U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange
Act of 1934 (Fee Required)
For the quarterly period ended SEPTEMBER 30, 1998
/_/ Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from _______ to _______.
Commission File No. 0-21739
GENETIC VECTORS, INC.
---------------------
(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0324710
- ------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
5201 N.W. 77Th Avenue, Suite 100, Miami, Florida 33166
- ------------------------------------------------ (Zip Code)
(Address of Principal Executive Offices)
(305) 716-0000
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes /X/ No /_/
There were 2,345,017 shares of Common Stock outstanding as of November 20,
1998.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
2
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 503,815
Accounts receivable 3,595
Inventory 71,785
Prepaid expenses 20,437
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 599,632
EQUIPMENT, NET 478,184
DEFERRED ACQUISITION AND PATENT COSTS, NET 225,351
- --------------------------------------------------------------------------------
1,303,167
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities 129,374
- --------------------------------------------------------------------------------
129,374
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE, 10,000,000
SHARES AUTHORIZED, 2,345,017 SHARES ISSUED AND
OUTSTANDING 2,345
ADDITIONAL PAID-IN CAPITAL 6,216,953
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (5,045,505)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,173,793
- --------------------------------------------------------------------------------
1,303,167
================================================================================
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS (UNAUDITED)
CUMULATIVE
FROM
JANUARY 1, FOR THE FOR THE FOR THE FOR THE
1992 THREE THREE NINE NINE
(INCEPTION) MONTHS MONTHS MONTHS MONTHS
THROUGH ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1998 30, 1998 30, 1997 30, 1998 30, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
SALES 47,040 7,780 11,552 7,780 11,552
GRANT INCOME 149,147 0 16,000 35,897 16,000
- -------------------------------------------------------------------------------------------------
TOTAL REVENUE 196,187 7,780 27,552 43,677 27,552
- -------------------------------------------------------------------------------------------------
COST AND EXPENSES:
OPERATING EXPENSES 3,164,791 355,394 439,025 883,232 1,149,401
RESEARCH AND
DEVELOPMENT 2,232,857 198,679 98,085 679,695 389,766
DEPRECIATION AND
AMORTIZATION 106,927 14,829 35,173 44,487 40,568
- -------------------------------------------------------------------------------------------------
TOTAL EXPENSES 5,504,575 568,902 572,283 1,607,414 1,579,735
INTEREST, NET 262,883 9,384 104,605 56,210 159,052
- -------------------------------------------------------------------------------------------------
NET (LOSS) (5,045,505) (551,738) (440,126) (1,507,527) (1,393,131)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING. 2,345,017 2,339,634 2,341,727 2,339,634
NET (LOSS) PER COMMON
SHARE ($0.24) ($0.19) ($0.64) ($0.60)
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (UNAUDITED)
CUMULATIVE FROM
JANUARY 1, 1992
(INCEPTION) FOR THE FOR THE
THROUGH NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1997
========================================================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES:
NET LOSS (5,045,505) (1,507,527) (1,393,131)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 106,927 44,487 40,568
WRITE-OFF OF ACQUIRED TECHNOLOGY 15,000 - -
STOCK OPTIONS GRANTED FOR SERVICES 56,250 - -
(INCREASE) IN ACCOUNTS RECEIVABLE (3,595) (3,595) -
(INCREASE) IN INVENTORY (71,785) (71,785) -
INCREASE IN PREPAID EXPENSES (20,437) (20,437) -
DECREASE IN OTHER ASSETS - _ (91,159)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES 262,196 (25,168) (57,819)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 344,556 (76,498) (108,410)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (4,700,949) (1,584,025) (1,501,541)
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
PURCHASE OF EQUIPMENT AND IMPROVEMENTS (563,498) (60,761) (344,048)
ACQUISITION AND PATENT COSTS (261,964)` (1,366) (100,002)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (825,462) (62,127) (444,050)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
INCREASE DUE TO PARENT 413,518 - -
PROCEEDS FROM NOTE PAYABLE 35,000 - -
PAYMENT ON NOTE PAYABLE (35,000) - (35,000)
NET PROCEEDS FROM ISSUANCE OF COMMON STOCK 5,097,451 47,500 -
CAPITAL CONTRIBUTION 500,000 - -
DEFERRED OFFERING REFUND 25,500 - -
DEFERRED OFFERING COSTS (6,243) - -
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED ON) FINANCING ACTIVITIES 6,030,226 47,500 (35,000)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 503,815 (1,598,652) (1,980,591)
CASH AT BEGINNING OF PERIOD 0 2,102,467 4,745,208
- ------------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD 503,815 503,815 2,764,617
========================================================================================================================
SUPPLEMENTAL DISCLOSURES:
CONVERSION OF DUE TO PARENT IN EXCHANGE FOR STOCK 413,518 - -
CONVERSION OF ACCRUED WAGES FOR STOCK 132,822 - -
- ------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
</TABLE>
5
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
GENETIC VECTORS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited financial
statements include all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the results for the
periods presented. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the Company's Annual Report for
the year ended December 31, 1997. The results of operations for the nine months
ended September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. RECLASSIFICATIONS
Certain reclassifications of 1997 amounts have been made in order to conform
to the 1998 presentation.
