10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________to __________________

001-34236

(Commission file number)

BIOSPECIFICS TECHNOLOGIES CORP.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	11-3054851
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

35 Wilbur Street Lynbrook, NY 11563

(Address of Principal Executive Offices) (Zip Code)

516.593.7000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	BSTC	The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer                 ☒
Non-accelerated filer    ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 11, 2019, there were 7,339,370 shares of Common Stock, par value $0.001 per share, outstanding.

BIOSPECIFICS TECHNOLOGIES CORP.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Unaudited CondensedConsolidated Financial Statements
	CondensedConsolidated Balance Sheets	4
	CondensedConsolidated Income Statements	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	CondensedConsolidated Statements of Cash Flows	7
	Notes to CondensedConsolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	24
ITEM 4.	Controls and Procedures	24

	PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings	25
ITEM 1A.	Risk Factors	25
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
ITEM 5.	Other Information	25
ITEM 6.	Exhibits	26
	Signatures	27

2

Introductory Comments – Terminology

Throughout this Quarterly Report on Form 10-Q, the terms “BioSpecifics,” “Company,” “we,” “our,” and “us” refer to BioSpecifics Technologies Corp. and its subsidiary, Advance Biofactures Corp.

Throughout this Quarterly Report on Form 10-Q, Endo Global Ventures, a Bermuda unlimited liability company, an affiliate of Endo International plc, and Endo International plc are referred to collectively as “Endo”.

Introductory Comments – Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of, and made pursuant to the safe harbor provisions of, the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, expected revenue growth, and the assumptions underlying or relating to such statements, are “forward-looking statements.” The forward-looking statements in this Quarterly Report on Form 10-Q include statements concerning, among other things, (i) the opportunity for minimally invasive non-surgical treatment XIAFLEX® in several potential pipeline indications; (ii) whether and when the Company will receive from Endo the results of their full commercial assessment and analysis regarding XIAFLEX® research and development (R&D) pipeline; (iii) the Company’s ability to achieve its future growth initiatives with regard to Dupuytren’s Contracture and Peyronie’s disease; (iv) the expansion of the market for XIAFLEX® through future growth initiatives; (v) whether treating uterine fibroids with XIAFLEX® will achieve the advantages over major surgery identified by the Company; (vi) Endo’s interest in currently unlicensed indications, including capsular contracture of the breast, Dercum’s disease, knee arthrofibrosis, urethral strictures, hypertrophic scars and keloids; (vii) whether XIAFLEX® will be the only U.S. Food and Drug Administration (FDA) approved nonsurgical therapy for frozen shoulder (adhesive capsulitis); (viii) the projected receipt of payments from Endo and sublicense income payments based on Endo’s partnerships; and (ix) and the strength of the Company’s IP portfolio.

In some cases, these statements can be identified by forward-looking words such as “expect,” “plan,” “anticipate,” “potential,” “estimate,” “can,” “will,” “continue,” the negative or plural of these words, and other similar expressions. These forward-looking statements are predictions based on our current expectations and our projections about future events and various assumptions. There can be no assurance that we will realize our expectations or that our beliefs will prove correct. There are a number of important factors that could cause BioSpecifics’ actual results to differ materially from those indicated by such forward-looking statements, including the timing of regulatory filings and action; the ability of Endo and its partners, Asahi Kasei Pharma Corporation, Actelion Ltd. and Swedish Orphan Biovitrum AB, to achieve their objectives for XIAFLEX® in their applicable territories; the market for XIAFLEX® in, and timing, initiation and outcome of clinical trials for, additional indications, which will determine the amount of milestone, royalty, mark-up on cost of goods sold, license and sublicense income that BioSpecifics may receive; the potential of XIAFLEX® to be used in additional indications; Endo modifying its objectives or allocating resources other than to XIAFLEX®; and other risk factors identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report) and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019, specifically in Part I, Item IA under the heading “Risk Factors” and under the section “Management’s Discussion and Analysis.” All forward-looking statements included in this Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2019 are made as of the date hereof, are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q and, except as may be required by law, we assume no obligation to update these forward-looking statements.

3

PART I – FINANCIAL INFORMATION

Item 1: Condensed Consolidated Financial Statements

BioSpecifics Technologies Corp.

Condensed Consolidated Balance Sheets

	September 30, 2019			December 31, 2018
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	12,769,293		$	13,176,452
Short term investments		69,089,724			67,707,143
Accounts receivable		17,768,757			16,518,687
Deferred royalty buy-down		-			184,931
Prepaid expenses and other current assets		836,708			646,749
Prepaid income taxes		951,776
Total current assets		101,416,258			98,233,962
Long-term investments		16,492,528			1,099,834
Deferred tax assets, net		-			313,768
Patent costs, net		562,503			444,478
Total assets	$	118,471,289		$	100,092,042
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	877,228		$	1,798,588
Income tax payable		-			704,934
Total current liabilities		877,228			2,503,522
Deferred tax liability, net		593,059			-
Commitments and Contingencies
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 7,811,230 and 7,738,167 shares issued, 7,342,756 and 7,275,902 shares outstanding as of September 30, 2019 and December 31, 2018, respectively		7,811			7,738
Additional paid-in capital		38,956,156			36,302,446
Retained earnings		89,292,707			72,176,719
Treasury stock, 468,474 and 462,265 shares at cost as of September  30, 2019 and December 31, 2018, respectively		(11,255,672	)		(10,898,383	)
Total stockholders’ equity		117,001,002			97,588,520
Total liabilities and stockholders’ equity	$	118,471,289		$	100,092,042

See accompanying notes to condensed consolidated financial statements.

4

BioSpecifics Technologies Corp.

Condensed Consolidated Income Statements

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Royalties	$	9,442,253		$	8,168,081		$	26,424,380		$	23,068,585
Licensing revenues		-			-			-			39,679
Total Revenues		9,442,253			8,168,081			26,424,380			23,108,264
Costs and expenses:
Research and development		143,185			162,625			454,042			569,648
General and administrative		1,978,078			2,232,077			6,613,362			6,345,662
Total Cost and Expenses		2,121,263			2,394,702			7,067,404			6,915,310
Operating income		7,320,990			5,773,379			19,356,976			16,192,954
Other income:
Interest income		504,909			359,637			1,471,489			851,334
Other income		-			-			-			96,663
		504,909			359,637			1,471,489			947,997
Income before income tax expense		7,825,899			6,133,016			20,828,465			17,140,951
Provision for income tax expense		(1,552,966	)		(1,089,966	)		(3,712,477	)		(3,271,366	)
Net income	$	6,272,933		$	5,043,050		$	17,115,988		$	13,869,585
Basic net income per share	$	0.86		$	0.69		$	2.34		$	1.92
Diluted net income per share	$	0.85		$	0.69		$	2.33		$	1.89
Shares used in computation of basic net income per share		7,334,212			7,281,388			7,306,665			7,230,106
Shares used in computation of diluted net income per share		7,359,034			7,356,885			7,347,701			7,327,029

See accompanying notes to condensed consolidated financial statements.

5

BioSpecifics Technologies Corp.

Condensed Consolidated Statements of Stockholders’ Equity

	Common Stock
	Shares	Amount		Additional Paid in Capital		Retained Earnings		Treasury Stock			Stockholders’ Equity Total
Balances - December 31, 2018	7,738,167	$	7,738	$	36,302,446	$	72,176,719	$	(10,898,383	)	$	97,588,520
Issuance of common stock upon stock option exercise	73,063		73	$	2,133,323		-		-			2,133,396
Stock compensation expense	-		-	$	520,387		-		-			520,387
Repurchases of common stock	-		-		-		-		(357,289	)		(357,289	)
Net income	-		-		-		17,115,988		-			17,115,988
Balances – September 30, 2019	7,811,230	$	7,811	$	38,956,156	$	89,292,707	$	(11,255,672	)	$	117,001,002

	Common Stock
	Shares		Amount		Additional Paid in Capital		Retained Earnings		Treasury Stock			Stockholders’ Equity Total
Balances – June 30, 2019		7,796,230	$	7,796	$	38,299,800	$	83,019,774	$	(11,016,949	)	$	110,310,421
Issuance of common stock upon stock option exercise		15,000		15		396,435		-		-			396,450
Stock compensation expense		-		-		259,921		-		-			259,921
Repurchases of common stock		-		-		-		-		(238,723	)		(238,723	)
Net income		-		-		-		6,272,933		-			6,272,933
Balances –  September  30, 2019		7,811,230	$	7,811	$	38,956,156	$	89,292,707	$	(11,255,672	)	$	117,001,002

	Common Stock
	Shares		Amount		Additional Paid in  Capital		Retained Earnings		Treasury Stock			Stockholders’ Equity Total
Balances - December 31, 2017		7,600,167	$	7,600	$	33,468,323	$	41,939,115	$	(7,898,200	)	$	67,516,838
Adjustment due to adoption of ASC606		-		-		-		10,184,335		-			10,184,335
Issuance of common stock upon stock option exercise		138,000		138		2,570,692		-		-			2,570,830
Stock compensation expense		-		-		159,883		-		-			159,883
Repurchases of common stock		-		-		-		-		(2,559,050	)		(2,559,050	)
Net income		-		-		-		13,869,585		-			13,869,585
Balances –  September  30, 2018		7,738,167	$	7,738	$	36,198,898	$	65,993,035		(10,457,250	)	$	91,742,421

	Common Stock
	Shares		Amount		Additional Paid in Capital		Retained  Earnings		Treasury Stock			Stockholders’ Equity Total
Balances – June 30, 2018		7,655,167	$	7,655	$	34,424,632	$	60,949,985	$	(7,898,200	)	$	87,484,072
Issuance of common stock upon stock option exercise		83,000		83		1,710,697		-		-			1,710,780
Stock compensation expense		-		-		63,569		-		-			63,569
Repurchases of common stock		-		-		-		-		(2,559,050	)		(2,559,050	)
Net income		-		-		-		5,043,050		-			5,043,050
Balances –  September  30, 2018		7,738,167	$	7,738	$	36,198,898	$	65,993,035	$	(10,457,250	)	$	91,742,421

See accompanying notes to condensed consolidated financial statements.

6

BioSpecifics Technologies Corp.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended September 30,
Cash flows from operating activities:	2019			2018
Net income	$	17,115,988		$	13,869,585
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization		202,875			1,984,577
Stock-based compensation expense		520,387			159,883
Deferred tax expense		199,908			128,418
Extinguishment of accrued liabilities		-			(78,138	)
Changes in operating assets and liabilities:
Accounts receivable		(1,250,070	)		(2,245,522	)
Income tax payable / receivable		(949,791	)		(774,624	)
Prepaid expenses and other current assets		(189,959	)		(178,453	)
Patent costs		(189,704	)		(95,399	)
Accounts payable and accrued expenses		(921,360	)		(356,548	)
Deferred revenue		-			(139,680	)
Net cash provided by operating activities		14,538,274			12,274,099
Cash flows from investing activities:
Maturity of marketable investments		76,636,059			58,380,000
Purchases of marketable investments		(93,357,599	)		(64,618,676	)
Net cash used in investing activities		(16,721,540	)		(6,238,676	)
Cash flows from financing activities:
Proceeds from stock option exercises		2,133,396			2,570,830
Payments for repurchase of common stock		(357,289	)		(2,559,050	)
Net cash provided by financing activities		1,776,107			11,780
Increase (decrease) in cash and cash equivalents		(407,159	)		6,047,203
Cash and cash equivalents at beginning of year		13,176,452			7,333,810
Cash and cash equivalents at end of period	$	12,769,293		$	13,381,013
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		-			-
Taxes	$	4,462,362		$	3,917,572

See accompanying notes to condensed consolidated financial statements.

7

BIOSPECIFICS TECHNOLOGIES CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (CCH) for multiple indications. We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (DC), Peyronie’s disease (PD), frozen shoulder, cellulite, and uterine fibroids. Injectable CCH currently is approved and marketed in the U.S. under the trademark XIAFLEX^® for the treatment of both DC and PD. XIAFLEX® also is commercialized in Japan, Europe (where it is marketed as Xiapex®), Canada, and Australia for DC, and for PD in Canada, Europe and Australia. We generate revenue primarily from our license agreement with Endo, under which we receive license and sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX®.

On August 31, 2011, we entered into the Second Amended and Restated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”), an entity that was acquired by Endo in 2015. The License Agreement originally was entered into in June 2004 to obtain exclusive worldwide rights to develop, market, and sell certain products containing our enzyme CCH, which Endo markets for approved indications under the trademark XIAFLEX®. Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, Dupuytren’s nodules, PD, frozen shoulder, cellulite, canine and human lipomas, plantar fibromatosis, lateral hip fat, and other potential aesthetic indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.

Pursuant to the License Agreement, Endo currently is selling XIAFLEX® in the U.S. for the treatment of DC and PD and is distributing XIAFLEX® in Canada through its operating company, Paladin Labs Inc. Additionally, Endo has entered into several non-affiliated sublicensee agreements (as permitted by the License Agreement), including the following:

• An agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex® for the treatment of DC and PD in Europe and certain Eurasian countries;

• An agreement with Asahi Kasei Pharma Corporation (“Asahi”), pursuant to which Asahi has the right to commercialize XIAFLEX® for the treatment of DC and PD in Japan; and

• An agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX® in Australia and New Zealand.

On February 1, 2016, we entered into the First Amendment (the “First Amendment”) to the License Agreement. Pursuant to the First Amendment, the Company and Endo Global Ventures mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.

Additionally, we agreed that Endo may opt-in early to indications, prior to our submission of a clinical trial report, with our consent, such consent not to be unreasonably withheld. For early opt-ins, Endo will be required to make an opt-in payment of $0.5 million on a per indication basis. For regular opt-ins, following our submission of a clinical trial report, Endo will be required to make an opt-in payment of $0.75 million on a per indication basis.

8

On February 26, 2019, we and Endo entered into the Second Amendment to the License Agreement (the “Second Amendment”) to amend certain provisions of the License Agreement. The Second Amendment has an effective date of January 1, 2019. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement by Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo. In addition, the Second Amendment amends certain provisions of the License Agreement to require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations.

The two marketed indications involving our injectable collagenase are DC and PD. In addition to DC and PD, Endo has opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo.

Endo presented positive results from two Phase 3 studies, RELEASE-1 and RELEASE-2, of CCH for the treatment of cellulite. Subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial’s primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a 2-level composite improvement in cellulite severity at Day 71 as compared to subjects receiving placebo.Statistically significant improvements with CCH versus placebo were observed for 8 of 8 (RELEASE-1) and 7 of 8 (RELEASE-2) secondary endpoints, in addition to patient-centric endpoints. These data were presented at 2019 American Academy of Dermatology Annual Meeting on March 2, 2019. On May 17, 2019, Endo announced that clinical data from a Phase 3 investigational study of CCH for the treatment of cellulite was presented at the annual meeting of the American Society for Aesthetic Plastic Surgery.  On September 6, 2019, Endo announced that it had submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for CCH for the treatment of cellulite in the buttocks with an expected commercial launch in the second half of 2020 upon approval.

We presented data from a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66^th Annual Meeting of the Society of Reproductive Investigation (SRI) on March 14, 2019 in Paris, France. In addition, on October 16, 2019, we presented data on patient-reported outcomes of a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the American Society for Reproductive Medicine conferencein Philadelphia, Pennsylvania. The presentations follow positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2019, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s 2018 Annual Report.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) that we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reporting.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the risk factors discussed in Part I, Item 1A. Risk Factors in our 2018 Annual Report, filed with the SEC on April 2, 2019.

Principles of Consolidation

The condensedconsolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. All intercompany balances and transactions have been eliminated.

9

Critical Accounting Policies, Estimates and Assumptions

The preparation of condensedconsolidated financial statements in conformity with U.S. GAAP requires the use of management’s estimates and assumptions that affect the amounts reported in the condensedconsolidated financial statements and accompanying notes. The Company makes certain assumptions and estimates for its revenues, income taxes and third party royalties. We base our estimates on historical experience, and other relevant data including interim data provided by Endo and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. For further details, see notes “Revenue Recognition.”, “Provision for Income Taxes” and “Third-Party Royalties.” Actual results may differ from those estimates.

Revenue Recognition

Beginning in 2014, Financial Accounting Standards Board (“FASB”) issued several Accounting Standards Updates establishing Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).  ASC 606 requires retrospective implementation, and replaces most industry-specific revenue recognition guidance in U.S. GAAP with a new principles-based, five-step revenue recognition model.  The Company adopted ASC 606 effective January 1, 2018. Under ASC 606, we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation(s).

Revenues, and their respective treatment for financial reporting purposes under ASC 606 and our license agreement with Endo, are as follows:

Royalty / Mark-Up on Cost of Goods Sold

We receive royalty revenues on net sales and mark-up on cost of goods sold revenue in the U.S. under our License Agreement with Endo. These are presented in “Royalties” in our condensed consolidated statements of income.  We do not have future performance obligations under this revenue stream. In accordance with ASC 606, we record these revenues based on estimates of the net sales that occurred during the relevant period. The relevant period estimates of these royalties are based on interim data provided by Endo and analysis of historical royalties and mark-up on cost of goods sold revenue that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known. The royalties payable by Endo to us are subject to set-off for certain patent costs.

Licensing Revenue

We include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our condensed consolidated statements of income.

The Company recognizes licensing revenues generated through development and/or commercialization agreements. The terms of these agreements typically include payment to the Company of one or more of the following: nonrefundable, upfront license fees; sublicensing; development and commercial milestone payments; development activities; and royalties on net sales of licensed products. Each of these types of payments results in licensing revenues except for revenues from royalties on net sales of licensed products and the mark-up of cost of goods sold revenues which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.

For each development and/or commercialization agreement that result in revenues, the Company identifies all performance obligations, aside from those that are immaterial, which may include a license to intellectual property and know-how, development activities and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

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If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.  For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.  The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments

Depending on facts and circumstances, the Company may conclude that it is appropriate to include the milestone, representing variable consideration, in the estimated total transaction price, or that it is appropriate to fully constrain the milestone. The Company may include revenues from certain milestones in the total transaction price in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the total transaction price, including the amount of revenue that it has recorded, if necessary.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted

In February 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The adoption of the new standard as of January 1, 2019 did not have a material impact on our consolidated financial statements due to the short term nature of our leases.

Accounting Pronouncements Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2023. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

Cash, Cash Equivalents and Investments

Cash equivalents include only securities having a maturity of 90 days or less at the time of purchase.  Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit, U.S. government agency bonds, municipal bonds and corporate bonds. All investments are classified as held to maturity. As of September 30, 2019 and December 31, 2018, the amortized cost of these investments was $85.6 million and $68.8 million, respectively. No unrealized gains or losses were recorded in either period.

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Fair Value Measurements

Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held to maturity investments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the duration of those instruments. As of September 30, 2019 and December 31, 2018, there were no recorded unrealized gains or losses on our investments as they are classified as held to maturity. As of September 30, 2019 and December 31, 2018, amortized cost basis of the investments approximated their fair value. Interest income for the three and nine months ended September 30, 2019 was $0.5 million and $1.5 million, respectively as compared to $0.4 million and $0.9 million in the 2018 periods. For the nine months ended September 30, 2019 and 2018, the amortized net premium / (net discount) included in interest income was approximately $56,000 and ($361,000), respectively. At September 30, 2019 and December 31, 2018, the remaining unamortized net premium / (net discount) was approximately $198,000 and ($121,000), respectively.

The following table presents the Company’s schedule of maturities at September 30, 2019 and December 31, 2018:

	Maturities as of September 30, 2019				Maturities as of December 31, 2018
	1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year
U.S Government agency	$	4,234,076	$	6,228,685	$	-	$	-
Municipal bonds		6,593,224		545,265		1,295,350		-
Corporate bonds		56,061,185		5,948,250		61,321,162		1,099,834
Certificates of deposit		2,201,239		3,770,328		5,090,631		-
Total	$	69,089,724	$	16,492,528	$	67,707,143	$	1,099,834

The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.

