U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Amendment No. 1 to the 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, 1998
|_| Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
For the transition period from _______ to _______.
Commission File No. 0-21739
GENETIC VECTORS, INC.
(Name of Small Business Issuer in Its Charter)
Florida 65-0324710
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
5201 N.W. 77th Avenue, Suite 100, Miami, Florida 33166
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(Address of Principal Executive Offices) (Zip Code)
(305) 716-0000
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Act:
Title of Each Class Name of Exchange on which registered
- ------------------- ------------------------------------
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 | | No |X|
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 $47,172 during its most recent fiscal
year.
The aggregate market value of the Company's voting stock held by
non-affiliates as of November 22, 1999 was approximately $12,703,191.35 based on
the average closing bid and asked prices of such stock on that date as quoted on
the OTC Bulletin Board. There were 2,974,843 shares of Common Stock outstanding
as of November 22, 1999.
Documents Incorporated by Reference: See Item 13
This Form 10-KSB consists of 99 pages. The Exhibit Index begins on page
66.
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PART I
Item 1. DESCRIPTION OF BUSINESS.
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INTRODUCTION
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Annual Report
contains forward-looking statements, including statements regarding, among other
things, (a) the growth strategies of Genetic Vectors, Inc. (the "Company"), (b)
anticipated trends in the Company's industry, (c) the Company's future financing
plans and (d) the Company's ability to obtain financing and continue operations.
In addition, when used in this Annual Report, the words "believes,"
"anticipates," "intends," "in anticipation of," and similar words are intended
to identify certain forward-looking statements. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, many of which are beyond the Company's control. Actual
results could differ materially from these forward-looking statements as a
result of changes in trends in the economy and the Company's industry,
reductions in the availability of financing and other factors. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this 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.
On April 27, 1999, the Company filed its Annual Report on Form 10-KSB
("Form 10-KSB") for the year ended December 31, 1998. Prior to filing the Form
10-KSB, the Company learned from its independent public accountants that they
could after additional review only render a disclaimer of opinion in connection
with the Company's audited financial statements. The Company decided to file the
Form 10-KSB with unaudited financial statements. Since that time, the audit was
completed. This Amendment No. 1 to the Form 10-KSB contains the Company's
audited financial statements.
Genetic Vectors, Inc. (the "Company" or "Genetic Vectors") had cash and
cash equivalents of $109,924 as of December 31, 1998 compared to $2.1 million as
of December 31, 1997. On March 31, 1999, the Company had cash and cash
equivalents of $67,369. Since March 31, 1999, the Company has raised an
additional $1,125,000 in capital, consisting of the following:
On April 19, 1999, the Company obtained a $100,000 loan from a private
investor. On May 10, 1999, the Company obtained a $225,000 equity investment
from the sale of 225,000 shares of the Company's common stock. The equity
investor paid $1.00 per share for the 225,000 shares of the Company's common
stock, or $4.75 per share less than the closing price of $5.75 per share on May
10, 1999. On July 16, 1999, the Company obtained a $400,000 equity investment
from the sale of 400,000 shares of the Company's common stock. These two equity
investors paid $1.00 per share for the 400,000 shares of the Company's common
stock, or $4.75 per share less than the closing price of $5.75 per share on July
16, 1999. On October 6, 1999, the Company obtained a $200,000 loan from a
private investor. On November 19, 1999, the Company obtained a $200,000 loan
from a private investor. See "Market For Common Equity and Related Stockholder
Matters -- Sales of Unregistered Securities."
As of November 22, 1999, the Company received a total of $938,500 in
loans dating back to November 2, 1998 in seven separate loan transactions.
Interest became payable on two of these loans (with principal aggregating
$150,000) on April 1, 1999, on two other loans (with principal aggregating
$288,500) on April 19, 1999 and on another loan (with principal aggregating
$100,000) on June 1, 1999. The Company is in default on these loans for failing
to pay the required interest payments. The remaining two loans (with principal
aggregating $400,000) become payable on January 19, 2000. Four of these loans (
with principal aggregating $788,500) are secured by substantially all of the
Company's assets. The Company's ability to pay any interest or to repay such
loans is completely dependent on the Company's ability to raise additional
capital from external sources. The Company's failure to raise such capital and
to pay all accrued but unpaid interest and subsequently to repay the loans upon
maturity may result in the foreclosure on the Company's assets. This would have
a material adverse effect on the Company's business, financial condition and
results of operations and would jeopardize the Company's ability to continue as
a going concern.
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The Company is dependent on external capital to finance its business
operations. Such external capital will also be necessary for the Company's
operations to reach a level where it may internally generate the cash flow
necessary to sustain its operations. The Company has received informal,
non-binding assurances from a source which has previously provided the Company
with external capital that it will assist the Company in raising additional
capital for the expansion of its business. The Company has no commitment for any
additional capital and no assurances can be given that the Company will be
successful in raising any new capital. The Company's inability to raise new
capital will have a material adverse effect on the Company's ability to continue
to research and develop its proposed products and to market and sell its
existing products, and will have a material adverse effect on its operations and
financial condition. See "Management's Plan of Operation and Discussion and
Analysis -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
For additional information concerning the Company's current financial
situation, see "Certain Business Risk Factors - Future Capital Needs and
Uncertainty of Additional Funding"; "Certain Business Risk Factors - Ability to
Repay Secured Indebtedness; Existing Defaults on Indebtedness"; and
"Management's Plan of Operation and Discussion and Analysis - Plan of Operation
- - Additional Fund Raising Activities."
GENERAL INFORMATION
The Company 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
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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(TM), which includes the Company's first product, the Picogram Assay (the
"Picogram Assay"). A second proposed product line, EasyID(TM), 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.
After removing the Picogram Assay from the marketplace during the third
quarter of 1997, the Company has completed the refinement of the EpiDNA Picogram
Assay Kit (the "Picogram Assay Kit"). During the twelve-month period ended
December 31, 1998, the Company has not generated significant revenues and
remains largely a development stage company. In July 1998, the Company
reintroduced the Picogram Assay Kit to the marketplace and is closely monitoring
its market acceptance. The Company's cash shortage limited the Company's
marketing efforts to support the reintroduction of the Picogram Assay. There can
be no assurances that the Picogram Assay Kit will be accepted by the
marketplace.
EPIDNA TECHNOLOGY
DETECTION OF NUCLEIC ACIDS. The EpiDNA technology is a broadly
applicable method for labeling and detecting nucleic acids, particularly 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 non-radioactive 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 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.
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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.
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. As reported in the Company's 10-KSB
filed in April 1998, prior to its preliminary launch of the Program Assay in the
third quarter of 1997, 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 suspected 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 December, 1997. However, through the redevelopment
process the Company discovered that removal of this step did not cause the loss
of sensitivity. Instead, the Company discovered that plastic tubes holding
certain reagents caused the problem by adherence of a portion of the reagents to
the inside of the tube. Subsequently, the Company changed the tubes and
reintroduced the Picogram Assay to the market in the third quarter of 1998.
The use of the Picogram Assay does not require the purchase of major
equipment, since the assay utilizes a standard microtiter plate reader, which is
routine in biopharmaceutical quality control laboratories. The assay is designed
for routine application by technicians and is intended for validation of final
product purity.
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.
The Company's development efforts have been affected by the Company's working
capital shortage. 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 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
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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 $984,937 and $805,711 on
Company-sponsored research and development activities during its 1998 and 1997
fiscal years, respectively. The Company did not conduct any material
customer-sponsored research and development activities during either of those
fiscal years.
MARKETING AND SALES
The Company temporarily removed the Picogram Assay from the marketplace
in December, 1997, and reintroduced it in the third quarter of 1998. The
Company's marketing activities in connection with the reintroduction of the
Picogram Assay were limited by the Company's working capital shortage.
Accordingly, the Company remains largely a development stage company with the
Company's expenditures far exceeding its revenues.
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.
The Company has received conflicting information regarding the
potential market for its Picogram Assay. Such information indicates that the
potential annual market for the Picogram Assay 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.
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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, workmen compensation statutes, unemployment
insurance, and income tax and social security related regulations. The
biotechnology industry is also subject to federal, state and local regulations
with regard to the construction, maintenance, containment and release of
genetically engineered organisms and the manufacturing of diagnostic devices for
human use. The Company currently has no plans to construct or release
genetically altered organisms or to produce diagnostic devices for human use,
and accordingly the Company does not anticipate that these regulations will
affect it or its operations.
The Company's operations will be subject to applicable environmental
laws and regulations. The Company's operations will entail the storage and
disposal of small amounts of biological and chemical hazardous wastes. The costs
that the Company has incurred to date in connection with compliance with
environmental laws and regulations have not been material, and the Company
anticipates that such costs will not be material in the foreseeable future.
There can be no assurance, however, that this will be the case. The Company does
not anticipate that any significant 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
The Company's research and development and executive offices are
located at 5201 N.W. 77th Avenue, Suite 100, Miami, Florida. In addition, the
Company relies on outside vendors to manufacture all of the components of its
EpiDNA Picogram Assay.
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 a single
source of supply. Additionally, the Company contracts with Fujirebio
Diagnostics, Inc. for manufacturing of certain reagents, assembly and packaging.
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STRATEGY FOR GROWTH
In the event the Company is able to raise additional capital, 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 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 and has expended approximately $152,000 in pursuing acquisition
opportunities. 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. However,
the Company's ability to pursue or consummate any acquisition is completely
dependent on its ability to obtain significant additional capital. 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.
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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 competitors, the Company believes that these
facilities also represent potential customers for its products.
CUSTOMERS
The Company's customers to date have been biopharmaceutical
manufacturers. To date, the Company has not generated significant sales and,
therefore, is not dependent on any customers.
EMPLOYEES
Genetic Vectors currently has five employees, two of whom are executive
officers and all of which are full-time employees. See "Management's Plan of
Operation and Discussion and Analysis - Plan of Operation - Changes in the
Number of 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
merged into the Company on September 6, 1996.
The license granted under the License Agreement is worldwide and
exclusive (except for the rights of the Federal Government) providing the
Company with the right to manufacture, use and sell products utilizing the
patents and patent applications referred to herein. The Company has the
obligation, at its own expense, to prosecute and maintain patents in the name of
or on behalf of the University of Miami. Further, the Company is obligated to
maintain product liability insurance, with the University of Miami being named
as an additional insured. The License Agreement provides for payment of a
maintenance fee of $500 and a running royalty of 4% of net sales of products
using the Technology. The maintenance fee is creditable against royalties
subsequently due in a given year. The term of the License Agreement is the life
of the U.S. patent and/or its foreign counterpart patents. The License Agreement
can be terminated by the University of Miami, at its discretion, for material
breaches by the Company. Primary among such breaches are failure to file
quarterly reports of sales, nonpayment of royalties, failure to develop and sell
products based on the Technology, cessation of sales for a period of three
months and bankruptcy or adjudication of insolvency. A two-month cure period is
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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.
Since the patents and patent applications referred to herein were made,
in part, using federal funds provided by a federal agency, the National
Institute of Health ("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 the 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 for and been granted, on behalf of the
University of Miami, patent protection for part of the Technology in the United
States and other countries. The patent expires in 2014. Letters Patent Number
246228 has been issued for the Technology in New Zealand. Also, the University
of Miami, at Company expense, has filed for and was granted patents 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 for the Technology.
CERTAIN BUSINESS RISK FACTORS
The Company is subject to various risks which may have a material
adverse effect on its business, financial condition and results of operations.
Certain risks are discussed below.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING. The Company
had cash and cash equivalents of only $156,054 as of December 31, 1998. Since
that time, the Company has raised $1,413,500 from loans and equity investments.
The Company is dependent on external capital to finance its business operations
and to reach a level of operations sufficient to internally generate the cash
flow necessary to sustain its operations. The Company has received informal,
nonbinding assurances from a source which has previously provided the Company
with external capital that it will assist the Company in raising additional
capital for the expansion of its business. The Company has no commitment for any
additional capital and no assurance can be given that the Company will be
successful in obtaining any additional capital. The Company's inability to raise
new capital will have a material adverse effect on the Company's ability to
continue to research and develop its proposed products and to market and sell
its existing products, and will have a material adverse effect on its operations
and financial condition.
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ABILITY TO REPAY SECURED INDEBTEDNESS; EXISTING DEFAULTS ON
INDEBTEDNESS. As of November 22, 1999, the Company received a total of $938,500
in loans dating back to November 2, 1998 in seven separate loan transactions.
Interest became payable on two of these loans (principal totaling $150,000) on
April 1, 1999, on two other loans (principal totaling $288,500) on April 19,
1999 and on another loan (principal totaling $100,000) on June 1, 1999. The
Company is in default on these loans for failing to pay the required interest
payments. The remaining two loans (principal totaling $400,000) become payable
on January 19, 2000. Four of these loans (principal totaling $788,500) are
secured by substantially all of the Company's assets. The Company's ability to
pay any interest or to repay such loans is completely dependent on the Company's
ability to raise additional capital from external sources. The Company's failure
to raise such capital and to pay all accrued but unpaid interest and
subsequently to repay the loans upon maturity may result in a foreclosure on the
Company's assets. This would have a material adverse effect on the Company's
business, financial condition and results of operations and would jeopardize the
Company's ability to continue as a going concern.
LIMITED OPERATING HISTORY AND EXPECTATION OF FUTURE LOSSES. The Company
was organized in 1991 and since inception has been in the development stage. To
date, the Company has generated very limited revenues from the sale of its
product. Further, the Company has devoted most of its efforts to various
organizational activities, including research and development and the
development of a business strategy. From its inception through December 31,
1998, the Company has incurred cumulative losses of approximately $6.1 million.
The Company expects to incur substantial losses through the second quarter of
2000 due, in part, to research and development, distributing and marketing its
product. There can be no assurance that the Company will not encounter
substantial delays and unexpected expenses related to research, development,
production and marketing or other unforeseen difficulties, which may cause
additional losses.
UNCERTAIN MARKET ACCEPTANCE AND DEPENDENCE ON A LIMITED NUMBER OF
PRODUCTS. The Company currently has two products, the Picogram Assay and DNAMAX
Kit, and another product line under development, the EasyID product line. As
such, the Company is highly dependent on a limited number of products and the
Company's long-term success may depend on the market acceptance of these
products. Market acceptance of the Company's products will depend, in part, on
the Company's ability to demonstrate the superiority of its products with
respect to existing techniques, including the products' accuracy, ease of use,
reliability and cost-effectiveness and on the effectiveness of the Company's
marketing efforts. These efforts have been adversely affected by the Company's
working capital shortage. No assurance can be given that the Company will gain
market acceptance for its products. Failure to gain market acceptance for either
of these product lines will have a material adverse effect on the Company's
business, financial condition and results of operations.
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT. The
science and technology of the Picogram Assay, DNAMAX and EasyID are rapidly
evolving. Although the Company has conducted limited marketing of its initial
product, other proposed products are in the early development stage. These
products will require significant further research, development and testing and
are subject to the risks of failure inherent in the development of products
based on innovative technologies. These risks include the possibility that any
or all of the proposed products are found to be ineffective, unsafe, or
otherwise fail to receive necessary regulatory clearances, if any, that the
proposed products, though effective, are uneconomical to market, that third
parties hold proprietary rights that preclude the Company from marketing them,
or that third parties market a superior or equivalent product. Accordingly, the
Company is unable to predict whether its research and development activities
will result in any commercially viable products.
11
<PAGE>
LIMITED MANUFACTURING AND MARKETING CAPABILITY. The Company's
experience in manufacturing has been limited to the production of small amounts
of kits of its initial products for use in research and development and early
commercialization of its initial product. No assurance can be given that the
Company will ultimately be able to obtain or produce sufficient quantities of
such product at commercially reasonable costs.
The Company has limited experience in marketing its product and no
assurance exists that the Company can market its product in an effective manner.
The Company intends to market its product in the United States, Europe and Asia
through a network of independent distributors supported by a direct sales force,
but no sales force is yet in place, and no distribution agreements have been
entered into. The Company's ability to market its product in Europe and Asia and
other areas will depend on the Company's ability to fund such efforts as well as
the Company's ability to develop strategic alliances with marketing partners.
There can be no assurance that the Company will enter into such alliances with
other companies on favorable terms or at all.
RISK OF PRODUCT LIABILITY CLAIMS. The nature of the Company's business
exposes it to risk from product liability claims. The Company maintains product
liability insurance for its products with limits of $1 million per occurrence
and $2 million in the aggregate per year. Such insurance coverage is, however,
becoming increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at acceptable rates. In addition, due to the Company's working capital shortage,
there can be no assurance that the Company will be able to fund the premiums for
its existing insurance. Any losses that the Company may suffer from future
liability claims, and any adverse publicity from product liability litigation,
may have a material adverse effect on the Company's business, financial
condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. The Company's
success will depend in part on its ability to obtain and maintain patent
protection for its products, preserve its trade secrets, and operate without
infringing the proprietary rights of other parties. Because of the substantial
length of time and expense associated with bringing new products through
development to the marketplace, the biotechnology industry places considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. Legal standards relating to the scope
of claims and the validity of patents in the biotechnology field are uncertain
and evolving. There can be no assurance that patent applications to which the
Company holds rights will result in the issuance of patents, that any patents
issued or licensed to the Company will not be challenged and held to be invalid,
or that any such patents will provide commercially significant protection to the
Company's technology, products and processes. In addition, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information not covered by patents to which the Company has rights
or obtain access to the Company's know-how or that others will not be issued
patents which may prevent the sale of one or more of the Company's products, or
require licensing and the payment of significant fees or royalties by the
Company to third parties in order to enable the Company to conduct its business.
Defense and prosecution of patent claims can be expensive and time consuming,
regardless of whether the outcome is favorable to the Company, and can result in
the diversion of substantial financial, management, and other resources from the
Company's other activities. An adverse outcome could subject the Company to
12
<PAGE>
significant liability to third parties, require the Company to obtain licenses
from third parties, or require the Company to cease any related research and
development activities or product sales. In addition, the laws of certain
countries may not protect the Company's intellectual property. No assurance can
be given that any licenses required under any such third-party patents or
proprietary rights would be made available on commercially reasonable terms, if
at all. In addition, due to the Company's working capital shortage, there can be
no assurance that the Company will be able to continue its existing patent
applications.
The Company's success is also dependent upon the skills, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company has required and plans to continue to require all of its
employees, consultants, advisors and collaborators to enter into confidentiality
agreements that prohibit the disclosure of confidential information to anyone
outside the Company and require disclosure and in most cases assignment to the
Company of their ideas, developments, discoveries and inventions. There can be
no assurance, however, that these agreements will provide adequate protection
for the Company's trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure.
