BIOSPECIFICS
TECHNOLOGIES CORP.
|
Delaware
|
0-19879
|
11-3054851
|
(State
or Other Jurisdiction
|
(Commission
File Number)
|
(I.R.S.
Employer
|
Of
Incorporation)
|
|
Identification
No.)
|
2
|
|
Item
1.
DESCRIPTION OF BUSINESS.
|
2
|
Item
2.
DESCRIPTION OF PROPERTY.
|
28
|
Item
3.
LEGAL PROCEEDINGS.
|
28
|
28
|
|
|
|
29
|
|
29
|
|
31
|
|
Item
7.
FINANCIAL STATEMENTS.
|
45
|
45
|
|
Item
8A.
CONTROLS AND PROCEDURES.
|
46
|
|
|
48
|
|
48
|
|
Item
10.
EXECUTIVE COMPENSATION.
|
51
|
52
|
|
54
|
|
Item
13.
EXHIBITS.
|
54
|
56
|
· |
Auxilium
has incurred significant losses since their inception and may not
achieve
profitability in the foreseeable
future.
|
· |
Because
Auxilium has limited operating history, its future results are
unpredictable, and therefore, its common stock is a highly speculative
investment.
|
· |
All
of Auxilium’s revenues to date have been generated from the sale or
out-licensing of their product called Testim, and, if these revenues
do
not grow, and they cannot commercialize new products, they will not
become
profitable.
|
· |
If
Auxilium is unable to meet its needs for additional funding in the
future,
it may be required to limit, scale back or cease its
operations.
|
· |
Auxilium’s
revenues, operating results and cash flows may fluctuate in future
periods
and they may fail to meet investor expectations, which may cause
the price
of Auxilium’s common stock to
decline.
|
· |
Auxilium
may not be able to develop product candidates into viable commercial
products, which would impair its ability to grow and could cause
a decline
in the price of its stock.
|
· |
If
clinical trials for Auxilium’s product candidates are delayed for any
reasons including the inability to enroll patients or the unavailability
of clinical material, it would be unable to commercialize its product
candidates on a timely basis, which would materially harm Auxilium’s
business.
|
· |
Adverse
events, or lack of efficacy in Auxilium’s clinical trials, may force it to
stop development of its product candidates or prevent regulatory
approval
of its product candidates, which could materially harm Auxilium’s
business.
|
· |
Auxilium’s
failure to successfully in-license or acquire additional technologies,
product candidates or approved products would impair its ability
to
grow.
|
· |
If
Auxilium engages in any acquisition, it will incur a variety of costs,
and
it may never realize the anticipated benefits of the acquisition.
|
· |
Auxilium
is subject to numerous complex regulatory requirements and failure
to
comply with these regulations, or the cost of compliance with these
regulations, may harm its business.
|
· |
If
Auxilium’s product candidates are not demonstrated to be sufficiently safe
and effective, they will not receive regulatory approval and Auxilium
will
be unable to commercialize them.
|
· |
Auxilium’s
corporate compliance program cannot guarantee that it is in compliance
with all potentially applicable
regulations.
|
· |
Auxilium
will incur increased costs as a result of recently enacted and proposed
changes in laws and regulations.
|
· |
If
medical doctors do not prescribe Auxilium’s products or the medical
profession does not accept Auxilium’s products, Auxilium’s ability to grow
its revenues will be limited.
|
· |
If
testosterone replacement therapies are perceived to create, or do
in fact
create, health risks, Auxilium’s sales of Testim may decrease and its
operations may be harmed.
|
· |
If
other pharmaceutical companies develop generic versions of any products
that compete with Auxilium’s commercialized products or any of Auxilium’s
products, its business may be adversely affected.
|
· |
If
third-party payers do not reimburse customers for Testim or any of
Auxilium’s product candidates that are approved for marketing, they might
not be used or purchased, and Auxilium’s revenues and profits will not
grow.
|
· |
International
commercialization of Testim and Auxilium’s product candidates faces
significant obstacles.
|
· |
Healthcare
reform measures, including but not limited to any changes in the
Act,
could adversely affect Auxilium’s business.
|
· |
Auxilium
could be negatively impacted by future interpretation or implementation
of
federal and state fraud and abuse laws, including anti-kickback laws,
false claims laws and federal and state anti-referral laws.
|
· |
If
product liability lawsuits are brought against Auxilium, it may incur
substantial liabilities.
|
· |
Auxilium
may be exposed to liability claims associated with the use of hazardous
materials and chemicals.
|
· |
Auxilium’s
products may be subject to recall.
|
· |
Since
Auxilium relies on third-party manufacturers and suppliers, Auxilium
may
be unable to control the availability or cost of manufacturing its
products, which could adversely affect its results of operations.
|
· |
Auxilium
relies on a single source supplier and a limited number of suppliers
for
two of the primary ingredients for Testim and the loss of any of
these
suppliers could prevent Auxilium from selling Testim, which would
materially harm Auxilium’s business.
|
· |
Due
to Auxilium’s reliance on contract research organizations or other third
parties to assist it in conducting clinical trials, Auxilium is unable
to
directly control all aspects of its clinical trials.
|
· |
Auxilium’s
third-party manufacturers are subject to regulatory oversight, which
may
delay or disrupt its development and commercialization efforts.
|
· |
A
high percentage of Auxilium’s product shipments are only to a limited
number of customers; if any of these customers refuse to distribute
Testim
on commercially favorable terms, or at all, Auxilium’s business will be
adversely affected.
|
· |
If
Auxilium is unable to grow its sales, marketing or distribution
capabilities or enter into agreements with third parties to perform
some
of these functions, Auxilium will not be able to grow its business.
|
· |
If
Auxilium breaches any of the agreements under which it licenses
commercialization rights to products or technology from others, Auxilium
could lose license rights that are critical to its business.
|
· |
Auxilium
has only limited patent protection for Testim and its product candidates,
and Auxilium may not be able to obtain, maintain and protect proprietary
rights necessary for the development and commercialization of Testim
or
its product candidates.
|
· |
Auxilium
may have to engage in costly litigation to enforce or protect its
proprietary technology or to defend challenges to its proprietary
technology by its competitors, which may harm Auxilium’s business, results
of operations, financial condition and cash flow.
|
· |
Auxilium’s
ability to market its products may be impaired by the intellectual
property rights of third parties.
|
· |
Auxilium
may not be able to obtain or maintain orphan drug exclusivity for
its
product candidates, and its competitors may obtain orphan drug exclusivity
prior to Auxilium, which could significantly harm Auxilium’s business.
|
· |
If
Testim or Auxilium’s future products or product candidates infringe the
intellectual property of Auxilium’s competitors or other third parties,
Auxilium may be required to pay license fees or cease these activities
and
pay damages, which could significantly harm its business.
|
· |
If
Auxilium is not able to retain its current management team or attract
and
retain qualified scientific, technical and business personnel, Auxilium’s
business will suffer.
|
· |
Changes
in the expensing of stock-based compensation will result in unfavorable
accounting charges and may require Auxilium to change its compensation
practices. Any change in Auxilium’s compensation practices may adversely
affect its ability to attract and retain qualified scientific, technical
and business personnel.
|
· |
Auxilium’s
operations may be impaired unless it can successfully manage its
growth.
|
|
•
|
acquire
or in-license approved products or product candidates or technologies
for
development;
|
|
•
|
fund
our product development, including clinical trials relating to in-licensed
technology and the remaining indications; and
|
|
•
|
commercialize
any resulting product candidates for which we receive regulatory
approval.
|
|
•
|
DFB’s
ability to meet its payment obligations and to manufacture and
commercialize topical collagenase products for which we would receive
earn
out payments;
|
|
•
|
Auxilium’s
ability to manufacture and commercialize injectable product for which
we
would receive milestone and royalty
payments;
|
|
•
|
the
scope, rate of progress, cost and results of our clinical trials
on
remaining Additional Indications
|
|
|
including
lipomas and cellulite, and whether Auxilium exercises its option
to
acquire rights to them;
|
|
•
|
the
ability of the estate of our former chairman (“Chairman”) and chief
executive officer (“CEO”) to repay his personal loans owed to the Company;
|
|
•
|
the
terms and timing of any future collaborative, licensing, co-promotion
and
other arrangements that we may establish;
and
|
|
•
|
the
cost of filing, prosecuting, defending and enforcing any patent claims
and
other intellectual property rights or defending against any other
litigation.
|
|
•
|
restrictions
on our products or manufacturing processes;
|
|
•
|
warning
letters;
|
|
•
|
withdrawal
of a product candidate from the market;
|
|
•
|
voluntary
or mandatory recall of a product candidate;
|
|
•
|
fines
against us;
|
|
•
|
suspension
or withdrawal of regulatory approvals for a product candidate;
|
|
•
|
refusal
to permit the import or export of our products;
|
|
•
|
refusal
to approve pending applications or supplements to approved applications
that we submit;
|
|
•
|
denial
of permission to file an application or supplement in a jurisdiction;
|
|
•
|
product
seizure; and
|
|
•
|
injunctions
or the imposition of civil or criminal penalties against us.
|
|
•
|
clinical
trials may show product candidates to be ineffective or not as effective
as anticipated or to have harmful side effects or any unforeseen
result;
|
|
•
|
product
candidates may fail to receive regulatory approvals required to bring
the
products to market;
|
|
•
|
manufacturing
costs, the inability to scale up to produce supplies for clinical
trials
or other factors may make our product candidates uneconomical; and
|
|
•
|
the
proprietary rights of others and their competing products and technologies
may prevent product candidates from being effectively commercialized
or to
obtain exclusivity.
|
|
•
|
listing
of our stock on a securities exchange or market;
|
|
•
|
our
failure to be current in our SEC filings;
|
|
•
|
results
of our clinical trials;
|
|
•
|
failure
of any product candidates we have licensed to Auxilium or sold to
DFB to
achieve commercial success;
|
|
•
|
regulatory
developments in the U.S. and foreign countries;
|
|
•
|
developments
or disputes concerning patents or other proprietary rights;
|
|
•
|
litigation
involving us or our general industry, or both;
|
|
•
|
future
sales of our common stock by the estate of our former Chairman and
CEO or
others;
|
|
•
|
changes
in the structure of healthcare payment systems, including developments
in
price control legislation;
|
|
•
|
departure
of key personnel;
|
|
•
|
announcements
of material events by those companies that are our competitors or
perceived to be similar to us;
|
|
•
|
changes
in estimates of our financial results;
|
|
•
|
investors’
general perception of us; and
|
|
•
|
general
economic, industry and market conditions.
|
|
•
|
provide
for a classified board of
directors;
|
|
•
|
give
our Board the ability to designate the terms of and issue new series
of
preferred stock without stockholder approval, commonly referred to
as
“blank check” preferred stock, with rights senior to those of our common
stock;
|
|
•
|
limit
the ability of the stockholders to call special meetings;
and
|
|
•
|
impose
advance notice requirements on stockholders concerning the election
of
directors and other proposals to be presented at stockholder
meetings.
|
QUARTERS
ENDED 2005
|
HIGH
|
LOW
|
December
31, 2005
|
$1.65
|
$0.80
|
September
30, 2005
|
$2.00
|
$1.01
|
June
30, 2005
|
$1.37
|
$1.00
|
March
31, 2005
|
$1.60
|
$1.00
|
|
|
|
QUARTERS
ENDED 2004
|
HIGH
|
LOW
|
December
31, 2004
|
$2.15
|
$1.49
|
September
30, 2004
|
$2.30
|
$1.45
|
June
30, 2004
|
$2.89
|
$1.50
|
March
31, 2004
|
$1.94
|
$1.46
|
|
|
|
QUARTERS
ENDED 2003
|
HIGH
|
LOW
|
December
31, 2003
|
$1.99
|
$1.05
|
September
30, 2003
|
$2.00
|
$0.79
|
June
30, 2003
|
$1.59
|
$0.60
|
March
31, 2003
|
$2.15
|
$1.06
|
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(b)
|
|
Number
of securities remaining available
for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
|
||
Equity
compensation plans approved by
security holders (1) |
|
973,887
|
$
|
1.36
|
|
1,242,263
|
||
____________
|
||||||||
(1)
|
Please
see Note 13, “Stockholders’ Equity,” of the notes to the consolidated
financial statements for a description of the material features
of each of
our plans.
