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, 1997
[ ] 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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5201 N.W. 77TH AVENUE, SUITE 100, MIAMI, FLORIDA 33166
(Address of Principal Executive Offices) (Zip Code)
(305) 716-0000
(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
None None
Securities registered under Section 12(g) of the Securities Act:
COMMON STOCK, PAR VALUE $.001
(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. [X]
The issuer generated revenues of $103,260 during its most recent fiscal
year.
The aggregate market value of the Company's voting stock held by
non-affiliates as of April 13, 1998 was approximately $10,200,468 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 April 15, 1998.
Documents Incorporated by Reference: See Item 13
This Form 10-KSB consists of __ pages. The Exhibit Index begins on page
__.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL INFORMATION
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
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, the
EpiDNA Picogram Assay (the "Picogram Assay"). 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. The Company performed a preliminary launch of the
Picogram Assay during the third quarter of its 1997 fiscal year. While the
Company did achieve a limited number of preliminary sales of this kit to
biopharmaceutical manufacturers (for consideration and examination) during the
third quarter, 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 is ahead of schedule in its redevelopment program of
the kit and intends to reintroduce the kit in the marketplace the third quarter
of 1998. The Company 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 believes that the Picogram
Assay will provide biopharmaceutical companies with a tool to measure DNA in the
process stream and validate acceptable levels of DNA in the final product.
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Approximately 1,300 companies comprise the United States biotechnology
industry. Over one-half of those companies manufacture human therapeutics and
diagnostics. The market which is proposed to be addressed by the Picogram Assay
includes manufacturers of therapeutics and imaging diagnostic antibodies.
EPIDNA TECHNOLOGY
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.
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 provides the basis for the
Picogram Assay which is 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
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.
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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. Prior to its preliminary launch of
this product the Company had eliminated a step in the Picogram Assay which was
intended to make the assay more user friendly. Subsequent to this preliminary
launch it was discovered that the elimination of this step caused the assay to
lose some reproducibility in the ultra-sensitive lower limit of measurability.
Accordingly, management of the Company felt that it was prudent to temporarily
remove the product from the market until the product's original reproducibility
could be restored. Accordingly, the Picogram Assay was removed from the
marketplace in the second half of 1997. The Company contemplates the
reintroduction of the Picogram Assay in the third quarter of 1998.
The Picogram Assay is designed for routine application by technicians
and is intended for validation of final product purity. 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 EPIDNA NANOGRAM ASSAY. Genetic Vectors believes that its proposed
EpiDNA Nanogram Assay (the "Nanogram Assay") has applications in research and
for process monitoring during development or manufacturing. However, the Company
has placed the development of the Nanogram Assay on hold indefinitely while the
Company further evaluates the market potential of this product. The Company is
currently analyzing the potential market for this assay. 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
Company believes that the Nanogram Assay may provide a rapid means
(approximately one hour) for measuring one to one hundred nanograms of DNA in a
sample.
The Nanogram Assay could 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
believes the Nanogram Assay could 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 Company believes that 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
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kits using the labeling procedure specialized for the attachment of compounds as
diverse as biotin, digoxigenin, enzymes, fluorescent and chemiluminescent
compounds and chelators.
EASYID MICROBIAL IDENTIFICATION TECHNOLOGY
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 EasyID technology will
allow the development of a series of tests that will detect yeast strains
commonly 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
The Company spent approximately $805,711 and $70,873 on
Company-sponsored research and development activities during its 1997 and 1996
fiscal years, respectively. The Company did not conduct any material
customer-sponsored research and development activities during either of those
fiscal years.
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MARKETING AND SALES
The Company has conducted preliminary marketing of the Picogram Assay.
However, the Company temporarily removed the Picogram Assay from the marketplace
during the second half of 1997 and is currently in the process of refining it.
The Company contemplates the reintroduction of this product in the third quarter
of 1998. Accordingly, the Company remains largely a development stage company
with the Company's expenditures far exceeding its revenues. Upon reintroduction
of the Picogram Assay, Genetic Vectors intends to attempt to enter its various
target markets in two phases. The Company will target the biopharmaceutical
quality assurance market in Phase I during the second half of 1998. 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. 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. 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 present its
product to a variety of potential customers via the Internet. 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.
In Phase II, 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 II, 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.
The Company has received information regarding the potential market for
its Picogram Assay which indicates that the potential annual market for this
product ranges from $4,000,000 to $20,000,000. If the actual market for this
product is near the lower end of this range, the Company will have substantial
difficulty in generating significant sales.
REGULATION
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
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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.
MANUFACTURING
Genetic Vectors' initial manufacturing activities were conducted in its
research laboratory located at the University of Miami. As of March 1998, the
Company relocated its manufacturing and research and development activities and
its executive offices to new facilities located at 5201 N.W. 77th Avenue, Suite
100, Miami, Florida. The Company believes that this space will be adequate for
its manufacturing and research and development facilities for the foreseeable
future.
Certain key components of the Company's Picogram Assay product are
currently provided by a limited number of sources, and many components are
provided by outside vendors. One component is provided by a single source. The
Company is utilizing contract manufacturers to manufacture required reagents.
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 Picogram Assay, is available only from DAKO
Diagnostics, Ltd.
STRATEGY FOR GROWTH
Genetic Vectors intends to expand its business opportunities through
increased marketing efforts (as outlined in "Marketing and Sales") and by
expanding its product lines (as described in
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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. To date the Company has been unsuccessful in consummating any
acquisitions. Management believes that the successful consummation of several of
these acquisition opportunities 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
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.
