As filed with the Securities and Exchange Commission on December 6, 2000
Registration No. 333-44420
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 4 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------
GENETIC VECTORS, INC.
(Name of Small Business Issuer in Our Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Florida 8731 65-0324710
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer Identification No.)
Incorporation Industrial
or Organization) Classification Code Number)
5201 N.W. 77th Avenue, Ste. 100 Mead M. McCabe, Jr.
Miami, Florida 33166 5201 N.W. 77th Avenue, Ste. 100
(305) 716-0000 Miami, Florida 33166
(Address and telephone number of (305) 716-0000
Principal
Executive Offices and Principal ----------------------- (Name, address and telephone number
Place of Business) Copies to: of agent for service)
Clayton E. Parker, Esq. William M. Prifti, Esq.
Troy J. Rillo, Esq. Five Market Square, Ste. 109
Kirkpatrick & Lockhart LLP Amesbury, Massachusetts 01913
201 S. Biscayne Boulevard, Suite 2000 (978) 388-4942
Miami, Florida 33131 Telecopier No.: (978) 388-4945
(305) 539-3300
Telecopier No.: (305) 358-7095
</TABLE>
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
[REDHERRING TEXT: Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these secuities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.]
SUBJECT TO COMPLETION, DATED DECEMBER 6, 2000
GENETIC VECTORS, INC.
1,400,000 SHARES OF COMMON STOCK
We are selling 1,400,000 shares of common stock. The offering price
will be at or near the prevailing market price on the closing of this offering.
Our common stock is quoted on the Pink Sheets under the symbol "GVEC."
On November 30, 2000, the last reported sale price of our common stock on the
Pink Sheets was $8.25 per share. We propose to list and trade our common stock
on the American Stock Exchange.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 8.
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO US*
------ ----------- ---------------
Per share $_______ $__________ $__________
Total $_______ $__________ $__________
---------------
* This table excludes estimated expenses of $723,000 which we expect to
incur in connection with this offering.
We have granted the underwriter a 45-day option to purchase up to
210,000 shares of common stock to cover over-allotments. This is a firm
commitment offering.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
MERCER PARTNERS, INC.
The date of this prospectus is December ___, 2000.
1
<PAGE>
TABLE OF CONTENTS
PAGE
Prospectus Summary............................................ 1
The Offering.................................................. 2
Summary Consolidated Financial Information.................... 4
Key Facts..................................................... 5
Risk Factors.................................................. 6
Forward-Looking Statements.................................... 12
Use of Proceeds............................................... 13
Capitalization................................................ 14
Dilution...................................................... 15
Management's Plan of Operation................................ 16
Business...................................................... 20
Management.................................................... 28
Certain Relationships and Related Transactions................ 35
Market for Common Equity and Related Stockholder Matters...... 36
Principal Shareholders........................................ 37
Description of Securities..................................... 39
Underwriting.................................................. 43
Experts....................................................... 44
Legal Matters................................................. 44
Available Information......................................... 44
Financial Statements.......................................... F-1
---------------------------
We are a reporting company and intend to distribute to our shareholders
annual reports containing audited financial statements. Our annual report on
Form 10-KSB for the fiscal year December 31, 1999 was filed on June 12, 2000.
Quarterly reports for the first, second and third quarters of 2000 containing
unaudited interim financial statements are also available.
Certain persons who participate in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares being sold in this offering, including purchases of these shares to
maintain their market price or purchases to cover some or all of the
underwriter's short position in these shares.
i
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Genetic Vectors is a biotechnology company specializing in genomics and
high throughput genotyping. The company is developing and marketing genotyping
technology for the discovery of genetic patterns underlying inherited diseases,
such as autoimmune and cardiovascular diseases, and the identification of yeasts
that are pathogenic or of industrial importance. We plan to continue genotyping
large human populations to highlight genes that are linked to diseases and genes
influencing responses to therapeutic drugs.
Genetic Vectors acquired DNA Sciences, Inc. on January 17, 2000. The
technology acquired from DNA Sciences, Inc. has enabled us to develop a
universal genotyping platform for screening large human populations to discover
genetic patterns indicating disease susceptibility and therapeutic response.
This platform is marketed in the EASYID product line. Genetic Vectors plans to
genotype approximately 500,000 individuals in its targeted areas of disease
research and use the derived data to build a genetic database linked to existing
clinical and genealogical databases. Furthermore, we plan to derive our
proprietary intellectual property from these clinically relevant links between
genetics and disease and subsequently create value for shareholders through
production of products and services.
On September 29, 1999, we filed our first genomic patent application
covering the identification of pathogenic organisms responsible for deaths of
many immunocompromised patients, including HIV patients, chemotherapy patients
and transplant recipients. In addition, we are developing a new set of
technologies and products designed to screen for genes involved in
cardiovascular disease.
Genetic Vectors believes it is in the forefront of genetic research
with the combination of our proprietary technologies and the large number of
participants available to us in our population-based studies and collaborations.
Our mission is to:
o Use our universal platform to genotype approximately 500,000
individuals, which we anticipate will be available to us at our
collaborative sites.
o Apply modern informatics technology to create a genetic database
linked to existing clinical and geneological databases to discover
genetic patterns indicating disease susceptibility and response to
treatment.
o Use the proprietary knowledge gained in our screening process to
create and market products and services to the healthcare
community.
o Directly impact healthcare by determining the causative links
between genes and disease.
We are a developmental stage company with limited operations, capital
and revenue. Our company was formed on December 28, 1991, with our first
product, the EpiDNA Picogram Assay, introduced in 1997. We have had losses from
operations since inception. Our accumulated deficit as of September 30, 2000 was
$14.2 million.
THE INDUSTRY
Drug development is a high cost and low success endeavor. The need to
fuel the product pipeline, along with a more educated populace and the influence
of managed healthcare mandate a better cost-benefit ratio than generally is
associated with the conventional drug development and marketing scenario. The
emerging field of pharmacogenomics can impact the cost-benefit ratio by
providing a means for correlating patient genotype with the response to a
therapeutic drug, as well as predicting a patient's susceptibility to disease.
Such a capability benefits patients, physicians and drug developers. In the
future, healthcare decisions may be based upon patient genotype. Pharmaceutical,
biotechnology and diagnostic companies are striving to identify gene mutations
and patterns of mutations that can predict disease susceptibility and drug
efficacy.
Rapid advances in genomics have intensified the commercial race to
identify new gene targets for new therapeutics and diagnostics. However, the
ability of genomics to discover new targets is tempered by the realization that
genetic diseases may involve defects in several genes, as well as the influence
of currently unknown environmental factors.
1
<PAGE>
To date, the genomics race has been focused on sequencing across the
human genome. The Human Genome Project and Celera announced completion with over
80,000 genes identified. The assembly phase, which entails putting the gene
sequences in order on the genome, has begun. The completion of the Human Genome
Project provides a "road map" of gene locations on the genome. Now companies are
focusing on the next step, identifying changes or mutations in the gene sequence
that determine disease susceptibility or drug efficacy.
STRATEGY
Genetic Vectors plans to expand its presence in the field of
pharmacogenomics through the strategy of "Practical Genomics." The company,
through its internal gene discovery program, plans to discover mutations in
genes implicated in diseases (for example: mutations such as single nucleotide
polymorphisms, or "SNPs") and design genotyping systems to detect these
mutations. The company has developed the EASYID platform, an economical,
universal genotyping platform for high throughput applications. It plans to use
genotyping systems based on this platform to genotype approximately 500,000
individuals, concentrating on genes implicated in diseases in its target areas.
We plan to supply these genotyping systems to our collaborators for genotyping
of their study populations and mine the resulting data for important links
between patterns of gene mutations and disease susceptibility and response to
therapy. The company plans to compile genetic databases, linked to existing
clinical and geneological databases, to discover correlations between genetic
information and clinical and geneological characteristics. These correlation
data are the company's intellectual property, which the company plans to protect
by patenting. Also, the company plans to develop genotyping systems for marker
genes and genetic patterns, and market these systems to the international
healthcare market.
Additionally, we believe that there are favorable business acquisition
opportunities that would enable us to expand our business more rapidly. To date,
we have completed the acquisition of DNA Sciences, Inc., a California
corporation. We believe that the successful consummation of several other
acquisition opportunities would enable us to enhance our product lines, obtain
new technologies, and increase revenue.
ABOUT US
Our principal office is located at 5201 N.W. 77th Avenue, Suite 100,
Miami, Florida 33166, telephone number (305) 716-0000. Our website is
www.gvec.com. Information contained on our website is not part of this
prospectus. For a copy of this prospectus, please contact Mercer Partners, Inc.
at 212.747.0277.
THE OFFERING
COMMON STOCK OFFERED 1,400,000 shares by us.
COMMON STOCK OUTSTANDING
Before Offering 3,785,197 shares as of November 30, 2000
COMMON STOCK OUTSTANDING
After Offering 5,185,197 shares
ESTIMATED NET PROCEEDS $8.7 million
USE OF PROCEEDS We intend to use the net proceeds of
this offering to purchase equipment,
fund research and development
activities, including investment in
our emerging pharmacogenomics
programs, repay approximately $3.9
million of indebtedness and for
sales and marketing activities. See
"Use of Proceeds."
RISK FACTORS The securities offered hereby
involve a high degree of risk and
immediate substantial dilution. See
"Risk Factors" and "Dilution."
PINK SHEET SYMBOL GVEC
PROPOSED AMERICAN STOCK
EXCHANGE SYMBOL Pending
------------------------
This table excludes 4,286,486 shares of common stock issuable upon the
conversion of certain indebtedness and the exercise of options and warrants as
of November 30, 2000 (including the Underwriter warrants and over-allotment
option). See "Description of Securities."
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Cumulative from
January 1, 1992
(Inception) to Nine Months Ended
September 30, September 30, Years Ended December 31,
2000(4) 2000 1999(4) 1999(4) 1998(4)
--------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
STATEMENT OF OPERATIONS DATA
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $ 483,559 $ 96,132 $ 72,620 $ 119,809 $ 115,108
--------------------------------------------------------------------------------------------------
Cost of sales (88,976) (25,293) (48,041) (41,311) (22,372)
Selling, general and
administrative (6,916,048) (1,692,731) (924,678) (1,356,308) (1,585,444)
Research and development (3,724,322) (620,188) (398,969) (566,036) (984,937)
Depreciation and amortization (413,196) (85,613) (78,067) (139,601) (125,550)
--------------------------------------------------------------------------------------------------
Total expenses (11,142,542) (2,423,825) (1,449,755) (2,103,256) (2,718,303)
--------------------------------------------------------------------------------------------------
Non-Cash Interest (3,444,650) (2,678,088) (312,280) (748,037) (18,525)
Interest income (expense) (132,553) (276,577) 4,898 (128,703) 66,057
--------------------------------------------------------------------------------------------------
Net loss $(14,236,186) $(5,282,358) $(1,684,517) $(2,860,187) $(2,555,663)
--------------------------------------------------------------------------------------------------
Net loss per share - basic and
Diluted $(1.45) $(0.56) $(0.90) $(0.91)
---------------------------------------------------------------------------
Weighted average number of
common shares outstanding 3,632,343 3,030,521 3,174,092 2,794,696
SEPTEMBER 30, 2000
----------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1)(2) ADJUSTED(1)(3)(4)
----------- --------------- -----------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 434,658 $ 9,161,658 $ 5,286,278
Working capital (3,931,620) 4,795,380 4,795,380
Total assets 1,210,008 9,937,008 6,061,628
Loans payable, net of unamortized discount 3,613,500 3,613,500 0
Total liabilities 4,455,258 4,455,258 579,878
Stockholders' equity (capital deficit) $(3,245,250) $ 5,481,750 $ 5,481,750
</TABLE>
---------------------
(1) Adjusted to reflect (i) the receipt of net proceeds of $8,727,000 (for
illustration purposes we have assumed an offering price of $7.50 per
share) from the sale of 1,400,000 shares of common stock in this offering
after deducting underwriting discounts and commissions and estimated
offering expenses and (ii) the beneficial conversion feature pertaining
to $1.8 million of notes payable at a conversion price of $3.00 per
share. The foregoing transaction results in a charge to operations of
approximately $1.8 million and an offsetting credit to additional paid in
capital. Excludes any proceeds from the over-allotment option granted to
the underwriter.
(2) No adjustment has been made to reflect the repayment of $3.9 million of
debt due upon the closing of this offering.
(3) Adjusted to reflect the repayment of $3.9 million of debt (which includes
accrued interest of $300,000) due upon the closing of this offering and
the issuance of warrants to purchase 775,000 shares of common stock. Our
company is obligated to issue these warrants upon repayment of certain
indebtedness up to thirty days after the closing of an equity financing.
(4) Adjusted to give retroactive effect to the January 2000 merger with DNA
Sciences, Inc.
3
<PAGE>
KEY FACTS
<TABLE>
<CAPTION>
<S> <C>
SHARES OFFERED TO THE PUBLIC: USE OF PROCEEDS:
1,400,000 Purchase equipment, fund research and
development activities, repay indebtedness
OVER-ALLOTMENT OPTION: and sales and marketing activities.
Up to 210,000 Shares (not included in
1,400,000)
UNDERWRITERS' WARRANTS:
TOTAL SHARES OUTSTANDING AFTER OFFERING: Underwriters will receive warrants to
5,185,197 Shares (assuming no exercise of purchase 140,000 shares at an exercise price
the over-allotment option) of $11.63 exercisable for five (5) years.
TOTAL SHARES OUTSTANDING AFTER OFFERING, NET TANGIBLE BOOK VALUE AT SEPTEMBER 30, 2000:
CONVERSION OF CERTAIN DEBT TO EQUITY AND $(3,437,497)
EXERCISE OF ALL OPTIONS AND WARRANTS:
9,471,683 Shares NET TANGIBLE BOOK VALUE PER SHARE BEFORE
DILUTION (EXCLUDING CONVERSION OF CERTAIN DEBT
PRICE PER SHARE TO PUBLIC: TO EQUITY AND EXERCISE OF OPTIONS AND WARRANTS):
Market Price $(0.92)
TOTAL PROCEEDS RAISED BY OFFERING: NET TANGIBLE BOOK VALUE PER SHARE AFTER
$10.5 million (at an assumed offering DILUTION (EXCLUDING CONVERSION OF CERTAIN
price of $7.50 per share) DEBT TO EQUITY AND EXERCISE OF OPTIONS AND
WARRANTS):
$1.02
UNDERWRITERS' FEES: MARKET:
$1,050,000 (10%) of the total proceeds Pink Sheets Symbol - GVEC
plus a
$315,000 (3%) non-accountable expense
allowance Proposed American Stock Exchange Symbol -
Pending
ESTIMATED EXPENSES OF THE OFFERING (EXCLUDING DIVIDEND POLICY:
UNDERWRITERS' FEES AND NON-ACCOUNTABLE No Dividends Expected
EXPENSE ALLOWANCE):
$408,000 UNDERWRITING:
Firm Commitment
NET PROCEEDS:
$8,727,000 (at an assumed offering price
of $7.50 per share)
</TABLE>
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE
PURCHASING OUR COMMON STOCK. OUR MOST SIGNIFICANT RISKS AND UNCERTAINTIES ARE
DESCRIBED BELOW; HOWEVER, THEY ARE NOT THE ONLY ONES WE FACE. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE ARE IN DEFAULT OF SOME OF OUR OUTSTANDING INDEBTEDNESS AND MAY BE UNABLE TO
REPAY THESE LOANS.
Between November 1, 1998 and November 30, 2000, we borrowed a total of
$3.7 million from various private investors, consisting of:
o Unsecured loans of $150,000, with interest payable quarterly
beginning on April 1, 1999 and the principal payable on November
2, 1999. We are in default of these loans for failing to pay
principal and interest when due.
o Secured loan of $100,000, with interest payable quarterly
beginning on June 1, 1999 and the principal payable on April 18,
2000. We are in default of this loan for failing to pay principal
and interest when due.
o Secured loans of $1,238,500 for which the payment dates of
principal and interest were extended by the lenders to December
31, 2000.
o Loans of $175,000 convertible into shares of common stock at a
price of $5.00 per share. The lenders have extended the payment
dates of these loans to December 31, 2000.
o Loan of $100,000 convertible into shares of common stock at a
price of $5.00 per share for which the payment dates have been
extended by the lenders to December 31, 2000.
o Loans of $600,000 convertible into shares of common stock at a
price of $3.00 per share, which payment dates have been extended
by the lenders to December 31, 2000.
o Loans of $1,250,000 convertible into shares of common stock at a
price of $3.00 per share, which payment dates are due on December
31, 2000.
We will not be able to repay these loans unless we raise enough capital
from external sources. Our business operations do not generate sufficient cash
flow to repay these loans. Our inability to repay these loans may result, among
other things, in foreclosure against our assets. This would jeopardize our
ability to continue operations, and our stock price would likely decline.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT OR IMPOSSIBLE TO EVALUATE OUR
PERFORMANCE AND MAKE PREDICTIONS ABOUT OUR FUTURE.
We were organized in 1991 and are in the development stage. To date, we
have generated very limited revenues from the sale of our products. Our limited
operating history makes an evaluation of our future prospects very difficult. As
a development stage company, we will encounter the types of risks, uncertainties
and difficulties frequently encountered by early-stage companies. Many of these
risks and uncertainties are described in more detail elsewhere in this "Risk
Factors" section. If we do not successfully address these risks, then our future
business prospects will be significantly limited and, as a result, the trading
price of our common stock would likely decline.
WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We incurred net losses of $2.8 million and $2.6 million in 1999 and
1998, respectively. For the nine months ended September 30, 2000, we incurred
net losses of $5.3 million. Our cumulative net loss since our inception on
January 1, 1992 has been $14.2 million. We expect to incur substantial losses
for the foreseeable future in connection with our research and development
5
<PAGE>
efforts, as well as the expenses associated with attempting to commercialize our
products, including manufacturing, marketing and distributing expenses.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL, WE MAY BE UNABLE TO CONTINUE
OPERATIONS.
We had $434,658 of cash-on-hand as of September 30, 2000. We project
that our available cash will last no longer than December 31, 2000. In
connection with their report, on our financial statements for the years ended
December 31, 1999 and 1998, our independent auditors have noted there is
substantial doubt about our ability to continue as a going concern. See Note 2
to the Financial Statements. This "going concern" opinion is due, in part, to
our need to obtain from external sources additional financing adequate to
complete development activities and to achieve a level of sales adequate to
support our cost structure. In the absence of additional capital, we will be
required to significantly curtail or cease our business activities, and our
stock price would decline.
THE INTERESTS OF OUR MANAGEMENT MAY CONFLICT WITH THE INTERESTS OF OUR COMPANY
AND THE INTERESTS OF OUR OTHER SHAREHOLDERS.
Our directors and executive officers beneficially own approximately 43%
of our company's outstanding common stock, including 853,048 shares of common
stock pursuant to a voting agreement with Nyer Medical Group. See "Principal
Shareholders." These shareholders, acting together, have the ability to elect at
least a majority of our directors. They will also be able to determine the
outcome of most corporate actions requiring shareholder approval, including our
merger with or into another entity, a sale of substantially all of our assets
and amendments to our articles of incorporation. The decisions of these
shareholders may conflict with our company's interests or those of our other
shareholders.
IF OUR ASSUMPTION ABOUT THE ROLE OF GENES IN DISEASE IS INCORRECT, WE MAY NOT BE
ABLE TO DEVELOP USEFUL PRODUCTS.
Certain of our products and the products we hope to develop involve new
and unproven approaches. They are based on the assumption that information about
genes may help scientists better understand complex disease processes.
Scientists generally have a limited understanding of the role of genes in
diseases, and few products based on gene discoveries have been developed. Of the
products that exist, all are diagnostic products. To date, we know of no
therapeutic products based on disease gene discoveries. If our assumption about
the role of genes in the disease process is incorrect, our gene discovery
programs may not result in products, the genetic data collected may not be
useful to our customers and these types of products may lose any competitive
advantage.
ETHICAL AND PRIVACY CONCERNS MAY LIMIT THE USE OF GENETIC TESTING AND THEREFORE
THE COMMERCIAL VIABILITY OF ANY PRODUCTS WE DEVELOP.
Other companies have developed genetic predisposition tests that have
raised ethical concerns. It is possible that employers or others could
discriminate against people who have a genetic predisposition to certain
diseases. Concern regarding possible discrimination may result in governmental
authorities enacting restrictions or bans on the use of all, or certain types
of, genetic testing. Similarly, such concerns may lead individuals to refuse to
use genetics tests even if permissible. These factors may limit the market for,
and therefore the commercial viability of, genetic testing products that our
collaborators and we develop.
OUR PRODUCTS MAY NOT GAIN MARKET ACCEPTANCE, WHICH WOULD JEOPARDIZE OUR ABILITY
TO GENERATE REVENUE AND CONTINUE OPERATIONS.
We are highly dependent on a limited number of products and our
long-term success may depend on the market acceptance of these products. We
currently have two products lines, the EPIDNA and EASYID product lines. Market
acceptance of our product lines will depend, in part, on our ability to
demonstrate the superiority of them with respect to existing techniques,
including the products' accuracy, ease of use, reliability and
cost-effectiveness and on the effectiveness of our marketing efforts. These
efforts have been adversely affected by our working capital shortage. No
assurance can be given that we will gain market acceptance for our product
lines. Failure to gain market acceptance for these product lines will jeopardize
our ability to obtain capital, generate revenue to continue operations, likely
resulting in a lower stock price.
6
<PAGE>
THE TECHNOLOGY IN OUR PRODUCTS IS RAPIDLY EVOLVING, AND OUR ABILITY TO EVOLVE
WITH THIS TECHNOLOGY MAY JEOPARDIZE THE COMMERCIAL VIABILITY OF OUR PRODUCTS.
The science and technology of the EPIDNA Picogram Assay, DNAMAX,
EASYID, and DNAtect are rapidly evolving. The commercial viability of our
product lines has not been proven, as we have only conducted limited marketing
efforts for our existing products and other proposed products are in the early
stage of development. All of our products 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 these products are found to be
ineffective, unsafe, or otherwise fail to receive necessary regulatory
clearances, if any, that these products, though effective, are uneconomical to
market, that third parties hold proprietary rights that preclude us from
marketing them, or that third parties market a superior or equivalent product.
Accordingly, we are unable to predict whether our products will become
commercially viable.
WE WILL NEED TO RELY ON COLLABORATIVE PARTNERS TO FACILITATE THE SALE OF OUR
PRODUCTS AND OUR FAILURE TO ENTER INTO SUCH COLLABORATIVE ARRANGEMENTS WILL
HINDER OUR ABILITY TO SELL OUR PRODUCTS AND SERVICES.
In the future we may, in order to facilitate the sale of our products,
enter into collaborative selling arrangements with one or more other persons. It
is uncertain whether we will be able to negotiate acceptable collaborative
arrangements in the future or that such collaborative arrangements will be
successful. If we are unable to identify collaborative partners to sell our
services and/or products, we may be forced to develop an internal sales force to
market and sell our services and/or products in markets where we are not
intending on developing a direct selling presence. Such a process would take
more time and potentially cost more. As a result, our revenues and earnings
would be reduced. If we do enter into collaborative selling arrangements, our
success will depend upon the efforts of others and may be beyond our control.
Failure of any collaborative selling arrangement could result in reduced
revenues and possible losses.
WE ARE SUBJECT TO RISKS RELATED TO PRODUCT LIABILITY CLAIMS, WHICH ARE EXPENSIVE
TO DEFEND AND MAY RESULT IN NEGATIVE PUBLICITY.
The nature of our business exposes us to risk from product liability
claims. We maintain product liability insurance for some of our 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 our insurance will be adequate to cover future product
liability claims, or that we will be successful in maintaining adequate product
liability insurance at acceptable rates. In addition, due to our working capital
shortage, there can be no assurance that we will be able to fund the premiums
for our existing insurance. Any losses that we may suffer from future liability
claims, and any adverse publicity from product liability litigation, may
adversely affect our business operations and our stock price.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OUR MANUFACTURING PROCESS, WHICH
WOULD JEOPARDIZE OUR ABILITY TO GENERATE REVENUE.
We have limited experience in manufacturing our products, and we have
not yet determined whether we will be able to produce sufficient quantities of
such products at commercially reasonable costs. Our inability to produce
sufficient quantities at commercially reasonable costs would jeopardize our
ability to generate revenue sufficient to support our operations. In such event,
our stock price would likely decline.
WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET OUR PRODUCTS IN THE UNITED STATES OR
INTERNATIONALLY.
