UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2017March 31, 2020

OR

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

 001-34236
 (Commission file number)

BIOSPECIFICS TECHNOLOGIES CORP.
 (Exact Name of Registrant as Specified in Its Charter)

Delaware11-3054851
(State or Other Jurisdiction(I.R.S. Employer
of Incorporation or Organization)(I.R.S. Employer Identification No.)

2 Righter Parkway, Suite 200, Wilmington, DE  19803
35 Wilbur Street Lynbrook, NY 11563
 (Address of Principal Executive Offices) (Zip Code)

516.593.7000302.842.8450
 (Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐

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

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

Large accelerated filer ☐
Accelerated filer                    ☒
Non-accelerated filer   ☐ (Do not check if a smaller reporting company)
Smaller reporting company   ☐☒

Emerging growth company   ☐

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

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

Yes ☐ No ☒

Indicate the number of shares outstandingSecurities registered pursuant to Section 12(b) of the issuer’s classes of common stock, as of the latest practicable date:Act:

ClassTitle of Stock
each class
Outstanding November 8, 2017
Trading Symbol(s)		Name of each exchange on which registered
Common Stock, ($.001$0.001 par value)value per share7,189,233BSTCThe Nasdaq Capital Market

As of May 11, 2020, there were 7,335,974 shares of Common Stock, par value $0.001 per share, outstanding.

BIOSPECIFICS TECHNOLOGIES CORP.

TABLE OF CONTENTS

 Page
 PART I – FINANCIAL INFORMATION 
ITEM 1.
Financial Statements
4
 
5
6
 6
7
 7
8
ITEM 2.1720
ITEM 3.25
ITEM 4.2625

 PART II – OTHER INFORMATION 
ITEM 1.26
ITEM 1A.26
ITEM 2.2628
ITEM 6.2829
 2930

2
Introductory Comments – Terminology

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

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

Introductory Comments – Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of, and made pursuant to the safe harbor provisions of, the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, expected revenue growth, and the assumptions underlying or relating to such statements, are “forward-looking statements.” The forward-looking statements in this Quarterly Report on Form 10-Q include statements concerning, among other things, (i) the continued commercialization of XIAFLEX to treat Dupuytren’s contracture and Peyronie’s disease; the continued marketing and commercialization of XIAFLEX to treat Dupuytren’s contracture and Peyronie’s disease in Europe, Eurasia, Japan, Canada and Australia; Endo’s ability to obtain required regulatory approvals; Endo’s ability to manufacture XIAFLEX at an acceptable cost, in a timely manner and with appropriate quality; successful development of XIAFLEX for additional indications; the ability to successfully develop, market and commercialize our drug candidates; the funding of research and development at medical institutions under agreements that are generally cancellable; the future receipt of payments from Endo, including milestone and royalty payments, in connection with the License Agreement; the recognition of the $8.25 million payment from Endo in connection with the First Amendment;  the plansopportunity for the repurchase of stockminimally invasive non-surgical treatment XIAFLEX® in several potential pipeline indications; (ii) whether and reacquired stock; the suspension or discontinuation of the stock repurchase plan; the risk of doubtful accounts and how we provide for estimates of uncollectable accounts; the adoption of new accounting pronouncements and their impact; which accounting policies we consider to be critical to the estimates and judgments used to prepare the unaudited condensed consolidated financial statements; the effect of changes in interest rates on the Company’s results of operations, financial position and cash flow; changes in internal controls; the ability of internal controls and procedures to achieve desired control objectives; the existence of significant uncertain tax positions and provision for income taxes; the sufficiency of the Company’s available funds and cash flow from operations to meet our operational cash needs; whether the carrying amounts of the Company’s financial instruments approximate fair value due to the nature of the instruments; the changes in the Company’s exposure to market risk; the fair value of the Company’s stock option awards; whether the Company’s bank account balances will exceed insured limits; whether the Company is exposed to any significant credit risk on our cash; our milestone achievements and payments; whether we will continue to make payments to buy down our future royalty obligations; whether we will experience uneven payment flows due to the variance in financial terms in contracts with third parties to perform clinical trial activities and ongoing development of potential drugs; estimates concerning our development period; our interpretation of the definition of milestone; whetherwhen the Company will choose to cancel the lease prior to the expiration of the term; whether and when we will hearreceive from Endo the results of their ongoingfull commercial reviewassessment and analysis regarding the XIAFLEXXIAFLEX® research and development (R&D) pipeline; (iii) the timingCompany’s ability to achieve its future growth initiatives with regard to Dupuytren’s Contracture and Peyronie’s disease; (iv) the expansion of the market for XIAFLEX® through future growth initiatives; (v) whether treating uterine fibroids with XIAFLEX® will achieve the advantages over major surgery identified by the Company; (vi) Endo’s determinationinterest in currently unlicensed indications, including capsular contracture of clinical trial timelinesthe breast, Dercum’s disease, knee arthrofibrosis, urethral strictures, hypertrophic scars and keloids; (vii) whether XIAFLEX® will be the only U.S. Food and Drug Administration (FDA) approved nonsurgical therapy for additional indications;frozen shoulder (adhesive capsulitis); (viii) the projected receipt of payments from Endo and sublicense income payments based on Endo’s partnerships; (ix) the naturestrength of our accounts receivable balance. the Company’s IP portfolio; and (x) the impacts of the novel coronavirus (COVID-19) global pandemic.

In some cases, these statements can be identified by forward-looking words such as “anticipate,” “believe,” “project,” “expect,” “plan,” “anticipate,” “potential,” “estimate,” “likely,” “may,“can,” “will,” “can,” and “could,“continue,” the negative or plural of these words, and other similar expressions. These forward-looking statements are predictions based on our current expectations and our projections about future events and various assumptions. There can be no assurance that we will realize our expectations or that our beliefs will prove correct. There are a number of important factors that could cause BioSpecifics’ actual results to differ materially from those indicated by such forward-looking statements, including the timing of regulatory filings and action; the ability of Endo and its partners, Asahi Kasei Pharma Corporation, Actelion Ltd. and Swedish Orphan Biovitrum AB, to achieve their objectives for XIAFLEX in their applicable territories; the market for XIAFLEXXIAFLEX® in, and timing, initiation and outcome of clinical trials for, additional indications, thatwhich will determine the amount of milestone, royalty, mark-up on cost of goods sold, license and sublicense income that BioSpecifics may receive; the potential of XIAFLEXXIAFLEX® to be used in additional indications; Endo modifying its objectives or allocating resources other than to XIAFLEXXIAFLEX®; and other risk factors identified herein and in BioSpecifics’ Quarterly Reports on Form 10Q for the periods ended March 31, 2017 and June 30, 2017 and ourCompany’s Annual Report on Form 10-K for the year ended December 31, 2016 2019 (the “2019 Annual Report”), specifically in Part I, Item IA of the 2019 Annual Report under the heading “Risk Factors” and its Current Reports on Form 8-K filed withunder the Securitiessection “Management’s Discussion and Exchange Commission. Analysis.” All forward-looking statements included in this Quarterly Report on Form 10-Q for the three month period ended March 31, 2020 are made as of the date hereof, are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q and, except as may be required by law, we assume no obligation to update these forward-looking statements.

PART I – FINANCIAL INFORMATION

Item 1:1.Condensed Consolidated Financial Statements

BioSpecifics Technologies Corp.
Condensed Consolidated Balance Sheets

  
September 30,
2017
    
December 31,
2016
   
March 31,
2020
  
December 31,
2019
 
 (unaudited)  (audited)  (unaudited)  (audited) 
Assets            
Current assets:            
Cash and cash equivalents $6,422,358  $4,763,364  
$
19,134,304
  
$
4,999,183
 
Short term investments  48,166,583   44,254,862  
85,084,651
  
84,239,918
 
Accounts receivable  4,681,885   3,810,792  
17,750,829
  
19,065,919
 
Income tax receivable  56,930   494,711 
Deferred royalty buy-down  1,566,078   1,451,893 
Prepaid expenses and other current assets  673,064   624,345   
898,598
   
966,456
 
Total current assets  61,566,898   55,399,967  122,868,382  109,271,476 
              
Long-term investments  6,717,196   3,771,380  
9,385,996
  
16,569,024
 
Deferred royalty buy-down – long term, net  757,021   1,976,456 
Deferred tax assets, net  2,992,001   3,290,122 
Property and equipment, net 
68,313
  
-
 
Operating lease right-of-use asset 
220,530
  
239,491
 
Patent costs, net  227,868   258,355  
564,301
  
573,277
 
Other assets  
139,265
   
-
 
              
Total assets $72,260,984  $64,696,280  $133,246,787  $126,653,268 
              
Liabilities and stockholders’ equity              
Current liabilities:              
Accounts payable and accrued expenses $785,275  $738,649  
$
1,628,515
  
$
998,409
 
Deferred revenue  1,134,031   1,179,848 
Accrued liabilities of discontinued operations  78,138   78,138 
Income tax payable 
1,640,478
  
354,984
 
Current portion of lease obligation  
77,358
   
69,099
 
Total current liabilities  1,997,444   1,996,635  3,346,351  1,422,492 
              
Long-term deferred revenue  5,555,743   6,417,702 
Lease obligation 
146,994
  
167,014
 
Deferred tax liability, net  
484,259
   
572,660
 
Total liabilities 3,977,604  2,162,166
 
              
Commitments and Contingencies      
Stockholders’ equity:              
Series A Preferred stock, $.50 par value, 700,000 shares authorized; none outstanding  -   -  
-
  
-
 
Common stock, $.001 par value; 10,000,000 shares authorized; 7,575,167 and 7,555,167 shares issued, 7,164,233 and 7,156,281 shares outstanding as of September 30, 2017 and December 31, 2016, respectively  7,575   7,555 
Common stock, $.001 par value; 10,000,000 shares authorized; 7,815,230 and 7,813,230 shares issued, 7,337,511 and 7,339,578 shares outstanding as of March 31, 2020 and December 31, 2019, respectively 
7,815
  
7,813
 
Additional paid-in capital  33,303,898   32,945,240  
39,856,101
  
39,355,797
 
Retained earnings  39,294,524   30,610,849  
101,145,333
  
96,646,527
 
Treasury stock, 410,934 and 398,886 shares at cost as of September 30, 2017 and December 31, 2016, respectively  (7,898,200)  (7,281,701)
Treasury stock, 477,720 and 473,653 shares at cost as of March 31, 2020 and December 31, 2019, respectively  
(11,740,066
)
  
(11,519,035
)
Total stockholders’ equity  64,707,797   56,281,943   129,269,183   124,491,102 
              
Total liabilities and stockholders’ equity $72,260,984  $64,696,280  $133,246,787  $126,653,268 

See accompanying notes to condensed consolidated financial statements.

BioSpecifics Technologies Corp.
Condensed Consolidated Income Statements
(unaudited)

  
Three Months Ended
March 31,
 
  2020  2019 
Revenues:      
Royalties 
$
9,668,667
  
$
8,129,141
 
Total Revenues  9,668,667   8,129,141 
         
Costs and expenses:        
Research and development  
121,970
   
149,536
 
General and administrative  
3,168,046
   
2,907,160
 
Restructuring charges  
1,146,045
   
-
 
Total Costs and Expenses  4,436,061   3,056,696 
         
Operating income  5,232,606   5,072,445 
         
Other income:        
Interest income  
479,709
   
449,425
 
         
Income before income tax expense  
5,712,315
   
5,521,870
 
Provision for income tax expense  (1,213,509)  (1,105,275)
         
Net income $4,498,806  $4,416,595 
         
Basic net income per share $0.61  $0.61 
Diluted net income per share $0.61  $0.60 
         
Shares used in computation of basic net income per share  7,337,668   7,276,885 
Shares used in computation of diluted net income per share  7,361,533   7,338,128 
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Revenues:            
Royalties $6,511,700  $6,119,815  $20,729,017  $18,843,273 
Licensing revenues  4,408   762,345   13,226   787,034 
Total Revenues  6,516,108   6,882,160   20,742,243   19,630,307 
                 
Costs and expenses:                
Research and development  356,847   312,907   949,359   1,005,884 
General and administrative  2,175,501   1,843,368   6,916,501   5,909,785 
Total Cost and Expenses  2,532,348   2,156,275   7,865,860   6,915,669 
                 
Operating income  3,983,760   4,725,885   12,876,383   12,714,638 
                 
Other income:                
Interest income  193,462   80,674   436,210   200,704 
Other income  14,667   6,254   40,651   37,448 
   208,129   86,928   476,861   238,152 
                 
Income before income tax expense  4,191,889   4,812,813   13,353,244   12,952,790 
Provision for income tax expense  (1,477,057)  (1,759,220)  (4,669,569)  (4,497,359)
                 
Net income $2,714,832  $3,053,593  $8,683,675  $8,455,431 
                 
                 
Basic net income per share $0.38  $0.43  $1.21  $1.20 
Diluted net income per share $0.37  $0.42  $1.19  $1.16 
                 
Shares used in computation of basic net income per share  7,164,934   7,062,543   7,166,470   7,031,068 
Shares used in computation of diluted net income per share  7,314,609   7,280,375   7,325,602   7,277,780 

See accompanying notes to condensed consolidated financial statements.

