U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
|X| Annual Report Pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1996
_
|_| Transition report Exchange Act of 1934 (No Fee Required)
For the transition period from _______ to _______.
Commission File No. 0-21739
GENETIC VECTORS, INC.
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(Name of Small Business Issuer in Its Charter)
Florida 65-0324710
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
2000 South Dixie Highway, Suite 100, Miami, Florida 33133
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(Address of Principal Executive Offices) (Zip Code)
(305) 859-7800
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Act:
Title of Each Class Name of Exchange on which registered
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None None
Securities registered under Section 12(g) of the Securities Act:
Common Stock, Par Value $.001
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in the definitive proxy or
information statement incorporated by reference in Part III of this Form 10-KSB
or amendment to Form 10-KSB. |_|
The issuer did not generate any revenues during its most recent fiscal
year.
The aggregate market value of the Company's voting stock held by
non-affiliates as of March 20, 1997 was approximately $8,488,846 based on the
average closing bid and asked prices of such stock on that date as quoted on the
OTC Bulletin Board. There were 2,339,634 shares of Common Stock outstanding as
of March 28, 1997.
Documents Incorporated by Reference: See Item 13
This Form 10-KSB consists of 47 pages. The Exhibit Index begins on page
45.
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PART I
Item 1. Description of Business.
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General Information
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Genetic Vectors, Inc. (the "Company" or "Genetic Vectors") is a
biotechnology company which intends to specialize in the development of
diagnostic and quality control tools for the biopharmaceutical, food and
fermented beverage industries. The Company was founded in 1991 by Dr. Mead
McCabe (the Chairman of the Board of Directors of the Company) who invented a
new nucleic acid labeling and detection technology (the "Technology"). The
Technology consists of patents and patent applications originally filed in the
name of or for the benefit of the University of Miami, and unpatented
confidential and non-confidential know-how, which is either proprietary or in
the public domain. Part of the Technology relates to a new nucleic acid and
method described in University of Miami Invention Disclosure UM90-16, which
invention was made under a grant from the United States Government. Additional
nucleic acids and methods were described in the patents and patent applications
filed in the name of or for the benefit of the University of Miami, some of
which were made using University facilities. The antibody was described in
University of Miami Invention Disclosure UM87-90 and its preparation is the
subject of a published paper and an abandoned patent application which is not
available to the public.
The Technology is the basis for the Company's initial product line,
EpiDNA. A second proposed product line, EasyID, combines the EpiDNA technology
with gene probes in kits for the detection of yeasts. These kits are intended
for quality control in the food and beverage industry and for identification of
proprietary yeasts in the brewing and wine-making industry. Genetic Vectors
anticipates that it will initiate an EpiDNA product launch in its chosen market
areas during the fourth quarter of this year and intends to continue the
development of the EasyID technology.
The initial target market for the EpiDNA product line is the
biopharmaceutical industry, which depends on living organisms and cells to make
its primary products. Stringent United States Food and Drug Administration
("FDA") guidelines recommend that DNA contamination of biopharmaceuticals be
monitored using assays capable of measuring 10 picograms of DNA in an injected
dose. Biopharmaceutical companies are required to develop measures for the
reduction of DNA levels in these drugs to assure that DNA has been reduced to
less than 100 picograms per injected dose and to test to confirm that DNA has
been reduced to acceptable levels. Genetic Vectors has developed DNA assays,
under the product family EpiDNA, that it believes will provide biopharmaceutical
companies with tools to measure DNA in the process stream and validate
acceptable levels of DNA in the final product.
Approximately 1,300 companies comprise the United States biotechnology
industry. Over one-half of those companies manufacture human therapeutics and
diagnostics. The market addressed by Genetic Vectors' EpiDNA Picogram Assay (the
"Picogram Assay") includes at least 400 manufacturers of therapeutics and
imaging diagnostic antibodies. Worldwide annual sales of biotechnology products
were $9.3 billion in 1995, and are predicted to be $15 billion by 2003. Several
biotechnology-based drugs currently are on the market or approved by the FDA.
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Approximately 500 biopharmaceuticals are now undergoing the regulatory approval
process, and many of these products will reach the marketplace in the next few
years. As the development of therapeutic and diagnostic biopharmaceuticals
proceeds and new products enter the regulatory process, Genetic Vectors believes
it will be able to gain entry to the quality assurance market.
EpiDNA Technology
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DETECTION OF NUCLEIC ACIDS. The EpiDNA technology is a broadly
applicable method for labeling and detecting nucleic acids, particularly
deoxyribonucleic acid ("DNA"). The importance of the ability to attach labels to
nucleic acids arises from the use of nucleic acids as probes to identify, locate
and isolate DNA fragments containing a single gene in a mixture of DNA fragments
containing thousands of different genes. DNA labeling technology is analogous to
the photographic development process. The label makes the results of esoteric
DNA hybridization reactions visible to the naked eye in the same sense that
developing solutions render the latent image in a photograph visible. The visual
results of this process are pictures of DNA hybrids or DNA fingerprints. Nucleic
acid probes are usually labeled with radioactivity so that the probe and the
gene to which it is bound can be located. The use of nonradioactive labels on
probes is becoming an increasingly attractive alternative because of the dangers
associated with radioactivity and the expense of disposing of radioactive waste.
The recent introduction of chemiluminescent detection methods for nonradioactive
probes provides sensitivity equaling that of radioactive probes without the
risks and expenses of radioactivity. The EpiDNA technology can be used to make
these types of non-radioactive labeled nucleic acid probes.
The EpiDNA labeling technology involves a versatile chemical procedure
for attaching labels to nucleic acids. Genetic Vectors believes this process is
unique in its ability to attach a variety of labels to nucleic acids, regardless
of the size of the nucleic acid. The process is normally completed within a few
hours, and can be accomplished in a single test tube with no loss of nucleic
acid. The Company believes that scaling the reaction up to production levels
(milligram and gram amounts of nucleic acids) is possible. The core EpiDNA
technology is suited for the attachment of any detectable molecule (such as
biotin, fluorescent or phosphorescent compounds, enzymes or chelators) to
nucleic acids.
A monoclonal antibody is used in conjunction with the Technology in the
two EpiDNA products, the Picogram Assay and the Nanogram Assay (the "Nanogram
Assay"). The antibody was made, in part, with funds under a federal government
contract, but no federal rights survived because the patent application relating
thereto was intentionally abandoned by the inventors. Control of the antibody
and the producing cell line has been transferred to the Company.
The EpiDNA technology is not restricted to the labeling of probes, but
can also provide a method to accurately measure nucleic acids at very low
concentrations. This characteristic of the Technology will provide the basis for
nucleic acid assay kits targeted to process development and monitoring, and to
quality control and research laboratories.
THE EPIDNA PICOGRAM ASSAY. Processes for manufacturing
biopharmaceuticals, such as monoclonal antibodies and recombinant proteins,
result in potentially harmful contamination with DNA, the material that carries
the genetic code and could carry cancer-causing oncogenes. FDA guidelines
recommend that manufacturers monitor the content of DNA to assure that the level
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of DNA does not exceed 100 picograms per injected dose. Under FDA guidelines,
each biopharmaceutical manufacturer must devise its own in-house quality control
protocol to determine the purity of each product. Companies are free to adapt
current technology, including commercially available assays, to this purpose.
This requirement creates a niche in the biotechnology industry market into which
Genetic Vectors plans to introduce the Picogram Assay kit for the measurement of
DNA in biopharmaceuticals.
The Picogram Assay combines chemical and immunochemical procedures to
measure trace amounts of DNA. The assay is relatively easy to perform, measures
DNA in a range of one to one hundred picograms, can detect small fragments of
DNA, and is complete in about three hours. There is no requirement for the
purchase of major equipment, since the assay utilizes a standard microtiter
plate reader, which is routine in biopharmaceutical quality control
laboratories. The assay is designed for routine application by technicians and
is intended for validation of final product purity.
The Company has identified certain modifications to the Picogram Assay
that it anticipates will make this assay easier to use. The first two steps in
the assay procedure require adding two reagents (a buffer and a DNA-modifying
reagent). In the new protocol only the modifying reagents will be added. The
Company believes that this modification will lessen the number of repetitive
steps performed in the assay, thus making it easier to use. Secondly, this assay
will be modified so that a single incubation temperature will be used for all
steps. Previously, two temperatures were used, which required the user to
dedicate two water-bath incubators to the assay. This modification will lessen
the number of incubators required to perform the assay. Solutions used in
subsequent steps will be reformulated to compensate for the changes made in
consolidating the first two steps and the times of incubation for each step of
the assay will be tested and, if needed, adjusted. The instructions for use of
the Picogram Assay will be rewritten to reflect these modifications. There can
be no assurance that the Company will be able to successfully accomplish these
proposed modifications.
THE EPIDNA NANOGRAM ASSAY. Genetic Vectors believes this assay has
applications in research and for process monitoring during development or
manufacturing. The typical production process comprises several stages, from
cell culture through intermediate purification to final pure biopharmaceutical.
Among the intermediate stages are points at which it would be beneficial to
determine the efficiency of the purification procedures, both as a means of
preventing downstream problems from contamination and for devising new
processes. The Company believes that existing DNA assays are not practical to
apply at these intermediate stages, either because they are too expensive or
they require too much time to complete. The Picogram Assay would be too
sensitive for early and intermediate process steps, where DNA levels can be
expected to be in the nanogram or microgram range. The Nanogram Assay should
provide a rapid means (approximately one hour) for measuring one to one hundred
nanograms of DNA in a sample.
The Nanogram Assay should also have applications in research
laboratories. Molecular biologists frequently measure nucleic acid
concentrations during experiments. If DNA levels are sufficient, this
measurement is accurately performed with an ultraviolet spectrophotometer.
Often, the nucleic acid is too dilute to measure by this means. Genetic Vectors
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believes the Nanogram Assay should provide a precise, rapid assay suited for use
by technicians and scientists in the research laboratory.
NUCLEIC ACID PROBE LABELING AND DETECTION KITS. DNA technology is
rapidly expanding in the life sciences in areas that can benefit from genetic
analysis or the manipulation of genetic material. Nucleic acid probes are
routinely used in many of these applications to identify specific genes and
separate them from all other genes. The EpiDNA labeling kits will provide the
components for the preparation of DNA or ribonucleic acid ("RNA") probes for the
detection of specific nucleic acids using such methods as Southern and Northern
blots, colony hybridization and in situ hybridization. The Company intends to
develop kits specialized for the attachment of compounds as diverse as biotin,
digoxigenin, enzymes, fluorescent and chemiluminescent compounds and chelators
using the labeling procedure.
EasyID Microbial Identification Technology
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Genetic Vectors is developing the EasyID technology for the rapid
identification of yeasts and other microbes of commercial and research interest.