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. Genetic Vectors believes that the largest competitive element in the
current market is specialty reference laboratories. These reference laboratories
offer DNA assaying at their own facilities based on their own individually
developed assays. While clearly
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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. 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 or quality level
will occur.
CUSTOMERS
Because the Company has temporarily removed the Picogram Assay from the
marketplace and is in the process of refining this product and preparing it for
a contemplated re-introduction to the marketplace, the Company has no current
customers.
EMPLOYEES
Genetic Vectors currently has nine employees, two 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
The Company has acquired rights to make, use and sell certain products
under the patents and patent applications referred to herein pursuant to a
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,
Inc. 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
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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.
The Company removed the Picogram Assay from the marketplace during the
second half of 1997. Since this removal from the marketplace has exceeded a
three month period, it constituted a breach of the License Agreement. The
University of Miami, however, has agreed to waive this breach through August 31,
1998. If the Company is not able to resume sales by this date, the University of
Miami could declare the License Agreement to be in default. This would have a
material adverse effect on the Company and its proposed operations and
viability.
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 or the exercise of
the march-in rights would cause the Company to suffer a material adverse effect
on its business, financial condition and viability. As described herein, the
Company has already developed products based on the Technology and intends to
continue the commercialization of the Technology.
The Company has applied, on behalf of the University of Miami, 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. 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 are currently two United States patents issued. 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 14,000 square feet of space
located at 5201 N.W. 77th Avenue, Suite 100, Miami, Florida 33166. This lease,
which was entered into on June 12, 1997, has a ten-year term. The Company may
cancel this lease after five years upon the payment of a cancellation fee equal
to three months of the then-current monthly rent. This property is in good
condition. The Company has relocated its manufacturing and research and
development facilities to this location.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not aware of any material legal proceedings involving
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
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 the fourth quarter of the
Company's 1997 fiscal year.(1) The Common Stock bid price as of April 14, 1998
was $8.75.
BID PRICE PER SHARE(2)
----------------------
HIGH LOW
---- ---
Fourth Quarter 1996(3) $16.00 $12.00
First Quarter 1997 $13.875 $3.00
Second Quarter 1997 $10.375 $6.00
Third Quarter 1997 $9.25 $5.375
Fourth Quarter 1997 $9.875 $6.00
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(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.
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HOLDERS OF COMMON STOCK
As of April 14, 1998 there were approximately 49 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
None.
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):
<TABLE>
<CAPTION>
AGGREGATE OFFERING AGGREGATE
AMOUNT PRICE OF AMOUNT OFFERING PRICE OF
TITLE REGISTERED REGISTERED AMOUNT SOLD AMOUNT SOLD
- -------------------------------------------- ----------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
12
<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 refund: $4,569,751
Refund of Offering costs: 19,257
----------
Net Proceeds of Offering $4,589,008
(vii) Uses of Net Proceeds:
13
<PAGE>
<TABLE>
<S> <C> <C>
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; and to affiliates of the Direct or indirect payment to
issuer others
---------------------------------------- ---------------------------------
Construction of plant, building 0
and facilities:
Purchase and installation of machinery
and equipment: 440,181
Purchase of real estate: 0
Acquisition of other business(es): 0
Repayment of indebtedness: 0
Working capital: 30,000 395,127
TEMPORARY INVESTMENTS (SPECIFY)
Merrill Lynch Money Market Account: 441,443
Certificates of Deposits: 1,584,331
OTHER PURPOSES (SPECIFY)
Research and Development and Patent Protection
Expenditures: 910,958
Expansion of Research/Manufacturing Facilities: 109,000 174,121
Sales and Marketing Capabilities: 155,819
Management Salaries: 275,865 0
Investor Relations: 72,163
</TABLE>
ITEM 6. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS.
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Annual Report
contains forward-looking statements, including statements regarding, among other
things, (a) the Company's growth strategies, (b) anticipated trends in the
Company's industry and (c) the Company's future financing plans. In addition,
when used in this Annual Report, the words
14
<PAGE>
"believes," "anticipates," "intends," "expects," "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 Annual 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.
Although the Company launched the Picogram Assay on a preliminary basis
during the third quarter of its 1997 fiscal year ("Fiscal 1997"), it has
temporarily removed the product from the marketplace for evaluation and
revision. Accordingly, the Company remains largely a development stage company,
with the Company's expenditures far exceeding its revenues. After reintroduction
of the Picogram Assay, the Company will be closely monitoring the market
acceptance of its EpiDNA product line and evaluations and comments provided by
customers, and will continue its research and development efforts. Because the
Company has not generated significant revenues, the Company intends to continue
to report its plan of operation.
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. The Company now believes it has
sufficient funds for the balance of 1998, assuming no significant product sales
are achieved. If significant product sales are not realized prior to the
expenditure of the proceeds of the Offering, the Company will need to raise
additional funds within such time period. Additionally, if 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, additional financing may be needed even if the
Company has realized significant product sales.
SUMMARY OF ANTICIPATED PRODUCT RESEARCH AND DEVELOPMENT. 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 has modified the feasibility plan since the last reporting period by
placing development of the EpiDNA Nanogram Assay kits on hold indefinitely,
while the Company further evaluates the market potential of this product. The
Company believes its resources can be better employed in the research and
development of other products and technologies, including potential applications
of its nucleic acid labeling technology. The Company is also evaluating the
feasibility of outsourcing commercial production of the Picogram Assay. The
major components of the plan of operations as revised from the last reporting
period are as follows:
1998 /bullet/ Complete launch for modified EpiDNA Picogram Assay
kit (on a preliminary basis to seek customer
evaluations).
/bullet/ Development of automated production protocols for the
EpiDNA Picogram Assay.
