U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(MARK ONE)
|X| Annual Report Pursuant to Section 13 or 15(d) of Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1999
| | Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from _______ to _______.
Commission File No. 0-21739
GENETIC VECTORS, INC.
---------------------
(Name of Small Business Issuer in Its Charter)
<TABLE>
Florida 65-0324710
------- ----------
<S> <C>
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5201 N.W. 77th Avenue, Suite 100, Miami, Florida 33166
------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(305) 716-0000
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Securities Act:
Title of Each Class Name of Exchange on which registered
------------------- -------------------------------
None None
Securities registered under Section 12(g) of the Securities Act:
Common Stock, Par Value $.001
-----------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes | | No |X|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in the definitive proxy or
information statement incorporated by reference in Part III of this Form 10-KSB
or amendment to Form 10-KSB.
The issuer generated revenues of $44,832 during its most recent fiscal
year.
The aggregate market value of the Company's voting stock held by
non-affiliates as of June 5, 2000 was approximately $24,256,649 based on the
average closing bid and asked prices of such stock on that date as quoted on the
pink sheets. There were 3,722,843 shares of Common Stock outstanding as of June
5, 2000.
Documents Incorporated by Reference: See Item 13
This Form 10-KSB consists of 364 pages. The Exhibit Index begins on page
68.
<PAGE>
PART I
Item 1. Description of Business
--------------------------------
Forward-Looking Statements and Associated Risks
Information included or incorporated by reference in this filing may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act of 1934. 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.
These forward-looking statements address, among other things, the
integration of our January 2000 acquisition of DNA Sciences, Inc., the
commercial viability of our products, our experience in the biotechnology
industry, our plan of operations, the potential market and customer demand for
our products. These statements may be found under "Management's Plan of
Operation and Discussion and Analysis," as well as in this filing 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 "Certain Business Risks" and matters
described in this filing generally.
Introduction
As of December 31, 1999, our company had cash and cash equivalents of
$206,802 compared to $109,924 on December 31, 1998. We have limited cash. The
increase in cash is attributable to borrowings and private equity offerings. We
have had cash shortages since 1998 and will continue to have cash shortages
unless we can raise significant additional capital. To date, we have generated
only a nominal amount of revenue from our operations. We estimate that our
current cash reserves will last no longer than December 1, 2000. Therefore, to
continue operations beyond such date, we must raise additional capital from
external sources. Such external capital will be necessary for our operations to
reach a level where we may internally generate the cash flow necessary to
sustain operations. We have entered into a non-binding letter of intent with an
underwriter to sell up to $8.4 million of securities in a firm-commitment
registered offering, although no assurances can be given that such an offering
will take place or be successful. Our inability to raise significant capital in
such a registered offering or otherwise will jeopardize our ability to continue
operations beyond December 1, 2000.
Interim Financing
Between November 1, 1998 and June 5, 2000, we borrowed a total of
$2.3 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 in which the payment dates of principal
and interest were extended on March 3, 2000 by the lenders to June 30,
2000.
o Loans of $175,000 convertible into shares of common stock at a price
of $5.00 per share and which are due in September 2000.
o Loans of $600,000 convertible into shares of common stock at a price
of $3.00 per share and which are due in November 2000.
2
<PAGE>
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 the foreclosure of our assets. This would jeopardize our
ability to continue operations.
For additional information concerning the company's current financial
situation, see "Certain Business Risks - We are in default of our outstanding
indebtedness and may be unable to repay these loans"; "Certain Business Risks -
Our limited operating history makes it difficult or impossible to evaluate our
performance and make predictions about our future"; "Certain Business Risks - We
have experienced losses and expect to incur losses in the future"; "Certain
Business Risks - We may be unable to continue operations if we are unable to
obtain additional capital" and "Management's Discussion and Analysis or Plan of
Operation."
Our Company
Our company is a biotechnology company. We specialize in the discovery of
genetic patterns from which we intend to develop systems to determine disease
risk, drug resistance, and therapeutic response. Our acquisition of DNA
Sciences, Inc. on January 17, 2000 provided complimentary technology that has
enabled us to enter the field of pharmacogenomics. Prior to our acquisition of
DNA Sciences, we developed and are currently marketing the EpiDNA product line
as a quality control tool for the multi-billion dollar biopharmaceutical
industry. Pharmacogenomics (genomic discovery for healthcare applications)
utilizes genetic information to identify the subtle changes in genetic structure
that influence disease susceptibility, drug resistance, and therapeutic
response. Our combined technology is useful for genetic screening of individuals
and pathogenic organisms and monitoring the purity of biopharmaceuticals. Our
EasyID genetic screening products are designed to study disease risk assessment,
drug resistance, and drug responsiveness. Our initial areas of development
include the genetic basis of cardiovascular disease, pathogenic yeast
infections, and autoimmune diseases. We intend to market our systems to the
clinical, pharmaceutical and industrial market sectors.
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 and chemotherapy patients and
transplant recipients. In addition, we are attempting to develop a new set of
technologies and products designed to screen for genes involved in
cardiovascular 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,
EpiDNA Picogram Assay, introduced in 1997. We have had losses from operations
since inception. Our shareholders' deficit as of December 31, 1999 was
$8,920,356.
The Industry
Rapid advances in genomics have intensified the commercial race to
identify new gene targets for new therapeutics and diagnostics. The Human Genome
Project is nearing completion with over 80,000 genes identified. The assembly
phase, which entails putting the gene sequences in order on the genome, has
begun and may be complete as early as June 2000. 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.
To date, the genomics race has been focused on identifying and sequencing
genes across the human genome. The completion of the Human Genome Project will
provide a "road map" of gene locations on the genome. Now companies are focusing
on the next step, identifying which changes or mutations in the gene sequence
determine disease susceptibility or drug efficacy.
3
<PAGE>
Our Strategy
We intend to expand our presence in the field of pharmacogenomics through
our strategy of "Practical Geonomics." We intend to form new collaborations with
strategic partners and expand existing relationships with current partners,
which we anticipate will focus on the discovery of new genes involved in disease
management and prediction. We also intend to expand our business opportunities
through the enhancement of our product lines and intellectual property that may
result from existing strategic partnerships. We also intend to expand our
production capacity to meet the projected supply requirements of our targeted
market and to continue the sale and marketing of our products.
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.
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. yeast detection and genotyping; and
3. genes involved in cardiovascular disease.
Juvenile Diabetes. Scientific reports have linked the onset of juvenile
diabetes (IDDM1) to a particular DNA fingerprint within a region of the human
genome. We have developed a system for the rapid detection of the highest risk
genotype. The Norwegian Institute of Public Health is currently using this
system to test for genetic predisposition to juvenile diabetes in a
population-based study.
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
4
<PAGE>
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
medication.
Through our collaborations, we are developing systems to discover and
identify genetic differences that result in differential therapeutic response.
Our first product in development is a system designed to map the CETP gene.
Our future development will focus on other genes related to cholesterol
levels and heart disease. We plan to collect genetic information from over 3,000
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 patents on genetic
patterns we discover that are useful as disease markers.
Microbial Identification. We are developing the EasyID technology for the
rapid identification of microbes of commercial, research, and diagnostic
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. These collaborative research agreements have
resulted in a patent application for the genetic sequences of Cryptococcus
neogormans, pathogenic yeast responsible for deaths in AIDS infected patients.
We intend to commercialize these sequences using our oligoplate 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 individuals 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 anti-body-based test for yeast is available, but costs about
$15 per test. We believe that our EasyID DNA probe will allow accurate
identification of yeast species and strains, at a lower cost than existing
products and much more rapidly than conventional techniques.
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 is becoming an
increasingly attractive alternative because of the dangers associated with
radioactivity and the expense of disposing of radioactive waste. The recent
introduction of chemiluminescent detection methods for nonradioactive probes
provides sensitivity equaling that of radioactive probes without the risks and
expenses of radioactivity. The 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 and gram
amounts of nucleic acids) is possible. The core EpiDNA technology is suited for
the attachment of any detectable molecule (such as biotin, fluorescent or
phosphorescent compounds, enzymes or chelators) to nucleic acids.
