UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________to __________________
000-19879
(Commission file number)
BIOSPECIFICS TECHNOLOGIES CORP.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
|
Delaware |
11-3054851 |
|
(State or Other Jurisdiction |
(I.R.S. Employer |
|
of Incorporation or Organization) |
Identification No.) |
|
|
|
|
2 Righter Parkway, Suite 200, Wilmington, DE 19803 |
|
|
(Address of Principal Executive Offices) (Zip Code) |
|
|
|
|
|
302.842.8450 |
|
|
(Registrant’s Telephone Number, Including Area Code) |
|
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
Large accelerated filer |
☐ |
Accelerated filer |
☒ |
|
Non-accelerated filer |
☐ |
Smaller reporting company |
☒ |
|
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Common Stock, $0.001 par value per share |
BSTC |
The Nasdaq Capital Market |
As of August 7, 2020, there were 7,344,955 shares of Common Stock, par value $0.001 per share, outstanding.
BIOSPECIFICS TECHNOLOGIES CORP.
TABLE OF CONTENTS
|
|
|
Page |
|
|
PART I – FINANCIAL INFORMATION |
|
|
|
|
|
|
4 |
||
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
|
|
|
|
|
|
29 |
||
|
|
|
|
|
29 |
||
|
|
|
|
|
|
PART II – OTHER INFORMATION |
|
|
|
|
|
|
29 |
||
|
|
|
|
|
30 |
||
|
|
|
|
|
31 |
||
|
|
|
|
|
33 |
||
|
|
|
|
|
|
34 |
2
Introductory Comments – Terminology
Throughout this Quarterly Report on Form 10-Q, the terms “BioSpecifics,” “Company,” “we,” “our,” and “us” refer to BioSpecifics Technologies Corp. and its subsidiary, Advance Biofactures Corp.
Throughout this Quarterly Report on Form 10-Q, Endo Global Ventures, a Bermuda unlimited liability company, an affiliate of Endo International plc, and Endo International plc are referred to collectively as “Endo.”
Introductory Comments – Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of, and made pursuant to the safe harbor provisions of, the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, expected revenue growth, and the assumptions underlying or relating to such statements, are “forward-looking statements.” The forward-looking statements in this Quarterly Report on Form 10-Q include statements concerning, among other things, (i) the opportunity for minimally invasive non-surgical treatment XIAFLEX® in several potential pipeline indications; (ii) whether and when the Company will receive from Endo the results of their full commercial assessment and analysis regarding XIAFLEX® research and development (R&D) pipeline; (iii) the Company’s ability to achieve its future growth initiatives with regard to Dupuytren’s Contracture and Peyronie’s disease; (iv) the expansion of the market for XIAFLEX® through future growth initiatives; (v) whether treating uterine fibroids with XIAFLEX® will achieve the advantages over major surgery identified by the Company; (vi) Endo’s interest in currently unlicensed indications, including capsular contracture of the breast, Dercum’s disease, knee arthrofibrosis, urethral strictures, hypertrophic scars and keloids; (vii) whether XIAFLEX® will be the only U.S. Food and Drug Administration (FDA) approved nonsurgical therapy for frozen shoulder (adhesive capsulitis); (viii) the projected receipt of payments from Endo and sublicense income payments based on Endo’s partnerships; (ix) and the strength of the Company’s IP portfolio; and (x) the impacts of the novel coronavirus (COVID-19) global pandemic.
In some cases, these statements can be identified by forward-looking words such as "expect," "plan," "anticipate," "potential," "estimate," "can," "will," "continue," “believe,” the negative or plural of these words, and other similar expressions. These forward-looking statements are predictions based on the Company’s current expectations and the Company’s projections about future events and various assumptions. There can be no assurance that the Company will realize its expectations or that the Company’s beliefs will prove correct. There are a number of important factors that could cause the Company’s actual results to differ materially from those indicated by such forward-looking statements, including, but not limited to: the timing of regulatory filings and action; the ability of Endo to achieve its objectives for XIAFLEX® and Qwo™; the market for XIAFLEX® in, and timing, initiation, and outcome of clinical trials for, additional indications, which will determine the amount of milestone, royalty, mark-up on cost of goods sold, license, and sublicense income that the Company may receive; the potential of XIAFLEX® to be used in additional indications; Endo modifying its objectives or allocating resources other than to XIAFLEX® and Qwo™; the impacts of the novel coronavirus (COVID-19) global pandemic; and other risk factors identified herein and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report”), specifically in Part I, Item IA of the 2019 Annual Report under the heading “Risk Factors” and under the section “Management’s Discussion and Analysis”, and in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020. All forward-looking statements included in this Quarterly Report on Form 10-Q for the fiscal period ended June 30, 2020 are made as of the date hereof, are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q and, except as may be required by law, we assume no obligation to update these forward-looking statements.
3
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
BioSpecifics Technologies Corp.
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
2020 |
|
2019 |
|
||
|
|
|
|
(unaudited) |
|
|
(audited) |
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16,871,522 |
|
$ |
4,999,183 |
|
|
Short term investments |
|
|
82,180,784 |
|
|
84,239,918 |
|
|
Accounts receivable |
|
|
11,696,598 |
|
|
19,065,919 |
|
|
Prepaid expenses and other current assets |
|
|
1,310,388 |
|
|
966,456 |
|
|
Total current assets |
|
|
112,059,292 |
|
|
109,271,476 |
|
|
|
|
|
|
|
|
|
|
|
Long-term investments |
|
|
20,791,278 |
|
|
16,569,024 |
|
|
Property and equipment, net |
|
|
64,839 |
|
|
— |
|
|
Operating lease right-of-use asset |
|
|
201,228 |
|
|
239,491 |
|
|
Patent costs, net |
|
|
531,989 |
|
|
573,277 |
|
|
Other assets |
|
|
133,159 |
|
|
— |
|
|
Total assets |
|
$ |
133,781,785 |
|
$ |
126,653,268 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
2,090,056 |
|
$ |
998,409 |
|
|
Income tax payable |
|
|
1,673,051 |
|
|
354,984 |
|
|
Current portion of lease obligation |
|
|
78,560 |
|
|
69,099 |
|
|
Total current liabilities |
|
|
3,841,667 |
|
|
1,422,492 |
|
|
|
|
|
|
|
|
|
|
|
Lease obligation |
|
|
126,822 |
|
|
167,014 |
|
|
Deferred tax liability, net |
|
|
395,858 |
|
|
572,660 |
|
|
Total liabilities |
|
|
4,364,347 |
|
|
2,162,166 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.50 par value, 700,000 shares authorized (150,000 shares designated as Series A Convertible Redeemable Preferred Stock and 10,000 shares designated as Series C Junior Participating Preferred Stock); none outstanding |
|
|
— |
|
|
— |
|
|
Common stock, $0.001 par value; 15,000,000 shares authorized; 7,826,180 and 7,813,230 shares issued, 7,344,955 and 7,339,578 shares outstanding as of June 30, 2020 and December 31, 2019, respectively |
|
|
7,826 |
|
|
7,813 |
|
|
Additional paid-in capital |
|
|
40,080,279 |
|
|
39,355,797 |
|
|
Retained earnings |
|
|
101,261,129 |
|
|
96,646,527 |
|
|
Treasury stock, 481,225 and 473,652 shares at cost as of June 30, 2020 and December 31, 2019, respectively |
|
|
(11,931,796) |
|
|
(11,519,035) |
|
|
Total stockholders' equity |
|
|
129,417,438 |
|
|
124,491,102 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
133,781,785 |
|
$ |
126,653,268 |
|
See accompanying notes to condensed consolidated financial statements.
4
BioSpecifics Technologies Corp.
Condensed Consolidated Income Statements
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties |
|
$ |
3,903,402 |
|
$ |
8,852,986 |
|
$ |
13,572,069 |
|
$ |
16,982,127 |
|
|
Total Revenues |
|
|
3,903,402 |
|
|
8,852,986 |
|
|
13,572,069 |
|
|
16,982,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
160,461 |
|
|
161,321 |
|
|
282,431 |
|
|
310,857 |
|
|
General and administrative |
|
|
3,993,861 |
|
|
1,728,125 |
|
|
7,161,907 |
|
|
4,635,284 |
|
|
Restructuring charges |
|
|
— |
|
|
— |
|
|
1,146,045 |
|
|
— |
|
|
Total Costs and Expenses |
|
|
4,154,322 |
|
|
1,889,446 |
|
|
8,590,383 |
|
|
4,946,141 |
|
|
Operating income |
|
|
(250,920) |
|
|
6,963,540 |
|
|
4,981,686 |
|
|
12,035,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
390,888 |
|
|
517,156 |
|
|
870,597 |
|
|
966,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
139,968 |
|
|
7,480,696 |
|
|
5,852,283 |
|
|
13,002,566 |
|
|
Provision for income tax expense |
|
|
(24,172) |
|
|
(1,054,236) |
|
|
(1,237,681) |
|
|
(2,159,511) |
|
|
Net income |
|
$ |
115,796 |
|
$ |
6,426,460 |
|
$ |
4,614,602 |
|
$ |
10,843,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.02 |
|
$ |
0.88 |
|
$ |
0.63 |
|
$ |
1.49 |
|
|
Diluted net income per share |
|
$ |
0.02 |
|
$ |
0.87 |
|
$ |
0.63 |
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic net income per share |
|
|
7,337,460 |
|
|
7,308,268 |
|
|
7,337,564 |
|
|
7,292,663 |
|
|
Shares used in computation of diluted net income per share |
|
|
7,361,764 |
|
|
7,349,696 |
|
|
7,361,256 |
|
|
7,344,008 |
|
See accompanying notes to condensed consolidated financial statements.
5
BioSpecifics Technologies Corp.
Condensed Consolidated Statements of Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
Stockholders’ |
||
|
|
|
Common Stock |
|
Paid in |
|
Retained |
|
Treasury |
|
Equity |
|||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Stock |
|
Total |
|||||
|
Balances - December 31, 2019 |
|
7,813,230 |
|
$ |
7,813 |
|
$ |
39,355,797 |
|
$ |
96,646,527 |
|
$ |
(11,519,035) |
|
$ |
124,491,102 |
|
Issuance of common stock upon vesting of restricted stock units |
|
11,450 |
|
|
11 |
|
|
(11) |
|
|
— |
|
|
— |
|
|
— |
|
Issuance of common stock upon stock option exercise |
|
1,500 |
|
|
2 |
|
|
61,723 |
|
|
— |
|
|
— |
|
|
61,725 |
|
Stock compensation expense |
|
— |
|
|
— |
|
|
662,770 |
|
|
— |
|
|
— |
|
|
662,770 |
|
Repurchases of common stock |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(412,761) |
|
|
(412,761) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
4,614,602 |
|
|
— |
|
|
4,614,602 |
|
Balances - June 30, 2020 |
|
7,826,180 |
|
$ |
7,826 |
|
$ |
40,080,279 |
|
$ |
101,261,129 |
|
$ |
(11,931,796) |
|
$ |
129,417,438 |
6
See accompanying notes to condensed consolidated financial statements.