DEPENDENCE ON KEY PERSONNEL; INEXPERIENCE OF MANAGEMENT. The Company's
ability to successfully manage its growth will substantially depend on its
ability to attract and retain additional qualified management personnel. Because
of the Company's cash shortage, its ability to attract or retain qualified
personnel has been hindered. This cash shortage has caused the Company to pay
only one-half of its employees' salaries during portions of December 1998,
January 1999, February 1999, April 1999, and for all of March 1999. On April 23,
1999, the Company paid the unpaid salary for some if its employees for the
period from December 1998 through April 16, 1999. On December 9, 1998, the
Company issued the employees options to purchase an aggregate of 4,393 shares of
Common Stock at an exercise price of $5.00 per share or approximately $2.25 less
than the closing price on that date. In 1999, the Company repurchased 1,171
options from its employees for an aggregate purchase price of $2,635. The
Company has issued stock options to its non-executive employees for accrued and
unpaid salaries. Currently, none of the Company's administrative staff has any
experience in running a large company or a company whose securities are publicly
held, apart from the Company. There can be no assurance that the demands placed
on Company personnel by the cash shortage or the growth of the Company's
business and the need for close monitoring of the Company's operations and
financial performance through appropriate and reliable administrative and
accounting procedures and controls will be met, or that the Company will
otherwise manage its growth successfully; the failure to do so could have a
material adverse affect on the Company's business, results of operations and
financial condition. There is significant competition for qualified personnel,
and there can be no assurance that the Company will be successful in recruiting,
retaining or training the management personnel it requires. The Company has
designated Mead M. McCabe, Jr. as its interim principal financial officer. The
Company currently has no officer with experience in managing the financial and
accounting functions of a publicly-held company.
ITEM 2. DESCRIPTION OF PROPERTY.
- ------------------------------------------
The Company currently leases approximately 14,000 square feet of office
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. This
property is in good condition.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
- ------------------------------------
The Company is not aware of any 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 shares of common stock, par value $0.001 per share (the
"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." Effective November, 15, 1999, the Company was no longer in compliance
with the National Association of Securities Dealers, Inc. filing requirements.
Accordingly, the letter "E" was appended to the trading symbol. Once the NASD
receives notification that the Company complies with the filing requirement, the
fifth letter "E" will be removed. Until the Company complies with these filing
requirements, the Company's symbol is "GVECE." The following table shows the
high and low bid prices for the Common Stock for each quarter within the last
two fiscal years(1). The Company's closing price as of November 22, 1999 was
$5.0312.
BID PRICE PER SHARE(2)
----------------------
HIGH LOW
---- ---
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
BID PRICE PER SHARE(2)
----------------------
HIGH LOW
---- ---
First Quarter 1998 $8.75 $7.00
Second Quarter 1998 $9.875 $8.75
Third Quarter 1998 $9.9375 $7.50
Fourth Quarter 1998 $8.50 $3.50
- -------------------------------
(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.
HOLDERS OF COMMON STOCK
As of October 13, 1999, there were approximately 54 holders of record
of the Common Stock. The Company believes it has in excess of 450 non-objecting
beneficial owners of its Common Stock.
14
<PAGE>
DIVIDENDS
The Company has not paid any dividends on its Common Stock at any time.
Section 607.06401 of Florida Statutes prohibits the payment of dividends by any
corporation which after taking into account such dividend would not be able to
pay its debts as they become due or which would result in such corporation's
total assets being less than its total liabilities. This provision may prohibit
the Company from paying dividends unless the Company obtains significant new
capital. Other than the foregoing, 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 for the foreseeable future.
SALES OF UNREGISTERED SECURITIES
In June and August of 1998, the Company issued an aggregate of 709
shares in exchange for consulting services valued by the Company at $6,000,
based on the closing price on the date of grant. This Offering was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Act").
On September 8, 1998, the Company granted warrants to purchase 50,000
shares of Common Stock of the Company at an exercise price of $6.00 per share to
a consultant (the "Consultant") to assist the Company to obtain additional
financing. These warrants were immediately exercisable. The closing price of the
Company's Common Stock on September 8, 1998 was $9.125. This offering was exempt
from registration pursuant to Section 4(2) of the Act.
On November 2, 1998, the Company borrowed $150,000 from two private
investors ("Loan No. 1"). The terms of Loan No. 1 provided for an annual
interest rate of 12% which will increase 1% for each month that any portion of
Loan No. 1 remains unpaid after April 1, 1999, up to the maximum rate permitted
by law. Accrued interest is payable monthly beginning on April 1, 1999. The
outstanding principal was due on November 2, 1999. The Company also issued to
the private investors warrants to purchase 15,000 shares of Common Stock at an
exercise price of $6.00 per share. These warrants may be exercised at any time
before November 2, 2003. The closing price of the Common Stock on November 2,
1998 was $7.00. The Company is obligated to grant the private investors warrants
to purchase an additional 1,250 shares of Common Stock at an exercise price of
$6.00 per share on April 1, 1999 and each month thereafter through October 1,
1999 until the loans are repaid in full. On November 1, 1999 and each month
thereafter that the loans are outstanding, the Company is obligated to grant the
private investors warrants to purchase an additional 2,500 shares of Common
Stock at an exercise price of $6.00. The proceeds of these loans have been used
by the Company to fund its working capital needs. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
In addition, on November 2, 1998, the Company issued to the Consultant
warrants to purchase 15,000 shares of Common Stock at an exercise price of $6.00
per share. These warrants are immediately exercisable. This offering was exempt
from registration pursuant to Section 4(2) of the Act.
On January 19, 1999, the Company borrowed $163,500 from a private
investor ("Loan No. 2"). The terms of Loan No. 2 provided for an annual interest
rate of 12% which will increase 1% for each month that any portion of the loan
15
<PAGE>
remains unpaid after January 19, 2000, up to the maximum rate permitted by law.
Accrued interest was payable monthly beginning on April 19, 1999. The
outstanding principal balance was due on January 19, 2000. The loan is secured
by substantially all of the Company's assets. In addition, the Company issued
the private investor warrants to purchase 50,000 shares of Common Stock at an
exercise price of $0.01 per share. These warrants were immediately exercisable.
The closing price of the Common Stock on January 19, 1999 was $5.125. The
Company is obligated to grant the private investor warrants to purchase 150,000
shares at an exercise price of $5.50 per share upon the repayment of the loan or
the closing on the sale of Company securities in an aggregate amount of
$1,500,000. Such additional warrants become exercisable on the fifth anniversary
of the grant. The proceeds of this loan have already been expended by the
Company to fund its working capital needs. This offering was exempt form
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
On March 9, 1999, the Company borrowed an additional $125,000 ("Loan
No. 3") from the same private investor which had made Loan No. 2. The terms of
Loan No. 3 provided for an annual interest rate of 12% which will increase 1%
for each month that any portion of the loan remains unpaid after January 19,
2000, up to the maximum rate permitted by law. Accrued interest was payable
monthly beginning on April 19, 1999. The outstanding principal balance must be
repaid by January 19, 2000. The loan is secured by substantially all of the
Company's assets. In addition, the Company issued the private investor warrants
to purchase 50,000 shares of Common Stock at an exercise price of $0.01 per
share. These warrants were immediately exercisable. The closing price of the
Common Stock on March 9, 1999 was $7.875. Substantially all of the proceeds of
this loan have been expended by the Company to fund its working capital needs.
This offering was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 promulgated thereunder.
In connection with Loan No. 2 and Loan No. 3, the Company granted
warrants to purchase 16,350 shares of Common Stock on January 19, 1999 and
12,500 shares of Common Stock on March 9, 1999 at an exercise price of $5.50 per
share to the Consultant for helping the Company to locate the financing. These
warrants were immediately exercisable. The closing price of the Common Stock was
$5.125 and $7.875 on January 19, 1999 and March 9, 1999, respectively. This
offering was exempt from registration pursuant to Section 4(2) of the Act.
On April 19, 1999, the Company borrowed an additional $100,000 ("Loan
No. 4") from a private investor. This loan has an annual interest rate of 12%.
Accrued interest was payable quarterly, commencing on June 1, 1999. The loan is
secured by substantially all of the Company's assets. In addition, the Company
issued the private investor warrants to purchase 25,000 shares of Common Stock
at an exercise price of $3.50 per share. These warrants were immediately
exercisable. The closing price of the Common Stock on April 19, 1999 was $6.00.
This offering was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 promulgated thereunder.
On May 10, 1999, the Company issued 225,000 shares of Common Stock to a
private investor in exchange for $225,000. The proceeds from this offering were
expended by the Company to fund its working capital needs. The private investor
paid $1.00 per share for the 225,000 shares, or $4.75 per share less than the
closing price of $5.75 per share on May 10, 1999. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
On July 16, 1999, the Company issued 400,000 shares of Common Stock to
two private investors in exchange for $400,000. The proceeds from this offering
were expended by the Company to fund its working capital needs. These private
investors paid $1.00 per share for the 400,000 shares, or $4.75 per share less
than the closing price of $5.75 per share on July 16, 1999. This offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
16
<PAGE>
On October 6, 1999, the Company borrowed an additional $200,000 ("Loan
No. 4") from a private investor. The loan has an annual interest rate of 12%,
accrued interest was payable quarterly, commencing January 19, 2000. The loan is
secured by substantially all of the Company's assets. In addition, the Company
issued the private investor warrants to purchase 80,000 shares of common stock
at an exercise price of $.01 per share. These warrants were immediately
exercisable. The closing price of the common stock on October 7, 1999 was $5.75.
In addition, if $1.5 million is subsequently raised or the loan is paid back,
the Company will issue warrants to purchase 150,000 shares of common stock at an
exercise price of $3.00 per share. In connection with this loan, the Company
granted warrants to purchase 20,000 shares of common stock on October 7, 1999 at
an exercise price of $3.00 per share to the Consultant for helping the Company
locate the financing. These warrants were exercisable immediately. This offering
was exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On November 19, 1999, the Company borrowed an additional $200,000
("Loan No. 5") from a private investor. The loan has an annual interest rate of
12%, accrued interest was payable quarterly, commencing January 19, 2000. The
loan is secured by substantially all of the Company's assets. In addition, the
Company issued the private investor warrants to purchase 80,000 shares of common
stock at an exercise price of $.01 per share. These warrants were immediately
exercisable. The closing price of the common stock on November 19, 1999 was
$6.00. In addition, if $1.5 million is subsequently raised or the loan is paid
back, the Company will issue warrants to purchase 150,000 shares of common stock
at an exercise price of $3.00 per share. In connection with this loan, the
Company granted warrants to purchase 20,000 shares of Common Stock on November
19, 1999 at an exercise price of $3.00 per share to the Consultant for helping
the Company locate the financing. These warrants were exercisable immediately.
This offering was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 promulgated thereunder.
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:
17
<PAGE>
(a) Common Stock ($0.001 par value).
(b) Underwriter warrants to purchase an aggregate of 50,000
shares of Common Stock. Those warrants will become
exercisable on December 21, 1997 and expire on December
19, 2001.
(iv) Securities sold (all sold for account of the issuer):
AGGREGATE
OFFERING
PRICE OF AGGREGATE
AMOUNT AMOUNT AMOUNT OFFERING PRICE
TITLE REGISTERED REGISTERED SOLD OF AMOUNT SOLD
- --------------------------------------------------------------------------------
1. Common Stock 575,000 $5,750,000 $575,000 $5,750,000
2. Common Stock pursuant to
Underwriter Warrants 50,000 $750,000 - 0 - - 0 -
3. Underwriter Warrants 50,000 500 50,000 500
(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 Refunds: $4,569,751
Refund of Offering Costs: 19,257
---------
Net Proceeds of Offering: $4,589,008
(vii) Uses of Net Proceeds:
<TABLE>
<CAPTION>
Direct or indirect payments to
directors, officers, general partners
of the issuer or their associates; to
persons owning ten percent or more of
any class of equity securities of the
issuer; and to affiliates Direct or indirect
of the issuer payment to others
------------------------------------- ------------------
<S> <C> <C>
Construction of plant, building $0
and facilities:
18
<PAGE>
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 Direct or indirect
of the issuer payment to others
------------------------------------- ------------------
Purchase and installation of
machinery and equipment: 503,421
Purchase of real estate: -0-
Acquisition of other business(es): -0-
Repayment of indebtedness: -0-
Working capital: 30,000 976,894
TEMPORARY INVESTMENTS (SPECIFY)
- -------------------------------
Certificates of Deposit: 131,130
OTHER PURPOSES (SPECIFY)
Research and Development and Patent Protection 1,644,763
Expenditures:
Expansion of Research/Manufacturing Facilities: 109,000 365,173
Sales and Marketing Capabilities: 170,715
Management Salaries: 561,730
Investor Relations: 96,182
TOTAL: 700,730 3,888,278
</TABLE>
ITEM 6. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS.
- -----------------------------------------------------------------------------
INTRODUCTORY STATEMENTS
19
<PAGE>
The Company temporarily removed the Picogram Assay from the marketplace
in December, 1997 and subsequently re-launched it in the third quarter of 1998
but has not generated significant sales revenue. The Company remains largely a
development stage company, with the Company's expenditures far exceeding its
revenues. 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 is dependent on
external capital to finance its business operations. Such external capital will
also be necessary for the Company's operations to reach a level in which it may
internally generate the cash flow necessary to sustain its operations. The
Company's inability to raise new capital will have a material adverse effect on
the Company's ability to continue to research and develop its proposed products
and to market and sell its existing products, and will have a material adverse
effect on its operations and financial condition. The plan of operation
described in this Annual Report assumes that the Company will be successful in
raising additional capital. The failure to raise additional capital will, among
other things, cause deviations from the plan of operation described in this
Annual Report.
SUMMARY OF ANTICIPATED PRODUCT RESEARCH AND DEVELOPMENT. Subject to the
qualifications above, the Company will continue its product research and
development and continue to implement what the Company believes to be a feasible
plan for product development. The Company is outsourcing production of theEpiDNA
Picogram Assay Kit and manufacturing its second product the DNAMAX kit in house.
The major components of the plan of operations are as follows:
2000 o Continued research in applications of Genetic Vectors' nucleic
acid labeling technology.
o Continuation of EasyID DNA probe product development for
diagnostic uses in certain clinical diagnostic and food and
beverages markets.
o Completion of first DNA labeling product for test marketing in
the molecular biology research market.
o Research in the application of automated techniquest 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 five
employees. The Company does not anticipate hiring any additional personnel
during the remainder of 1999. If the Company is successful in raising
significant new capital, then the Company anticipates hiring fifteen new
employees in 2000 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.
20
<PAGE>
PROPOSED PERSONNEL ADDITION PLAN 2000
MANAGEMENT
Executive Personnel 2
Administrative Personnel 1
Director - Sales and Marketing 1
Salespersons 6
Technical Info/Inside Sales 2
Scientific Supervisors 1
Technicians 2
-----
TOTAL PROPOSED NEW EMPLOYEES 15
=====
TOTAL EMPLOYEES AT END OF YEAR 20
=====
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company generated revenues of $11,275 during 1998, which were
attributable to the launch of the Picogram Assay. In addition, the Company
recognized $35,897 in grant revenue during 1998. During 1997, the Company was
awarded a grant for $99,897 from the National Institute of Health and the
21
<PAGE>
National Institute of Allergy and Infectious Diseases for rapid identification
of fungal species. In this connection, the Company recognized grant revenue
aggregating $35,897 and $64,000 in 1998 and 1997, respectively. The award
terminated on February 27, 1998.
The sales generated by the Company during 1998 were preliminary in
nature, and represented the purchase of product samples primarily for evaluation
purposes. The Company reintroduced the Picogram Assay in the third quarter of
1998; however, the Company remains largely a development stage company with
expenditures far exceeding revenues.
Research and development expenses for 1998 increased by $179,226. The
increase was largely attributable to accelerated product improvement efforts on
EpiDNA Picogram Assay kits and development efforts on the core labeling
technology. In addition, the Company created a new research and development cost
center which the Company believes resulted in better tracking of certain
research and development expenses. This reclassification resulted in greater
research and development expenses in 1998 compared to 1997.
General, selling and administation expenses for 1998 were approximately
the same as in 1997.
Interest income for 1998 decreased by $136,969 because the Company had
less cash invested during 1998 than in 1997. 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 IPO and proceeds
from the issuance of debentures.
LIQUIDITY AND CAPITAL RESOURCES. The Company had cash and cash
equivalents of $2,102,467 at the beginning of 1998, consisting primarily of the
net proceeds received by the Company in the IPO. The cash used by the Company in
operating activities in 1998 aggregated $2,125,437. This was largely
attributable to research and development and general and administrative
expenses. The Company's net cash used in investing activities aggregated $64,606
during 1998, consisting mainly of purchases of laboratory and office equipment.
As discussed throughout this Annual Report, the Company has experienced
extreme cash shortages since the end of November 1998 through the date of this
Annual Report. See "Management's Plan of Operation and Discussion and Analysis
- -- Plan of Operation - Additional Fund Raising Activities." As of December 31,
1998, the Company had total stockholders' equity of $563,575 and had short-term
debt of $150,000. The Company had $109,924 in cash and cash equivalents as of
December 31, 1998. Since that time, the Company has raised $1,413,500 from loans
and equity investments. In connection with these transactions, warrants were
issued which will result in substantial non-cash financing costs during the
balance of 1999 and 2000. The Company is dependent on external capital to
finance its business operations. Such external capital will also be necessary
for the Company's operations to reach a level where it may internally generate
the cash flow necessary to sustain operations. The Company has received
informal, nonbinding assurances from a source which has previously provided the
Company with external capital that it will assist the Company in raising
additional capital for the expansion of its business. See "Management's Plan of
Operation and Discussion and Analysis -- Plan of Operation" and " -- Going
Concern Opinion." The Company has no commitments for additional capital and no
assurances can be given that the Company will be able to raise any such capital.
22
<PAGE>
GOING CONCERN OPINION. The Company's independent public accountants
have added an explanatory paragraph to their audit opinion issued in connection
with the 1998 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.
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 which may cause computer system failure or
miscalculations by computer programs. The Company believes it will not be
materially affected by the Year 2000 problem. The Company's conclusion is based
on a survey of the computer equipment currently in use by the Company. All such
equipment was acquired by the Company within the last two years and was
Year-2000-compliant when acquired. The Company has not expended a material
amount of costs in this assessment. Moreover, the Company remains largely a
research and development company and therefore its exposure to the Year 2000
problems of its customers and suppliers is minimal. However, the Company is
exposed to the risk that one or more of its suppliers could experience Year 2000
problems that may impact their ability to supply materials to the Company. To
date, the Company is not aware of any Year 2000 problems of its suppliers that
would have a material adverse impact on the Company's operations. Nonetheless,
the inability of suppliers to convert their computer systems to avoid any Year
2000 problems could jeopardize the supply of materials to the Company and
therefore have a material adverse effect on the Company's operations. The effect
of non-compliance by suppliers is not determinable at this time. The Company's
Year 2000 risks are considered minimal and no contingency plans are believed to
be necessary. As a result, the Company believes the potential consequences of
Year-2000 problems will not have a material effect on the Company.
POTENTIAL ACQUISITION OF DNA SCIENCES. On October 4, 1999, the Company
entered into a non-binding letter of intent to acquire DNA Sciences, Inc., a
California corporation ("DNA Sciences"). If consummated, the transaction will be
structured as a merger of DNA Sciences with and into the Company. In the merger,
the shareholders of DNA Sciences will receive 450,000 shares of common stock of
the Company. The shareholders of DNA Sciences will also have the ability to
nominate one director to the Company's Board of Directors. The Company expects
to consummate this transaction prior to December 31, 1999.
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 by increasing sales prices
over time. In addition, the Company places all of its major supplier purchases
out to bid.
NEW FASB PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in operations in the period
of change. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2001 to
affect its financial statements.
