form10q.htm
 
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________

 
BIOSPECIFICS TECHNOLOGIES CORP.
(Exact name of small business issuer as specified in its charter)

 
Delaware
0-19879
11-3054851
(State or other jurisdiction
of incorporation or organization)
(Commission file number)
(I.R.S. Employer
Identification No.)
 
 
35 Wilbur Street
Lynbrook, NY  11563
(Address of principal executive office, including zip code)

516.593.7000
(Issuer'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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes [X]  No  [  ]
  
Indicate by check mark whether the registrant is a large 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   [   ]    (Do not check if a smaller reporting company)      Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes [   ]  No  [X]
 
Indicate the number of shares outstanding of the issuer's classes of common equity, as of the latest practicable date:

Class of Stock                                Outstanding July 29, 2008
Common Stock ($.001 par value)                                                                                                                              5,950,801

 
BIOSPECIFICS TECHNOLOGIES CORP.

TABLE OF CONTENTS


 
Page
 
PART I – FINANCIAL INFORMATION
 
ITEM 1.
2
 
2
 
3
 
4
 
5
ITEM 2.
14
ITEM 3.
21
ITEM 4.
21
     
 
PART II – OTHER INFORMATION
 
ITEM 1.
22
ITEM 1A.
22
ITEM 2.
22
ITEM 3.
22
ITEM 4.
22
ITEM 5.
22
ITEM 6.
22
 
 
Introductory Comments – Terminology

Throughout this quarterly report on Form 10-Q (this “Report”), the terms “BioSpecifics,” “Company,” “we,” “our,” and “us” refer to BioSpecifics Technologies Corp. and its subsidiary, Advance Biofactures Corporation (“ABC-NY”). We also owned two dormant companies, BioSpecifics of Curacao N.V. and Biota N.V., which were liquidated in January 2007.

Introductory Comments – Forward-Looking Statements

This Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” estimates,” “potential,” or “continue” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below, and for the reasons described elsewhere in this Report. All forward-looking statements and reasons why results may differ included in this Report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.


PART I – FINANCIAL INFORMATION

Item 1:  Consolidated Financial Statements

BIOSPECIFICS TECHNOLOGIES CORP.
 
 
   
   
 
As of June 30,
   
Fiscal Year Ended
December 31,
 
   
2008
   
2007
 
   
(unaudited)
   
(audited)
 
Assets
           
Current assets:
           
   Cash and cash equivalents
  $ 4,741,385     $ 68,564  
   Short-term investments(1)
    -       975,000  
   Accounts receivable, net
    102,180       108,809  
   Prepaid expenses and other current assets
    101,946       73,158  
Total current assets
    4,945,511       1,225,531  
                 
   Long-term investments(1)
    1,020,427       -  
   Property, plant and equipment, net
    17,133       35,680  
                 
Total assets
    5,983,071       1,261,211  
                 
Liabilities and Stockholders' Deficit
               
Current liabilities:
               
   Accounts payable and accrued expenses
    719,623       873,460  
   Accrued third-party development expenses
    2,272,969       2,272,969  
   Accrued tax liability
    453,553       453,553  
   Deferred revenue
    1,345,125       1,437,116  
   Accrued tax and other accrued liabilities of discontinued operations
    78,138       78,138  
Total current liabilities
    4,869,408       5,115,236  
                 
   Long-term deferred revenue
    2,501,062       2,881,633  
                 
Stockholders' deficit:
               
   Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding
    -       -  
   Common stock, $.001 par value; 10,000,000 shares authorized; 6,082,068 shares and
       5,480,768 shares issued and outstanding at June 30, 2008 and December 31, 2007,
       respectively
    6,082       5,481  
   Additional paid-in capital
    11,092,925       4,751,447  
   Accumulated deficit
    (11,437,876 )     (10,172,855 )
   Accumulated other comprehensive loss
    (354,573 )     -  
   Treasury stock, 131,267 shares at cost at June 30, 2008 and December 31, 2007
    (693,957 )     (693,957 )
   Notes receivable from former CEO and Chairman and other related party
    -       (625,774 )
Total stockholders' deficit
    (1,387,399 )     (6,735,658 )
                 
Total liabilities and stockholders’ deficit
  $ 5,983,071     $ 1,261,211  
                 
(1) As discussed in note 2 to the consolidated financial statements, we have classified all of our auction rates securities held as of June 30,
2008 as long-term investments as our ability to liquidate such securities in the next 12 months is uncertain. We had classified all of our auction
rate securities held as of December 31, 2007 as short-term investments.
 
See accompanying notes to consolidated financial statements
 
 
 
BIOSPECIFICS TECHNOLOGIES CORP.
 
 
(unaudited)
 
   
   
Three Months Ended
June 30,
   
Six Months Ended
June 30
 
   
2008
   
2007
   
2008
   
2007
 
Revenues:
                       
   Net sales
  $ 4,046     $ 10,832     $ 16,799     $ 11,932  
   Royalties
    2,028       -       2,028       -  
   Licensing fees
    266,282       289,279       532,563       578,558  
   Consulting fees
    162,000       70,000       284,185       140,000  
          Total Revenues
    434,356       370,111       835,575       730,490  
                                 
Costs and expenses:
                               
   General and administrative
    1,173,316       812,947       1,973,772       1,910,414  
   Research and development
    94,432       72,060       188,703       458,419  
          Total Cost and Expenses
    1,267,748       885,007       2,162,475       2,368,833  
                                 
Operating loss from continuing operations
    (833,392 )     (514,896 )     (1,326,900 )     (1,638,343 )
                                 
Other income (expense):
                               
   Interest income
    27,528       36,894       57,803       78,143  
   Interest expense
    -       -       (451 )     -  
   Other income
    4,527       -       4,527       -  
      32,055       36,894       61,879       78,143  
Loss from continuing operations before benefit (expense) for income tax
    (801,337 )     (478,002 )     (1,265,021 )     (1,560,200 )
   Income tax benefit (expense)
    -       -       -       (3,600 )
                                 
Net loss from continuing operations
  $ (801,337 )   $ (478,002 )   $ (1,265,021 )   $ (1,563,800 )
                                 
                                 
Basic and diluted net loss per share
  $ (0.14 )   $ (0.09 )   $ (0.22 )   $ (0.30 )
                                 
                                 
Shares used in computation of basic and diluted net loss per share
    5,796,764       5,275,337       5,715,825       5,255,354  
                                 
See accompanying notes to consolidated financial statements
 
 
 
BIOSPECIFICS TECHNOLOGIES CORP.
 