15
<PAGE>
(The Company is evaluating the feasibility of
outsourcing commercial production, including development
of automated protocols).
/bullet/ Continued research in applications of Genetic Vectors'
nucleic acid labeling technology. The Company had
previously reported that this research would be
completed in 1997, however, the Company will devote more
time and resources to these applications in 1998 than
previously projected.
1999 /bullet/ Initiation of EasyID DNA probe product development for
quality assurance in the food and beverage industry.
/bullet/ Completion of first DNA labeling product for test
marketing in the molecular biology research market. (The
Company anticipates that this product will be completed
in 1999 instead of 1998.)
/bullet/ 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 nine
employees. As shown in the following chart, the Company anticipates hiring
additional personnel during 1998 and 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
- -------------------------------- ---- ----
SALES AND ADMINISTRATION
Administrative Personnel ................. 1 1
Director - Sales and Marketing ........... 1 0
Salespersons ............................. 0 2
Technical Info/Inside Sales .............. 1 2
Supervisors .............................. 0 1
Technicians .............................. 2 3
-- --
TOTAL PROPOSED NEW EMPLOYEES ............. 5 9
== ==
TOTAL EMPLOYEES AT END OF YEAR............ 14 23
== ==
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company generated sales of $39,260 during Fiscal 1997, which were
attributable to the preliminary launch of its Picogram Assay product. During
1997 the Company was awarded a grant for $99,897 from the National Institute of
Health and the National Institute of Allergy and Infectious Diseases for rapid
identification of fungal species. In this connection the Company recognized
grant revenue aggregating $64,000 during 1997. The award terminated on February
27, 1998.
16
<PAGE>
It must be stressed that the sales generated by the Company during
Fiscal 1997 were preliminary in nature, and represented the purchase of product
samples by the purchasers primarily for evaluation purposes. The Company has
removed the Picogram Assay from the market and the Company currently has no
sales activity. The Company plans to reintroduce the Picogram Assay in the third
quarter of 1998; however, the Company remains largely a development stage
company with expenditures far exceeding any revenues.
Research and development expenses for Fiscal 1997 increased by
$734,838. The increase was largely attributable to (a) accelerated product
improvement efforts on EpiDNA Picogram Assay kits, (b) development efforts on
the core labeling technology, and (c) costs pertaining to the Company's
preliminary manufacturing activities.
Operating expenses for Fiscal 1997 increased by $1,254,784. The more
significant expenses relate to salaries, professional fees, advertising and
facility-related expenses. In anticipation of the Company's roll out of its
product, the Company increased its operating costs, which upon the withdrawal of
the product from the marketplace were reduced.
The Company had interest income of $198,776 during Fiscal 1997. No
interest income was earned during Fiscal 1996. This interest income was
attributable to interest earned on certificates of deposit and money market
accounts which represented the investment of the net proceeds of the Company's
initial public offering (the "Offering").
LIQUIDITY AND CAPITAL RESOURCES. The Company had net cash of $4,745,208
at the beginning of Fiscal 1997, consisting of the net proceeds received by the
Company in the Offering. The net cash used by the Company in operating
activities aggregated $2,043,194. This was largely attributable to increases in
research and development and general and administrative expenses. The Company's
net cash used in investing activities aggregated $583,804 during 1997,
consisting mainly of equipment purchases, building improvements and patent
expenditures.
As of December 31, 1997, the Company had total stockholders' equity of
$2,633,820. The Company has no long term debt. The Company had $2,102,467 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 for the remainder of 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 acquisitions if any are identified or consummated. See
"Business - Intellectual Property Rights."
YEAR 2000 COMPUTER ISSUES. Computer programs have typically abbreviated
dates by eliminating the first two digits of the year under the assumption that
these two digits would be 19. As the year 2000 approaches, these systems may not
be able to recognize current dates. The Company has reviewed its computer
programs as they relate to electronic exchanges with customers and suppliers and
has adopted a Year 2000 Plan that will be carried out during 1998. The Company
does not expect its implementation to have a material effect on the Company's
results of operations or liquidity.
IMPACT OF INFLATION. Although inflation has slowed in recent years, it
is still a factor in the United States economy and the Company continues to seek
ways to mitigate its impact. To the extent permitted by competition, the Company
intends to pass increased costs on to its customers
17
<PAGE>
by increasing sales prices over time. In addition, the Company places all of its
major supplier purchases out to bid.
GOING CONCERN OPINION. 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.
