-----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, QrsaUUc1fymfHvKz82aNrDHsB+o8PIKleKxDyWNiw02eIITDFPpv0QgI6lnIL7nG CCBrFAfaBCevLXsCLgN0kA== 0000950123-97-009530.txt : 19971115 0000950123-97-009530.hdr.sgml : 19971115 ACCESSION NUMBER: 0000950123-97-009530 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NONE 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 SEC ACT: SEC FILE NUMBER: 000-27368 FILM NUMBER: 97717146 BUSINESS ADDRESS: STREET 1: 3960 BROADWAY STREET 2: BLDG 28 CITY: NEW YORK STATE: NY ZIP: 10032 BUSINESS PHONE: 7183264698 10QSB 1 ORTEC INTERNATIONAL, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-QSB ------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997 [ ] 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 4,970,691 (as of October 31, 1997). 2 ORTEC INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-QSB FILED WITH THE SECURITIES AND EXCHANGE COMMISSION QUARTER ENDED SEPTEMBER 30, 1997 ITEMS IN FORM 10-QSB
Page ---- Facing page Part I Item 1. Financial Statements. 1 Item 2. Plan of Operation. 11 Part II Item 1. Legal Proceedings and Claims. None Item 2. Changes in Securities and Use of Proceeds. 13 Item 3. Default Upon Senior Securities. None Item 4. Submission of Matters to 15 a Vote of Security Holders. Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. 16 Signatures
3 PART I Item 1. FINANCIAL STATEMENTS ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (Unaudited)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ---- ---- ASSETS Current assets: Cash and equivalents $4,505,094 $7,453,229 Prepaid expenses 6,507 7,616 Other current assets 4,560 1,958 ---------- ---------- Total current assets 4,516,161 7,462,803 ---------- ---------- Property and equipment, at cost: Laboratory equipment 593,656 578,530 Office furniture and equipment 308,502 170,830 Leasehold improvements 601,224 462,995 ---------- ---------- 1,503,382 1,212,355 Accumulated depreciation and amortization 533,297 321,646 ---------- ---------- 970,085 890,709 ---------- ---------- Other assets: Patent application costs net of accumulated amortization of $23,456 at September 30, 1997 and $1,210 at December 31, 1996 399,453 409,147 Deposits 30,914 29,266 ---------- ---------- Total other assets 430,367 438,413 ---------- ---------- Total Assets $5,916,613 $8,791,925 ========== ==========
See notes to condensed unaudited financial statements. 1 4 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (Unaudited)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 489,399 $ 570,397 Capital lease obligations - current 44,507 5,738 Loan payable - current 37,373 38,018 ------------ ------------ Total current liabilities 571,279 614,153 ------------ ------------ Long-term liabilities: Capital lease obligations - noncurrent 45,037 9,846 Loan payable - noncurrent 422,621 450,928 ------------ ------------ Total long-term liabilities 467,658 460,774 ------------ ------------ Total liabilities 1,038,937 1,074,927 ------------ ------------ Commitments and contingencies Stockholders' equity: Common stock, $.001 par value; authorized, 10,000,000 shares; issued and outstanding shares - 4,673,216 at September 30, 1997 and 4,601,963 at December 31, 1996 4,673 4,602 Additional paid-in capital 15,704,365 15,573,183 Deficit accumulated during the development stage (10,831,362) (7,860,787) ------------ ------------ Total stockholders' equity 4,877,676 7,716,998 ------------ ------------ Total Liabilities and Stockholders' Equity $ 5,916,613 $ 8,791,925 ============ ============
See notes to condensed unaudited financial statements. 2 5 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (Unaudited)
Nine months Cumulative from Quarter ended September 30, ended September 30, March 12, 1991 (inception) to 1997 1996 1997 1996 September 30, 1997 ---- ---- ---- ---- ---------------- Revenue Interest income $ 63,824 $ 33,865 $ 221,603 $ 105,650 $ 459,818 ----------- ----------- ----------- ------------ ------------ Expenses Research and development 309,901 203,720 823,455 591,572 4,177,871 Rent 49,153 48,676 153,949 63,314 316,898 Consulting 149,223 24,548 265,464 219,991 1,022,860 Personnel 391,752 198,418 1,001,419 463,907 2,876,817 General and administrative 321,449 152,501 912,804 414,389 2,747,176 Other expense, net 11,531 10,879 35,087 39,056 149,558 ----------- ----------- ----------- ------------ ------------ 1,233,009 638,742 3,192,178 1,792,229 11,291,180 ----------- ----------- ----------- ------------ ------------ Net loss $(1,169,185) $ (604,877) $(2,970,575) $ (1,686,579) $(10,831,362) ----------- ----------- ----------- ------------ ------------ Net loss per share $ (.26) $ (.17) $ (.65) $ (.47) $ (3.99) ----------- ----------- ----------- ------------ ------------ Weighted average common and common equivalent shares outstanding 4,655,401 3,623,932 4,631,679 3,619,910 2,720,319 =========== =========== =========== ============ ============
