<PAGE> 1
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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 JUNE
30, 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 5,892,790 (as
of August 11, 1998)
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<PAGE> 2
ORTEC INTERNATIONAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB/A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED JUNE 30, 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. 11
Signatures
<PAGE> 3
PART I
Item 1. FINANCIAL STATEMENTS
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(As Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,318,598 $11,950,693
Marketable securities 9,757,657 1,584,035
Other current assets 133,087 7,075
----------- -----------
Total current assets 11,209,342 13,541,803
----------- -----------
Property and equipment, at cost:
Laboratory equipment 722,492 602,697
Office furniture and equipment 494,240 323,871
Leasehold improvements 1,183,459 675,906
----------- -----------
2,400,191 1,602,474
Accumulated depreciation and
amortization 792,727 606,243
----------- -----------
1,607,464 996,231
----------- -----------
Other assets:
Patent application costs net of
accumulated amortization of $46,279
at June 30, 1998 and $31,047 at
December 31, 1997 407,021 406,166
Deposits 34,394 54,214
----------- -----------
Total other assets 441,415 460,380
----------- -----------
Total Assets $13,258,221 $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>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
(As Restated)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 286,378 $ 452,443
Capital lease obligations - current 36,672 43,102
Loans payable - current 107,174 63,547
------------ ------------
Total current liabilities 430,224 559,092
------------ ------------
Long-term liabilities:
Capital lease obligations - noncurrent 21,380 34,608
Loans payable - noncurrent 1,203,585 688,096
------------ ------------
Total long-term liabilities 1,224,965 722,704
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value;
authorized, 10,000,000 shares;
issued and outstanding shares -
5,886,587 at June 30, 1998 and
5,760,734 at December 31, 1997 5,887 5,761
Additional paid-in capital 27,903,884 26,397,307
Deficit accumulated during the
development stage (16,306,739) (12,686,450)
------------ ------------
Total shareholders' equity 11,603,032 13,716,618
------------ ------------
Total Liabilities and
Shareholders' Equity $ 13,258,221 $ 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 June 30, Six months ended June 30, March 12, 1991
------------------------------ ------------------------------ (inception) to
1998 1997 1998 1997 June 30, 1998
----------- ----------- ----------- ----------- ---------------
(As Restated) (As Restated) (As Restated)
<S> <C> <C> <C> <C> <C>
Revenue
Interest income $ 150,593 $ 73,918 $ 318,486 $ 157,779 $ 848,303
----------- ----------- ----------- ----------- ------------
Expenses
Research and development 405,515 240,861 787,430 513,554 5,320,682
Rent 66,381 53,431 106,546 104,796 435,993
Consulting 131,615 54,098 237,378 116,241 1,469,682
Personnel 1,061,104 316,216 2,077,256 609,667 5,854,063
General and administrative 380,629 320,445 680,700 591,355 3,835,560
Interest and other expense 32,451 11,376 49,465 23,556 239,062
----------- ----------- ----------- ----------- ------------
2,077,695 996,427 3,938,775 1,959,169 17,155,042
----------- ----------- ----------- ----------- ------------
Net loss $(1,927,102) $ (922,509) $(3,620,289) $(1,801,390) $(16,306,739)
----------- ----------- ----------- ----------- ------------
Net loss per share $ (.33) $ (.20) $ (.62) $ (.39) $ (5.33)
----------- ----------- ----------- ----------- ------------
Weighted average common stock
outstanding (basic and diluted) 5,869,588 4,634,331 5,817,797 4,619,487 3,058,990
=========== =========== =========== =========== ============
</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
Common Stock 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.
