<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period 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 0-24517.
-------------
ORTHOVITA, INC.
--------------------
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Pennsylvania 23-2694857
- ----------------------------------------------------------- ---------------------------------------
(State Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
45 Great Valley Parkway, Malvern, PA 19355
- ----------------------------------------------------------- ---------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 640-1775
---------------------------------------
</TABLE>
Not Applicable
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 _____ No __X__
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 1,1998
- ---------------------------- -------------------------------
Common Stock, par value $.01 11,215,628 Shares
This Report Includes a Total of 15 Pages
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<CAPTION>
ORTHOVITA, INC. AND SUBSIDIARIES
INDEX
<C> <S> <C>
PART I FINANCIAL PAGE
INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets June 30, 1998 and 3
December 31, 1997
Consolidated Statements of Operations Three and 4
six months ended June 30 1998 and 1997
Consolidated Statements of Cash Flows Six 5
months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of 9 - 13
Financial Condition and Results of Operations
PART II -
OTHER
INFORMATION
Item 4. Submission of Matters to a Vote of Security 14
Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
</TABLE>
2
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<TABLE>
<CAPTION>
ORTHOVITA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1998 1997
----------------------- ---------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,882,806 $ 2,257,902
Restricted cash 203,425 200,000
Trade accounts receivable, net of allowance 413,634 469,363
of $100,078 and $125,084
Subscription proceeds receivable 344,225 --
Inventories 248,927 248,707
Other current assets 94,448 101,794
---------- ----------
Total current assets 18,187,465 3,277,766
PROPERTY AND EQUIPMENT, net 1,665,219 1,584,244
---------- ----------
$ 19,852,684 $ 4,862,010
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term bank borrowings $ 692,000 $ 692,000
Current portion of long-term debt 729,298 690,985
Accounts payable 661,217 668,446
Accrued patent defense costs 497,377 1,003,236
Accrued compensation and related expenses 522,845 412,926
Other accrued expenses 1,621,842 891,032
---------- ----------
Total current liabilities 4,724,579 4,358,625
---------- ----------
LONG-TERM DEBT 820,901 832,991
---------- ----------
REDEEMABLE CLASS C CONVERTIBLE PREFERRED STOCK, 1,882,353 shares
issued and outstanding at December 31, 1997 and no shares issued and -- 7,383,090
outstanding at June 30,1998
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Convertible Preferred Stock, $.01 par value, 606,060 shares -- 6,061
issued and outstanding at December 31, 1997 and no shares issued and
outstanding at June 30, 1998
Class B Convertible Preferred Stock, $.01 par value, 1,038,005 shares -- 10,380
issued and outstanding at December 31, 1997 and no shares issued and
outstanding at June 30, 1998
Common Stock, $.01 pare value, 15,000,000 shares authorized, 106,389 51,862
5,186,222 and 10,638,998 shares issued and outstanding
Additional paid-in capital 38,332,172 13,138,103
Accumulated deficit (24,023,834) (20,885,159)
Cumulative translation adjustment (107,523) (33,943)
---------- ----------
Total stockholders' equity (deficit) 14,307,204 (7,712,696)
---------- ----------
$ 19,852,684 $ 4,862,010
========== =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
ORTHOVITA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED Six Months Ended
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
NET REVENUES $ 1,112,292 $ 678,485 $ 1,937,194 $ 1,419,189
COST OF SALES 332,691 191,775 546,196 476,952
_________ _________ _________ _________
Gross profit 779,601 486,710 1,390,998 942,237