23
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
- ---------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
Financial Statements
Year Ended December 31, 1998 and 1997
24
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
- --------------------------------------------------------------------------------
Page
----
Report of Independent Certified Public Accountants 26
Balance sheet 27
Statements of Operations 28
Statements of Stockholders' Equity (Deficit) 29-30
Statements of Cash Flows 31
Notes to Financial Statements 32-51
25
<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, 1998 and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1998 and the cumulative period from
January 1, 1992 (inception) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1998 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998 and the cumulative period from January 1, 1992 (inception)
through December 31, 1998 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 no include any adjustments that might result
from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
--------------------------------
BDO Seidman, LLP
Miami, Florida
March 30, 1999, except for
Notes 4 and 11 which are as of
November 19, 1999
26
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------
ASSETS (Notes 4 and 11)
CURRENT
Cash and cash equivalents $ 109,924
Accounts receivable 3,620
Inventory 13,500
Prepaid expenses 22,852
Deferred loan costs (net of $18,525 of accumulated amortization) (Note 4) 92,625
- ---------------------------------------------------------------------------------------------
Total current assets 242,521
Equipment and improvements, net (Note 3) 403,355
Patents and license agreement, net of $25,245 of accumulated
amortization (Note 9(a)) 221,719
Restricted cash equivalents (Note 5) 46,130
- ---------------------------------------------------------------------------------------------
$ 913,725
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 200,150
Notes payable (Note 4) 150,000
- ---------------------------------------------------------------------------------------------
Total liabilities 350,150
- ---------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 2, 6, 9 and 11)
- ---------------------------------------------------------------------------------------------
Stockholders' Equity (Notes 8 and 10)
Common stock, $.001 par value, 10,000,000 shares authorized,
2,349,843 shares issued and outstanding 2,350
Additional paid-in capital 6,674,670
Deficit accumulated during the development stage (6,113,445)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 563,575
- ---------------------------------------------------------------------------------------------
$ 913,725
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CUMULATIVE FROM
JANUARY 1, 1992
(INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1997
- --------------------------------------------------------------------------------------------------
REVENUE:
Sales $ 50,535 $ 11,275 $ 39,260
Grant revenue 149,147 35,897 64,000
- --------------------------------------------------------------------------------------------------
Total revenue 199,682 47,172 103,260
- --------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative 3,855,641 1,574,082 1,573,534
Research and development 2,538,098 984,937 805,711
Depreciation and amortization 187,867 125,427 55,505
- --------------------------------------------------------------------------------------------------
Total expenses 6,581,606 2,684,446 2,434,750
- --------------------------------------------------------------------------------------------------
INTEREST 268,479 61,807 198,776
- --------------------------------------------------------------------------------------------------
Net loss (Note 7) $ (6,113,445) $ (2,575,467) $ (2,132,714)
- --------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding (Note 8) 2,344,696 2,339,634
- --------------------------------------------------------------------------------------------------
Net loss per common share - basic and
diluted $ (1.10) $ (.91)
- --------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Initial capitalization for cash at $0.0000625
per share (Note 8(a)) 1,600,000 $ 1,600 $ (1,500) $ - $ 100
Capital contribution (Note 8(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 8(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 8(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 8(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 8(g)) 575,000 575 4,569,176 - 4,569,751
Stock options granted for services - - 56,250 - 56,250
(Note 8(c))
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 8(g)) - - 25,500 - 25,500
Offering costs (Note 8(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
- -------------------------------------------------------------------------------------------------------------------------------
29
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
Issuance of common stock for services
(Note 8(j)) 709 1 5,999 - 6,000
Exercise of Stock Options, at $5.00
per share (Note 8(k)) 9,500 9 47,491 - 47,500
Warrants granted for consulting services
(Note 9(f)) - - 332,500 - 332,500
Warrants granted for loan financing costs
(Note 4) - - 111,150 - 111,150
Options granted for services rendered
(Note 8(m)) - - 8,072 - 8,072
Net loss - - - (2,575,467) (2,575,467)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,349,843 $ 2,350 $ 6,674,670 $ (6,113,445 ) $ 563,575
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative from
January 1, 1992 For the For the
(inception) through year ended year ended
December 31, December 31, December 31,
1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net loss $ (6,113,445) $ (2,575,467) $ (2,132,714)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 187,867 125,427 55,505
Amortization of loan costs 18,525 18,525 -
Write-off of acquired technology 71,250 - 15,000
Consulting services provided for common stock 6,000 6,000 -
Stock options and warrants granted for services 340,572 340,572 -
(Increase) in accounts receivable (3,620) (3,620) -
(Increase) in inventory (13,500) (13,500) -
(Increase) in prepaid expenses (22,852) (22,852) -
(Increase) in restricted cash equivalents (46,130) (46,130) -
Increase (decrease) in accounts payable
and accrued liabilities 332,973 (45,608) 19,015
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments 871,085 450,030 89,520
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,242,360) (2,125,437) (2,043,194)
- ----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (565,977) (63,240) (478,557)
Patent costs and license agreement (261,964) (1,366) (105,247)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (827,941) (64,606) (583,804)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase due to parent 413,518 - -
Proceeds from note payable 185,000 150,000 -
Payment on notes payable (35,000) - (35,000)
Net proceeds from issuance of common stock and exercise of options 5,097,450 47,500 -
Capital contribution 500,000 - -
Offering refund 25,500 - 25,500
Offering costs (6,243) - (6,243)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,180,225 197,500 (15,743)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 109,924 (1,992,543) (2,642,741)
Cash and cash equivalents at beginning of period - 2,102,467 4,745,208
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 109,924 $ 109,924 $ 2,102,467
- ----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Warrants issued in connection with loan financing $ 111,150 $ 111,150 $ -
Conversion of due to parent in exchange for stock $ 413,518 $ - $ -
Conversion of accrued wages for stock $ 132,822 $ - $ -
Cash paid for interest $ - $ - $ -
Cash paid for income taxes $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF Organization and Business
SIGNIFICANT
ACCOUNTING Genetic Vectors, Inc. (the "Company"), formerly
POLICIES a subsidiary of Nyer Medical Group, Inc. ("Nyer"),
was incorporated on December 28, 1991. The Company
was organized to supply genetic engineering tools
and analytical kits to the biotechnology and
molecular biology markets. The 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 the research and
development of its products. The Company had no
financial activities from December 28, 1991 to
December 31, 1991. Accordingly, January 1, 1992
has been used as the inception date of these
financial statements.
These financial statements include the
specifically identifiable expenses of the Company
incurred by Nyer on behalf of the Company.
Nyer, which 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
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.
32
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid
investments with an initial 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.
Deferred Loan Costs
-------------------
Deferred loan costs are carried at cost less
accumulated amortization. Amortization is computed
using the straight-line method over the life of
the notes payable of one year.
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
33
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 $35,897 and $64,000 for
1998 and 1997, respectively.
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 parent through March 25, 1996.
Thereafter, it filed on a separate company basis.
Net Loss Per Common Share
-------------------------
Net loss per common share is calculated according
to Statement of Financial Accounting Standards No.
128, "Earnings Per Share" which requires companies
to present basic and diluted earnings per share.
Net loss per common share - Basic is based on the
weighted average number of common shares
outstanding during the year. Net loss per common
share - Diluted is based on the weighted average
number of common shares and dilutive potential
34
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
common shares outstanding during the year.
The Company's potential issuable shares of common
stock pursuant to outstanding stock purchase
options and warrants are excluded from the
Company's diluted computation for each of the
periods presented as their effect would be antidi-
lutive to the Company's net loss.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist
principally of cash and cash equivalents,
receivables, accounts payable and notes payable.
The carrying amounts of such financial instruments
as reflected in the balance sheet approximate
their estimated fair value as of December 31,
1998. 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.
Comprehensive Income
--------------------
During 1998, the Company adopted SFAS No. 130
"Reporting Comprehensive Income." SFAS 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,
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.
The adoption of SFAS No. 130 did not have any
effect on the Company's financial statements for
the year ended December 31, 1998.
35
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT REPORTING
During 1998, the Company adopted SFAS No. 131
"Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 supersedes SFAS
No. 14, "Financial Reporting for Segments of a
Business Enterprise," and establishes standards
for the way 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 No. 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.
The Company currently operates solely in one
segment, the biopharmaceutical industry, and
therefore the adoption of SFAS No. 131 did not
have any effect on the Company's financial
statements for the year ended December 31, 1998.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards
Board issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133
requires companies to recognize all derivatives
contracts as either assets or liabilities in the
balance sheet and to measure them at fair value.
If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective
of which is to match the timing of gain or loss
recognition on the hedging derivative with the
recognition of (i) the changes in the fair value
of the hedged asset or liability that are
attributable to the hedged risk or (ii) the
earnings effect of the hedged forecasted
transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized
36
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
in operations in the period of change. SFAS 133 is
effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into
derivatives contracts either to hedge existing
risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new
standard on January 1, 2001 to affect its
financial statements.
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 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, 1998, the
Company incurred losses totaling $6,113,445, used
cash from operating activities in the amount of
$5,242,360 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.
Subsequent to December 31, 1998, the Company has
raised $1,413,500 from loans and equity
investments. The Company is in the process of
negotiating a private placement of securities of
$1.5 million which it hopes to complete by
January 31, 2000 and a secondary public offering
of securities of $10.0 million which it hopes to
complete by March 31, 2000. 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.
37
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. EQUIPMENT AND The Company's equipment is summarized as follows:
IMPROVEMENTS
DECEMBER 31, 1998
--------------------------------------------------
Laboratory equipment $ 385,765
Computers 49,862
Phone equipment 58,245
Leasehold improvements 36,077
Office furniture 22,520
Manufacturing equipment 5,947
Software 7,561
--------------------------------------------------
565,977
Less accumulated depreciation (162,622)
--------------------------------------------------
$ 403,355
--------------------------------------------------
4. NOTES PAYABLE In November 1998, the Company obtained financing
from two private investors of $100,000 and
$50,000, respectively. These unsecured notes
payable, are due at the earlier of November
1999 or the closing of a public or private
placement of equity securities with gross proceeds
to the Company of $3,000,000, bear simple interest
at 12% annually, payable quarterly beginning April
1, 1999, with 1% increases per month for each
month that any portion of the note remains
outstanding after April 1, 1999. In the event that
the Company does not make the principal payments
as stated, the holder is entitled to receive 1,250
warrants to purchase shares of common stock of the
Company at $6.00 per share, for each month that
the amounts due remains unpaid through October
1999 and 2,500 warrants per month thereafter. The
Company was in compliance with the terms and
covenants of the notes at December 31, 1998.
The Company is currently in default of this loan
for failing to pay the required principal and
interest.
In connection with these notes payables, an
aggregate of 31,000 warrants to purchase shares of
common stock of the Company at $6.00 per share
38
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
were issued to the two lenders and consultant in
connection with obtaining the financing,
respectively. Such warrants expire in 2003. The
fair value of such warrants amounting to $111,150
was estimated using the Black Scholes option
pricing model, and are shown in the balance sheet
as deferred loan costs, net of accumulated
amortization of $18,525. In addition, the
consultant was paid a $12,000 success fee for
obtaining the financing.
5. RESTRICTED CASH Restricted cash equivalents represents a
EQUIVALENTS certificate of deposit of $46,130 held as
security on a letter of credit tied to the
Company's facility lease.
6. DEPENDENCE ON Certain key components of the Company's products
LIMITED NUMBER are currently provided by a limited number
OF SUPPLIERS of sources, and one component is provided by a
single source.
7. INCOME TAXES At December 31, 1998, the Company had federal net
operating losses (NOL) of approximately
$5,843,000. The NOL expires during the years
2007-2013. 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
$2,200,000 deferred federal tax asset at December
31, 1998, resulting from the utilization of the
NOL, is considered more likely than not by
management; accordingly, a valuation allowance
has been established for the full amount of such
asset.
Net operating loss carryforward $ 2,200,000
Less: Valuation allowance (2,200,000)
--------------------------------------------------
Net deferred tax asset $ -
--------------------------------------------------
There are no significant temporary differences.
39
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. STOCKHOLDERS' a) During 1992, the Company issued 100 shares of
EQUITY (DEFICIT) 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.
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
40
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
at 120% of the initial public offering price to
the President. 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.
g) In December 1996, the Company completed its
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) In March 1998, the Company granted two year
options to six of its employees under the 1996
Incentive Plan (Note 10), which vest one year
after the grant date, to purchase 13,848 shares of
41
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
common stock at $8.00 per share.
j) In June and August of 1998, the Company issued
383 and 326 shares, respectively, of common stock
at market with a total value of $6,000 to a
consultant in connection with services rendered.
k) In June, July and August of 1998, a board member
exercised options of 5,000, 2,000 and 2,500,
respectively, at $5.00 per share.
l) In July 1998, the Company granted two year options
to five of its employees under the 1996 Incentive
Plan (Note 10), which vest one year after the
grant date, to purchase 3,367 shares of common
stock at $10.375 per share.
m) In December of 1998, the Company granted five year
options, which vest two months after the grant
date, to purchase 4,393 shares of common stock at
$5.00 per share to seven employees of the Company
in lieu of 50% pay for two pay periods. The fair
value of such options relating to 1998 amounting
to $8,072 was charged to operations during the
period ended December 31, 1998. In 1999, the
Company has repurchased 1,171 options for a
purchase price of $2,635. The Company intends to
repurchase the remaining options by the end of
April.
n) The following reconciles the components of the
earnings per share (EPS) computation:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
PER- PER-
LOSS SHARES SHARE LOSS SHARE SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Loss per common share - basic: $ (2,575,467) 2,344,696 $ (1.10) $ (2,132,714) 2,339,634 $ (.91)
Effect of Dilutive Securities
Options - - - - - -
Warrants - - - - - -
Loss per common share - assuming
dilution: $ (2,575,467) 2,344,696 $ (1.10) $ (2,132,714) 2,339,634 $ (.91)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Options to purchase 282,108 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 1998 and for 1997 as
they would have an antidilutive effect. 282,108
options which expire through 2008, are still
outstanding at December 31, 1998. Warrants to
purchase 130,000 shares of common stock at prices
ranging from $6.00 to $15.00 per share were not
included in the computation of loss per common
share assuming dilution for 1998 and for 1997 as
they would have an antidilutive effect. 130,000
warrants which expire through 2003 are outstanding
at December 31, 1998.
9. COMMITMENTS a) The Company has acquired rights to a new nucleic
AND acid labeling and detection technology (the
CONTINGENCIES "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
utilizing 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.
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 a
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
license did not terminate with the licensing of
43
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 occurring, 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 former 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, 1998.
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%. In December of 1998, the
Company renegotiated the lease reducing annual
rental payments to approximately $164,000 and
annual increases of 3%. Rent expense for 1998 and
1997 aggregated approximately $192,300 and
44
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
$90,900, respectively.
e) Minimum guaranteed lease payments under this lease
are as follows:
45
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, AMOUNT
--------------------------------------------------
1999 $ 164,000
2000 169,000
2001 174,000
2002 179,000
2003 184,000
Thereafter 690,000
--------------------------------------------------
$ 1,560,000
--------------------------------------------------
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.
In 1997, 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.
f) In September 1998, in connection with the signing
of the consulting agreement to obtain
approximately $3,000,000 in financing for the
Company, a consultant to the Company was issued
50,000 warrants to purchase shares of the
Company's common stock at $6.00 per share. The
Company estimated the fair value of the warrants
at the grant date by using the Black-Scholes
option pricing model with the following
weighted-average assumptions: no dividend yield
percent; expected volatility of 0.488 risk free
interest rate of 5.03%, and an estimated life of
10 years. The fair value of services related to
1998 of $332,500 was charged to operations during
the period ended December 31, 1998.
10. STOCK BASED At December 31, 1998, the Company has a fixed
COMPENSATION stock option plan and non-plan options which
are described below. The Company applies APB
46
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 are 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
is currently administered by a plan administrator
which consists of the Board of Directors, but may
consist of such committees, officers and/or
employees of the Company as the Board may so
designate. The purchase price of each share of
common stock purchased upon exercise of any option
granted is as follows: i) Incentive stock options
shall be equal to or greater than the fair market
value of the common stock on the date of grant as
required under Section 422 of the Internal Revenue
Code, ii) Options granted to 10% holders and
designated by the Plan Administrator as Incentive
Stock Options shall be equal to or greater than
110% of the fair market value of the common stock
on the date of grant as required under Section 422
of the Internal Revenue Code, (iii) Non-employee
director options shall be equal to or greater than
the fair market value of the common stock on the
date of the grant.
FASB Statement 123, Accounting for Stock-Based
Compensation, requires the Company to provide pro
forma information regarding net income (loss) and
net income (loss) 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
47
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Black-Scholes option-pricing model with the
following weighted-average assumptions used for
grants in 1998 and 1997: no dividend yield
percent; expected volatility of .500 - .568 and
0.465; risk-free interest rates of 4.4 - 5.4% and
6.5%, and expected lives ranging from 1.5 to 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:
1998 1997
--------------------------------------------------
Net loss
As reported $ (2,575,467) $ (2,132,714)
Pro forma (2,842,480) (2,400,514)
Net loss per common share
As reported $ (1.10) $ (.91)
Pro forma (1.21) (1.03)
A summary of the status of the Company's fixed
stock option plan and non-plan options as of
December 31, 1998 and 1997 and changes during the
years ended is presented below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, DECEMBER
1998 31, 1997
---- --------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------------------------------------------------------------------------------------
Outstanding at beginning of year 345,000 $ 10.48 335,000 $ 10.43
Granted 21,608 7.76 10,000 12.00
Exercised (9,500) 5.00 - -
Forfeited (75,000) 12.00 - -
---------------------------------------------------------------------------------------
Outstanding at end of year 282,108 10.05 345,000 10.48
---------------------------------------------------------
Options exercisable at year-end 202,160 9.73 218,333 9.60
Weighted-average fair value of
options granted during the year 21,608 $ 2.78 10,000 $ 6.00
---------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following table summarizes information about fixed stock options and non-plan
options outstanding at December 31, 1998:
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/31/98 Life Price 12/31/98 Price
---------------------------------------------------------- ----------------------------
$5.00 - $12.00 282,108 7.21 $10.05 202,166 $9.73
</TABLE>
11. SUBSEQUENT On January 19, 1999, the Company obtained
EVENTS additional financing from a private investor in
the amount of $163,500. This note payable, which
is due on the earlier of one year or the closing
of a private placement of equity securities with
net proceeds to the Company of $1,500,000, bears
interest at 12%, payable quarterly in arrears
beginning on April 19, 1999, with 1% increases per
month for each month that any portion of the note
remains outstanding after January 19, 2000, and is
collateralized by substantially all of the assets
of the Company. In connection with this note
payable, 50,000 non-expiring warrants to purchase
common shares at $0.01 per share and 16,350
non-expiring warrants to purchase common shares at
$5.50 per share were issued to the lender and
consultant in obtaining the financing,
respectively. In addition, a $13,000 success fee
was paid to the consultant in connection with
obtaining the financing.
On March 9, 1999, the private investor noted above
provided the Company with additional financing in
the amount of $125,000. This note payable, which
expires at the earlier of one year or the closing
of a private placement of equity securities with
net proceeds to the Company of $1,500,000, bears
interest at 12%, payable quarterly in arrears
beginning April 1999, with 1% increases per month
for each month that any portion of the note
remains outstanding after January 19, 2000. The
49
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
note is collateralized with a first security
interest to substantially all of the assets of the
Company. In connection with this notes payable,
50,000 non-expiring warrants to purchase common
shares at $0.01 per share and 12,500 non-expiring
warrants to purchase common shares at $5.50 per
share were issued to the lender and consultant in
obtaining the financing, respectively. In
addition, a $10,000 success fee was paid to the
consultant in connection with obtaining the
financing.