See notes to condensed unaudited financial statements. 3 6 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Deficit Common Stock accumulated Additional in the Paid-in development Shares Amount Capital stage Total ------ ------ ------------ ------------ ------------ Issuance of stock: 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 Common Stock accumulated 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) Issuance of stock: 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) Stock options issued for services 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 Common Stock accumulated 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 Issuance of stock: Exercise of warrants 71,253 71 71,182 71,253 Stock options issued for services 60,000 60,000 Net loss for the nine months ended September 30, 19997 (2,970,575) (2,970,575) --------- ------ ------------ ------------ ----------- Balance - September 30, 1997 4,673,216 $4,673 $ 15,704,365 $(10,831,362) $ 4,877,676 ========= ====== ============ ============ ===========
See notes to condensed unaudited financial statements. 6 9 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Nine months Cumulative from Quarter ended September 30, ended September 30, March 12, 1991 (inception) to 1997 1996 1997 1996 Septemver 30, 1997 ---- ---- ---- ---- ---------------- Cash flows from operating activities: Net loss $(1,169,185) $ (604,877) $(2,970,575) $(1,686,579) $(10,831,362) Adjustments to reconcile net loss to net cash used in operating activities: Deferred occupancy costs (1,327) Depreciation and amortization 84,131 44,348 233,897 74,556 566,991 Unrealized loss on marketable securities 67,204 Realized loss on marketable securities 5,250 Sock options issued for services 60,000 152,000 60,000 152,000 212,000 Rent forgiveness 40,740 Changes in operating assets and liabilities Prepaid expenses (487) 1,109 (6,507) Other current assets (2,757) 1 (2,602) (12) (4,560) Accounts payable and accrued liabilities (468) 108,590 (80,998) (345,284) 489,399 ---------- ----------- ----------- ----------- ------------ Net cash used in operating activities (1,028,766) (451,938) (2,759,169) (1,806,646) (9,460,845) ----------- ----------- ----------- ----------- ------------ Cash flows from investing activities: Purchases of property and equipment (14,638) (455,200) (291,027) (822,235) (1,503,382) Payments for patent application 537 (9,969) (12,552) (34,971) (422,909) Organization costs (10,238) Deposits (857) 8 (1,648) (2,057) (30,914) Purchases of marketable securities (594,986) Sale of marketable securities 522,532 ----------- ----------- ------------ ----------- ------------ Net cash (used in) provided by investing activities (14,958) (465,161) (305,227) (859,263) (2,039,897) ----------- ----------- ----------- ----------- ------------
See notes to condensed unaudited financial statements. 7 10 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Nine months Cumulative from Quarter ended September 30, ended September 30, March 12, 1991 (inception) to 1997 1996 1997 1996 September 30, 1997 ---- ---- ---- ---- ------------------ Cash flows from financing activities: Proceeds from issuance of notes payable $ 302,882 $ 500,000 $ 515,500 Repayment of notes payable (5,490) (520,990) (515,500) Proceeds from issuance of common stock $ 30,689 $ 71,253 6,014,960 17,332,487 Share issuance expenses (825,977) (1,876,189) Proceeds from loan payable 500,000 Repayment of loan payable (8,888) (28,952) (40,006) Proceeds from capital lease obligations 100,367 31,815 118,903 Repayment of capital lease obligations (8,332) (452) (26,407) (452) (29,359) ------------ ----------- ----------- ----------- ------------ Net cash provided by financing activities 13,469 296,940 116,261 5,199,356 16,005,836 ------------ ----------- ----------- ----------- ------------ Net increase (decrease) in cash (1,030,255) (620,159) (2,948,135) 2,533,447 4,505,094 Cash at beginning of period 5,535,349 3,155,970 7,453,229 2,364 ------------ ----------- ----------- ----------- ------------ Cash at end of period $ 4,505,094 $ 2,535,811 $ 4,505,094 $ 2,535,811 $ 4,505,094 ------------ ----------- ----------- ----------- ------------
