Table
      of Contents




**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-QSB**
 
 (Mark
        One)
 [X]
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934
 **For
        the quarterly period ended June 30, 2006**
 
 [  
        ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
 For
        the
        transitional period from __________________ to __________________
 
 **BIOSPECIFICS
                  TECHNOLOGIES CORP.**
 (Exact
        name of small business issuer as specified in its charter)
 
 **Delaware**
              **0-19879**
              **11-3054851**(State
                  or other jurisdiction
              (Commission
                  file number)
              (I.R.S.
                  Employerof
                  incorporation or organization)
              
              Identification
                  No.)
  **35
        Wilbur Street**
 **Lynbrook,
        NY 11563**
 (Address
        of principal executive office)
 
 **516.593.7000**
 (Issuer’s
        telephone number)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or 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  [X]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
  Yes
        [   ]  No  [X]
  State
        the
        number of shares outstanding of the issuer's classes of common equity, as
        of the
        latest practicable date:
 
 Class
                  of Stock
              Outstanding
                  May 01, 2007Common
                  Stock ($.001 par value)
              5,261,549
 
 Transitional
        Small Business Disclosure Format (Check one):  Yes [   ]  No
        [X]
  Table
            of Contents
  **BIOSPECIFICS
        TECHNOLOGIES CORP.**
 
 **TABLEOF
        CONTENTS**
 
 **Page****PART
                  I – FINANCIAL INFORMATION****ITEM
                  1.**
              Consolidated
                  Financial Statements
              2Consolidated
                  Balance Sheet as of June 30, 2006 and
                  December 31, 2005
              2Consolidated
                  Statements of Operations for
                  the Three and Six Months Ended June 30, 2006 and 2005
              3Consolidated
                  Statements of Cash Flows for the
                  Six Months Ended June 30, 2006 and 2005
              4Notes
                  to Consolidated Financial
                  Statements
              5**ITEM
                  2.**
              Management’s
                  Discussion and
                  Analysis
              13**ITEM
                  3.**
              Controls
                  and Procedures
              19**PART
                  II – OTHER INFORMATION****ITEM
                  1.**
              Legal
                  Proceedings
              20**ITEM
                  2.**
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              20**ITEM
                  3.**
              Defaults
                  Upon Senior Securities
              20**ITEM
                  4.**
              Submission
                  of Matters to a Vote of Security
                  Holders
              20**ITEM
                  5.**
              Other
                  Information
              20**ITEM
                  6.**
              Exhibits
              20
 
 Table
            of Contents
 
 **Introductory
        Comments – Terminology**
 
 Throughout
        this quarterly report on Form 10-QSB (this “Report”), the terms “BioSpecifics,”
“Company,” “we,” “our,” and “us” refer to BioSpecifics Technologies Corp. and
        its subsidiaries, Advance Biofactures Corporation (“ABC-NY”), Advance
        Biofactures of Curacao, N.V. (“ABC-Curacao”), which was sold in 2006, and
        BioSpecifics Pharma GmbH, which was liquidated in 2005. We also owned two
        dormant companies, BioSpecifics N.V. and Biota N.V., which were liquidated
        in
        January 2007.
 
 **Introductory
        Comments – Forward Looking Statements**
 
 This
        Report includes “forward-looking statements” within the meaning of
        Section 27A of the Securities Act of 1933, as amended, and Section 21E
        of the Securities and Exchange Act of 1934, as amended. All statements other
        than statements of historical facts are “forward looking statements” for
        purposes of these provisions, including any projections of earnings, revenues
        or
        other financial items, any statements of the plans and objectives of management
        for future operations, any statements concerning proposed new products or
        licensing or collaborative arrangements, any statements regarding future
        economic conditions or performance, and any statement of assumptions underlying
        any of the foregoing. In some cases, forward-looking statements can be
        identified by the use of terminology such as “may,” “will,” “expects,” “plans,”
“anticipates,” estimates,” “potential,” or “continue” or the negative thereof or
        other comparable terminology. Although we believe that the expectations
        reflected in the forward-looking statements contained in this Report are
        reasonable, there can be no assurance that such expectations or any of the
        forward-looking statements will prove to be correct, and actual results could
        differ materially from those projected or assumed in the forward-looking
        statements. Our future financial condition and results of operations, as
        well as
        any forward-looking statements, are subject to inherent risks and uncertainties,
        including but not limited to the risk factors set forth below, and for the
        reasons described elsewhere in this Report. All forward-looking statements
        and
        reasons why results may differ included in this Report are made as of the
        date
        hereof, and we assume no obligation to update these forward-looking statements
        or reasons why actual results might differ.
 
 Table
            of Contents
 
 **PARTI
–
FINANCIAL
        INFORMATION**
 
 **Item1:  Consolidated
        Financial
        Statements**
 
 **BIOSPECIFICSTECHNOLOGIES
                  CORP. AND
                  SUBSIDIARIES****ConsolidatedBalance
                  Sheets****June
                  30,**
              
              
              **December
                  31,****2006**
              
              
              **2005**(unaudited)
              
              
              (audited)**Assets****Current
                  assets:**Cash
                  and cash equivalents
              
              $
              6,132,106
              
              
              $
              539,380Accounts
                  receivable, net
              
              
              422,714
              
              
              
              20,257Accounts
                  receivable of discontinued operations
              
              
              599,979
              
              
              
              3,069,678Prepaid
                  expenses and other current assets
              
              
              135,719
              
              
              
              103,220**Total
                  current assets**
              
              ****
              **7,290,518**
              
              
              ****
              **3,732,535**Property,
                  plant and equipment, net
              
              
              345,725
              
              
              
              408,783Other
                  assets of discontinued operations
              
              
              -
              
              
              
              2,445,678Receivable
                  due from long term contract
              
              
              600,000
              
              
              
              -**Total
                  assets**
              
              ****
              **8,236,243**
              
              
              ****
              **6,586,996****Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              
              2,415,354
              
              
              
              1,874,809Deferred
                  revenue
              
              
              1,937,117
              
              
              
              2,092,517Accrued
                  tax and other liabilities of discontinued operations
              
              
              430,586
              
              
              
              809,023Deferred
                  employee stock bonus plan
              
              
              -
              
              
              
              168,900Notes
                  payable to related parties
              
              
              69,894
              
              
              
              69,894**Total
                  current liabilities**
              
              ****
              **4,852,951**
              
              
              ****
              **5,015,143**Long-term
                  deferred revenue
              
              
              5,637,306
              
              
              
              4,753,797Other
                  liabilities of discontinued operations
              
              
              -
              
              
              
              22,210**Stockholders'
                  equity:**Series
                  A Preferred stock, $.50 par value, 700,000 shares authorized; none
                  outstanding
              
              
              -
              
              
              
              -Common
                  stock, $.001 par value; 10,000,000 shares authorized; 5,365,816
                  and
                  5,362,716 shares issued and outstanding at June 30, 2006 and December
                  31,
                  2005, respectively
              
              
              5,366
              
              
              
              5,363Additional
                  paid-in capital
              
              
              3,594,521
              
              
              
              4,224,964Retained
                  earnings
              
              
              (4,435,917
              )
              
              
              (4,877,590
              )Treasury
                  stock, 131,267 and 346,561 shares at cost at June 30, 2006 and
                  December
                  31, 2005, respectively
              
              
              (693,957
              )
              
              
              (1,832,864
              )Notes
                  receivable from former CEO and Chairman and other related
                  party
              
              
              (724,027
              )
              
              
              (724,027
              )**Total
                  stockholders' equity**
              
              ****
              **(2,254,014**
              **)**
              
              ****
              **(3,204,154**
              **)****Total
                  liabilities and stockholders’ equity**
              
              **$**
              **8,236,243**
              
              
              **$**
              **6.586,996****See
                  accompanying notes to consolidated financial
                  statements**
 
 2
 Table
            of Contents
  **BIOSPECIFICS
                  TECHNOLOGIES CORP. AND SUBSIDIARIES****ConsolidatedStatements
                  of
                  Operations**(unaudited)**Three
                  Months Ended June 30,**
              