 
(unaudited)
 
   
Six Months Ended
June 30
 
 Cash flows from operating activities:
 
2008
   
2007
 
    Net loss
  $ (1,265,021 )   $ (1,563,800 )
    Adjustments to reconcile net loss to net cash provided
               
       by operating activities:
               
          Gain on disposal of fixed asset
    (4,527 )     -  
          Depreciation and amortization
    16,074       16,072  
          Stock-based compensation expense
    737,791       248,144  
    Changes in operating assets and liabilities:
               
          Accounts receivable
    6,629       (235 )
          Prepaid expenses and other current assets
    (28,788 )     (75,448 )
          Accounts payable and accrued expenses
    (153,837 )     194,556  
          Deferred revenue
    (472,562 )     (318,558 )
                 
 Net cash used in operating activities from continuing operations
    (1,164,241 )     (1,499,269 )
 Net cash used in discontinued operations
    -       (321,037 )
                 
Cash flows from investing activities:
               
  Maturities of marketable investments
    350,000       -  
   Purchases of long-term investments
    (750,000 )     -  
   Proceeds from sale of fixed asset
    7,000       -  
                 
 Net cash used in investing activities
    (393,000 )     -  
                 
 Cash flows from financing activities:
               
   Proceeds from issuance of capital stock
    4,882,679       -  
    Proceeds from stock option exercises
    230,825       77,374  
    Proceeds from pay-off of notes receivable from former CEO and Chairman
    1,116,558       -  
                 
 Net cash provided by financing activities from continuing operations
    6,230,062       77,374  
                 
 Increase in cash and cash equivalents
    4,672,821       (1,742,932 )
 Cash and cash equivalents at beginning of year
    68,564       4,367,178  
                 
 Cash and cash equivalents at end of period
  $ 4,741,385     $ 2,624,246  
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the periods for:
               
Interest
  $ 451       -  
Taxes
    -     $ 3,600  
                 
Supplemental disclosures of non-cash transactions:
 
In March 2007, in full repayment of the $304,398 loan owed to the Company by Wilbur Street Corporation (“WSC”), WSC offset $304,398 in back rent due from the Company in repayment of the loan. The transaction was recorded by reducing the rent payable by $304,398 and the receivable from the Company’s former CEO and Chairman by $98,253 and increasing additional paid in capital by $206,145.
See accompanying notes to consolidated financial statements
 
 

BIOSPECIFICS TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
June 30, 2008
(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company that has been involved in the development of injectable collagenase for multiple indications. We have a development and license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium has named “XIAFLEX TM” (formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease, Peyronie’s disease and frozen shoulder (adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue, including cellulite and lipomas.  In June 2008, Auxilium announced positive top-line efficacy and safety results from the CORD I and CORD II phase III clinical trials for XIAFLEX TM in the treatment of Dupuytren's contracture. In addition, Auxilium announced it intends to submit a Biologics License Application (“BLA”) for XIAFLEX in Dupuytren's contracture in early 2009.

DISCONTINUED OPERATIONS

Prior to March 2006, we were a party to an exclusive license agreement with Abbott Laboratories, Inc. and its subsidiaries (“Abbott”), for the production of the active pharmaceutical ingredient (“API” or “API Enzyme”) for topical collagenase. In March 2006, we sold our topical collagenase business to DFB Biotech, Inc. and its affiliates (“DFB”), including all rights to the exclusive license agreement and we were released of any obligations thereunder.

In addition, DFB acquired all of the issued and outstanding shares of Advance Biofactures of Curacao, N.V. (“ABC-Curacao”), pursuant to the Asset Purchase Agreement (the “Asset Purchase Agreement”) between us, DFB and Advance Biofactures Corp. (“ABC-NY”). The operating results of ABC-Curacao and certain operations of ABC-NY have been classified as discontinued operations in the consolidated financial statements for all periods presented.

As consideration for the purchased assets including our API inventory we received $8 million in cash, DFB’s assumption of certain liabilities, and the right to receive earn out payments in the future based on sales of certain products. In connection with the closing of the Asset Purchase Agreement, we agreed to provide certain technical assistance and certain transition services to DFB in consideration of fees and costs totaling over $1.4 million. At the closing, DFB paid to us a partial payment of $400,000 in respect of the technical assistance to be provided by us. To date, we have received a total of $1,000,000 in payments from DFB. The consulting obligations generally expire during March 2011.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying consolidated financial statements are unaudited, but include all adjustments (consisting only of normal, recurring adjustments) which 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 accounting principles generally accepted (“GAAP”) in the United States (the “U.S.”) has been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reporting.
 
 
The information included in this Report should be read in conjunction with our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 filed with the SEC on May 15, 2008 and our Annual Report on Form 10-KSB for the year ended December 31, 2007 filed with the SEC on May 2, 2008.

Principles of Consolidation

The audited consolidated financial statements include the accounts of the Company and its subsidiaries, ABC-NY, BioSpecifics of Curacao N.V. and Biota N.V. and its wholly-owned subsidiary, which were both liquidated in January 2007. Due to the sale of ABC-Curacao in March 2006 to DFB all accounts of this former subsidiary and certain operations of ABC-NY are classified as discontinued operations in the 2007 periods presented.