7
BioSpecifics Technologies Corp.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||
|
|
|
June 30, |
||||
|
|
|
2020 |
|
2019 |
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
4,614,602 |
|
$ |
10,843,055 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
45,919 |
|
|
228,135 |
|
Stock-based compensation expense |
|
|
662,770 |
|
|
260,466 |
|
Deferred tax expense (benefit) |
|
|
(176,802) |
|
|
159,459 |
|
Non-cash lease expense |
|
|
38,263 |
|
|
— |
|
(Accretion) amortization of bond (discount) premium |
|
|
370,193 |
|
|
(77,499) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
|
7,369,321 |
|
|
(210,949) |
|
Income tax payable |
|
|
1,318,067 |
|
|
173,690 |
|
Prepaid expenses and other assets |
|
|
(477,091) |
|
|
(365,423) |
|
Patent costs |
|
|
— |
|
|
(92,582) |
|
Accounts payable, accrued expenses and lease obligation |
|
|
1,060,916 |
|
|
(1,087,775) |
|
Net cash provided by operating activities |
|
|
14,826,158 |
|
|
9,830,577 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(69,470) |
|
|
— |
|
Maturities of marketable investments |
|
|
60,592,693 |
|
|
42,451,229 |
|
Purchases of marketable investments |
|
|
(63,126,006) |
|
|
(53,104,080) |
|
Net cash used in investing activities |
|
|
(2,602,783) |
|
|
(10,652,851) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from stock option exercises |
|
|
61,725 |
|
|
1,736,946 |
|
Payments for repurchase of common stock |
|
|
(412,761) |
|
|
(118,566) |
|
Net cash (used in) provided by financing activities |
|
|
(351,036) |
|
|
1,618,380 |
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
11,872,339 |
|
|
796,106 |
|
Cash and cash equivalents at beginning of year |
|
|
4,999,183 |
|
|
13,176,452 |
|
Cash and cash equivalents at end of period |
|
$ |
16,871,522 |
|
$ |
13,972,558 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Taxes |
|
$ |
124,256 |
|
$ |
1,826,362 |
See accompanying notes to condensed consolidated financial statements.
8
BIOSPECIFICS TECHNOLOGIES CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
(Unaudited)
| 1. | ORGANIZATION AND DESCRIPTION OF BUSINESS |
We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (“CCH”) for multiple indications. We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (“DC”), Peyronie’s disease (“PD”), cellulite, frozen shoulder syndrome, plantar fibromatosis, and uterine fibroids. Injectable CCH currently is approved and marketed in the U.S. under the trademark XIAFLEX® for the treatment of both DC and PD. We generate revenue primarily from our license agreement with Endo, under which we receive license, sublicense income, royalties, milestones, and mark-up on cost of goods sold payments related to the sale, regulatory submissions, and approval of XIAFLEX®.
Endo has filed a biologics license application for CCH for the treatment of cellulite with the FDA. On July 6, 2020, Endo announced that it received FDA approval of Qwo™ (collagenase clostridium histolyticum-aaes) for the treatment of moderate to severe cellulite in the buttocks of adult women. Endo anticipates Qwo™ to be available commercially in the U.S. starting in the first half of 2021. Endo dosed the first patient in a clinical trial in plantar fibromatosis in June 2020 and adhesive capsulitis, also known as frozen shoulder, in July 2020. Adhesive capsulitis is an inflammation and thickening of the shoulder capsule due to collagen which causes decreased motion in the shoulder. Plantar fibromatosis is a non-malignant thickening of the feet’s deep connective tissue or fascia. There are currently no FDA-approved pharmaceutical therapies available to treat either condition.
We have developed injectable CCH for 12 clinical indications to date. Under our license agreement with Endo, Endo has the right to further develop CCH for frozen shoulder and plantar fibromatosis, as well as certain other licensed indications. Endo has a right to opt-in for use of CCH in the treatment of uterine fibroids.
On August 31, 2011, we entered into the Second Amended and Restated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”), an entity that was acquired by Endo in 2015. The License Agreement originally was entered into in June 2004 to obtain exclusive worldwide rights to develop, market, and sell certain products containing our enzyme CCH, which Endo markets for approved indications under the trademark XIAFLEX®. Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, PD, cellulite, frozen shoulder, plantar fibromatosis, and other potential indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.
On February 26, 2019, we entered into the Second Amendment to the Second Amended and Restated Development and License Agreement (the “Second Amendment”) (effective as of January 1, 2019) to amend certain provisions of the License Agreement to, among other things, require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement by Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo.
Under the License Agreement, Endo is responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products. Endo has the option to license development and marketing rights to these indications based on a full analysis of the data from the clinical trials, which would transfer responsibility for the future development costs to Endo and trigger opt-in payments and potential future milestone and royalty payments to us.
The License Agreement extends, on a country-by-country and product-by-product basis, for the longer of the patent life, the expiration of any regulatory exclusivity period or twelve years from the effective date. Either party may terminate the License Agreement as a result of the other party’s breach or bankruptcy.
Endo must pay us on a country-by-country and product-by-product basis a specified percentage, which typically is in the low double digits, of net sales for products covered by the License Agreement. This royalty applies to net sales by Endo or its sublicensees. Endo also is obligated to pay a percentage of any future regulatory or commercial milestone payments received from such sublicensees. In addition, Endo and its affiliates pay us an amount equal to a specified mark-up on
9
certain cost of goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage of the cost of goods of XIAFLEX®) for products sold by Endo and its affiliates.
Endo had previously collaborated with partners to commercialize XIAFLEX® and Xiapex® outside of the United States; however, Endo is in the process of terminating third party partnership agreements for markets outside of the United States, which will reduce the amount of royalty revenues received by us. We do not believe that this reduction will have a material effect on our future consolidated statements of operations.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2020, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s 2019 Annual Report.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) that we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reporting.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the risk factors discussed herein and in Part I, Item 1A. Risk Factors in our 2019 Annual Report filed with the SEC on March 16, 2020 and our subsequent filings and reports, including, without limitation, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the BioSpecifics and its subsidiary, Advance Biofactures Corp. All intercompany balances and transactions have been eliminated.
Risks and Uncertainties
We are subject to risks and uncertainties as a result of the global COVID-19 pandemic. While we expect that COVID-19 will impact our business to some degree, the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, and other unforeseeable consequences.
Critical Accounting Policies, Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the use of management’s estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The Company makes certain assumptions and estimates for its revenues, income taxes, and third party royalties. We base our estimates on historical experience, and other relevant data including interim data provided by Endo and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities, and the amount of revenues and expenses. Actual results may differ from these estimates under different assumptions or conditions. For further details, see notes “Revenue Recognition,” “Provision for Income Taxes,” and “Third-Party Royalties.”
Revenue Recognition
Under Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance
10
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation(s).
Revenues, and their respective treatment for financial reporting purposes under ASC 606 and our license agreement with Endo, are as follows:
Royalty / Mark-Up on Cost of Goods Sold
We receive royalty revenues on net sales and mark-up on cost of goods sold revenue in the U.S. under our License Agreement with Endo. These are presented in “Royalties” in our consolidated statements of income. We do not have future performance obligations under this revenue stream. In accordance with ASC 606, we record these revenues based on estimates of the net sales that occurred during the relevant period. The relevant period estimates of these royalties are based on data provided by Endo and analysis of historical royalties and mark-up on cost of goods sold revenue that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known. The royalties payable by Endo to us are subject to set-off for certain patent costs.
Licensing Revenue
We include revenue recognized from upfront licensing, sublicensing, and milestone payments in “License Revenues” in our consolidated statements of income.
The Company recognizes licensing revenues generated through development and/or commercialization agreements. The terms of these agreements typically include payment to the Company of one or more of the following: nonrefundable, upfront license fees; sublicensing; development and commercial milestone payments; development activities; and royalties on net sales of licensed products. Each of these types of payments results in licensing revenues except for revenues from royalties on net sales of licensed products and the mark-up of cost of goods sold revenues which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.
For each development and/or commercialization agreement that result in revenues, the Company identifies all performance obligations, aside from those that are immaterial, which may include a license to intellectual property and know-how, development activities, and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Development and Regulatory Milestone Payments
Depending on facts and circumstances, the Company may conclude that it is appropriate to include the milestone, representing variable consideration, in the estimated total transaction price, or that it is appropriate to fully constrain the milestone. The Company may include revenues from certain milestones in the total transaction price in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future
11
periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the total transaction price, including the amount of revenue that it has recorded, if necessary.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
We adopted ASU No. 2018-13, Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement as of January 1, 2020. This standard modifies certain disclosure requirements on fair value measurements. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.
Accounting Pronouncements Not Yet Adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2023. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes. This standard removes certain exceptions to the general principles of ASC 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company is required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
Cash, Cash Equivalents, and Investments
Cash equivalents include only securities having a maturity of 90 days or less at the time of purchase. Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents, and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit, commercial paper, U.S. government agency bonds, municipal bonds, and corporate bonds. All investments are classified as held to maturity. As of June 30, 2020, and December 31, 2019, the amortized cost of these investments was $103.0 million and $100.8 million, respectively. No unrealized gains or losses were recorded in either period.
Fair Value Measurements
Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held-to-maturity investments, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the duration of those instruments. As of June 30, 2020, and December 31, 2019, there were no recorded unrealized gains or losses on our investments as they are classified as held-to-maturity. As of June 30, 2020, and December 31, 2019, amortized cost basis of the investments approximated their fair value. For three and six months June 30, 2020, the net amount included in interest income due to the amortization of bond discounts/premiums was $266,000 and $400,000, respectively. For the three and six months ended June 30, 2019, the net amount included in interest income due to the amortization of bond discounts/premiums was $32,000 and $82,000, respectively. At June 30, 2020 and December 31, 2019, the remaining unamortized net premium / (net discount) was $341,000 and $285,000, respectively.
12
The schedule of maturities at June 30, 2020 and December 31, 2019 are as follows:
The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.
As of June 30, 2020, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of June 30, 2020 and December 31, 2019:
13
Concentration of Credit Risk and Major Customers
The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.
The Company maintains investments in FDIC insured certificates of deposits, municipal bonds, and corporate bonds.
The Company is currently dependent on one customer, Endo, which generates almost all the Company’s revenues. For the three-and six month periods ended June 30, 2020, licensing, sublicensing, milestones, and royalty revenues under the License Agreement with Endo were $3.9 million and $13.6 million, respectively and for the three and six months ended June 30, 2019, licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were $8.9 million and $17.0 million, respectively.
At June 30, 2020 and December 31, 2019, our accounts receivable balances from Endo were $11.7 million and $19.1 million, respectively.
Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the six months ended June 30, 2020, we repurchased 7,573 shares at an average price of $54.50. For the six months ended June 30, 2019, there were 2,048 shares repurchased at an average price of $57.89. The stock repurchase program terminated in May 2020.