As of September 30, 2019, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2019 and December 31, 2018:

September 30, 2019	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	2,433,542	$	2,433,542	$	-	$	-
Cash equivalents	U.S. Government Agency	$	3,995,097	$	3,995,097
Investments	U.S. Government Agency		10,462,761		-		10,462,761		-
Investments	Municipal Bonds		7,138,489		-		7,138,489		-
Investments	Corporate Bonds		62,009,435		-		62,009,435		-
Investments	Certificates of Deposit		5,971,567		5,971,567		-		-

December 31, 2018	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	6,078,025	$	6,078,025	$	-	$	-
Investments	Municipal Bonds		1,295,350		-		1,295,350		-
Investments	Corporate Bonds		62,420,996		-		62,420,996		-
Investments	Certificates of Deposit		5,090,631		5,090,631		-		-

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Concentration of Credit Risk and Major Customers

The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.

The Company maintains investments in FDIC insured certificates of deposits, U.S. government agency bonds, municipal bonds and corporate bonds.

The Company is currently dependent on one customer, Endo, which generates almost all of the Company’s revenues. For the three and nine months ended September 30, 2019, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $9.4 million and $26.4 million, respectively and for the three and nine months ended September 30, 2018, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $8.2 million and $23.1 million, respectively.

At September 30, 2019 and December 31, 2018, our accounts receivable balances from Endo were $17.8 million and $16.5 million, respectively.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the nine months ended September 30, 2019 there were 6,209 shares repurchased at an average price of $57.54 compared to 43,705 shares at an average price of $58.55 in the 2018 comparable period.

Stock Repurchase Plan

On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and various other factors.

Receivables and Doubtful Accounts

Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms.  Our accounts receivable balance is typically due from Endo, our one large specialty pharmaceutical customer.  Endo has historically paid timely and has been a financially stable organization.  Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal and therefore no allowance is recorded.  If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required.  We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At September 30, 2019 and December 31, 2018 our accounts receivable balance was $17.8 million and $16.5 million, respectively, and was from one customer, Endo.

Reimbursable Third-Party Patent Costs

We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and expense others. As of September 30, 2019 and December 31, 2018, our net reimbursable third party patent expense was $25,000 and $40,000, respectively, which was recorded as a reduction to our accounts receivable balance.

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Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC.  No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are expensed under general and administrative in the quarter that the net sales have occurred. For the three and nine month periods ended September 30, 2019 and 2018, third-party royalty expenses were $0.2 million and $0.7 million, respectively. For the three and nine month periods ended September 30, 2018, third-party royalty expenses were $0.6 million and $1.7 million, respectively. As of March 1, 2019, we have no further third party royalties in connection with PD as the agreement expired in February 2019.

Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of January 1, 2018.  In March 2019, royalty obligations were terminated, which was five years after first commercial sale, which occurred in January 2014. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX® and Xiapex® for PD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three and nine months ended September 30, 2019, we amortized zero and approximately $0.2 million related to this agreement, respectively. For the three and nine months ended September 30, 2018 we amortized approximately $0.6 million and $1.6 million, respectively, related to this agreement. Royalty buy-down expenses are recorded as part of general and administrative expenses. As of September 30, 2019 and December 31, 2018, the remaining capitalized balances were zero and $0.2 million, respectively.

Research and Development Expenses

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.

Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research consultants. In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.

Stock-Based Compensation and 2019 Omnibus Incentive Compensation Plan

ASC 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock awards including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The fair value of each service-based restricted stock unit granted is estimated on the day of grant based on the closing price of the Company’s common stock. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensedconsolidated statements of operations.

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On June 13, 2019, at the Company’s annual meeting, the Company’s stockholders approved the 2019 Omnibus Incentive Compensation Plan(the “2019 Plan”). Upon the 2019 Plan’s approval, approximately 1,248,848 shares of Company common stock were available for issuance thereunder, consisting of 1,100,000 shares authorized for issuance under the 2019 Plan and 148,848 shares then remaining available for issuance under the Company’s 2001 Stock Option Plan (the “2001 Plan”). The 2019 Plan replaced the 2001 Plan. No new awards will be granted under the 2001 Plan; however, awards outstanding under the 2001 Plan upon approval of the 2019 Plan remain subject to and will be settled under the applicable 2001 Plan.

Grants under the 2019 Plan may consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, or cash awards. Employees, key advisors or non-employee directors are eligible to participate in the 2019 Plan. Grants under the 2019 Plan vest over periods ranging from one to four years and expire ten years from date of grant.

2019 Omnibus Incentive Compensation Plan (2019 Plan)

Restricted Stock Awards

A summary of the restricted stock awards activity during the nine months ended September 30, 2019 is presented below:

	Restricted Stock	Weighted-Average Grant Date Fair Value Per Share
Nonvested at December 31, 2018	-	$	-
Issued	9,950		60.85
Vested	-		-
Forfeited	-		-
Nonvested at September 30, 2019	9,950	$	60.85

Stock-based compensation expense related to restricted stock awards recognized in general and administrative expense was approximately $146,000 for the three and nine months ended September 30, 2019.

As of September 30, 2019, there was approximately $460,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to restricted stock. This cost is expected to be recognized over the vesting periods of the restricted stock, with a weighted-average period of approximately 1.25 years.

Stock Option Activity under the 2001 Stock Option Plan (2001 Plan)

For the nine months ended September 30, 2019, we granted a total of 10,000 stock options from the 2001 Plan with a weighted average grant date fair value of $27.97 per share.

The assumptions used in the valuation of stock options granted during the nine months ended September 30, 2019 were as follows:

		Nine Months Ended September 30, 2019
Risk-free interest rate		2.18%
Expected term of option		6.25 years
Expected stock price volatility		39.5%
Expected dividend yield	$	0.0

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A summary of our stock option activity during the nine months ended September 30, 2019 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2018		175,500		$	37.73		6.33	$	4,014,235
Grants		10,000			66.40		-		-
Exercised		(73,063	)		29.20		-		2,229,195
Forfeitures		(11,250	)		41.82		-		-
Outstanding at September 30, 2019		101,187		$	46.26		7.63	$	1,061,135
Exercisable at September 30, 2019		28,812		$	21.74		3.96	$	915,593

During the nine months ended September 30, 2019 and 2018, the Company received approximately $2.1 million and $2.6 million, respectively, from stock options exercised by option holders.

Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $53.52 on September 30, 2019, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately $1.7 million in unrecognized compensation cost related to stock options outstanding as of September 30, 2019, which we expect to recognize over the next 3.06 years.

Stock-based compensation expense related to stock options recognized in general and administrative expenses was approximately $114,000 and $374,000 for the three and nine month periods ended September 30, 2019 and $64,000 and $160,000 for the three and nine month periods ended September 30, 2018, respectively.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At each of September 30, 2019 and December 31, 2018, property and equipment were fully depreciated.

Comprehensive Income

For each of the three and nine month periods ended September 30, 2019 and 2018, we had no components of other comprehensive income other than net income itself.

Provision for Income Taxes

We use the asset and liability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of September 30, 2019 and December 31, 2018, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.

Commitments and Contingencies

On November 6, 2019, the Company entered into an agreement with 35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the lease to our corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional six month period (the “Extended Lease Agreement”). The six month extension will end on May 31, 2020. Pursuant to the Extended Lease Agreement, the base rent is $12,075 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term.

Our rent expense amounted to approximately $34,000 and $101,000 for the three and nine months ended September 30, 2019, respectively, and $32,000 and $97,000 for the three and nine months in the 2018 periods, respectively.

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3. NET INCOME PER SHARE

In accordance with ASC 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and restricted stock using the treasury stock method. For the three and nine month periods ended September 30, 2019 there were 24,015 and 39,626, respectively, of common equivalent shares attributable to stock options and 807 and 1,410 attributable to restricted stock that were included in the calculation of diluted net income per share. There were 60,000 stock options in each period to purchase shares and 500 and zero restricted stock awards excluded from the calculation of diluted net income per share for the three and nine month periods ended September 30, 2019, respectively, because their effects are anti-dilutive.

For the three and nine month periods ended September 30, 2018 there were 75,497 and 96,923, respectively, of common equivalent shares attributable to stock options that were included in the calculation of diluted net income per share. There were zero stock options to purchase shares excluded from the calculation of diluted net income per share for the three and nine month periods ended September 30, 2018, respectively, because their effects are anti-dilutive.

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	September 30, 2019		December 31, 2018
Trade accounts payable	$	87,446	$	122,199
Accrued legal and other professional fees		450,300		308,725
Accrued payroll and related costs		94,205		173,123
Third party royalties		173,005		1,168,837
Other accruals		72,272		25,704
Total	$	877,228	$	1,798,588

5. PATENT COSTS

We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from two to ten years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  We analyze our intangible assets, specifically, capitalized patent costs, on an annual basis for any indicator that an impairment exists. As of September 30, 2019 and December 31, 2018, no impairment existed and no adjustments were warranted.

We capitalized approximately $97,000 and $190,000 of patent costs for the three and nine months ended September 30, 2019 as compared to approximately $16,000 and $95,000 for three and nine months ended September 30, 2018, respectively. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:

	September 30, 2019			December 31, 2018
Patents	$	1,235,919		$	1,046,216
Accumulated amortization		(673,416	)		(601,738	)
Total	$	562,503		$	444,478

The amortization expense for patents for the three and nine months ended September 30, 2019 was approximately $29,000 and $72,000, respectively, and for the three and nine months ended September 30, 2018 was approximately $19,000 and $54,000, respectively. The estimated aggregate amortization expense for the remaining three months of 2019 and each of the years below is approximately as follows:

October 1, 2019 – December 31, 2019	$	24,000
2020		78,000
2021		61,000
2022		61,000
2023		61,000
Thereafter		278,000
Total	$	563,000

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6. PROVISION FOR INCOME TAXES

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options, revenue recognized and other items. For the three and nine months ended September 30, 2019, our provision for income taxes was $1.6 million and $3.7 million. Our net deferred tax liabilities as of September 30, 2019 was $0.6 million. The estimated effective tax rate for the three and nine months ended September 30, 2019 was approximately 20% and 18% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the Tax Cuts and Jobs Act of 2017 (“TCJA”) allowing the Company to refine its calculations and current period stock option exercises.

For the three and nine months ended September 30, 2018, our provision for income taxes was $1.1 million and $3.3 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the three and nine months ended September 30, 2018 was approximately 18% and 19% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2018 plus the effects of certain discrete items occurring in 2018. Our effective tax rate for the three and nine months ended September 30, 2018 was impacted primarily by the TCJA, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensedconsolidated financial statements and the related notes thereto included elsewhere in this Report and is qualified by reference to them.

Overview

We are a biopharmaceutical company involved in the development of an injectable CCH for multiple indications. We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (DC), Peyronie’s disease (PD), frozen shoulder syndrome, and removal of adipose tissue. Injectable CCH currently is approved and marketed in the U.S. under the trademark XIAFLEX^® for the treatment of both DC and PD. XIAFLEX® also is commercialized in Japan, Europe (where it is marketed as Xiapex®), Canada, and Australia for DC, and for PD in Canada, Europe and Australia. We generate revenue primarily from our license agreement with Endo, under which we receive license, sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX®.

On August 31, 2011, we entered into the Second Amended and Restated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”), an entity that was acquired by Endo in 2015. The License Agreement originally was entered into in June 2004 to obtain exclusive worldwide rights to develop, market, and sell certain products containing our enzyme CCH, which Endo markets for approved indications under the trademark XIAFLEX®. Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, Dupuytren’s nodules, PD, frozen shoulder, cellulite, canine and human lipomas, plantar fibromatosis, lateral hip fat, and other potential aesthetic indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.

Pursuant to the License Agreement, Endo currently is selling XIAFLEX® in the U.S. for the treatment of DC and PD and is distributing XIAFLEX® in Canada through its operating company, Paladin Labs Inc. Additionally, Endo has entered into several non-affiliated sublicensee agreements (as permitted by the License Agreement), including the following:

• An agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex® for the treatment of DC and PD in Europe and certain Eurasian countries;

• An agreement with Asahi Kasei Pharma Corporation (“Asahi”), pursuant to which Asahi has the right to commercialize XIAFLEX® for the treatment of DC and PD in Japan; and

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• An agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX® in Australia and New Zealand.

On February 1, 2016, we entered into the First Amendment (the “First Amendment”) to the License Agreement. Pursuant to the First Amendment, the Company and Endo Global Ventures mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.

Additionally, we agreed that Endo may opt-in early to indications, prior to our submission of a clinical trial report, with our consent, such consent not to be unreasonably withheld. For early opt-ins, Endo will be required to make an opt-in payment of $0.5 million on a per indication basis. For regular opt-ins, following our submission of a clinical trial report, Endo will be required to make an opt-in payment of $0.75 million on a per indication basis.

On February 26, 2019, we and Endo entered into the Second Amendment to the License Agreement (the “Second Amendment”) to amend certain provisions of the License Agreement. The Second Amendment has an effective date of January 1, 2019. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement by Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo. In addition, the Second Amendment amends certain provisions of the License Agreement to require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations.

The two marketed indications involving our injectable collagenase are DC and PD. In addition to DC and PD, Endo has opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo.

Endo presented positive results from two Phase 3 studies, RELEASE-1 and RELEASE-2, of CCH for the treatment of cellulite. Subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial’s primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a 2-level composite improvement in cellulite severity at Day 71 as compared to subjects receiving placebo. Statistically significant improvements with CCH versus placebo were observed for 8 of 8 (RELEASE-1) and 7 of 8 (RELEASE-2) secondary endpoints, in addition to patient-centric endpoints. These data were presented at 2019 American Academy of Dermatology Annual Meeting on March 2, 2019. On May 17, 2019, Endo announced that clinical data from a Phase 3 investigational study of CCH for the treatment of cellulite was presented at the annual meeting of the American Society for Aesthetic Plastic Surgery. On September 6, 2019, Endo announced that it had submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for CCH for the treatment of cellulite in the buttocks with an expected commercial launch in the second half of 2020 upon approval.

We presented data from the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66^th Annual Meeting of the Society of Reproductive Investigation (SRI) on March 14, 2019 in Paris, France. In addition, on October 16, 2019, we presented data on patient-reported outcomes of a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the American Society for Reproductive Medicine conferencein Philadelphia, Pennsylvania. The presentations follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.

Operational Highlights

On October 10, 2019, we announced that J. Kevin Buchi has been named chief executive officer of the Company. He will also serve on the Company’s board of directors.

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On October 23, 2019, we announced that Jennifer Chao has been appointed chairperson of its board of directors, effective immediately. Ms. Chao has served on our board as an independent director since 2015, and also serves as chair of the compensation committee.

Outlook

We generated revenue from primarily one source, the License Agreement.  Under the License Agreement, we receive license, sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX® as described above.

Critical Accounting Policies, Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience, interim data provided by Endo and on various other assumptions that we believe are reasonable under the circumstances. The financial information at September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the financial information set forth herein. The December 31, 2018 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, 2018 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s 2018 Annual Report and with the unaudited condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q for the first and second quarters of 2019 filed with the SEC.

As described in Note 2 to our accompanying Condensed Consolidated Financial Statements, there have been no significant changes to our critical accounting policies for the three and nine months ended September 30, 2019, compared to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2018 Annual Report and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2018

Revenues

We generate revenue primarily from royalties under the License Agreement and, to a lesser degree, licensing fees, sublicensing fees, and milestones.

Royalties

Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the three month period ended September 30, 2019 were $9.4 million as compared to $8.2 million in the corresponding 2018 period, an increase of $1.2 million, or 15%. The increase in total revenues for the quarterly period was primarily due to royalties associated with higher net sales of XIAFLEX® in PD and DC.

Licensing Revenue

Licensing revenue consists of licensing fees, sublicensing fees and milestones. For the three month periods ended September 30, 2019 and 2018, we recognized zero revenue related to nonrefundable upfront product license fees for product candidates.

Research and Development Activities and Expenses

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the three month periods ended September 30, 2019 and 2018, R&D expenses were approximately $143,000 and $162,000, respectively and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs. The decrease in the 2019 period as compared to the 2018 period was mainly due to reduced cost associated with other R&D programs and lower clinical costs.

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We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo. We presented data from the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66^th Annual Meeting of the Society of Reproductive Investigation on March 14, 2019 in Paris, France. In addition, on October 16, 2019, we presented data on patient-reported outcomes of a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the American Society for Reproductive Medicine conferencein Philadelphia, Pennsylvania. The presentations follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.

The following table summarizes our R&D expenses related to our development programs:

	Three Months Ended September 30, 2019		Three Months Ended September 30, 2018
Program
Uterine Fibroids	$	42,819	$	82,716
Pre-clinical/other research projects		100,366		79,909
Total R&D expenses	$	143,185	$	162,625

The successful development of drugs is inherently difficult and uncertain.  Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our abilityand the ability of our partners, particularly with respect to XIAFLEX® and Xiapex®, to continue to commercialize these drug candidates.

There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:

• the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;

• the anticipated completion dates for our drug candidate projects;

• the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;

• the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;

• clinical trial results for our drug candidate projects;

• the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;

• the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;

• the cost and timing of regulatory approvals with respect to our drug candidate projects;

• the cost of establishing clinical supplies for our drug candidate projects;

• costs and/or risks relating to future product opportunities.

We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, amortization of deferred royalty buy-down, consultant costs, legal fees, investor relations, professional fees and overhead costs. General and administrative expenses for the three months ended September 30, 2019 and 2018 were $2.0 million and $2.2 million, respectively. The decrease in general and administrative expenses was mainly due to lower third party royalties associated with XIAFLEX® and the amortization associated with deferred royalty buy-down related to PD, partially offset by legal fees, personnel expenses and stock compensation expense.

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Other Income

Other income for the three months ended September 30, 2019 was approximately $505,000 compared to $360,000 in the corresponding 2018 period. Other income consists of interest earned on our investments.

Provision for Income Taxes

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options, revenue recognized and other items. For the three month period ended September 30, 2019, our provision for income taxes was $1.6 million. Our net deferred tax liabilities as of September 30, 2019 was $0.6 million. The estimated effective tax rate for the three months ended September 30, 2019 was approximately 20% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the Tax Cuts and Jobs Act of 2017 (“TCJA”) allowing the Company to refine its calculations and current period stock option exercises.

For the three month period ended September 30, 2018, our provision for income taxes was $1.1 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the three months ended September 30, 2018 was approximately 18% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2018 plus the effects of certain discrete items occurring in 2018. Our effective tax rate for the three months ended September 30, 2018 was impacted primarily by the TCJA, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.

Net Income

For the three months ended September 30, 2019, we recorded net income of $6.3 million, or $0.86 per basic common share and $0.85 per diluted common share, compared to a net income of $5.0 million, or $0.69 per basic common share and per diluted common share, for the same period in 2018.

NINE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2018

Revenues

Royalties

Total royalty and mark-up on cost of goods sold for the nine month period ended September 30, 2019 were $26.4 million as compared to $23.1 million in the corresponding 2018 period, an increase of $3.3 million, or 14%. The increase in total revenues for the quarterly period was primarily due to royalties associated with higher net sales of XIAFLEX® in PD and DC, and higher mark-up on cost of goods sold revenue.

Licensing Revenue

For the nine month periods ended September 30, 2019, we recognized zero revenue related to nonrefundable upfront product license fees for product candidates as compared to approximately $40,000 in the 2018 period.

Research and Development Activities and Expenses

For the nine month periods ended September 30, 2019 and 2018, R&D expenses were approximately $0.5 million and $0.6 million, respectively, and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs. The decrease in the 2019 period as compared to the 2018 period was mainly due to reduced cost associated with other R&D programs and lower clinical costs.

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The following table summarizes our R&D expenses related to our development programs during the nine months ended September 30, 2019 and September 30, 2018, respectively:

	Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018
Program
Uterine Fibroids	$	169,231	$	210,250
Pre-clinical/other research projects		284,811		359,398
Total R&D expenses	$	454,042	$	569,648

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2019 and 2018 were $6.6 million and $6.3 million, respectively. The increase in general and administrative expenses was mainly due to increased legal fees, personnel expenses, stock compensation expense and professional fees, partially offset by lower third party royalties associated with XIAFLEX® and the amortization associated with the deferred royalty buy-down related to PD.

Other Income

Other income for the nine months ended September 30, 2019 was approximately $1.5 million compared to $0.9 million in the corresponding 2018 period. Other income consists of interest earned on our investments and, in the 2018 period, limited product sales of collagenase for laboratory use.