              
              **Six
                  Months Ended June 30,****2006**
              
              
              **2005**
              
              
              **2006**
              
              
              **2005****Revenues:**Net
                  sales
              
              $
              6,883
              
              
              $
              17,912
              
              
              $
              13,676
              
              
              $
              27,180Licensing
                  fees
              
              
              289,279
              
              
              
              343,817
              
              
              
              578,558
              
              
              
              579,006Consulting
                  fees
              
              
              70,000
              
              
              
              -
              
              
              
              93,333
              
              
              
              -366,162
              
              
              
              361,729
              
              
              
              685,567
              
              
              
              606,186**Costs
                  and expenses:**General
                  and administrative
              
              
              845,271
              
              
              
              532,502
              
              
              
              1,817,666
              
              
              
              1,026,802Research
                  and development
              
              
              247,847
              
              
              
              114,830
              
              
              
              993,212
              
              
              
              265,5811,093,118
              
              
              
              647,332
              
              
              
              2,810,878
              
              
              
              1,292,383**Operating
                  loss from continuing operations**
              
              ****
              **(726,956**
              **)**
              
              ****
              **(285,603**
              **)**
              
              ****
              **(2,125,311**
              **)**
              
              ****
              **(686,197**
              **)****Other
                  income (expense):**Investment
                  income
              
              
              64,313
              
              
              
              323
              
              
              
              82,138
              
              
              
              2,034Interest
                  expense
              
              
              (16
              )
              
              
              (84,115
              )
              
              
              (521
              )
              
              
              (161,310
              )64,297
              
              
              
              (83,792
              )
              
              
              81,617
              
              
              
              (159,276
              )Loss
                  from continuing operations before benefit (expense) for income
                  tax
              
              
              (662,659
              )
              
              
              (369,395
              )
              
              
              (2,043,694
              )
              
              
              (845,473
              )Income
                  tax benefit (expense)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -(662,659
              )
              
              
              (369,395
              )
              
              
              (2,043,694
              )
              
              
              (845,473
              )Loss
                  before minority interest
              
              
              (662,659
              )
              
              
              (369,395
              )
              
              
              (2,043,694
              )
              
              
              (845,473
              )Minority
                  interest in loss of consolidated subsidiaries
              
              
              -
              
              
              
              (6,857
              )
              
              
              -
              
              
              
              (2,153
              )**Net
                  income (loss) from continuing operations**
              
              ****
              **(662,659**
              **)**
              
              ****
              **(376,252**
              **)**
              
              ****
              **(2,043,694**
              **)**
              
              ****
              **(847,626**
              **)****Discontinued
                  operations:**Gain
                  (loss) from discontinued operations
              
              
              -
              
              
              
              243,135
              
              
              
              (1,115,704
              )
              
              
              241,755Gain
                  (loss) on the sale of assets
              
              
              (31
              )
              
              
              -
              
              
              
              3,601,071
              
              
              
              -**Net
                  income (loss)**
              
              **$**
              **(662,690**
              **)**
              
              **$**
              **(133,117**
              **)**
              
              **$**
              **441,673**
              
              
              **$**
              **(605,871**
              **)****Basic
                  net income (loss) per share:**From
                  continuing operations
              
              $
              (0.13
              )
              
              $
              (0.08
              )
              
              $
              (0.39
              )
              
              $
              (0.17
              )From
                  discontinued operations
              
              $
              -
              
              
              $
              0.05
              
              
              $
              0.48
              
              
              $
              0.05**Basic
                  net income (loss) per share**
              
              **$**
              **(0.13**
              **)**
              
              **$**
              **(0.03**
              **)**
              
              **$**
              **0.09**
              
              
              **$**
              **(0.12**
              **)****Diluted
                  net income (loss) per share:**From
                  continuing operations
              
              $
              (0.13
              )
              
              $
              (0.08
              )
              
              $
              (0.39
              )
              
              $
              (0.17
              )From
                  discontinued operations
              
              $
              -
              
              
              $
              -
              
              
              $
              0.48
              
              
              $
              0.05**Diluted
                  net income (loss) per share**
              
              **$**
              **(0.13**
              **)**
              
              **$**
              **(0.03**
              **)**
              
              **$**
              **0.09**
              
              
              **$**
              **(0.12**
              **)****Shares
                  used in computation of basic net income (loss) per
                  share**
              
              ****
              **5,231,679**
              
              
              ****
              **4,976,882**
              
              
              ****
              **5,205,147**
              
              
              ****
              **4,974,684****Shares
                  used in computation of diluted net income (loss) per
                  share**
              
              ****
              **5,231,679**
              
              
              ****
              **4,976,882**
              
              
              ****
              **5,205,295**
              
              
              ****
              **4,974,684****See
                  accompanying notes to consolidated financial
                  statements**
 
 3
 Table
            of Contents
  **BIOSPECIFICS
                  TECHNOLOGIES CORP. AND SUBSIDIARIES****ConsolidatedStatements
                  of Cash
                  Flows**(unaudited)**Six
                  Months Ended June 30,****Cash
                  flows from operating activities:**
              
              **2006**
              
              
              **2005**Net
                  loss
              
              $
              (2,043,694
              )
              
              $
              (847,626
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              51,125
              
              
              
              63,148Amortization
                  of loan discount
              
              
              -
              
              
              
              70,137Issuance
                  of treasury stock as employee bonus
              
              
              -
              
              
              
              22,969Issuance
                  of restricted stock for services
              
              
              7,875
              
              
              
              7,875Minority
                  interest in loss of subsidiaries
              
              
              -
              
              
              
              2,153Stock-based
                  compensation expense
              
              
              423,762
              
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  Receivable
              
              
              (1,002,457
              )
              
              
              (12,065
              )Prepaid
                  expenses and other current assets
              
              
              (32,499
              )
              
              
              (20,172
              )Accounts
                  payable and accrued expenses
              
              
              541,009
              
              
              
              (451,825
              )Employee
                  bonus plan liability
              
              
              (6,600
              )
              
              
              -Deferred
                  Revenue
              
              
              728,109
              
              
              
              2,420,993**Net
                  cash provided by (used in) operating activities from continuing
                  operations**
              
              ****
              **(1,333,370**
              **)**
              
              ****
              **1,255,587****Net
                  cash provided by discontinued operations**
              
              ****
              **950,789**
              
              
              ****
              **465,854****Cash
                  flows from investing activities:**Expenditures
                  for property, plant and equipment
              
              
              -
              
              
              
              (4,450
              )**Net
                  cash used in investing activities from continuing
                  operations**
              
              ****
              **-**
              
              
              ****
              **(4,450**
              **)****Net
                  cash provided by investing activities from discontinued
                  operations**
              
              ****
              **6,058,713**
              
              
              ****
              **246,509****Cash
                  flows from financing activities:**Decrease
                  in senior secured convertible debt
              
              
              -
              
              
              
              (1,575,000
              )Decrease
                  in short-term debt
              
              
              -
              
              
              
              (100,000
              )Issuance
                  of treasury stock to minority shareholders of subsidiaries
              
              
              (83,406
              )
              
              
              -Deferred
                  loan costs, net
              
              
              -
              
              
              
              54,817**Net
                  cash used in financing activities from continuing
                  operations**
              
              ****
              **(83,406**
              **)**
              
              ****
              **(1,620,183**
              **)****Net
                  cash used in financing activities from discontinued
                  operations**
              
              ****
              **-**
              
              
              ****
              **(182,000**
              **)**Increase
                  in cash and cash equivalents
              
              
              5,592,726
              
              
              
              161,317Cash
                  and cash equivalents at beginning of year
              
              
              539,380
              
              
              
              1,345,800**Cash
                  and cash equivalents at end of period**
              
              **$**
              **6,132,106**
              
              
              **$**
              **1,507,117****Supplemental
                  disclosures of cash flow information:**Cash
                  paid during the periods for:Interest
              