Receivables and Doubtful Accounts
Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our accounts receivable balance is typically due from Endo, our single large specialty pharmaceutical customer. Endo has historically paid timely and has been a financially stable organization. Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal and therefore no allowance is recorded. If the financial condition of Endo were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required. We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At June 30, 2020 and December 31, 2019, our accounts receivable balance was $11.7 million and $19.1 million, respectively, and was from one customer, Endo.
Third-Party Royalties
We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that the net sales have occurred. For the three-and six month periods ended June 30, 2020, third-party royalty expenses were $0.1 million and $0.2 million, respectively. For the three and six month periods ended June 30, 2019, third-party royalty expenses were $0.2 million and $0.6 million, respectively. As of June 30, 2019, we have no further third-party royalties in connection with PD as the agreement has expired.
Royalty Buy-Down
On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, all of which have been paid as of January 1, 2018. Royalty obligations terminated five years after the first commercial sale, which occurred in January 2014. Accordingly, we ceased paying royalties in February 2019. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income
14
forecast method by estimating sales of XIAFLEX® and Xiapex® for PD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three and six months ended June 30, 2019 we amortized zero and $0.2 million related to this agreement, respectively, related to this agreement and is recorded as part of general and administrative expenses. As of both June 30, 2020 and December 31, 2019, there were no remaining capitalized balances outstanding related to this agreement.
Research and Development Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs, and overhead. R&D expenses also consist of third-party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. We may fund R&D at medical research institutions under agreements that are generally cancelable. All of these costs are charged to R&D as incurred, which may be measured by percentage of completion, contract milestones, patient enrollment, or the passage of time.
Clinical Trial Expenses
Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research organizations. In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, the completion of portions of the clinical trial, or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual cost of services received and efforts expended. As such, expenses related to each patient enrolled in a clinical trial are recognized beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.
Stock-Based Compensation
ASC 718, Compensation - Stock Compensation (“ASC 718”), requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock awards including stock options and common stock issued to our employees and directors under our stock plans. ASC 718 requires companies to estimate the fair value of stock option awards on the date of grant using an option-pricing model. The fair value of each service-based restricted stock unit granted is estimated on the day of grant based on the closing price of the Company’s common stock. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our condensed consolidated statements of operations. The Company recognizes forfeitures as they occur by reversing compensation cost previously recognized for an award that is forfeited because of a failure to satisfy a service condition in the period of the forfeiture.
Under the Company’s 2019 Omnibus Incentive Compensation Plan (the “Plan”), grants to employees, key advisors, on non-employee directors may consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, or cash awards. As of June 30, 2020, options to purchase 232,187 shares of common stock and 4,036 restricted stock awards were outstanding under the Plan, and a total of 1,098,612 shares remained available for grant under the Plan. Grants under the Plan vest over periods ranging from one to four years and expire ten years from date of grant.
15
2019 Omnibus Incentive Compensation Plan (2019 Plan)
Restricted Stock Awards
A summary of the restricted stock awards activity during the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average Grant |
|
|
|
|
|
|
Date Fair Value |
|
|
|
|
Restricted Stock |
|
Per Share |
|
|
Nonvested at December 31, 2019 |
|
10,450 |
|
$ |
60.47 |
|
Issued |
|
5,036 |
|
|
55.71 |
|
Vested |
|
(11,450) |
|
|
59.60 |
|
Forfeited |
|
— |
|
|
— |
|
Nonvested at June 30, 2020 |
|
4,036 |
|
$ |
57.00 |
Stock-based compensation expense related to restricted stock awards recognized in general and administrative expense was $193,000 and $337,000 for the three month and six month periods ended June 30, 2020, respectively, and zero for the three and six month periods ended June 30, 2019, respectively.
As of June 30, 2020, there was $181,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to restricted stock. This cost is expected to be recognized over the vesting periods of the restricted stock, with a weighted-average period of 1.00 year.
Stock Option Activity
For the six months ended June 30, 2020, we granted a total of 182,000 stock options with a weighted average grant date fair value of $61.37 per share.
The assumptions used in the valuation of stock options granted during the six months ended June 30, 2020 were as follows:
A summary of our stock option activity during the six months ended June 30, 2020 is presented below:
During the six-month periods ended June 30, 2020 and 2019, the Company received $0.1 million and $1.7 million, respectively, from stock options exercised by option holders.
Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $61.28 on June 30, 2020, which would have been received by the option holders had all option holders exercised their options as of that date. We have $4.3 million in unrecognized compensation cost related to stock options outstanding as of June 30, 2020, which we expect to recognize over the next 8.1 years.
16
Stock-based compensation expense related to stock options recognized in general and administrative expenses was a credit of $31,000 for the three months ended June 30, 2020 and $136,000 for the six month period ended June 30, 2020, and $119,000 and $260,000 for the three and six month periods ended June 30, 2019, respectively. The credit for the three months ended June 30, 2020 was the result of the reversal of $200,000 of previously recognized stock compensation expense due to forfeitures that occurred during the period. In addition, stock compensation expense related to restructuring associated with the acceleration of vesting of certain stock options and restricted stock units was $190,000 for the three months ended March 31, 2020 (see Note 7).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At June 30, 2020, total property and equipment consisted of furniture and fixtures of $65,000 with an expected useful life of five years. At December 31, 2019, all property and equipment were fully depreciated.
Comprehensive Income
For each of the three and six-month periods ended June 30, 2020 and 2019, we had no components of other comprehensive income other than net income itself.
Provision for Income Taxes
We use the asset and liability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of June 30, 2020 and December 31, 2019, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.
Commitments and Contingencies
We determine if an arrangement includes a lease at inception. Right-of-use lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The right-of-use lease asset includes any lease payments made and excludes lease incentives. Incremental borrowing rate is used in determining the present value of future payments. We apply a portfolio approach to the property leases to apply an incremental borrowing rate to leases with similar lease terms. The lease terms may include options to extend or terminate the lease. We recognize the options to extend the lease as part of the right-of-use lease assets and lease liabilities only if it is reasonably certain that the option would be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the non-cancelable lease term. The adoption of the new standard as of January 1, 2019 did not have a material impact on our consolidated financial statements for the six months ended June 30, 2019 due to the short-term nature of our then-existing lease in Lynbrook, New York.
In December 2019, we recorded a right-of-use lease asset of $243,000, a short-term lease liability of $76,000, and a long-term lease liability of $167,000 associated with the lease of our new headquarters in Wilmington, Delaware.
17
The following table summarizes the maturity of the Company’s lease obligations on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on our balance sheet as of June 30, 2020 and December 31, 2019:
On January 7, 2020, the Company provided three months’ notice to 35 Wilbur Street Associates, LLC of the Company’s intent to terminate the lease agreement for our former corporate headquarters, located at 35 Wilbur St., Lynbrook, New York 11563. Accordingly, the lease terminated on April 7, 2020. As the lease provided the Company the option to cancel the lease by giving three months’ prior written notice, the Company did not incur any termination penalties.
Total operating lease expenses amounted to $23,000 and $80,000 for the three and six month period ended June 30, 2020 and $34,000 and $67,000 for the three and six months period ended June 30, 2019, respectively.
The recent outbreak of the novel coronavirus (COVID-19) resulted in a decrease in revenues of 53% from the second quarter of 2020 as compared to the second quarter of 2019. Since XIAFLEX® is used primarily in elective procedures, which have been curtailed during the outbreak, and based on public statements made by Endo, the Company believes that the COVID-19 outbreak may have a material adverse effect on its business and financial results until the easing of the restrictions that have been imposed as a result of the outbreak.
On June 12, 2020, the Company filed an arbitration demand against the Research Foundation of the State University of New York for and on behalf of Stony Brook University (“Research Foundation”) seeking a declaration that one of its former employees is a co-inventor of the Research Foundation’s patent for the treatment of cellulite (U.S. Patent No. 10,123,959, which has an expiration date of February 7, 2027), and challenging the Research Foundation’s prospective rights to royalties under the Cellulite License Agreement dated August 23, 2007, which is described in the Company’s most recent annual report on Form 10-K. This is a private and confidential arbitration administered by the American Arbitration Association. On July 9, 2020, the Research Foundation filed a response, denying the allegations of the demand and making a counterclaim alleging principally that the Company is in breach of its obligations under the Cellulite License Agreement. The Company has responded to the counterclaim, denying the allegations and requesting judgment in its favor on all claims. However, should the Research Foundation prevail in this arbitration, it could have a material adverse effect on the Company’s future financial results. See “Subsequent Events” (Note 8) for disclosure concerning FDA approval and postponement of commercial launch of the cellulite indication.
Stockholders’ Equity
At the Company’s annual meeting of stockholders held on June 12, 2020 (the “2020 Annual Meeting”), the stockholders approved an amendment to the Company’s Certificate of Incorporation, as amended, to increase the authorized number of shares of common stock from 10,000,000 shares to 15,000,000 shares.
On April 10, 2020, the Board approved an amendment to the Company's Rights Agreement, dated as of May 14, 2002 and amended June 19, 2003, February 3, 2011, March 5, 2014, May 27, 2016, and May 11, 2018 (the “Original Rights Agreement”), by and between the Company and Worldwide Stock Transfer, LLC (successor in interest to OTC Corporate Transfer Service Company), as rights agent (the “Rights Agent”). The amendment, which was subsequently executed on that date by the Company and the Original Rights Agent, changes the Final Expiration Date (as defined in the Original Rights Agreement) of the rights under the Original Rights Agreement (the “Original Rights”) from the close of business on May 31, 2020 to the close of business on April 10, 2020. As a result, the Original Rights have expired, and the Original Rights Agreement terminated.
18
Also, on April 10, 2020, the Board approved and adopted a Rights Agreement, dated as of April 10, 2020 (the “Rights Agreement”), by and between the Company and the Rights Agent. Pursuant to the Rights Agreement, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock, par value $0.001, of the Company (each, a “Common Share" and, collectively, the “Common Shares”). The Rights are distributable to stockholders of record as of the close of business on April 21, 2020 (the “Record Date”). One Right also will be issued together with each Common Share issued by the Company after April 21, 2020, but before the Distribution Date (as defined in the Rights Agreement) (or the earlier redemption or expiration of the Rights) and, in certain circumstances, after the Distribution Date.
Generally, the Rights Agreement works by causing substantial dilution to any person or group that acquires beneficial ownership of twenty percent (20%) or more of the Common Shares without the approval of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board. The Rights Agreement is not intended to interfere with any merger, tender or exchange offer or other business combination approved by the Board. The Rights Agreement also does not prevent the Board from considering any offer that it considers to be in the best interest of its stockholders.