EasyID technology is based on a series of small DNA chains known as DNA probes.
DNA probes are used in gene detection techniques to clearly identify specific
genes. DNA probes also have a common day-to-day application in the
identification of microbes, usually in a health- or research-related
applications. Basic EasyID kits will provide DNA probes that should allow clear
identification of yeast species or strains by detecting a gene possessed solely
by that species or strain. The Company intends to join its EpiDNA technology
with its EasyID technology to produce labeled probes. Genetic Vectors believes
that its EasyID kits should give users a rapid means for yeast identification
because results should normally be obtained in about two hours. The Company
believes that these assays can be refined to run in about fifteen minutes
similar to other DNA probe tests. This is a major improvement over conventional
culture-based identification techniques, which often take days to complete and
are sometimes inaccurate.
A commercial antibody-based test for yeast is available, but costs
about $15 per test. Genetic Vectors believes that its EasyID DNA probe will
allow accurate identification of yeast species and strains, at a lower cost than
existing products and much more rapidly than conventional techniques.
One market for these probes is in quality control in the manufacture of
wines. Wineries depend on proprietary yeast strains for the production of a high
quality product. The Company believes that wine producers are not currently able
to specifically identify wine yeast strains with conventional microbiological
techniques. The Company believes that its probes will provide the producers of
wine with a dependable and rapid means to identify their proprietary strains and
to detect contaminating yeast during the fermentation process and during
storage.
Many food and beverage manufacturers have problems with spoilage caused
by yeast contamination of their products. Conventional culture-based detection
methods are not well-suited to quality control in this area because of the time
required for results. Genetic Vectors believes that the Technology will allow
the development of a series of tests that will detect yeast strains commonly
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found as contaminants of foods and beverages. The Company believes these assays
can be used as a sensitive and rapid quality control mechanism.
Research and Development
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The Company spent approximately $70,873 and $98,386 on
Company-sponsored research and development activities during its 1996 and 1995
fiscal years, respectively. The Company did not conduct any material
customer-sponsored research and development activities during either of those
fiscal years.
Marketing and Sales
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Genetic Vectors intends to enter its various target markets in three
phases. The Company will target the biopharmaceutical quality assurance market
in Phase I during 1997. Since this market comprises relatively few companies,
Genetic Vectors intends to use a direct sales approach. In Phase II, the Company
intends to target the molecular biology research market for DNA probe labeling
and DNA detection. The Phase II effort will require a more aggressive
advertising campaign and the establishment of an inside and outside sales force.
The Company considers Phase III a long-term marketing effort. Genetic Vectors
intends to use EpiDNA and EasyID technology to fashion diagnostic tools for use
in quality control and quality assurance programs in the food and beverage
industry but there can be no assurance that this can be accomplished
successfully or at all.
Phase I of the Company's marketing plan will target companies in the
biopharmaceutical industry and in the reference laboratories serving as quality
assurance testing sites for smaller biopharmaceutical companies. The Company's
marketing and sales strategy will be to establish direct contact with specific
individuals within each target company or reference laboratory. Genetic Vectors
believes that this direct marketing approach will allow it to sell its initial
products without incurring large advertising costs or developing a sizable and
expensive sales force. The Company intends to place advertising in major trade
journals such as Science, Biotechniques and BioPharm to inform potential
customers of the existence and potential benefits of the Picogram Assay and the
Nanogram Assay. The Company intends to have representatives attend major
national and international industry trade shows to gain direct access to
potential customers and to establish overseas distributors to reach
international customers. Genetic Vectors also intends to establish a presence on
the Internet, which may be a relatively inexpensive means of presenting its
product lines to a variety of potential customers. The Company currently has no
sales force, and there can be no assurance that a sales force can be hired, or,
if hired, that such sales force will be able to successfully sell the Company's
products.
Genetic Vectors intends to begin Phase II marketing of its Nucleic Acid
Labeling and EpiDNA Nanogram Assay kits to the molecular biology research market
during 1998. The Company believes the target audience in Phase II is research
workers in more than 15,000 laboratories worldwide. The Company believes that
this market includes potential customers who have widely differing interests and
are spread over a wide geographical range. The Company believes that aggressive
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advertising, direct mailings and appearances at trade shows will be needed to
effectively reach such a market. The Company believes that a modest sales force
and technical assistance available by telephone and e-mail will be required for
the exploitation of this market.
In Phase III, the Company intends to introduce and market the products
developed by its EasyID product research and development activities. This is a
long-term development activity to formulate products that the Company believes
will have quality assurance applications in the food and beverage industry. In
Phase III, Genetic Vectors intends to develop and market kits for the
identification of beneficial yeasts significant in wine and beer manufacturing
and yeasts associated with food and beverage spoilage.
Regulation
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The Company's operations will be subject to federal, state and local
regulations to which business operations are normally subject, including
occupational safety and health acts, workmens' compensation statutes,
unemployment insurance, and income tax and social security related regulations.
The biotechnology industry is also subject to federal, state and local
regulations with regard to the construction, maintenance, containment and
release of genetically engineered organisms and the manufacturing of diagnostic
devices for human use. The Company currently has no plans to construct or
release genetically altered organisms or to produce diagnostic devices for human
use, and accordingly the Company does not anticipate that these regulations will
affect it or its operations.
The Company's operations will be subject to applicable environmental
laws and regulations. The Company's operations will entail the storage and
disposal of small amounts of biological and chemical hazardous wastes. The costs
that the Company has incurred to date in connection with compliance with
environmental laws and regulations have not been material, and the Company
anticipates that such costs will not be material in the foreseeable future.
There can be no assurance, however, that this will be the case. The Company does
not anticipate that any capital expenditures related to compliance with
environmental laws will be required in the foreseeable future.
Diagnostic and therapeutic devices and tests that are intended for use
in humans generally require direct FDA approval. Devices and tests not intended
for use in humans, however, are generally not required to obtain FDA approval.
The FDA can also set industry-wide required tests and approvals. All of the
Company's current and proposed products are designed either for industrial
quality control or for research purposes and are, therefore, not subject to FDA
approval. For example, the Company's EasyID products are not subject to FDA
approval because they focus on the determination of particular species of yeasts
and fungi in connection with brewing industry applications. This type of
determination is not subject to FDA approval.
Manufacturing
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Genetic Vectors' initial manufacturing will be conducted in its
research laboratory located at the University of Miami. The Company is actively
seeking suitable manufacturing and wet lab facilities in another location to
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house its manufacturing and research activities. Initially, the Company expects
to lease approximately 10,000 square feet of space. The precise floor space may
vary, contingent upon availability. The floor space should be adequate for the
first eighteen months with floor space requirements increasing in year two if
sales goals are met.
Certain key components of the Company's products are currently provided
by a limited number of sources, and one component is provided by a single
source. Two key components of the EpiDNA Picogram Assay Kit, the "GeNuncTM"
reaction modules and the "MaxisorpTM" immunomodules are manufactured by NUNC (a
Danish entity), but can also be obtained from United States distributors such as
Fisher Scientific, V.W.R. or Baxter Scientific. The "AmpakTM" detection system,
which is also a key component of the EpiDNA Picogram Assay, is available only
from DAKO Diagnostics, Ltd.
Strategy for Growth
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Genetic Vectors intends to expand its existing business through
increased marketing efforts (as outlined in "Marketing and Sales") and by
expanding its product lines (as described in other sections). The Company
intends to attempt to form strategic alliances with corporate partners that can
provide distribution for the Company's products or research and development
support for its long term research and development activities. The Company's
labeling, detection and assay kits may provide an attractive means for a
strategic partner to enhance its existing product lines. The Company may also
seek to license or sublicense those applications of the Technology that are
either outside its product focus or for which funding is inadequate.
Additionally, the Company believes that there are favorable business
acquisition opportunities that would enable it to expand its business more
rapidly. Management believes that such acquisitions would enable it to achieve
economies of scale, improve gross margins and increase revenues and/or market
share. Generally, shareholder approval will not be required in connection with
such activities.
Competition
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The biotechnology industry is subject to intense competition. The
Company's competitors in the United States and internationally are numerous and
include, among others, diagnostics, health care, pharmaceutical and
biotechnology companies. Additionally, other companies, including large
biotechnology companies, may enter the Company's business in the future.
Potential competitors may be able to develop technologies that are as effective
as, or more effective or easier to interpret than those offered by the Company,
which would render the Company's products noncompetitive or obsolete. Moreover,
many of the Company's existing and potential competitors have substantially
greater financial, marketing, sales, distribution and technological resources
than the Company. Such existing and potential competitors may also enjoy
substantial advantages over the Company in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and distribution channels. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competition will not have a material adverse effect on the Company's
business, financial condition and results of operations.
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Genetic Vectors' chosen area of business lies in the labeling and
detection of nucleic acids using the Technology. The Company has chosen
specifically to market products that are not currently subject to regulation and
that can be marketed without the requirement for obtaining or licensing any
additional technology. The market which the Company intends to serve includes
tests for quality control of biopharmaceutical drug production and in food and
fermented beverages. In addition, the Company intends to market its products to
the life science research community. These widely diverse markets result in a
wide variety of competitive situations.
DNA CONTAMINATION ASSAYS IN BIOPHARMACEUTICALS. Several companies are
currently involved in making or selling trace DNA detection reagents or
equipment, or performing assays. In this market there are two types of
competitors: (1) instrument and reagent sellers and (2) specialty reference
labs. These reference laboratories offer DNA assaying at their own facilities
based on their own individually developed assays. While clearly competitors, the
Company believes that these facilities also represent potential customers for
its products.
NUCLEIC ACID LABELING AND DNA DETECTION KITS. The market served by
nucleic acid labeling and detection reagents is the molecular biology research
market. There are at least 50 companies which are primarily identified with this
market. Of these, several offer nucleic acid labeling and detection kits. In the
DNA detection area, Genetic Vectors knows of several vendors that provide
reagents for detecting DNA.
Genetic Vectors believes that its products will lend themselves to low
cost manufacturing of DNA labeling and detection products on a large scale
basis, which should provide a pricing advantage in both of the areas described
above. The Company also believes its Technology can be used to produce reagents
and test kits at quality equivalent to or better than its direct competitors.
There can be no assurance that this large-scale development, pricing advantage
or quality level will occur.
Customers
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Because the Company has not yet launched its first product, the Company
has no current customers.
Employees
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Genetic Vectors currently has five employees, three of which are
executive officers and all of which are full-time employees. None of the
Company's employees are covered by a collective bargaining agreement and the
Company believes its employee relations are satisfactory.