|
|
Twelve
months ended December 31,
|
|
Twelve
months ended January 31,
|
|
||||||||
|
2005
|
|
2004
|
|
2003
|
|
2003
|
|
||||
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
$
|
3,137,978
|
|
$
|
1,664,779
|
|
$
|
1,555,625
|
|
$
|
1,938,706
|
|
Licensing
fees
|
|
1,266,641
|
|
|
387,045
|
|
|
-
|
|
|
-
|
|
Royalties
|
|
1,073,620
|
|
|
784,933
|
|
|
1,683,915
|
|
|
2,140,534
|
|
|
|
5,478,239
|
|
|
2,836,757
|
|
|
3,239,540
|
|
|
4,079,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
3,622,775
|
|
|
3,052,492
|
|
|
2,837,986
|
|
|
3,205,235
|
|
Research
and development
|
|
686,464
|
|
|
1,057,009
|
|
|
935,443
|
|
|
1,069,045
|
|
General
and administrative
|
|
2,289,160
|
|
|
2,094,424
|
|
|
2,632,399
|
|
|
3,045,319
|
|
|
|
6,598,399
|
|
|
6,203,925
|
|
|
6,405,828
|
|
|
7,319,599
|
|
Operating
loss
|
|
(1,120,160
|
)
|
|
(3,367,168
|
)
|
|
(3,166,288
|
)
|
|
(3,240,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
income
|
|
2,406
|
|
|
196
|
|
|
109,635
|
|
|
23,462
|
|
Interest
expense
|
|
(177,764
|
)
|
|
(369,778
|
)
|
|
(213,677
|
)
|
|
(46,556
|
)
|
Other
expense
|
|
(2,519
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
(177,877
|
)
|
|
(369,582
|
)
|
|
(104,042
|
)
|
|
(23,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before benefit (expense) for income tax
|
|
(1,298,037
|
)
|
|
(3,736,750
|
)
|
|
(3,270,330
|
)
|
|
(3,263,453
|
)
|
Income
tax benefit (expense)
|
|
(6,118
|
)
|
|
-
|
|
|
(13,000
|
)
|
|
260,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest
|
|
(1,304,155
|
)
|
|
(3,736,750
|
)
|
|
(3,283,330
|
)
|
|
(3,002,989
|
)
|
Minority
interest in loss of consolidated subsidiaries
|
|
7,409
|
|
|
78,009
|
|
|
83,787
|
|
|
78,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(1,296,746
|
)
|
$
|
(3,658,741
|
)
|
$
|
(3,199,543
|
)
|
$
|
(2,924,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
$
|
(0.26
|
)
|
$
|
(0.75
|
)
|
$
|
(0.68
|
)
|
$
|
(0.64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of basic and diluted net loss per
share
|
|
4,989,538
|
|
|
4,903,773
|
|
|
4,734,867
|
|
|
4,564,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
March
31,
|
June
30,
|
September
30,
|
||||||||
2005
|
2005
|
2005
|
||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||
Assets
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash
equivalents
|
$
|
825,619
|
$
|
1,507,117
|
$
|
1,003,921
|
||||
Accounts
receivable, net
|
431,270
|
1,089,218
|
385,445
|
|||||||
Inventories,
net
|
1,413,296
|
906,279
|
1,932,541
|
|||||||
Prepaid
expenses
and other current assets
|
166,712
|
136,849
|
160,889
|
|||||||
Total
current assets
|
2,836,897
|
3,639,463
|
3,482,796
|
|||||||
Other
assets - loan costs
|
32,284
|
-
|
-
|
|||||||
Property,
plant and equipment, net
|
3,252,543
|
3,090,187
|
2,937,041
|
|||||||
Total
assets
|
6,121,724
|
6,729,650
|
6,419,837
|
|||||||
Liabilities
and Stockholders' Equity
|
||||||||||
Current
liabilities:
|
||||||||||
Accounts
payable
and accrued expenses
|
2,274,880
|
2,088,446
|
2,190,890
|
|||||||
Deferred
revenue
|
985,755
|
1,528,893
|
1,583,205
|
|||||||
Deferred
employee
stock bonus plan
|
-
|
-
|
-
|
|||||||
Notes
payable to
related parties
|
67,839
|
67,839
|
67,839
|
|||||||
Short-term
debt -
Korpodeko
|
182,000
|
-
|
-
|
|||||||
Total
current liabilities
|
3,510,474
|
3,685,178
|
3,841,934
|
|||||||
Deferred
revenue - license fees
|
3,437,011
|
5,550,055
|
5,151,926
|
|||||||
Minority
interest in subsidiaries
|
10,049
|
7,498
|
4,484
|
|||||||
Deferred
compensation
|
22,210
|
22,210
|
22,210
|
|||||||
Senior
secured convertible 12% note, net of discount
|
1,575,000
|
-
|
-
|
|||||||
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;
5,249,528
shares issued at March 31, 2005, 5,316,341 shares issued at
June
30, 2005
and 5,355,216 shares issued at September 30, 2005
|
5,333
|
5,341
|
5,355
|
|||||||
Additional
paid-in
capital
|
4,250,509
|
4,202,973
|
4,216,721
|
|||||||
Retained
earnings
|
(4,053,598
|
)
|
(4,186,715
|
)
|
(4,265,903
|
)
|
||||
Treasury
stock,
361,380 shares at cost as of March 31, 2005 and
346,561
shares at cost as of June 30, 2005 and September 30, 2005
|
(1,911,237
|
)
|
(1,832,863
|
)
|
(1,832,863
|
)
|
||||
Notes
receivable
from former Chairman and CEO and other related party
|
(724,027
|
)
|
(724,027
|
)
|
(724,027
|
)
|
||||
Total
stockholders' equity
|
(2,433,020
|
)
|
(2,535,291
|
)
|
(2,600,717
|
)
|
||||
Total
liabilities and stockholders' equity
|
$
|
6,121,724
|
$
|
6,729,650
|
$
|
6,419,837
|
Quarterly
Period Ended
|
|||||||||||||
March
31,
|
June
30,
|
September
30,
|
December
31,
|
||||||||||
2005
|
2005
|
2005
|
2005
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
Revenues:
|
|||||||||||||
Net
sales
|
$
|
1,319,177
|
$
|
1,551,554
|
$
|
82,649
|
$
|
184,598
|
|||||
Licensing
fees
|
235,189
|
343,817
|
343,817
|
343,818
|
|||||||||
Royalties
|
283,743
|
268,996
|
274,640
|
246,241
|
|||||||||
1,838,109
|
2,164,367
|
701,106
|
774,657
|
||||||||||
Costs
and expenses:
|
|||||||||||||
Cost
of
sales
|
1,563,785
|
1,512,364
|
80,232
|
466,394
|
|||||||||
Research
and
development
|
196,129
|
191,718
|
177,407
|
121,210
|
|||||||||
General
and
administrative
|
470,761
|
499,139
|
525,894
|
793,366
|
|||||||||
2,230,675
|
2,203,221
|
783,533
|
1,380,970
|
||||||||||
Operating
loss
|
(392,566
|
)
|
(38,854
|
)
|
(82,427
|
)
|
(606,313
|
)
|
|||||
Other
income (expense):
|
|||||||||||||
Investment
income
|
1,711
|
323
|
232
|
140
|
|||||||||
Interest
expense
|
(77,195
|
)
|
(97,137
|
)
|
(7
|
)
|
(3,425
|
)
|
|||||
Other
expense
|
-
|
-
|
-
|
(2,519
|
)
|
||||||||
(75,484
|
)
|
(96,814
|
)
|
225
|
(5,804
|
)
|
|||||||
Loss before expense
for income taxes
|
(468,050
|
)
|
(135,668
|
)
|
(82,202
|
)
|
(612,117
|
)
|
|||||
Income
tax benefit
(expense)
|
-
|
-
|
-
|
(6,118
|
)
|
||||||||
Loss
before minority interest
|
(468,050
|
)
|
(135,668
|
)
|
(82,202
|
)
|
(618,235
|
)
|
|||||
Minority
interest
in loss (gain) of
consolidated
subsidiaries
|
(4,704
|
)
|
2,551
|
3,014
|
6,548
|
||||||||
Net
loss
|
$
|
(472,754
|
)
|
$
|
(133,117
|
)
|
$
|
(79,188
|
)
|
$
|
(611,687
|
)
|
|
Basic
and diluted net loss per share
|
$
|
(0.10
|
)
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
$
|
(0.12
|
)
|
|
Shares
used in computation of basic and diluted
loss
per share
|
4,972,461
|
4,974,684
|
4,981,983
|
5,029,025
|
|
|
|
||||||||
March
31,
|
June
30,
|
September
30,
|
||||||||
2004
|
2004
|
2004
|
||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||
Assets
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash
equivalents
|
$
|
558,749
|
$
|
1,749,715
|
$
|
2,981,379
|
||||
Marketable
securities
|
3,026
|
3,026
|
3,026
|
|||||||
Accounts
receivable, net
|
18,087
|
9,262
|
42,141
|
|||||||
Inventories,
net
|
1,248,645
|
1,737,798
|
2,160,773
|
|||||||
Prepaid
expenses
and other current assets
|
73,390
|
70,830
|
116,035
|
|||||||
Total
current assets
|
1,901,897
|
3,570,631
|
5,303,354
|
|||||||
Other
assets - loan costs
|
257,809
|
481,017
|
187,673
|
|||||||
Property,
plant and equipment, net
|
3,704,461
|
3,571,698
|
3,509,686
|
|||||||
Total
assets
|
5,864,167
|
7,623,346
|
9,000,713
|
|||||||
Liabilities
and Stockholders' Equity
|
||||||||||
Current
liabilities:
|
||||||||||
Accounts
payable
and accrued expenses
|
2,900,600
|
3,534,186
|
2,950,861
|
|||||||
Deferred
revenue
|
45,000
|
412,296
|
862,359
|
|||||||
Notes
payable to
related parties
|
20,953
|
65,963
|
65,963
|
|||||||
Short-term
debt -
Korpodeko
|
364,000
|
364,000
|
364,000
|
|||||||
Short-term
debt -
promissory note
|
100,000
|
100,000
|
100,000
|
|||||||
Total
current liabilities
|
3,430,553
|
4,476,445
|
4,343,183
|
|||||||
Deferred
revenue - license fees
|
-
|
2,014,244
|
3,952,389
|
|||||||
Minority
interest in subsidiaries
|
72,197
|
69,563
|
51,001
|
|||||||
Deferred
compensation
|
22,210
|
22,210
|
22,210
|
|||||||
Senior
secured convertible 12% note, net of discount
|
1,413,578
|
1,445,863
|
1,478,148
|
|||||||
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;
5,249,528
shares issued at March 31, 2004, 5,316,341 shares issued
at
June 30,
2004 and 5,326,341 shares issued at September 30, 2004
|
5,250
|
5,316
|
5,326
|
|||||||
Additional
paid-in
capital
|
4,165,027
|
4,190,427
|
4,190,427
|
|||||||
Retained
earnings
|
(597,196
|
)
|
(1,953,270
|
)
|
(2,394,519
|
)
|
||||
Treasury
stock,
361,380 shares at cost as of March 31, 2004,
June
30, 2004
and September 30, 2004
|
(1,911,237
|
)
|
(1,911,237
|
)
|
(1,911,237
|
)
|
||||
Notes
receivable
from former Chairman and CEO and other related party
|
(736,215
|
)
|
(736,215
|
)
|
(736,215
|
)
|
||||
Total
stockholders' equity
|
925,629
|
(404,979
|
)
|
(846,218
|
)
|
|||||
Total
liabilities and stockholders' equity
|
$
|
5,864,167
|
$
|
7,623,346
|
$
|
9,000,713
|
Three
Months Ended
|
|||||||||||||
March
31,
|
June
30,
|
September
30,
|
December
31,
|
||||||||||
2004
|
2004
|
2004
|
2004
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||
Revenues:
|
|||||||||||||
Net
sales
|
$
|
602,158
|
$
|
43,498
|
$
|
481,196
|
$
|
537,927
|
|||||
Licensing
fees
|
-
|
73,460
|
156,792
|
156,793
|
|||||||||
Royalties
|
94,366
|
130,070
|
257,963
|
302,534
|
|||||||||
696,524
|
247,028
|
895,951
|
997,254
|
||||||||||
Costs
and expenses:
|
|||||||||||||
Cost
of
sales
|
676,133
|
555,173
|
621,351
|
1,199,835
|
|||||||||
Research
and
development
|
235,099
|
263,342
|
270,969
|
287,599
|
|||||||||
General
and
administrative
|
379,480
|
594,677
|
470,931
|
649,336
|
|||||||||
1,290,712
|
1,413,192
|
1,363,251
|
2,136,770
|
||||||||||
Operating
loss
|
(594,188
|
)
|
(1,166,164
|
)
|
(467,300
|
)
|
(1,139,516
|
)
|
|||||
Other
income (expense):
|
|||||||||||||
Investment
income
|
13
|
1
|
8
|
174
|
|||||||||
Interest
expense
|
(92,075
|
)
|
(92,545
|
)
|
(92,519
|
)
|
(92,639
|
)
|
|||||
(92,062
|
)
|
(92,544
|
)
|
(92,511
|
)
|
(92,465
|
)
|
||||||
Loss before expense
for income taxes
|
(686,250
|
)
|
(1,258,708
|
)
|
(559,811
|
)
|
(1,231,981
|
)
|
|||||
Income
tax benefit
(expense)
|
-
|
-
|
-
|
-
|
|||||||||
Loss
before minority interest
|
(686,250
|
)
|
(1,258,708
|
)
|
(559,811
|
)
|
(1,231,981
|
)
|
|||||
Minority
interest
in loss of consolidated subsidiaries
|
11,157
|
2,634
|
18,562
|
45,656
|
|||||||||
Net
loss
|
$
|
(675,093
|
)
|
$
|
1,256,074
|
$
|
(541,249
|
)
|
$
|
(1,186,325
|
)
|
||
Basic
and diluted net loss per share
|
$
|
(0.14
|
)
|
$
|
(0.26
|
)
|
$
|
(0.11
|
)
|
$
|
(0.24
|
)
|
|
Shares
used in computation of basic and diluted loss per
share
|
4,888,148
|
4,880,915
|
4,909,032
|
4,936,995
|
· |
We
did not maintain an effective control environment and specifically,
elements of our finance organization were not structured with appropriate
resources to ensure the consistent execution of their responsibility
to
provide independent and pro-active leadership in the areas of monitoring
of controls, disclosure reviews and financial reporting. In 2005,
we put
in place new accounting software to address these issues.
|
· |
We
lacked appropriate internal controls over our cash disbursement system.
As
a result, duplicate payments were made to certain vendors and may
have
been made to others. We believe that the total amount of duplicate
payments was less than $10,000.
