<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A NO.1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
[ ] 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 registrant 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, NY 10032
(Address of principal executive offices) (zip Code)
Registrants telephone number, including area code: (212) 740-6999
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 of the Security and 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_____
The number of shares outstanding of the Registrant's common stock is 4,599,340
(as of 4/15/97).
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ORTEC INTERNATIONAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB/A No.1
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED JUNE 30, 1996
---------------------------
ITEMS IN FORM 10-QSB/A NO.1
---------------------------
PAGE
PART I FINANCIAL INFORMATION ----
Item 1. Consolidated Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations N/A
PART II OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to
a Vote of Security Holders N/A
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K N/A
SIGNATURES
2
<PAGE> 3
PART I
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(AS RESTATED)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $3,155,970 $ 2,364
Other current assets 70 57
---------- --------
Total current assets 3,156,040 2,421
---------- --------
Property and equipment, at cost:
Laboratory equipment 235,219 223,888
Office furniture and equipment 119,556 54,527
Construction in progress 340,522 49,847
---------- --------
695,297 328,262
Accumulated depreciation and
amortization 200,774 171,075
---------- --------
494,523 157,187
---------- --------
Other assets:
Patent application costs 394,602 369,600
Deferred offering costs 314,697
Organization costs, net of
amortization 509
Deposits 6,121 4,056
---------- --------
Total other assets 400,723 688,862
---------- --------
Total Assets $4,051,286 $848,470
---------- --------
</TABLE>
See notes to condensed unaudited financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(Unaudited)
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(AS RESTATED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
liabilities $ 336,995 $ 790,869
Current portion of long-term
liabilities 21,465
Notes payable 515,500
----------- -----------
Total current liabilities 358,460 1,306,369
Long-term liabilities:
Note payable, less current portion 184,799
Obligations under capital leases,
less current portion 22,669
Deferred occupancy costs 1,327
----------- -----------
Total liabilities 565,928 1,307,696
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value;
authorized, 10,000,000 shares;
issued and outstanding shares -
3,623,932 at June 30, 1996 and
2,408,972 at December 31, 1995 3,624 2,409
Additional paid-in capital 9,774,455 4,749,384
Deficit accumulated during the
development stage (6,292,721) (5,211,019)
----------- -----------
Total stockholders' equity 3,485,358 (459,226)
----------- -----------
Total Liabilities and
Stockholders' Equity $ 4,051,286 $ 848,470
----------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
4
<PAGE> 5
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative from
Quarter ended June 30, Six months ended June 30, March 12, 1991
---------------------- ------------------------- (inception) to
June 30, 1996
-------------
1996 1995 1996 1995
---- ---- ---- ----
(AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C>
Revenue
Interest income $ 37,314 $ 581 $ 71,785 $ 2,626 $ 138,943
----------- ----------- ----------- ----------- -----------
Expenses
Research and development 166,397 124,886 387,852 240,155 2,777,404
Rent 8,195 5,433 14,638 10,866 92,511
Consulting 154,510 12,706 195,443 38,541 691,206
Personnel 125,473 66,406 265,489 135,727 1,410,530
General and administrative 135,044 47,315 261,888 81,136 1,369,068
Other expense, net 27,150 28,177 90,945
----------- ----------- ----------- ----------- -----------
616,769 256,746 1,153,487 506,425 6,431,664
----------- ----------- ----------- ----------- -----------
Net loss $ (579,455) $ (256,165) $(1,081,702) $ (503,799) $(6,292,721)
----------- ----------- ----------- ----------- -----------
Net loss per share $ (.15) $ (.09) $ (.28) $ (.19) $ (2.39)
----------- ----------- ----------- ----------- -----------
Weighted average common and
common equivalent shares
outstanding 3,941,686 2,720,208 3,809,433 2,720,208 2,631,859
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(AS RESTATED)
Deficit
Common Stock accumulated
Additional in the
Paid-in development
Shares Amount Capital stage Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
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
--------- ----- --------- ----------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
6
<PAGE> 7
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(AS RESTATED)
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock Additional in the
----------------- Paid-in development
Shares Amount Capital stage Total
------ ------ ------- ----- -----
<S> <C> <C> <C> <C> <C>
(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:
Public offering 1,200,000 1,200 5,998,800 6,000,000
Exercise of warrants 14,960 15 14,945 14,960
Share issuance expenses (1,140,674) (1,140,674)
Non-cash stock compensation
and interest 152,000 152,000
Net loss for the six months
ended June 30, 1996 (1,081,702) (1,081,702)
--------- ------ ----------- ----------- -----------
Balance - June 30, 1996 3,623,932 $3,624 $ 9,774,455 $(6,292,721) $ 3,485,358
--------- ------ ----------- ----------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
7
<PAGE> 8
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative from
Quarter ended June 30, Six months ended June 30, March 12, 1991
---------------------- ------------------------- (inception) to
1996 1995 1996 1995 June 30, 1996