Intellectual Property Rights
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The Company has acquired rights to make, use and sell certain products
under the patents and patent applications referred to herein pursuant to a
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License Agreement dated September 7, 1990 between ProVec, Inc., ("ProVec"), a
company owned by Dr. Mead McCabe, and the University of Miami and its School of
Medicine, the owner of the patents and patent applications. The University of
Miami acquired the rights by virtue of an employee agreement and the University
Patent Policy. Parts of the invention were made using funds of the United States
Government. On January 20, 1992, ProVec assigned its rights under the License
Agreement to EpiDNA, Inc., a wholly owned subsidiary of the Company. EpiDNA
merged into the Company on September 6, 1996.
The license granted under the License Agreement is worldwide and
exclusive (except for the rights of the Federal Government) providing the
Company with the right to manufacture, use and sell products utilizing the
patents and patent applications referred to herein. The Company has the
obligation, at its own expense, to prosecute and maintain patents in the name of
or on behalf of the University of Miami. Further, the Company is obligated to
maintain product liability insurance, with the University of Miami being named
as an additional insured. The License Agreement provides for payment of a
maintenance fee of $500 and a running royalty of 4% of net sales of products
using the Technology. The maintenance fee is creditable against royalties
subsequently due in a given year. The term of the License Agreement is the life
of the U.S. patent and/or its foreign counterpart patents. The License Agreement
can be terminated by the University of Miami, at its discretion, for material
breaches by the Company. Primary among such breaches are failure to file
quarterly reports of sales, nonpayment of royalties, failure to develop and sell
products based on the Technology, cessation of sales for a period of three
months and bankruptcy or adjudication of insolvency. A two-month cure period is
provided for correction of breaches. If the License Agreement is terminated by
the University of Miami, the ownership of the patents and patent applications
and all rights to develop, manufacture and sell products under the patents and
patent applications will revert to the University of Miami and the Company will
be unable to produce, market or sell products whose manufacture, use or sale is
covered by the claims of the patents and patent applications referred to herein.
Thus, the Company would suffer a material adverse effect on its business,
financial condition and viability if the University of Miami terminated the
License Agreement.
On August 21, 1996, the Company and the University of Miami and its
School of Medicine executed an agreement to assign the patents and patent
applications referred to herein as well as rights to develop, manufacture and
sell products under the patents and patent applications to the Company (the
"Technology Assignment Agreement"). The Technology Assignment Agreement must be
approved by the Department of Health and Human Services represented by the
National Institutes of Health (the "NIH"), since the Technology was developed
with funding from this federal agency. All necessary documents in support of the
request for approval of the assignment were filed with the NIH on October 10,
1996.
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On March 26, 1997 the Company received notice that the NIH has denied
approval of the Technology Assignment Agreement. The Company will be able to
continue to develop, manufacture and sell products utilizing the patents and
patent applications referred to herein under the terms of the License Agreement.
The Company believes that the terms of the License Agreement will need to be
amended to comply with applicable patent law relating to government funded
inventions.
Since the patents and patent applications referred to herein were made,
in part, using federal funds provided by a federal agency, the NIH has a
nonexclusive, nontransferable, irrevocable, paid-up worldwide license to
practice the invention (35 U.S.C. 202 (c) (4)). Under this nonexclusive license,
the NIH can use the Technology in federally-funded projects or it can, if
provided in a treaty or agreement, sublicense the Technology to a foreign
government or international organization. This nonexclusive license to the NIH
did not terminate with licensing of the Technology to the Company. The NIH also
has certain rights (35 U.S.C. 203) allowing it to grant licenses to third
parties if it is determined that practical application of the invention is not
occurring, even exclusive licenses, as well as march-in rights to meet unmet
health or safety needs, to meet requirements for public use specified in federal
regulations or for failure to manufacture in the United States or to obtain a
waiver of such provisions. The grant of an exclusive license would cause the
Company to suffer a material adverse effect on its business, financial condition
and viability if the march-in rights were exercised. As described herein, the
Company has already developed products based on the Technology and intends to
continue the commercialization of the Technology.
The University of Miami has applied for patent protection for part of
the Technology in the United States and other countries. The University of
Miami, at Company expense, is currently pursuing this patent protection, and has
patent applications pending in the name of the University of Miami for the
Technology in the United States and certain foreign jurisdictions. Letters
Patent Number 246228 has been issued for the Technology in New Zealand and
Patent Number 671970 has been issued for the Technology in Australia. The
University of Miami, at Company expense, has filed a patent application under
the International Patent Cooperation Treaty, followed by national stage filings
in Australia, New Zealand and the European Patent Office. There is currently one
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United States patent pending, and United States Patent Number 5,593,829 has been
issued for the Technology. The pending United States patent application has
been allowed and is expected to mature into a patent in the next six to nine
months. There can be no assurance that any additional patents will be granted or
that patents granted will be maintained in any jurisdiction.
Item 2. Description of Property.
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The Company currently leases approximately 612 square feet at 2000
South Dixie Highway, Suite 100, Miami, Florida 33133, which is the site of its
executive offices. This space is leased on a month-to-month basis. The Company
also leases approximately 800 square feet at the University of Miami on a
month-to-month basis.
The Company is currently actively seeking suitable manufacturing and
wet lab facilities for use in its manufacturing operations and research and
development activities. The Company's executive offices will also be relocated
to this site. The Board of Directors of the Company (the "Board of Directors")
has formed a Facilities Committee which is charged with locating acceptable
properties. The Company expects to lease approximately 10,000 square feet for
this facility, although the actual square footage may vary depending on site
availability. The Company anticipates that this space should be adequate for its
needs for approximately eighteen months.
Item 3. Legal Proceedings.
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The Company is not aware of any legal proceedings involving the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
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Market Information
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The Company's Common Stock is traded in the over-the-counter market and
is quoted on the Over-the-Counter Bulletin Board (the "OTC Bulletin Board")
under the symbol "GVEC." The following table shows the high and low bid prices
for the Common Stock during the period from December 20, 1996 (the date of
initial quotation on the OTC Bulletin Board) through March 20, 1997(1):
Bid Price per share(2)
----------------------
High Low
---- ---
Fourth Quarter 1996(3) $16.00 $12.00
First Quarter 1997(4) $13.875 $3.00
12
<PAGE>
- -------------------------------
(1) This information was obtained from the OTC Bulletin Board.
(2) The Company believes that these quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent
actual transactions.
(3) The Common Stock's initial quotation on the OTC Bulletin Board was on
December 20, 1996.
(4) Through March 20, 1997.
Holders of Common Stock
- -----------------------
As of March 4, 1997 there were approximately 95 holders of record of
the Common Stock.
Dividends
The Company has not paid any dividends on its Common Stock at any time.
The Company is not aware of any restrictions on its ability to pay dividends on
its Common Stock, but the Company's management does not anticipate paying any
dividends in the foreseeable future.
Sales of Unregistered Securities
- --------------------------------
In June, 1996, the Company consummated the sale of 110,000 shares of
Common Stock at a price of $5.00 per share in a private placement transaction.
This transaction was exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to Regulation D and Rule 506
promulgated thereunder, as well as Section 4(2) of the Securities Act.
In June, 1996 the Company granted options to James A. Joyce to purchase
a total of 75,000 shares of Common Stock. In July, 1996, the Company granted
options to purchase 75,000 shares of Common Stock to Richard H. Tullis in
connection with his employment agreement. In August, 1996, the Company granted
options to purchase 100,000 and 75,000 shares of Common Stock to Mead M. McCabe,
Sr. and Mead M. McCabe, Jr., respectively, in connection with their employment
agreements. The Company has also granted options to purchase 5,000 shares of
Common Stock to Messrs. Mark E. Burroughs, William J. Clifford, Jr., Kurt R.
Gehlsen, Jack W. Fell and Allyn L. Golub, its nonemployee directors. All of
these transactions were exempt from registration under the Securities Act
pursuant to Rule 701 promulgated thereunder. See "Executive
Compensation--Employment Agreements" and "Certain Relationships and "Related
Transactions--Consulting Agreement."
In August, 1996 the Company issued (a) 41,352 shares of Common Stock to
Nyer Medical in exchange for the conversion of indebtedness, and (b) 13,282
shares of Common Stock to certain officers in exchange for the conversion of
accrued payroll obligations. These transactions were exempt from registration
under the Securities Act pursuant to Section 4(2) thereof.
Item 6. Management's Plan of Operation.
- --------------------------------------------
ADDITIONAL FUND RAISING ACTIVITIES IN THE NEXT EIGHTEEN MONTHS. Based
solely on expenditures in the absence of significant product sales, the Company
believes that the funds raised in its initial public offering (the "Offering"),
which was closed on December 26, 1996, will last for approximately eighteen
13
<PAGE>
months. The Company anticipates, however, that limited product sales will occur
in the year following the Offering. If significant product sales are realized
during the first eighteen months after the Offering, the Company should not need
to raise additional funds within such time period unless the Company achieves
significant and unexpected rapid development of new products which require
additional personnel, capital expenditures and working capital or in the event
of unforeseen difficulties.
SUMMARY OF ANTICIPATED PRODUCT RESEARCH AND DEVELOPMENT. Although the
development of new products can never be fully anticipated, the Company believes
that it has a feasible plan for product development during 1997 and 1998. The
major components of this plan are as follows:
1997 o Product Launch for modified EpiDNA Picogram Assay kit
o Completion of EpiDNA Nanogram Assay development
o Development of automated production protocols for the EpiDNA Assays
o Completion of first DNA labeling product for test marketing in
the molecular biology research market
1998 o Continued research in applications of Genetic Vectors' nucleic
acid labeling technology
o Introduction of EpiDNA Nanogram Assay kits and new DNA labeling
products for use in molecular biology research laboratories
o Research in the application of automated techniques of DNA analysis
for EpiDNA
o Initiation of EasyID DNA probe product development for quality
assurance in the food and beverage industry
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES. Management anticipates the
purchase of approximately $550,000 of equipment (including approximately
$400,000 of research and development equipment) during 1997 and 1998. The only
item whose cost will exceed $25,000 is a high performance liquid chromatograph
and associated hardware which is used in the analysis and preparation of high
purity chemicals for both production and research purposes.
CHANGES IN THE NUMBER OF EMPLOYEES. As shown in the following chart,
the Company anticipates hiring additional personnel during 1997 in connection
with its research and development and product development plan. The Company
believes that these personnel will be adequate to accomplish the tasks set forth
in its plan. In 1997 the Company expects to hire primarily research and
development and production personnel since it does not expect to commence sales
of its initial EpiDNA product line until the fourth quarter of 1997. In 1998,
additional sales and production staff are expected to be hired to meet the
Company's sales goals.