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)
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)
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 options and
warrants 125,853 126 444,077 444,203
Share issuance costs (20,000) (20,000)
Stock options and warrants
issued for services
(as restated) 1,082,500 1,082,500
Net loss for the six months
ended June 30, 1998
(as restated) (3,620,289) (3,620,289)
--------- ------ ------------ ------------- ------------
Balance - June 30, 1998 5,886,587 $5,887 $ 27,903,884 $ (16,306,739) $ 11,603,032
========= ====== ============ ============= ============
</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 June 30, Six months ended June 30, March 12, 1991
----------------------------- ----------------------------- (inception) to
1998 1997 1998 1997 June 30, 1998
------------ ------------ ------------ ------------ ---------------
(As Restated) (As Restated) (As Restated)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (1,927,102) $ (922,509) $ (3,620,289) $ (1,801,390) $(16,306,739)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 120,516 77,639 201,715 149,766 849,242
Unrealized loss on marketable
securities 11,404
Realized loss on marketable
securities 5,250
Non cash stock compensation and
interest 556,247 1,082,500 1,894,500
Changes in operating assets and
liabilities
Other current assets (129,621) (2,114) (126,012) 1,751 (133,087)
Accounts payable and accrued
liabilities (88,921) (100,070) (166,065) (80,530) 374,205
------------ ------------ ------------ ------------ ------------
Net cash used in operating
activities (1,468,881) (947,054) (2,628,151) (1,730,403) (13,305,225)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment,
excluding capital leases (735,107) (45,808) (797,717) (176,022) (2,313,125)
Payments for patent application (13,545) (3,303) (16,087) (13,089) (453,300)
Organization costs (10,238)
Deposits 38,300 816 19,820 (791) (32,411)
Purchases of marketable securities (3,670,356) (13,795,622) (15,918,843)
Sales of marketable securities 4,045,000 5,622,000 6,144,532
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (335,708) (48,295) (8,967,606) (189,902) (12,583,385)
============ ============ ============ ============ ============
</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>
Quarter ended June 30, Six months ended June 30, March 12, 1991
----------------------------- ----------------------------- (inception) to
1998 1997 1998 1997 June 30, 1998
------------ ------------ ------------ ------------ ---------------
(As Restated) (As Restated) (As Restated)
<S> <C> <C> <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 $ 402,110 $ 36,487 $ 444,203 $ 40,564 28,522,229
Share issuance expenses (20,000) (20,000) (2,547,697)
Proceeds from issuance of loans
payable 600,000 600,000 1,425,850
Repayment of loan payable (35,779) (8,713) (40,884) (20,064) (144,023)
Repayment of capital lease
obligations (10,431) (16,944) (19,657) (18,075) (49,151)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 935,900 10,830 963,662 2,425 27,207,208
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (868,689) (984,519) (10,632,095) (1,917,880) 1,318,598
Cash and cash equivalents at
beginning of period 2,187,287 6,519,868 11,950,693 7,453,229
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at
end of period $ 1,318,598 $ 5,535,349 $ 1,318,598 $ 5,535,349 $ 1,318,598
============ ============ ============ ============ ============
</TABLE>
See notes to condensed unaudited financial statements.
8
<PAGE> 11
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 1 - FINANCIAL STATEMENTS
The condensed balance sheet as of June 30, 1998 and the statements of
operations, shareholders' equity and cash flows for the six month periods ended
June 30, 1998 and 1997 and for the period from March 12, 1991 (inception) to
June 30, 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 June 30, 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, 1998 annual report on Form 10-KSB
filed with the Securities and Exchange Commission. The results of operations for
the six months ended June 30, 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.
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. During the second quarter of 1998, four
additional 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 six months ended June 30, 1998 to
record additional non-cash compensation expense of $670,000. The effect of this
non-cash compensation expense adjustment would be to increase the net loss for
the quarter ended June 30, 1998 by $.07 per share, for the six months ended June
30, 1998 by $.11 per share and cumulative from March 12, 1991 (inception) to
June 30, 1998 of $.22 per share.
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.
10
<PAGE> 13
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule *
- ------------------------
* Filed herewith.
11
<PAGE> 14
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)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,318,598
<SECURITIES> 9,757,657
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,209,342
<PP&E> 2,400,191
<DEPRECIATION> 792,727
<TOTAL-ASSETS> 13,258,221
<CURRENT-LIABILITIES> 430,224
<BONDS> 0
0
0
<COMMON> 5,887
<OTHER-SE> 11,597,145
<TOTAL-LIABILITY-AND-EQUITY> 13,258,221
<SALES> 0
<TOTAL-REVENUES> 318,486
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,938,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,620,289)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,620,289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,950,289)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> 0
</TABLE>