3. EARNINGS PER SHARE
The following reconciles the components of the earnings per share (EPS)
computation.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 ENDED SEPTEMBER 30, 1997
---------------------------------------------------------------------------------------------------------
LOSS SHARES SHARE
(NUMERATOR) (DENOMINATOR) PER SHARE AMOUNT LOSS (NUMERATOR) (DENOMINATOR) PER SHARE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss per common
share - basic ($1,507,527) 2,341,727 ($.64) ($1,393,131) 2,339,634 ($.60)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of
Dilutive:
Securities -- -- -- -- -- --
Options -- -- -- -- -- --
Warrants -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Loss per common
share, assuming
dilution ($1,507,527) 2,341,727 ($.64) ($1,393,131) 2,339,634 ($.60)
</TABLE>
Net loss per share of common stock is based on the weighted average number of
common shares outstanding during each period. Diluted loss per share of common
stock is computed on the basis of the weighted average number of common shares
and diluted options and warrants outstanding. Dilutive options and warrants
having an anti-dilutive effect are excluded from the calculation.
6
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS.
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Quarterly Report
contains forward-looking statements, including statements regarding, among other
things, (a) the growth strategies of Genetic Vectors, Inc. (the "COMPANY"), (b)
anticipated trends in the Company's industry and (c) the Company's future
financing plans. In addition, when used in this Quarterly Report, the words
"believes," "anticipates," "intends," "in anticipation of," and similar words
are intended to identify certain forward-looking statements. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of changes in trends in the economy and
the Company's industry, reductions in the availability of financing and other
factors. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Quarterly Report will in
fact occur. The Company does not undertake any obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.
As previously reported in its Form 10-QSB for the three-month period ended
June 30, 1998, the Company will need to raise additional capital to continue
operations beyond November 1998. The Company is actively searching for capital,
but has not raised any substantial capital as of the date of this Quarterly
Report. No assurance can be given that the Company will be successful in raising
any such capital. In the absence of such additional capital, the Company will be
required to curtail certain of its business activities. Any such action by the
Company will have a material adverse effect on the Company's ability to continue
to research and develop its proposed products and to market and sell its
existing product, and will have a material adverse Effect on its operations and
financial condition and on its ability to continue as a going concern. See
"Management's Plan of Operations and Discussion and Analysis - Liquidity and
Capital Resources."
After removing it from the marketplace during the third quarter of 1997,
the Company has completed the refinement of the EpiDNA Picogram Assay Kit (the
"PICOGRAM ASSAY KIT"). During the three-month period ended September 30, 1998,
the Company has not generated significant revenues. As a result, the Company
intends to continue to report its plan of operations. In July 1998, the Company
reintroduced the Picogram Assay Kit to the marketplace and is closely monitoring
its market acceptance. There can be no assurances that the Picogram Assay Kit
will be accepted by the marketplace.
PLAN OF OPERATION
ADDITIONAL FUND RAISING ACTIVITIES. The Company had originally projected
that the funds raised in its initial public offering (the "OFFERING"), which was
closed on December 26, 1996, would last for approximately eighteen months after
the date of the Offering. As previously reported in its Form 10-QSB for the
three-month period ended June 30, 1998, the Company will need to raise
additional capital to continue operations beyond November 1998. In the absence
7
<PAGE>
of such additional capital, the Company will be required to curtail certain
of its business activities. The plan of operation described in this Quarterly
Report assumes that the Company will be successful in raising additional
capital. The failure to raise additional capital will, among other things,
cause deviations from the plan of operation described in this Quarterly Report.