5
BioSpecifics Technologies Corp.
Condensed Consolidated Statements of Stockholders’ Equity


 
Common Stock
  
        
 
  
Shares
Amount
  
Additional
Paid in
Capital
  
Retained
Earnings
  
Treasury
Stock
  
Stockholders’
Equity
Total
 
Balances - December 31, 2018  7,738,167  $7,738  $36,302,446  $72,176,719  $ (10,898,383) $97,588,520 
Issuance of common stock upon stock option exercise  
2,000
   
2
   
58,418
   -   -   
58,420
 
Stock compensation expense  -   -   
141,788
   
-
   -   
141,788
 
Net income  -   -   -   
4,416,595
   
-
   
4,416,595
 
Balances – March 31, 2019  7,740,167  $7,740  $36,502,652  $76,593,314  $ (10,898,383) $102,205,323 


 
Common Stock
  
        
 
  Shares Amount  
Additional
Paid in
Capital
  
Retained
Earnings
  
Treasury
Stock
  
Stockholders’
Equity
Total
 
Balances - December 31, 2019  7,813,230  $7,813  $39,355,797  $96,646,527  $ (11,519,035) $124,491,102 
Stock compensation expense  
-
   
-
   
500,306
   
-
   -   
500,306
 
Issuance of common stock upon vesting of RSUs  
2,000
   
2
   
(2
)
  
-
   
-
   
-
 
Repurchases of common stock  -   -   
-
   
-
   
(221,031
)
  
(221,031
)
Net income  -   -   -   
4,498,806
   
-
   
4,498,806
 
Balances – March 31, 2020  7,815,230  $7,815  $39,856,101  $101,145,333  $ (11,740,066) $129,269,183 

See accompanying notes to condensed consolidated financial statements.

BioSpecifics Technologies Corp.
Condensed Consolidated Statements of Cash Flows
(unaudited)

 
Nine Months Ended
September 30,
  
Three Months Ended
March 31,
 
Cash flows from operating activities: 2017  2016  2020  2019 
Net income $8,683,675  $8,455,431  $4,498,806  $4,416,595 
Adjustments to reconcile net income to net cash provided by operating activities:              
Amortization  1,632,823   1,215,814 
Depreciation and amortization 
22,234
  
203,731
 
Stock-based compensation expense  100,428   100,428  
500,306
  
141,788
 
Deferred tax expense  298,121   (2,747,864)
Deferred tax expense (credit) 
(88,401
)
 
-
 
Non-cash lease expense 
18,961
  
-
 
(Accretion) amortization of bond (discount) premium 
132,663
  
(50,470
)
Changes in operating assets and liabilities:              
Accounts receivable  (871,093)  (1,298,832) 
1,315,090
  
41,897
 
Income tax receivable  437,781   916,843 
Income tax payable 
1,285,494
  
1,097,913
 
Prepaid expenses and other current assets  (48,719)  (170,591) 
(71,408
)
 
42,359
 
Patent costs  -   (23,341) 
(12,101
)
 
-
 
Accounts payable and accrued expenses  46,626   380,858  
630,107
  
146,073
 
Income taxes payable  -   279,333 
Deferred revenue  (907,776)  7,667,163 
Lease obligation  
(11,761
)
  
-
 
Net cash provided by operating activities  9,371,866   14,775,242  8,219,990  6,039,886 
              
Cash flows from investing activities:              
Maturity of marketable investments  43,579,082   32,548,040 
Purchases of property and equipment 
(69,470
)
 
-
 
Maturities of marketable investments 
35,263,937
  
20,152,229
 
Purchases of marketable investments  (50,933,705)  (47,568,734)  
(29,058,305
)
  
(21,829,557
)
Net cash used in investing activities  (7,354,623)  (15,020,694)
Net cash provided by (used in) investing activities 6,136,162  (1,677,328)
              
Cash flows from financing activities:              
Proceeds from stock option exercises  258,250   529,300  
-
  
58,420
 
Payments for repurchase of common stock  (616,499)  (898,025)  
(221,031
)
  
-
 
Excess tax benefits from share-based payment arrangements  -   224,047 
Net cash used in financing activities  (358,249)  (144,678)
Net cash (used in) provided by financing activities (221,031) 58,420 
              
Increase (decrease) in cash and cash equivalents  1,658,994   (390,130)
Increase in cash and cash equivalents 
14,135,121
  
4,420,978
 
Cash and cash equivalents at beginning of year  4,763,364   5,137,875   
4,999,183
   
13,176,452
 
Cash and cash equivalents at end of period $6,422,358  $4,747,745  $19,134,304  $17,597,430 
              
Supplemental disclosures of cash flow information:              
Cash paid during the period for:              
Interest  -   -  
-
  
-
 
Taxes $4,410,000  $5,825,000  
$
16,416
  
$
7,362
 

See accompanying notes to condensed consolidated financial statements.

BIOSPECIFICS TECHNOLOGIES CORP.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017March 31, 2020
(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (“CCH”) for multiple indications. We maintain intellectual property with respect to an injectable CCH that treats, among other indications, Dupuytren’s contracture (“DC”), Peyronie’s disease (“PD”), cellulite, frozen shoulder syndrome, plantar fibromatosis, and uterine fibroids. Injectable CCH currently have a developmentis approved and marketed in the U.S. under the trademark XIAFLEX® for the treatment of both DC and PD. We generate revenue primarily from our license agreement (the “License Agreement”) with Endo, Global Ventures, a Bermuda unlimited liability company (“Endo Global Ventures”), an affiliate of Endo International plc (“Endo”), for injectable collagenase for marketed indicationsunder which we receive license, sublicense income, royalties, milestones, and indications in development. Endo assumed this agreement when Endo acquired Auxilium Pharmaceuticals, Inc. (“Auxilium”) on January 29, 2015 (the “Acquisition”). Injectable collagenase clostridium histolyticum is marketed as XIAFLEX® (or Xiapex® in Europe).

On February 1, 2016, we entered into with Endo the First Amendment (the “First Amendment”) to the License Agreement. The First Amendment was filed with the SEC on February 5, 2016 as Exhibit 10.1 to a Current Report on Form 8-K. The effective date of the First Amendment was January 1, 2016. Pursuant to the First Amendment, we and Endo mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.

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

The two marketed indications involving our injectable collagenase are Dupuytren’s contracture and Peyronie’s disease. Priorpayments related to the Acquisition, Auxilium had,sale, regulatory submissions, and after the Acquisition, Endo has, opted-inapproval of XIAFLEX®.
We have developed injectable CCH for 12 clinical indications to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosisdate, and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEXcurrently are evaluating CCH as a treatment for uterine fibroids and initiate the development of XIAFLEX in new potential indications, not licensed by Endo.

On November 8, 2016, following a change in Endo management, Endo announced that a commercial review is ongoing of the XIAFLEX exercised but non-marketed indications, including frozen shoulder, cellulite, lateral hip fat, plantar fibromatosis and human lipoma, so that Endo can best prioritize its R&D efforts and determine clinical trial timelines moving forward. We are awaiting an update on Endo’s ongoing commercial review but Endo is moving forward with the cellulite indication and has stated publicly their interest to move forward with the frozen shoulder indication.

Endo is currently selling XIAFLEX in the U.S. for the treatment of Dupuytren’s contracture and Peyronie’s disease and has anfibroids. Under our license agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant to which Sobi has marketing rights for Xiapex for Dupuytren’s contracture and Peyronie’s disease in Europe and certain Eurasian countries. In addition, Endo, has an agreement with Asahi Kasei Pharma Corporation (“Asahi”) pursuant to which AsahiEndo has the right to commercialize XIAFLEXfurther develop CCH for frozen shoulder and plantar fibromatosis, as well as certain other licensed indications. Endo has a right to opt-in for use of CCH in the treatment of Dupuytren’s contractureuterine fibroids.
On August 31, 2011, we entered into the Second Amended and Peyronie’s diseaseRestated Development and License Agreement (as amended, the “License Agreement”) with Auxilium Pharmaceuticals, Inc. (“Auxilium”), an entity that was acquired by Endo in Japan.2015. The License Agreement originally was entered into in June 2004 to obtain exclusive worldwide rights to develop, market, and sell certain products containing our enzyme CCH, which Endo markets for approved indications under the trademark XIAFLEX®. Endo’s licensed rights concern the development and commercialization of products, other than dermal formulations labeled for topical administration. Currently, Endo’s licensed rights cover the indications of DC, PD, cellulite, frozen shoulder, plantar fibromatosis, and other potential indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.
On February 26, 2019, we entered into the Second Amendment to the Second Amended and Restated Development and License Agreement (the “Second Amendment”) (effective as of January 1, 2019) to amend certain provisions of the License Agreement to, among other things, require Endo to provide timely estimates of royalties to assist us in complying with our financial reporting obligations. Pursuant to the terms of the Second Amendment, we have consented to the assignment of the License Agreement by Endo Global Ventures to Endo Global Aesthetics Limited, an Irish private company and an affiliate of Endo Global Ventures that is indirectly wholly-owned by Endo.
Under the License Agreement, Endo is currently distributing XIAFLEXresponsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products. Endo has the option to license development and marketing rights to these indications based on a full analysis of the data from the clinical trials, which would transfer responsibility for the future development costs to Endo and trigger opt-in payments and potential future milestone and royalty payments to us.
The License Agreement extends, on a country-by-country and product-by-product basis, for the longer of the patent life, the expiration of any regulatory exclusivity period or twelve years from the effective date. Either party may terminate the License Agreement as a result of the other party’s breach or bankruptcy.
Endo must pay us on a country-by-country and product-by-product basis a specified percentage, which typically is in Canada through Paladin Labs Inc, the low double digits, of net sales for products covered by the License Agreement. This royalty applies to net sales by Endo or its sublicensees. Endo also is obligated to pay a percentage of any future regulatory or commercial milestone payments received from such sublicensees. In addition, Endo and its affiliates pay us an operating companyamount equal to a specified mark-up on certain cost of Endo. In December 2016,goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage of the cost of goods of XIAFLEX®) for products sold by Endo entered into a new out-licensing agreement with Actelion, pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX in Australia and New Zealand.its affiliates.
 
78
Endo had previously collaborated with partners to commercialize XIAFLEX® and Xiapex® outside of the United States; however, Endo is in the process of terminating third party partnership agreements for markets outside of the United States, which will reduce the amount of royalty revenues received by us. We do not believe that this reduction will have a material effect on our future consolidated statements of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2020, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s 2019 Annual Report.

Basis of Presentation

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

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the risk factors discussed herein and in “PartPart I, Item 1A. Risk Factors”Factors in our Quarterly Reports on Form 10Q for the periods ended March 31, 2017 and June 30, 2017 filed with the SEC on May 10, 2017 and August 9, 2017, respectively, and our2019 Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 16, 2017.2020.

Principles of Consolidation

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

Risks and Uncertainties

We are subject to risks and uncertainties as a result of the global COVID-19 pandemic. While we expect that COVID-19 will impact our business to some degree, the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, and other unforeseeable consequences.

