacao. In addition, the Company incurred consulting fees and
other expenses of approximately $1 million through January 31, 2000 and believes
it will incur additional consulting fees of approximately $600,000 during the
fiscal year ended January 31, 2001. The Company believes that the plant
remediation program and changes in the Company's quality control policies and
procedures outlined in the corrective plan will adequately address the FDA's
concerns. Management also believes that the capital-spending plan will modernize
the Company's facilities and improve operational efficiency.
A supplement to ABC's Establishment License will have to be approved by the FDA
after the renovation before any additional enzyme produced at the Curacao
facility can be used by KPC. As part of the approval process for the supplement,
the FDA may conduct an inspection of the Curacao facility. The Company currently
estimates that the Curacao could be back in production by the fourth quarter of
calendar 2000 and have enzyme available for KPC during the third quarter of
calendar 2001. Due to the uncertainty of the FDA approval process however, there
can be no assurances that these target dates will be met.
12
<PAGE>
Although the Company believes that it has made considerable progress in
addressing the FDA concerns addressed in the Form 483 and the FDA Letter, if the
Company is unable to further address these matters in a timely manner, there may
be delays in the delivery of product produced in the renovated facilities to KPC
for use to contract manufacture Collagenase Santyl(R) Ointment. Such delays
could have a material adverse effect on the Company's future operating results.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the incurrence
of liabilities in the normal course of business. The Company believes it has
adequate financial resources needed to take corrective action and continue its
operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
--------------------------
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations and "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 3, 2000. The purpose of
the meeting was to elect two directors of the Company.
(b.) The directors elected at the stockholders' meeting were Thomas L. Wegman
and Paul Gitman, MD., whose terms expire in 2003. 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 2002, and Henry Morgan and
Louis Lasagna, MD., whose terms of office expire in 2001.
(C.) The result of the election was as follows:
Votes For Votes Withheld
--------- --------------
Thomas L. Wegman 4,318,842 42,569
Paul Gitman, MD. 4,318,842 46,425
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 14, 2000
-------------------
By:/s/Edwin H. Wegman
-------------------------------------
Edwin H. Wegman
Chairman and President
Date: September 14, 2000
------------------
By:/s/Albert Horcher
-------------------------------------
Albert Horcher
Treasurer, Principal Financial and
Chief Accounting Officer
14
