-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WkYqFB8t2ixqr+yZW9wyIGYOlSJpH3/YXRqm7mKjblcpLguxg6WRs3fDhsBoXMJy o58d4lTClgTYQfAwRPdpYQ== /in/edgar/work/20000915/0001116502-00-000083/0001116502-00-000083.txt : 20000923 0001116502-00-000083.hdr.sgml : 20000923 ACCESSION NUMBER: 0001116502-00-000083 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000731 FILED AS OF DATE: 20000915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOSPECIFICS TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000875622 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 113054851 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19879 FILM NUMBER: 723714 BUSINESS ADDRESS: STREET 1: 35 WILBUR ST CITY: LYNBROOK STATE: NY ZIP: 11563 BUSINESS PHONE: 5165937000 MAIL ADDRESS: STREET 1: 35 WILBUR STREET CITY: LYNBROOK STATE: NY ZIP: 11563 10QSB 1 0001.txt QUARTERLY REPORT 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 ------- 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 ---- ---- INDEX
Page ---- 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
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements BioSpecifics Technologies Corp. and Subsidiaries Consolidated Balance Sheets
(Unaudited) July 31, January 31, ASSETS 2000 2000 ------------ ------------ 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 ============ ============
See accompanying notes to consolidated financial statements. 3 Biospecifics Technologies Corp. and Subsidiaries Consolidated Statements of Operations
Unaudited Unaudited Three months ended Six months ended July 31, July 31, 2000 1999 2000 1999 ----------- ----------- ----------- ----------- 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 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements 4 BioSpecifics Technologies Corp. and Subsidiaries Consolidated Statements of Cash Flows
(Unaudited) Six months ended July 31, CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 ----------- ----------- 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 =========== ===========
See accompanying notes to consolidated financial statements 5 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 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 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 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 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 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 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 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 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 EX-27 2 0002.txt FDS --
5 6-MOS Jan-31-2001 Feb-01-1999 Jul-31-2000 3,157,040 872,781 1,009,830 0 1,671,900 208,057 4,215,430 1,374,547 10,662,755 0 0 0 0 4,891 11,582,684 10,662,755 3,503,394 3,503,394 1,243,357 1,243,357 776,630 0 2,845 24,501 2,900 21,501 0 0 0 0 0.01 0.01
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