<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
-------------
(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, 2000
[ ] 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 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 8,431,217 (as
of August 1, 2000)
================================================================================
<PAGE>
ORTEC INTERNATIONAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED JUNE 30, 2000
ITEMS IN FORM 10-Q
Page
Facing page
Part I
Item 1. Financial Statements. 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk None
Part II
Item 1. Legal Proceedings and Claims. None
Item 2. Changes in Securities and Use
of Proceeds. 15
Item 3. Default Upon Senior Securities. None
Item 4. Submission of Matters to
a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K. 15
Signatures 17
<PAGE>
PART I
Item 1. FINANCIAL STATEMENTS
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 7,704,019 $12,604,027
Prepaid expenses 92,923
Other current assets 1,549 1,701
----------- -----------
Total current assets 7,798,491 12,605,728
----------- -----------
Property and equipment, at cost:
Laboratory equipment 1,512,840 1,345,367
Office furniture and equipment 822,607 778,364
Leasehold improvements 1,319,773 1,283,686
----------- -----------
3,655,220 3,407,417
Accumulated depreciation and
amortization 1,882,218 1,566,002
----------- -----------
Property and equipment - net 1,773,002 1,841,415
----------- -----------
Other assets:
Patent application costs net of
accumulated amortization of $133,610
at June 30, 2000 and $107,594 at
December 31, 1999 556,831 533,592
Deposits 52,684 30,910
----------- -----------
Total other assets 609,515 564,502
----------- -----------
Total Assets $10,181,008 $15,011,645
=========== ===========
</TABLE>
See notes to condensed unaudited financial statements.
1
<PAGE>
ORTEC INTERNATIONAL, INC.
(DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 875,844 $ 1,468,820
Capital lease obligations - current 5,151
Loans payable - current 127,129 122,097
------------ -----------
Total current liabilities 1,002,973 1,596,068
------------ -----------
Long-term liabilities:
Loans payable - noncurrent 980,009 1,044,857
------------ -----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value;
authorized, 25,000,000 shares;
8,464,042 shares issued, 8,445,842
shares outstanding, at June 30, 2000
and 8,221,843 shares issued, 8,206,143
outstanding at December 31, 1999 8,464 8,222
Additional paid-in capital 44,954,488 43,644,902
Deficit accumulated during the
development stage (36,602,094) (31,139,614)
Treasury stock, at cost (18,200 shares
at June 30, 2000 and 15,700 shares at
December 31, 1999) (162,832) (142,790)
------------ ------------
Total shareholders' equity 8,198,026 12,370,720
------------ ------------
Total Liabilities and
Shareholders' Equity $ 10,181,008 $ 15,011,645
============ ============
</TABLE>
See notes to condensed unaudited financial statements.
2
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months Cumulative from
Quarter ended June 30, ended June 30, March 12, 1991
---------------------- ----------------------- (inception) to
2000 1999 2000 1999 June 30, 2000
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
Revenue
Interest income $ 139,328 $ 106,198 $ 303,795 $ 218,092 $ 1,774,872
------------ ------------ ------------ ------------ ------------
Expenses
Research and development 952,726 741,907 1,793,997 1,518,597 11,368,034
Rent 138,665 108,013 257,817 233,265 1,312,671
Consulting 209,830 232,863 422,616 413,129 3,397,595
Personnel 1,086,546 905,406 2,175,118 1,678,409 13,755,186
General and administrative 540,827 546,603 1,070,604 1,025,832 8,103,633
Interest and other expense 22,683 25,147 46,123 51,080 439,847
------------ ------------ ------------ ------------ ------------
2,951,277 2,559,939 5,766,275 4,920,312 38,376,966
------------ ------------ ------------ ------------ ------------
Net loss $ (2,811,949) $ (2,453,741) $ (5,462,480) $ (4,702,220) $(36,602,094)
============ ============ ============ ============ ============
Net loss per share $(.33) $(.37) $(.65) $(.73) $(9.42)
===== ===== ===== ===== ======
Weighted average common stock
outstanding (basic and diluted) 8,447,109 6,562,625 8,418,670 6,433,597 3,883,593
========= ========= ========= ========= =========
</TABLE>
See notes to condensed unaudited financial statements.
3
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Deficit accumulated
Paid-in in the development Treasury
Shares Amount Capital stage Stock Total
------ ------ ------- ---- ----- -----
<S> <C> <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
========= ====== ========== =========== ===========
</TABLE>
See notes to condensed unaudited financial statements.
4
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Deficit accumulated
Paid-in in the development Treasury
Shares Amount Capital stage Stock Total
------ ------ ------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
(brought forward) 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
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
========= ====== ========== =========== ============
</TABLE>
See notes to condensed unaudited financial statements.