NEW FASB PRONOUNCEMENTS. The Company is required to implement Financial
Accounting Standard ("FAS") No. 130 (Reporting Comprehensive Income) during its
1998 fiscal year. FAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, FAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards ("SFAS") No. 131
(Disclosures about Segments of an Enterprise and Related Information) supersedes
SFAS No. 14 (Financial Reporting for Segments of a Business Enterprise). SFAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
These new standards are effective for financial statements for periods
beginning after December 15, 1997 and require comparative financial information
for earlier years to be restated. Due to the recent issuance of these standards,
the Company's management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Genetic Vectors, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Genetic Vectors, Inc., (a
development stage company) as of December 31, 1997 and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1997 and the cumulative period from
January 1, 1992 (inception) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our responsiblity
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 financial statements referred to above present fairly, in
all material respects, the financial position of Genetic Vectors, Inc., (a
development stage company) as of December 31, 1997 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997 and the cumulative period from January 1, 1992 (inception)
through December 31, 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's dependence on outside financing and losses
since inception raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ BDO SEIDMAN, LLP
---------------------
Miami, Florida BDO Seidman, LLP
March 19, 1998
20
<PAGE>
<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
- --------------------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Current
Cash and cash equivalents $2,102,467
- --------------------------------------------------------------------------------
Total current assets 2,102,467
Equipment and improvements, net (Note 3) 451,014
Patents and license agreement, net of $10,717 of
accumulated amortization (Note 7) 234,881
- --------------------------------------------------------------------------------
$2,788,362
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 154,542
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 7)
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 6)
Common stock, $.001 par value, 10,000,000 shares
authorized, 2,339,634 shares issued and outstanding 2,340
Additional paid-in capital 6,169,458
Deficit accumulated during the development stage (3,537,978)
- --------------------------------------------------------------------------------
Total stockholders' equity 2,633,820
- --------------------------------------------------------------------------------
$2,788,362
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
CUMULATIVE FROM
JANUARY 1, 1992
(INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Sales $ 39,260 $ 39,260 $ -
Grant revenue 113,250 64,000
- --------------------------------------------------------------------------------
Total revenue 152,510 103,260 -
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Operating 2,281,559 1,573,534 318,750
Research and development 1,553,162 805,711 70,873
Depreciation and amortization 62,440 55,505 3,811
- --------------------------------------------------------------------------------
Total expenses 3,897,161 2,434,750 393,434
- --------------------------------------------------------------------------------
INTEREST 206,673 198,776 -
- --------------------------------------------------------------------------------
Net loss $ (3,537,978) $(2,132,714) $ (393,434)
- --------------------------------------------------------------------------------
Weighted average
common shares outstanding
(Note 6) - 2,339,634 1,721,860
- --------------------------------------------------------------------------------
Net loss per common share-basic
and diluted $ - $ (.91) $ (.23)
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capitalization for cash at
$0.0000625 per share (Note 6(a)) 1,600,000 $ 1,600 $ (1,500) $ - $ 100
Capital contribution (Note 6(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 6(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 6(f)) 41,352 42 413,476 - 413,518
Conversion of $132,822 of accrued payroll
and consulting to the president and
chairman of the Board for 13,282 shares
of common stock (Note 6(f)) 13,282 13 132,809 - 132,822
Issuance of common stock
at $10.00 per share, net of
offering costs of $1,180,249
(Note 6(g)) 575,000 575 4,569,176 - 4,569,751
Stock options granted for services
(Note 6(c)) - - 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
Offering cost refund (Note 6(g)) - - 25,500 - 25,500
Offering costs (Note 6(g)) - - (6,243) - (6,243)
Net loss - - - (2,132,714) (2,132,714)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
====================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
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,
1997 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,537,978) $ (2,132,714) $ (393,434)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 62,440 55,505 3,811
Write-off of acquired technology 15,000 15,000 -
Stock options granted for services 56,250 - 56,250
Increase in accounts payable
and accrued liabilities 287,364 19,015 19,913
- ---------------------------------------------------------------------------------------------
Total adjustments 421,054 89,520 79,974
- ---------------------------------------------------------------------------------------------
Net cash used in operating activities (3,116,924) (2,043,194) (313,460)
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (502,737) (478,557) (16,794)
Patent costs and license agreements (260,598) (105,247) (48,586)
- ---------------------------------------------------------------------------------------------
Net cash used in investing activites (763,335) (583,804) (65,380)
- ---------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase due to parent 413,518 - 39,098
Proceeds from note payable 35,000 - 35,000
Payment on notes payable (35,000) (35,000) -
Net proceeds from issuance of common stock 5,049,951 - 5,049,851
Capital contribution 500,000
Offering refund 25,500 25,500 -
Offering costs (6,243) (6,243) -
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 5,982,726 (15,743) 5,123,949
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,102,467 (2,642,741) 4,745,109
Cash and cash equivalents at beginning
of period - 4,745,208 99
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 2,102,467 $ 2,102,467 $ 4,745,208
=============================================================================================
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 $ - $ - $ -
=============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Genetic Vectors, Inc. (the "Company"), formerly 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 Company's products are intended
to allow biopharmaceutical companies to test for biopharmaceutical product
purity in compliance with regulatory standards. The Company is in the
development stage and its operations to date have largely consisted of 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 indentifiable expenses of
the Company incurred by Nyer on behalf of the Company.
Nyer, which previously owned 74.9% of the Company's common stock, distributed to
its shareholders 512,000 shares, representing 32% of the outstanding shares of
the Company's common stock as of May 31, 1996.
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
25
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an intitial maturity of
three months or less when purchased to be cash equivalents.
RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the Company's product research, development and testing
are expensed as incurred.
EQUIPMENT AND IMPROVEMENTS AND DEPRECIATION
Equipment and improvements are recorded at cost. Depreciation is provided over
the estimated useful life of the assets which range from three to ten years.
PATENTS AND LICENSE AGREEMENT
Patents and the license agreement are carried at cost less accumulated
amortization. Amortization is computed using the straight line method over the
estimated useful life of the patents which range from 15.5 to 17 years.
The Company continually evaluates the carrying value of its patents and license
agreement. Impairments are recognized when the expected future operating cash
flows to be derived from such intangible assets are less than their carrying
values.
REVENUE
The Company recognizes revenue from sales upon delivery of the product to a
customer.
During 1997 the Company was awarded a grant for $99,897 from the National
Institute of Health and the National Institute of Allergy and Infectious
Diseases for rapid identification of fungal species. The award terminated on
February 27, 1998. In this connection, the Company recognized grant revenue
aggregating $64,000 during 1997.
INCOME TAXES
Income taxes are accounted for using the liability approach under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
The Company filed a consolidated income tax return with its
26
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
parent through March 25, 1996. Thereafter, it filed on a separate company basis.
