-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GXG0jsrb/WjWlv2TVMRGzBidxeIf+tfjJaPJ1JOrxUIc4I3eDMqa7zSkn6gT6aeq yVceoZVtH5C1B4Qs/mZaVw== 0000950123-98-010912.txt : 19981228 0000950123-98-010912.hdr.sgml : 19981228 ACCESSION NUMBER: 0000950123-98-010912 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19981224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTEC INTERNATIONAL INC CENTRAL INDEX KEY: 0000889992 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 113068704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-27368 FILM NUMBER: 98775801 BUSINESS ADDRESS: STREET 1: 3960 BROADWAY STREET 2: BLDG 28 CITY: NEW YORK STATE: NY ZIP: 10032 BUSINESS PHONE: 7183264698 10QSB/A 1 AMENDMENT: ORTEC INTERNATIONAL 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-QSB/A -------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO _________________ COMMISSION FILE NUMBER 0-27368 ORTEC INTERNATIONAL, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3068704 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 3960 BROADWAY NEW YORK, NEW YORK 10032 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (212) 740-6999 ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE --------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ___ ------------- The number of shares outstanding of the issuer's common stock is 5,864,991 (as of May 8, 1998). 2 ORTEC INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-QSB/A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION QUARTER ENDED MARCH 31, 1998 ITEMS IN FORM 10-QSB/A Page ---- Facing page Part I Item 1. Financial Statements. 1 Item 2. Plan of Operation. None Part II Item 1. Legal Proceedings and Claims. None Item 2. Changes in Securities and Use None of Proceeds. Item 3. Default Upon Senior Securities. None Item 4. Submission of Matters to None a Vote of Security Holders. Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. 12 Signatures 3 PART I Item 1. FINANCIAL STATEMENTS ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, ASSETS 1998 1997 ------ --------- ------------ (As Restated) Current assets: Cash and cash equivalents $ 2,187,287 $11,950,693 Marketable securities 10,132,301 1,584,035 Other current assets 3,466 7,075 ----------- ----------- Total current assets 12,323,054 13,541,803 ----------- ----------- Property and equipment, at cost: Laboratory equipment 626,850 602,697 Office furniture and equipment 350,328 323,871 Leasehold improvements 687,906 675,906 ----------- ----------- 1,665,084 1,602,474 Accumulated depreciation and amortization 679,887 606,243 ----------- ----------- 985,197 996,231 ----------- ----------- Other assets: Patent application costs, net of accumulated amortization of $38,602 at March 31, 1998 and $31,047 at December 31, 1997 401,153 406,166 Deposits and other assets 72,694 54,214 ----------- ----------- Total other assets 473,847 460,380 ----------- ----------- Total Assets $13,782,098 $14,998,414 =========== ===========
See notes to condensed unaudited financial statements. 1 4 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (As Restated) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $375,299 $452,443 Capital lease obligations - current 45,370 43,102 Loan payable - current 75,135 63,547 ----------- ----------- Total current liabilities 495,804 559,092 ----------- ----------- Long-term liabilities: Capital lease obligations - noncurrent 23,114 34,608 Loan payable - noncurrent 671,403 688,096 ----------- ----------- Total long-term liabilities 694,517 722,704 ----------- ----------- Commitments and contingencies Shareholders' equity: Common stock, $.001 par value; authorized, 10,000,000 shares; issued and outstanding shares - 5,768,327 at March 31, 1998 and 5,760,734 at December 31, 1997 5,768 5,761 Additional paid-in capital 26,965,646 26,397,307 Deficit accumulated during the development stage (14,379,637) (12,686,450) ----------- ----------- Total shareholders' equity 12,591,777 13,716,618 ----------- ----------- Total Liabilities and Shareholders' Equity $13,782,098 $14,998,414 =========== ===========
See notes to condensed unaudited financial statements. 2 5 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (Unaudited)
Cumulative from Quarter ended March 31, March 12, 1991 ----------------------- (inception) to 1998 1997 March 31, 1998 ---- ---- ---------------- (As Restated) (As Restated) Revenue Interest income $ 167,893 $ 83,861 $ 697,710 ----------- ---------- ----------- Expenses Research and development 381,915 272,693 4,915,167 Rent 40,165 51,365 369,612 Consulting 105,763 62,143 1,338,067 Personnel 1,016,152 293,451 4,792,959 General and administrative 300,071 270,910 3,454,931 Interest and other expense 17,014 12,180 206,611 ----------- ---------- ----------- 1,861,080 962,742 15,077,347 ----------- ---------- ----------- Net loss $(1,693,187) $ (878,881) $(14,379,637) ----------- ---------- ----------- Net loss per share $(.29) $(.19) $(4.86) ----- ----- ------ Weighted average common stock outstanding (basic and diluted) 5,766,005 4,604,644 2,959,792 ----------- ---------- -----------
