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FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File Number 0-15313
BIO-TECHNOLOGY GENERAL CORP.
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(Exact name of registrant as specified in its charter)
Delaware 13-3033811
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 Wood Avenue South, Iselin, New Jersey 08830
(Address of principal executive offices)
(732) 632-8800
(Registrant's telephone number, including area code)
Former address: Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, par value $.01 per share, outstanding as of May 3, 1999:
52,182,351
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INDEX
Page
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Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at
March 31, 1999 and December 31, 1998............... 3
Consolidated Statements of Operations
for the three months ended
March 31, 1999 and 1998............................ 4
Consolidated Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 1999........................ 5
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1999 and 1998............................ 6
Notes to Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................... 8
Part II. Other Information
Item 5. Other Information..................................... 15
Item 6. Exhibits and Reports on Form 8-K...................... 15
2
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, 1999 December 31, 1998
(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents $ 7,741 $ 9,431
Short-term investments 63,298 37,602
Accounts receivable - trade 48,246 52,429
- other 515 15,968
Inventories 6,128 4,978
Deferred income taxes 3,952 5,407
Prepaid expenses and other current assets 460 344
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Total current assets 130,340 126,159
Severance pay funded 2,286 2,233
Property and equipment, net 9,539 9,442
Intangibles, net 1,513 1,728
Patents, net 341 404
Other assets 2,530 2,629
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Total assets $ 146,549 $ 142,595
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans $ 388 $ 288
Accounts payable 4,979 5,359
Other current liabilities 10,201 10,153
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Total current liabilities 15,568 15,800
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Long-term liabilities 3,962 3,818
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Stockholders' equity:
Preferred stock - $.01 par value; 4,000,000
shares authorized; no shares issued -- --
Common stock - $.01 par value; 150,000,000 shares
authorized; issued: 52,087,000 (51,934,000 at
December 31, 1998) 521 519
Capital in excess of par value 161,846 161,164
Deficit (32,390) (36,396)
Less - treasury stock at cost, 83,000 shares (340) (340)
Accumulated other comprehensive income (2,618) (1,970)
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Total stockholders' equity 127,019 122,977
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Total liabilities and stockholders' equity $ 146,549 $ 142,595
========= =========
The accompanying notes are an integral part
of these consolidated balance sheets.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except per share data)
Three Months Ended
March 31,
1999 1998
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Revenues:
Product sales $15,867 $15,736
Contract fees 2,906 1,004
Other revenues 497 150
Interest income 958 550
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20,228 17,440
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Expenses:
Research and development 4,618 5,256
Cost of product sales 2,254 2,518
General and administrative 2,664 2,052
Marketing and sales 4,559 2,647
Commissions and royalties 321 126
Interest and finance 3 21
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14,419 12,620
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Income before income taxes 5,809 4,820
Income taxes 1,803 1,455
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Net income $ 4,006 $ 3,365
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Earnings per common share:
Basic $ 0.08 $ 0.07
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Diluted $ 0.08 $ 0.07
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Weighted average number of common
and common equivalent shares:
Basic 51,940 47,318
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Diluted 52,652 50,941
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The accompanying notes are an integral part
of these consolidated statements.