              $
              521
              
              
              $
              124,691**Supplemental
                disclosures of non-cash transactions:**For
                  the six months ended June 30, 2006, the Company reduced its liability
                  under the employee stock bonus plan
                by
                  issuing$162,300
                  of common stock. The remaining balance of $6,600 was
                  cancelled.**See
                  accompanying notes to consolidated financial
                  statements**
 
 4
 Table
            of Contents
 
 **BIOSPECIFICS
        TECHNOLOGIES CORP.**
 **NOTESTO
        CONSOLIDATED FINANCIAL STATEMENTS**
  **June
        30, 2006**
 **(Unaudited)**
 
 **1.ORGANIZATION
        AND
        DESCRIPTION OF BUSINESS**
 
 We
        are a
        biopharmaceutical company that has manufactured the active pharmaceutical
        ingredient, which is referred to as “API’ or “API Enzyme” in this Report, used
        in a Food and Drug Administration (“FDA”) licensed collagenase ointment that has
        been marketed for over 30 years. As a result of our research and development
        efforts we have also developed an injectable collagenase for treatment of
        various diseases or indications. We have a development and license agreement
        with Auxilium Pharmaceuticals, Inc. (“Auxilium”) for injectable collagenase
        (which Auxilium has named “AA4500”) for clinical indications in Dupuytren’s
        disease, Peyronies’s disease and frozen shoulder (*adhesive capsulitis*),
        and Auxilium has an option to acquire additional indications that we may
        pursue,
        including cellulite and lipomas.  Injectable collagenase has completed
        a pivotal clinical trial for the treatment of Dupuytren’s disease. A Phase III
        clinical trial has been initiated and is currently on clinical hold. During
        its
        earnings conference call on May 1, 2007, Auxilium reported that it expects
        the
        Phase III clinical trial to resume in the fourth quarter of 2007.
 
 Prior
        to
        March 2006, we were a party to an exclusive license agreement with Abbott
        Laboratories, Inc. and its subsidiaries (“Abbott”) for the production of the API
        for topical collagenase. In March 2006 we sold our topical collagenase business
        to DFB Biotech, Inc. and its affiliates (“DFB”), including all rights to the
        exclusive license agreement and we were released of any obligations
        thereunder.
 
 In
        addition, DFB acquired all of the issued and outstanding shares of ABC-Curacao,
        pursuant to an asset purchase agreement between us, DFB and ABC-NY (the “Asset
        Purchase Agreement”). ABC-Curacao manufactured the API Enzyme, which in its
        final formulation was marketed by Abbott.
 
 At
        the
        closing of the Asset Purchase Agreement, DFB (i) acquired from us certain
        inventory and manufacturing equipment used in the topical collagenase business,
        (ii) was granted a perpetual royalty free license to use, solely in connection
        with the topical collagenase business, certain intangible assets retained
        by us
        and (iii) was granted the right (for a limited period of time) to use, solely
        in
        connection with the topical collagenase business, certain tangible assets
        retained by us. As part of the sale, we transferred to DFB our FDA manufacturing
        license.
 
 As
        consideration for the purchased assets including our API inventory we received
        $8 million in cash, DFB’s assumption of certain liabilities, and the right to
        receive earn out payments in the future based on sales of certain products.
        In
        connection with the closing of the Asset Purchase Agreement, we agreed to
        provide certain technical assistance and certain transition services to DFB
        in
        consideration of fees and costs totaling over $1.4 million. At the closing,
        DFB
        paid to us a partial payment of $400,000 in respect of the technical assistance
        to be provided by us. The consulting obligations generally expire during
        March
        2011.
 
 On
        January 8, 2007, we entered into an Amendment to the Asset Purchase Agreement
        with ABC-NY and DFB (the “Amendment”) in order to clarify the intent of the
        parties with respect to certain provisions of the Asset Purchase Agreement
        and
        the parties are discussing further clarifications to address certain concerns
        raised by Auxilium.
  5
 Table
            of Contents
 
 **2**.**SUMMARY
        OF
        SIGNIFICANT ACCOUNTING POLICIES**
  **Basis
        of Presentation**
  The
        accompanying consolidated financial statements are unaudited, but include
        all
        adjustments (consisting only of normal, recurring adjustments) which we consider
        necessary for a fair presentation of our financial position at such dates
        and
        the operating results and cash flows for those periods. Although we believe
        that
        the disclosures in our financial statements are adequate to make the information
        presented not misleading, certain information normally included in financial
        statements prepared in accordance with accounting principles generally accepted
        (“GAAP”) in the United States (the “U.S.”) has been condensed or omitted
        pursuant to the rules and regulations of the Securities and Exchange Commission
        (the “SEC”) for quarterly reporting.
 
 The
        information included in this Report should be read in conjunction with the
        consolidated financial statements and accompanying notes included in our
        Annual
        Report on Form 10-KSB for the years ended December 31, 2005, 2004 and 2003
        filed with the SEC on March 2, 2007 and in our Quarterly Report on Form 10-QSB
        for the quarterly period ended March 31, 2006, filed with the SEC on May
        25,
        2007. The Consolidated Balance Sheet as of December 31, 2005 is derived
        from our audited consolidated financial statements as of that date.
 
 **Principles
        of Consolidation**
 
 The
        unaudited consolidated financial statements include the accounts of the Company
        and its majority-owned subsidiaries, Advance Biofactures Corp., (“ABC-NY”),
        Advance Biofactures of Curacao, N.V. (“ABC-Curacao”) which was sold in 2006,
        BioSpecifics of Curacao N.V. and Biota N.V. and its wholly-owned subsidiary,
        which were liquidated in January 2007, BioSpecifics Pharma GmbH ("Bio Pharma")
        of Germany, which was liquidated during December 2005, after elimination
        of
        inter-company accounts and transactions. Due to the sale of Advanced Biofactures
        of Curacao N.V. in March 2006 to DFB all accounts of this former subsidiary
        and
        certain operations of ABC-NY are classified as discontinued operations in
        all
        periods presented.
 
 **Management
        Estimates**
 
 The
        preparation of unaudited consolidated financial statements in conformity
        with
        accounting principles generally accepted in the U.S. requires the use of
        management’s estimates and assumptions that affect the amounts reported in the
        unaudited consolidated financial statements and accompanying notes. Actual
        results could differ from those estimates.
 
 **Revenue
        Recognition**
  We
        recognize revenues resulting from product sales, from licensing and use of
        our
        technology, and from other services we sometimes perform in connection with
        the
        licensed technology under the guidance of Staff Accounting Bulletin (SAB)
        No. 104, “Revenue Recognition.”
  If
        we
        determine that separate elements exist in a revenue arrangement under Emerging
        Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple
        Deliverables” (EITF 00-21), we recognize revenue for delivered elements only
        when the fair values of undelivered elements are known, when the associated
        earnings process is complete, when payment is reasonably assured and, to
        the
        extent the milestone amount relates to our performance obligation, when our
        customer confirms that we have met the requirements under the terms of the
        agreement.
 
 Revenues,
        and their respective treatment for financial reporting purposes, are as
        follows:
  6
 Table
            of Contents
 ***Product
        Sales***
 
 We
        recognize revenue from product sales when there is persuasive evidence that
        an
        arrangement exists, title passes, the price is fixed or determinable and
        collectibility is reasonably assured. No right of return exists for our products
        except in the case of damaged goods. To date, we have not experienced any
        significant returns of our products.
 
 Net
        sales
        include the sales of the API Enzyme that are recognized at the time the product
        is shipped to customers for laboratory use.
 
 ***License
        Fees***
 
 We
        include revenue recognized from upfront licensing and milestone payments
        in
“License Fees” in our unaudited consolidated statements of operations in this
        Report.
 
 *Upfront
        License Fees*
 
 We
        generally recognize revenue from upfront fees when the agreement is signed,
        we
        have completed the earnings process and we have no ongoing performance
        obligation with respect to the arrangement. Nonrefundable upfront technology
        license fees for product candidates for which we are providing continuing
        services related to product development are deferred and recognized as revenue
        over the development period.
 
