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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________to
__________________

001-34236 (Commission file number)

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

|Delaware                          | 11-3054851         
|--------------------------------- | -------------------
|(State or Other Jurisdiction      | (I.R.S. Employer   
|of Incorporation or Organization) | Identification No.)

35 Wilbur Street Lynbrook, NY 11563(Address of
Principal Executive Offices) (Zip Code)

516.593.7000(Registrants Telephone Number,
Including Area Code)

Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

Yes [X]       No [  ]

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

|Large accelerated filer [  ]                                                   | Accelerated filer [X]         
|------------------------------------------------------------------------------ | ------------------------------
|Non-accelerated filer [  ] (Do not check if a
      smaller reporting company) | Smaller reporting company [  ]
|                                                                               |                               

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

Yes [  ]      No [X]

Indicate the number of shares outstanding of the issuer's
classes of common stock, as of the latest practicable date:

|Class of Stock                 | Outstanding May 4, 2010
|------------------------------ | -----------------------
|Common Stock ($.001 par value) | 6,276,551              

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BIOSPECIFICS TECHNOLOGIES CORP.

TABLE OF CONTENTS

|         |                                                                                                | Page
|-------- | ---------------------------------------------------------------------------------------------- | ----
|         | PART I  FINANCIAL
      INFORMATION                                                           |     
|ITEM 1.  | Consolidated Financial Statements                                                              | 2   
|         | Consolidated Balance
      Sheet as of March 31, 2010 and December 31, 2009                    | 2   
|         | Consolidated Statements of Operations
      for the Three Months Ended March 31, 2010 and 2009 | 3   
|         | Consolidated Statements
      of Cash Flows for the Three Months Ended March 31, 2010 and 2009 | 4   
|         | Notes to Consolidated Financial
      Statements                                               | 5   
|ITEM 2.  | Managements Discussion
      and Analysis                                                     | 13  
|ITEM 3.  | Quantitative and Qualitative Disclosures
      About Market Risk                               | 17  
|ITEM 4.  | Controls and Procedures                                                                        | 18  
|         |                                                                                                |     
|         |                                                                                                |     
|         | PART II  OTHER INFORMATION                                                                    |     
|ITEM 1.  | Legal Proceedings                                                                              | 18  
|ITEM 1A. | Risk Factors                                                                                   | 18  
|ITEM 2.  | Unregistered Sales of
      Equity Securities and Use of Proceeds                              | 18  
|ITEM 3.  | Defaults Upon Senior Securities                                                                | 18  
|ITEM 4.  | Submission of Matters to
      a Vote of Security Holders                                      | 18  
|ITEM 5.  | Other Information                                                                              | 18  
|ITEM 6.  | Exhibits                                                                                       | 18  

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Introductory Comments  Terminology

Throughout this quarterly report on Form 10-Q (this Report),
the terms BioSpecifics, Company, we, our, and us refer to BioSpecifics
Technologies Corp. and its subsidiary, Advance Biofactures Corp. (ABC-NY).

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 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 as discussed in Item 1A, Risk
Factors, included in our Annual Report on Form 10-K for the year ended December
31, 2009, and for the reasons described elsewhere in this Report. All
forward-looking statements and reasons why actual 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.

1

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PART I  FINANCIAL INFORMATION

Item 1: Consolidated Financial Statements

BioSpecifics Technologies Corp. Consolidated Balance
Sheets

|                                                                                                                                                                                     |   | March 31,   |   |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | - | - | ------------ | -
|                                                                                                                                                                                     |   | 2010        |   |   | 2009         |  
|                                                                                                                                                                                     |   | (unaudited) |   |   | (audited)    |  
|Assets                                                                                                                                                                               |   |             |   |   |              |  
|Current assets:                                                                                                                                                                      |   |             |   |   |              |  
|Cash and cash
      equivalents                                                                                                                                                      | $ | 6,733,620   |   | $ | 3,950,389    |  
|Short-term investments                                                                                                                                                               |   | 4,548,541   |   |   | 4,548,541    |  
|Accounts receivable,
      net                                                                                                                                                       |   | 227,552     |   |   | 1,295,399    |  
|Income tax receivable                                                                                                                                                                |   | 418,605     |   |   | 416,821      |  
|Prepaid expenses and
      other current assets                                                                                                                                      |   | 73,581      |   |   | 63,260       |  
|Total current assets                                                                                                                                                                 |   | 12,001,899  |   |   | 10,274,410   |  
|                                                                                                                                                                                     |   |             |   |   |              |  
|Deferred royalty buy-down                                                                                                                                                            |   | 1,250,000   |   |   | 1,250,000    |  
|Property, plant and
      equipment, net                                                                                                                                             |   | 406         |   |   | 610          |  
|Patent costs, net                                                                                                                                                                    |   | 213,748     |   |   | 223,458      |  
|                                                                                                                                                                                     |   |             |   |   |              |  
|Total assets                                                                                                                                                                         |   | 13,466,053  |   |   | 11,748,478   |  
|                                                                                                                                                                                     |   |             |   |   |              |  
|Liabilities and Stockholders' Equity                                                                                                                                                 |   |             |   |   |              |  
|Current liabilities:                                                                                                                                                                 |   |             |   |   |              |  
|Accounts payable and accrued expenses                                                                                                                                                |   | 1,110,529   |   |   | 584,509      |  
|Accrued third-party
      development expenses                                                                                                                                       |   | 3,742,376   |   |   | 2,965,225    |  
|Deferred revenue                                                                                                                                                                     |   | 843,768     |   |   | 877,778      |  
|Accrued liabilities of
      discontinued operations                                                                                                                                 |   | 78,138      |   |   | 78,138       |  
|Total current liabilities                                                                                                                                                            |   | 5,774,811   |   |   | 4,505,650    |  
|                                                                                                                                                                                     |   |             |   |   |              |  
|Long-term deferred revenue                                                                                                                                                           |   | 1,041,447   |   |   | 1,150,721    |  
|                                                                                                                                                                                     |   |             |   |   |              |  
|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; 6,365,818 and 6,327,318 shares issued and outstanding
      at March 31, 2010 and December 31, 2009, respectively |   | 6,366       |   |   | 6,327        |  
|Additional paid-in
      capital                                                                                                                                                     |   | 15,976,557  |   |   | 15,164,727   |  
|Accumulated deficit                                                                                                                                                                  |   | (8,639,171  | ) |   | (8,384,990   | )
|Treasury stock, 131,267
      shares at cost at March 31, 2010 and December 31, 2009                                                                                                 |   | (693,957    | ) |   | (693,957     | )
|Total stockholders' equity                                                                                                                                                           |   | 6,649,795   |   |   | 6,092,107    |  
|                                                                                                                                                                                     |   |             |   |   |              |  
|Total liabilities and stockholders equity                                                                                                                                           | $ | 13,466,053  |   | $ | 11,748,478   |  

