-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SsfqTqzcrmzS4DRIid5TH6L6RtMDkY2WccBOrpBAbVNzLCDswvS4GnycI7WaYdk7 besEMn72QFGnHHOkBmSzzw== /in/edgar/work/20000809/0000950117-00-001938/0000950117-00-001938.txt : 20000921 0000950117-00-001938.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950117-00-001938 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTEC INTERNATIONAL INC CENTRAL INDEX KEY: 0000889992 STANDARD INDUSTRIAL CLASSIFICATION: [8071 ] IRS NUMBER: 113068704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27368 FILM NUMBER: 689163 BUSINESS ADDRESS: STREET 1: 3960 BROADWAY STREET 2: BLDG 28 CITY: NEW YORK STATE: NY ZIP: 10032 BUSINESS PHONE: 7183264698 10-Q 1 0001.txt ORTEC INTERNATIONAL, INC. 10-Q ================================================================================ 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) ================================================================================ 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 PART I Item 1. FINANCIAL STATEMENTS ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (Unaudited)
JUNE 30, DECEMBER 31, 2000 1999 ---- ---- 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 =========== ===========
See notes to condensed unaudited financial statements. 1 ORTEC INTERNATIONAL, INC. (DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (Unaudited)
JUNE 30, DECEMBER 31, 2000 1999 ---- ---- 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 ============ ============
See notes to condensed unaudited financial statements. 2 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (Unaudited)
Six months Cumulative from Quarter ended June 30, ended June 30, March 12, 1991 ---------------------- ----------------------- (inception) to 2000 1999 2000 1999 June 30, 2000 ---- ---- ---- ---- ------------- 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 ========= ========= ========= ========= =========
See notes to condensed unaudited financial statements. 3 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock ------------ Additional Deficit accumulated Paid-in in the development Treasury Shares Amount Capital stage Stock Total ------ ------ ------- ---- ----- ----- 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 ========= ====== ========== =========== ===========
See notes to condensed unaudited financial statements. 4 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock ------------ Additional Deficit accumulated Paid-in in the development Treasury Shares Amount Capital stage Stock Total ------ ------ ------- ---- ----- ----- (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 ========= ====== ========== =========== ============
See notes to condensed unaudited financial statements. 5 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock ------------ Additional Deficit accumulated Paid-in in the development Treasury Shares Amount Capital stage Stock Total ------ ------ ------- ---- ----- ----- (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 ========= ====== =========== =========== ============
See notes to condensed unaudited financial statements. 6 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock ------------ Additional Deficit accumulated Paid-in in the development Treasury Shares Amount Capital stage Stock Total ------ ------ ------- ---- ----- ----- (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 ============ ====== =========== ============ ============ ===========
See notes to condensed unaudited financial statements. 7 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Common Stock ------------ Additional Deficit accumulated Paid-in in the development Treasury Shares Amount Capital stage Stock Total ------ ------ ------- ---- ----- ----- (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 ========= ====== ============ ============ ========== ============
See notes to condensed unaudited financial statements. 8 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Six months Cumulative from Quarter ended June 30, ended June 30, March 12, 1991 ---------------------- ------------------- (inception) to 2000 1999 2000 1999 June 30, 2000 ---- ---- ---- ---- ------------- 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) ------------ ----------- ----------- ------------ ------------
See notes to condensed unaudited financial statements. 9 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Quarter ended June 30, Six months Cumulative from ------------------------- ended June 30, March 12, 1991 --------------------- (inception) to 2000 1999 2000 1999 June 30, 2000 ---- ---- ---- ---- ------------- 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 ============ =========== ============
See notes to condensed unaudited financial statements. 10 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 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 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 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 14 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
(a) Exhibit No. Description ----------- ----------- 3.1 Agreement of Merger of the Skin Group, Ltd. and the Company dated July 9, 1992 (1)
15 3.2 Original Certificate of Incorporation (1) 3.3 By-Laws (1) 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. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company in the second quarter of 2000. 16 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) 17 EX-27 2 0002.txt EXHIBIT 27
5 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 7,704,019 0 0 0 0 7,798,491 3,655,220 1,882,212 10,181,008 1,002,973 0 8,198,026 0 0 0 10,181,008 0 139,328 0 2,951,277 0 (2,811,949) 0 0 0 0 0 0 0 (2,811,949) (.33) (.33) -----END PRIVACY-ENHANCED MESSAGE-----