 *Milestones*
 
 Milestones,
        in the form of additional license fees, typically represent nonrefundable
        payments to be received in conjunction with the achievement of a specific
        event
        identified in the contract, such as completion of specified development
        activities and/or regulatory submissions and/or approvals. We believe that
        a
        milestone represents the culmination of a distinct earnings process when
        it is
        not associated with ongoing research, development or other performance on
        our
        part. We recognize such milestones as revenue when they become due and
        collection is reasonably assured. When a milestone does not represent the
        culmination of a distinct earnings process, we recognize revenue in a manner
        similar to that of a nonrefundable upfront license fee.
 
 The
        timing and amount of revenue that we recognize from licenses of technology,
        either from upfront fees or milestones where we are providing continuing
        services related to product development, is primarily dependent upon our
        estimates of the development period. We define the development period as
        the
        point from which research activities commence up to regulatory approval of
        either our, or our partners’ submission assuming no further research is
        necessary. As product candidates move through the development process, it
        is
        necessary to revise these estimates to consider changes to the product
        development cycle, such as changes in the clinical development plan, regulatory
        requirements, or various other factors, many of which may be outside of our
        control. Should the FDA or other regulatory agencies require additional data
        or
        information, we would adjust our development period estimates accordingly.
        The
        impact on revenue of changes in our estimates and the timing thereof is
        recognized prospectively over the remaining estimated product development
        period.
 
 ***Consulting
        and Technical Assistance Services***
 
 We
        recognize revenues from a consulting and technical assistance contract primarily
        as a result of our agreement with DFB. Consulting revenues are recognized
        ratably over the term of the contract. The consulting obligations to DFB
        generally expire during March 2011.
  7
 Table
            of Contents
 **Stock-Based
        Compensation**
 
 Effective
        January 1, 2006, we adopted SFAS No. 123, “Share Based Payment
        (Revised 2004)” (“SFAS 123(R)”), which supersedes our previous accounting under
        Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
        Employees” (“APB 25”), and related interpretations. SFAS 123(R) requires the
        recognition of compensation expense, using a fair-value based method, for
        costs
        related to all share-based awards including stock options and stock issued
        under
        our employee stock plans. It requires companies to estimate the fair value
        of
        share-based awards on the date of grant using an option-pricing model. 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
        Consolidated Statements of Operations.
  In
        November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB
        Staff Position No. 123R-3, “Transition Election Related to Accounting for
        the Tax Effects of Share-Based Payment Awards.” An entity shall follow either
        the transition guidance for the additional paid-in capital (“APIC”) pool in
        paragraph 81 of Statement 123(R) or the alternative transition method described
        in the FASB Staff Position (“FSP”). Paragraph 81 of SFAS 123(R) indicates
        that for purposes of calculating the pool of excess tax benefits available
        to
        absorb tax deficiencies recognized subsequent to the adoption of Statement
        123(R), an entity shall include the net excess tax benefits that would have
        qualified as such had the entity adopted SFAS 123(R) for recognition
        purposes. The FSP provided an alternative transition method for calculating
        the tax effects of stock-based compensation pursuant to SFAS 123(R).
        The FSP includes simplified methods to establish the beginning balance of
        the APIC pool related to the tax effects of employee stock-based compensation,
        and to determine the subsequent impact on the APIC pool and Consolidated
        Statements of Cash Flows of the tax effects of employee stock-based compensation
        awards that are outstanding upon our adoption of SFAS 123(R). We
        are reviewing the two methods and will elect an appropriate method for
        the first reporting period of 2007.
 
 *Prior
        to the Adoption of SFAS 123(R)*
 
 Prior
        to
        the adoption of SFAS 123(R), we accounted for stock-based awards under the
        intrinsic value method, which followed the recognition and measurement
        principles of APB 25 and related interpretations. Accordingly, we recognize
        no
        compensation expense in our Consolidated Statements of Operations with respect
        to options awarded to our employees and directors with exercise prices greater
        than or equal to the fair market value of the underlying common stock at
        the
        date of grant. However, we recognize compensation expense in our Consolidated
        Statements of Operations with respect to the modification of certain employee
        stock option awards.
 
 We
        account for stock options granted to non-employees at fair value using the
        Black-Scholes option-pricing model in accordance with Emerging Issues Task
        Force
        Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to
        Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
        or
        Services.” Stock options granted to non-employees and stock options that are
        modified and continue to vest when an employee has a change in employment
        status
        are subject to periodic revaluation over their vesting terms. We recognize
        the
        resulting stock-based compensation expense over the service period in which
        the
        non-employee provides services to the Company.
 
 The
        table
        below illustrates the effect on net loss and net loss per share if we had
        applied the fair value recognition provisions of SFAS No. 123, “Accounting
        for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for
        Stock-Based Compensation – Transition and Disclosures,” to our stock-based
        employee compensation plans. For purposes of this pro forma disclosure, the
        value of the options was estimated using the Black-Scholes option-pricing
        model.
        Disclosures for the three and six months ended June 30, 2006 are not presented
        because stock-based payments were accounted for under SFAS 123(R) during
        this
        period.
  8
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  **Three Months Ended**
              
              
              **Six Months Ended****June
                  30, 2005**
              
              
              **June
                  30, 2005**Reported
                  net loss from continuing operations
              
              $
              376,252
              
              
              $
              847,626Deduct:
                  Stock-based compensation expense determined under the fair value
                  based
                  method for all awards, net of taxes
              
              
              4,841
              
              
              
              8,412Pro
                  forma net loss
              
              $
              381,093
              
              
              $
              856,038Basic
                  and diluted net loss per shareAs
                  reported
              
              $
              (0.08
              )
              
              $
              (0.17
              )Pro
                  forma
              
              $
              (0.08
              )
              
              $
              (0.17
              )
  *Adoption
        of SFAS 123(R)*
 
 Employee
        stock-based compensation expense recognized in the second quarter of 2006
        was
        calculated based on awards ultimately expected to vest and has been reduced
        for
        estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at
        the
        time of grant and revised, if necessary, in subsequent periods if actual
        forfeitures differ from those estimates. We adopted SFAS 123(R) using the
        modified prospective application transition method, which requires that
        compensation expense be recognized in the financial statements for all awards
        granted after the date of adoption as well as for existing awards for which
        the
        requisite service has not been rendered as of the date of adoption. The modified
        prospective transition method does not require restatement of prior periods
        to
        reflect the impact of SFAS 123(R).
 
 Employee
        stock-based compensation expense recognized under SFAS 123(R) was as
        follows:
  **Three Months Ended**
              
              
              **Six Months Ended****June
                  30, 2006**
              
              
              **June
                  30, 2006**Research
                  and development
              
              $
              -
              
              
              $
              60,605General
                  and administrative
              
              
              4,785
              
              
              
              363,155Total
                  employee stock-based compensation expense
              
              
              4,785
              
              
              
              423,760Tax
                  benefit related to employee stock-based compensation
                  expense
              
              
              —
              
              
              
              —Net
                  effect on net loss
              
              $
              4,785
              
              
              $
              423,760Effect
                  on basic and diluted net loss per share
              
              $
              (0.00
              )
              
              $
              (0.08
              )
  9
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 *Valuation
        Assumptions*
 
 The
        employee stock-based compensation expense recognized under FAS 123(R) for
        the
        three and six month periods of 2006 and presented in the pro forma disclosure
        required under FAS 123 for the three and six month periods of 2005 was
        determined using the Black-Scholes option valuation model. Option valuation
        models require the input of subjective assumptions and these assumptions
        can
        vary over time. The weighted average assumptions used are as follows:
  **Employee
                  Stock Option Plans****Three
                  Months Ended**
                **June
                  30,**
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Expected
                  term (in years)
              5.0
              
              5.0
              
              5.0
              
              5.0Volatility
              128%
              
              87%
              
              128%
              
              87%Risk-free
                  interest rate
              5.0%
              
              6.0%
              
              5.0%
              
              6.0%Dividend
                  yield
              0%
              
              0%
              
              0%
              
              0%
 
 *Expected
        Term:*Our expected term represents the period that our stock-based awards
        are expected to be outstanding and was determined based on historical experience
        of similar awards, giving consideration to the contractual terms of the
        stock-based awards, vesting schedules and expectations of future employee
        behavior as influenced by changes to the terms of stock-based awards.
 