See accompanying notes to consolidated financial
statements

2

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BioSpecifics Technologies Corp. Consolidated Statements
of Operations(unaudited)

|                                                                         |   | Three Months Ended |  
|------------------------------------------------------------------------ | - | ------------------ | -
|                                                                         |   | March 31,          |  
|                                                                         |   | 2010               |  
|Revenues:                                                                |   |                    |  
|Net sales                                                                | $ | 8,936              |  
|Royalties                                                                |   | 31,812             |  
|Licensing fees                                                           |   | 2,548,284          |  
|Consulting fees                                                          |   | 70,000             |  
|Total Revenues                                                           |   | 2,659,032          |  
|                                                                         |   |                    |  
|Costs and expenses:                                                      |   |                    |  
|Research and
      development                                           |   | 896,817            |  
|General and administrative                                               |   | 2,034,178          |  
|Total Cost and Expenses                                                  |   | 2,930,995          |  
|                                                                         |   |                    |  
|Operating loss                                                           |   | (271,963           | )
|                                                                         |   |                    |  
|Other income (expense):                                                  |   |                    |  
|Interest income                                                          |   | 25,850             |  
|Interest expense                                                         |   | -                  |  
|Other                                                                    |   | -                  |  
|                                                                         |   | 25,850             |  
|                                                                         |   |                    |  
|Loss before expense for income tax                                       |   | (246,113           | )
|Income tax expense                                                       |   | (8,067             | )
|                                                                         |   |                    |  
|Net loss                                                                 | $ | (254,180           | )
|                                                                         |   |                    |  
|                                                                         |   |                    |  
|Basic and diluted net loss per
      share                               | $ | (0.04              | )
|                                                                         |   |                    |  
|                                                                         |   |                    |  
|Shares used in computation of basic and diluted net loss
      per share |   | 6,213,995          |  

See accompanying notes to consolidated financial
statements

3

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

|                                                                                      |   | Three Months Ended |  
|------------------------------------------------------------------------------------- | - | ------------------ | -
|                                                                                      |   | March 31,          |  
|Cash flows from operating activities:                                                 |   | 2010               |  
|Net loss                                                                              | $ | (254,180           | )
|Adjustments to reconcile net loss to net cash
      provided by operating activities: |   |                    |  
|Depreciation and amortization                                                         |   | 9,914              |  
|Stock-based
      compensation expense                                                |   | 775,068            |  
|Deferred revenue                                                                      |   | (143,284           | )
|Changes in operating assets and
      liabilities:                                    |   |                    |  
|Accounts receivable                                                                   |   | 1,067,847          |  
|Prepaid expenses and other current assets                                             |   | (12,105            | )
|Accounts payable and accrued expenses                                                 |   | 1,303,173          |  
|Net cash provided by operating activities                                             |   | 2,746,431          |  
|                                                                                      |   |                    |  
|Cash flows from investing activities:                                                 |   |                    |  
|Maturities of
      marketable securities                                             |   | -                  |  
|Net cash provided by investing activities                                             |   | -                  |  
|                                                                                      |   |                    |  
|Cash flows from financing activities:                                                 |   |                    |  
|Proceeds from
      stock option exercises                                            |   | 36,800             |  
|Net cash provided by financing activities                                             |   | 36,800             |  
|                                                                                      |   |                    |  
|Increase in cash and cash equivalents                                                 |   | 2,783,231          |  
|Cash and cash equivalents at
      beginning of year                                  |   | 3,950,389          |  
|Cash and cash equivalents at end of year                                              | $ | 6,733,620          |  
|                                                                                      |   |                    |  
|Supplemental disclosures of cash flow
      information:                              |   |                    |  
|Cash paid during the year for:                                                        |   |                    |  
|Interest                                                                              | $ | -                  |  
|Taxes                                                                                 | $ | 9,851              |  

Supplemental disclosures of non-cash transactions:

Under our agreement with Auxilium certain patent costs paid by
Auxilium on behalf of the Company are creditable against future royalties. As of
March 31, 2010 we accrued $282,297 related to these costs of which $9,710 was
amortized in the 2010 period and $7,214 in the 2009 comparable period.

See accompanying notes to consolidated financial
statements

4

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BIOSPECIFICS TECHNOLOGIES CORP.NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 (Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

We are a biopharmaceutical company involved in the development
of an injectable collagenase for multiple indications. We have an Amended and
Restated Development and License Agreement with Auxilium Pharmaceuticals, Inc.
(Auxilium), which became effective on December 17, 2008 (the Auxilium
Agreement). Pursuant to the Auxilium Agreement, we have licensed to Auxilium
our injectable collagenase (which Auxilium has named XIAFLEXTM
(formerly known as AA4500)) for clinical indications in Dupuytrens
contracture, Peyronies disease and frozen shoulder (adhesive
capsulitis), and Auxilium has an option to acquire additional indications
that we may pursue, including lipomas and cellulite. Auxilium has an agreement
with Pfizer, Inc. (Pfizer) pursuant to which Pfizer will market XIAFLEX for
the treatment of Dupuytrens contracture and Peyronies disease in 27 member
countries of the European Union and 19 other European and Eurasian
countries.

Auxilium announced on February 2, 2010 that it received
marketing approval from the United States Food and Drug Administration (FDA)
for XIAFLEX for the treatment of adult Dupuytrens contracture patients with a
palpable cord. XIAFLEX, the only drug approved by the FDA for the treatment of
Dupuytrens contracture, became available by prescription for such treatment in
March 2010. In its May 2010 presentation materials, Auxilium stated, We believe
worldwide peak revenues for XIAFLEX could be in excess of $1 Billion
annually.

Auxilium has also announced the list price to distributors of
XIAFLEX. In a February 17, 2010 press release, Auxilium stated this list price
will be $3,250 and that it anticipates that Dupuytrens contracture patients
treated with XIAFLEX will have 1.5 cords treated, on average, and that each cord
will be treated with an average of 1.1 vials of XIAFLEX.