We have limited experience in marketing our products. We intend to
market our products in the United States, Europe and Asia through collaborative
selling arrangements and/or through a network of independent distributors
supported by a direct sales force. We do not currently have a sales force in
place and no distribution agreements have been entered into. Our ability to
market our products in Europe and Asia and other areas will depend on our
ability to fund such efforts, as well as our ability to develop strategic
alliances with marketing partners. Our inability to successfully market our
products would jeopardize our ability to generate revenue sufficient to support
our operations.
7
<PAGE>
WE FACE RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION.
Changes in existing regulations could require advance regulatory
approval of genetic susceptibility tests that may result in a substantial
curtailment or even prohibition of our activities without regulatory approval.
If our tests ever require regulatory approval, the costs of introduction will
increase and marketing and sales may be significantly delayed.
Further, several years ago the FDA proposed to regulate as medical
devices the "active ingredients" (known as "analyte specific reagents" or
"ASRs") of certain tests developed by, or in conjunction with, clinical
laboratories. Currently, a final rule has not been issued. The FDA has
specifically stated that it is not proposing a comprehensive regulatory scheme
over the final tests, but rather the active ingredients ASRs provided to the
laboratories that perform them. According to the FDA, any contemplated
additional controls (e.g. submission for Pre-Market Approval applications) over
the tests themselves would likely involve those tests which identify genes
associated with cancer or diseases associated with dementia. If the FDA requires
Pre-Market Approval of our genetic susceptibility test, our company may be
required to conduct pre-clinical studies, obtain an investigational device
exemption to conduct clinical tests, file a Pre-Market Approval application, and
obtain FDA approval. There can be no assurance such approval would be received
on a timely basis, if at all. The failure to receive such approval could require
us to develop alternative testing methods or utilize approved ASRs, which could
result in the delay or cause the termination of the use of such test. Such a
delay or termination could result in reduced revenues or losses.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAINTAIN OUR CURRENT PATENTS, OBTAIN NEW
PATENTS, OR OPERATE WITHOUT INFRINGING UPON THE PROPRIETARY RIGHTS OF OTHER
PARTIES.
Our success will depend in part on our ability to obtain and maintain
patent protection for our products, preserve our trade secrets, and operate
without infringing upon 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. In addition, the laws
of certain countries may not protect our intellectual property. 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 we hold ownership or license rights will result in the
issuance of patents, that any patents issued or licensed to us will not be
challenged and held to be invalid, or that any such patents will provide
commercially significant protection to our 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 we have rights or obtain access to our know-how or that others will not
be issued patents which may prevent the sale of one or more of our products, or
require licensing and the payment of significant fees or royalties by us to
third parties in order to enable us to conduct our business. Defense and
prosecution of patent claims can be expensive and time consuming, regardless of
whether the outcome is favorable to us, and can result in the diversion of
substantial financial, management, and other resources from our other
activities. An adverse outcome could subject us to significant liability to
third parties, require us to obtain licenses from third parties, or require us
to cease any related research and development activities or product sales. 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 our working capital shortage, there can be
no assurance that we will be able to continue our existing patent applications.
WE MAY NOT BE ABLE TO SUCCESSFULLY PROTECT OUR PROPRIETARY INFORMATION.
Our success is also dependent upon the skills, knowledge, and
experience of our scientific and technical personnel. To help protect our
rights, we plan to require all of our employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside our company and require
disclosure and in most cases assignment to us of their ideas, developments,
discoveries and inventions. There can be no assurance, however, that these
agreements will provide adequate protection for our trade secrets, know-how or
other proprietary information in the event of any unauthorized use or
disclosure.
8
<PAGE>
WE MAY FAIL TO HIRE, RETAIN AND INTEGRATE KEY PERSONNEL.
Our ability to successfully manage our growth will substantially depend
on our ability to attract and retain additional qualified management personnel.
Because of our extreme cash shortage, our ability to attract or retain qualified
personnel has been hindered. There is significant competition for qualified
personnel, and there can be no assurance that we will be successful in
recruiting, retaining or training the management personnel we require.
FUTURE SALES BY OUR SHAREHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make if more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 5,185,197 shares of our common stock that will be outstanding after this
offering (assuming no conversion of outstanding indebtedness and no exercise of
outstanding options, warrants or the over-allotment option), 2,751,924 shares
will be freely tradable without restriction, including all of the shares sold in
this offering. The remaining 2,433,273 shares of common stock held by existing
shareholders are "restricted securities" and may be resold in the public market
only if registered or pursuant to an exemption from registration. Of that number
of shares, 1,252,830 shares of common stock (excluding 300,677 shares of common
stock issuable upon the exercise of options and warrants) are subject to certain
lock-up agreements. These agreements prohibit the sale of shares of common stock
by certain officers, directors and other shareholders for a period of six months
after the date of this prospectus without the prior written consent of the
underwriter. After the six month period, and if the market price of the common
stock trades above 125% of the price in this offering for five consecutive
trading days, such officers, directors and other shareholders together may
freely sell their shares of common stock without restriction. If the market
price of the common stock does not trade above 125% of the offering price for
five consecutive trading days, then such officers, directors and other
shareholders may freely sell their shares of common stock after one year after
the date of this prospectus. Upon expiration of the lock-up agreements, an
additional 2,433,273 shares will become eligible for sale, subject to the
provisions of Rule 144. Of that total, 1,208,273 shares will be eligible for
resale under Rule 144 following this offering. The remaining 1,225,000 shares
will have been held for less than one year and will become eligible for sale at
various dates as the one-year holding period under Rule 144 is satisfied.
We have issued options to purchase an aggregate of 782,675 shares of
our common stock at exercise prices ranging from $5.00 to $12.00 per share
(including the over-allotment option), warrants to purchase 2,677,144 shares of
our common stock at an exercise price ranging from $.01 to $9.30 per share and
indebtedness convertible into 671,667 shares of common stock at prices of $3.00
and $5.00 per share. Holders of warrants to purchase shares are entitled to
certain registration rights with respect to such shares. Upon registration, such
shares may be sold in the market without limitation. Sales of such shares may
decrease the market price for our common stock. See "Underwriting." We have
filed a registration statement on Form S-8 with respect to the shares of our
common stock issuable upon exercise of options under the 1996 Stock Incentive
Plan. The 1996 Plan authorizes the issuance of options relating to 300,000
shares of our common stock. Currently, there are 260,029 options that have been
issued under the 1996 Plan, all of which are vested. See "Management - 1996
Stock Incentive Plan." As result of such registration statement, the holders of
such options may, subject to vesting requirements, exercise and sell their
shares immediately without restriction, except affiliates who are subject to
certain volume limitations and manner of sale requirements of Rule 144. We also
have options to purchase 400,000 shares of common stock authorized under our
1999 Stock Option Plan. See "Management - 1999 Stock Option Plan." Currently,
there are 312,646 options that have been issued under the 1999 Plan, of which
106,312 are vested. No registration statement is in effect for the 1999 Stock
Option Plan.
OUR MANAGEMENT HAS BROAD DISCRETION IN THE USE OF PROCEEDS RECEIVED FROM THIS
OFFERING.
We presently intend to use the net proceeds of this offering for the
purposes set forth in "Use of Proceeds." However, management of our company has
broad discretion to adjust the application and allocation of the net proceeds of
this offering in order to address different circumstances and opportunities. As
a result, our success will be substantially dependent upon the discretion and
judgment of our management with respect to the application and allocation of the
net proceeds of this offering.
9
<PAGE>
THERE ARE RISKS SPECIFICALLY RELATED TO THE PURCHASE OF OUR STOCK IN THIS
OFFERING.
Our stock price could be extremely volatile, as is typical of
biotechnology companies. You may not be able to resell your shares of common
stock at or above the public offering price due to the possible volatility of
our common stock after this offering. The stock market has experienced
significant price and volume fluctuations, and the market prices of securities
of technology companies, particularly biotechnology companies, have been highly
volatile. Some factors contributing to these price and volume fluctuations
include:
o actual or anticipated variations in our quarterly operating
results;
o announcements of technological innovations or new products or
services by us or our competitors;
o changes in financial estimates by securities analysts;
o conditions or trends in biotechnology;
o changes in the economic performance or market valuations of other
biotechnology companies;
o announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or capital
commitments.
o additions or departures of key personnel;
o release of lock-up or other transfer restrictions on our
outstanding shares of common stock or sales of additional shares
of common stock; and
o potential litigation.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. The institution of such litigation against us
could result in substantial costs to us and a diversion of our management's
attention and resources.
WE DO NOT ANTICIPATE DISTRIBUTING ANY DIVIDENDS TO OUR SHAREHOLDERS.
It is unlikely that an investor in our stock will derive current income
from dividends resulting from ownership of our stock. This means that your
potential for economic gain from ownership of our stock depends on an
appreciation in the value of our stock and will only be realized upon a sale of
the stock at a price higher than your purchase price.
OUR CHARTER DOCUMENTS AND FLORIDA LAW CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY
MAKE IT MORE DIFFICULT TO ACQUIRE US.
Certain provisions in our charter documents and Florida law may have
anti-takeover effects, making it more difficult for a third party to acquire us,
even if a change in control would be beneficial to our shareholders.
10
<PAGE>
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from the
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
This filing contains forward-looking statements, including statements
regarding, among other things, (a) our projected sales and profitability, (b)
our company's growth strategies, (c) anticipated trends in our company's
industry, (d) our company's future financing plans, (e) our company's
anticipated needs for working capital and (f) benefits related to the
acquisition of DNA Sciences. These statements may be found under "Management's
Plan of Operation" and "Business," as well as in this prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under "Risk Factors" and matters described in
this prospectus generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this filing
will in fact occur. In addition to the information expressly required to be
included in this filing, we will provide such further material information, if
any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by our company from the sale of the
1,400,000 shares of our common stock sold in this offering (after deducting
estimated offering expenses payable by us) are estimated to be approximately
$8,727,000 and $10,097,250 if the over-allotment option is exercised in full.
For illustration purposes, we have assumed an offering price per share of
$7.50).
We intend to use the net proceeds of this offering for the following
purposes:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT(1) NET PROCEEDS(1)
------------- -------------------
<S> <C> <C>
o Expenditures for additional equipment and personnel to prepare for and $1,500,000 17.2%
to increase production capacity.
o Research and development activities and regulatory matters. $1,700,000 19.5%
o Expenditures for sales and marketing personnel, introducing new $1,627,000 18.6%
products, market research studies, marketing collateral materials,
trade show participation, public relations, and advertising expenses.
o Repayment of existing indebtedness.(2) $3,900,000 44.7%
</TABLE>
------------------
(1) Excluding over-allotment.
(2) This assumes that all of the convertible indebtedness (a total of
$2,125,000) will be repaid at the closing of this offering and that none of this
indebtedness will be converted into shares of common stock. If some or all of
the convertible indebtedness is converted into shares of common stock, then a
smaller portion of the net proceeds of this offering will be allocated to repay
indebtedness. Any proceeds not needed for the repayment of convertible
indebtedness will be used for working capital.
The amount and timing of the above expenditures may vary significantly
depending upon numerous factors, including the progress of our research and
development programs, the timing and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent
claims, competing technological and market developments, payments received under
collaborative agreements, changes in collaborative research relationships, the
costs associated with potential commercialization of our products, including the
development of sales and marketing capabilities, the cost and availability of
third-party financing for capital expenditures and administrative and legal
expenses.
We believe that our available cash and existing sources of funding,
together with the proceeds of this offering and interest earned thereon, will be
adequate to maintain our current and planned operations for the next 15 months.
Until used, we intend to invest the net proceeds of this offering in
interest bearing, investment-grade securities. While the net proceeds are so
invested, the interest earned by us on such proceeds will be limited by
available market rates. We intend to invest and use such proceeds so as not to
be considered an "investment company" under the Investment Company Act of 1940.
12
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of our company
(i) as of September 30, 2000; (ii) on a pro forma basis after giving effect to
the receipt of net proceeds of $8,727,000 (for illustration purposes we have
assumed an offering price of $7.50 per share) from the sale of 1,400,000 shares
of common stock in this offering after deducting underwriting discounts and
commissions and estimated offering expenses; and (iii) on a pro forma basis as
adjusted to give effect to the receipt of net proceeds in this offering and the
repayment of approximately $3.9 million of indebtedness (including accrued
interest of $300,000) which will be repaid upon the closing of this offering:
<TABLE>
SEPTEMBER 30, 2000
--------------------------------------------------------------
PRO FORMA AS
<CAPTION>
ACTUAL PRO FORMA(1) ADJUSTED(2)(3)
------------- --------------- -----------------
<S> <C> <C> <C>
Current portion of long-term debt $ 3,613,500 $ 3,613,500 $ 0
Stockholders' equity or (capital deficit):
Common stock, $0.001 par value; 10,000,000 shares authorized,
3,737,843 shares issued and outstanding and 5,137,843 shares
issued and outstanding (pro forma)(1) 3,738 5,138 5,138
Additional paid-in capital 10,987,198 21,512,798 21,512,798
Deficit accumulated during the development stage (14,236,186) (16,036,186) (16,036,186)
------------ ------------ ------------
Total stockholders' equity or (capital deficit) (3,245,250) 5,481,750 5,481,750
------------ ------------ ------------
Total capitalization $ 368,250 9,095,250 5,481,750
============ ============ ============
</TABLE>
---------------------
(1) Adjusted to reflect the beneficial conversion feature pertaining to $1.8
million of notes payable at a conversion rate of $3.00 per share.
(2) This column includes the issuance of warrants to purchase 775,000 shares
of common stock that our company is obligated to issue upon the repayment
of certain indebtedness (a total of $1,238,500, plus accrued interest), up
to thirty days after the closing of an equity financing. This column
excludes (a) 671,667 shares of common stock issuable upon the conversion
of certain indebtedness into equity and (b) outstanding options and
warrants to purchase 782,675 and 2,057,144 shares of our common stock,
respectively, including (i) warrants to purchase 1,233,294 shares of our
common stock to be issued if certain indebtedness is converted into shares
of common stock, (ii) warrants to purchase 140,000 shares of our common
stock to be issued to the underwriter in connection with this offering,
(iii) warrants to purchase 683,850 shares of our common stock outstanding
as of the date hereof, (iv) options to purchase 572,675 shares of our
common stock outstanding under employee benefit plans and (v) the
over-allotment option to purchase 210,000 shares of our common stock. See
"Description of Securities."
(3) Adjusted to reflect the repayment of $3.9 million of debt (which includes
accrued interest of $300,000) due upon the closing of this offering and
the write-off of related deferred loan costs.
13
<PAGE>
DILUTION
The net tangible book value of our company as of September 30, 2000 was
$(3,437,497) or $(0.92) per share of common stock. Net tangible book value per
share is determined by dividing the tangible book value of our company (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. After giving effect to the sale by us of the 1,400,000 shares
of common stock in this offering at an assumed offering price of $7.50 per
share, less underwriting discounts and commissions and other estimated offering
expenses and less the repayment of $3.9 million, including interest, due upon
the closing of this offering (but assuming (i) none of the indebtedness is
converted into equity and (ii) none of the options or warrants are exercised),
our net tangible book value as of September 30, 2000 would have been $5,289,503
or $1.02 per share. This represents an immediate increase in net tangible book
value to existing shareholders of $1.94 per share and an immediate dilution to
new shareholders of $6.48 per share, or 86.0%. The following table illustrates
the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share $ 7.50
Net tangible book value per share before this offering $ (0.92)
Increase attributable to new investors $ 1.94
Net tangible book value per share after this offering ------------ $ 1.02
-----------
Dilution per share to new shareholders $ 6.48
===========
</TABLE>
As of the date hereof, the following table shows the difference between
existing shareholders and new shareholders with respect to the number of shares
of common stock purchased in this offering, the total consideration paid and the
average price paid per share. The table assumes that the public offering price
will be $7.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,785,197 73.0% $8,427,829 44.5% $2.23
New Investors 1,400,000 27.0% 10,500,000 55.5% $7.50
------------- ------------ ------------ ------------
Total 5,185,197 100.0% $18,927,829 100.0%
============= ============ ============ ============
</TABLE>
As of the date hereof, the foregoing tables assume no conversion of
certain indebtedness into equity or exercise of outstanding options and
warrants. To the extent that any of the shares of common stock are issued upon
conversion of debt to equity or upon exercise of any of the options and
warrants, there will be further dilution to new investors. See "Capitalization,"
"Description of Securities" and Notes to Consolidated Financial Statements.
14
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS.
PLAN OF OPERATION
We specialize in the development of molecular systems in the area of
disease management and risk assessment. We plan to develop and manufacture these
tests for sale to the pharmaceutical and healthcare industries. We are currently
selling the EPIDNA and the EASYID product lines and are developing several other
products of these lines. Through our acquisition of DNA Sciences, Inc., we
acquired the technology used in the DNAtect and DNAMAX products. These products
have been incorporated into our EASYID and EPIDNA product lines.
ACQUISITION OF DNA SCIENCES, INC.
On January 17, 2000, we acquired all of the outstanding capital stock
of DNA Sciences, Inc., a California corporation. In consideration for the shares
of DNA Sciences, we issued the former shareholders of DNA Sciences, Inc. a total
450,000 shares of our common stock. The shareholders of DNA Sciences have the
ability to nominate one director to our Board of Directors. Subsequent to the
acquisition, DNA Sciences changed its name to Genetic Vectors of California,
Inc. In the past, DNA Sciences, Inc.'s operations have been insignificant.
FINANCIAL RESOURCES AND CASH REQUIREMENTS
We are dependent on external capital to finance our operations, and
have not generated a significant amount of cash from operations. As of September
30, 2000, we had cash and cash equivalents of $434,658. Our available cash is
projected to last no longer than December 31, 2000. We will need to raise
additional capital to continue operations beyond December 31, 2000. This plan of
operation assumes that we will be successful in raising additional capital. Our
failure to raise additional capital will, among other things, cause deviations
from the plan of operation described herein and would likely result in our need
to curtail or cease operations.
Since November 1, 1998, we have borrowed $3.6 million to fund our
operations. We are in default on some of these loans for failing to pay
principal and interest when due, a total of $250,000, plus interest. See "Risk
Factors - We are in default of some of our outstanding indebtedness and may be
unable to repay these loans."
CONTINGENT NON-CASH CHARGES
Our company is obligated to issue additional warrants to purchase a
total of 2,008,294 shares of common stock upon the occurrence of certain
contingent events. In particular, we are obligated to issue additional warrants
to purchase 775,000 shares of our common stock upon the full repayment of
certain loans or our successful consummation of a financing in an amount equal
to or greater than $1.5 million. In addition, if the holders elect to convert
certain indebtedness into shares of common stock within a specified period, then
the holders would be entitled to additional warrants to purchase (a) 616,647
shares of common stock at an exercise price of $6.00 per share and (b) 616,647
shares of common stock at an exercise price of $7.10 per share. If the holders
do not elect to so convert, then the holders would receive warrants to purchase
370,000 shares of common stock at an exercise price of $6.60 per share and
warrants to purchase 370,000 shares of common stock at an exercise price of
$8.00 per share. The issuance of these contingent or any other warrants will
result in a significant non-cash charge to our company in the period in which
these additional warrants are issued.
RESEARCH AND DEVELOPMENT
We will continue our product research and development efforts and
continue to implement what we believe to be a feasible plan for product
development. We intend to complete the build-out of research and development and
production areas in our Florida facility. For the twelve-month period following
our receipt of significant additional capital, our activities will focus on the
following:
15
<PAGE>
o Continued enhancement of our EASYID Juvenile Diabetes Risk
Assessment System.
o Development of new EASYID detection systems in collaboration with
the Norwegian Institute of Public Health.
o Continuation of EASYID DNA probe product development for new
diagnostic uses, drug discovery and certain industrial
applications.
o Continued research and development of EASYID products for the
detection of genes involved in cardiovascular diseases.
o Continued research in applications of our EPIDNA nucleic acid
labeling technology.
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES
We anticipate the need to purchase and/or lease various equipment
valued at approximately $500,000. Equipment will be used primarily to
manufacture the EASYID line of products currently being marketed and develop
additional products.
CHANGES IN THE NUMBER OF EMPLOYEES
We currently have eleven employees. If we are successful in raising
significant new capital, then we anticipate hiring one new employee in 2000 and
twenty-two new employees in 2001 in connection with our research and development
and product development, administration, sales and marketing. We believe that
these personnel will be adequate to accomplish the tasks set forth in our plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SEPTEMBER 30, 1999.
Our company remains largely a development stage company. We generated revenues
of $96,132 during the nine months ended September 30, 2000 compared to $72,620
during the nine months ended September 30, 1999. During these same periods, our
cost of sales was $25,293 and $48,041, respectively. Our company's expenditures
far exceed our revenues.
Research and development expenses increased from $398,969 in the nine
months ended September 30, 2000 to $620,188 in the same period in the current
year. This $221,219 increase is largely attributable to the research and
development costs associated with our San Diego facility, which was closed on
June 30, 2000 and whose operations were transferred to Miami, Florida.
General and administrative expenses increased from $924,678 in the nine
months ended September 30, 1999 to $1,692,731 in the nine-month period ended
September 30, 2000. This $768,053 increase is primarily attributable to
increases in (i) salaries and benefits of $165,000, (ii) professional fees of
$373,000, (iii) consulting fees of $127,000 and (iv) travel and lodging expenses
of $50,000.
Amortization of deferred loan costs increased to $858,088 in the
nine-month period ended September 30, 2000 from $312,280 in the same period in
the prior year. The increase was directly related to our increased borrowing,
and granting of related warrants, during the nine months ended September 30,
2000. These warrants were valued based on the Black-Scholes Option Pricing Model
and resulted in $858,088 of amortization during the nine months ended September
30, 2000.
Interest expense for the nine months ended September 30, 2000 increased
by $281,475, representing accrued interest on various loans received by us in
the latter part of 1999 and during 2000. As of September 30, 2000, we had
approximately $3.6 million, plus accrued interest, in outstanding notes payable.
During the comparable period in the prior year, our outstanding notes payable
were negligible.
Expense in connection with issuance of common stock for loan extension
increased by $1,820,000 in the nine months ended September 30, 2000 over the
comparable period in 1999. During this period, certain lenders agreed to extend
the maturity date of notes payable to December 31, 2000 in exchange for the
issuance of 280,000 shares of our common stock. On the date of issuance, our
common stock traded at approximately $6.50. Our company recorded an expense of
$1,820,000 upon issuance of such common stock.
16
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998. Revenues aggregated
approximately $120,000 and $115,000 for the years ended December 31,1999 and
1998, respectively. Theses increases are discussed below, and are net of $36,000
of grant income that was earned and completed in 1998.
Revenues from the Picogram Assay sales aggregated approximately $45,000
and $11,000 for the years ended December 31,1999 and 1998, respectively. This
increase is attributable to the company's reintroduction of the Picogram Assay
Kit in the later part of 1998.
Revenues from DNA Sciences, Inc. sales aggregated approximately $75,000
and $68,000 for the years ended December 31,1999 and 1998, respectively. This
increase is attributable to the Company's increased selling efforts.
Cost of sales aggregated approximately $41,000 and $22,000 for the
years ended December 31,1999 and 1998, respectively. This increase is
attributable to the company's increased selling efforts and substantially
relates to the activities of DNA Sciences, Inc.
Research and development expenses for the fiscal year ended December
31, 1999 decreased by $419,000 to $566,000 as compared with the prior year. This
decrease is largely attributable to cutbacks due to our shortage of available
funds.
Selling, general and administrative expenses decreased by $229,000 to
$1.4 million in the year ended December 31, 1999 over the comparable period in
1998. This decrease is primarily attributable to a $332,500 non-cash charge,
resulting from the valuation of 50,000 warrants issued to a financial consultant
in 1998.
Depreciation and amortization expense was in line with the prior year.
Amortization of deferred loan costs increased by approximately
$730,000. The increase was directly related to us borrowing approximately $1
million in 1999 and $150,000 in 1998 and granting approximately 619,000 and
30,000 warrants, respectively, to the lenders. These warrants were valued based
on the Black-Scholes Option Pricing Model and resulted in approximately $1
million of deferred loan costs, of which approximately $748,000 and $19,000,
respectively, were amortized in our statements of operations for 1999 and 1998.
Interest expense for the fiscal year ended December 31, 1999 was
$129,000, representing the interest on various loans received by us. During
1999, we borrowed $1 million. This compares to interest income of $66,000 in the
comparable period in the prior year. This represented interest earned on
certificates of deposit and money market accounts in 1998, offset by interest
expense on loans outstanding during the latter part of 1998.