Provision for Income Taxes

For the nine month period ended September 30, 2019, our provision for income taxes was $3.7 million. Our net deferred tax liabilities as of September 30, 2019 was $0.6 million. The estimated effective tax rate for the nine months ended September 30, 2019 was approximately 18% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the TCJA allowing the Company to refine its calculations and current period stock option exercises.

For the nine month period ended September 30, 2018, our provision for income taxes was $3.3 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the nine months ended September 30, 2018 was approximately 19% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2018 plus the effects of certain discrete items occurring in 2018. Our effective tax rate for the nine months ended June 30, 2018 was impacted primarily by the TCJA, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.

Net Income

For the nine months ended September 30, 2019, we recorded net income of $17.1 million, or $2.34 per basic common share and $2.33 per diluted common share, compared to a net income of $13.9 million, or $1.92 per basic common share and $1.89 per diluted common share, for the same period in 2018.

Liquidity and Capital Resources

To date, we have financed our operations primarily through royalties under agreements with third parties, licensing revenues, limited product sales, and sales of our common stock. At September 30, 2019 and December 31, 2018, we had cash and cash equivalents and investments in the aggregate of approximately $98.4 million and $82.0 million, respectively. We currently anticipate that our available funds and cash flow from operations will be sufficient to meet our operational cash needs for at least the next 12 months from the date of this filing.

Net cash provided by operating activities for the nine months ended September 30, 2019 was $14.5 million as compared to $12.3 million in the 2018 period. Net cash provided by operating activities in the 2019 period was primarily attributable to our net income partially offset by a reduction in accounts payable, accrued expenses and income taxes payable of $1.9 million and an increase in prepaid expenses and other current assets of $0.2 million.  Non-cash items used to reconcile net income to net cash provided by operating activities of $0.9 million included amortization of patent costs, bond premiums and discounts, stock-based compensation expense and deferred tax expense. Net cash provided by operating activities in the 2018 period was primarily attributable to our net income partially offset by an increase in accounts receivable of $2.2 million due to an increase in XIAFLEX® net sales and accrued tax liability of $0.8 million.  Non-cash items included amortization, stock-based compensation expense, and deferred taxes which was reduced by adjustments to reconcile net income to net cash provided by operating activities of $2.2 million.

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Net cash used in investing activities for the nine months ended September 30, 2019 was $16.7 million as compared to $6.2 million for the corresponding 2018 period. The net cash used in investing activities in the 2019 period reflects the investment of $93.4 million and the maturing of $76.6 million in marketable securities. The net cash used in investing activities in the 2018 period reflects the investment of $64.6 million and the maturing of $58.4 million in marketable securities.

Net cash provided by financing activities for the nine months ended September 30, 2019 was approximately $1.8 million as compared to $12,000 in the corresponding 2018 period. In the 2019 period, net cash provided by financing activities was due to proceeds received from stock option exercises of approximately $2.1 million partially offset by the repurchase of approximately $0.4 million of our common stock under our stock repurchase program. In the 2018 period, net cash provided by financing activities of $2.6 million was due to proceeds received from stock option exercises offset by the repurchase of approximately $2.6 million of our common stock under our stock repurchase program.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risks in the normal course of our business, including changes in interest rates. There have been no significant changes in our exposure to market risks since December 31, 2018.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of the Company (the “Management”), including our chief executive officer and principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

The Company, under the supervision and with the participation of our chief executive officer and principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our chief executive officer and principal executive officer and principal financial officer concluded, as of the end of the period covered by this Quarterly Report, that the Company’s disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our chief executive officer and principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our chief executive officer and principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” in our 2018 Annual Report, which could materially affect our business, financial condition or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the nine month period ended September 30, 2019, we did not issue any unregistered shares of securities.

Issuer Purchases of Equity Securities

On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Exchange Act, and various other factors.

The following table presents a summary of share repurchases made by us during the quarter ended September 30, 2019.

Period	Total Number of Shares Purchased(1)		Average Price Paid Per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number (or Dollar Value) of Shares that May Yet be Purchased under the Plan(3)
Remaining balance as of June 30, 2019							$	3,881,433
July 1, 2019 – July 30, 2019		1,033	$	60.27		3,081		3,819,170
August 1, 2019 – August 31, 2019		1,717		56.39		4,798		3,722,346
September 1, 2019 – September 30, 2019		1,411	$	56.44		6,209	$	3,642,711
Total		4,161

(1) The purchases were made in open-market transactions in compliance with Exchange Act Rule 10b-18 or under the company’s 10b-18 plan.

(2) Includes commissions paid, if any, related to the stock repurchase transactions.

(3) On May 23, 2019, we announced that our Board of Directors had authorized the repurchase of up to $4.0 million of our common stock under the stock repurchase program, which program is not subject to an expiration date.

Item 5. Other Information

On November 6, 2019, the Company entered into an agreement with 35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the lease to our corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional six month period (the “Extended Lease Agreement”). The six month extension will end on May 31, 2020. Pursuant to the Extended Lease Agreement, the base rent is $12,075 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term.

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Item 6. Exhibits

10.1*+	Employment Agreement by and between BioSpecifics Technology Corp., Advance Biofactures Corporation, and J. Kevin Buchi
10.2*+	Form of Non-Qualified Stock Option Award Agreement
10.3*	Amended Agreement of Lease, dated as of November 6, 2019, among the Company, ABC-NY and 35 Wilbur Street Associates
31.1**	Certification of Chief Executive Officer and Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer and Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

* filed herewith

** furnished herewith

+ Denotes management contracts and compensatory arrangements in which any director or any named executive officer participates.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	BIOSPECIFICS TECHNOLOGIES CORP.
	(Registrant)
Date: November 12, 2019	/s/ J. Kevin Buchi
	J. Kevin Buchi
	Chief Executive Officer and Principal Executive Officer

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

J. KEVIN BUCHI

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between BioSpecifics Technology Corp. (the “Company”), Advance Biofactures Corporation, a wholly-owned subsidiary of the Company (the “Employer”), and J. Kevin Buchi (the “Executive”) as of October 8, 2019.

WHEREAS, the Employer desires to employ the Executive as the Company’s Chief Executive Officer and the Executive desires to serve in such capacity.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the Company, Employer and the Executive hereby agree as follows:

1.           Employment.

(a)          Term.  The term of this Agreement shall begin on the first day of the Executive’s employment with the Employer, as determined by the Executive and the Company (the “Effective Date”), and shall continue until the termination of the Executive’s employment.  The period commencing on the Effective Date and ending on the date on which the Executive’s employment terminates is referred to herein as the “Term.”

(b)          Duties.  During the Term, the Executive shall serve as the Chief Executive Officer of the Company, with duties, responsibilities and authority commensurate therewith, and shall report to the Board of Directors of the Company (the “Board”).  The Executive shall perform all duties and accept all responsibilities incident to such position as may be reasonably assigned to the Executive by the Board.  The Executive represents to the Company and the Employer that the Executive is not subject to or a party to any employment agreement, noncompetition covenant, or other agreement that would be breached by, or prohibit the Executive from, executing this Agreement and performing fully the Executive’s duties and responsibilities hereunder.

(c)          Best Efforts.  During the Term, the Executive shall devote his best efforts and full time and attention to promote the business and affairs of the Company and its affiliated entities, and shall be engaged in other business activities only to the extent that such activities do not materially interfere or conflict with the Executive’s obligations to the Company and its affiliated entities hereunder, including, without limitation, obligations pursuant to Section 15 below.  The foregoing shall not be construed as preventing the Executive from (1) serving on civic, educational, philanthropic or charitable boards or committees, or, with the prior written consent of the Board, in its sole discretion, on corporate boards, and (2) managing personal investments, so long as the activities set forth in the preceding clauses (1) and (2) are permitted under the Company and the Employer’s code of conduct and employment policies and do not violate the provisions of Section 15 below; provided that, the activities set forth in the preceding clauses (1) and (2) do not materially interfere or conflict with the Executive’s duties or obligations to the Company and its affiliated entities and his time commitments with respect thereto, as determined by the Board.

2.           Compensation.

(a)          Base Salary.  During the Term, the Employer shall pay the Executive a base salary (“Base Salary”), at the annual rate of $600,000, which shall be paid in installments in accordance with the Employer’s normal payroll practices.  The Executive’s Base Salary shall be reviewed annually by the Board of Directors of the Company pursuant to the normal performance review policies for senior-level executives and may be adjusted from time to time as the Compensation Committee deems appropriate.  The Compensation Committee of the Board (the “Compensation Committee”) may take any actions of the Board pursuant to this Agreement.

(b)          Annual Bonus.  The Executive shall be eligible to receive an annual bonus for each fiscal year during the Term, commencing with the fiscal year 2020, based on the attainment, as determined by the Board in its sole discretion, of individual and corporate performance goals and targets established by the Board in its sole discretion (“Annual Bonus”).  The target amount of the Executive’s Annual Bonus for any fiscal year during the Term is sixty percent (60%) of the Executive’s annual Base Salary.  Any Annual Bonus shall be paid after the end of the fiscal year to which it relates, at the same time as the bonuses for other executives employed by the Employer; provided that the Executive remains employed by the Employer through the last day of the fiscal year to which the Annual Bonus relates and provided further that in no event shall the Executive’s Annual Bonus be paid later than two and a half months after the last day of the fiscal year to which the Annual Bonus relates.  Notwithstanding any provision of this Agreement, in the event the Executive’s employment is terminated for Cause, the Executive shall not be eligible to receive any unpaid Annual Bonus.

(c)          Pro-Rated Annual Bonus.  The Executive shall be eligible to receive a pro-rated annual bonus for the fourth quarter of fiscal year 2019 with a target amount equal to 25% of the target amount of the Executive’s Annual Bonus described in Section 2(b) (the “2019 Bonus”).  The amount of the 2019 Bonus shall be determined based on the attainment of objectives determined by the Compensation Committee, after good faith consultation with the Executive.  Any 2019 Bonus shall be paid to the Executive no later than March 15, 2020; provided that the Executive remains employed by the Employer through December 31, 2019 and provided further that in no event shall the Executive be eligible to receive any unpaid 2019 Bonus in the event the Executive’s employment is terminated for Cause.

(d)          Equity Compensation.

(1)          As soon as practicable following the Effective Date, the Executive shall receive a stock option grant with respect to 85,000 shares of Company Stock (the “Option”) pursuant to the Company’s 2019 Omnibus Incentive Compensation Plan (the “Equity Plan”).  The Option shall vest in equal annual installments over the 4-year period following the date of grant and will be subject to the terms and conditions established by the Board and the terms and conditions of the Equity Plan.

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(2)          No later than each of February 1, 2020, February 1, 2021, and February 1, 2022 (each, a “Grant Date”), the Executive shall receive an annual grant of performance stock units pursuant to the Equity Plan (the “PSUs”) with a target value of 28,333 PSUs in each of 2020 and 2021, and a target value of 28,334 PSUs in 2022.  Each such grant shall be subject to the terms and conditions established by the Board and the terms and conditions of the Equity Plan; provided that, such terms and conditions (i) shall not be inconsistent with the terms set forth in this Agreement and (ii) shall provide that the Executive’s withholding tax obligations in respect of payment of any PSUs be satisfied by withholding shares otherwise deliverable to the Executive pursuant to the applicable award, to the extent consistent with the Equity Plan. Vesting of the PSUs shall be subject to achievement of specified performance conditions  measured over a one year performance period (the number of PSUs which are earned based on achievement of the applicable performance conditions shall hereafter be referred to as the “Achieved PSUs”) and continued employment as described in this Section 2(d)(2).  Such specified performance conditions shall be determined by the Board in the first month of the fiscal year which the applicable Grant Date occurs, after good faith consultation with the Executive and shall be based on achievement of quantifiable metrics (which may include total shareholder return) and/or strategic objectives over the fiscal year in which the applicable Grant Date occurs. One-half of the Achieved PSUs shall become vested on December 31 of the fiscal year of performance.  One-half of the Achieved PSUs shall become vested on December 31 of the fiscal year immediately following the fiscal year of performance.  Except as otherwise provided in Section 6 and Section 7, in order to vest in the Achieved PSUs, the Executive must be actively employed by the Company on the applicable vesting date.  Any vested Achieved PSUs shall be settled and paid in the fiscal year immediately following the applicable vesting date, no later than March 15 of such fiscal year.  Notwithstanding any provision herein, in the event that the Executive’s employment is terminated for Cause, any unpaid PSUs (whether or not vested) shall be cancelled for no consideration.  For the avoidance of doubt, the Executive shall not be eligible to receive an annual grant of PSUs upon or following his employment termination date.

3.           Retirement and Welfare Benefits.  During the Term, the Executive shall be eligible to participate in the Employer’s health, life insurance, long-term disability, retirement and welfare benefit plans and programs, in each case as may be available to employees of the Employer, pursuant to their respective terms and conditions.  Nothing in this Agreement shall preclude the Company or any Affiliate of the Company from terminating or amending any employee benefit plan or program from time to time after the Effective Date.

4.           Vacation.  During the Term, the Executive shall be entitled to five (5) weeks of vacation each year and holiday and sick leave at levels commensurate with those provided to other senior executives of the Company, in accordance with the Employer’s vacation, holiday and other pay-for-time-not-worked policies.

5.           Business and Commuting Expenses.

(a)          Business Expenses. The Employer shall reimburse the Executive for all necessary and reasonable travel (which does not include commuting expenses which are addressed in subsection (b) below) and other business expenses incurred by the Executive in the performance of his duties hereunder in accordance with such policies and procedures as the Employer may adopt generally from time to time for executives.

(b)          Commuting Expenses.   The Employer shall reimburse the Executive for commuting expenses reasonably incurred in accordance with the Company’s policies and procedures.  Such reimbursements will be taxable to the Executive to the extent required by law.

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6.           Termination Without Cause; Resignation for Good Reason.  The Employer may terminate the Executive’s employment at any time without Cause.  The Executive may initiate a termination of employment by resigning for Good Reason as described below.  Upon termination by the Employer without Cause or resignation by the Executive for Good Reason, if the Executive executes and does not revoke a written Release (as defined below), the Executive shall be entitled to receive, in lieu of any payments under any severance plan or program for employees or executives, the following:

(a)          a cash payment equal to one (1) times the Executive’s annual Base Salary as in effect on the termination date, payable in installments over the twelve (12) month period following the Executive’s termination date in accordance with the Employer’s normal payroll practices (but no less frequently than monthly).  Payment will begin on the 60th day after the Executive’s termination date, and any installments not paid between the termination date and the date of the first payment will be paid with the first payment;

(b)          reimbursement in cash equal to 100% of the COBRA premiums incurred by the Executive for the Executive and his eligible dependents under the Employer’s health plans during the twelve (12) month period following the Executive’s termination of employment.  Such reimbursement shall be provided on the payroll date immediately following the date on which the Executive remits the applicable premium payment and shall commence within 60 days after the Executive’s termination date; provided that the first payment shall include any reimbursements that would have otherwise been payable during the period beginning on the Executive’s termination date and ending on the date of the first reimbursement payment.  Reimbursement payments shall be treated as taxable compensation to the Executive to the extent required by law;

(c)          accelerated vesting of the portion of the Option granted pursuant to Section 2(d) that remains unvested as of the date of the Executive’s termination of employment, subject to the terms and conditions of the Equity Plan, including, for the avoidance of doubt, the minimum vesting provisions set forth therein, and the applicable grant agreement;

(d)          vesting of a pro-rated portion of any unvested Achieved PSUs granted pursuant to Section 2(d), equal to the product of the number of unvested Achieved PSUs with respect to the PSU award granted in the fiscal year preceding the fiscal year of termination, multiplied by a fraction, the numerator which is the number of days that elapsed during the fiscal year in which termination of employment occurs, and the denominator of which is the number of calendar days in such fiscal year; and

(e)          any accrued but unpaid Base Salary and any benefits accrued and due under any applicable benefit plans and programs of the Employer (“Accrued Obligations”), any accrued but unpaid annual bonus awarded and payable pursuant to Section 2(b) or Section 2(c) for the fiscal year preceding termination (the “Accrued Annual Bonus”), and any unpaid vested Achieved PSUs awarded and payable pursuant to Section 2(d)(2) (the “Accrued PSUs”), with such Accrued Obligations, Accrued Annual Bonus, and Accrued PSUs paid regardless of whether the Executive executes or revokes the Release.

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For the avoidance of doubt, any outstanding equity awards, other than the Option and PSUs that vest in accordance with this Section 6, that the Executive holds on the date of the Executive’s termination of employment pursuant to this Section 6 shall be forfeited, unless otherwise provided in the applicable grant agreement.

7.           Termination in Connection with a Change of Control.  In the event that the Executive’s employment is terminated by the Employer without Cause or by the Executive for Good Reason, in each case upon or within one (1) year following a Change of Control, if the Executive executes and does not revoke a written Release (as defined below), the Executive shall be entitled to receive, in lieu of any payments under any severance plan or program for employees or executives, the following:

(a)          the Accrued Obligations, any Accrued Annual Bonus, and any Accrued PSUs, with such Accrued Obligations, Accrued Annual Bonus, and Accrued PSUs paid regardless of whether the Executive executes or revokes the Release;

(b)          a cash payment equal to one (1) times the Executive’s annual Base Salary as in effect on the Change of Control, payable in a lump sum within 60 days following the Executive’s employment termination date;

(c)          a cash payment equal to the target amount of the Executive’s Annual Bonus as described in Section 2(b) for the year in which termination occurs, payable in a lump sum within 60 days following the Executive’s employment termination date;

(d)          reimbursement in cash equal to 100% of the COBRA premiums incurred by the Executive for the Executive and his eligible dependents under the Employer’s health plans during the twelve (12) month period following the Executive’s termination of employment.  Such reimbursement shall be provided on the payroll date immediately following the date on which the Executive remits the applicable premium payment and shall commence within 60 days after the Executive’s termination date; provided that the first payment shall include any reimbursements that would have otherwise been payable during the period beginning on the Executive’s termination date and ending on the date of the first reimbursement payment.  Reimbursement payments shall be treated as taxable compensation to the Executive to the extent required by law;

(e)          accelerated vesting of the portion of the Option granted pursuant to Section 2(d) that remains unvested as of the date of the Executive’s termination of employment, subject to the terms and conditions of the Equity Plan, including, for the avoidance of doubt, the minimum vesting provisions set forth therein, and the applicable grant agreement; and

(f)          vesting of (i) the PSUs, if any, granted pursuant to Section 2(d) in the fiscal year in which the Executive’s termination of employment occurs, based on the target value of such PSUs and (ii) any Achieved PSUs which were granted pursuant to Section 2(d) and are unvested as of the date of the Executive’s termination of employment.

(g)          Notwithstanding the foregoing, if and to the extent required by Section 409A of the Code, if a Change of Control does not constitute a “change in control event” as defined by Section 409A of the Code or the lump sum payment in Section 7(a) would otherwise cause the Executive to incur penalties under Section 409A of the Code, such payment shall not be paid in a lump sum but shall be paid in equal installments in accordance with the payroll practices over the one year period following Executive’s termination date.

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8.           Cause.  The Employer may terminate the Executive’s employment at any time for Cause upon written notice to the Executive, in which event all payments under this Agreement shall cease, except for any Accrued Obligations.

9.           Voluntary Resignation Without Good Reason.  The Executive may voluntarily terminate employment without Good Reason.  In such event, after the effective date of such termination, no payments shall be due under this Agreement, except that the Executive shall be entitled to any Accrued Obligations, any Accrued Annual Bonus, and any Accrued PSUs.

10.         Disability.  If the Executive incurs a Disability during the Term, the Employer may terminate the Executive’s employment on or after the date of Disability.  If the Executive’s employment terminates on account of Disability, the Executive shall be entitled to receive any Accrued Obligations, any Accrued Annual Bonus, and any Accrued PSUs.  For the avoidance of doubt, in the event of such termination, the Executive shall not be eligible to receive any payments or benefits pursuant to Section 6 or Section 7.  For purposes of this Agreement, the term “Disability” shall have the same meaning ascribed to such term in Section 22(e)(3) of the Code.

11.         Death.  If the Executive dies during the Term, the Executive’s employment shall terminate on the date of death and the Employer shall pay to the Executive’s executor, legal representative, administrator or designated beneficiary, as applicable, any Accrued Obligations, any Accrued Annual Bonus, and any Accrued PSUs.  Otherwise, the Employer shall have no further liability or obligation under this Agreement to the Executive’s executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through the Executive.