SUMMARY OF ANTICIPATED PRODUCT RESEARCH AND DEVELOPMENT. Subject to the
qualifications above, the Company will continue its product research and
development and continue to implement what the Company believes to be a feasible
plan for product development. The Company is outsourcing production of the
Picogram Assay Kit. The major components of the plan of operations are as
follows:
1998 . Continued research in applications of Genetic Vectors' nucleic
acid labeling technology.
1999 . Initiation of EasyID DNA probe product development for quality
assurance in the food and beverage industry.
. Completion of first DNA labeling product for test marketing in
the molecular biology research market.
. Research in the application of automated techniques of DNA
analysis for EpiDNA.
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES. The Company does not currently
anticipate any significant plant or equipment purchases during the next twelve
months.
CHANGES IN THE NUMBER OF EMPLOYEES. The Company currently has ten
employees. As shown in the following chart, the Company does not anticipate
hiring additional personnel during the remainder of 1998. The Company
anticipates hiring additional personnel in 1999 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.
PROPOSED PERSONNEL ADDITION PLAN 1998 1999
- -------------------------------- ---- ----
MANAGEMENT
Chief Operating Officer 0 1
Chief Financial Officer 0 1
SALES AND ADMINISTRATION
Administrative Personnel 0 1
Director - Sales and Marketing 0 1
Salespersons 0 2
Technical Information/Inside Sales 0 0
Supervisors 0 1
Technicians 0 3
---- ----
TOTAL PROPOSED NEW EMPLOYEES 0 10
==== ====
TOTAL EMPLOYEES AT END OF YEAR 10 20
==== ====
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Other than grant income, the Company did not generate significant revenues
during the nine months ended September 30, 1998. The Company had no cost of
sales for that period.
Although the Company did generate some revenue from sales of its Picogram
Assay Kit during Fiscal 1997, it must be stressed that such sales were
preliminary in nature, and represented the purchase of product samples by the
purchasers primarily for evaluation purposes. The Company had temporarily
removed the Picogram Assay Kit from the market during the third quarter of 1997,
and the Company did not generate any significant sales revenue from the sale of
the Picogram Assay Kit in the nine months ended September 30, 1998. The Company
reintroduced the Picogram Assay Kit in July of 1998; however, the Company
remains largely a development stage company with expenditures far exceeding
revenues.
Research and development expenses for the nine months ended September 30,
1998 increased by $289,929 over 1997. This increase was largely attributable to
additional costs associated with the Picogram Assay Kit redevelopment program.
Operating expenses for the nine months ended September 30, 1998 decreased
by $266,169 over 1997. This decrease was primarily related to the Company's
focused efforts on development.
LIQUIDITY AND CAPITAL RESOURCES. The net cash used by the Company in
operating activities aggregated $1,584,025. This was largely attributable to
operating expenses and research and development activities. The Company's net
cash used in investing activities aggregated $62,127 during 1998, consisting
mainly of purchases of equipment and patent costs. The Company's net cash
provided in financing activities aggregated $47,500 during 1998, consisting
mainly of proceeds from stock issuances.
As of September 30, 1998, the Company had total stockholders' equity of
$1,173,793. The Company has no long term debt. The Company had $503,815 in cash
and cash equivalents as of this date. These amounts represent, in large part,
the remainder of the net proceeds generated from the Offering. The Company
anticipates that such proceeds will last through November 1998. Absent
significant sales, additional financing will be necessary at that time for the
Company to continue operations. Additionally, the Company expects to evaluate
acquisition candidates. The Company may have to use some of its available cash
in connection with these acquisitions whether or not any of them are
consummated.
CERTAIN BUSINESS RISK FACTORS
The Company is subject to various risks which may have a material adverse
effect on its business, financial condition and results of operations. Certain
risks are discussed below:
9
<PAGE>
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company has expended, and will continue to expend in the future,
substantial funds to complete the research and development of its products, some
of which are in the early development stage. The Company will require
substantial funds for these purposes. The Company will need to raise additional
capital to continue operations beyond November 1998. The Company is actively
searching for capital, but has not consummated any additional capital raising
transactions as of the date of this Quarterly Report. No assurances can be given
that the Company will be successful in raising such capital. The Company is
currently evaluating whether to curtail its business activities to preserve its
existing capital until an alternative source of capital can be located, if at
all. Any such action by the Company will have a material adverse effect on the
Company's ability to continue to research and develop its proposed products and
to market and sell its existing product, and will have a material adverse effect
on its operations and financial condition and on its ability to continue as a
going concern. See "Management's Plan of Operations and Discussion and Analysis
- - Liquidity and Capital Resources."