Management Estimates

The preparation of unaudited consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of management’s estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short and Long-term Investments

Cash, cash equivalents and short and long-term investments are stated at market value. Cash equivalents include only securities having a maturity of three months or less at the time of purchase. The Company limits its credit risk associated with cash, cash equivalents and short and long-term investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, U.S. government securities, or short-term commercial paper.

Fair Value Measurements

SFAS 157 requires expanded disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements, but does not require any new fair value measurements. We adopted the provisions of SFAS 157 relating to assets and liabilities recognized or disclosed in the financial statements at fair value on a recurring basis on January 1, 2008. The adoption of these provisions did not have a material effect on our consolidated financial statements.

SFAS 157 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. SFAS 157 requires us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

·    
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets
·    
Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
·    
Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities

The following table sets forth the fair value of our financial assets that were measured on a recurring basis as of June 30, 2008:
 
 
 
 
Level 1
 
Level 2
 
Level 3
       
Cash and cash equivalents
$4,741,385
-
-
       
Auction rate securities
-
 -
 $1,020,427

Auction Rate Securities. Long-term investments consist of taxable auction rate securities, or ARS, with original maturities ranging up to 40 years. ARS have interest reset dates of 28 or 35 days. The reset date is the date in which the underlying interest rate is revised based on a Dutch auction and the underlying security may be sold. The Company classifies ARS as available for sale under SFAS No. 115. Dutch auctions have historically provided a liquid market for the type of ARS owned by the Company. However, with liquidity issues experienced in global credit and capital markets, all ARS held by the Company as of June 30, 2008 experienced failed auctions, beginning in February 2008, as the amount of securities submitted for sale exceeded the amount of purchase orders. Given the recent disruptions in the credit markets and the fact that the liquidity for these types of securities remains uncertain, we have classified our auction rate securities held as of June 30, 2008 as long-term investments in our consolidated balance sheet as our ability to liquidate such securities in the next 12 months is uncertain. The cost value of these securities held as of June 30, 2008 amounts to approximately $1.4 million with a current market value of approximately $1.0 million. We recorded a temporary impairment within other accumulated comprehensive loss of approximately $0.2 million and $0.4 million for the three and six months ended June 30, 2008 related to these auction rate securities, respectively. The Company will continue to assess its long-term investments if uncertainties in the credit and capital markets continue.

Revenue Recognition
 
We recognize revenues resulting from product sales, royalties, from licensing and use of our technology, and from other services we sometimes perform in connection with the licensed technology under the guidance of Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.”
 
If we determine that separate elements exist in a revenue arrangement under Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21), we recognize revenue for delivered elements only when the fair values of undelivered elements are known, when the associated earnings process is complete, when payment is reasonably assured and, to the extent the milestone amount relates to our performance obligation, when our customer confirms that we have met the requirements under the terms of the agreement.

Revenues, and their respective treatment for financial reporting purposes, are as follows:

Product Sales

We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, title passes, the price is fixed or determinable and collectability is reasonably assured. No right of return exists for our products except in the case of damaged goods. To date, we have not experienced any significant returns of our products.

Net sales include the sales of the API Enzyme that are recognized at the time the product is shipped to customers for laboratory use.
 
 
Royalty Revenue

We recognize royalties under the earn-out provision of the Asset Purchase Agreement with DFB. We have the right to receive earn out payments in the future based on sales of certain products.  Royalties are recognized as earned in accordance with the contract terms when royalties can be reliably measured, and collectibility is reasonably assured, such as upon the receipt of a royalty statement from our licensees. We have historically recognized royalty revenue in the quarter in which the sale was made by our licensees.

License Fees

We include revenue recognized from upfront licensing and milestone payments in “License Fees” in our unaudited consolidated statements of operations in this Report.

Upfront License Fees

We generally recognize revenue from upfront fees when the agreement is signed, we have completed the earnings process and we have no ongoing performance obligation with respect to the arrangement. Nonrefundable upfront technology license fees for product candidates for which we are providing continuing services related to product development are deferred and recognized as revenue over the development period.

Milestones

Milestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with the achievement of a specific event identified in the contract, such as completion of specified development activities and/or regulatory submissions and/or approvals. We believe that a milestone represents the culmination of a distinct earnings process when it is not associated with ongoing research, development or other performance on our part. We recognize such milestones as revenue when they become due and collection is reasonably assured. When a milestone does not represent the culmination of a distinct earnings process, we recognize revenue in a manner similar to that of a nonrefundable upfront license fee.

The timing and amount of revenue that we recognize from licenses of technology, either from upfront fees or milestones where we are providing continuing services related to product development, is primarily dependent upon our estimates of the development period. We define the development period as the point from which research activities commence up to regulatory approval of either our, or our partners’ submission assuming no further research is necessary. As product candidates move through the development process, it is necessary to revise these estimates to consider changes to the product development cycle, such as changes in the clinical development plan, regulatory requirements, or various other factors, many of which may be outside of our control. Should the FDA or other regulatory agencies require additional data or information, we would adjust our development period estimates accordingly. The impact on revenue of changes in our estimates and the timing thereof is recognized prospectively over the remaining estimated product development period.

Consulting and Technical Assistance Services

We recognize revenues from a consulting and technical assistance contracts primarily as a result of our agreements with DFB and Auxilium. Consulting revenues are recognized ratably over the term of the contract. The consulting obligations to DFB generally expire during March 2011.

Reimbursable Third-Party Development Costs

We accrue expenses to research and development for estimated third-party development costs that are reimbursable under our agreement with Auxilium. Estimates are based on contractual terms, historical
 
 
development costs, reviewing third-party data and expectations regarding future development for certain products. Further, we monitor the activities and clinical trials of our development partners.