12.         Resignation of Positions.  Effective as of the date of any termination of employment, the Executive will resign from all Company-related positions, including as an officer and director of the Company and its parents, subsidiaries and Affiliates.

13.         Definitions.  For purposes of this Agreement, the following terms shall have the following meanings:

(a)          “Cause” shall mean the Executive’s (1) breach of a material term of this Agreement or any confidentiality, nonsolicitation, noncompetition or inventions assignment agreement with the Company or the Employer; (2) commission of an act of fraud, embezzlement, theft, or material dishonesty; (3) willful engagement in conduct that causes, or is likely to cause, material damage to the property or reputation of the Company or the Employer; (4) failure to perform satisfactorily the material duties of the Executive’s position (other than by reason of disability) after receipt of a written warning from the Board; (5) commission of a felony or any crime of moral turpitude; or (6) material failure to comply with the Company’s or the Employer’s code of conduct or employment policies.

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Cause shall not exist for purposes of this Section 13(a) if the Board determines, in its sole discretion, that: (i) any act or failure to act constituting Cause pursuant to clauses (1), (3), (4) or (6) above is curable by the Executive; and (ii) the Executive has cured such act or failure to act within ten (10) days following written notice of the grounds for Cause as set forth in the Executive’s written notice of termination provided pursuant to Section 8.

(b)          “Company Stock” shall mean common stock of the Company.

(c)          “Change of Control” shall be deemed to have occurred if:

(1)          a person, or any two or more persons acting as a group, and all affiliates of such person or persons, who prior to such time owned less than fifty percent (50%) of the Company’s then outstanding shares of Company Stock, shall acquire such additional shares of Company Stock in one or more transactions, or series of transactions, such that following such transaction or transactions such person or group and affiliates beneficially own fifty percent (50%) or more of the Company Stock outstanding;

(2)          closing of the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity;

(3)          individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Company’s Board (for this purpose, “Incumbent Board” means at any time those persons who are then members of the Company’s Board of Directors and who are either (y) members of the Company’s Board of Directors on the Effective Date, or (z) have been elected, or have been nominated for election by the Company’s stockholders, by the affirmative vote of at least two-thirds of the directors comprising the Incumbent Board at the time of such election or nomination (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director without objection to such nomination); or

(4)          the consummation of any merger, reorganization, consolidation or share exchange unless the persons who were the beneficial owners of the Company’s outstanding shares of Company Stock immediately before the consummation of such transaction beneficially own more than 50% of the outstanding shares of the common stock of the successor or survivor entity in such transaction immediately following the consummation of such transaction. For purposes of this definition, the percentage of the beneficially owned shares of the successor or survivor entity described above shall be determined exclusively by reference to the shares of the successor or survivor entity which result from the beneficial ownership of Company Stock by the persons described above immediately before the consummation of such transaction.

(d)          “Good Reason” shall mean the occurrence of one or more of the following without the Executive’s consent, other than on account of the Executive’s disability:

(1)          A material diminution by the Company or the Employer of the Executive’s title, authority, duties or responsibilities, or a requirement that the Executive report to someone other than the Board;

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(2)          A material change in the geographic location at which the Executive must perform services, excluding for the avoidance of doubt, any travel for business in the course of performing the Executive’s duties for the Company;

(3)          A material diminution in the Executive’s Base Salary, except for any diminution that is part of a broad-based diminution of base salary applicable to a majority of officers of the Company; or

(4)          Any action or inaction that constitutes a material breach by the Company or the Employer of this Agreement.

The Executive must provide written notice of termination for Good Reason to the Company within 30 days after the event constituting Good Reason.  The Company shall have a period of 30 days in which it may correct the act or failure to act that constitutes the grounds for Good Reason as set forth in the Executive’s notice of termination.  If the Company does not correct the act or failure to act, the Executive’s employment will terminate for Good Reason on the first business day following the Company’s 30-day cure period.

(e)          “Release” shall mean a separation agreement and general release of any and all claims against the Company and the Employer and all related parties with respect to all matters arising out of the Executive’s employment by the Employer, and the termination thereof (other than claims for any entitlements under the terms of this Agreement or under any plans or programs of the Employer under which the Executive has accrued and is due a benefit).  The Release will be in the form attached hereto as Exhibit A, subject to such legally required changes, as determined by the Company.

14.         Section 409A.

(a)          This Agreement is intended to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and its corresponding regulations, or an exemption thereto, and payments may only be made under this Agreement upon an event and in a manner permitted by section 409A of the Code, to the extent applicable.  Severance benefits under this Agreement are intended to be exempt from section 409A of the Code under the “short-term deferral” exception, to the maximum extent applicable, and then under the “separation pay” exception, to the maximum extent applicable.  Notwithstanding anything in this Agreement to the contrary, if required by section 409A of the Code, if the Executive is considered a “specified employee” for purposes of section 409A of the Code and if payment of any amounts under this Agreement is required to be delayed for a period of six months after separation from service pursuant to section 409A of the Code, payment of such amounts shall be delayed as required by section 409A of the Code, and the accumulated amounts shall be paid in a lump-sum payment within 10 days after the end of the six-month period.  If the Executive dies during the postponement period prior to the payment of benefits, the amounts withheld on account of section 409A of the Code shall be paid to the personal representative of the Executive’s estate within 60 days after the date of the Executive’s death.

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(b)          All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under section 409A of the Code.  For purposes of section 409A of the Code, each payment hereunder shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.  In no event may the Executive, directly or indirectly, designate the fiscal year of a payment.  Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of the Release, directly or indirectly, result in the Executive’s designating the fiscal year of payment of any amounts of deferred compensation subject to section 409A of the Code, and if a payment that is subject to execution of the Release could be made in more than one taxable year, payment shall be made in the later taxable year.

(c)          All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement be for expenses incurred during the period specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a fiscal year not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other fiscal year, (iii) the reimbursement of an eligible expense be made no later than the last day of the fiscal year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits not be subject to liquidation or exchange for another benefit.

15.         Restrictive Covenants.

(a)          Noncompetition.  The Executive agrees that during the Executive’s employment with the Company and its Affiliates and the 12-month period following the date on which the Executive’s employment terminates for any reason (the “Restriction Period”), the Executive will not, without the Board’s express written consent, engage (directly or indirectly) in any Competitive Business in the United States.  The term “Competitive Business” means entity or person that is engaged in a business, in the United States, that is conducted by the Company or its subsidiaries during the Executive’s employment, or that is documented in Board meeting minutes, resolutions, written consents, or Board or Board member notes or correspondence as under consideration by the Board during the 12 months prior to the Executive’s termination of employment (including the business of pharmaceutical products containing Collagenase ABC, and any variants or derivatives thereof, as an active ingredient and any reformulation, improvement, enhancement, combination, refinement, or modification thereof).  The Executive understands and agrees that, given the nature of the business of the Company and its Affiliates (as defined below) and the Executive’s position with the Company, the foregoing geographic scope is reasonable and appropriate.  For purposes of this Agreement, the term “Affiliate” means any subsidiary of the Company or other entity under common control with the Company.

(b)          Nonsolicitation of Company Personnel.  The Executive agrees that during the Restriction Period, the Executive will not, either directly or through others, hire or attempt to hire any employee, consultant or independent contractor of the Company or its Affiliates, or solicit or attempt to solicit any such person to change or terminate his or her relationship with the Company or an Affiliate or otherwise to become an employee, consultant or independent contractor to, for or of any other person or business entity, unless more than twelve (12) months shall have elapsed between the last day of such person’s employment or service with the Company or Affiliate and the first day of such solicitation or hiring or attempt to solicit or hire.  If any employee, consultant or independent contractor is hired or solicited by any entity that has hired or agreed to hire the Executive, such hiring or solicitation shall be conclusively presumed to be a violation of this subsection (b).

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(c)          Nonsolicitation of Customers.  The Executive agrees that during the Restriction Period, the Executive will not, either directly or through others, solicit, divert or appropriate, or attempt to solicit, divert or appropriate, any customer or actively sought prospective customer of the Company or an Affiliate for the purpose of providing such customer or actively sought prospective customer with services or products competitive with those offered by the Company or an Affiliate during the Executive’s employment with the Company or an Affiliate.

(d)          Proprietary Information.  At all times, the Executive will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Proprietary Information (defined below) of the Company or an Affiliate, except as such disclosure, use or publication may be required in connection with the Executive’s work for the Company or an Affiliate or as described in Section 15(e) below, or unless the Company expressly authorizes such disclosure in writing.  “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge, data or information of the Company and its Affiliates and shareholders, including but not limited to information relating to financial matters, investments, budgets, business plans, marketing plans, personnel matters, business contacts, products, processes, know-how, designs, methods, improvements, discoveries, inventions, ideas, data, programs, and other works of authorship.

(e)          Reports to Government Entities.  Nothing in this Agreement shall prohibit or restrict the Executive from initiating communications directly with, responding to any inquiry from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, any agency Inspector General or any other federal, state or local regulatory authority (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation.  The Executive does not need the prior authorization of the Company or the Employer to engage in conduct protected by this subsection, and the Executive does not need to notify the Company or the Employer that the Executive has engaged in such conduct.  Please take notice that federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.

(f)          Inventions Assignment.  The Executive agrees that all inventions, innovations, improvements, developments, methods, designs, analyses, reports, and all similar or related information which relates to the Company’s or its Affiliates’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Executive while employed by the Company or an Affiliate (“Work Product”) belong to the Company.  The Executive will promptly disclose such Work Product to the Board and perform all actions reasonably requested by the Board (whether during or after the Term) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).  If requested by the Company, the Executive agrees to execute any inventions assignment and confidentiality agreement that is required to be signed by employees of the Company and its Affiliates generally.

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(g)          Return of Company Property.  Upon termination of the Executive’s employment with the Employer for any reason, and at any earlier time the Company or Employer requests, the Executive will deliver to the person designated by the Company all originals and copies of all documents and property of the Company and its Affiliates that is in the Executive’s possession or under the Executive’s control or to which the Executive may have access.  The Executive will not reproduce or appropriate for the Executive’s own use, or for the use of others, any property, Proprietary Information or Work Product.

(h)          Non-Disparagement.  The Executive covenants and agrees that during the Executive’s employment with the Company and its Affiliates and at all times after the date on which the Executive’s employment with the Company and its Affiliates terminates for any reason, the Executive shall not make any disparaging, false or abusive remarks or communications, written or oral, regarding the Company or the Employer or their products, brands, trademarks, directors, officers, employees, consultants, advisors, licensors, licensees, customers, vendors or others with whom or with which they have a business relationship.  The Company covenants and agrees that it will instruct each member of the Board not to make any disparaging, false or abusive remarks or communications, written or oral, regarding the Executive after the date on which the Executive’s employment with the Employer terminates for any reason.

16.         Legal and Equitable Remedies; Arbitration.

(a)          Because the Executive’s services are personal and unique and the Executive has had and will continue to have access to and has become and will continue to become acquainted with the Proprietary Information of the Company and its Affiliates, and because any breach by the Executive of any of the restrictive covenants contained in Section 15 would result in irreparable injury and damage for which money damages would not provide an adequate remedy, the Company shall have the right to enforce Section 15 and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach, or threatened breach, of the restrictive covenants set forth in Section 15.  The Executive agrees that in any action in which the Company seeks injunction, specific performance or other equitable relief, the Executive will not assert or contend that any of the provisions of Section 15 are unreasonable or otherwise unenforceable.

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(b)          Except as otherwise set forth in this Agreement in connection with equitable remedies, any dispute, claim or controversy arising out of or relating to this Agreement or the Executive’s employment with the Company (collectively, “Disputes”), including, without limitation, any dispute, claim or controversy concerning the validity, enforceability, breach or termination of this Agreement, if not resolved by the parties, shall be finally settled by arbitration in accordance with the then-prevailing Employment Arbitration Rules and Procedures of JAMS, as modified herein (“Rules”). Further, the Executive hereby waives any right to bring on behalf of persons other than the Executive, or to otherwise participate with other persons in, any class, collective, or representative action (including but not limited to any representative action under any federal, state or local statute or ordinance).  The requirement to arbitrate covers all Disputes (other than disputes which by statute are not arbitrable) including, but not limited to, claims, demands or actions under the Age Discrimination in Employment Act (including Older Workers Benefit Protection Act); Americans with Disabilities Act; Civil Rights Act of 1866; Civil Rights Act of 1991; Employee Retirement Income Security Act of 1974; Equal Pay Act; Family and Medical Leave Act of 1993; Title VII of the Civil Rights Act of 1964; Fair Labor Standards Act; Fair Employment and Housing Act; and any other law, ordinance or regulation regarding discrimination or harassment or any terms or conditions of employment.  There shall be one arbitrator who shall be jointly selected by the parties.  If the parties have not jointly agreed upon an arbitrator within twenty (20) calendar days after respondent’s receipt of claimant’s notice of intention to arbitrate, either party may request JAMS to furnish the parties with a list of names from which the parties shall jointly select an arbitrator.  If the parties have not agreed upon an arbitrator within ten (10) calendar days after the transmittal date of such list, then each party shall have an additional five (5) calendar days in which to strike any names objected to, number the remaining names in order of preference, and return the list to JAMS, which shall then select an arbitrator in accordance with the Rules.  The place of arbitration shall be New York, New York.  By agreeing to arbitration, the parties hereto do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction, including, without limitation, with respect to the provisions of Section 15. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.  Judgment upon the award of the arbitrator may be entered in any court of competent jurisdiction. The arbitrator shall: (a) have authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The Company shall pay all administrative fees of JAMS in excess of $435 (a typical filing fee in court) and the arbitrator’s fees and expenses.  Each party shall bear its, his or her own costs and expenses (including attorney’s fees) in any such arbitration and the arbitrator shall have no power to award costs and attorney’s fees except as provided by statute or by separate written agreement between the parties. In the event any portion of this arbitration provision is found unenforceable by a court of competent jurisdiction, such portion shall become null and void leaving the remainder of this arbitration provision in full force and effect.  The parties agree that all information regarding the arbitration, including any settlement thereof, shall not be disclosed by the parties hereto, except as otherwise required by applicable law.

(c)          The Executive irrevocably and unconditionally (1) agrees that any legal proceeding arising out of this Agreement shall be brought solely in the United States District Court for the Southern District of New York, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in the State of New York, (2) consents to the exclusive jurisdiction of such court in any such proceeding, and (3) waives any objection to the laying of venue of any such proceeding in any such court.  The Executive also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers.

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(d)          Notwithstanding anything in this Agreement to the contrary, if the Executive breaches any of the Executive’s obligations under Section 15, the Company shall be obligated to provide only the Accrued Obligations, and all payments under Section 2, Section 6, or Section 7 hereof, as applicable, shall cease.  In such event, the Company may require that the Executive repay all amounts theretofore paid to him pursuant to Section 6 or Section 7 hereof (other than the Accrued Obligations), and in such case, the Executive shall promptly repay such amounts on the terms determined by the Company.

17.         Survival.  The respective rights and obligations of the parties under this Agreement (including, but not limited to, under Sections 15 and 16) shall survive any termination of the Executive’s employment or termination or expiration of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

18.         No Mitigation or Set-Off.  In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced regardless of whether the Executive obtains other employment.  The Company’s and the Employer’s obligations to make the payments provided for in this Agreement and otherwise to perform their respective obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company or the Employer may have against the Executive or others.

19.         Section 280G.  In the event of a change in ownership or control under section 280G of the Code, if it shall be determined that any payment or distribution in the nature of compensation (within the meaning of section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would constitute an “excess parachute payment” within the meaning of section 280G of the Code, the aggregate present value of the Payments under the Agreement shall be reduced (but not below zero) to the Reduced Amount (defined below) if and only if the Accounting Firm (described below) determines that the reduction will provide the Executive with a greater net after-tax benefit than would no reduction.  No reduction shall be made unless the reduction would provide Executive with a greater net after-tax benefit.  The determinations under this Section shall be made as follows:

(a)          The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of Payments under this Agreement without causing any Payment under this Agreement to be subject to the Excise Tax (defined below), determined in accordance with section 280G(d)(4) of the Code.  The term “Excise Tax” means the excise tax imposed under section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.

(b)          Payments under this Agreement shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Executive. Where more than one payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro rata basis.  Only amounts payable under this Agreement shall be reduced pursuant to this Section.

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(c)          All determinations to be made under this Section shall be made by an independent certified public accounting firm selected by the Company and agreed to by the Executive immediately prior to the change-in-ownership or -control transaction (the “Accounting Firm”).  The Accounting Firm shall provide its determinations and any supporting calculations both to the Company and the Executive within 10 days of the transaction.  Any such determination by the Accounting Firm shall be binding upon the Company and the Executive.  All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section shall be borne solely by the Company or the Employer.

20.         Notices.  All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received):

If to the Company or the Employer, to:

BioSpecifics Technology Corp.

35 Wilbur Street

Lynbrook, NY 11563

Attn:  Chair of the Compensation Committee

With a copy (which shall not constitute notice) to:

Carl A. Valenstein

Morgan, Lewis & Bockius LLP

One Federal Street, Boston MA 02110-1726

Carl.Valenstein@morganlewis.com

If to the Executive, to the most recent address on file with the Company or the Employer or to such other names or addresses as the Company, Employer, or the Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section.

21.         Withholding.  All payments under this Agreement shall be made subject to applicable tax withholding, and the Company and Employer, as applicable, shall withhold from any payments under this Agreement all federal, state and local taxes as the Company and Employer is required to withhold pursuant to any law or governmental rule or regulation.  The Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement.

22.         Remedies Cumulative; No Waiver.  No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity.  No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion.

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23.         Assignment.  All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Executive under this Agreement are of a personal nature and shall not be assignable or delegable in whole or in part by the Executive.  The Company and Employer may assign their respective rights, together with their respective obligations hereunder, in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, and such rights and obligations shall inure to, and be binding upon, any successor to the business or any successor to substantially all of the assets of the Company or the Employer, as applicable, whether by merger, purchase of stock or assets or otherwise, which successor shall expressly assume such obligations, and the Executive acknowledges that in such event the obligations of the Executive hereunder, including but not limited to those under Section 15, will continue to apply in favor of the successor.

24.         Company Policies.  This Agreement and the compensation payable hereunder shall be subject to any applicable clawback or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time with respect to officers of the Company.

25.         Indemnification.  In the event the Executive is made, or threatened to be made, a party to any legal action or proceeding, whether civil or criminal, including any governmental or regulatory proceedings or investigations, by reason of the fact that the Executive is or was a director or officer of the Company or any of its Affiliates, the Executive shall be indemnified by the Company, and the Company or the Employer shall pay the Executive’s related expenses when and as incurred, to the fullest extent permitted by applicable law and the Company’s articles of incorporation and bylaws.  During the Executive’s employment with the Company or any of its Affiliates and after termination of employment for any reason, the Company shall cover the Executive under the Company’s directors’ and officers’ insurance policy applicable to other officers and directors according to the terms of such policy.

26.         Entire Agreement.  This Agreement sets forth the entire agreement of the parties hereto and supersedes any and all prior agreements and understandings concerning the Executive’s employment by the Employer.  This Agreement may be changed only by a written document signed by the Executive, the Employer, and the Company.

27.         Severability.  If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement, which can be given effect without the invalid or unenforceable provision or application, and shall not invalidate or render unenforceable such provision or application in any other jurisdiction.  If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

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28.         Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the substantive and procedural laws of the State of New York without regard to rules governing conflicts of law.

29.         Counterparts.  This Agreement may be executed in any number of counterparts (including facsimile counterparts), each of which shall be an original, but all of which together shall constitute one instrument.

(Signature Page Follows)

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ADVANCE BIOFACTURES CORPORATION

/s/ Jennifer Chao

Name:	Jennifer Chao
Title:	Attorney-in-Fact
BIOSPECIFICS TECHNOLOGY CORP.
/s/ Jennifer Chao

Name:	Jennifer Chao
Title:	Chair of Compensation Committee
EXECUTIVE
/s/ J. Kevin Buchi

Name:
J. Kevin Buchi

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EXHIBIT A

SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE

This Agreement sets forth the terms of your separation of employment with ___________ (the “Employer”), a wholly-owned subsidiary of BioSpecifics Technology Corp. (the “Company”).  If you understand and agree with these terms, please sign in the space provided below.  If you, the Employer and the Company sign below, this will be a legally binding document representing the entire agreement between you, the Employer and the Company regarding the subjects it covers.  We will refer to this document as this “Agreement.”