Pfizer and Auxilium announced, on January 21, 2010, that the
scientific/technical review procedure for the Marketing Authorization Approval
for XIAFLEX for Dupuytrens contracture in Europe had begun.

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 United States generally accepted accounting principles (GAAP)
has been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (the SEC) for quarterly reporting.

The information included in this Report should be read in
conjunction with our Annual Report on Form 10-K for the year ended December 31,
2009 filed with the SEC on March 15, 2010.

Principles of Consolidation

The audited consolidated financial statements include the
accounts of the Company and its subsidiary, ABC-NY.

Management Estimates

The preparation of consolidated financial statements in
conformity with GAAP requires the use of managements estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.

5

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Cash, Cash Equivalents and Short-term Investments

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

Fair Value Measurements

Accounting Standards Codification 820, Fair Value
Measurements and Disclosures(ASC 820), requires expanded disclosures
about fair value measurements. We adopted these provisions relating to assets
and liabilities recognized or disclosed in the financial statements at fair
value on a recurring basis on January 1, 2008. The adoption of these provisions
did not have a material effect on our consolidated financial statements.

ASC 820 clarifies that fair value is an exit price,
representing the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants based
on the highest and best use of the asset or liability. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. ASC 820 requires
us to use valuation techniques to measure fair value that maximize the use of
observable inputs and minimize the use of unobservable inputs. These inputs are
prioritized as follows:

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

The following table sets forth the fair value of our financial
assets that were measured on a recurring basis as of March 31, 2010:

|                          |   | Level 1   |  |  | Level 2 |  |  | Level 3 | 
|------------------------- | - | --------- |  |  | ------- |  |  | ------- | 
|Cash and cash equivalents | $ | 6,733,620 |  |  | -       |  |  | -       | 
|Certificates of Deposit   |   | 4,548,541 |  |  | -       |  |  | -       | 

Revenue Recognition

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

If we determine that separate elements exist in a revenue
arrangement under ASC 605, we recognize revenue for delivered elements only when
the fair values of undelivered elements are known, when the associated earnings
process is complete, when payment is reasonably assured and, to the extent the
milestone amount relates to our performance obligation, when our customer
confirms that we have met the requirements under the terms of the agreement.

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

Product Sales

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

Net sales include the sales of the collagenase for laboratory
use that are recognized at the time the product is shipped to customers for
laboratory use.

Royalty/Earn-Out Revenue

Under the Auxilium Agreement, we do not participate in the
selling or marketing of products for which we receive royalties. Under the
Auxilium Agreement, the royalty reports from Auxilium are required to be
submitted approximately 30 - 60 days in arrears.

6

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Under a March 2006 agreement (the DFB Agreement), pursuant to
which we sold our topical collagenase business to DFB Biotech, Inc. and its
affiliates (DFB), we have the right to receive earn-out payments in the future
based on sales of certain products. Generally, under the DFB Agreement we would
receive payments and a report within ninety (90) days from the end of each
calendar year after DFB has sold the royalty-bearing product.

For those arrangements for which earn-out payment or royalty
information becomes available and collectability is reasonably assured, we
recognize revenue during the applicable period earned. For interim quarterly
reporting purposes, when collectability is reasonably assured but a reasonable
estimate of earn-out payments or royalty revenues cannot be made, the earn-out
payment or royalty revenues are recognized in the quarter that the applicable
licensee provides the written report and related information to us.

License and Sublicense Fees

We include revenue recognized from upfront licensing,
sublicensing and milestone payments in License Fees in our consolidated
statements of operations in this Report.

Upfront License and Sublicensing Fees

We generally recognize revenue from upfront licensing and
sublicensing 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 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 an upfront license fee.

The timing and amount of revenue that we recognize from
licenses of technology, either from upfront fees or milestones for which we are
providing continuing services related to product development, are primarily
dependent upon our estimates of the development period. We define the
development period as the point from which research activities commence up to
regulatory approval of either our or our partners submission assuming no
further research is necessary. As product candidates move through the
development process, it is necessary to revise these estimates to consider
changes to the product development cycle, such as changes in the clinical
development plan, regulatory requirements, or various other factors, many of
which may be outside of our control. Should the 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 consulting and technical assistance
contracts primarily as a result of the DFB Agreement. Consulting revenues are
recognized ratably over the term of the contract. The consulting obligations to
DFB expire during March 2011.

Accounts Receivable and Allowance for Doubtful Accounts

The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses which when
realized have been within the range of managements expectations. Our policy is
to write off bad debts as uncollectible when it is determined that they cannot
be collected.

7



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Reimbursable Third Party Development Costs

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

If conditions or other circumstances change, we may take
actions to revise our reimbursable third party development cost estimates. These
revisions could result in an incremental increase or decrease in research and
development costs. For example, the Auxilium Agreement provides that Auxilium
and BioSpecifics will share equally in third party costs for the development of
the lyophilization of the injection formulation and certain patent expenses. In
April 2010, we received an updated invoice from Auxilium for approximately $3.7
million which represents an increase of approximately $0.8 million in the total
amount due that Auxilium believes is owed by us through March 31, 2010 under
this provision. The increase in 2010 was primarily due to third party
development expenses. Based upon the updated invoice, we changed our estimates
for reimbursable third party development and certain patent costs to
approximately $3.7 million.

Based on our preliminary review, we believe that only a portion
of the amounts invoiced actually relates to the development of the
lyophilization of the injection formulation and certain patent expenses, and
therefore, reserve all rights related to this matter, including but not limited
to our right to contest the amount charged by Auxilium. In addition, we believe
that this matter will be settled within calendar year 2010, and we have
re-classified accrued third party development costs from long-term liabilities
to current liabilities on our balance sheet as of December 31, 2009,
accordingly.

Actual results have differed in the past, and may differ in the
future, from our estimates and could impact our earnings in any period during
which an adjustment is made.

Research and Development Expenses

Our research and development (R&D) costs are expensed as
incurred. R&D includes, but is not limited to, internal costs, such as
salaries and benefits, costs of materials, lab expense, facility costs and
overhead. R&D also consists of third party costs, such as medical
professional fees, contract manufacturing costs for material used in clinical
trials, consulting fees and costs associated with clinical study R&D
arrangements. We fund R&D at medical research institutions under agreements
that are generally cancelable. All of these costs are charged to R&D as
incurred, which may be measured by percentage of completion, contract
milestones, patient enrollment, or the passage of time.