A proposal to ratify the adoption by the Board of the Rights Agreement was approved by the stockholders at the Company’s 2020 Annual Meeting.
| 3. | NET INCOME PER SHARE |
In accordance with ASC 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and restricted stock awards using the treasury stock method. For the three-and six month periods ended June 30, 2020, there were 24,304 and 23,692, respectively of common equivalent shares attributable to stock options and restricted stock awards that were included in the calculation of diluted net income per share. For the three and six month periods ended June 30, 2019 there were 41,428 and 51,345, respectively, of common equivalent shares attributable to stock options that were included in the calculation of diluted net income per share. There were 186,036 and 198,536 stock options and restricted stock awards excluded from the calculation of diluted net income per share for the three and six month periods ended June 30, 2020, respectively, because their effects are anti-dilutive. There were 63,750 stock options to purchase shares excluded from the calculation of diluted net income per share for the three and six month periods ended June 30, 2019, because their effects are anti-dilutive.
| 4. | ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
2020 |
|
2019 |
|
||
|
Trade accounts payable |
|
$ |
346,270 |
|
$ |
197,077 |
|
|
Accrued legal and other professional fees |
|
|
883,069 |
|
|
330,787 |
|
|
Accrued payroll, severance, and related costs |
|
|
638,089 |
|
|
209,330 |
|
|
Third-party royalties |
|
|
62,000 |
|
|
228,000 |
|
|
Restructuring accrual |
|
|
59,678 |
|
|
— |
|
|
Other accruals |
|
|
100,950 |
|
|
33,215 |
|
|
Total |
|
$ |
2,090,056 |
|
$ |
998,409 |
|
| 5. | |
19
| 5. | PATENT COSTS |
We amortize intangible assets with definite lives on a straight-line basis over their estimated useful lives, ranging from two to ten years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. As of June 30, 2020 and December 31, 2019, no impairment existed, and no adjustments were warranted.
No costs were capitalized for the three and six months ended June 30, 2020, as compared to $93,000 for three and six months ended June 30, 2019, respectively. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
2020 |
|
2019 |
|
||
|
Patents |
|
$ |
1,272,625 |
|
$ |
1,272,625 |
|
|
Accumulated amortization |
|
|
(740,636) |
|
|
(699,348) |
|
|
|
|
$ |
531,989 |
|
$ |
573,277 |
|
The amortization expense for patents for the three and six months ended June 30, 2020 was $20,000 and $41,000 respectively, and for the three and six months ended June 30, 2019 was $24,000 and $43,000, respectively. The estimated aggregate amortization expense for the remaining six months of 2020 and each of the years below is as follows:
|
|
|
|
|
|
July 1, 2020 – December 31, 2020 |
|
$ |
41,300 |
|
2021 |
|
|
65,400 |
|
2022 |
|
|
65,400 |
|
2023 |
|
|
65,400 |
|
2024 |
|
|
65,400 |
|
Thereafter |
|
|
229,100 |
| 6. | |
Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options and other items. The provision for income taxes is based on an estimated effective tax rate derived from our consolidated earnings before taxes, adjusted for nondeductible expenses and other permanent differences for the fiscal year. The provision for income taxes for the three and six month periods ended June 30, 2020 was $24,000 and $1.2 million, respectively, and for the three and six month periods ended June 31, 2019 was $1.1 million and $2.2 million, respectively. As of June 30, 2020 and December 31, 2019, our net deferred tax liabilities were $0.4 and $0.6 million, respectively.
The estimated effective tax rate for the three and six months ended June 30, 2020 was 17% and 21%, respectively, of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2020 plus the effects, if any, of certain discrete items occurring in 2020.
The estimated effective tax rate for the three and six months ended June 30, 2019 was 14% and 17%, respectively, of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2019 plus the effects, if any, of certain discrete items occurring in 2019.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes including, among other things, (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest, (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid taxes. The income tax provisions of the CARES Act had limited applicability to the Company as of June 30, 2020, and therefore, the enactment of the CARES Act did not have a material impact on the Company’s consolidated financial statements as of, and for the three and six months ended, June 30, 2020. We will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretative guidance becomes available.
20
| 7. | RESTRUCTURING AND SEPARATION COSTS |
On January 7, 2020, we announced that we would be relocating our corporate headquarters from Lynbrook, New York to Wilmington, Delaware as of April 7, 2020. On January 6, 2020, in connection with this relocation, we notified five employees and one consultant that their services would no longer be required effective March 31, 2020. On March 23, 2020, the five employees and one consultant were given separation agreements detailing the termination benefits to which they would be entitled.
As a result, we recorded a one-time restructuring charge of $1.1 million in the first quarter of fiscal 2020. The restructuring charge is associated with $0.9 million of one-time termination benefits that we expect to pay out in cash over a period of six months and $0.2 million of one-time non-cash termination expenses associated with the acceleration of vesting of certain stock options and restricted stock units. The estimated liability for termination benefits was recorded at fair value during the first quarter of 2020 as a current liability in the consolidated balance sheet. These termination benefits consist of severance payments, reimbursement of benefits payments, and guaranteed consulting payments. Total charges and payments related to the restructuring plan recognized in the consolidated statement of operations are as follows:
On April 6, 2020, the Company and Mr. J. Kevin Buchi mutually agreed that Mr. Buchi would step down as Chief Executive Officer and as a director of the Company, effective immediately. The Company and Mr. Buchi have entered into a separation agreement that details the termination benefits to which he is entitled. The Company recorded $0.6 million in separation costs related to this agreement in general and administrative expenses for the three and six months ended June 30, 2020. The remaining accrual of $0.5 million at June 30, 2020 is included in accounts payable and accrued expenses and will be paid out over the next 9 months.
8. SUBSEQUENT EVENTS
On July 6, the FDA granted approval of the cellulite indication, but Endo has postponed the commercial launch until the first half of 2021, citing the effects of the COVID-19 pandemic on the market for aesthetic treatments. The Company reiterates its policy stated in its most recent annual report on Form 10-K not to announce publicly royalty rates for potential future indications under development before commercialization. It is important to emphasize that in-licensing royalty rates vary from indication to indication and it should not be assumed that the in-licensing royalty rates for potential future indications will be the same as those for currently marketed indications.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and is qualified by reference to them.
Overview
We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (“CCH”) for multiple indications. Collagenases are naturally occurring enzymes responsible for the breakdown of collagen, which is the main structural protein in the extracellular matrix in the various connective tissues of the body and is the most abundant protein in mammals. Local accumulations of excess collagen are associated with a number of medical conditions.
We maintain intellectual property with respect to injectable CCH that treats, among other indications, Dupuytren’s contracture (“DC”), Peyronie’s disease (“PD”), cellulite, frozen shoulder syndrome, plantar fibromatosis, and uterine fibroids. Injectable CCH currently is marketed in the U.S. by our partner Endo under the trademark XIAFLEX® for the treatment of both DC and PD. XIAFLEX® is the first and only FDA-approved nonsurgical treatment for these two indications. We generate revenue primarily from our license agreement with Endo, under which we receive license, sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX®.
Endo filed a biologics license application for CCH for the treatment of cellulite with the FDA. On July 6, 2020, Endo announced that it received FDA approval of Qwo™ (collagenase clostridium histolyticum- aaes) for the treatment of moderate to severe cellulite in the buttocks of adult women. Endo anticipate Qwo™ to be available commercially in the U.S. starting in the first half of 2021. Endo dosed the first patient in a clinical trial in plantar fibromatosis in June 2020 and adhesive capsulitis, also known as frozen shoulder, in July 2020. Adhesive capsulitis is an inflammation and thickening of the shoulder capsule due to collagen which causes decreased motion in the shoulder. Plantar fibromatosis is a non-malignant thickening of the feet’s deep connective tissue or fascia. There are currently no FDA-approved pharmaceutical therapies available to treat either condition.
We have developed injectable CCH for 12 clinical indications to date. Under our license agreement with Endo, Endo has the right to further develop CCH for frozen shoulder and plantar fibromatosis, as well as certain other licensed indications. Endo has a right to opt-in for use of CCH in the treatment of uterine fibroids.
Second Quarter Highlights and Outlook
| ● | Royalty revenues from XIAFLEX for the quarter decreased by 56% primarily as a result of physician office closures and a decline in patients electing to be treated due to the COVID-19 pandemic. Endo expects revenues to begin to recover during the remainder of 2020 as physician and patient activities continue returning toward pre-COVID-19 levels. |
| ● | In July 2020, Qwo™ (collagenase clostridium histolyticum-aaes), the first and only U.S Food and Drug Administration (FDA)-approved injectable treatment for cellulite was approved by the FDA. Endo’s commercial launch is expected to occur in the first half of 2021. |
| ● | Endo dosed the first patient in a clinical trial in plantar fibromatosis in June 2020 and adhesive capsulitis, also known as frozen shoulder, in July 2020. Plantar fibromatosis is a non-malignant thickening of the feet's deep connective tissue or fascia that occurs in five to 11 percent of the adult population in the U.S. Adhesive capsulitis is an inflammation and thickening of the shoulder capsule due to collagen which causes decreased motion in the shoulder that occurs in two to five percent of the adult population in the U.S. There are currently no FDA-approved pharmaceutical therapies available to treat either condition. |
Impact of COVID-19
The outbreak of COVID-19 has adversely impacted the U.S. and global economies. Our revenues declined by 56% from the second quarter of 2020 as compared to the second quarter of 2019 as a result of royalties associated with lower net sales due to the impact of COVID-19, including, but not limited to the effect of significant office closures and less office visits for physician-administered products. Based on public disclosures made by Endo, we currently anticipate that
22
revenues from our license agreement with Endo will begin to recover during the remainder of 2020 as patient activities return to pre-COVID-19 levels. We also currently expect full year 2020 revenues to decline compared to full-year 2019 revenues.
License Agreement with Endo
We generate revenue from one source, our license agreement with Endo (the “License Agreement”), under which we receive license, sublicense income, royalties, milestones, and mark-up on cost of goods sold payments related to the sale, regulatory submissions, and approval of XIAFLEX® as described above. Currently, Endo’s licensed rights cover the indications of DC, PD, frozen shoulder, plantar fibromatosis, and other potential indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.
Under the License Agreement, Endo is responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products. Endo has the option to license development and marketing rights to these indications based on a full analysis of the data from the clinical trials, which would transfer responsibility for the future development costs to Endo and trigger opt-in payments and potential future milestone and royalty payments to us.
Endo must pay us on a country-by-country and product-by-product basis a specified percentage, which typically is in the low double digits, of net sales for products covered by the License Agreement. This royalty applies to net sales by Endo or its sublicensees. Endo also is obligated to pay a percentage of any future regulatory or commercial milestone payments received from such sublicensees. In addition, Endo and its affiliates pay us an amount equal to a specified mark-up on certain cost of goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage of the cost of goods of XIAFLEX®) for products sold by Endo and its affiliates.
Endo had previously collaborated with partners to commercialize XIAFLEX® and Xiapex® outside of the United States; however, Endo is in the process of terminating third-party partnership agreements for markets outside of the United States, which will reduce the amount of royalty revenues received by us. We do not believe that this reduction will have a material effect on our future consolidated statements of operations.
Significant Risks
We are dependent on third parties, and our licensee, Endo, may not be able to continue successfully commercializing XIAFLEX® for DC and PD, successfully develop XIAFLEX® for additional indications, obtain required regulatory approvals, manufacture XIAFLEX® at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired margins for products sold, and, as a result, we may not achieve sustained profitable operations.
The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash. The Company maintains its investment in money market funds, certificates of deposit, commercial paper, U.S. government agency bonds, municipal bonds, and corporate bonds.