Termination Date.  Your last day of work with the Company and the Employer will be _________.

Consideration.  The Employer will pay you [describe severance payments and benefits].

Release of Claims.  In exchange for the payment(s) described in the Consideration clause above, you hereby waive all claims available under federal, state or local law against the Company and the Employer and the directors, officers, employees, employee benefit plans and agents of the Company and the Employer arising out of your employment with the Employer or the termination of that employment, including but not limited to all claims arising under the Americans with Disabilities Act, the Civil Rights Act of 1991, the Employee Retirement Income Security Act, the Equal Pay Act, the Genetic Information Non-discrimination Act, the Family and Medical Leave Act, Section 1981 of the United States Code, Title VII of the Civil Rights Act, the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act, and [Insert appropriate state law statutes], as well as wrongful termination claims, breach of contract claims, discrimination claims, harassment claims, retaliation claims, whistleblower claims (to the fullest extent they may be released under applicable law), defamation or other tort claims, and claims for attorneys’ fees and costs.  You are not waiving your right to vested benefits under the written terms of the retirement plan, claims for unemployment or workers’ compensation benefits, any medical claim incurred during your employment that is payable under applicable medical plans or an employer-insured liability plan, claims arising after the date on which you sign this Agreement, or claims that are not otherwise waivable under applicable law. You represent that you have not made any claim or allegation related to unlawful discrimination, harassment, retaliation or sexual abuse, and none of the payments set forth in this Agreement relate to unlawful discrimination, harassment, retaliation or sexual abuse.

Restrictive Covenants.  You represent and agree that you have complied with and will continue to comply with all restrictive covenants between you and the Company and any of its affiliates (including without limitation the restrictive covenants set forth in Section 15 of your Employment Agreement dated as of October 8, 2019, for the duration of such covenants, including any non-compete, non-solicit, and non-disparagement provisions, with respect to the Company, to which you are a party.

A-1

Medicare Disclaimer.  You represent that you are not a Medicare beneficiary as of the time you enter into this Agreement.  To the extent that you are a Medicare beneficiary, you agree to contact a Human Resources Representative of the Company or the Employer for further instruction.

Limit on Disclosures. You shall not disclose or cause to be disclosed the terms of this Agreement to any person (other than your spouse or domestic/civil union partner, attorney and tax advisor), except pursuant to a lawful subpoena, as set forth in the Reports to Government Entities clause below or as otherwise permitted by law.  This provision is not intended to restrict your legal right to discuss the terms and conditions of your employment.

Reports to Government Entities.  Nothing in this Agreement, including the Limit on Disclosures or Release of Claims clause, restricts or prohibits you from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, and any agency Inspector General (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation.  However, to the maximum extent permitted by law, you are waiving your right to receive any individual monetary relief from the Company, the Employer or any others covered by the Release of Claims resulting from such claims or conduct, regardless of whether you or another party has filed them, and in the event you obtain such monetary relief, the Company and Employer will be entitled to an offset for the payments made pursuant to this Agreement.  This Agreement does not limit your right to receive an award from any Regulator that provides awards for providing information relating to a potential violation of law.  You do not need the prior authorization of the Company or the Employer to engage in conduct protected by this paragraph, and you do not need to notify the Company or the Employer that you have engaged in such conduct.

Please take notice that federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.

Nonadmission of Liability.  Nothing in this Agreement is an admission of any wrongdoing, liability or unlawful activity by you, the Employer or by the Company.

No Other Amounts Due.  You acknowledge that the Company or the Employer has paid you all wages, salaries, bonuses, benefits and other amounts earned and accrued, less applicable deductions, and that the Company and the Employer have no obligation to pay any additional amounts other than the payment(s) described in the Consideration clause of this Agreement.

A-2

Signature.  The Company and the Employer hereby advise you to consult with an attorney prior to signing this Agreement.  You acknowledge that you have had a reasonable amount of time [number of days] to consider the terms of this Agreement and you sign it with the intent to be legally bound.

Acknowledgment of Voluntariness and Time to Review.  You acknowledge that:

• you read this Agreement and you understand it;

• you are signing this Agreement voluntarily in order to release your claims against the Company and the Employer in exchange for payment that is greater than you would otherwise have received;

• you are signing this Agreement after the date of your separation from the Employer and you were offered at least 21 days to consider your choice to sign this Agreement;

• the Company and the Employer advise you to consult with an attorney;

• you know that you can revoke this Agreement within seven days of signing it and that the Agreement does not become effective until that seven-day period has passed.  To revoke, contact [Insert name or title and address and/or email address]; and

• you agree that changes to this Agreement before its execution, whether material or immaterial, do not restart your time to review this Agreement.

Employee:	Date:
Company:	Date:
Name:
Title:
Employer:	Date:
Name:
Title:

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EX-10.2

Exhibit 10.2

BIOSPECIFICS TECHNOLOGIES CORP.

2019 OMNIBUS INCENTIVE COMPENSATION PLAN

NONQUALIFIED STOCK OPTION AWARD AGREEMENT

This NONQUALIFIED STOCK OPTION AWARD AGREEMENT (the “Award Agreement”), dated as of ___________ (the “Date of Grant”), is delivered by BioSpecifics Technologies Corp.(the “Company”) to ___________ (the “Participant”).

RECITALS

The BioSpecifics Technologies Corp. 2019 Omnibus Incentive Compensation Plan (the “Plan”) provides for the grant of stock options to purchase shares of Company common stock (“Company Stock”) in accordance with the terms and conditions of the Plan.  The Committee has decided to make this nonqualified stock option Award as an inducement for the Participant to promote the best interests of the Company and its stockholders.  This Award Agreement is made pursuant to the Plan and is subject in its entirety to all applicable provisions of the Plan.  Capitalized terms used herein and not otherwise defined will have the meanings set forth in the Plan.

1.           Grant of Option.  Subject to the terms and conditions set forth in this Award Agreement and in the Plan, the Company hereby grants to the Participant a nonqualified stock option (the “Option”) to purchase ___ shares of Company Stock (each a “Share”, and together the “Shares”) at an Exercise Price of $___ per Share, with such Exercise Price equal to Fair Market Value on the Date of Grant.  The Option shall become exercisable according to Section 2 below.

2.            Exercisability of Option.

(a)         Subject to the terms of this Section 2, 25% of the Option shall become vested on each of the first four anniversaries of the Date of Grant (each of the first four anniversaries of the Date of Grant, a “Vesting Date”), provided that, subject to Section 2(c) and Section 2(d), the Participant continues to be employed by, or provide service to, the Employer from the Date of Grant until the applicable Vesting Date.

(b)         The vesting and exercisability of the Option is cumulative, but shall not exceed 100% of the Shares subject to the Option.  If the terms set forth on in Section 2(a) would produce fractional Shares, the number of Shares for which the Option becomes vested and exercisable shall be rounded down to the nearest whole Share and the fractional Shares will be accumulated with any fractional Shares produced on a future Vesting Date, and become exercisable once such fractional Shares from prior Vesting Dates equal a whole Share.

(c)         Notwithstanding Section 2(a), in the event that the Participant ceases to be employed by, or provide service to, the Employer on account of the termination of the Participant’s employment (i) by the Employer without Cause (as defined in the Employment Agreement among the Company, Advance Biofactures Corporation, and the Participant dated as of October 8, 2019 (the “Employment Agreement”) and other than on account of the Participant’s death or Disability (as defined by the Employment Agreement) or (ii) by the Participant for Good Reason (as defined in the Employment Agreement), in the case of the preceding clauses (i) and (ii) on or after the first anniversary of the Date of Grant but prior to the fourth anniversary of the Date of Grant, then subject to the Participant’s execution of an effective Release (as defined by the Employment Agreement), any unvested portion of the Option shall become fully vested.

(d)         Except as otherwise provided in Section 2(c) or in a written employment agreement or severance agreement entered into by and between the Participant and the Employer, in the event of a Change of Control, the provisions of the Plan applicable to a Change of Control shall apply to the Option, and, in the event of a Change of Control, the Committee may take such actions as it is permitted to under the terms of the Plan with respect to the vesting and exercisability of the Option.

3.           Term of Option.

(a)         The Option shall have a term of ten years from the Date of Grant and shall terminate at the expiration of that period, unless it is terminated at an earlier date pursuant to the provisions of this Award Agreement or the Plan. Notwithstanding the foregoing, to the extent permitted by Section 409A of the Code, in the event that on the last business day of the term of the Option, the exercise of the Option is prohibited by applicable law, including a prohibition on purchases or sales of Company Stock under the Company’s insider trading policy, the term of the Option shall be extended for a period of 30 days following the end of the legal prohibition, unless the Committee determines otherwise.

(b)          The Option shall automatically terminate upon the happening of the first of the following events:

(i)          The expiration of the 90-day period after the Participant ceases to be employed by, or provide service to, the Employer, if the termination is for any reason other than Disability, death or Cause;

(ii)         The expiration of the one-year period after the Participant ceases to be employed by, or provide service to, the Employer on account of the Participant’s Disability;

(iii)       The expiration of the one-year period after which the Participant ceases to be employed by, or provide service to, the Employer on account of the Participant’s death, or after which the Participant dies within 90 days after the date the Participant ceases to be employed by, or provide service to, the Employer for any reason other than Disability, death or Cause; and

(iv)       The date on which the Participant ceases to be employed by, or provide service to, the Employer for Cause.  In addition, notwithstanding the prior provisions of this Section 3, if the Participant engages in conduct that constitutes Cause after the Participant’s employment or service terminates, the Option shall immediately terminate.

Notwithstanding the foregoing, in no event may the Option be exercised after the date that is immediately before the tenth anniversary of the Date of Grant, except as provided under Section 3(a) above.  Any portion of the Option that is not exercisable at the time the Participant ceases to be employed by, or provide service to, the Employer shall immediately terminate.

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4.            Exercise Procedures.

(a)         Subject to the provisions of Sections 2 and 3 above, the Participant may exercise part or all of the exercisable Option by giving the Company, or its delegate, written notice of intent to exercise in a form prescribed by the Company.  For the avoidance of doubt, only the vested portion of an Option may be exercised.

(b)         At such time as the Committee shall determine, the Participant shall pay the Exercise Price (i) in cash or by check, (ii) with the consent of the Committee, by delivering shares of Company Stock owned by the Participant, which shall be valued at their Fair Market Value on the date of exercise, or by attestation (in accordance with procedures prescribed by the Company) to ownership of shares of Company Stock having a Fair Market Value on the date of exercise at least equal to the Exercise Price, (iii) with the consent of the Committee, by payment through a broker in accordance with procedures prescribed by the Company, (iv) with the consent of the Committee, or as the Committee may require, by surrendering shares of Company Stock subject to the exercisable Option for an appreciation distribution payable in Shares with a Fair Market Value on the date of exercise equal to the dollar amount by which the then Fair Market Value of the Shares subject to the surrendered portion exceeds the aggregate Exercise Price payable for the Shares (“net exercise”), or (v) by such other method as the Committee may approve, to the extent permitted by applicable law.  The Committee may impose from time to time such limitations as it deems appropriate on the use of shares of Company Stock to exercise the Option.

(c)          The obligation of the Company to deliver Shares upon exercise of the Option shall be subject to all applicable laws, rules, and regulations and such approvals by governmental agencies as may be deemed appropriate by the Committee, including such actions as Company counsel shall deem necessary or appropriate to comply with relevant securities laws and regulations.

(d)         All obligations of the Company under this Award Agreement shall be subject to the rights of the Employer as set forth in the Plan and Section 9 to withhold amounts required to be withheld for any taxes, if applicable.  The Participant shall be required to pay to the Employer, or make other arrangements satisfactory to the Employer to provide for the payment of, any federal, state, local or other taxes that the Employer is required to withhold with respect to the Option in accordance with Section 9.

(e)          Upon exercise of the Option (or portion thereof), the Option (or portion thereof) will terminate and cease to be outstanding.

5.           Restrictions on Exercise.  Except as the Committee may otherwise permit pursuant to the Plan, only the Participant may exercise the Option during the Participant’s lifetime and, after the Participant’s death, the Option shall be exercisable (subject to the limitations specified in the Plan) solely by the legal representatives of the Participant, or by the person who acquires the right to exercise the Option by will or by the laws of descent and distribution, to the extent that the Option is exercisable pursuant to this Award Agreement.

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6.           Award Subject to Plan Provisions.  This Award is made pursuant to the Plan, the terms of which are incorporated herein by reference, and in all respects shall be interpreted in accordance with the Plan.  The Award and exercise of the Option are subject to the provisions of the Plan and to interpretations, regulations and determinations concerning the Plan established from time to time by the Committee in accordance with the provisions of the Plan, including, but not limited to, provisions pertaining to (a) rights and obligations with respect to withholding taxes, (b) the registration, qualification or listing of the Shares, (c) changes in capitalization of the Company and (d) other requirements of applicable law.  The Committee shall have the authority to interpret and construe the Option pursuant to the terms of the Plan, and its decisions shall be conclusive, final and binding as to any questions arising hereunder.

7.           No Employment or Other Rights.  The Option Award shall not confer upon the Participant any right to be retained by or in the employ or service of any Employer and shall not interfere in any way with the right of any Employer to terminate the Participant’s employment or service at any time. The right of any Employer to terminate at will the Participant’s employment or service at any time for any reason is specifically reserved.

8.           No Stockholder Rights.  Neither the Participant, nor any person entitled to exercise the Participant’s rights in the event of the Participant’s death, shall have any of the rights and privileges of a stockholder with respect to the Shares subject to the Option, until certificates for Shares have been issued upon the exercise of the Option.

9.           Withholding Taxes.  The Participant is solely responsible for the satisfaction of all taxes that may arise in connection with the Option, and the Option may not be exercised unless the Participant makes arrangements satisfactory to the Company to ensure that its withholding tax obligations will be satisfied.  At the time of taxation, the Company shall have the right to deduct from other compensation or from amounts payable with respect to the Option, including by withholding Shares otherwise issuable upon the exercise of the Option, an amount equal to the federal (including FICA), state and local income and payroll taxes and other amounts as may be required by law to be withheld with respect to the Option.  In addition, the Participant may elect to satisfy any tax withholding obligation of the Employer with respect to the Option by having Shares withheld to satisfy the applicable withholding tax liabilities.Unless otherwise determined by the Committee, any withholding in the form of Shares shall not exceed the Participant’s minimum applicable tax withholding required by law

10.        Assignment and Transfers.  Except as the Committee may otherwise permit pursuant to the Plan, the rights and interests of the Participant under this Award Agreement may not be sold, assigned, encumbered or otherwise transferred except, in the event of the death of the Participant, by will or by the laws of descent and distribution. In the event of any attempt by the Participant to alienate, assign, pledge, hypothecate, or otherwise dispose of the Option or any right hereunder, except as provided for in this Award Agreement, or in the event of the levy or any attachment, execution or similar process upon the rights or interests hereby conferred, the Company may terminate the Option by notice to the Participant, and the Option and all rights hereunder shall thereupon become null and void.  The rights and protections of the Company hereunder shall extend to any successors or assigns of the Company and to the Company’s parents, subsidiaries, and affiliates.  This Award Agreement may be assigned by the Company without the Participant’s consent.

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11.         Applicable Law; Jurisdiction.  The validity, construction, interpretation and effect of this Award Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. Any action arising out of, or relating to, any of the provisions of this Award Agreement shall be brought only in the United States District Court for the Eastern District of New York, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in New York, and the jurisdiction of such court in any such proceeding shall be exclusive.  Notwithstanding the foregoing sentence, on and after the date a Participant receives shares of Company Stock hereunder, the Participant will be subject to the jurisdiction provision set forth in the Company’s bylaws.

12.         Notice.  Subject to Section 14 of this Award Agreement, any notice to the Company provided for in this instrument shall be addressed to the Company in care of the General Counsel and any notice to the Participant shall be addressed to such Participant at the current address shown on the payroll of the Employer.  Any notice shall be delivered by electronic mail, in-person, or enclosed in a properly sealed envelope addressed as stated above and registered and deposited, postage prepaid, in a post office regularly maintained by the United States Postal Service or by the postal authority of the country in which the Participant resides or to an internationally recognized expedited mail courier.

13.         Clawback and Recoupment; Company Policies.

(a)          Subject to the requirements of applicable law, if the Participant breaches any restrictive covenant agreement or obligation between the Participant and the Employer or otherwise engages in activities that constitute Cause either while employed by, or providing service to, the Employer or within 12 months following termination, the Option shall terminate, and to the extent the Option has been exercised, the Company may require that (i) the Participant shall return to the Company the Shares received upon the exercise of the Option or (ii) if the Participant no longer owns such Shares, the Participant shall pay to the Company the amount of any gain realized or payment received as a result of any sale or other disposition of the Shares  (or, in the event the Participant transfers the Shares by gift or otherwise without consideration, the Fair Market Value of the Shares on the date of the breach of the restrictive covenant agreement or activity constituting Cause), net of the price originally paid by the Participant for the shares.  Payment by the Participant shall be made in such manner and on such terms and conditions as may be required by the Committee.  To the extent permitted by law (including Section 409A of the Code), the Employer shall be entitled to set off against the amount of any such payment any amounts otherwise owed to the Participant by the Employer.

(b)          The Participant agrees that, subject to the requirements of applicable law, the Option, and the right to receive and retain any Shares, or the amount of any gain realized or payment received as a result of any sale or other disposition of the Shares, covered by this Award Agreement, shall be subject to rescission, cancellation or recoupment, in whole or part, if and to the extent so provided under any “clawback” or recoupment policies, securities exchange listing standard, share trading policy and any other standard or policy that may be required by law or implemented by the Company and that is in effect on the Date of Grant or that may be established thereafter.  By accepting the Option, the Participant agrees and acknowledges that the Participant is obligated to cooperate with, and provide any and all assistance necessary to, the Company to recover or recoup the Option or Shares or amounts paid under the Option subject to clawback or recoupment pursuant to such policy, standard or law or to the extent payment is required pursuant to Section 13(a).  Such cooperation and assistance shall include, but is not limited to, executing, completing and submitting any documentation necessary to recover or recoup any such Option or Shares or amount paid from the Participant’s accounts, or pending or future compensation or Awards under the Plan.

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(c)          The Option and any Shares or cash delivered pursuant to the Option shall be subject to all applicable share trading policies, share holding and other policies that may be implemented by the Board from time to time.

14.         Electronic Delivery.  The Company may, in its sole discretion, deliver any documents relating to the Participant’s Option and the Participant’s participation in the Plan, or future Awards that may be granted under the Plan, by electronic means or request the Participant’s consent to participate in the Plan by electronic means.  The Participant hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third-party designated by the Company.

15.         Severability.  If any provision of this Award Agreement is held to be unenforceable, illegal or invalid for any reason, the unenforceability, illegality or invalidity will not affect the remaining provisions of the Award Agreement, and the Award Agreement is to be construed and enforced as if the unenforceable, illegal or invalid provision had not been inserted, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.

16.         Waiver.  The waiver by the Company with respect to the Participant’s (or any other participant’s) compliance of any provision of this Award Agreement shall not operate or be construed as a waiver of any other provision of this Award Agreement, or of any subsequent breach by such party of a provision of this Award Agreement.

17.         Amendment.  Except as permitted by the Plan, this Award Agreement may not be amended, modified, terminated or otherwise altered except by the written consent of the Company and the Participant.

18.         Counterparts.  This Award Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument.

19.         Binding Effect; No Third Party Beneficiaries.  This Award Agreement shall be binding upon and inure to the benefit of the Company and the Participant and each of their respective heirs, representatives, successors and permitted assigns.  This Award Agreement shall not confer any rights or remedies upon any person other than the Company and the Participant and each of their respective heirs, representatives, successor and permitted assigns..

[Signature Page Follows]

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IN WITNESS WHEREOF, the Company has caused an officer to execute this Award Agreement, and the Participant has executed this Award Agreement, effective as of the Date of Grant.

BIOSPECIFICS TECHNOLOGIES CORP.