 *Expected
        Volatility:* Expected volatility is based on the historical volatility of
        our common stock.
 *Risk-Free
        Interest Rate:* We base the risk-free interest rate on the implied yield
        available on U.S. Treasury zero-coupon issues with an equivalent remaining
        term
        equal to the expected term of our options at the time of grant.
 
 *Expected
        Dividend:* We have not issued any dividends and do not anticipate paying any
        cash dividends in the foreseeable future. We therefore have assumed a dividend
        yield of zero for purposes of these fair value estimations.
 
 *Stock
        Option Activity*
 A
        summary
        of our stock option and warrant activity during the six months ended June
        30,
        2006 is presented below:
  **Option**
              
              **Total Number**
                **of
                  Shares**
              
              
              **Weighted-Average**
                **Exercise
                  Price**Outstanding
                  as of December 31, 2005
              
              973,887
              
              
              $1.36Granted
                  (1)
              
              516,066
              
              
              $1.02Forfeited**(2)**
              
              (315,675)
              
              
              $1.23Exercised
              
              --
              
              
              --Expired**(3)**
              
              (100,000)
              
              
              $1.10Outstanding
                  as of June 30, 2006
              
              1,074,278
              
              
              $1.26Exercisable
                  as of June 30, 2006
              
              1,074,278
              
              
              $1.26
  ________________________________________________________________________________
  (1)
        In
        January 2006, 150,000 stock options were granted to two consultants in
        connection with a research and development license. The stock options were
        subsequently cancelled and are not included in the stock options granted
        in the
        above table.
  (2)
        On
        April 5, 2006 315,675 stock options were forfeited by former employees in
        connection with the sale of our topical collagenase business in March
        2006.
  (3)
        On
        April 20, 2006 100,000 stock options granted to our former CEO and Chairman
        expired under the terms and conditions of our stock option plan.
  10
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  The
        weighted-average grant-date fair value for options granted during the six
        months
        ended June 30, 2006 was $1.02 per share and $1.32 per share in the corresponding
        six month period of 2005. During the six months ended June 30, 2006 and 2005,
        no
        cash was received from stock options exercised by employees.
  The
        weighted-average remaining vesting period of options outstanding and exercisable
        as of June 30, 2006 was zero years as all stock options were 100% vested.
        The
        aggregate intrinsic value of options outstanding and exercisable as of June
        30,
        2006 was approximately $84,350. Aggregate intrinsic value represents the
        total
        pre-tax intrinsic value, based on the closing prices of our common stock
        of
        $1.10 on June 30, 2006, which would have been received by the option holders
        had
        all option holders exercised their options as of that date. Total unrecognized
        compensation cost related to nonvested stock options outstanding as of June
        30,
        2006 was zero.
 
 **Recent
        Accounting Pronouncements**
 
 In
        July
        2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes,” which is effective for fiscal years beginning after
        December 15, 2006. The Interpretation prescribes a recognition threshold
        and measurement attribute for the financial statement recognition and
        measurement of a tax position taken or expected to be taken in a tax return.
        The
        Interpretation also provides guidance on derecognition, classification, interest
        and penalties, accounting for interim periods, disclosure, and transition.
        We
        will adopt the Interpretation on January 1, 2007. We are in the process of
        determining the impact of the Interpretation on our financial position and
        results of operations.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
        No. 157”). SFAS No. 157 provides a framework for measuring fair value in
        accordance with GAAP, and expands disclosures regarding fair value measurements
        and the effect on earnings. SFAS No. 157 is effective for financial statements
        issued for fiscal years beginning after November 15, 2007, and interim periods
        within those fiscal years. We are in the process of evaluating the impact
        SFAS
        No. 157 will have on our financial position and results of
        operations.
 
 In
        September 2006, the U.S. Securities and Exchange Commission (“SEC”) released
        Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year
        Misstatements when Quantifying Misstatements in Current Year Financial
        Statements,” (“SAB No. 108”), which provides interpretive guidance on the SEC’s
        views regarding the process of quantifying the materiality of financial
        statement misstatements. SAB No. 108 is effective for years ending after
        November 15, 2006. The application of SAB No. 108 is not expected
        to have a material effect on our financial position and results of
        operations.
 
 **3. DISCONTINUED
        OPERATIONS**
 
 Prior
        to
        March 2006, we were a party to an exclusive license agreement with Abbott
        for
        the production of the API for topical collagenase.In
        March 2006 we sold our topical collagenase business to DFB, including all
        rights
        to the exclusive license agreement and we were released of any obligations
        thereunder.
 
 In
        addition, DFB acquired all of the issued and outstanding shares of ABC-Curacao,
        pursuant to the Asset Purchase Agreement between us, DFB and ABC-NY. ABC-Curacao
        manufactured the API Enzyme, which in its final formulation was marketed
        by
        Abbott.
 
 At
        the
        closing of the Asset Purchase Agreement, DFB (i) acquired from us certain
        inventory and manufacturing equipment used in the topical collagenase business,
        (ii) was granted a perpetual royalty free license to use, solely in connection
        with the topical collagenase business, certain intangible assets retained
        by us
        and (iii) was granted the right (for a limited period of time) to use, solely
        in
        connection with the topical collagenase business, certain tangible assets
        retained by us. As part of the sale, we transferred to DFB our FDA manufacturing
        license.
  11
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 As
        consideration for the purchased assets including our API inventory we received
        $8 million in cash, DFB’s assumption of certain liabilities, and the right to
        receive earn out payments in the future based on sales of certain products.
        In
        connection with the closing of the Asset Purchase Agreement, we agreed to
        provide certain technical assistance and certain transition services to DFB
        in
        consideration of fees and costs totaling over $1.4 million. At the closing,
        DFB
        paid to us a partial payment of $400,000 in respect of the technical assistance
        to be provided by us. The consulting obligations generally expire during
        March
        2011.
 
 For
        accounting purposes, the operating results of ABC-Curacao and certain operations
        of ABC-NY have been classified as discontinued operations in the Consolidated
        Statement of Operations for all periods presented.
 
 Discontinued
        operations are as follows:
 **Three
                  Months Ended**
                **June
                  30,**
              
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              
              **2005**
              
              
              **2006**
              
              
              **2005**Income
                  (loss) from discontinued operations
              
              $
              -
              
              
              $
              243,135
              
              
              $
              (1,115,704
              )
              
              $
              241,755Pre-tax
                  gain (loss) on disposal of discontinued operations (1)
              
              
              (31
              )
              
              
              -
              
              
              $
              3,601,071
              
              
              
              -Income
                  (loss) from discontinued operations
              
              $
              (31
              )
              
              $
              243,135
              
              
              $
              2,485,367
              
              
              $
              241,755
  **_____________________________________________________________________________**
  (1)
        We
        did not record any tax liability associated with the gain on the disposal
        of
        discontinued operations due to our large net operating loss
        carryforwards.
  **4.NET
        LOSS PER
        SHARE**
  In
        accordance with SFAS No. 128, “Earnings Per Share” (SFAS 128), basic net
        loss per share amount is computed using the weighted-average number of shares
        of
        common stock outstanding during the periods presented, while diluted net
        loss per share is computed using the sum of the weighted-average number of
        common and common equivalent shares outstanding. Common equivalent shares
        used
        in the computation of diluted earnings per share result from the assumed
        exercise of stock options, and convertible notes using the if converted method.
        For the three and six month ended June 30, 2006 and 2005, we incurred a net
        loss
        from continuing operations and, as such, we did not include the effect of
        outstanding stock options or outstanding convertible notes in the diluted
        net
        loss per share calculations, as their effect would have been
        anti-dilutive.
 