We
are pursuing those vendors who received duplicate payments and who
have
not yet made refunds. Our new accounting software referred to above
should
minimize the likelihood of this problem from occurring in the future.
|
· |
We
advanced our former Chairman and CEO $6,000, which could be considered
a
loan, in contravention of SEC rules and regulations, which was
subsequently repaid approximately two weeks later.
|
· |
In
order to minimize the risk of loss, the Audit Committee mandated
in 2006
that non-recurring payments over $10,000 require Board approval and
that
all checks in excess of $10,000 require two signatures. We have
implemented the dual signature
requirement.
|
· |
We
did not maintain effective control of our capital structure, resulting
in
the issuance of 56,388 shares of our common stock by management,
without
Board approval, to an outside consultant who provided personal services
to
our former Chairman and CEO. In addition, the value of these services
were
not recorded as compensation to our former Chairman and CEO for tax
purposes in prior years. In 2006, we recorded $73,882 in additional
compensation to our former Chairman and CEO. In addition, management,
without proper Board approval, extended the exercise period of 148,800
incentive stock options to January 2006, April 2007 and July 2007
for
three former employees beyond that allowed by the various stock option
plans that were approved by stockholders resulting in an expense
of
$59,326.
The
Audit Committee subsequently implemented controls in order to prevent
the
recurrence of such actions without the prior approval of the Compensation
Committee.
|
· |
Based
on the advice of former legal counsel the Company issued 127,419
freely
tradable securities to its employees from treasury stock. We have
since
been advised by our current legal counsel that such issuances are
not
permitted and we have since discontinued such practice.
|
· |
In
June 2005 our Chief Financial Officer (“CFO”) was issued by the Company
and improperly sold, based on the advice of former legal counsel,
14,819
shares at a fair market value of $13,485 with an issuance value of
$15,560.
In
July 2006 the CFO sold 10,000 shares at a fair market value of
approximately $9,600 with an issuance value of $15,000. In December
2006,
our insider trading policy was revised to require the approval of
our
current legal counsel prior to executing any such transactions.
|
· |
We
did not maintain effective controls over the financial reporting
process
due to an insufficient number of personnel with an appropriate level
of
accounting knowledge, experience and training in the application
of GAAP
commensurate with its financial reporting requirements and the complexity
of the our operations and transactions. Additionally, we did not
maintain
effective controls to ensure there is adequate monitoring and oversight
of
the work performed by accounting and financial reporting personnel
to
ensure the accuracy and completeness of the consolidated financial
statements in accordance with GAAP. As a result, we had to re-create
our
financial records for 2005 by reviewing the original source documents
and
we re-entered all transactions into our new accounting
system.
|
· |
We
did not maintain effective controls to ensure there is adequate analysis,
documentation, reconciliation, and review of accounting records and
supporting data. Specifically, we did not utilize a network computer
system for our accounting department, which was not adequately backed
up.
As a result of the failure to both back up the system, and the failure
of
the stand alone PC, we may not have adequate financial records to
support
our financial statements prior to the year ended December 31, 2004.
|
· |
We
did not maintain adequate records concerning various corporate matters.
|
· |
We
made the determination that it is necessary to restate our consolidated
financial statements for the year ended December 31, 2003 to accrue
for
additional rent expense due on our U.S. facility, for payroll taxes,
penalties and interest attributable to our Curacao facility, interest
due
on loans due to a former director of the Company and to a partner
of The
S.J. Wegman Company, an adjustment in notes receivable due from our
former
Chairman and CEO due to the incorrect allocation between interest
and
principal and a reclassification to correct prepaid insurance and
prepaid
payroll. Whereas we do not consider the effect to our net loss material,
the individual components of each adjustment disclosed above may
be
considered material to their individual line items within our consolidated
financial statements. We filed a report on Form 8-K with the SEC
regarding
the 2003 restatement on January 25, 2007, as amended on February
7, 2007.
|
· |
We
did not adequately monitor the business expenses of our officers
who were
also our directors at the time. The independent Board members have
mandated that such expenses be reviewed and approved by our
CFO.
We
believe these amounts are less than $100,000 per year in the
aggregate.
|
· |
The
Company has not filed either its federal or state corporate tax returns
since the calendar year 2002 but has paid the estimated tax due New
York
state. However, due to the existence of net operating loss and tax
credit
carry forwards, the Company believes that no tax is due for those
years.
The Company plans to file these returns and to pay any associated
fines
therewith.
|
· |
In
response to the identified material weaknesses, our management, with
oversight from our Audit Committee, has dedicated additional resources
and
engaged external consultants to support management in its efforts
to
improve our control environment. We have replaced both internal staff
and
external consultants with experienced external consultants. As we
have
only five employees as of the date of this filing, we will be utilizing
external consultants unless and until the business model allows for
full
time accounting staff to support the CFO. These ongoing efforts are
focused on implementing process changes to strengthen our internal
control
and monitoring activities.
|
Name
|
Age
on 12/31/06
|
Position
with the Company and
Principal Occupation |
Director
Since |
Term
Expires |
Edwin
H. Wegman
(2)
|
87
|
Chairman
of Board and CEO
|
1990
|
2005
|
Thomas
L. Wegman
|
52
|
Director,
President and Secretary
|
1994
|
2006
|
Dr.
Paul A. Gitman
(1)
|
66
|
Director,
Medical Director and Vice President for Clinical Care and Resource
Management of Long Island Jewish Medical Center
|
1990
|
2006
|
Henry
Morgan
(1)
|
86
|
Director,
partner of law firm of Morgan Melhuish Abrutyn
|
1990
|
2007
|
Michael
Schamroth
(1)
|
66
|
Director,
self-employed
|
2004
|
2007
|
LONG TERM COMPENSATION | ||||||||
ANNUAL COMPENSATION | AWARDS | PAYOUTS | ||||||
Name
And
Principal
Position
|
Year
|
Salary
(2)
($)
|
Bonus
($)
|
Other
Annual
Compensation
(3)
($)
|
Restricted
Stock
Award(s)
($)
|
Securities
Under-Lying
Options/
SARs
(#)
|
LTIP
Payouts ($)
|
All
other Compensation
(1)
($)
|
Edwin
H. Wegman, Chairman & CEO
(6)
|
2005
|
408,466
|
-
|
2,350
|
-
|
-
|
-
|
16,125
|
2004
|
403,685
|
-
|
2,350
|
-
|
-
|
-
|
40,957
|
|
2003
|
297,402
|
-
|
3,100
|
-
|
-
|
-
|
16,800
|
|
Thomas
L. Wegman, President
(4)
|
2005
|
203,224
|
-
|
6,850
|
22,500
|
|||
2004
|
199,182
|
-
|
6,850
|
|||||
2003
|
193,147
|
-
|
6,850
|
|||||
Lawrence
Dobroff, CFO
(5)
|
2005
|
125,560
|
-
|
-
|
15,000
|
17,054
|
||
2004
|
60,000
|
-
|
-
|
958
|
||||
Options/SAR
Grants in Last Fiscal Year
|
|||||
Individual
Grants
|
|||||
Name
|
Year/Date
of Grant
|
Number
of
Securities Underlying
Options/
SARs
Granted
(#)
|
%
of
Total
Options/
SARS
Granted
to
Employee(s)
in
Fiscal
Year
|
Exercise
on
Base
Price
($/Sh)
|
Expiration
Date
|
Edwin H. Wegman |
2005
|
—
|
—
|
—
|
—
|
2004
|
—
|
||||
2003
|
—
|
||||
Thomas L. Wegman |
2005
|
—
|
—
|
—
|
—
|
2004
|
—
|
||||
2003
|
—
|
||||
Lawrence Dobroff |
1/62005
|
1272
|
3.4%
|
$1.45
|
1/5/2015
|
2/4/2005
|
1149
|
3.1%
|
$1.60
|
2/3/2015
|
|
3/4/2005
|
1149
|
3.1%
|
$1.60
|
3/3/2015
|
|
4/6/2005
|
1543
|
4.2%
|
$1.20
|
4/5/2015
|
|
5/6/2005
|
1543
|
4.2%
|
$1.20
|
5/5/2015
|
|
6/6/2005
|
1754
|
4.7%
|
$1.05
|
6/5/2015
|
|
7/6/2005
|
1701
|
4.6%
|
$1.08
|
7/5/2015
|
|
8/5/2005
|
921
|
2.5%
|
$2.00
|
8/4/2015
|
|
9/6/2005
|
1082
|
2.9%
|
$1.70
|
9/5/2015
|
|
10/6/2005
|
1476
|
4.0%
|
$1.25
|
10/5/2015
|
|
11/4/2005
|
2315
|
6.2%
|
$0.80
|
11/3/2015
|
|
12/6/2005
|
1149
|
3.1%
|
$1.60
|
12/5/2015
|
|
2004
|
958
|
4.6%
|
$2.05
|
12/5/2014
|
Aggregate
Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
|
|||||
Name
|
Year
|
Shares
Acquired on Exercise (#)
|
Value
Realized ($)
|
Number
of Securities Underlying Unexercised Options/SARs At Fiscal
Year End (#)
Exercisable/ Unexercisable
|
Value
of Unexercised In-the-Money Options/SARs At Fiscal Year
End ($)
Exercisable/ Unexercisable ($)*
|
Edwin
H. Wegman
|
2005
|
—
|
—
|
—
|
—
|
2004
|
—
|
—
|
—
|
—
|
|
2003
|
—
|
—
|
—
|
—
|
|
Thomas
L. Wegman
|
2005
|
—
|
—
|
—
|
—
|
2004
|
—
|
—
|
—
|
—
|
|
2003
|
—
|
—
|
—
|
—
|
|
Lawrence
Dobroff
|
2005
|
—
|
—
|
17,054/0
|
46/0
|
2004
|
—
|
—
|
958/0
|
—
|
· |
each
security holder known by us to be the beneficial owner of more than
5% of
our outstanding common stock;
|
· |
each
current director;
|
· |
each
of our named executive officers listed in the table under the caption
“Executive Compensation” and
|
· |
all
current directors and executive officers as a
group.
|
Name
and Address of Beneficial Owner
(1)
|
Amount
and Nature of
Beneficial
Ownership
|
Percent
of
Common
Stock
|
|||||
Edwin
H. Wegman
(2)
|
2,187,442
|
36.5
|
%
|
||||
Thomas
L. Wegman
(3)
|
368,244
|
6.1
|
%
|
||||
Lawrence
Dobroff
(
4)
|
77,425
|
1.3
|
%
|
||||
Paul
Gitman
(5)
|
150,175
|
2.5
|
%
|
||||
Henry
Morgan
(6)
|
117,703
|
2.0
|
%
|
||||
Michael
Schamroth
(7)
|
175,550
|
3.0
|
%
|
||||
Jeffrey
K. Vogel
(8)
|
444,952
|
7.4
|
%
|
||||
|
|
|
|||||
All
current directors and officers as a group
|
3,076,539
|
51.4
|
%
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the SEC
and
generally includes voting or investment power with respect to securities.
Each of the beneficial owners listed above has direct ownership
of and
sole voting power and investment power with respect to the shares
of our
common stock.
A
total of 5,996,374 shares of our common stock is considered to be
outstanding pursuant to Rule 13d-3(d)(1) under the Securities Exchange
Act
of 1934. For each beneficial owner above, any options which become
exercisable within 60 days have been included.
|
(2)
|
Includes
1,843,327 shares of common stock owned by The S.J. Wegman Company,
a
partnership of which Edwin H. Wegman was the sole general partner.
The
S.J. Wegman Company was legally dissolved upon Edwin H. Wegman’s death on
February 16, 2007 and the shares will be distributed in accordance
with
the partnership agreement. At the present time, we do not know what
this
distribution will be. These shares are, however, subject to a pledge
agreement, under which the dissolution of The S.J. Wegman Company
constitutes an event of default, giving the Board the right to vote
the
pledged shares. Includes 139,000 options to purchase shares of common
stock that are currently exercisable. With respect to these options,
the
estate of Edwin H. Wegman has six months from the date of his death
to
exercise the options or they will expire. Edwin H. Wegman was the
father
of Thomas L. Wegman.
|
(3)
|
Includes
7,300 shares of common stock held by Thomas L. Wegman's wife and
child.
Includes 318,300 options which are currently exercisable. Excludes
100,000
options which are contingent and are currently not exercisable. Thomas
L.
Wegman is the son of Edwin H. Wegman.
|
(4)
|
Includes
77,425 options to purchase shares of common stock that are currently
exercisable.
|
(5)
|
Includes
7,500 shares of common stock held by Dr. Gitman's wife. Includes
94,175
options to purchase shares of common stock that are currently
exercisable.
|
(6)
|
Includes
94,175 options to purchase shares of common stock that are currently
exercisable.
|
(7)
|
Includes
136,800 shares owned by M. Schamroth & Sons and options to purchase
38,750 shares of common stock that are currently exercisable. Mr.