Proposed Personnel Addition Plan 1997 1998
- -------------------------------- ---- ----
Sales and Administration
Administrative Personnel ............................. 1 1
Secretaries .......................................... 1 1
Director--Sales and Marketing ........................ 0 1
Salespersons ......................................... 0 2
Technical Info/Inside Sales .......................... 0 3
Supervisors .......................................... 1 1
Technicians .......................................... 6 5
---- -----
Total New Employees .................................. 9 14
==== =====
Total Employees at end of year........................ 12 26
==== =====
14
<PAGE>
Item 7. Financial Statements.
- ----------------------------------
Genetic Vectors, Inc.,
and Subsidiaries
(A Development Stage Company)
Consolidated Financial Statements
Years ended December 31, 1996 and 1995
15
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Index to Consolidated Financial Statements
===============================================================================
Page
Report of Independent Certified Public Accountants 17
Consolidated Balance sheet 18
Consolidated Statements of Operations 19
Consolidated Statements of Stockholders' Equity (Deficit) 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
16
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Index to Consolidated Financial Statements
================================================================================
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Genetic
Vectors, Inc., and Subsidiaries (a development stage company) as of December 31,
1996 and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years in the period ended December
31, 1996 and the cumulative period from the period January 1, 1992 (inception)
through December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Genetic
Vectors, Inc., and Subsidiaries, a (a development stage company) as of December
31, 1996 and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996 and the cumulative period
from January 1, 1992 (inception) through December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
---------------------
BDO Seidman, LLP
Miami, Florida
February 28, 1997
17
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Consolidated Balance Sheet
================================================================================
December 31 1996
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 4,745,208
- --------------------------------------------------------------------------------
Total current assets 4,745,208
Equipment, net (Note 2) 17,245
Deferred Patent costs (Note 4) 155,351
- --------------------------------------------------------------------------------
$ 4,917,804
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 135,527
Note Payable (Note 5) 35,000
- --------------------------------------------------------------------------------
170,527
- --------------------------------------------------------------------------------
Commitments (Note 8)
- --------------------------------------------------------------------------------
Stockholders' Equity (Deficit) (Note 7)
Common Stock, $.001 par value, 10,000,000 shares authorized,
2,339,634 shares issued and outstanding 2,340
Additional paid-in capital 6,150,201
Deficit accumulated during the development stage (1,405,264)
- --------------------------------------------------------------------------------
Total stockholders' equity 4,747,277
- --------------------------------------------------------------------------------
$ 4,917,804
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Operations
====================================================================================================================
Cumulative from
January 1, 1992
(inception) For the For the
through year ended year ended
December 31, December 31, December 31,
1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses:
Research and development $ 747,451 $ 70,873 $ 98,386
General and administrative 708,025 318,750 126,803
Depreciation and amortization 6,935 3,811 1,477
- --------------------------------------------------------------------------------------------------------------------
Total expenses 1,462,411 393,434 226,666
- --------------------------------------------------------------------------------------------------------------------
Other Income 57,147 -- --
- --------------------------------------------------------------------------------------------------------------------
Net loss $ (1,405,264) $ (393,434) $ (226,666)
- --------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding (Note 1) - 1,721,860 1,692,500
- --------------------------------------------------------------------------------------------------------------------
Net loss per common share $ - $ (.23) $ (.13)
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
===================================================================================================================
Deficit
Accumulated
Additional During the
Paid-in Development
Common Stock Capital Stage Total
Shares Amount
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capitalization for cash at 1,600,000 $ 1,600 $ (1,500) $ -- $ 100
$0.0000625 per share (Note 7(a))
Capital contribution (Note 7(b)) -- -- 500,000 -- 500,000
Net loss -- -- -- (260,484) (260,484)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 1,600,000 1,600 498,500 (260,484) 239,616
Net loss -- -- -- (205,753) (205,753)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,600,000 1,600 498,500 (466,237) 33,863
Net loss -- -- -- (318,927) (318,927)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 1,600,000 1,600 498,500 (785,164) (285,064)
Net loss -- -- -- (226,666) (226,666)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,600,000 1,600 498,500 (1,011,830) (511,730)
Issuance of common stock for cash, at
$5.00 per share, net of offering
costs of 70,000 (Note 7(c)) 110,000 110 479,990 -- 480,100
Conversion of $413,518 due to parent
in exchange for 41,352 shares of
common stock (Note 7(d)) 41,352 42 413,476 -- 413,518
Conversion of $132,822 of accrued
payroll and consulting to the
president and chairman of the
Board of 13,282 shares of common
stock (Note 7(d)) 13,282 13 132,809 -- 132,822
Issuance of common stock for cost at
$10.00 per share, net of offering
costs of $1,180,249 (Note 7(e)) 575,000 575 4,569,176 -- 4,569,751
Stock options granted for services
(Note 8(b)) -- -- 56,250 -- 56,250
Net loss -- -- -- (393,434) (393,434)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,339,634 $ 2,340 $ 6,150,201 $(1,405,264) $ 4,747,277
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Consolidated Statements of Cash Flows
===================================================================================================================
Cumulative from
January 1, 1992 For the For the
(inception) through year ended year ended
December 31, December 31, December 31,
1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net loss $ (1,405,264) $ (393,434) $ (226,666)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,935 3,811 1,477
Stock options granted for services 56,250 56,250 --
Decrease in accounts receivable -- -- 3,312
Decrease in other assets -- -- 5,000
Increase in accounts payable, accrued
liabilities, accrued payroll and
consulting fees 268,350 19,913 122,868
- ---------------------------------------------------------------------------------------------------------------------
Total adjustments 331,535 79,974 132,657
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,073,729) (313,460) (94,009)
- ---------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of equipment (24,180) (16,794) --
Deferred patent costs (155,351) (48,586) (12,724)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (179,531) (65,380) (12,724)
- --------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase due to parent 413,518 39,098 105,058
Proceeds from note payable 35,000 35,000 --
Net proceeds from issuance of common stock 5,049,950 5,049,851 --
Capital contribution 500,000 -- --
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,998,468 5,123,949 105,058
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash 4,745,208 4,745,109 (1,675)
Cash at beginning of period -- 99 1,774
- --------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 4,745,208 $ 4,745,208 $ 99
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Conversion of due to parent in exchange for
stock $ 413,518 $ 413,518 $ --
Conversion of accrued wages for stock $ 132,822 $ 132,822 $ --
Cash paid for interest $ -- $ -- $ --
Cash paid for taxes $ -- $ -- $ --
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
21
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
1. Summary of Organization and Business
Significant -------------------------
Accounting Genetic Vectors, Inc. (the "Company"), formerly
Policies a subsidiary of Nyer Medical Group, Inc.
("Nyer"), was incorporated on December 28, 1991.
The Company was organized to supply genetic
engineering tools and analytical kits to the
biotechnology and molecular biology markets. The
products are intended to allow biopharmaceutical
companies to test for biopharmaceutical product
purity in compliance with regulatory stand-
ards. The Company is in the development
stage and its operations to date have largely
consisted of the research and development of its
products. The Company had no financial
activities from December 28, 1991 to December
31, 1991. Accordingly, January 1, 1992 has been
used as the inception date of these financial
statements.
These financial statements include the
specifically identifiable expenses of the
Company incurred by Nyer on behalf of the
Company.
Nyer, which owned 74.9% of the Company's common
stock, distributed to its shareholders, 512,000
shares, representing 32% of the outstanding
shares of the Companys common stock as of May
31, 1996.
Principles of Consolidation
---------------------------
The consolidated financial statements include
the accounts of Genetic Vectors, Inc., and all
of its subsidiaries. All material intercompany
balances and transactions have been eliminated.
Preparation of Financial Statements
-----------------------------------
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Actual results could differ
from those estimates.
Research and Development Costs
------------------------------
Expenditures relating to the Company's product
research, development and testing are expensed
as incurred.
Equipment and Depreciation
--------------------------
Equipment is recorded at cost. Depreciation is
provided over the estimated useful life of the
22
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
assets which range from three to five years.
Deferred Offering Costs
-----------------------
The costs incurred in connection with the
Company's public offering and private placement
of securities are deferred and offset against
the proceeds in stockholders' equity (deficit).
Deferred Patent Costs
---------------------
Costs incurred in relation to patent
applications are capitalized as deferred patent
costs. If and when a patent is issued, the
related patent application costs will be
transferred to the patent account and amortized
over the legal life of the patent. If it is
determined that a patent will not be issued, the
related patent application costs will be charged
to expense at the time such determination is
made.
Income Taxes
------------
The Company filed a consolidated income tax
return with its parent through August 1996 at
which time it was deconsolidated. Thereafter it
will file on a separate company basis. The
parent company has filed its income tax
reporting consolidated losses since inception.
The Company uses the asset and liability
method of accounting for income taxes. Income
taxes are computed, none since inception, as
if the Company filed a separate tax return. The
Company and its parent do not have a formal tax
sharing arrangement.
Net Loss Per Common Share
-------------------------
Net loss per common share is based on the
weighted average number of shares of common
stock outstanding, as adjusted for the effects
of the application of Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No.
83. Pursuant to SAB No. 83, common stock issued
and options to purchase common stock granted by
the Company at a price less than the
contemplated public offering price are treated
as outstanding for all periods presented. Stock
options outstanding are not included since the
effects of such inclusion would be
anti-dilutive.
Long-Lived Assets
-----------------
In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121
"Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires, among
other things, impairment loss of assets to be
held and gains or losses from assets that are
expected to be disposed of be included as a
23
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
component of income from continuing operations
before taxes on income. The Company has adopted
SFAS No. 121 as of January 1, 1996 and its
implementation did not have a material effect on
the financial statements.
Stock Based Compensation
------------------------
In October 1995, FASB issued SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS
No. 123 establishes a fair value method for
accounting for stock-based compensation plans
either through recognition or disclosure. The
Company did not adopt the fair value based
method but instead will disclose the proforma
effects of the calculation required by the
statement.
2. Equipment The Company's equipment is summarized as follows:
-------------------------------------------------
December 31, 1996
-------------------------------------------------
Laboratory equipment $ 2,136
Office furniture 5,250
Computers 16,794
-------------------------------------------------
24,180
less: accumulated depreciation (6,935)
-------------------------------------------------
$ 17,245
-------------------------------------------------
3. Depedence On Certain key components of the Companys products
Limited Number are currently provided by a limited number of
Of Suppliers sources, and one component is provided by a
single source.
4. Acquired On August 21, 1996, Genetic Vectors purchased
Technology certain rights to the Technology (as defined
herein) pursuant to an Agreement with the
University of Miami and its School of Medicine
(the "Technology Assignment Agreement"). The
assignment of such rights under the Technology
Assignment Agreement was subject to the approval
of the Department of Health and Human Services
represented by the National Institute of Health
("NIH") because the Technology was developed
under a Federal grant from that agency. The NIH
also has certain rights allowing it to grant
licenses to third parties if it is determined
that practical
24
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
application of the invention is not occurring,
even exclusive licenses, as well as march-in
rights to meet unmet health or safety needs to
meet requirements for public use specified in
federal regulations or for failure to
manufacture in the United States or to obtain a
waiver of such provisions. On March 26, 1997 the
Company received notice that the NIH has denied
approval of the Technology Assignment Agreement.