The EpiDNA technology is not restricted to the labeling of probes, but can
also provide a method to accurately measure nucleic acids at very low
concentrations. This characteristic of our technology provides the basis for the
Picogram Assay which is targeted to process development and monitoring, and to
quality control and research laboratories.
The Picogram Assay. Processes for manufacturing biopharmaceuticals, such
as monoclonal antibodies and recombinant proteins, result in potentially harmful
contamination with DNA, the material that carries the genetic code and could
carry cancer-causing oncogenes. FDA guidelines recommend that manufacturers
monitor the content of DNA to assure that the level of DNA does not exceed 100
picograms per injected dose. Under FDA guidelines, each biopharmaceutical
manufacturer must devise its own in-house quality control protocol to determine
the purity of each product. Companies are free to adapt current technology,
including commercially available assays, to this purpose. This requirement
creates a niche in the biotechnology industry market into which we plan to
market the Picogram Assay kit for the measurement of DNA in biopharmaceuticals.
The Picogram Assay combines chemical and immunochemical procedures to
measure trace amounts of DNA. The assay is relatively easy to perform, measures
DNA in a range of one to one hundred picograms, can detect small fragments of
DNA, and is complete in about three hours. Use of the Picogram Assay does not
require the purchase of major equipment, since the assay utilizes a standard
microtiter plate reader, which is routine in biopharmaceutical quality control
laboratories. The assay is designed for routine application by technicians and
is intended for validation of final product purity.
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 proteins from trace DNA 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.
6
<PAGE>
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 to the public 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.
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.
Subsequently, we intend to introduce and market the 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. We intend to develop
and market kits for the identification of beneficial yeast significant in wine
and beer manufacturing and yeast associated with food and beverage spoilage.
Manufacturing and Suppliers
Our manufacturing and research and development activities are conducted in
a 14,000 square foot facility in Miami and a 1,500 square foot facility in
California. We intend to complete a build-out of a production area 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.
On January 17, 2000, We Acquired DNA Sciences, Inc.
On January 17, 2000, we acquired DNA Sciences, Inc., which operates as a
wholly-owned subsidiary of our company. 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 be their nominee.
Founded in 1999, DNA Sciences, Inc. is a development stage biotechnology
company that intends to specialize in the development of genetic systems for
medical and industrial markets. DNA Sciences, Inc.'s initial target market is
the DNA probe market, which includes tissue typing, infectious disease detection
and quantification and genetic predisposition testing. On February 16, 2000, DNA
Sciences, Inc.'s name was changed to Genetic Vectors of California, Inc.
7
<PAGE>
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. 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.
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 which are primarily identified with this market.
Of these, several offer nucleic acid labeling and detection kit. 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
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 resources. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which 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.
8
<PAGE>
Employees
We have currently nine 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.
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 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, 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").
9
<PAGE>
Research and Development Agreements
We entered into a Research and Development Agreement with the University
of Miami on March 12, 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. Prior to initiating sales of products that may be based on this
invention, we intend to negotiate and execute a licensing agreement with the
University. We intend to file 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" by
September 29, 2000.
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 $192,757 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
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 the 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 $556,000 and $985,000,
respectively, for research and development activities.
Certain Business Risks
You should carefully consider the risks described below before trading in
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 June 5, 2000, we borrowed a total of $2.3
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.
10
<PAGE>
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 loan of $1,238,500, in which the payment dates of principal
and interest were extended on March 3, 2000 by the lenders to June 30,
2000.
o Loans of $175,000 convertible into shares of common stock at a price
of $5.00 per share and which are due in September 2000.
o Loans of $600,000 convertible into shares of common stock at a price
of $3.00 per share and which are due in November 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 the foreclosure of 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 "Certain
Business Risks" section. We may not successfully address some or all of these
risks. If we do not successfully address these risks, 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. Our cumulative net loss since our inception on January 1, 1992 was
$8.9 million. We expect to incur substantial losses for the foreseeable future
in connection with our research and development efforts, as well as the expenses
associated with attempting to commercialize our products, including expenses for
manufacturing, marketing and distributing our products.
We may be unable to continue operations if we are unable to obtain additional
capital
We had $206,802 of cash as of December 31, 1999. Since December 31, 1999,
we have borrowed a total of $1.0 million, consisting of a $250,000 loan from a
private investor on February 11, 2000, a $75,000 loan from a private investor on
March 2, 2000, a $100,000 loan from a private investor on March 7, 2000, a
$100,000 loan from a private investor on May 8, 2000 and a $500,000 loan from a
private investor on May 26, 2000. We project that these proceeds will fund our
operations no longer than December 1, 2000. 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.
Our Common Stock Price May Be Lower Due to Quotation on the "Pink Sheets"
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 our Annual
Report on Form 10-KSB. Our common stock is currently quoted on the "pink
sheets." Generally, common stock that is quoted on the "pink sheets" has less
liquidity than stock quoted on the OTC Bulletin Board because some
broker-dealers will not execute orders for stock quoted on the "pink sheets" and
because pricing information is more difficult to obtain. This illiquidity may
result in a lower stock price.
11a
<PAGE>
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 systems,
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 certain
of 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.
11b
<PAGE>
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
product 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.
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 product lines and our
long-term success may depend on the market acceptance of these products. We
currently have two product lines, the EpiDNA and DNAtect product lines and
another product line under development, the EasyID product line. Market
acceptance of our product lines will depend, in part, on the 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, and generate revenue to continue operations,
likely resulting in a lower stock price.
The technology in our products is rapidly evolving, and our inability to evolve
with this technology may jeopardize the commercial viability of our products
The science and technology of the EpiDNA and EasyID product lines 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 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.
12
<PAGE>
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 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. 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. In
addition, the laws of certain countries may not protect our intellectual
property. 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
generally 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 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.
13
<PAGE>
We may not be able 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. Currently, none of our administrative staff has any
experience in running a large company or a company whose securities are publicly
held, apart from our company. There can be no assurance that the demands placed
on our personnel by the cash shortage or the growth of our business and the need
for close monitoring of our operations and financial performance through
appropriate and reliable administrative and accounting procedures and controls
will be met, or that we will otherwise manage our growth successfully; the
failure to do so could have a material adverse effect on our business, results
of operations and financial condition. 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. We have
designated Mead M. McCabe, Jr. as our principal financial officer. We currently
have no officer with previous experience in managing the financial and
accounting functions of a publicly-held company.
We face risks related to government regulation
Changes in existing regulations could require advance regulatory approval
of genetic susceptibility tests which 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 "analyze 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 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 stop the use of such test.
Such a delay or termination could result in reduced revenues or losses.
Although our primary business is the development of systems to determine
disease risk, drug resistance and therapeutic response based on genetic
patterns, we may also develop or assist others to develop, drugs or other
treatments for the diseases related to our tests. The FDA and comparable
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the manufacturing and marketing of drug products
such as those potentially to be developed by our company or any partner. The
process of obtaining FDA and other required regulatory approvals is lengthy and
expensive. The time required for FDA approvals is uncertain and typically takes
a number of years, depending on the type, complexity and novelty of the product.
We may encounter significant delays or excessive costs in our efforts to secure
necessary approvals or licenses. Because certain of the products likely to
result from our research and development programs involve the application of new
technologies and will be based on new approaches, such products may be subject
to substantial additional review by various governmental regulatory authorities
and as a result, regulatory approvals may be obtained more slowly than for
products using more conventional technologies. There can be no assurance that
FDA approvals will be obtained in a timely manner, if at all. Any delay in
obtaining, or the failure to obtain, such approvals would adversely affect our
ability to generate product sales. Even if FDA approvals are obtained, the
marketing and manufacturing of drug products are subject to continuing FDA and
other regulatory review. Additional governmental regulations may be promulgated
which could delay regulatory approval of our potential products. We cannot
predict the impact of adverse governmental regulation that might arise from
future legislative or administrative action.