If conditions or other circumstances change, we may take actions to revise our reimbursable third-party development cost estimates. These revisions could result in an incremental increase in research and development costs. Amendment No.1 to the Development and License Agreement, dated May 5, 2006 provides that Auxilium and BioSpecifics will share equally in third-party costs for the development of the lyophilization of the injection formulation. On April 11, 2008, we received an invoice for approximately $2.3 million from Auxilium, which represents an amount that Auxilium believes is owed by us through year end 2007 under this provision. We have not had adequate time to verify the accuracy or validity of the charges and have informed Auxilium that we cannot pay the invoice until we have done so.  Based on our preliminary review, we believe that only a portion of the amount charged actually relates to the development of the lyophilization of the injection formulation and, therefore, reserve all rights related to this matter, including but not limited to our right to contest the amount charged by Auxilium.  For the three and six month periods ended June 30, 2008, there has been no change to the estimated amount owed and is still currently under review
 
Actual results have differed in the past, and may differ in the future, from our estimates and could impact our earnings in any period during which an adjustment is made.

Research and Development Expenses

Our research and development (“R&D”) costs are expensed as incurred. R&D includes, but is not limited to, internal costs, such as salaries and benefits, costs of materials, lab expense, facility costs and overhead. R&D also consists of third-party costs, such as medical professional fees, contract manufacturing costs for material used in clinical trials, consulting fees and costs associated with clinical study R&D arrangements. We 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 ratably beginning upon entry into the trial and over the course of the patient’s continued participation in the trial. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial. Our estimates and assumptions could differ significantly from the amounts that may actually be incurred.

Stock-Based Compensation

Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), we estimate the fair value of our employee stock awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant of these assumptions are our estimates of the expected volatility of the market price of our stock and the expected term of the award. When establishing an estimate of the expected term of an award, we consider the
 
 
vesting period for the award, our recent historical experience of employee stock option exercises (including forfeitures) and the expected volatility. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, our valuation assumptions used to value employee stock-based awards granted in future periods may change. The weighted-average assumptions used were as follows:

 
Quarter Ended
June 30,
2008
 
Year Ended
December 31,
2007
 
Stock Option Plans
         
Expected life, in years
5.0
   
5.0
 
Risk free interest rate
3.7
%
 
5.0
%
Volatility
80
%
 
106
%
Dividend yield
   
 
           

 
Further, SFAS 123(R) requires that employee stock-based compensation costs to be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period.

Stock-based compensation expense recognized under SFAS 123(R) was as follows:

   
 Three Months Ended
June 30,
Six Months Ended
June 30,
   
     
2008
 
   
2007
   
 2008
   
2007
 
 
 
 
 
                                 
     Research and development
  $ 4,979     $ 1,660     $ 9,957     $ 4,240  
     General and administrative
    574,234       107,937       727,834       243,904  
Total stock-based compensation expense
  $ 579,213     $ 109,597     $ 737,791     $ 248,144  
                   

Stock Option Activity
 
A summary of our stock option and warrant activity during the six months ended June 30, 2008 is presented below:
 
 Option
 
Total Number
of Shares
   
Weighted-Average
Exercise Price
 
Outstanding as of December 31, 2007
    1,409,700     $ 1.86  
Granted
    155,000     $ 14.19  
Forfeited
    -       -  
Exercised
    (201,300 )   $ 1.15  
Expired
    (1,500 )   $ 4.38  
Outstanding as of June 30, 2008
    1,361,900     $ 3.37  
                 
Exercisable as of June 30, 2008
    1,125,025     $ 2.35  
 
 
The weighted-average grant-date fair value for options granted during the six months ended June 30, 2008 was $14.19 per share and $4.30 per share in the corresponding six month period of 2007. During the six months ended June 30, 2008 and 2007, $230,825 and $77,374 were received from stock options exercised by employees, respectively.
 
The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2008 was approximately $18.3 million. Aggregate intrinsic value represents the total pre-tax intrinsic value, based on the closing price of our common stock of $16.25 on June 30, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. Total unrecognized compensation cost related to non-vested stock options outstanding as of June 30, 2008 was approximately $1.1 million which we expect to recognize over a weighted-average period of 1.5 years.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on the straight-line basis over their estimated useful lives of 5 to 10 years. Leasehold improvements are being amortized over the lesser of their estimated useful lives or the life of the lease, which is approximately 8 to 10 years.

Recent Accounting Pronouncements

In June 2007, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received to Be Used in Future Research and Development Activities” (EITF No. 07-3). EITF No. 07-3 requires companies that are involved in research and development activities to defer nonrefundable advance payments for future research and development activities and to recognize those payments as goods and services are delivered. The Company will be required to assess on an ongoing basis whether or not the goods or services will be delivered and to expense the nonrefundable advance payments immediately if it is determined that delivery is unlikely. EITF No. 07-3 is effective for new arrangements entered into subsequent to the beginning of the Company’s fiscal year 2009. The adoption of this EITF did not have a material effect on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. Entities will be required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedge items affect an entity’s financial position, financial performance and cash flows. The Company is required to adopt SFAS No. 161 beginning in fiscal year 2009. We do not expect the adoption of this FAS statement to have a material effect on our consolidated financial statements.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. We do not expect the adoption of this FSP to have a material effect on our consolidated financial statements.

In May 2008, the FASB issued Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (the "FSP"), which clarifies the accounting for convertible debt instruments that may be settled in cash
 
 
(including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instruments as they existed for all periods presented. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We do not expect the adoption of this FSP to have a material effect on our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States (the GAAP hierarchy). This Statement will not have any impact on the Company’s consolidated financial statements.
 