 The
        following table summarizes the number of common equivalent shares excluded
        from
        the calculation of diluted net loss per share from continuing operations
        reported in the consolidated statement of operations as their effect would
        have
        been anti-dilutive:
  **Three
                  Months Ended**
                **June
                  30,**
              
              
              **Six
                  Months Ended**
                **June
                  30,****2006**
              
              
              **2005**
              
              
              **2006**
              
              
              **2005**Stock
                  options
              
              
              1,061,925
              
              
              
              1,062,817
              
              
              
              996,925
              
              
              
              1,060,720Warrants
              
              
              10,000
              
              
              
              10,000
              
              
              
              10,000
              
              
              
              10,000Total
              
              
              1,071,123
              
              
              
              1,072,817
              
              
              
              1,006,925
              
              
              
              1,070,720
  12
 Table
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  **5.OTHER
        ACCRUED
        LIABILITIES**
  Other
        accrued liabilities consisted of the following:
 **June
                    30,**
                  **2006**
                
                
                **December 31,**
                  **2005**Trade
                    accounts payable and accrued expenses
                
                $
                2,154,061
                
                
                $
                1,382,824Accrued
                    legal and other professional fees
                
                
                63,634
                
                
                
                124,984Accrued
                    payroll and related costs
                
                
                197,659
                
                
                
                366,537Total
                
                $
                2,415,354
                
                
                $
                1,874,345
 
 **6. INCOME
        TAXES**
 
 We
        did
        not record income tax provisions for either of the three and six month periods
        ended June 30, 2006 and 2005.
 
 **7.SUBSEQUENT
        EVENTS**
 
 On
        May 7,
        2007, the Company terminated the employment of its Chief Financial Officer,
        Lawrence Dobroff, effective May 7, 2007. Effective May 7, 2007, we appointed
        Thomas L. Wegman, our President and Principal Executive Officer to serve
        as our
        Principal Financial Officer for the purpose of making the certifications
        required by the Sarbanes-Oxley Act of 2002.
 
 **Item2:Management’s
        Discussion and
        Analysis or Plan of Operation**
 
 *The
        following discussion should be read in conjunction with the Financial Statements
        and related notes thereto included elsewhere in this Report.*
 
 ***Overview***
  We
        are a
        biopharmaceutical company that has manufactured the active pharmaceutical
        ingredient, referred to as “API” or “API Enzyme” in this Report used in a FDA
        licensed collagenase ointment that has been marketed for over 30 years. As
        a
        result of our research and development efforts we have also developed an
        injectable collagenase for treatment of various diseases or indications.
        We have
        a development and license agreement (the “Auxilium Agreement”) with Auxilium for
        injectable collagenase (which Auxilium has named “AA4500”) for clinical
        indications in Dupuytren’s disease, Peyronies’s disease and frozen shoulder
        (*adhesive capsulitis*), and Auxilium has an option to acquire additional
        indications that we may pursue, including cellulite and
        lipomas.  Injectable collagenase has completed a pivotal clinical
        trial for the treatment of Dupuytren’s disease. A Phase III clinical trial has
        been initiated and is currently on clinical hold.  During its earnings
        conference call on May 1, 2007, Auxilium reported that it expects the Phase
        III
        clinical trial to resume in the fourth quarter of 2007.
  In
        March
        2006, we sold the collagenase topical business to DFB to refocus our efforts
        on
        the clinical indications related to our collagenase injection business. Sales
        of
        this topical collagenase had declined significantly since the peak year of
        1999.
        Under the terms of the Asset Purchase Agreement, DFB assumed ownership and
        operation of our wholly-owned subsidiary, ABC-Curacao, where the API is
        manufactured, along with certain other assets, including our FDA manufacturing
        license.
  Prior
        to
        the sale of our collagenase topical business in March 2006, we had been in
        the
        business of manufacturing the API for a topical collagenase prescription
        product.  This topical collagenase product is a FDA approved biologic
        product indicated for debridement of chronic dermal ulcers and severely burned
        areas.  Under the terms of our agreement with Abbott, Abbott
        compounded the API into a topical collagenase ointment utilizing the API
        Enzyme
        manufactured by us. The topical collagenase was sold primarily to long-term
        care
        centers.
  13
 Table
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 **Outlook**
  We
        foresee the potential to generate income from limited sources in the next
        several years. Under the terms of our agreement with DFB, we are scheduled
        to
        receive certain contractual anniversary payments and, if DFB exceeds a certain
        sales target, we would be entitled to an earn out on sales. Under the terms
        of
        our agreement with Auxilium, we may receive milestone payments upon their
        achieving certain regulatory progress and if Auxilium elects to pursue
        additional indications for injectable collagenase (“Additional
        Indications”).  In addition, as a result of our transaction with DFB
        in the first quarter of 2006, our costs have been significantly reduced due
        mainly to the reduction in our workforce.  Based on our current
        business model, we expect to have adequate cash reserves until the third
        quarter
        of 2008. In the longer term, a significant portion of our revenues are tied
        directly to the success of Auxilium in commercializing AA4500.
  **Significant
        Risks**
 
 We
        are
        dependent to a significant extent on third parties, and our principal licensee,
        Auxilium, may not be able to successfully develop products, obtain required
        regulatory approvals, manufacture products at an acceptable cost, in a timely
        manner and with appropriate quality, or successfully market products or maintain
        desired margins for products sold, and as a result we may not achieve sustained
        profitable operations.
 
 **Critical
        Accounting Policies, Estimates and Assumptions**
 
 The
        preparation of unaudited consolidated financial statements in conformity
        with
        accounting principles generally accepted in the U.S. requires management
        to make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the unaudited consolidated financial statements and the reported amounts
        of
        revenues and expenses during the reporting period. These estimates are based
        on
        historical experience and on various other assumptions that we believe are
        reasonable under the circumstances. The information at June 30, 2006 and
        for the
        three and six months ended June 30, 2006 and 2005 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, 2005 balance sheet amounts and
        disclosures included herein have been derived from the Company’s
        December 31, 2005 audited consolidated financial statements. The interim
        results are not necessarily indicative of results to be expected for the
        full
        fiscal year. These unaudited consolidated financial statements should be
        read in
        conjunction with the audited consolidated financial statements for the year
        ended December 31, 2005 included in the Company’s Form 10-KSB filed with
        the SEC. While our significant accounting policies are described in more
        detail
        in the notes to our unaudited consolidated financial statements, we believe
        the
        following accounting policies to be critical to the judgments and estimates
        used
        in the preparation of our unaudited consolidated financial
        statements.
 
 ***Revenue
        Recognition****.* We recognize revenues from product sales
        when there is persuasive evidence that an arrangement exists, title passes,
        the
        price is fixed and determinable, and payment is reasonably assured. We currently
        recognize revenues resulting from the licensing and use of our technology
        and
        from services we sometimes perform in connection with the licensed
        technology.
  We
        enter
        into product development licenses, and collaboration agreements that may
        contain
        multiple elements, such as upfront license fees, and milestones related to
        the
        achievement of particular stages in product development and royalties. As
        a
        result, significant contract interpretation is sometimes required to determine
        the appropriate accounting, including whether the deliverables specified
        in a
        multiple-element arrangement should be treated as separate units of accounting
        for revenue recognition purposes, and if so, how the aggregate contract value
        should be allocated among the deliverable elements and when to recognize
        revenue
        for each element.
  14
 Table
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  We
        recognize revenue for delivered elements only when the fair values of
        undelivered elements are known, when the associated earnings process is complete
        and, to the extent the milestone amount relates to our performance obligation,
        when our licensee confirms that we have met the requirements under the terms
        of
        the agreement, and when payment is reasonably assured. Changes in the allocation
        of the contract value between various deliverable elements might impact the
        timing of revenue recognition, but in any event, would not change the total
        revenue recognized on the contract. For example, nonrefundable upfront product
        license fees, for product candidates where we are providing continuing services
        related to product development, are deferred and recognized as revenue over
        the
        development period.
 