Clinical Trial Expenses

Our cost accruals for clinical trials are based on estimates of
the services received and efforts expended pursuant to contracts with various
clinical trial centers and clinical research organizations. In the normal course
of business we contract with third parties to perform various clinical trial
activities in the ongoing development of potential drugs. The financial terms of
these agreements are subject to negotiation and vary from agreement to agreement
and may result in uneven payment flows. Payments under such agreements depend on
factors such as the achievement of certain events, the successful enrollment of
patients, the completion of portions of the clinical trial, or similar
conditions. The objective of our accrual policy is to match the recording of
expenses in our financial statements to the actual cost of services received and
efforts expended. As such, expenses related to each patient enrolled in a
clinical trial are recognized ratably beginning upon entry into the trial and
over the course of the patients continued participation in the trial. In the
event of early termination of a clinical trial, we accrue an amount based on our
estimate of the remaining non-cancelable obligations associated with the winding
down of the clinical trial. Our estimates and assumptions could differ
significantly from the amounts that may actually be incurred.

Stock-Based Compensation

The Company has two stock-based compensation plans in effect.
Under Accounting Standards Codification 718,Compensation - Stock
Compensation (ASC 718), we estimate the fair value of our employee stock
awards at the date of grant using the Black-Scholes option-pricing model, which
requires the use of certain subjective assumptions. The most significant of
these assumptions are our estimates of the expected volatility of the market
price of our stock and the expected term of an award. When establishing an
estimate of the expected term of an award, we consider the vesting period for
the award, our recent historical experience of employee stock option exercises
(including forfeitures) and the expected volatility. When there is uncertainty
in the factors used to determine the expected term of an award, we use the
simplified method in accordance with SEC Staff Accounting Bulletin 107. As
required under the accounting rules, we review our valuation assumptions at each
grant date and, as a result, our valuation assumptions used to value employee stock-based awards granted in future periods may change. The
Company did not grant any stock options during the three months ended March 31,
2010.

8

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ASC 718 requires that employee stock-based compensation costs
be recognized over the requisite service period, or the vesting period, in a
manner similar to all other forms of compensation paid to employees. The
allocation of employee stock-based compensation costs to each operating expense
line are estimated based on specific employee headcount information at each
grant date and estimated stock option forfeiture rates and revised, if
necessary, in future periods if actual employee headcount information or
forfeitures differ materially from those estimates. As a result, the amount of
employee stock-based compensation costs we recognize in each operating expense
category in future periods may differ significantly from what we have recorded
in the current period.

Stock-based compensation expense recognized was as follows:

|                                             |   | Three Months Ended | 
|-------------------------------------------- | - | ------------------ | 
|                                             |   | March 31,          | 
|                                             |   | 2010               | 
|                                             |   |                    | 
|Research and development                     | $ | 23,637             | 
|                                             |   |                    | 
|General and administrative                   |   | 751,431            | 
|Total
      stock-based compensation expense | $ | 775,068            | 

Stock Option Activity

A summary of our stock option activity during the three months
ended March 31, 2010 is presented below:

|                                    |  | Total Number |   |   | Weighted-Average | 
|----------------------------------- |  | ------------ | - | - | ---------------- | 
|Options                             |  | of Shares    |   |   | Exercise Price   | 
|Outstanding as of December 31, 2009 |  | 1,464,850    |   | $ | 7.64             | 
|Granted                             |  | -            |   |   | -                | 
|Forfeited                           |  | -            |   |   | -                | 
|Exercised                           |  | (38,500      | ) | $ | 0.96             | 
|Expired                             |  | -            |   |   | -                | 
|Outstanding as of March 31, 2010    |  | 1,426,350    |   | $ | 7.82             | 
|                                    |  |              |   |   |                  | 
|Exercisable as of March 31, 2010    |  | 1,152,600    |   | $ | 5.51             | 

The Company did not grant stock options during the first
quarter of 2010. The total number of outstanding options as of March 31, 2010
was 1,426,350.

During the three months ended March 31, 2010 and 2009, $36,800
and $3,000, respectively, were received from stock options exercised by option
holders.

The aggregate intrinsic value of options outstanding and
exercisable as of March 31, 2010 was approximately $25.6 million. Aggregate
intrinsic value represents the total pre-tax intrinsic value, based on the
closing price of our common stock of $27.75 on March 31, 2010, which would have
been received by the option holders had all option holders exercised their
options as of that date. Total unrecognized compensation cost related to
non-vested stock options outstanding as of March 31, 2010 was approximately $1.8
million which we expect to recognize over a weighted-average period of 1.2
years.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less
accumulated depreciation. Machinery and equipment, furniture and fixtures, and
autos are depreciated on the straight-line basis over their estimated useful
lives of 5 to 10 years. Leasehold improvements are amortized over the lesser of
their estimated useful lives or the remaining life of the lease, which is less than 1 year.

9

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Income Taxes

Deferred tax assets and liabilities are recognized based on the
expected future tax consequences, using current tax rates, of temporary
differences between the financial statement carrying amounts and the income tax
basis of assets and liabilities. A valuation allowance is applied against any
net deferred tax asset if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.

We use the asset and liability method of accounting for income
taxes, as set forth in Accounting Standards Codification 740-10-25-2. Under this
method, deferred income taxes, when required, are provided on the basis of the
difference between the financial reporting and income tax basis of assets and
liabilities at the statutory rates enacted for future periods. In accordance
with Accounting Standards Codification 740-10-45-25, Income Statement
Classification of Interest and Penalties, we classify interest associated
with income taxes under interest expense and tax penalties under other.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) 2010-06, Improving
Disclosures about Fair Value Measurements(ASU 2010-06). ASU 2010-06
requires disclosing the amounts of significant transfers in and out of Level 1
and 2 fair value measurements and describing the reasons for the transfers.
These disclosure requirements were effective for reporting periods beginning
after December 15, 2009, and had no material impact on the Companys financial
statements for the period ended March 31, 2010. Additionally, ASU 2010-06
requires disclosure of the gross purchases, sales, issuances and settlements
activity in Level 3 fair value measurements for fiscal years beginning after
December 15, 2010. The Company does not expect the provisions of ASU 2010-06 to
have a material effect on its consolidated results of operations, financial
position or liquidity.