_________ _________ _________ _________
OPERATING EXPENSES:
General and administrative 479,715 1,047,036 1,070,020 2,033,112
Selling and marketing 832,564 1,085,221 1,771,783 2,087,045
Research and development 693,420 507,939 1,197,674 868,366
_________ _________ _________ _________
Total operating expenses 2,005,699 2,640,196 4,039,477 4,988,523
_________ _________ _________ _________
Operating loss (1,226,098) (2,153,486) (2,648,479) (4,046,286)
INTEREST EXPENSE (48,370) (21,504) (114,121) (87,311)
INTEREST INCOME 15,417 73,042 35,498 74,330
FOREIGN CURRENCY ADJUSTMENT 24,850 (32,454) (20,361) (198,368)
_________ _________ _________ _________
Loss before extraordinary item (1,234,201) (2,134,402) (2,747,463) (4,257,635)
EXTRAORDINARY ITEM GAIN ON EARLY -- -- -- 397,402
EXTINGUISHMENT OF DEBT _________ _________ _________ _________
NET LOSS (1,234,201) (2,134,402) (2,747,463) (3,860,233)
ACCRETION OF REDEMPTION PREMIUM ON 190,018 134,127 391,213 134,127
PREFERRED STOCK _________ _________ _________ _________
NET LOSS APPLICABLE TO COMMON $(1,424,219) $(2,268,529) $(3,138,676) $(3,994,360)
STOCKHOLDERS ========= ========= ========= =========
NET LOSS PER COMMON SHARE
Before extraordinary item $(.26) $(.44) $(.59) $(.89)
Extraordinary item -- -- -- .08
_________ _________ _________ _________
NET LOSS PER COMMON SHARE $(.26) $(.44) $(.59) $(.81)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON 5,459,130 5,139,188 5,342,180 4,955,959
SHARES OUTSTANDING ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
ORTHOVITA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,747,463) $(3,860,233)
Adjustments to reconcile net loss to net cash used in operating
activities -
Extraordinary gain -- (397,902)
Depreciation and amortization 205,896 52,494
Services provided for Common Stock and Common Stock options
-- 211,000
(Increase) decrease in -
Accounts receivable 55,729 (93,734)
Subscription proceeds receivable (344,225) --
Inventories (220) (42,292)
Other current assets 7,346 (19,212)
Other assets -- 34,386
Increase (decrease) in -
Accounts payable (7,229) (72,471)
Accrued patent defense costs (505,859) 243,063
Accrued compensation and related expenses 109,919 (465,054)
Other accrued expenses (69,190) 502,221
_________ _________
Net cash used in operating activities (3,295,296) (3,907,734)
_________ _________
INVESTING ACTIVITIES:
Purchase of property and equipment (286,871) (541,112)
_________ _________
FINANCING ACTIVITIES:
Repayment of short-term bank borrowings -- (260,000)
Proceeds (repayment) of long-term debt 26,223 (1,053,744)
Proceeds from sale of Common Stock 18,386,587 2,256,606
Proceeds from sale of Class B Convertible Preferred Stock -- 1,025,394
Proceeds from sale of Class C Convertible Preferred Stock -- 7,609,204
_________ _________
Net cash provided by financing activities 18,412,810 9,577,460
_________ _________
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (205,739) 221,607
__________ _________
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,624,904 5,350,221
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,257,902 253,465
_________ _________
CASH AND CASH EQUIVALENTS, END OF PERIOD $16,882,806 $ 5,603,686
========= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
ORTHOVITA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Orthovita, Inc. (the "Company") was incorporated in Pennsylvania in June 1992
and began operations in November 1993. The Company is engaged in the
development and commercialization of proprietary bioactive bone substitutes.
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but are
not limited to, the uncertainty related to regulatory clearances, uncertainty of
market acceptance, limited clinical trials, uncertainty related to third-party
reimbursement, dependence on patents, trade secrets and proprietary rights,
limited manufacturing experience, dependence on suppliers, competition,
uncertainty of technological change, dependence on key personnel and advisors,
and product liability and the availability of adequate insurance.