5
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Deficit accumulated
Paid-in in the development Treasury
Shares Amount Capital stage Stock Total
------ ------ ------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
(brought forward) 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.
6
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Deficit accumulated
Paid-in in the development Treasury
Shares Amount Capital stage Stock Total
------ ------ ------- ---- ----- -----
<S> <C> <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 221,486 221 1,281,736 1,281,957
Stock options and warrants
issued for services 1,920,111 1,920,111
Sixth private placement 200,000 200 1,788,498 1,788,698
Warrants issued in sixth
private placement 211,302 211,302
Share issuance costs (48,000) (48,000)
Purchase of treasury stock
(at cost) $ (67,272) (67,272)
Net loss for the year ended
December 31, 1998 (8,412,655) (8,412,655)
------------ ------ ----------- ------------ ------------ -----------
Balance - December 31, 1998 6,182,220 $6,182 $31,550,954 $(21,099,105) $ (67,272) $10,390,759
============ ====== =========== ============ ============ ===========
</TABLE>
See notes to condensed unaudited financial statements.
7
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Additional Deficit accumulated
Paid-in in the development Treasury
Shares Amount Capital stage Stock Total
------ ------ ------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
(brought forward) 6,182,220 $6,182 $ 31,550,954 $(21,099,105) $ (67,272) $ 10,390,759
Exercise of warrants 14,103 14 14,089 14,103
Stock options issued for services 64,715 64,715
Seventh private placement 389,156 389 3,168,396 3,168,785
Warrants issued in seventh
private placement 468,291 468,291
Eighth private placement 1,636,364 1,637 8,998,365 9,000,002
Share issuance costs (619,908) (619,908)
Purchase of treasury stock (at cost) (75,518) (75,518)
Net loss for the year ended
December 31, 1999 (10,040,509) (10,040,509)
--------- ------ ------------ ------------ ---------- ------------
Balance - December 31, 1999 8,221,843 8,222 43,644,902 (31,139,614) (142,790) 12,370,720
Exercise of options and warrants 175,532 175 327,107 327,282
Stock options issued for services 25,910 25,910
Ninth private placement 66,667 67 999,938 1,000,005
Warrants issued in ninth
private placement 23,000 23,000
Share issuance costs (66,369) (66,369)
Purchase of treasury stock (at cost) (20,042) (20,042)
Net loss for the six months
ended June 30, 2000 (5,462,480) (5,462,480)
--------- ------ ------------ ------------ ---------- ------------
Balance - June 30, 2000 8,464,042 $8,464 $ 44,954,488 $(36,602,094) $ (162,832) $ 8,198,026
========= ====== ============ ============ ========== ============
</TABLE>
See notes to condensed unaudited financial statements.
8
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months Cumulative from
Quarter ended June 30, ended June 30, March 12, 1991
---------------------- ------------------- (inception) to
2000 1999 2000 1999 June 30, 2000
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,811,949) $ (2,453,741) $ (5,462,480) $ (4,702,220) $(36,602,094)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 174,503 139,808 342,232 272,937 2,026,065
Unrealized loss on marketable
securities 11,404
Realized loss on marketable
securities 5,250
Non cash stock compensation and
interest 25,910 (1,041) 25,910 (17,604) 2,822,736
Purchases of marketable securities (6,298) (19,075,122)
Sales of marketable securities 771,956 19,130,920
Changes in operating assets and
liabilities
Other current assets (92,901) (161) (92,771) (1,562) (94,470)
Accounts payable and accrued
liabilities 1,738 16,216 (592,976) 248,547 963,671
------------ ----------- ----------- ------------ ------------
Net cash used in operating activities (2,702,699) (2,298,919) (5,780,085) (3,434,244) (30,811,640)
------------ ----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment,
excluding capital leases (151,360) (180,559) (247,803) (278,989) (3,568,154)
Payments for patent application (20,583) (21,618) (49,255) (53,457) (690,441)
Organization costs (10,238)
Deposits 1,286 (2,548) (21,774) (4,121) (50,701)
Purchases of marketable securities (594,986)
Sales of marketable securities 522,532
------------ ----------- ----------- ------------ ------------
Net cash provided by (used in)
investing activities (170,657) (204,725) (318,832) (336,567) (4,391,988)
------------ ----------- ----------- ------------ ------------
</TABLE>
See notes to condensed unaudited financial statements.