See notes to condensed unaudited financial statements. 8 11 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1997 NOTE 1 - FINANCIAL STATEMENTS The condensed balance sheet as of September 30, 1997 and the statements of operations, shareholders' equity and cash flows for the three and nine month periods ended September 30, 1997 and 1996 and for the period from March 12, 1991 (inception) to September 30, 1997 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 September 30, 1997 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, 1996 annual report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for the quarter and nine months ended September 30, 1997 are 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 has granted Ortec a license for a term of ten years, which may be automatically renewed by Ortec for two additional ten-year periods, to commercially use and exploit the Technology for the development of products, subject to certain limitations. At the expiration or earlier termination of the agreement, Dr. Eisenberg is entitled to the exclusive rights in the Technology, and Ortec is entitled to the exclusive rights to all improvements to the Technology developed during the license period. 9 12 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. Successful future operations depend upon the successful development and marketing of the composite cultured skin to be used in skin replacement procedures. INITIAL PUBLIC OFFERING On January 19, 1996, the Company completed an initial public offering ("IPO") of 1,200,000 units. Each unit consists 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 (see Part II, Item 2, hereof, "Changes in Securities") and (iii) one Class B warrant to purchase one share of common stock at $15, expiring January 17, 1999. The Class A and 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 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 has used and intends to use the proceeds for continued research and development of 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 intends to 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. 10 13 EXERCISE OF CLASS A WARRANTS Between September 29, 1997 and October 31, 1997, 297,475 (out of 1,200,000) of the Company's Class A Warrants were exercised. The Company issued an additional 297,475 shares of its common stock and received net proceeds of $2,774,750 which it plans to use for continued research and development, performing human clinical trials and for general corporate purposes. $200,000 of the proceeds received from exercise of the Class A Warrants were paid to Patterson Travis, Inc., the underwriter of the Company's IPO as provided in the underwriting agreement. NOTE 3 - NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per share reflects the weighted-average common shares outstanding plus the potential dilutive effect of securities or contracts which are convertible to common shares, such as options, warrants, and convertible preferred stock. The adoption of this new standard is not expected to have a material impact on the disclosure of earnings per share in the Company's financial statements. ITEM 2. PLAN OF OPERATION OPERATIONS FOR THE NEXT TWELVE MONTHS For the next twelve months the Company will continue to conduct human clinical trials. To that end, the Company has recruited and intends to continue to recruit hospital burn centers which will provide the necessary patients. Human clinical trials are also presently being conducted at Rockefeller University Hospital in New York City for the application of the Company's Composite Cultured Skin in treating dermal ulcers in patients suffering from a unique disease called Epidermolysis Bullosa ("EB"). The wounds resulting from EB are very similar to those caused by burns and require similar treatment. In addition, the Company in conjunction with the hospitals at which certain other clinical trials are expected to be conducted, is currently working on programs to initiate human clinical trials for the application of the Company's Composite Cultured Skin for the treatment of venous and diabetic ulcers, donor sites and dermal scar revisions in burn patients. 11 14 CASH REQUIREMENTS The Company estimates that it has sufficient funds necessary to operate through approximately July 1999. By October 31, 1997 the Company had already received net proceeds of $2,774,750 as a result of the exercise of 297,475 of its publicly-traded Class A Warrants. The Company extended the expiration date of the 902,525 Class A Warrants still outstanding to December 31, 1997. The Company may have to secure additional funds prior to July 1999 or thereafter to complete its human clinical trials, if not then already completed, to secure FDA pre-market approval for commercial sales and thereafter to produce and market its Composite Cultured Skin in commercial quantities. See "Forward Looking Information May Prove Inaccurate." CLINICAL TRIALS AND PRODUCT RESEARCH AND DEVELOPMENT The Company has spent an aggregate of approximately $4,177,871 from its inception through September 30, 1997 for the human clinical trials and for research and development. That amount