Schamroth has disclaimed any ownership interest in the 136,800 shares
owned by M. Schamroth & Sons.
|
(8)
|
Includes
149,640 shares of common stock held directly by Jeffrey K. Vogel,
the sole
shareholder and President of Bio Management, which is the sole
general
partner of Bio Partners, and 295,312 shares of common stock held
by Bio
Partners. The foregoing information is based solely on Jeffrey
K. Vogel’s
Section 13 filings with the SEC without independent verification.
|
Exhibit
Number
|
Description
|
3.1
|
|
3.2
|
|
10.1
|
|
10.2
|
|
10.3
|
10.4
|
Copy
of Lease, dated January 30, 1998, between the Company and the Wilbur
Street Corporation (incorporated by reference to Exhibit 10.14 of
the
Registrant’s Form 10-KSB filed with the Commission on May 7,
1998)
|
10.5
|
|
10.6
|
Development
and License Agreement between the Company and Auxilium Pharmaceuticals,
Inc. dated June 3, 2004 (incorporated by reference to Exhibit 24
of the
Registrant’s Form 10-KSB filed with the Commission on November 22,
2004)
|
10.7
|
|
10.8
|
Asset
Purchase Agreement between the Company, ABC-NY and DFB dated March
3, 2006
(incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K
filed with the Commission on March 9, 2006)
|
10.9
|
Amendment
to Asset Agreement between the Company, ABC-NY and DFB dated January
8,
2007 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form
8-K filed with the Commission on January 12, 2007)
|
10.10
|
Dupuytren’s
License Agreement dated November 21, 2006 between the Company and
the
Research Foundation (incorporated by reference to Exhibit 10.1 of
the
Registrant’s Form 8-K filed with the Commission on November 28,
2006)
|
10.11
|
Frozen
Shoulder License Agreement dated November 21, 2006 between the Company
and
the Research Foundation (incorporated by reference to Exhibit 10.2
of the
Registrant’s Form 8-K filed with the Commission on November 28,
2006)
|
10.12
|
|
10.13
|
Form
of 1993 Stock Option Plan of Registrant (incorporated by reference
as
Exhibit 10.2 of the Registrant’s Form S-8 filed with the Commission on
July 27, 1995)
|
10.14
|
Form
of 1997 Stock Option Plan of Registrant (incorporated by reference
as
Exhibit 4.1 of the Registrant’s Form S-8 filed with the Commission on
September 26, 1997)
|
10.15
|
Form
of 2001 Stock Option Plan of Registrant (incorporated by reference
as
Exhibit 10.15 of the Registrant’s Form 10-KSB filed with the Commission on
May 17, 2001)
|
10.16
|
Amendment
to 2001 Stock Option Plan of Registrant (incorporated by reference
to the
Registrant’s Form 14A filed with the Commission on November 12,
2003)
|
10.17
|
|
10.18
|
Rights
Agreement dated as of May 14, 2002 (incorporated by reference as
Exhibit 1
to the Registrant’s Form 8-A filed with the Commission on May 30,
2002)
|
10.19
|
|
14.1
|
|
16.1
|
Letter
from BDO Seidman, LLP dated January 11, 2005 (incorporated by reference
as
Exhibit 16.1 of the Registrant’s Form 8-K filed with the Commission on
January 13, 2005)
|
21.1
|
|
23.1
|
|
31.1
|
|
31.2
|
|
32.1
|
|
Page
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-8
|
BLOOM & CO ., L.L.P. 50 CLINTON STREET HEMPSTEAD NEW YORK 11550 |
TEL:
516 - 486 - 5900
|
CERTIFIED PUBLIC ACCOUNTANTS |
FAX:
516 - 486 - 5476
|
FREDERICK PAUKER, CPA
SIROUSSE TABRIZTCHI, Ph.D. |
MEMBER
OF
AMERICAN INSTITUTE OF CPA CERTIFIED PUBLIC ACCOUNTANTS |
Years
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Assets
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash
equivalents
|
$
|
539,380
|
$
|
1,345,800
|
$
|
268,998
|
||||
Marketable
securities
|
-
|
3,026
|
3,026
|
|||||||
Accounts
receivable, net
|
445,141
|
160,777
|
306,786
|
|||||||
Inventories,
net
|
2,616,716
|
2,005,263
|
880,452
|
|||||||
Prepaid
expenses
and other current assets
|
129,234
|
109,041
|
108,540
|
|||||||
Total
current assets
|
3,730,471
|
3,623,907
|
1,567,802
|
|||||||
Other
assets - loan
costs
|
-
|
54,817
|
193,707
|
|||||||
Construction
in
Progress
|
59,106
|
-
|
-
|
|||||||
Property,
plant and
equipment, net
|
2,795,355
|
3,395,391
|
3,845,103
|
|||||||
Total
assets
|
6,584,932
|
7,074,115
|
5,606,612
|
|||||||
Liabilities
and Stockholders' Equity
|
||||||||||
Current
liabilities:
|
||||||||||
Accounts
payable
and accrued expenses
|
2,638,832
|
2,494,168
|
2,048,812
|
|||||||
Deferred
revenue
|
2,137,517
|
985,755
|
45,000
|
|||||||
Deferred
employee
stock bonus plan
|
168,900
|
-
|
-
|
|||||||
Notes
payable to
related parties
|
69,894
|
67,839
|
20,953
|
|||||||
Short-term
debt -
Korpodeko
|
-
|
182,000
|
364,000
|
|||||||
Short-term
debt -
promissory note
|
-
|
100,000
|
100,000
|
|||||||
Total
current liabilities
|
5,015,143
|
3,829,762
|
2,578,765
|
|||||||
Deferred
revenue -
license fees
|
4,753,797
|
3,672,200
|
-
|
|||||||
Minority
interest
in subsidiaries
|
(2,064
|
)
|
5,345
|
83,354
|
||||||
Deferred
Compensation
|
22,210
|
22,210
|
-
|
|||||||
Senior
secured
convertible 12% note, net of discount
|
-
|
1,504,863
|
1,364,591
|
|||||||
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;
5,362,716,
5,333,841 and 5,249,528 shares issued and outstanding
at
December
31, 2005, 2004 and 2003 respectively
|
5,363
|
5,334
|
5,250
|
|||||||
Additional
paid-in
capital
|
4,224,964
|
4,250,509
|
4,144,207
|
|||||||
Retained
earnings
|
(4,877,590
|
)
|
(3,580,844
|
)
|
77,897
|
|||||
Treasury
stock,
346,561 shares at cost as of December 31, 2005 and
361,380
shares at cost as of December 31, 2004 and 2003
|
(1,832,864
|
)
|
(1,911,237
|
)
|
(1,911,237
|
)
|
||||
Notes
receivable
from former Chairman and CEO and other related party
|
(724,027
|
)
|
(724,027
|
)
|
(736,215
|
)
|
||||
Total
stockholders' equity
|
(3,204,154
|
)
|
(1,960,265
|
)
|
1,579,902
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
6,584,932
|
$
|
7,074,115
|
$
|
5,606,612
|
Twelve
months ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Revenues:
|
||||||||||
Net
sales
|
$
|
3,137,978
|
$
|
1,664,779
|
$
|
1,555,625
|
||||
Licensing
fees
|
1,266,641
|
387,045
|
-
|
|||||||
Royalties
|
1,073,620
|
784,933
|
1,683,915
|
|||||||
5,478,239
|
2,836,757
|
3,239,540
|
||||||||
Costs
and expenses:
|
||||||||||
Cost
of
sales
|
3,622,775
|
3,052,492
|
2,837,986
|
|||||||
Research
and
development
|
686,464
|
1,057,009
|
935,443
|
|||||||
General
and
administrative
|
2,289,160
|
2,094,424
|
2,632,399
|
|||||||
6,598,399
|
6,203,925
|
6,405,828
|
||||||||
Operating
loss
|
(1,120,160
|
)
|
(3,367,168
|
)
|
(3,166,288
|
)
|
||||
Other
income (expense):
|
||||||||||
Investment
income
|
2,406
|
196
|
109,635
|
|||||||
Interest
expense
|
(177,764
|
)
|
(369,778
|
)
|
(213,677
|
)
|
||||
Other
expense
|
(2,519
|
)
|
-
|
-
|
||||||
(177,877
|
)
|
(369,582
|
)
|
(104,042
|
)
|
|||||
Loss
before benefit (expense) for income tax
|
(1,298,037
|
)
|
(3,736,750
|
)
|
(3,270,330
|
)
|
||||
Income
tax benefit
(expense)
|
(6,118
|
)
|
-
|
(13,000
|
)
|
|||||
(1,304,155
|
)
|
(3,736,750
|
)
|
(3,283,330
|
)
|
|||||
Loss
before minority interest
|
(1,304,155
|
)
|
(3,736,750
|
)
|
(3,283,330
|
)
|
||||
Minority
interest
in loss of consolidated subsidiaries
|
7,409
|
78,009
|
83,787
|
|||||||
Net
loss
|
$
|
(1,296,746
|
)
|
$
|
(3,658,741
|
)
|
$
|
(3,199,543
|
)
|
|
Basic
and diluted net loss per share
|
$
|
(0.26
|
)
|
$
|
(0.75
|
)
|
$
|
(0.68
|
)
|
|
Shares
used in computation of basic and diluted net loss per
share
|
4,989,538
|
4,903,773
|
4,734,867
|
Twelve
months ended December 31,
|
||||||||||
Cash
flows from operating activities:
|
2005
|
2004
|
2003
|
|||||||
Net
loss
|
$
|
(1,296,746
|
)
|
$
|
(3,658,741
|
)
|
$
|
(3,199,543
|
)
|
|
Adjustments
to
reconcile net loss to net cash provided
|
||||||||||
by
operating activities:
|
||||||||||
Depreciation
and amortization
|
653,209
|
644,359
|
699,129
|
|||||||
Options
and
warrants issued for services
|
-
|
-
|
14,000
|
|||||||
Issuance
of
stock for services
|
16,125
|
40,960
|
15,000
|
|||||||
Issuance
of
treasury stock as employee bonus
|
22,969
|
-
|
-
|
|||||||
Amortization
of loan discount
|
70,137
|
140,272
|
70,137
|
|||||||
Deferred
compensation
|
-
|
22,210
|
-
|
|||||||
Minority
interest in loss of subsidiaries
|
(7,409
|
)
|
(78,009
|
)
|
(83,787
|
)
|
||||
Changes
in
operating assets and liabilities:
|
||||||||||
Accounts
receivable
|
(284,364
|
)
|
146,009
|
562,024
|
||||||
Marketable
securities
|
3,026
|
-
|
-
|
|||||||
Inventories
|
(611,453
|
)
|
(1,124,811
|
)
|
(231,572
|
)
|
||||
Prepaid
expenses
and other current assets
|
(20,194
|
)
|
(501
|
)
|
(74,392
|
)
|
||||
Accounts
payable
and accrued expenses
|
144,644
|
445,356
|
264,156
|
|||||||
Deferred
revenue
|
2,233,359
|
4,612,955
|
-
|
|||||||
Deferred
employee
stock bonus plan
|
168,900
|
-
|
-
|
|||||||
Income
taxes
|
-
|
-
|
417,000
|
|||||||
Net
cash provided by (used in) operating activities
|
1,092,223
|
1,190,059
|
(1,547,848
|
)
|
||||||
Cash
flows from investing activities:
|
||||||||||
Net
(increase)
decrease of notes receivable from former Chairman and CEO
|
-
|
12,189
|
394,093
|
|||||||
Expenditures
for
property, plant and equipment
|
(112,279
|
)
|
(194,647
|
)
|
(16,189
|
)
|
||||
Net
cash provided by (used in) investing activities
|
(112,279
|
)
|
(182,458
|
)
|
377,904
|
|||||
Cash
flows from financing activities:
|
||||||||||
Interest
accrued on
notes payable to related parties
|
2,055
|
1,886
|
6,443
|
|||||||
Increase
in
short-term debt
|
-
|
45,000
|
100,000
|
|||||||
Decrease
in
short-term debt
|
(282,000
|
)
|
(182,000
|
)
|
(91,000
|
)
|
||||
Increase
(decrease)
in senior secured convertible debt
|
(1,575,000
|
)
|
-
|
1,575,000
|
||||||
Proceeds
from
issuance of common stock
|
13,763
|
65,425
|
295
|
|||||||
Deferred
loan
costs, net
|
54,817
|
138,890
|
(193,707
|
)
|
||||||
Net
cash provided by (used in) financing activities
|
(1,786,365
|
)
|
69,201
|
1,397,031
|
||||||
Effect
of exchange rates on cash and equivalents
|
-
|
-
|
(8,988
|
)
|
||||||
Increase
(decrease) in cash and cash equivalents
|
(806,420
|
)
|
1,076,802
|
218,099
|
||||||
Cash
and cash equivalents at beginning of year
|
1,345,800
|
268,998
|
50,899
|
|||||||
Cash
and cash equivalents at end of year
|
539,380
|
1,345,800
|
268,998
|
|||||||
Supplemental
disclosures of cash flow information:
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
-
|
$
|
211,568
|
$
|
157,599
|
Shares
|
Amount
|
Additional
Paid in Capital
|
Retained
Earnings
|
||||||||||
Balances
- December 31, 2002
|
4,939,216
|
$
|
4,939
|
$
|
3,834,677
|
$
|
3,277,440
|
||||||
Foreign
currency translation
|
-
|
-
|
-
|
-
|
|||||||||
Consultant
option grants
|
15,000
|
15
|
14,985
|
-
|
|||||||||
Bio
Partners loan/discount
|
295,312
|
296
|
280,545
|
-
|
|||||||||
Issuance
of warrants, options
|
-
|
-
|
14,000
|
-
|
|||||||||
Proceeds
from former Chairman and CEO
|
-
|
-
|
-
|
-
|
|||||||||
Net
loss
|
-
|
-
|
-
|
(3,199,543
|
)
|
||||||||
Balances
- December 31, 2003
|
5,249,528
|
$
|
5,250
|
$
|
4,144,207
|
$
|
77,897
|
||||||
Shares
for services
|
18,888
|
19
|
40,941
|
-
|
|||||||||
Exercise
of options
|
65,425
|
65
|
65,360
|
-
|
|||||||||
Proceeds
from former Chairman and CEO
|
-
|
-
|
-
|
-
|
|||||||||
Net
loss
|
-
|
-
|
-
|
(3,658,741
|
)
|
||||||||
Balances
- December 31, 2004
|
5,333,841
|
$
|
5,334
|
$
|
4,250,508
|
$
|
(3,580,844
|
)
|
|||||
Shares
for services
|
15,000
|
15
|
16,110
|
-
|
|||||||||
Exercise
of options
|
13,875
|
14
|
13,749
|
-
|
|||||||||
Proceeds
from former Chairman and CEO
|
-
|
-
|
-
|
-
|
|||||||||
Issue
of treasury shares
|
-
|
-
|
(55,404
|
)
|
-
|
||||||||
Net
loss
|
-
|
-
|
-
|
(1,296,746
|
)
|
||||||||
Balances
- December 31, 2005
|
5,362,716
|
$
|
5,363
|
$
|
4,224,963
|
$
|
(4,877,590
|
)
|
|
Treasury
Stock
|
Due
from
Chairman |
Currency
Translation
|
Shareholder
Equity
Total
|
Comprehensive
Income
(loss)
|
|
||||||||||
Balances
- December 31, 2002
|
(1,911,237
|
)
|
(1,130,308
|
)
|
8,988
|
4,084,498
|
--
|
|||||||||
Foreign
currency translation
|
--
|
--
|
(8,988
|
)
|
(8,988
|
)
|
(8,988
|
)
|
||||||||
Consultant
option grants
|
--
|
--
|
--
|
15,000
|
--
|
|||||||||||
Bio
Partners loan/discount
|
--
|
--
|
--
|
280,841
|
--
|
|||||||||||
Issuance
of warrants, options
|
--
|
--
|
--
|
14,000
|
--
|
|||||||||||
Proceeds
from former Chairman and CEO
|
--
|
394,093
|
--
|
394,094
|
--
|
|||||||||||
Net
loss
|
--
|
--
|
--
|
(3,199,543
|
)
|
(3,199,543
|
)
|
|||||||||
Balances
- December 31, 2003
|
(1,911,237
|
)
|
$
|
(736,215
|
)
|
$
|
-
|
$
|
1,579,902
|
$
|
(3,208,531
|
)
|
||||
Shares
for services
|
-
|
-
|
-
|
40,960
|
-
|
|||||||||||
Exercise
of options
|
-
|
-
|
-
|
65,425
|
-
|
|||||||||||
Proceeds
from former Chairman and CEO
|
-
|
12,188
|
-
|
12,189
|
-
|
|||||||||||
Net
loss
|
-
|
-
|
-
|
(3,658,741
|
)
|
(3,658,741
|
)
|
|||||||||
Balances
- December 31, 2004
|
(1,911,237
|
)
|
$
|
(724,027
|
)
|
$
|
-
|
$
|
(1,960,265
|
)
|
$
|
(6,867,272
|
)
|
|||
Shares
for services
|
-
|
-
|
-
|
16,125
|
-
|
|||||||||||
Exercise
of options
|
-
|
-
|
-
|
13,763
|
-
|
|||||||||||
Proceeds
from former Chairman and CEO
|
-
|
-
|
-
|
--
|
-
|
|||||||||||
Issue
of treasury shares
|
78,373
|
-
|
-
|
22,969
|
-
|
|||||||||||
Net
loss
|
-
|
-
|
-
|
(1,296,746
|
)
|
(1,296,746
|
)
|
|||||||||
Balances
- December 31, 2005
|
(1,832,864
|
)
|
$
|
(724,027
|
)
|
$
|
-
|
$
|
(3,204,154
|
)
|
$
|
(8,164,018
|
)
|
1.