In February 2010, FASB issued ASU 2010-09, Subsequent Events
(Topic 855): Amendments to Certain Recognition and Disclosure Requirements,
which, among other things, amended FASB Accounting Standards Codification 855 to
remove the requirement for an SEC filer to disclose the date through which
subsequent events have been evaluated. The Company has incorporated this
guidance into this Report.

In April 2010, FASB issued ASU 2010-17, Revenue
RecognitionMilestone Method (Topic 605): Milestone Method of Revenue
Recognition (ASU 2010-17). ASU 2010-17 provides guidance on defining a
milestone and determining when it may be appropriate to apply the milestone
method of revenue recognition for research or development transactions. ASU
2010-17 is effective on a prospective basis for milestones achieved in fiscal
years, and interim periods within those years, beginning on or after June 15,
2010. The Company is currently evaluating the impact of the provisions of ASU
2010-17 on its consolidated results of operations, financial position or
liquidity.

3. NET LOSS PER SHARE

In accordance with Accounting Standards Codification 260,Earnings Per Share, 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 using the converted method.
For the three months ended March 31, 2010 and 2009, we incurred a net loss from
continuing operations and, as such, we did not include the effect of outstanding
stock options 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 | 
|------------- |  | ------------------ | 
|              |  | March 31,          | 
|              |  | 2010               | 
|Stock options |  | 930,625            | 

10

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4. TOTAL COMPREHENSIVE INCOME (LOSS)

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

|                                                         |   | Three Months Ended |  
|-------------------------------------------------------- | - | ------------------ | -
|                                                         |   | March 31,          |  
|                                                         |   | 2010               |  
|Net loss                                                 | $ | (254,180           | )
|Other comprehensive gain:                                |   |                    |  
|Change in unrealized
      gain on marketable securities |   | -                  |  
|Total Comprehensive Gain (loss)                          | $ | (254,180           | )

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the
following:

|                                                  |   | March 31, |  |   | December 31, | 
|------------------------------------------------- | - | --------- |  | - | ------------ | 
|                                                  |   | 2010      |  |   | 2009         | 
|Trade accounts payable and accrued
      expenses | $ | 893,303   |  | $ | 378,872      | 
|Accrued legal and other professional fees         |   | 75,535    |  |   | 70,935       | 
|Accrued payroll and related costs                 |   | 141,691   |  |   | 134,702      | 
|                                                  |   |           |  |   |              | 
|Total                                             | $ | 1,110,529 |  | $ | 584,509      | 

6. PATENT COSTS

We amortize intangible assets with definite lives on a
straight-line basis over their estimated useful lives, ranging from 4 to 12
years, and review for impairment on a quarterly basis and when events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable.

As of March 31, 2010, the Company capitalized certain patent
costs, paid by Auxilium on behalf of the Company. These costs are reimbursable
to Auxilium under the Auxilium Agreement and are creditable against future
royalty revenues. Net patent costs consisted of:

|                         |   | March 31, |   |   | December 31, |  
|------------------------ | - | --------- | - | - | ------------ | -
|                         |   | 2010      |   |   | 2009         |  
|Patents                  | $ | 282,297   |   | $ | 282,297      |  
|Accumulated Amortization |   | (68,549   | ) |   | (58,839      | )
|                         | $ | 213,748   |   | $ | 223,458      |  

The amortization expense for patents was $9,710, for the three
months ended March 31, 2010, and $7,214, for the same period in 2009. The
estimated aggregate amortization expense for each of the next five years is
approximately as follows:

|2011 |  | 37,000 | 
|---- |  | ------ | 
|2012 |  | 34,000 | 
|2013 |  | 32,000 | 
|2014 |  | 27,000 | 
|2015 |  | 27,000 | 

11

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7. INCOME TAXES

The reconciliation of statutory to effective tax rate is as
follows:

|                                                 |  | March 31 |    |  | December 31, |   
|------------------------------------------------ |  | -------- | -- |  | ------------ | --
|                                                 |  | 2010     |    |  | 2009         |   
|Computed tax expense at statutory
      rate     |  | (34.00   | )% |  | (34.00       | )%
|State income taxes, net of federal tax benefit   |  | (0.73    | )% |  | (0.03        | )%
|Deferred revenues                                |  | (39.23   | )% |  | (17.10       | )%
|Stock-based compensation                         |  | 103.68   | %  |  | 23.92        | % 
|Tax benefit of NOL                               |  | (31.06   | )% |  | -            | % 
|Depreciation and amortization                    |  | 0.66     | %  |  | 0.28         | % 
|Tax refund 2008                                  |  | -        | %  |  | (3.18        | )%
|Other                                            |  | 0.68     | %  |  | 1.13         | % 
|Increase (decrease) in valuation
      allowance |  | -        | %  |  | 25.80        | % 
|Effective tax rate (benefit)                     |  | -        | %  |  | (3.18        | )%

The significant components of the Company's deferred tax assets
(liabilities), pursuant to Accounting Standards Codification 740-10-50 are
summarized as follows:

|                                                         |  | March 31,  |   |  | December 31, |  
|-------------------------------------------------------- |  | ---------- | - |  | ------------ | -
|                                                         |  | 2010       |   |  | 2009         |  
|                                                         |  |            |   |  |              |  
|Tax Credit carryforward                                  |  | 1,039,390  |   |  | 1,039,390    |  
|Deferred revenues                                        |  | 476,533    |   |  | 741,714      |  
|Other                                                    |  | -          |   |  | 54,846       |  
|Options                                                  |  | 1,539,377  |   |  | 406,517      |  
|Net operating loss carryforward                          |  | 459,728    |   |  | 556,504      |  
|                                                         |  |            |   |  |              |  
|Net deferred tax assets before
      valuation allowance |  | 3,515,029  |   |  | 2,798,971    |  
|Valuation allowance                                      |  | (3,515,029 | ) |  | (2,798,971   | )
|                                                         |  |            |   |  |              |  
|Net deferred tax asset                                   |  | -          |   |  | -            |  

The valuation allowance increased by $716,058. The change
reflects an increase of $1,132,861 in deferred tax assets related to the
exercise of disqualified and non-qualified stock options. A decrease of $265,181
in deferred tax assets related to deferred revenue recognized during the period
and a decrease in the net operating loss carry-forward of $96,775 which was
applied to the current period federal and state income taxes.