Basis of Consolidation
The consolidated financial statements include the accounts of Orthovita, Inc.,
its Belgian branch operations, and its wholly owned subsidiaries, Ortho, Inc.
and Vita Licensing, Inc. Ortho, Inc. and Vita Licensing, Inc. were formed on
June 29, 1998 for the purpose of managing the Company's investment and
intellectual property portfolios, respectively. Intercompany balances and
transactions have been eliminated in consolidation.
Basis of Presentation
The consolidated interim financial statements of Orthovita, Inc. are unaudited
and, in the opinion of management, include all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of results
for these interim periods. The consolidated interim financial statements do not
include all of the information and footnote disclosures normally included in
financial statements prepared in accordance with United States generally
accepted accounting principles and should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Prospectus dated June 25, 1998, filed with the Securities and Exchange
Commission, which includes financial statements as of and for the year ended
December 31, 1997. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's operations
for any other interim period or for a full year.
Loss per share
Loss per share is computed using the weighted average number of common shares
outstanding during each operating period presented. Common stock equivalents
including stock options and warrants are excluded from the computation, as their
effect is antidilutive.
6
<PAGE>
Comprehensive Income
In accordance with SFAS No. 130, "Reporting Comprehensive Income", the
comprehensive loss for each six-month period ended June 30 presented is as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Loss $(2,747,463) $(3,860,233)
Currency Translation Adjustment (73,580) 259,263
__________ __________
Comprehensive Loss $(2,821,043) $(3,600,970)
========== ==========
</TABLE>
2. CASH AND CASH EQUIVALENTS
The Company invests its excess cash in highly liquid short-term investments. For
the purposes of the statements of cash flows, the Company considers all highly
liquid investment instruments purchased with an original maturity of three
months or less to be cash equivalents.
On June 30, 1998, the lead manager for the Company's initial public offering,
Quartz Capital Partners, Limited, held $14,303,275 of the net proceeds from the
offering, in a segregated bank trust account for the benefit of the Company.
The Company has included these proceeds in Cash and Cash Equivalents as of June
30, 1998. The proceeds were transferred to the Company's bank account on July
2, 1998.
3. SUBSCRIPTION PROCEEDS RECEIVABLE
On June 30,1998, the Company had a Subscription Proceeds Receivable of $344,225
from Quartz Capital Partners Limited. The Company received the funds on July 7,
1998.
4. BANK BORROWINGS
As of June 30, 1998, $692,000 was outstanding under a $1 million line of credit
arrangement the Company has with its bank. Subsequent to June 30, 1998, the
Company repaid the $692,000 line of credit with its commercial bank.
5. COMMITMENTS AND CONTINGENCIES
In May 1996 a complaint was filed in the U.S. District Court for the Northern
District of Florida (the "Court") by the University of Florida Research
Foundation, Inc., U.S. Biomaterials Corporation and Block Drug Corporation (the
"Plaintiffs") against the Company, a distributor of the Company's BIOGRAN
product and the Company's Chief Scientific Officer (the "Defendants"). This
action charged the Defendants with infringement of U.S. Patent No. 4,851,046,
said to be assigned to the University of Florida Research Foundation and said to
be exclusively licensed to U.S. Biomaterials Corporation (the "BIOGRAN Matter").
In April 1998, the Court granted the Company's summary judgement motion stating
that the Company's BIOGRAN product does not infringe this patent. The complaint
also alleges false representation, unfair competition, false advertising and
trade disparagement under federal and Florida state law. While no court ruling
has been rendered regarding these other allegations,
7
<PAGE>
subsequent to June 30, 1998, the Company entered into a non-cash settlement
agreement with the Plaintiffs with respect to these other allegations. As of
June 30, 1998, the Company had a reserve of $497,000 for the estimated future
cost of defending this litigation should the Plaintiffs decide to appeal the
Court's summary judgement with respect to the patent infringement claim.
Subsequent to June 30, 1998, the Company reserved approximately $425,000 for its
commitments under an employment and severance agreement that was effected
through the resignation of an officer of the Company.