We intend to generate product revenues from sales outside of the United
States. Distribution of our products outside the United States may be subject to
extensive governmental regulation. These regulations, including the requirements
for approvals or clearance to market, the time required for regulatory review
and the sanctions imposed for violations, vary by country. It is uncertain
whether we will obtain regulatory approvals in such countries or that we will be
required to incur significant costs in obtaining or maintaining our foreign
regulatory approvals. Failure to obtain necessary regulatory approvals or any
14
<PAGE>
other failure to comply with regulatory requirements could result in reduced
revenues and earnings.
We do not anticipate distributing any dividends to our shareholders
We anticipate that for the foreseeable future earnings, if any, will be
retained by us to finance the development of our business and will not be
distributed to our shareholders as dividends. The declaration and payment of any
dividends by us at some future time, if any, will depend upon the our results of
operations, financial condition, cash requirements, future prospects,
limitations imposed by credit arrangements or senior securities and any other
factors deemed relevant by the Board of Directors. Any declaration and payment
of a dividend by us will at all times be in the discretion of our Board of
Directors. See "Market for Common Equity and Related Stockholder Matters -
Dividends."
Item 2. Description of Property
--------------------------------
The Company currently leases approximately 14,000 square feet of office
space located at 5201 N.W. 77th Avenue, Suite 100, Miami, Florida 33166. This
lease, which was entered into on June 12, 1997, has a ten-year term and the
property is in good condition. Our wholly-owned subsidiary, Genetic Vectors of
California, Inc., is located at 9466 Black Mountain Road, Suite 130, San Diego,
California 92126. This lease is month-to-month and covers approximately 2,000
square feet.
Item 3. Legal Proceedings
--------------------------
The Company is not aware of any legal proceedings involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None.
15
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------
Market Information
Our common stock is traded in the over-the-counter market and is quoted on
the pink sheets under the symbol "GVEC." The following tables show the high and
low bid prices for our common stock for each quarter within the last two fiscal
years.(1) Our bid price as of June 5, 2000 on the pink sheets was $6.03125.
Bid Price Per Share(2)
----------------------
High Low
---- ---
First Quarter 1998 $ 8.75 $ 7.00
Second Quarter 1998 $ 9.875 $ 8.75
Third Quarter 1998 $9.9375 $ 7.50
Fourth Quarter 1998 $ 8.50 $ 3.50
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
-------------------------------
(1) This information was obtained from the OTC Bulletin Board.
(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 June 5, 2000, there were approximately 398 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 which, after taking into account such dividend, would not be able to
pay its debts as they become due or which would result in such corporation's
total assets being less than its total liabilities. This provision may prohibit
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.
Sales of Unregistered Securities
In June and August of 1998, we issued 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.
16
<PAGE>
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 a consultant (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 two private investors
("Loan No. 1"). The terms of Loan No. 1 provided for an annual interest rate of
12% which will increase 1% for each month that any portion of Loan No. 1 remains
unpaid after April 1, 1999, up to the maximum rate permitted by law. Accrued
interest is payable monthly beginning on April 1, 1999. The outstanding
principal was due on November 2, 1999. 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, or until the
loans are repaid in full. 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.
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 a private investor ("Loan
No. 2"). The terms of Loan No. 2 provided for an annual interest rate of 12%
which will increase 1% for each month that any portion of the loan remains
unpaid after January 19, 2000, 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. 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. 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
the same private investor which had made Loan No. 2. The terms of Loan No. 3
provided for an annual interest rate of 12% which will increase 1% for each
month that any portion of the loan remains unpaid after January 19, 2000, up to
the maximum rate permitted by law. Accrued interest was payable 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. 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
100,000 shares of common stock 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 $1.5 million. 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.
17
<PAGE>
On April 19, 1999, we borrowed an additional $100,000 ("Loan No. 4") from
a private investor. This loan has an annual interest rate of 12%. Accrued
interest was payable quarterly, commencing on June 1, 1999. The 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.
On May 10, 1999, we issued 225,000 shares of our 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 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 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 loan 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
a private investor. 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 January 19, 2000. 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. 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. 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 same private investor which had made Loan No. 5. 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 January 19, 2000. 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. The loan
is secured by substantially all of our assets. In addition, the Company issued
the private investor warrants to purchase 80,000 shares of common stock at an
exercise price of $.01 per share. These warrants were immediately exercisable.
The closing price of 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. 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 same private investor which had made Loan No. 5 and 6. 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 April 22, 2000. The outstanding
18
<PAGE>
principal balance is 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.
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. 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 an additional $250,000 ("Loan No. 8")
the same private investor which had made Loan No. 5, 6 and 7. 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 April 22, 2000. On March 3, 2000, the
private investor extended the due date of the principal and interest to June 30,
2000. The loan is secured by substantially all of our assets. 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. The closing price of our common stock on February 11, 1999 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. In connection with this loan, we
granted to the Consultant warrants to purchase 30,000 shares of common stock at
an exercise price of $1.00 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 a private investor ("Loan No.
9"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan is due on September 2, 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. In connection with this loan, we granted to the Consultant warrants to
purchase 25,000 shares of common stock at an exercise price of $6.20 per share.
The offering was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 promulgated thereunder.
In March 7, 2000, we borrowed $100,000 from a private investor ("Loan No.
10"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan is due on September 6, 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. In connection with this loan, we granted to the Consultant warrants to
purchase 25,000 shares of common stock at an exercise price of $6.20 per share.
The offering was exempt from registration pursuant to Section 4(2) of the Act
and Rule 506 promulgated thereunder.
On May 8, 2000, we borrowed $100,000 ("Loan No. 11") and on May 26, 2000
we borrowed $500,000 from a private investor ("Loan No. 12"). These loans have
an annual interest rate of 12%, simple interest, payable at maturity. The loans
are due in November 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. 11) and 166,665 (Loan No.
12) shares of common stock at an exercise price of $6.00 per share and (b)
33,333 (Loan No. 11) and 166,665 (Loan No. 12) 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 (a) 20,000 (Loan No. 11) and 100,000
(Loan No. 12) shares of common stock at an exercise price of $6.60 per share and
(b) 20,000 (Loan No. 11) and 100,000 (Loan No. 12) 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 20,000 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.
Item 6. Management's Discussion and Analysis or 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 Annual Report on Form 10-KSB.
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 the EasyID product line.
19
<PAGE>
Financial Resources and Cash Requirements
We are dependent on external capital to finance our operations, as we only
generate a nominal amount of cash from operations. As of December 31, 1999, we
had cash and cash equivalents of $206,802. Since that date, we have raised an
additional $1.0 million. These funds are projected to last no longer than
December 1, 2000. We will need to raise additional capital to continue
operations beyond December 1, 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.
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 a production area in our Florida facility
and will continue research and development in our San Diego facility, which we
acquired in January 2000. For the twelve month period following our receipt of
significant additional capital, our activities will focus on the following:
o Continued development of our Juvenile Diabetes Risk Assessment Kit.
o Development of new detection kits in collaboration with the Norwegian
Institute of Public Health.
o Continuation of EasyID DNA probe product development for diagnostic
uses and drug discovery.
o Continued research and development of products for the detection of
genes involved in cardiovascular diseases.
o Continued research in applications of our nucleic acid labeling
technology.
Significant Plant or Equipment Purchases
We anticipate the need to purchase and/or lease various equipment
approximately valued at $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 nine employees. If we are successful in raising
significant new capital, then we anticipate hiring thirteen new employees in
2000 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.
Proposed Personnel Addition Plan 2000
-------------------------------- ----
Executive Personnel 1
Administrative Personnel 1
Director - QA/QC 1
Director - Sales and Marketing 1
Manufacturing Manager 1
Scientists 2
Technicians 7
----
Total Proposed New Employees 14
====
Total Proposed Employees at End of Year 23
====
20
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
We remain largely a development stage company. We generated revenues of
$45,000 during the fiscal year ended December 31, 1999 and had related cost of
sales of $9,000. These sales are attributable to sales of the Picogram Assay.