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of this Statement is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly, this Statement does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). This Statement also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” We do not expect the adoption of this FAS statement to have a material effect on our consolidated financial statements.

In June 2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF No. 07-5”). This Issue is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early application is not permitted. Paragraph 11(a) of Statement of Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF No.07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. We do not expect the adoption of this EITF to have a material effect on our consolidated financial statements.

In June 2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming Changes to Issue No. 98-5 (“EITF No. 08-4”)”. The objective of EITF No.08-4 is to provide transition guidance for conforming changes made to EITF No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, that result from EITF No. 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Issue is effective for financial statements issued for fiscal years ending after December 15, 2008. Early application is permitted. We do not expect the adoption of this EITF to have a material effect on our consolidated financial statements.
 
 
3. NET LOSS PER SHARE
 
In accordance with SFAS No. 128, “Earnings Per Share” (SFAS 128), basic net loss per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net loss 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 warrants using the if converted method. For the three and six months ended June 30, 2008 and 2007, we incurred a net loss from continuing operations and, as such, we did not include the effect of outstanding stock options or warrants in the diluted net loss per share calculations, as their effect would have been anti-dilutive.

The following table summarizes the number of common equivalent shares excluded from the calculation of diluted net loss per share from continuing operations reported in the consolidated statement of operations as their effect would have been anti-dilutive:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2008
 
2007
 
2008
 
2007
Stock options
1,260,813
 
1,266,967
 
1,248,372
 
1,235,384
Warrants
-
 
10,000
 
-
 
10,000
Total
1,260,813
 
1,276,967
 
1,248,372
 
1,245,384

4. TOTAL COMPREHENSIVE LOSS

Comprehensive loss is comprised of net loss and other comprehensive loss.  Specifically, we include in other comprehensive loss the changes in unrealized gains and losses on our holdings of available-for-sale securities, which are excluded from our net loss. The following table presents the calculation of our comprehensive loss:
 

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Net loss
  $ 801,337     $ 478,002     $ 1,265,021     $ 1,563,800  
Other comprehensive loss:
                               
Change in unrealized losses on marketable securities
    142,184       -       354,572       -  
Total Comprehensive Loss
  $ 943,521     $ 478,002     $ 1,619,593     $ 1,563,800  
 
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
Accounts payable and accrued expenses consisted of the following:
 
  
June 30,
2008
  
December 31,
2007
Trade accounts payable and accrued expenses
    556,193
  $
686,742
Accrued legal and other professional fees
       38,773
   
98,438
Accrued payroll and related costs
       124,657
   
88,280
           
Total
 $
     719,623
  $
873,460
           
 
 
6. INCOME TAXES

We recorded minimum income tax provisions for the three and six month periods ended June 30, 2008 and 2007 of zero and $3,600, respectively

7. RELATED PARTY TRANSACTIONS
 
On February 1, 2008, the Estate of Edwin H. Wegman (the “Estate”) sold an aggregate of 344,114 shares of the Company's common stock, par value $0.001, at a purchase price of $12.00 per share to certain private investors. The Estate used certain of the proceeds of the transaction to repay the loan owed to the Company by Edwin H. Wegman, our former Chairman and CEO. The total loan repayment amount was $1,116,558, which represents the principal amount of $625,774 owed to the Company and accrued interest through January 31, 2008 of $490,784.
 
In March 2007, in full repayment of the $304,398 loan owed to the Company by Wilbur Street Corporation (“WSC”), WSC offset $304,398 in back rent due from the Company in repayment of the loan.

8. SUBSEQUENT EVENTS

On June 24, 2008, the Company announced that the date of its 2008 Annual Meeting of Stockholders will be September 9, 2008 in New York City, New York.

On July 29, 2008, DPT Lakewood, an affiliate of DFB, and the subtenant under a sublease agreement with ABC-NY, dated as of March 3, 2006, as amended on January 11, 2007 and March 19, 2008, gave notice that it would terminate its sublease with ABC-NY on October 31, 2008 in accordance with the terms of the sublease.  The sublease is for a portion of our facility in Lynbrook, New York, which is described under “Item 2—Description of Property” on our Form 10-KSB for the fiscal year ended December 31, 2007, filed with the SEC on May 2, 2008.

On August 5, 2008, the Company entered into an Executive Employment Agreement with Thomas Wegman.  Under the Agreement, Mr. Wegman will serve as the President and Principal Executive Officer of the Company for a two year period commencing on August 5, 2008.  Upon the expiration of the initial two year term, the Agreement will run for successive one year terms until terminated by the Company or Mr. Wegman at the end of the then current term upon 90 days prior notice of the termination to the other party. Mr. Wegman will earn a base compensation equal to $250,000 per year and will receive an automobile allowance of $350 per month, plus reimbursement of expenses incurred on the Company’s behalf.  Mr. Wegman will also be eligible to receive stock options, restricted stock or other equity awards at the discretion of the Board or the Compensation Committee.  The agreement was filed as an exhibit to a Form 8-K on August 8, 2008.

Item 2: Management’s Discussion and Analysis or Plan of Operation

The following discussion should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report.

Overview

We are a biopharmaceutical company that has been involved in the development of injectable collagenase for multiple indications. We have a development and license agreement with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase (which Auxilium has named “XIAFLEX TM” (formerly known as “AA4500”)) for clinical indications in Dupuytren’s disease, Peyronie’s disease and frozen shoulder (adhesive capsulitis), and Auxilium has an option to acquire additional indications that we may pursue, including cellulite and lipomas.  In June 2008, Auxilium announced positive top-line efficacy and
 
 
safety results from the CORD I and CORD II phase III clinical trials for XIAFLEX TM in the treatment of Dupuytren's contracture. In addition, Auxilium announced it intends to submit a Biologics License Application (“BLA”) for XIAFLEX in Dupuytren's contracture in early 2009.

