-----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, WLuRCJzWD+GnIUEEICUJJ9TFRalnKp7ozZ6c4gtpyTRw8Bv8a3LgJpFuh69N2Adb UvJIPTAg8A25MeCYAD+slA== 0000950123-96-002253.txt : 19960514 0000950123-96-002253.hdr.sgml : 19960514 ACCESSION NUMBER: 0000950123-96-002253 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTEC INTERNATIONAL INC CENTRAL INDEX KEY: 0000889992 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 113068704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27368 FILM NUMBER: 96561860 BUSINESS ADDRESS: STREET 1: 8000 COOPER AVE STREET 2: BLDG 28 CITY: GLENDALE STATE: NY ZIP: 11385 BUSINESS PHONE: 7183264698 10QSB 1 ORTEC INTERNATIONAL, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-QSB ------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO _________________ COMMISSION FILE NUMBER 0-27368 ORTEC INTERNATIONAL, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) DELAWARE 11-3068704 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 8000 COOPER AVENUE, BLDG. 28 GLENDALE, NY 11385 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (718) 326-4698 ---------------- 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 3,621,838 (as of May 2, 1996). ================================================================================ 2 ORTEC INTERNATIONAL, INC. INDEX TO QUARTERLY REPORT ON FORM 10-QSB FILED WITH THE SECURITIES AND EXCHANGE COMMISSION QUARTER ENDED MARCH 31, 1996 ITEMS IN FORM 10-QSB
Page ---- Facing page Part I Item 1. Financial Statements. 1 Item 2. Plan of Operation. 10 Part II Item 1. Legal Proceedings and Claims. 12 Item 2. Changes in Securities. None 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. 13 Signatures
3 PART I Item 1. FINANCIAL STATEMENTS ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (Unaudited)
MARCH 31, DECEMBER 31, 1996 1995 ----------- ------------ ASSETS Current assets: Cash and equivalents $ 3,684,274 $ 2,364 Other current assets 71 57 ----------- ---------- Total current assets 3,684,345 2,421 ----------- ---------- Property and equipment, at cost: Laboratory equipment 234,596 223,888 Office furniture and equipment 58,997 54,527 Construction in progress 251,118 49,847 ----------- ---------- 544,711 328,262 Accumulated depreciation and amortization 185,245 171,075 ----------- ---------- 359,466 157,187 ----------- ---------- Other assets: Patent application costs 373,380 369,600 Deferred offering costs 314,697 Organization costs, net of amortization 509 Deposits 4,387 4,056 ----------- ---------- Total other assets 377,767 688,862 ----------- ---------- Total Assets $ 4,421,578 $ 848,470 =========== ==========
See notes to condensed unaudited financial statements. 1 4 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (Unaudited)
MARCH 31, DECEMBER 31, 1996 1995 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 510,979 $ 790,869 Notes payable 515,500 ----------- ---------- Total current liabilities 510,979 1.306,369 ----------- ---------- Deferred occupancy costs 1,327 ---------- Commitments and contingencies Stockholders' equity: Common stock, $.001 par value; authorized, 10,000,000 shares; issued and outstanding shares - 3,621,838 at March 31, 1996 and 2,408,972 at December 31, 1995 3,622 2,409 Additional paid-in capital 9,620,243 4,749,384 Deficit accumulated during the development stage (5,713,266) (5,211,019) ----------- ---------- Total stockholders' equity 3,910,599 ( 459,226) ----------- ---------- Total Liabilities and Stockholders' Equity $ 4,421,578 $ 848,470 =========== ===========
See notes to condensed unaudited financial statements. 2 5 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (Unaudited)
Cumulative from March 12, 1991 Quarter ended March 31, (inception) to ----------------------- March 31, 1996 -------------- 1996 1995 ---- ---- Revenue Interest income $ 34,471 $ 6,172 $ 101,629 --------- --------- ----------- Expenses Research and development 221,455 115,269 2,611,007 Rent 6,443 5,433 84,316 Consulting 40,933 25,835 536,696 Personnel 140,016 69,321 1,285,057 General and administrative 126,844 37,948 1,234,024 Other expense, net 1,027 63,795 --------- --------- ----------- 536,718 253,806 5,814,895 --------- --------- ----------- Net loss $(502,247) $(247,634) $(5,713,266) --------- --------- ----------- Net loss per share $ (.14) $ (.09) $ (2.35) --------- --------- ----------- Weighted average common and common equivalent shares outstanding 3,670,195 2,720,208 2,428,413 --------- --------- ---------
See notes to condensed unaudited financial statements. 3 6 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Deficit Common Stock accumulated ------------------- Additional in the Paid-in development Shares Amount Capital stage 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 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 --------- ------ ---------- ----------- -----------