LIQUIDITY AND CAPITAL RESOURCES.
NINE MONTHS ENDED SEPTEMBER 30, 2000. The net cash used by us in
operating activities was $2.1 million in the nine-month period ended September
30, 2000 compared to $1.0 million in the comparable period in the prior year.
This increase was largely attributable to increases in general and
administrative and research and development expenses.
Our net cash provided by financing activities was $2.5 million during
the nine months ended September 30, 2000, consisting mainly of proceeds from the
sale of unregistered securities, including common stock and debentures.
We have experienced extreme cash shortages since the end of November
1998 through the date of this filing. As of September 30, 2000, we had $435,000
of cash. Substantially all of these monies are expected to be spent prior to
December 31, 2000. We are, and after the date of this filing will be, in default
of certain indebtedness with an original principal amount of $250,000.
Additional indebtedness with an original principal amount $3.4 million will
become due and payable on December 31, 2000. Our company does not have
sufficient funds to repay these loans.
As of September 30, 2000, we had a capital deficit of $3,245,250. We
have entered into a non-binding letter of intent with an underwriter to sell
1,400,000 shares of our common stock in a firm-commitment public offering,
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although no assurances can be given that such an offering will take place or be
successful. Our inability to raise significant capital in such pubic offering
will jeopardize our ability to continue operations.
YEAR ENDED DECEMBER 31, 1999. The net cash used by us in operating
activities aggregated $1.6 million in the year ended December 31, 1999, as
compared with $2.1 million used in 1998. This was largely attributable to
operating expenses and research and development activities, and increases in
accounts payable. Our net cash provided in financing activities aggregated $1.7
million during the year ended December 31, 1999, consisting mainly of proceeds
from the sale of unregistered securities and loan transactions. As of December
31, 1999, we had a capital deficit of $456,000.
GOING CONCERN OPINION. Our independent public accountants have added an
explanatory paragraph to their audit opinion issued in connection with the 1999
and 1998 financial statements which states that our company's dependence on
outside financing and our losses since inception raise substantial doubt about
our ability to continue as a going concern.
IMPACT OF INFLATION. Although inflation has slowed in recent years, it
is still a factor in the United States economy and we continue to seek ways to
mitigate its impact. To the extent permitted by competition, we intend to pass
increased costs on to our customers by increasing sales prices over time. In
addition, we place all of our major supplier purchases out to bid.
NEW FASB PRONOUNCEMENTS. In September 2000, the Financial Accounting
Standards Board issued Statement No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement replaces FASB #125, of the same name. It revises the standards for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but carries over most of the provisions of FASB
#125 without reconsideration. FASB #140 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. The statement is effective for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. This statement is to
be applied prospectively with certain exceptions. Other than those exceptions,
earlier or retroactive application of its accounting provisions is not
permitted. The adoption of the statement is not expected to have a significant
impact on the Company.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, An Interpretation of APB Opinion No. 25. The company adopted the
Interpretation on July 1, 2000. The Interpretation requires, among other things,
that stock options that have been modified be accounted for as variable.
Management anticipates that the implementation of FASB Interpretation No. 44
will not have a material effect on the company's financial position or results
of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). In June 2000, the SEC
issued an amendment to SAB 101 which delayed the effective date for registrants
with fiscal years that begin after December 15, 1999. The effective date will be
for the quarter ending December 31, 2000. SAB 101 is not expected to have a
material impact on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued FASB 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, as amended by FAS 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, we have not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, we do not expect
adoption of the new standard on January 1, 2001 to affect our financial
statements.
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BUSINESS
THE COMPANY
Dr. Mead McCabe (the Chairman of the Board of Directors) founded our
company in 1991 based on a new nucleic acid labeling and detection technology.
Our first product, EPIDNA, was introduced in 1997. Today we are a biotechnology
company that specializes in the discovery of genetic patterns from which we
intend to develop systems to determine disease risk, drug resistance, and
therapeutic response. We intend to market our products and services to the
healthcare and pharmaceutical industries. Recently, we acquired DNA Sciences,
Inc., a San Diego biotechnology company with products and technology that we
believe enhance our current ability to detect genetic differences.
Our products include the EPIDNA and EASYID product lines. We
reintroduced the EPIDNA product line to the marketplace in the third quarter of
1998. To date, this product has produced limited sales in the marketplace. In
addition, we recently introduced the EASYID product line and we are also using
it as a product platform for development of new technologies.
We formed several collaborations with academic and industrial
institutions for the discovery of new genes involved in disease management.
These institutions include the University of Miami, the United States Department
of Agriculture, and the Norwegian Institute of Public Health. The intent of
these collaborations is the discovery of new genetic sequences that our company
intends to develop and manufacture as systems for sale to the healthcare and
pharmaceutical industries. We also intend to patent new genetic sequences and
patterns and license these to pharmaceutical companies for use in drug
development. In addition, we intend to form collaborations with equipment
companies to automate the company's products for use in high throughput
applications.
Also, we recently formed a collaboration with a leading wine producer
to develop a high throughput screening procedure for spoilage microorganisms in
wine. The intent of this collaboration is to develop a screening system that
will enable the producer to dramatically increase quality control accuracy and
throughput, as well as reduce costs associated with warehousing entire lots of
wine awaiting quality control results. If successful, we believe this
collaboration will demonstrate the broad applicability of our technology.
OUR PRODUCTS
EASYID PRODUCT LINE
The subtle differences in DNA structure are the basis for numerous
genetic diseases, including diabetes, cancer and heart disease. Our efforts in
gene discovery have resulted in the development of a product line, EASYID, that
detects these subtle differences.
The EASYID product line comprises a universal format that uses standard
laboratory equipment and techniques to achieve results quickly. This universal
format enables us to adapt our systems for any genetic target of interest.
To date, the EASYID line has focused on three areas of development:
1. juvenile diabetes predisposition assessment;
2. genes involved in cardiovascular disease; and
3. yeast detection and genotyping.
JUVENILE DIABETES. Scientific reports have linked the onset of juvenile
diabetes (IDDM1) to a particular DNA fingerprint (genotype) within a region of
the human genome. We have developed a system for the rapid detection of this
high-risk genotype. The Norwegian Institute of Public Health is currently using
our system to test for genetic predisposition to juvenile diabetes in a
population-based study.
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CARDIOVASCULAR DISEASES. Cardiovascular disease is among the leading
causes of death in the United States. Scientific publications have recently
reported links between naturally occurring genetic variations and the onset of
cardiovascular disease. Publications have also described the influence of
genetic differences in response to common therapeutics. One of the most dramatic
examples of this is a polymorphic variation in the CETP gene, which influences
response to the statins, a class of widely prescribed cholesterol-lowering
medications.
Through our collaborations, we are attempting to develop systems to
discover and identify genetic differences that result in differential
therapeutic response. Our first product in development is a system designed to
detect the CETP genotypes.
Our future development will focus on other genes related to cholesterol
and heart disease. We plan to collect genetic information from over 2,000 heart
patients enrolled in a collaborative study. We will use this information to
develop new systems designed to predict clinical outcomes, disease progression,
and therapeutic response. We intend to file patent applications on genetic
patterns we discover that are useful as disease markers or for prediction of
therapeutic response.
MICROBIAL IDENTIFICATION. We are developing the EASYID technology for
the rapid identification of microbes of commercial, research, and clinical
interest. The EASYID technology is based on a series of small DNA probes that
are designed to discriminate subtle genetic differences. The product line
originates from collaboration with both the University of Miami and the United
States Department of Agriculture. This collaboration has resulted in a patent
application for the genetic sequences of CRYPTOCOCCUS NEOFORMANS, a pathogenic
yeast responsible for deaths in AIDS infected patients and other patients with
suppressed immune systems. We intend to commercialize these sequences using our
EASYID technology and market to healthcare institutions.
Yeast have emerged as major pathogens in the growing population of
patients with weakened or suppressed immune systems. These patients include
transplant recipients and patients with cancer, leukemia or AIDS. The mortality
rates for systemic yeast infection are high, primarily a reflection of the
absence of adequate and timely diagnostic tests. Rapid, sensitive and dependable
tests for pathogenic yeast are of critical importance for the prompt treatment
of disease. We have developed a rapid molecular test that identifies yeast
species, strains or genotypes in a few hours.
A commercial antibody-based test for yeast is available, but costs
about $15 per test. Other available tests are based upon biochemical and
physiological characteristics and require days to weeks to perform. We believe
that our EASYID products, based upon DNA probe hybridization, will allow
accurate identification of yeast species and strains, at a lower cost than
existing products and much more rapidly than conventional techniques.
EPIDNA PRODUCT LINE
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 nonradioactive labels on probes has become an
attractive alternative because of the dangers associated with radioactivity and
the expense of disposing of radioactive waste. Chemiluminescent and florescent
detection methods for nonradioactive probes provide sensitivity rivaling that of
radioactive probes, without the risks and expenses of radioactivity. The
patented 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. We believe this process is superior 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. We
believe that scaling the reaction up to production levels (milligram 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 our technology provides the basis for the
Picogram Assay, which is targeted to process development and monitoring, and to
quality control laboratories.
THE PICOGRAM ASSAY. This assay combines chemical and immunochemical
procedures to measure trace amounts of DNA. It is intended for process
monitoring and validation of final product purity. 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. This recommendation
creates a niche in the biotechnology industry market into which we market the
Picogram Assay kit for the measurement of DNA in biopharmaceuticals.
The assay is relatively easy to perform, measures DNA in a range of one
to one hundred picograms, and can detect small fragments of DNA. It does not
require the purchase of major equipment, since it utilizes a standard microtiter
plate reader.
NUCLEIC ACID PROBE LABELING AND DETECTION KITS. DNA technology is
rapidly expanding in the life sciences in areas that can benefit from genetic
analysis or the manipulation of genetic material. Nucleic acid probes are
routinely used in many of these applications to identify specific genes and
separate them from all other genes. We believe that the EPIDNA labeling kits
will provide the components for the preparation of DNA or ribonucleic acid
("RNA") probes for the detection of specific nucleic acids. We intend to develop
kits specialized for the attachment of compounds as diverse as biotin,
digoxigenin, enzymes and fluorescent compounds and chelators using the labeling
procedure.
DNAMAX PROTEIN REMOVAL KITS. A kit designed to remove high
concentrations of protein from biopharmaceuticals was developed by our company
to be used to separate trace DNA from proteins in samples before testing with
the EPIDNA Picogram Assay. We believe the DNAMAX kit provides a superior method
for recovering picogram amounts of DNA from very concentrated protein solutions.
We believe this kit will be useful for basic research uses where small amounts
of DNA must be extracted from samples and tested by techniques such as the
polymerase chain reaction. A utility patent application covering the DNAMAX
technology has been filed with the United States Patent and Trademark Office and
a PCT application has been filed.
MARKETING AND SALES
EASYID GENOMICS SYSTEMS. Since our scientific collaborators are also
large clinical sites that are anticipated to order a high volume of our
products, we do not anticipate a need for a large direct marketing or sales
force in 2000. Our marketing efforts will primarily consist of designing,
installing, and servicing our genomic-based systems at our collaborative sites.
Our scientific staff will act as technical consultants to these locations.
We anticipate that our gene discovery program, combined with our
scientific collaborations, will also result in technology licensing
opportunities to large clinical institutions and pharmaceutical companies. Our
plan includes licensing the use of our proprietary genetic sequences to these
institutions for use in pharmaceutical development and direct patient care.
Our current projects may result in the development of new technologies,
as well as the discoveries of important genetic sequence patterns. It may become
desirable to form a joint venture with our scientific collaborators to more
effectively pursue the commercialization of these new technologies.
We plan to market our products in 2001 through the use of domestic and
international distributors. Distributors will have the opportunity to sell
certain products on a limited, non-exclusive basis. Other products may become
available for private label or an exclusive license in certain cases. In
addition, we plan to utilize electronic commerce to market and sell all of our
products.
Subsequently, we intend to introduce and market the yeast analysis
products developed by our EASYID product research and development activities.
This is a long-term development activity to formulate products that we believe
will have quality assurance applications in the food and beverage industry.
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EPIDNA QUALITY SYSTEMS. We began targeting the biopharmaceutical
quality assurance market during the second half of 1998. Since this market
comprises relatively few companies, we have been using a direct sales approach.
We plan to supplement our direct sales efforts with the use of independent
distributors. Our marketing plan will target companies in the biopharmaceutical
industry and in the reference laboratories serving as quality assurance testing
sites for smaller biopharmaceutical companies. Our marketing and sales strategy
will be to establish direct contact with specific individuals within each target
company or reference laboratory. We intend to place limited advertising in major
trade journals such as SCIENCE, BIOTECHNIQUES and BIOPHARM to inform potential
customers of the existence and potential benefit of the Picogram Assay. We
intend to have representatives attend major national and international industry
trade shows to gain direct access to potential customers and to establish
overseas distributors to reach international customers. We also intend to
present our product to a variety of potential customers via the Internet. We
currently have no sales force, and there can be no assurance that a sales force
can be hired, or, if hired, that such sales force will be able to successfully
sell our products.
MANUFACTURING AND SUPPLIERS
Our manufacturing and research and development activities are conducted
in our facility in Miami. We intend to complete a build-out of research and
development and production areas in our Florida facility and we believe that,
after such build-out, this floor space will be adequate for our manufacturing
and research and development facilities for the foreseeable future.
Certain key components of our Picogram Assay and DNAMAX products 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. We
are utilizing contract manufacturers to manufacture required reagents for our
Picogram Assay. 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. One of the key components of the Picogram Assay is available only
from a single supplier.
OUR ACQUISITION OF DNA SCIENCES, INC.
On January 17, 2000, we acquired DNA Sciences, Inc. In the transaction,
we issued 450,000 shares of our common stock to the shareholders of DNA
Sciences, Inc. in exchange for all of their shares of DNA Sciences, Inc. The
shareholders of DNA Sciences, Inc. also have the ability to nominate one
director to our Board of Directors and have nominated Eric Wilkinson to the
Board. On February 16, 2000, DNA Sciences, Inc.'s name was changed to Genetic
Vectors of California, Inc.
Founded in 1999, DNA Sciences, Inc. was a development stage
biotechnology company that intended to specialize in the development of genetic
systems for medical and industrial markets. DNA Sciences, Inc.'s initial target
market was the DNA probe market, which includes tissue typing, infectious
disease detection and quantification and genetic predisposition testing.
Acquisitions, including the acquisition of Genetic Vectors of
California, involve a number of risks that could adversely affect our operating
results, including: (i) the diversion of management's attention; (ii) the
difficulty of assimilation of the operations and personnel of the acquired
companies; (iii) the amortization of acquired intangible assets; (iv) the
assumption of potential liabilities, disclosed or undisclosed, associated with
the businesses acquired, which may exceed the amount of indemnification
available from the seller, if any; (v) the incorrect assessment of the value and
potential profitability of acquisition candidates; (vi) the risk that the
financial and accounting systems utilized by the businesses acquired will not
meet our standards; and (vii) the inability to attract and retain qualified
local management. There can be no assurance that we will be able to consummate
any future acquisitions on satisfactory terms, if at all, that adequate
financing will be available on terms acceptable to us, that any acquired
operations, including the acquisition of Genetic Vectors of California, will be
successfully integrated or that such operations will ultimately have a positive
impact on our business, financial condition and results of operations. Any
acquisition may result in potentially dilutive issuances of equity securities,
the incurring of debt and contingent liabilities, and amortization expense
related to intangible assets acquired, any of which could have a material
adverse effect on our business, results of operations or financial condition. In
addition, acquired businesses may experience operating losses.
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COMPETITION
The biotechnology industry is subject to intense competition. Our
competitors in the United States and internationally are numerous and include,
among others, diagnostics, health care, pharmaceutical and biotechnology
companies, universities and other research institutions, the United
States-funded Human Genome Project and other government-sponsored entities.
Additionally, other companies, including large biotechnology companies, may
enter our 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 us, which would render our products noncompetitive or
obsolete. Moreover, many of our existing and potential competitors have
substantially greater financial, marketing, sales, distribution and
technological resources than us. Such existing and potential competitors may
also enjoy substantial advantages over us 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 we will be
able to compete successfully against current or future competitors or that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
One area of our business lies in the labeling and detection of nucleic
acids using our technology. The market that we intend to serve includes tests
for quality control of biopharmaceutical drug production. In addition, we intend
to market our products to the life science research community. These diverse
markets result in a wide variety of competitive situations.
Research in the field of disease predisposing genes, genetic markers
and microbial identification is intense and highly competitive. Genetic research
is characterized by rapid technological change. Our competitors in the United
States and abroad are numerous and include, among others, major pharmaceutical
and diagnostic companies, specialized biotechnology firms, universities and
other research institutions (including those receiving funding from the Human
Genome Project). Many of our potential competitors have considerably greater
financial, technical, marketing and other resources than us. These greater
resources may allow our competitors to discover important genes or genetic
markers before us. If we do not discover disease predisposing genes or genetic
markers associated with increased disease severity, characterize their function,
develop susceptibility tests and related information services based on such
discoveries, obtain regulatory and other approvals, if needed, and launch such
services or products before competitors, then our revenues and earnings will be
reduced or eliminated. In addition, any of the susceptibility tests that we may
develop, including our EASYID products could be made obsolete by less expensive
or more effective tests or methods that may be developed in the future. We
expect competition to intensify in our industry as technical advances are made
and become more widely known.
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
laboratories. We believe 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, we believe that these facilities also
represent potential customers for our products.
NUCLEIC ACID LABELING AND DNA DETECTION KITS. The market served by
nucleic acid labeling and detection reagents is the molecular biology research
market. There are at least 50 companies that are primarily identified with this
market. Of these, several offer nucleic acid labeling and detection kits. In the
DNA detection area, we know of several vendors that provide reagents for
detecting DNA.
We believe that our products will lend themselves to low cost
manufacturing of DNA labeling and detection products on a large-scale basis. We
also believe our technology can be used to produce reagents and test kits at a
quality equivalent to or better than our direct competitors. There can be no
assurance that this large-scale development or quality level will occur.
GOVERNMENTAL REGULATION
We may, in the future, endeavor to partner with pharmaceutical
companies in the area of drug development. Any drug products developed by us or
our future collaborative partners, prior to marketing in the United States,
would be required to undergo an extensive regulatory approval process by the
FDA. The regulatory process, which includes preclinical testing and clinical
trials of each therapeutic product in order to establish its safety and
efficacy, can take many years and requires the expenditure of substantial
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resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations that could delay, limit or prevent
regulatory agency approval. In addition, delays or rejections may be encountered
during the period of therapeutic development, including delays during the period
of review of any application. Delays in obtaining regulatory approvals could
adversely affect the marketing of any therapeutics developed by us or our
collaborative partners, impose costly procedures upon us and our collaborative
partners' activities, diminish any competitive advantages that we or our
collaborative partners may attain and adversely affect our ability to receive
royalties. Once regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which it may be marketed. Further,
even if such regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. The discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturer. Such restriction could include withdrawal of the
product from the market.
EMPLOYEES
We have eleven employees, three of whom are executive officers and all
of whom are full-time employees. None of our employees are covered by a
collective bargaining agreement and we believe our employee relations are
satisfactory.
PROPERTIES
We currently lease approximately 14,000 square feet of office and
laboratory 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
and the property is in good condition. Effective June 30, 2000, we no longer
lease space in California.
INSURANCE
We maintain product liability insurance for some of our products with
limits of $1 million per occurrence and $2 million in the aggregate per year. We
also maintain a key man life insurance policy of $1 million on Mead McCabe, Sr.
We intend to obtain key man life insurance policies on Mead M. McCabe, Jr. and
Eric Wilkinson.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings.
INTELLECTUAL PROPERTY RIGHTS
We have acquired rights to make, use and sell certain products under
the patents referred to herein pursuant to a License Agreement dated September
7, 1990 (the "License Agreement") between ProVec, Inc., 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 ours. EpiDNA merged into us on
September 6, 1996.
The license granted under the License Agreement is worldwide and
exclusive (except for the rights of the Federal Government) providing us with
the right to manufacture, use and sell products utilizing the patents and patent
applications referred to herein. We have the obligation, at our own expense, to
prosecute and maintain patents in the name of or on behalf of the University of
Miami. Further, we are 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 our foreign
counterpart patents. The patent expires on July 22, 2013. The License Agreement
can be terminated by the University of Miami for material breaches by us.
Primary among such breaches are failure to file quarterly reports of sales,
nonpayment of royalties, failure to develop and sell products based on the
technology, cessation of sales for a period of three months and bankruptcy or
adjudication of insolvency. A two-month cure period is provided for correction
of breaches. If the License Agreement is terminated by the University of Miami,
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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 we 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, we would suffer a
material adverse effect on our 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 (the "NIH") has a nonexclusive, nontransferable,
irrevocable, paid-up worldwide license to practice the invention (35 U.S.C. 202
(c)(4)). Under this nonexclusive license, the NIH can use the technology in
federally-funded projects or it can, if provided in a treaty or agreement,
sublicense the technology to a foreign government or international organization.
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 us to suffer a material adverse effect on our
business, financial condition and viability. As described herein, we have
already developed products based on the technology and intend to continue the
commercialization of the technology.
At our expense, we applied on behalf of the University of Miami for
patent protection for part of the technology in the United States and other
countries. Patents have issued from the United States (Patent Numbers 5,593,829
and 5,656,742), New Zealand (246228G), Australia (671970G), EPO (0625985,
patents in 15 countries) and Germany (69220383).
We filed the Utility Patent Application "Method of Protein Removal"
with the United States Patent and Trademark Office on December 9, 1999, and a
PCT application of the same title on December 10, 1999, claiming a DNA
extraction method solely invented by us. We believe this method, sold under the
trademark DNAMax, is unique in its ability to recover trace amounts of DNA from
protein solutions in a form that can be measured with our EpiDNA Picogram Assay
or amplified with the polymerase chain reaction ("PCR").
RESEARCH AND DEVELOPMENT AGREEMENTS
We entered into a Research and Development Agreement with the
University of Miami on October 14, 1997. Under the agreement, the University
provides scientific expertise in the identification of yeast and conducts
sequencing of yeast genes for the development of sequence databases for the
identification of pathogenic yeast and yeast of commercial interest. We pay
$17,410 per month under this agreement to the University to provide salaries for
scientists and supplies for this work. The University provides sequencing
equipment and laboratory facilities. The terms of the agreement provide that
inventions that are jointly invented are jointly owned, while those invented
solely by the University or solely by us are owned by the inventing party. Under
the agreement, we have the right, at our expense, to file patents on inventions
jointly invented or invented solely by the University. We filed a Provisional
Patent Application, "Method of Identifying Pathogenic Yeast," on September 29,
1999 describing a gene sequence database and a method, based on DNA probes and
primers, for the identification of the pathogen CRYPTOCOCCUS NEOFORMANS and its
genotypes. We have the right of first refusal on any licensing agreement for 180
days after the filing of an Utility Patent Application. We filed a Utility
Patent Application with the U.S. Patent and Trademark Office and a PCT
Application covering the invention described in the Provisional Patent
Application `Method of Identifying Pathogenic Yeast".
We entered into a three-year Cooperative Research and Development
Agreement ("CRADA") with the Agricultural Research Services of the United States
Department of Agriculture (the "ARS") on June 1, 1998 (R&D Agreement No.
58-3K95-8-643, "Development of Arrayed Probes for Rapid Identification of
Yeast"). The ARS will provide expertise in the identification of yeast, provide
access to an existing database, sequence genes of yeast to construct new
sequence databases for the identification of pathogenic yeast and yeast of
commercial interest, and test and evaluate our products for yeast
identification. We are paying to the ARS $192,775 over the 3-year term of the
CRADA for a technician, supplies and a maintenance contract on the DNA
sequencer, in support of this sequencing effort. Under the terms of the CRADA,
we provide expertise on arrayed probe development, synthesis of probes and
detection of probes, and we agree to develop, market and sell or otherwise
commercialize products developed from the technology discovered. We agree to pay
the ARS a royalty of 2% of net sales of these products. The inventing party owns
25
<PAGE>
inventions made solely by us or solely by the ARS and joint inventions are owned
jointly. The ARS is granted a royalty-free, nonexclusive, worldwide,
irrevocable, nontransferable license on any subject invention solely owned by
us. The ARS has first option to prepare and prosecute patent applications on
subject inventions solely owned by ARS or jointly owned with us. This option may
be waived in whole or in part. We have the right of first refusal to an
exclusive license in subject inventions owned or co-owned by the ARS. We shall
own copyrightable material that we produce in whole or in part. We granted the
ARS a worldwide royalty-free and nonexclusive license to use such copyrightable
work for U.S. Government purposes. We believe this CRADA, in combination with
the agreement with the University of Miami, provides us with world-class
scientific expertise in yeast, as well as the ability to develop sequence
databases and products for the identification of pathogenic yeast and yeast of
commercial importance.