The Company will be able to develop, manufacture
and sell its products under the License
Agreement. The Company believes that the terms
of the License Agreement will need to be amended
to comply with applicable patent law related to
government funded inventions.
A patent has been issued for the technology in
New Zealand, Australia and the United States,
and the Company is in the process of applying
for an additional patent in the United States.
5. Note Payable In December 1996, the Company borrowed $35,000
from Nyer, interest is payable at a rate of 6%
per annum with the principal and interest due
upon the completion of the Company's initial
public offering of securities. The full amount
of principal and interest was paid in January
1997.
6. Income Taxes At December 31, 1996, the Company had a net
operating loss (NOL) of approximately
$1,134,000. The NOL expires in the years
2006-2011. In the event of a change in ownership
of the Company, the utilization of the NOL
carryforward will be subject to limitation under
certain provisions of the internal revenue code.
Realization of any portion of the approximate
$427,000 deferred tax asset at December 31,
1996, resulting from the utilization of the NOL,
is not likely to be realized, accordingly, a
valuation allowance has been established for the
full amount of such asset.
Net operating loss carryforward $ 427,000
Less: Valuation allowance 427,000
Net deferred tax asset $ --
7. Stockholders' a) During 1992, the Company issued 100 shares of
Equity common stock for $100 as the initial
(Deficit) capitalization of the Company. In June 1996,
the Company issued a stock dividend in the
form of a 15,999 for 1 stock split. The
components of stockholders' equity (deficit),
all shares and per share amounts have been
retroactively adjusted to reflect the stock
split. The Company also increased its
authorized common stock to 10,000,000 shares,
$.001 par value.
25
<PAGE>
b) During 1992, the Company received $500,000 in
additional capital contributions.
c) In June 1996, in connection with a private
placement, the Company issued 110,000 shares
of common stock, at $5.00 per share for cash
of $480,100 net of offering costs of $70,000.
d) In August 1996, the Company converted the
then outstanding $413,518 due to parent
(Nyer) in exchange for 41,352 shares of
common stock and the then outstanding
$132,822 of accrued payroll and consulting
fees to the President and Chairman of the
Board in exchange for 13,822 shares of common
stock. The conversion price was $10.00 per
share.
e) In December 1996, the Company completed an
initial public offering. The offering
consisted of 575,000 shares of common stock
which raised net proceeds of approximately
$4,570,000 (gross proceeds of approximately
$5,750,000 less underwriting discounts,
commissions and other expenses of the
offering totaling approximately $1,180,249).
8. Commitments a) The Company has acquired rights to a new
nucleic acid labeling and detection
technology (the "Technology") pursuant to a
License Agreement between ProVec, Inc. and
the University of Miami and its School of
Medicine which was assigned to the Company on
January 20, 1992. ProVec Inc., was owned by
the Company's Chairman of the Board. These
rights include the manufacture of products
utilizing the Technology and the marketing
and sale of such products. The License
Agreement could expire or be terminated prior
to the Company's development of products
using the Technology. Such expiration or
termination of the License Agreement would
have a material adverse effect on the
Company's business, financial condition and
viability.
b) In 1994, the Company entered into an
agreement with an investment firm whereby the
investment firm assisted the Company in
obtaining $135,000 in funding through its
parent. In consideration for these services,
the Company will pay to the investment firm
5% of sales until five years from the date of
the agreement have passed or the cumulative
payments total $50,000, whichever occurs
first.
26
<PAGE>
In addition, during June 1996, the Company
entered into a consulting agreement for
general business consulting services. The
agreement had a term of 180 days, was
extended for an additional ninety day period,
and will continue on a month-to-month basis
thereafter unless either party terminates the
agreement. The agreement provides for a
monthly fee of $5,000 and the Company granted
non-plan stock options to purchase 75,000
shares of common stock at an exercise price
of $5.00 per share (estimated fair value
based upon the price of common stock sold in
the private placement). Options to purchase
25,000 of such shares were exercisable
immediately. Options to purchase 25,000 of
such shares became exercisable July 24, 1996
upon the execution of the employment
agreement with the Company's new Chief
Executive Officer (Note 9). The remaining
25,000 of such shares became exercisable upon
the closing of the Company's initial public
offering (Note 9). The fair value of such
options amounting to $56,250 was charged to
operations during the period ended December
31, 1996.
c) In July 1996, the Company entered into a one
year employment agreement with its new Chief
Executive Officer. The agreement provides for
an initial annual base salary of $110,000
through the completion of the initial public
offering of securities, and upon such
completion, his salary was raised to an
annual rate of $125,000 for the remainder of
the year. In addition, ten year stock options
were granted under the plan discussed in Note
9, to purchase 75,000 shares of common stock
at 120% of the initial public offering price.
Options to purchase 25,000, 25,000 and 25,000
of such shares vest immediately, six months
after the completion of the initial public
offering, and one year after the completion
of the initial public offering, respectively.
d) In August 1996, the Company entered into
two employment agreements with the Chairman
of the Board and the President with base
salaries of $125,000 and $75,000,
respectively. Pursuant to the agreements, the
Company granted the Chairman of the Board and
the President ten year options under the plan
discussed in Note 9, vesting over a three
year period, exercisable during the period of
employment and for up to a three year period
thereafter, to purchase 100,000 and 75,000
shares of common stock, respectively, at an
exercise price equal to 120% of the initial
public offering price per share of common
stock.
27
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
e) In August 1996, the Company granted ten year
options under the plan discussed in Note 9,
vesting one year after the grant date, to
purchase 10,000 shares of common stock at
120% of the initial public offering price to
two directors of the Company (Note 9).
9. Stock Based At December 31, 1996, the Company has a fixed
Compensation stock option plan and non-plan options which are
described below. The Company applies APB Opinion
25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for
the plan. Under APB Opinion 25, because the
exercise price of the Company's employee stock
options equals or exceeds the market price of
the underlying stock on the date of grant, no
compensation cost is recognized.
In August 1996, the Company adopted an Incentive
Plan (the "Plan") under which 300,000 shares
of common stock will be reserved for issuance
upon exercise of stock based awards including,
non-qualified stock options, incentive stock
options, stock appreciation rights or for
issuance of restricted shares of common stock or
other stock-based awards. The Plan is also
authorized to issue short-term cash incentive
awards. The Plan will be administered by a plan
administrator which may consist of either the
Board or such committees, officers and/or
employees of the Company as the Board may so
designate. The purchase price of each share of
common stock purchased upon exercise of any
option granted is as follows: (i) Incentive
stock options shall be equal to or greater than
the fair market value of the common stock on the
date of grant as required under Section 422 of
the internal revenue code, (ii) Options granted
to 10% holders and designated by the Plan
Administrator as Incentive Stock Options shall
be equal to or greater than 110% of the fair
market value of the common stock on the date of
grant as required under Section 422 of the
internal revenue code, (iii) Non-employee
director options shall be equal to or greater
than the fair market value of the common stock
on the date of the grant. To date, options to
purchase 260,000 shares of common stock have
been granted pursuant to the Plan.
In addition, in 1996 four year non-plan options
to purchase 75,000 shares at $5.00 were granted
to a consultant for general business services.
28
<PAGE>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
================================================================================
FASB Statement 123, Accounting for Stock-Based
Compensation, requires the Company to provide
pro forma information regarding net income and
net income per share as if compensation cost for
the Company's stock option plan had been
determined in accordance with the fair value
based method prescribed in FASB Statement 123.
The Company estimates the fair value of each
stock option at the grant date by using the
Black-Scholes option-pricing model with the
following weighted-average assumptions used for
grants in 1996: no dividend yield percent;
expected volatility of 0.001; risk-free interest
rates of 6.1%, and expected lives of 10 years
for the Plan and non-plan options.
Under the accounting provisions of FASB
Statement 123, the Company's net income and
earnings per share would not have differed.
A summary of the status of the Company's fixed
stock option plan and non-plan options as of
December 31, 1996, and changes during the year
ending on that date is presented below:
December 31, 1996
-----------------
Weighted-
Average
Exercise
Shares Price
- --------------------------------------------------------------------------------
Outstanding at beginning of year $ -- $ --
Granted 335,000 10.43
Exercised -- --
Forfeited -- --
- --------------------------------------------------------------------------------
Outstanding at end of year 335,000 10.43
- --------------------------------------------------------------------------------
Options exercisable at year-end 100,000 6.75
Weighted-average fair value of options granted during the year 2.09 --
- --------------------------------------------------------------------------------
29
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc., and Subsidiaries
(A Development Stage Company)
Notes to Consolidated Financial Statements
===================================================================================================================
The following table summarizes information about fixed stock options and non-plan options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding Remaining Average Exercisable Average
Range of Exercise at Contractual Exercise at Exercise
Prices 12/31/96 Life Price 12/31/96 Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.00-$12.00 335,000 9.5 10.43 100,000 6.75
</TABLE>
30
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure.
--------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act.
--------------------------------------
Directors and Executive Officers of the Company
- -----------------------------------------------
The Company's present directors and executive officers are as follows:
Name Age Position
- ---- --- --------
Mead M. McCabe, Sr., Ph.D. ....... 59 Chairman of the Board of Directors
Richard H. Tullis, Ph.D. ......... 52 Chief Executive Officer; Director
Mead M. McCabe, Jr. .............. 31 President and Secretary; Director
Mark E. Burroughs ................ 40 Director
William J. Clifford, Jr. ......... 46 Director
James A. Joyce ................... 35 Director
Kurt R. Gehlsen, Ph.D. ........... 40 Director
Jack W. Fell, Ph.D. .............. 64 Director
Allyn L. Golub, Ph.D. ............ 56 Director
MEAD M. MCCABE, SR., PH.D. is the founder of the Company and the
inventor of the EpiDNA technology. Dr. McCabe is the Chairman of the Board of
Directors of the Company. He holds a B.S. in Zoology from Pennsylvania State
University and a Ph.D. in Biology from the University of Miami. Since 1972, he
has been on the faculty of the University of Miami School of Medicine, and
currently is on the faculty of the Department of Microbiology and Immunology.
From November 1995 to July 1996 he served as a consultant in chromatographic
process development for Viragen, Inc. Dr. McCabe's research interests center on
the molecular mechanisms of microbial diseases and he has taught undergraduate
courses in molecular pathogenesis. Dr. McCabe served four years on the Oral
Biology and Medicine Study Section at the National Institutes of Health and has
consulted for the NIH on numerous other occasions since 1976. He has been
awarded NIH research grants, including a recent S.B.I.R. Phase I grant. Dr.