Name:

Title:

I hereby accept the Option described in this Award Agreement, and I agree to be bound by the terms of the Plan and this Award Agreement. I hereby further agree that all decisions and determinations of the Committee shall be conclusive, final and binding.

Participant:

Date:

-7-

EX-10.3

Exhibit 10.3

35 Wilbur Street Associates, LLC

19 Wilbur Street

Lynbrook, NY 11563

November 6, 2019

Mr. Patrick Caldwell

Advance Biofactures Corp.

35 Wilbur Street

Lynbrook, NY 11563

Re:  Lease dated November 21, 2013 between 35 Wilbur Street Assoc., LLC and Advance Biofactures Corp., premises; 35 Wilbur Street, Lynbrook, NY 11563.

Dear Mr. Caldwell:

It is our understanding that you would like to renew the lease.  The current lease expires on November 30, 2019. As stated in the original lease, this lease may be terminated with a minimum of three months’ notice. We propose that the current terms of the lease remain in effect including all changes to date except where the following is concerned:

1) The lease will be renewed for 6 months. $12,073.95/ month.

A current copy of the certificate of liability insurance is required.

Sincerely yours,

Valorie Mancuso

Controller

Patrick Caldwell, CFO	Richard Arote Jr.
Advance Biofactures Corp.	35 Wilbur Street Assoc., LLC
/s/ Patrick Caldwell	/s/ Richard Arote Jr.

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934

I, J. Kevin Buchi, Chief Executive Officer and Principal Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BioSpecifics Technologies Corp. for the quarterly period ended September 30, 2019;

2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 12, 2019

/s/ J. Kevin Buchi

J. Kevin Buchi

Chief Executive Officer and Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934

I, Pat Caldwell, Principal Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BioSpecifics Technologies Corp. for the quarterly period ended September 30, 2019;

2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 12, 2019

/s/ Pat Caldwell

Pat Caldwell

Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of BioSpecifics Technology Corp. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, J. Kevin Buchi, Chief Executive Officer and Principal Executive Officer of the Company, and Pat Caldwell, Principal Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on each of our knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 12, 2019
		/s/ J. Kevin Buchi
		J. Kevin Buchi
		Chief Executive Officer and Principal Executive Officer
		/s/ Pat Caldwell
		Pat Caldwell
		Principal Financial Officer

XML

PATENT COSTS

9 Months Ended

Sep. 30, 2019

PATENT COSTS [Abstract]

PATENT COSTS

5. PATENT COSTS

We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from two to ten years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  We analyze our intangible assets, specifically, capitalized patent costs, on an annual basis for any indicator that an impairment exists. As of September 30, 2019 and December 31, 2018, no impairment existed and no adjustments were warranted.

We capitalized approximately $97,000 and $190,000 of patent costs for the three and nine months ended September 30, 2019 as compared to approximately $16,000 and $95,000 for three and nine months ended September 30, 2018, respectively. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:

	September 30, 2019			December 31, 2018
Patents	$	1,235,919		$	1,046,216
Accumulated amortization		(673,416	)		(601,738	)
Total	$	562,503		$	444,478

The amortization expense for patents for the three and nine months ended September 30, 2019 was approximately $29,000 and $72,000, respectively, and for the three and nine months ended September 30, 2018 was approximately $19,000 and $54,000, respectively. The estimated aggregate amortization expense for the remaining three months of 2019 and each of the years below is approximately as follows:

October 1, 2019 – December 31, 2019	$	24,000
2020		78,000
2021		61,000
2022		61,000
2023		61,000
Thereafter		278,000
Total	$	563,000

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2019

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	September 30, 2019		December 31, 2018
Trade accounts payable	$	87,446	$	122,199
Accrued legal and other professional fees		450,300		308,725
Accrued payroll and related costs		94,205		173,123
Third party royalties		173,005		1,168,837
Other accruals		72,272		25,704
Total	$	877,228	$	1,798,588

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Fair Value Measurements (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Fair Value Measurements [Abstract]
Held-to-maturity securities, unrecognized gain	$ 0		$ 0		$ 0
Held-to-maturity securities, unrecognized (loss)	0		0		0
Interest income	504,909	$ 359,637	1,471,489	$ 851,334
Amortized net premium (discount) included in interest income			56,000	$ (361,000)
Remaining unamortized net premium / (net discount)	198,000		198,000		(121,000)
Debt Securities, Held-to-maturity [Abstract]
Held-to-maturity securities, current	69,089,724		69,089,724		67,707,143
Held-to-maturity securities, noncurrent	16,492,528		16,492,528		1,099,834
Recurring [Member] | Institutional Money Market [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	2,433,542		2,433,542		6,078,025
Recurring [Member] | US Government Agencies [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	3,995,097		3,995,097
Investments	10,462,761		10,462,761
Recurring [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	7,138,489		7,138,489		1,295,350
Recurring [Member] | Corporate Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	62,009,435		62,009,435		62,420,996
Recurring [Member] | Certificates of Deposit [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	5,971,567		5,971,567		5,090,631
Recurring [Member] | Level 1 [Member] | Institutional Money Market [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	2,433,542		2,433,542		6,078,025
Recurring [Member] | Level 1 [Member] | US Government Agencies [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	3,995,097		3,995,097
Investments	0		0
Recurring [Member] | Level 1 [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	0		0		0
Recurring [Member] | Level 1 [Member] | Corporate Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	0		0		0
Recurring [Member] | Level 1 [Member] | Certificates of Deposit [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	5,971,567		5,971,567		5,090,631
Recurring [Member] | Level 2 [Member] | Institutional Money Market [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	0		0		0
Recurring [Member] | Level 2 [Member] | US Government Agencies [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	0		0
Investments	10,462,761		10,462,761
Recurring [Member] | Level 2 [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	7,138,489		7,138,489		1,295,350
Recurring [Member] | Level 2 [Member] | Corporate Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	62,009,435		62,009,435		62,420,996
Recurring [Member] | Level 2 [Member] | Certificates of Deposit [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	0		0		0
Recurring [Member] | Level 3 [Member] | Institutional Money Market [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	0		0		0
Recurring [Member] | Level 3 [Member] | US Government Agencies [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents	0		0
Investments	0		0
Recurring [Member] | Level 3 [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	0		0		0
Recurring [Member] | Level 3 [Member] | Corporate Bonds [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	0		0		0
Recurring [Member] | Level 3 [Member] | Certificates of Deposit [Member]
Assets, Fair Value Disclosure [Abstract]
Investments	0		0		0
US Government Agencies [Member]
Debt Securities, Held-to-maturity [Abstract]
Held-to-maturity securities, current	4,234,076		4,234,076		0
Held-to-maturity securities, noncurrent	6,228,685		6,228,685		0
Municipal Bonds [Member]
Debt Securities, Held-to-maturity [Abstract]
Held-to-maturity securities, current	6,593,224		6,593,224		1,295,350
Held-to-maturity securities, noncurrent	545,265		545,265		0
Corporate Bonds [Member]
Debt Securities, Held-to-maturity [Abstract]
Held-to-maturity securities, current	56,061,185		56,061,185		61,321,162
Held-to-maturity securities, noncurrent	5,948,250		5,948,250		1,099,834
Certificates of Deposit [Member]
Debt Securities, Held-to-maturity [Abstract]
Held-to-maturity securities, current	2,201,239		2,201,239		5,090,631
Held-to-maturity securities, noncurrent	$ 3,770,328		$ 3,770,328		$ 0

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 11, 2019
Cover [Abstract]
Entity Registrant Name	BIOSPECIFICS TECHNOLOGIES CORP
Entity Central Index Key	0000875622
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		7,339,370
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Entity Address, State or Province	NY

XML

Condensed consolidated Statements of Stockholders' Equity (unaudited) - USD ($)	Common Stock [Member]	Additional Paid in Capital [Member]	Retained Earning [Member]	Treasury Stock [Member]	Total
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adjustment due to adoption of ASC606 | ASU 2014-09 [Member]	$ 0	$ 0	$ 10,184,335	$ 0	$ 10,184,335
Balances at Dec. 31, 2017	$ 7,600	33,468,323	41,939,115	(7,898,200)	67,516,838
Balances (in shares) at Dec. 31, 2017	7,600,167
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon stock option exercise	$ 138	2,570,692	0	0	2,570,830
Issuance of common stock upon stock option exercise (in shares)	138,000
Stock compensation expense	$ 0	159,883	0	0	159,883
Repurchases of common stock	0	0	0	(2,559,050)	(2,559,050)
Net income	0	0	13,869,585	0	13,869,585
Balances at Sep. 30, 2018	$ 7,738	36,198,898	65,993,035	(10,457,250)	91,742,421
Balances (in shares) at Sep. 30, 2018	7,738,167
Balances at Jun. 30, 2018	$ 7,655	34,424,632	60,949,985	(7,898,200)	87,484,072
Balances (in shares) at Jun. 30, 2018	7,655,167
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon stock option exercise	$ 83	1,710,697	0	0	1,710,780
Issuance of common stock upon stock option exercise (in shares)	83,000
Stock compensation expense	$ 0	63,569	0	0	63,569
Repurchases of common stock	0	0	0	(2,559,050)	(2,559,050)
Net income	0	0	5,043,050	0	5,043,050
Balances at Sep. 30, 2018	$ 7,738	36,198,898	65,993,035	(10,457,250)	91,742,421
Balances (in shares) at Sep. 30, 2018	7,738,167
Balances at Dec. 31, 2018	$ 7,738	36,302,446	72,176,719	(10,898,383)	$ 97,588,520
Balances (in shares) at Dec. 31, 2018	7,738,167				7,275,902
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon stock option exercise	$ 73	2,133,323	0	0	$ 2,133,396
Issuance of common stock upon stock option exercise (in shares)	73,063
Stock compensation expense	$ 0	520,387	0	0	520,387
Repurchases of common stock	0	0	0	(357,289)	(357,289)
Net income	0	0	17,115,988	0	17,115,988
Balances at Sep. 30, 2019	$ 7,811	38,956,156	89,292,707	(11,255,672)	$ 117,001,002
Balances (in shares) at Sep. 30, 2019	7,811,230				7,342,756
Balances at Jun. 30, 2019	$ 7,796	38,299,800	83,019,774	(11,016,949)	$ 110,310,421
Balances (in shares) at Jun. 30, 2019	7,796,230
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon stock option exercise	$ 15	396,435	0	0	396,450
Issuance of common stock upon stock option exercise (in shares)	15,000
Stock compensation expense	$ 0	259,921	0	0	259,921
Repurchases of common stock	0	0	0	(238,723)	(238,723)
Net income	0	0	6,272,933	0	6,272,933
Balances at Sep. 30, 2019	$ 7,811	$ 38,956,156	$ 89,292,707	$ (11,255,672)	$ 117,001,002
Balances (in shares) at Sep. 30, 2019	7,811,230				7,342,756

XML

NET INCOME PER SHARE

9 Months Ended

Sep. 30, 2019

NET INCOME PER SHARE [Abstract]

NET INCOME PER SHARE

3. NET INCOME PER SHARE

In accordance with ASC 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and restricted stock using the treasury stock method. For the three and nine month periods ended September 30, 2019 there were 24,015 and 39,626, respectively, of common equivalent shares attributable to stock options and 807 and 1,410 attributable to restricted stock that were included in the calculation of diluted net income per share. There were 60,000 stock options in each period to purchase shares and 500 and zero restricted stock awards excluded from the calculation of diluted net income per share for the three and nine month periods ended September 30, 2019, respectively, because their effects are anti-dilutive.

For the three and nine month periods ended September 30, 2018 there were 75,497 and 96,923, respectively, of common equivalent shares attributable to stock options that were included in the calculation of diluted net income per share. There were zero stock options to purchase shares excluded from the calculation of diluted net income per share for the three and nine month periods ended September 30, 2018, respectively, because their effects are anti-dilutive.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Stock-Based Compensation (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Assumptions used to estimate the fair values of the stock options granted [Abstract]
Risk-free interest rate			2.18%
Expected term of option			6 years 3 months
Expected stock price volatility			39.50%
Expected dividend yield			0.00%
Additional Disclosures [Abstract]
Proceeds from stock option exercises			$ 2,133,396	$ 2,570,830
Closing price of common stock (in dollars per share)	$ 53.52		$ 53.52
2019 Plan [Member]
Share Based Compensation Expense [Abstract]
Number of shares authorized for issuance (in shares)	1,248,848		1,248,848
Number of shares available for issuance (in shares)	1,100,000		1,100,000
Award expiry period			10 years
2019 Plan [Member] | Minimum [Member]
Share Based Compensation Expense [Abstract]
Award vesting period			1 year
2019 Plan [Member] | Maximum [Member]
Share Based Compensation Expense [Abstract]
Award vesting period			4 years
2001 Plan [Member]
Share Based Compensation Expense [Abstract]
Number of shares available for issuance (in shares)	148,848		148,848
Restricted Stock Awards [Member]
Additional Disclosures [Abstract]
Unrecognized compensation cost	$ 460,000		$ 460,000
Recognized compensation period			1 year 3 months
Restricted Stock Awards [Member] | General and Administrative [Member]
Additional Disclosures [Abstract]
Stock-based compensation expense	$ 146,000		$ 146,000
Restricted Stock Awards [Member] | 2019 Plan [Member]
Restricted Stock Awards [Roll Forward]
Nonvested, Beginning balance (in shares)			0
Issued (in shares)			9,950
Vested (in shares)			0
Forfeited (in shares)			0
Nonvested, Ending balance (in shares)	9,950		9,950		0
Weighted-Average Grant Date Fair Value Per Share [Roll Forward]
Nonvested, Beginning of period (in dollars per share)			$ 0
Issued (in dollars per share)			60.85
Vested (in dollars per share)			0
Forfeited (in dollars per share)			0
Nonvested, Ending of period (in dollars per share)	$ 60.85		$ 60.85		$ 0
Stock Options [Member]
Additional Disclosures [Abstract]
Proceeds from stock option exercises			$ 2,100,000	2,600,000
Unrecognized compensation cost	$ 1,700,000		$ 1,700,000
Recognized compensation period			3 years 22 days
Stock Options [Member] | General and Administrative [Member]
Additional Disclosures [Abstract]
Stock-based compensation expense	$ 114,000	$ 64,000	$ 374,000	$ 160,000
Stock Options [Member] | 2001 Plan [Member]
Stock Options Activity [Roll Forward]
Outstanding, beginning of period (in shares)			175,500
Grants (in shares)			10,000
Exercised (in shares)			(73,063)
Forfeitures (in shares)			(11,250)
Outstanding, end of period (in shares)	101,187		101,187		175,500
Exercisable, end of period (in shares)	28,812		28,812
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)			$ 37.73
Grants (in dollars per share)			66.40
Exercised (in dollars per share)			29.20
Forfeitures (in dollars per share)			41.82
Outstanding, end of period (in dollars per share)	$ 46.26		46.26		$ 37.73
Exercisable, end of period (in dollars per share)	$ 21.74		$ 21.74
Weighted Average Remaining Contractual Term [Roll Forward]
Outstanding			7 years 7 months 17 days		6 years 3 months 29 days
Grants			0 years
Exercised			0 years
Forfeitures					0 years
Exercisable			3 years 11 months 16 days
Aggregate Intrinsic Value [Roll Forward]
Outstanding, beginning of period			$ 4,014,235
Grants			0
Exercised			2,229,195
Forfeitures			0
Outstanding, end of period	$ 1,061,135		1,061,135		$ 4,014,235
Exercisable, end of period	$ 915,593		$ 915,593

XML

PATENT COSTS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Finite-lived Intangible Assets [Abstract]
Capitalized patent costs	$ 97,000	$ 16,000	$ 190,000	$ 95,000
Net Patent Costs [Abstract]
Total	562,503		562,503		$ 444,478
Patents [Member]
Finite-lived Intangible Assets [Abstract]
Amortization expense for patents	29,000	$ 19,000	72,000	$ 54,000
Net Patent Costs [Abstract]
Patents	1,235,919		1,235,919		1,046,216
Accumulated amortization	(673,416)		(673,416)		(601,738)
Total	562,503		562,503		$ 444,478
Estimated aggregate amortization expense [Abstract]
October 1, 2019 - December 31, 2019	24,000		24,000
2020	78,000		78,000
2021	61,000		61,000
2022	61,000		61,000
2023	61,000		61,000
Thereafter	278,000		278,000
Total	$ 563,000		$ 563,000
Patents [Member] | Minimum [Member]
Finite-lived Intangible Assets [Abstract]
Amortization period for intangible assets			2 years
Patents [Member] | Maximum [Member]
Finite-lived Intangible Assets [Abstract]
Amortization period for intangible assets			10 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2019, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s 2018 Annual Report.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) that we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reporting.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the risk factors discussed in Part I, Item 1A. Risk Factors in our 2018 Annual Report, filed with the SEC on April 2, 2019.

Principles of Consolidation

The condensedconsolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. All intercompany balances and transactions have been eliminated.

Critical Accounting Policies, Estimates and Assumptions

The preparation of condensedconsolidated financial statements in conformity with U.S. GAAP requires the use of management’s estimates and assumptions that affect the amounts reported in the condensedconsolidated financial statements and accompanying notes. The Company makes certain assumptions and estimates for its revenues, income taxes and third party royalties. We base our estimates on historical experience, and other relevant data including interim data provided by Endo and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. For further details, see notes “Revenue Recognition.”, “Provision for Income Taxes” and “Third-Party Royalties.” Actual results may differ from those estimates.

Revenue Recognition

Beginning in 2014, Financial Accounting Standards Board (“FASB”) issued several Accounting Standards Updates establishing Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).  ASC 606 requires retrospective implementation, and replaces most industry-specific revenue recognition guidance in U.S. GAAP with a new principles-based, five-step revenue recognition model.  The Company adopted ASC 606 effective January 1, 2018. Under ASC 606, we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation(s).

Revenues, and their respective treatment for financial reporting purposes under ASC 606 and our license agreement with Endo, are as follows:

Royalty / Mark-Up on Cost of Goods Sold

We receive royalty revenues on net sales and mark-up on cost of goods sold revenue in the U.S. under our License Agreement with Endo. These are presented in “Royalties” in our condensed consolidated statements of income.  We do not have future performance obligations under this revenue stream. In accordance with ASC 606, we record these revenues based on estimates of the net sales that occurred during the relevant period. The relevant period estimates of these royalties are based on interim data provided by Endo and analysis of historical royalties and mark-up on cost of goods sold revenue that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known. The royalties payable by Endo to us are subject to set-off for certain patent costs.

Licensing Revenue

We include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our condensed consolidated statements of income.

The Company recognizes licensing revenues generated through development and/or commercialization agreements. The terms of these agreements typically include payment to the Company of one or more of the following: nonrefundable, upfront license fees; sublicensing; development and commercial milestone payments; development activities; and royalties on net sales of licensed products. Each of these types of payments results in licensing revenues except for revenues from royalties on net sales of licensed products and the mark-up of cost of goods sold revenues which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.

For each development and/or commercialization agreement that result in revenues, the Company identifies all performance obligations, aside from those that are immaterial, which may include a license to intellectual property and know-how, development activities and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.  For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.  The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments

Depending on facts and circumstances, the Company may conclude that it is appropriate to include the milestone, representing variable consideration, in the estimated total transaction price, or that it is appropriate to fully constrain the milestone. The Company may include revenues from certain milestones in the total transaction price in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the total transaction price, including the amount of revenue that it has recorded, if necessary.

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted

In February 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The adoption of the new standard as of January 1, 2019 did not have a material impact on our consolidated financial statements due to the short term nature of our leases.

Accounting Pronouncements Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2023. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

Cash, Cash Equivalents and Investments

Cash equivalents include only securities having a maturity of 90 days or less at the time of purchase.  Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit, U.S. government agency bonds, municipal bonds and corporate bonds. All investments are classified as held to maturity. As of September 30, 2019 and December 31, 2018, the amortized cost of these investments was $85.6 million and $68.8 million, respectively. No unrealized gains or losses were recorded in either period.