---- ---- ---- ---- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(579,455) $(256,165) $(1,081,702) $(503,799) $(6,292,721)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Deferred occupancy costs (482) (1,327) (2,784)
Depreciation and amortization 15,529 14,433 30,208 28,865 211,012
Unrealized loss on marketable
securities 67,204
Realized loss on marketable
securities 5,250 5,250
Non-cash stock compensation and
interest 152,000 152,000 152,000
Changes in operating assets and
liabilities
Other current assets 1 (13) 9,197 (70)
Accounts payable and accrued
liabilities (173,984) 75,341 (453,874) 34,815 377,735
--------- --------- ----------- --------- -----------
Net cash used in operating
activities (585,909) (166,873) (1,354,708) (428,456) (5,479,590)
--------- --------- ----------- --------- -----------
Cash flows from investing activities:
Purchases of property and equipment (150,586) (367,035) (695,297)
Payments for patent application (21,222) (13,553) (25,002) (48,967) (394,602)
Organization costs (10,238)
Deposits (1,734) 1 (2,065) 39 (6,121)
Purchases of marketable securities (398) (594,986)
Sale of marketable securities 398 153,561 522,532
--------- --------- ----------- --------- -----------
Net cash (used in) provided by
investing activities (173,542) (13,154) (394,102) 104,235 (1,178,712)
--------- --------- ----------- --------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
8
<PAGE> 9
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative from
Quarter ended June 30, Six months ended June 30, March 12, 1991
---------------------- ------------------------- (inception) to
1996 1995 1996 1995 June 30, 1996
---- ---- ---- ---- -------------
(AS RESTATED) (AS RESTATED) (AS RESTATED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of notes
payable $ 197,118 $ 75,000 $ 197,118 $ 125,000 $ 712,618
Repayment of notes payable (515,500) (515,500)
Capitalized leases obligations 31,815 31,815 31,815
Proceeds from issuance of common
stock 2,094 6,014,960 11,015,512
Share issuance expenses 120 (825,977) (1,430,173)
---------- --------- ---------- --------- ------------
Net cash provided by financing
activities 231,147 75,000 4,902,416 125,000 9,814,272
---------- --------- ---------- --------- ------------
Net increase (decrease) in cash (528,304) (105,027) 3,153,606 (199,221) 3,155,970
Cash at beginning of period 3,684,274 131,960 2,364 226,154
---------- --------- ---------- --------- ------------
Cash at end of period $3,155,970 $ 26,933 $3,155,970 $ 26,933 $ 3,155,970
---------- --------- ---------- --------- ------------
</TABLE>
See notes to condensed unaudited financial statements.
9
<PAGE> 10
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
Note 1 - FINANCIAL STATEMENTS
The condensed balance sheet as of June 30, 1996 and the statements of
operations, shareholders' equity and cash flows for the three and six month
periods ended June 30, 1996 and 1995 and for the period from March 12, 1991
(inception) to June 30, 1996 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 June 30, 1996 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, 1995
annual report on Form 10-KSB filed with the Securities and Exchange Commission.
The results of operations for the quarter ended June 30, 1996 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 June 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.
10
<PAGE> 11
The Skin Group, Ltd. (the "Skin Group") also was formed as a Delaware
corporation, in March 1991, to raise funds for development of the Technology.
On July 27, 1992, the Skin Group was merged with and into Ortec. Owners of Skin
Group shares were given .83672 of an Ortec share for each Skin Group share.
The merger was accounted for as if it were a pooling of interests and,
accordingly, the accompanying financial statements include the accounts of Skin
Group for all periods presented.
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 one share of the Company's common
stock, one Class A warrant to purchase one share of common stock at $10,
expiring July 1997 and one Class B warrant to purchase one share of common
stock at $15, expiring January 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 replacements, performing human clinical trials and general corporate
purposes.
Note 3 - NON-CASH COMPENSATION AND INTEREST EXPENSE
During the second quarter of 1996, the Company issued certain stock
options to consultants and advisors of the Company. Generally accepted
accounting principles ("GAAP") require the recording of non-cash and interest
expenses relating to the issuance of certain stock options. The Company has
restated its financial statements to record non-cash equity compensation
($125,000) and interest expense ($27,000) of $152,000 in the second quarter of
1996. The effect of these non-cash equity transaction charges in the second
quarter was to increase for the net loss for the second quarter of 1996 of
$ .04 per share, the six months ended June 30, 1996 of $ .04 per share and
cumulative from March 12, 1991 (inception) to June 30, 1996 of $ .06 per
share.
11
<PAGE> 12
ITEM 5. OTHER INFORMATION
The Company has restated its financial statements to reflect the effects
of non-cash compensation and interest expense. During the second quarter of
the fiscal year ended December 31, 1996, the Company issued certain stock
options to consultants and advisors and a lender of the Company. Generally
Accepted Accounting Principals ("GAAP") require the recording of non-cash
compensation and interest relating to the issuance of certain stock options.
See Note 3 to the financial statements included in Item 1 hereof.
12
<PAGE> 13
SIGNATURES
In accordance with the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ORTEC INTERNATIONAL, INC.
(Registrant)
/S/ STEVEN KATZ
-------------------------
Steven Katz, Ph.D.
President, Chief Executive
Officer and Director
Date: April 18, 1997 (Principal Executive Officer)
/S/ RON LIPSTEIN
-------------------------
Ron Lipstein
Chief Financial Officer
Date: April 18, 1997 (Principal Financial Officer)
13