LIMITED OPERATING HISTORY AND EXPECTATION OF FUTURE LOSSES
The Company was organized in 1991 and is in the development stage. To
date, the Company has generated very limited revenues from the sale of its
product. Further, the Company has devoted most of its efforts to research and
development and the development of a business strategy. From its inception
through September 30, 1998, the Company has incurred cumulative losses of
approximately $5.0 million. The Company expects to incur substantial losses for
the foreseeable future due, in part, to research and development and
manufacturing, distributing and marketing its product. There can be no assurance
that the Company will not encounter substantial delays and unexpected expenses
related to research, development, production and marketing or other unforeseen
difficulties, which may cause additional losses.
ABILITY TO CONTINUE TO OPERATE AS A GOING CONCERN
The Company's independent auditors have added an explanatory paragraph to
their audit opinion issued in connection with the Company's 1997 and 1996
financial statements which states that the Company's dependence on outside
financing and losses since inception raise substantial doubt about its ability
to continue as a going concern. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
UNCERTAIN MARKET ACCEPTANCE AND DEPENDENCE ON A LIMITED NUMBER OF PRODUCTS
The Company's initial product is the EpiDNA(TM) Picogram Assay (thE
"PICOGRAM ASsay"). The Company performed a preliminary launch of the Picogram
Assay during the third quarter of its 1997 fiscal year. Thereafter, it became
apparent that additional fine tuning of the kit was required in order to achieve
consistent results at the lower end of the sensitivity scale. Accordingly, the
kit was removed from the marketplace in December, 1997. The Company reintroduced
the kit in the marketplace in July of 1998, although no assurances can be given
that the kit will be well received by the marketplace. To date, the Company has
generated only a limited amount of sales from the kit. The Company's second
proposed product line is EasyID(TM) which combines the EpiDNA technology with
gene probes in kits for the detection of yeasts. These kits are intended for
10
<PAGE>
quality control in the food and beverage industry. The Company intends to
continue the development of the EasyID technology. Because the Company has a
limited number of products under development, the Company is highly dependent
and the Company's long-term success may depend on the market acceptance of these
products. Market acceptance of the Company's products will depend, in part, on
the Company's ability to demonstrate the superiority of its products with
respect to existing techniques, including the products' accuracy, ease of use,
reliability and cost-effectiveness and on the effectiveness of the Company's
marketing efforts. No assurance can be given that the Company will gain market
acceptance for its products. Failure to gain market acceptance for either of
these product lines will have a material adverse effect on the Company's
business, financial condition and results of operations.
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT
The science and technology of the Company's proposed products is rapidly
evolving. Although the Company has conducted limited marketing of its initial
product, other proposed products are in the early development stage. These
products will require significant further research, development and testing and
are subject to the risks of failure inherent in the development of products
based on innovative technologies. These risks include the possibility that any
or all of the proposed products are found to be ineffective, unsafe, or
otherwise fail to receive necessary regulatory clearances, if any, that the
proposed products, though effective, are uneconomical to market, that third
parties hold proprietary rights that preclude the Company from marketing them,
or that third parties market a superior or equivalent product. Accordingly, the
Company is unable to predict whether its research and development activities
will result in any commercially viable products.
LIMITED MANUFACTURING AND MARKETING CAPABILITY
The Company has limited experience in marketing its product and no
assurance exists that the Company can market its product in an effective manner.
The Company intends to market its product in the United States, Europe and Asia
through a network of independent distributors supported by a direct sales force.
A limited sales force is in place. No distribution agreements have been entered
into. The Company's ability to market its product in Europe and Asia and other
areas may depend on strategic alliances with marketing partners. There can be no
assurance that the Company will enter into such alliances with other companies
on favorable terms or at all.