4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
Accumulated
Common Stock Capital in Other Total
Par Excess of Treasury Comprehensive Stockholders'
Shares Value Par Value Deficit Stock Income Equity
(Loss)
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Balance, December 31, 1998 51,934 $519 $161,164 $(36,396) $(340) $(1,970) $122,977
Comprehensive income:
Net income for three months
ended March 31, 1999............ 4,006 4,006
Unrealized (loss) on marketable
securities, net................. (648) (648)
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Total comprehensive income: 3,358
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Issuance of common stock........... 62 1 322 323
Exercise of stock options ......... 91 1 360 361
------ ---- -------- --------- ------ -------- --------
Balance, March 31, 1999 52,087 $521 $161,846 $(32,390) $(340) $(2,618) $127,019
====== ==== ======== ========= ====== ======== ========
The accompanying notes are an integral part
of this consolidated statement.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months
Ended March 31,
---------------------------
1999 1998
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Cash flows from operating activities:
Net income $ 4,006 $ 3,365
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 825 714
Provision for severance pay 144 2
Gain (loss) on sales of short-term investments 16 (35)
Gain on sales of fixed assets (7) --
Deferred income taxes 1,455 1,427
Common stock as payment for services 15 15
Changes in: receivables 19,636 (5,644)
inventories (1,150) (571)
prepaid expenses and other current assets (116) (75)
accounts payable (380) (387)
other assets 20 (9)
other current liabilities 148 1,184
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Net cash provided by (used in) operating activities 24,612 (14)
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Cash flows from investing activities:
Short-term investments (31,386) (11,417)
Capital expenditures (588) (310)
Severance pay funded (53) (10)
Proceeds from sales of fixed assets 30 --
Proceeds from sales of short-
term investments 5,026 1,375
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Net cash used in investing activities (26,971) (10,362)
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Cash flows from financing activities:
Proceeds from issuance of common stock 669 4,337
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Net (decrease) increase in cash and cash equivalents (1,690) (6,039)
Cash and cash equivalents at beginning of year 9,431 9,329
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Cash and cash equivalents at end of period $ 7,741 $ 3,290
======== ========
Supplementary Information
Other information:
Income tax paid $ 344 $ 25
The accompanying notes are an integral part
of these consolidated statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Statement on Adjustments
In the opinion of management, the condensed consolidated financial statements
include all adjustments, consisting of only normal recurring accruals,
considered necessary for a fair presentation. Due to fluctuations in quarterly
revenues earned, operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year. The accounting
policies continue unchanged from December 31, 1998. For further information,
refer to the Consolidated Financial Statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three months ended March 31, 1999
compared with three months ended March 31, 1998
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; introductions and advancements in
development of products, and plans and objectives related thereto; and
statements concerning assumptions made or expectations as to any future events,
conditions, performance or other matters, are "forward-looking statements" as
that term is defined under the Federal Securities Laws. Forward- looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, changes
and delays in product development plans and schedules, changes and delays in
product approval and introduction, customer acceptance of new products, changes
in pricing or other actions by competitors, patents owned by the Company and its
competitors, changes in healthcare reimbursement, risk of operations in Israel,
risk of product liability, governmental regulation, dependence on third parties
to manufacture products and commercialize products, general economic conditions,
as well as other risks detailed in the Company's filings with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
OVERVIEW
The Company is engaged in the research, development, manufacture and
marketing of biopharmaceutical products. Through a combination of internal
research and development, acquisitions, collaborative relationships and
licensing arrangements, BTG has developed a portfolio of therapeutic products,
including six products that have received regulatory approval for sale, of which
five are currently being marketed. The Company seeks both broad markets for its
products as well as specialized markets where it can seek Orphan Drug status and
potential marketing exclusivity.
The Company was founded in 1980 to develop, manufacture and market novel
therapeutic products. The Company's overall administration, licensing, human
clinical studies, marketing activities, quality assurance and regulatory affairs
are primarily coordinated at the Company's headquarters in Iselin, New Jersey.
Pre-clinical studies, research and development activities and manufacturing of
the Company's genetically engineered products are primarily carried out through
its wholly owned subsidiary in Rehovot, Israel.
RESULTS OF OPERATIONS
The following tables set forth for the fiscal periods indicated the
percentage of revenues represented by certain items reflected on the Company's
statement of operations.
8
Three Months Ended
March 31,
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1999 1998
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Revenues:
Product sales 78.4% 90.2%
Contract fees 14.4 5.8
Other revenues 2.5 0.9
Interest income 4.7 3.1
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Total 100.0% 100.0%
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Expenses:
Research and development 22.8 30.1
Cost of product sales 11.1 14.5
General and administrative 13.2 11.8
Marketing and sales 22.6 15.2
Commissions and royalties 1.6 0.7
Interest and finance -- 0.1
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Total 71.3 72.4
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Income before income taxes 28.7 27.6
Income taxes 8.9 8.3
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Net income 19.8% 19.3%
====== ======
The Company has historically derived its revenues from product sales as
well as from collaborative arrangements with third parties, under which the
Company may earn up-front contract fees, may receive funding for additional
research (including funding from the Chief Scientist of the State of Israel), is
reimbursed for producing certain experimental materials, may be entitled to
certain milestone payments, may sell product at specified prices, and may
receive royalties on sales of product. The Company anticipates that product
sales will constitute the majority of its revenues in the future. Revenues have
in the past displayed and will in the immediate future continue to display
significant variations due to changes in demand for its products, new product
introductions by the Company and its competitors, the obtaining of new research
and development contracts and licensing arrangements, the completion or
termination of such contracts and arrangements, the timing and amounts of
milestone payments, and the timing of regulatory approvals of products.
