<PAGE> 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 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)
================================================================================
<PAGE> 2
ORTEC INTERNATIONAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED JUNE 30, 1998
---------------------------
ITEMS IN FORM 10-QSB
--------------------
Page
----
Facing page
Part I
Item 1. Financial Statements. 1
Item 2. Plan of Operation. 10
Part II
Item 1. Legal Proceedings and Claims. None
Item 2. Changes in Securities and Use 13
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. 13
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
----------- -----------
<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
------------ ------------
<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 27,233,884 26,397,307
Deficit accumulated during the
development stage (15,636,739) (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
----------- ----------- ----------- ----------- ---------------
<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 651,104 316,216 1,407,256 609,667 5,184,063
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
----------- ----------- ----------- ----------- ------------
1,667,695 996,427 3,268,775 1,959,169 16,485,042
----------- ----------- ----------- ----------- ------------
Net loss $(1,517,102) $ (922,509) $(2,950,289) $(1,801,390) $(15,636,739)
----------- ----------- ----------- ----------- ------------
Net loss per share $ (.26) $ (.20) $ (.51) $ (.39) $ (5.11)
----------- ----------- ----------- ----------- ------------
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 412,500 412,500
Net loss for the six months
ended June 30, 1998 (2,950,289) (2,950,289)
--------- ------ ------------ ------------- ------------
Balance - June 30, 1998 5,886,587 $5,887 $ 27,233,884 $ (15,636,739) $ 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
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (1,517,102) $ (922,509) $ (2,950,289) $ (1,801,390) $(15,636,739)
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 146,247 412,500 1,224,500
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
------------ ------------ ------------ ------------ ---------------
<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.
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.
ITEM 2. PLAN OF OPERATION
OPERATIONS FOR THE NEXT TWELVE MONTHS
During the next 12 months, the Company expects to enroll patients in
its recently announced pilot human clinical trials for the use of its Composite
Cultured Skin for the treatment of donor site wounds and venous ulcers. Patient
enrollment in the donor site pilot trial is expected to begin during August
1998. The Company expects to initiate a multi-hospital donor site pivotal trial
during the first quarter of 1999. The Company's goal is to complete patient
enrollment and treatment in the donor site pivotal trial by the fourth quarter
of 1999.
Patient enrollment and treatment in the venous ulcers pilot trial is
expected to begin in September 1998 and to be concluded by the first quarter of
1999. The Company expects to initiate a venous ulcers pivotal trial, subject to
FDA approval, by the first quarter of 2000.
During the second quarter of 1998, the Company completed patient
enrollment and treatment in a trial at Rockefeller University Hospital in New
York City using its Composite Cultured Skin for the treatment of chronic wounds
in patients suffering from Epidermolysis Bullosa ("EB"). During the course of
that clinical trial the Company applied to the FDA for, and in April 1998 was
granted, a Humanitarian Use Device designation for the use of its Composite
Cultured Skin in treating EB patients. During the third quarter of 1998 the
Company expects to continue to take the steps required to enable it to submit to
the FDA by the first quarter of 1999 a Humanitarian Device Exemption application
("HDE") for its Composite Cultured Skin in treating EB patients. The granting of
the HDE by the FDA within the time the Company anticipates should enable the
Company to begin commercial marketing of its Composite Cultured Skin for the
treatment of EB patients by the end of 1999.
By the end of 1998 the Company also expects to initiate a pilot human
clinical trial for the use of its Composite Cultured Skin in the treatment of
diabetic ulcers. Initiation of the diabetic ulcer pilot trial would bring to
four the total number of human clinical trials in which the use of the Company's
Composite Cultured Skin will be evaluated for the treatment of different skin
disorders and injuries.