8. RELATED PARTY TRANSACTIONS

In connection with the settlement of the previously reported
dispute between ABC-NY (together with the Company, the Tenant) and Wilbur St.
Corp. (the Landlord) regarding payments of amounts due under the Extension and
Modification Agreement dated July 1, 2005 (the Modification Agreement), the
parties entered into a Lease Modification Agreement dated June 22, 2009 and
effective as of June 24, 2009 (the LMA). Pursuant to the LMA, the Tenant
ratified the Modification Agreement, subject to the terms thereof, and agreed to
a $15,000 reduction in the annual rental price of the Companys premises located
at 35 Wilbur Street, Lynbrook, NY 11563 from $150,000 to $135,000. The
underlying lease agreement expires on June 30, 2010.

The foregoing description of the LMA does not purport to be
complete and is qualified in its entirety by reference to the full text of the
agreement, which was filed as Exhibit 10.1 to our Current Report on Form 8-K on
June 29, 2009.

9. SUBSEQUENT EVENTS

None.

12



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Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations

The following discussion should be read in conjunction with
the consolidated financial statements and related notes thereto included
elsewhere in this Report, and is qualified by reference to them.

Overview

We are a biopharmaceutical company involved in the development
of an injectable collagenase for multiple indications. Pursuant to the Auxilium
Agreement, we have licensed to Auxilium our injectable collagenase (which
Auxilium has named XIAFLEXTM (formerly known as AA4500)) for
clinical indications in Dupuytrens contracture, Peyronies disease and frozen
shoulder (adhesive capsulitis), and Auxilium has an option to acquire
additional indications that we may pursue, including lipomas and cellulite.
Auxilium has an agreement with Pfizer pursuant to which Pfizer will market
XIAFLEX for the treatment of Dupuytrens contracture and Peyronies disease in
27 member countries of the European Union and 19 other European and Eurasian
countries.

Auxilium announced on February 2, 2010 that it received
marketing approval from the FDA for XIAFLEX for the treatment of adult
Dupuytrens contracture patients with a palpable cord, and XIAFLEX became
available by prescription for such treatment in March 2010. In its May 2010
presentation materials, Auxilium stated, We believe worldwide peak revenues for
XIAFLEX could be in excess of $1 Billion annually.

Auxilium has also announced the list price to distributors of
XIAFLEX. In a February 17, 2010 press release, Auxilium stated this list price
will be $3,250 and that it anticipates that Dupuytrens contracture patients
treated with XIAFLEX will have 1.5 cords treated, on average, and that each cord
will be treated with an average of 1.1 vials of XIAFLEX.

Pfizer and Auxilium announced, on January 21, 2010, that the
scientific/technical review procedure of the Marketing Authorization Application
for XIAFLEX for Dupuytrens contracture in Europe had begun.

Outlook

We foresee the potential to generate income from limited
sources in the next several years. In connection with the sale of our topical
collagenase business to DFB in March 2006, we continue to receive payments for
certain technical assistance and certain transition services that we provide to
DFB, as well as earn-out payments based on the sales of certain products. Under
the Auxilium Agreement, in 2009 we received $6.375 million of the $75 million
upfront payment paid to Auxilium by Pfizer. In March 2010, we received $1.275
million of the $15 million paid to Auxilium by Pfizer. We will receive 8.5% of
the $395 million in potential additional milestone payments that may be made by
Pfizer to Auxilium under the Pfizer Agreement. Of these additional milestones,
$135 million are tied to regulatory milestones and $260 million are based on
sales milestones. In addition to the payments already received by us with
respect to the Dupuytrens contracture indication, Auxilium will be obligated to
make contingent milestone payments, with respect to each of the Peyronies
disease and frozen shoulder indications, upon the acceptance of the regulatory
filing and receipt by Auxilium, its affiliate or sublicensee of regulatory
approval.

Based on our current business model, we expect to have adequate
cash reserves until at least the second half of 2012. As a significant portion
of our revenues is tied directly to the success of Auxilium in commercializing
XIAFLEX, we cannot reasonably forecast our financial condition beyond this time.

Significant Risks

In recent history we have had operating losses and may not
achieve sustained profitability. As of December 31, 2009, we had an accumulated
deficit from continuing operations of approximately $8.6 million.

We are dependent to a significant extent on third parties, and
our principal licensee, Auxilium, may not be able to successfully commercialize
XIAFLEX for Dupuytrens contracture, successfully develop XIAFLEX for additional
indications, obtain required regulatory approvals, manufacture XIAFLEX at an
acceptable cost, in a timely manner and with appropriate quality, or
successfully market products or maintain desired margins for products sold, and
as a result we may not achieve sustained profitable operations.

Critical Accounting Policies, Estimates and
Assumptions

The preparation of unaudited consolidated financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the 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 March 31, 2010 and for the three months ended
March 31, 2010 and 2009 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, 2009 balance sheet amounts and disclosures included herein have
been derived from the Companys December 31, 2009 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, 2009 included in the Companys Annual Report on Form
10-K filed with the SEC on March 15, 2010. 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. Actual results have differed in the past, and
may differ in the future, from our estimates and could impact our earnings in
any period during which an adjustment is made.

13

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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,
sublicensing and use of our technology and from services we sometimes perform in
connection with the licensed technology.

We enter into product development licenses, and collaboration
agreements that may contain multiple elements, such as upfront license and
sublicense fees, milestones related to the achievement of particular stages in
product development and royalties. As a result, significant contract
interpretation is sometimes required to determine the appropriate accounting,
including whether the deliverables specified in a multiple-element arrangement
should be treated as separate units of accounting for revenue recognition
purposes, and if so, how the aggregate contract value should be allocated among
the deliverable elements and when to recognize revenue for each element.

We recognize revenue for delivered elements only when the fair
values of undelivered elements are known, when the associated earnings process
is complete and, to the extent the milestone amount relates to our performance
obligation, when our licensee confirms that we have met the requirements under
the terms of the agreement, and when payment is reasonably assured. Changes in
the allocation of the contract value between various deliverable elements might
impact the timing of revenue recognition, but in any event, would not change the
total revenue recognized on the contract. For example, nonrefundable upfront
product license fees, for product candidates for which we are providing
continuing services related to product development, are deferred and recognized
as revenue over the development period.

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

Royalty/Earn-Out Revenue. Under the Auxilium
Agreement, we do not participate in the selling or marketing of products for
which we receive royalties. Under the Auxilium Agreement, the royalty reports
from Auxilium are required to be submitted approximately 30 - 60 days in
arrears.