Outlook
 
We foresee the potential to generate income from limited sources in the next several years. Under the terms of our agreement with DFB Biotech, Inc and its affiliates (“DFB”), we are scheduled to receive certain contractual anniversary payments and, if DFB exceeds a certain sales target, we would be entitled to an earn out on sales. Under the terms of our agreement with Auxilium, we may receive milestone payments upon their achieving certain regulatory progress and if Auxilium elects to pursue additional indications for injectable collagenase (“Additional Indications”).

Based on our current business model, we expect to have adequate cash reserves until the third quarter of 2009 depending on the amount actually owed to Auxilium, as discussed in Item 1A, “Risk Factors”, included in our Annual Report on Form 10-KSB for the year ended December 31, 2007. As a significant portion of our revenues is tied directly to the success of Auxilium in commercializing XIAFLEX, we cannot reasonably forecast our financial condition beyond this time.
 
Significant Risks

In recent history we have had operating losses and may not achieve sustained profitability. As of June 30, 2008, we had an accumulated deficit from continuing operations of $11,437,876.

We are dependent to a significant extent on third parties, and our principal licensee, Auxilium, may not be able to successfully develop products, obtain required regulatory approvals, manufacture products 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.

As of June 30, 2008, we held $1.4 million of taxable auction rate securities, or ARS, which are classified as long-term investments with a current market value of approximately $1.0 million. We recorded a temporary impairment within other accumulated comprehensive loss of approximately $0.2 million and $0.4 million for the three and six months ended June 30, 2008 related to these auction rate securities, respectively. The Dutch auctions have in the past provided a liquid market for these types of securities. With the liquidity issues experienced in global credit and capital markets, auctions of all the ARS we hold experienced failed auctions, beginning in February 2008, as the amount of securities submitted for sale exceeded the amount of purchase orders. If the uncertainties in the credit and capital market continue, these markets deteriorate further or there are ratings downgrades on any of the ARS we hold, we may be required to adjust the value of these investments through an impairment charge to earnings, if the fair value of these securities has declined to below their cost and such decline is assessed to be “other than temporary” under SFAS No. 115. Further, we may not be able to liquidate these investments until successful auctions occur, a buyer outside the auction process is found, the issuer calls these debt securities, or the securities mature.

Critical Accounting Policies, Estimates and Assumptions

The preparation of unaudited consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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 unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and on various other
 
 
assumptions that we believe are reasonable under the circumstances. The information at June 30, 2008 and for the three and six months ended June 30, 2008 and 2007 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, 2007 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, 2007 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2007 and 2006 included in the Company’s Form 10-KSB filed with the SEC on May 2, 2008 and our Quarterly Report on Form 10-QSB for the quarter ended March 31, 2008. While our significant accounting policies are described in more detail in the notes to our unaudited consolidated financial statements, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our unaudited consolidated financial statements.

Revenue Recognition. We recognize revenues from product sales when there is persuasive evidence that an arrangement exists, title passes, the price is fixed and determinable, and payment is reasonably assured. We currently recognize revenues resulting from the licensing and use of our technology and from services we sometimes perform in connection with the licensed technology.

We recognize royalties under the earn-out provision of the Asset Purchase Agreement with DFB. We have the right to receive earn out payments in the future based on sales of certain products.  Royalties are recognized as earned in accordance with the contract terms when royalties can be reliably measured, and collectibility is reasonably assured, such as upon the receipt of a royalty statement from our licensees. We have historically recognized royalty revenue in the quarter in which the sale was made by our licensees.
 
We enter into product development licenses, and collaboration agreements that may contain multiple elements, such as upfront license fees, and milestones related to the achievement of particular stages in product development and royalties. As a result, significant contract interpretation is sometimes required to determine the appropriate accounting, including whether the deliverables specified in a multiple-element arrangement should be treated as separate units of accounting for revenue recognition purposes, and if so, how the aggregate contract value should be allocated among the deliverable elements and when to recognize revenue for each element.
 
We recognize revenue for delivered elements only when the fair values of undelivered elements are known, when the associated earnings process is complete and, to the extent the milestone amount relates to our performance obligation, when our licensee confirms that we have met the requirements under the terms of the agreement, and when payment is reasonably assured. Changes in the allocation of the contract value between various deliverable elements might impact the timing of revenue recognition, but in any event, would not change the total revenue recognized on the contract. For example, nonrefundable upfront product license fees, for product candidates where we are providing continuing services related to product development, are deferred and recognized as revenue over the development period.

Milestones, in the form of additional license fees, typically represent nonrefundable payments to be received in conjunction with the achievement of a specific event identified in the contract, such as completion of specified clinical development activities and/or regulatory submissions and/or approvals. We believe that a milestone represents the culmination of a distinct earnings process when it is not associated with ongoing research, development or other performance on our part. We recognize such milestones as revenue when they become due and payment is reasonably assured. When a milestone does not represent the culmination of a distinct earnings process, we recognize revenue in a manner similar to that of an upfront product license fee.
 
 
We recognize revenues from a consulting and technical assistance contract primarily as a result of the Asset Purchase Agreement. Consulting revenues are recognized ratably over the term of the contract. The consulting obligations under the Asset Purchase Agreement generally expire during March 2011.

Receivables and Deferred Revenue. Under our agreement with DFB, we agreed to provide certain technical assistance and transitional services in consideration of fees and costs totaling over $1.4 million. At the closing, DFB paid to us a partial payment of $400,000 in respect of the technical assistance to be provided by us. To date, we have received a total of $1,000,000 in payments from DFB. The consulting obligations generally expire during March 2011. As of June 30, 2008 the remaining accounts receivable balance due was $400,000 for future services and was offset by the associated deferred revenues to be recognized in future periods of $400,000.