The Company is subject to risks and uncertainties as a result of the global COVID-19 pandemic. While we expect that COVID-19 will impact our business to some degree, the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, and other unforeseeable consequences.
For more information regarding the risks facing the Company, please see the risk factors discussed under the heading “Risk Factors” under Part II, Item 1A. herein, under Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and Item 1A. of Part 1 of our 2019 Annual Report.
Critical Accounting Policies, Estimates and Assumptions
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience, interim data provided by
23
Endo, and on various other assumptions that we believe are reasonable under the circumstances. The financial information at June 30, 2020 and for the three and six month periods ended June 30, 2020 and 2019 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the financial information set forth herein. The December 31, 2019 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, 2019 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s 2019 Annual Report.
As described in Note 2 to our accompanying Condensed Consolidated Financial Statements, there have been no significant changes to our critical accounting policies for the three and six month periods ended June 30, 2020, compared to the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 Annual Report.
24
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO THREE MONTHS ENDED JUNE 30, 2019
Revenues
We generate revenue primarily from royalties under the License Agreement and, to a lesser degree, licensing fees, sublicensing fees, and milestones.
Royalties
Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the three-month period ended June 30, 2020 were $3.9 million as compared to $8.9 million in the corresponding 2019 period, representing a decrease of $4.9 million or 56%. The decrease in total revenues for the quarterly period was primarily due to royalties associated with lower net sales due to the impact of COVID-19, including, but not limited to the effect of significant office closures and less office visits for physician-administered products.
Research and Development Activities and Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs, and overhead. R&D expenses also consist of third-party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the three month periods ended June 30, 2020 and 2019, R&D expenses were $160,000 and $161,000, respectively.
We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo. We presented data from the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66th Annual Meeting of the Society of Reproductive Investigation on March 14, 2019 in Paris, France. This presentation follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. The Company and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids. Costs related to the uterine fibroids program for the three months ended June 30, 2019 were $66,127. There were no costs associated with the uterine fibroids program in the 2020 period.
The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX®, to continue to commercialize these drug candidates.
There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
| ● | the nature, timing, and estimated costs of the efforts necessary to complete the development of our drug candidate projects; |
| ● | the anticipated completion dates for such drug candidate projects; |
| ● | the scope, rate of progress, and cost of such clinical trials that we may commence in the future with respect to such drug candidate projects; |
| ● | the scope, rate of progress of preclinical studies, and other R&D activities related to such drug candidate projects; |
| ● | clinical trial results for such drug candidate projects; |
| ● | the cost of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights relating to such drug candidate projects; |
| ● | the terms and timing of any strategic alliance, licensing, and other arrangements that we have or may establish in the future relating to our drug candidate projects; |
25
| ● | costs relating to future product opportunities; |
| ● | the cost and timing of regulatory approvals with respect to such drug candidate projects; and |
| ● | the cost of establishing clinical supplies for our drug candidate projects. |
We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, consultant costs, legal fees, investor relations, professional fees, and overhead costs. General and administrative expenses for the three-month periods ended June 30, 2020 and 2019 were $4.0 million and $1.7 million, respectively. Increases in general and administrative expenses was mainly due to an increase in headcount and associated compensation costs, separation costs, legal fees, stock compensation expense, consulting fees, and directors fees, partially offset by lower third-party royalties associated with XIAFLEX®.
Other Income
Other income for the three months ended June 30, 2020 was $391,000 compared to $517,000 in the corresponding 2019 period. Other income consists of interest earned on our investments. The decrease is due to lower returns on investments in the 2020 period as compared to the 2019 period.
Provision for Income Taxes
Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business including stock-based compensation, revenue and leases. For the three-month period ended June 30, 2020, our provision for income taxes was $24,000. Our deferred tax liabilities as of June 30, 2020 were $0.4 million. The estimated effective tax rate for the three months ended June 30, 2020 was 17% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2020 plus the effects of certain discrete items occurring in 2020. For the three-month period ended June 30, 2019, our provision for income taxes was $1.1 million. Our deferred tax assets as of June 30, 2019 were $0.2 million. Our effective tax rate for the three months ended June 30, 2019 was 14%. Our effective tax rate was also impacted by the discrete impact of current period stock option exercises which impacts the effective rate in the period in which it occurs.
Net Income
For the three months ended June 30, 2020, we recorded net income of $0.1 million, or $0.02 per basic common share and $0.02 per diluted common share, compared to a net income of $6.4 million, or $0.88 per basic common share and $0.87 per diluted common share, for the same period in 2019.
SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO SIX MONTHS ENDED JUNE 30, 2019
Revenues
We generate revenue primarily from royalties under the License Agreement and, to a lesser degree, licensing fees, sublicensing fees, and milestones.
Royalties
Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the six month period ended June 30, 2020 were $13.6 million as compared to $17.0 million in the corresponding 2019 period, representing a decrease of $3.4 million, or 20%. The decrease in total revenues was primarily due to royalties associated with lower net sales due to the impact of COVID-19, including, but not limited to the effect of significant office closures and less office visits for physician-administered products.
Research and Development Activities and Expenses
26
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the six month periods ended June 30, 2020 and 2019, R&D expenses were $0.3 million and $0.3 million, respectively, and in each case, are primarily related to the development work associated with our clinical, preclinical and other R&D programs.
We manage the development of XIAFLEX® for uterine fibroids and initiate the development of XIAFLEX® in new potential indications, not licensed by Endo. We presented data from the Phase 1 clinical trial of CCH for the treatment of uterine fibroids at the 66th Annual Meeting of the Society of Reproductive Investigation on March 14, 2019 in Paris, France. This presentation follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. The Company and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.
The successful development of drugs is inherently difficult and uncertain. Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX® to continue to commercialize these drug candidates.
There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
| ● | the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects; |
| ● | the anticipated completion dates for our drug candidate projects; |
| ● | the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects; |
| ● | the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects; |
| ● | clinical trial results for our drug candidate projects; |
| ● | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects; |
| ● | the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects; |
| ● | the cost and timing of regulatory approvals with respect to our drug candidate projects; and |
| ● | the cost of establishing clinical supplies for our drug candidate projects. |
We believe that our current resources and liquidity are sufficient to advance our current clinical and R&D projects.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, consultant costs, legal fees, investor relations, professional fees and overhead costs. General and administrative expenses for the six months ended June 30, 2020 and 2019 were $7.2 million and $4.6 million, respectively. The increase in general and administrative expenses was mainly due to increased legal fees, an increase in headcount and associated payroll costs, separation costs, stock compensation expense and directors fees, partially offset by lower third party royalties associated with XIAFLEX®.
Restructuring Charges
On January 7, 2020, we announced that we would be relocating our corporate headquarters from Lynbrook, New York to Wilmington, Delaware as of April 7, 2020. On January 6, 2020, in connection with the relocation, we notified five employees and one consultant that their services would no longer be required effective March 31, 2020. On March 23, 2020, the five employees and one consultant were given separation agreements detailing the termination benefits to which they would be entitled. As a result, we recorded a one-time restructuring charge of $1.1 million in the first quarter of fiscal 2020. The restructuring charge is primarily associated with $0.9 million of one-time termination benefits that we expect
27
to pay out in cash over the six- month period beginning April 2020 and $0.2 million of one-time non-cash termination expenses associated with the acceleration of vesting of certain stock options and restricted stock units.
Other Income
Other income for the six months ended June 30, 2020 was $0.9 million compared to $1.0 million in the corresponding 2019 period. Other income consists of interest earned on our investments.
Provision for Income Taxes
Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business including stock-based compensation, revenue and leases. For the six month period ended June 30, 2020, our provision for income taxes was $1.2 million. Our deferred tax liabilities as of June 30, 2020 were $0.4 million. The estimated effective tax rate for the six months ended June 30, 2020 was 21% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2020 plus the effects of certain discrete items occurring in 2020. For the six month period ended June 30, 2019, our provision for income taxes was $2.2 million. Our deferred tax assets as of June 30, 2019 were $0.2 million. The estimated effective tax rate for the three months ended June 30, 2019 was 17% of pre-tax income reported in the period, calculated based on the estimated annual effective tax rate anticipated for the year ending December 31, 2019 plus the effects of certain discrete items occurring in 2019 including current period stock option exercises.
Net Income
For the six months ended June 30, 2020, we recorded net income of $4.6 million, or $0.63 per basic common share and $0.63 per diluted common share, compared to a net income of $10.8 million, or $1.49 per basic common share and $1.48 per diluted common share, for the same period in 2019.
Liquidity and Capital Resources
To date, we have financed our operations primarily through product sales, licensing revenues and royalties under agreements with third parties and sales of our common stock.
At June 30, 2020 and December 31, 2019, we had cash and cash equivalents and investments in the aggregate of $119.8 million and $105.8 million, respectively. We currently anticipate that our available funds and cash flow from operations will be sufficient to meet our operational cash needs for at least the next 12 months from the date of this filing.
On June 26, 2020, we filed a shelf registration statement on Form S-3, which we subsequently amended on July 15, 2020, relating to the sale, from time to time, in one or more transactions, of up to $200,000,000 of common stock, preferred stock, debt securities, warrants, and units (the “Shelf Registration Statement”). The Shelf Registration Statement was declared effective on July 17, 2020. As of July 31, 2020, $200,000,000 remained available for issuance under the Shelf Registration Statement. As set forth in the Shelf Registration Statement, the Company expects to use a substantial portion of the net proceeds from the sale of securities under the Shelf Registration Statement for general corporate purposes; the Company, however, has not allocated the net proceeds for specific purposes.
Net cash provided by operating activities for the six months ended June 30, 2020 was $14.8 million as compared to $9.8 million in the 2019 period. Net cash provided by operating activities in the 2020 period was primarily attributable to our net income plus a reduction in accounts receivable of $7.4 million and increases in accounts payable, accrued expenses and lease obligation of $1.1 million and an increase in income taxes payable of $1.3 million. Non-cash items used to reconcile net income to net cash provided by operating activities of $0.9 million included amortization of patent costs and bond premiums and discounts, deferred tax benefits, and stock-based compensation expense. Net cash provided by operating activities in the 2019 period was primarily attributable to our net income partially offset by a reduction in accounts payable and accrued expenses of $1.1 million and an increase in prepaid expenses of $0.4 million. Non-cash items used to reconcile net income to net cash provided by operating activities of $0.6 million included amortization of patent costs and bond premiums and discounts and stock-based compensation expense.
Net cash used in investing activities for the six months ended June 30, 2020 was $2.6 million as compared to net cash used in investing activities of $10.7 million for the corresponding 2019 period. The net cash used in investing activities in the
28
2020 period reflects the investment of $63.1 million and the maturing of $60.6 million in marketable securities. The net cash used in investing activities in the 2019 period reflects the investment of $53.1 million and the maturing of $42.5 million in marketable securities.