Under the DFB Agreement, we have the right to receive earn-out
payments in the future based on sales of certain products. Generally, under the
DFB Agreement we would receive payments and a report within ninety (90) days
from the end of each calendar year after DFB has sold the royalty-bearing
product.

For those arrangements for which earn-out payment or royalty
information becomes available and collectability is reasonably assured, we
recognize revenue during the applicable period earned. For interim quarterly
reporting purposes, when collectability is reasonably assured but a reasonable
estimate of earn-out payments or royalty revenues cannot be made, the earn-out
payment or royalty revenues are recognized in the quarter that the applicable
licensee provides the written report and related information to us.

Consulting and Technical Assistance Services. We
recognize revenues from consulting and technical assistance contracts primarily
as a result of the DFB Agreement. Consulting revenues are recognized ratably
over the term of the contract. The consulting obligations to DFB expire during
March 2011.

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

14

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If conditions or other circumstances change, we may take
actions to revise our reimbursable third party development cost estimates. These
revisions could result in an incremental increase or decrease in research and
development costs. For example, the Auxilium Agreement provides that Auxilium
and BioSpecifics will share equally in third party costs for the development of
the lyophilization of the injection formulation and certain patent expenses. In
April 2010, we received an updated invoice from Auxilium for approximately $3.7
million which represents an increase of approximately $0.8 million in the total
amount due that Auxilium believes is owed by us through March 31, 2010 under
this provision. The increase in 2010 was primarily due to third party
development expenses. Based upon the updated invoice, we changed our estimates
for reimbursable third party development and certain patent costs to
approximately $3.7 million.

Based on our preliminary review, we believe that only a portion
of the amounts invoiced actually relates to the development of the
lyophilization of the injection formulation and certain patent expenses, and
therefore, reserve all rights related to this matter, including but not limited
to our right to contest the amount charged by Auxilium. In addition, we believe
that this matter will be settled within calendar year 2010, and we have
re-classified accrued third party development costs from long-term liabilities
to current liabilities on our balance sheet as of December 31, 2009,
accordingly.

Actual results have differed in the past, and may differ in the
future, from our estimates and could impact our earnings in any period during
which an adjustment is made.

Receivables and Deferred Revenue. Under the DFB
Agreement, we agreed to provide certain technical assistance and transitional
services in consideration of fees and costs totaling over $1.4 million. At the
closing of the DFB Agreement, DFB made a partial payment to us of $400,000 in
respect of the technical assistance to be provided by us. To date, we have
received a total of $1,400,000 in payments from DFB. The consulting obligations
expire during March 2011.

Royalty Buy-Down. In August 2008, we
signed an agreement to significantly improve the deal terms related to our
future royalty obligations for Peyronies disease by buying down our future
royalty obligations with a one-time cash payment. We modified our agreement to
lower future royalties payable on net sales of injectable collagenase, XIAFLEX,
for Peyronies disease. In addition, we agreed to pay certain development
milestones, if achieved.

As of March 31, 2010, we capitalized $1,250,000 which will be
amortized over approximately five years beginning on the date of the first
commercial sale of XIAFLEX, for Peyronies disease, which represents the period
estimated to be benefited, using the straight-line method. In accordance with
Accounting Standards Codification 350,Intangibles, Goodwill and Other,
the Company amortizes intangible assets with finite lives in a manner that
reflects the pattern in which the economic benefits of the assets are consumed
or otherwise used up. If that pattern cannot be reliably determined, the assets
are amortized using the straight-line method.

Stock Based Compensation. Under ASC 718,
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 an award. Expected volatility is based on the historical volatility of our
common stock. When establishing an estimate of the expected term of an award, we
consider the vesting period for the award, our historical experience of employee
stock option exercises (including forfeitures) and the expected volatility. As
required under the accounting rules, we review our valuation assumptions at each
grant date and, as a result, we are likely to change our valuation assumptions
used to value employee stock-based awards granted in future periods.

Further, ASC 718 requires that employee stock-based
compensation costs be recognized over the requisite service period, or the
vesting period, in a manner similar to all other forms of compensation paid to
employees. The allocation of employee stock-based compensation costs to each
operating expense line are estimated based on specific employee headcount
information at each grant date and estimated stock option forfeiture rates and
revised, if necessary, in future periods if actual employee headcount
information or forfeitures differ materially from those estimates. As a result,
the amount of employee stock-based compensation costs we recognize in each
operating expense category in future periods may differ significantly from what
we have recorded in the current period.

15



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RESULTS OF OPERATIONS

THREE-MONTHS ENDED MARCH 31, 2010 and 2009

Revenues

Product Revenues, net

Product revenues include the sales of the collagenase for
laboratory use recognized at the time it is shipped to customers. We recognized
a small amount of revenue from the sale of collagenase for laboratory use. For
the three months ended March 31, 2010 and 2009, product revenues were $8,936 and
$7,191, respectively. This increase of $1,745, or 24%, was primarily related to
the amount of material required to perform testing by our customers.

Royalties/Earn-out

We receive royalty revenues from DFB under the earn-out payment
provision of the DFB Agreement, after certain net sales levels are achieved.
Royalty revenues recognized under the DFB Agreement for the three months ended
March 31, 2010 were $31,812 and zero for the same period in 2009. This increase
is mainly related to the increase in net sales during the 2010 period reported
to us by DFB.

Licensing, Sublicensing and Milestone Revenues

For the three months ended March 31, 2010 and 2009, we
recognized licensing and milestone revenue of $2,548,284 and $266,281,
respectively. Licensing revenues recognized are related to the cash payments
received under the Auxilium Agreement in prior years and amortized over the
expected development period. Licensing revenue recognized for the three months
ended March 31, 2010 was $423,284 and $266,281 for the same period in 2009. The
increase of $157,003, or 59%, was mainly due to accelerating the recognition of
the portion of the licensing revenue received under the Auxilium Agreement in
prior years that was allocated to the development of XIAFLEX for Dupuytrens
contracture. Auxilium received marketing approval from the FDA for XIAFLEX for
the treatment of Dupuytrens contracture on February 2, 2010.

Milestone revenue recognized for the three months ended March
31, 2010 and 2009 was $2.275 million and zero, respectively. In the 2010 period,
we received and recognized $1.275 million of the $15 million paid to Auxilium by
Pfizer for the scientific/technical review procedure of the Marketing
Authorization Application for XIAFLEX for Dupuytrens contracture in Europe. We
also received and recognized a milestone of $850,000 related to the FDAs
approval of XIAFLEX for Dupuytrens contracture in February 2010.