See notes to condensed unaudited financial statements. 3 6 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Deficit accumulated Additional in the Common Stock Paid-in development Shares Amount Capital stage Total --------- ------ ---------- ----------- ----------- Issuance of stocks: Founders 1,553,820 $1,554 $ (684) $ 870 First private placement 217,440 217 64,783 65,000 The Director 149,020 149 249,851 250,000 Second private placement 53,020 53 499,947 500,000 Share issuance expenses (21,118) (21,118) Net loss for the period from March 12, 1991 (inception) to December 31, 1991 $ (281,644) (281,644) --------- ------ ---------- ----------- ---------- Balance - December 31, 1991 1,973,300 1,973 792,779 (281,644) 513,108 Issuance of stock: Second private placement 49,320 49 465,424 465,473 Stock purchase agreement with The Director 31,820 32 299,966 299,998 Share issuance expenses (35,477) (35,477) Net loss for the year ended December 31, 1992 (785,941) (785,941) --------- ------ ---------- ----------- ---------- Balance - December 31, 1992 2,054,440 2,054 1,522,692 (1,067,585) 457,161 Issuance of stock: Third private placement 132,150 132 1,321,368 1,321,500 Stock purchase agreement with Home Insurance Company 111,111 111 999,888 999,999 Stock purchase agreement with The Director 21,220 21 199,979 200,000 Shares issued in exchange for commissions earned 600 1 5,999 6,000 Share issuance expenses (230,207) (230,207) Net loss for the year ended December 31, 1993 (1,445,624) (1,445,624) --------- ------ ---------- ----------- ---------- Balance - December 31, 1993 2,319,521 $2,319 $3,819,719 $(2,513,209) $1,308,829 ========= ====== ========== =========== ==========
See notes to condensed unaudited financial statements. 4 7 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Deficit accumulated Common Stock Additional in the --------------------- Paid-in development Shares Amount Capital stage Total ---------- ------ ----------- ----------- ----------- (brought forward) 2,319,521 $2,319 $ 3,819,719 $(2,513,209) $ 1,308,829 Issuance of stock: Fourth private placement 39,451 40 397,672 397,712 Stock purchase agreement with Home Insurance Company 50,000 50 499,950 500,000 Share issuance expenses (8,697) (8,697) Net loss for the year ended December 31, 1994 (1,675,087) (1,675,087) --------- ------ ----------- ----------- ----------- Balance - December 31, 1994 2,408,972 2,409 4,708,644 (4,188,296) 522,757 Rent forgiveness 40,740 40,740 Net loss for the year ended December 31, 1995 (1,022,723) (1,022,723) --------- ------ ----------- ----------- ----------- Balance - December 31, 1995 2,408,972 2,409 4,749,384 (5,211,019) (459,226) Initial public offering 1,200,000 1,200 5,998,800 6,000,000 Exercise of warrants 33,885 34 33,851 33,885 Fifth private placement 959,106 959 6,219,838 6,220,797 Share issuance expenses (1,580,690) (1,580,690) Non-cash stock compensation and interest 152,000 152,000 Net loss for the year ended December 31, 1996 (2.649,768) (2,649,768) --------- ------ ----------- ----------- ----------- Balance - December 31, 1996 4,601,963 $4,602 $15,573,183 $(7,860,787) $ 7,716,998 ========= ====== =========== =========== ===========
See notes to condensed unaudited financial statements. 5 8 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Deficit accumulated Common Stock Additional in the -------------------- Paid-in development Shares Amount Capital stage Total --------- ------ ----------- ------------ ----------- (brought forward) 4,601,963 $4,602 $15,573,183 $ (7,860,787) $ 7,716,998 Exercise of warrants 1,158,771 1,159 10,821,632 10,822,791 Share issuance costs (657,508) (657,508) Stock options and warrants issued for services 660,000 660,000 Net loss for the year ended December 31, 1997 (4,825,663) (4,825,663) --------- ------ ----------- ------------ ----------- Balance - December 31, 1997 5,760,734 5,761 26,397,307 (12,686,450) 13,716,618 Exercise of warrants 7,593 7 42,086 42,093 Stock options and warrants issued for services (as restated) 526,253 526,253 Net loss for the quarter ended March 31, 1998 (as restated) (1,693,187) (1,693,187) --------- ------ ----------- ------------ ----------- Balance - March 31, 1998 (as restated) 5,768,327 $5,768 $26,965,646 $(14,379,637) $12,591,777 ========= ====== =========== ============ ===========