Our expenditures far exceed our revenues. We reported $11,275 of revenues for
the fiscal year ended December 31, 1998. We had temporarily removed the Picogram
Assay Kit from the market during the third quarter of 1997, and reintroduced the
Picogram Assay Kit in July 1998.
Research and development expenses for the fiscal year ended December 31,
1999 decreased by $419,000 to $566,000 from the comparable period in the prior
year. This decrease is largely attributable to cut-backs due to our shortage of
available funds.
Selling, general and administrative expenses decreased by $298,000 to $1.3
million in the year ended December 31, 1999 over the comparable period in 1998.
This decrease is primarily attributable to a $332,500 charge to operations,
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 $132,000,
representing the interest on various loans received by us. During 1999, we
borrowed $1 million. This compares to interest income of $62,000 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. 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.
We have experienced extreme cash shortages since the end of November 1998
through the date of this filing. As of December 31, 1999, we had $206,802 of
cash. Since December 31, 1999, we raised a total of $1.0 million, consisting of:
o On February 11, 2000, we obtained a $250,000 loan from a private
investor.
o On March 2, 2000, we obtained a $75,000 loan from a private investor.
o On March 7, 2000, we obtained a $100,000 loan from a private investor.
o In May, 2000, we obtained $600,000 in loans from a private investor.
Substantially all of these proceeds are expected to be spent prior to
December 1, 2000. As of December 31, 1999, we had a capital deficit of $432,000.
We have entered into a non-binding letter of intent with an underwriter to sell
up to $8.4 million of securities in a firm-commitment registered offering,
although no assurances can be given that such an offering will take place or be
successful. Our inability to raise significant capital in such a registered
offering will jeopardize our ability to continue operations.
21
<PAGE>
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.
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., which continues to operate as a
wholly owned subsidiary of our company. In the past, DNA Sciences, Inc.'s
operations have been insignificant. As a result of this acquisition, we will
likely record a significant amount of goodwill which will be amortized over
future periods; the amortization charge will be significant to our operations.
However, the allocation of the purchase price may include a portion as a
write-off for in-process research and development costs. DNA Sciences currently
has four employees and rents its facilities.
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 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, 2001.
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 its financial
statements.
Year 2000 Computer Issues. The potential for software failure due to Year
2000 calculations is a known risk. We recognize the need to ensure that our
operations, products and services are not adversely impacted by Year 2000 risks.
We expended approximately $2,500 for Year 2000 related expenses and continue to
monitor the situation for any disruptions due to Year 2000 related issues. We
have not had our operations disrupted with any Year 2000 issues and do not
expect any material disruptions or significant costs related to Year 2000
issues.
22
<PAGE>
Item 7. Financial Statements
-----------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Genetic Vectors, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Genetic Vectors, Inc. (a
Development Stage Company) as of December 31, 1999 and the related statements of
operations, capital deficit and cash flows for each of the two years in the
period ended December 31, 1999 and the cumulative period from January 1, 1992
(inception) through 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 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 and the cumulative period from January 1, 1992 (inception)
through 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
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 financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Miami, Florida /s/ BDO Seidman, LLP
March 3, 2000 BDO Seidman, LLP
F-1
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
-------------------------------------------------------------------------------
ASSETS (Notes 4 and 11)
CURRENT
Cash and cash equivalents $ 206,802
Accounts receivable 5,940
Inventory 7,081
Prepaid expenses 50,424
-------------------------------------------------------------------------------
Total current assets 270,247
Equipment and improvements, net (Note 3) 282,734
Patents and license agreement, net of $40,353 of accumulated
amortization (Note 9(a)) 206,611
Restricted cash (Note 5) 46,130
-------------------------------------------------------------------------------
$ 805,722
-------------------------------------------------------------------------------
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES
Accounts payable $ 283,965
Accrued salaries 91,231
Accrued interest expense 54,020
Other accrued expenses 3,230
Loans payable, net of unamortized discounts(Note 4) 805,412
-------------------------------------------------------------------------------
Total liabilities 1,237,858
-------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 9 and 11)
-------------------------------------------------------------------------------
CAPITAL DEFICIT (NOTES 8 AND 10)
Common stock, $.001 par value, 10,000,000 shares authorized,
2,974,843 shares issued and outstanding 2,975
Additional paid-in capital 8,485,245
Deficit accumulated during the development stage (8,920,356)
-------------------------------------------------------------------------------
Total capital deficit (432,136)
-------------------------------------------------------------------------------
$ 805,722
-------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-2
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FROM
JANUARY 1, 1992
(INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Sales $ 95,367 $ 44,832 $ 11,275
Grants 149,147 - 35,897
--------------------------------------------------------------------------------------------------------------------
Total revenue 244,514 44,832 47,172
--------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Costs of sales 9,188 9,188 -
Selling, general and administrative 5,094,662 1,257,546 1,555,557
Research and development 3,104,134 566,036 984,937
Depreciation and amortization 327,100 139,233 125,427
--------------------------------------------------------------------------------------------------------------------
Total expenses 8,535,084 1,972,003 2,665,921
--------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE) (NOTE 4):
Amortization of deferred loan costs (766,562) (748,037) (18,525)
Interest income (expense), net 136,776 (131,703) 61,807
--------------------------------------------------------------------------------------------------------------------
Total (629,786) (879,740) 43,282
--------------------------------------------------------------------------------------------------------------------
NET LOSS (Note 7) $ (8,920,356) $ (2,806,911) $(2,575,467)
--------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding (Note 8) 2,724,092 2,344,696
--------------------------------------------------------------------------------------------------------------------
Net loss per common share - basic and
diluted $ (1.03) $ (1.10)
--------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CAPITAL DEFICIT
<TABLE>
<CAPTION>
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
$1,180,249 575,000 575 4,569,176 - 4,569,751
(Note 8(h))
Stock options granted for services (Note 8(c)) - - 56,250 - 56,250
--------------------------------------------------------------------------------------------------------------------------------
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)
F-4
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
--------------------------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------------------------
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
Issuance of common stock for services
(Note 8(k)) 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 9(n)) - - 332,500 - 332,500
Warrants granted for loan financing costs
(Note 4) - - 111,150 - 111,150
Options granted for services rendered
(Note 8(o)) - - 8,072 - 8,072
Net loss - year ended December 31, 1998 - - - (2,575,467) (2,575,467)
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,349,843 2,350 6,674,670 (6,113,445) 563,575
Issuance of common stock for cash, at
$1.00 per share (Note 8(q)) 625,000 625 624,375 - 625,000
Warrants granted for loan financing costs
(Note 4) - - 1,088,500 - 1,088,500
--------------------------------------------------------------------------------------------------------------------------------
F-5
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
--------------------------------------------------------------------------------------------------------------------------------
Options granted for services rendered
(Note 8(p)) - - 24,000 - 24,000
Warrants granted for loan extension (Note 4(a)) - - 73,700 - 73,700
Net loss - year ended December 31, 1999 - - - (2,806,911) (2,806,911)
--------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 2,974,843 $ 2,975 $ 8,485,245 $ (8,920,356) $ (432,136)
--------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-6
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
CUMULATIVE FROM
JANUARY 1, 1992
(INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (8,920,356) $ (2,806,911) $ (2,575,467)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 327,100 139,233 125,427
Amortization of deferred loan costs 766,562 748,037 18,525
Write-off of acquired technology 71,250 - -
Warrants issued for loan extension 73,700 73,700 -
Consulting services provided for common stock 6,000 - 6,000
Stock options and warrants granted for services 364,572 24,000 340,572
(Increase) in accounts receivable (5,940) (2,320) (3,620)
(Increase) in inventory (7,081) 6,419 (13,500)
(Increase) in prepaid expenses (50,424) (27,572) (22,852)
(Increase) in restricted cash (46,130) - (46,130)
Increase in accounts payable, accrued liabilities and other 565,269 232,296 45,608
----------------------------------------------------------------------------------------------------------------------------
Total adjustments 2,064,878 1,193,793 450,030
----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (6,855,478) (1,613,118) (2,125,437)
----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (569,481) (3,504) (63,240)
Purchase of certificate of deposit (261,964) - (1,366)
----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (831,445) (3,504) (64,606)
----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase due to parent 413,518 - -
Proceeds from note payable 1,273,500 1,088,500 150,000
Payment on notes payable (35,000) - -
Net proceeds from issuance of common stock 5,722,450 625,000 47,500
Capital contribution 500,000 - -
Deferred offering refund 25,500 - -
Deferred offering costs (6,243) - -
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 7,893,725 1,713,500 197,500
----------------------------------------------------------------------------------------------------------------------------
F-7
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
CUMULATIVE FROM
JANUARY 1, 1992
(INCEPTION) FOR THE FOR THE
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1998
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 206,802 96,878 (1,992,543)
Cash and cash equivalents at beginning of period - 109,924 2,102,467
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 206,802 $ 206,802 $ 109,924
----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Warrants issued in connection with loan financing $ 1,199,650 $ 1,088,500 $ 111,150
Conversion of due to parent in exchange for stock $ 413,518 $ - $ -
Conversion of accrued wages for stock $ 132,822 $ - $ -
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND BUSINESS
SIGNIFICANT
ACCOUNTING Genetic Vectors, Inc. (the "Company"), formerly 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.