NET LOSS PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Standards No. 128 "Earnings Per Share" ("SFAS No. 128"), which simplifies the
computation of earnings per share. Net loss per share amounts for the year ended
December 31, 1997 have been recalculated to give effect to the application of
SFAS No. 128. The restatement had no material effect on the Company's financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash
equivalents and accounts payable. The carrying amounts of such financial
instruments as reflected in the balance sheet approximate their estimated fair
value as of December 31, 1997. The estimated fair value is not necessarily
indicative of the amounts the Company could realize in a current market exchange
or of future earnings or cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130 "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its
27
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, Financial Reporting for Segments of
a Business Enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate the resources and in assessing performance.
Both SFAS No. 130 and No. 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Due to the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, they may have
on future financial statement disclosures.
2. LIQUIDITY
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. This basis of accounting contemplates the
recovery of the Company's assets and the satisfaction of its liabilities in the
normal course of operations. Since inception, the Company has been involved in
the research and design of its product, the development of an organizational
infrastructure, and the performance of preliminary
28
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
marketing and promotional activities. The Company's ultimate ability to attain
profitable operations is dependent upon obtaining additional financing adequate
to complete its development activities, and to achieve a level of sales adequate
to support its cost structure. Through December 31, 1997, the Company incurred
losses totaling $3,537,978, used cash from operating activities in the amount of
$3,116,924 and has been unable to develop a customer base for its product which
raises substantial doubt about the Company's ability to continue as a going
concern. In December 1997, as a result of the Company removing its product from
the marketplace, the Company is currently in violation of its license agreement.
Pursuant to the license agreement, the University of Miami may terminate this
agreement. In this connection the Company has obtained a waiver through August
31, 1998. Such expiration or termination of the License Agreement would have a
material adverse effect on the Company's business, financial condition and
viability.
The Company is in the process of discussing with two potential private investors
the possibility of obtaining additional funds of $1,000,000 - $5,000,000 in
exchange for shares of the Company's common stock. If the Company is not
successful in obtaining additional funds, it intends to fund future development
activities through acquisitions of operating entities in exchange for shares of
its common stock.
There can be no assurance that the Company will be successful in consummating
its plans, or that such plans, if consummated, will enable the Company to attain
profitable operations or continue as a going concern.
3. EQUIPMENT AND IMPROVEMENTS
The Company's equipment is summarized as follows:
DECEMBER 31, 1997
- ------------------------------------------------------
Laboratory equipment $ 338,576
Computers 45,882
Phone equipment 58,245
Leasehold improvements 38,378
Office furniture 18,052
Software 3,604
- ------------------------------------------------------
502,737
Less accumulated depreciation (51,723)
- ------------------------------------------------------
$ 451,014
======================================================
29
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS
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.
5. INCOME TAXES
At December 31, 1997, the Company had a federal net operating loss (NOL) of
approximately $3,267,000. The NOL expires during the years 2007-2012. 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 $1,230,000 deferred tax asset at
December 31, 1997, resulting from the utilization of the NOL, is not likely,
accordingly, a valuation allowance has been established for the full amount of
such asset.
Net operating loss carryforward $1,230,000
Less: Valuation allowance 1,230,000
Net deferred tax asset $ -
6. STOCKHOLDERS' EQUITY (DEFICIT)
a) During 1992, the Company issued 100 shares of common stock for $100 as
the initial 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 recapitalized its common stock to 10,000,000 shares,
$.001 par value.
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.
30
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In addition, during June 1996, 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) to a consultant who became a
director in August 1996. 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 Chief Executive Officer. The remaining
25,000 of such shares became exercisable upon the closing of the
Company's initial public offering. The fair value of such options
amounting to $56,250 was charged to operations during the period ended
December 31, 1996. During 1997, approximately $30,000 was paid to this
director for consulting services.
d) In July 1996, the Company granted ten year stock options to purchase
75,000 shares of common stock at 120% of the initial public offering
price to the Chief Executive Officer. 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.
e) In August 1996, the Company granted ten year options, which vested one
year after the grant date, to purchase 5,000 shares each of common
stock at 120% of the initial public offering price to two directors of
the Company.
f) 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 13,282 shares of
common stock. The conversion price was $10.00 per share.
31
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
g) 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). During 1997, the
Company incurred additional offering costs of $6,243 and received a
refund of $25,500 for overpayment of expenses relating to this
transaction.
h) In February 1997, the Company granted ten year options, which vest one
year after the grant date, to purchase 5,000 shares each of common
stock at 120% of the initial public offering price to two directors of
the Company.
i) The following reconciles the components of the earnings per share (EPS)
computation:
<TABLE>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
PER- PER-
LOSS SHARES SHARE LOSS SHARE SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss per common
share - basic $(2,132,714) 2,339,634 $(0.91) $(393,434) 1,721,860 $ (0.23)
Effect of Dilutive
Securies
Options - - - - - -
Warrants - - - - - -
- -------------------------------------------------------------------------------------------------------------------
Loss per common share
assuming dilution: $(2,132,714) 2,339,634 $(0.91) $(393,434) 1,721,860 $ (0.23)
===================================================================================================================
</TABLE>
Options to purchase 345,000 shares of common stock at prices ranging
from $5.00 to $12.00 per share were not included in the computation of
loss per share assuming dilution for 1997 and for 1996 as they would
have an anitdilutive effect. 345,000 options which expire through 2008,
are still outstanding at December
32
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
31, 1997. Warrants to purchase 50,000 shares of common stock at $15.00
per share were not included in the computation of loss per common share
assuming dilution for 1997 or 1996 as they would have an antidilutive
effect. 50,000 warrants which expire in 2001 are outstanding at
December 31, 1997.