Reimbursable Third-Party Development Costs. We accrue expenses to research and development for estimated third-party development costs that are reimbursable under our agreement with Auxilium. Estimates are based on contractual terms, historical development costs, reviewing third-party data and expectations regarding future development for certain products. Further, we monitor the activities and clinical trials of our development partners.

If conditions or other circumstances change, we may take actions to revise our reimbursable third-party development cost estimates. These revisions could result in an incremental increase in research and development costs. For example, Amendment No.1 to the Development and License Agreement, dated May 5, 2006 provides that Auxilium and BioSpecifics will share equally in third-party costs for the development of the lyophilization of the injection formulation. On April 11, 2008, we received an invoice for approximately $2.3 million from Auxilium, which represents an amount that Auxilium believes is owed by us through year end 2007 under this provision. We have not had adequate time to verify the accuracy or validity of the charges and have informed Auxilium that we cannot pay the invoice until we have done so.  Based on our preliminary review, we believe that only a portion of the amount charged actually relates to the development of the lyophilization of the injection formulation and, therefore, reserve all rights related to this matter, including but not limited to our right to contest the amount charged by Auxilium.  For the three and six month periods ended June 30, 2008, there has been no change to the estimated amount owed and is still currently under review.
 
Actual results have differed in the past, and may differ in the future, from our estimates and could impact our earnings in any period during which an adjustment is made.
 
Stock Based Compensation. Under the provisions of SFAS 123(R), we estimate the fair value of our employee stock awards at the date of grant using the Black-Scholes option-pricing model, which requires the use of certain subjective assumptions. The most significant assumptions are our estimates of the expected volatility of the market price of our stock and the expected term of the award. Expected volatility is based on the historical volatility of our common stock. When establishing an estimate of the expected term of an award, we consider the vesting period for the award, our historical experience of employee stock option exercises (including forfeitures) and the expected volatility. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value employee stock-based awards granted in future periods.

Further, SFAS 123(R) requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period.
 
 
RESULTS OF OPERATIONS

THREE-MONTHS ENDED JUNE 30, 2008 AND 2007

Revenues

Product Revenues, net

Product revenues include the sales of the API Enzyme recognized at the time it is shipped to customers. From continuing operations, we had a small amount of revenue from the sale of collagenase for laboratory use.  For the three months ended June 30, 2008 and 2007 product revenues were $4,046 and $10,832, respectively. This decrease of $6,786 or 63% was primarily related to the amount of material required to perform testing by our customers.

Royalties

We received all of our royalty revenues from DFB under the earn out payment provision of the Asset Purchase Agreement. Royalty revenues recognized under our agreement with DFB for the three months ended June 30, 2008 were $2,028 and zero in the comparable period of 2007. This increase for the 2008 was due to certain foreign sales levels achieved and reported to us in the second quarter of 2008 by DFB in connection with the sale of topical collagenase.

Licensing Revenues

For the three months ended June 30, 2008 and 2007, we recognized licensing revenue of $266,282 and $289,279, respectively.  This decrease of $22,997 or 8% was primarily related to the extension of the development timeline for a certain indication for injectable collagenase under the Auxilium Agreement. Licensing revenues recognized are related to the cash payments received under the Auxilium Agreement in prior years and amortized over the expected development period.

Under current accounting guidance, nonrefundable upfront license fees for product candidates where we are providing continuing services related to product development, are deferred and recognized as revenue over the development period. The remaining balance will be recognized over the respective development periods or when we determine that we have no ongoing performance obligations.

Consulting Services

We recognize revenues from consulting and technical assistance contracts primarily as a result of the Asset Purchase Agreement and an Auxilium consulting agreement. Consulting revenues are recognized ratably over the term of the contract. The consulting obligations under the Asset Purchase Agreement generally expire during March 2011. For the three months ended June 30, 2008 and 2007 consulting revenues were $162,000 and $70,000, respectively. This increase of $92,000 or 131% was primarily due to the recognition of revenues earned in connection with the October 2007 consulting agreement with Auxilium.

Costs and Expenses

Research and Development Activities

Research and development expenses were $94,432 and $72,060 respectively, for the three months ended June 30, 2008 and 2007. This increase of $22,372 or 31% in research and development expenses was primarily due to certain external study development costs.
 
 
General and Administrative Expenses

General and administrative expenses were $1,173,316 and $812,947 for the three months ended June 30, 2008 and 2007, respectively. The increase in general and administrative expenses of $360,369 or 44% was primarily due to stock-based compensation expense partially offset by lower administrative personnel costs.

Other Income (expense), net

Other income, net, was $32,055 and $36,894 for the three months ended June 30, 2008 and 2007, respectively. The decrease in other income, net of $4,839 or 13% during the second quarter of 2008 as compared to the 2007 period was primarily due to a lower return on invested balances during the 2008 period, partially offset by a gain from proceeds received from the sale of a company owned vehicle.
 
Income Taxes

The expense for income taxes for the three month periods ended June 30, 2008 and 2007 was zero.

SIX-MONTHS ENDED JUNE 30, 2008 AND 2007

Revenues

Product Revenues, net

Product revenues include the sales of the API Enzyme recognized at the time it is shipped to customers. From continuing operations, we had a small amount of revenue from the sale of collagenase for laboratory use.  For the six months ended June 30, 2008 and 2007 product revenues were $16,799 and $11,932, respectively. This increase of $4,867 or 41% was primarily related to the amount of material required to perform testing by our customers.

Royalties

We received all of our royalty revenues from DFB under the earn out payment provision of the Asset Purchase Agreement. Royalty revenues recognized under our agreement with DFB for the six months ended June 30, 2008 were $2,028 and zero in the comparable period of 2007. This increase for the 2008 was due to certain foreign sales levels achieved and reported to us in the second quarter of 2008 by DFB in connection with the sale of topical collagenase.