As discussed in Note 11(a), in January 2000, the Company
broadened its product line with its acquisition of DNA
Services, Inc. This new product line includes
oligoplate products.
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
F-9
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
companies report information about operating segments in
annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS
No. 131 defines operating segments as components of a
company about which separate financial information is
available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate
resources and in assessing performance.
The Company currently operates solely in one 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-10
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
RECLASSIFICATION
Certain reclassifications have been made to the 1998
statement of operations to conform to the
classifications used in 1999.
F-11
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, 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, 2001.
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,
2002 to affect its financial statements.
2. LIQUIDITY The accompanying financial statements have been prepared
assuming the Company will continue as a going concern.
This basis of accounting contemplates the recovery of
the Company's assets and the satisfaction of its
liabilities in the normal course of operations. Since
inception, the Company has been involved in the research
and design of its product, the development of an
organizational infrastructure, and the performance of
preliminary marketing and promotional activities. The
Company's ultimate ability to attain profitable
operations is dependent upon obtaining additional
financing adequate to complete its development
activities, and to achieve a level of sales adequate to
support its cost structure. Through December 31, 1999,
the Company has incurred losses totaling $8,920,356, 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.
Subsequent to December 31, 1999, the Company has raised
$325,000 from loans and equity investments. On December
15, 1999, the Company entered into a non-binding letter
of intent with an underwriter to sell up to $8.4 million
F-12
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
of securities in a firm commitment. On January 15, 2000,
the Company acquired DNA Sciences, Inc. 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 $ 386,195
Computers 52,787
Phone equipment 58,826
Leasehold improvements 35,477
Office furniture 22,520
Other 13,676
------------------------------------------------------
569,481
Less accumulated depreciation (286,747)
------------------------------------------------------
$ 282,734
------------------------------------------------------
Loans payable as of December 31, 1999 are as follows:
4. LOANS PAYABLE a) Unsecured loans - 12% interest
payable quarterly beginning April
1, 1999, with 1% increases per
month for each month that any
portion of the note remains
outstanding after April 1, 1999. $ 150,000
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
January 19, 2000. 288,500
c) Loan - 12% interest payable
quarterly beginning June 1, 1999 100,000
----------------------------------------------------
F-13
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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
remains outstanding after January
19, 2000 and April 22, 2000. 700,000
------------------------------------------------------
$ 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.
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 for
$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,
F-14
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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.
On March 3, 2000, the Company negotiated an extension
of certain of the above past due notes aggregating
$1,235,000 to June 30, 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 to the
lenders. The foregoing extension transaction will
result in an additional charge to earnings in 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 to
operations for an amount equal to the value ascribed
to these contingent warrants upon occurrence of these
future events.
In addition, the Company has collateralized all of
its assets for the loans referred to above.
(Notes 4(b), (c) and (d)).
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.
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.
6. DEPENDENCE ON Certain key components of the Company's products are
LIMITED NUMBER currently provided by a limited number of sources,
OF SUPPLIERS and 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
F-15
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
"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 $ -
------------------------------------------------------
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.
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
F-16
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 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.
F-17
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 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.
F-18
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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:
<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: $ (2,806,911) 2,724,092 $ (1.03) $ (2,575,467) 2,344,696 $ (1.10)
Effect of Dilutive Securities
Options - - - - - -
Warrants - - - - - -
-----------------------------------------------------------------------------------------------------------------------
Loss per common share - assuming
dilution: $ (2,806,911) 2,724,092 $ (1.03) $ (2,575,467) 2,344,696 $ (1.10)
-----------------------------------------------------------------------------------------------------------------------
</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.
9. COMMITMENTS a) The Company has acquired rights to a new nucleic
AND acid labeling and detection technology (the
CONTINGENCIES "Technology") pursuant to a license agreement
between ProVec, Inc. and the University of Miami
and its School of Medicine which was assigned to
the Company on January 20, 1992. ProVec, Inc., was
owned by the Company's Chairman of the Board.
These rights were acquired under certain patents
and patent applications pursuant to the license
agreement and include the manufacture of products
F-19
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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
$15,000 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 agreement for technical, supplies, and
a maintenance contract for a 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
termination date to purchase 10,000 and 10,000,
respectively, shares of common stock at an
F-20
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
exercise price of $5.75. These agreements provide
for a bonus as determined by the Board of
Directors.
e) Minimum guaranteed lease payments for the
Company's lease are as follows:
YEAR ENDED 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 1998 aggregated
approximately $188,000 and $192,300, respectively.
The Company anticipates purchasing or leasing
equipment of approximately $500,000 during 2000.
10. STOCK BASED At December 31, 1999, the Company has two stock option
COMPENSATION 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
F-21
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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
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
</TABLE>
F-22
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 $ (2,806,911) $ (2,575,467)
Pro forma (3,061,911) (2,842,480)
Net loss per common share
As reported $ (1.03) $ (1.10)
Pro forma (1.11) (1.21)
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:
<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 year 37,995 $ 2.74 21,608 $ 2.78
--------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed
stock options and non-plan options outstanding at
December 31, 1999.
<TABLE>
<CAPTION>
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>
$5.00 - $12.00 316,650 6.14 9.55 316,650 9.55
</TABLE>
11. SUBSEQUENT a) On January 15, 2000, the Company acquired DNA
EVENTS Science, Inc. (DNA) by exchanging 450,000 of its
common stock for all the outstanding common stock
F-23
<PAGE>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
of DNA. The transaction will be accounted for as a
purchase business combination; accordingly, the
results of operations of DNA will be consolidated
in the Company's financial statements for the
period beginning with the acquisition date.
b) On February 11, 2000, the Company borrowed an
additional $250,000 from a private investor. The
loan bears interest at 12% with interest payable
quarterly, commencing on April 22, 2000. On March
3, 2000, the private investor extended the due
date of the principal and interest to June 30,
2000. The loan is secured by substantially all of
the Company's assets. In addition, the Company
issued to the lender, warrants to purchase 100,000
shares of common stock at an exercise price of
$1.00 per share. These warrants were immediately
exercisable. The closing price of the common stock
on February 11, 2000 was $7.25. In addition, if
$1.5 million is subsequently raised or the loan is
paid back, the Company will be required to issue
warrants to purchase 125,000 shares of common
stock at an exercise price of $3.00 per share. In
connection with this loan, the Company granted to
the consultant assisting it with the transaction,
warrants to purchase 30,000 shares of common stock
at an exercise price of $3.00 per share for
assisting the Company to obtain the financing.
These warrants are immediately exercisable.
c) On March 2, 2000, the Company borrowed $75,000
from a private investor. The loan bears interest
at 12%. The principal and interest are due on
in September, 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 the common stock at a
conversion rate of $5.00 per share. In addition,
warrants were to purchase 7,500 shares of common
stock were issued at an exercise price of $6.20
per share. In the event of default, the note is
convertible into additional shares (as defined)
and the investor is entitled to additional
warrants to purchase shares (as defined).