See notes to condensed unaudited financial statements. 4 7 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Deficit Common Stock accumulated ------------------- Additional in the Paid-in development Shares Amount Capital stage Total --------- ------ ----------- ----------- ----------- (brought forward) 2,319,521 $2,319 $ 3,819,719 $(2,513,209) $ 1,308,829 Issuance of stock: Fourth private placement 39,451 40 397,672 397,712 Stock purchase agreement with Home Insurance Company 50,000 50 499,950 500,000 Share issuance expenses (8,697) (8,697) Net loss for the year ended December 31, 1994 (1,675,087) (1,675,087) --------- ------ ----------- ----------- ----------- Balance - December 31, 1994 2,408,972 2,409 4,708,644 (4,188,296) 522,757 Rent forgiveness 40,740 40,740 Net loss for the year ended December 31, 1995 (1,022,723) (1,022,723) --------- ------ ----------- ----------- ----------- Balance - December 31, 1995 2,408,972 2,409 4,749,384 (5,211,019) (459,226) Issuance of stock: Public offering 1,200,000 1,200 5,998,800 6,000,000 Exercise of warrants 12,866 13 12,853 12,866 Share issuance expenses (1,140,794) (1,140,794) Net loss for the quarter ended March 31, 1996 (502,247) (502,247) --------- ------ ----------- ----------- ----------- Balance - March 31, 1996 3,621,838 $3,622 $ 9,620,243 $(5,713,266) $ 3,910,599 --------- ------ ----------- ----------- -----------
See notes to condensed unaudited financial statements. 5 8 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Cumulative from March 12, 1991 Quarter ended March 31, (inception) to -------------------------- March 31, 1996 --------------- 1996 1995 ---------- ---------- Cash flows from operating activities: Net loss $(502,247) $(247,634) $(5,713,266) Adjustments to reconcile net loss to net cash used in operating activities: Deferred occupancy costs (1,327) (2,302) Depreciation and amortization 14,679 14,432 195,483 Unrealized loss on marketable securities 67,204 Realized loss on marketable securities 5,250 5,250 Changes in operating assets and liabilities Other current assets (14) 9,197 (71) Accounts payable and accrued liabilities (279,890) (40,526) 551,719 --------- --------- ----------- Net cash used in operating activities (768,799) (261,583) (4,893,681) --------- --------- ----------- Cash flows from investing activities: Purchases of property and equipment (216,449) (544,711) Payments for patent application (3,780) (35,414) (373,380) Organization costs (10,238) Deposits (331) 38 (4,387) Purchases of marketable securities (398) (594,986) Sale of marketable securities 153,163 522,532 --------- --------- ----------- Net cash (used in) provided by investing activities (220,560) 117,389 (1,005,170) --------- --------- -----------
See notes to condensed unaudited financial statements. 6 9 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (Unaudited)
Cumulative from March 12, 1991 Quarter ended March 31, (inception) to --------------------------- March 31, 1996 --------------- 1996 1995 ----------- --------- Cash flows from financing activities: Proceeds from issuance of notes payable $ 50,000 $ 515,500 Repayment of notes payable $ (515,500) (515,500) Proceeds from issuance of common stock 6,012,866 11,013,418 Share issuance expenses (826,097) (1,430,293) ----------- --------- ------------ Net cash provided by financing activities 4,671,269 50,000 9,583,125 ----------- --------- ------------ Net increase (decrease) in cash 3,681,910 (94,194) 3,684,274 Cash at beginning of period 2,364 226,154 ----------- --------- ------------ Cash at end of period $ 3,684,274 $ 131,960 $ 3,684,274 ----------- --------- ------------
See notes to condensed unaudited financial statements. 7 10 ORTEC INTERNATIONAL, INC. (A DEVELOPMENT STATE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1995 AND 1996 NOTE 1 - FINANCIAL STATEMENTS The condensed balance sheet as of March 31, 1996, the statements of operations, shareholders' equity and cash flows for the three months ended March 31, 1996 and 1995 and for the period from March 12, 1991 (inception) to March 31, 1996 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 March 31, 1996 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, 1995 annual report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for the quarter ended March 31, 1996 are 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 June 7, 1991, Dr. Eisenberg has granted Ortec a license for a term of ten years, which may be automatically renewed by Ortec for two additional ten-year periods, to commercially use and exploit the