Net cash used in financing activities for the six months ended June 30, 2020 was $0.4 million as compared to net cash provided by financing activities of $1.6 million in the corresponding 2019 period. In the 2020 period, net cash used in financing activities was due to the repurchase of $0.4 million of our common stock under our stock repurchase program partially offset by proceeds received from stock option exercises of $62,000. In the 2019 period, net cash provided by financing activities was due to proceeds received from stock option exercises of $1.7 million partially offset by the repurchase of $0.1 million of our common stock under our stock repurchase program.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the management of the Company (“Management”), including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
The Company, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this Quarterly Report, that the Company’s disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in our internal control over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On June 12, 2020, the Company filed an arbitration demand against the Research Foundation of the State University of New York for and on behalf of Stony Brook University (“Research Foundation”) seeking a declaration that one of its former employees is a co-investor of the Research Foundation’s patent for the treatment of cellulite (U.S. Patent No. 10,123,959, which has an expiration date of February 7, 2027), and challenging the Research Foundation’s prospective
29
rights to royalties under the Cellulite License Agreement dated August 23, 2007, which is described in the Company’s 2019 Annual Report. This is a private and confidential arbitration administered by the American Arbitration Association. On July 9, 2020, the Research Foundation filed a response denying the allegations of the demand and making a counterclaim alleging principally that the Company is in breach of its obligations under the Cellulite License Agreement. The Company has responded to the counterclaim, denying the allegations and requesting judgment in its favor on all claims. However, should the Research Foundation prevail in this arbitration, it could have a material adverse effect on the Company’s future financial results. See Note 8, “Subsequent Events,” for disclosure concerning FDA approval and postponement of commercial launch of the cellulite indication.
Item 1A. Risk Factors
Our business may be adversely affected by the ongoing coronavirus pandemic.
COVID-19 has resulted in global business and economic disruption and extreme volatility in the financial markets as many jurisdictions have placed restrictions on travel and non-essential business operations and implemented social distancing, shelter-in-place, quarantine, and other similar measures for their residents to contain the spread of the virus. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity, and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak.
The continued spread of COVID-19 globally could materially and adversely impact our operations including without limitation, future clinical trial operations, regulatory approval and the timing thereof, the operations of our collaboration partners, travel, and employee health and availability which may have a material and adverse effect on our business, financial condition, and results of operations. Specifically, depending upon the length and severity of the pandemic, COVID-19 could impact:
| ● | Our future clinical trial plans, specifically with respect to uterine fibroids; |
| ● | Endo’s development programs for the CCH treatment of plantar fibromatosis and adhesive capsulitis; |
| ● | Endo’s commercialization and launch of CCH treatment for cellulite which has already been postponed until 2021 because of the pandemic; and |
| ● | Endo’s ability to manufacture, market, and sell XIAFLEX® with respect to DC and PD. |
In addition, a recession, depression or other sustained adverse market event could materially and adversely affect the financial markets, our business, the value of our common stock and our royalty streams. The coronavirus pandemic continues to rapidly evolve. The ultimate impact of the coronavirus pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted.
COVID-19 could materially and adversely affect Endo’s business, which in turn would impact our business.
As we are dependent upon revenue from Endo, Endo’s operating success or failure has a significant impact on our potential royalty stream and other payment rights. Accordingly, the following impacts of COVID-19 on Endo’s business, could materially affect our business.
In response to public health directives and orders, Endo has implemented alternative working practices and work-from-home requirements for appropriate employees, as well as social distancing, modified schedules, shift rotation, and other similar policies at its manufacturing facilities. Endo launched a hybrid approach selling model as of June 1, 2020 for its field employees, which allows virtual and/or live engagement with healthcare providers and other customers. Endo has also suspended international and domestic travel. The effects of COVID-19, including these public health directives and orders, have had an impact on Endo’s business and may in the future materially disrupt its business (including its manufacturing and supply chain operations by significantly reducing its output), negatively impacting its productivity, and delaying its product development programs.
COVID-19 may have significant impacts on third-party arrangements, including those with Endo’s manufacturing, supply chain, and distribution partners, information technology and other service providers and business partners. For example, there may be significant disruptions in the ability of any or all of Endo’s third-party providers to meet their obligations to Endo on a timely basis, or at all, which may be caused by their own financial or operational difficulties, including any
30
closures of their facilities pursuant to a governmental order or otherwise. Due to these disruptions and other factors, including changes in Endo’s workforce availability, Endo’s ability to meet its obligations to third-party distribution partners may be negatively impacted. As a result, Endo has delivered, and in the future Endo or its third-party providers may deliver, notices of the occurrence of a force majeure or similar event under certain of its third-party contracts, which could result in prolonged commercial disputes and ultimately legal proceedings to enforce contractual performance and/or recover losses. Further, the publicity of any such dispute could harm Endo’s reputation and make the negotiation of any replacement contracts more difficult and costly, thereby prolonging the effects of any resulting disruption in Endo’s operations. Such disruptions could be acute with respect to certain of its raw material suppliers where Endo may not have readily accessible alternatives or alternatives may take longer to source than usual. Any of these disruptions could harm Endo’s ability to manufacture XIAFLEX®.
Endo has experienced, and expects to continue to experience, changes in customer demand as the COVID-19 pandemic evolves. The current economic crisis and rising unemployment rates resulting from COVID-19 have the potential to significantly reduce individual disposable income and depress consumer confidence, which could limit the ability of some consumers to purchase certain pharmaceutical products and reduce consumer spend on certain medical procedures in both the short- and medium-term. Additionally, as part of the measures to address COVID-19, certain healthcare providers are not currently performing various medical procedures, including those that use XIAFLEX®. For example, during the last two weeks of the first quarter of 2020 and continuing into the second quarter of 2020, XIAFLEX® began experiencing significantly decreased sales volumes due to reduced physician office activity and patient office visits compared to prior year because of the COVID-19 pandemic.
Additionally, Endo’s product development programs have been, and may continue to be, adversely affected by the global pandemic and the prioritization of production during this pandemic. The public health directives in response to COVID-19 requiring social distancing and restricting non-essential business operations have in certain cases caused and may continue to cause delays, increased costs, and additional challenges in Endo’s product development programs, including obtaining adequate patient enrollment and successfully bringing product candidates to market. In addition, Endo may face additional challenges receiving regulatory approvals as previously scheduled dates or anticipated deadlines for action by the FDA on its applications and products in development could be subject to delays beyond Endo’s control as regulators such as the FDA focus on COVID-19. For example, as a result of COVID-19 and its impact on medical aesthetics physician office closures and consumer spending, Endo has moved the anticipated product launch of Qwo™ to the first half of 2021. In addition, Endo has assessed, and expects to continue to assess, the timeline for the development and commercialization of other products, which could include CCH treatment for frozen shoulder and plantar fibromatosis.
The magnitude of the effect of COVID-19 on Endo’s business will depend, in part, on the length and severity of the restrictions (including the effects of recent “re-opening” actions and plans following a recent slowdown of the virus infection rate in certain countries and localities) and other limitations on Endo’s ability to conduct its business in the ordinary course. The extent, length and consequences of the pandemic are uncertain and impossible to predict, but could be material.
In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” in our 2019 Annual Report and under Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which could materially affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six-month period ended June 30, 2020, we did not issue any unregistered shares of securities.
Issuer Purchases of Equity Securities
On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Exchange Act, and various other factors. The stock repurchase program terminated in May 2020.
31
The following table presents a summary of share repurchases made by us during the six months ended June 30, 2020.
| (1) | The purchases were made in open-market transactions in compliance with Exchange Act Rule 10b-18 or under the company’s 10b-18 plan. |
| (2) | Includes commissions paid, if any, related to the stock repurchase transactions. |
| (3) | On May 23, 2019, we announced that our Board of Directors had authorized the repurchase of up to $4.0 million of our common stock under the stock repurchase program. This program terminated in May 2020. |
32
Item 6. Exhibits
|
|
|
|
|
3.1 |
||
|
|
|
|
|
3.2 |
||
|
|
|
|
|
4.1 |
||
|
|
|
|
|
10.1 |
||
|
|
|
|
|
10.2 |
||
|
|
|
|
|
10.3 |
||
|
|
|
|
|
10.4 |
||
|
|
|
|
|
10.5* |
Amendment to Letter Agreement, dated June 4, 2020, by and between the Company and Patrick Hutchison |
|
|
|
|
|
|
10.6* |
Employment Agreement, dated June 19, 2020, by and between the Company and Alex Monteith |
|
|
|
|
|
|
31.1** |
||
|
|
|
|
|
31.2** |
||
|
|
|
|
|
32.1** |
||
|
|
|
|
|
101.INS |
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
101.SCH |
Inline XBRL Taxonomy Extension Schema |
|
|
|
|
|
|
101.CAL |
Inline XBRL Taxanomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
101.DEF |
Inline XBRL Taxanomy Extension Definition Linkbase Document |
|
|
|
|
|
|
101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
|
|
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
104 |
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101 |
|
|
* |
filed herewith |
|
** |
furnished herewith |
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
BIOSPECIFICS TECHNOLOGIES CORP. |
|
|
|
|
|
|
|
Date: August 10, 2020 |
/s/ Joseph Truitt |
|
|
Joseph Truitt |
|
|
Chief Executive Officer and Principal Executive Officer |
34
EXHIBIT 10.5
August 6, 2020
BY EMAIL AND OVERNIGHT MAIL
Patrick C. Hutchison
____________________
____________________
Dear Pat:
This letter agreement (the “Amendment”) hereby amends your employment offer letter from BioSpecifics Technologies Corporation (“BSTC” or the “Company”) dated December 17, 2019 and executed by you on December 20, 2019 (the “Offer Letter”), solely as set forth below. In all other respects, the Offer Letter shall remain in full force and effect.
| 1. | The section titled “Base Salary” is deleted in its entirety and replaced with the following: |
| 2. | The section titled “Performance Bonus” is deleted in its entirety and replaced with the following: |
|
Performance Bonus: |
In addition to your Base Salary, you may be eligible to receive a discretionary performance bonus, payable in accordance with BioSpecifics’ policy with respect to the payment of bonuses (as may be amended from time to time). The target for your Performance Bonus is twenty percent (30%) of your Base Salary. The actual Performance Bonus amount, if any, is within the Company’s sole discretion, which will be informed by an assessment of your performance, including your performance against agreed objectives, as well as business conditions at the Company. |
Page 2 of 2
| 3. | The first paragraph of the section titled “Termination Without Cause” is amended and restated as follows: |
|
Termination Without Cause: |
If the Company terminates your employment without Cause (as defined below), the Company shall pay you any earned but unpaid Base Salary through the date of termination, at the rates then in effect, less standard deductions and withholdings. In addition, if you: (i) furnish to the Company an executed waiver and general release of claims in a form to be provided to you by the Company (a “Release”), (ii) allow the Release to become effective in accordance with its terms, and (iii) otherwise comply with the Release, then you will be eligible to receive an aggregate amount equal to six (6) months of your then-current Base Salary, less standard deductions and withholdings, payable in equal installments over the six (6) month period following the date of the termination of your employment. |
| 4. | Remaining Provisions. Except as expressly amended hereby, the Offer Letter shall remain unchanged and in full force and effect. This Amendment shall be deemed part of and is incorporated into the Offer Letter. In the event of any inconsistency or contradiction between the terms of this Amendment and the Offer Letter, the provisions of this Amendment shall prevail and control. Capitalized terms defined in the Offer Letter and used in this Amendment have the respective meanings assigned to such terms in the Offer Letter, unless otherwise defined in this Amendment. |
| 5. | Counterparts. This Amendment may be executed in any number of counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. Execution of a facsimile or PDF copy shall have the same force and effect as execution of an original, and a copy of a signature will be admissible in any legal proceeding as if an original. |
| 6. | Effective Date. Provided you sign below, this Amendment shall become effective on June 8, 2020. |
|
|
|
|
|
Accepted: |
|
BIOSPECIFICS TECHNOLOGY CORP. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Patrick C. Hutchison |
|
/s/ Joseph Truitt |
|
Patrick C. Hutchison |
|
By: Joseph Truitt |
|
|
|
Title: Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: June 4, 2020 |
|
Date: June 4, 2020 |
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
ALEX MONTEITH
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between BioSpecifics Technologies Corp. (the “Company”) and Alex Monteith (the “Executive”) as of June 19, 2020.