F-24
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------------------------------------------------------------------
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
--------------------------------------------------------------------------------
Our present directors and executive officers are as follows:
Name Age Position
---- --- --------
Mead M. McCabe, Sr., Ph.D.... 63 Chairman of the Board of Directors
Mead M. McCabe, Jr........... 34 CEO, Secretary, Designated 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
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 recent S.B.I.R. Phase I
grant. Dr. McCabe has been Chairman of 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,
24
<PAGE>
management consulting, computer software and wine making since 1984. From 1988
to 1991 Mr. Burroughs also represented Stiles Corporation/Tribune Company Joint
Venture as Owner's Representative/Senior Development Manager, managing the
development of the New River Center in Fort Lauderdale, Florida. He also served
from 1980 to 1983 as Vice President and Project Manager of Cheezem Development
Corp., a publicly held real estate development and asset management company.
Jack W. Fell, Ph.D. 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 security industry for over twenty-five years. He is past
Chairman of the Securities Industry Association's Mid-Atlantic Division and past
President of the Bond Club of Philadelphia. Mr. Foley is a graduate of Villanova
University and received a Masters Degree in Business Administration from the
University of Pittsburgh.
Resignations of Directors. Allyn L. Goulb and James A. Joyce resigned from
our Board of Director 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.
Pursuant to an agreement with the underwriter which 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.
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,
25
<PAGE>
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.
Section 16(a) Beneficial Ownership Reporting Compliance
We are aware of the following instances between January 1, 1999 and March
30, 2000, 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 Form 3 in connection with
its purchase of 130,000 shares of common stock and warrants to purchase 250,000
shares of common stock.
Item 10. Executive Compensation
-------------------------------
Compensation of Directors
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.
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 will be
priced at no less than 100% of the common stock's fair market value on the date
of the grant. Options granted to non-employee directors will be non-statutory
options and will become exercisable after one year of service on the Board and
will be exercisable for ten years from the date of the grant, except that
options exercisable at the time of a director's death may be exercised for
twelve months thereafter. Under the terms of the Incentive Plan, neither the
Board of Directors nor any committee of the Board of Directors will have any
discretion with respect to options granted to directors.
Executive Compensation
The following table shows all the cash compensation paid by 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
26
<PAGE>
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 $100,000. The summary compensation table which follows
includes all payments to Dr. McCabe and Mr. McCabe for fiscal years 1999, 1998
and 1997.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Restricted
Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation(1) Award(s) SARs(2) Payouts Compensation
Principal Position Year ($) ($) ($) ($) ($) ($) ($)
------------------ ---- --- --- --- --- --- --- ---
<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-
Board of Directors 1997 $125,000 -0- -0- -0- -0- -0-
Mead M. McCabe, Jr., 1999 $126,692 -0- $5,250 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-
-----------------
(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
$5.75 per share. These options are fully vested. All of these grants are for
options to purchase our common stock. No SAR's were granted.
</TABLE>
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired on Value Options/SAR's at Options/SAR's at
Name Exercise Realized ($) Fiscal Year End Fiscal Year End
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mead M. McCabe, Sr. -0- -0- Exercisable: 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:
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.
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.
o To Jerome Streifel, options to purchase up to 60,000 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
28
<PAGE>
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 which 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.
1999 Stock Option Plan
Overview of the Incentive Plan
Incentive compensation for non-employee directors, executives and other
key employees is provided under our 1999 Incentive Plan. The purpose of the
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 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 Incentive Plan will continue
in effect until terminated by its terms or, if earlier, by the Board of
Directors.
Administration
The Incentive Plan is administered by a plan administrator, which is
currently the Compensation Committee of the Board of Directors. The plan
administrator has been granted exclusive and final authority under the Incentive
Plan with respect to all determinations, interpretations and other actions
affecting the Incentive Plan and its participants.
Shares Subject to the Incentive Plan
Three hundred thousand shares of our common stock have been initially
authorized to be issued under the Incentive Plan. Such authorized shares will be
appropriately adjusted to reflect adjustments (if any) to our capital structure.
29
<PAGE>
1996 Stock Option Plan
Overview of the Incentive Plan
Incentive compensation for non-employee directors, executives and other
key employees is provided under our 1996 Incentive Plan. The purpose of the
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 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 Incentive Plan will continue in
effect until terminated by its terms or, if earlier, by the Board of Directors.
The Incentive Plan authorizes the plan administrator to grant any or all
of the following types of awards: (1) stock options, including nonqualified
stock options and incentive stock options, (2) stock appreciation rights, (3)
restricted shares of 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 Incentive Plan with respect to all determinations, interpretations and
other actions affecting the Incentive Plan and its participants.
Shares Subject to the Incentive Plan
Three hundred thousand shares of our common stock have been authorized to
be issued under the Incentive Plan. Such authorized shares will be appropriately
adjusted to reflect adjustments (if any) to our capital structure.
Item 11. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
Voting Securities and Principal Holders Thereof
The following table sets forth, as of June 5, 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.
Common Stock
Beneficially Owned (1), (2)
----------------------------
Name/Address Number Percent
------------ ----------------------------
Mead M. McCabe, Sr. ................. 295,166(2) 7.6%(2)
12901 SW 63rd Ct.
Miami, FL 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
30
<PAGE>
Common Stock
Beneficially Owned (1), (2)
----------------------------
Name/Address Number Percent
------------ ----------------------------
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
Jerome Streifel ..................... 135,000(6) 3.6%(1)
5201 N.W. 77th Avenue, Suite 100
Miami, Florida 33133
All directors and executive officers 825,459 23.3%
as a group(4)(5) ....................
Nyer Medical Group................... 870,215(2),(3) 23.4%(2),(3)
1292 Hammond St.
Bangor, ME 04401
Capital Research, Ltd.(7) ........... 150,000 4.0%
27241 Pasco Peregrino
San Juan Capistrano, California 92675-5041
Orbiter Fund, Ltd.(8) ............... 380,000 9.6%
375 Park Avenue, 20th Floor
New York, New York 10152
Lancer Partners ..................... 300,000 8.1%
375 Park Avenue, 20th Floor
New York, New York 10152
------------------------------------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 3,722,843 shares of common
stock outstanding as of June 5, 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
June 5, 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) Most of these shares are held by Mr. McCabe, Sr. and his wife, Marigrace
McCabe, 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 1,132,048 and 1,067,175 shares of
common stock, respectively. Their ownership percentages would be 30.1%,
and 28.6%, 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 $5.75 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 $5.75 per share.
31
<PAGE>
(3) Includes common stock owned by Nyle International Corp. (115,447 shares)
and Mr. Samuel Nyer (4,228 shares), which are deemed to be beneficially
owned by Nyer Medical. Mr. Samuel Nyer is the only natural person who may
be deemed to be the beneficial owner of the shares of the Common Stock
held by Nyer Medical.
(4) Six (6) persons
(5) Represents shares which may be acquired upon the exercise of presently
exercisable stock options.
(6) Excludes 75,000 and 60,000 shares of common stock held by Messrs.
Wilkinson and Streifel, respectively. 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) Upon the repayment of loan proceeds or if $1.5 million is subsequently
raised by us, we are obligated to issue additional warrants to purchase
200,000 shares of common stock, of which 150,000 are exercisable at $5.50
per share and 50,000 are exercisable at $3.00 per share. See "Sales of
Unregistered Securities."
(8) 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 240,000 are exercisable at $1.00 per share. Upon the repayment of 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 at
an exercise price of $3.00 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 the Company, its interests include
distribution of medical and rehabilitation supplies and equipment and
distribution of fire, police and rescue supplies and equipment, all primarily in
the New England area. Nyer Medical's common stock is listed and traded on the
NASDAQ SmallCap Market under the symbol "NYER."