The following table summarizes the Company's sales of its commercialized
products as a percentage of total product sales for the periods indicated:
9
Three Months Ended
March 31,
------------------------
1999 1998
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Oxandrin................................. 42.4% 59.3%
Bio-Tropin............................... 31.7 27.4
BioLon................................... 14.6 9.5
Delatestryl.............................. 9.9 1.4
Other.................................... 1.4 2.4
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Total............................. 100.0% 100.0%
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The Company believes that its product mix will change significantly as it
continues to focus on: (i) increasing market penetration of its existing
products; (ii) expanding into new markets; and (iii) commercializing additional
products.
As previously announced, as a result of a slowing in the rate of increase
of Oxandrin prescriptions, Olsten Health Services, Inc., BTG's distributor for
Oxandrin, has decided to adjust future purchases to effect an adjustment in
inventory. The timing and magnitude of the adjustment are the subject of ongoing
discussions between Olsten and BTG, and will depend in large part on end-user
demand for Oxandrin. As a result, purchases of Oxandrin by Olsten are expected
to be lower than in 1998. The Company expects during 1999 to introduce Oxandrin
to promote weight gain in patients with involuntary weight loss and pressure
ulcers. Successful penetration of this new market could lead to a more rapid
rate of Oxandrin prescription growth.
The following table summarizes the Company's U.S. and international product
sales as a percentage of total product sales for the period indicated:
Three Months Ended
March 31,
----------------------
1999 1998
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United States..................... 51.9% 60.5%
International..................... 48.1 39.5
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Total...................... 100.0% 100.0%
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Comparison of Three Months Ended March 31, 1999 and March 31, 1998
Revenues. Total revenues increased 16% in the first quarter of 1999 to
$20,228,000 from $17,440,000 in the first quarter of 1998. Product sales
slightly increased by $131,000, or 1%, in the first quarter of 1999 from the
comparable prior period, as increased sales of human growth hormone ("hGH"),
BioLon and Delatestryl to BTG's distributors were almost entirely offset by
decreased sales of Oxandrin. Oxandrin sales to Olsten Corporation ("Olsten"),
the Company's wholesale and retail distributor of Oxandrin in the United States,
decreased $2,602,000, or 28%, in the first quarter of 1999 compared to the first
quarter of 1998. The decrease in sales to Olsten was due to Olsten's change in
policy to reduce the amount of Oxandrin inventory it carries; however, end-user
sales of Oxandrin by Olsten increased in the first quarter of 1999 compared to
the first quarter of 1998 as well as the fourth quarter of 1998. Product sales
of hGH,
10
BioLon and Delatestryl increased $712,000, $812,000 and $1,355,000 or 17%, 54%
and 639%, respectively. The increase in sales of hGH were primarily due to
increased sales in Japan resulting from Sumitomo Pharmaceutical Co., Ltd.
commencing distribution of the Company's hGH in Japan in January 1999. The
increase in sales of Delatestryl, which is also distributed on behalf of the
Company by Olsten, is primarily the result of the U.S. Food and Drug
Administration stopping production of a competing injectable testosterone
product currently used to treat men with hypogonadism (testosterone deficiency).
Contract fees and other revenues are primarily generated from licensing and
distribution arrangements and partial research and development funding by the
Chief Scientist of the State of Israel. Contract fees represented approximately
14% of total revenues in the first quarter of 1999 compared to 6% in the first
quarter of 1998. Of the contract fees earned in the first quarter of 1999,
$2,596,000, or 89% of total contract fees, was earned in respect of Insulin and
$175,000, or 6% of total contract fees, was earned in respect of the Company's
Vitamin D Silkis product. Of the contract fees earned in the three months ended
March 31, 1998, $500,000, or 50% of total contract fees, was earned in respect
of the license of distribution rights for BioLon in the United States and
$400,000, or 40% of total contract fees, was earned in respect of the Company's
hepatitis-B vaccine. Interest income increased $408,000, or 74%, over the
comparable prior period primarily as a result of increased cash balances
(including short-term investments) resulting mainly from exercise of warrants
(which expired December 31, 1998) and options and cash flow from operations
subsequent to March 31, 1998.
Research and Development Expense. Research and development expense
decreased 12% in the first quarter of 1999 to $4,618,000 from $5,256,000 in the
first quarter of 1998. The greater research and development expenditures in the
three month ended March 31, 1998 is mainly attributable to the Company's Phase
III clinical trial for its superoxide dismutase product. The Phase III clinical
trial, which was terminated in the second quarter of 1998, is now being
continued as a Phase II trial.
