<PAGE> 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).
<PAGE> 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
<PAGE> 3
PART I
Item 1. FINANCIAL STATEMENTS
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
------ --------- ------------
(As Restated)
<S> <C> <C>
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
=========== ===========
</TABLE>
See notes to condensed unaudited financial statements.
1
<PAGE> 4
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(As Restated)
<S> <C> <C>
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
=========== ===========
</TABLE>
See notes to condensed unaudited financial statements.
2
<PAGE> 5
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative from
Quarter ended March 31, March 12, 1991
----------------------- (inception) to
1998 1997 March 31, 1998
---- ---- ----------------
(As Restated) (As Restated)
<S> <C> <C> <C>
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
----------- ---------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
3
<PAGE> 6
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional in the
Common Stock Paid-in development
Shares Amount Capital stage Total
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
========= ====== ========== =========== ==========
</TABLE>
See notes to condensed unaudited financial statements.
4
<PAGE> 7
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<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)
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
========= ====== =========== =========== ===========
</TABLE>
See notes to condensed unaudited financial statements.
5
<PAGE> 8
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<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) 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
========= ====== =========== ============ ===========
</TABLE>
See notes to condensed unaudited financial statements.
6
<PAGE> 9
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Cumulative from
Quarter ended March 31, March 12, 1991
------------------------- (inception) to
1998 1997 March 31, 1998
---------- ---------- ---------------
(As Restated) (As Restated)
<S> <C> <C> <C>
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)
----------- -------- ------------
</TABLE>
See notes to condensed unaudited financial statements.
7
<PAGE> 10
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
Quarter ended March 31, March 12, 1991
------------------------ (inception) to
1998 1997 March 31, 1998
---- ---- ----------------
(As Restated) (As Restated)
<S> <C> <C> <C>
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
----------- ---------- -----------
</TABLE>
See notes to condensed unaudited financial statements.
8
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 14
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C> <C>
27.1 Financial Data Schedule *
</TABLE>
- ------------------------
* Filed herewith.
12
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,187,287
<SECURITIES> 10,132,301
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,323,054
<PP&E> 1,665,084
<DEPRECIATION> 679,887
<TOTAL-ASSETS> 13,782,098
<CURRENT-LIABILITIES> 495,804
<BONDS> 694,517
0
0
<COMMON> 5,768
<OTHER-SE> 12,586,008
<TOTAL-LIABILITY-AND-EQUITY> 13,782,098
<SALES> 0
<TOTAL-REVENUES> 167,893
<CGS> 0
<TOTAL-COSTS> 1,584,066
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,014
<INCOME-PRETAX> (1,693,187)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,693,187)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,693,187)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