GOVERNMENT REGULATION
The Company's operations will be subject to regulation normally incident
to business operations (e.g., occupational safety and health acts, workmen's
compensation statutes, unemployment insurance, and income tax and social
security related regulations), and to regulations present in the biotechnology
industry. The biotechnology industry is subject to extensive Federal, state and
local government regulation. Although the Company believes that its operations
will comply with all applicable laws and regulations, there can be no assurance
that the subsequent adoption of laws or regulations or interpretations of
existing laws or regulations, including changes which might subject the
Company's products to regulation by the Food and Drug Administration, will not
11
<PAGE>
adversely effect the Company's business. Current or future Federal or state
legislation could also have a material adverse effect on the Company's
operations and financial condition.
Any manufacturing processes utilized by the Company will be subject to
stringent Federal, state and local regulations governing the use, generation,
manufacture, storage, handling and disposal of certain materials and wastes, and
regarding the manufacture, testing, labeling, record keeping, and storage of its
products. Although the Company believes that it has complied and can continue to
comply in all material respects with such laws and regulations, there can be no
assurance that the Company will not be required to incur significant costs in
the future in complying with manufacturing and environmental regulations.
RISK OF PRODUCT LIABILITY CLAIMS
The nature of the Company's business exposes it to risk from product
liability claims. The Company maintains product liability insurance for its
products with limits of $1 million per occurrence and $2 million in the
aggregate per year. Such insurance coverage is, however, becoming increasingly
expensive and there can be no assurance that the Company's insurance will be
adequate to cover future product liability claims, or that the Company will be
successful in maintaining adequate product liability insurance at acceptable
rates. Any losses that the Company may suffer from future liability claims, and
any adverse publicity from product liability litigation, may have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
The biotechnology industry is subject to intense competition. The Company
has numerous competitors in the United States and abroad which include, among
others, diagnostics, health care, pharmaceutical and biotechnology companies.
Additionally, the Company expects other competitors to enter its field in the
future. Many of the Company's present and future competitors have substantially
greater financial, business and technological resources than the Company, and
may have substantially greater experience in its industry. There can be no
assurance that the Company's resources will be sufficient to allow it to compete
effectively in the future. Such competition could have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS
Certain key components of the Company's product are currently provided to
the Company by a limited number of sources, one of which is provided by a single
source. In connection with the component which is provided by a single source,
the Company has not arranged alternative supply sources. In the event that the
Company is unable to obtain sufficient quantities of such components on
commercially reasonable terms, or in a timely manner, the Company will be unable
to manufacture its product on a timely and cost-competitive basis which would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, if any of the component parts of the
Company's product are no longer available, the Company may be forced to further
develop its technology to incorporate alternate component parts.
12
<PAGE>
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in part on its ability to obtain and
maintain patent protection for its products, preserve its trade secrets, and
operate without infringing the proprietary rights of other parties. Because of
the substantial length of time and expense associated with bringing new products
through development to the marketplace, the biotechnology industry places
considerable importance on obtaining and maintaining patent and trade secret
protection for new technologies, products and processes. Legal standards
relating to the scope of claims and the validity of patents in the biotechnology
field are uncertain and evolving. There can be no assurance that patent
applications to which the Company holds rights will result in the issuance of
patents, that any patents issued or licensed to the Company will not be
challenged and held to be invalid, or that any such patents will provide
commercially significant protection to the Company's technology, products and
processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information not
covered by patents to which the Company has rights or obtain access to the
Company's know-how or that others will not be issued patents which may prevent
the sale of one or more of the Company's products, or require licensing and the
payment of significant fees or royalties by the Company to third parties in
order to enable the Company to conduct its business. Defense and prosecution of
patent claims can be expensive and time consuming, regardless of whether the
outcome is favorable to the Company, and can result in the diversion of
substantial financial, management, and other resources from the Company's other
activities. An adverse outcome could subject the Company to significant
liability to third parties, require the Company to obtain licenses from third
parties, or require the Company to cease any related research and development
activities or product sales. In addition, the laws of certain countries may not
protect the Company's intellectual property. No assurance can be given that any
licenses required under any such third-party patents or proprietary rights would
be made available on commercially reasonable terms, if at all.
The Company's success is also dependent upon the skills, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company plans to require all of its employees, consultants, advisors
and collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure and in most cases assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure.