WHEREAS, the Company desires to employ the Executive as the Company’s Senior Vice President and Chief Business Officer and the Executive desires to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the Company and the Executive hereby agree as follows:
2
3
4
Notwithstanding the foregoing, if and to the extent required by Section 409A of the Code, if a Change of Control does not constitute a “change in control event” as defined by Section 409A of the Code or the lump sum payment in Section 7(a) would otherwise cause the Executive to incur penalties under Section 409A of the Code, such payment shall not be paid in a lump sum but shall be paid in equal installments in accordance with the payroll practices over the twelve (12)-month period following Executive’s termination date.
5
With regard to any event constituting Cause pursuant to clauses (1), (3), (4) or (6), the Executive shall have a period of 15 days after receiving written notice from the Company of such event in which he may correct such event if it is reasonably subject to cure (“Cure Period”). Cause shall not exist for purposes of this Section 13(a) unless the Board determines that: (i) the event constituting Cause is not subject to cure or (ii) after the Cure Period, the Executive has failed to cure the event constituting Cause.
6
(1)A material diminution by the Company of the Executive’s authority, duties or responsibilities;
(2) The requirement that the Executive report to any individual other than the CEO, another “C-Suite” executive or member of the Board;
(3)A material change in the geographic location at which the Executive must perform services under this Agreement, excluding for the avoidance of doubt, any travel for business in the course of performing the Executive’s duties for the Company;
(4)A material diminution in the Executive’s Base Salary, except for any diminution that is part of a broad-based diminution of base salary applicable to a majority of officers of the Company; or
(5)Any action or inaction that constitutes a material breach by the Company of this Agreement.
The Executive must provide written notice of termination for Good Reason to the Company within 45 days after the event constituting Good Reason. The Company shall have a period of 30 days in which it may correct the act or failure to act that constitutes the grounds for Good Reason as set forth in the Executive’s notice of termination. If the Company does not correct the act or failure to act, the Executive’s employment will terminate for Good Reason on the first business day following the Company’s 30-day cure period.
7
8
9
10
11
12
If to the Company, to:
BioSpecifics Technologies Corp.
Delaware Corporate Center II
2 Righter Parkway, Suite 200
Wilmington, DE 19803
Attn: Chair of the Board of Directors
With a copy (which shall not constitute notice) to:
Carl A. Valenstein
Morgan, Lewis & Bockius LLP
13
One Federal Street, Boston MA 02110-1726
Carl.Valenstein@morganlewis.com
If to the Executive, to the most recent address on file with the Company (with a copy to, which shall not constitute notice, Jeri L. Abrams, Giordano Halleran & Ciesla, 125 Half Mile Road, Red Bank, NJ 07701 (jabrams@ghclaw.com), or to such other names or addresses as the Company or the Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section.
14
(Signature Page Follows)
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
|
|
|
|
|
BIOSPECIFICS TECHNOLOGIES CORP. |
|
|
|
|
|
|
|
|
/s/ Joseph Truitt |
|
|
Name: Joseph Truitt |
|
|
Title: Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE |
|
|
|
|
|
|
|
|
/s/ Alex Monteith |
|
|
Name: Alex Monteith |
EXHIBIT A
SEPARATION OF EMPLOYMENT AGREEMENT AND GENERAL RELEASE
BioSpecifics Technologies Corp. (the “Company”) and Alex Monteith, his heirs, executors, administrators, successors, and assigns (collectively referred to throughout this Agreement as “you” or “your”), hereby enter into this Separation Agreement and General Release (the “Agreement”) to settle all issues in connection with all issues arising out of, or related to, your employment and termination of employment with the Company. You and the Company agree that:
1.Last Day of Employment. Your last day of work for the Company will be [DATE] (such date is your “Separation Date”). You will continue to receive your salary at your current regular rate of pay through the Separation Date or while you remain employed by the Company, and your current benefits will continue through that date.
2.Severance Payments. Provided you timely execute (and do not revoke) this Agreement (which includes a general release and waiver of claims and other promises herein), and otherwise comply with its terms, the Company will provide you with the following severance benefits: [Applicable severance benefits to be inserted here].
3.Taxes and Withholdings. All payments and benefits set forth in the Agreement will be paid or provided, less applicable withholding taxes, normal payroll deductions and amounts required by law to be withheld.
4.Release.
|
a. |
In consideration of the severance benefits set forth in Paragraph 2, to the fullest extent permitted by law you waive, release and forever discharge the Company and each of its respective past and current parents, subsidiaries, affiliates, and each of its and their respective past and current directors, officers, members, trustees, employees, representatives, agents, attorneys, employee benefit plans and such plans’ administrators, fiduciaries, trustees, recordkeepers and service providers, and each of its and their respective successors and assigns, each and all of them in their personal and representative capacities (collectively the “Company Releasees”) from any and all claims legally capable of being waived, grievances, injuries, controversies, agreements, covenants, promises, debts, accounts, actions, causes of action, suits, arbitrations, sums of money, attorneys’ fees, costs, damages, or any right to any monetary recovery or any other personal relief, whether known or unknown, in law or in equity, by contract, tort, law of trust or pursuant to federal, state or local statute, regulation, ordinance or common law, which you now have, ever have had, or may hereafter have, based upon or arising from any fact or set of facts, whether known or unknown to you, from the beginning of time until the date of execution of this Agreement, arising out of or relating in any way to your service with the Company, or the termination thereof (the “Released Claims”). |
Without limiting the generality of the foregoing, this waiver, release, and discharge includes any claim or right, to the extent legally capable of being
A-1
waived, based upon or arising under any federal, state or local fair employment practices or equal opportunity laws, including, but not limited to, the Age Discrimination in Employment Act (“ADEA”), the Older Workers Benefit Protection Act (“OWBPA”), the Rehabilitation Act of 1973, the Worker Adjustment and Retraining Notification Act, 42 U.S.C. Section 1981, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Employee Retirement Income Security Act (“ERISA”) (including, but not limited to, claims for breach of fiduciary duty under ERISA), the Uniformed Services Employment and Reemployment Rights Act of 1994, the Americans With Disabilities Act, the Family and Medical Leave Act of 1993, [ADD APPLICABLE STATE LAWS]
|
b. |
You also agree to waive any right to bring, maintain, or participate in a class action, collective action, or representative action against the Company and/or the Company Releasees to the fullest extent permitted by law. You agree that you may not serve as a representative of a class action, collective action, or representative action, may not participate as a member of a class action, collective action, or representative action, and may not recover any relief from a class action, collective action, or representative action. You further agree that if you are included within a class action, collective action, or representative action, you will take all steps necessary to opt-out of the action or refrain from opting in, as the case may be. You are not waiving any right to challenge the validity of this Paragraph 4(b) on any grounds that may exist in law and equity. However, the Company and the Company Releasees reserve the right to attempt to enforce this Agreement, including this Paragraph 4(b), in any appropriate forum. |
|
c. |
You hereby represent and warrant that you are not aware of any claims you have or might have against the Company and/or the Company Releasees that are not included in the Released Claims. |
|
d. |
Notwithstanding the generality of the foregoing, nothing herein constitutes a release or waiver by you of, or prevents you from making or asserting: (i) any claim or right you may have under COBRA; (ii) any claim or right you may have for unemployment insurance or workers’ compensation benefits (other than for retaliation under workers’ compensation laws); (iii) any claim to vested benefits under the written terms of a qualified employee pension benefit plan; (iv) any claim related to your rights (if any) as an equity holder of the Company or any of its Affiliates, (v) any claim or right you may have to indemnification and/or coverage under the Company’s insurance policies, (vi) any medical claim incurred during your employment that is payable under applicable medical plans or an employer-insured liability plan; (vii) any claim or right that may arise after the execution of this Agreement; (viii) any claim or right you may have under this Agreement; or (ix) any claim that is not otherwise waivable under applicable law. Further, nothing in this Agreement shall alter your rights with respect to any vested stock options or other vested equity awards granted pursuant to the Equity Plan and/or any successor equity plan, which rights shall |
A-2
be governed by the terms of the Equity Plan and/or successor equity plan and the terms of the applicable award agreements.
5.No Additional Entitlements. You agree and represent that you have received all entitlements due from the Company relating to your service with the Company, including but not limited to, all wages earned, including without limitation all commissions and bonuses, sick pay, vacation pay, overtime pay, and any paid and unpaid personal leave for which you were eligible and entitled, and that no other entitlements are due to you other than as set forth in this Agreement.
6.Return of Property. Upon termination of your employment, you agree to promptly return to the Company all of its property, including, but not limited to, computers, cell phones, files, and documents, including any correspondence or other materials containing trade secrets of the Company, identification cards, credit cards, keys, equipment, software and data, however stored. To the extent you have any Company information or material stored on any PDA, personal computer, personal email, hard drive, thumb drive, cloud or other electronic storage device, you agree to cooperate with the Company in permanently deleting such information from such devices, subject to any Company litigation preservation directive then in effect.
7.Continuing Obligations. In consideration of the severance benefits set forth in Paragraph 2 of this Agreement, and subject to paragraph 9, you reaffirm and agree to remain bound by the terms and conditions of Section 15 of your Employment Agreement with the Company dated June 19, 2020 (the “Restrictive Covenants”), and you represent that you have not breached the Restrictive Covenants, which are incorporated herein by reference and expressly made part of this Agreement.
8.Confidentiality of the Agreement. Except as permitted in Paragraph 9 of this Agreement or if otherwise required by law, you agree that you shall not disclose the terms of this Agreement, or the circumstances giving rise to this Agreement, to any person other than your attorney, immediate family members, accountant, or financial advisor. Should you disclose any of the terms of this Agreement to your attorneys, immediate family members, accountants, or financial advisors, you agree to use your reasonable best efforts to ensure that those individuals abide by the confidentiality terms of this section. In the event that an action is brought pursuant to this section, all of the remaining provisions of this Agreement shall remain in full force and effect.