Cost of Product Sales. Cost of product sales decreased $264,000, or 10%, in
the first quarter of 1999 to $2,254,000 from $2,518,000 in the first quarter of
1998. Cost of product sales as a percentage of product sales decreased to 14.2%
as compared to 16.0% in the comparable period last year. Cost of product sales
decreased, both in absolute terms and as a percentage of revenues, primarily as
a result of increased sales of human growth hormone and manufacturing
efficiencies achieved at higher volumes, principally with BioLon. Oxandrin and
human growth hormone have a relatively low cost of manufacture as a percentage
of product sales, while BioLon has the highest cost to manufacture as a
percentage of product sales. Cost of product sales as a percentage of product
sales varies from year to year and quarter to quarter depending on the quantity
and mix of products sold.
General and Administrative Expense. General and administrative expense
increased 30% in the first quarter of 1999 to $2,664,000 versus $2,052,000 in
the comparable prior period. As a percentage of revenues, general and
administrative expense increased to approximately 13.2% of revenues in the first
quarter of 1999 versus 11.8% of revenues in the comparable prior year period.
The increase derived mainly from legal fees resulting from the reactivation in
the fourth quarter of 1998 of the Company's declaratory judgment action against
Genentech in respect of the Company's hGH in the United States.
Marketing and Sales Expense. Marketing and sales expense increased 72% in
the first quarter of 1999 to $4,559,000 from $2,647,000 for the prior year
period. As a percentage of revenues, marketing and sales expense increased to
approximately 22.6% from 15.2% for the first quarter of 1998. These expenses
primarily related to the sales and marketing force in the United States that the
Company established to promote distribution of Oxandrin in the United States.
The increase was primarily due to additional marketing and sales expenses,
primarily resulting from increased personnel and increased advertising,
promotional and market research activities.
11
Commissions and Royalties. Commissions and royalties were $321,000 in
the first quarter of 1999, as compared to $126,000 in the first quarter of 1998.
These expenses consist primarily of royalties to entities from which the Company
licensed certain of its products and to the Chief Scientist.
Income Taxes. Provision for income taxes for the three months ended
March 31, 1999 was $1,803,000, representing approximately 31% of income before
income taxes as compared to $1,455,000, or 30% of income before income taxes, in
the first quarter of 1997. The Company's consolidated tax rate differs from the
statutory rate because of Israeli tax benefits, research and experimental tax
credits and similar items which reduce the tax rate.
Earnings per Common Share. The Company had approximately 4.6 million
and 1.7 million additional basic and diluted weighted average shares outstanding
for the three month period ended March 31, 1999, as compared to the same period
in 1998, respectively. The increased number of basic shares was primarily the
result of the issuance, subsequent to March 31, 1998, of approximately 3,146,000
shares upon the exercise of warrants that expired on December 31, 1998. The
increase in the number of diluted shares was the result of the increased number
of shares outstanding, partially offset by fewer outstanding options being
considered common equivalent shares because their exercise price was above the
average fair market value of the Common Stock for the first quarter of 1999,
which average fair market value was lower than in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 1999 was $114,772,000 as
compared to $110,359,000 at December 31, 1998.
The cash flows of the Company have fluctuated significantly due to the
impact of net income and losses, capital spending, working capital requirements,
the issuance of Common Stock and other financing activities. The Company expects
that cash flow in the near future will be primarily determined by the levels of
net income and financings, if any, undertaken by the Company. Net cash decreased
by $1,690,000 and $6,039,000 in the three months ended March 31, 1999 and 1998,
respectively; however, short-term investments increased $25,696,000 and
$10,141,000, respectively, in these periods.
Net cash provided by (used in) operating activities was $24,612,000 and
$(14,000) in the three months ended March 31, 1999 and 1998, respectively. Net
income was $4,006,000 and $3,365,000 in the same periods, respectively. In the
three months ended March 31, 1999, net cash provided by operating activities was
greater than net income primarily because of changes in receivables of
$19,636,000, deferred income taxes of $1,455,000 and depreciation and
amortization of $825,000 partially offset by changes in prepaid expenses and
other assets of $1,150,000. The decrease in accounts receivable is primarily
attributable to the decrease in accounts receivable-other consisting of proceeds
due from the exercise of warrants that expired on December 31, 1998, which
proceeds were received in January 1999. In the three months ended March 31,
1998, net cash provided by operating activities was less than net income,
primarily because of an increase in accounts receivable and other and inventory
of $5,644,000 and $571,000, respectively, and a decrease in accounts payable of
$387,000, partially offset by an increase in other current liabilities of
$1,184,000, deferred income taxes of $1,427,000 and depreciation and
amortization of $714,000.