Fair Value Measurements

Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held to maturity investments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the duration of those instruments. As of September 30, 2019 and December 31, 2018, there were no recorded unrealized gains or losses on our investments as they are classified as held to maturity. As of September 30, 2019 and December 31, 2018, amortized cost basis of the investments approximated their fair value. Interest income for the three and nine months ended September 30, 2019 was $0.5 million and $1.5 million, respectively as compared to $0.4 million and $0.9 million in the 2018 periods. For the nine months ended September 30, 2019 and 2018, the amortized net premium / (net discount) included in interest income was approximately $56,000 and ($361,000), respectively. At September 30, 2019 and December 31, 2018, the remaining unamortized net premium / (net discount) was approximately $198,000 and ($121,000), respectively.

The following table presents the Company’s schedule of maturities at September 30, 2019 and December 31, 2018:

	Maturities as of September 30, 2019				Maturities as of December 31, 2018
	1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year
U.S Government agency	$	4,234,076	$	6,228,685	$	-	$	-
Municipal bonds		6,593,224		545,265		1,295,350		-
Corporate bonds		56,061,185		5,948,250		61,321,162		1,099,834
Certificates of deposit		2,201,239		3,770,328		5,090,631		-
Total	$	69,089,724	$	16,492,528	$	67,707,143	$	1,099,834

The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.

As of September 30, 2019, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2019 and December 31, 2018:

September 30, 2019	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	2,433,542	$	2,433,542	$	-	$	-
Cash equivalents	U.S. Government Agency	$	3,995,097	$	3,995,097
Investments	U.S. Government Agency		10,462,761		-		10,462,761		-
Investments	Municipal Bonds		7,138,489		-		7,138,489		-
Investments	Corporate Bonds		62,009,435		-		62,009,435		-
Investments	Certificates of Deposit		5,971,567		5,971,567		-		-

December 31, 2018	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	6,078,025	$	6,078,025	$	-	$	-
Investments	Municipal Bonds		1,295,350		-		1,295,350		-
Investments	Corporate Bonds		62,420,996		-		62,420,996		-
Investments	Certificates of Deposit		5,090,631		5,090,631		-		-

Concentration of Credit Risk and Major Customers

The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.

The Company maintains investments in FDIC insured certificates of deposits, U.S. government agency bonds, municipal bonds and corporate bonds.

The Company is currently dependent on one customer, Endo, which generates almost all of the Company’s revenues. For the three and nine months ended September 30, 2019, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $9.4 million and $26.4 million, respectively and for the three and nine months ended September 30, 2018, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $8.2 million and $23.1 million, respectively.

At September 30, 2019 and December 31, 2018, our accounts receivable balances from Endo were $17.8 million and $16.5 million, respectively.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the nine months ended September 30, 2019 there were 6,209 shares repurchased at an average price of $57.54 compared to 43,705 shares at an average price of $58.55 in the 2018 comparable period.

Stock Repurchase Plan

On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and various other factors.

Receivables and Doubtful Accounts

Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms.  Our accounts receivable balance is typically due from Endo, our one large specialty pharmaceutical customer.  Endo has historically paid timely and has been a financially stable organization.  Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal and therefore no allowance is recorded.  If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required.  We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At September 30, 2019 and December 31, 2018 our accounts receivable balance was $17.8 million and $16.5 million, respectively, and was from one customer, Endo.

Reimbursable Third-Party Patent Costs

We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and expense others. As of September 30, 2019 and December 31, 2018, our net reimbursable third party patent expense was $25,000 and $40,000, respectively, which was recorded as a reduction to our accounts receivable balance.

Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC.  No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are expensed under general and administrative in the quarter that the net sales have occurred. For the three and nine month periods ended September 30, 2019 and 2018, third-party royalty expenses were $0.2 million and $0.7 million, respectively. For the three and nine month periods ended September 30, 2018, third-party royalty expenses were $0.6 million and $1.7 million, respectively. As of March 1, 2019, we have no further third party royalties in connection with PD as the agreement expired in February 2019.

Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of January 1, 2018.  In March 2019, royalty obligations were terminated, which was five years after first commercial sale, which occurred in January 2014. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX® and Xiapex® for PD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three and nine months ended September 30, 2019, we amortized zero and approximately $0.2 million related to this agreement, respectively. For the three and nine months ended September 30, 2018 we amortized approximately $0.6 million and $1.6 million, respectively, related to this agreement. Royalty buy-down expenses are recorded as part of general and administrative expenses. As of September 30, 2019 and December 31, 2018, the remaining capitalized balances were zero and $0.2 million, respectively.

Research and Development Expenses

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.

Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research consultants. In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.

Stock-Based Compensation and 2019 Omnibus Incentive Compensation Plan

ASC 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock awards including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The fair value of each service-based restricted stock unit granted is estimated on the day of grant based on the closing price of the Company’s common stock. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensedconsolidated statements of operations.

On June 13, 2019, at the Company’s annual meeting, the Company’s stockholders approved the 2019 Omnibus Incentive Compensation Plan(the “2019 Plan”). Upon the 2019 Plan’s approval, approximately 1,248,848 shares of Company common stock were available for issuance thereunder, consisting of 1,100,000 shares authorized for issuance under the 2019 Plan and 148,848 shares then remaining available for issuance under the Company’s 2001 Stock Option Plan (the “2001 Plan”). The 2019 Plan replaced the 2001 Plan. No new awards will be granted under the 2001 Plan; however, awards outstanding under the 2001 Plan upon approval of the 2019 Plan remain subject to and will be settled under the applicable 2001 Plan.

Grants under the 2019 Plan may consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, or cash awards. Employees, key advisors or non-employee directors are eligible to participate in the 2019 Plan. Grants under the 2019 Plan vest over periods ranging from one to four years and expire ten years from date of grant.

2019 Omnibus Incentive Compensation Plan (2019 Plan)

Restricted Stock Awards

A summary of the restricted stock awards activity during the nine months ended September 30, 2019 is presented below:

	Restricted Stock	Weighted-Average Grant Date Fair Value Per Share
Nonvested at December 31, 2018	-	$	-
Issued	9,950		60.85
Vested	-		-
Forfeited	-		-
Nonvested at September 30, 2019	9,950	$	60.85

Stock-based compensation expense related to restricted stock awards recognized in general and administrative expense was approximately $146,000 for the three and nine months ended September 30, 2019.

As of September 30, 2019, there was approximately $460,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to restricted stock. This cost is expected to be recognized over the vesting periods of the restricted stock, with a weighted-average period of approximately 1.25 years.

Stock Option Activity under the 2001 Stock Option Plan (2001 Plan)

For the nine months ended September 30, 2019, we granted a total of 10,000 stock options from the 2001 Plan with a weighted average grant date fair value of $27.97 per share.

The assumptions used in the valuation of stock options granted during the nine months ended September 30, 2019 were as follows:

		Nine Months Ended September 30, 2019
Risk-free interest rate		2.18%
Expected term of option		6.25 years
Expected stock price volatility		39.5%
Expected dividend yield	$	0.0

A summary of our stock option activity during the nine months ended September 30, 2019 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2018		175,500		$	37.73		6.33	$	4,014,235
Grants		10,000			66.40		-		-
Exercised		(73,063	)		29.20		-		2,229,195
Forfeitures		(11,250	)		41.82		-		-
Outstanding at September 30, 2019		101,187		$	46.26		7.63	$	1,061,135
Exercisable at September 30, 2019		28,812		$	21.74		3.96	$	915,593

During the nine months ended September 30, 2019 and 2018, the Company received approximately $2.1 million and $2.6 million, respectively, from stock options exercised by option holders.

Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $53.52 on September 30, 2019, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately $1.7 million in unrecognized compensation cost related to stock options outstanding as of September 30, 2019, which we expect to recognize over the next 3.06 years.

Stock-based compensation expense related to stock options recognized in general and administrative expenses was approximately $114,000 and $374,000 for the three and nine month periods ended September 30, 2019 and $64,000 and $160,000 for the three and nine month periods ended September 30, 2018, respectively.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At each of September 30, 2019 and December 31, 2018, property and equipment were fully depreciated.

Comprehensive Income

For each of the three and nine month periods ended September 30, 2019 and 2018, we had no components of other comprehensive income other than net income itself.

Provision for Income Taxes

We use the asset and liability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of September 30, 2019 and December 31, 2018, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.

Commitments and Contingencies

On November 6, 2019, the Company entered into an agreement with 35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the lease to our corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional six month period (the “Extended Lease Agreement”). The six month extension will end on May 31, 2020. Pursuant to the Extended Lease Agreement, the base rent is $12,075 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term.

Our rent expense amounted to approximately $34,000 and $101,000 for the three and nine months ended September 30, 2019, respectively, and $32,000 and $97,000 for the three and nine months in the 2018 periods, respectively.

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Condensed Consolidated Income Statements (unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues:
Total Revenues	$ 9,442,253	$ 8,168,081	$ 26,424,380	$ 23,108,264
Costs and expenses:
Research and development	143,185	162,625	454,042	569,648
General and administrative	1,978,078	2,232,077	6,613,362	6,345,662
Total Cost and Expenses	2,121,263	2,394,702	7,067,404	6,915,310
Operating income	7,320,990	5,773,379	19,356,976	16,192,954
Other income:
Interest income	504,909	359,637	1,471,489	851,334
Other income	0	0	0	96,663
Total other income	504,909	359,637	1,471,489	947,997
Income before income tax expense	7,825,899	6,133,016	20,828,465	17,140,951
Provision for income tax expense	(1,552,966)	(1,089,966)	(3,712,477)	(3,271,366)
Net income	$ 6,272,933	$ 5,043,050	$ 17,115,988	$ 13,869,585
Basic net income per share (in dollars per share)	$ 0.86	$ 0.69	$ 2.34	$ 1.92
Diluted net income per share (in dollars per share)	$ 0.85	$ 0.69	$ 2.33	$ 1.89
Shares used in computation of basic net income per share (in shares)	7,334,212	7,281,388	7,306,665	7,230,106
Shares used in computation of diluted net income per share (in shares)	7,359,034	7,356,885	7,347,701	7,327,029
Royalties [Member]
Revenues:
Total Revenues	$ 9,442,253	$ 8,168,081	$ 26,424,380	$ 23,068,585
Licensing Revenues [Member]
Revenues:
Total Revenues	$ 0	$ 0	$ 0	$ 39,679

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Reimbursable Third-Party Patent Costs, Third party Royalties and Royalty Buy-Down (Details)	3 Months Ended		9 Months Ended		81 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) Payment	Mar. 31, 2012 USD ($)
Reimbursable Third-Party Patent Costs [Abstract]
Accrued patent costs	$ 25,000		$ 25,000		$ 40,000
Third-Party Royalties [Abstract]
Royalty expenses	200,000	$ 600,000	700,000	$ 1,700,000
Royalty Buy-Down [Abstract]
Deferred royalty buy-down	$ 0		$ 0		$ 200,000	$ 1,500,000
Deferred royalty buy-down, number of additional cash payments | Payment					5
Deferred royalty buy-down, five additional capitalized cost					$ 600,000
Deferred costs, amortization period	5 years		5 years
Deferred royalty buy-down, amortization expense	$ 0	$ 600,000	$ 200,000	$ 1,600,000

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Accounts payable and accrued expenses [Abstract]
Trade accounts payable	$ 87,446	$ 122,199
Accrued legal and other professional fees	450,300	308,725
Accrued payroll and related costs	94,205	173,123
Third party royalties	173,005	1,168,837
Other accruals	72,272	25,704
Total	$ 877,228	$ 1,798,588

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Cash, Cash Equivalents and Investments (Details) - USD ($) $ in Millions	Sep. 30, 2019	Dec. 31, 2018
Cash, Cash Equivalents and Investments [Abstract]
Aggregate fair value of investments	$ 85.6	$ 68.8
Held-to-maturity securities, unrecognized gain	0.0	0.0
Held-to-maturity securities, unrecognized (loss)	$ 0.0	$ 0.0

XML

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2019

ACCOUNTS PAYABLE AND ACCRUED EXPENSES [Abstract]

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	September 30, 2019		December 31, 2018
Trade accounts payable	$	87,446	$	122,199
Accrued legal and other professional fees		450,300		308,725
Accrued payroll and related costs		94,205		173,123
Third party royalties		173,005		1,168,837
Other accruals		72,272		25,704
Total	$	877,228	$	1,798,588

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Maturities

The following table presents the Company’s schedule of maturities at September 30, 2019 and December 31, 2018:

	Maturities as of September 30, 2019				Maturities as of December 31, 2018
	1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year
U.S Government agency	$	4,234,076	$	6,228,685	$	-	$	-
Municipal bonds		6,593,224		545,265		1,295,350		-
Corporate bonds		56,061,185		5,948,250		61,321,162		1,099,834
Certificates of deposit		2,201,239		3,770,328		5,090,631		-
Total	$	69,089,724	$	16,492,528	$	67,707,143	$	1,099,834

Fair Value Assets Measured on Recurring Basis

As of September 30, 2019, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2019 and December 31, 2018:

September 30, 2019	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	2,433,542	$	2,433,542	$	-	$	-
Cash equivalents	U.S. Government Agency	$	3,995,097	$	3,995,097
Investments	U.S. Government Agency		10,462,761		-		10,462,761		-
Investments	Municipal Bonds		7,138,489		-		7,138,489		-
Investments	Corporate Bonds		62,009,435		-		62,009,435		-
Investments	Certificates of Deposit		5,971,567		5,971,567		-		-

December 31, 2018	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	6,078,025	$	6,078,025	$	-	$	-
Investments	Municipal Bonds		1,295,350		-		1,295,350		-
Investments	Corporate Bonds		62,420,996		-		62,420,996		-
Investments	Certificates of Deposit		5,090,631		5,090,631		-		-

Restricted Stock Awards Activity

A summary of the restricted stock awards activity during the nine months ended September 30, 2019 is presented below:

	Restricted Stock	Weighted-Average Grant Date Fair Value Per Share
Nonvested at December 31, 2018	-	$	-
Issued	9,950		60.85
Vested	-		-
Forfeited	-		-
Nonvested at September 30, 2019	9,950	$	60.85

Assumptions Used to Estimate the Fair Values of the Stock Options Granted

The assumptions used in the valuation of stock options granted during the nine months ended September 30, 2019 were as follows:

		Nine Months Ended September 30, 2019
Risk-free interest rate		2.18%
Expected term of option		6.25 years
Expected stock price volatility		39.5%
Expected dividend yield	$	0.0

Stock Option Activity

A summary of our stock option activity during the nine months ended September 30, 2019 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2018		175,500		$	37.73		6.33	$	4,014,235
Grants		10,000			66.40		-		-
Exercised		(73,063	)		29.20		-		2,229,195
Forfeitures		(11,250	)		41.82		-		-
Outstanding at September 30, 2019		101,187		$	46.26		7.63	$	1,061,135
Exercisable at September 30, 2019		28,812		$	21.74		3.96	$	915,593

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Concentration of Credit Risk and Major Customers (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) Customer	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) Customer	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Concentration of Credit Risk and Major Customers [Abstract]
Total revenues	$ 9,442,253	$ 8,168,081	$ 26,424,380	$ 23,108,264
Accounts receivable	17,768,757		17,768,757		$ 16,518,687
Royalties [Member]
Concentration of Credit Risk and Major Customers [Abstract]
Total revenues	$ 9,442,253	8,168,081	$ 26,424,380	23,068,585
Endo [Member]
Concentration of Credit Risk and Major Customers [Abstract]
Number of customers | Customer	1		1
Total revenues	$ 9,400,000	$ 8,200,000	$ 26,400,000	$ 23,100,000
Accounts receivable	$ 17,800,000		$ 17,800,000		$ 16,500,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Property and Equipment, Comprehensive Income, Provision for Income Taxes and Commitments and Contingencies (Details) - USD ($)		3 Months Ended		9 Months Ended
	Nov. 06, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Commitments and Contingencies [Abstract]
Rent expense		$ 34,000	$ 32,000	$ 101,000	$ 97,000
Comprehensive Income [Abstract]
Other comprehensive income		0	$ 0	0	$ 0
Income Taxes [Abstract]
Unrecognized tax benefits		$ 0		$ 0		$ 0
Subsequent Event [Member]
Commitments and Contingencies [Abstract]
Additional lease term extension period	6 months
Monthly base rent	$ 12,075
Notice period to cancel lease agreements	3 months
Minimum [Member]
Property and Equipment [Abstract]
Estimated useful life				5 years
Maximum [Member]
Property and Equipment [Abstract]
Estimated useful life				10 years

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PROVISION FOR INCOME TAXES (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017
PROVISION FOR INCOME TAXES [Abstract]
Provision for income taxes	$ 1,552,966	$ 1,089,966	$ 3,712,477	$ 3,271,366
Deferred tax assets		$ 300,000		$ 300,000
Estimated effective tax rate	20.00%	18.00%	18.00%	19.00%
Deferred tax liabilities	$ 593,059		$ 593,059		$ 0
Corporate tax rate					21.00%	35.00%

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Condensed Consolidated Balance Sheets (unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 12,769,293	$ 13,176,452
Short term investments	69,089,724	67,707,143
Accounts receivable	17,768,757	16,518,687
Deferred royalty buy-down	0	184,931
Prepaid expenses and other current assets	836,708	646,749
Prepaid income taxes	951,776	0
Total current assets	101,416,258	98,233,962
Long-term investments	16,492,528	1,099,834
Deferred tax assets, net	0	313,768
Patent costs, net	562,503	444,478
Total assets	118,471,289	100,092,042
Current liabilities:
Accounts payable and accrued expenses	877,228	1,798,588
Income tax payable	0	704,934
Total current liabilities	877,228	2,503,522
Deferred tax liability, net	593,059	0
Commitments and Contingencies
Stockholders' equity:
Common stock, $.001 par value; 10,000,000 shares authorized 7,811,230 and 7,738,167 shares issued, 7,342,756 and 7,275,902 shares outstanding as of September 30, 2019 and December 31, 2018, respectively	7,811	7,738
Additional paid-in capital	38,956,156	36,302,446
Retained earnings	89,292,707	72,176,719
Treasury stock, 468,474 and 462,265 shares at cost as of September 30, 2019 and December 31, 2018, respectively	(11,255,672)	(10,898,383)
Total stockholders' equity	117,001,002	97,588,520
Total liabilities and stockholders' equity	118,471,289	100,092,042
Series A Preferred Stock [Member]
Stockholders' equity:
Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding	$ 0	$ 0

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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income	$ 17,115,988	$ 13,869,585
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization	202,875	1,984,577
Stock-based compensation expense	520,387	159,883
Deferred tax expense	199,908	128,418
Extinguishment of accrued liabilities	0	(78,138)
Changes in operating assets and liabilities:
Accounts receivable	(1,250,070)	(2,245,522)
Income tax payable / receivable	(949,791)	(774,624)
Prepaid expenses and other current assets	(189,959)	(178,453)
Patent costs	(189,704)	(95,399)
Accounts payable and accrued expenses	(921,360)	(356,548)
Deferred revenue	0	(139,680)
Net cash provided by operating activities	14,538,274	12,274,099
Cash flows from investing activities:
Maturity of marketable investments	76,636,059	58,380,000
Purchases of marketable investments	(93,357,599)	(64,618,676)
Net cash used in investing activities	(16,721,540)	(6,238,676)
Cash flows from financing activities:
Proceeds from stock option exercises	2,133,396	2,570,830
Payments for repurchase of common stock	(357,289)	(2,559,050)
Net cash provided by financing activities	1,776,107	11,780
Increase (decrease) in cash and cash equivalents	(407,159)	6,047,203
Cash and cash equivalents at beginning of year	13,176,452	7,333,810
Cash and cash equivalents at end of period	12,769,293	13,381,013
Cash paid during the period for:
Interest	0	0
Taxes	$ 4,462,362	$ 3,917,572

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PROVISION FOR INCOME TAXES

9 Months Ended

Sep. 30, 2019

PROVISION FOR INCOME TAXES [Abstract]

PROVISION FOR INCOME TAXES

6. PROVISION FOR INCOME TAXES

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options, revenue recognized and other items. For the three and nine months ended September 30, 2019, our provision for income taxes was $1.6 million and $3.7 million. Our net deferred tax liabilities as of September 30, 2019 was $0.6 million. The estimated effective tax rate for the three and nine months ended September 30, 2019 was approximately 20% and 18% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including the impact of U.S. Treasury guidance issued in 2019 on the application of certain provisions in the Tax Cuts and Jobs Act of 2017 (“TCJA”) allowing the Company to refine its calculations and current period stock option exercises.