Critical Accounting Policies, Estimates and Assumptions

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

Under Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), we recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation(s).
Revenues, and their respective treatment for financial reporting purposes under ASC 606 and our license agreement with Endo, are as follows:
Royalty Buy-Down.” Actual/ Mark-Up on Cost of Goods Sold
We receive royalty revenues on net sales and mark-up on cost of goods sold revenue in the U.S. under our License Agreement with Endo. These are presented in “Royalties” in our condensed consolidated statements of income.  We do not have future performance obligations under this revenue stream. In accordance with ASC 606, we record these revenues based on estimates of the net sales that occurred during the relevant period. The relevant period estimates of these royalties are based on data provided by Endo and analysis of historical royalties and mark-up on cost of goods sold revenue that have been paid to us, adjusted for any changes in facts and circumstances, as appropriate. Differences between actual and estimated royalty revenues are adjusted for in the period in which they become known. The royalties payable by Endo to us are subject to set-off for certain patent costs.
Licensing Revenue
We include revenue recognized from upfront licensing, sublicensing, and milestone payments in “License Revenues” in our condensed consolidated statements of income.
The Company recognizes licensing revenues generated through development and/or commercialization agreements. The terms of these agreements typically include payment to the Company of one or more of the following: nonrefundable, upfront license fees; sublicensing; development and commercial milestone payments; development activities; and royalties on net sales of licensed products. Each of these types of payments results may differin licensing revenues except for revenues from royalties on net sales of licensed products and the mark-up of cost of goods sold revenues which are classified as royalty revenues. Revenue is recognized upon satisfaction of a performance obligation by transferring control of a good or service to the customer.
For each development and/or commercialization agreement that result in revenues, the Company identifies all performance obligations, aside from those estimates.that are immaterial, which may include a license to intellectual property and know-how, development activities, and/or transition activities. In order to determine the transaction price, in addition to any upfront payment, the Company estimates the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract. The Company constrains (reduces) the estimates of variable consideration such that it is probable that a significant reversal of previously recognized revenue will not occur throughout the life of the contract. When determining if variable consideration should be constrained, management considers whether there are factors outside the Company’s control that could result in a significant reversal of revenue. In making these assessments, the Company considers the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative standalone selling price prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.  For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.  The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Development and Regulatory Milestone Payments
Depending on facts and circumstances, the Company may conclude that it is appropriate to include the milestone, representing variable consideration, in the estimated total transaction price, or that it is appropriate to fully constrain the milestone. The Company may include revenues from certain milestones in the total transaction price in a reporting period before the milestone is achieved if the Company concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such development milestones and any related constraint each reporting period. The Company adjusts its estimate of the total transaction price, including the amount of revenue that it has recorded, if necessary.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted
We adopted ASU No. 2018-13, Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement as of January 1, 2020. This standard modifies certain disclosure requirements on fair value measurements. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2023. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes. This standard removes certain exceptions to the general principles of ASC 740 and improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company is required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

Cash, Cash Equivalents, and Investments

Cash equivalents include only securities having a maturity of three months90 days or less at the time of purchase.  Investments are stated on an amortized cost basis. The Company limits its credit risk associated with cash, cash equivalents, and investments by placing its investments with banks it believes are highly creditworthy and with highly rated money market funds, certificates of deposit, commercial paper, U.S. government agency bonds, municipal bonds, and corporate and municipal bonds. All investments are classified as held to maturity. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the aggregate fair valueamortized cost of these cash, cash equivalents and investments was $61.3$94.5 million and $52.8$100.8 million, respectively. No unrealized gains or losses were recorded in either period.

Fair Value Measurements

Management believes that the carrying amounts of the Company’s financial instruments, including cash, cash equivalents, held to maturityheld-to-maturity investments, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short-term natureduration of those instruments. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, there were no recorded unrealized gains or losses on our investments as they are held to maturity.classified as held-to-maturity. As of September 30, 2017March 31, 2020 ,and December 31, 2019, amortized cost basis of the investments approximated their fair value. At September 30, 2017March 31, 2020 and December 31, 2016,2019, the amortized premiumnet discount / (net premium) included in interest income was $497,000approximately $134,000 and $610,000,$32,000, respectively.  At March 31, 2020 and December 31, 2019, the remaining unamortized net premium / (net discount) was approximately $221,000 and $285,000, respectively.

The following table presents the Company’s schedule of maturities at September 30, 2017March 31, 2020 and December 31, 2016:2019 are as follows:


 
Maturities as of
March 31, 2020
  
Maturities as of
December 31, 2019
 

 
1 Year or
Less
  
Greater than 1
Year
  
1 Year or
Less
  
Greater than 1
Year
 
Municipal bonds 
$
8,749,716
  
$
-
  
$
11,341,249
  
$
-
 
Government agency bonds  
3,423,351
   
3,242,692
   
11,950,738
   
6,231,804
 
US Treasury bonds  
6,027,090
   
-
   
-
   -
 
Corporate bonds  
62,633,006
   
3,636,086
   
57,321,784
   
6,675,958
 
Certificates of deposit  
4,251,488
   
2,507,218
   
3,626,147
   
3,661,262
 
Total $85,084,651  $9,385,996  $84,239,918  $16,569,024 
  
Maturities as of
September 30, 2017
  
Maturities as of
December 31, 2016
 
  
1 Year or
Less
  
Greater than 1
Year
  
1 Year or
Less
  
Greater than
1 Year
 
Municipal bonds $1,460,078  $-  $6,967,954  $586,074 
Corporate bonds  43,880,944   6,472,487   30,418,120   2,936,287 
Certificates of deposit  2,825,561   244,709   6,868,788   249,019 
Total $48,166,583  $6,717,196  $44,254,862  $3,771,380 
The authoritative literature for fair value measurements established a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value. These tiers are as follows: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than the quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs (entity developed assumptions) in which little or no market data exists.

As of September 30, 2017,March 31, 2020, the Company held certain investments that are required to be measured at fair value on a recurring basis. The following tables present the Company’s fair value hierarchy for these financial assets as of September 30, 2017March 31, 2020 and December 31, 2016:
September 30, 2017
Type of Instrument
 Fair Value  Level 1  Level 2  Level 3 
                  
Cash equivalentsInstitutional Money Market $3,565,530  $3,565,530  $-  $- 
                  
InvestmentsMunicipal Bonds  1,460,078   -   1,460,078   - 
                  
InvestmentsCorporate Bonds  50,353,431   -   50,353,431   - 
                  
InvestmentsCertificates of Deposit  3,070,270   3,070,270   -   - 
December 31, 2016
Type of Instrument
 
Fair Value
  
Level 1
  
Level 2
  
Level 3 
              
Cash equivalentsInstitutional Money Market $2,290,331  $2,290,331  $-  $- 
                  
InvestmentsMunicipal Bonds  7,554,028   -   7,554,028   - 
                  
InvestmentsCorporate Bonds  33,354,407   -   33,354,407   - 
                  
InvestmentsCertificates of Deposit  7,117,807   7,117,807   -   - 
2019:

March 31, 2020
 
Type of Instrument
 
Fair Value
  
Level 1
  
Level 2
  
Level 3
 
Cash equivalents
 
Institutional Money Market
 
$
8,456,598
  
$
8,456,598
  
$
-
  
$
-
 
Investments
 
Certificates of Deposit
  
6,758,706
   
6,758,706
   
-
   
-
 
Cash equivalents
 
Municipal Bonds
  
1,003,616
   
-
   
1,003,616
   
-
 
Investments
 
Municipal Bonds
  
8,749,716
   
-
   
8,749,716
   
-
 
Investments
 
Government Agency Bonds
  
6,666,043
   
-
   
6,666,043
   
-
 
Investments
 
US Treasury Bonds
  
6,027,090
   
-
   
6,027,090
   
-
 
Cash equivalents
 
Corporate Bonds
  5,075,742   
-
   5,075,742   
-
 
Investments
 
Corporate Bonds
  66,269,092   
-
   66,269,092   
-
 

December 31, 2019
 
Type of Instrument
 
Fair Value
  
Level 1
  
Level 2
  
Level 3
 
Cash equivalents
 
Institutional Money Market
 
$
950,658
  
$
950,658
  
$
-
  
$
-
 
Investments
 
Certificates of Deposit
  
7,287,409
   
7,287,409
   
-
   
-
 
Investments
 
Municipal Bonds
  
11,341,249
   
-
   
11,341,249
   
-
 
Investments
 
Government Agency Bonds
  
18,182,542
   
-
   
18,182,542
   
-
 
Investments
 
Corporate Bonds
  63,997,742   
-
   63,997,742   
-
 

Concentration of Credit Risk and Major Customers

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

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

The Company is currently dependent on one customer, Endo, whowhich generates almost all itsthe Company’s revenues. For the threethree-month periods ended March 31, 2020 and nine months ended September 30, 2017,2019, licensing, sublicensing, milestones, and royalty revenues under the License Agreement with Endo were approximately $6.5$9.7 million and $20.7 million, respectively, and for the three and nine months ended September 30, 2016, the licensing, sublicensing, milestones and royalty revenues under the License Agreement with Endo were approximately $6.9 million and $19.6$8.1 million, respectively.

At September 30, 2017March 31, 2020 and December 31, 2016,2019, our accounts receivable balances from Endo were $4.7$17.8 million and $3.8$19.1 million, respectively.

Revenue Recognition
We currently recognize revenues resulting from the licensing and sublicensing of the use of our technology and from services we sometimes perform in connection with the licensed technology under the guidance of Accounting Standards Codification 605, Revenue Recognition (“ASC 605”).

If we determine that separate elements exist in a revenue arrangement under ASC 605, 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:

Royalty / Mark-Up on Cost of Goods Sold

For those arrangements for which royalty and mark-up on cost of goods sold information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period in which it is earned. For interim quarterly and year-end reporting purposes, when collectability is reasonably assured, but a reasonable estimate of royalty and mark-up on cost of goods sold cannot be made, the royalty and mark-up on cost of goods sold are generally recognized in the quarter that the applicable licensee provides the written report and related information to us.

Under the License Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royalties and a mark-up on the cost of goods sold. The royalty and mark-up on cost of goods sold will generally be recognized in the quarter that Endo provides the written reports and related information to us; that is, royalty and mark-up on cost of goods sold are generally recognized one quarter following the quarter in which the underlying sales by Endo occurred. The royalties payable by Endo to us are subject to set-off for certain patent costs.

Pursuant to the First Amendment with Endo, in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016. We classified this payment as deferred revenue in our balance sheet and began recognizing this income over time in the second quarter of 2016 based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy. We recognized approximately $266,000 and $895,000 for the three and nine months ended September 30, 2017, respectively. We recognized approximately $274,000 and $546,000 for the three and nine months ended September 30, 2016, respectively.

Licensing Revenue

We include revenue recognized from upfront licensing, sublicensing and milestone payments in “License Revenues” in our condensed consolidated statements of income in this Quarterly Report on Form 10-Q.

Upfront License and Sublicensing Fees

We generally recognize revenue from upfront licensing and sublicensing fees when the license or sublicense 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. We recognized deferred revenue of $4,408 and $13,226 for the three and nine months ended September 30, 2017, respectively, and $12,345 and $37,034 for the three and nine months ended September 30, 2016, respectively.

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 license or sublicense agreement, 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 an 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, are 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 U.S. Food and Drug Administration 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. We did not recognize any milestone revenue in the three and nine month periods ended September 30, 2017 and 2016.
Treasury Stock
 
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. For the ninethree months ended September 30, 2017,March 31, 2020, we repurchased 12,0484,067 shares at an average price of $51.17 as compared to$54.35 aggregating approximately $221,000.  For the repurchase of 24,020three months ended March 31, 2019, there were no shares at an average price of $37.39 in the corresponding 2016 period.repurchased.
 
Receivables and Doubtful Accounts

Trade accounts receivable are stated at the amount the Company expects to collect. We may maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We consider the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms.  Our accounts receivable balance is typically due from Endo, our onesingle large specialty pharmaceutical customer.  Endo has historically paid timely and has been a financially stable organization.  Due to the nature of the accounts receivable balance, we believe the risk of doubtful accounts is minimal.minimal and therefore no allowance is recorded.  If the financial condition of our customer were to deteriorate, adversely affecting its ability to make payments, additional allowances would be required.  We may provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. At September 30, 2017March 31, 2020 and December 31, 20162019, our accounts receivable balance was $4.7$17.8 million and $3.8$19.1 million, respectively, and was from one customer, Endo.

Deferred Revenue

Deferred revenue consists of the remaining $6.5 million related to the First Amendment with Endo of mark-up on cost of goods sold revenue for sales by non-affiliated sublicensees, approximately $44,000 related to nonrefundable upfront product license fees for product candidates for which we are providing continuing services related to product development and $100,000 related to a milestone payment withheld by Endo due to a foreign tax withholding which remains uncollected. Currently, the Company expects to recover the full amount. As of September 30, 2017 and December 31, 2016, deferred revenue was $6.7 million and $7.6 million, respectively.

Reimbursable Third-Party Patent Costs

We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and maintenance and expense others. As of September 30, 2017 and December 31, 2016, our net reimbursable third party patent expense was zero and $25,000, respectively.

Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC.agreement. No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties. We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that Endo provides the written reports and related information to us; that is, generally one quarter following the quarter in which the underlyingnet sales by Endohave occurred. For the three and nine monththree-month periods ended September 30, 2017,March 31, 2020 and 2019, third-party royalty expenses were $0.2 million and $0.4 million, and $1.4 million, respectively. ForAs of March 31, 2019, we have no further third-party royalties in connection with PD as the three and nine month periods ended September 30, 2016, third-party royalty expenses were $0.4 million and $1.2 million, respectively. Our third-party royalty expense under general and administrative expenses may increase if net sales by Endo and its partners for XIAFLEX and Xiapex increase and potential new indications for XIAFLEX and Xiapex are approved, marketed and sold.agreement has expired.

Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with Peyronie’s disease.PD. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, fourall of which have been paid as of September 30, 2017.  We are currently making the payments to buy down the future royalty obligations, which royaltyJanuary 1, 2018.  Royalty obligations terminate five years after first commercial sale, which occurred in January 2014. Accordingly, we ceased paying royalties in February 2019. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEXXIAFLEX® and XiapexXiapex® for Peyronie’s diseasePD on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three and nine months ended September 30, 2017,March 31, 2019, we amortized approximately $0.4 million and $1.1$0.2 million related to this agreement respectively, and $0.2 millionis recorded as part of general and $0.7 million for the three and nine months ended September 30, 2016, respectively.administrative expenses. As of September 30, 2017both March 31, 2020 and December 31, 2016, the2019, there were no remaining capitalized balances were approximately $2.3 million and $3.4 million, respectively. We perform an evaluation of the recoverability of the carrying valueoutstanding related to determine if facts and circumstances indicate that the carrying value of the assets may be impaired and if any adjustment is warranted.  As of September 30, 2017, there was no indicator that an impairment existed.this agreement.
 
Research and Development Expenses

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

Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with various clinical trial centers and clinical research consultants.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

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

On June 13, 2019, at the Company’s annual meeting of stockholders, the Company’s stockholders approved the 2019 Omnibus Incentive Compensation Plan (the “2019 Plan”). Upon the 2019 Plan’s approval, approximately 1,247,598 shares of Company common stock were available for issuance thereunder, consisting of 1,100,000 shares authorized for issuance under the 2019 Plan and 147,598 shares then remaining available for issuance under the Company’s 2001 Stock Option Plan (the “2001 Plan”). The 2019 Plan replaced the 2001 Plan. No new awards may be granted under the 2001 Plan; however, awards outstanding under the 2001 Plan remain subject to and will be settled under the applicable 2001 Plan. As of March 31, 2020, options to purchase 61,687 shares of common stock were outstanding under the 2001 Plan.

Grants under the 2019 Plan may consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards, or cash awards. Employees, key advisors, or non-employee directors are eligible to participate in the 2019 Plan. Grants under the 2019 Plan vest over periods ranging from one to four years and expire ten years from date of grant. As of March 31, 2020, options to purchase 120,000 shares of common stock and 9,450 restricted stock awards were outstanding under the 2019 Plan, and a total of 1,154,648 shares remain available for grant under the 2019 Plan.

2019 Omnibus Incentive Compensation Plan (2019 Plan)

Under ASC 718, we estimate the fair value of our employee stock option 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 estimatesRestricted Stock Awards
A summary of the expected volatility of the market price of ourrestricted stock and the expected term of an award. When establishing an estimate of the expected term of an option award, we consider the vesting period for the award, our recent historical experience of employee stock option exercises (including forfeitures) and the expected volatility of our common stock.  As required under the accounting rules, we review our estimates at each grant date and, as a result, the valuation assumptions that we use to value employee stock-based awards granted in future periods may change. No stock options were grantedactivity during the ninethree months ended September 30, 2017 and 2016.March 31, 2020 is presented below:

Further, ASC 718 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.
  Restricted Stock 
Weighted-Average Grant Date Fair Value Per
Share
 
Nonvested at December 31, 2019
  
10,450
  
$
60.47
 
Granted
  
1,000
   
50.51
 
Vested
  
(2,000
)
  
53.69
 
Forfeited
      
-
 
Nonvested at March 31, 2020
  
9,450
  
$
60.85
 

Stock-based compensation expense related to restricted stock awards recognized in general and administrative expensesexpense was approximately $33,000$144,000 and $100,000 for each three and nine month periods ended September 30, 2017 and approximately $33,000 and $100,000zero for the three and ninethree-month periods months ended September 30, 2016,March 31, 2020 and 2019, respectively.

As of March 31, 2020, there was approximately $144,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements related to restricted stock. This cost is expected to be recognized over the vesting periods of the restricted stock, with a weighted-average period of approximately 0.25 years.
Stock Option Activity

For the three months ended March 31, 2020, we granted a total of 30,000 stock options with a weighted average grant date fair value of $22.70 per share.
The assumptions used in the valuation of stock options granted during the three months ended March 31, 2020 were as follows:

Three Months Ended
March 31, 2020
Risk-free interest rate0.70% - 1.61%
Expected term of option5.5 - 6.25 years
Expected stock price volatility39.5% - 40.6%
Expected dividend yield$
0.0

A summary of our stock option activity during the ninethree months ended September 30, 2017March 31, 2020 is presented below:

  Shares  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Term
  
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2016  297,000  $20.14   3.10  $10,561,380 
Grants  -   -   -   - 
Exercised  (20,000)  12.91   -   - 
Forfeitures or expirations  -   -   -   - 
Outstanding at September 30, 2017  277,000  $20.66   2.49  $7,162,770 
Exercisable at September 30, 2017  242,000  $18.90   2.20  $6,683,370 
  Shares  
Weighted
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Term
  
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2019  189,187  $46.79   8.62  $1.920,684 
Grants  30,000   56.11   -   - 
Exercised  -   -   -   - 
Forfeited  (37,500)  57.48   -   - 
Outstanding at March 31, 2020  181,687  $46.12   7.49  $1,898,560 
Exercisable at March 31, 2020  54,187  $39.74   2.69  $911,735 

During the ninethree-month periods months ended September 30, 2017March 31, 2020 and 2016,2019, the Company received $0.3 million approximately zero and $0.5 million,$58,000, respectively, from stock options exercised by option holders.

Aggregate intrinsic value represents the total pre-tax intrinsic value based on the closing price of our common stock of $46.52$56.57 on September 30, 2017,March 31, 2020, which would have been received by the option holders had all option holders exercised their options as of that date. We have approximately $169,000$2.3 million in unrecognized compensation cost related to stock options outstanding as of September 30, 2017,March 31, 2020, which we expect to recognize over the next 1.53.75 years.

Stock-based compensation expense related to stock options recognized in general and administrative expenses was approximately $166,000 and $142,000 for the three-month periods ended March 31, 2020 and March 31, 2019, respectively.  In addition, stock compensation expense related to restructuring associated with the acceleration of vesting of certain stock options and restricted stock units was approximately $190,000 for the three months ended March 31, 2020 (see Note 7).

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Machinery and equipment, furniture and fixtures, and autos are depreciated on a straight-line basis over their estimated useful lives of five to ten years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the remaining life of the lease. At eachMarch 31, 2020, total property and equipment consisted of September 30, 2017furniture and fixtures of approximately $68,000 with an expected useful life of five years. As of December 31, 2016,2019, all property and equipment were fully depreciated.

Comprehensive Income

For each of the three and nine monththree-month periods ended September 30, 2017March 31, 2020 and 2016,2019, we had no components of other comprehensive income other than net income itself.

Provision for Income Taxes

Deferred tax assetsWe use the asset and liabilitiesliability method of accounting for income taxes, as set forth in ASC 740-10-25-2. Under this method, deferred income taxes, when required, are recognized basedprovided on the expected future tax consequences, using current tax rates,basis of temporary differencesthe difference between the financial statement carrying amountsreporting and the income tax basis of assets and liabilities.liabilities at the statutory rates enacted for future periods when the differences are expected to reverse. A valuation allowance is applied against any net deferred tax asset if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We use the asset and liability method of accounting for income taxes, as set forth in Accounting Standards Codification 740-10-25-2. Under this method, deferred income taxes, when required, are provided on the basis of the difference between the financial reporting and income tax basis of assets and liabilities at the statutory rates enacted for future periods. In accordance with Accounting Standards Codification 740-10-45-25, Income Statement Classification of Interest and Penalties, we classify interest associated with income taxes under interest expense and tax penalties under other.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, the Company has not recorded any unrecognized tax benefits. We classify interest associated with income taxes under interest expense and tax penalties under other.

Commitments and Contingencies
16
Lease Obligation

On November 6, 2017,
We determine if an arrangement includes a lease at inception. Right-of-use lease assets and lease liabilities are recognized based on the Company entered intopresent value of the future minimum lease payments over the lease term at the commencement date. The right-of-use lease asset includes any lease payments made and excludes lease incentives. Incremental borrowing rate is used in determining the present value of future payments. We apply a portfolio approach to the property leases to apply an agreementincremental borrowing rate to leases with similar lease terms. The lease terms may include options to extend or terminate the Landlordlease. We recognize the options to extend the termlease as part of the right-of-use lease toassets and lease liabilities only if it is reasonably certain that the Headquartersoption would be exercised. Lease expense for an additional one year period (the “Extended Lease Agreement”).minimum lease payments is recognized on a straight-line basis over the non-cancelable lease term. The one year extension will end on November 30, 2018. Pursuant toadoption of the Extended Lease Agreement, the base rent is $11,165 per month and the Company may cancel the lease with three months’ prior written notice to the Landlord at any time during the term. The Extended Lease Agreement was filed with the SECnew standard as Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q on November 9, 2017.

Adopted Accounting Standard

In March 2016, the Financial Accounting Standards Board, (“FASB”) issued ASU 2016-09, which amends the existing accounting standards for share-based payments, including the accounting for income taxes and forfeitures, as well as the classifications on the statements of cash flows. We adopted this guidance effective January 1, 2017. Beginning January 1, 2017, stock-based compensation excess tax benefits or tax deficiencies are reflected in the consolidated statements of operations as a component of the provision for taxes, whereas they previously were recognized as additional paid in capital in the stockholders’ deficit in the consolidated balance sheets. We have elected to continue to estimate forfeitures expected to occur to determine stock-based compensation expense. Additionally, beginning with the three months ended March 31, 2017, and on a prospective basis, the consolidated statements of cash flows now requires excess tax benefits be presented as an operating activity rather than as a financing activity, while the payment of withholding taxes on the settlement of stock-based compensation awards continues to be presented as a financing activity. The implementation of this guidance2019 did not have a material impact on theour consolidated financial statements for the three and nine months ended September 30, 2017.March 31, 2019 due to the short-term nature of our existing lease in Lynbrook, New York.
In December 2019, we recorded a right-of-use lease asset of $243,000, a short-term lease liability of $76,000, and a long-term lease liability of $167,000 associated with the lease of our new headquarters in Wilmington, Delaware.
The following table summarizes the maturity of the Company’s lease obligations on an undiscounted cash flow basis and a reconciliation to the operating lease liabilities recognized on our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:
  March 31, 2020  December 31, 2019 
2020 $61,815  $75,352 
2021  84,893   84,893 
2022  87,428   87,428 
Total lease payments  234,136   247,673 
Less: interest  (9,784)  (11,560)
Total lease obligation $224,352  $236,113 

On January 7, 2020, the Company provided three months’ notice to 35 Wilbur Street Associates, LLC of the Company’s intent to terminate the lease agreement for our former corporate headquarters, located at 35 Wilbur St., Lynbrook, New York 11563. Accordingly, the lease terminated on April 7, 2020.  As the lease provided the Company the option to cancel the lease by giving three months’ prior written notice, the Company did not incur any termination penalties.

New Accounting PronouncementsOperating lease expenses amounted to approximately $57,000 and $34,000 for the three-month periods ended March 31, 2020 and 2019, respectively.

FASB, issued several accounting standards updates establishing ASC Topic 606, “Revenue from Contracts with Customers”.  ASC 606 requires retrospective implementation, and replaces most industry-specific revenue recognition guidance in U.S. GAAP with a new principles-based, five-step revenue recognition model. It also requires new disclosures, such as qualitative and quantitative information about revenue recognized from contracts with customers (including disaggregated revenue, contract balances, and performance obligations) and significant judgments and changes in judgments.  ASC 606 provides specific guidance for determining whether to recognize licensing revenue at a point in time or over time, and application of this guidance may result in a different pattern of recognition than under current us GAAP.  We plan to adopt this guidance effective January 1, 2018, as required. We understand that the adoption of ASC 606, and particularly the standards enhanced use of management estimates, has the potential to materially impact our revenue recognition process, opening balances and related disclosures. We are in the process of completing the analysis of ASC 606’s impact on our royalty and licensing revenue and expect to complete this process in the fourth quarter of 2017.

In January 2016, the FASB issued new guidance on recognition and measurement of financial assets and financial liabilities. The new guidance will impact the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities (other than those accounted for under the equity method of accounting) will generally be measured at fair value with changes in fair value recognized through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income (loss) for equity securities with readily determinable fair values). In addition, the FASB clarified the need for a valuation allowance on deferred tax assets resulting from unrealized losses on available-for-sale debt securities. In general, the new guidance will require modified retrospective application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings. This guidance will be effective for us on January 1, 2018. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosure but we do not currently have any available-for-sale equity investments.
In February 2016, FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the lease commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted.  Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the expected impact that the standard could have on our consolidated financial statements and related disclosures.

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available for sale debt securities and accounts receivable. The Company is required to adopt this standard starting in the first quarter of fiscal year 2021. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

3. NET INCOME PER SHARE

In accordance with Accounting Standards Codification ASC 260, Earnings Per Share, basic net income per share amount is computed using the weighted-average number of shares of common stock outstanding during the periods presented, while diluted net income per share is computed using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of diluted earnings per share result from the assumed exercise of stock options and restricted stock awards using the treasury stock method.