7. COMMITMENTS AND CONTINGENCIES
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
were acquired under certain patents and patent applications pursuant to
the license agreement and include the manufacture of products
utilitzing the Technology and the marketing and sale of such products.
The license agreement provides for a royalty equal to 4% of net sales
and can expire or be terminated prior to the Company's development of
products using the Technology. As a result of the Company removing the
product from the marketplace in December 1997, the Company is currently
in violation of its license agreement. Pursuant to the license
agreement, the University of Miami may terminate the agreement. In this
connection the Company has obtained a waiver through August 31, 1998.
Such expiration or termination of the License Agreement would have a
material adverse effect on the Company's business, financial condition
and viability.
In addition, certain of the Company's patents and patent applications
were made, in part, using federal funds provided by a federal agency,
National Institute of Health (NIH), which has an nonexclusive,
nontransferable, irrevocable license. Under this nonexclusive license,
NIH can use the Technology in federally-funded projects or it can, if
provided in a treaty or agreement, sublicense the Technology. This
nonexclusive
33
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
license did not terminate with the licensing of the Technology to the
Company. NIH also has certain rights allowing it to grant licenses to
third parties, even exclusive licenses, if it is determined that
practical application of the invention is not occuring, as well as
march-in rights to meet unmet health or safety needs. The grant of an
exclusive license, or the exercise of march-in rights, would cause the
Company to suffer a material adverse effect on its 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. During 1997, the agreement was
assigned to a firm affiliated with the Company's underwriter. No
payments were made through December 31, 1997.
c) In August 1996, the Company entered into a three year employment
agreement with the Chairman of the Board for a base salary of $125,000.
Pursuant to the agreement, the Company granted ten year options vesting
over a three year period, exercisable during the period of employment,
to purchase 100,000 shares of common stock at an exercise price equal
to 120% of the initial public offering price per share of common stock.
d) The Company entered into a new lease during June 1997 for office and
laboratory space. The facility is leased for a ten year term with
annual rental payments of approximately $192,000 and annual increases
of 3%. Rent expense for 1997 and 1996 aggregated approximately $90,900
and $6,725, respectively.
34
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
e) Minimum guaranteed lease payments under this lease are as follows:
1998 $ 187,000
1999 193,000
2000 199,000
2001 205,000
2002 211,000
Thereafter 1,028,000
------------------------------
$2,023,000
==============================
After five years the Company has the option to cancel its lease agreement for a
cancellation fee equal to three months of the then-monthly rent. A director
received approximately $109,000 for consulting services in connection with the
identification of the facility, negotiation of the lease and design, engineering
and construction management services.
8. STOCK BASED COMPENSATION
At December 31, 1997, the Company has a fixed 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
35
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 the 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.
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 1997 and 1996: no dividend yield
percent; expected volatility of 0.465 and 0.001; risk-free interest rates of
6.5% and 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 loss
and net loss per share would have increased to the pro forma amounts indicated
below:
1997 1996
- --------------------------------------------------------------------
Net loss
As reported $(2,132,714) $(393,434)
Pro forma (2,400,514) (393,434)
36
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Net loss per common share
As reported $(.91) $(.23)
Pro forma (1.03) (.23)
Under the accounting provisions of FASB Statement 123, the Company's net loss
and net loss per share would not have differed for 1996.
A summary of the status of the Company's fixed stock option plan and non-plan
options as of December 31, 1997, and changes during the year ending on that date
is presented below:
DECEMBER 31, DECEMBER 31,
1997 1996
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
- -------------------------------------------------------------------------------
Outstanding at beginning
of year 335,000 $10.43 - $ -
Granted 10,000 12.00 335,000 10.43
Exercised - - - -
Forfeited - - - -
- -------------------------------------------------------------------------------
Outstanding at end
of year 345,000 10.48 335,000 10.43
- -------------------------------------------------------------------------------
Options exercisable
at year-end 218,333 9.60 100,000 6.75
Weighted-average
fair value of options
granted during the year 10,000 6.00 335,000 2.09
===============================================================================
The following table summarizes information about fixed stock options and
non-plan options outstanding at December 31 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE
- -------------------------------------------------------------------------------
$5.00-$12.00 345,000 8.63 $10.48 218,333 $9.60
37
<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:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mead M. McCabe, Sr., Ph.D. ................................... 60 Chairman of the Board of Directors
Mead M. McCabe, Jr. .......................................... 31 President and Secretary; Director
Mark E. Burroughs ............................................ 41 Director
Jack W. Fell, Ph.D. .......................................... 65 Director
Allyn L. Golub, Ph.D. ........................................ 57 Director
James A. Joyce ............................................... 36 Director
Michael C. Foley.............................................. 54 Director
</TABLE>
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 McCabe, Jr.
MEAD M. MCCABE, JR. is the President and Secretary of the Company and
is responsible for the Company's corporate development, sales and marketing. Mr.
McCabe serves as the Company's interim Chief Financial Officer and as such is
responsible for the Company's financial and accounting matters. 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
38
<PAGE>
a financial consultant with Merrill Lynch for two years. 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 Burroughs Properties, L.L.C., 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 and wine
making since 1984. He previously was a principal of Capital Associates, L.P., a
full service real estate development, brokerage and asset management entity.
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.
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., a company which specializes in pharmaceutical
development and regulatory affairs. He has been associated with Guidelines, Inc.
since October, 1986. 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.
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
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
39
<PAGE>
Company on August 13, 1996, as the director-designee of the underwriter who
managed the Company's Offering.