Net cash used in investing activities was $26,971,000 and $10,362,000
in the three months ended March 31, 1999 and 1998, respectively. Net cash used
in investing activities included capital expenditures of $588,000 and $310,000
in these periods, respectively, primarily for laboratory and manufacturing
equipment. The remainder of the net cash used in investing activities was
primarily for purchases and sales of short-term investments.
12
Net cash provided by financing activities was $699,000 and $4,337,000
in the three months ended March 31, 1999 and 1998, respectively, which are net
proceeds from issuances of Common Stock, primarily as a result of exercise of
stock options.
The Company has agreed to purchase a manufacturing facility in Israel
for approximately $6.5 million. The Company will initially locate its production
activities for Bio-Hep-B and Fibrimage at this new facility, and will thereafter
move the remainder of its production activities to this facility. The Company
expects the initial production facility will be ready by the end of 2000. The
Company expects it will cost approximately $30 million to complete the
production facility (excluding the cost of purchasing the facility).
The Company maintains its funds in money market funds, commercial paper
and other liquid debt instruments.
The Company manages its Israeli operations with the objective of
protecting against any material net financial loss in U.S. dollars from the
impact of Israeli inflation and currency devaluations on its non-U.S. dollar
assets and liabilities. The cost of the Company's operations in Israel, as
expressed in dollars, is influenced by the extent to which any increase in the
rate of inflation in Israel is not offset (or is offset on a lagging basis) by a
devaluation of the Israeli Shekel in relation to the U.S. dollar. The rate of
inflation (as measured by the consumer price index) was approximately 7% in 1997
and 9% in 1998, while the Shekel was devalued by approximately 9% and 18%,
respectively. In the three months ended March 31, 1999 the consumer price index
decreased at the rate of approximately 1% while the Shekel's value in relation
to the U.S. dollar increased by approximately 3%. As a result, for those
expenses linked to the Israeli Shekel, such as salaries and rent, this resulted
in corresponding decreases in these costs in U.S. dollars in 1997 and 1998, but
an increase in these costs in U.S. dollar terms in the first quarter of 1999. To
the extent that expenses in Shekels exceed BTG's revenues in Shekels (which to
date have consisted primarily of research funding from the Chief Scientist and
product sales in Israel), the devaluations of Israeli currency have been and
will continue to be a benefit to BTG's financial condition. However, should
BTG's revenues in Shekels exceed its expenses in Shekels in any material
respect, the devaluation of the Shekel will adversely affect BTG's financial
condition. Further, to the extent the devaluation of the Shekel with respect to
the U.S. dollar does not substantially offset the increase in the costs of local
goods and services in Israel, BTG's financial results will be adversely affected
as local expenses measured in U.S. dollars will increase.
At March 31, 1999, intangibles, net consist of (i) $1,191,000 (net of
amortization) relating to the repurchase of all rights to hGH previously
licensed to The DuPont Merck Pharmaceutical Company, together with all rights to
all data generated in pharmacological, toxicological and clinical studies and
encompassed in the Investigational New Drug Application and New Drug Application
files then pending with the U.S. Food and Drug Administration for the treatment
of human growth hormone-deficient children and (ii) $322,000 (net of
amortization) relating to the reacquisition of all rights to human growth
hormone licensed to Smithkline Beecham.
The Company is party to several proceedings relating to patents owned
by it or others. The Company cannot predict the costs of such proceedings, and
there can be no assurance that such costs will not be significant. Should the
Company be unsuccessful in any of these proceedings, it may be unable to
commercialize the products which are the subject of such proceedings in certain
countries, and may be unable to produce the products in Israel, which could have
a material adverse effect on the Company's revenues and results of operations.