The following table summarizes For the numberthree-month periods ended March 31, 2020 and 2019, there were 23,865 and 61,243, respectively of common equivalent shares attributable to stock options and restricted stock awards that were included in the calculation of diluted net income per share. There were 180,500 and 50,000 stock options and restricted stock awards excluded forfrom the calculation of diluted net income per share reported infor the condensed consolidated statement of operations.periods ended March 31, 2020 and 2019, respectively, because their effects are anti-dilutive.

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
Stock options  20,000   20,000   20,000   20,000 

For the three and nine months ended September 30, 2017 and 2016, the Company had 20,000 options, which have an exercise price of $29.21, and will vest upon the achievement of certain performance criteria, which have not yet been met.  These options expire on December 2, 2019.  As of October 25, 2017, these 20,000 options have been cancelled due to a change in status of a certain consultant.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

  
September 30,
2017
    
December 31,
2016
   
March 31,
2020
  
December 31,
2019
 
Trade accounts payable $218,020  $505,098  
$
216,453
  
$
197,077
 
Accrued legal and other professional fees  233,240   51,000  
333,558
  
330,787
 
Accrued payroll and related costs  244,045   182,551  
18,293
  
209,330
 
Third party royalties
 
169,000
  
228,000
 
Restructuring accrual (See Note 7)
 
866,377
  
-
 
Other accruals  89,970   -   
24,834
   
33,215
 
        
Total $785,275  $738,649  $1,628,515  $998,409 

5. PATENT COSTS

We amortize intangible assets with definite lives on a straight-line basis over their remaining estimated useful lives, ranging from twoone to tennine years, and review for impairment on a quarterly basis and when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  We analyze our intangible assets, specifically, capitalized patent costs, on an annual basis for any indicator that anAs of March 31, 2020 and December 31, 2019, no impairment exist.existed, and no adjustments were warranted.

For the nine months ended September 30, 2017, we did not increaseAdditions to our capitalized patent costs based on reports provided to us by Endo.during the three-month periods months ended March 31, 2020 and 2019 were approximately $12,000 and zero, respectively. Patent costs may be creditable against future royalty revenues. For each period presented below, net patent costs consisted of:

  
September 30,
2017
    
December 31,
2016
   
March 31,
2020
  
December 31,
2019
 
Patents $720,601  $720,601  $
1,284,725
  
$
1,272,625
 
Accumulated amortization  (492,733)  (462,246)  
(720,424
)
  
(699,348
)
 $227,868  $258,355  $564,301  $573,277 

The amortization expense for patents for the three and ninethree-month periods months ended September 30, 2017March 31, 2020 and 2019 was approximately $10,200$21,000 and $30,500, respectively and for the three and nine months ended September 30, 2016 was approximately $10,300 and $29,600,$19,000, respectively. The estimated aggregate amortization expense for the remaining threenine months of 20172020 and each of the years below is approximately as follows:

October 1, 2017 - December 31, 2017 $10,200 
2018  40,600 
2019  40,600 
2020  28,600 
2021  16,600 
Thereafter  91,300 
April 1, 2020 – December 31, 2020
 
$
63,000
 
2021
  
66,500
 
2022
  
66,500
 
2023
  
66,500
 
2024
  
66,500
 
Thereafter  
235,000
 

6. PROVISION FOR INCOME TAXES

In determining ourOur deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options and other items. The provision for income taxes we consider all available information, including operating results, ongoingis based on an estimated effective tax planning,rate derived from our consolidated earnings before taxes, adjusted for nondeductible expenses and forecasts of future taxable income. The significant components ofother permanent differences for the Company’s deferred tax assets consist of stock-based compensation and deferred revenues.fiscal year. For the three and ninethree-month periods months ended September 30, 2017,March 31, 2020 and 2019, the provision for income taxes was $1.5$1.2 million and $4.7$1.1 million, respectively. As of September 30, 2017March 31, 2020 and December 31, 2016,2019, our remaining deferred tax assetsliabilities were approximately $3.0$0.5 million and $3.3$0.6 million, respectively.
 
ForThe estimated effective tax rate for the threethree-month periods ended March 31, 2020 and nine months ended September 30, 2016,2019 was 21.2% and 20.0%, respectively, of pre-tax income reported in the provisionperiod, calculated based on the estimated annual effective rate anticipated for income taxes was $1.8 millionthe year ending December 31, 2020 and $4.5 million, respectively.
As2019 plus the effects, if any, of September 30, 2017, the Company believes that there are no significant uncertain tax positionscertain discrete items occurring in 2020 and no amounts have been recorded for interest and penalties.2019.
 
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act made various tax law changes including, among other things, (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest, (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid taxes. The income tax provisions of the CARES Act had limited applicability to the Company as of March 31, 2020, and therefore, the enactment of the CARES Act did not have a material impact on the Company’s consolidated financial statements as of, and for the three months ended, March 31, 2020. We will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretative guidance becomes available.
7. RESTRUCTURING COSTS
On January 7, 2020, we announced that we would be relocating our corporate headquarters from Lynbrook, New York to Wilmington, Delaware as of April 7, 2020.  On January 6, 2020, in connection with this relocation, we notified  five employees and one consultant that their services would no longer be required effective March 31, 2020.  On March 23, 2020, the five employees and one consultant were given separation agreements detailing the termination benefits to which they would be entitled.

As a result, we recorded a restructuring charge of approximately $1.1 million in the first quarter of fiscal 2020. The restructuring charge is primarily associated with $0.9 million of one-time termination benefits that we expect to pay out in cash, $0.2 million of one-time non-cash termination expenses associated with the acceleration of vesting of certain stock options and restricted stock units, and facility exit expenses.  We expect to pay the cash termination benefits over a period of six months beginning April 2020. The estimated liability for termination benefits which will be paid out over six months was recorded at fair value during the first quarter of 2020 as a current liability in the consolidated balance sheet.  These termination benefits consist of severance payments, reimbursement of benefits payments, and guaranteed consulting payments.  Total charges and payments related to the restructuring plan recognized in the condensed consolidated statement of operations are as follows:

  
Three Months Ended
March 31,
 
  2020 
Restructuring accrual, January 1, 2020
 
$
-
 
Termination costs
  
1,070,024
 
Facility exit costs
  
76,020
 
Payments
  
(89,235
)
Stock compensation expense charged to additional paid-in-capital
  
(190,432
)
Restructuring accrual, March 31, 2020
 
$
866,377
 

8. SUBSEQUENT EVENTS
On April 6, 2020, the Company and Mr. J. Kevin Buchi mutually agreed that Mr. Buchi would step down as Chief Executive Officer and as a director of the Company, effective immediately. The Company and Mr. Buchi have entered into a separation agreement that details the termination benefits to which he is entitled. The Company will pay approximately $0.6 million in termination benefits over the next 12 months related to this agreement.
In connection with Mr. Buchi’s separation from the Company, on April 6, 2020, the Board approved the appointment of Mr. Joseph Truitt to serve as the Company’s Chief Executive Officer on an interim basis. Mr. Truitt was also appointed as a Class I member of the Board. On May 11, 2020, the Company announced Mr. Truitt’s appointment as the permanent Chief Executive Officer, effective May 7, 2020.
Item 2:2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensedconsolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and is qualified by reference to them.

Overview

We are a biopharmaceutical company involved in the development of an injectable collagenase clostridium histolyticum (“CCH”) for multiple indications. We currently have a development and license agreement (the “License Agreement”) with Endo Global Ventures, a Bermuda unlimited liability company (“Endo Global Ventures”), an affiliateCollagenases are naturally occurring enzymes responsible for the breakdown of Endo International plc (“Endo”), for injectable collagenase for marketed indications and indicationscollagen, which is the main structural protein in development. Endo assumed this agreement when Endo acquired Auxilium Pharmaceuticals, Inc. (“Auxilium”) on January 29, 2015 (the “Acquisition”). Injectable collagenase clostridium histolyticum is marketed as XIAFLEX® (or Xiapex®the extracellular matrix in Europe).

On February 1, 2016, we entered into with Endo the First Amendment (the “First Amendment”) to the License Agreement. The First Amendment was filed with the SEC on February 5, 2016 as Exhibit 10.1 to a Current Report on Form 8-K. The effective datevarious connective tissues of the First Amendment was January 1, 2016. Pursuantbody and is the most abundant protein in mammals. Local accumulations of excess collagen are associated with a number of medical conditions.
We maintain intellectual property with respect to the First Amendment, wean injectable CCH that treats, among other indications, Dupuytren’s contracture (“DC”), Peyronie’s disease (“PD”), cellulite, frozen shoulder syndrome, plantar fibromatosis, and Endo mutually agreed that in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales madeuterine fibroids. Injectable CCH currently is marketed in the U.S. and sales made in any other country whereby our partner Endo sellsPharmaceuticals under the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016 and began recognizing this income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy in the second quarter of 2016.

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

The two marketed indications involving our injectable collagenase are Dupuytren’s contracture and Peyronie’s disease. Prior to the Acquisition, Auxilium had, and after the Acquisition, Endo has, opted-in to the following indications: frozen shoulder, cellulite, canine lipoma, lateral hip fat, plantar fibromatosis and human lipoma. Endo exercised, with our consent, an early opt-in for lateral hip fat and plantar fibromatosis in November 2015. Endo opted-in for human lipoma in July 2016. We manage the development of XIAFLEX for uterine fibroids and initiate the development of XIAFLEX in new potential indications, not licensed by Endo.

On November 8, 2016, following a change in Endo management, Endo announced that a commercial review is ongoing of the XIAFLEX exercised but non-marketed indications, including frozen shoulder, cellulite, lateral hip fat, plantar fibromatosis and human lipoma, so that Endo can best prioritize its R&D efforts and determine clinical trial timelines moving forward. We are awaiting an update on Endo’s ongoing commercial review but Endo is moving forward with the cellulite indication and has stated publicly their interest to move forward with the frozen shoulder indication.

Endo is currently selling XIAFLEX in the U.S.trademark XIAFLEX® for the treatment of Dupuytren’s contractureboth DC and Peyronie’s diseasePD. XIAFLEX® is the first and has anonly FDA-approved nonsurgical treatment for these two indications.. We generate revenue primarily from our license agreement with Swedish Orphan Biovitrum AB (“Sobi”), pursuant toEndo, under which Sobi has marketing rights for Xiapex for Dupuytren’s contracture and Peyronie’s disease in Europe and certain Eurasian countries. In addition, Endo has an agreement with Asahi Kasei Pharma Corporation (“Asahi”) pursuant to which Asahi has the right to commercialize XIAFLEX for the treatment of Dupuytren’s contracture and Peyronie’s disease in Japan. Endo is currently distributing XIAFLEX in Canada through Paladin Labs Inc, an operating company of Endo. In December 2016, Endo entered into a new out-licensing agreement with Actelion, pursuant to which Actelion obtained marketing and commercial rights for XIAFLEX in Australia and New Zealand.

Operational Highlights

Our Phase 1 clinical trial of XIAFLEX for the treatment of uterine fibroids is ongoing and we plan to announce the results in 2018. The study, being conducted at the Department of Gynecology & Obstetrics at Johns Hopkins University, is designed to enroll 15 female subjects treated prior to hysterectomy. The primary endpoint of the study will assess the safety and tolerability of a single injection of XIAFLEX directly into the uterine fibroids under transvaginal ultrasound guidance. The secondary endpoints will assess symptoms of pain and bleeding, quality of life throughout the study, shrinkage of XIAFLEX treated fibroids in size, increased rates of apoptosis in treated fibroids and a decrease in the collagen content of the treated fibroids.
Outlook

We generated revenue from primarily one source, the License Agreement.  Under the License Agreement, we receive license, sublicense income, royalties, milestones and mark-up on cost of goods sold payments related to the sale, regulatory submissions and approval of XIAFLEX®.
We have developed injectable CCH for 12 clinical indications to date. Under our license agreement with Endo, Endo has the right to further develop CCH for frozen shoulder and plantar fibromatosis, as well as certain other licensed indications. Endo has a right to opt-in for use of CCH in the treatment of uterine fibroids.
First Quarter Highlights and Outlook


•
XIAFLEX® royalty revenue increased by approximately 19% for the first quarter of 2020 as compared to the same period in 2019, which increase was attributable to royalties associated with higher net sales of XIAFLEX® by Endo in DC and PD.
Endo has filed a biologics license application for CCH for the treatment of cellulite with the FDA. The Prescription Drug User Fee Act date for CCH for the treatment of cellulite is expected to be July 6, 2020, with a postponed commercial launch now anticipated to be in the first quarter of 2021. This delay decision was made as a result of the anticipated impact of COVID-19 on medical aesthetics physician office closures and a related decline in consumer spending.
Endo expects to initiate studies in adhesive capsulitis and plantar fibromatosis in the second half of 2020. Adhesive capsulitis, also known as frozen shoulder, is an inflammation and thickening of the shoulder capsule due to collagen which causes decreased motion in the shoulder. Plantar fibromatosis is a non-malignant thickening of the feet’s deep connective tissue or fascia. There are currently no FDA-approved pharmaceutical therapies available to treat either condition.
Impact of COVID-19

The outbreak of COVID-19 has adversely impacted the U.S. and global economies. Based on public disclosures made by Endo, we currently anticipate that revenues from our license agreement with Endo will decline in the second quarter of 2020 compared to the first-quarter of 2020, due to decreased demand for physician administered products because of office closures and a decline in patients electing to be treated. We also currently expect full year 2020 revenues to decline compared to full-year 2019 revenues.