MICHAEL C. FOLEY is currently a Senior Vice President and Director of
Janney Montgomery Scott, Inc., an investment banking firm, where he has been
employed since 1994. Prior to these positions he served as President and Chief
Executive Officer of Foley, Mufson Howe & Company, an investment banking firm,
from 1992 to 1994. Mr. Foley has worked in the securities industry for over
twenty-five years. He is past Chairman of the Securities Industry Association's
Mid-Atlantic Division and past President of the Bond Club of Philadelphia. Mr.
Foley is a graduate of Villanova University and received a Masters Degree in
Business Administration from the University of Pittsburgh. Mr. Foley became a
director of the Company on January 12, 1998.
RESIGNATION OF DIRECTOR. Mr. William Clifford re-joined the Company's
Board of Directors on January 12, 1998, but resigned on February 9, 1998.
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
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 Company is not aware of any failure to comply with the ownership
reporting requirements of Section 16(a) promulgated under the Securities
Exchange Act of 1934, as amended, during Fiscal 1997 by any of its executive
officers, directors or owners of more than 10% of the outstanding shares of
Common Stock.
ITEM 10. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Non-employee directors 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 granted an
option to purchase 5,000 shares of the Company's Common Stock in connection with
their appointment to the Board of
40
<PAGE>
Directors. Such options will vest after one year of service on the Board of
Directors. The options granted to the Company's non-employee directors (Mr.
Burroughs, Dr. Fell and Dr. Golub) have an exercise price of $12.00 per share
(120% of the offering price in the Company's initial public offering). Options
to purchase 5,000 shares of Common Stock were granted to Mr. Michael Foley on
January 12, 1998 (the date he joined the Board of Directors). 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, 1997, 1996, and 1995 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 1997, 1996, and 1995. No other
executive officer of the Company earned a total annual salary and bonus for any
of these years in excess of $100,000. The summary compensation table which
follows includes all payments to Dr. McCabe for fiscal years 1997, 1996, and
1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION AWARD(S) ($) SARS (#) PAYOUTS COMPENSATION ($)
POSITION ($) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mead M. McCabe, Sr., 1997 $125,000 -0- -0- -0- -0- -0- -0-
Ph.D., Chairman of
the Board of
Directors
1996 $125,000 -0- -0- -0- 100,000(1) -0- -0-
1995 $125,000 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) These options were granted on August 15, 1996, and have an exercise
price of $12.00 per share. They vest in equal increments over a three
year period. All of these grants are for options to purchase Common
Stock. No SAR's were granted.
41
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SAR'S AT OPTIONS/SAR'S AT
NAME EXERCISE REALIZED($) FISCAL YEAR END FISCAL YEAR END
- ---- -------- ----------- --------------- ---------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mead M. McCabe, Sr. -0- -0- Exercisable: 33,333 -0-
Unexercisable: 66,667
</TABLE>
- ----------------
(1) These grants represent options to purchase Common Stock. No SAR's have
been 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, 1997, the employment agreement expired between the
Company and Richard H. Tullis, Ph.D., its former Chief Executive Officer. Dr.
Tullis' employment agreement was not renewed.
INCENTIVE PLAN
42
<PAGE>
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 is
currently the Compensation Committee of the Board of Directors. 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
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.
43
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of April 15, 1998, 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.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED (1), (2)
--------------------------------------
NAME/ADDRESS NUMBER PERCENT
------------------- -----------------
<S> <C> <C>
Mead M. McCabe, Sr. and......................... 166,322(3) 7.1%(3)
Marigrace McCabe (jointly)
12901 SW 63rd Ct.
Miami, FL 33156
Mead M. McCabe, Sr. ............................ 1,000(3) 0.04%(3)
12901 SW 63rd Ct.
Miami, FL 33156
Mead M. McCabe, Jr.............................. 102,293(3) 4.4%(3)
5201 N.W. 77th Avenue
Suite 100
Miami, Florida 33133
Nyer Medical Group.............................. 929,027(3),(4) 39.7%(3),(4)
1292 Hammond St.
Bangor, ME 04401
James A. Joyce.................................. 75,000(5) 3.2%
7825 Bay Avenue
Suite 200
La Jolla, CA 92037
Jack W. Fell, Jr., Ph.D. ....................... 5,000(1),(6) 0.2%(1),(6)
University of Miami-RSMAS
4600 Rickenbacker Causeway
Key Biscayne, Florida 33149
</TABLE>
44
<PAGE>
<TABLE>
<S> <C> <C>
Allyn L. Golub, Ph.D. .......................... 5,000(1),(6) 0.2%(1),(6)
10320 USA Today Way
Miramar, Florida 33025
Mark E. Burroughs............................... 5,000(1),(6) 0.2%(1),(6)
4523-C Edwards Mills Road
Raleigh, North Carolina 27612
All directors and executive officers
as a group(7)................................... 359,615(8) 15.4%(8)
</TABLE>
- ---------------------------
(1) Applicable percentage of ownership is based on 2,339,634 shares of Common
Stock outstanding as of April 15, 1998 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 April 15, 1998
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 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 Nyer Medical's
Common Stock is attributed to Dr. McCabe and Mrs. McCabe (jointly), Dr.
McCabe (individually) and Mr. McCabe, they would own 1,095,349, 930,027,
and 1,031,320 shares of Common Stock, respectively. Their ownership
percentages would be 46.8%, 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) Represents 75,000 shares which may be acquired upon the exercise of
presently exercisable stock options.
(6) Represents 5,000 shares which may be acquired upon the exercise of
presently exercisable stock options.
(7) Seven (7) persons.