|
ORGANIZATION
AND DESCRIPTION OF
BUSINESS
|
2.
|
RESTATEMENT
OF CONSOLIDATED FINANCIAL
STATEMENTS
|
Twelve
Months Ended
|
|||||||||||||
December
31, 2003
|
|||||||||||||
As
Previously Reported
|
Adjustment
|
As
Restated
|
|||||||||||
Assets
|
|||||||||||||
Current
assets:
|
|||||||||||||
Cash
and cash
equivalents
|
$
|
268,998
|
$
|
-
|
$
|
268,998
|
|||||||
Marketable
securities
|
3,026
|
-
|
3,026
|
||||||||||
Accounts
receivable, net
|
306,786
|
-
|
306,786
|
||||||||||
Inventories,
net
|
880,452
|
-
|
880,452
|
||||||||||
Prepaid
expenses
and other current assets
|
47,151
|
61,389
|
(1
|
)
|
108,540
|
||||||||
Total
current assets
|
1,506,413
|
61,389
|
1,567,802
|
||||||||||
Other
assets - loan
costs
|
203,457
|
(9,750
|
)
|
(2
|
)
|
193,707
|
|||||||
Property,
plant and
equipment, net
|
3,845,102
|
1
|
(3
|
)
|
3,845,103
|
||||||||
Total
assets
|
$
|
5,554,972
|
$
|
51,640
|
$
|
5,606,612
|
|||||||
Liabilities
and Stockholders' Equity
|
|||||||||||||
Current
liabilities:
|
|||||||||||||
Accounts
payable
and accrued expenses
|
$
|
1,806,850
|
$
|
241,963
|
(4
|
)
|
$
|
2,048,813
|
|||||
Notes
payable to
related parties
|
15,010
|
5,943
|
(5
|
)
|
20,953
|
||||||||
Deferred
revenue
|
45,000
|
-
|
45,000
|
||||||||||
Short-term
debt -
Korpodeko
|
364,000
|
-
|
364,000
|
||||||||||
Short-term
debt -
promissory note
|
100,000
|
-
|
100,000
|
||||||||||
Total
current liabilities
|
2,330,860
|
247,906
|
2,578,766
|
||||||||||
Minority
interest
in subsidiaries
|
89,728
|
(6,374
|
)
|
(6
|
)
|
83,354
|
|||||||
Senior
secured
convertible 12% note, net of discount
|
1,364,591
|
-
|
1,364,591
|
||||||||||
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;
5,249,528 shares issued as of December 31, 2003 5,249
|
1
|
(7
|
)
|
5,250
|
|||||||||
Additional
paid-in
capital
|
4,144,207
|
-
|
4,144,207
|
||||||||||
Retained
earnings
|
180,949
|
(103,052
|
)
|
(8
|
)
|
77,897
|
|||||||
Accumulated
other
comprehensive income
|
-
|
-
|
-
|
||||||||||
Treasury
stock,
361,380 shares at cost
|
(1,911,237
|
)
|
-
|
(1,911,237
|
)
|
||||||||
Notes
receivable
from former Chairman and CEO and other related party
|
(649,375
|
)
|
(86,841
|
)
|
(9
|
)
|
(736,215
|
)
|
|||||
Total
stockholders' equity
|
1,769,793
|
(189,891
|
)
|
1,579,901
|
|||||||||
Total
liabilities and stockholders’ equity
|
$
|
5,554,972
|
$
|
51,640
|
$
|
5,606,612
|
(1)
Correction to prepaid insurance of $31,079 and prepaid payroll
of $30,310
previously expensed.
|
(2)
Correction to Bio Partners, a private investor group, loan amortization
of
$9,750.
|
(3)
Rounding correction of property, plant and equipment,
net.
|
(4)
Increase in rent accrual for Lynbrook, NY facility of $206,963
for 2003
and prior periods and payroll tax liability for our Curacao employees
of
$35,000 resulting in total additional expense of
$241,963.
|
(5)
Increase
in interest expense owed to a related party and a former director
of
$5,943.
|
(6)
Change due to restated financial statements based on ownership
percentage
held by minority shareholders.
|
(7)
Correction of rounding error for outstanding shares.
|
(8)
Correction to retained earnings based on restatement and prior
period
adjustments affecting the consolidated statement of
operations.
|
(9)
Correction of related party loan payment received from former Chairman
and
CEO, misapplied to principal instead of interest
due.
|
Twelve
Months ended
|
|||||||||||||
December
31, 2003
|
|||||||||||||
As
Previously Reported
|
Adjustment
|
As
Restated
|
|||||||||||
Revenues:
|
|||||||||||||
Net
sales
|
$
|
1,555,625
|
$
|
-
|
$
|
1,555,625
|
|||||||
Royalties
|
1,683,915
|
-
|
1,683,915
|
||||||||||
3,239,540
|
-
|
3,239,540
|
|||||||||||
Costs
and expenses:
|
|||||||||||||
Cost
of
sales
|
2,843,921
|
(5,935
|
)
|
(1
|
)
|
2,837,986
|
|||||||
General
and
administrative
|
2,615,007
|
17,392
|
(2
|
)
|
2,632,399
|
||||||||
Research
and
development
|
884,685
|
50,758
|
(3
|
)
|
935,443
|
||||||||
6,343,613
|
62,215
|
6,405,828
|
|||||||||||
Operating
loss
|
(3,104,073
|
)
|
(62,215
|
)
|
(3,166,288
|
)
|
|||||||
Other
income (expense):
|
|||||||||||||
Investment
Income
|
22,794
|
86,841
|
(4
|
)
|
109,635
|
||||||||
Interest
expense
|
(207,734
|
)
|
(5,943
|
)
|
(5
|
)
|
(213,677
|
)
|
|||||
(184,940
|
)
|
80,898
|
(104,042
|
)
|
|||||||||
Loss
before benefit (expense) for income tax
|
(3,289,013
|
)
|
18,683
|
(3,270,330
|
)
|
||||||||
Income
tax
expense
|
(13,000
|
)
|
-
|
(13,000
|
)
|
||||||||
Loss
before minority interest
|
(3,302,013
|
)
|
18,683
|
(3,283,330
|
)
|
||||||||
Minority
interest
in earnings of consolidated subsidiaries
|
77,413
|
6,374
|
(6
|
)
|
83,787
|
||||||||
Net
loss
|
$
|
(3,224,600
|
)
|
$
|
25,057
|
$
|
(3,199,543
|
)
|
|||||
Basic
and diluted net loss per share
|
$
|
(0.68
|
)
|
$
|
0.00
|
$
|
(0.68
|
)
|
|||||
Shares
used in computation of basic and diluted net loss per
share
|
4,734,867
|
NA
|
4,734,867
|
(1)
Cost
of sales decrease is related to a reduction in insurance expense
of
$19,007 and payroll costs of $30,310 partially offset by increases
in
payroll tax expense of $35,000 for our Curacao employees and rent
expense
of $8,382 resulting in a total reduction of $5,935.
|
(2)
General and administrative expense increases include $19,714 related
to
rent expense and $9,750 related to loan amortization costs with
a private
investor group, Bio Partners, partially offset by reductions of
$12,072 in
insurance expenses resulting in a total increase of
$17,392.
|
(3)
Research and development expense increases include $50,758 related
to rent
expense.
|
(4)
Investment income increased by $86,841due to a reclassification
of
interest associated with the related party loan repayment by the
former
Chairman and CEO.
|
(5)
Interest
expense increased by $5,943 due to a correction to a related party
loan to
the former Chairman and CEO.
|
(6)
Change due to restated financial statements based on ownership
percentage
held by minority shareholders.
|
Twelve
months ended
|
|||||||||||||
December
31, 2003
|
|||||||||||||
As
Previously Reported
|
Adjustment
|
As
Restated
|
|||||||||||
Cash
flows from operating activities:
|
|||||||||||||
Net
loss
|
$
|
(3,224,600
|
)
|
$
|
25,057
|
(1
|
)
|
$
|
(3,199,543
|
)
|
|||
Adjustments
to
reconcile net loss to net cash provided
|
|||||||||||||
by
operating activities:
|
|||||||||||||
Depreciation
and amortization
|
699,129
|
-
|
699,129
|
||||||||||
Options
and
warrants issued for services
|
14,000
|
-
|
14,000
|
||||||||||
Issuance
of
stock for services
|
15,000
|
-
|
15,000
|
||||||||||
Amortization
of loan discount
|
70,137
|
-
|
70,137
|
||||||||||
Minority
interest in loss of subsidiaries
|
(77,413
|
)
|
(6,374
|
)
|
(2
|
)
|
(83,787
|
)
|
|||||
Deferred
taxes
|
-
|
-
|
-
|
||||||||||
Changes
in
operating assets and liabilities:
|
|||||||||||||
Accounts
receivable
|
562,024
|
-
|
562,024
|
||||||||||
Inventories
|
(231,572
|
)
|
-
|
(231,572
|
)
|
||||||||
Prepaid
expenses
and other current assets
|
(13,003
|
)
|
(61,389
|
)
|
(3
|
)
|
(74,392
|
)
|
|||||
Accounts
payable
and accrued expenses
|
150,302
|
113,854
|
(4
|
)
|
264,156
|
||||||||
Income
taxes
|
417,000
|
-
|
417,000
|
||||||||||
Net
cash provided (used) by operating activities
|
(1,618,996
|
)
|
71,148
|
(1,547,848
|
)
|
||||||||
Cash
flows from investing activities:
|
|||||||||||||
Net
paydown of
notes receivable from former Chairman and CEO
|
480,934
|
(86,841
|
)
|
(5
|
)
|
394,093
|
|||||||
Expenditures
for
property, plant and equipment
|
(16,189
|
)
|
-
|
(16,189
|
)
|
||||||||
Net
cash provided (used) by investing activities
|
464,745
|
(86,841
|
)
|
377,904
|
|||||||||
Cash
flows from financing activities:
|
|||||||||||||
Interest
accrued on
notes payable to related parties
|
500
|
5,943
|
(6
|
)
|
6,443
|
||||||||
Increase
in
short-term debt
|
100,000
|
-
|
100,000
|
||||||||||
Decrease
in
short-term debt
|
(91,000
|
)
|
-
|
(91,000
|
)
|
||||||||
Proceeds
from
senior secured convertible debt
|
1,575,000
|
-
|
1,575,000
|
||||||||||
Proceeds
from
issuance of common stock
|
295
|
-
|
295
|
||||||||||
Deferred
loan
costs, net
|
(203,457
|
)
|
9,750
|
(7
|
)
|
(193,707
|
)
|
||||||
Net
cash provided by financing activities
|
1,381,338
|
15,693
|
1,397,031
|
||||||||||
Effect
of exchange rates on cash and equivalents
|
(8,988
|
)
|
-
|
(8,988
|
)
|
||||||||
Increase
in cash and cash equivalents
|
218,099
|
-
|
218,099
|
||||||||||
Cash
and cash equivalents at beginning of year
|
50,899
|
-
|
50,899
|
||||||||||
Cash
and cash equivalents at end of year
|
$
|
268,998
|
$
|
-
|
$
|
268,998
|
|||||||
Supplemental
disclosures of cash flow information:
|
|||||||||||||
Cash
paid during the year for:
|
|||||||||||||
Interest
|
$
|
157,599
|
$
|
-
|
$
|
157,599
|
|||||||
Income
taxes
|
-
|
-
|
-
|
(1)
Net
loss decreased due to changes reflected in the restated consolidated
statement of operations above.