During 1999 and 1998, we spent $566,000 and $985,000, respectively, for
research and development activities.
26
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding our
directors and officers:
Our present directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mead M. McCabe, Sr., Ph.D. ...................... 63 Chairman of the Board of Directors
Mead M. McCabe, Jr. ............................. 34 CEO, Secretary, Chief Financial Officer and Director
Eric Wilkinson................................... 41 President and Director
Mark E. Burroughs ............................... 43 Director
Jack W. Fell, Ph.D. ............................. 67 Director
Michael C. Foley................................. 56 Director
</TABLE>
The following is a brief description of the background of the officers
and directors of our company.
MEAD M. MCCABE, SR., PH.D. is the founder of our company and the
inventor of the EpiDNA technology. Dr. McCabe is the Chairman of the Board of
Directors of our company. He holds a B.S. in Zoology from Pennsylvania State
University and a Ph.D. in Biology from the University of Miami. From 1972 to
1999, he was on the faculty of the University of Miami School of Medicine. Dr.
McCabe's research interests center on the molecular mechanisms of microbial
diseases and he has taught courses in molecular pathogenesis. Dr. McCabe served
four years on the Oral Biology and Medicine Study Section at the National
Institutes of Health and has consulted for the NIH on numerous other occasions
since 1976. He has been awarded several NIH research grants, including a
S.B.I.R. Phase I grant. Dr. McCabe has been Chairman since our inception. Dr.
McCabe is the father of Mead M. McCabe, Jr.
MEAD M. MCCABE, JR. is the Chief Executive Officer, Chief Financial
Officer and Secretary of our company and is responsible for the execution of our
company's corporate strategy. Mr. McCabe has a B.S. in International Business
from Auburn University and a dual M.B.A. in both Finance and International
Business from the University of Miami. Mr. McCabe joined us in September 1993.
Prior to that, Mr. McCabe was a financial consultant with Merrill Lynch for two
years. Mr. McCabe is the son of Dr. McCabe. Mr. McCabe became a director on
October 16, 1993.
ERIC WILKINSON has been the President of our company and President of
our wholly-owned subsidiary, Genetic Vectors of California, Inc. since January
17, 2000. Mr. Wilkinson is responsible for our company's daily operations,
including business development, sales and marketing and manufacturing. Mr.
Wilkinson became a director on January 18, 2000. He served as the President of
DNA Sciences, Inc. since its inception in March 1997. Between December 1995 and
February 1997, Mr. Wilkinson was President of Immune Complex Corporation, a
biotechnology company specializing in DNA diagnostics, drug metabolism, and
immunodiagnostics. Between June 1996 and February 1997, Mr. Wilkinson served as
Director of Chemistry with Synthetic Genetics, a biotechnology company involved
in the development of DNA diagnostic kits. Mr. Wilkinson received a B.S. in
Biology from the University of California in San Diego in 1982 and has served in
senior management and product development positions in several biotechnology
companies.
MARK E. BURROUGHS has served as a director since March 1995. He is
currently a principal of Burroughs Properties, L.L.C., a full service real
estate development, brokerage and asset management concern. He has been the
Managing Partner/Broker-In-Charge of Diversified Holdings International, Inc.,
an investment and venture capital firm with primary holdings in real estate,
management consulting, computer software and wine making since 1984. 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.
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<PAGE>
JACK W. FELL, PH.D. has served as a director since February 1997. He 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.
MICHAEL C. FOLEY has served as a director since January 1998. He is
currently a Senior Vice President and Director of Janney Montgomery Scott, Inc.,
an investment banking firm, where he has been employed since 1994. Prior to
these positions he served as President and Chief Executive Officer of Foley
Mufson Howe & Company, an investment banking firm, from 1992 to 1994. Mr. Foley
has worked in the securities industry for over twenty-five years. He is past
Chairman of the Securities Industry Association's Mid-Atlantic Division and past
President of the Bond Club of Philadelphia. Mr. Foley has a B.S. in Mechanical
Engineering from Villanova University and received a Masters Degree in Business
Administration from the University of Pittsburgh.
RESIGNATIONS OF DIRECTORS. Allyn L. Golub and James A. Joyce resigned
from our Board of Directors on December 4, 1998 and March 5, 1999, respectively.
We have filled one of these vacancies by nominating Eric Wilkinson. The
remaining vacancy has not been filled.
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS. Our executive officers
are elected annually by the Board of Directors and serve at the discretion of
the Board of Directors. Our directors are elected by the shareholders of our
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. We have never held a shareholder meeting.
PRIOR UNDERWRITER. Pursuant to an agreement with the underwriter that
managed our initial public offering, we have agreed that this underwriter may
designate one member of the Board of Directors. The underwriter has chosen not
to designate director since its previous designee, James Joyce, resigned on
March 5, 1999 to pursue other interests. 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 our common stock.
In connection with our acquisition of DNA Sciences, the former
shareholders of DNA Sciences are entitled to nominate one director to our Board
of Directors. This person is Eric Wilkinson.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to authority conferred by applicable Florida law, our Articles
of Incorporation and By-laws provide that our directors, officers, and employees
be indemnified to the fullest extent permitted by Florida law.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We are aware of the following instances since January 1, 1999, when an
executive officer, director or owner of more than ten percent of the outstanding
shares of common stock failed to comply with reporting requirements of Section
16(a) of the Securities Exchange Act of 1934:
o Mr. McCabe, Jr. failed to timely file a Form 4 in connection with
the grant on July 1, 1999 of options to purchase up to 10,000
shares of our common stock.
o Mr. McCabe, Sr. failed to timely file a Form 4 in connection with
the grant on July 1, 1999 of options to purchase up to 10,000
shares of our common stock.
o Mr. Wilkinson failed to timely file a Form 3 in connection with
his receipt of 135,000 shares of our common stock on January 17,
2000, as well as the grant of options to purchase up to 75,000
shares of common stock.
o Orbiter Fund, Ltd. failed to timely file a Schedule 13D and, if
required, Form 3 in connection with its purchase of 130,000 shares
of common stock and warrants to purchase 250,000 shares of common
stock. In addition, and upon certain events, Orbiter Fund will
receive warrants to purchase 575,000 shares of common stock at
$3.00 per share.
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<PAGE>
o Lancer Offshore, Inc. failed to timely file a Schedule 13D and
Form 3 in connection with its purchase of 525,000 shares of common
stock.
COMMITTEES OF THE BOARD OF DIRECTORS
Mark Burroughs serves as the sole member of the Audit Committee. The
functions of the Audit Committee are to: (1) recommend annually to our Board of
Directors the appointment of our independent auditors, (2) discuss and review,
in advance, the scope and the fees of the annual audit and review the results
thereof with the independent auditors, (3) review and approve non-audit services
of the independent auditors, (4) review compliance with our existing major
accounting and financial reporting policies, (5) review the adequacy of our
financial organization, and (6) review management's procedures and policies
relating to the adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices.
Mark Burroughs serves as the sole member of our Compensation and Stock
Option Committee (the "Compensation Committee"), which is responsible for making
recommendations to our Board of Directors regarding compensation arrangements
for our officers and for making recommendations to our Board of Directors
regarding the adoption of any employee benefit plans and the grant of stock
options or other benefits under such plans.
DIRECTOR COMPENSATION
Non-employee directors receive $500 plus expenses for attendance at
Board of Director meetings in person and by telephone. Directors are reimbursed
for all out-of-pocket expenses incurred in attending meetings of the Board of
Directors and committees thereof. In addition, on June 9, 2000, the non-employee
directors received a one-time grant of options based on the number of years of
service to our company. Mr. Burroughs, Mr. Fell and Mr. Foley received 17,500,
12,500 and 10,000 options, respectively. These options are exercisable for ten
years at an exercise price of $6.03 per share.
Our 1996 Incentive Plan (the "1996 Incentive Plan") provides that
directors who are not employees are automatically granted an option to purchase
5,000 shares of our 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 non-employee directors (Mr. Burroughs
and Dr. Fell) have an exercise price of $12.00 per share (120% of the offering
price in our 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 under
the 1996 Incentive Plan 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 1996 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.
SCIENTIFIC ADVISORY BOARD
Our company has recently formed a Scientific Advisory Board to advise
us on scientific matters. Our Scientific Advisory Board intends to meet
periodically to review specific projects with those members who are experts in
certain subjects, including microbiology, metabalomics, bioinformatics, DNA
diagnostics and molecular biology. Our Scientific Advisory Board currently is
composed of the following individuals:
DANIEL J. COOK, PH.D. is the Director of Allogen Laboratories, a
wholly-owned subsidiary of the Cleveland Clinic Foundation responsible for
tissue typing for the tranplantation program. Dr. Cook received his Ph.D. from
the University of Florida and completed his post doctoral studies at UCLA with
Dr. Paul Terasaki. He has served on the Board of Directors of the American
Society of Histocompatibility and Immunogenetics, the United Network for Organ
Sharing, and the National Marrow Donor Program.
JACK W. FELL, PH.D. has served as a director since February 1997. He 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
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<PAGE>
Institute of Marine Science and a post-doctorate in Microbiology from the
University of California, Davis.
LUC D'AURIOL, PH. D. is currently the Chief Executive Officer of
Metabolic Explorer, a company involved in metabalomics and bioinformatics. Prior
to that Dr. D'auriol was the Chief Scientific Officer and a founder of Genset, a
French genomics company. He has also worked as a consultant to the French Genome
Project. Dr. D'auriol received his Ph.D. from the University of Paris in 1977.
KJERSTI RONNINGEN, PH.D. currently serves as the Director of the
Norwegian Newborn Cohort. She is a Senior Scientist/Senior Physician at
Folkehelsa, the Norwegian Institute of Public Health. Dr. Ronningen received her
M.D. in 1984 and her Ph.D. in 1991 from the University of Oslo. She is an expert
in HLA disease association and has served as the President of the 11th
International Workshop in the area of disease association, responsible for over
40 laboratories worldwide. In addition to her duties at the Newborn Cohort, Dr.
Ronningen is also the Director of the Juvenile Diabetes Mother and Child Study,
working closely with our company's scientific staff.
DENNIS SPRECHER, M.D. is currently the Section Head of Cardiology at
the Cleveland Clinic Foundation. In addition, he serves as Professor of Internal
Medicine at the University of Ohio. He received his M.D. from Boston University
in 1978 and completed a Fellowship in Cardiology at Duke University. Dr.
Sprecher is an expert in Lipid metabolism and is instrumental in our genetic
analysis program.
GRAHAM FLEET, PH.D. is a Professor at the University of New South
Wales, Sydney, Australia. He is an expert in food spoilage and pathogenic yeast.
1999 STOCK OPTION PLAN
OVERVIEW OF THE 1999 INCENTIVE PLAN
Incentive compensation for non-employee directors, executives and other
key employees is also provided under our 1999 Incentive Plan. The purpose of the
1999 Incentive Plan is to (a) increase the proprietary and vested interest of
our non-employee directors in the growth and performance of our company, (b)
assist in attracting and retaining highly competent employees, (c) provide an
incentive for motivating selected officers and other key employees of our
company, (d) achieve long-term corporate objectives and (e) enable cash
incentive awards to qualify as performance-based for purposes of the tax
deduction limitations under Section 162(m) of the Internal Revenue Code of 1986,
as amended.
The 1999 Incentive Plan is administered by the Compensation Committee
of the Board of Directors of our company. Eligible participants include our
non-employee directors and such officers and other key employees as the plan
administrator may designate from time to time. The 1999 Incentive Plan will
continue in effect until terminated by its terms or, if earlier, by the Board of
Directors.
ADMINISTRATION
The 1999 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 1999
Incentive Plan with respect to all determinations, interpretations and other
actions affecting the 1999 Incentive Plan and its participants.
SHARES SUBJECT TO THE 1999 INCENTIVE PLAN
Four hundred thousand shares of our common stock have been initially
authorized to be issued under the 1999 Incentive Plan. Such authorized shares
will be appropriately adjusted to reflect adjustments (if any) to our capital
structure. As of November 30, 2000, 312,646 options have been issued under the
1999 Plan.
30
<PAGE>
1996 STOCK INCENTIVE PLAN
OVERVIEW OF THE 1996 INCENTIVE PLAN
Incentive compensation for non-employee directors, executives and other
key employees is provided under our 1996 Incentive Plan. The purpose of the 1996
Incentive Plan is to (a) increase the proprietary and vested interest of our
non-employee directors in the growth and performance of our company, (b) assist
in attracting and retaining highly competent employees, (c) provide an incentive
for motivating selected officers and other key employees of our 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.
Eligible participants of the 1996 Incentive Plan include our
non-employee directors and such officers and other key employees as the Board of
Directors of our company may designate from time to time. The 1996 Incentive
Plan will continue in effect until terminated by its terms or, if earlier, by
the Board of Directors.
The 1996 Incentive Plan authorizes the plan administrator to grant any
or all of the following types of awards: (1) stock options, including
nonqualified stock options and incentive stock options, (2) stock appreciation
rights, (3) restricted shares of our common stock, (4) performance awards, (5)
other stock-based awards, and (6) short-term cash incentive awards.
ADMINISTRATION
The Board of Directors has been granted exclusive and final authority
under the 1996 Incentive Plan with respect to all determinations,
interpretations and other actions affecting the 1996 Incentive Plan and its
participants.
SHARES SUBJECT TO THE 1996 INCENTIVE PLAN
Three hundred thousand shares of our common stock have been authorized
to be issued under the 1996 Incentive Plan. Such authorized shares will be
appropriately adjusted to reflect adjustments (if any) to our capital structure.
As of November 30, 2000, 260,029 options have been issued under the 1996 Plan.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by us, as well
as certain other compensation paid or accrued, during the fiscal years ended
December 31, 1999, 1998 and 1997 to Mead M. McCabe, Sr., Ph.D., Chairman of our
company, and to Mead McCabe, Jr., CEO and Secretary of our company. No
restricted stock awards, long-term incentive plan payouts or other types of
compensation, other than the compensation identified in the chart below, were
paid to Dr. McCabe or Mr. McCabe during fiscal years 1999, 1998 and 1997. No
other executive officer earned a total annual salary and bonus for any of these
years in excess of $100,000. The summary compensation table that follows
includes all payments to Dr. McCabe and Mr. McCabe for fiscal years 1999, 1998
and 1997.
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<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION(1) AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
------ ----- --------------- -------- -------- ------- ------------
PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(2) ($) ($)
------------------ ---- --- --- --- --- ------- --- ---
(#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mead M. McCabe, Sr., 1999 $146,129 -0- $6,000 -0- 10,000 -0- -0-
Ph.D., Chairman of the 1998 $125,000 -0- -0- -0- -0- -0- -0-
Board of Directors 1997 $125,000 -0- -0- -0- -0- -0-
Mead M. McCabe, Jr., 1999 $126,692 -0- $5,250 -0- 10,000 -0- -0-
CEO, CFO and Secretary 1998 $73,558 -0- -0- -0- -0- -0- -0-
1997 $75,866 -0- -0- -0- -0- -0- -0-
</TABLE>
-----------------
(1) This other annual compensation represents a $750 per month automobile
allowance.
(2) These options were granted on July 1, 1999, and have an exercise price of
$5.75 per share. These options are fully vested. All of these grants are
for options to purchase our common stock. No SAR's were granted.
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SAR'S AT FISCAL OPTIONS/SAR'S AT FISCAL
ACQUIRED ON VALUE YEAR END YEAR END
NAME EXERCISE REALIZED ($)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mead M. McCabe, Sr. -0- -0- Exercisable: 110,000 -0-
Mead M. McCabe, Jr. -0- -0- Exercisable: 85,000 -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, 1999.
On June 9, 2000, we granted the following options under our 1999 Stock
Option Plan:
o To Mead M. McCabe, Sr., the Chairman of our company, options to
purchase up to 100,000 shares of common stock at an exercise price
of $6.03125 per share. These options vest one-third immediately
and one-third on each of the second and third anniversaries of Dr.
McCabe's 1999 employment agreement. These options may be exercised
within ten years of the date of grant.
o To Mead M. McCabe, Jr., the Chief Executive Officer of our
company, options to purchase up to 100,000 shares of common stock
at an exercise price of $6.03125 per share. These options vest
one-third immediately and one-third on each of the second and
third anniversaries of Mr. McCabe's 1999 employment agreement.
These options may be exercised within ten years of the date of
grant.
o To Mark Burroughs, a director of our company, options to purchase
17,500 shares of common stock at an exercise price of $6.03125 per
share. 12,500 of these options vest immediately and 5,000 vest in
March 2001. These options may be exercised within ten years of the
date of grant.
o To Jack Fell, a director of our company, options to purchase
12,500 shares of common stock at an exercise price of $6.03125 per
share. 7,500 of these options vest immediately and 5,000 vest in
March 2001. These options may be exercised within ten years of the
date of grant.
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<PAGE>
o To Michael Foley, a director of our company, options to purchase
10,000 shares of common stock at an exercise price of $6.03125 per
share. 5,000 of these options vest immediately and 5,000 vest in
January 2001. These options may be exercised within ten years of
the date of grant.
On January 17, 2000, we granted the following options under our 1999
Stock Option Plan:
o To Eric Wilkinson, options to purchase up to 75,000 shares of
common stock at an exercise price of $7.25 per share. These
options vest one-third in one year, one-third in two years and
one-third in three years. These options may be exercised within
ten years of the date of grant.
EMPLOYMENT AGREEMENTS
Effective July 1, 1999, our company and Mead M. McCabe, Jr. entered
into a new employment agreement pursuant to which Mr. McCabe will serve as the
Chief Executive Officer. 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. 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 our 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 us during his
employment and for one year thereafter.
Effective July 1, 1999, our 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. 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. 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 our 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 us during his employment and for one year thereafter.
Effective January 17, 2000, our company and Eric Wilkinson entered into
an employment agreement pursuant to which Mr. Wilkinson will serve as the
President of our company and our wholly-owned subsidiary, Genetic Vectors of
California, Inc. The agreement has a two-year term that may be renewed on its
then-current terms by us for subsequent one year extension terms. Mr.
Wilkinson's base salary is $125,000 per year, plus a bonus as determined by the
Board of Directors. Mr. Wilkinson also received options to purchase up to 75,000
shares at an exercise price of $7.25 per share. The agreement requires Mr.
Wilkinson to devote his full working time and efforts to our company. Mr.
Wilkinson has agreed not to compete with us during his employment and for two
years thereafter.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement with the University of Miami, our company has
agreed to pay approximately $44,000 of Dr. Fell's, a director of our company,
salary as an employee of the University of Miami. In exchange, Dr. Fell devotes
approximately one-half of his business time to research and development efforts
on behalf of our company.
On January 17, 2000, we acquired all of the outstanding capital stock
of DNA Sciences, Inc., a California corporation. In consideration for the shares
of DNA Sciences, Inc. we issued the former shareholders of DNA Sciences, Inc. a
total 450,000 shares of our common stock. Eric Wilkinson was one of the former
shareholders of DNA Sciences, Inc. After the acquisition, Mr. Wilkinson became
the President and a Director of our company.
34
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has historically been quoted on the OTC Bulletin Board
under the symbol "GVEC." Our common stock was no longer eligible for such
quotation as of March 31, 2000 because we were delinquent in filing certain
reports under the Securities Exchange Act of 1934, as amended. Our common stock
is currently quoted on the "pink sheets." The following tables show the high and
low closing bid prices for our common stock for each quarter within the last two
fiscal years and for the first and second calendar quarters in 2000.(1) Our last
trade on the pink sheets occurred on November 30, 2000, was $8.25.
BID PRICE PER SHARE(2)
----------------------
HIGH LOW
---- ---
First Quarter 1998 $ 8.75 $ 7.00
Second Quarter 1998 $ 9.88 $ 8.75
Third Quarter 1998 $ 9.95 $ 7.50
Fourth Quarter 1998 $ 8.50 $ 3.50
BID PRICE PER SHARE(2)
----------------------
HIGH LOW
---- ---
First Quarter 1999 $ 6.75 $ 4.75
Second Quarter 1999 $ 6.75 $ 5.50
Third Quarter 1999 $ 5.75 $ 4.50
Fourth Quarter 1999 $ 6.00 $ 5.03
BID PRICE PER SHARE(2)
----------------------
HIGH LOW
---- ---
First Quarter 2000 $ 7.50 $ 5.50
Second Quarter 2000 $ 6.06 $ 5.00
Third Quarter 2000 $ 7.00 $ 5.00
-------------------------------
(1) This information represents prices obtained from the OTC Bulletin
Board and pink sheets, as applicable.
(2) We believe 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 November 30, 2000, there were approximately 400 holders of record
of the Common Stock.
DIVIDENDS
Our 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 that, 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
us from paying dividends unless we obtain significant new capital. Other than
the foregoing, we are not aware of any restrictions on our ability to pay
dividends on our common stock, but our company's management does not anticipate
paying any dividends for the foreseeable future.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of November 30, 2000, information
with respect to the beneficial ownership of our common stock by (i) persons
known by us to beneficially own more than five percent of the outstanding
shares, (ii) each director, (iii) each executive officer and (iv) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED (1), (2)
----------------------------------------------
NAME/ADDRESS NUMBER PERCENT
-------------------- -----------------------
<S> <C> <C>
Mead M. McCabe, Sr. .............................. 295,166(2) 7.6%(2)
12901 SW 63rd Ct.
Miami, Florida 33156
Mead M. McCabe, Jr................................ 230,293(2) 6.0%(2)
5201 N.W. 77th Avenue
Suite 100
Miami, Florida 33133
Jack W. Fell, Jr., Ph.D. ......................... 12,500(1),(5) *
University of Miami-RSMAS
4600 Rickenbacker Causeway
Key Biscayne, Florida 33149
Michael C. Foley 10,000(1),(5) *
5201 N.W. 77th Avenue
Suite 100
Miami, Florida 33133
Mark E. Burroughs................................. 17,500(1),(5) *
7440 Six Forks Road, Suite 16
Raleigh, North Carolina 27615
Eric Wilkinson.................................... 135,000(6) 3.6%(1)
5201 N.W. 77th Avenue, Suite 100
Miami, Florida 33133
All directors and executive officers 700,459 19.7%
as a group (4)(5) ................................
Nyer Medical Group................................ 853,048(2),(3) 22.9%(2),(3)
1292 Hammond St.
Bangor, ME 04401
Orbiter Fund, Ltd................................. 380,000(7) 9.6%
375 Park Avenue, 20th Floor
New York, New York 10152
Lancer Offshore, Inc. 525,000 14.1%
375 Park Avenue, 20th Floor
New York, New York 10152
</TABLE>
-------------------------------
* Less than 1%.
36
<PAGE>
(1) Applicable percentage of ownership is based on 3,785,197 shares of common
stock outstanding as of November 30, 2000 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 30, 2000 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 our
company.
(2) Mr. McCabe, Sr. and his wife, Marigrace McCabe, hold most of these shares
jointly. Pursuant to a five-year 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
Mr. McCabe, they would own 1,148,214 and 1,083,341 shares of common stock,
respectively. Their ownership percentages would be 30.7% and 29.0%,
respectively. Dr. McCabe, Sr. has vested options to purchase 143,333
shares of common stock, of which 33,333 are exercisable at $6.03125 per
share, 100,000 are exercisable at $12.00 per share and 10,000 are
exercisable at $6.75 per share. Mr. McCabe, Jr. has vested options to
purchase 118,333 shares of common stock, of which 33,333 are exercisable
at $6.03125 per share, 75,000 are exercisable at $12.00 per share and
10,000 are exercisable at $6.75 per share.
(3) Includes common stock owned by Nyle International Corp. (118,333 shares)
and Mr. Samuel Nyer (10,999 shares), which are deemed to be beneficially
owned by Nyer Medical Group, which he is a principal shareholder, officer
and director. Mr. Samuel Nyer may be deemed to be the beneficial owner of
the shares of the Common Stock held by Nyer Medical.
(4) Six (6) persons
(5) Represents shares which may be acquired upon the exercise of presently
exercisable stock options.
(6) Excludes 75,000 shares of common stock held by Messrs. Wilkinson. These
options are exercisable at $7.25 per share. These options vest one-third
on each of the first, second and third anniversary of the date of the
grant.