Licensing Revenues

For the six months ended June 30, 2008 and 2007, we recognized licensing revenue of $532,563 and $578,558, respectively.  This decrease of $45,995 or 8% was primarily related to the extension of the development timeline for a certain indication for injectable collagenase under the Auxilium Agreement. Licensing revenues recognized are related to the cash payments received under the Auxilium Agreement in prior years and amortized over the expected development period.

Under current accounting guidance, nonrefundable upfront license fees for product candidates where we are providing continuing services related to product development, are deferred and recognized as revenue over the development period. The remaining balance will be recognized over the respective development periods or when we determine that we have no ongoing performance obligations.
 
 
Consulting Services

We recognize revenues from consulting and technical assistance contracts primarily as a result of the Asset Purchase Agreement and an Auxilium consulting agreement. Consulting revenues are recognized ratably over the term of the contract. The consulting obligations under the Asset Purchase Agreement generally expire during March 2011. For the six months ended June 30, 2008 and 2007 consulting revenues were $284,185 and $140,000, respectively. This increase of $144,185 or 103% was primarily due to the recognition of revenues earned in connection with the October 2007 consulting agreement with Auxilium.

Costs and Expenses

Research and Development Activities

Research and development expenses were $188,703 and $458,419 respectively, for the six months ended June 30, 2008 and 2007. This decrease of $269,716 or 59% in research and development expenses was primarily due to lower third-party development costs partially offset by certain external study development costs.

General and Administrative Expenses

General and administrative expenses were $1,973,772 and $1,910,414 for the six months ended June 30, 2008 and 2007, respectively. The increase in general and administrative expenses of $63,358 or 3% was primarily due to stock-based compensation expense partially offset by lower administrative personnel costs and legal fees.

Other Income (expense), net

Other income, net, was $61,879 and $78,143 for the six months ended June 30, 2008 and 2007, respectively. The decrease in other income, net of $16,264 or 21% during the six month period of 2008 as compared to the 2007 period was primarily due to a lower return on the invested balances during the 2008 period, partially offset by a gain from proceeds received from the sale of a company owned vehicle.
 
Income Taxes

The expense for income taxes for the six month periods ended June 30, 2008 and 2007 was zero and $3,600, respectively Income taxes for the six month period of 2007 primarily represents minimum payments of state franchise taxes.

Liquidity and Capital Resources

 
To date, we have financed our operations primarily through product sales, debt instruments, licensing revenues, royalties under agreements with third parties and sales of our common stock. At June 30, 2008 and December 31, 2007, we had cash and cash equivalents in the aggregate of $4,741,385 and $68,564, respectively.
 
 
Continuing Operations

Net cash used in operating activities for the six months ended June 30, 2008 was $1,164,241 as compared to net cash used in operating activities in the 2007 period of $1,499,269.  In the 2008 period, as compared to the 2007 period, the changes in net cash used in operating activities was primarily attributable to decreases in operational expenses, non-cash stock compensation expense, increases in accounts payable and accrued expenses, partially offset by deferred revenue.

Net cash used in investing activities for the six months ended June 30, 2008 was $393,000 as compared to net cash used in investing activities in the 2007 period of zero. The increase in net cash used in investing activities for the 2008 period, reflect our investment in auction rate securities of $750,000 offset by maturities of investments of $350,000 and proceeds of $7,000 from the sale of a fixed asset.

Net cash provided by financing activities for the six months ended June 30, 2008 was $6,230,062 as compared to the 2007 period of $77,374. The increase in net cash provided by financing activities for the 2008 consisted of proceeds from the sale of our common stock of $4,882,679, repayment of an outstanding loan from our former Chairman and CEO of $1,116,558 and proceeds received from stock option exercises of $230,825. Net cash provided by financing activities in the 2007 period was from proceeds received from stock option exercises.

Discontinued Operations

Net cash used in operating activities from discontinued operations for the six months ended June 30, 2008 was zero as compared to $321,037 in the comparable period of 2007.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

Pursuant to Item 305(c) of Regulation S-K, the information under this Item 3 is not required to be disclosed until after the first fiscal year end in which Item 305 is applicable.  Item 305 will be first applicable to the Company in its annual report for the fiscal year ended December 31, 2008.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of Thomas L. Wegman, the Company’s President, Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, management has concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in reports filed 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 rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control, and misstatements due to error or fraud may occur and not be detected on a timely basis.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the six month period ended June 30, 2008 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

None.

Item 1A. Risk Factors

Please see Item 1A, “Risk Factors,” included in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 filed with the SEC on May 2, 2008.

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

On May 30, 2008, the Company closed on the sale of 100,000 shares of its common stock in a private placement offering to a private investment fund at a purchase price of $13.00 per share, for aggregate proceeds to the Company of $1,300,000.00.  On June 9, 2008, the Company closed on another sale of 100,000 shares of its common stock in a private placement offering to various private investment funds at a purchase price of $15.00 per share, for aggregate proceeds to the Company of $1,500,000.00.  The shares in both transactions were offered and sold in reliance on Seciton 4(2) of the Act as private placements of securities exempt from the registration requirements of the Act.  The shares in both transactions were sold to financially sophisticated investors who had access to the sort of information which registration under the Act would disclose.  Additionally, no commissions were paid and no general solicitation was made to any person or entity in connection with the sale of the shares.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

 
3.1
Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-KSB for the fiscal years ended December 31, 2005, 2004 and 2003).
 
3.2
Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-KSB for the fiscal years ended December 31, 2005, 2004 and 2003).
 
31* 
 
32*
_____________
* filed herewith
 

SIGNATURES

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


 
BIOSPECIFICS TECHNOLOGIES CORP.  
(Registrant)


Date:  August 11, 2008
/s/ Thomas L. Wegman

Thomas L. Wegman
President
(Principal Executive and Financial Officer)