McCabe has been a director of the Company since its inception. Dr. McCabe is the
father of Mead M. McCabe, Jr.
RICHARD H. TULLIS, PH.D. is the Chief Executive Officer of the Company.
Dr. Tullis has extensive management and research experience in biotechnology. In
1981, Dr. Tullis co-founded Molecular Biosystems, a company whose stock is
31
<PAGE>
currently traded on the New York Stock Exchange. Dr. Tullis served as a director
and principal of that company until 1985 and participated in the completion of
that company's initial public offering in 1984. In 1985 Dr. Tullis left that
company and founded Synthetic Genetics Inc., a company specializing in
manufacturing specialized chemical supplies for biotechnology research. In 1991,
Synthetic Genetics was acquired by Molecular Biology Resources, a Milwaukee
based biotechnical manufacturing company, where he subsequently served as Vice
President and a member of the board of directors for four years. In 1996, Dr.
Tullis established Syngen Research as a vehicle for his consulting and research
activities. In July, 1996, Dr. Tullis joined Genetic Vectors as Chief Executive
Officer and as a member of the Board of Directors. Dr. Tullis will oversee the
production, sales and research activities of the Company.
MEAD M. MCCABE, JR. will serve as President and Secretary of the
Company and will be responsible for the Company's corporate development, sales
and marketing. Mr. McCabe has a B.S. in International Business from Auburn
University and an M.B.A. in both Finance and International Business from the
University of Miami. Mr. McCabe joined Genetic Vectors in September 1993. Prior
to that, Mr. McCabe was a financial consultant with Merrill Lynch for two years.
Mr. McCabe is the son of Dr. McCabe. Mr. McCabe became a director of the Company
on October 16, 1993.
MARK E. BURROUGHS has served as a director of the Company since March
1995. He is currently a principal of Capital Associates, L.P., a full service
real estate development, brokerage and asset management concern. He has been the
Managing Partner/Broker In Charge of Diversified Holdings International, Inc.,
an investment and venture capital firm with primary holdings in real estate,
management consulting, computer software, travel and wine making since 1984.
From 1988 to 1991 Mr. Burroughs also represented Stiles Corporation/Tribune
Company Joint Venture as Owner's Representative/Senior Development Manager,
managing the development of the New River Center in Fort Lauderdale, Florida. He
also served from 1980 to 1983 as Vice President and Project Manager of Cheezem
Development Corp., a publicly held real estate development and asset management
company.
WILLIAM J. CLIFFORD, JR. has served as a director of the Company since
March 1995. He has served as Vice President and General Manager of ADCO Surgical
Supply, Inc., ADCO South Medical Supplies, Inc. and Nyle Home Health Supplies,
Inc. since 1988, 1992 and 1990, respectively. ADCO Surgical Supply, Inc. and
ADCO South Medical Supplies, Inc. are wholly owned subsidiaries of Nyer Medical
Group, Inc. ("Nyer Medical"), and Nyer Medical owns 90% of the outstanding
common stock of Nyle Home Health Supplies, Inc. From 1980 to 1988, Mr. Clifford
was General Sales Manager of ADCO Surgical Supply, Inc. Mr. Clifford served as a
director of Advanced Technology Home Care, a provider of high technology
products and services to patients cared for at home, from 1988 to 1995. He has
also been Vice President of Sales and a director of Nyer Medical since December
1991. He has over 23 years experience in the medical supply industry and
possesses substantial experience in medical warehousing, purchasing, sales and
sales management.
JAMES A. JOYCE is the Chairman and Chief Executive Officer of James
Joyce & Associates, an investment banking and management consulting company he
founded in January, 1993. In addition, the "American Finance Network" a
cooperative network of corporate finance executives representing NASD member
investment banks throughout the U.S., was founded by Mr. Joyce and is actively
32
<PAGE>
managed by James Joyce & Associates. In April of 1991, Mr. Joyce was co-founder
of Mission Labs, Inc., a developer of video compression software. Mr. Joyce
served as Chairman and Chief Executive Officer of Mission Labs, Inc. until
January of 1993 when it was acquired by an outside investment group. Prior to
his tenure at Mission Labs, Inc., Mr. Joyce was President of Wall Street
Advisors, Inc., and from 1987-89 served as a principal in charge of the U.S.
operations of London Zurich Securities Ltd., an NASD member broker/dealer. Mr.
Joyce is a graduate of the University of Maryland. Mr. Joyce became a director
of the Company on August 13, 1996, as the director-designee of the underwriter
who managed the Company's Offering.
KURT R. GEHLSEN, PH.D. is currently the Vice President, Development and
Chief Technical Officer of Maxim Pharmaceuticals, Inc. He also provides
independent consulting services to biomedical companies, research institutions
and related service providers in such areas as product development strategies,
research and development and grant and patent strategies. From 1991 to 1995, Dr.
Gehlsen served as Chairman of the Board of Directors, President and Chief
Executive Officer of Trauma Products, Inc., a biomedical company. From 1989 to
1991, Dr. Gehlsen served as Vice President, Chief Operating Officer and Director
of Molecular and Cellular Biology for the La Jolla Institute for Experimental
Medicine. From 1989 to 1991, Dr. Gehlsen served as Senior Research Scientist and
Director, Division of Molecular and Cellular Biology, Pharmacia Experimental
Medicine Division of Pharmacia, Inc., a biopharmaceutical company. Dr. Gehlsen
received a B.S. in Biology from the University of Arizona and a Ph.D. from the
University of Arizona College of Medicine. He became a director of the Company
on February 7, 1997.
JACK W. FELL, PH.D. is currently a professor of Microbiology at the
University of Miami's Rosenstiel School of Marine and Atmospheric Science and
has served in that capacity since 1977. Dr. Fell has a B.S. in Biology from
Northwestern University, an M.S. in Marine Biology from the University of
Miami's Institute of Marine Science, a Ph.D. in Microbiology from the University
of Miami's School of Medicine and Institute of Marine Science and a
post-doctorate in Microbiology from the University of California, Davis. Dr.
Fell became a director of the Company on February 7, 1997.
ALLYN L. GOLUB, PH.D. is currently the Chairman of the Board of
Directors of Guidelines, Inc., and a member of the Board of Directors of the
Center for Health Technologies. He has been associated with Guidelines, Inc.
since October, 1986 and the Center for Health Technologies since March, 1990.
Dr. Golub was Vice President, Clinical and Technical Affairs of Key
Pharmaceuticals from 1981 to 1986. Prior to serving as Vice President, Dr. Golub
was Director of Research and Development of Key Pharmaceuticals from 1978 to
1981 and Clinical and Professional Coordination in 1977 and 1978. From 1986 to
1991 and from 1987 to 1990, Dr. Golub was a consultant with Shering-Plough
Corp., and served as the president of the Science-Technology Alliance,
respectively. Dr. Golub has a B.A. in Biology from the University of Hartford,
Connecticut and an M.S. and Ph.D. in Cellular-Molecular Biology from the
University of Miami. He became a director of the Company on February 7, 1997.
Election of Directors and Executive Officers.
--------------------------------------------
The Company's executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board of Directors. The Company's
33
<PAGE>
directors are elected by the shareholders of the Company and hold office until
the first annual meeting of shareholders following their election or appointment
and until their successors have been duly elected and qualified.
Pursuant to an agreement with the underwriter which managed its initial
public offering, the Company has agreed that this underwriter may designate one
member of the Board of Directors. The underwriter has designated James A. Joyce
as its designee to the Board of Directors. The underwriter's designee's service
on the Board of Directors will be subject to the approval of the holders of a
majority of the outstanding shares of the Company's Common Stock (the "Common
Stock").
Section 16(a) Beneficial Ownership Reporting Compliance
The following persons failed to file their initial Form 3's on a timely
basis:
<TABLE>
<CAPTION>
Number of
Transactions
Number that were not Number of
of Late reported on a known failures
Name and Title Reports timely basis to file
<S> <C> <C> <C> <C>
1. Mead M. McCabe, Sr., and Marigrace McCabe (jointly) 1 1 0
2. Richard H. Tullis 1 1 0
3. Mead M. McCabe, Jr. 1 1 0
4. Mark E. Burroughs 1 1 0
5. William J. Clifford, Jr. 1 1 0
6. James A. Joyce 1 1 0
7. Nyer Medical Group, Inc. 1 1 0
</TABLE>
Item 10. Executive Compensation.
- ------------------------------------
Compensation of Directors
- -------------------------
Non-employee directors will receive a fee of $500 for each Board of
Directors meeting attended, plus travel expenses.
The Company's 1996 Incentive Plan (the "Incentive Plan") provides that
directors who are not employees of the Company are automatically to be granted
an option to purchase 5,000 shares of the Company's Common Stock in connection
with their appointment to the Board of Directors. Such options will vest after
one year of service on the Board of Directors. The options granted to the
Company's initial non-employee directors (Mr. Burroughs, Mr. Clifford, Dr.
34
<PAGE>
Gehlsen, Dr. Fell and Dr. Golub) will have an exercise price of $12.00 per share
(120% of the offering price in the Company's initial public offering). Options
granted in the future will be priced at no less than 100% of the Common Stock's
fair market value on the date of the grant. Options granted to non-employee
directors will be non-statutory options and will become exercisable after one
year of service on the Board and will be exercisable for ten years from the date
of the grant, except that options exercisable at the time of a director's death
may be exercised for twelve months thereafter. Under the terms of the Incentive
Plan, neither the Board of Directors nor any committee of the Board of Directors
will have any discretion with respect to options granted to directors.
Executive Compensation
- ----------------------
The following table shows all the cash compensation paid by the Company
as well as certain other compensation paid or accrued, during the fiscal years
ended December 31, 1996, 1995, and 1994 to Mead M. McCabe, Sr., Ph.D., Chairman
of the Company. No restricted stock awards, long-term incentive plan payouts or
other types of compensation other than the compensation identified in the chart
below were paid to Dr. McCabe during fiscal years 1996, 1995, and 1994. No other
executive officer of the Company earned a total annual salary and bonus for any
of these years in excess of $100,000. The summary compensation table which
follows includes all payments to Dr. McCabe for fiscal years 1996, 1995, and
1994.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted
Other Annual Stock Options/ LTIP All Other
Name and Principal Bonus Compensation Award(s) SARs Payouts Compensation
Position Year Salary ($) ($) ($) ($) (#) ($) ($)
- ---------------------- --------- ------------ -------- --------------- ----------- -------- ---------- ----------------
Mead M. McCabe, Sr., 1996 $125,000 -0- -0- -0- -0- -0- -0-
Ph.D., Chairman of
the Board of
Directors
1995 $125,000 -0- -0- -0- -0- -0- -0-
1994 $70,000(1) -0- -0- -0- -0- -0- -0-
- ----------------
(1) Dr. McCabe's annual salary was $70,000 through October 16, 1994 at which
35
<PAGE>
time his annual salary was raised to $125,000.