DEPENDENCE ON KEY PERSONNEL; INEXPERIENCE OF MANAGEMENT
The Company's ability to successfully manage its growth will substantially
depend on its ability to attract and retain additional qualified management
personnel. Currently, none of the Company's administrative staff has any
experience in running a large company or a company whose securities are publicly
held, apart from the Company. There can be no assurance that the demands placed
on Company personnel by the growth of the Company's business and the need for
13
<PAGE>
close monitoring of the Company's operations and financial performance through
appropriate and reliable administrative and accounting procedures and controls
will be met, or that the Company will otherwise manage its growth successfully;
the failure to do so could have a material adverse effect on the Company's
business, results of operations and financial condition. There is significant
competition for qualified personnel, and there can be no assurance that the
Company will be successful in recruiting, retaining or training the management
personnel it requires. The Company currently has no officer with experience in
managing the financial and accounting functions of a publicly-held company.
14
<PAGE>
PART II
OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
USE OF PROCEEDS
1. Effective date of registration statement: December 20, 1996;
Commission File Number 333-5530-A.
2. The Offering commenced on December 20, 1996.
3. The Offering did not terminate before any securities were sold.
(i) The Offering did not terminate before the sale of all
securities registered.
(ii) The managing underwriter was Shamrock Partners, Ltd.
(iii) Securities registered:
(a) Common Stock ($0.001 par value)
(b) Underwriter warrants to purchase an aggregate of 50,000
shares of Common Stock. Those warrants will become
exercisable on December 21, 1997 and expire on December
19, 2001.
(iv) Securities sold (all sold for account of the issuer):
AGGREGATE AGGREGATE
OFFERING OFFERING
PRICE OF PRICE OF
AMOUNT AMOUNT AMOUNT AMOUNT
TITLE REGISTERED REGISTERED SOLD SOLD
----------------------------------------------------------------------------
1. Common Stock 575,000 $5,750,000 $575,000 $5,750,000
2. Common Stock pursuant
to Underwriter Warrants 50,000 750,000 - 0 - - 0 -
3. Underwriter Warrants 50,000 500 50,000 500
15
<PAGE>
(v) Underwriting discounts and commissions: $ 517,500
Finder's fees: -0-
Expenses paid for Underwriters: 217,139
Other expenses: 445,610
Total Expenses $1,180,249
(vi) Net Proceeds of Offering Before Referral $4,569,751
Refund of Offering Costs: $ 19,257
Net Proceeds of Offering: $4,589,008
(vii) Uses of Net Proceeds:
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENTS TO
DIRECTORS, OFFICERS, GENERAL
PARTNERS OF THE ISSUER OR THEIR
ASSOCIATES; TO PERSONS OWNING TEN
PERCENT OR MORE OF ANY CLASS OF
EQUITY SECURITIES OF THE ISSUER; DIRECT OR INDIRECT PAYMENT TO
AND TO AFFILIATES OF THE ISSUER OTHERS
--------------------------------------- ----------------------------------
<S> <C> <C>
Construction of plant, building
and facilities:
Purchase and installation of machinery
and equipment: -- 501,802
Purchase of real estate: -- --
Acquisition of other
business(es): -- --
Repayment of indebtedness: -- --
Working capital: $30,000 901,483
TEMPORARY INVESTMENTS (SPECIFY)
Merrill Lynch Money Market Account: $97,685
Certificate of Deposit: $406,130
16
<PAGE>
OTHER PURPOSES (SPECIFY)
Research and Development and
patent protection expenditures: -- $1,592,019
Expansion of Manufacturing facilities: $109,000 $270,299
Sales and marketing capabilities: -- $169,052
Management Salaries $429,711 --
Investor Relations -- $81,827
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION PAGE
--- ----------- -------- ----
<S> <C> <C>
3.1 Articles of Incorporation of the Incorporated by reference to Exhibit
Company, as amended No. 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.
10.1 License Agreement dated Incorporated by reference to Exhibit
September 7, 1990 between the No. 10.1 to the Registration Statement.
University of Miami and its School
of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit
January 20, 1992 between ProVec, Inc. No. 10.2 to the Registration Statement.
and EpiDNA, Inc.
10.3 Agreement between University of Miami Incorporated by reference to Exhibit
and its School of Medicine and the No. 10.3 to the Registration Statement.
Company dated August 21, 1996
10.4 Employment Agreement dated Incorporated by reference to Exhibit
August 15, 1996 between Mead M. McCabe, No. 10.4 to the Registration Statement.