On April 19, 1999, the Company borrowed $100,000
from a private investor. The note is due upon the
earlier of one year or the closing of a private
placement of securities with gross proceeds from
the Company of $2 million. The note accrues
interest at 12% per year. Accrued interest is paid
quarterly, commencing on June 1, 1999. The note is
secured by substantially all the Company's assets.
The private investor received warrants to purchase
25,000 shares of Common Stock from the Company at
$3.50 per share,
On May 10, 1999, the Company issued 225,000 shares
of Common Stock to a private investor in exchange
for $225,000. The proceeds from this offering were
completely expended by June 30, 1999. The private
investor paid $1.00 per share for the 225,000
shares, or $4.75 per share less than the closing
price of $5.75 per share on May 10, 1999.
On July 16, 1999, the Company issued 400,000
shares of Common Stock to two private investors in
exchange for $400,000. The proceeds from this
offering were completely expended by October,
1999. These private investors paid $1.00 per share
for the 400,000 shares, or $4.75 per share less
than the closing price of $5.75 per share on July
16, 1999.
On October 4, 1999, the Company entered into a
non-binding letter of intent to acquire DNA
Sciences, Inc., a California corporation ("DNA
Sciences"). If consummated, the transaction will
be structured as a merger of DNA Sciences with and
into the Company. In the merger, the shareholders
of DNA Sciences will receive 450,000 shares of
common stock of the Company. The shareholders of
DNA Sciences will also have the ability to
nominate one director to the Company's Board of
Directors. The Company expects to consummate this
transaction prior to December 31, 1999.
On October 6, 1999, the Company borrowed an
additional $200,000 from a private investor. The
loan is due on January 19, 2000 and has an
annual interest rate of 12% with accrued interest
payable quarterly, comencing January 19, 2000.
The loan is secured by substantially all of the
Company's assets. In addition, the Company issued
the private investor warrants to purchase
80,000 shares of common stock at an exercise price
of $.01 per share. These warrants are immediately
exercisable. The closing price of the common stock
on October 7, 1999 was $5.75. In addition, if $1.5
million is subsequently raised or the loan is paid
back, the
50
<PAGE>
- --------------------------------------------------------------------------------
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Company will issue warrants to purchase 150,000
shares of common stock at an exercise price of
$3.00 per share. In connection with this loan, the
Company granted warrants to purchase 20,000 shares
common stock on October 7, 1999 at an exercise
price of $3.00 per share to a consultant for
helping the Company locate the financing. These
warrants are exercisable immediately.
Effective November 15, 1999, the Company was no
longer in compliance with the National Association
of Securities Dealers, Inc. (NASD(R)) filing
requirements. Accordingly, the letter "E" was
appended to the trading symbol. Once the NASD
receives notification that the Company complies
with the filing requirements, the fifth character
"E" will be removed. The Company expects to be
compliant in the near future.
On November 19, 1999, the Company borrowed an
additional $200,000 from a private investor. The
loan has an annual interest rate of 12%, accrued
interest is payable quarterly, commencing January
19, 2000. The loan is secured by substantially all
of the Company's assets. In addition, the Company
issued the private investor warrants to purchase
80,000 shares of common stock at an exercise price
of $.01 per share. These warrants are immediately
exercisable. The closing price of the common stock
on November 19, 1999 was $6.00. In addition, if
$1.5 million is subsequently raised or the loan is
paid back, the Company will issue warrants to
purchase 150,000 shares of common stock at an
exercise price of $3.00 per share. In connection
with this loan, the Company granted warrants to
purchase 20,000 shares of common stock on November
19, 1999 at an exercise price of $3.00 per share
to a consultant for helping the Company locate the
financing. These warrants are exercisable
immediately.
51
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
- --------------------------------------------------------------------------------
None.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company's present directors and executive officers are as follows:
Name Age Position
- ---- --- --------
Mead M. McCabe, Sr., Ph.D. 61 Chairman of the Board of Directors
Mead M. McCabe, Jr. 33 President and Secretary; Director
Mark E. Burroughs 42 Director
Jack W. Fell, Ph.D. 66 Director
Michael C. Foley 55 Director
MEAD M. MCCABE, SR., PH.D. is the founder of the Company and the
inventor of the EpiDNA technology. Dr. McCabe is the Chairman of the Board of
Directors of the Company. He holds a B.S. in Zoology from Pennsylvania State
University and a Ph.D. in Biology from the University of Miami. Since 1972, he
has been on the faculty of the University of Miami School of Medicine, and
currently is on the faculty of the Department of Microbiology and Immunology.
From November 1995 to July 1996 he served as a consultant in chromatographic
process development for Viragen, Inc. Dr. McCabe's research interests center on
the molecular mechanisms of microbial diseases and he has taught undergraduate
courses in molecular pathogenesis. Dr. McCabe served four years on the Oral
Biology and Medicine Study Section at the National Institute of Health and has
consulted for the NIH on numerous other occasions since 1976. He has been
awarded NIH research grants, including a recent S.B.I.R. Phase I grant. Dr.
McCabe has been a director of the Company since its inception. Dr. McCabe is the
father of Mead M. McCabe, Jr. and the brother-in-law of Mr. Foley.
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 a
financial consultant with Merrill Lynch for two years. Mr. McCabe is the son of
Dr. McCabe and the nephew of Mr. Foley. 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
52
<PAGE>
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. 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.
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 security 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. Mr. Foley is the brother-in-law of
Dr. McCabe and the uncle of Mr. McCabe.
RESIGNATIONS OF DIRECTORS. Allyn L. Golub and James A. Joyce resigned
from the Company's Board of Directors on December 4, 1998, and March 5, 1999,
respectively. The Company has not filled the two vacancies on the Board of
Directors caused by the resignations of Dr. Golub and Mr. Joyce.
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 IPO,
the Company has agreed that this underwriter may designate one member of the
Board of Directors. The underwriter had designated James A. Joyce as its
designee to the Board of Directors until his resignation on March 5, 1999. The
underwriter has not designated a successor. 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.
53
<PAGE>
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 1998 by any of its executive officers,
directors or owners of more than ten percent 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 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 and Dr. Fell) have an exercise price of
$12.00 per share (120% of the offering price in the Company's IPO). 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) at an exercise
price of $7.75. 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 years ended
December 31, 1998, 1997, and 1996 to Mead M. McCabe, Jr., President and Chief
Executive Officer of the Company, and 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 Mr. McCabe, Jr. or Dr. McCabe during years 1998, 1997, and
1996. No other executive officer of the Company earned a total annual salary and
bonus for any of these years in excess of $100,000. The summary compensation
table which follows includes all payments to Mr. McCabe and Dr. McCabe for years
1998, 1997, and 1996.
54
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS ($) COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($)
- ---------------------- ------- ---------- -------- --------------- ------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mead M. McCabe, Sr., 1998 $125,000 -0- -0- -0- -0- -0- -0-
Ph.D., Chairman of
the Board of
Directors
1997 $125,000 -0- -0- -0- -0- -0- -0-
1996 $125,000 -0- -0- -0- 100,000(1) -0- -0-
Mead M. McCabe, Jr., 1998 $73,558 -0- -0- -0- -0- -0- -0-
President, Chief
Executive Officer and 1997 $75,866 -0- -0- -0- -0- -0- -0-
Director
1996 $25,817 -0- -0- -0- 75,000(2) -0- -0-
</TABLE>
- -----------------
(1) These options were granted on August 15, 1996, and have an exercise price of
$12.00 per share. These options 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.
(2) These options were granted on August 15, 1996, and have an exercise price of
$12.00 per share. These options vest in equal increments over a three year
period. All of these grants are for options to purchase Common Stock. No SARs
were granted.
55
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options/SAR's at Fiscal Options/SAR's at
Name Exercise Realized ($) Year End Fiscal Year End
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mead M. McCabe, Sr. -0- -0- Exercisable: 100,000 -0-
Mead M. McCabe, Jr. -0- -0- Exercisable: 75,000 -0-
</TABLE>
- -----------------
(1) These grants represent options to purchase Common Stock. No SAR's have been
granted.
(2) None of these options were in-the-money as of December 31, 1998.
Employment Agreements
Effective June 1, 1999, the Company and Mead M. McCabe, Jr. entered into a new
employment agreement pursuant to which Mr. McCabe will serve as the President
and Chief Executive Officer of the Company. The agreement has a three year term
and pays Mr. McCabe a base salary of $125,000, plus annual cost of living
adjustments and other increases to be determined by the Board of Directors. Mr.
McCabe also receives a monthly automobile allowance of $750.00. Mr. McCabe was
granted options to purchase 10,000 shares of common stock at an exercise price
of $5.75 per share. These options are immediately exercisable. In addition, Mr.
McCabe is entitled to an annual bonus in an amount to be determined by the Board
of Directors. The Agreement further provides that Mr. McCabe will devote his
full working time and efforts to the business and affairs of the Company. The
agreement also provides that upon termination of employment without "cause" or
termination by the executive for "good reason" (which includes a change of
control), the executive is entitled to receive, in addition to all accrued or
earned but unpaid salary, bonus or benefits, an amount equal to two times the
compensation such executive would be entitled to receive in the then current
fiscal year, including base salary and incentive bonus compensation. For the
purposes of the employment agreement, the amount of incentive bonus compensation
such executive would be entitled to receive in the then current fiscal year is
equal to the largest amount accrued for any of the two most recently completed
fiscal years. The agreement also provides that the executive will not compete
with the Company during his employment and for one year thereafter.
Effective June 1, 1999, the Company and Mead M. McCabe, Sr. entered into a new
employment agreement pursuant to which Dr. McCabe will serve as the Chairman of
the Board of Directors of the Company. The agreement has a three year term and
pays Dr. McCabe a base salary of $132,750, plus annual cost of living
adjustments and other increases to be determined by the Board of Directors. Dr.
McCabe also receives a monthly automobile allowance of $750.00. Dr. McCabe was
granted options to purchase 10,000 shares of common stock at an exercise price
of $5.75 per share. These options are immediately exercisable. In addition, Dr.
McCabe is entitled to an annual bonus in an amount to be determined by the Board
of Directors. The Agreement further provides that Dr. McCabe will devote his
full working time and efforts to the business and affairs of the Company. The
agreement also provides that upon termination of employment without "cause" or
termination by the executive for "good reason" (which includes a change of
control), the executive is entitled to receive, in addition to all accrued or
earned but unpaid salary, bonus or benefits, an amount equal to two times the
compensation such executive would be entitled to receive in the then current
fiscal year, including base salary and incentive bonus compensation. For the
purposes of the employment agreement, the amount of incentive bonus compensation
such executive would be entitled to receive in the then current fiscal year is
equal to the largest amount accrued for any of the two most recently completed
fiscal years. The agreement also provides that the executive will not compete
with the Company during his employment and for one year thereafter.
Incentive Plan
Overview of the Incentive Plan
Incentive compensation for non-employee directors, executives and other
key employees of the Company will be provided under the Genetic Vectors, Inc.
1996 Incentive Plan. The purpose of the Incentive Plan is to (a) increase the
proprietary and vested interest of non-employee directors of the Company in the
growth and performance of the Company, (b) assist in attracting and retaining
highly competent employees, (c) provide an incentive for motivating selected
officers and other key employees of the Company, (d) achieve long-term corporate
objectives and (e) enable cash incentive awards to qualify as performance-based
for purposes of the tax deduction limitations under Section 162(m) of the
Internal Revenue Code of 1986, as amended.
56
<PAGE>
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 non-qualified
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of November 22, 1999, 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.
57
<PAGE>
COMMON STOCK
BENEFICIALLY OWNED (1)
----------------------
NAME/ADDRESS NUMBER PERCENT
- ------------ ------ -------
Mead M. McCabe, Sr. And.............. 259,833(2) 8.73%(2)
Marigrace McCabe (jointly)
12901 SW 63rd Ct.
Miami, FL 33156
Mead M. McCabe, Sr. ................. 1,000(2) 0.03%(2)
12901 SW 63rd Ct.
Miami, FL 33156
Mead M. McCabe, Jr................... 186,960(2) 6.28%(2)
5201 N.W. 77th Avenue
Suite 100
Miami, Florida 33133
Nyer Medical Group 870,215(2),(3) 29.25%(2),(3)
1292 Hammond St.
Bangor, ME 04401
James A. Joyce....................... 65,500(7) 2.20%(7)
7825 Bay Avenue, Suite 200
La Jolla, California 92037
Jack W. Fell, Jr., Ph.D.............. 5,000(1),(6) 0.17%(1),(6)
University of Miami-RSMAS
4600 Rickenbacker Causeway
Key Biscayne, Florida 33149
Allyn L. Golub, Ph.D................. 5,000(1),(6),(7) 0.17%(1),(6),(7)
10320 USA Today Way
Miramar, Florida 33025
Mark E. Burroughs.................... 5,000(1),(6) 0.17%(1),(6)
4523-C Edwards Mills Road
Raleigh, North Carolina 27612
All directors and executive officers
as a group(4)(5)(6).................. 528,293 17.76%
- ---------------------------
(1) Applicable percentage of ownership is based on 2,974,843 shares of Common
Stock outstanding as of November 22, 1999 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 November
22, 1999 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.
58
<PAGE>
(2) 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 1,086,715, 871,215,
and 1,022,175 shares of Common Stock, respectively. Their ownership
percentages would be 46.2%, 37.1% and 43.5%, respectively.
(3) 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.
(4) Six (6) persons, including Mr. Joyce and Dr. Golub.
(5) Includes 275,500 shares which may be acquired upon the exercise of
presently exercisable stock options.
(6) Represents shares which may be acquired upon the exercise of presently
exercisable stock options.
(7) Mr. Golub and Mr. Joyce resigned from the Company's Board of Directors on
December 4, 1998 and March 5, 1999, respectively.
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"). The Voting Agreement provides among
other things that, for a period of five years, Nyer Medical will vote its shares
of Common Stock to elect (a) one member of the Company's Board of Directors
designated by Nyer Medical, and (b) all other Board of Directors nominees
designated by the McCabes. The Voting Agreement will not affect Nyer Medical's
rights to vote its shares of Common Stock in connection with other matters on
which the Company's shareholders vote.
Dr. McCabe is the founder of the Company and currently serves as its
Chairman. Marigrace McCabe is the wife of Dr. McCabe. Mead McCabe, Jr. is the
son of Dr. McCabe.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -----------------------------------------------------------------
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 the identification of a facility, lease
negotiations and design, 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
59
<PAGE>
services through June 1997. Mr. Joyce's option exercise rights will continue
until the fourth anniversary of the execution of such consulting agreement.
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> <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.
60
<PAGE>
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
Agreement dated August 15, 1996 between Exhibit No. 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Stock Option Addendum to Employment Incorporated by reference to
Agreement dated August 15, 1996 between Exhibit No. 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
10.7 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.
10.8 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.
10.9 Investors Finders Agreement dated Incorporated by reference to
June 9, 1994 among Nyer Medical Group, Exhibit No. 10.12 to the Registration Statement.
Inc., and the Company and Gulf American
Trading Company
10.10 Industrial Real Estate Lease dated June 12, Incorporated by reference to
1997 among the Company and Jetex Group, Inc. Exhibit No. 10.13 to the Company's
Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1997
10.11 Letter from University of Miami dated April Incorporated by reference to
8, 1998 Exhibit No. 10.12 to the Company's Annual
Report on Form 10-KSB for the Year Ended
December 31, 1997
10.12 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.13 to
1998 in the Original Principal Amount of the Company's Annual Report on Form 10-KSB for the
$50,000 given by the Company to Ms. year ended December 31, 1998
Patricia A. Gionone
61
<PAGE>
10.13 Common Stock Purchase Warrant No. W-2 dated Incorporated by reference to Exhibit No. 10.14 to
as of November 2, 1998 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Ms. Patricia A. Gionone year ended December 31, 1998
10.14 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.15 to
1998 in the Original Principal Amount of the Company's Annual Report on Form 10-KSB for the
$100,000 given by the Company to Jerome P. year ended December 31, 1998
Seiden Irrevocable Trust Dated April 22,
1998
10.15 Common Stock Purchase Warrant No. W-1 dated Incorporated by reference to Exhibit No. 10.16 to
as of November 2, 1998 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Jerome P. Seiden Irrevocable year ended December 31, 1998
Trust Dated April 22, 1998
10.16 Common Stock Purchase Warrant No. W-5 dated Incorporated by reference to Exhibit No. 10.17 to
as of September 3, 1998 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Sterling Technology Partners, year ended December 31, 1998
Ltd.
10.17 Common Stock Purchase Warrant No. W-4 dated Incorporated by reference to Exhibit No. 10.18 to
as of January 19, 1999 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Sterling Technology Partners, year ended December 31, 1998
Ltd.
10.18 Common Stock Purchase Warrant No. W-7 dated Incorporated by reference to Exhibit No. 10.19 to
as of March 9, 1999 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Sterling Technology Partners, year ended December 31, 1998
Ltd.
10.19 Common Stock Purchase Warrant No. W-3 dated Incorporated by reference to Exhibit No. 10.20 to
as of January 19, 1999 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Capital Research, Ltd. year ended December 31, 1998
10.20 Promissory Note dated as of January 19, Incorporated by reference to Exhibit No. 10.21 to
1999 in the Original Principal Amount the Company's Annual Report on Form 10-KSB for the
of $163,500 given by the Company to year ended December 31, 1998
Capital Research, Ltd.
10.21 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.22 to
January 19, 1999 between the Company and the Company's Annual Report on Form 10-KSB for the
Capital Research, Ltd. year ended December 31, 1998
10.22 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.23 to
January 19, 1999 between the Company and the Company's Annual Report on Form 10-KSB for the
Capital Research, Ltd. year ended December 31, 1998
10.23 Promissory Note dated as of March 9, 1999 Incorporated by reference to Exhibit No. 10.24 to
in the Original Principal Amount of the Company's Annual Report on Form 10-KSB for the
$125,000 given by the Company to year ended December 31, 1998
Capital Research, Ltd.
10.24 Common Stock Purchase Warrant No. W-6 dated Incorporated by reference to Exhibit No. 10.25 to
as of March 9, 1999 granted by the Company the Company's Annual Report on Form 10-KSB for the
to Capital Research, Ltd. year ended December 31, 1998
10.25 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.26 to
March 9, 1999 between the Company and the Company's Annual Report on Form 10-KSB for the
Capital Research, Ltd. year ended December 31, 1998
10.26 Executive Employment Agreement, together Provided herewith
with stock Options Addendum, dated as of
June 1, 1999 between Mead M. McCabe, Jr.
and the Company
10.27 Executive Employment Agreement, together Provided herewith
with stock Options Addendum, dated as of
June 1, 1999 between Mead M. McCabe, Sr.
and the Company
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
21. Subsidiaries of the Registrant Incorporated by reference to Exhibit No. 21 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998
62
<PAGE>
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.
On May 21, 1998, the Company filed a Form 8-K with respect to an
agreement in principle to acquire all of the outstanding capital stock of Gen
Trak, Inc., for 350,000 newly-issued shares of Common Stock of the Company. On
August 7, 1998, the Company announced that the acquisition of Gen Trak, Inc. had
been terminated.
63
<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: December 8, 1999
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.