OPTION GRANTS IN LAST FISCAL YEAR1
(Individual Grants)
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in
Name Options Granted Fiscal Year Exercise Price Expiration Date
(a) (b) (c) (d) (e)
- ------------------------------ ----------------------- ------------------- ---------------------- ----------------------
Mead M. McCabe, Sr. 100,000 shares of 40.0% $12.00 per share August 15, 2006
Common Stock
</TABLE>
- ----------------
1 All grants are for options to purchase Common Stock. No SAR's were granted.
Employment Agreements
- ---------------------
Effective August 15, 1996, the Company entered into new written
employment agreements (the "Employment Agreements") with Dr. McCabe and Mr.
McCabe for an initial three year period. Both individuals devote substantially
all of their time to the business of the Company. Dr. McCabe's base salary is
$125,000 per year and Mr. McCabe's base salary is $75,000 per year. Pursuant to
a Stock Option Addendum to Dr. McCabe and Mr. McCabe's Employment Agreements,
Dr. McCabe and Mr. McCabe were granted options to purchase 100,000 and 75,000
shares, respectively, of the Common Stock at $12.00 per share (120% of the per
share public offering price in the Company's initial public offering). These
options vest over a three year period, expire ten years after the date of the
grant and are granted under and are subject to the terms and conditions of the
Incentive Plan and Stock Option Addendum. The provisions of the Stock Option
Addendum shall control in the event of the termination of either of these
individuals' employment with the Company. The Employment Agreements provide that
during the employee's period of employment and in the event of a termination for
cause, for two years after termination, the employee will not participate in any
business that is competitive with that of the Company in any location where the
Company is doing business as of the date of termination of the employee's
employment. This non-competition covenant will not apply in the event of Dr.
McCabe's or Mr. McCabe's resignation.
Effective July 24, 1996 the Company entered into an Employment
Agreement with Richard H. Tullis, Ph.D. for a twelve month period. Dr. Tullis is
required to devote substantially all of his working time and efforts to the
business of the Company. Dr. Tullis' annual salary is $125,000. Pursuant to a
Stock Option Addendum to Dr. Tullis' Employment Agreement he has been granted
options to purchase 75,000 shares of the Company's Common Stock at $12.00 per
share (120% of the per share public offering price in the Company's Offering).
One-third of Dr. Tullis' options vested as of July 24, 1996, one-third will vest
on June 26, 1997 and the remaining one-third will vest on December 26, 1997.
These options expire ten years after the date of grant and are granted under and
are subject to the terms and conditions of the Incentive Plan and the Stock
Option Addendum. The provisions of the Stock Option Addendum shall control in
the event of the termination of Dr. Tullis' employment with the Company. This
Employment Agreement provides that during the period of his employment with the
Company and for a period of six months thereafter Dr. Tullis shall not directly
36
<PAGE>
or indirectly compete with the Company or own, manage, control or participate in
the ownership, management or control of or be employed or engaged or otherwise
affiliated or associated with any business that is competitive with that of the
Company in any location where the Company is doing business as of the date of
the termination of his employment.
Incentive Plan
- --------------
Overview of the Incentive Plan
------------------------------
Incentive compensation for non-employee directors, executives and other
key employees of the Company will be provided under the Genetic Vectors, Inc.
1996 Incentive Plan. The purpose of the Incentive Plan is to (a) increase the
proprietary and vested interest of non-employee directors of the Company in the
growth and performance of the Company, (b) assist in attracting and retaining
highly competent employees, (c) provide an incentive for motivating selected
officers and other key employees of the Company, (d) achieve long-term corporate
objectives and (e) enable cash incentive awards to qualify as performance-based
for purposes of the tax deduction limitations under Section 162(m) of the
Internal Revenue Code of 1986, as amended.
The Incentive Plan is administered by the Board of Directors of the
Company or such committees, officers and/or employees of the Company as the
Board of Directors may so designate. Eligible participants include non-employee
directors and such officers and other key employees of the Company as the plan
administrator may designate from time to time. The Incentive Plan will continue
in effect until terminated by its terms or, if earlier, by the Board of
Directors.
The Incentive Plan authorizes the plan administrator to grant any or
all of the following types of awards: (1) stock options, including nonqualified
stock options and incentive stock options, (2) stock appreciation rights, (3)
restricted shares of Common Stock, (4) performance awards, (5) other stock-based
awards, and (6) short-term cash incentive awards.
Administration
--------------
The Incentive Plan is administered by a plan administrator which may
consist of either the Board of Directors or such committees, officers and/or
employees of the Company as the Board of Directors may so designate. The plan
administrator has been granted exclusive and final authority under the Incentive
Plan with respect to all determinations, interpretations and other actions
affecting the Incentive Plan and its participants.
Shares Subject to the Incentive Plan
------------------------------------
Three hundred thousand shares of the Company's Common Stock have been
initially authorized to be issued under the Incentive Plan. Such authorized
shares will be appropriately adjusted to reflect adjustments (if any) to the
Company's capital structure.
Indemnification of Officers and Directors
- -----------------------------------------
Pursuant to authority conferred by Florida law, the Company's By-laws
provide that the Company's directors, officers, and employees be indemnified to
the fullest extent permitted by Florida law. Insofar as indemnification for
37
<PAGE>
liabilities arising under the Securities Act may be permitted for directors and
officers and controlling persons pursuant to the foregoing provisions, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- ----------------------------------------------------------------------------
Voting Securities and Principal Holders Thereof
- -----------------------------------------------
The following table sets forth, as of March 28, 1997, information with
respect to the beneficial ownership of the Company's Common Stock by (i) persons
known by the Company to beneficially own more than five percent of the
outstanding shares of the Company's Common Stock, (ii) each director, (iii) each
executive officer and (iv) all directors and executive officers as a group.
Common Stock
Beneficially Owned (1), (2)
--------------------------------------
Name/Address Number Percent
------------------- -----------------
Mead M. McCabe, Sr. and............... 184,322(3) 7.9%(3)
Marigrace McCabe (jointly)
12901 SW 63rd Ct.
Miami, FL 33156
1,000(3) 0.04%(3)
Mead M. McCabe, Sr. ..................
12901 SW 63rd Ct.
Miami, FL 33156
Mead M. McCabe, Jr.................... 102,293(3) 4.4%(3)
2000 South Dixie Highway
Suite 100
Miami, Florida 33133
Nyer Medical Group.................... 929,027(3),(4) 39.7%(3),(4)
1292 Hammond St.
Bangor, ME 04401
Richard H. Tullis..................... 25,500(5) 1.1%
2000 South Dixie Highway
Suite 100
Miami, FL 33133
38
<PAGE>
James A. Joyce........................ 75,000(6) 3.1%
835 5th Avenue
Suite 202
San Diego, CA 92101
All directors and officers
as a group(7)(8)(9) .................. 388,115 15.9%
- ---------------------------
(1) Applicable percentage of ownership is based on 2,339,634 shares of Common
Stock outstanding as of March 28, 1997 together with applicable options for
each shareholder. Beneficial ownership is determined in accordance with the
rules of the Commission and generally includes voting or investment power
with respect to securities. Shares of Common Stock subject to options that
are currently exercisable or exercisable within 60 days of March 28, 1997
are deemed to be beneficially owned by the person holding such options for
the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. The Common Stock is the only outstanding
class of equity securities of the Company.
(2) Reflects 575,000 shares issued in the Company's initial public offering.
(3) Pursuant to a letter agreement dated March 25, 1996, Nyer Medical Group,
Inc. ("Nyer Medical") agreed to vote the shares of Common Stock held by it
to elect one member of the Board of Directors designated by Nyer Medical
and the remaining members of the Board of Directors as designated by Dr.
McCabe, Mrs. McCabe and Mr. McCabe. If, pursuant to this agreement, the
beneficial ownership of the Common Stock owned by Nyer Medical is
attributed to Dr. McCabe and Mrs. McCabe (jointly), Dr. McCabe
(individually) and Mr. McCabe, they would own 1,113,349, 930,027 and
1,031,320 shares of Common Stock, respectively. Their ownership percentages
would be 47.6%, 39.8% and 44.1%, respectively.
(4) Includes Common Stock owned by Nyle International Corp. (115,447 shares)
and Mr. Samuel Nyer (4,228 shares), which are deemed to be beneficially
owned by Nyer Medical. Mr. Samuel Nyer is the only natural person who may
be deemed to be the beneficial owner of the shares of the Common Stock held
by Nyer Medical.
(5) Includes 25,000 shares which may be acquired pursuant to presently
exercisable stock options.
(6) Includes 75,000 shares which may be acquired pursuant to presently
exercisable stock options.
(7) Nine (9) persons.
(8) Includes 100,000 shares which may be acquired upon the exercise of
presently exercisable stock options.
(9) Neither Mr. Clifford, Mr. Burroughs, Dr. Gehlsen, Dr. Fell or Dr. Golub
(directors of the Company) own any Common Stock or any presently
exercisable rights to acquire Common Stock.
39
<PAGE>
Nyer Medical Group, Inc., a Florida corporation ("Nyer Medical"), is a
publicly held holding company with various interests in the medical products
business. In addition to its investment in the Company, its interests include
distribution of medical and rehabilitation supplies and equipment and
distribution of fire, police and rescue supplies and equipment, all primarily in
the New England area. Nyer Medical's common stock is listed and traded on the
NASDAQ SmallCap Market under the symbol "NYER."
Nyer Medical has entered into an agreement (the "Voting Agreement")
dated March 25, 1996 with Mead M. McCabe, Sr., Marigrace M. McCabe and Mead M.
McCabe, Jr., (collectively, the "McCabes"). This agreement provides among other
things, that, for a period of five years, Nyer Medical will vote its shares of
Common Stock to elect (a) one member of the Company's Board of Directors
designated by Nyer Medical, and (b) all other Board of Directors nominees
designated by the McCabes. The Voting Agreement will not affect Nyer Medical's
rights to vote its shares of Common Stock in connection with other matters on
which the Company's shareholders vote.
Dr. McCabe is the founder of the Company and currently serves as its
Chairman. Marigrace McCabe is the wife of Dr. McCabe. Mead McCabe, Jr. is the
son of Dr. McCabe.
Item 12. Certain Relationships and Related Transactions.
- ------------------------------------------------------------
Consulting Agreement
- --------------------
On June 19, 1996 the Company entered into a consulting agreement with
Mr. James A. Joyce, who became a director of the Company on August 13, 1996. He
was granted options to purchase a total of 75,000 shares of the Company's Common
Stock at an exercise price of $5.00 per share, all of which are currently
40
<PAGE>
exercisable. These options were not issued through the Incentive Plan. Dr.