(7) Includes 130,000 shares of common stock and warrants to purchase 250,000
shares of common stock, of which 30,000 are exercisable at $0.01 per share
and 220,000 are exercisable at $1.00 per share. Upon the repayment of
outstanding loan proceeds or if $1.5 million is subsequently raised by us,
we are obligated to issue additional warrants to purchase 575,000 shares
of common stock, of which 455,000 have an exercise price of $3.00 per
share and 120,000 have an exercise price of $2.50 per share. See "Sales of
Unregistered Securities."
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 our company, its interests include
distribution of medical and rehabilitation supplies and equipment and
distribution of fire, police and rescue supplies and equipment, all primarily in
the New England area. Nyer Medical's common stock is listed and traded on the
NASDAQ SmallCap Market under the symbol "NYER."
Nyer Medical has entered into an agreement (the "Voting Agreement")
dated March 25, 1996 with Mead M. McCabe, Sr., Marigrace M. McCabe and Mead M.
McCabe, Jr., (collectively, the "McCabes"). This agreement provides among other
things, that, for a period of five years, Nyer Medical will vote its shares of
Common Stock to elect (a) one member of our 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 our company's shareholders vote.
Dr. McCabe is the founder of our company and currently serves as its
Chairman. Marigrace McCabe is the wife of Dr. McCabe. Mead McCabe, Jr. is the
son of Dr. McCabe and the nephew of Mr. Foley.
37
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of our company consists of 10,000,000
shares, par value $0.001 per share, of common stock. As of November 30, 2000, we
have 3,785,197 shares of our common stock outstanding. In addition, we have (a)
outstanding indebtedness convertible into 671,667 shares of our common stock and
(b) outstanding options and warrants to purchase 572,675 and 2,692,144 shares of
common stock, respectively, including (i) warrants to purchase 775,000 shares of
our common stock to be issued upon the repayment of certain indebtedness or the
closing of this offering, (ii) warrants to purchase 1,233,294 shares of our
common stock to be issued if certain indebtedness is converted into shares of
our common stock; (iii) warrants to purchase 683,850 shares of our common stock
outstanding as of the date hereof, and (iv) options to purchase 572,675 shares
of our common stock outstanding as of the date hereof. Immediately after this
offering, assuming it is successful, our company will have an additional
1,400,000 shares of common stock outstanding, as well as an additional warrant
to purchase 140,000 shares of common stock to be issued to the Underwriter and
the over-allotment option to purchase 210,000 shares of common stock. The
following description is a summary of the capital stock of our company and
contains the material terms of our capital stock. Additional information can be
found in our Articles of Incorporation and our Bylaws, which were filed as
exhibits to our registration statement for our initial public offering.
COMMON STOCK
Each share of our common stock entitles the holder to one vote on each
matter submitted to a vote of our shareholders, including the election of
directors. There is no cumulative voting. The holders of our common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by our Board of Directors out of funds legally available therefore.
Holders of our common stock have no preemptive, conversion or other subscription
rights. There are no redemption or sinking fund provisions available to our
common stock. In the event of liquidation, dissolution or winding up our
company, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities.
CONVERTIBLE INDEBTEDNESS
In March 2000, we borrowed $175,000 in the form of convertible notes.
These loans have an annual interest rate of 12% and were due in September 2000.
The lenders have extended the due date to December 31, 2000. At the lenders'
option, these notes are convertible into shares of our common stock at a
conversion rate of $5.00 per share.
In April 2000, we borrowed $100,000 in the form of a convertible note.
This loan has an annual interest rate of 12% and was due in October 2000. The
lender has extended the due date to December 31, 2000. At the lenders' option,
this note is convertible into shares of our common stock at a conversion rate of
$5.00 per share.
In May 2000, we borrowed $600,000 in the form of convertible notes.
These loans have an annual interest rate of 12% and are due on December 31,
2000. At the lenders' option, these notes are convertible into shares of our
common stock at a conversion rate of $3.00 per share.
In June 2000, we borrowed $50,000 in the form of a convertible note.
This loan has an annual interest rate of 12% and is due on December 31, 2000. At
the lenders' option, this note is convertible into shares of our common stock at
a conversion rate of $3.00 per share.
In July 2000, we borrowed $1,200,000 in the form of convertible notes.
These loans have an annual interest rate of 12% and are due on December 31,
2000. At the lenders' option, these notes are convertible into shares of our
common stock at a conversion rate of $3.00 per share.
38
<PAGE>
OPTIONS
As of November 30, 2000, we have outstanding options to purchase
572,675 shares of our common, consisting of:
NUMBER OF OPTIONS EXERCISE PRICE
----------------- --------------
210,000 $12.00
2,020 10.375
7,963 8.00
75,000 7.25
20,000 6.75
237,646 6.03
20,046 5.00
PRIVATE PLACEMENT WARRANTS
We have outstanding warrants to purchase 683,850 shares of our common
stock in connection with previous private placement efforts, consisting of:
NUMBER OF WARRANTS EXERCISE PRICE
------------------ --------------
80,000 0.01
220,000 1.00
100,000 3.00
35,000 3.50
28,850 5.50
192,500 6.00
27,500 6.20
-----------------------
We are also obligated to issue additional warrants to purchase 775,000
shares of our common stock upon the full repayment of certain loans or our
successful consummation of a financing in an amount equal to or greater than
$1.5 million. In addition, if the holders elect to convert certain indebtedness
into shares of common stock, then we will issue warrants to purchase (a) 616,647
shares of common stock at an exercise price of $6.00 per share and (b) 616,647
shares of common stock at an exercise price of $7.10 per share. These warrants
consist of:
NUMBER OF WARRANTS EXERCISE PRICE
------------------ --------------
50,000 1.50
120,000 2.50
455,000 3.00
150,000 5.50
616,647* 6.00
616,647* 7.10
-----------------------
* To be issued if the holder elects to convert certain indebtedness into
shares of common stock. If the holder does not elect to so convert, then the
holders would receive warrants to purchase 370,000 shares of common stock at an
exercise price of $6.60 per share and warrants to purchase 370,000 shares of
common stock at an exercise price of $8.00 per share.
REPRESENTATIVE'S WARRANT
At the closing of this offering, we will issue to the underwriter
warrants to purchase 140,000 shares of our common stock. The underwriter's
warrants will be exercisable for a four-year period commencing one year from the
date of this prospectus. The exercise price of the underwriter's warrants will
be 155% of the offering price, which based on an assumed offering price of $7.50
would be $11.63 per share. The underwriter's warrants will not be transferable
prior to their exercise date except to officers of the underwriter and members
of the syndicate and officers and partners thereof. The underwriter's warrants
39
<PAGE>
will contain provisions providing adjustment in the event of any
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The underwriter's warrants and the securities issuable upon their
exercise may not be offered for sale except in compliance with the applicable
provisions of the Securities Act. We have agreed that, for a period of five
years from the date of this prospectus, when we we intend to file a registration
statement for the public sale of securities (other than a registration statement
on Form S-4, S-8 or a comparable registration statement), we will notify all of
the holders of the underwriter's warrants and securities issued upon exercise
thereof, and if so requested, it will include therein material to permit a
public offering of the securities underlying the underwriter's warrants solely
at our expense (excluding fees and expenses of the holders' counsel any
underwriting or selling commissions). The underwriter has demand registration
right for a 5-year period after the completion of this offering. See
"Underwriting."
CONVERTIBLE PROMISSORY NOTES
In connection with a private offering completed on August 1, 2000, our
company issued 50 Units of which two units were issued prior to June 30, 2000,
for a total purchase price of $1,250,000, consisting of a Convertible Promissory
Note and the right to receive Warrants to purchase shares of a specified amount
of our company's common stock. Each Note is due December 31, 2000. Interest will
accrue at 12% per year on the outstanding principal balance of the Note. Prior
to the repayment of the principal balance of the Note, the holders may convert,
at their option at anytime up to 30 days after the closing of an equity
financing by our company of $5 million or more, all amounts due into shares of
the Common Stock at a conversion rate of $3.00 per share. In addition, and in
the event of a conversion of the Note, the holders will receive for each Unit
purchased in this offering warrants to purchase 8,333 shares of Common Stock at
an exercise price of $6.00 per share and 8,333 shares of Common Stock at an
exercise price of $7.10 per share. If no conversion occurs, then holders will
receive for each Unit purchased in this offering warrants to purchase 5,000
shares of Common Stock at an exercise price of $6.60 per share and 5,000 shares
of Common Stock at an exercise price of $8.00 per share. In the event of
default, the holders may choose between two exclusive remedies: (a) the holders
may elect to convert all amounts due into shares of Common Stock at a conversion
rate of $3.00 per share or (b) the holders may request repayment of all amounts
due, in which case the holders would be issued warrants to purchase 2,500 shares
of Common Stock at an exercise price of $5.00 per share for each month that the
principal balance remains unpaid under the Note up to a total of six months. The
holders must elect one of these exclusive remedies within 15 days of an event of
default and upon the expiration of any notice or cure period. All warrants to be
issued in connection with these notes will expire on June 30, 2004.
The issuance of these contingent or any other warrants will result in a
significant non-cash charge to our company in the period in which these
additional warrants are issued.
LIMITATION OF LIABILITY; INDEMNIFICATION
We have entered into Indemnification Agreements with each of our
directors and officers in which we have agreed to indemnify each director and
officer, to the fullest extent permitted by law, from and against any and all
claims of any type arising from or related to his past or future acts or
omissions as a director or officer of our company and any of our subsidiaries.
In addition, we have agreed to advance all expenses of each director and officer
as they are incurred and in advance of the final disposition of any claim upon
the submission of appropriate undertakings.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
FLORIDA LAW
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
our common stock are available for future issuance without our shareholders'
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans.
NOTICE PROCEDURES FOR SHAREHOLDER PROPOSALS AT ANNUAL MEETINGS
Our Bylaws establish advance notice procedures with respect to
shareholder proposals to be brought before an annual meeting of our
shareholders. These procedures, which are in addition to any other applicable
requirements of law, require that a shareholder must give notice to us not less
than 120 days nor more than 180 days prior to the first anniversary of the date
of the notice of annual meeting provided with respect to the previous year's
annual meeting.
40
<PAGE>
TRANSFER AGENT AND REGISTRAR
Continental Stock and Transfer Company is the transfer agent and
registrar for our common stock. Its address is 2 Broadway, 19th Floor, New York,
New York 10004.
41
<PAGE>
UNDERWRITING
The underwriter named below has agreed, subject to the terms and
conditions of the firm commitment Underwriting Agreement between our company and
the underwriter, to purchase from us the number of shares of our common stock
set forth opposite its name. The underwriting discount set forth on the cover
page of this prospectus will be allowed to the underwriter at the time of
delivery to the underwriter of shares of our common stock so purchased.
NAME OF UNDERWRITER NUMBER OF SHARES
Mercer Partners, Inc. 1,400,000
TOTAL 1,400,000
The underwriter has advised us that it proposes to offer the shares of
our common stock to the public at an offering price of $7.50 per share and that
it may allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. a concession not in excess of $[_____] per share.
The following table summarizes the compensation to be paid to the
underwriter by us.
<TABLE>
<CAPTION>
Total
--------------------------------------------
Without With
Per Share Over-allotment Over-allotment
<S> <C> <C> <C>
Underwriting discounts paid by us $0.60 $840,000 $966,000
</TABLE>
We have granted to the underwriter an over-allotment option exercisable
during the 45-day period following the date of this prospectus to purchase up to
a maximum of 210,000 additional shares of our common stock at the public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. The underwriter may exercise such option only to satisfy
over-allotments in the sale of shares of our common stock.
We have agreed to pay to the underwriter a non-accountable expense
allowance equal to 3% of the total proceeds of this offering, or $315,000
($362,250 if the underwriter exercises the over-allotment option in full), of
which $55,000 has already been paid. The underwriter does not intend to offer or
sell shares of our common stock to accounts over which it exercises
discretionary authority.
At the closing of this offering, we will issue to the underwriter, for
nominal consideration the underwriter's warrants to purchase 140,000 shares of
our common stock at a purchase price of 155% of the offering price, which based
on an assumed offering price of $7.50 would be $11.63 per share. See
"Description of Securities - Underwriter's Warrants."
For the period during which the underwriter's warrants are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of our common stock, with a resulting dilution in the interests of the
other shareholders of our company. The holder(s) of the underwriter's warrants
can be expected to exercise them at a time which we would, in all likelihood, be
able to obtain any needed capital from an offering of unissued common stock on
terms more favorable to us than those provided for in the underwriter's
warrants. Such facts may adversely affect the terms on which we can obtain
additional financing. To the extent that the underwriters realize any gain from
the resale of the underwriter's warrants or the securities issuable thereunder,
such gain may be deemed additional underwriting compensation under the
Securities Act of 1933.
The Underwriter will serve as our company's non-exclusive financial
consultant and advisor for two years following the closing date of this
offering. The Underwriter will be paid a total of $58,800 at the closing of this
offering.
Our officers, directors and holders of 5% or more of the amount of our
outstanding common stock, excluding Lancer Offshore, calculated as of the date
immediately preceding the commencement of the public offering, have agreed to a
lock-up of their stock, options and underlying shares, commencing the date of
the closing, for a period of six months. These officers, directors and 5%
42
<PAGE>
holders, excluding Lancer Offshore, also agree not to dispose of (sell or
transfer) their shares of common stock for six additional months unless the
market price of such common stock trades above 125% of the offering price for
five consecutive trading days. This lock-up period expires one year from the
effective date of this offering. In addition, in the event the underwriter
receives an order to purchase a block of the company's common stock, then the
underwriter has the right to offer to fill such order through sales by the
company's officers and directors. Upon such offer, our company's officers and
directors will then have the option (but not the obligation) to sell their
shares of common stock on the terms offered.
The Underwriting Agreement provides for reciprocal indemnification
between our company and the underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of our company pursuant to the foregoing provisions, or otherwise, we have 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.
The underwriters have advised us that, pursuant to Regulation M under
the Securities Act, some persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of our common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is a bid for or the purchase of common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
Representative to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the Representative in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
underwriters have advised us that such transactions may be effected on the
Nasdaq Small Cap Market or otherwise and, if commenced, may be discontinued at
any time.
DETERMINATION OF OFFERING PRICE
The offering price of the securities and the exercise price of the
warrants being offered hereby was determined by negotiation between us and the
underwriters. Factors considered in determining such prices include the history
and the prospects for the industry in which we compete, the past and present
operations of our company, the future prospects of our company, the abilities of
our management, the earnings, net worth and financial condition of our company,
the general condition of the securities markets at the time of this offering,
and the prices of similar securities of comparable companies.
EXPERTS
The financial statements included in the Prospectus and Registration
Statement have been audited by BDO Seidman, LLP, independent certified public
accountants to the extent and for the periods set forth in their report (which
contain an explanatory paragraph regarding the company's ability to continue as
a going concern) appearing elsewhere herein and in the Registration Statement
and are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity
of the shares of common stock offered hereby for us. William M. Prifti, Esq.,
Amesbury, Massachusetts will pass upon certain legal matters in connection with
the offering for the underwriter.
AVAILABLE INFORMATION
For further information regarding our company and the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto. Statements herein concerning the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to such contract or other document filed with the Securities and Exchange
43
<PAGE>
Commission or included as an exhibit, or otherwise, each such statement, being
qualified by and subject to such reference in all respects.
Reports, registration statements, proxy and information statements, and
other information filed by us with the Securities and Exchange Commission can be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at our regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of these materials may be
obtained at prescribed rates from the Public Reference Section of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Securities and Exchange Commission maintains a site on the World Wide
Web (http://www.sec.gov) that contains reports, registration statements, proxy
and information statements and other information.
44
<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 consolidated balance sheet of Genetic Vectors,
Inc. (a Development Stage Company) as of December 31, 1999 and the consolidated
related statements of operations, capital deficit and cash flows for each of the
two years in the period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Genetic Vectors,
Inc., (a development stage company) as of December 31, 1999 and the results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999 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
consolidated financial statements, the Company's dependence on outside financing
and its 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 consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
--------------------
Miami, Florida BDO Seidman, LLP
March 3, 2000, except for Note 1
which is as of August 14, 2000
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Note 4)
Current
Cash $ 434,658 $ 221,322
Accounts receivable 36,003 9,125
Inventory 23,996 7,081
Prepaid expenses 28,981 50,424
----------------------------------------------------------------------------------------------------------------------------
Total current assets 523,638 287,952
Equipment and improvements, net (Note 3) 447,993 284,621
Patents and license agreement, net of $54,201 and $40,353 of accumulated
amortization in 2000 and 1999, respectively (Note 9(a)) 192,247 206,611
Restricted cash (Note 5) 46,130 46,130
----------------------------------------------------------------------------------------------------------------------------
$ 1,210,008 $ 825,314
----------------------------------------------------------------------------------------------------------------------------
Liabilities and Capital Deficit
Current liabilities
Accounts payable $ 569,915 $ 273,009
Accrued interest payable 261,880 54,020
Accrued expenses 9,963 148,481
Loans payable, net of unamortized discounts (Notes 4 and 11) 3,613,500 805,412
----------------------------------------------------------------------------------------------------------------------------
4,455,258 1,280,922
----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 2, 6 and 9)
----------------------------------------------------------------------------------------------------------------------------
Capital Deficit (Notes 8 and 10)
Common stock, $.001 par value, 10,000,000 shares authorized, 3,737,843 and
3,424,843 shares issued and outstanding
in 2000 and 1999, respectively 3,738 3,425
Additional paid-in capital 10,987,198 8,494,795
Deficit accumulated during the development stage (14,236,186) (8,953,828)
----------------------------------------------------------------------------------------------------------------------------
Capital deficit (3,245,250) (455,608)
----------------------------------------------------------------------------------------------------------------------------
$ 1,210,008 $ 825,314
----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE FROM FOR THE FOR THE
JANUARY 1, 1992 NINE NINE
(INCEPTION) MONTHS MONTHS FOR THE FOR THE
THROUGH ENDED ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, DECEMBER 31, DECEMBER 31,
2000 2000 1999 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales $ 334,412 $ 96,132 $ 72,620 $ 119,809 $ 79,211
Grant income 149,147 -- -- -- 35,897
----------------------------------------------------------------------------------------------------------------------------------
Total revenue 483,559 96,132 72,620 119,809 115,108
----------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Costs of sales 88,976 25,293 48,041 41,311 22,372
Research and development
(Notes 9(b) and (c)) 3,724,322 620,188 398,969 566,036 984,937
General and administrative 6,916,048 1,692,731 924,678 1,356,308 1,585,444
Depreciation and amortization 413,196 85,613 78,067 139,601 125,550
----------------------------------------------------------------------------------------------------------------------------------
Total expenses 11,142,542 2,423,825 1,449,755 2,103,256 2,718,303
----------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense): (Note 4)
Non-cash interest (3,444,650) (2,678,088) (312,280) (748,037) (18,525)
Interest income (expense), net (132,553) (276,577) 4,898 (128,703) 66,057
----------------------------------------------------------------------------------------------------------------------------------
Total other (3,577,203) (2,954,665) (307,382) (876,740) 47,532
----------------------------------------------------------------------------------------------------------------------------------
Net loss (Note 7) $ (14,236,186) $ (5,282,358) $ (1,684,517) $ (2,860,187) $ (2,555,663)
----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding (Note 8) 3,632,343 3,030,521 3,174,092 2,794,696
----------------------------------------------------------------------------------------------------------------------------------
Net loss per common share - basic and
diluted -- $ (1.45) $ (0.56) $ (0.90) $ (0.91)
----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
CUMULATIVE FROM
JANUARY 1, 1992 FOR THE FOR THE
(INCEPTION) NINE NINE FOR THE FOR THE
THROUGH MONTHS ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
SEPT. 30, SEPT. 30, SEPT. 30, DECEMBER 31, DECEMBER 31,
2000 2000 1999 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net (loss) $ (14,236,186) $ (5,282,358) $ (1,684,517) $ (2,860,187) $ (2,555,663)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 413,196 85,613 78,067 139,601 125,550
Amortization of deferred loan costs 1,624,650 858,088 312,280 748,037 18,525
Write-off of acquired technology 71,250 -- -- -- --
Common stock issued for loan extension 1,820,000 1,820,000 -- -- --
Consulting services provided for common 6,000 -- -- -- 6,000
stock
Warrants issued for loan extension 154,646 80,946 -- 73,700 --
Stock options and warrants granted for 364,572 -- -- 24,000 340,572
services
(Increase) decrease in accounts receivable (36,003) (26,878) 31,240 26,273 (35,398)
(Increase) decrease in inventory (23,996) (16,915) (10,894) 6,419 (13,500)
(Increase) decrease in prepaid expenses (28,981) 21,443 87 (27,572) (22,852)
(Increase) in restricted cash equivalents (46,130) - - - (46,130)
Increase in accounts payable and accrued
liabilities 984,591 366,248 241,108 269,935 61,033
----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 5,303,795 3,188,545 651,888 1,260,393 433,800
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (8,932,391) (2,093,813) (1,032,629) (1,599,794) (2,121,863)
----------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of equipment and improvements (806,480) (234,621) (3,199) (3,504) (65,618)
Purchase of certificate of deposit (261,964) -- -- -- (1,366)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing (1,068,444) (234,621) (3,199) (3,504) (66,984)
activities
----------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase due to parent 413,518 -- -- -- --
Proceeds from note payable 3,648,500 2,375,000 388,500 1,081,808 156,692
Payment on notes payable (35,000) - (20,092) - -
Common stock issuance and exercise of
options 5,889,218 166,770 625,000 625,000 47,500
Capital contribution 500,000 -- -- -- --
Deferred offering refund 25,500 -- -- -- --
Deferred offering costs (6,243) -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,435,493 2,541,770 993,408 1,706,808 204,192
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 434,658 213,336 (42,420) 103,510 (1,984,655)
Cash at beginning of period -- 221,322 117,812 117,812 2,102,467
----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 434,658 $ 434,658 $ 75,392 $ 221,322 $ 117,812
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Warrants issued in connection with loan $ 1,624,650 $ 425,000 $ 388,500 $ 1,088,500 $ 111,150
financing
Conversion of due to parent in exchange for $ 413,518 $ -- $ -- $ -- $ --
stock
Conversion of accrued wages for stock $ 132,822 $ -- $ -- $ -- $ --
Issuance of common stock for loan extension $ 1,820,000 $ 1,820,000 $ -- $ -- $ --
Warrants issued for loan extension $ -- $ -- $ -- $ 73,700 $ --
----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial capitalization for cash at
$0.0000625 per share (Note 8(a)) 1,600,000 $ 1,600 $ (1,500) $ - $ 100
Capital contribution (Note 8(b)) - - 500,000 - 500,000
--------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1992 - - - (260,484) (260,484)
--------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1993 - - - (205,753) (205,753)
--------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1994 - - - (318,927) (318,927)
--------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1995 - - - (226,666) (226,666)
--------------------------------------------------------------------------------------------------------------------------------
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(g)) 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(g)) 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(h)) 575,000 575 4,569,176 - 4,569,751
Stock options granted for services (Note - - 56,250 - 56,250
8(c))
--------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1996 - - - (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(h)) - - 25,500 - 25,500
Offering costs (Note 8(h)) - - (6,243) - (6,243)
--------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1997 - - - (2,132,714) (2,132,714)
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Genetic Vectors, Inc.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
Issuance of common stock for DNA Sciences
Acquisition (Note 1) 450,000 450 9,550 - 10,000
Issuance of common stock for services
(Note 8) 709 1 5,999 - 6,000
Issuance of common stock for cash, at $5.00
per share (Note 8(l)) 9,500 9 47,491 - 47,500
Warrants granted for consulting services
(Note 8(n)) - - 332,500 - 332,500
Warrants granted for loan financing costs
(Note 4(d)) - - 111,150 - 111,150
Options granted for services rendered
(Note 8(o)) - - 8,072 - 8,072
Net loss - year ended December 31, 1998 - - - (2,555,663) (2,555,663)
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,799,843 2,800 6,684,220 (6,093,641) 593,379
Issuance of common stock for cash, at $1.00
per share (Note 8(q) and (r)) 625,000 625 624,375 - 625,000
Warrants granted for loan financing costs
(Note 4) - - 1,088,500 - 1,088,500
Options granted for services rendered
(Note 8(p)) - - 24,000 - 24,000
Warrants granted for loan extension (Note - - 73,700 - 73,700
4(a))
Net loss - year ended December 31, 1999 - - - (2,860,187) (2,860,187)
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 3,424,843 $ 3,425 $ 8,494,795 $ (8,953,828) $ (455,608)
--------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for loan extension
(Note 4) 280,000 280 1,819,720 - 1,820,000
Issuance of common stock and exercise
of options 28,000 28 139,972 - 140,000
Warrants granted for loan extension (Note - - 80,946 - 80,946
4(a))
Warrants granted for loan financing costs
(Note 4(d)) - - 425,000 - 425,000
Issuance of common stock and exercise of
options 5,000 5 26,765 - 26,770
Net loss for the period - - - (5,282,358) (5,282,358)
--------------------------------------------------------------------------------------------------------------------------------
Balance at Sept. 30, 2000 (unaudited) 3,737,843 $ 3,738 $ 10,987,198 $ (14,236,186) % (3,245,250)
--------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
F-6
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
1. SUMMARY OF ORGANIZATION AND BUSINESS
SIGNIFICANT
ACCOUNTING Genetic Vectors, Inc. (the "Company"), formerly a
POLICIES 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.