includes the salaries of its employees involved in producing the Composite Cultured Skin, performing quality control, securing hospitals to participate in the human clinical trials, monitoring the progress of the patients thereafter and to prepare reports to be filed with the FDA. The Company anticipates that it will be required to continue to spend additional funds for such purposes in the twelve months ending September 30, 1998 in order to continue its human clinical trials now being conducted, to conduct human clinical trials for other applications of the Company's Composite Cultured Skin, continue its efforts to secure FDA pre-market approval for commercial sales and thereafter to produce and market its Composite Cultured Skin in commercial quantities. See "Forward Looking Information May Prove Inaccurate." FORWARD LOOKING INFORMATION MAY PROVE INACCURATE This Quarterly Report on Form 10-QSB contains certain forward-looking statements and information relating to the Company that are based on the beliefs of Management, as well as assumptions made by and information currently available to the Company. When used in this document, the words "anticipate," "believe," "estimate," and "expect" and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report on Form 10-QSB. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company does not intend to update these forward-looking statements. 12 15 PART II ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) Class A Warrants. As of November 1, 1997, the Company still had outstanding 902,525 publicly traded Class A Warrants (the "Class A Warrants"), each Class A Warrant entitling the holder thereof to purchase one (1) share of Common Stock of the Company at an exercise price of $10.00 per share. The Class A Warrants were scheduled to expire, pursuant to their original terms, on July 19, 1997. On July 1, 1997 such expiration date was extended to November 3, 1997. Prior to November 1, 1997, 297,475 of the 1,200,000 outstanding Class A Warrants had already been exercised. On October 29, 1997, the Board of Directors of the Company extended the term of the remaining 902,525 outstanding Class A Warrants a second time so that the Class A Warrants will expire at 5:00 p.m., Eastern Standard Time, on December 31, 1997. The Board took such action for the following reasons: (i) communications concerning the expiration date of the Class A Warrants from brokers to their customers did not make clear that the holders of the Class A Warrants had the option to sell their warrants as well as exercise them or let them expire; (ii) notices distributed to Class A Warrant holders warning of the November 3, 1997 expiration date did not reach many of such holders; (iii) in the opinion of the Board, turmoil in the stock markets shortly before the November 3, 1997 expiration date prevented Class A Warrant holders from making decisions to exercise their Class A Warrants that they would otherwise make in a less turbulent market; and (iv) in the opinion of the Board, recent increased interest in the Company in the financial community indicated a greater probability that more Class A Warrants would be exercised as a result of this short extension of the expiration date, thereby providing the Company with additional capital. Other then the extension of the expiration date, the directors did not change the exercise price, the redemption provisions or any other provisions of the Class A Warrants. The Board stated that there will not be any further extensions of the expiration date of the Class A Warrants beyond December 31, 1997. (c) Recent Sales of Unregistered Securities. During the third quarter of 1997 the Company granted fifteen employees and one non-employee director five year options under its Employee Stock Option Plan to purchase an aggregate of 73,000 shares of Common Stock, at exercise prices ranging from $9.25 to $10.00 per share. Such grants were in consideration for services rendered to the Company. 13 16 During the third quarter of 1997 the Company granted to one person and its seven designees four year warrants to purchase an aggregate of 37,500 shares of Common Stock, at an exercise price of $12.00 per share. Such warrants are not exercisable until July 18, 1998 and were granted in consideration for consulting services rendered to the Company. During the third quarter of 1997 the Company granted to one person a one year warrant to purchase an aggregate of 625 shares of Common Stock, at an exercise price of $12.00 per share. Such warrants were granted in consideration for consulting services rendered to the Company. On January 20, 1996, the Company granted "lock-up warrants" to 63 persons, entitling them to purchase an aggregate of 389,045 shares of the Company's