See notes to condensed unaudited financial statements. 6 9 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Cumulative from Quarter ended March 31, March 12, 1991 ------------------------- (inception) to 1998 1997 March 31, 1998 ---------- ---------- --------------- (As Restated) (As Restated) Cash flows from operating activities: Net loss $(1,693,187) $(878,881) $ (14,379,637) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 81,199 72,127 728,726 Unrealized loss on marketable securities 11,404 Realized loss on marketable securities 5,250 Non-cash stock compensation and interest 526,253 1,338,253 Changes in operating assets and liabilities Prepaid expenses 3,866 Other current assets 3,609 (1) (3,466) Accounts payable and accrued liabilities (77,144) 19,540 463,126 ---------- -------- ----------- Net cash used in operating activities (1,159,270) (783,349) (11,836,344) ---------- -------- ----------- Cash flows from investing activities: Purchases of property and equipment, excluding capital leases (62,610) (130,214) (1,578,018) Payments for patent application (2,542) (9,786) (439,755) Organization costs (10,238) Deposits (18,480) (1,607) (70,711) Purchases of marketable securities (10,125,266) (12,248,487) Sales of marketable securities 1,577,000 2,099,532 ----------- -------- ------------ Net cash used in investing activities (8,631,898) (141,607) (12,247,677) ----------- -------- ------------
See notes to condensed unaudited financial statements. 7 10 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (UNAUDITED)
Cumulative from Quarter ended March 31, March 12, 1991 ------------------------ (inception) to 1998 1997 March 31, 1998 ---- ---- ---------------- (As Restated) (As Restated) Cash flows from financing activities: Proceeds from issuance of notes payable $ 515,500 Repayment of notes payable (515,500) Proceeds from issuance of common stock $ 42,093 $ 4,077 28,120,119 Share issuance expenses (2,527,697) Proceeds from issuance of loans payable 825,850 Repayment of loans payable (5,105) (11,351) (108,244) Repayment of capital lease obligations (9,226) (1,131) (38,720) ----------- ---------- ----------- Net cash provided by (used in) financing activities 27,762 (8,405) 26,271,308 ----------- ---------- ----------- Net increase (decrease) in cash and cash equivalents (9,763,406) (933,361) 2,187,287 Cash and cash equivalents at beginning of period 11,950,693 7,453,229 ----------- ---------- ----------- Cash and cash equivalents at end of period $ 2,187,287 $6,519,868 $ 2,187,287 ----------- ---------- -----------
See notes to condensed unaudited financial statements. 8 11 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 NOTE 1 - FINANCIAL STATEMENTS The condensed balance sheet as of March 31, 1998 and the statements of operations, shareholders' equity and cash flows for the three month periods ended March 31, 1998 and 1997 and for the period from March 12, 1991 (inception) to March 31, 1998 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring accrual adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 1998 and for all periods presented have been made. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto in the Company's December 31, 1997 annual report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for the quarter ended March 31, 1998 is not necessarily indicative of the operating results for the full year. NOTE 2 - FORMATION OF THE COMPANY AND BASIS OF PRESENTATION FORMATION OF THE COMPANY Ortec International, Inc. ("Ortec" or the "Company") was incorporated in March 1991 as a Delaware corporation to secure and provide funds for the further development of the technology developed by Dr. Mark Eisenberg of Sydney, Australia, to replicate in the laboratory, composite cultured skin for use in skin replacement procedures (the "Technology"). Pursuant to a license agreement dated September 7, 1991, Dr. Eisenberg had granted Ortec a license for a term of ten years, with automatic renewals by Ortec for two additional ten-year periods, to commercially use and exploit the Technology for the development of products. In April, 1998, Dr. Eisenberg assigned his patent for the Technology to Ortec. BASIS OF PRESENTATION The Company is a development stage enterprise, and has neither realized any operating revenue nor has any assurance of realizing any future operating revenue. 