License Agreement with Endo

We generate revenue from one source, our license agreement with Endo (the “License Agreement”), under which we receive license, sublicense income, royalties, milestones, and mark-up on cost of goods sold payments related to the sale, regulatory submissions, and approval of XIAFLEX® as described above.  Currently, Endo’s licensed rights cover the indications of DC, PD, cellulite, frozen shoulder, plantar fibromatosis, and other potential indications. We and Endo may further expand the License Agreement to cover other indications as they are developed.

Under the License Agreement, Endo is responsible, at its own cost and expense, for developing the formulation and finished dosage form of products and arranging for the clinical supply of products. Endo has the option to license development and marketing rights to these indications based on a full analysis of the data from the clinical trials, which would transfer responsibility for the future development costs to Endo and trigger opt-in payments and potential future milestone and royalty payments to us.
Endo must pay us on a country-by-country and product-by-product basis a specified percentage, which typically is in the low double digits, of net sales for products covered by the License Agreement. This royalty applies to net sales by Endo or its sublicensees. Endo also is obligated to pay a percentage of any future regulatory or commercial milestone payments received from such sublicensees. In addition, Endo and its affiliates pay us an amount equal to a specified mark-up on certain cost of goods related to supply of XIAFLEX® (which mark-up is capped at a specified percentage of the cost of goods of XIAFLEX®) for products sold by Endo and its affiliates.
Endo had previously collaborated with partners to commercialize XIAFLEX® and Xiapex® outside of the United States; however, Endo is in the process of terminating third-party partnership agreements for markets outside of the United States, which will reduce the amount of royalty revenues received by us. We do not believe that this reduction will have a material effect on our future consolidated statements of operations.

Significant Risks

We are dependent to a significant extent on third parties, and our principal licensee, Endo, may not be able to continue successfully commercializing XIAFLEXXIAFLEX® for Dupuytren’s contractureDC and Peyronie’s disease,PD, successfully develop XIAFLEXXIAFLEX® for additional indications, obtain required regulatory approvals, manufacture XIAFLEXXIAFLEX® at an acceptable cost, in a timely manner and with appropriate quality, or successfully market products or maintain desired margins for products sold, and, as a result, we may not achieve sustained profitable operations.

The Company maintains bank account balances, which, at times, may exceed insured limits. The Company has not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.  The Company maintains its investment in FDIC insuredmoney market funds, certificates of deposits with several banks,deposit, commercial paper, U.S. government agency bonds, municipal bonds, and corporate bonds.

The Company is subject to risks and uncertainties as a result of the global COVID-19 pandemic. While we expect that COVID-19 will impact our business to some degree, the significance and duration of the impact on our business cannot be determined at this time due to numerous uncertainties, including the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and business closures, the effectiveness of actions taken to contain the disease, and other unforeseeable consequences.
For more information regarding the risks facing the Company, please see the risk factors discussed under the heading “Risk Factors” under Part II, Item 1A of Part 2 of our Quarterly Reports on Form 10Q for the periods ended March 31, 2017 June 30, 2017 filed with the SEC on May 10, 20171A. herein and filed with the SEC on August 9, 2017, respectively and under item 1AItem 1A. of Part 1 of our 2019 Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 16, 2017.Report.

Critical Accounting Policies, Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience, interim data provided by Endo, and on various other assumptions that we believe are reasonable under the circumstances. The financial information at September 30, 2017March 31, 2020 and for the threethree-month periods ended March 31, 2020 and nine months ended September 30, 2017 and 20162019 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, 20162019 balance sheet amounts and disclosures included herein have been derived from the Company’s December 31, 20162019 audited consolidated financial statements. The interim results are not necessarily indicative of results to be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 20162019 included in the Company’s 2019 Annual Report on Form 10-KReport.

As described in Note 2 to our accompanying Condensed Consolidated Financial Statements, there have been no significant changes to our critical accounting policies for the three months ended March 31, 2020, compared to the critical accounting policies disclosed in “Management’s Discussion and with the unaudited condensed consolidated financial statementsAnalysis of Financial Condition and Results of Operations” included in our Quarterly Reports on Form 10-Q for the first and second quarter of 2017 filed with the SEC. While our significant accounting policies are described in more detail in the notes to our unaudited condensed consolidated financial statements, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements. 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.
Revenue Recognition2019 Annual Report.

We currently recognize revenues resulting from the licensing, sublicensing and use of our technology and from services we sometimes perform in connection with the licensed technology.

We enter into product development licenses and collaboration agreements that may contain multiple elements, such as upfront license and sublicense fees, 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 deliverables should be treated as separate units, 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 for which 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 a 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 product sales in other income when there is persuasive evidence that an arrangement exists, title passes, the price is fixed and determinable, and payment is reasonably assured.
Royalty / Mark-up on Cost of Goods Sold

For those arrangements for which royalty and mark-up on cost of goods sold information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period earned. For interim quarterly reporting purposes, when collectability is reasonably assured, but a reasonable estimate of royalty and mark-up on cost of goods sold cannot be made, the royalty and mark-up on cost of goods sold are generally recognized in the quarter that the applicable licensee provides the written report and related information to us.

Under the License Agreement, we do not participate in the selling, marketing or manufacturing of products for which we receive royalties and a mark-up on the cost of goods sold. The royalty and mark-up on cost of goods sold will generally be recognized in the quarter that Endo provides the written reports and related information to us; that is, royalty and mark-up on cost of goods sold are generally recognized one quarter following the quarter in which the underlying sales by Endo occurred. The royalties payable by Endo to us are subject to set-off for certain patent costs.

Pursuant to the First Amendment with Endo, in exchange for a $8.25 million lump sum payment, we will not receive future additional mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.; provided, however, that Endo will still be required to pay a mark-up on cost of goods sold for sales made in the “Endo Territory,” which includes sales made in the U.S. and sales made in any other country where Endo sells the product directly or through affiliated sublicensees. We received this $8.25 million lump sum payment in February 2016. We classified this payment as deferred revenue in our balance sheet and began recognizing this income over time in the second quarter of 2016 based on sales by non-affiliated sublicensees of Endo outside of the U.S. according to our revenue recognition policy. We recognized approximately $266,000 and $895,000 for the three and nine months ended September 30, 2017, respectively. We recognized approximately $274,000 and $546,000 for the three and nine months ended September 30, 2016, respectively.

Reimbursable Third-Party Patent Costs

We accrue patent costs that are reimbursable to Endo by us under the License Agreement. We capitalize certain patent costs related to patent prosecution and maintenance and expense others. As of September 30, 2017 and December 31, 2016, our net reimbursable third party patent expense was zero and $25,000, respectively.
Receivables

At September 30, 2017 and December 31, 2016 our accounts receivable balance which consists of royalties, mark-up on costs of goods sold and a portion of a milestone payment from Endo due to a foreign tax withholding, was $4.7 million and $3.8 million, respectively, and was from one customer, Endo.

Deferred Revenue

Deferred revenue consists of the mark-up on cost of goods sold for sales by non-affiliated sublicensees and is being recognized as income over time based on sales by non-affiliated sublicensees of Endo outside of the U.S in accordance with our revenue recognition policy beginning in the second quarter of 2016. In addition, deferred revenue consists of licensing fees related to the cash payments received under the License Agreement in prior years and amortized over the expected development period of certain indications for XIAFLEX and a portion of a milestone payment withheld by Endo due to a foreign tax withholding which remains uncollected. As of September 30, 2017 and December 31, 2016, deferred revenue was approximately $6.7 million and $7.6 million, respectively.

Third-Party Royalties

We have entered into licensing and royalty agreements with third parties and agreed to pay certain royalties on net sales of products for specific indications. The royalty rates differ from agreement to agreement and, in certain cases, have been redacted with the permission of the SEC.  No assumptions should be made that any disclosed royalty rate payable to a particular third party is the same or similar with respect to any royalty rate payable to any other third parties.  We accrue third-party royalty expenses on net sales reported to us by Endo. Third-party royalty costs are generally expensed under general and administrative in the quarter that Endo provides the written reports and related information to us; that is, generally one quarter following the quarter in which the underlying sales by Endo occurred. For the three and nine month periods ended September 30, 2017, third-party royalty expenses were $0.4 million and $1.4 million, respectively. For the three and nine month periods ended September 30, 2016, third-party royalty expenses were $0.4 million and $1.2 million, respectively. Our third-party royalty expense under general and administrative expenses may increase if net sales by Endo and its partners for XIAFLEX and Xiapex increase and potential new indications for XIAFLEX and Xiapex are approved, marketed and sold.

Royalty Buy-Down

On March 31, 2012, we entered into an amendment to our existing agreement with Dr. Martin K. Gelbard, dated August 27, 2008, related to our future royalty obligations in connection with Peyronie’s disease. The amendment enables us to buy down a portion of our future royalty obligations in exchange for an initial cash payment of $1.5 million and five additional cash payments of $600,000, four of which have been paid as of September 30, 2017.  We are currently making the payments to buy down the future royalty obligations, which royalty obligations terminate five years after first commercial sale which occurred in January 2014. The Company amortizes long-term contracts with finite lives in a manner that reflects the pattern in which the economic benefits of the assets are consumed or otherwise used up. Dr. Gelbard’s agreement is amortized based on an income forecast method by estimating sales of XIAFLEX and Xiapex for Peyronie’s disease on an annual basis as measured by the proportion of the total estimated sales over the five year period. For the three and nine months ended September 30, 2017, we amortized approximately $0.4 million and $1.1 million related to this agreement, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017 and December 31, 2016, the remaining capitalized balances were approximately $2.3 million and $3.4 million, respectively. We perform an evaluation of the recoverability of the carrying value to determine if facts and circumstances indicate that the carrying value of the assets may be impaired and if any adjustment is warranted.  As of September 30, 2017, there was no indicator that an impairment existed.

Stock Based Compensation

Under ASC 718, we estimate the fair value of our employee stock option 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 an option award. Expected volatility is based on the historical volatility of our common stock. When establishing an estimate of the expected term of an option award, we consider the vesting period for the award, our historical experience of employee stock option exercises (including forfeitures) and the expected volatility of our common stock. We review our estimates at each grant date and, as a result, we are likely to change our valuation assumptions used to value future employee stock-based awards granted, to the extent any such awards are granted.
Further, ASC 718 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 is estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and are 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 SEPTEMBER 30, 2017MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016MARCH 31, 2019

Revenues

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

Royalties

Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the three monththree-month period ended September 30, 2017March 31, 2020 were $6.5$9.7 million as compared to $6.1$8.1 million in the corresponding 20162019 period, an increase of $0.4$1.6 million or 7%19%. ThisThe increase in royalties andtotal revenues for the mark-up on cost of goods soldquarterly period was primarily due to the increase inroyalties associated with higher net sales of XIAFLEX for the treatment of Peyronie’s diseaseXIAFLEX® in DC and Dupuytren’s contracture partially offset by lower mark-up on cost of goods sold revenue.PD.

Licensing Revenue
Licensing revenue consists of licensing fees, sublicensing fees and milestones. We recognized certain licensing fees related to the cash payments received under the License Agreement in prior years and amortized them over the expected development period. For the three month periods ended September 30, 2017 and 2016, we recognized licensing revenue related to the development of injectable collagenase of $4,408 and $12,345 respectively. For the three months ended September 30, 2016, we recognized licensing fees related to the exercise of an opt-in right by Endo for the human lipoma indication of $750,000.
Milestone revenue recognized for the three months ended September 30, 2017 and 2016 was zero in each period.
Research and Development Activities and Expenses
 
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs, and overhead. R&D expenses also consist of third partythird-party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the three monththree-month periods ended September 30, 2017March 31, 2020 and 2016,2019, R&D expenses were approximately $357,000$122,000 and $313,000, respectively and$150,000, respectively. The decrease in each case, are primarily relatedthe 2020 period as compared to the development work2019 period was mainly due to decreases in the costs associated with our clinical programs, preclinical and other R&D programs.