The Company believes that its remaining cash resources as of March 31,
1999, together with anticipated product sales, scheduled payments to be made to
BTG under its current agreements with pharmaceutical partners, the proceeds from
sales of equity and continued funding from the Chief Scientist at current
levels, will be sufficient to fund the Company's current operations for the
foreseeable future. There can, however, be no assurance that product sales will
occur as anticipated, that scheduled payments will be
13
made by third parties, that current agreements will not be canceled, that the
Chief Scientist will continue to provide funding at current levels, or that
unanticipated events requiring the expenditure of funds will not occur. The
satisfaction of the Company's future cash requirements will depend in large part
on the status of commercialization of the Company's products, the Company's
ability to enter into additional research and development and licensing
arrangements, and the Company's ability to obtain additional equity investments,
if necessary. There can be no assurance that the Company will be able to obtain
additional funds or, if such funds are available, that such funding will be on
favorable terms.
YEAR 2000
The Company uses and relies on a variety of information technologies,
computer systems and scientific and manufacturing equipment containing
computer-related components (such as programmable logic controllers and other
embedded systems). Certain of the Company's computer systems and equipment use
two digit fields rather than four digit fields to define the applicable year. As
a result, such systems may not be able to distinguish between dates in the 20th
century and the 21st century. This could cause system or equipment shutdowns,
failures or miscalculations resulting in inaccuracies in computer output or
disruptions of operations, including inaccurate processing of financial
information and/or temporary inabilities to process transactions, manufacture
products or engage in normal business activities.
The Company has conducted an evaluation of the actions necessary to
ensure that its business critical computer systems and equipment will be able to
function without disruption with respect to the application of dating systems in
the Year 2000. This evaluation was completed by the end of 1998, following which
the Company upgraded, replaced and tested its computer systems and equipment so
as to be able to operate without disruption due to Year 2000 issues. The Company
expects to complete all its remediation efforts before the end of 1999. However,
there can be no assurance that any required remedial actions will be able to be
completed on a timely basis. If the Company is unable to complete its remedial
actions in the necessary time frame, contingency plans will be developed to
address those business critical systems which may not be Year 2000 compliant.
In addition to risks associated with the Company's own computer systems
and equipment, the Company has relationships with, and is to varying degrees
dependent upon, a number of third parties that provide goods, services and
information to the Company. These include contract manufacturers, suppliers,
licensees, vendors, research partners and financial institutions. If any of
these third parties experience failures in their computer systems or equipment
due to Year 2000 non-compliance, which systems and equipment are outside the
control of the Company, it could affect the Company's ability to manufacture
products or engage in normal business activities. The Company has made contact
with all of its significant customers, suppliers, vendors and partners to
determine the extent to which the Company is vulnerable to their failures and to
ascertain their Year 2000 compliance and risk. Based on these responses, the
Company believes that its significant customers, suppliers, vendors and partners
will be Year 2000 compliant.
The total cost of the Year 2000 systems evaluation and remediation is
being funded through operating cash flows and the Company is expensing these
costs. While the total cost to obtain Year 2000 compliance is not known at this
time, the Company currently expects the cost to be less than $100,000, of which
approximately [$25,000] has been expended through March 31, 1999. The actual
cost, however, could exceed this estimate. The Company believes that such cost
will not have a material effect on the Company's financial position, results of
operations or cash flows.
14
PART II. OTHER INFORMATION
Item 5. Other Information
In March 1999, Solchem Italiana, S.p.A. ("Solchem") filed a declaratory
judgment action in Federal court seeking a determination that it was not an
affiliate of Societa Prodottie Antibiotici, S.p.A. ("SPA") at the time BTG
contracted with SPA to be an alternative supplier of oxandrolone, and therefore
is not bound by the exclusivity provisions of the supply agreement, which
require SPA and its affiliates to supply oxandrolone exclusively to BTG in the
United States. The Company believes it has meritorious defenses to this action,
and intends to defend it vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
10.1 Employment Agreement dated as of April 27, 1999, by and
between Bio-Technology General Corp. and Virgil Thompson.
10.2 Employment Agreement dated as of April 27, 1999, by and
among Bio-Technology General Corp., Bio-Technology General
(Israel) Ltd. and Eli Admoni.
27 Financial Data Schedule
15
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.
BIO-TECHNOLOGY GENERAL CORP.
----------------------------
(Registrant)
By: /s/ Sim Fass
---------------------------
Sim Fass
Chairman and
Chief Executive Officer,
Principal Executive Officer
/s/ Yehuda Sternlicht
---------------------------
Yehuda Sternlicht
Vice President-Finance and
Chief Financial Officer,
Principal Financial and
Accounting Officer
Dated: May 15, 1999
16