Technology for the development of products, subject to certain limitations. At the expiration or earlier termination of the agreement, Dr. Eisenberg is entitled to the exclusive rights in the Technology, and Ortec is entitled to the exclusive rights to all improvements to the Technology developed during the license period. The Skin Group, Ltd. (the "Skin Group") also was formed as a Delaware corporation, in March 1991, to raise funds for 8 11 development of the Technology. On July 27, 1992, the Skin Group was merged with and into Ortec. Owners of Skin Group shares were given .83672 of an Ortec share for each Skin Group share. The merger was accounted for as if it were a pooling of interests and, accordingly, the accompanying financial statements include the accounts of Skin Group for all periods presented. 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 composite cultured skin to be used in skin replacement procedures. Initial Public Offering On January 19, 1996, the Company completed an initial public offering ("IPO") of 1,200,000 units. Each unit consists of one share of the Company's common stock, one Class A warrant to purchase one share of common stock at $10, expiring July 1997 and one Class B warrant to purchase one share of common stock at $15, expiring January 1999. The Class A and B warrants will be redeemable by the Company at $.01 per warrant, if the market price of the Company's common stock equals or exceeds $10 for 10 consecutive trading days during a specified period, as defined. The IPO raised gross proceeds of approximately $6,000,000, of which $800,000, $515,500 and approximately $341,000 were used to pay underwriting commissions, notes payable and deferred offering costs, respectively, thereby providing the Company with net proceeds of approximately $4,343,500. The Company intends to use the proceeds for continued research and development of composite cultured skin replacements, performing human clinical trials and general corporate purposes. 9 12 Item 2. PLAN OF OPERATION OPERATIONS FOR THE NEXT TWELVE MONTHS For the next twelve months the Company will continue to conduct human clinical trials. To that end, the Company intends to continue to recruit hospital burn centers which will provide the necessary patients. The Company estimates that the cost to it of each human clinical trial will be approximately $8,000, which includes testing for pathogens, payments to the hospital and the salary of one employee to coordinate the human clinical trials. The Company employs Dr. Melvin Silberklang on a full time basis to supervise the Company's laboratory operations in New York City. When the Company's new laboratory in New York City is operational, the Company will initially employ three additional persons to work in the laboratory with Dr. Silberklang. CASH REQUIREMENTS The Company anticipates that the net proceeds received by it on January 19, 1996 from the public offering of its Common Stock, Class A Warrants and Class B Warrants will be sufficient to fund its operations until approximately October, 1997. The Company will have to secure additional funds prior thereto or thereafter to complete its human clinical trials, if not then already completed, to secure FDA pre market approval for commercial sales and thereafter to produce and market its composite cultured skin in commercial quantities. CLINICAL TRIALS AND PRODUCT RESEARCH AND DEVELOPMENT The Company has used and intends to use approximately $1,105,000 of the net proceeds from the recent public Offering of its securities to continue the human clinical trials and approximately $2,506,000 for research and development. These amounts include the salaries of its officers and employees and payments to consultants who will be involved in producing the composite cultured skin and in research and development and regulatory matters, payments to members of the Company's Scientific Advisory board, performing quality control, securing hospital burn centers to participate in the human clinical trials, monitoring the progress of the patients thereafter and to prepare reports to be filed with the FDA. 10 13 NEW LABORATORY In March 1996 the Company entered into a five-year lease with Columbia University for the Company's new laboratory and offices in Columbia's new Audubon Biomedical Science and Technology Park in New York City. Construction of the new laboratory and office facility and installation of the equipment necessary to make the laboratory operational is expected to be completed in June, 1996. Columbia has provided a $400,000 grant and a $250,000 loan to the Company for the Company's construction costs, an additional loan of up to an additional $100,000 for the Company's