We manage the development of XIAFLEXXIAFLEX® for uterine fibroids and initiate the development of XIAFLEXXIAFLEX® in new potential indications, not licensed by Endo. On April 18, 2017, we announcedWe presented data from the initiation of an open-label, dose escalation Phase 1 clinical trial of XIAFLEXCCH for the treatment of uterine fibroids at the 66th Annual Meeting of the Society of Reproductive Investigation on March 14, 2019 in Paris, France. This presentation follows positive top-line results announced in October 2018 demonstrating that CCH significantly reduced collagen content in uterine fibroids. We intend to use the Phase 1 data to inform the development of future clinical studies. BioSpecifics and its clinical partners continue to analyze the full Phase 1 data to guide the design of a Phase 2 study of CCH for the treatment of uterine fibroids.  Costs related to the uterine fibroids program for the three months ended March 31, 2019 were approximately $60,000.  There were no costs associated with the uterine fibroids program in the 2020 period.

We have finished the development work on human lipomas.On July 29, 2016, Endo exercised its opt-in right under the license agreement with respect to the human lipoma indication.

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

  
Three Months Ended
September 30, 2017
  
Three Months Ended
September 30, 2016
 
Program
      
Human Lipoma $-  $100,973 
Uterine Fibroids  129,276   18,762 
Pre-clinical/other research projects  227,571   193,172 
21successful
The successful development of drugs is inherently difficult and uncertain.  Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX and Xiapex,XIAFLEX®, to continue to commercialize these drug candidates.

There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
 
·the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;
the nature, timing, and estimated costs of the efforts necessary to complete the development of our drug candidate projects;
 
·the anticipated completion dates for our drug candidate projects;
the anticipated completion dates for such drug candidate projects;
 
·the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;
the scope, rate of progress, and cost of such clinical trials that we may commence in the future with respect to such drug candidate projects;
 
·the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;
23
the scope, rate of progress of preclinical studies, and other R&D activities related to such drug candidate projects;
 
·clinical trial results for our drug candidate projects;
clinical trial results for such drug candidate projects;
 
·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;
the cost of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights relating to such drug candidate projects;
 
·the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;
the terms and timing of any strategic alliance, licensing, and other arrangements that we have or may establish in the future relating to our drug candidate projects;
 
·the cost and timing of regulatory approvals with respect to our drug candidate projects; and
costs relating to future product opportunities;
 
·the cost of establishing clinical supplies for our drug candidate projects.
the cost and timing of regulatory approvals with respect to such drug candidate projects; and
the cost of establishing clinical supplies for our drug candidate projects.

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

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, amortization of deferred royalty buy-down, consultant costs, legal fees, investor relations, professional fees, and overhead costs. General and administrative expenses for the three monthsthree-month periods ended September 30, 2017March 31, 2020 and 20162019 were $2.2$3.2 million and $1.8$2.9 million, respectively. The increaseIncreases in general and administrative expenses was mainly due to the legalhigher personnel expenses, stock compensation expense, and consulting fees partially offset by lower third-party royalties associated with XIAFLEX® and the amortization of theassociated with deferred royalty buy-down consulting feesrelated to PD.

Restructuring Charges

On January 7, 2020, we announced that we would be relocating our corporate headquarters from Lynbrook, New York to Wilmington, Delaware as of April 7, 2020.  On January 6, 2020, in connection with the relocation, we notified five employees and third party royalties.one consultant that their services would no longer be required effective March 31, 2020.  On March 23, 2020, the five employees and one consultant were given separation agreements detailing the termination benefits to which they would be entitled.  As a result, we recorded a one-time restructuring charge of $1.1 million in the first quarter of fiscal 2020. The restructuring charge is primarily associated with $0.9 million of one-time termination benefits that we expect to pay out in cash over the six-month period beginning April 2020 and $0.2 million of one-time non-cash termination expenses associated with the acceleration of vesting of certain stock options and restricted stock units.

Other Income

Other income for the three months ended September 30, 2017March 31, 2020 was approximately $208,000$480,000 compared to $87,000$449,000 in the corresponding 20162019 period. Other income consists of interest earned on our investments and product sales of collagenase for laboratory use.investments.

Provision for Income Taxes

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business R&D activities, vesting of nonqualified options, deferred revenuesincluding stock-based compensation, revenue and other items. The provision for income taxes is based on an estimated effective tax rate derived from an estimate of condensed consolidated earnings before taxes, adjusted for nondeductible expenses and other permanent differences for the fiscal year.leases. For the three monththree-month period ended September 30, 2017,March 31, 2020, our provision for income taxes was $1.5$1.2 million. Our deferred tax liabilities as of March 31, 2020 were $0.5 million. The estimated effective tax rate for the three months ended March 31, 2020 was 21.2% of pre-tax income reported in the period, calculated based on the estimated annual effective rate anticipated for the year ending December 31, 2020 plus the effects of certain discrete items occurring in 2020. For the three-month period ended March 31, 2019, our provision for income taxes was $1.1 million. Our deferred tax assets as of September 30, 2017March 31, 2019 were $3.0$0.3 million. ForOur effective tax rate for the three monthmonths ended March 31, 2019 was 20.0%.  Our effective tax rate was impacted by the discrete impact of current period ended September 30, 2016,stock option exercises which impacts the provision for income taxes was $1.8 million.effective rate in the period in which it occurs.
 
Net Income

For the three months ended September 30, 2017,March 31, 2020, we recorded net income of $2.7$4.5 million, or $0.38$0.61 per basic common share and $0.37 per diluted common share, compared to a net income of $3.1$4.4 million, or $0.43$0.61 per basic common share and $0.42$0.60 per diluted common share, for the same period in 2016.2019.

NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2016

Revenues

Royalties

Royalties consist of royalties and the mark-up on cost of goods sold under the License Agreement. Total royalty and mark-up on cost of goods sold for the nine month period ended September 30, 2017 were $20.7 million as compared to $18.8 million in the corresponding 2016 period, an increase of $1.9 million or 10%. This increase in royalties and the mark-up on cost of goods sold was primarily due to the increase in sales of XIAFLEX for the treatment of Peyronie’s disease and Dupuytren’s contracture.

Licensing Revenue
Licensing revenue consists of licensing fees, sublicensing fees and milestones. We recognized certain licensing fees related to the cash payments received under the License Agreement in prior years and amortized them over the expected development period. For the nine month periods ended September 30, 2017 and 2016, we recognized licensing revenue related to the development of injectable collagenase of $13,226 and $37,034, respectively. For the nine months ended September 30, 2016, we recognized a licensing fee related to the exercise of an opt-in right by Endo for the human lipoma indication of $750,000.
Milestone revenue recognized for the nine months ended September 30, 2017 and 2016 was zero in each period.
Research and Development Activities and Expenses
R&D expenses include, but are not limited to, internal costs, such as salaries and benefits, costs of materials, lab expenses, facility costs and overhead. R&D expenses also consist of third party costs, such as medical professional fees, product costs used in clinical trials, consulting fees, and costs associated with clinical study arrangements. For the nine month periods ended September 30, 2017 and 2016, R&D expenses were approximately $0.9 million and $1.0 million, respectively and in each case, are primarily related to the development work associated with our clinical programs, preclinical and other R&D programs.

We manage the development of XIAFLEX for uterine fibroids and initiate the development of XIAFLEX in new potential indications, not licensed by Endo. On April 18, 2017, we announced the initiation of an open-label, dose escalation Phase 1 clinical trial of XIAFLEX for the treatment of uterine fibroids.

We have finished the development work on human lipomas.On July 29, 2016, Endo exercised its opt-in right under the license agreement with respect to the human lipoma indication.

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

  
Nine Months Ended
September 30, 2017
  
Nine Months Ended
September 30, 2016
 
Program
      
Human Lipoma $-  $352,073 
Uterine Fibroids  357,409   111,782 
Pre-clinical/other research projects  591,950   542,029 

The successful development of drugs is inherently difficult and uncertain.  Our business requires investments in R&D over many years, often for drug candidates that may fail during the R&D process. Even if the Company is able to successfully complete the development of our drug candidates, our long-term prospects depend upon our ability and the ability of our partners, particularly with respect to XIAFLEX and Xiapex, to continue to commercialize these drug candidates.
There is significant uncertainty regarding our ability to successfully develop drug candidates in other indications. These risks include the uncertainty of:
·the nature, timing and estimated costs of the efforts necessary to complete the development of our drug candidate projects;
·the anticipated completion dates for our drug candidate projects;
·the scope, rate of progress and cost of our clinical trials that we are currently running or may commence in the future with respect to our drug candidate projects;
·the scope, rate of progress of our preclinical studies and other R&D activities related to our drug candidate projects;
·clinical trial results for our drug candidate projects;
·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our drug candidate projects;
·the terms and timing of any strategic alliance, licensing and other arrangements that we have or may establish in the future relating to our drug candidate projects;
·the cost and timing of regulatory approvals with respect to our drug candidate projects; and
·the cost of establishing clinical supplies for our drug candidate projects.

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

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel, third-party royalty fees, amortization of deferred royalty buy-down, consultant costs, legal fees, investor relations, professional fees and overhead costs. General and administrative expenses for the nine months ended September 30, 2017 and 2016 were $6.9 million and $5.9 million, respectively. The increase in general and administrative expenses was mainly due to the increased third party patent and legal fees, amortization of the deferred royalty buy-down, third party royalties, and consulting fees partially offset by lower investor relations.

Other Income

Other income for the nine months ended September 30, 2017 was approximately $477,000 compared to $238,000 in the corresponding 2016 period. Other income consists of interest earned on our investments and product sales of collagenase for laboratory use.

Provision for Income Taxes

Our deferred tax liabilities and deferred tax assets are impacted by events and transactions arising in the ordinary course of business, R&D activities, vesting of nonqualified options, deferred revenues and other items. The provision for income taxes is based on an estimated effective tax rate derived from an estimate of condensed consolidated earnings before taxes, adjusted for nondeductible expenses and other permanent differences for the fiscal year. For the nine month period ended September 30, 2017, our provision for income taxes was $4.7 million. Our taxes payable as of September 30, 2017 were reduced by $28,000 due to the windfall associated with the disqualified sale of incentive stock options and the exercise of nonqualified options. Our deferred tax assets as of September 30, 2017 were $3.0 million. For the nine month period ended September 30, 2016, the provision for income taxes was $4.5 million.
Net Income

For the nine months ended September 30, 2017, we recorded net income of $8.7 million, or $1.21 per basic common share and $1.19 per diluted common share, compared to a net income of $8.5 million, or $1.20 per basic common share and $1.16 per diluted common share, for the same period in 2016.

Liquidity and Capital Resources

To date, we have financed our operations primarily through product sales, licensing revenues and royalties under agreements with third parties and sales of our common stock. At September 30, 2017As of March 31, 2020 and December 31, 2016,2019, we had cash and cash equivalents and investments in the aggregate of approximately $61.3$113.6 million and $52.8$105.8 million, respectively. We currently anticipate that our available funds and cash flow from operations will be sufficient to meet our operational cash needs for at least the next 12 months from the date of this filing.

Net cash provided by operating activities for the ninethree months ended September 30, 2017 and 2016March 31, 2020 was $9.4$8.2 million and $14.8as compared to net cash provided by operating activities of $6.0 million respectively.in the 2019 period. Net cash provided by operating activities in the 20172020 period was primarily attributable to our net income, of $8.7 million, an increase in operating assets and liabilitiesaccrued tax liability of $1.3 million, and accrued restructuring charges of which $0.9 million was related to an increase in accounts receivable due to sales of XIAFLEX.million.  Non-cash items included amortization, stock-based compensation expense, and deferred taxes which was reduced by adjustmentsused to reconcile net income to net cash provided by operating activities of $2.0 million. $0.6 million was due primarily to stock-based compensation expense. Net cash provided by operating activities in the 20162019 period was primarily attributable to our net income and accrued tax liability of $8.5 million, an increase in operating assets and liabilities of $7.8 million of which $7.7 million was related to the First Amendment with Endo for mark-up on cost of goods sold for sales by non-affiliated sublicensees of Endo outside of the U.S.$1.1 million.  Non-cash items included amortization, stock-based compensation expense, and deferred taxes which was reduced by adjustmentsused to reconcile net income to net cash provided by operating activities of $1.4 million.$0.3 million included amortization of patent costs and bond premiums and discounts and stock-based compensation expense.

Net cash usedprovided by investing activities for the ninethree months ended September 30, 2017March 31, 2020 was $7.4$6.1 million as compared $15.0to net cash used in investing activities of $1.7 million for the corresponding 20162019 period. The net cash provided by investing activities in the 2020 period primarily reflects the investment of $29.1 million and the maturing of $35.3 million in marketable securities. The net cash provided by investing activities in the 2020 period also includes $70,000 of purchases of property and equipment. The net cash used in investing activities in the 20172019 period reflects the maturing of $43.6 million and investment of $50.9$21.8 million in marketable securities. The net cash used in investing activities in the 2016 period reflectsand the maturing of $32.5 million and investment of $47.6$20.2 million in marketable securities.