6. STOCKHOLDERS' EQUITY
On June 25, 1998, the Company completed an initial public offering (the
"Offering") of its common shares on the Brussels-based EASDAQ stock exchange.
The issue raised net proceeds of $13.8 million from the sale of 1.5 million
shares of common stock at $10.50 per share. In connection with the Offering,
the Company exercised its right to cause the conversion of all, but not less
than all, of the Class A Preferred and Class B Preferred stock then issued. The
holders of the Class C Preferred stock agreed at the Offering to convert all of
their shares into the same number of shares of Common Stock.
Subsequent to June 30, 1998, in connection with the Company's initial public
offering, the Company sold 300,000 additional shares of common stock at $10.50
per share as the underwriters' exercised their over-allotment option in July
1998, raising net proceeds of approximately $2.9 million.
On June 11, 1998, Howmedica, Inc., a division of Pfizer, Inc., acquired an
exclusive worldwide license to Orthovita's ORTHOCOMP(TM) for use in joint
implant procedures. In connection with the license, Orthovita sold 370,392
shares of common stock to Howmedica, Inc. for $3.5 million.
During the second quarter of 1998, stock options and warrants to purchase 55,966
shares of common stock were exercised raising $208,606. Additionally during the
second quarter of 1998, the Company issued stock options and warrants to
purchase 51,100 shares of common stock at $4.25 per share to employees,
consultants and advisors.
7. NET PRODUCT REVENUE
On April 28, 1998 Orthovita and Implant Innovations, Inc. ("3i"), a US-based
company involved in the manufacture, marketing and sale of dental implant
products and oral health products, formed a global strategic alliance for the
sale and marketing of BIOGRAN. Effective May 1, 1998, all product revenue was
derived from sales of BIOGRAN to 3i.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN RISKS RELATED TO ORTHOVITA, INC.'S BUSINESS
This Report contains certain forward-looking and cautionary statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and should
be read in conjunction with the forward-looking statements in this Report as
well as statements presented elsewhere by the Company. These statements include
those relating to future events and risks and the Company's financial condition,
results of operations, liquidity, and capital resources.
The Company's future results of operations involve a number of risks and
uncertainties. Actual events or results may differ materially from those
indicated by such forward-looking statements for a variety of reasons including,
but not limited to, the uncertainty related to regulatory clearances,
uncertainty of market acceptance, limited clinical trials, uncertainty related
to third-party reimbursement, dependence on patents, trade secrets and
proprietary rights, limited manufacturing experience, dependence on suppliers,
competition, uncertainty of technological change, dependence on key personnel
and advisors, and product liability and the availability of adequate insurance.
There is little historical data regarding the Company's market price for shares.
Future negative announcements concerning the Company, its competitors or other
companies in the bone substitute industry, including the results of testing and
clinical trials, regulatory decisions, or public concern as to the safety or
commercial value of the Company's products may have a material adverse effect on
the market price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 30, 1998 and December 31, 1997 were
$16,882,806 and $2,257,902, respectively, representing 85% and 46%,
respectively, of total assets. Cash equivalents consist of highly liquid,
short-term investments with an original maturity of three months or less.
On June 30, 1998, the lead manager for the Company's initial public offering,
Quartz Capital Partners, Limited, held $14,303,275 of the net proceeds from the
offering, in a segregated bank trust account for the benefit of the Company.
The Company has included these proceeds in Cash and Cash Equivalents as of June
30, 1998. The proceeds were transferred to the Company's bank account on July
2, 1998.