|
(2)
Minority interest in loss of subsidiaries change due to restated
financial
statements based on ownership percentage held by minority
shareholders.
|
(3)
Prepaid expenses and other current assets change due to prepaid
insurance
of $31,079 and prepaid payroll of $30,310.
|
(4)
Accounts payable and accrued expenses change due to Wilbur Street
rent
accrual increase of $78,854 and payroll tax liability accrual of
$35,000
for our Curacao employees.
|
(5)
Net
paydown of notes receivable from former Chairman and CEO change
due to the
improper treatment of prior period payments.
|
(6)
Interest accrued on notes payable to a related party and a former
director.
|
(7)
Deferred
loan costs, net change due to a decrease in loan amortization of
$9,750 of
Bio Partners, a private investor
group.
|
3
.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Twelve
month period
|
||||||||||
2003
|
2004
|
2005
|
||||||||
Beginning
balance product warranty liability
|
$
|
318,342
|
$
|
178,342
|
$
|
165,824
|
||||
Change
in liability
|
(140,000
|
)
|
(12,518
|
)
|
(67,965
|
)
|
||||
Ending
balance of product warranty liability
|
$
|
178,342
|
$
|
165,824
|
$
|
97,859
|
Year
Ended
|
December
31, 2005
|
December
31, 2004
|
December
31, 2003
|
|||||||
|
||||||||||
Net
loss as reported
|
$
|
(1,296,746
|
)
|
$
|
(3,658,741
|
)
|
$
|
(3,199,543
|
)
|
|
Deduct:
Total stock-based employee compensation
|
||||||||||
expenses
determined under fair value based method for
|
||||||||||
all
awards, net effect of minority interest
|
(
105,587
|
)
|
(
236,573
|
)
|
(221,361
|
)
|
||||
Pro
forma net loss
|
$
|
(1,402,333
|
)
|
$
|
(3,895,314
|
)
|
$
|
(3,420,904
|
)
|
|
Basic
and diluted net loss per share:
|
||||||||||
As
reported
|
||||||||||
Basic
and diluted
|
$
|
(0.26
|
)
|
$
|
(0.75
|
)
|
$
|
(0.68
|
)
|
|
Pro
forma
|
||||||||||
Basic
and diluted
|
$
|
(0.28
|
)
|
$
|
(0.79
|
)
|
$
|
(0.72
|
)
|
Year
Ended
|
December
31, 2005
|
December
31, 2004
|
December
31, 2003
|
Average
risk free interest rates
|
6.00%
|
4.51%
|
4.75%
|
Average
expected life (in years)
|
5.00
|
5.00
|
5.00
|
Volatility
|
87%
|
82%
|
82%
|
4.
|
NET
LOSS PER SHARE
|
December
31,
|
||||||||||
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
Stock
options
|
963,887
|
1,055,440
|
1,350,625
|
|||||||
Convertible
Note
|
--
|
456,750
|
456,750
|
|||||||
Warrants
|
10,000
|
10,000
|
10,000
|
|||||||
Total
|
973,887
|
1,522,190
|
1,817,375
|
|||||||
5.
|
MARKETABLE
SECURITIES
|
6
.
|
INVENTORIES,
NET
|
December
31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Raw
materials
|
$
|
84,087
|
$
|
109,671
|
$
|
65,166
|
||||
Work-in-process
|
2,532,629
|
2,028,732
|
815,286
|
|||||||
Reserved
for recall
|
--
|
(
133,140
|
)
|
--
|
||||||
$
|
2,616,716
|
$
|
2,005,263
|
$
|
880,452
|
7
.
|
PROPERTY,
PLANT AND
EQUIPMENT
|
December
31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Machinery
and equipment
|
$
|
2,478,966
|
$
|
2,530,068
|
$
|
2,379,796
|
||||
Furniture
and fixtures
|
173,339
|
381,588
|
371,917
|
|||||||
Leasehold
improvements
|
4,139,235
|
4,114,595
|
4,079,120
|
|||||||
6,791,540
|
7,026,251
|
6,830,833
|
||||||||
Less
accumulated depreciation and amortization
|
(
3,996,185
|
)
|
(
3,630,860
|
)
|
(2,985,730
|
)
|
||||
$
|
2,795,355
|
$
|
3,395,391
|
$
|
3,845,103
|
8
.
|
ACCOUNTS
PAYABLE AND ACCRUED
LIABILITIES
|
December
31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Trade
accounts payable and accrued expenses
|
$
|
1,898,002
|
$
|
1,184,401
|
$
|
1,191,471
|
||||
Accrued
legal and other professional fees
|
124,984
|
940,545
|
542,036
|
|||||||
Accrued
payroll and related costs
|
615,846
|
369,221
|
315,305
|
|||||||
$
|
2,638,832
|
$
|
2,494,168
|
$
|
2,048,812
|
9
.
|
INCOME
TAXES
|
Year
ended
|
December
31,
|
|||||||||
2005
|
2004
|
2003
|
||||||||
Current:
|
||||||||||
Federal
|
$
|
--
|
$
|
--
|
$
|
13,000
|
||||
State
|
6,118
|
--
|
--
|
|||||||
$
|
6,118
|
$
|
--
|
$
|
13,000
|
|||||
Deferred:
|
||||||||||
Federal
|
--
|
--
|
--
|
|||||||
State
|
--
|
--
|
--
|
|||||||
Total
|
$
|
6,118
|
$
|
--
|
$
|
13,000
|
Year
ended
|
December
31,
|
|||||||||
2005
|
2004
|
2003
|
||||||||
Computed
tax benefit at statutory rate
|
$
|
453,861
|
$
|
1,307,863
|
$
|
1,031,677
|
||||
Tax
effect of foreign sourced income (loss)
|
(150,495
|
)
|
163,923
|
(397,422
|
)
|
|||||
State
income taxes, net of federal tax benefit
|
(3,971
|
)
|
--
|
--
|
||||||
Non-deductible
expenses
|
(9,191
|
)
|
(13,909
|
)
|
(4,116
|
)
|
||||
Orphan
drug and other tax credits
|
554,498
|
99,038
|
25,394
|
|||||||
Increase
in valuation allowance
|
(844,702
|
)
|
(1,556,914
|
)
|
(642,533
|
)
|
||||
|
$ | - |
$
|
-
|
$
|
(13,000
|
)
|
December
31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Tax
Credit carryforward
|
$
|
2,119,864
|
$
|
1,158,125
|
$
|
1,059,087
|
||||
Inventory
|
37,007
|
87,452
|
34,226
|
|||||||
Accrued
expenses
|
68,727
|
68,726
|
61,918
|
|||||||
Depreciation
and amortization
|
17,170
|
58,383
|
49,351
|
|||||||
Capital
loss carryforward
|
68,178
|
68,178
|
66,412
|
|||||||
Net
operating loss carryforward
|
2,320,640
|
2,252,554
|
870,465
|
|||||||
Net
deferred tax assets before valuation allowance
|
4,631,586
|
3,693,418
|
2,141,458
|
|||||||
Valuation
allowance
|
(4,631,586
|
)
|
(3,693,418
|
)
|
(2,141,458
|
)
|
||||
Net
deferred tax asset
|
$
|
-
|
$
|
-
|
$
|
-
|
10.
|
CREDIT
FACILITIES
|
11
.
|
MAJOR
CUSTOMER AND ROYALTY AND LICENSE
AGREEMENTS
|
12
.
|
FOREIGN
OPERATIONS
|
13
.
|
STOCKHOLDERS’
EQUITY
|
December
31,
|
|||||||||||||||||||
2005
|
2004
|
2003
|
|||||||||||||||||
Shares
|
Weighted
Average Exercise
Price
|
Shares
|
Weighted
Average Exercise
Price
|
Shares
|
Weighted
Average Exercise
Price
|
||||||||||||||
Outstanding
at beginning of year
|
1,056,358
|
$
|
1.63
|
1,350,625
|
$
|
1.77
|
1,358,325
|
$
|
1.98
|
||||||||||
Options
granted
|
37,054
|
1.44
|
80,958
|
1.56
|
50,000
|
1.28
|
|||||||||||||
Options
exercised
|
(13,875
|
)
|
1.00
|
(65,425
|
)
|
1.00
|
--
|
--
|
|||||||||||
Options
canceled or expired
|
(115,650
|
)
|
2.36
|
(309,800
|
)
|
4.62
|
(57,700
|
)
|
2.77
|
||||||||||
Outstanding
at end of year
|
963,887
|
$
|
1.63
|
1,056,358
|
$
|
1.63
|
1,350,625
|
$
|
1.77
|
||||||||||
Options
exercisable at year end
|
918,887
|
$
|
1.44
|
920,913
|
$
|
1.67
|
1,250,625
|
1.86
|
|||||||||||
Shares
available for future grant
|
1,242,263
|
--
|
1,226,200
|
--
|
1,006,150
|
--
|
Outstanding
|
Exercisable
|
||||
Option
Exercise
Price
|
Shares
|
Weighted
Average
Life
(years)
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Option
Price
|
$0.80-1.49
|
693,604
|
6.08
|
$1.01
|
684,224
|
$1.01
|
1.50-1.99
|
180,737
|
6.81
|
1.69
|
144,355
|
1.72
|
2.00-2.99
|
35,671
|
4.60
|
2.65
|
35,583
|
2.65
|
3.00-3.99
|
27,500
|
2.83
|
3.23
|
27,500
|
3.23
|
4.00-4.99
|
23,875
|
2.36
|
4.29
|
23,875
|
4.29
|
5.00-6.05
|
2,500
|
2.33
|
$5.81
|
2,500
|
$5.81
|
963,887
|
5.88
|
$1.45
|
938,038
|
$1.44
|
14.
|
COMMITMENTS
AND CONTINGENCIES
|
2006
|
$160,000
|
2007
|
154,000
|
2008
|
154,000
|
2009
|
153,000
|
2010
|
75,000
|
thereafter
|
-0-
|
15
.
|
RELATED
PARTY
TRANSACTIONS
|
16
.
|
EMPLOYEE
BENEFIT PLANS
|
17.
|
SUBSEQUENT
EVENTS
|
BIOSPECIFICS
TECHNOLOGIES CORP.
|
||
By:
|
/s/
Thomas L. Wegman
|
|
Thomas
L. Wegman
|
||
President
|
SIGNATURE
|
TITLE
|
/s/ Thomas L. Wegman |
President
(Principal
Executive Officer)
|
Name: Thomas L. Wegman | |
/s/
Lawrence Dobroff
|
Chief
Financial Officer
(Principal
Financial Officer)
|
Name: Lawrence Dobroff | |
/s/
Paul Gitman
|
Director
|
Name: Paul Gitman | |
/s/
Henry Morgan
|
Director
|
Name: Henry Morgan | |
/s/
Michael Schamroth
|
Director
|
(a)
|
The
initial number of directors of the Corporation shall be five (5),
which
number may be increased or decreased pursuant to the By-laws of the
Corporation, provided that the number of directors may not be less
than
three (3) unless the Corporation has less than three (3) stockholders,
in
which case the number of directors may not be less than the number
of
stockholders.
|
(b)
|
Beginning
with the Board of Directors to be elected at the first annual meeting
of
stockholders, the directors shall be classified, in respect solely
to the
time for which they shall severally hold office, by dividing them
into
three classes, each such class to be as nearly equal as possible
to each
other class. At the first annual meeting of stockholders, separate
elections shall be held for the directors of each class, the term
of
office of directors of the first class to expire at the first annual
meeting after their election; the term of office of the directors
of the
second class to expire at the second annual meeting after their election;
and the term of office of the directors of the third class to expire
at
the third annual meeting after their election. At each succeeding
annual
meeting, the stockholders shall elect directors of the class whose
term
then expires, to hold office until the third succeeding annual meeting.