Sr. and the Company
17
<PAGE>
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 between No. 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Employment Agreement dated Incorporated by reference to Exhibit
August 15, 1996 between Mead M. McCabe, No. 10.6 to the Registration Statement.
Jr. and the Company
10.7 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 between No. 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
10.8 Consulting Agreement dated June 19, Incorporated by reference to Exhibit
1996 between James A. Joyce and the No. 10.10 to the Registration Statement.
Company
10.9 Letter Agreement dated December 16, Incorporated by reference to Exhibit
1994 among Nyer Medical Group, Inc., No. 10.11 to the Registration Statement.
the Company, Mead M. McCabe, Sr. And
Mead M. McCabe, Jr.
10.10 Investors Finders Agreement dated Incorporated by reference to Exhibit
June 9, 1994 among Nyer Medical Group, No. 10.12 to the Registration Statement.
Inc., and the Company and Gulf American
Trading Company
10.11 Industrial Real Estate Lease dated June Incorporated by reference to Exhibit
12, 1997 among the Company and Jetex No. 10.13 to the Company's Quarterly
Group, Inc. Report on Form 10-QSB for the Quarter
ended June 30, 1997
10.12 Letter from University of Miami dated Incorporated by reference to Exhibit
April 8, 1998 No. 10.12 to the Company's Annual
Report on Form 10-KSB for the Fiscal
Year ended December 31, 1997
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting Not applicable
principles
19. Reports furnished to Security holders Not applicable
22. Published report regarding matters Not applicable
submitted to vote
23. Consents of experts and counsel Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
(B) REPORTS ON FORM 8-K.
None.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 23, 1998 GENETIC VECTORS, INC.
By: /s/ Mead M. Mccabe, Jr.
--------------------------------
Mead M. McCabe, Sr.
Chairman of the Board of Directors
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION PAGE
--- ----------- -------- ----
<S> <C> <C> <C>
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit
as amended No. 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.
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit
between the University of Miami and its No. 10.1 to the Registration Statement.
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit
January 20, 1992 between ProVec, Inc. and No. 10.2 to the Registration Statement.
EpiDNA, Inc.
10.3 Agreement between University of Miami and Incorporated by reference to Exhibit
its School of Medicine and the Company No. 10.3 to the Registration Statement.
dated August 21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit
between Mead M. McCabe, Sr. and the Company No. 10.4 to the Registration Statement.
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 between No. 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
between Mead M. McCabe, Jr. and the Company No. 10.6 to the Registration Statement.
10.7 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 between No. 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
10.8 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit
between James A. Joyce and the Company No. 10.10 to the Registration Statement.
10.9 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit
among Nyer Medical Group, Inc., the No. 10.11 to the Registration Statement.
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
20
<PAGE>
10.10 Investors Finders Agreement dated Incorporated by reference to Exhibit
June 9, 1994 among Nyer Medical Group, No. 10.12 to the Registration Statement.
Inc., and the Company and Gulf American
Trading Company
10.11 Industrial Real Estate Lease dated June 12, Incorporated by reference to Exhibit
1997 among the Company and Jetex Group, Inc. No. 10.13 to the Company's Quarterly
Report on Form 10-QSB for the Quarter
ended June 30, 1997
10.12 Letter from University of Miami dated Incorporated by reference to Exhibit
April 8, 1998 No. 10.12 to the Company's Annual
Report on Form 10-KSB for the Fiscal
Year ended December 31, 1997
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
19. Reports furnished to Security holders Not applicable
22. Published report regarding matters Not applicable
submitted to Vote
23. Consents of experts and counsel Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 503,815
<SECURITIES> 0
<RECEIVABLES> 3,595
<ALLOWANCES> 0
<INVENTORY> 71,785
<CURRENT-ASSETS> 599,632
<PP&E> 563,498
<DEPRECIATION> (85,314)
<TOTAL-ASSETS> 1,303,167
<CURRENT-LIABILITIES> 129,374
<BONDS> 0
0
0
<COMMON> 2,345
<OTHER-SE> 1,171,448
<TOTAL-LIABILITY-AND-EQUITY> 1,303,167
<SALES> 7,780
<TOTAL-REVENUES> 43,677
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,607,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,507,527)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,507,527)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>