(8) Includes 90,000 shares which may be acquired upon the exercise of
presently exercisable stock options.
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
45
<PAGE>
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.
PAYMENT FOR REAL ESTATE CONSULTING SERVICES
The Company paid approximately $109,000 to Mark E. Burroughs, a member
of the Board of Directors, in 1997. This payment was made to Mr. Burroughs for
his services in connection with identification of a facility, lease negotiations
and design, and engineering and construction management services for the
Company's new facility.
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
exercisable. These options were not issued through the Incentive Plan. This
agreement terminated in December 1996. Mr. Joyce continued to provide consulting
services through June 1997. 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
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
46
<PAGE>
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.
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>
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.
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
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 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
10.8 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.
10.9 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No.
among Nyer Medical Group, Inc., the 10.11 to the Registration Statement.
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
10.10 Investors Finders Agreement dated Incorporated by reference to Exhibit No.
June 9, 1994 among Nyer Medical Group, 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 Provided herewith
April 10, 1998
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
21. Subsidiaries of the Registrant Provided herewith
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
22. Published report regarding matters Not applicable
submitted to Vote
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
(B) REPORTS ON FORM 8-K.
None.
49
<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: April 15, 1998
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>
April 15, 1998 /S/ MEAD M. MCCABE, SR.
----------------------- Chairman of the Board of
Mead M. McCabe, Sr., Ph.D. Directors (Principal Executive
Officer)
April 15, 1998 /S/ MEAD M. MCCABE, JR.
----------------------- President; Director (Principal
Mead M. McCabe, Jr. Financial Officer; Principal
Accounting Officer)
April 15, 1998 /S/ MARK E. BURROUGHS Director
---------------------
Mark E. Burroughs
April 15, 1998 Director
------------------
James A. Joyce
April 15, 1998 /S/ JACK W. FELL Director
------------------
Jack W. Fell, Ph.D.
April 15, 1998 /S/ ALLYN L. GOLUB Director
------------------
Allyn L. Golub, Ph.D.
April 15, 1998 /S/ MICHAEL C. FOLEY Director
--------------------
Michael C. Foley
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
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.
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
10.8 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.
10.9 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No.
among Nyer Medical Group, Inc., the 10.11 to the Registration Statement.
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
10.10 Investors Finders Agreement dated Incorporated by reference to Exhibit No.
June 9, 1994 among Nyer Medical Group, 10.12 to the Registration Statement.
Inc., and the Company and Gulf American
Trading Company
<PAGE>
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 Provided herewith
April 10, 1998
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
21. Subsidiaries of the Registrant Provided herewith
22. Published report regarding matters Not applicable
submitted to Vote
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
EXHIBIT 10.12
UNIVERSITY OF MIAMI
April 10, 1998
Mr. Mead McCabe, Jr.
Genetic Vectors, Inc.
5201 N.W. 77 Avenue, Suite 100
Miami, Florida 33166
Re: License Agreement Effective September 7, 1990 (hereinafter
"License Agreement") between the University of Miami and its School of
Medicine (hereinafter "Licensor") and ProVec, Inc. which was
subsequently assigned to Epi DNA, Inc., Genetic Vectors, Inc.
(hereinafter "Licensee"), is a successor to ProVec, Inc. Institution
file No. UM90-16, Chemical Method for Specifically Coupling Biotin to
Guanosine in Nucleic Acids (hereinafter "Technology and Product").
Dear Mead:
As we previously discussed, the University understands your company's
position, and is willing to make a brief accommodation to allow further product
development. The University recognizes that, according to Article 9.3 of the
above Agreement, the Licensee has an obligation to continue sales, and that if
the Licensee discontinues sales for more than three months that the Licensor may
terminate the Agreement. The University, as Licensor, has decided not to
terminate the License Agreement for breach of this obligation, and is waiving it
right to enforce this provision until August 31, 1998. The University reserves
its right to enforce this provision after August 31, 1998 and throughout the
remaining term of the License Agreement. The University expects the Licensee to
notify it of the date of first sale within thirty (30) days following August 31,
1998 as consideration for the University's waiving its right to terminate before
August 31, 1998.
In addition, according to Provision 4.1 of the above Agreement, the
"Licensee agrees to take all action necessary" to enable Licensor to satisfy its
obligations under Public Law 96-517 as amended. The University, in order to
comply with federal law must submit a hard copy of each patent application as
filed showing the "federal support clause" and a hard copy of each issued patent
so that the information may be recorded and filed with the Department of Health
and Human Services. Please submit such information to my office by April 15th.
If you have any questions or concerns please contact me as soon as
possible. Thank you for your assistance.
Sincerely,
/s/ Leslie Quinn
--------------------------------
Leslie Quinn
Assistant Director
Enclosure
cc: Dr. Gary S. Margules
Mr. Mike Novo, Esq.
Dr. Mead McCabe, Sr.
OFFICE OF TECHNOLOGY TRANSFER
P.O. BOX 016960 (M811)
MIAMI, FLORIDA 33101
TEL. (305) 243-5689
FAX: (305) 243-3510
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
None.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> $2,102,467
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,102,467
<PP&E> 502,737
<DEPRECIATION> (51,723)
<TOTAL-ASSETS> 2,788,362
<CURRENT-LIABILITIES> 154,542
<BONDS> 0
0
0
<COMMON> 2,340
<OTHER-SE> 2,631,480
<TOTAL-LIABILITY-AND-EQUITY> 2,788,362
<SALES> 39,260
<TOTAL-REVENUES> 103,260
<CGS> 0
<TOTAL-COSTS> 2,434,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,132,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,132,714)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