Nyer Medical has entered into an agreement (the "Voting Agreement") dated
March 25, 1996 with Mead M. McCabe, Sr., Marigrace M. McCabe and Mead M. McCabe,
Jr., (collectively, the "McCabes"). This agreement provides among other things,
that, for a period of five years, Nyer Medical will vote its shares of Common
Stock to elect (a) one member of the Company's Board of Directors designated by
Nyer Medical, and (b) all other Board of Directors nominees designated by the
McCabes. The Voting Agreement will not affect Nyer Medical's rights to vote its
shares of Common Stock in connection with other matters on which the Company's
shareholders vote.
Dr. McCabe is the founder of the Company and currently serves as its
Chairman. Marigrace McCabe is the wife of Dr. McCabe. Mead McCabe, Jr. is the
son of Dr. McCabe, and the nephew of Mr. Foley.
Item 12. 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.
Item 13. Exhibits, List and Reports on Form 8-K
-----------------------------------------------
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit No.
No. Description Location Page
-- ----------- -------- ----
<S> <C> <C> <C>
3.1 Articles of Incorporation of the Incorporated by reference to Exhibit
Company, as amended No. 3.1 to Registrant's Registration
Statement (the "Registration
Statement") on Form SB-2 (Registration
Number 333-5530-A)
3.2 By-laws of the Company Incorporated by reference to Exhibit
No. 3.2 to the Registration Statement
3.3 Amendment to By-Laws Provided herewith
32
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
4.1 Form of Common Stock certificate Incorporated by reference to Exhibit
No. 4.1 to the Registration Statement
4.2 Form of Underwriters' Warrant Incorporated by reference to Exhibit
No. 4.2 to the Registration Statement
4.3 Form of 1996 Incentive Plan Incorporated by reference to Exhibit
No. 4.3 to the Registration Statement
4.4 Form of 1999 Stock Option Plan Provided herewith
10.1 License Agreement dated Incorporated by reference to Exhibit
September 7, 1990 between the No. 10.1 to the Registration Statement
University of Miami and its School
of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement Incorporated by reference to Exhibit
dated January 20, 1992 between No. 10.2 to the Registration Statement
ProVec, Inc. and EpiDNA, Inc.
10.3 Agreement between University of Incorporated by reference to Exhibit
Miami and its School of Medicine No. 10.3 to the Registration Statement
and the Company dated August 21,
1996
10.4 Employment Agreement dated Incorporated by reference to Exhibit
August 15, 1996 between Mead M. No. 10.4 to the Registration Statement
McCabe, Sr. and the Company
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 No. 10.5 to the Registration Statement
between Mead M. McCabe, Sr. and the
Company
10.6 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 No. 10.7 to the Registration Statement
between Mead M. McCabe, Sr. and the
Company
10.7 Consulting Agreement dated June 19, Incorporated by reference to Exhibit
1996 between James A. Joyce and the No. 10.10 to the Registration Statement
Company
10.8 Letter Agreement dated December 16, Incorporated by reference to Exhibit
1994 among Nyer Medical Group, No. 10.11 to the Registration Statement
Inc., the Company, Mead M. McCabe,
Sr. And Mead M. McCabe, Jr.
10.9 Investors Finders Agreement dated Incorporated by reference to Exhibit
June 9, 1994 among Nyer Medical No. 10.12 to the Registration Statement
Group, Inc., and the Company and
Gulf American Trading Company
10.10 Industrial Real Estate Lease dated Incorporated by reference to Exhibit
June 12, 1997 among the Company and No. 10.13 to the Company's Quarterly
Jetex Group, Inc. Report on Form 10-QSB for the Quarter
ended June 30, 1997
10.11 Letter from University of Miami Incorporated by reference to Exhibit
dated April 8, 1998 No. 10.12 to the Company's Annual
Report on Form 10-KSB for the year
ended December 31, 1997
10.12 Promissory Note dated as of Incorporated by reference to Exhibit
November 2, 1998 in the Original No. 10.13 to the Company's Annual
Principal Amount of $50,000 given Report on Form 10-KSB for the year
by the Company to Ms. Patricia A. ended December 31, 1998
Gionone
33
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.13 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-2 dated as of November 2, 1998 No. 10.14 to the Company's Annual
granted by the Company to Ms. Report on Form 10-KSB for the year
Patricia A. Gionone ended December 31, 1998
10.14 Promissory Note dated as of Incorporated by reference to Exhibit
November 2, 1998 in the Original No. 10.15 to the Company's Annual Report
Principal Amount of $100,000 on Form 10-KSB for the year ended
given by the Company to Jerome December 31, 1998
P. Seiden Irrevocable Trust Dated
April 22, 1998
10.15 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-1 dated as of November 2, 1998 No. 10.16 to the Company's Annual
granted by the Company to Jerome P. Report on Form 10-KSB for the year
Seiden Irrevocable Trust Dated ended December 31, 1998
April 22, 1998
10.16 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-5 dated as of September 3, 1998 No. 10.17 to the Company's Annual
granted by the Company to Sterling Report on Form 10-KSB for the year
Technology Partners, Ltd. ended December 31, 1998
10.17 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-4 dated as of January 19, 1999 No. 10.18 to the Company's Annual
granted by the Company to Sterling Report on Form 10-KSB for the year
Technology Partners, Ltd. ended December 31, 1998
10.18 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-7 dated as of March 9, 1999 No. 10.19 to the Company's Annual
granted by the Company to Sterling Report on Form 10-KSB for the year
Technology Partners, Ltd. ended December 31, 1998
10.19 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-3 dated as of January 19, 1999 No. 10.20 to the Company's Annual
granted by the Company to Capital Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.20 Promissory Note dated as of January Incorporated by reference to Exhibit
19, 1999 in the Original Principal No. 10.21 to the Company's Annual
Amount of $163,500 given by the Report on Form 10-KSB for the year
Company to Capital Research, Ltd. ended December 31, 1998
10.21 Pledge and Security Agreement dated Incorporated by reference to Exhibit
as of January 19, 1999 between the No. 10.22 to the Company's Annual
Company and Capital Research, Ltd. Report on Form 10-KSB for the year
ended December 31, 1998
10.22 Registration Rights Agreement dated Incorporated by reference to Exhibit
as of January 19, 1999 between the No. 10.23 to the Company's Annual
Company and Capital Research, Ltd. Report on Form 10-KSB for the year
ended December 31, 1998
10.23 Promissory Note dated as of March Incorporated by reference to Exhibit
9, 1999 in the Original Principal No. 10.24 to the Company's Annual
Amount of $125,000 given by the Report on Form 10-KSB for the year
Company to Capital Research, Ltd. ended December 31, 1998
10.24 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-6 dated as of March 9, 1999 No. 10.25 to the Company's Annual
granted by the Company to Capital Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.25 Registration Rights Agreement dated Incorporated by reference to Exhibit
as of March 9, 1999 between the No. 10.26 to the Company's Annual
Company and Capital Research, Ltd. Report on Form 10-KSB for the year
ended December 31, 1998
34
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.26 Executive Employment Agreement, Incorporated by reference to Exhibit
together with Stock Option 10.26 to the Company's Annual Report on
Addendum, dated as of July 1, 1999 Amendment No. 1 to the Form 10 KSB for
between Mead M. McCabe, Jr. and the the year ended December 31, 1998
Company
10.27 Executive Employment Agreement, Incorporated by reference to Exhibit
together with Stock Option 10.27 to the Company's Annual Report on
Addendum, dated as of July 1, 1999 Amendment No. 1 to the Form 10 KSB for
between Mead M. McCabe, Sr. and the the year ended December 31, 1998
Company
10.28 Executive Employment Agreement, Provided herewith
together with Stock Option
Addendum, dated as of January 17,
2000 between Jerome Streifel and
the Company
10.29 Executive Employment Agreement, Provided herewith
together with Stock Option
Addendum, dated as of January 17,
2000 between Eric Wilkinson and the
Company
10.30 Promissory Note dated as of April Provided herewith
19, 1999 in the Original Principal
Amount of $100,000 given by the
Company to Jack Surgent
10.31 Registration Rights Agreement dated Provided herewith
as of April 19, 1999 between the
Company and Jack Surgent
10.32 Common Stock Purchase Warrant dated Provided herewith
as of April 19, 1999 granted by the
Company to Jack Surgent
10.33 Promissory Note dated as of October Provided herewith
6, 1999 in the Original Principal
Amount of $200,000 given by the
Company to Orbiter Fund, Ltd.