DATE SIGNATURE TITLE
---- --------- -----
December 8, 1999 /s/ Mead M. McCabe, Sr., Ph.D. Chairman of the Board of
--------------------------- Directors (Principal
Mead M. McCabe, Sr., Ph.D. Executive Officer)
December 8, 1999 /s/ Mead M. McCabe, Jr. President; Director
--------------------------- (Principal Financial
Mead M. McCabe, Jr. Officer; Principal
Accounting Officer)
December 8, 1999 /s/ Mark E. Burroughs Director
---------------------------
Mark E. Burroughs
December 8, 1999 /s/ Michael C. Foley Director
----------------------------
Michael C. Foley
64
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
No. Description Location Page
------- ----------- ------- ----
<S> <C> <C> <C>
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No.
as amended 3.1 to Registrant's Registration Statement
(the "Registration Statement") on Form
SB-2 (Registration Number 333-5530-A).
3.2 By-laws of the Company Incorporated by reference to Exhibit No.
3.2 to the Registration Statement.
4.1 Form of Common Stock certificate Incorporated by reference to Exhibit No.
4.1 to the Registration Statement.
4.2 Form of Underwriters' Warrant Incorporated by reference to Exhibit No.
4.2 to the Registration Statement.
4.3 Form of 1996 Incentive Plan Incorporated by reference to Exhibit No.
4.3 to the Registration Statement.
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
Agreement dated August 15, 1996 between Exhibit No. 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Stock Option Addendum to Employment Incorporated by reference to
Agreement dated August 15, 1996 between Exhibit No. 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
65
<PAGE>
10.7 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.
10.8 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.
10.9 Investors Finders Agreement dated Incorporated by reference to
June 9, 1994 among Nyer Medical Group, Exhibit No. 10.12 to the Registration Statement.
Inc., and the Company and Gulf American
Trading Company
10.10 Industrial Real Estate Lease dated June 12, Incorporated by reference to
1997 among the Company and Jetex Group, Inc. Exhibit No. 10.13 to the Company's
Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1997
10.11 Letter from University of Miami dated April Incorporated by reference to
8, 1998 Exhibit No. 10.12 to the Company's Annual
Report on Form 10-KSB for the Year Ended
December 31, 1997
10.12 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.13 to
1998 in the Original Principal Amount of the Company's Annual Report on Form 10-KSB for the
$50,000 given by the Company to Ms. year ended December 31, 1998
Patricia A. Gionone
10.13 Common Stock Purchase Warrant No. W-2 dated Incorporated by reference to Exhibit No. 10.14 to
as of November 2, 1998 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Ms. Patricia A. Gionone year ended December 31, 1998
10.14 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.15 to
1998 in the Original Principal Amount of the Company's Annual Report on Form 10-KSB for the
$100,000 given by the Company to Jerome P. year ended December 31, 1998
Seiden Irrevocable Trust Dated April 22,
1998
10.15 Common Stock Purchase Warrant No. W-1 dated Incorporated by reference to Exhibit No. 10.16 to
as of November 2, 1998 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Jerome P. Seiden Irrevocable year ended December 31, 1998
Trust Dated April 22, 1998
10.16 Common Stock Purchase Warrant No. W-5 dated Incorporated by reference to Exhibit No. 10.17 to
as of September 3, 1998 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Sterling Technology Partners, year ended December 31, 1998
Ltd.
66
<PAGE>
10.17 Common Stock Purchase Warrant No. W-4 dated Incorporated by reference to Exhibit No. 10.18 to
as of January 19, 1999 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Sterling Technology Partners, year ended December 31, 1998
Ltd.
10.18 Common Stock Purchase Warrant No. W-7 dated Incorporated by reference to Exhibit No. 10.19 to
as of March 9, 1999 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Sterling Technology Partners, year ended December 31, 1998
Ltd.
10.19 Common Stock Purchase Warrant No. W-3 dated Incorporated by reference to Exhibit No. 10.20 to
as of January 19, 1999 granted by the the Company's Annual Report on Form 10-KSB for the
Company to Capital Research, Ltd. year ended December 31, 1998
10.20 Promissory Note dated as of January 19, Incorporated by reference to Exhibit No. 10.21 to
1999 in the Original Principal Amount the Company's Annual Report on Form 10-KSB for the
of $163,500 given by the Company to year ended December 31, 1998
Capital Research, Ltd.
10.21 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.22 to
January 19, 1999 between the Company and the Company's Annual Report on Form 10-KSB for the
Capital Research, Ltd. year ended December 31, 1998
10.22 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.23 to
January 19, 1999 between the Company and the Company's Annual Report on Form 10-KSB for the
Capital Research, Ltd. year ended December 31, 1998
10.23 Promissory Note dated as of March 9, 1999 Incorporated by reference to Exhibit No. 10.24 to
in the Original Principal Amount of the Company's Annual Report on Form 10-KSB for the
$125,000 given by the Company to year ended December 31, 1998
Capital Research, Ltd.
10.24 Common Stock Purchase Warrant No. W-6 dated Incorporated by reference to Exhibit No. 10.25 to
as of March 9, 1999 granted by the Company the Company's Annual Report on Form 10-KSB for the
to Capital Research, Ltd. year ended December 31, 1998
10.25 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.26 to
March 9, 1999 between the Company and the Company's Annual Report on Form 10-KSB for the
Capital Research, Ltd. year ended December 31, 1998
10.26 Executive Employment Agreement, together Provided herewith
with stock Options Addendum, dated as of
June 1, 1999 between Mead M. McCabe, Jr.
and the Company
10.27 Executive Employment Agreement, together Provided herewith
with stock Options Addendum, dated as of
June 1, 1999 between Mead M. McCabe, Jr.
and the Company
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
21. Subsidiaries of the Registrant Incorporated by reference to Exhibit No. 10.21 to
the Company's Annual Report on Form 10-KSB for the
22. Published report regarding matters Not applicable
submitted to Vote
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
67
EXHIBIT 10.26
-------------
GENETIC VECTORS, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement ("AGREEMENT") is made in Miami,
Florida effective as of June 1, 1999, by and between GENECTIC VECTORS, INC., a
Florida corporation (the "COMPANY"), and MEAD M. McCABE, JR., an individual
residing in Miami, Florida (the "EXECUTIVE"), who hereby agree as hereinafter
provided.
Section 1. DEFINITIONS. As used herein, the following terms shall have
the meanings set forth below.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph hereof.
"BASE COMPENSATION" shall have the meaning set forth in Section 5(a).
"BOARD OF DIRECTORS" means the incumbent directors of the Company as of
the point in time reference thereto is made in this Agreement.
"CAUSE" shall have the meaning set forth in Section 11(b).
"COLA ADJUSTMENT" means the cost of living adjustment, which shall
correspond to the percent rise in prices for the preceding year as measured by
the Consumer Price Index for all Urban Consumers (CPI-UC). All City Average, all
Items (base year 1982-1984 = 100) published by the United States Department of
Labor, Bureau of Labor Statistics (the "INDEX"). The COLA Adjustment shall be
determined by multiplying the amount or figure to be adjusted by a fraction, the
numerator of which is the Index published for the month in which occurs the date
of adjustment and the denominator of which is the Index published for the same
month of the preceding year.
"COMPANY" shall have the meaning set forth in the introductory paragraph
of this Agreement, and shall include Subsidiaries where appropriate.
"COMPETITIVE BUSINESS" shall have the meaning set forth in Section
10(a).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
10(c).
"DISABILITY" of the Executive means that, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties on a full time basis for six (6) consecutive months, or
for an aggregate of nine (9) months in any consecutive twelve (12) month period,
and a physician selected by the Executive is of the opinion that (a) he is
suffering from "total disability" and (b) he will qualify for Social Security
Disability Payments and (c) within thirty (30) days after written notice thereof
is given by the Company to the Executive (which notice may be given at any time
after the end of such six (6) or twelve (12) month periods) the Executive shall
not have returned to the performance of his duties on a full-time basis. (If the
Executive is prevented from performing his duties because of Disability, upon
request by the Company the Executive shall submit to an examination by a
physician selected by the Company, at the Company's expense, and the Executive
shall also authorize his personal physician to disclose to the selected
physician all of the Executive's medical records).
"EMPLOYMENT COMMENCEMENT DATE" means the effective date of this
Agreement.
"EMPLOYMENT PERIOD" means that period commencing on the Employment
Commencement Date and ending on the Employment Termination Date.
<PAGE>
"EMPLOYMENT TERMINATION DATE" means the date the Employment Period
terminates as provided in Section 11.
"EXECUTIVE" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"FISCAL YEAR" means the fiscal year of the Company.
"NET INCOME" shall mean the net income of the Company for any Fiscal
Year as reflected in its annual financial statements prepared in accordance with
generally accepted accounting principals and audited by BDO Seidman or such
other accounting firm of national reputation as may be selected by the Company
from time to time.
"NOTICE OF TERMINATION" shall have the meaning set forth in Section
11(a)(1).
"RESTRICTED PERIOD" shall have the meaning set forth in Section 10(a).
"SCHEDULED EMPLOYMENT TERMINATION DATE" means the later of (a) the day
immediately preceding the third (3rd) anniversary of the Employment Commencement
Date or (b) such date as is specified by either the Company or the Executive in
a Notice of Termination delivered for the purpose of fixing the scheduled
Employment Termination Date, provided the date so specified shall be at least
three (3) years after the date such Notice of Termination is so delivered.
"SUBSIDIARIES" means wholly owned subsidiaries of the Company, if any.
Section 2. EMPLOYMENT AND TERM. The Company hereby employs the
Executive, and the Executive hereby accepts such employment by the Company, for
the purposes and upon the terms and conditions contained in this Agreement. The
term of such employment shall be for the Employment Period.
Section 3. EMPLOYMENT CAPACITY AND DUTIES. The Executive shall be
employed throughout the Employment Period as the President of the Company. The
Executive shall have the duties and responsibilities incumbent with the position
of President of the Company. Accordingly, and not by way of limitation, as
President of the Company, the Executive shall superintend and manage the
business of the Company and coordinate and supervise the work of its other
officers, employ agents, professional advisors and consultants and perform all
functions of a general manager of the Company's business. The Company agrees
that it will not, without the Executive's written consent, relocate its
principal executive offices to a location outside Miami, Florida or require the
Executive to be based anywhere other than the Company's principal executive
offices, except for required travel on the Company's business.
Section 4. EXECUTIVE PERFORMANCE COVENANTS. The Executive accepts the
employment described in Section 3 and agrees to devote his full working time and
efforts (except for absences due to illness and appropriate vacations) to the
business and affairs of the Company and the performance of the aforesaid duties
and responsibilities. However, nothing in this Agreement shall preclude the
Executive from devoting a reasonable amount of his time and efforts to civic,
community, charitable, professional and trade association affairs and matters.
Section 5. COMPENSATION. The Company shall pay to the Executive for
his services hereunder, the compensation hereinafter provided in this Section 5.
Such compensation shall be paid to the Executive at the time and in the manner
as provided below.
-2-
<PAGE>
(a) BASE COMPENSATION. The Executive shall be paid "BASE
COMPENSATION" for each Fiscal Year at an annual rate of One Hundred Twenty-Five
Thousand ($125,000) dollars in twenty-six (26) bi-weekly equal installments. The
Base Compensation (i) may be increased (but may not be decreased) at any time or
from time to time by action of the Board of Directors or any committee thereof,
and (ii) shall be increased by the COLA Adjustment annually as of the beginning
of each Fiscal Year, commencing with the Fiscal Year beginning in 2000. The Base
Compensation shall be pro-rated for any Fiscal Year hereunder which is less than
a full Fiscal Year.
(b) BONUS. The Executive shall be paid a bonus ("BONUS") as
determined by the Board of Directors.
Section 6. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Executive for his reasonable expenses incurred in providing services to the
Company, including expenses for travel, entertainment and similar items, in
accordance with the Company's reimbursement policies as determined from time to
time by the Board of Directors. If there is a dispute as to the eligibility of
an expense for reimbursement in accordance with the Company's reimbursement
policies, then such expense shall be determined to be reimbursable if approved
by a majority of the Board of Directors.
Section 7. EMPLOYEE BENEFITS, VACATIONS. During the Employment Period,
the Executive shall receive the benefits and enjoy the perquisites described
below:
(a) INSURANCE BENEFITS. The Company shall provide the Executive
with medical insurance, life insurance, health and accident insurance,
disability insurance, director and officer insurance in amounts not less than
the coverage in effect as of June 1, 1999 (collectively referred to as the
"INSURANCE BENEFITS").
(b) VACATIONS. The Executive shall be entitled in each Fiscal
Year to a vacation of four (4) weeks twenty (20) working days, during which time
his compensation shall be paid in full, and such holidays and other nonworking
days as are consistent with the policies of the Company for executives
generally.
(c) AUTOMOBILE ALLOWANCE. The Executive shall be entitled to an
automobile allowance of Seven Hundred Fifty ($750.00) Dollars per month.
(d) BENEFIT PLANS. The Executive shall be entitled to
participate in all benefit plans that may be established from time to time by
the Company.
Section 8. STOCK OPTIONS. The Company shall provide to the Executive,
pursuant to the Stock Option Addendum attached hereto, stock options (the "STOCK
OPTIONS") to acquire common shares of the Company ("COMMON SHARES").
Section 9. COMPANY LIFE INSURANCE; MEDICAL EXAMINATIONS. At any time
during the Employment Period, the Company may, in its discretion, apply for and
procure as owner and for its own benefit, insurance on the life of the
Executive, in such amounts and in such form or forms as the Company may
determine. The Executive shall have no right to any interest in any such policy
or policies, but he shall, at the request of the Company, submit to such medical
examinations, supply such information and execute such applications, instruments
and other documents as reasonably may be required by the insurance company or
companies to whom the Company has applied for such insurance.
-3-
<PAGE>
If requested by the Company, the Executive shall submit to at least one
medical examination during each Fiscal year at such reasonable time and place
and by a physician or physicians determined and selected by the Company. All the
costs and expenses of said medical examination, including transportation of the
Executive to the place of examination and return, shall be paid by the Company.
The Executive shall be entitled to a copy of all reports and other
information provided to the Company in connection with any examination referred
to in this Section 9. Any failure to pass any such medical examination or to
meet any health criteria or medical standard shall not of itself be cause for
termination of the Employment Period by the Company.
Section 10. CERTAIN COMPANY PROTECTION PROVISIONS. The below provisions
apply for the protection of the Company.
(a) NONCOMPETITION. During the Restricted Period (as
hereinafter defined), the Executive shall not directly or indirectly compete
with the Company by owning, managing, controlling or participating in the
ownership, management or control of, or be employed or engaged by or otherwise
affiliated or associated with, any Competitive Business in any location in which
the Company is doing business as of the Employment Termination Date. As used
herein, the term "RESTRICTED PERIOD" means the Employment Period and a period of
one (1) year thereafter. As used herein, a "COMPETITIVE BUSINESS" is any other
corporation, partnership, proprietorship, firm, association or other business
entity which is engaged in any business from which the Company derives five
percent (5%) or more of its consolidated revenues during the twelve (12) months
preceding the Employment Termination Date or in which the Company has invested
five percent (5%) or more of its total assets as of the time in question,
provided, however, that ownership of not more than five percent (5%) of the
stock of any publicly traded company shall not be deemed a violation of this
provision.
(b) NON-INTERFERENCE. During the Restricted Period, the
Executive shall not induce or solicit any employee of the Company or any person
doing business with the Company to terminate his or her employment or business
relationship with the Company or otherwise interfere with any such relationship.
(c) CONFIDENTIALITY. The Executive agrees and acknowledges
that, by reason of the nature of his duties as an officer and employee, he will
have or may have access to and become informed of confidential and secret
information which is a competitive asset of the Company ("CONFIDENTIAL
INFORMATION"), including without limitation, technology, any lists of customers,
financial statistics, research data or any other statistics and plans contained
in profit plans, capital plans, critical issue plans, strategic plans or
marketing or operation plans or other trade secrets of the Company and any of
the foregoing which belong to any person or company but to which the Executive
has had access by reason of his employment relationship with the Company. The
Executive agrees faithfully to keep in strict confidence, and not, either
directly or indirectly, to make known, divulge, reveal, furnish, make available
or use (except for use in the regular course of his employment duties) any such
Confidential Information. The Executive acknowledges that all manuals,
instruction books, price lists, information and records and other information
and aids relating to the Company's business, and any and all other documents
containing Confidential Information furnished to the Executive by the Company or
otherwise acquired or developed by the Executive, shall at all times be the
property of the Company. Upon termination of the Employment Period, the
Executive shall return to the Company any such property or documents which are
in his possession, custody or control, but his obligation of confidentiality
-4-
<PAGE>
shall survive such termination of the Employment Period until and unless any
such Confidential Information shall have become, through no fault of the
Executive, generally known to the trade. The obligations of the Executive under
this subsection are in addition to, and not in limitation or preemption of, all
other obligations of confidentiality which the Executive may have to the Company
under general legal or equitable principles.
(d) REMEDIES. It is expressly agreed by the Executive and the
Company that these provisions are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. It is also agreed
that if any provision is found by a court having jurisdiction to be unreasonable
because of scope, area or time, then that provision shall be amended to
correspond in scope, area and time to that considered reasonable by a court and
as amended shall be enforced and the remaining provisions shall remain
effective. In the event any breach of these provisions by the Executive, the
parties recognize and acknowledge that a remedy at law will be inadequate and
the Company may suffer irreparable injury. The Executive acknowledges that the
services to be rendered by him are of a character giving them peculiar value,
the loss of which cannot be adequately compensated for in damages; accordingly
the Executive consents to injunctive and other appropriate equitable relief
without the posting of a bond upon the institution of proceedings therefor by
the Company in order to protect the Company's rights. Such relief shall be in
addition to any other relief to which the Company may be entitled at law or in
equity. The provisions of Section 10(a), 10(b), 10(c) and 10(d) shall survive
the termination of this Agreement.
Section 11. TERMINATION OF EMPLOYMENT.
(a) Notice of Termination; Employment Termination Date.
(1) Any termination of the Executive's employment by the
Company or the Executive shall be communicated by written Notice of Termination
to the other party thereto. For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provision so indicated. Furthermore, either the Executive or the Company may
give a Notice of Termination to the other party for the purpose of terminating
this Agreement, as such, without terminating the Executive's employment with the
Company which Notice of Termination shall have the effect of terminating this
Agreement on the Scheduled Employment Termination Date as in effect on the date
of giving such Notice of Termination.
(2) "EMPLOYMENT TERMINATION DATE" shall mean the date on
which the Employment Period and the Executive's right and obligation to perform
employment services for the Company shall terminate effective upon the first to
occur of the following, it being understood that in no event may the Employment
Period be terminated other than as the result of one of the following events:
(A) If the Executive's employment is terminated for Disability,
the date which is thirty (30) days after Notice of
Termination is given (provided that the Executive shall not
have returned to the performance of his duties on a
full-time basis during such thirty (30) day period);
(B) If the Executive's employment is terminated by the
Executive for Good Reason or otherwise by voluntary action
of the Executive (see Section 11(f)), the date specified in
the Notice of Termination, which date (except with the
written consent of the Company to the contrary) shall not
be more than sixty (60) days after the date that the Notice
of Termination is given;
-5-
<PAGE>
(C) The death of the Executive;
(D) The Scheduled Employment Termination Date:
(E) If the Executive's employment is terminated by the Company
for Cause (see Section 11(b)(1)), the date on which a
Notice of Termination is given; provided that if within
thirty (30) days after any Notice of Termination is given
the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the
termination, the Employment Termination Date shall be the
date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order to
decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been
perfected); and
(F) If the Executive's employment is terminated by the Company
other than for Cause, Disability or death of the Executive,
the date specified in the Notice of Termination which date
(except with the written consent of the Executive to the
contrary) shall not be more than sixty (60) days after the
date that the Notice of Termination is given.