9
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended June 30, Six months Cumulative from
------------------------- ended June 30, March 12, 1991
--------------------- (inception) to
2000 1999 2000 1999 June 30, 2000
---- ---- ---- ---- -------------
<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 $ 1,983 $ 1,327,287 $ 3,409,153 45,106,451
Share issuance expenses (40,000) (43,369) (356,593) (3,006,974)
Purchase of treasury stock $ (20,042) (9,529) (20,042) (56,834) (162,832)
Proceeds from issuance of
loans payable 1,446,229
Repayment of loans payable (30,209) (27,610) (59,816) (54,668) (368,023)
Repayment of capital lease
obligations (1,145) (9,127) (5,151) (22,621) (107,204)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities (51,396) (84,283) 1,198,909 2,918,437 42,907,647
----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents (2,924,752) (2,587,927) (4,900,008) (852,374) 7,704,019
Cash and cash equivalents at
beginning of period 10,628,771 11,185,232 12,604,027 9,449,679
---------- ----------- ------------ ----------- -----------
Cash and cash equivalents at
end of period $ 7,704,019 $ 8,597,305 $ 7,704,019 $ 8,597,305 $ 7,704,019
=========== =========== ============ =========== ============
Supplemental disclosure of cash flow information:
Non-cash financing activities
Share issuance
expenses - warrants $ 23,000 $ 232,000 $ 255,000
============ =========== ============
</TABLE>
See notes to condensed unaudited financial statements.
10
<PAGE>
ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 1 - FINANCIAL STATEMENTS
The condensed balance sheet as of June 30, 2000 and the statements of
operations, shareholders' equity and cash flows for the six month periods ended
June 30, 2000 and 1999 and for the period from March 12, 1991 (inception) to
June 30, 2000 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, 2000 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, 1999 annual report on Form 10-K
filed with the Securities and Exchange Commission. The results of operations for
the six months ended June 30, 2000 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.
11
<PAGE>
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 Company's Composite Cultured Skin to be used in skin
replacement procedures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION MAY PROVE INACCURATE
This Quarterly Report on Form 10-Q 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 discussion and elsewhere in this Quarterly
Report on Form 10-Q. 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.
General
Since its inception the Company has been principally engaged in the
research and development of its skin regeneration product for use in the
treatment of chronic and acute wounds, such as venous and diabetic skin ulcers,
donor site wounds and chronic skin ulcers in persons suffering from
epidermolysis bullosa. The Company has not had any revenues from operations
since its founding in 1991 since the Company cannot make any sales of its
product until it receives approval from the Food and Drug Administration ("FDA")
and/or other similar foreign regulatory bodies to do so. Accordingly, the
Company does not expect to record any product sales until it receives such
approvals. The Company has incurred a cumulative net loss of approximately $36.6
million as of June 30, 2000. The Company expects to continue to incur
substantial losses until at least 2003 due to continued spending on research and
development programs, the funding of clinical testing and trials and regulatory
activities and the costs of manufacturing, marketing, sales, distribution and
administrative activities.
12
<PAGE>
The Company anticipates that future revenues and results of operations
may continue to fluctuate significantly depending on, among other factors, the
timing and outcome of applications for regulatory approvals, the Company's
ability to successfully manufacture, market and distribute its product and/or
the establishment of collaborative arrangements for the manufacturing, marketing
and distribution of its product. The Company anticipates its operating
activities will result in substantial net losses until at least 2003.
The Company is currently conducting clinical trials of its product in
the treatment of venous stasis ulcers and diabetic ulcers. The Company has
completed clinical trials for the use of its product in the treatment of
autograft donor sites and chronic ulcers in patients with epidermolysis bullosa.
The Company is still conducting follow up studies of the patients in the
autograft donor site trials to determine the effectiveness of its product in
that clinical trial. Venous stasis ulcers are open lesions on the legs which
result from the poor circulation of blood returning from the legs to the heart.
An autograft donor site is an area of a patient's body from which the patient's
skin was taken to cover a wound at another part of such patient's body.
Epidermolysis bullosa is a disease with a small patient population.
Results of Operations
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Revenues. The Company has had no revenues from operations other than
interest income from its inception in 1991 to date. Interest income increased by
approximately $85,700 from approximately $218,100 for the six months ended June
30, 1999 to approximately $303,800 for the six months ended June 30, 2000,
because of larger average cash and marketable securities balances in the 2000
half resulting from cash received by the Company from the sales of its
securities.
Expenses. The Company's expenses for the six months ended June 30, 2000
increased by approximately $846,000 from approximately $4.9 million for the six
months ended June 30, 1999. Such increased expenses consist primarily of an
approximately $500,000 increase in the cost of personnel required by the
Company's clinical trial programs, its other research and development activities
and for corporate administrative personnel, and approximately $275,000 for other
research and development costs. There were also more modest increases in
expenses for general and administrative costs ($45,000), for rent ($25,000) and
for consulting fees ($9,500), in the 2000 six month period compared to the 1999
six month period.
Liquidity and Capital Resources
Since inception (March 12, 1991) through June 30, 2000, the Company has
accumulated a deficit of approximately $36.6 million and expects to continue to
incur substantial operating losses until at least 2003. The Company has financed
its operations primarily through private
13
<PAGE>
placements of its Common Stock, its initial public offering and the exercise of
its publicly traded Class A warrants at the end of 1997. From inception to June
30, 2000 the Company received cash proceeds from the sale of equity securities,
net of share issuance expenses, of approximately $42.1 million.