ACQUISITION
On January 17, 2000 Genetic Vectors, Inc. completed a
merger with DNA Sciences, Inc., by exchanging 450,000
shares of its common stock for all the common stock
of DNA Sciences, Inc. Each share of DNA Sciences,
Inc. was exchanged for .45 of one share of Genetic
Vectors, Inc. common stock. The merger has been
accounted for as a pooling of interest. DNA
Sciences, Inc. was formed in March 1998 and,
accordingly, the accompanying financial statements
have been retroactively adjusted to include the
operations of DNA Sciences, Inc. as if the
acquisition took place in March 1998. The following
information presents certain statement of operations
data of the separate companies for the periods
preceding the merger:
F-7
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
1999 1998 SEPT. 30,
1999
(UNAUDITED)
----------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
Genetic Vectors, Inc. $ 44,832 $ 47,172 $ 34,788
DNA Sciences, Inc. 74,977 67,936 37,832
----------------------------------------------------------------------------------
119,809 115,108 72,620
----------------------------------------------------------------------------------
Net Income (Loss):
Genetic Vectors, Inc. $ (2,806,911) $ (2,575,467) $ (1,658,122)
DNA Sciences, Inc. (53,276) 19,804 (26,395)
----------------------------------------------------------------------------------
$ (2,860,187) $ (2,555,663) $ (1,684,517)
----------------------------------------------------------------------------------
</TABLE>
There were no material transactions between Genetic
Vectors, Inc. and DNA Sciences, Inc., prior to the
merger. The effects of conforming DNA Sciences, Inc.
accounting policies to those of Genetic Vectors, Inc.
were not material.
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.
SEGMENT INFORMATION
Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and
Related Information, supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS
No. 131 establishes standards for the way that public
companies report information about operating segments in
annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS
No. 131 defines operating segments as components of a
F-8
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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 line of
business.
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.
EQUIPMENT AND IMPROVEMENTS AND DEPRECIATION
Equipment and improvements are recorded at cost.
Depreciation is provided over the estimated useful life
of the assets which range from three to ten years.
PATENTS AND LICENSE AGREEMENT
Patents and the license agreement are carried at cost
less accumulated amortization. Amortization is computed
using the straight line method over the estimated useful
life of the patents which range from 15.5 to 17 years.
The Company continually evaluates the carrying value of
its patents and license agreement. Impairments are
recognized when the expected future operating cash flows
to be derived from such intangible assets are less than
their carrying values.
REVENUE
The Company recognizes revenue from sales upon delivery
of the product to a customer.
F-9
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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
in 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."
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
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 antidilutive 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, 1999. 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.
F-10
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
RECLASSIFICATION
Certain reclassifications have been made to the 1998
statement of operations to conform to the
classifications used in 1999.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of September 30,
2000 and for the nine months ended September 30, 2000
and 1999 are unaudited. In the opinion of management,
such statements reflect all adjustments (consisting only
of normal recurring adjustments) necessary for a fair
presentation of the financial position, results of
operations and changes in cash flows. The results of
operations of the nine months ended September 30, 2000
and 1999 are not necessarily indicative of the results
for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards
Board issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement replaces
FASB No. 125, of the same name. It revises the standards
for securitizations and other transfers of financial
assets and collateral and requires certain disclosures,
but carries over most of the provisions of FASB No. 125
without reconsideration. FASB No. 140 is effective for
transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31,
2001. The statement is effective for recognition and
reclassification of collateral and for disclosures
relating to securitization transactions and collateral
for fiscal years ending after December 15, 2000. This
statement is to be applied prospectively with certain
exceptions. Other than these exceptions, earlier or
retroactive application of its accounting provisions is
not permitted. The adoption of the statement is not
expected to have a significant impact on the Company.
In March 2000, the Financial Accounting Standards
Board issued FASB Interpretation No. 44, Accounting
For Certain Transactions Involving Stock
Compensation, An Interpretation of APB Opinion No.
25. The Company adopted the Interpretation on July
1, 2000. The interpretation requires, among other
things, that stock options that have been modified be
F-11
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
accounted for as variable. Implementation of FASB
Interpretation No. 44, does not have a material effect
on the Company's financial position or results of
operations.
In December 1999, the SEC issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). In June 2000, the SEC issued an
amendment to SAB 101 which delayed the effective date
for registrants with fiscal years that begin after
December 15, 1999. The effective date will be for the
quarter ending December 31, 2000. SAB 101 is not
expected to have a material impact on the Company's
consolidated financial statements.
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, as
amended by SFAS 137, 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,
F-12
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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 September 30, 2000, the Company
has incurred losses totaling $14,236,186, has been
unable to develop a customer base for its product and
has been in default of certain loans, all of which
raise substantial doubt about the Company's ability
to continue as a going concern.
From January 1, 2000 to September 30, 2000, the Company
has raised $2,375,000 from loans. On December 15, 1999,
the Company entered into a non-binding letter of intent
with an underwriter to sell up to $8.4 million of
securities in a firm commitment. On January 17, 2000,
the Company acquired DNA Sciences, Inc. (Note 1). This
acquisition may result in the use of additional funds as
well as other unanticipated expenditures. There can be
no assurance that the Company will be successful in
consummating its plans, or that such plans, if
consummated, will enable the Company to attain
profitable operations or continue as a going concern.
3. EQUIPMENT AND The Company's equipment is summarized as follows:
IMPROVEMENTS
DECEMBER 31, 1999
------------------------------------------------------
Laboratory equipment $ 388,573
Computers 52,787
Phone equipment 58,826
Leasehold improvements 35,477
Office furniture 22,520
Other 13,676
------------------------------------------------------
571,859
Less accumulated depreciation (287,238)
------------------------------------------------------
$ 284,621
------------------------------------------------------
4. LOANS PAYABLE Loans payable as of December 31, 1999 are as follows:
(a) Unsecured loans - 12% interest
F-13
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
payable quarterly beginning April
1, 1999, with 1% increases per
month for each month that any
portion of the note remains $ 150,000
outstanding after April 1, 1999.
(b) Loans - 12% interest payable
quarterly beginning April 19,
1999, with 1% increases monthly
for each month that any portion of
the note remains outstanding after 288,500
January 19, 2000.
(c) Loan - 12% interest payable
quarterly beginning June 1, 1999 100,000
(d) Loans - with 12% interest rate
payable quarterly, commencing
January 19, 2000, with 1%
increases per month for each month
that any portion of the note 700,000
remains outstanding after January
19, 2000 and April 22, 2000.
------------------------------------------------------
$ 1,238,500
Unamortized debt discount (433,088)
------------------------------------------------------
$ 805,412
------------------------------------------------------
a) These loans became due on April 1, 1999. The Company
is currently in default of this loan for failing to
pay the required principal and interest. In the event
the Company does not make principal payments for
these loans in accordance with the terms of each
obligation, each holder is entitled to receive
warrants to purchase a number of shares (as defined)
of the Company's common stock until the obligation is
satisfied. In this connection, the Company recorded a
deemed interest charge of $73,700 during 1999. The
fair value of such warrants was estimated using the
Black-Scholes Option Pricing Model.
b) Consists of two loans, the first of which bears a
face amount of $163,500 and became due on January 19,
2000. The second loan for $125,000 became due on
January 19, 2000. The Company is not in compliance
with the payment terms of these loans at December 31,
1999.
F-14
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
c) The loan is due upon the earlier of April 18, 2000 or
the closing of a private placement of securities with
gross proceeds of $2 million.
d) Consists of three loans, the first of which $200,000
became due on January 18, 2000. The second loan for
$200,000 became due on January 19, 2000. The Company
was not in compliance with the payment terms of these
loans at December 31, 1999. The third loan for
$300,000 is due on April 22, 2000.
During 1999, the Company borrowed from an investor,
$1,088,500 and granted 613,850 warrants with exercise
prices ranging from $.01 to $5.50. Such warrants expire
in 2004. The exercise prices of the warrants at the
grant date were below the market price of the Company's
common stock and the value ascribed to the warrants
exceeded the amount borrowed. Accordingly, the Company
recorded debt discount up to the amounts borrowed. The
Company amortizes the debt discount over the term of the
related borrowings, generally less than one year. The
fair value of such warrants amounted to $1,088,500 and
was estimated using the Black-Scholes model.
During 1998, the Company borrowed $150,000 and granted
to the lender 30,000 warrants at an exercise price of
$6.00, which expire in 2003. The fair value of the
warrants amounting to $111,150 was estimated using the
Black-Scholes model.
The Company has negotiated an extension of certain of
the above past due notes aggregating $1,235,000 to
December 31, 2000. In exchange for this extension, the
Company agreed to cancel 280,000 previously issued
common stock warrants and issue 280,000 shares of the
Company's common stock at $6.50 per share to the
lenders. The foregoing extension transaction resulted in
an additional charge to earnings of $1,820,000 during
the second quarter of 2000 for the consideration issued.
In addition, certain of these loans provide that, if
$1.5 million is subsequently raised by the Company or
the loan is paid back, the Company will issue warrants
to the lenders to purchase 700,000 shares of common
stock at exercise prices ranging from $3 to $5.50 per
share. The Company will record a charge for an amount
F-15
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
equal to the value ascribed to these contingent warrants
upon occurrence of these future events.
The Company has paid success fees to consultants who
assisted in obtaining the financing. Such fees
aggregated $79,000 in 1999 and $12,000 in 1998.
During the nine months ended September 30, 2000, the
Company borrowed $2,375,000(Note 11). These loans bear
interest at 12% a year and are due December31, 2000. In
connection with these borrowings, the Company issued
152,000 warrants at an exercise price ranging from $1.00
to $6.20. The exercise price of such warrants were below
the market price of the Company's common stock.
In connection with these transactions from January 1,
2000 to September 30, 2000, the value ascribed to the
warrants was equal to the amount borrowed. Accordingly,
the Company has recorded a debt discount and has offset
the amounts borrowed by the value ascribed to these
warrants. The Company amortizes the deferred discount
over the term of the related borrowings. Notes payable
as of September 30, 2000 amounted to $3,613,500.
As of September 30, 2000, the Company was past due on
loans with an original principal balance of $1,488,500.
On October 4, 2000, the maturity dates were extended
from September 30, 2000 to December 31, 2000 on loans
with an original principal balance of $1,238,500. . In
connection with the extension, the Company reduced the
exercise price of certain warrants to purchase shares of
common stock. The issuance of the warrants is subject to
a contingent future event, which will result in a charge
to earnings when the contingency is resolved. As of
September 30, 2000, the Company is in default on loans
with an original principal balance of $250,000 for
failing to pay principal and interest when due.
In addition, the Company has collateralized all of its
assets for the loans referred to above.
5. RESTRICTED CASH Restricted cash represents a certificate of deposit of
$46,130 held as security on a letter of credit in
connection with the Company's facility lease.
F-16
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
6. DEPENDENCE ON Certain key components of the Company's products are
LIMITED NUMBER currently provided by a limited number of sources, and
OF SUPPLIERS one component is provided by a single source.
7. INCOME TAXES At December 31, 1999, the Company had Federal net
operating losses (NOL) of approximately $8,562,000.
The NOL expires during the years 2007 to 2014. In
the event of a change in ownership of the Company,
the utilization of the NOL carryforward in any one
year will be subject to limitation under Section 382
"Change of Ownership Rules" of the Internal Revenue
Code.
Realization of any portion of the approximately
$3,300,000 federal deferred tax asset at December 31,
1999, resulting from the NOL, is not considered more
likely than not by management, accordingly, a valuation
allowance has been established for the full amount of
the tax asset.
Net operating loss carryforward $ 3,300,000
Less: valuation allowance (3,300,000)
------------------------------------------------------
Net deferred tax asset $ -
------------------------------------------------------
During the nine months ended September 30, 2000, the
Company continued to incur operating losses.
Accordingly, a valuation allowance has been established
for the full amount of the tax asset arising from such
operating losses.
There are no significant temporary differences.
8. CAPITAL DEFICIT a) During 1992, the Company issued 100 shares of
common stock for $100 as the initial
capitalization of the Company. In June 1996,
the Company issued a stock dividend in the form
of a 15,999 for 1 stock split. The components
of stockholders' 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.
F-17
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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.
d) In July 1996, the Company granted ten year
stock options to purchase 75,000 shares of
common stock at 120% of the initial public
offering price to the 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 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.
f) 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
F-18
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
at 120% of the initial public offering price to two
directors of the Company.
g) 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.
h) 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.
i) 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.
j) In March 1998, the Company granted two year options
to six of its employees under the 1996 Incentive
Plan, which vest one year after the grant date, to
purchase 13,848 shares of common stock at $8.00 per
share.
k) In June and August of 1998, the Company issued 709
shares of common stock at market, valued at $6,000
to an individual for consulting services.
l) In June, July and August of 1998, a board member
exercised options to purchase 5,000, 2,000 and
2,500 shares of the Company's common stock,
respectively, at $5.00 per share.
m) In July 1998, the Company granted two year options
to five of its employees under the 1996 Incentive
Plan, which vest one year after the grant date, to
purchase 3,367 shares of common stock at $10.375
per share.
n) In September 1998, in connection with the
signing of the consulting agreement to obtain
F-19
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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 such services of
$332,500 was charged to operations during the
year ended December 31, 1998.
o) 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
amounting to $8,072 was charged to operations
during the period ended December 31, 1998. In
1999, the Company has repurchased 2,342 options
for a purchase price of $5,270.
p) During 1999, the Company granted five year
options, which vest two months after the grant
date, to purchase 17,995 shares of common stock
at $5.00 per share to five employees of the
Company in lieu of 50% of their salaries for
four pay periods. The fair value of such
options amounted to $24,000 and was charged to
operations during the year ended December 31,
1999.
q) On May 10, 1999, the Company issued 225,000 shares of
common stock to a private investor in exchange for
$225,000. The private investor paid $1.00 per share
for the 225,000 shares, or $4.75 per share less than
the OTC Bulletin Board closing price of $5.75 per
share on May 10, 1999.
r) On July 16, 1999, the Company issued 400,000 shares
of common stock to two private investors in exchange
for $400,000. These private investors paid $1.00 per
share for the 400,000 shares, or $4.75 per share less
than the OTC Bulletin Board closing price of $5.75
per share on July 16, 1999.
s) The following reconciles the components of the
earnings per share (EPS) computation:
F-20
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
PER- PER-
LOSS SHARES SHARE LOSS SHARE SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss per common share - basic: $ (2,860,187) 3,174,092 $ (0.90) $ (2,555,663) 2,794,696 $ (0.91)
Effect of Dilutive Securities
Options - - - - - -
Warrants - - - - - -
-----------------------------------------------------------------------------------------------------------------------
Loss per common share - assuming
dilution: $ (2,860,187) 3,174,092 $ (0.90) $ (2,555,663) 2,794,696 $ (0.91)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 316,650 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 1999 and for 1998 as they would
have an antidilutive effect. 316,650 options which
expire through 2009, are still outstanding at
December 31, 1999. Warrants to purchase 643,850
shares of common stock at prices ranging from $.01 to
$6.00 per share were not included in the computation
of loss per common share assuming dilution for 1999
and for 1998 as they would have an antidilutive
effect. 643,850 warrants which expire through 2004
are outstanding at December 31, 1999.
The following reconciles the components of the
earnings per share (EPS) computation:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPT. 30, FOR THE NINE MONTHS ENDED SEPT. 30,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
PER- PER-
LOSS SHARES SHARE LOSS SHARE SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss per common share - basic: $ (5,282,358) 3,632,343 $ (1.45) $ (1,684,517) 3,030,521 $ (0.56)
Effect of Dilutive Securities
Options - - - - - -
Warrants - - - - - -
-----------------------------------------------------------------------------------------------------------------------
Loss per common share - assuming
dilution: $ (5,282,358) 3,632,343 $ (1.45) $ (1,684,517) 3,030,521 $ (0.56)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
9. COMMITMENTS a) The Company has acquired rights to a new
AND nucleic acid labeling and detection technology
CONTINGENCIES (the "Technology") pursuant to a license agreement
F-21
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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 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. On March 12, 1997, the Company entered into a
Research and Development Agreement with the
University of Miami to provide scientific expertise
in the identification and yeast and conduct
sequencing of yeast genes for the development of
sequencing databases. The contract is renewable
annually and provides for the Company to pay the
University of Miami approximately $17,000 each month
for salaries of scientists and supplies.
c. On June 1, 1998, the Company entered into a
three-year cooperative research and development
agreement with the Agricultural Research Services of
the U.S. Department of Agriculture for the
Development (ARS) of "Arrayed Probes for Rapid
Identification of Yeasts." The Company is obligated
to pay ARS $192,757 over the three year term of the
F-22
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
agreement for technical, supplies, and a maintenance
contract for the DNA Sequencer. In addition, the
Company is obligated to pay ARS 2% of net sales of
the related products.
d. On July 1, 1999, the Company entered into a three
year employment agreement with the Chief Executive
Officer/ President and Chairman of the Board of
Directors of the Company for a base salary of
$125,000 and $132,750, respectively, per year.
Pursuant to this agreement, the Company granted ten
year options, vesting immediately, exercisable up to
180 days following the employment date to purchase
10,000 and 10,000, respectively, shares of common
stock at an exercise price of $5.75. These agreements
provide for a bonus as determined by the Board of
Directors.
e. On January 17, 2000, the Company entered into an
employment agreement with its President and Director
of Business Development. The agreement provides for a
term of two years with base annual salary of
$125,000. Under the terms of the agreement, the
executive is entitled to a performance bonus. In
connection with this agreement, the Company issued
75,000 options to purchase the Company's common stock
over three years beginning one year following the
employment date at an exercise price of $7.25.
f. Minimum guaranteed lease payments the Company's
lease are as follows:
YEAR ENDING DECEMBER 31, AMOUNT
----------------------------------------------------
2000 $ 169,000
2001 174,000
2002 179,000
2003 184,000
2004 190,000
Thereafter 500,000
----------------------------------------------------
$ 1,396,000
----------------------------------------------------
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 December of
1998, the Company renegotiated the lease reducing
annual rental payments to approximately $164,000 and
annual increases of 3%. Rent expense for 1999 and
F-23
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
1998 aggregated approximately $188,000 and $192,300,
respectively.
The Company anticipates purchasing or leasing
equipment of approximately $500,000 during 2001.
10. STOCK BASED At December 31, 1999, the Company has two stock
COMPENSATION option plans which are described below. The Company
applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting
for the plan. Under APB Opinion 25, because the exercise
price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the
date of grant, no compensation cost is recognized.
In August 1996, the Company adopted an Incentive Plan
(the "Plan") under which 300,000 shares of common stock
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.
On December 31, 1999, the Company adopted a Stock Option
Plan (the "1999 Plan") under which 400,000 shares of
common stock are reserved for issuance upon exercise of
stock based awards including, non-statutory stock
options and incentive stock options. The 1999 Plan will
be administered by a plan administrator which consists
F-24
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
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 purchases 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)
incentive options granted to 10% holders 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.
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 Black-Scholes option-pricing model based on the
following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
Risk free interest rate 5.14 - 5.88% 4.4-5.4%
Expected life 4.83 - 10 years 1.5 to 10 years
Expected volatility .458 .500 - .568
Dividend yield 0.0 0.0
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:
1999 1998
--------------------------------------------------------------------------------
Net loss
As reported $ (2,860,187) $ (2,555,663)
Pro forma (3,115,187) (2,822,676)
Net loss per common share
As reported $ (0.90) $ (0.91)
Pro forma (0.98) (1.01)
</TABLE>
A summary of the status of the Company's fixed stock
option plan and non-plan options as of December 31, 1999
and 1998 and changes during the years ended is presented
below:
F-25
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
---- --------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 282,108 $ 10.05 345,000 $ 10.48
Granted 37,995 6.33 21,608 7.76
Exercised - - (9,500) 5.00
Forfeited (3,453) 5.00 (75,000) 12.00
--------------------------------------------------------------------------------------
Outstanding at end of year 316,650 9.55 282,108 10.05
--------------------------------------------------------------------------------------
Options exercisable at year-end 316,650 9.55 202,166 9.73
Weighted-average fair value of
options granted during the 37,995 $2.74 21,608 $2.78
year
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about fixed stock
options and non-plan options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$5.00 - $12.00 316,650 6.14 9.55 316,650 9.55
</TABLE>
On June 9, 2000, the Company granted the following
options under the 1999 Stock Option Plan:
o To Mead M. McCabe, Sr., the Chairman of the Company,
options to purchase up to 100,000 shares of common
stock at an exercise price of $6.03 per share. These
options vest one-third immediately and one-third on
each of the second and third anniversaries of Mr.
McCabe's 1999 employment agreement. These options may
be exercised within ten years of the date of grant.
o To Mead M. McCabe, Jr., the Chief Executive
Officer of the Company. Options to purchase up to
100,000 shares of common stock at an exercise
price of $6.03 per share. These options vest
one-third immediately and one-third on each of the
second and third anniversaries of Mr. McCabe's
F-26
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
1999 employment agreement. These options may be
exercised within ten years of the date of grant.
o To Mark Burroughs, a director of the Company, options
to purchase 17,500 shares of common stock at an
exercise price of $6.03 per share, 12,000 of those
options vest immediately and 6,000 vest in March
2001. These options may be exercised within ten years
of the date of grant.
o To Jack Fell, a director of the Company, options to
purchase 12,500 shares of common stock at an exercise
price of $6.03 per share, 7,500 of these options vest
immediately and 5,000 vest in March 2001. These
options may be exercised within ten years of the date
of grant.
o To Michael Foley, a director of the Company, options
to purchase 10,000 shares of common stock at an
exercise price of $6.03 per share. 5,000 of those
options vest immediately and 5,000 vest in January
2001. These options may be exercised within ten years
of the date of grant.
11. SUBSEQUENT Between July 24 and August 1, 2000, the Company
EVENTS borrowed $1.2 million from thirty-five private
(UNAUDITED) investors from the sale of 48 Units, consisting of a
convertible note and warrant. Those loans have an annual
interest rate of 12% simple interest, payable at
maturity. The loans are due December 31, 2000. Prior to
the payment of the principal balance of the loan, each
private investor may convert, at his option at anytime
up to 30 days after the closing of an equity financing
by the Company of $5 million or more, all amounts due
into shares of common stock at a conversion rate of
$3.00 per share. In addition, and in the event of a
conversion, each private investor will receive for each
Unit purchased warrants to purchase 8,300 shares of
common stock at an exercise price of $6.00 per share and
8,300 shares of common stock at an exercise price of
$7.10 per share. If no conversion occurs, then each
private investor will receive for each Unit purchased
warrants to purchase 5,000 shares of common stock at an
exercise price of $6.60 per share and 5,000 shares of
common stock at an exercise price of $8.00 per share.
Additionally, in the event of a default, each investor
would be entitled to receive for each Unit purchased
warrants to purchase 5,000 shares at an exercise price
F-27
<PAGE>
Genetic Vectors, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to the nine months ended September 30, 2000 and 1999
of $5.00 per share for each month that any amounts are
outstanding under the note.
F-28
<PAGE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT GENETIC VECTORS, INC. EXCEPT THE
INFORMATION OR REPRESENTATIONS CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY
ON ANY ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE.
-----------------------
<TABLE>
<CAPTION>
<S> <C>
This prospectus does not constitute an offer to sell, or a ----------------------
solicitation of an offer to buy any securities:
PROSPECTUS
O except the common stock offered by this prospectus;
---------------------
O in any jurisdiction in which the offer or solicitation
is not authorized;
O in any jurisdiction where the dealer or other
salesperson is not qualified to make the offer or 1,400,000 SHARES OF COMMON STOCK
solicitation;
O to any person to whom it is unlawful to make the offer
or solicitation; or MERCER PARTNERS, INC.