architectural and engineering costs in building its new laboratory and office, and a third loan of up to $250,000 for equipment to be installed in the new laboratory. The Company expects that it will have to spend approximately $100,000 in addition to the $250,000 loan from Columbia to equip its new laboratory. The Company will use its new laboratory when it is completed and operational to produce its composite cultured skin for use in the remaining FDA approved human clinical trials and for further research to develop the Company's proprietary technology for treatment of other wounds. The Company intends to further equip its new laboratory as a pilot production facility for its composite cultured skin. Audubon's new center will be a dedicated biomedical research facility and the Company, as a tenant, will be entitled to utilize the resources of Columbia University's Health Sciences Research facility at the Center as well as those at Columbia University-Presbyterian Medical Center across the street from the Center. NUMBER OF EMPLOYEES The Company presently employs eight persons, including its four executive officers. Only one executive officer is employed on a full time basis. The Company also retains three consultants, one of whom will be employed on a full time basis commencing July 1, 1996. The Company intends to employ at least four additional full time employees when its new laboratory is operational, three of whom will be involved in the clinical trials and in research and development. The Company expects that it will employ additional persons as its needs may otherwise require. 11 14 PART II ITEM 1. LEGAL PROCEEDINGS AND CLAIMS The Company is not a party to any legal proceedings. However, the University of Minnesota has advised the Company that it has a claim against the Company for $82,970 allegedly owed pursuant to a contract requiring the University of Minnesota to perform research for cryopreservation of the Company's product. The Company has denied any liability. 12 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. Description 3.1 Agreement of Merger of the Skin Group, Ltd. and the Company dated July 9, 1992 (1) 3.2 Original Certificate of Incorporation (1) 3.3 By-Laws (1) 4.1 Form of Certificate evidencing shares of Common Stock (1) 4.2 Form of Underwriter's Option (1) 4.3 Form of Warrant Agreement for the public Class A and Class B Common Stock Purchase Warrants (1) 4.4 Form of Certificate for the public Class A Common Stock Purchase Warrants filed as Exhibit A to Exhibit 4.3 (1) 4.6 Form of Certificate for public Class B Warrants filed as Exhibit B to Exhibit 4.3 (1) 10.1 Agreement by and between the Company and Cornell University Medical College dated as of October 6, 1992 (1) 10.2 License Agreement dated as of June 7, 1991, by and between the Company and Dr. Mark Eisenberg (1) 10.3 Agreement for Consulting Services dated as of June 7, 1991 by and between the Company and Dr. Mark Eisenberg (1) 10.4 Modification of Exhibit 10.2 (1) 10.5 Lease dated May 28, 1992 by and between the Company as lessee and Isaac Eisenberg as lessor for 147-155 Queen Street, Alexandria, Australia (1) 10.5.1 Waiver by Isaac Eisenberg of certain rental payments required to be paid by the Company under such lease (1) 13 16 Exhibit No. Description 10.6 Stock Purchase Agreement dated June 19, 1992, by and among the Company, Joseph Stechler, Dr. Steven Katz, Alain Klapholz, and Ron Lipstein, plus modifications thereto dated November 30, 1992 and August 5, 1993 (1) 10.7 Stock Option Agreement dated August 5, 1993, by and among Drs. Eisenberg and Katz and Messrs. Klapholz and Lipstein with Mr. Stechler (1) 10.8 Further modification, dated as of July 15, 1994, of agreements listed as Exhibits numbered 10.6 and 10.7 (1) 10.9 Agreement with Oxford Research International Corp. (1) 10.10 Lease with Columbia University dated March 14, 1996, for space in 3960 Broadway, New York, New York (2) 28 FDA approval for human clinical trials (1) - -------------- (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. (2) Filed as an Exhibit to the Company's Annual Report of Form 10-KSB for the year ended December 31, 1995, and incorporated herein by reference. (b) REPORT ON FORM 8-K No reports on Form 8-K were filed during the first quarter of 1996. 14 17 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. By: /s/Ron Lipstein ------------------------------ Secretary and Chief Financial Officer Dated: May 10, 1996 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 3,684,274 0 0 0 0 71 544,711 (185,245) 4,421,578 510,979 0 0 0 3,622 3,906,977 4,421,578 0 34,471 0 0 536,718 0 0 (502,247) 0 (502,247) 0 0 0 (502,247) (.14) 0
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