Tullis was introduced to the Company by Mr. Joyce. This consulting agreement had
an initial term of 180 days and was extended for an additional ninety-day period
and continues thereafter on a month-to-month basis until terminated by either
party upon thirty days prior written notice. Mr. Joyce's option exercise rights
will continue until the fourth anniversary of the execution of such consulting
agreement.
Nyer Medical Spin-off
- ---------------------
Concurrently with the effective date of the Registration Statement for
the Company's Offering (December 20, 1996), Nyer Medical, which owned 74.9% of
the Common Stock prior to that Offering, effected a spin-off (the "Nyer
Spin-off") to Nyer Medical's shareholders of 512,000 shares of the Company's
Common Stock owned by Nyer Medical. The Nyer Spin-off was made to Nyer Medical
shareholders of record as of May 31, 1996. The Company has been informed by Nyer
Medical's counsel that these shares are freely tradable unless they are held by
affiliates of the Company. As a result of the Nyer Spin-off, however, Nyle
International Corp. ("Nyle") and Mr. Samuel Nyer received 115,447 and 4,228
shares of Common Stock, respectively. Since Nyle is the majority shareholder of
Nyer Medical and Mr. Nyer is the chairman of Nyle, these shares of Common Stock
are deemed to be beneficially owned by Nyer Medical, giving Nyer Medical current
beneficial ownership of 39.7% of the Common Stock.
Conversion of Indebtedness
- --------------------------
In August, 1996, the Company issued (a) 41,352 shares of Common Stock
to Nyer Medical at $10.00 per share in exchange for the conversion of
indebtedness of $413,518, and (b) 11,322 shares of Common Stock to Mead M.
McCabe, Sr. and Marigrace McCabe (jointly held) and 1,960 shares of Common Stock
to Mead M. McCabe, Jr., both at $10.00 per share for the conversion of accrued
payroll of $113,222 and $19,600, respectively.
Role of Mead M. McCabe, Sr.
- --------------------------
Dr. McCabe has been involved in the Company's operations since its
inception but he did not serve as a traditional "promoter" of the Company. As a
scientist, his role since the Company's inception has been focused on the
technical aspects of the Technology rather than the traditional promoter's role
of attempting to build the Company and promote its success. Dr. McCabe was the
developer of the nucleic acid labeling and detection Technology which is the
basis for the Company's products. He was the sole owner of ProVec, Inc., a
company which was the original licensee of the Technology and which subsequently
assigned its license rights to the Company. Though the Company was formed in
1991, he did not receive any shares of its Common Stock until 1996. At that time
he received 20% of the Company's Common Stock in exchange for all of the shares
of the Class B Preferred Stock of Nyer Medical owned by him and his wife. In
1996 he received an additional 11,322 shares of Common Stock in exchange for the
conversion of certain indebtedness owed to him by the Company in connection with
accrued payroll and expenses.
41
<PAGE>
Obligations under Investors Finders Agreement
- ---------------------------------------------
In June 1994 the Company and Nyer Medical entered into an Investors
Finders Agreement with an investment firm pursuant to which the investment firm
assisted the Company in obtaining approximately $135,000 in funding through Nyer
Medical. The Agreement requires the Company to pay the investment firm 5% of its
gross sales revenues until five years from the date of the Agreement have passed
or the cumulative payments total $50,000, whichever comes first. This agreement
has been assigned to Shamrock Partners International Inc., a firm affiliated
with the underwriter who managed the Offering.
Transactions with Officers and Shareholders
- -------------------------------------------
The Company believes that all transactions entered into with its
officers and shareholders have been effected on terms and conditions no less
favorable to the Company than those available from unaffiliated third parties.
The Company anticipates that any future transactions with such affiliated
parties will be made on terms and conditions no less favorable to the Company
than those available from unaffiliated third parties.
Item 13. Exhibits, List and Reports on Form 8-K.
- ----------------------------------------------------
(a) Exhibits.
--------
<TABLE>
<CAPTION>
Exhibit
No. Description Location Page
------- ----------- -------- ----
<S> <C> <C> <C>
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No.
as amended 3.1 to Registrant's Registration Statement
(the "Registration Statement") on Form
SB-2 (Registration Number 333-5530-A).
3.2 By-laws of the Company Incorporated by reference to Exhibit No.
3.2 to the Registration Statement.
4.1 Form of Common Stock certificate Incorporated by reference to Exhibit No.
4.1 to the Registration Statement.
4.2 Form of Underwriters' Warrant Incorporated by reference to Exhibit No.
4.2 to the Registration Statement.
4.3 Form of 1996 Incentive Plan Incorporated by reference to Exhibit No.
4.3 to the Registration Statement.
9.1 Letter Agreement dated March 25, 1996 Incorporated by reference to Exhibit No.
among Mead M. McCabe, Sr., Marigrace McCabe, 9.1 to the Registration Statement.
Mead M. McCabe, Jr. and Nyer Medical Group,
Inc.
9.2 Letter Agreement dated July 24, 1996 Incorporated by reference to Exhibit No.
among Mead M. McCabe, Sr., Marigrace McCabe, 9.2 to the Registration Statement.
Mead M. McCabe, Jr. and Nyer Medical Group,
Inc.
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No.
between the University of Miami and its 10.1 to the Registration Statement.
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit No.
January 20, 1992 between ProVec, Inc. and 10.2 to the Registration Statement.
EpiDNA, Inc.
42
<PAGE>
10.3 Agreement between University of Miami and Incorporated by reference to Exhibit No.
its School of Medicine and the Company 10.3 to the Registration Statement.
dated August 21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Sr. and the Company 10.4 to the Registration Statement.
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Jr. and the Company 10.6 to the Registration Statement.
10.7 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
10.8 Employment Agreement dated July 24, 1996 Incorporated by reference to Exhibit No.
between Richard H. Tullis and the Company 10.8 to the Registration Statement.
10.9 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated July 24, 1996 between 10.9 to the Registration Statement.
Richard H. Tullis and the Company
10.10 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit No.
between James A. Joyce and the Company 10.10 to the Registration Statement.
10.11 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No.
among Nyer Medical Group, Inc., Genetic 10.11 to the Registration Statement.
Vectors, Inc., Mead M. McCabe, Sr. And Mead
M. McCabe, Jr.
10.12 Investors Finders Agreement dated June 9, Incorporated by reference to Exhibit No.
1994 among Nyer Medical Group, Inc., and 10.12 to the Registration Statement.
the Company and Gulf American Trading
Company
21. Subsidiaries of the Registrant Attached 47
</TABLE>
(b) Reports on Form 8-K.
-------------------
None.
43
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GENETIC VECTORS, INC.
By:/s/ Mead M. McCabe, Jr.
---------------------------
Mead M. McCabe, Jr.
President
Date: March 28, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Date Signature Title
---- --------- -----
<S> <C> <C>
March 28, 1997 /s/ Mead M. McCabe, Sr.
---------------------------------------- Chairman of the Board of Directors
Mead M. McCabe, Sr., Ph.D. (Principal Executive Officer)
March 28, 1997 /s/ Richard H. Tullis Chief Executive Officer; Director
----------------------------------------
Richard H. Tullis, Ph.D.
March 28, 1997 /s/ Mead M. McCabe, Jr. President; Director (Principal
---------------------------------------- Financial Officer; Principal
Mead M. McCabe, Jr. Accounting Officer)
March 28, 1997 /s/ Mark E. Burroughs Director
----------------------------------------
Mark E. Burroughs
March 28, 1997 /s/ William J. Clifford, Jr. Director
----------------------------------------
William J. Clifford, Jr.
March 28, 1997 /s/ James A. Joyce Director
----------------------------------------
James A. Joyce
March 28, 1997 /s/ Kurt R. Gehlsen Director
----------------------------------------
Kurt R. Gehlsen, Ph.D.
March 28, 1997 /s/ Jack W. Fell Director
----------------------------------------
Jack W. Fell, Ph.D.
March 28, 1997 /s/ Allyn L. Golub Director
----------------------------------------
Allyn L. Golub, Ph.D.
44
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Location Page
------- ----------- -------- ----
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No.
as amended 3.1 to Registrant's registration Statement
(the "Registration Statement") on Form
SB-2 (Registration Number 333-5530-A).
3.2 By-laws of the Company Incorporated by reference to Exhibit No.
3.2 to the Registration Statement.
4.1 Form of Common Stock certificate Incorporated by reference to Exhibit No.
4.1 to the Registration Statement.
4.2 Form of Underwriters' Warrant Incorporated by reference to Exhibit No.
4.2 to the Registration Statement.
4.3 Form of 1996 Incentive Plan Incorporated by reference to Exhibit No.
4.3 to the Registration Statement.
9.1 Letter Agreement dated March 25, 1996 Incorporated by reference to Exhibit No.
among Mead M. McCabe, Sr., Marigrace McCabe, 9.1 to the Registration Statement.
Mead M. McCabe, Jr. and Nyer Medical Group,
Inc.
9.2 Letter Agreement dated July 24, 1996 Incorporated by reference to Exhibit No.
among Mead M. McCabe, Sr., Marigrace McCabe, 9.2 to the Registration Statement.
Mead M. McCabe, Jr. and Nyer Medical Group,
Inc.
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No.
between the University of Miami and its 10.1 to the Registration Statement.
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit No.
January 20, 1992 between ProVec, Inc. and 10.2 to the Registration Statement.
EpiDNA, Inc.
10.3 Agreement between University of Miami and Incorporated by reference to Exhibit No.
its School of Medicine and the Company 10.3 to the Registration Statement.
dated August 21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Sr. and the Company 10.4 to the Registration Statement.
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Jr. and the Company 10.6 to the Registration Statement.
10.7 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
45
<PAGE>
10.8 Employment Agreement dated July 24, 1996 Incorporated by reference to Exhibit No.
between Richard H. Tullis and the Company 10.8 to the Registration Statement.
10.9 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated July 24, 1996 between 10.9 to the Registration Statement.
Richard H. Tullis and the Company
10.10 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit No.
between James A. Joyce and the Company 10.10 to the Registration Statement.
10.11 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No.
among Nyer Medical Group, Inc., Genetic 10.11 to the Registration Statement.
Vectors, Inc., Mead M. McCabe, Sr. And Mead
M. McCabe, Jr.
10.12 Investors Finders Agreement dated June 9, Incorporated by reference to Exhibit No.
1994 among Nyer Medical Group, Inc., and 10.12 to the Registration Statement.
the Company and Gulf American Trading
Company
21. Subsidiaries of the Registrant Attached 47
</TABLE>
46
EXHIBIT 21
Subsidiaries of the Registrant
None.
47