 Milestones,
        in the form of additional license fees, typically represent nonrefundable
        payments to be received in conjunction with the achievement of a specific
        event
        identified in the contract, such as completion of specified clinical development
        activities and/or regulatory submissions and/or approvals. We believe that
        a
        milestone represents the culmination of a distinct earnings process when
        it is
        not associated with ongoing research, development or other performance on
        our
        part. We recognize such milestones as revenue when they become due and payment
        is reasonably assured. When a milestone does not represent the culmination
        of a
        distinct earnings process, we recognize revenue in a manner similar to that
        of
        an upfront product license fee.
 
 We
        recognize revenues from a consulting and technical assistance contract primarily
        as a result of the Asset Purchase Agreement. Consulting revenues are recognized
        ratably over the term of the contract. The consulting obligations under the
        Asset Purchase Agreement generally expire during March 2011.
 
 ***Inventory
        and Warranty Provisions*****.** Our inventories are
        stated at the lower of cost or realizable market value. In assessing the
        ultimate realization of inventories, we are required to make judgments as
        to
        future demand requirements and compare that with the current inventory
        levels.  In March 2006 we sold our topical collagenase business to
        DFB, including certain product inventory. As of a result of this sale our
        product inventory for the three and six months ended June 30, 2006 was
        zero.
  ***Stock
        Based Compensation*****.** Effective January 1, 2006, we
        account for employee stock-based compensation in accordance with SFAS No.
        123,
“Share Based Payment (Revised 2004)” (“SFAS 123(R)”), which supersedes our
        previous accounting under Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”), and related
        interpretations. We adopted SFAS 123(R) using the modified prospective
        application transition method, which requires that compensation expense be
        recognized in the financial statements for all awards granted after the date
        of
        adoption as well as for existing awards for which the requisite service has
        not
        been rendered as of the date of adoption. The modified prospective transition
        method does not require restatement of prior periods to reflect the impact
        of
        SFAS 123(R).
  Under
        the
        provisions of SFAS 123(R), we estimate the fair value of our employee stock
        awards at the date of grant using the Black-Scholes option-pricing model,
        which
        requires the use of certain subjective assumptions. The most significant
        assumptions are our estimates of the expected volatility of the market price
        of
        our stock and the expected term of the award. Expected volatility is based
        on
        the historical volatility of our common stock. When establishing an estimate
        of
        the expected term of an award, we consider the vesting period for the award,
        our
        historical experience of employee stock option exercises (including forfeitures)
        and the expected volatility. As required under the accounting rules, we review
        our valuation assumptions at each grant date and, as a result, we are likely
        to
        change our valuation assumptions used to value employee stock-based awards
        granted in future periods.
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  Further,
        SFAS 123(R) requires that employee stock-based compensation costs be recognized
        over the requisite service period, or the vesting period, in a manner similar
        to
        all other forms of compensation paid to employees. Accordingly, for the three
        and six month periods ended June 30, 2006, we recognized employee stock-based
        compensation related to SFAS 123(R) of $4,785 and $423,760, respectively
        as part
        of our operating expenses, with an allocation of $60,605 to research and
        development expense and $363,155to general and
        administrative expense. We did not recognize any related tax benefit and
        we did
        not capitalize any employee stock-based compensation costs in inventory as
        a
        component of cost of product sales during the first or second quarter of
        2006 as
        the amount was immaterial. Due to the sale of our manufacturing facility
        in
        Curacao we did not capitalize employee stock-based compensation costs in
        inventory or recognize the related expenses in cost of product
        sales.
  Total
        unrecognized compensation cost related to nonvested stock options as of June
        30,
        2006 was zero as all stock options are 100% vested. There was no stock-based
        compensation expense related to employee stock options recognized under FAS
        123(R) during the three and six months ended June 30, 2005.
 
 **RESULTS
        OF OPERATIONS**
 
 As
          a
          result of selling our topical collagenase business in March 2006, which
          was
          included in our prior period consolidated financial statements including
          the
          first and second quarter of 2005, we treated these dispositions as discontinued
          operations and reclassified the financial information reported for all
          periods
          presented. Discontinued operations are more fully discussed in Note 3 to
          our consolidated financial statements, included in this
          Report.
 
 **THREE-MONTHS
        ENDED JUNE 30, 2006 AND JUNE 30, 2005**
 
 **Revenues**
 
 *Product
        Revenues, net*
 
 Product
        revenues include the sales of the API Enzyme recognized at the time it is
        shipped to customers. From continuing operations, we had a small amount of
        revenue from the sale of collagenase for laboratory use.  For the
        three months ended June 30, 2006 and 2005 product revenues were $6,883 and
        $17,912, respectively. This decrease of $11,029 or 62% was primarily related
        to
        the amount of material required to perform testing by our
        customers.
 
 *Licensing
        Revenues*
 
 For
        the
        three months ended June 30, 2006 and 2005 we recognized as licensing revenue
        $289,279 and $343,817 of the cash payments received from Auxilium in calendar
        years 2005 and 2004, respectively. This decrease of $54,538 or 16% was primarily
        due to an extension of the development period.
 
 Under
        current accounting guidance, nonrefundable upfront license fees for product
        candidates where we are providing continuing services related to product
        development, are deferred and recognized as revenue over the development
        period.
        The remaining balance will be recognized over the respective development
        periods
        or when we determine that we have no ongoing performance
        obligations.
 
 *Consulting
        Services*
 
 We
        recognize revenues from a consulting and technical assistance contract primarily
        as a result of the Asset Purchase Agreement. Consulting revenues are recognized
        ratably over the term of the contract. The consulting obligations under the
        Asset Purchase Agreement generally expire during March 2011. For the three
        months ended June 30, 2006 and 2005 consulting revenue was $70,000 and none,
        respectively. This increase in consulting revenues was the result of the
        timing
        of the Asset Purchase Agreement.
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 **Costs
        and Expenses**
 
 *Research
        and Development Activities*
 
 Research
        and development expenses were $247,847 and $114,830 respectively, for the
        three
        months ended June 30, 2006 and 2005 an increase in the second quarter of
        2006 of
        $133,017 or 116%. The increase in research and development expenses was
        primarily due to external development work which was partially offset by
        a
        decrease in research and development personnel costs.
 
 *General
        and Administrative Expenses*
 
 General
        and administrative expenses were $845,271 and $532,502 for the three months
        ended June 30, 2006 and 2005, respectively, which was an increase in the
        second
        quarter of 2006 of $312,769 or 59%. The increase in general and administrative
        expenses is primarily due to consulting expenses and legal and patent
        expenses.
 
 *Other
        Income (expense), net*
 
 Other
        income (expense), net, was $64,297 and $(83,792) for the three months ended
        June
        30, 2006 and 2005, respectively. Other income, net during the second quarter
        of
        2006 was primarily due to interest earned on our investments. Other expense,
        net
        during the second quarter of 2005 was primarily due to interest expense related
        to the amortization of the 12% senior secured convertible note borrowed in
        June
        2003 (“2003 Convertible Note”), which had been outstanding during the second
        quarter of 2005, a $100,000 promissory note, bearing interest at 8%, to a
        individual lender and the interest associated the remaining balance of a
        loan
        from Korpodeko.
  *Income
        Taxes*
 
 The
        expense for income taxes for the three months ended June 30, 2006 and 2005
        was
        zero. We recorded no income tax benefit in each period because of uncertainties
        with respect to the timing of future utilization of net operating loss
        benefit.
 
 **SIX-MONTHS
        ENDED JUNE 30, 2006 AND JUNE 30, 2005**
 
 **Revenues**
 
 *Product
        Revenues, net*
 
 Product
        revenues include the sales of the API Enzyme recognized at the time it is
        shipped to customers. From continuing operations, we had a small amount of
        revenue from the sale of collagenase for laboratory use.  For the six
        months ended June 30, 2006 and 2005 product revenues were $13,676 and $27,180,
        respectively. This decrease of $13,504 or 50% was primarily related to the
        amount of material required to perform testing by our customers.
 