The following is a summary of selected cash flow information for the six months
ended June 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net cash used for operating activities $(3,295,296) $(3,907,734)
Net cash used for investing activities (286,871) (541,112)
Net cash used for financing activities 18,412,810 9,577,460
</TABLE>
9
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Net cash used for operating activities
Operating Cash Inflows
The principal source of the Company's current operating cash inflows is derived
from the sale of BIOGRAN. BIOGRAN revenues to date have been realized primarily
from direct product sales in the U.S. and in Europe. A summary of cash receipts
from operating activities for the six months ended June 30 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Product Sales Revenue:
<S> <C> <C>
BIOGRAN U.S. $1,767,943 $1,001,604
BIOGRAN Europe 169,251 417,585
Interest Income 35,498 74,330
</TABLE>
Operating Cash Inflows Outlook
In April 1998, the Company entered into an exclusive global strategic alliance
with Implant Innovations, Inc. ("3i"). The arrangement provides for 3i to
purchase, and for the Company to supply specified contract minimum monthly
amounts of BIOGRAN in 1998 for the dental market. Per the contract minimums,
the Company expects that, baring any interruption in its ability to supply
BIOGRAN to 3i, its cash inflows from the sale of BIOGRAN to 3i for the remainder
of 1998 will approximate $1.6 million. In June and July 1998, the Company sold
an aggregate of 1.8 million shares of common stock in its initial public
offering on the EASDAQ exchange (the "Offering") realizing net proceeds of
approximately $16.8 million. As a result, the Company expects that its cash
inflows from interest income for the remainder of 1998 will increase in
proportion to the Company's investment in short-term, investment grade debt
instruments.
Operating Cash Outflows
Cash outflows were primarily used for the commercialization of BIOGRAN and for
development and pre-clinical activities in preparation for regulatory filings of
ORTHOCOMP(TM) and VITAGRAFT(TM). Funds have been used for the hiring, training
and development of the direct sales force, marketing and distribution of BIOGRAN
and expansion of the Company from a development-stage company.
Operating Cash Outflows Outlook
The Company expects that the reduction in cash outflows for the remainder of
1998 resulting from (i) the reduction of its sales force due to the Company's
arrangement with 3i and (ii) the settlement of all non-patent related claims in
the BIOGRAN Matter will be offset by increases in cash outflows resulting from
continued expansion of the Company's product development efforts.
Operating Cash Flow Requirements Outlook
The Company expects its cash flow from operating activities to continue to be
negative until such time, if any, as regulatory clearances for ORTHOCOMP are
obtained and revenue received from product sales exceeds funding of operating
costs.
10
<PAGE>
Net cash used for investing activities
The Company has invested $286,871 and $541,112 for the six months ended June 30,
1998 and 1997, respectively, in the purchase of property and equipment for the
expansion of its product development capabilities.
Investing Cash Outlook -
The Company expects that its use of cash for investing activities for the
remainder of 1998 will be comparable to that of prior periods. However, the
Company will continue to evaluate the need for the expansion of its development
and manufacturing facilities. The timing of such expansion is dependent upon a
number of variables outside of the Company's control and include, but are not
limited to, the timing of regulatory clearances for marketing of the Company's
future products, the rate of market acceptance and growth of product sales, and
the lead times required to bring additional manufacturing capacity on line.
Net cash provided by financing activities
For the Six Months Ended 1998
On June 25, 1998, the Company completed its Offering raising net proceeds of
approximately $13.8 million from the sale of 1.5 million shares of common stock
at $10.50 per share. On June 11, 1998, the Company sold 370,392 shares of
common stock to Howmedica, Inc. for $3.5 million. Additionally, during the
first six months of 1998, stock options and warrants were exercised to purchase
55,966 shares of common stock raising $208,606.
For the Six Months Ended 1997
During the first six months of 1997, the Company sold 533,685 shares of common
stock for $4.25 per share, raising net proceeds of approximately $2.3 million;
sold 1,882,353 shares of Class C Preferred Stock, together with related warrants
exercisable for 215,025 shares of common stock, raising net proceeds of
approximately $7.6 million; and, issued Class B warrant shares raising net
proceeds of approximately $1.0 million. Proceeds from the equity financing
activities were used to retire debt of $1,313,744.