For the three and nine months ended September 30, 2018, our provision for income taxes was $1.1 million and $3.3 million. Our deferred tax assets as of September 30, 2018 were $0.3 million. The estimated effective tax rate for the three and nine months ended September 30, 2018 was approximately 18% and 19% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2018 plus the effects of certain discrete items occurring in 2018. Our effective tax rate for the three and nine months ended September 30, 2018 was impacted primarily by the TCJA, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from 35% to 21%, beginning in 2018. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.

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PATENT COSTS (Tables)

9 Months Ended

Sep. 30, 2019

PATENT COSTS [Abstract]

Net Patent Costs

Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:

	September 30, 2019			December 31, 2018
Patents	$	1,235,919		$	1,046,216
Accumulated amortization		(673,416	)		(601,738	)
Total	$	562,503		$	444,478

Estimated Aggregate Future Amortization Expense

The estimated aggregate amortization expense for the remaining three months of 2019 and each of the years below is approximately as follows:

October 1, 2019 – December 31, 2019	$	24,000
2020		78,000
2021		61,000
2022		61,000
2023		61,000
Thereafter		278,000
Total	$	563,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) that we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reporting.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the risk factors discussed in Part I, Item 1A. Risk Factors in our 2018 Annual Report, filed with the SEC on April 2, 2019.

Principles of Consolidation

Principles of Consolidation

The condensedconsolidated financial statements include the accounts of the Company and its subsidiary, Advance Biofactures Corp. All intercompany balances and transactions have been eliminated.

Critical Accounting Policies, Estimates and Assumptions

Critical Accounting Policies, Estimates and Assumptions

The preparation of condensedconsolidated financial statements in conformity with U.S. GAAP requires the use of management’s estimates and assumptions that affect the amounts reported in the condensedconsolidated financial statements and accompanying notes. The Company makes certain assumptions and estimates for its revenues, income taxes and third party royalties. We base our estimates on historical experience, and other relevant data including interim data provided by Endo and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. For further details, see notes “Revenue Recognition.”, “Provision for Income Taxes” and “Third-Party Royalties.” Actual results may differ from those estimates.

Revenue Recognition

Revenue Recognition

Beginning in 2014, Financial Accounting Standards Board (“FASB”) issued several Accounting Standards Updates establishing Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”).  ASC 606 requires retrospective implementation, and replaces most industry-specific revenue recognition guidance in U.S. GAAP with a new principles-based, five-step revenue recognition model.  The Company adopted ASC 606 effective January 1, 2018. Under ASC 606, we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation(s).

Revenues, and their respective treatment for financial reporting purposes under ASC 606 and our license agreement with Endo, are as follows:

Royalty / Mark-Up on Cost of Goods Sold

We receive royalty revenues on net sales and mark-up on cost of goods sold revenue in the U.S. under our License Agreement with Endo. These are presented in “Royalties” in our condensed consolidated statements of income.  We do not have future performance obligations under this revenue stream. In accordance with ASC 606, we record these revenues based on estimates of the net sales that occurred during the relevant period. The relevant period estimates of these royalties are based on interim data provided by Endo and analysis of historical royalties and mark-up on cost of goods sold revenue that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known. The royalties payable by Endo to us are subject to set-off for certain patent costs.

Licensing Revenue

We include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our condensed consolidated statements of income.

The Company recognizes licensing revenues generated through development and/or commercialization agreements. The terms of these agreements typically include payment to the Company of one or more of the following: nonrefundable, upfront license fees; sublicensing; development and commercial milestone payments; development activities; and royalties on net sales of licensed products. Each of these types of payments results in licensing revenues except for revenues from royalties on net sales of licensed products and the mark-up of cost of goods sold revenues which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.

For each development and/or commercialization agreement that result in revenues, the Company identifies all performance obligations, aside from those that are immaterial, which may include a license to intellectual property and know-how, development activities and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.  For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.  The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments

Depending on facts and circumstances, the Company may conclude that it is appropriate to include the milestone, representing variable consideration, in the estimated total transaction price, or that it is appropriate to fully constrain the milestone. The Company may include revenues from certain milestones in the total transaction price in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the total transaction price, including the amount of revenue that it has recorded, if necessary.

Recent Accounting Pronouncements

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted

In February 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The adoption of the new standard as of January 1, 2019 did not have a material impact on our consolidated financial statements due to the short term nature of our leases.

Accounting Pronouncements Not Yet Adopted

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2023. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

Cash equivalents include only securities having a maturity of 90 days or less at the time of purchase.  Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit, U.S. government agency bonds, municipal bonds and corporate bonds. All investments are classified as held to maturity. As of September 30, 2019 and December 31, 2018, the amortized cost of these investments was $85.6 million and $68.8 million, respectively. No unrealized gains or losses were recorded in either period.

Fair Value Measurements

Fair Value Measurements

Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held to maturity investments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the duration of those instruments. As of September 30, 2019 and December 31, 2018, there were no recorded unrealized gains or losses on our investments as they are classified as held to maturity. As of September 30, 2019 and December 31, 2018, amortized cost basis of the investments approximated their fair value. Interest income for the three and nine months ended September 30, 2019 was $0.5 million and $1.5 million, respectively as compared to $0.4 million and $0.9 million in the 2018 periods. For the nine months ended September 30, 2019 and 2018, the amortized net premium / (net discount) included in interest income was approximately $56,000 and ($361,000), respectively. At September 30, 2019 and December 31, 2018, the remaining unamortized net premium / (net discount) was approximately $198,000 and ($121,000), respectively.

The following table presents the Company’s schedule of maturities at September 30, 2019 and December 31, 2018:

	Maturities as of September 30, 2019				Maturities as of December 31, 2018
	1 Year or Less		Greater than 1 Year		1 Year or Less		Greater than 1 Year
U.S Government agency	$	4,234,076	$	6,228,685	$	-	$	-
Municipal bonds		6,593,224		545,265		1,295,350		-
Corporate bonds		56,061,185		5,948,250		61,321,162		1,099,834
Certificates of deposit		2,201,239		3,770,328		5,090,631		-
Total	$	69,089,724	$	16,492,528	$	67,707,143	$	1,099,834

The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.

As of September 30, 2019, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2019 and December 31, 2018:

September 30, 2019	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	2,433,542	$	2,433,542	$	-	$	-
Cash equivalents	U.S. Government Agency	$	3,995,097	$	3,995,097
Investments	U.S. Government Agency		10,462,761		-		10,462,761		-
Investments	Municipal Bonds		7,138,489		-		7,138,489		-
Investments	Corporate Bonds		62,009,435		-		62,009,435		-
Investments	Certificates of Deposit		5,971,567		5,971,567		-		-

December 31, 2018	Type of Instrument	Fair Value		Level 1		Level 2		Level 3
Cash equivalents	Institutional Money Market	$	6,078,025	$	6,078,025	$	-	$	-
Investments	Municipal Bonds		1,295,350		-		1,295,350		-
Investments	Corporate Bonds		62,420,996		-		62,420,996		-
Investments	Certificates of Deposit		5,090,631		5,090,631		-		-

Concentration of Credit Risk and Major Customers

Concentration of Credit Risk and Major Customers

The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.

The Company maintains investments in FDIC insured certificates of deposits, U.S. government agency bonds, municipal bonds and corporate bonds.

The Company is currently dependent on one customer, Endo, which generates almost all of the Company’s revenues. For the three and nine months ended September 30, 2019, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $9.4 million and $26.4 million, respectively and for the three and nine months ended September 30, 2018, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $8.2 million and $23.1 million, respectively.

At September 30, 2019 and December 31, 2018, our accounts receivable balances from Endo were $17.8 million and $16.5 million, respectively.

Treasury Stock

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the nine months ended September 30, 2019 there were 6,209 shares repurchased at an average price of $57.54 compared to 43,705 shares at an average price of $58.55 in the 2018 comparable period.

Stock Repurchase Plan

Stock Repurchase Plan

On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and various other factors.

Receivables and Doubtful Accounts

Receivables and Doubtful Accounts

Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms.  Our accounts receivable balance is typically due from Endo, our one large specialty pharmaceutical customer.  Endo has historically paid timely and has been a financially stable organization.  Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal and therefore no allowance is recorded.  If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required.  We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At September 30, 2019 and December 31, 2018 our accounts receivable balance was $17.8 million and $16.5 million, respectively, and was from one customer, Endo.

Reimbursable Third-Party Patent Costs

Reimbursable Third-Party Patent Costs

We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and expense others. As of September 30, 2019 and December 31, 2018, our net reimbursable third party patent expense was $25,000 and $40,000, respectively, which was recorded as a reduction to our accounts receivable balance.

Third Party Royalties

Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC.  No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are expensed under general and administrative in the quarter that the net sales have occurred. For the three and nine month periods ended September 30, 2019 and 2018, third-party royalty expenses were $0.2 million and $0.7 million, respectively. For the three and nine month periods ended September 30, 2018, third-party royalty expenses were $0.6 million and $1.7 million, respectively. As of March 1, 2019, we have no further third party royalties in connection with PD as the agreement expired in February 2019.

Royalty Buy-Down

Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of January 1, 2018.  In March 2019, royalty obligations were terminated, which was five years after first commercial sale, which occurred in January 2014. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX® and Xiapex® for PD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three and nine months ended September 30, 2019, we amortized zero and approximately $0.2 million related to this agreement, respectively. For the three and nine months ended September 30, 2018 we amortized approximately $0.6 million and $1.6 million, respectively, related to this agreement. Royalty buy-down expenses are recorded as part of general and administrative expenses. As of September 30, 2019 and December 31, 2018, the remaining capitalized balances were zero and $0.2 million, respectively.

Research and Development Expenses

Research and Development Expenses

R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.

Clinical Trial Expenses

Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research consultants. In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.

Stock-Based Compensation and 2019 Omnibus Incentive Compensation Plan

Stock-Based Compensation and 2019 Omnibus Incentive Compensation Plan

ASC 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock awards including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The fair value of each service-based restricted stock unit granted is estimated on the day of grant based on the closing price of the Company’s common stock. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensedconsolidated statements of operations.

On June 13, 2019, at the Company’s annual meeting, the Company’s stockholders approved the 2019 Omnibus Incentive Compensation Plan(the “2019 Plan”). Upon the 2019 Plan’s approval, approximately 1,248,848 shares of Company common stock were available for issuance thereunder, consisting of 1,100,000 shares authorized for issuance under the 2019 Plan and 148,848 shares then remaining available for issuance under the Company’s 2001 Stock Option Plan (the “2001 Plan”). The 2019 Plan replaced the 2001 Plan. No new awards will be granted under the 2001 Plan; however, awards outstanding under the 2001 Plan upon approval of the 2019 Plan remain subject to and will be settled under the applicable 2001 Plan.

Grants under the 2019 Plan may consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, or cash awards. Employees, key advisors or non-employee directors are eligible to participate in the 2019 Plan. Grants under the 2019 Plan vest over periods ranging from one to four years and expire ten years from date of grant.

2019 Omnibus Incentive Compensation Plan (2019 Plan)

Restricted Stock Awards

A summary of the restricted stock awards activity during the nine months ended September 30, 2019 is presented below:

	Restricted Stock	Weighted-Average Grant Date Fair Value Per Share
Nonvested at December 31, 2018	-	$	-
Issued	9,950		60.85
Vested	-		-
Forfeited	-		-
Nonvested at September 30, 2019	9,950	$	60.85

Stock-based compensation expense related to restricted stock awards recognized in general and administrative expense was approximately $146,000 for the three and nine months ended September 30, 2019.

As of September 30, 2019, there was approximately $460,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to restricted stock. This cost is expected to be recognized over the vesting periods of the restricted stock, with a weighted-average period of approximately 1.25 years.

Stock Option Activity under the 2001 Stock Option Plan (2001 Plan)

For the nine months ended September 30, 2019, we granted a total of 10,000 stock options from the 2001 Plan with a weighted average grant date fair value of $27.97 per share.

The assumptions used in the valuation of stock options granted during the nine months ended September 30, 2019 were as follows:

		Nine Months Ended September 30, 2019
Risk-free interest rate		2.18%
Expected term of option		6.25 years
Expected stock price volatility		39.5%
Expected dividend yield	$	0.0

A summary of our stock option activity during the nine months ended September 30, 2019 is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2018		175,500		$	37.73		6.33	$	4,014,235
Grants		10,000			66.40		-		-
Exercised		(73,063	)		29.20		-		2,229,195
Forfeitures		(11,250	)		41.82		-		-
Outstanding at September 30, 2019		101,187		$	46.26		7.63	$	1,061,135
Exercisable at September 30, 2019		28,812		$	21.74		3.96	$	915,593

During the nine months ended September 30, 2019 and 2018, the Company received approximately $2.1 million and $2.6 million, respectively, from stock options exercised by option holders.

Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $53.52 on September 30, 2019, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately $1.7 million in unrecognized compensation cost related to stock options outstanding as of September 30, 2019, which we expect to recognize over the next 3.06 years.

Stock-based compensation expense related to stock options recognized in general and administrative expenses was approximately $114,000 and $374,000 for the three and nine month periods ended September 30, 2019 and $64,000 and $160,000 for the three and nine month periods ended September 30, 2018, respectively.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At each of September 30, 2019 and December 31, 2018, property and equipment were fully depreciated.

Comprehensive Income

Comprehensive Income

For each of the three and nine month periods ended September 30, 2019 and 2018, we had no components of other comprehensive income other than net income itself.

Provision for Income Taxes

Provision for Income Taxes

We use the asset and liability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of September 30, 2019 and December 31, 2018, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.

Commitments and Contingencies

Commitments and Contingencies

On November 6, 2019, the Company entered into an agreement with 35 Wilbur Street Associates, LLC (the “Landlord”) to extend the term of the lease to our corporate headquarters, which are currently located at 35 Wilbur St., Lynbrook, NY 11563, for an additional six month period (the “Extended Lease Agreement”). The six month extension will end on May 31, 2020. Pursuant to the Extended Lease Agreement, the base rent is $12,075 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term.

Our rent expense amounted to approximately $34,000 and $101,000 for the three and nine months ended September 30, 2019, respectively, and $32,000 and $97,000 for the three and nine months in the 2018 periods, respectively.

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS (Details) - Endo [Member] - USD ($)	1 Months Ended
	Feb. 29, 2016	Sep. 30, 2019	Feb. 01, 2016
Organization and Description of Business [Abstract]
Deferred revenue			$ 8,250,000
Proceeds from licensing agreement	$ 8,250,000
Opt-in fee receivable for each indication		$ 500,000
Regular opt-in fee receivable for each indication		$ 750,000

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Treasury Stock, Stock Repurchase Plan, Receivables and Doubtful Accounts (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	May 23, 2019	Dec. 31, 2018
Treasury Stock [Abstract]
Treasury stock purchased (in shares)	6,209	43,705
Average price of share (in dollars per share)	$ 57.54	$ 58.55
Stock Repurchase Plan [Abstract]
Number of shares authorized to be repurchased (in shares)			4,000,000
Receivables and Doubtful Accounts [Abstract]
Accounts receivable	$ 17,768,757			$ 16,518,687
Endo [Member]
Receivables and Doubtful Accounts [Abstract]
Accounts receivable	$ 17,800,000			$ 16,500,000

XML

NET INCOME PER SHARE (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock Options [Member]
Net Income Per Share [Abstract]
Common equivalent shares attributable to stock options included in calculation of diluted net income per share (in shares)	24,015	75,497	39,626	96,923
Antidilutive securities excluded from earnings per share calculation (in shares)	60,000	0	60,000	0
Restricted Stock [Member]
Net Income Per Share [Abstract]
Common equivalent shares attributable to stock options included in calculation of diluted net income per share (in shares)	807		1,410
Antidilutive securities excluded from earnings per share calculation (in shares)	500		0

XML

Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Stockholders' equity:
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	10,000,000	10,000,000
Common stock, issued (in shares)	7,811,230	7,738,167
Common stock, outstanding (in shares)	7,342,756	7,275,902
Treasury stock, shares (in shares)	468,474	462,265
Series A Preferred Stock [Member]
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.50	$ 0.50
Preferred stock, authorized (in shares)	700,000	700,000
Preferred stock, outstanding (in shares)	0	0

XML

ORGANIZATION AND DESCRIPTION OF BUSINESS

9 Months Ended

Sep. 30, 2019

ORGANIZATION AND DESCRIPTION OF BUSINESS [Abstract]

ORGANIZATION AND DESCRIPTION OF BUSINESS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (CCH) for multiple indications. We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (DC), Peyronie’s disease (PD), frozen shoulder, cellulite, and uterine fibroids. Injectable CCH currently is approved and marketed in the U.S. under the trademark XIAFLEX^® for the treatment of both DC and PD. XIAFLEX® also is commercialized in Japan, Europe (where it is marketed as Xiapex®), Canada, and Australia for DC, and for PD in Canada, Europe and Australia. We generate revenue primarily from our license agreement with Endo, under which we receive license and sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX®.

On August 31, 2011, we entered into the Second Amended and Restated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”), an entity that was acquired by Endo in 2015. The License Agreement originally was entered into in June 2004 to obtain exclusive worldwide rights to develop, market, and sell certain products containing our enzyme CCH, which Endo markets for approved indications under the trademark XIAFLEX®. Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, Dupuytren’s nodules, PD, frozen shoulder, cellulite, canine and human lipomas, plantar fibromatosis, lateral hip fat, and other potential aesthetic indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.

Pursuant to the License Agreement, Endo currently is selling XIAFLEX® in the U.S. for the treatment of DC and PD and is distributing XIAFLEX® in Canada through its operating company, Paladin Labs Inc. Additionally, Endo has entered into several non-affiliated sublicensee agreements (as permitted by the License Agreement), including the following:

• An agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex® for the treatment of DC and PD in Europe and certain Eurasian countries;

• An agreement with Asahi Kasei Pharma Corporation (“Asahi”), pursuant to which Asahi has the right to commercialize XIAFLEX® for the treatment of DC and PD in Japan; and

• An agreement with Actelion Pharmaceuticals Ltd. (“Actelion”), pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX® in Australia and New Zealand.

On February 1, 2016, we entered into the First Amendment (the “First Amendment”) to the License Agreement. Pursuant to the First Amendment, the Company and Endo Global Ventures mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.

Additionally, we agreed that Endo may opt-in early to indications, prior to our submission of a clinical trial report, with our consent, such consent not to be unreasonably withheld. For early opt-ins, Endo will be required to make an opt-in payment of $0.5 million on a per indication basis. For regular opt-ins, following our submission of a clinical trial report, Endo will be required to make an opt-in payment of $0.75 million on a per indication basis.

On February 26, 2019, we and Endo entered into the Second Amendment to the License Agreement (the “Second Amendment”) to amend certain provisions of the License Agreement. The Second Amendment has an effective date of January 1, 2019. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement by Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo. In addition, the Second Amendment amends certain provisions of the License Agreement to require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations.

The two marketed indications involving our injectable collagenase are DC and PD. In addition to DC and PD, Endo has opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo.

Endo presented positive results from two Phase 3 studies, RELEASE-1 and RELEASE-2, of CCH for the treatment of cellulite. Subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial’s primary endpoint (RELEASE-1, p=0.006 & RELEASE-2, p=0.002), which was at least a 2-level composite improvement in cellulite severity at Day 71 as compared to subjects receiving placebo.Statistically significant improvements with CCH versus placebo were observed for 8 of 8 (RELEASE-1) and 7 of 8 (RELEASE-2) secondary endpoints, in addition to patient-centric endpoints. These data were presented at 2019 American Academy of Dermatology Annual Meeting on March 2, 2019. On May 17, 2019, Endo announced that clinical data from a Phase 3 investigational study of CCH for the treatment of cellulite was presented at the annual meeting of the American Society for Aesthetic Plastic Surgery.  On September 6, 2019, Endo announced that it had submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for CCH for the treatment of cellulite in the buttocks with an expected commercial launch in the second half of 2020 upon approval.

We presented data from a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66^th Annual Meeting of the Society of Reproductive Investigation (SRI) on March 14, 2019 in Paris, France. In addition, on October 16, 2019, we presented data on patient-reported outcomes of a Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the American Society for Reproductive Medicine conferencein Philadelphia, Pennsylvania. The presentations follow positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.