Under current accounting guidance, nonrefundable upfront
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. The remaining balance will be recognized over the
respective development periods or when we determine that we have no ongoing
performance obligations.

Consulting Services

We recognize revenues from consulting and technical assistance
contracts primarily as a result of the DFB Agreement. Consulting revenues are
recognized ratably over the term of the contract. The consulting obligations
under the DFB Agreement expire during March 2011. For the three months ended
March 31, 2010 and 2009 consulting revenues were $70,000 in each period.

Costs and Expenses

Research and Development Activities

Research and development expenses were $896,817 and $115,871,
respectively, for the three months ended March 31, 2010 and 2009. This increase
of $780,946, or 674%, in research and development expenses was primarily due to
third party development costs that are reimbursable under the Auxilium
Agreement.

General and Administrative Expenses

General and administrative expenses were $2,034,178 and
$1,166,971, respectively, for the three months ended March 31, 2010 and 2009.
The increase in general and administrative expenses of $867,207, or 74%, was due
to stock based compensation, legal fees, consulting services, and services
related to investor relations.

Other Income (expense), net

Other income, net, was $25,850 for the three months ended March
31, 2010 as compared to other expense, net, of $6,606 for the same period in
2009, representing a change of $32,456, or 491%. Components of other income,
net, consist of investment income, interest expense and other, net. Investment
income for the three months ended March 31, 2010 was $25,850 as compared to
$2,857 for the same period in 2009. This increase of $22,993 was primarily due
to higher invested balances during the 2010 period. Interest expense for the
three months ended March 31, 2010 and 2009 was zero in each period. Other expense for the three months ended
March 31, 2010 was zero as compared to $9,463 for the same period in 2009. The
amount of other expense in the 2009 period was primarily related to tax
penalties due in connection with our prior year delinquent federal and state tax
returns.

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Income Taxes

Income tax expense for the three months ended March 31, 2010
and 2009 was $8,067 and zero, respectively. The income tax expense for the 2010
period is primarily related to the payment of New York state taxes.

Liquidity and Capital Resources

To date, we have financed our operations primarily through
product sales, debt instruments, licensing revenues and royalties under
agreements with third parties and sales of our common stock. At March 31, 2010
and December 31, 2009, we had cash and cash equivalents in the aggregate of
approximately $6.7 million and $4.0 million, respectively.

Continuing Operations

Net cash provided by operating activities for the three months
ended March 31, 2010 was $2.7 million as compared to $6.3 million for the same
period in 2009. The decrease in the 2010 period as compared to the same period
in 2009 was primarily attributable to a reduction in accounts receivable in the
2009 period due to the receipt of a payment for a sublicense fee of $6.4 million
partially offset by an increase earn-out royalties under certain agreements,
higher operating expenses and lower accounts payable and accrued expenses.

Net cash provided by investing activities for the three months
ended March 31, 2010 and 2009 was zero and $0.9 million, respectively. The
change in net cash provided by investing activities between the 2009 and 2010
periods reflects the redemption of marketable securities.

Net cash provided by financing activities for the three months
ended March 31, 2010 was $36,800 as compared to $3,000 for the same period in
2009. The change in net cash provided by financing activities between these
periods consisted of proceeds received from stock option exercises.

Off-Balance Sheet Arrangements

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

Item 3: Quantitative and Qualitative Disclosures About
Market Risk.

We do not use derivative financial instruments or derivative
commodity instruments for trading purposes. Our financial instruments consist of
cash, cash equivalents, short-term investments, trade accounts receivable,
accounts payable and long-term obligations. We consider investments that, when
purchased, have a remaining maturity of 90 days or less to be cash equivalents.

We invest in marketable securities in accordance with our
investment policy. The primary objectives of our investment policy are to
preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. Our investment policy specifies credit quality standards for
our investments. The maximum allowable duration of a single issue is twelve
months.

Our investment portfolio is subject to interest rate risk,
although limited given the nature of the investments, and will fall in value in
the event market interest rates increase. All our cash and cash equivalents and
short-term investments at March 31, 2010, amounting to approximately $11.3
million, were maintained in bank demand accounts, money market accounts, and
certificates of deposit through the Certificate of Deposit Account Registry
Service (CDARS). We do not hedge our interest rate risks, as we believe
reasonably possible near-term changes in interest rates would not materially
affect our results of operations, financial position or cash flows.

We are subject to market risks in the normal course of our
business, including changes in interest rates. There have been no significant
changes in our exposure to market risks since December 31, 2009.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation
of Thomas L. Wegman, the Companys President, Principal Executive Officer and
Principal Financial Officer, evaluated the effectiveness of its disclosure
controls and procedures as of the end of the period covered by this Report.
Based on that evaluation, management has concluded that the Companys disclosure
controls and procedures are effective to ensure that information required to be
disclosed in reports filed under the Securities Exchange Act of 1934, as amended
(the Exchange Act), is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC, and that such
information is accumulated and communicated to the Companys management to allow
timely decisions regarding required disclosure. Because of the inherent
limitations in all control systems, any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives, and management necessarily is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Furthermore, our controls and procedures can be circumvented by
the individual acts of some persons, by collusion of two or more people or by
management override of the control, and misstatements due to error or fraud may
occur and not be detected on a timely basis.

Changes in Internal Controls

There were no changes in our internal controls over financial
reporting during the three month period ended March 31, 2010 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes from the risk factors
previously disclosed in our Annual Report on Form 10-K filed with the SEC on
March 15, 2010.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved).

Item 5. Other Information

None.

Item 6. Exhibits

|3.1 | Registrants Certificate of
      Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the
      Registrant's Form 10-KSB filed with the SEC on March 2, 2007).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2 | Registrants Amended and Restated
      Bylaws (incorporated by reference to Exhibit 3.2 of the Registrants Form
      10-KSB filed with the SEC on March 2, 2007).             
|31* | Certification of Principal
      Executive Officer and Principal Financial Officer pursuant to
      Rule13a-14(a)/15d-14(a).                                                    
|32* | Certification of Principal
      Executive Officer and Principal Financial Officer pursuant to Section 906
      of Sarbanes-Oxley Act of 2002.                                  

____________* filed herewith

18

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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: May 10, 2010 | /s/ Thomas L. Wegman                                         
|                   | Thomas L. Wegman                                             
|                   | President and Principal Executive and
      Financial Officer

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