Subsequent Events
Subsequent to June 30, 1998, the Company repaid the entire $692,000 balance
under its line of credit with its commercial bank. On July 28, 1998, the
Company sold 300,000 additional shares of common stock upon the exercise of the
underwriters' over-allotment option, raising net proceeds of approximately $2.9
million.
11
<PAGE>
Funding Requirements Outlook
As described above, the Company expects to continue to use cash and short-term
investments to fund operations. The Company may also require the use of cash
for a number of other reasons including to fund possible expansion of property
and equipment for additional manufacturing capacity and to service long-term
debt. The Company believes that its cash and short-term investments are
adequate to fund its anticipated level of operations through the end of 1999.
However, the Company's funding requirements may change due to numerous factors
including, but not limited to, the decisions of regulatory authorities
concerning the Company's marketing applications as they as filed from time to
time, the results of the Company's clinical trials and other product development
programs, the ability to meet clinical and commercial supply requirements, the
expansion of development and manufacturing facilities, technological advances by
the Company and by the competition, and regulatory requirements.
RESULTS OF OPERATIONS
This section should be read in conjunction with the more detailed discussion
under "Liquidity and Capital Resources."
A summary of revenues and expenses for the six months ended June 30 is as
follows:
<TABLE>
<CAPTION>
% Change
1998 1997 1998 vs. 1997
---- ---- -------------
<S> <C> <C> <C>
Revenues $ 1,937,194 $ 1,419,189 36%
Gross Profit 1,390,998 942,237 47
General and Administrative Expenses 1,070,020 2,033,112 (47)
Selling and Marketing Expenses 1,771,783 2,087,045 (15)
Research and Development Expenses 1,197,674 868,366 37
Net Loss (2,747,463) (3,830,233) (28)
</TABLE>
The increase in revenues for the six months ended June 30, 1998 as compared to
the corresponding 1997 period reflects a 76% growth in domestic sales of BIOGRAN
with a 59% decrease in international BIOGRAN sales. The Company attributes the
international decline on a reduction in personnel dedicated to international
sales activities, and expects its sales will increase in international markets
as a result of its global strategic alliance with 3i. Revenues for the three
months ended June 30, 1998 and 1997 were $1,112,292 and $678,485, respectively,
for a 64% increase attributed to domestic growth.
The Company's six month gross profit margin improvement year-over-year is
attributed to consolidation of its manufacturing of BIOGRAN to the U.S. from
Belgium. Gross profit for the three months ended June 30, 1998 and 1997 was
$779,601 and $486,710, respectively, a 60% increase period-over-period primarily
due to the increase in sales volume.
The decrease in general and administrative expenses year-over-year is primarily
a result of reduced patent litigation expenses of approximately $500,000.
General and administrative expenses for the three months ended June 30, 1998 and
1997 were $479,715 and $1,047,036, respectively, a 54% decrease.
Selling and marketing expenses decreased year-over-year as a result of
consolidation of certain sales territories and control of operating expenses.
For the three months ended June 30, 1998 and 1997, sales and marketing expenses
were $832,564 and $1,085,221, respectively, a 23% decline.
12
<PAGE>
The 37% increase from 1997 to 1998 in research and development expenses relates
directly to the development and pre-clinical activities in preparation for
regulatory filings of ORTHOCOMP and VITAGRAFT. For the three months ended June
30, 1998 and 1997, research and development expenses were $693,420 and $507,939,
respectively.
As a result of the foregoing factors, the Company's net loss for the six months
ended June 30, 1998 and 1997 decreased 21%. The net loss for the three months
ended June 30, 1998 and 1997 decreased 37% to a loss of $1,424,219 from a loss
of $2,268,529, respectively.
Results of Operations Outlook
For the remainder of 1998, the Company expects that its revenues (i) from the
sale of BIOGRAN to 3i will approximate $1.6 million, per the contract minimums,
baring any interruption in the Company's ability to supply BIOGRAN to 3i, and
(ii) from interest income will increase in proportion to the Company's
investment from period to period of the remaining net proceeds of the Offering.