9.Permitted Conduct.
|
a. |
Nothing in this Agreement prohibits or prevents you from filing a charge with or participating, testifying, or assisting in any investigation, hearing, or other proceeding before the U.S. Equal Employment Opportunity Commission or a similar agency enforcing federal, state or local anti-discrimination laws. However, to the maximum extent permitted by law, you agree that if such an administrative claim or charge is made to such an anti-discrimination agency, you shall not be entitled to recover any individual monetary relief or other individual remedies in connection with such claim or charge, and in the event you obtain such monetary relief the Company will be entitled to an offset for the payments made pursuant to this Agreement. In addition, nothing in this Agreement restricts or prohibits you from initiating communications directly |
A-3
with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including without limitation, the U.S. Department of Labor, the National Labor Relations Board, the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the U.S. Commodities Futures Trading Commission, the Financial Industry Regulatory Authority, the Occupational Safety and Health Administration, the U.S. Congress, any other federal, state, or local government agency or commission, and any agency Inspector General (collectively, the “Regulators”), or from making other disclosures that are protected under the whistleblower provisions of federal, state, or local law or regulation. You do not need the prior authorization of the Company to engage in conduct protected by this paragraph, and you do not need to notify the Company that you have engaged in such conduct. This agreement does not limit your right to receive an award from any Regulator that provides awards for providing information relating to a potential violation of the law. You recognize and agree that, in connection with any such activity outlined above, you must inform the Regulators, your attorney, a court or a government official that the information you are providing is confidential. Despite the foregoing, you are not permitted to reveal to any third-party, including any governmental, law enforcement, or regulatory authority, information you came to learn during the course of your service with the Company that is protected from disclosure by any applicable privilege, including but not limited to the attorney-client privilege and/or attorney work product doctrine. The Company does not waive any applicable privileges or the right to continue to protect its respective privileged attorney-client information, attorney work product, and other privileged information.
|
b. |
Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, you shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (i) is made (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made to your attorney in relation to a lawsuit for retaliation against you for reporting a suspected violation of law; or (iii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Nor does this Agreement require you to obtain prior authorization from the Company before engaging in any conduct described in this paragraph, or to notify the Company that you have engaged in any such conduct. |
10.Non-Disparagement: Except as permitted in Paragraph 9 of this Agreement, you covenant and agree that you shall not make any disparaging, false or abusive remarks or communications, written or oral, regarding the Company or its products, brands, trademarks, directors, officers, employees, consultants, advisors, licensors, licensees, customers, vendors or others with whom or with which they have a business relationship. The Company covenants and agrees that it will instruct each member of the Board not to make any disparaging, false or abusive
A-4
remarks or communications, written or oral, regarding you after the date on which your employment with the Company terminates for any reason.
11.Non-Admission. It is understood and agreed that neither the execution of this Agreement nor the terms of this Agreement constitute an admission of liability to you by the Company or the Company Releasees, and such liability is expressly denied. It is further understood and agreed that no person shall use the Agreement, or the consideration paid pursuant thereto, as evidence of an admission of liability, inasmuch as such liability is expressly denied
12.Notice to Company. Subject to paragraph 9 above, upon service on you, or anyone acting on your behalf, of any order or other legal process requiring you to divulge information prohibited from disclosure under this Agreement, you shall (unless legally prohibited from doing so) immediately notify the [Chair of the Company’s Board of Directors], of such service and of the content of any testimony or information to be provided pursuant to such order or process and will cooperate with the Company at reasonable times and places, taking into account your professional obligations, if the Company shall contest or seek to quash such order or other legal process.
13.Cooperation. You agree that upon the Company’s reasonable notice to you, you shall cooperate with the Company and its counsel (including, if necessary, preparation for and appearance at depositions, hearings, trials or other proceedings) at reasonable times and places, taking into account your professional obligations, with regard to matters that in its sole discretion the Company determines relate to or arise out of matters about which you have knowledge or with which you were involved during your service with the Company. In the event that such cooperation is required, you will be reimbursed for any reasonable lost income and reasonable travel expenses incurred in connection therewith.
14.Review of Separation Agreement: You acknowledge that:
|
a. |
you have been provided at least twenty-one (21) calendar days to review and consider this Agreement and, if you knowingly and voluntarily choose to do so, you may accept the terms of this Agreement before the twenty-one (21) day consideration period has expired; |
|
b. |
you agree that changes to the Company’s offer contained in this Agreement, whether material or immaterial, will not re-start the twenty-one (21) day consideration period provided for above; |
|
c. |
you may revoke this Agreement within seven (7) calendar days of signing this document by giving written notice to the undersigned. Any revocation must be submitted in writing, and state: “I hereby revoke my acceptance of our agreement” or words to that effect. The revocation must be personally delivered to, or mailed to the undersigned and postmarked within seven (7) calendar days after you sign this Agreement; |
|
d. |
the Company advises you to consult with an attorney of your choice prior to signing this Agreement; |
A-5
|
e. |
you fully understand the significance of all of the terms and conditions of this Agreement; and |
|
f. |
you are signing this Agreement voluntarily and of your own free will and agree to all of the terms and conditions contained in it. |
15.Complete Agreement. This Agreement sets forth the entire agreement between you and the Company with respect to the subject matter hereof and supersedes all prior negotiations, understandings and agreements, whether written or oral, relating to such subject matter, between you and the Company except for the Restrictive Covenants, Sections 16, 21, 22, 23, 24 and 25 of your Employment Agreement with the Company dated June 19, 2020, any equity award documents or agreements to which the Company is a party, and the Company’s insider trading plan or policy, each of which are incorporated herein by reference and remain in full force and effect, except as otherwise specifically provided herein. You acknowledge that neither the Company nor the Company Releasees or their agents or attorneys have made any promise, representation or warranty whatsoever, either express or implied, written or oral, which is not contained in this Agreement for the purpose of inducing you to execute the Agreement, and you acknowledge that you have executed this Agreement in reliance only upon such promises, representations and warranties as are contained herein, and that you are executing this Agreement voluntarily, free of any duress or coercion.
16.Governing Law. This Agreement shall be construed, performed, enforced and in all respects governed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of law thereof.
17.Severability. The provisions of this Agreement are severable, and if any part of it is found to be invalid or unenforceable, the other parts shall remain fully valid and enforceable. Specifically, should a court, arbitrator, or government agency conclude that a particular claim may not be released as a matter of law, it is the intention of the parties that the general release and the waiver of claims set forth above shall otherwise remain effective to release any and all other Released Claims.
18.Modification; Counterparts; Facsimile/PDF Signatures. It is expressly agreed that this Agreement may not be altered, amended, modified, or otherwise changed in any respect except by another written agreement that specifically refers to this Agreement, executed by authorized representatives of each of the parties to this Agreement. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. Execution of a facsimile or PDF copy shall have the same force and effect as execution of an original, and a copy of a signature will be admissible in any legal proceeding as if an original.
19.Breach. You acknowledge that if you materially breach your commitments to the Company agreed upon in Paragraphs 4, 6, 7, 8, 10, 12 or 13 you will forfeit the severance benefits set forth in Paragraph 2 and be subject to suit by the Company for damages and equitable relief relating to such breach. You further acknowledge that any breach by you of Paragraphs 7, 8 or 10 will cause irreparable damage to the Company and that in the event of such breach the Company
A-6
shall have, in addition to any and all remedies at law, the right to an injunction, specific performance or other equitable relief to prevent the violation of your obligations hereunder.
20.Waiver. A waiver by either party hereto of a breach of any term or provision of the Agreement shall not be construed as a waiver of any subsequent breach.
21.Section 409A.
|
a. |
This Agreement is intended to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and its corresponding regulations, or an exemption thereto, and payments may only be made under this Agreement upon an event and in a manner permitted by section 409A of the Code, to the extent applicable. Severance benefits under this Agreement are intended to be exempt from section 409A of the Code under the “short-term deferral” exception, to the maximum extent applicable, and then under the “separation pay” exception, to the maximum extent applicable. Notwithstanding anything in this Agreement to the contrary, if required by section 409A of the Code, if you are considered a “specified employee” for purposes of section 409A of the Code and if payment of any amounts under this Agreement is required to be delayed for a period of six months after separation from service pursuant to section 409A of the Code, payment of such amounts shall be delayed as required by section 409A of the Code, and the accumulated amounts shall be paid in a lump-sum payment within 10 days after the end of the six-month period. If you die during the postponement period prior to the payment of benefits, the amounts withheld on account of section 409A of the Code shall be paid to the personal representative of your estate within sixty (60) days after the date of your death. |
|
b. |
All payments to be made under this Agreement may only be made upon a “separation from service” under section 409A of the Code. For purposes of section 409A of the Code, each payment hereunder shall be treated as a separate payment, and the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event may you, directly or indirectly, designate the taxable year of a payment. Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of your execution of this Agreement, directly or indirectly, result in you designating the taxable year of payment of any amounts of deferred compensation subject to section 409A of the Code, and if a payment that is subject to execution of this Agreement could be made in more than one taxable year, payment shall be made in the later taxable year. |
|
c. |
All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement be for expenses incurred during the period specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a fiscal year not affect the expenses eligible for |
A-7
reimbursement, or in-kind benefits to be provided, in any other fiscal year, (iii) the reimbursement of an eligible expense be made no later than the last day of the fiscal year following the year in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits not be subject to liquidation or exchange for another benefit.
22.Effective Date: This Agreement is effective on the eighth (8th) day after you sign and do not revoke this Agreement (the “Effective Date”).
23.Expiration of Offer: The offer set forth in this Agreement expires at 11:59 p.m. Eastern time on the later of (i) the twenty-first (21st) day after delivery of this Agreement to you, i.e., [INSERT DATE 21 DAYS FROM DELIVERY OF AGREEMENT]; or (ii) the seventh (7th) day after your Separation Date. If you fail to execute and return this Agreement to the Company within the time specified in this paragraph, the promises and agreements made by the Company herein will be revoked.
If the above accurately states our agreement, including the waiver and release, kindly sign below and return the original Agreement to me. Thank you for your efforts on behalf of the Company and I wish you the best in your future endeavors. If you should have any questions, please call me.
[signature page below]
A-8
A-9
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
I, Joseph Truitt, Principal Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of BioSpecifics Technologies Corp. for the quarterly period ended June 30, 2020;
2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: August 10, 2020
|
/s/ Joseph Truitt |
|
|
Joseph Truitt |
|
|
Principal Executive Officer |
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
I, Patrick Hutchison, Principal Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of BioSpecifics Technologies Corp. for the quarterly period ended June 30, 2020;
2. Based on my knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: August 10, 2020
|
/s/ Patrick Hutchison |
|
|
Patrick Hutchison |
|
|
Principal Financial Officer |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BioSpecifics Technology Corp. (the “Company”) on Form 10-Q for the quarter ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Joseph Truitt, Principal Executive Officer of the Company, and Patrick Hutchison, Principal Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on each of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 10, 2020
|
|
/s/ Joseph Truitt |
|
|
Joseph Truitt |
|
|
Principal Executive Officer |
|
|
|
|
|
/s/ Patrick Hutchison |
|
|
Patrick Hutchison |
|
|
Principal Financial Officer |