Each director shall hold office for the term for which elected and
until
his or her successor shall be elected and shall
qualify.
|
(c)
|
Any
director, any class of directors or the entire Board of Directors
may be
removed from office by stockholder vote at any time, without assigning
any
cause, but only if the holders of not less than two-thirds (2/3)
of the
voting power of the then outstanding shares of capital stock of the
Company entitled to vote at an annual election of directors, voting
together as a-single class, shall vote in favor of such
removal.
|
(d)
|
Vacancies
in the Board of Directors, including vacancies resulting from an
increase
in the number of directors, shall be filled only by a majority vote
of the
remaining directors then in office, though less than a quorum, except
that
vacancies resulting from removal from office by a vote of the stockholders
may be filled by the stockholders at the same meeting at which such
removal occurs. All directors elected to fill vacancies shall hold
office
for a term expiring at the annual meeting of stockholders at which
the
term of class to which they have been elected expires. No decrease
in the
number of directors constituting the Board of Directors shall shorten
the
term of an incumbent director.
|
(e)
|
The
Board of Directors is authorized to make, alter or repeal the By-laws
of
the Corporation
|
(f)
|
The
names and addresses of the directors who shall act until the first
meeting
and thereafter until their successors are duly elected and qualified
are:
|
Name
|
Address
|
Edwin
H. Wegman
|
35
Wilbur St., Lynbrook, NY 11563
|
Harold
Stern
|
35
Wilbur St., Lynbrook, NY 11563
|
Paul
A. Gitman
|
c/o
35 Wilbur St., Lynbrook, NY 11563
|
Henry
Morgan
|
c/o
35 Wilbur St., Lynbrook, NY 11563
|
Sherman
C. Vogel
|
c/o
35 Wilbur St., Lynbrook, NY 11563
|
Article
I. The Stockholders
|
4
|
||
Section
1.1.
|
Annual
Meeting.
|
4
|
|
Section
1.2.
|
Special
Meetings.
|
4
|
|
Section
1.3.
|
Notice
of Meetings.
|
4
|
|
Section
1.4.
|
Inspectors.
|
5
|
|
Section
1.5.
|
Quorum.
|
5
|
|
Section
1.6.
|
Voting
Requirements and Proxies.
|
5
|
|
Section
1.7.
|
Organization.
|
6
|
|
Section
1.8.
|
Procedures.
|
6
|
|
Section
1.9.
|
Voting
by Ballot.
|
7
|
|
Section
1.10.
|
Voting
Lists.
|
7
|
|
Section
1.11.
|
Proposals
for Voting.
|
7
|
|
Section
1.12.
|
Place
of Meeting.
|
9
|
|
Section
1.13.
|
Voting
of Shares of Certain Holders.
|
9
|
|
Section
1.14.
|
Consent
of Stockholders in Lieu of Meeting.
|
10
|
|
Section
1.15.
|
Unanimous
Written Consent.
|
10
|
|
Article
II. Board of Directors
|
10
|
||
Section
2.1.
|
General
Powers.
|
10
|
|
Section
2.2.
|
Number
and Term of Office.
|
10
|
|
Section
2.3.
|
Vacancies.
|
10
|
|
Section
2.4.
|
Place
of Meetings, etc.
|
11
|
|
Section
2.5.
|
Annual
Meeting.
|
11
|
|
Section
2.6.
|
Other
Regular Meetings.
|
11
|
|
Section
2.7.
|
Special
Meetings.
|
11
|
|
Section
2.8.
|
Notice
of Special Meetings.
|
11
|
|
Section
2.9.
|
Quorum.
|
12
|
|
Section
2.10.
|
Order
of Business.
|
12
|
|
Section
2.11.
|
Action
Without a Meeting.
|
12
|
|
Section
2.12.
|
Compensation
of Directors.
|
12
|
|
Section
2.13.
|
Election
of Officers and Committees.
|
12
|
|
Section
2.14.
|
Removal.
|
12
|
|
Section
2.15.
|
Nominations.
|
12
|
|
Article
III. Executive Committee and Other Committees
|
14
|
||
Section
3.1.
|
Number
and Term of Office.
|
14
|
|
Section
3.2.
|
Powers.
|
15
|
|
Section
3.3.
|
Meetings.
|
15
|
|
Section
3.4.
|
Meetings
by Conference Communications Equipment.
|
15
|
|
Section
3.5.
|
Presiding
Officer.
|
16
|
|
Section
3.6.
|
Action
by Consent.
|
16
|
|
Section
3.7.
|
Vacancies.
|
16
|
|
Section
3.8.
|
Rules
of Procedure; Quorum.
|
16
|
Section
3.9.
|
Other
Committees.
|
16
|
|
Article
IV. The officers
|
16
|
||
Section
4.1.
|
Titles;
Number and Term of Office.
|
16
|
|
Section
4.2.
|
Resignation
and Removal.
|
17
|
|
Section
4.3.
|
Chairman
of the Board.
|
17
|
|
Section
4.4.
|
Chief
Executive Officer.
|
17
|
|
Section
4.5.
|
President.
|
17
|
|
Section
4.6.
|
Vice-Presidents.
|
18
|
|
Section
4.7.
|
Chief
Financial Officer.
|
18
|
|
Section
4.8.
|
Chief
Accounting Officer.
|
18
|
|
Section
4.9.
|
Treasurer.
|
18
|
|
Section
4.10.
|
Secretary.
|
19
|
|
Section
4.11.
|
Assistant
Treasurers and Assistant Secretaries.
|
19
|
|
Section
4.12.
|
Salaries.
|
19
|
|
Section
4.13.
|
Voting
upon Stocks.
|
19
|
|
Article
V. Contracts and Loans
|
19 | ||
Section
5.1.
|
Contracts.
|
19
|
|
Section
5.2.
|
Loans.
|
20
|
|
Article
VI. Certificates for Shares and Their Transfer
|
20 | ||
Section
6.1.
|
Certificates
for Shares.
|
20
|
|
Section
6.2.
|
Transfers
of Shares.
|
20
|
|
Section
6.3.
|
Lost
Certificates.
|
21
|
|
Article
VII. General Provisions
|
21
|
||
Section
7.1.
|
Fiscal
Year.
|
21
|
|
Section
7.2.
|
Seal.
|
21
|
|
Section
7.3.
|
Waiver
of Notice.
|
21
|
|
Section
7.4.
|
Amendments.
|
22
|
|
Section
7.5.
|
Evidence
of Authority.
|
22
|
|
Section
7.6.
|
Certificate
of Incorporation.
|
22
|
|
Section
7.7.
|
Severability.
|
22
|
|
Section
7.8.
|
Pronouns.
|
22
|
|
Section
7.9.
|
Offices.
|
22
|
|
Section
7.10.
|
Off-Shore
Offerings.
|
22
|
|
Article
VIII. Indemnification
|
22
|
||
Section
8.1.
|
Indemnification.
|
22
|
|
Section
8.2.
|
Indemnification
Terms.
|
22
|
|
Article
IX. Record Date
|
27
|
||
Section
9.1.
|
Fixing
Date of Record.
|
27
|
$1,016,595.00
|
January
1, 2007
|
1.
|
Interest
.
The Principal Amount remaining unpaid at any time shall bear interest
at
the rate of nine percent (9%) per annum (the “
Interest
Rate
”)
compounded annually and computed on the basis of a 365 or 366 day
year, as
the case may be,
continuing
up to and including the date of repayment in full or cancellation
of the
Note.
|
2.
|
Payment
and Prepayment
.
All outstanding Principal Amounts and interest on this Note shall
be due
and payable ON DEMAND of the Company, or the legal holder of this
Note and
upon such demand shall be payable in full in lawful money of the
United
States of America at the principal offices of the Company (or at
such
other place as the holder of the Note hereof shall notify the Borrower
in
writing). The Borrower may, without premium or penalty, at any
time and
from time to time, prepay all or any portion of the outstanding
Principal
Amount and interest due under this Note. Any prepayments of any
portion of
the Principal Amount of this Note shall be accompanied by payment
of all
interest accrued but unpaid on the Principal Amount being prepaid.
Upon
final payment of all the Principal Amount of, and interest on,
this Note
it shall be surrendered for cancellation.
|
3.
|
Event
of Default
.
The Borrower agrees that the failure of Borrower to make any payment
required under this Note when due shall constitute an event of
default
under this Note (“
Event
of Default
”).
In addition, the occurrence of any of the following events also
shall
constitute an Event of Default under this
Note:
|
(a)
|
the
filing of any petition under the U.S. Bankruptcy Code or any similar
statute by or against the Borrower;
|
(b)
|
an
application for the appointment of a receiver for, the making of
a general
assignment for the benefit of creditors by, or the insolvency of,
the
Borrower; or
|
(c)
|
the
death of the Borrower.
|
4.
|
Remedies
.
Upon the occurrence of an Event of Default hereunder, (i) the entire
outstanding Principal Amount and accrued interest of this Note
shall
immediately become due and payable regardless of any prior forbearance,
and (ii) the Company may exercise any and all rights and remedies
available to the Company under this Note, the Agreement and applicable
law, including, without limitation, the right to collect from the
Borrower
all sums due under this Note.
|
5.
|
Expenses
of Collection
.
If this Note is forwarded to an attorney for collection after maturity
hereof (whether by acceleration, declaration, extension, or otherwise),
the Borrower shall pay to the Company all costs and expenses of
collection, including without limitation attorneys' fees and
expenses.
|
6.
|
Remedies
Cumulative; Waiver
.
The rights and remedies of the Company under this Note and the
Agreement
shall be cumulative and not alternative. No waiver by the Company
of any
right or remedy under this Note or the Agreement shall be effective
unless
in a writing signed by the Company. The failure by the Company
to insist
upon the strict performance by the Borrower of any terms and provisions
contained herein shall not be deemed to be a waiver of any terms
and
provisions herein, and the Company shall retain the right thereafter
to
insist upon strict performance by the Borrower of any and all terms
and
provisions of this Note or any document securing or guaranteeing
the
repayment of this Note. The Borrower hereby waives presentment,
protest
and demand, notice of protest, notice of demand and of dishonor
and
non-payment of this Note.
|
7.
|
Application
of Payments
.
All payments made on account of this Note, including prepayments,
shall be
applied first to the payment of any attorneys’ fees and other costs of
collection then payable hereunder, second to accrued and unpaid
interest
then due hereunder (if any), and the remainder, if any, shall be
applied
to the unpaid Principal Amount and accrued
interest.
|
8.
|
Governing
Law
.
This Note shall be governed by and construed in accordance with
the laws
of the State of New York, without reference to the conflict of
laws
principles thereof.
|
9.
|
Assignment
.
The Company, or any other holder of this Note, may assign all of
its
rights, title and interest in this Note. Borrower’s obligations hereunder
are not assignable.
|
10.
|
Waivers
and Modifications; Binding Effect; Non-Negotiable Note
.
This Note may not be waived, changed, modified or discharged except
by an
agreement in writing signed by each of the Borrower and the Company.
This
Note shall be binding upon the Borrower, and his heirs, personal
representatives, successors and assigns, and shall inure to the
benefit of
and be enforceable by the Company and the Company’s respective successors
and assigns, except that this Note shall not be a negotiable instrument.
The captions set forth in this Note are for convenience only and
shall not
be deemed to limit or affect the meaning of any provision of this
Note.
|
11.
|
Consent
to Jurisdiction
.
The Borrower hereby irrevocably submits to the non-exclusive jurisdiction
of any state or federal court sitting in the State of New York
over any
suit, action or proceeding in connection with, arising out of or
relating
to this Note and hereby waives any objection it may have to the
laying of
venue of any such action or proceeding in any of said courts and
any claim
that it may have that any such action or proceeding has been brought
in an
inconvenient forum. A final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions
by suit on
the judgment or in any other manner provided by law.
|
12.
|
Waiver
of Jury Trial.
THE BORROWER WAIVES TRIAL BY JURY IN ANY ACTION AND/OR PROCEEDING
ARISING
ON, OUT OF OR BY REASON OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS
OR
CROSS-CLAIMS IN CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES
THAT IT
MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY
AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
|
BORROWER
|
|
/s/
Edwin H. Wegman
|
|
EDWIN
H. WEGMAN
|
$304,390.00
|
January
1, 2007
|
1.
|
Interest
.
The Principal Amount remaining unpaid at any time shall bear interest
at
the rate of nine percent (9%) per annum (the “
Interest
Rate
”)
compounded annually and computed on the basis of a 365 or 366 day
year, as
the case may be,
continuing
up to and including the date of repayment in full or cancellation
of the
Note.
|
2.
|
Payment
and Prepayment
.
All outstanding Principal Amounts and interest on this Note shall
be due
and payable ON DEMAND of the Company, or the legal holder of this
Note and
upon such demand shall be payable in full in lawful money of the
United
States of America at the principal offices of the Company (or at
such
other place as the holder of the Note hereof shall notify the Borrower
in
writing). The Borrower may, without premium or penalty, at any
time and
from time to time, prepay all or any portion of the outstanding
Principal
Amount and interest due under this Note. Any prepayments of any
portion of
the Principal Amount of this Note shall be accompanied by payment
of all
interest accrued but unpaid on the Principal Amount being prepaid.
Upon
final payment of all the Principal Amount of, and interest on,
this Note
it shall be surrendered for cancellation.
|
3.
|
Event
of Default
.
The Borrower agrees that the failure of Borrower to make any payment
required under this Note when due shall constitute an event of
default
under this Note (“
Event
of Default
”).
In addition, the occurrence of any of the following events also
shall
constitute an Event of Default under this
Note:
|
(a)
|
the
filing of any petition under the U.S. Bankruptcy Code or any similar
statute by or against the Borrower;
|
(b)
|
an
application for the appointment of a receiver for, the making of
a general
assignment for the benefit of creditors by, or the insolvency of,
the
Borrower; or
|
(c)
|
the
dissolution or reorganization of the Borrower or The S.J. Wegmam
Company.
|
4.
|
Remedies
.
Upon the occurrence of an Event of Default hereunder, (i) the
entire outstanding Principal Amount and accrued interest of this
Note
shall become immediately due and payable regardless of any prior
forbearance, and (ii) the Company may exercise any and all rights and
remedies available to the Company under this Note, the Agreement
and
applicable law, including, without limitation, the right to collect
from
the Borrower all sums due under this Note.
|
5.
|
Expenses
of Collection
.