For the six months ended June 30, 2000 the Company used net cash for
operating activities of approximately $5.8 million compared to approximately
$3.4 million for the comparable six months in 1999. The increase in cash used in
operating activities resulted primarily because of (i) cash received by Company
from its sale of marketable securities in the first six months of 1999 of
approximately $772,000 as opposed to none in the first six months of 2000, (ii)
a decrease in accounts payable and accrued liabilities of approximately $593,000
in the first six months of 2000 as opposed to an increase of approximately
$249,000 in the first six months of 1999, and (iii) an increase in other current
assets of approximately $93,000 compared to $2,000 in the first six months of
2000 and 1999 respectively, and (iv) an increase of approximately $760,000 in
the Company's net loss in the first six months of 2000 compared to the first six
months of 1999.
In the six months ended June 30, 2000 the Company realized cash
provided by its financing activities of approximately $1.2 million as compared
to cash provided by its financing activities of approximately $2.9 million in
the six months ended June 30, 1999. The larger amount of cash received from
financing activities in the 1999 half is primarily accounted for by
approximately $3.1 million of net proceeds received by the Company from sale of
its Common Stock in the 1999 half, as opposed to approximately $1.3 million net
proceeds received by the Company from sale of its Common Stock in the 2000 half.
The Company invested a total of approximately $319,000 in property,
plant, equipment, patent application costs and deposits during the six months
ended June 30, 2000, compared to approximately $337,000 for those same items in
the six months ended June 30, 1999. Since inception, the Company has spent
approximately $4.3 million for property, plant and equipment, excluding capital
lease agreements, but including payments for patent applications, deposits and
organization costs. The capital lease agreements consist primarily of laboratory
equipment.
The Company's capital funding requirements will depend on numerous
factors, including the progress and magnitude of the Company's research and
development programs and preclinical testing and clinical trials, the time
involved in obtaining regulatory approvals, the cost involved in filing and
maintaining patent claims, technological advances, competitive and market
conditions, the ability of the Company to establish and maintain collaborative
arrangements, the cost of manufacturing scale up and the cost and effectiveness
of commercialization activities and arrangements.
The Company is likely to require substantial funding to continue its
research and development activities, clinical trials, manufacturing scale up,
marketing, sales, distribution, and
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administrative activities. The Company has raised funds in the past through the
public or private sale of securities, and may raise funds in the future through
public or private financings, collaborative arrangements or from other sources.
The success of such efforts will depend in large part upon continuing
developments in the Company's clinical trials. The Company continues to explore
and, as appropriate, enter into discussions with other companies regarding the
potential for equity investment, collaborative arrangements, license agreements
or development or other funding programs with the Company in exchange for
manufacturing, marketing, distribution or other rights to the Company's product.
However, there can be no assurance that discussions with other companies will
result in any investments, collaborative arrangements, agreements or funding, or
that the necessary additional financing through debt or equity financing will be
available to the Company on acceptable terms, if at all. Further, there can be
no assurance that any arrangements resulting from these discussions will
successfully reduce the Company's funding requirements. If additional funding is
not available to the Company when needed, the Company will be required to scale
back its research and development programs, clinical trials and administrative
activities and the Company's business and financial results and condition would
be materially adversely affected. At its current rate of spending the Company's
cash and cash equivalents on hand at June 30, 2000 (approximately $7.7 million)
will enable the Company to continue its operations through March 31, 2001.
PART II
ITEM 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities.
During the second quarter of 2000 the Company granted to forty eight
employees and one consultant seven year options, and to another consultant a one
year option, under its Employee Stock Option Plan to purchase an aggregate of
95,300 shares of Common Stock, at exercise prices ranging from $6.50 to $9.50
per share. Such grants were in consideration for services rendered to the
Company. The grant of such options was exempt from the registration requirements
of the Act pursuant to the provisions of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit No. Description
----------- -----------
<S> <C> <C>
3.1 Agreement of Merger of the Skin Group, Ltd. and the Company
dated July 9, 1992 (1)
</TABLE>
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<TABLE>
<S> <C> <C>
3.2 Original Certificate of Incorporation (1)
3.3 By-Laws (1)
27.1 Financial Data Schedule *
</TABLE>
------------------------
* 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
No reports on Form 8-K were filed by the Company in the second quarter
of 2000.
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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 3, 2000 By: /s/ Steven Katz
-------------------
Steven Katz, PhD
President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 3, 2000 By: /s/ Ron Lipstein
---------------------
Ron Lipstein
Chief Financial Officer
(Principal Financial Officer)
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