(b) TERMINATION FOR CAUSE:
(1) The Company may terminate the Executive's employment
and the Employment Period for Cause. For the purposes of this Agreement, the
Company shall have "Cause" to terminate employment hereunder only (i) upon the
willful and continued failure by the Executive substantially to perform his
duties with the Company (other than any such failure resulting from incapacity
due to mental or physical illness) or (ii) conviction of a felony or fraud upon
the assets of the Company and only after a demand in writing for substantial
performance is delivered by the Board of Directors, which demand specifically
identifies the manner in which the Board of Directors believes that the
Executive has not substantially performed his duties, and such failure results
in demonstrably material injury to the Company. The Executive's employment shall
in no event be considered to have been terminated by the Company for Cause if
such termination took place as the result of (i) bad judgment or negligence, or
(ii) any act or omission without intent of gaining therefrom directly or
indirectly a profit to which the Executive was not legally entitled, or (iii)
any act or omission believed in good faith to have been in or not opposed to the
interest of the Company, or (iv) any act or omission in respect of which a
determination is made that the Executive met the applicable standard of conduct
prescribed for indemnification or reimbursement or payment of expenses under the
Code of Regulations of the Company or the laws of the State of Florida, in each
case as in effect at the time of such act or omission. The Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for the
purpose (after not less than thirty (30) days' written notice to the Executive
and an opportunity for him together with his counsel, to be heard before the
Board of Directors, such notice of meeting to indicate the specific termination
provision of this Agreement relied upon and specify in reasonable detail the
facts and circumstances claimed to provide a basis for termination under the
provision so indicated), finding that in the good faith opinion of the Board of
Directors the Executive was guilty of conduct set forth above in clauses (A) or
(B) of the second sentence of this paragraph and specifying the particulars
thereof in detail.
-6-
<PAGE>
(2) If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive (A) within ten (10) days of such
termination, his unpaid Base Compensation through the Employment Termination
Date at the rate in effect at the time Notice of Termination is given plus (B)
within ten (10) days after issuance of the Company's audited financial
statements for the Fiscal Year in which the Employment Termination Date occurs,
a pro-rata share of any Bonus computed with respect to the Fiscal Year in which
occurs the Employment Termination Date as if such termination had not occurred.
(c) TERMINATION FOR DISABILITY. The Company may terminate
the Executive's employment because of the Disability of the Executive and
thereafter shall pay to the Executive (or his successors) (1) his unpaid Base
Compensation through the sixth (6th) full month following the Employment
Termination Date at his then effective Base Compensation rate, plus (2) an
amount equal to a pro-rata share of any Bonus calculated through the sixth (6th)
full month following the Employment Termination Date as though all of such six
(6) month period were part of the Fiscal Year in which occurred the Employment
Termination Date, (but otherwise as though such termination had not occurred).
In addition, the Executive shall be entitled to amounts and the benefits
specified in Paragraphs (2) and (3) of Section 11(g) of this Agreement.
(d) TERMINATION UPON EXECUTIVE'S DEATH. In the event of the
Executive's death, the Company shall pay to the Executive's estate (1) any
unpaid amount of Base Compensation through the date of death at the then
effective Base Compensation rate plus (2) an amount equal to the pro-rata share
of any Bonus calculated with respect to the Fiscal Year in which the death
occurs. All previously granted stock options, rights, warrants and awards shall
fully vest on the death of the Executive, except that the provisions of the
Company's Stock Incentive Plan and any other benefit plan shall control the
benefits and awards covered thereby.
(e) TERMINATION DUE TO INSOLVENCY. The Company may terminate
the Executive's employment because of the Company's inability to pay its
financial obligations, whether or not such inability results in a voluntary or
involuntary bankruptcy filing or any similar action (collectively, an
"INSOLVENCY") and thereafter shall pay to the Executive (or his successor) his
unpaid Base Compensation through the twelfth (12th) full month following the
Employment Termination Date at his then effective Base Compensation rate.
(f) TERMINATION OF EMPLOYMENT BY THE EXECUTIVE.
(1) The Executive may terminate his employment for Good
Reason and receive the payments and benefits specified
in Section 11(g) in the same manner as if the Company
had terminated his employment. For purposes of this
Agreement, "GOOD REASON" will exist if any one or more
of the following occur:
(A) Failure by the Company to honor any of its obligations
under this Agreement, including, without limitation, its
obligations under Section 3 (EMPLOYMENT CAPACITY AND
DUTIES), Section 4 (EXECUTIVE PERFORMANCE COVENANTS),
Section 5 (Compensation), Section 6 (REIMBURSEMENT OF
EXPENSES), Section 7 (EMPLOYEE BENEFITS, VACATIONS, LIFE
INSURANCE), Section 8 (Stock Options), Section 12
(INDEMNIFICATION) and Section 14 (SUCCESSORS AND ASSIGNS).
Notwithstanding the foregoing, if the Company's failure to
honor its obligations hereunder are due to an Insolvency,
then the Executive shall be entitled to receive the
payments and benefits specified in Section 11(e) hereto.
-7-
<PAGE>
(B) Any purported termination by the Company of the
Executive's employment that is not effected pursuant to a
Notice of Termination satisfying the requirements of
Section 11(a) above and, for purposes of this Agreement,
no such purported termination shall be effective.
(C) If there is a Change in Control of the Company (as defined
below) and the employment of the Executive is concurrently
or subsequently terminated (i) by the Company without
Cause, (ii) by service of a Notice of Termination or (iii)
by the resignation of the Employee because he has
reasonably determined in good faith that his title,
authorities, responsibilities, salary, bonus opportunities
or benefits have been materially diminished, or that a
material adverse change in his working conditions has
occurred or the Company has breached this Agreement. For
the purpose of this Agreement, a "CHANGE IN CONTROL" of the
Company has occurred when: (x) any person (defined for the
purposes of this Section 1.2 to mean any person within the
meaning of Section 13(d) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT")), other than the Company,
NyerMedical Group, Inc. a Florida corporation, or an
employee benefit plan established by the Board of Directors
of the Company, acquires, directly or indirectly, the
beneficial ownership (determined under Rule 13d-3 of the
regulations promulgated by the Securities and Exchange
Commission under Section 13(d) of the Exchange Act)
securities issued by the Company having twenty percent
(20%) or more of the voting power of all of the voting
securities issued by the Company in the election of
directors at the meeting of the holders of voting
securities to be held for such purpose; or (y) a majority
of the directors elected at any meeting of the holders of
voting securities of the Company are persons who were not
nominated for such election by the Board of Directors of
the Company or a duly constituted committee of the Board of
Directors of the Company having authority in such matters;
or (z) the Company merges or consolidates with or transfers
substantially all of its assets to another person.
(2) The Executive shall have the right voluntarily to
terminate his employment for any other reason than for Good Reason prior to the
Scheduled Employment Termination Date, and if the Executive shall so terminate
his employment, he shall be entitled only to payment of the amounts which would
be payable under Section 11(b)(2) had he been terminated for Cause.
(g) COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE.
(1) If the Company terminates the Executive's employment
for any reason other than for Cause, as set forth in Section 11(b) herein,
Disability, as set forth in Section 11(c) herein, or Death, as set forth in
Section 11(d) herein, Insolvency, as set forth in Section 11(e) herein, or if
the Executive terminates his employment for Good Reason, as set forth in Section
11(f)(1) herein (but not a termination voluntarily by the Executive other than
for Good Reason, as set forth in Section 11(f)(2) herein), then the Company
shall pay to the Executive the following amounts:
(A) (1) His unpaid Base Compensation through the Employment
Termination Date at his then effective Base Compensation
Rate, plus (2) an amount equal to a pro-rata share of the
amount of any Bonus payable to him with respect to the
Fiscal Year in which occurs the Employment Termination
Date.
-8-
<PAGE>
(B) In addition, the Company shall pay to the Executive
promptly in a single lump sum in cash an amount equal to
the product of (1) two, multiplied by (ii) 100% of the
aggregate total amount which would have been payable to
Executive under Section 5 for the entire Fiscal Year in
which occurs the Employment Termination Date as if his
employment had not been terminated (and without deduction
or offset for any amounts actually paid for such Fiscal
Year on account of Base Compensation or Bonus under Section
5, this Section 11 or otherwise), and assuming for purposes
of calculating (x) the Base Compensation, 100% of the
amount thereof at the annual rate payable for such Fiscal
Year pursuant to Section 5(a) and (y) the Bonus, the
largest amount thereof accrued or paid for any of the two
most recently completed Fiscal Years.
(C) The Company shall also pay all legal fees and expenses
incurred as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or
disputing any such termination, in seeking to obtain or
enforce any right or benefit provided by this Agreement, or
in interpreting this Agreement).
(D) The Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts
due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that
the Executive may obtain (any amounts due under Section
11(g) are in the nature of severance payments, or
liquidated damages, or both, and are not in the nature of a
penalty).
(2) Unless Executive is terminated for Cause, the Company
shall maintain in full force and effect, for the Executive's continued benefit
through the Scheduled Employment Terminate Date, all active and retirement
Insurance Benefits and other benefit programs or arrangements in which he was
entitled to participate immediately prior to the Scheduled Employment Terminate
Date provided that continued participation is possible under the general terms
and provisions of such plans and programs. In the event that participation in
any such plan or program is barred, the Company shall arrange to provide him
with benefits substantially similar to those which he is entitled to receive
under such plans and programs.
(3) Unless the Executive is terminated for Cause which is
not contested by the Executive, the Company shall allow the Executive at Company
expense, to continue to utilize the services of BDO Seidman, and/or another
accountant or attorney (including fees and expenses through all appeals) of his
choice for assistance in enforcing this Agreement and preparation of his tax
returns for the year following termination of employment.
(h) COMPENSATION UPON DISABILITY. During any period that the
Executive fails to perform his duties hereunder as a result of incapacity due to
physical or mental illness, he shall continue to receive his full Base
Compensation at the rate then in effect and his full Bonus calculated according
to the provisions of Section 5(b) all until this Agreement is terminated
pursuant to Section 11(c) hereof.
Section 12. INDEMNIFICATION. As an employee, officer and director of
the Company, the Executive shall be indemnified against and the Company shall
maintain director and officer insurance in amounts not less than the coverage in
effect as of June 1, 1999 for all liabilities, damages, fines, costs and
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<PAGE>
expenses to the fullest extent to which employees, officers and directors of a
corporation organized under the laws of Florida may be indemnified as the same
may be amended from time to time (or any subsequent statute of similar tenor and
effect), subject to the terms and conditions of such statute.
Section 13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Miami, Florida in accordance with the rules of the American Arbitration
Association then in effect; provided that all arbitration expenses shall be
borne by the Company. Notwithstanding the pendency of any dispute or controversy
concerning termination or the effects thereof, the Company will continue to pay
the Executive his full compensation in effect immediately before any Notice of
Termination giving rise to the dispute was given (including, but not limited to,
Base Salary and Bonus) and continue him as a participant in all compensation,
benefit and Insurance Benefits in which he was then participating, until the
dispute is finally resolved. Judgment may be entered on the arbitrators' award
in any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of his right to be paid until the
Employment Termination Date during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
Section 14. SUCCESSORS AND ASSIGNS. Except as hereinafter expressly
provided, the agreements, covenants, terms and provisions of this Agreement
shall bind the respective heirs, executors, administrators, successors and
assigns of the parties. Specifically, and not by way of limitation of the
foregoing, the Executive shall be bound by the terms and conditions of this
Agreement to any successor assignee of the Company's rights and obligations
hereunder as a result of any merger, consolidation or sale or lease of all or
substantially all of the Company's business sand assets. If any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company fails,
concurrently with the effectiveness of any such succession, to agree in writing
in form and substance reasonably satisfactory to the Executive expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place, then the Executive shall have the right, effected by notice to such
successor not later than ninety (90) days after the effectiveness of such
succession, to terminate the Employment Period under Section 11(f) as though
such failure was an uncured breach by the Company of a material covenant or
agreement of the Company contained in this Agreement.
If the Executive should die while any amounts are payable to him
hereunder, or if by reason of his death payments are to be made to him
hereunder, then this Agreement shall inure to the benefit of and be enforceable
by the Executive's executors, administrators, heirs, distributees, devisees and
legatees and all amounts payable hereunder shall then be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there is no such designee, to his estate.
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as hereinbefore provided in this
Section 14. Without limiting the foregoing, the Executive's right to receive
payments hereunder shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, other than a transfer by his will
or by the laws of descent or distribution, and in the event of any attempted
assignment or transfer contrary to this paragraph the Company shall have no
liability to pay to the purported assignee or transferee any amount so attempted
to be assigned or transferred.
As used in this Agreement, the "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
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<PAGE>
aforesaid which executes and delivers the agreement provided for in the first
paragraph of this Section 14 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
Section 15. NOTICES. Any notice or other communication required or
desired to be given hereunder shall be in writing and shall be deemed
sufficiently given when personally delivered or when mailed by first class
certified mail, return receipt requested and postage prepaid, or when delivered
if by recognized overnight delivery service addressed to the parties at their
respective addressed set forth under their respective signatures below or such
other person or addresses as shall be given by notice of any party.
Section 16. WAIVER; REMEDIES CUMULATIVE. No waiver of any right or
option hereunder by any party shall operate as a waiver of any other right or
option, or the same right or option as respects any subsequent occasion for its
exercise, or of any legal remedy. No waiver by any party of any breach of this
Agreement or of any agreement or covenant contained herein shall be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies by
it or the law provided.
Section 17. GOVERNING LAW; SEVERABILITY. This Agreement is made and is
expected to be performed in Florida, and the various terms, provisions,
covenants and agreements, and the performance thereof, shall be construed,
interpreted and enforced under and with reference to the laws of the State of
Florida. It is the intention of the Company and the Executive to comply fully
with all laws and matters of public policy relating to employment agreements and
restrictive covenants, and this Agreement shall be construed consistently with
such laws and public policy to the extent possible. If and to the extent any one
or more covenants, agreements, terms and provisions of this Agreement or any
portion or portions thereof shall be held invalid or unenforceable by a court of
competent jurisdiction, then such covenants, agreements, terms and provisions
(or portions thereof) shall be deemed separable from the remaining covenants,
agreements, terms and provisions of this Agreement and such holding shall in no
way affect the validity or enforceability of any of the other covenants,
agreements, terms and provisions hereof.
Section 18. MISCELLANEOUS. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified, changed or amended except in a writing
signed by each of the parties hereto. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original hereof. The captions of
the several sections and subsections of this Agreement are not a part of the
context hereof, are inserted only for convenience in locating such sections and
subsections and shall be ignored in construing this Agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed multiple
counterparts of this Agreement.
Company: Executive:
GENETIC VECTORS, INC.
- -------------------------- ------------------------------------
Miami, Florida Name: Mead M. McCabe, Jr.
Address:
------------------
Miami, Florida
By:
-----------------------------------
Name:
Title:
and
By:
-----------------------------------
Name:
Title: Secretary
[STOCK OPTION ADDENDUM FOLLOWS ON NEXT PAGE]
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<PAGE>
STOCK OPTION ADDENDUM
TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
GENETIC VECTORS, INC.
AND
MEAD M. MCCABE, JR.
As of June 1, 1999
Subject to all of the terms and conditions contained herein, the
undersigned GENETIC VECTORS, INC., a Florida corporation (the "Company"), hereby
grants to MEAD M. McCABE, JR. (the "Executive") the following options to
purchase shares (the "Executive Option Shares") of the Company's common stock,
without par value ("Common Shares") as follows:
The Company and Executive hereby agree as follows:
Subject to all of the terms and conditions contained herein, the Company
hereby grants to Executive the following performance-based options to purchase
Common Shares:
1. OPTIONS. The Company hereby grants to Executive the right and option
to purchase from the Company ______________ Common Shares (the "Options") upon
the following terms and conditions:
(a) TERM OF OPTIONS. The Options shall be effective throughout the
Employment Period and for a period of one hundred eighty (180) days following
the Employment Termination Date.
(b) PURCHASE PRICE. The purchase price for the Options shall be at
least one hundred percent (100%) of the closing price of Common Shares of the
Company as of the date of grant.
(c) OPTIONS NON-TRANSFERABLE. The option rights with respect to the
Options are non-transferable and are personal to Executive and may be exercised
only by Executive and by no one else.
(d) TIME OF EXERCISE. Except as set forth herein, there are no
conditions to the exercise or the exercisability by the Executive of the
Options.
2. SECURITIES ACT, ETC. In the absence of an effective Registration
Statement under the Securities Act of 1933, as from time to time in effect (the
"ACT"), relating thereto, the Company shall not be required to register a
transfer of shares delivered or deliverable upon exercise of the Options
("DELIVERED SHARES") on its books unless the Company shall have been provided
with an opinion of counsel satisfactory to it prior to such transfer that
registration under the Act is not required in connection with the transaction
resulting in such transfer. Each certificate evidencing Delivered Shares or
issued upon any transfer of Delivered Shares shall bear an appropriate
restrictive legend, except that such certificate shall not bear such a
restrictive legend if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
the provisions of the Act. Nothing in this paragraph 2 shall modify or otherwise
effect the provisions applicable to the Delivered Shares.
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<PAGE>
3. TERMINATION, EXERCISE, ETC.
(a) The Options shall expire and terminate, to the extent not
previously exercised, as to all Executive Option Shares one hundred eighty (180)
days after the Employment Termination Date. In the event of the Executive's
death, the Options shall be exercisable by the Executive's estate or any trust
established solely for the benefit of one or more of the Executive's heirs (such
estate and each such trust being referred to herein, collectively, as the
"Estate") during the period beginning on the date of the Executive's death and
ending on the one hundred eightieth (180th) day thereafter. In the event the
Executive's employment is terminated other than by reason of the Executive's
death, the Options shall be exercisable by the Executive during the period
beginning on the date of such termination and ending on the ninetieth (90th) day
thereafter.
(b) Subject to the preceding paragraph 3(a) and the other provisions
of this Addendum, the Options may, to the extent exercisable but not previously
exercised, be exercised at any time and from time to time, in whole or in part,
by written notice delivered to the Company signed by the Executive or the Estate
thereof. Such notice shall state the number of Option Shares in respect to which
the Options are being exercised, and shall contain such representations and
warranties of the Executive or the Estate thereof as the Company may then deem
necessary or desirable in order to comply with federal or state securities laws
or as may otherwise be reasonably requested by the Company, and shall be
accompanied either (i) by payment in full (in cash, by personal check or by any
other method acceptable to the Company) of the full Exercise Price in respect
thereof or (ii) delivery to the Company of a number of shares of Common Stock
owned by the Executive and having a fair market value (determined reasonably and
in good faith by the Board of Directors and, if reasonably possible, prior to
such exercise) equal to the full Exercise Price in respect thereof. In addition,
the Company shall have the right to require that the Executive or the Estate
thereof, when exercising the Options in whole or in part, remit to the Company
an amount sufficient to satisfy any federal, state or local withholding tax
requirements (or make other arrangements satisfactory to the Company with regard
to such taxes prior to the delivery of any Delivered Shares pursuant to such
exercise, including without limitation by withholding Delivered Shares otherwise
deliverable upon such exercise, and, if requested by the Executive or such
Estate, the Company shall so withhold at least a number of Delivered Shares
requested to be so withheld by the Executive at the time of such exercise. As
soon as practicable after such notice and payment shall have been received, the
Company shall deliver a certificate or certificates representing the number of
Delivered Shares with respect to which the Options were exercised, registered in
the name of the Executive.