If this Note is forwarded to an attorney for collection after maturity
hereof (whether by acceleration, declaration, extension, or otherwise),
the Borrower shall pay to the Company all costs and expenses of
collection, including without limitation attorneys' fees and
expenses.
|
6.
|
Remedies
Cumulative; Waiver
.
The rights and remedies of the Company under this Note and the
Agreement
shall be cumulative and not alternative. No waiver by the Company
of any
right or remedy under this Note or the Agreement shall be effective
unless
in a writing signed by the Company. The failure by the Company
to insist
upon the strict performance by the Borrower of any terms and provisions
contained herein shall not be deemed to be a waiver of any terms
and
provisions herein, and the Company shall retain the right thereafter
to
insist upon strict performance by the Borrower of any and all terms
and
provisions of this Note or any document securing or guaranteeing
the
repayment of this Note. The Borrower hereby waives presentment,
protest
and demand, notice of protest, notice of demand and of dishonor
and
non-payment of this Note.
|
7.
|
Application
of Payments
.
All payments made on account of this Note, including prepayments,
shall be
applied first to the payment of any attorneys’ fees and other costs of
collection then payable hereunder, second to accrued and unpaid
interest
then due hereunder (if any), and the remainder, if any, shall be
applied
to the unpaid Principal Amount and accrued
interest.
|
8.
|
Governing
Law
.
This Note shall be governed by and construed in accordance with
the laws
of the State of New York, without reference to the conflict of
laws
principles thereof.
|
9.
|
Assignment
.
The Company, or any other holder of this Note, may assign all of
its
rights, title and interest in this Note. Borrower’s obligations hereunder
are not assignable.
|
10.
|
Waivers
and Modifications; Binding Effect; Non-Negotiable Note
.
This Note may not be waived, changed, modified or discharged except
by an
agreement in writing
|
|
signed
by each of the Borrower and the Company. This Note shall be binding
upon
the Borrower, and his heirs, personal representatives, successors
and
assigns, and shall inure to the benefit of and be enforceable
by the
Company and the Company’s respective successors and assigns, except that
this Note shall not be a negotiable instrument. The captions
set forth in
this Note are for convenience only and shall not be deemed to
limit or
affect the meaning of any provision of this
Note.
|
11.
|
Consent
to Jurisdiction
.
The Borrower hereby irrevocably submits to the non-exclusive jurisdiction
of any state or federal court sitting in the State of New York
over any
suit, action or proceeding in connection with, arising out of or
relating
to this Note and hereby waives any objection it may have to the
laying of
venue of any such action or proceeding in any of said courts and
any claim
that it may have that any such action or proceeding has been brought
in an
inconvenient forum. A final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions
by suit on
the judgment or in any other manner provided by
law.
|
12.
|
Waiver
of Jury Trial.
THE BORROWER WAIVES TRIAL BY JURY IN ANY ACTION AND/OR PROCEEDING
ARISING
ON, OUT OF OR BY REASON OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS
OR
CROSS-CLAIMS IN CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES
THAT IT
MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY
AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
|
BORROWER
WILBUR
STREET CORP.
|
||
By:
|
/s/
Edwin H. Wegman
|
|
Name: Edwin
H. Wegman
Title: President
|
SECURED
PARTY:
BIOSPECIFICS
TECHNOLOGIES CORP.
|
||
By:
|
/s/
Thomas L. Wegman
|
|
Name:
Thomas L. Wegman
Title:
President
|
||
|
||
PLEDGOR:
THE
S.J. WEGMAN COMPANY
|
||
By:
|
/s/
Edwin H. Wegman
|
|
Name:
Edwin H. Wegman
Title:
General Partner
|
WILBUR ST. CORP. | |||
Witness
|
By:
|
/s/
Edwin H. Wegman
|
|
Edwin
H. Wegman
, Pres.
|
|||
|
|||
ADVANCE BIOFACTURES CORP. | |||
Witness
|
By:
|
/s/
Thomas Wegman
|
|
Thomas
Wegman, EVP
|
1.
|
AMENDMENTS
|
·
|
Year
1— an amount less than or equal to
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
percent (
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
%)
of Auxilium’s commercial requirements for Product
|
·
|
Year
2— an amount less than or equal to
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
percent (
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
%)
of Auxilium’s commercial requirements for Product
|
·
|
Year
3— an amount less than or equal to
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
percent (
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
%)
of Auxilium’s commercial requirements for Product
|
·
|
Year
4— an amount less than or equal to
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
percent (
<OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION>
%)
of Auxilium’s commercial requirements for Product
|
2.
|
EFFECTIVE
DATE OF AMENDMENT
|
3.
|
MISCELLANEOUS
|
BioSpecifics
Technologies Corp.
|
Auxilium
Pharmaceuticals Inc.
|
|||
By:
|
/s/
Edwin H. Wegman
|
By:
|
/s/
Geraldine A. Henwood
|
|
Name:
|
Edwin
H. Wegman
|
Name:
|
Geraldine
A. Henwood
|
|
Title:
|
President
|
Title:
|
Chief
Executive Officer
|
|
Date:
|
May
10, 2005
|
Date:
|
May
10, 2005
|
/s/
Martin K. Gelbard
|
Advance
Biofactures Corporation
|
||
Martin
K. Gelbard M.D.
|
By
|
/s/
Edwin H. Wegman
|
|
Edwin
H. Wegman, President
|
|||
Date:
October 5, 1993
|
X
=
|
the
number of shares of Common Stock to be issued to the Registered Holder
pursuant to this Section 3.
|
Y
=
|
the
number of shares of Common Stock that would have been issuable upon
such
an exercise, or partial exercise, as applicable, of this Warrant
under
Section 3 if such exercise had instead been made pursuant to Section
2
without any shares issuable upon such exercise being deemed surrendered
to
the Company as payment of the Warrant
Price.
|
A
=
|
the
Fair Market Value of one share of Common
Stock.
|
B
=
|
the
Warrant price in effect under this Warrant at the time the net issue
election is made pursuant to this Section
3.
|
BIOSPECIFICS
TECHNOLOGIES CORP.
|
By:
/s/ Edwin H.
Wegman
|
Name:
Edwin H.
Wegman
|
Title:
President and
Chairman
|
|
REGISTERED
HOLDER
|
|
|
(Date) |
(Signature) |
|
|
(Print Name) |
|
|
|
(Print Title) |
|
REGISTERED
HOLDER
|
|
|
(Date) |
(Signature) |
|
|
(Print Name) |
|
|
|
(Print Title) |
ATTEST:
|
BIOSPECIFICS TECHNOLOGIES CORP. | ||
/s/ Albert Horcher | /s/ Edwin H. Wegman | ||
|
|
||
Name:
Albert Horcher
Title: Secretary, Treasurer and Principal Accounting Officer |
Name:
Edwin H. Wegman
Title: Chairman of the Board of Directors, President
and Chief Executive Officer
|
Countersigned:
OTC
CORPORATE TRANSFER
SERVICE COMPANY
As Rights Agent
|
|||
By: ___________________________________ | |||
Authorized Officer | |||
ARTICLE I. Code of Business Conduct and Ethics |
3
|
|
A.
|
Compliance
and Reporting
|
3
|
B.
|
Personal
Conflicts of Interest
|
3
|
C.
|
Public
Disclosure
|
4
|
D.
|
Compliance
with Laws, Rules and Regulations
|
4
|
E.
|
Protection
of Corporate Assets and Corporate Opportunities
|
4
|
F.
|
Confidentiality
|
5
|
G.
|
Fair
Dealing
|
5
|
H.
|
Equal
Employment Opportunity and Harassment
|
5
|
I.
|
Business
Gifts and Entertainment
|
6
|
J.
|
Insider
Trading
|
6
|
K.
|
Transactions
Involving Suppliers and Customers
|
6
|
L.
|
Anti-Kickback
Rules
|
6
|
M.
|
Antitrust
and Competition Laws
|
7
|
N.
|
Dealings
with Independent Auditors
|
7
|
O.
|
Health
and Safety
|
7
|
P.
|
Internet
and Email Use
|
8
|
Q.
|
Maintaining
Integrity of Records and Reporting of Business Information
|
8
|
R.
|
Waivers
of This Code
|
9
|
ARTICLE II. Director Independence Determinations |
9
|
|
A.
|
Policy
Regarding Director Independence Determinations
|
9
|
B.
|
Employment/Other
Compensation
|
10
|
C.
|
Relationships
With For-Profit Organizations
|
10
|
D.
|
Relationships
With Charitable Organizations
|
11
|
E.
|
Client
Relationships
|
11
|
F.
|
Indebtedness
|
12
|
G.
|
Other
|
12
|
H.
|
Confidentiality
|
12
|
I.
|
Conflict
of Interest
|
12
|
J.
|
Definitions
|
13
|
ARTICLE III. Financial Management Code of Professional Conduct |
13
|
|
ARTICLE IV. Compliance Reporting |
15
|
|
ARTICLE V. Directory of Contact |
16
|
A.
|
Compliance
and Reporting
|
B.
|
Personal
Conflicts of Interest
|
C.
|
Public
Disclosure
|
D.
|
Compliance
with Laws, Rules and
Regulations
|
E.
|
Protection
of Corporate Assets and Corporate
Opportunities
|
F.
|
Confidentiality
|
G.
|
Fair
Dealing
|
H.
|
Equal
Employment Opportunity and
Harassment
|
I.
|
Business
Gifts and
Entertainment
|
J.
|
Insider
Trading
|
K.
|
Transactions
Involving Suppliers and
Customers
|
L.
|
Anti-Kickback
Rules
|
M.
|
Antitrust
and Competition Laws
|
N.
|
Dealings
with Independent
Auditors
|
O.
|
Health
and Safety
|
P.
|
Internet
and Email Use
|
Q.
|
Maintaining
Integrity of Records and Reporting of Business
Information
|
R.
|
Waivers
of This Code
|
A.
|
Policy
Regarding Director Independence
Determinations
|
B.
|
Employment/Other
Compensation
|
C.
|
Relationships
With For-Profit
Organizations
|
D.
|
Relationships
With Charitable
Organizations
|
E.
|
Client
Relationships
|
F.
|
Indebtedness
|
G.
|
Other
|
H.
|
Confidentiality
|
I.
|
Conflict
of Interest
|
·
|
A
conflict situation can arise when a Director or a member of his
or her
family or affiliate takes actions or has interests that may make
it
difficult for the Director to make decisions on behalf of the Company
objectively and effectively.
|
·
|
A
conflict of interest can also arise when a Director or a member
of his or
her family receives improper personal benefits as a result of the
Director's position at the Company.
|
J.
|
Definitions
|
·
|
Act
honestly and ethically, avoid or resolve actual or apparent conflicts
of
interest in personal and professional relationships, and promptly
disclose
any material transaction or relationship that reasonably could
be expected
to give rise to such a conflict of interest to the counsel to the
Company
or as provided in the other sections of this
Code.
|
·
|
Promote
and provide appropriate disclosures to stakeholders that present
fairly
the information therein (e.g., accurately, completely, objectively,
relevantly, timely and understandably), in accordance with applicable
laws, rules and regulations.
|
·
|
Comply
with applicable laws, rules and regulations of federal, state,
foreign and
local governments, and private and public regulatory
agencies.
|
·
|
Adhere
to, and, where applicable, monitor and improve, the Company's processes
to
maintain effective internal control over financial
reporting.
|
·
|
Act
in good faith, responsibly, with due care, competence and diligence,
using
considered, professional, independent judgment, and seek at all
times to
present all reasonably available material information on a timely
basis to
management and others in accordance with the Company's
policies.
|
·
|
Protect
the confidentiality of information acquired in the course of his
or her
work.
|
·
|
Use
confidential information acquired in the course of his or her work
only
for proper Company business purposes, and not for personal
advantage.
|
·
|
Proactively
promote and be an example of ethical behavior as a responsible
partner
among peers and other associates in the work
environment.
|
·
|
Promptly
report violations of this Article using the procedures set forth
under the
Administration section of this Article for reporting violations
under this
Article.
|
·
|
In
the event of any question as to whether an associate is subject
to this
Article, the Board, and the counsel to the Company shall make a
determination of its applicability and inform the appropriate associate
and business units.
|
Name
of Subsidiary
|
Jurisdiction
of Incorporation
|
Advance
Biofactures Corporation
|
New
York
|
1. |
I
have reviewed this Form 10-KSB for the fiscal years ended December
31,
2005, 2004 and 2003
(the
“report”) of BioSpecifics Technologies Corp.
(“registrant”);
|
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 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
small business issuer’s other certifying officers 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 small business issuer and
have:
|
5.
|
The
small business issuer’s other certifying officers 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):
|
|
|
|
Date: March 2, 2007 | By: | /s/ Thomas L. Wegman |
Thomas L. Wegman |
||
President
(Principal Executive
Officer)
|
1. |
I
have reviewed this Form 10-KSB for the fiscal years ended December
31,
2005, 2004 and 2003
(the
“report”) of BioSpecifics Technologies Corp.
(“registrant”);
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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;
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3. |
Based
on my knowledge, the 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;
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4. |
The
small business issuer’s other certifying officers 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 small business issuer and
have:
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5.
|
The
small business issuer’s other certifying officers 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):
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|
|
|
Date: March 2, 2007 | By: | /s/ Lawrence Dobroff |
Lawrence Dobroff |
||
Chief
Financial Officer
(Principal Financial
Officer)
|
1. |
The
Company’s Form 10-KSB for the fiscal years ended December 31, 2005, 2004
and 2003 (the “Report”), fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934;
and
|
2. |
Information
contained in the Report fairly presents, in all material respects,
the
financial condition and results of operation of the
Company.
|