O to any person who is not a United States resident or who
is outside the jurisdiction of the United States.
The delivery of this prospectus or any accompanying sale does not
imply that: DECEMBER ___, 2000
O there have been no changes in the affairs of Genetic
Vectors, Inc. after the date of this prospectus; or
O the information contained in this prospectus is correct after the
date of this prospectus.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our company's Articles of Incorporation and Bylaws provide that our
company shall indemnify all officers and directors to the fullest extent
permitted by law. In addition to these indemnification rights, officers and
directors are entitled to indemnification under the Florida Business Corporation
Act (the "FBCA").
Pursuant to Section 607.0850(1) of the FBCA, our company may indemnify
any person who was or is a party to any proceeding (other than an action by, or
in the right of, the corporation), by reason of the fact that he is or was a
director, officer, employee, or agent of our company or is or was serving at the
request of our company as a director, officer, employee, or agent of our company
or is or was serving at the request of our company as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of our
company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Pursuant to Section 607.0850(2) of the FBCA, our company may indemnify
any person, who was or is a party to any proceeding by or in the right of our
company to procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee, or agent of our company or is or was serving
at the request of our company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
our company, except that no indemnification shall be made under this subsection
in respect of any claim, issue, or matter as to which such person shall have
been adjudged to be liable unless, and only to the extent that, the court in
which such proceeding was brought, or any other court of competent jurisdiction,
shall determine upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any claim, issue, or matter
therein, he shall be indemnified against expense actually and reasonably
incurred by him in connection therewith; (ii) indemnification provided pursuant
to Section 607.0850 is not exclusive; and (iii) our company may purchase and
maintain insurance on behalf of a director or officer of our company against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not our company would have the
power to indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides
that indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of our company in a proceeding by or in the
right of our company to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to our company or any
other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
<PAGE>
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of our company to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of our
company, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than our company or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
In addition, the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriter to our
company's directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act, under certain
circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered.
Securities and Exchange Commission Registration Fee $ 2,800
NASD Filing Fee $ 1,500
Underwriter's Commission $1,050,000
Printing and Engraving Expenses $75,000
Accounting Fees and Expenses $50,000
Legal Fees and Expenses $146,700
Blue Sky Qualification Fees and Expenses $20,000
Transfer Agent Fees and Expenses $ 3,500
Non-Accountable Expense Allowance $315,000
Consulting Agreement $72,000
American Stock Exchange Listing Fee $36,500
---------------
TOTAL $1,773,000
===============
All amounts except the Securities and Exchange Commission Registration
Fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June and August of 1998, we issued to Jim Drewitz an aggregate of
709 shares in exchange for consulting services valued by us 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.
On September 8, 1998, we granted warrants to purchase 50,000 shares of
our common stock at an exercise price of $6.00 per share to Sterling Technology
Partners, Ltd. (the "Consultant") to assist us in obtaining additional
financing. These warrants were immediately exercisable. The closing price of our
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, we borrowed $150,000 from Patricia Gianone
($50,000 loan) and Jerome P. Seiden Revocable Trust dated April 4, 1993
($100,000 loan) ("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. We issued to the private
investors warrants to purchase 15,000 shares of our 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 our common stock on November 2, 1998 was
$7.00. We are obligated to grant the private investors warrants to purchase an
additional 2,500 shares of our common stock at an exercise price of $6.00 per
share on April 1, 1999 and each month thereafter through October 1, 1999. On
November 1, 1999 and each month thereafter that the loans are outstanding, we
are obligated to grant the private investors warrants to purchase an additional
5,000 shares of common stock at an exercise price of $6.00. The proceeds of
these loans have been used by us to fund our working capital needs. This
offering was exempt from registration pursuant to Section 4(2) of the Act and
Rule 506 promulgated thereunder. We are in default of this loan for failing to
pay principal and interest when due.
II-2
<PAGE>
In addition, on November 2, 1998, in connection with Loan No. 1, we
issued to the Consultant warrants to purchase 15,000 shares of our 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, we borrowed $163,500 from Capital Research Ltd.
("Loan No. 2"). The terms of Loan No. 2 provided for an annual interest rate of
12% that will increase 1% for each month that any portion of the loan remains
unpaid after its due date, up to the maximum rate permitted by law. Accrued
interest was payable quarterly in arrears beginning on April 19, 1999. The
outstanding principal balance was due on January 19, 2000. On March 3, 2000, the
private investor extended the due date of the principal and interest to June 30,
2000 and reduced the interest rate to 12% for the period of January 19, 2000 to
June 30, 2000. On July 7, 2000, the private investor extended the due date of
the principal and interest to September 30, 2000 and reduced the interest rate
to 12% until September 30, 2000. On October 4, 2000, the investor extended the
due date of the principal and interest to December 31, 2000. In the event the
loan is not repaid by December 31, 2000, the interest rate will increase to 16%
retroactive to January 19, 2000. The loan is secured by substantially all of our
assets. In addition, we issued the private investor warrants to purchase 50,000
shares of our common stock at an exercise price of $0.01 per share. These
warrants were immediately exercisable. The closing price of our common stock on
January 19, 1999 was $5.125. On March 3, 2000, in connection with the extension
of the maturity date, these warrants were cancelled and we issued 50,000 shares
of common stock to the private investor at no cost. On July 7, 2000, in
connection with the extension of the maturity date, we reduced the exercise
price of warrants to purchase 50,000 shares of common stock from $3.00 per share
to $1.50 per share. We are 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 our 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 us to fund our working capital needs. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
On March 9, 1999, we borrowed an additional $125,000 ("Loan No. 3")
from Capital Research Ltd. 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 its due date, up to the maximum rate permitted by
law. Accrued interest was payable quarterly in arrears beginning on April 19,
1999. The outstanding principal balance was due on January 19, 2000. On March 3,
2000, the private investor extended the due date of the principal and interest
to June 30, 2000 and reduced the interest rate to 12% for the period of January
19, 2000 to June 30, 2000. On July 7, 2000, the private investor extended the
due date of the principal and interest to September 30, 2000 and reduced the
interest rate to 12% until September 30, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. In the
event the loan is not repaid by December 31, 2000, the interest rate will
increase to 16% retroactive to January 19, 2000. The loan is secured by
substantially all of our assets. In addition, we issued the private investor
warrants to purchase 50,000 shares of our common stock at an exercise price of
$0.01 per share. These warrants were immediately exercisable. The closing price
of our common stock on March 9, 1999 was $7.875. On March 3, 2000, in connection
with the extension of the maturity date, these warrants were cancelled and we
issued 50,000 shares of common stock to the private investor at no cost. We are
obligated to grant the private investor warrants to purchase 50,000 shares of
common stock at an exercise price of $3.00 per share upon the repayment of the
loan or the closing on the sale of our securities in an aggregate amount of
$1,500,000. On July 7, 2000, in connection with the extension of the maturity
date, we reduced the exercise price of warrants to purchase 50,000 shares of
common stock from $3.00 per share to $2.50 per share. Substantially all of the
proceeds of this loan have been expended by us to fund our 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, we granted warrants to
purchase 16,350 shares of our common stock on January 19, 1999 and 12,500 shares
of our common stock on March 9, 1999 at an exercise price of $5.50 per share to
the Consultant for helping us to locate the financing. These warrants were
immediately exercisable. The closing price of our 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, we borrowed an additional $100,000 ("Loan No. 4")
from Jack Surgent. This loan has an annual interest rate of 12%. Accrued
interest was payable quarterly, commencing on June 1, 1999. The outstanding
principal balance was due April 19, 2000. The loan is secured by substantially
all of our assets. In addition, we issued the private investor warrants to
purchase 25,000 shares of our common stock at an exercise price of $3.50 per
share. These warrants were immediately exercisable. The closing price of our
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. We are in default of this loan for failing to pay principal and
interest when due. In connection with this loan, we granted warrants to purchase
10,000 shares of common stock at an exercise price of $3.50 per share to the
Consultant for helping us to locate the financing.
II-3
<PAGE>
On May 10, 1999, we issued 225,000 shares of our common stock to Lancer
Partners in exchange for $225,000. 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. The proceeds from this offering were expended by us to
fund our working capital needs. This offering was exempt from registration
pursuant to Section 4(2) of the Act and Rule 506 promulgated thereunder.
On July 16, 1999, we issued 400,000 shares of our common stock to
Lancer Partners (300,000 shares) and Jim Kelly (100,000 shares) in exchange for
$400,000. 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. The proceeds from this offering were expended by us to fund our working
capital needs. In connection with this financing, we canceled warrants in
connection with Loan No. 3 to purchase 100,000 shares of common stock at an
exercise price of $5.50 per share and issued new warrants to purchase 100,000
shares of common stock at an exercise price of $3.00 per share. This offering
was exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On October 6, 1999, we borrowed an additional $200,000 ("Loan No. 5")
from The Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued
interest was payable quarterly, commencing January 19, 2000, which will increase
one percent (1%) for each month that any portion of the loan remains unpaid
after its due date. The outstanding principal balance was due on January 19,
2000. On March 3, 2000, the private investor extended the due date of the
principal and interest to June 30, 2000. On July 7, 2000, the private investor
extended the due date of the principal and interest to September 30, 2000 and
reduced the interest rate to 12% until September 30, 2000. On October 4, 2000,
the investor extended the due date of the principal and interest to December 31,
2000. In the event the loan is not repaid by December 31, 2000, the interest
rate will increase to 16% retroactive to January 19, 2000. The loan is secured
by substantially all of our assets. In addition, we issued the private investor
warrants to purchase 80,000 shares of our common stock at an exercise price of
$.01 per share. These warrants were immediately exercisable. The closing price
of our common stock on October 7, 1999 was $5.75. On March 3, 2000, in
connection with the extension of the maturity date, these warrants were
cancelled and we issued 50,000 shares of common stock to the private investor at
no cost. On July 7, 2000, in connection with the extension of the maturity date,
we reduced the exercise price of warrants to purchase 120,000 shares of common
stock from $3.00 per share to $2.50 per share. In addition, when the loan is
paid back or if $1.5 million is subsequently raised by us, we are obligated to
issue warrants to purchase 150,000 shares of common stock at an exercise price
of $3.00 per share. In connection with this loan, we 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 us 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, we borrowed an additional $200,000 ("Loan No. 6")
from The Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued
interest was payable quarterly, commencing January 19, 2000, which will increase
one percent (1%) for each month that any portion of the loan remains unpaid
after its due date. The outstanding principal balance is due on January 19,
2000. On March 3, 2000, the private investor extended the due date of the
principal and interest to June 30, 2000. On July 7, 2000, the private investor
extended the due date of the principal and interest to September 30, 2000 and
reduced the interest rate to 12% until September 30, 2000. On October 4, 2000,
the investor extended the due date of the principal and interest to December 31,
2000. In the event the loan is not repaid by December 31, 2000, the interest
rate will increase to 16% retroactive to January 19, 2000. The loan is secured
by substantially all of our assets. In addition, our 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 our common stock on November 19, 1999 was $6.00. On March 3, 2000, in
connection with the extension of the maturity date, these warrants were
cancelled and we issued 80,000 shares of common stock to the private investor.
On July 7, 2000, in connection with the extension of the maturity date, we
reduced the exercise price of warrants to purchase 120,000 shares of common
stock from $3.00 per share to $2.50 per share. In addition, when the loan is
paid back or if $1.5 million is subsequently raised, we are obligated to issue
warrants to purchase 150,000 shares of our common stock at an exercise price of
$3.00 per share. In connection with this loan, we granted warrants to purchase
20,000 shares of our common stock on November 19, 1999 at an exercise price of
$3.00 per share to the Consultant for helping us 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 December 22, 1999, we borrowed an additional $300,000 ("Loan No. 7")
from The Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued
interest is payable quarterly, commencing on April 22, 2000, which will increase
one percent (1%) for each month that any portion of the loan remains unpaid
after its due date. The outstanding principal balance was due on April 22, 2000.
On March 3, 2000, the private investor extended the due date of the principal
and interest to June 30, 2000. On July 7, 2000, the private investor extended
the due date of the principal and interest to September 30, 2000 and reduced the
interest rate to 12% until September 30, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. In the
event the loan is not repaid by December 31, 2000, the interest rate will
II-4
<PAGE>
increase to 16% retroactive to January 19, 2000. The loan is secured by
substantially all of our assets. In addition, we issued the private investor
warrants to purchase 120,000 shares of common stock at an exercise price of
$1.00 per share. These warrants were immediately exercisable. The closing price
of our common stock on December 22, 1999 was $5.25. In addition, when the loan
is paid back or if $1.5 million is subsequently raised, we are obligated to
issue warrants to purchase 150,000 shares of common stock at an exercise price
of $3.00 per share. On July 7, 2000, in connection with the extension of the
maturity date, we reduced the exercise price of warrants to purchase 120,000
shares of common stock from $3.00 per share to $2.50 per share. In connection
with this loan, we granted to the Consultant warrants to purchase 30,000 shares
of common stock at an exercise price of $3.00 per share for helping us locate
the financing. These warrants are immediately exercisable. This offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On February 11, 2000, we borrowed $250,000 ("Loan No. 8") from The
Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued interest
is payable quarterly, commencing on its due date, which will increase one
percent (1%) for each month that any portion of the loan remains unpaid after
April 22, 2000. In addition, we issued the private investor warrants to purchase
100,000 shares of common stock at an exercise price of $1.00 per share. These
warrants were immediately exercisable. On March 3, 2000, the private investor
extended the due date of the principal and interest to June 30, 2000. On July 7,
2000, the private investor extended the due date of the principal and interest
to September 30, 2000 and reduced the interest rate to 12% until September 30,
2000. On October 4, 2000, the investor extended the due date of the principal
and interest to December 31, 2000. In the event the loan is not repaid by
December 31, 2000, the interest rate will increase to 16% retroactive to January
19, 2000. The loan is secured by substantially all of our assets. The closing
price of our common stock on February 11, 2000 was $7.25. In addition, when the
loan is paid back or if $1.5 million is subsequently raised, we will issue
warrants to purchase 125,000 shares of common stock at an exercise price of
$3.00 per share. On July 7, 2000, in connection with the extension of the
maturity date, we reduced the exercise price of warrants to purchase 120,000
shares of common stock from $3.00 per share to $2.50 per share. In connection
with this loan, we granted to the Consultant warrants to purchase 25,000 shares
of common stock at an exercise price of $3.00 per share for helping us locate
the financing. These warrants are immediately exercisable. This offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On March 2, 2000, we borrowed $75,000 from John D. Higgins ("Loan No.
9"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan was due on August 30, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. Prior
to the payment of the principal balance of the loan, the private investor may
convert, at his option, all amounts due into shares of our common stock at a
conversion rate of $5.00 per share. In addition, we issued the private investor
warrants to purchase 7,500 shares of common stock at an exercise price of $6.20
per share. In the event of a default, this note is convertible into shares of
common stock at a conversion rate of $3.00 per share. Additionally, in the event
of a default, the investor would be entitled to warrants to purchase 750 shares
at an exercise price of $5.00 per share for each month that any amounts are
outstanding under the note. The offering was exempt from registration pursuant
to Section 4(2) of the Act and Rule 506 promulgated thereunder.
On March 7, 2000, we borrowed $100,000 from Frederick & Company ("Loan
No. 10"). The loan has an annual interest rate of 12%, simple interest, payable
at maturity. This loan was due on September 5, 2000. On October 4, 2000, the
investor extended the due date of the principal and interest to December 31,
2000. Prior to the payment of the principal balance of the loan, the private
investor may convert, at his option, all amounts due into shares of our common
stock at a conversion rate of $5.00 per share. In addition, we issued the
private investor warrants to purchase 10,000 shares of common stock at an
exercise price of $6.20 per share. In the event of a default, this note is
convertible into shares of common stock at a conversion rate of $3.00 per share.
Additionally, in the event of a default, the investor would be entitled to
warrants to purchase 1,000 shares at an exercise price of $5.00 per share for
each month that any amounts are outstanding under the note. The offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On April 4, 2000, we borrowed $100,000 from Donald Heap ("Loan No.
11"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan was due on October 3, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. Prior
to the payment of the principal balance of the loan, the private investor may
convert, at his option, all amounts due into shares of our common stock at a
conversion rate of $5.00 per share. In addition, we issued the private investor
warrants to purchase 10,000 shares of common stock at an exercise price of $6.20
per share. In the event of a default, this note is convertible into shares of
common stock at a conversion rate of $3.00 per share. Additionally, in the event
of a default, the investor would be entitled to warrants to purchase 1,000
shares at an exercise price of $5.00 per share for each month that any amounts
are outstanding under the note. The offering was exempt from registration
pursuant to Section 4(2) of the Act and Rule 506 promulgated thereunder.
II-5
<PAGE>
On May 8, 2000, we borrowed $100,000 ("Loan No. 12") and on May 26,
2000 we borrowed $500,000 from Jim Kelly ("Loan No. 13"). These loans have an
annual interest rate of 12%, simple interest, payable at maturity. The maturity
dates on these loans have been extended to December 31, 2000. Prior to the
payment of the principal balance of the loan, the private investor may convert,
at his option at anytime up to 30 days after the closing of an equity financing
by our company of $5 million or more, all amounts due into shares of our common
stock at a conversion rate of $3.00 per share. In addition, and in the event of
a conversion, the private investor will receive warrants to purchase (a) 33,333
(Loan No. 12) and 166,665 (Loan No. 13) shares of common stock at an exercise
price of $6.00 per share and (b) 33,333 (Loan No. 12) and 166,665 (Loan No. 13)
shares of common stock at an exercise price of $7.10 per share. If no conversion
occurs, then the private investor will receive warrants to purchase (a) 20,000
(Loan No. 12) and 100,000 (Loan No. 13) shares of common stock at an exercise
price of $6.60 per share and (b) 20,000 (Loan No. 12) and 100,000 (Loan No. 13)
shares of common stock at an exercise price of $8.00 per share. Additionally, in
the event of a default, the investor would be entitled to warrants to purchase
(a) 10,000 (Loan No. 12) and (b) 10,000 (Loan No. 13) shares of common stock at
an exercise price of $5.00 per share for each month that any amounts are
outstanding under the note. The offering was exempt from registration pursuant
to Section 4(2) of the Act and Rule 506 promulgated thereunder.
On June 9, 2000, we borrowed $50,000 ("Loan No. 14") from Michael and
Lois Halbert. This loan has an annual interest rate of 12%, simple interest,
payable at maturity. The loan is due on December 31, 2000. Prior to the payment
of the principal balance of the loan, the private investor may convert, at his
option at anytime up to 30 days after the closing of an equity financing by our
company of $5 million or more, all amounts due into shares of our common stock
at a conversion rate of $3.00 per share. In addition, and in the event of a
conversion, the private investor will receive warrants to purchase 16,665 shares
of common stock at an exercise price of $6.00 per share and 16,665 shares of
common stock at an exercise price of $7.10 per share. If no conversion occurs,
then the private investors will receive warrants to purchase 10,000 shares of
common stock at an exercise price of $6.60 per share and 10,000 shares of common
stock at an exercise price of $8.00 per share. Additionally, in the event of a
default, the investor would be entitled to warrants to purchase 5,000 shares at
an exercise price of $5.00 per share for each month that any amounts are
outstanding under the note. The offering was exempt from registration pursuant
to Section 4(2) of the Act and Rule 506 promulgated thereunder.
Between July 24 and August 1, 2000, we borrowed $1,200,000 ("Loan No.
14") from thirty-five private investors from the sale of 48 Units, consisting of
a convertible note and warrant. These loans have an annual interest rate of 12%,
simple interest, payable at maturity. The loans are due on December 31, 2000.
Prior to the payment of the principal balance of the loan, each private investor
may convert, at his option at anytime up to 30 days after the closing of an
equity financing by our company of $5 million or more, all amounts due into
shares of our common stock at a conversion rate of $3.00 per share. In addition,
and in the event of a conversion, each private investor will receive for each
Unit purchased warrants to purchase 8,333 shares of common stock at an exercise
price of $6.00 per share and 8,333 shares of common stock at an exercise price
of $7.10 per share. If no conversion occurs, then each private investor will
receive for each Unit purchased warrants to purchase 5,000 shares of common
stock at an exercise price of $6.60 per share and 5,000 shares of common stock
at an exercise price of $8.00 per share. Additionally, in the event of a
default, each investor would be entitled to receive for each Unit purchased
warrants to purchase 2,500 shares at an exercise price of $5.00 per share for
each month that any amounts are outstanding under the note. The offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder. The names of the thirty-five private investors are David
A. Brady, Jr., Tom Vinson, John W. McGriff, James Lasbury Mitchell III, C. Frank
Foster, Jr., Anthony Balsamo, Jim Avramovich, Dewayne Truitt, Herman A. Vonhof,
Scott Davis, Dr. Will Brantley, Arthur Dietz, Leo Thompson, L. Scott Stankavage,
Ben Biacchino, Robert L. Stanley, Michael Chatham, Anthony Byrne, Ralph Anderson
III, Bryan Carr, George Levin, Richard Wunderlich, J.R. Frangipane, James
Leiferman, Mark Spector, James Owen, Robert Stranger, The Estate of Milton
Smithloff, Robert Benninger Jr., Bruce Rothmann, Joseph J. Steinkirchner,
Jeffrey Rinde, Will Hendrick, Mark Jesuroga and Thomas Johnston.
II-6
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this
registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement between Mercer Incorporated by reference to Exhibit No. 1.1 to the
Partners, Inc. and the Company Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
1.2 Form of Consulting Agreement between Mercer Incorporated by reference to Exhibit No. 1.2 to the
Partners, Inc. and the Company Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 24, 2000
1.3 Form of Selected Dealers Agreement between Incorporated by reference to Exhibit No. 1.3 to the
Mercer Partners, Inc. and the Company Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
1.4 Form of Agreement among Underwriters Incorporated by reference to Exhibit No. 1.4 to the
Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
1.5 Form of Underwriter's Warrant from the Company Incorporated by reference to Exhibit No. 1.5 to the
to Mercer Partners, Inc. Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
2.1 Stock Purchase Agreement dated as Incorporated by reference to Exhibit 2.1 to
of January 15, 2000, among the Company Registrant's Current Report on Form 8-K filed
and shareholders of DNA Sciences, Inc. with the SEC on February 14, 2000
3.1 Articles of Incorporation of the Company, as Incorporated by reference to Exhibit No. 3.1 to
amended 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
3.3 Amendment to By-Laws of the Company Incorporated by reference to Exhibit No. 3.3 to the
Annual Report on Form 10-KSB for the year ended
December 31, 1999
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
4.4 Form of 1999 Stock Option Plan Incorporated by reference to Exhibit No. 4.4 to the
Annual Report on Form 10-KSB for the year ended
December 31, 1999
II-7
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
5.1 Opinion re: Legality Incorporated by reference to Exhibit No. 5.1 to the
Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on August 24, 2000
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No. 10.1 to the
between the University of Miami and its School Registration Statement
of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated January Incorporated by reference to Exhibit No. 10.2 to the
20, 1992 between ProVec, Inc. and EpiDNA, Inc. Registration Statement
10.3 Agreement between University of Miami and its Incorporated by reference to Exhibit No. 10.3 to the
School of Medicine and the Company dated August Registration Statement
21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No. 10.4 to the
between Mead M. McCabe, Sr. and the Company Registration Statement
10.5 Stock Option Addendum to Employment Agreement Incorporated by reference to Exhibit No. 10.5 to the
dated August 15, 1996 between Mead M. McCabe, Registration Statement
Sr. and the Company
10.6 Stock Option Addendum to Employment Agreement Incorporated by reference to Exhibit No. 10.7 to the
dated August 15, 1996 between Mead M. McCabe, Registration Statement
Sr. and the Company
10.7 Consulting Agreement dated June 19, 1996 between Incorporated by reference to Exhibit No. 10.10 to the
James A. Joyce and the Company Registration Statement
10.8 Letter Agreement dated December 16, 1994 among Incorporated by reference to Exhibit No. 10.11 to the
Nyer Medical Group, Inc., the Company, Mead M. Registration Statement
McCabe, Sr. And Mead M. McCabe, Jr.