While the results to date in the human clinical trials using the
Company's Composite Cultured Skin in the treatment of partial thickness burns
have been consistent with expectations, the Company's management has decided
that the trial design should be modified to more appropriately reflect the
current trends in the treatment of second degree burns. Therefore, patient
enrollment in the current trial is being closed. It is Management's
10
<PAGE> 13
belief that in view of the varied approaches now being used for the treatment of
second degree burns and the potential variation in clinical data which results
from inclusion of different wound depths in a human clinical trial study, the
Company's resources would be better spent to obtain a better understanding of
the products, methods and costs of the current treatments of mid-dermal burn
injuries. Once this data is compiled, the Company will evaluate the market
potential for the use of its Composite Cultured Skin in the treatment of such
burn injuries and determine an appropriate course of action for using its
Composite Cultured Skin to treat burn patients.
During the second quarter of 1998, the Company completed the expansion
of its facilities providing space for additional personnel, as well as
additional laboratory facilities in which the Company's pilot manufacturing of
its Composite Cultured Skin, currently in progress, will be expanded and
enhanced. In addition to such enlargement and enhancement of its pilot
manufacturing capability, the Company will continue to focus on the continued
development of its cryopreservation technique. The Company expects to be able to
validate the use of its Composite Cultured Skin in cryopreserved form by
December 1998 and to use a cryopreserved product in its human clinical trials,
subject to FDA approval, sometime in the first half of 1999.
See "Forward Looking Information May Prove Inaccurate."
EMPLOYEES
The Company currently employs approximately 28 persons. Among the
additions to the Company's staff during the second quarter of 1998 was William
D. Schaeffer, who was appointed the Company's Chief Operating Officer. Mr.
Schaeffer comes to the Company after spending over 25 years at various positions
with the Johnson & Johnson companies where he gained extensive experience in
start up, process development, manufacturing and quality assurance of medical
devices.
In addition, the Company expects to employ an additional 22 persons
during the next twelve months, primarily for scientific research to enable the
Company to proceed with and meet its clinical trial and product development
goals.
CASH REQUIREMENTS
The Company estimates that it has sufficient funds necessary to operate
through approximately March 2000. In the last quarter of 1997 the Company
received net proceeds of $10,168,756 as a result of the exercise of 1,083,780 of
its publicly-traded Class A Warrants, which expired on December 31, 1997. In the
second quarter of 1998 the Company received net proceeds of $159,000 as the
result of the exercise of 11,400 shares of its publicly traded Class B Warrants,
which expire January 18, 1999. The Company may have to secure additional funds
prior to March 2000, particularly if it conducts clinical trials
11
<PAGE> 14
with larger patient pools than presently anticipated, to complete its human
clinical trials, 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 $1,178,836 in 1997, and $405,515 in the second
quarter of 1998, and an aggregate of approximately $5,320,682 from its inception
through June 30, 1998, for 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 month period ending June 30, 1999, in
order to continue its human clinical trials program for 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 Compute
Culture 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
<PAGE> 15
PART II
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities.
During the second quarter of 1998 the Company granted four employees
five year options under its Employee Stock Option Plan to purchase an aggregate
of 16,000 shares of Common Stock, at exercise prices ranging from $18.00 to
$21.375 per share. Such grants were in consideration for 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 second quarter of 1998, six persons exercised such
warrants and purchased an aggregate of 89,842 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. However, the sale by the owners of the shares issued
and issuable upon exercise of virtually all of the "lock-up warrants" and the
sale by the Company of the shares issuable upon exercise of options granted
under the Company's Employee Stock Option Plan, have all been registered under
the Act.
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)
13
<PAGE> 16
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.
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: August 13, 1998 By: /s/ Steven Katz
--------------------------------------
Steven Katz, PhD
President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 By: /s/ Ron Lipstein
--------------------------------------
Ron Lipstein
Chief Financial Officer
(Principal Financial Officer)
14
<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
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<INCOME-TAX> 0
<INCOME-CONTINUING> (2,950,289)
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<CHANGES> 0
<NET-INCOME> (2,950,289)
<EPS-PRIMARY> (.51)
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</TABLE>