(c) All Delivered Shares that shall be purchased upon the
exercise of the Options as provided herein shall be fully paid and
non-assessable.
4. CERTAIN CONDITIONS. In the event the Company (i) pays a dividend or
makes a distribution on its Common Stock, (ii) subdivides its outstanding shares
of Common Stock into a greater number of shares, (iii) combines its outstanding
shares of Common Sock into a smaller number of shares, (iv) makes a distribution
on its Common Stock in shares of its capital stock other than Common Stock, (v)
issues by reclassification of its Common Stock any shares of its capital stock,
or (vi) consummates any merger reorganization or consolidation pursuant to which
any securities or other consideration is issued to the holders of outstanding
shares of capital stock of the Company (each an "ADJUSTMENT EVENT"), then, the
Options granted to the Executive hereunder shall be so adjusted and upon the
exercise of such Options, the Executive shall be entitled to receive such
securities of the Company or other consideration as the Executive would have
held immediately after the consummation of such Adjustment Event had the
Delivered Shares issuable upon such exercise been held by the Executive on such
record date.
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<PAGE>
5. MISCELLANEOUS. Except as specifically otherwise provided in Section 4
hereof as to exercise by the Executive's Estate, the Options may not be assigned
or transferred, in whole or in part, whether by operation of law, upon death or
otherwise, by the Executive without the written consent of the Company which the
Company may withhold in its sole and absolute discretion, with or without any
reason. The Options are not intended to constitute and "incentive stock option"
as that term is used in Section 422 of the Internal Revenue Code of 1986, as
amended, and shall not be treated as incentive stock options. The Options shall
be governed by and construed in accordance with the laws of the State of
Florida.
GENETIC VECTORS, INC.
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
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EXHIBIT 10.27
-------------
GENETIC VECTORS, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement ("Agreement") is made in Miami,
Florida effective as of July 1, 1999, by and between GENECTIC VECTORS, INC., a
Florida corporation (the "Company"), and MEAD M. McCABE, SR., an individual
residing in Miami, Florida (the "Executive"), who hereby agree as hereinafter
provided.
Section 1. DEFINITIONS. As used herein, the following terms shall
have the meanings set forth below.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph hereof.
"BASE COMPENSATION" shall have the meaning set forth in Section 5(a).
"BOARD OF DIRECTORS" means the incumbent directors of the Company as of
the point in time reference thereto is made in this Agreement.
"CAUSE" shall have the meaning set forth in Section 11(b).
"COLA ADJUSTMENT" means the cost of living adjustment, which shall
correspond to the percent rise in prices for the preceding year as measured by
the Consumer Price Index for all Urban Consumers (CPI-UC). All City Average, all
Items (base year 1982-1984 = 100) published by the United States Department of
Labor, Bureau of Labor Statistics (the "INDEX"). The COLA Adjustment shall be
determined by multiplying the amount or figure to be adjusted by a fraction, the
numerator of which is the Index published for the month in which occurs the date
of adjustment and the denominator of which is the Index published for the same
month of the preceding year.
"COMPANY" shall have the meaning set forth in the introductory paragraph
of this Agreement, and shall include Subsidiaries where appropriate.
"COMPETITIVE BUSINESS" shall have the meaning set forth in Section
10(a).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
10(c).
"DISABILITY" of the Executive means that, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties on a full time basis for six (6) consecutive months, or
for an aggregate of nine (9) months in any consecutive twelve (12) month period,
and a physician selected by the Executive is of the opinion that (a) he is
suffering from "total disability" and (b) he will qualify for Social Security
Disability Payments and (c) within thirty (30) days after written notice thereof
is given by the Company to the Executive (which notice may be given at any time
after the end of such six (6) or twelve (12) month periods) the Executive shall
not have returned to the performance of his duties on a full-time basis. (If the
Executive is prevented from performing his duties because of Disability, upon
request by the Company the Executive shall submit to an examination by a
physician selected by the Company, at the Company's expense, and the Executive
shall also authorize his personal physician to disclose to the selected
physician all of the Executive's medical records).
"EMPLOYMENT COMMENCEMENT DATE" means the effective date of this
Agreement.
"EMPLOYMENT PERIOD" means that period commencing on the Employment
<PAGE>
Commencement Date and ending on the Employment Termination Date.
"EMPLOYMENT TERMINATION DATE" means the date the Employment Period
terminates as provided in Section 11.
"EXECUTIVE" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"FISCAL YEAR" means the fiscal year of the Company.
"NET INCOME" shall mean the net income of the Company for any Fiscal
Year as reflected in its annual financial statements prepared in accordance with
generally accepted accounting principals and audited by BDO Seidman or such
other accounting firm of national reputation as may be selected by the Company
from time to time.
"NOTICE OF TERMINATION" shall have the meaning set forth in Section
11(a)(1).
"RESTRICTED PERIOD" shall have the meaning set forth in Section 10(a).
"SCHEDULED EMPLOYMENT TERMINATION DATE" means the later of (a) the day
immediately preceding the third (3rd) anniversary of the Employment Commencement
Date or (b) such date as is specified by either the Company or the Executive in
a Notice of Termination delivered for the purpose of fixing the scheduled
Employment Termination Date, provided the date so specified shall be at least
three (3) years after the date such Notice of Termination is so delivered.
"SUBSIDIARIES" means wholly owned subsidiaries of the Company, if any.
Section 2. EMPLOYMENT AND TERM. The Company hereby employs the
Executive, and the Executive hereby accepts such employment by the Company, for
the purposes and upon the terms and conditions contained in this Agreement. The
term of such employment shall be for the Employment Period.
Section 3. EMPLOYMENT CAPACITY AND DUTIEs. The Executive shall be employed
throughout the Employment Period as the Chairman of the Company. The Executive
shall have the duties and responsibilities incumbent with the position of
Chairman of the Company. Accordingly, and not by way of limitation, as Chairman
of the Company, the Executive shall superintend and manage the business of the
Company and coordinate and supervise the work of its other officers, employ
agents, professional advisors and consultants and perform all functions of a
general manager of the Company's business. The Company agrees that it will not,
without the Executive's written consent, relocate its principal executive
offices to a location outside Miami, Florida or require the Executive to be
based anywhere other than the Company's principal executive offices, except for
required travel on the Company's business.
Section 4. EXECUTIVE PERFORMANCE COVENANTS. The Executive accepts the
employment described in Section 3 and agrees to devote his full working time and
efforts (except for absences due to illness and appropriate vacations) to the
business and affairs of the Company and the performance of the aforesaid duties
and responsibilities. However, nothing in this Agreement shall preclude the
Executive from devoting a reasonable amount of his time and efforts to civic,
community, charitable, professional and trade association affairs and matters.
Section 5. COMPENSATION. The Company shall pay to the Executive for his
services hereunder, the compensation hereinafter provided in this Section 5.
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<PAGE>
Such compensation shall be paid to the Executive at the time and in the manner
as provided below.
(a) BASE COMPENSATION. The Executive shall be paid "BASE
COMPENSATION" for each Fiscal Year at an annual rate of One Hundred Thirty-Two
Thousand and Seven Hundred Fifty ($132,750) dollars in twenty-six (26) bi-weekly
equal installments. The Base Compensation (i) may be increased (but may not be
decreased) at any time or from time to time by action of the Board of Directors
or the Compensation Committee, and (ii) shall be increased by the COLA
Adjustment annually as of the beginning of each Fiscal Year, commencing with the
Fiscal Year beginning in 2000. The Base Compensation shall be pro-rated for any
Fiscal Year hereunder which is less than a full Fiscal Year.
(b) BONUS. The Executive shall be paid a bonus ("BONUS") as
determined by the Board of Directors.
Section 6. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Executive for his reasonable expenses incurred in providing services to the
Company, including expenses for travel, entertainment and similar items, in
accordance with the Company's reimbursement policies as determined from time to
time by the Board of Directors. If there is a dispute as to the eligibility of
an expense for reimbursement in accordance with the Company's reimbursement
policies, then such expense shall be determined to be reimbursable if approved
by a majority of the Board of Directors.
Section 7. EMPLOYEE BENEFITS, VACATIONS. During the Employment Period,
the Executive shall receive the benefits and enjoy the perquisites described
below:
(a) INSURANCE BENEFITS. The Company shall provide the Executive
with medical insurance, life insurance, health and accident insurance,
disability insurance, director and officer insurance in amounts not less than
the coverage in effect as of June 1, 1999 (collectively referred to as the
"INSURANCE BENEFITS").
(b) VACATIONS. The Executive shall be entitled in each Fiscal
Year to a vacation of four (4) weeks twenty (20 working days), during which time
his compensation shall be paid in full, and such holidays and other nonworking
days as are consistent with the policies of the Company for executives
generally.
(c) AUTOMOBILE ALLOWANCE. The Executive shall be entitled to an
automobile allowance of Seven Hundred Fifty ($750.00) Dollars per month.
(d) BENEFIT PLANS. The Executive shall be entitled to
participate in all benefit plans that may be established from time to time by
the Company.
Section 8. STOCK OPTIONS. The Company shall provide to the Executive,
pursuant to the Stock Option Addendum attached hereto, stock options (the
"STOCK OPTIONS") to acquire common shares of the Company ("COMMON SHARES").
Section 9. COMPANY LIFE INSURANCE; MEDICAL EXAMINATIONS. At any time
during the Employment Period, the Company may, in its discretion, apply for and
procure as owner and for its own benefit, insurance on the life of the
Executive, in such amounts and in such form or forms as the Company may
determine. The Executive shall have no right to any interest in any such policy
or policies, but he shall, at the request of the Company, submit to such medical
examinations, supply such information and execute such applications, instruments
and other documents as reasonably may be required by the insurance company or
companies to whom the Company has applied for such insurance.
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<PAGE>
If requested by the Company, the Executive shall submit to at least one
medical examination during each Fiscal year at such reasonable time and place
and by a physician or physicians determined and selected by the Company. All the
costs and expenses of said medical examination, including transportation of the
Executive to the place of examination and return, shall be paid by the Company.
The Executive shall be entitled to a copy of all reports and other
information provided to the Company in connection with any examination referred
to in this Section 9. Any failure to pass any such medical examination or to
meet any health criteria or medical standard shall not of itself be cause for
termination of the Employment Period by the Company.
Section 10. CERTAIN COMPANY PROTECTION PROVISIONS. The below provisions
apply for the protection of the Company.
(a) NONCOMPETITION. During the Restricted Period (as
hereinafter defined), the Executive shall not directly or indirectly compete
with the Company by owning, managing, controlling or participating in the
ownership, management or control of, or be employed or engaged by or otherwise
affiliated or associated with, any Competitive Business in any location in which
the Company is doing business as of the Employment Termination Date. As used
herein, the term "RESTRICTED PERIOD" means the Employment Period and a period of
one (1) year thereafter. As used herein, a "COMPETITIVE BUSINESS" is any other
corporation, partnership, proprietorship, firm, association or other business
entity which is engaged in any business from which the Company derives five
percent (5%) or more of its consolidated revenues during the twelve (12) months
preceding the Employment Termination Date or in which the Company has invested
five percent (5%) or more of its total assets as of the time in question,
provided, however, that ownership of not more than five percent (5%) of the
stock of any publicly traded company shall not be deemed a violation of this
provision.
(b) NON-INTERFERENCE. During the Restricted Period, the
Executive shall not induce or solicit any employee of the Company or any person
doing business with the Company to terminate his or her employment or business
relationship with the Company or otherwise interfere with any such relationship.
(c) CONFIDENTIALITY. The Executive agrees and acknowledges
that, by reason of the nature of his duties as an officer and employee, he will
have or may have access to and become informed of confidential and secret
information which is a competitive asset of the Company ("CONFIDENTIAL
INFORMATION"), including without limitation, technology, any lists of customers,
financial statistics, research data or any other statistics and plans contained
in profit plans, capital plans, critical issue plans, strategic plans or
marketing or operation plans or other trade secrets of the Company and any of
the foregoing which belong to any person or company but to which the Executive
has had access by reason of his employment relationship with the Company. The
Executive agrees faithfully to keep in strict confidence, and not, either
directly or indirectly, to make known, divulge, reveal, furnish, make available
or use (except for use in the regular course of his employment duties) any such
Confidential Information. The Executive acknowledges that all manuals,
instruction books, price lists, information and records and other information
and aids relating to the Company's business, and any and all other documents
containing Confidential Information furnished to the Executive by the Company or
otherwise acquired or developed by the Executive, shall at all times be the
property of the Company. Upon termination of the Employment Period, the
Executive shall return to the Company any such property or documents which are
in his possession, custody or control, but his obligation of confidentiality
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<PAGE>
shall survive such termination of the Employment Period until and unless any
such Confidential Information shall have become, through no fault of the
Executive, generally known to the trade. The obligations of the Executive under
this subsection are in addition to, and not in limitation or preemption of, all
other obligations of confidentiality which the Executive may have to the Company
under general legal or equitable principles.
(d) REMEDIES. It is expressly agreed by the Executive and the
Company that these provisions are reasonable for purposes of preserving for the
Company its business, goodwill and proprietary information. It is also agreed
that if any provision is found by a court having jurisdiction to be unreasonable
because of scope, area or time, then that provision shall be amended to
correspond in scope, area and time to that considered reasonable by a court and
as amended shall be enforced and the remaining provisions shall remain
effective. In the event any breach of these provisions by the Executive, the
parties recognize and acknowledge that a remedy at law will be inadequate and
the Company may suffer irreparable injury. The Executive acknowledges that the
services to be rendered by him are of a character giving them peculiar value,
the loss of which cannot be adequately compensated for in damages; accordingly
the Executive consents to injunctive and other appropriate equitable relief
without the posting of a bond upon the institution of proceedings therefor by
the Company in order to protect the Company's rights. Such relief shall be in
addition to any other relief to which the Company may be entitled at law or in
equity. The provisions of Section 10(a), 10(b), 10(c) and 10(d) shall survive
the termination of this Agreement.
Section 11. TERMINATION OF EMPLOYMENT.
(a) Notice of Termination; Employment Termination Date.
(1) Any termination of the Executive's employment by the
Company or the Executive shall be communicated by written Notice of Termination
to the other party thereto. For purposes of this Agreement, a "NOTICE OF
TERMINATION" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provision so indicated. Furthermore, either the Executive or the Company may
give a Notice of Termination to the other party for the purpose of terminating
this Agreement, as such, without terminating the Executive's employment with the
Company which Notice of Termination shall have the effect of terminating this
Agreement on the Scheduled Employment Termination Date as in effect on the date
of giving such Notice of Termination.
(2) "EMPLOYMENT TERMINATION DATE" shall mean the date on
which the Employment Period and the Executive's right and obligation to perform
employment services for the Company shall terminate effective upon the first to
occur of the following, it being understood that in no event may the Employment
Period be terminated other than as the result of one of the following events:
(A) If the Executive's employment is terminated for
Disability, the date which is thirty (30) days after
Notice of Termination is given (provided that the
Executive shall not have returned to the performance of
his duties on a full-time basis during such thirty (30)
day period);
(B) If the Executive's employment is terminated by the
Executive for Good Reason or otherwise by voluntary action
of the Executive (see Section 11(f)), the date specified
in the Notice of Termination, which date (except with the
written consent of the Company to the contrary) shall not
be more than sixty (60) days after the date that the
Notice of Termination is given;
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(C) The death of the Executive;
(D) The Scheduled Employment Termination Date:
(E) If the Executive's employment is terminated by the Company
for Cause (see Section 11(b)(1)), the date on which a
Notice of Termination is given; provided that if within
thirty (30) days after any Notice of Termination is given
the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the
termination, the Employment Termination Date shall be the
date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order to
decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been
perfected); and
(F) If the Executive's employment is terminated by the Company
other than for Cause, Disability or death of the
Executive, the date specified in the Notice of Termination
which date (except with the written consent of the
Executive to the contrary) shall not be more than sixty
(60) days after the date that the Notice of Termination is
given.
(b) TERMINATION FOR CAUSE:
(1) The Company may terminate the Executive's employment
and the Employment Period for Cause. For the purposes of this Agreement, the
Company shall have "CAUSE" to terminate employment hereunder only (i) upon the
willful and continued failure by the Executive substantially to perform his
duties with the Company (other than any such failure resulting from incapacity
due to mental or physical illness) or (ii) conviction of a felony or fraud upon
the assets of the Company and only after a demand in writing for substantial
performance is delivered by the Board of Directors, which demand specifically
identifies the manner in which the Board of Directors believes that the
Executive has not substantially performed his duties, and such failure results
in demonstrably material injury to the Company. The Executive's employment shall
in no event be considered to have been terminated by the Company for Cause if
such termination took place as the result of (i) bad judgment or negligence, or
(ii) any act or omission without intent of gaining therefrom directly or
indirectly a profit to which the Executive was not legally entitled, or (iii)
any act or omission believed in good faith to have been in or not opposed to the
interest of the Company, or (iv) any act or omission in respect of which a
determination is made that the Executive met the applicable standard of conduct
prescribed for indemnification or reimbursement or payment of expenses under the
Code of Regulations of the Company or the laws of the State of Florida, in each
case as in effect at the time of such act or omission. The Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire membership of the Board
of Directors at a meeting of the Board of Directors called and held for the
purpose (after not less than thirty (30) days' written notice to the Executive
and an opportunity for him together with his counsel, to be heard before the
Board of Directors, such notice of meeting to indicate the specific termination
provision of this Agreement relied upon and specify in reasonable detail the
facts and circumstances claimed to provide a basis for termination under the
provision so indicated), finding that in the good faith opinion of the Board of
Directors the Executive was guilty of conduct set forth above in clauses (i) or
(ii) of the second sentence of this paragraph and specifying the particulars
thereof in detail.
-6-
<PAGE>
(2) If the Executive's employment shall be terminated for
Cause, the Company shall pay the Executive (A) within ten (10) days of such
termination, his unpaid Base Compensation through the Employment Termination
Date at the rate in effect at the time Notice of Termination is given plus (B)
within ten (10) days after issuance of the Company's audited financial
statements for the Fiscal Year in which the Employment Termination Date occurs,
a pro-rata share of any Bonus computed with respect to the Fiscal Year in which
occurs the Employment Termination Date as if such termination had not occurred.
(c) TERMINATION FOR DISABILITY. The Company may terminate the
Executive's employment because of the Disability of the Executive and thereafter
shall pay to the Executive (or his successors) (1) his unpaid Base Compensation
through the sixth (6th) full month following the Employment Termination Date at
his then effective Base Compensation rate, plus (2) an amount equal to a
pro-rata share of any Bonus calculated through the sixth (6th) full month
following the Employment Termination Date as though all of such six (6) month
period were part of the Fiscal Year in which occurred the Employment Termination
Date, (but otherwise as though such termination had not occurred). In addition,
the Executive shall be entitled to amounts and the benefits specified in
Paragraphs (2) and (3) of Section 11(g) of this Agreement.