10.9 Investors Finders Agreement dated June 9, 1994 Incorporated by reference to Exhibit No. 10.12 to the
among Nyer Medical Group, Inc., and the Company Registration Statement
and Gulf American Trading Company
10.10 Industrial Real Estate Lease dated June 12, 1997 Incorporated by reference to Exhibit No. 10.13 to the
among the Company and Jetex Group, Inc. Company's Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1997
10.11 Letter from University of Miami dated April 8, Incorporated by reference to Exhibit No. 10.12 to the
1998 Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997
10.12 Promissory Note dated as of November 2, 1998 in Incorporated by reference to Exhibit No. 10.13 to the
the Original Principal Amount of $50,000 given Company's Annual Report on Form 10-KSB for the year
by the Company to Ms. Patricia A. Gionone ended December 31, 1998
II-8
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.13 Common Stock Purchase Warrant No. W-2 dated as Incorporated by reference to Exhibit No. 10.14 to the
of November 2, 1998 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Ms. Patricia A. Gionone ended December 31, 1998
10.14 Promissory Note dated as of November 2, 1998 Incorporated by reference to Exhibit No. 10.15 to the
in the Original Principal Amount of $100,000 Company's Annual Report on Form 10-KSB for the year
given by the Company to Jerome P. Seiden ended December 31, 1998
Irrevocable Trust Dated April 22, 1998
10.15 Common Stock Purchase Warrant No. W-1 dated as Incorporated by reference to Exhibit No. 10.16 to the
of November 2, 1998 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Jerome P. Seiden Irrevocable Trust Dated April ended December 31, 1998
22, 1998
10.16 Common Stock Purchase Warrant No. W-5 dated as Incorporated by reference to Exhibit No. 10.17 to the
of September 3, 1998 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Sterling Technology Partners, Ltd. ended December 31, 1998
10.17 Common Stock Purchase Warrant No. W-4 dated as Incorporated by reference to Exhibit No. 10.18 to the
of January 19, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Sterling Technology Partners, Ltd. ended December 31, 1998
10.18 Common Stock Purchase Warrant No. W-7 dated as Incorporated by reference to Exhibit No. 10.19 to the
of March 9, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Sterling Technology Partners, Ltd. ended December 31, 1998
10.19 Common Stock Purchase Warrant No. W-3 dated as Incorporated by reference to Exhibit No. 10.20 to the
of January 19, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Capital Research, Ltd. ended December 31, 1998
10.20 Promissory Note dated as of January 19, 1999 in Incorporated by reference to Exhibit No. 10.21 to the
the Original Principal Amount of $163,500 given Company's Annual Report on Form 10-KSB for the year
by the Company to Capital Research, Ltd. ended December 31, 1998
10.21 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.22 to the
January 19, 1999 between the Company and Capital Company's Annual Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.22 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.23 to the
January 19, 1999 between the Company and Capital Company's Annual Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.23 Promissory Note dated as of March 9, 1999 in Incorporated by reference to Exhibit No. 10.24 to the
the Original Principal Amount of $125,000 given Company's Annual Report on Form 10-KSB for the year
by the Company to Capital Research, Ltd. ended December 31, 1998
10.24 Common Stock Purchase Warrant No. W-6 dated as Incorporated by reference to Exhibit No. 10.25 to the
of March 9, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Capital Research, Ltd. ended December 31, 1998
10.25 Registration Rights Agreement dated as of March Incorporated by reference to Exhibit No. 10.26 to the
9, 1999 between the Company and Capital Company's Annual Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
II-9
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.26 Executive Employment Agreement, together with Incorporated by reference to Exhibit 10.26 to the
Stock Option Addendum, dated as of July 1, 1999 Company's Annual Report on Amendment No. 1 to the Form
between Mead M. McCabe, Jr. and the Company 10 KSB for the year ended December 31, 1998
10.27 Executive Employment Agreement, together with Incorporated by reference to Exhibit 10.27 to the
Stock Option Addendum, dated as of July 1, 1999 Company's Annual Report on Amendment No. 1 to the Form
between Mead M. McCabe, Sr. and the Company 10 KSB for the year ended December 31, 1998
10.28 Executive Employment Agreement, together with Incorporated by reference to Exhibit No. 10.29 to the
Stock Option Addendum, dated as of January 17, Annual Report on Form 10-KSB for the year ended
2000 between Eric Wilkinson and the Company December 31, 1999
10.29 Promissory Note dated as of April 19, 1999 Incorporated by reference to Exhibit No. 10.30 to the
in the Original Principal Amount of $100,000 Annual Report on Form 10-KSB for the year ended
given by the Company to Jack Surgent December 31, 1999
10.30 Registration Rights Agreement dated as of April Incorporated by reference to Exhibit No. 10.31 to the
19, 1999 between the Company and Jack Surgent Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.31 Common Stock Purchase Warrant dated as of April Incorporated by reference to Exhibit No. 10.32 to the
19, 1999 granted by the Company to Jack Surgent Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.32 Promissory Note dated as of October 6, 1999 Incorporated by reference to Exhibit No. 10.33 to the
in the Original Principal Amount of $200,000 Annual Report on Form 10-KSB for the year ended
given by the Company to Orbiter Fund, Ltd. December 31, 1999
10.33 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.34 to the
October 6, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.34 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.35 to the
October 6, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.35 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.36 to the
October 6, 1999 granted by the Company to Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.36 Promissory Note dated as of November 19, 1999 Incorporated by reference to Exhibit No. 10.37 to the
in the Original Principal Amount of $200,000 Annual Report on Form 10-KSB for the year ended
given by the Company to Orbiter Fund, Ltd. December 31, 1999
10.37 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.38 to the
November 19, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
II-10
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.38 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.39 to the
November 19, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.39 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.40 to the
December 22, 1999 granted by the Company to Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.40 Promissory Note dated as of November 19, 1999 Incorporated by reference to Exhibit No. 10.41 to the
in the Original Principal Amount of $300,000 Annual Report on Form 10-KSB for the year ended
given by the Company to Orbiter Fund, Ltd. December 31, 1999
10.41 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.42 to the
December 22, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.42 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.43 to the
December 22, 1999 between the Company and The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.43 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.44 to the
December 22, 1999 granted by the Company The Annual Report on Form 10-KSB for the year ended
to Orbiter Fund, Ltd. December 31, 1999
10.44 Promissory Note dated as of February, 2000 Incorporated by reference to Exhibit No. 10.45 to the
in the Original Principal Amount of $250,000 Annual Report on Form 10-KSB for the year ended
given by the Company to The Orbiter Fund, Ltd. December 31, 1999
10.45 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.46 to the
February, 2000 between the Company and The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.46 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.47 to the
February, 2000 between the Company and The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.47 Stock Purchase Agreement dated as of January Incorporated by reference to Exhibit No. 10.48 to the
17, 2000 among the Company, DNA Sciences, Inc. Annual Report on Form 10-KSB for the year ended
and to the shareholders of DNA Sciences, Inc. December 31, 1999
10.48 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.49 to the
February, 2000 given by the Company to The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.49 Convertible Promissory Note dated as of Incorporated by reference to Exhibit No. 10.50
March 2, 2000 in the Original Principal Annual Report on Form 10-KSB for the year ended
Amount of $75,000 given by the Company December 31, 1999
to Jack Higgins
II-11
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.50 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No.
March 2, 2000 between the Company and Jack 10.51 to the Annual Report on Form 10-KSB for
Higgins the year ended December 31, 1999
10.51 Convertible Promissory Note dated as of Incorporated by reference to Exhibit No. 10.52
March 7, 2000 in the Original Principal to the Annual Report on Form 10-KSB for the
Amount of $100,000 given by the Company to year ended December 31, 1999
Frederick & Company
10.52 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.53
March 7, 2000 between the Company and to the Annual Report on Form 10-KSB for the
Frederick & Company year ended December 31, 1999
10.53 Convertible Promissory Note in the Incorporated by reference to Exhibit No. 10.54
Original Principal Amount of $100,000 to the Annual Report on Form 10-KSB for the
dated as of May 8, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.54 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.55
May 8, 2000 between the Company and Jim to the Annual Report on Form 10-KSB for the
Kelly. year ended December 31, 1999
10.55 Convertible Promissory Note in the Incorporated by reference to Exhibit No. 10.56
Original Principal Amount of $500,000 to the Annual Report on Form 10-KSB for the
dated as of May 26, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.56 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.57
May 26, 2000 between the Company and Jim to the Annual Report on Form 10-KSB for the
Kelly. year ended December 31, 1999
10.57 Convertible Promissory Note in the Incorporated by reference to Exhibit 10.57 to
Original Principal Amount of $100,000 the Quarterly Report on Form 10-QSB for the
dated as of April 4, 2000 between the three months ended March 31, 2000
Company and Donald Heap.
10.58 Common Stock Purchase Warrant No. W-18 Incorporated by reference to Exhibit 10.58 to
dated as of April 4, 2000 between the the Quarterly Report on Form 10-QSB for the
Company and Donald Heap. three months ended March 31, 2000
10.59 Convertible Promissory Note in the Incorporated by reference to Exhibit 10.59 to
Original Principal Amount of $50,000 dated the Quarterly Report on Form 10-QSB for the
as of June 9, 2000 between the Company and three months ended March 31, 2000
Michael and Lois Halbert
10.60 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit 10.60 to
June 9, 2000 between the Company and the Quarterly Report on Form 10-QSB for the
Michael and Lois Halbert three months ended March 31, 2000
10.61 Common Stock Purchase Warrant No. W-12 Incorporated by reference to Exhibit 10.61 to
dated as of October 6, 1999 between the the Quarterly Report on Form 10-QSB for the
Company and Sterling Technology Partners, three months ended March 31, 2000
Ltd.
II-12
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.62 Common Stock Purchase Warrant No. W-13 Incorporated by reference to Exhibit 10.62 to
dated as of December 22, 1999 between the the Quarterly Report on Form 10-QSB for the
Company and Sterling Technology Partners, three months ended March 31, 2000
Ltd.
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 Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
August 24, 2000
22. Published report regarding matters Not applicable
submitted to Vote
23.1 Consent of Independent Accountant Provided herewith
23.2 Consent of Counsel Incorporated by reference to Exhibit No. 23.2
to the Registration Statement on Form SB-2
filed with the Securities and Exchange
Commission on August 24, 2000
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by
Sections 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts
or events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be a bona fide offering thereof.
II-13
<PAGE>
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the BONA FIDE offering thereof.
II-14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, in the City of Miami,
Florida, on December 6, 2000.
GENETIC VECTORS, INC.
By: /s/ Mead M. McCabe, Jr.
---------------------------------------------------
Name: Mead M. McCabe, Jr.
Title: Chief Executive Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mead M. McCabe, Jr. December 6, 2000
------------------------------------------
Mead M. McCabe, Jr. Chief Executive Officer, Secretary, Chief Financial
Officer, Director
/s/ Mead M. McCabe, Sr. December 6, 2000
------------------------------------------
Mead M. McCabe, Sr. Chairman of the Board of Directors (Principal
Executive Officer)
/s/ Eric Wilkinson December 6, 2000
-------------------------------
Eric Wilkinson President and Director
/s/ Mark E. Burroughs December 6, 2000
------------------------------------------
Mark E. Burroughs Director
/s/ Michael C. Foley December 6, 2000
-------------------------------
Michael C. Foley Director
</TABLE>
II-15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement between Mercer Incorporated by reference to Exhibit No. 1.1 to the
Partners, Inc. and the Company Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
1.2 Form of Consulting Agreement between Mercer Incorporated by reference to Exhibit No. 1.2 to the
Partners, Inc. and the Company Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 24, 2000
1.3 Form of Selected Dealers Agreement between Incorporated by reference to Exhibit No. 1.3 to the
Mercer Partners, Inc. and the Company Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
1.4 Form of Agreement among Underwriters Incorporated by reference to Exhibit No. 1.4 to the
Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
1.5 Form of Underwriter's Warrant from the Company Incorporated by reference to Exhibit No. 1.5 to the
to Mercer Partners, Inc. Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on October 20, 2000
2.1 Stock Purchase Agreement dated as of January 15, Incorporated by reference to Exhibit 2.1 to
2000, among the Company and shareholders of DNA Registrant's Current Report on Form 8-K filed with the
Sciences, Inc. SEC on February 14, 2000
3.1 Articles of Incorporation of the Company, as Incorporated by reference to Exhibit No. 3.1 to
amended 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
3.3 Amendment to By-Laws of the Company Incorporated by reference to Exhibit No. 3.3 to the
Annual Report on Form 10-KSB for the year ended
December 31, 1999
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
4.4 Form of 1999 Stock Option Plan Incorporated by reference to Exhibit No. 4.4 to the
Annual Report on Form 10-KSB for the year ended
December 31, 1999
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
<S> <C> <C>
5.1 Opinion re: Legality Incorporated by reference to Exhibit No. 5.1 to the
Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on August 24, 2000
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No. 10.1 to the
between the University of Miami and its School Registration Statement
of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated January Incorporated by reference to Exhibit No. 10.2 to the
20, 1992 between ProVec, Inc. and EpiDNA, Inc. Registration Statement
10.3 Agreement between University of Miami and its Incorporated by reference to Exhibit No. 10.3 to the
School of Medicine and the Company dated August Registration Statement
21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No. 10.4 to the
between Mead M. McCabe, Sr. and the Company Registration Statement
10.5 Stock Option Addendum to Employment Agreement Incorporated by reference to Exhibit No. 10.5 to the
dated August 15, 1996 between Mead M. McCabe, Registration Statement
Sr. and the Company
10.6 Stock Option Addendum to Employment Agreement Incorporated by reference to Exhibit No. 10.7 to the
dated August 15, 1996 between Mead M. McCabe, Registration Statement
Sr. and the Company
10.7 Consulting Agreement dated June 19, 1996 between Incorporated by reference to Exhibit No. 10.10 to the
James A. Joyce and the Company Registration Statement
10.8 Letter Agreement dated December 16, 1994 among Incorporated by reference to Exhibit No. 10.11 to the
Nyer Medical Group, Inc., the Company, Mead M. Registration Statement
McCabe, Sr. And Mead M. McCabe, Jr.
10.9 Investors Finders Agreement dated June 9, 1994 Incorporated by reference to Exhibit No. 10.12 to the
among Nyer Medical Group, Inc., and the Company Registration Statement
and Gulf American Trading Company
10.10 Industrial Real Estate Lease dated June 12, 1997 Incorporated by reference to Exhibit No. 10.13 to the
among the Company and Jetex Group, Inc. Company's Quarterly Report on Form 10-QSB for the
Quarter ended June 30, 1997
10.11 Letter from University of Miami dated April 8, Incorporated by reference to Exhibit No. 10.12 to the
1998 Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997
10.12 Promissory Note dated as of November 2, 1998 in Incorporated by reference to Exhibit No. 10.13 to the
the Original Principal Amount of $50,000 given Company's Annual Report on Form 10-KSB for the year
by the Company to Ms. Patricia A. Gionone ended December 31, 1998
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10.13 Common Stock Purchase Warrant No. W-2 dated as Incorporated by reference to Exhibit No. 10.14 to the
of November 2, 1998 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Ms. Patricia A. Gionone ended December 31, 1998
10.14 Promissory Note dated as of November 2, 1998 in Incorporated by reference to Exhibit No. 10.15 to the
the Original Principal Amount of $100,000 given Company's Annual Report on Form 10-KSB for the year
by the Company to Jerome P. Seiden Irrevocable ended December 31, 1998
Trust Dated April 22, 1998
10.15 Common Stock Purchase Warrant No. W-1 dated as Incorporated by reference to Exhibit No. 10.16 to the
of November 2, 1998 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Jerome P. Seiden Irrevocable Trust Dated April ended December 31, 1998
22, 1998
10.16 Common Stock Purchase Warrant No. W-5 dated as Incorporated by reference to Exhibit No. 10.17 to the
of September 3, 1998 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Sterling Technology Partners, Ltd. ended December 31, 1998
10.17 Common Stock Purchase Warrant No. W-4 dated as Incorporated by reference to Exhibit No. 10.18 to the
of January 19, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Sterling Technology Partners, Ltd. ended December 31, 1998
10.18 Common Stock Purchase Warrant No. W-7 dated as Incorporated by reference to Exhibit No. 10.19 to the
of March 9, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Sterling Technology Partners, Ltd. ended December 31, 1998
10.19 Common Stock Purchase Warrant No. W-3 dated as Incorporated by reference to Exhibit No. 10.20 to the
of January 19, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Capital Research, Ltd. ended December 31, 1998
10.20 Promissory Note dated as of January 19, 1999 in Incorporated by reference to Exhibit No. 10.21 to the
the Original Principal Amount of $163,500 given Company's Annual Report on Form 10-KSB for the year
by the Company to Capital Research, Ltd. ended December 31, 1998
10.21 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.22 to the
January 19, 1999 between the Company and Capital Company's Annual Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.22 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.23 to the
January 19, 1999 between the Company and Capital Company's Annual Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.23 Promissory Note dated as of March 9, 1999 in Incorporated by reference to Exhibit No. 10.24 to the
the Original Principal Amount of $125,000 given Company's Annual Report on Form 10-KSB for the year
by the Company to Capital Research, Ltd. ended December 31, 1998
10.24 Common Stock Purchase Warrant No. W-6 dated as Incorporated by reference to Exhibit No. 10.25 to the
of March 9, 1999 granted by the Company to Company's Annual Report on Form 10-KSB for the year
Capital Research, Ltd. ended December 31, 1998
10.25 Registration Rights Agreement dated as of March Incorporated by reference to Exhibit No. 10.26 to the
9, 1999 between the Company and Capital Company's Annual Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
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10.26 Executive Employment Agreement, together with Incorporated by reference to Exhibit 10.26 to the
Stock Option Addendum, dated as of July 1, 1999 Company's Annual Report on Amendment No. 1 to the Form
between Mead M. McCabe, Jr. and the Company 10 KSB for the year ended December 31, 1998
10.27 Executive Employment Agreement, together with Incorporated by reference to Exhibit 10.27 to the
Stock Option Addendum, dated as of July 1, 1999 Company's Annual Report on Amendment No. 1 to the Form
between Mead M. McCabe, Sr. and the Company 10 KSB for the year ended December 31, 1998
10.28 Executive Employment Agreement, together with Incorporated by reference to Exhibit No. 10.29 to the
Stock Option Addendum, dated as of January 17, Annual Report on Form 10-KSB for the year ended
2000 between Eric Wilkinson and the Company December 31, 1999
10.29 Promissory Note dated as of April 19, 1999 in Incorporated by reference to Exhibit No. 10.30 to the
the Original Principal Amount of $100,000 given Annual Report on Form 10-KSB for the year ended
by the Company to Jack Surgent December 31, 1999
10.30 Registration Rights Agreement dated as of April Incorporated by reference to Exhibit No. 10.31 to the
19, 1999 between the Company and Jack Surgent Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.31 Common Stock Purchase Warrant dated as of April Incorporated by reference to Exhibit No. 10.32 to the
19, 1999 granted by the Company to Jack Surgent Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.32 Promissory Note dated as of October 6, 1999 in Incorporated by reference to Exhibit No. 10.33 to the
the Original Principal Amount of $200,000 given Annual Report on Form 10-KSB for the year ended
by the Company to Orbiter Fund, Ltd. December 31, 1999
10.33 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.34 to the
October 6, 1999 between the Company and Orbiter Annual Report on Form 10-KSB for the year ended
Fund, Ltd. December 31, 1999
10.34 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.35 to the
October 6, 1999 between the Company and Orbiter Annual Report on Form 10-KSB for the year ended
Fund, Ltd. December 31, 1999
10.35 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.36 to the
October 6, 1999 granted by the Company to Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.36 Promissory Note dated as of November 19, 1999 in Incorporated by reference to Exhibit No. 10.37 to the
the Original Principal Amount of $200,000 given Annual Report on Form 10-KSB for the year ended
by the Company to Orbiter Fund, Ltd. December 31, 1999
10.37 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.38 to the
November 19, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
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10.38 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.39 to the
November 19, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.39 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.40 to the
December 22, 1999 granted by the Company to Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.40 Promissory Note dated as of November 19, 1999 in Incorporated by reference to Exhibit No. 10.41 to the
the Original Principal Amount of $300,000 given Annual Report on Form 10-KSB for the year ended
by the Company to Orbiter Fund, Ltd. December 31, 1999
10.41 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.42 to the
December 22, 1999 between the Company and Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.42 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.43 to the
December 22, 1999 between the Company and The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.43 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.44 to the
December 22, 1999 granted by the Company to The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.44 Promissory Note dated as of February, 2000 in Incorporated by reference to Exhibit No. 10.45 to the
the Original Principal Amount of $250,000 give Annual Report on Form 10-KSB for the year ended
by the Company to The Orbiter Fund, Ltd. December 31, 1999
10.45 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.46 to the
February, 2000 between the Company and The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.46 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.47 to the
February, 2000 between the Company and The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.47 Stock Purchase Agreement dated as of January 17, Incorporated by reference to Exhibit No. 10.48 to the
2000 among the Company, DNA Sciences, Inc. and Annual Report on Form 10-KSB for the year ended
the shareholders of DNA Sciences, Inc. December 31, 1999
10.48 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.49 to the
February, 2000 given by the Company to The Annual Report on Form 10-KSB for the year ended
Orbiter Fund, Ltd. December 31, 1999
10.49 Convertible Promissory Note dated as of March 2, Incorporated by reference to Exhibit No. 10.50 to the
2000 in the Original Principal Amount of $75,000 Annual Report on Form 10-KSB for the year ended
given by the Company to Jack Higgins December 31, 1999
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10.50 Common Stock Purchase Warrant dated as of March Incorporated by reference to Exhibit No. 10.51 to the
2, 2000 between the Company and Jack Higgins Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.51 Convertible Promissory Note dated as of March 7, Incorporated by reference to Exhibit No. 10.52 to the
2000 in the Original Principal Amount of Annual Report on Form 10-KSB for the year ended
$100,000 given by the Company to Frederick & December 31, 1999
Company
10.52 Common Stock Purchase Warrant dated as of March Incorporated by reference to Exhibit No. 10.53 to the
7, 2000 between the Company and Frederick & Annual Report on Form 10-KSB for the year ended
Company December 31, 1999
10.53 Convertible Promissory Note in the Original Incorporated by reference to Exhibit No. 10.54 to the
Principal Amount of $100,000 dated as of May 8, Annual Report on Form 10-KSB for the year ended
2000 between the Company and Jim Kelly. December 31, 1999
10.54 Common Stock Purchase Warrant dated as of May 8, Incorporated by reference to Exhibit No. 10.55 to the
2000 between the Company and Jim Kelly. Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.55 Convertible Promissory Note in the Original Incorporated by reference to Exhibit No. 10.56 to the
Principal Amount of $500,000 dated as of May 26, Annual Report on Form 10-KSB for the year ended
2000 between the Company and Jim Kelly. December 31, 1999
10.56 Common Stock Purchase Warrant dated as of May Incorporated by reference to Exhibit No. 10.57 to the
26, 2000 between the Company and Jim Kelly. Annual Report on Form 10-KSB for the year ended
December 31, 1999
10.57 Convertible Promissory Note in the Original Incorporated by reference to Exhibit 10.57 to the
Principal Amount of $100,000 dated as of April Quarterly Report on Form 10-QSB for the three months
4, 2000 between the Company and Donald Heap. ended March 31, 2000
10.58 Common Stock Purchase Warrant No. W-18 dated as Incorporated by reference to Exhibit 10.58 to the
of April 4, 2000 between the Company and Donald Quarterly Report on Form 10-QSB for the three months
Heap. ended March 31, 2000
10.59 Convertible Promissory Note in the Original Incorporated by reference to Exhibit 10.59 to the
Principal Amount of $50,000 dated as of June 9, Quarterly Report on Form 10-QSB for the three months
2000 between the Company and Michael and Lois ended March 31, 2000
Halbert
10.60 Common Stock Purchase Warrant dated as of June Incorporated by reference to Exhibit 10.60 to the
9, 2000 between the Company and Michael and Lois Quarterly Report on Form 10-QSB for the three months
Halbert ended March 31, 2000
10.61 Common Stock Purchase Warrant No. W-12 dated as Incorporated by reference to Exhibit 10.61 to the
of October 6, 1999 between the Company and Quarterly Report on Form 10-QSB for the three months
Sterling Technology Partners, Ltd. ended March 31, 2000
6
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10.62 Common Stock Purchase Warrant No. W-13 dated as Incorporated by reference to Exhibit 10.62 to the
of December 22, 1999 between the Company and Quarterly Report on Form 10-QSB for the three months
Sterling Technology Partners, Ltd. ended March 31, 2000
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
Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on August 24, 2000
22. Published report regarding matters submitted to Not applicable
Vote
23.1 Consent of Independent Accountant Provided herewith
23.2 Consent of Counsel Incorporated by reference to Exhibit No. 23.2 to the
Registration Statement on Form SB-2 filed with the
Securities and Exchange Commission on August 24, 2000
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
7
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