Similarly, the Company expects that for the remainder of 1998 its operating
expense reductions from (i) the sales force reduction and (ii) the settlement of
most of the claims in the BIOGRAN Matter will be offset by increases from
continued expansion of the Company's product development efforts.
The Company expects to continue to have operating losses until such time as
regulatory clearances for ORTHOCOMP are obtained and the resultant revenue
received from product sales exceed operating costs. The timing of such events
is dependent upon a number of variables outside of the Company's control, as
described above. Accordingly, the Company expects to continue to use cash and
short-term investments to fund operations. The Company believes that its cash
and short-term investments are adequate to fund its anticipated level of
operations through the end of 1999.
However, the Company's funding requirements may change due to numerous factors
including, but not limited to, the decisions of regulatory authorities
concerning the Company's marketing applications as they as filed from time to
time, the results of the Company's clinical trials and other product development
programs, the ability to meet clinical and commercial supply requirements, the
expansion of development and manufacturing facilities, technological advances by
the Company and by the competition, and regulatory requirements.
13
<PAGE>
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following was voted upon at the Annual Meeting of Shareholders of Orthovita,
Inc., held in Malvern, Pennsylvania on May 27, 1998:
I. On the election of the following persons as directors:
<TABLE>
<CAPTION>
Number of Votes
For Abstain
--- -------
<S> <C> <C>
Lew Bennett 8,704,405 8,235
Dr. Paul Ducheyne 8,704,405 8,235
James M. Garvey 8,704,405 8,235
Richard M. Horowitz 8,704,405 8,235
David S. Joseph 8,704,405 8,235
Dr. Jos B. Peeters 8,704,405 8,235
Dr. Howard Salasin 8,704,405 8,235
</TABLE>
II. To approve and adopt the Amended and Restated Articles of Incorporation of
the Company.
Number of Votes
For Against Abstain
--- ------- -------
8,688,575 0 24,065
III. To approve and adopt the Amended and Restated Bylaws of the Company.
Number of Votes
For Against Abstain
--- ------- -------
8,704,405 0 8,235
IV. To approve and adopt an amendment to and restatement of the 1997 Company's
Equity Compensation Plan.
Number of Votes
For Against Abstain
--- ------- -------
8,675,474 11,581 25,585
V. To approve and adopt the Company's Employee Stock Purchase Plan.
Number of Votes
For Against Abstain
--- ------- -------
8,678,349 8,706 25,585
ITEM 5: OTHER INFORMATION
Effective August 17, 1998, Samuel A. Nalbone, Jr., former Senior Vice President
of the Company resigned from employment with the Company.
14
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FROM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORTHOVITA, INC.
(Registrant)
August 12, 1998 By: /s/ David S. Joseph
----------------------
David S. Joseph
President, Chief Executive Officer and Director
(Principal executive officer)
By: /s/ Joseph M. Paiva
----------------------
Joseph M. Paiva
Vice President and Chief Financial Officer
(Principal financial and accounting officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
DATED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 17,086,231
<SECURITIES> 0
<RECEIVABLES> 413,634
<ALLOWANCES> 0
<INVENTORY> 248,927
<CURRENT-ASSETS> 438,673
<PP&E> 1,665,219
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,852,684
<CURRENT-LIABILITIES> 4,724,579
<BONDS> 820,901
0
0
<COMMON> 106,389
<OTHER-SE> 14,200,815
<TOTAL-LIABILITY-AND-EQUITY> 19,852,684
<SALES> 1,937,194
<TOTAL-REVENUES> 1,937,194
<CGS> 546,196
<TOTAL-COSTS> 546,196
<OTHER-EXPENSES> 4,415,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,121
<INCOME-PRETAX> (3,138,676)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,138,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,138,676)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