Common Stock at a price of $1.00 per share. The issuance of such lock-up warrants was in consideration for such 63 persons' signing lock-up agreements agreeing not to sell or transfer shares of the Company's Common Stock, purchased by them in private placements at prices of $9.00 or more per share, until January 20, 1997. All such warrants expire on January 18, 2000. At different times during the third quarter of 1997, eight persons exercised such warrants and purchased an aggregate of 21,210 shares of Common Stock at the $1.00 per share exercise price. There were no underwriting discounts or commissions given or paid in connection with any of the foregoing warrant exercises. The grant, offer and sale of all of the securities listed above were sold without registration under the Securities Act of 1933, as amended (the "Act"), as they did not involve any public offering, pursuant to the provisions of Section 4(2) of the Act. (d) Use of Proceeds. The Company's initial public offering of its securities (the "IPO") was completed January 20, 1996. The Company realized net proceeds from its IPO, after payment of all expenses with respect thereto, of $4,850,769. Such net proceeds were used in the period from January 20, 1996 through the three-month period ended September 30, 1997 as follows: 14 17
PAYMENTS TO OFFICERS, DIRECTORS 10% SHAREHOLDERS AND PAYMENTS TO APPLICATION OF PROCEEDS OTHER AFFILIATES OTHERS ----------------------- ---------------- ------ Research and development $ 101,615 $2,067,261 Human clinical trials 194,446 830,681 Repayment of indebtedness 241,500 274,000 Deferred compensation 113,385 -- Construction of new U.S. laboratory -- 356,340 Prosecution of patent registrations -- 56,009 Working capital and general corporate purposes 163,830 451,702 ---------- ---------- $4,035,993 $ 814,776 814,776 ---------- Total $4,850,769 ==========
All of the net proceeds received by the Company from the IPO have now been used. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. A Proxy Statement was mailed on or about August 4, 1997 to shareholders of record of the Company as of July 28, 1997 in connection with the Company's 1997 Annual Meeting of Shareholders, which was held on September 8, 1997 at the Audubon Biomedical Science and Technology Park, 3960 Broadway, New York, New York. At the meeting, the shareholders voted on two matters and all of such matters were approved. The first matter was the election of the members of the Board of Directors. The five directors elected and the tabulation of the votes (both in person and by proxy) was as follows:
NOMINEES FOR DIRECTORS FOR WITHHELD AGAINST ---------------------- --- -------- ------- Steven Katz 2,988,606 1,550 0 Mark Eisenberg 2,988,606 1,550 0 Ron Lipstein 2,988,606 1,550 0 Alain Klapholz 2,988,606 1,550 0 Joseph Stechler 2,988,606 1,550 0
15 18 There were 0 broker held non-voted shares represented at the meeting with respect to this matter. The second matter upon which the shareholders voted was the proposal to ratify the appointment by the Board of Directors of Grant Thornton LLP as independent certified public accountants for the Company for 1997. The tabulation of the votes (both in person and by proxy) was as follows:
FOR AGAINST ABSTENTIONS --- ------- ----------- 2,990,156 950 14,330
There were 0 broker held non-voted shares represented at the Meeting with respect to this matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description ----------- ----------- 3.1 Agreement of Merger of the Skin Group, Ltd. and the Company dated July 9, 1992 (1) 3.2 Original Certificate of Incorporation (1) 3.3 By-Laws (1) 27.1 Financial Data Schedule * - ------------------------
* Filed herewith. (1) Filed as an Exhibit to the Company's Registration Statement on Form SB-2 (File No. 33-96090), or Amendment 1 thereto, and incorporated herein by reference. (b) Reports on Form 8-K On July 10, 1997, the Company filed a report on Form 8-K announcing the extension of the term of the Class A Warrants. See Item 2 hereof, "Changes in Securities." No other reports on Form 8-K were filed during the second quarter of 1997. 16 19 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: November 13, 1997 By: /s/ Steven Katz ---------------------------------- Steven Katz, PhD President and Chief Executive Officer (Principal Executive Officer) Date: November 13, 1997 By: /s/ Ron Lipstein ---------------------------------- Ron Lipstein Chief Financial Officer (Principal Financial Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 4,504,094 0 0 0 0 4,516,161 1,503,382 533,297 5,916,613 571,279 0 0 0 4,673 4,873,003 5,916,613 0 221,603 0 0 3,192,178 0 0 (2,970,575) 0 (2,970,575) 0 0 0 (2,970,575) (.65) 0
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