 *Licensing
        Revenues*
 
 For
        the
        six months ended June 30, 2006 and 2005 we recognized as licensing revenue
        $578,558 and $579,006 of the cash payments received in calendar years 2005
        and
        2004, respectively. This slight decrease of $448 was primarily due to an
        extension of the development period which was partially offset by the timing
        of
        the additional milestone payments received in 2005 under the Auxilium
        Agreement..
 
 Under
        current accounting guidance, nonrefundable upfront license fees for product
        candidates where we are providing continuing services related to product
        development, are deferred and recognized as revenue over the development
        period.
        The remaining balance will be recognized over the respective development
        periods
        or when we determine that we have no ongoing performance
        obligations.
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 *Consulting
        Services*
 
 We
        recognize revenues from a consulting and technical assistance contract primarily
        as a result of the Asset Purchase Agreement. Consulting revenues are recognized
        ratably over the term of the contract. The consulting obligations under the
        Asset Purchase Agreement generally expire during March 2011. For the six
        months
        ended June 30, 2006 and 2005 consulting revenue was $93,333 and none,
        respectively. This increase in consulting revenues was primarily the result
        of
        the timing of the Asset Purchase Agreement.
 
 **Costs
        and Expenses**
 
 *Research
        and Development Activities*
 
 Research
        and development expenses were $993,212 and $265,581 respectively, for the
        six
        months ended June 30, 2006 and 2005 an increase of $727,631 or 274%. The
        increase in research and development expenses were primarily due to research
        and
        development license expense and employee stock-based compensation expense
        and
        external development, which were partially offset by a decrease in research
        and
        development personnel costs.
 .
 *General
        and Administrative Expenses*
 
 General
        and administrative expenses were $1,817,666 and $1,026,802 for the six months
        ended June 30, 2006 and 2005, respectively, which was an increase of $790,864
        or
        77%. The increase in general and administrative expenses is primarily due
        to
        employee stock-based compensation expense, legal and patent expenses and
        consulting expenses.
 
 *Other
        Income (expense), net*
 
 Other
        income (expense), net, was $81,617 and ($159,276) for the six months ended
        June
        30, 2006 and 2005, respectively. Other income, net during for the 2006 period
        was primarily due to interest earned on our investments. Other expense, net
        for
        the 2005 period was primarily due to interest expense related to the
        amortization of the 12% senior secured convertible note borrowed in June
        2003
        (“2003 Convertible Note”), which had been outstanding during the during the six
        months of 2005, a $100,000 promissory note, bearing interest at 8%, to a
        individual lender and the interest associated the remaining balance of a
        loan
        from Korpodeko.
  *Income
        Taxes*
 
 The
        expense for income taxes for the six months ended June 30, 2006 and 2005
        was
        zero. We recorded no income tax benefit in each period because of uncertainties
        with respect to the timing of future utilization of net operating loss
        benefit.
 
 **Liquidity
        and Capital Resources**
 
  To
        date,
        we have financed our operations primarily through product sales, debt
        instruments and licensing revenues and royalties under agreements with third
        parties. At June 30, 2006 and December 31, 2005, we had cash and cash
        equivalents in the aggregate of $6,132,106 and $539,380,
        respectively.
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 *Continuing
        Operations*
 
 Net
        cash
        used in operating activities for the six months ended June 30, 2006 was
        $1,333,370 as compared to net cash provided by operating activities in the
        2005
        period of $1,255,587.  In the 2006 period, as compared to the 2005
        period, the changes in net cash from operating activities was primarily
        attributable to an increases in deferred revenue in the 2005 period due to
        the
        payments received by us under the Auxilium Agreement, accounts receivable
        associated with consulting services under the Asset Purchase Agreement partially
        offset by increased costs related to our general and administrative operations
        and accounts payable and accrued expenses related to a research and development
        license.
 
 Net
        cash
        provided by investing activities for the six months ended June 30, 2006 was
        zero
        as compared to net cash used in investing activities of $4,450 in 2005 period.
        The net cash used in investing activities in the 2005 period was primarily
        the
        result of capital expenditures.
 
 Net
        cash
        used in financing activities for the six months ended June 30, 2006 of $83,406
        was primarily the result of the issuance of treasury stock to our minority
        shareholders related to the Asset Purchase Agreement as compared to net cash
        used in financing activities for the 2005 period of $1,620,183. Net cash
        used in
        the 2005 period was primarily due to the repayment of $1,575,000 in connection
        with the 2003 Convertible Note and a $100,000 promissory note from an individual
        lender, which was partially offset by deferred loan costs associated with
        the
        2003 Convertible Note.
 
 *Discontinued
        Operations*
 
 Cash
        flow
        changes from discontinued operations are primarily due to the operating results
        of ABC-Curacao and certain operations of ABC-NY, which have been classified
        as
        discontinued operations.
 
 Net
        cash
        provided by operating activities from discontinued operations in the 2006
        and
        2005 periods were $950,789 and $465,854, respectively.
 
 Net
        cash
        provided by investing activities from discontinued operations in the 2006
        and
        2005 periods were $6,058,713 and $246,509, respectively.
 
 Net
        cash
        used in financing activities from discontinued operations in the 2006 and
        2005
        periods were zero and $182,000.
 
 **Risk
        Factors**
 
 See
“Risk
        Factors” under Item 1, “Description of Business” included in our Annual Report
        on Form 10-KSB for the years ended December 31, 2005, 2004 and
        2003.
 
 **Item3.Controls
        and
        Procedures**
 
 See
        “Controls and Procedures” under Item 8A included in our Annual Report on Form
        10-KSB for the years ended December 31, 2005, 2004 and 2003.
 
 Additionally,
        following the death of our former Chairman and CEO, Edwin H. Wegman, on February
        16, 2007 and the termination of our Chief Financial Officer, Lawrence Dobroff,
        on May 7, 2007, the Audit Committee adopted the following two
        procedures:
 
 ·
              Any
                  payment by the Company in excess of $10,000 other than payments
                  for
                  previously approved reoccurring expenses requires the written approval
                  of
                  any member of the Audit Committee in addition to the signature
                  of our
                  President, Thomas L. Wegman; and
 
 ·
              Any
                  payment by the Company for the business expenses of our President,
                  Thomas
                  L. Wegman requires the written approval of any member of the Audit
                  Committee.
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 **PARTII:OTHER
        INFORMATION**
 
 **Item1.Legal
        Proceedings**
 
 None.
 
 **Item2.Unregistered
        Sales of Equity
        Securities and Use of Proceeds**
 
 The
        Company engaged in the following issuance of unregistered securities, as
        described below.
 
 *Stock
        Issued in Lieu of Services*
 
 In
        May
        2006, the Company issued a total of 7,500 restricted shares to an individual
        who
        performed personal services for the Company’s former Chairman and CEO for a
        total fair market value of $7,875.
 
 **Item3.Defaults
        Upon Senior
        Securities**
 
 None.
 
 **Item4.Submission
        of Matters to a Vote
        of Security Holders**
 
 None
 
 **Item5.Other
        Information**
 
 None.
 
 **Item6.Exhibits**
 
 3.1
              Articles
                  of Incorporation of the Registrant (incorporated by reference to
                  Exhibit
                  3.1 to the Registrant's Annual Report on Form 10-KSB for the fiscal
                  years
                  ended December 31, 2005, 2004 and
                  2003).
 3.2
              Bylaws
                  of the Registrant (incorporated by reference to Exhibit 3.2 to
                  the
                  Registrant’s Annual Report on Form 10-KSB for the fiscal years ended
                  December 31, 2005, 2004 and 2003).
 31.1
              Certification
                  of Principal Executive Officer and Principal Financial Officer
                  pursuant to
                  Rule13a-14(a)/15d-14(a)
 32.1
              Certification
                  of Principal Executive Officer and Principal Financial Officer
                  pursuant to
                  Section 906 of Sarbanes-Oxley Act of
                  2002
 
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 **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:  June
                  1, 2007
              /s/
                  Thomas L. Wegman
                Thomas
                  L. Wegman
                President
                (Principal
                  Executive Officer and
                Principal
                  Financial Officer)




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