(d) TERMINATION UPON EXECUTIVE'S DEATH. In the event of the
Executive's death, the Company shall pay to the Executive's estate (1) any
unpaid amount of Base Compensation through the date of death at the then
effective Base Compensation rate plus (2) an amount equal to the pro-rata share
of any Bonus calculated with respect to the Fiscal Year in which the death
occurs. All previously granted stock options, rights, warrants and awards shall
fully vest on the death of the Executive, except that the provisions of the
Company's Stock Incentive Plan and any other benefit plan shall control the
benefits and awards covered thereby.
(e) TERMINATION DUE TO INSOLVENCY. The Company may terminate
the Executive's employment because of the Company's inability to pay its
financial obligations, whether or not such inability results in a voluntary or
involuntary bankruptcy filing or any similar action (collectively, an
"INSOLVENCY") and thereafter shall pay to the Executive (or his successor) his
unpaid Base Compensation through the twelfth (12th) full month following the
Employment Termination Date at his then effective Base Compensation rate.
(f) Termination of Employment by the Executive.
(1) The Executive may terminate his employment for Good
Reason and receive the payments and benefits specified in Section 11(g) in the
same manner as if the Company had terminated his employment. For purposes of
this Agreement, "GOOD REASON" will exist if any one or more of the following
occur:
(A) Failure by the Company to honor any of its obligations
under this Agreement, including, without limitation, its
obligations under Section 3 (EMPLOYMENT CAPACITY AND
DUTIES), Section 4 (EXECUTIVE PERFORMANCE COVENANTs),
Section 5 (COMPENSATION), Section 6 (REIMBURSEMENT OF
EXPENSES), Section 7 (EMPLOYEE BENEFITS, VACATIONS, LIFE
INSURANCE), Section 8 (STOCK OPTIONS), Section 12
(INDEMNIFICATION) and Section 14 (SUCCESSORS AND ASSIGNS).
Notwithstanding the foregoing, if the Company's failure to
honor its obligations hereunder are due to an Insolvency,
then the Executive shall be entitled to receive the
payments and benefits specified in Section 11(e) hereto.
-7-
<PAGE>
(B) Any purported termination by the Company of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 11(a)
above and, for purposes of this Agreement, no such
purported termination shall be effective.
(C) If there is a Change in Control of the Company (as defined
below) and the employment of the Executive is concurrently
or subsequently terminated (i) by the Company without
Cause, (ii) by service of a Notice of Termination or (iii)
by the resignation of the Employee because he has
reasonably determined in good faith that his title,
authorities, responsibilities, salary, bonus opportunities
or benefits have been materially diminished, or that a
material adverse change in his working conditions has
occurred or the Company has breached this Agreement. For
the purpose of this Agreement, a "CHANGE IN CONTROL" of the
Company has occurred when: (x) any person (defined for the
purposes of this Section 11 to mean any person within the
meaning of Section 13(d) of the Securities Exchange Act of
1934 (the "EXCHANGE ACT")), other than the Company, Nyer
Medical Group, Inc. a Florida corporation, or an employee
benefit plan established by the Board of Directors of the
Company, acquires, directly or indirectly, the beneficial
ownership (determined under Rule 13d-3 of the regulations
promulgated by the Securities and Exchange Commission under
Section 13(d) of the Exchange Act) securities issued by the
Company having twenty percent (20%) or more of the voting
power of all of the voting securities issued by the Company
in the election of directors at the meeting of the holders
of voting securities to be held for such purpose; or (y) a
majority of the directors elected at any meeting of the
holders of voting securities of the Company are persons who
were not nominated for such election by the Board of
Directors of the Company or a duly constituted committee of
the Board of Directors of the Company having authority in
such matters; or (z) the Company merges or consolidates
with or transfers substantially all of its assets to
another person.
(2) The Executive shall have the right voluntarily to
terminate his employment for any other reason than for Good Reason prior to the
Scheduled Employment Termination Date, and if the Executive shall so terminate
his employment, he shall be entitled only to payment of the amounts which would
be payable under Section 11(b)(2) had he been terminated for Cause.
(g) COMPENSATION UPON TERMINATION OTHER THAN FOR CAUSE.
(1) If the Company terminates the Executive's employment
for any reason other than for Cause, as set forth in Section 11(b) herein,
Disability, as set forth in Section 11(c) herein, or Death, as set forth in
Section 11(d) herein, Insolvency, as set forth in Section 11(e) herein, or if
the Executive terminates his employment for Good Reason, as set forth in Section
11(f)(1) herein (but not a termination voluntarily by the Executive other than
for Good Reason, as set forth in Section 11(f)(2) herein), then the Company
shall pay to the Executive the following amounts:
(A) (1) His unpaid Base Compensation through the Employment
Termination Date at his then effective Base Compensation
Rate, plus (2) an amount equal to a pro-rata share of the
amount of any Bonus payable to him with respect to the
Fiscal Year in which occurs the Employment Termination
Date.
-8-
<PAGE>
(B) In addition, the Company shall pay to the Executive
promptly in a single lump sum in cash an amount equal to
the product of (1) two, multiplied by (ii) 100% of the
aggregate total amount which would have been payable to
Executive under Section 5 for the entire Fiscal Year in
which occurs the Employment Termination Date as if his
employment had not been terminated (and without deduction
or offset for any amounts actually paid for such Fiscal
Year on account of Base Compensation or Bonus under Section
5, this Section 11 or otherwise), and assuming for purposes
of calculating (x) the Base Compensation, 100% of the
amount thereof at the annual rate payable for such Fiscal
Year pursuant to Section 5(a) and (y) the Bonus, the
largest amount thereof accrued or paid for any of the two
most recently completed Fiscal Years.
(C) The Company shall also pay all legal fees and expenses
incurred as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or
disputing any such termination, in seeking to obtain or
enforce any right or benefit provided by this Agreement, or
in interpreting this Agreement).
(D) The Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts
due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that
the Executive may obtain (any amounts due under Section
11(g) are in the nature of severance payments, or
liquidated damages, or both, and are not in the nature of a
penalty).
(2) Unless Executive is terminated for Cause, the Company
shall maintain in full force and effect, for the Executive's continued benefit
through the Scheduled Employment Terminate Date, all active and retirement
Insurance Benefits and other benefit programs or arrangements in which he was
entitled to participate immediately prior to the Scheduled Employment Terminate
Date provided that continued participation is possible under the general terms
and provisions of such plans and programs. In the event that participation in
any such plan or program is barred, the Company shall arrange to provide him
with benefits substantially similar to those which he is entitled to receive
under such plans and programs.
(3) Unless the Executive is terminated for Cause which is
not contested by the Executive, the Company shall allow the Executive at Company
expense, to continue to utilize the services of BDO Seidman, and/or another
accountant or attorney (including fees and expenses through all appeals) of his
choice for assistance in enforcing this Agreement and preparation of his tax
returns for the year following termination of employment.
(h) COMPENSATION UPON DISABILITY. During any period that the
Executive fails to perform his duties hereunder as a result of incapacity due to
physical or mental illness, he shall continue to receive his full Base
Compensation at the rate then in effect and his full Bonus calculated according
to the provisions of Section 5(b) all until this Agreement is terminated
pursuant to Section 11(c) hereof.
Section 12. INDEMNIFICATION. As an employee, officer and director of
the Company, the Executive shall be indemnified against and the Company shall
maintain director and officer insurance in amounts not less than the coverage in
-9-
<PAGE>
effect as of June 1, 1999 for all liabilities, damages, fines, costs and
expenses to the fullest extent to which employees, officers and directors of a
corporation organized under the laws of Florida may be indemnified as the same
may be amended from time to time (or any subsequent statute of similar tenor and
effect), subject to the terms and conditions of such statute.
Section 13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Miami, Florida in accordance with the rules of the American Arbitration
Association then in effect; provided that all arbitration expenses shall be
borne by the Company. Notwithstanding the pendency of any dispute or controversy
concerning termination or the effects thereof, the Company will continue to pay
the Executive his full compensation in effect immediately before any Notice of
Termination giving rise to the dispute was given (including, but not limited to,
Base Salary and Bonus) and continue him as a participant in all compensation,
benefit and Insurance Benefits in which he was then participating, until the
dispute is finally resolved. Judgment may be entered on the arbitrators' award
in any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of his right to be paid until the
Employment Termination Date during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
Section 14. SUCCESSORS AND ASSIGNS. Except as hereinafter expressly
provided, the agreements, covenants, terms and provisions of this Agreement
shall bind the respective heirs, executors, administrators, successors and
assigns of the parties. Specifically, and not by way of limitation of the
foregoing, the Executive shall be bound by the terms and conditions of this
Agreement to any successor assignee of the Company's rights and obligations
hereunder as a result of any merger, consolidation or sale or lease of all or
substantially all of the Company's business sand assets. If any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company fails,
concurrently with the effectiveness of any such succession, to agree in writing
in form and substance reasonably satisfactory to the Executive expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place, then the Executive shall have the right, effected by notice to such
successor not later than ninety (90) days after the effectiveness of such
succession, to terminate the Employment Period under Section 11(f) as though
such failure was an uncured breach by the Company of a material covenant or
agreement of the Company contained in this Agreement.
If the Executive should die while any amounts are payable to him
hereunder, or if by reason of his death payments are to be made to him
hereunder, then this Agreement shall inure to the benefit of and be enforceable
by the Executive's executors, administrators, heirs, distributees, devisees and
legatees and all amounts payable hereunder shall then be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there is no such designee, to his estate.
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as hereinbefore provided in this
Section 14. Without limiting the foregoing, the Executive's right to receive
payments hereunder shall not be assignable or transferable, whether by pledge,
creation of a security interest or otherwise, other than a transfer by his will
or by the laws of descent or distribution, and in the event of any attempted
assignment or transfer contrary to this paragraph the Company shall have no
liability to pay to the purported assignee or transferee any amount so attempted
to be assigned or transferred.
As used in this Agreement, the "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
-10-
<PAGE>
aforesaid which executes and delivers the agreement provided for in the first
paragraph of this Section 14 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
Section 15. NOTICES. Any notice or other communication required or
desired to be given hereunder shall be in writing and shall be deemed
sufficiently given when personally delivered or when mailed by first class
certified mail, return receipt requested and postage prepaid, or when delivered
if by recognized overnight delivery service addressed to the parties at their
respective addresses set forth under their respective signatures below or such
other person or addresses as shall be given by notice of any party.
Section 16. WAIVER; REMEDIES CUMULATIVE. No waiver of any right or
option hereunder by any party shall operate as a waiver of any other right or
option, or the same right or option as respects any subsequent occasion for its
exercise, or of any legal remedy. No waiver by any party of any breach of this
Agreement or of any agreement or covenant contained herein shall be held to
constitute a waiver of any other breach or a continuation of the same breach.
All remedies provided by this Agreement are in addition to all other remedies by
it or the law provided.
Section 17. GOVERNING LAW; SEVERABILITY. This Agreement is made and is
expected to be performed in Florida, and the various terms, provisions,
covenants and agreements, and the performance thereof, shall be construed,
interpreted and enforced under and with reference to the laws of the State of
Florida. It is the intention of the Company and the Executive to comply fully
with all laws and matters of public policy relating to employment agreements and
restrictive covenants, and this Agreement shall be construed consistently with
such laws and public policy to the extent possible. If and to the extent any one
or more covenants, agreements, terms and provisions of this Agreement or any
portion or portions thereof shall be held invalid or unenforceable by a court of
competent jurisdiction, then such covenants, agreements, terms and provisions
(or portions thereof) shall be deemed separable from the remaining covenants,
agreements, terms and provisions of this Agreement and such holding shall in no
way affect the validity or enforceability of any of the other covenants,
agreements, terms and provisions hereof.
Section 18. MISCELLANEOUS. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be modified, changed or amended except in a writing
signed by each of the parties hereto. This Agreement may be signed in multiple
counterparts, each of which shall be deemed an original hereof. The captions of
the several sections and subsections of this Agreement are not a part of the
context hereof, are inserted only for convenience in locating such sections and
subsections and shall be ignored in construing this Agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
-11-
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed multiple
counterparts of this Agreement.
Company: Executive:
GENETIC VECTORS, INC.
- --------------------- ------------------------------------
Miami, Florida Name: Mead M. McCabe, Jr.
Address:
----------------------------
Miami, Florida
By:
-----------------------------------
Name:
Title:
and
By:
-----------------------------------
Name:
Title: Secretary
[STOCK OPTION ADDENDUM FOLLOWS ON NEXT PAGE]
-12-
<PAGE>
STOCK OPTION ADDENDUM
TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
GENETIC VECTORS, INC.
AND
MEAD M. MCCABE, SR.
As of July 1, 1999
Subject to all of the terms and conditions contained herein, the
undersigned GENETIC VECTORS, INC., a Florida corporation (the "COMPANY"), hereby
grants to MEAD M. McCABE, SR. (the "EXECUTIVE") the following options to
purchase shares (the "EXECUTIVE OPTION SHARES") of the Company's common stock,
without par value ("COMMON SHARES") as follows:
The Company and Executive hereby agree as follows:
Subject to all of the terms and conditions contained herein, the Company
hereby grants to Executive the following performance-based options to purchase
Common Shares:
1. OPTIONS. The Company hereby grants to Executive the right and option
to purchase from the Company 10,000 Common Shares (the "OPTIONS") upon the
following terms and conditions:
(a) TERM OF OPTIONS. The Options shall be effective throughout the
Employment Period and for a period of one hundred eighty (180) days following
the Employment Termination Date.
(b) PURCHASE PRICE. The purchase price for the Options shall be at
least one hundred percent (100%) of the closing price of Common Shares of the
Company as of the date of grant.
(c) OPTIONS NON-TRANSFERABLE. The option rights with respect to the
Options are non-transferable and are personal to Executive and may be exercised
only by Executive and by no one else.
(d) TIME OF EXERCISE. Except as set forth herein, there are no
conditions to the exercise or the exercisability by the Executive of the
Options.
2. SECURITIES ACT, ETC. In the absence of an effective Registration
Statement under the Securities Act of 1933, as from time to time in effect (the
"ACT"), relating thereto, the Company shall not be required to register a
transfer of shares delivered or deliverable upon exercise of the Options
("DELIVERED SHARES") on its books unless the Company shall have been provided
with an opinion of counsel satisfactory to it prior to such transfer that
registration under the Act is not required in connection with the transaction
resulting in such transfer. Each certificate evidencing Delivered Shares or
issued upon any transfer of Delivered Shares shall bear an appropriate
restrictive legend, except that such certificate shall not bear such a
restrictive legend if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
the provisions of the Act. Nothing in this paragraph 2 shall modify or otherwise
effect the provisions applicable to the Delivered Shares.
-13-
<PAGE>
3. TERMINATION, EXERCISE, ETC.
(a) The Options shall expire and terminate, to the extent not
previously exercised, as to all Executive Option Shares one hundred eighty (180)
days after the Employment Termination Date. In the event of the Executive's
death, the Options shall be exercisable by the Executive's estate or any trust
established solely for the benefit of one or more of the Executive's heirs (such
estate and each such trust being referred to herein, collectively, as the
"Estate") during the period beginning on the date of the Executive's death and
ending on the one hundred eightieth (180th) day thereafter. In the event the
Executive's employment is terminated other than by reason of the Executive's
death, the Options shall be exercisable by the Executive during the period
beginning on the date of such termination and ending on the ninetieth (90th) day
thereafter.
(b) Subject to the preceding paragraph 3(a) and the other
provisions of this Addendum, the Options may, to the extent exercisable but not
previously exercised, be exercised at any time and from time to time, in whole
or in part, by written notice delivered to the Company signed by the Executive
or the Estate thereof. Such notice shall state the number of Option Shares in
respect to which the Options are being exercised, and shall contain such
representations and warranties of the Executive or the Estate thereof as the
Company may then deem necessary or desirable in order to comply with federal or
state securities laws or as may otherwise be reasonably requested by the
Company, and shall be accompanied either (i) by payment in full (in cash, by
personal check or by any other method acceptable to the Company) of the full
Exercise Price in respect thereof or (ii) delivery to the Company of a number of
shares of Common Stock owned by the Executive and having a fair market value
(determined reasonably and in good faith by the Board of Directors and, if
reasonably possible, prior to such exercise) equal to the full Exercise Price in
respect thereof. In addition, the Company shall have the right to require that
the Executive or the Estate thereof, when exercising the Options in whole or in
part, remit to the Company an amount sufficient to satisfy any federal, state or
local withholding tax requirements (or make other arrangements satisfactory to
the Company with regard to such taxes prior to the delivery of any Delivered
Shares pursuant to such exercise, including without limitation by withholding
Delivered Shares otherwise deliverable upon such exercise, and, if requested by
the Executive or such Estate, the Company shall so withhold at least a number of
Delivered Shares requested to be so withheld by the Executive at the time of
such exercise. As soon as practicable after such notice and payment shall have
been received, the Company shall deliver a certificate or certificates
representing the number of Delivered Shares with respect to which the Options
were exercised, registered in the name of the Executive.
(c) All Delivered Shares that shall be purchased upon the exercise
of the Options as provided herein shall be fully paid and non-assessable.
4. CERTAIN CONDITIONS. In the event the Company (i) pays a dividend or
makes a distribution on its Common Stock, (ii) subdivides its outstanding shares
of Common Stock into a greater number of shares, (iii) combines its outstanding
shares of Common Sock into a smaller number of shares, (iv) makes a distribution
on its Common Stock in shares of its capital stock other than Common Stock, (v)
issues by reclassification of its Common Stock any shares of its capital stock,
or (vi) consummates any merger reorganization or consolidation pursuant to which
any securities or other consideration is issued to the holders of outstanding
shares of capital stock of the Company (each an "ADJUSTMENT EVENT"), then, the
Options granted to the Executive hereunder shall be so adjusted and upon the
exercise of such Options, the Executive shall be entitled to receive such
securities of the Company or other consideration as the Executive would have
held immediately after the consummation of such Adjustment Event had the
Delivered Shares issuable upon such exercise been held by the Executive on such
record date.
-14-
<PAGE>
5. MISCELLANEOUS. Except as specifically otherwise provided in Section
4 hereof as to exercise by the Executive's Estate, the Options may not be
assigned or transferred, in whole or in part, whether by operation of law, upon
death or otherwise, by the Executive without the written consent of the Company
which the Company may withhold in its sole and absolute discretion, with or
without any reason. The Options are not intended to constitute and "incentive
stock option" as that term is used in Section 422 of the Internal Revenue Code
of 1986, as amended, and shall not be treated as incentive stock options. The
Options shall be governed by and construed in accordance with the laws of the
State of Florida.
GENETIC VECTORS, INC.
By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001017157
<NAME> GENETIC VECTORS, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 109,924
<SECURITIES> 0
<RECEIVABLES> 3,620
<ALLOWANCES> 0
<INVENTORY> 13,500
<CURRENT-ASSETS> 242,521
<PP&E> 403,355
<DEPRECIATION> 125,427
<TOTAL-ASSETS> 913,725
<CURRENT-LIABILITIES> 350,150
<BONDS> 0
0
0
<COMMON> 2,350
<OTHER-SE> 561,225
<TOTAL-LIABILITY-AND-EQUITY> 913,725
<SALES> 47,172
<TOTAL-REVENUES> 47,172
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,684,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,807
<INCOME-PRETAX> (2,575,467)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,575,467)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,575,467)
<EPS-BASIC> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