Net cash used in financing activities for the ninethree months ended September 30, 2017March 31, 2020 was approximately $358,000$221,000 as compared to approximately $145,000net cash provided by financing activities of $58,000 in the corresponding 20162019 period. In the 20172020 period, net cash used in financing activities was mainly due to payments for the repurchase of approximately $616,000 of our common stock under our stock repurchase program partially offsetstock. In the 2019 period, net cash provided by financing activities was due to proceeds received from stock option exercises of approximately $258,000. In the 2016 period, net cash used in financing activities was mainly due to the repurchase of $898,000 of our common stock under our stock repurchase program partially offset by proceeds received from stock option exercises of approximately $529,000 and the excess tax benefits related to share-based payments of $224,000.exercises.

Off-Balance Sheet Arrangements

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

Item 3:
Item 3.
Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments or derivative commodity instruments for trading purposes. Our financial instruments consist of cash, cash equivalents, investments, trade accounts receivable, accounts payable and long-term obligations. We consider investments that, when purchased, have a remaining maturity of three months or less to be cash equivalents.Not applicable.

Our investment portfolio is subject to interest rate risk, although limited given the short term nature of the investments, and will fall in value in the event market interest rates increase. All of our cash and cash equivalents and investments at September 30, 2017, amounting to approximately $61.3 million, were maintained in bank demand accounts, money market accounts, certificates of deposit, corporate bonds and municipal bonds. We do not hedge our interest rate risks, as we believe reasonably possible near-term changes in interest rates would not materially affect our results of operations, financial position or cash flows.

We are subject to market risks in the normal course of our business, including changes in interest rates. There have been no significant changes in our exposure to market risks since September 30, 2017.
Item 4:4.
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 itsWe maintain disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, Thomas L. Wegman, in his capacity as the sole named executive officer of the Company, the Company’s Principal Executive Officer and the Company’s Principal Financial Officer, concluded that the Company’s disclosure controls and procedures are effectivedesigned to ensureprovide reasonable assurance that information required to be disclosed by it in our reports the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, of the SEC, and that such material information is accumulated and communicated to the Company’s management of the Company (the “Management”), including its Principal Executive Officerour principal executive officer and Principal Financial Officer,our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Because ofIn designing and evaluating the inherent limitations in all control systems,disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives,objectives.
The Company, under the supervision and management necessarily is required to applywith the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Furthermore, the Company’sdisclosure controls and procedures can(as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our principal executive officer and principal financial officer concluded, as of the end of the period covered by this Quarterly Report, that the Company’s disclosure controls and procedures were effective in the timely and accurate recording, processing, summarizing, and reporting of material financial and non-financial information within the time periods specified within the SEC’s rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls and procedures were effective to ensure that information required to be circumvented bydisclosed in the individual acts of some persons, by collusion of tworeports that we file or more people or by management override of such control,submit under the Exchange Act is accumulated and misstatements duecommunicated to error or fraud may occurour Management, including our principal executive officer and not be detected on aprincipal financial officer, to allow timely basis.decisions regarding required disclosure.

Changes in Internal Controls

There
There were no changes in our internal controlscontrol over financial reporting (as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act) that occurred during the quarterthree months ended September 30, 2017March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

PART II:Item 1.OTHER INFORMATION
Legal Proceedings

Item 1.Legal Proceedings

None.

Item 1A.
Risk Factors

Our business may be adversely affected by the ongoing coronavirus pandemic.

In December 2019, a novel strain of the coronavirus (COVID-19) emerged in China and the virus has now spread to other countries, including the U.S., and infections have been reported globally.  In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. COVID-19 has resulted in global business and economic disruption and extreme volatility in the financial markets as many jurisdictions have placed restrictions on travel and non-essential business operations and implemented social distancing, shelter-in-place, quarantine, and other similar measures for their residents to contain the spread of the virus. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity, and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak.

The continued spread of COVID-19 globally could materially and adversely impact our operations including without limitation, future clinical trial operations, regulatory approval and the timing thereof, the operations of our collaboration partners, travel, and employee health and availability which may have a material and adverse effect on our business, financial condition, and results of operations.  Specifically, depending upon the length and severity of the pandemic, COVID-19 could impact:

Our future clinical trial plans, specifically with respect to uterine fibroids;
Endo’s development programs for the CCH treatment of plantar fibromatosis and adhesive capsulitis;
Endo’s commercialization and launch of CCH treatment for cellulite; and
Endo’s ability to manufacture, market, and sell XIAFLEX® with respect to DC and PD.

In addition, a recession, depression or other sustained adverse market event could materially and adversely affect the financial markets, our business, the value of our common stock and our ability to obtain on favorable terms, or at all, or the monetization of our royalty streams. The coronavirus pandemic continues to rapidly evolve. The ultimate impact of the coronavirus pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted.

COVID-19 could material and adversely affect Endo’s business, which in turn would impact our business.

As we are dependent upon revenue from Endo, Endo’s operating success or failure has a significant impact on our potential royalty stream and other payment rights. Accordingly, the following impacts of COVID-19 on Endo’s business, could materially affect our business.

In response to public health directives and orders, Endo has implemented alternative working practices and mandatory work-from-home requirements for appropriate employees, as well as social distancing, modified schedules, shift rotation, and other similar policies at its manufacturing facilities, and has transitioned to a “virtual” engagement model to continue supporting healthcare professionals, patient care, and access to medicines. Endo has also suspended international and domestic travel. The effects of COVID-19, including these public health directives and orders, have had an impact on Endo’s business and may in the future materially disrupt its business, including its manufacturing and supply chain operations by significantly reducing its output, negatively impacting its productivity, and delaying its product development programs.

COVID-19 may have significant impacts on third-party arrangements, including those with Endo’s manufacturing, supply chain, and distribution partners, information technology and other vendors and other service providers and business partners. For example, there may be significant disruptions in the ability of any or all of Endo’s third-party providers to meet their obligations to Endo on a timely basis, or at all, which may be caused by their own financial or operational difficulties, including any closures of their facilities pursuant to a governmental order or otherwise. As a result of these disruptions and other factors, including changes in Endo’s workforce availability, Endo’s ability to meet its obligations to third-party distribution partners may be negatively impacted. As a result, Endo has recently delivered, and in the future Endo or its third-party providers may deliver, notices of the occurrence of a force majeure or similar event under certain of its third-party contracts, which could result in prolonged commercial disputes and ultimately legal proceedings to enforce contractual performance and/or recover losses. Further, the publicity of any such dispute could harm Endo’s reputation and make the negotiation of any replacement contracts more difficult and costly, thereby prolonging the effects of any resulting disruption in Endo’s operations. Such disruptions could be acute with respect to certain of its raw material suppliers where Endo may not have readily accessible alternatives or alternatives may take longer to source than usual. Any of these disruptions could harm Endo’s ability to manufacture XIAFLEX®.

Endo has experienced, and may continue to experience, changes in customer demand as the COVID-19 pandemic evolves. The current economic crisis and rising unemployment rates resulting from COVID-19 have the potential to significantly reduce individual disposable income and depress consumer confidence, which could limit the ability of some consumers to purchase certain pharmaceutical products and reduce consumer spend on certain medical procedures in both the short- and medium-term. Additionally, as part of the measures to address COVID-19, certain healthcare providers are not currently performing various medical procedures, including those that use XIAFLEX®. For example, during the last two weeks of the first quarter of 2020, Endo experienced decreased demand for XIAFLEX®.

Additionally, Endo’s product development programs may be adversely affected by the global pandemic and the prioritization of production during this pandemic. The public health directives in response to COVID-19 requiring social distancing and restricting non-essential business operations have in certain cases caused and may continue to cause delays, increased costs, and additional challenges in Endo’s product development programs, including obtaining adequate patient enrollment and successfully bringing product candidates to market. In addition, Endo may face additional challenges receiving regulatory approvals as previously scheduled dates or anticipated deadlines for action by the FDA on its applications and products in development, including dates scheduled for 2020, could be subject to delays beyond Endo’s control as regulators such as the FDA focus on COVID-19. For example, as a result of COVID-19 and its impact on medical aesthetics physician office closures and consumer spending, Endo is planning on changing the anticipated product launch of CCH for the treatment of cellulite in the buttocks, if approved, to 2021. In addition, Endo has assessed and expects to continue to assess the timeline for the development and commercialization of other products, which could include CCH treatment for frozen shoulder and plantar fibromatosis.

The magnitude of the effect of COVID-19 on Endo’s business will depend, in part, on the length and severity of the restrictions (including the effects of recently announced “re-opening” plans following a recent slowdown of the virus infection rate in certain countries and localities) and other limitations on Endo’s ability to conduct its business in the ordinary course. The extent, length and consequences of the pandemic are uncertain and impossible to predict, but could be material.

In addition to the other information contained elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in “Part I, Item 1A. Risk Factors” in our Quarterly Reports on Form 10Q for the periods ended March 31, 2017 and June 30, 2017 filed with the SEC on May 10, 2017 and August 9, 2017, respectively and our2019 Annual Report, on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 16, 2017, which could materially affect our business, financial condition or future results.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
During the nine monththree-month period ended September 30, 2017,March 31, 2020, we did not issue any unregistered equityshares of securities.

26
Issuer Purchases of Equity Securities

On May 23, 2019, the Company announced the authorization of a new stock repurchase program under which we can repurchase up to $4.0 million of our outstanding common stock. Pursuant to the repurchase program, from time to time we repurchase stock through a broker in the open market, provided that the timing, actual number and price per share of the common stock to be purchased will be subject to market conditions, applicable legal requirements, including Rule 10b-18 of the Exchange Act, and various other factors.

The following table presents a summary of share repurchases made by us during the quarter ended September 30, 2017March 31, 2020.
Period 
Total Number of
Shares
Purchased (2)
  
Average
Price Paid
Per Share (3)
  
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plan
  
Maximum
Number (or
Dollar Value) of
Shares that may
yet be Purchased
under the Plan
 
           $144,328
(1) 
July 1, 2017 – July 31, 2017  1,555  $50.77   273,804   65,384 
August 1, 2017 – August 31, 2017  1,210   48.59   275,014   6,950 
September 1, 2017 – September 30, 2017  -   -   -   - 

 Period 
Total Number
of Shares
Purchased (1)
  
Average
Price Paid
Per Share (2)
  
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plan
  
Maximum
Number (or
Dollar Value) of
Shares that May
Yet be Purchased
under the Plan(3)
 
 Remaining balance as of December 31, 2019          $3,379,349 
 January 1, 2020 – January 31, 2020 1,709  
$
56.66
   
13,096
   3,282,509 
 February 1, 2020 – February 29, 2020 848  
$
61.39
   13,944   3,230,446 
 March 1, 2020 – March 31, 2020 1,510  
$
47.77
   15,454  $3,158,318 
Total 4,067             

(1)
On August 17, 2015, we announced that our Board of Directors had authorized the repurchase of up to $2.5 million of our common stock under the stock repurchase program.
(2)The purchases were made in open-market transactions in compliance with Exchange Act Rule 10b-18 or under the company’s 10b-18 plan.
(3)(2)Includes commissions paid, if any, related to the stock repurchase transactions.
(3)On May 23, 2019, we announced that our Board of Directors had authorized the repurchase of up to $4.0 million of our common stock under the stock repurchase program, which program is not subject to an expiration date.

Item 6.
Item 6.Exhibits
Exhibits

 Amended Agreement
Certificate of Lease, dated asDesignation of November 6, 2017, amongSeries C Junior Participating Preferred Stock of the Company ABC-NY and 35 Wilbur Street Associates.(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed April 10, 2020 (File No. 001-34236))
 
Rights Agreement, dated as of April 10, 2020, by and between the Company and Worldwide Stock Transfer, LLC, as rights agent (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed April 10, 2020 (File No. 001-34236))
Employment Letter Agreement, dated January 6, 2020, by and between the Company and Patrick Hutchison (incorporated by reference to Exhibit 10.30 of the Company’s Annual Report on Form 10-K filed March 16, 2020 (File No. 001-34236))
Separation of Employment Agreement and General Release, dated March 31, 2020, by and between the Company and Patrick Caldwell
Separation of Employment Agreement and General Release, dated April 6, 2020, by and between the Company and J. Kevin Buchi
Letter Agreement, dated April 6, 2020, by and between the Company and Joseph Truitt
Employment Agreement, dated May 7, 2020, by and between the Company and Joseph Truitt
10.6*
Confidentiality and Inventions Assignment Agreement, dated April 1, 2020, by and between the Company and Joseph Truitt
Certification of Principal Executive Officer andpursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule13a-14(a)/15d-14(a).Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofSarbanes-Oxley the Sarbanes‑Oxley Act of 2002.
101*
The following materials from BioSpecifics Technologies Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Cash Flows, and (iii) the Notes to the Condensed Consolidated Financial Statements.2002

** filed herewith
**** furnished 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: November 9, 2017/s/ Thomas L. Wegman
 Thomas L. Wegman
 
President,(Registrant)
Date: May 11, 2020
/s/ Joseph Truitt
Joseph Truitt
Chief Executive Officer and Principal Executive Officer and
Principal Financial Officer


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