9 12 Successful future operations depend upon the successful development and marketing of the Company's Composite Cultured Skin to be used in skin replacement procedures. NON-CASH COMPENSATION EXPENSE During the fourth quarter of 1997, the Company granted warrants to purchase an aggregate of 240,000 shares to three executive officers. The vesting of such warrants is contingent upon the occurrence of certain events. At December 31, 1997, the Company determined the likelihood of these events occurring was probable and recorded compensation expense of approximately $42,000 in accordance with Accounting Principles Board Opinion No. 25 and its related interpretations. During the first quarter of 1998, one of the events occurred sooner than expected resulting in the re-measurement of compensation expense as of the date the event took place. The Company has restated its financial statements for the quarter ended March 31, 1998 to record additional non-cash compensation expense of $260,000. The effect of this non-cash compensation expense adjustment would be to increase the net loss for the quarter ended March 31, 1998 by $.04 per share and cumulative from March 12, 1991 (inception) to March 31, 1998 of $.09 per share. INITIAL PUBLIC OFFERING On January 19, 1996, the Company completed an initial public offering ("IPO") of 1,200,000 units. Each unit consisted of (i) one share of the Company's common stock, (ii) one Class A warrant to purchase one share of common stock at $10, originally scheduled to expire in July 1997 but extended on two separate occasions, to November 3, 1997 and then to December 31, 1997, by the Board of Directors of the Company and (iii) one Class B warrant to purchase one share of common stock at $15, expiring January 17, 1999. The Class B warrants will be redeemable by the Company at $.01 per warrant, if the market price of the Company's common stock equals or exceeds $10 for 10 consecutive trading days during a specified period, as defined. The Class A warrants expired December 31, 1997, by which time 1,083,780 of the 1,200,000 Class A warrants had been exercised by their holders. The IPO raised gross proceeds of $6,000,000, of which $800,000, $515,500 and approximately $341,000 were used to pay underwriting commissions, notes payable and deferred offering costs, respectively, thereby providing the Company with net proceeds of approximately $4,343,500. The Company used the proceeds for research and development of its Composite Cultured Skin, performing human clinical trials and general corporate purposes. 1996 PRIVATE PLACEMENT In November 1996, the Company completed a private placement of its securities from which it received gross proceeds of $6,220,797 and net proceeds of approximately $5,733,000 (after deducting approximately $487,000 in placement fees and other expenses of such private placement). The Company sold 959,106 shares of Common Stock in such private placement at an average price of $6.49 per share. In addition, the Company granted five-year warrants to placement agents to purchase such number of shares equal to 10% of the number of shares of common stock sold by such placement agent, exercisable at prices equal to 120% of the prices paid for such shares. Pursuant to the purchasers' demand, the Company has registered all of such 959,106 shares. The Company has used and will use the net proceeds it has received in such private placement offering for continued research and development of its Composite Cultured Skin, performing human clinical trials and for general corporate purposes. EXERCISE OF CLASS A WARRANTS During the last quarter of 1997, 1,083,780 (out of 1,200,000) of the Company's Class A Warrants were exercised. The Company issued an additional 1,083,780 shares of its 10 13 common stock and received net proceeds of $10,168,756 which it plans to use for continued research and development, performing human clinical trials and for general corporate purposes. 11 14 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description ----------- ----------- 27.1 Financial Data Schedule *
- ------------------------ * Filed herewith. 12 15 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized. Registrant: ORTEC INTERNATIONAL, INC. Date: December 24, 1998 By: /s/ Steven Katz ---------------------------- Steven Katz, PhD President and Chief Executive Officer (Principal Executive Officer) Date: December 24, 1998 By: /s/ Ron Lipstein ---------------------------- Ron Lipstein Chief Financial Officer (Principal Financial Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-31-1998 MAR-31-1998 2,187,287 10,132,301 0 0 0 12,323,054 1,665,084 679,887 13,782,098 495,804 694,517 0 0 5,768 12,586,008 13,782,098 0 167,893 0 1,584,066 0 0 17,014 (1,693,187) 0 (1,693,187) 0 0 0 (1,693,187) (.29) (.29)
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