10.34 Pledge and Security Agreement dated Provided hereiwth
as of October 6, 1999 between the
Company and Orbiter Fund, Ltd.
10.35 Registration Rights Agreement dated Provided herewith
as of October 6, 1999 between the
Company and Orbiter Fund, Ltd.
10.36 Common Stock Purchase Warrant dated Provided herewith
as of October 6, 1999 granted by the
Company to Orbiter Fund, Ltd.
10.37 Promissory Note dated as of Provided herewith
November 19, 1999 in Original
Principal Amount of $200,000 given
by the Company to Orbiter Fund, Ltd.
35
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.38 Pledge and Security Agreement dated Provided herewith
as of November 19, 1999 between the
Company and Orbiter Fund, Ltd.
10.39 Registration Rights Agreement dated Provided herewith
as of November 19, 1999 between the
Company and Orbiter Fund, Ltd.
10.40 Common Stock Purchase Warrant dated Provided herewith
as of December 22, 1999 granted by
the Company to Orbiter Fund, Ltd.
10.41 Promissory Note dated as of Provided herewith
December 22, 1999 in the Original
Principal Amount of $300,000 given
by the Company to Orbiter Fund, Ltd.
10.42 Pledge and Security Agreement dated Provided herewith
as of December 22, 1999 between the
Company and Orbiter Fund, Ltd.
10.43 Registration Rights Agreement dated Provided herewith
as of December 22, 1999 between the
Company and The Orbiter Fund, Ltd.
10.44 Common Stock Purchase Warrant dated Provided herewith
as of December 22, 1999 granted by
the Company to The Orbiter Fund, Ltd.
10.45 Promissory Note dated as of February, Provided herewith
2000 in the Original Principal Amount
of $250,000 give by the Company to
The Orbiter Fund, Ltd.
10.46 Pledge and Security Agreement dated Provided herewith
as of , 2000 between the Company and
The Orbiter Fund, Ltd.
10.47 Registration Rights Agreement dated Provided herewith
as of February, 2000 between the
Company and The Orbiter Fund, Ltd.
10.48 Stock Purchase Agreement dated as Provided herewith
of January 17, 2000 among the
Company, DNA Sciences, Inc. and the
shareholders of DNA Sciences, Inc.
10.49 Common Stock Purchase Warrant dated Provided herewith
as of February, 2000 given by the
Company to The Orbiter Fund, Ltd.
36
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.50 Convertible Promissory Note dated Provided herewith
as of March 2, in the Original
Principal Amount of $75,000 given
by the to Jack Higgins
10.51 Common Stock Purchase Warrant dated Provided herewith
as of March 2, 2000 between the
Company and Jack Higgins
10.52 Convertible Promissory Note dated Provided herewith
as of March 7, 2000 in the Original
Principal Amount of $100,000 given
by the Company to Frederick &
Company
10.53 Common Stock Purchase Warrant dated Provided herewith
as of March 7, 2000 between the
Company and Frederick & Company
10.54 Convertible Promissory Note in the Provided herewith
Original Principal Amount of
$100,000 dated as of May 8, 2000
between the Company and Jim Kelly.
10.55 Common Stock Purchase Warrant dated Provided herewith
as of May 8, 2000 between the Company
and Jim Kelly.
10.56 Convertible Promissory Note dated Provided herewith
as of May 26, 2000 between the
Company and Jim Kelly.
10.57 Common Stock Purchase Warrant Provided herewith
dated as of May 26, 2000 between
the Company and Jim Kelly.
11. Statement re: computation of Not applicable
earnings
18. Letter on change in accounting Not applicable
principles
21. Subsidiaries of the Registrant Provided herewith
22. Published report regarding matters Not applicable
submitted to Vote
23. Consent of Independent Accountant Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
37
<PAGE>
(b) Reports on Form 8-K.
On February 14, 2000, we filed a Form 8-K in connection with the
acquisition of all of the capital stock of DNA Sciences, Inc., a California
corporation ("DNA Sciences"). The purchase price consisted of the issuance of
450,000 shares of our common stock. The Form 8-K further stated that our company
intended to provide the financial information required by Item 7 of the Form 8-K
within sixty days from the date the Form 8-K was required to be filed with the
Securities and Exchange Commission.
38
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GENETIC VECTORS, INC.
By: /s/ Mead M. McCabe, Jr.
-----------------------
Mead M. McCabe, Jr.
Chief Executive Officer and Secretary
Date: June 9, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Date Signature Title
---- --------- -----
<S> <C> <C>
June 9, 2000 By: /s/ Mead M. McCabe, Sr., Ph.D. Chairman of the Board of Directors
------------------------------ (Principal Executive Officer)
Mead M. McCabe, Sr., Ph.D.
June 9, 2000 By: /s/ Mead M. McCabe, Jr. Chief Executive Officer; Director
------------------------- (Principal Financial Officer;
Mead M. McCabe, Jr. Principal Accounting Officer)
June 9, 2000 By: /s/ Eric Wilkinson President and Director
-----------------------
Eric Wilkinson
June 9, 2000 By: /s/ Mark E. Burroughs Director
-----------------------
Mark E. Burroughs
June 9, 2000 By: /s/ Jack W. Fell, Ph.D. Director
-------------------------
Jack W. Fell, Ph.D.
June 9, 2000 By: /s/ Michael C. Foley Director
-----------------------
Michael C. Foley
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
No. Description Location Page
-- ----------- -------- ----
<S> <C> <C> <C>
3.1 Articles of Incorporation of the Incorporated by reference to Exhibit
Company, as amended No. 3.1 to Registrant's Registration
Statement (the "Registration
Statement") on Form SB-2 (Registration
Number 333-5530-A)
3.2 By-laws of the Company Incorporated by reference to Exhibit
No. 3.2 to the Registration Statement
3.3 Amendment to By-Laws Provided herewith
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 Provided herewith
10.1 License Agreement dated Incorporated by reference to Exhibit
September 7, 1990 between the No. 10.1 to the Registration Statement
University of Miami and its School
of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement Incorporated by reference to Exhibit
dated January 20, 1992 between No. 10.2 to the Registration Statement
ProVec, Inc. and EpiDNA, Inc.
10.3 Agreement between University of Incorporated by reference to Exhibit
Miami and its School of Medicine No. 10.3 to the Registration Statement
and the Company dated August 21,
1996
10.4 Employment Agreement dated Incorporated by reference to Exhibit
August 15, 1996 between Mead M. No. 10.4 to the Registration Statement
McCabe, Sr. and the Company
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 No. 10.5 to the Registration Statement
between Mead M. McCabe, Sr. and the
Company
10.6 Stock Option Addendum to Employment Incorporated by reference to Exhibit
Agreement dated August 15, 1996 No. 10.7 to the Registration Statement
between Mead M. McCabe, Sr. and the
Company
10.7 Consulting Agreement dated June 19, Incorporated by reference to Exhibit
1996 between James A. Joyce and the No. 10.10 to the Registration Statement
Company
10.8 Letter Agreement dated December 16, Incorporated by reference to Exhibit
1994 among Nyer Medical Group, No. 10.11 to the Registration Statement
Inc., the Company, Mead M. McCabe,
Sr. And Mead M. McCabe, Jr.
10.9 Investors Finders Agreement dated Incorporated by reference to Exhibit
June 9, 1994 among Nyer Medical No. 10.12 to the Registration Statement
Group, Inc., and the Company and
Gulf American Trading Company
40
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.10 Industrial Real Estate Lease dated Incorporated by reference to Exhibit
June 12, 1997 among the Company and No. 10.13 to the Company's Quarterly
Jetex Group, Inc. Report on Form 10-QSB for the Quarter
ended June 30, 1997
10.11 Letter from University of Miami Incorporated by reference to Exhibit
dated April 8, 1998 No. 10.12 to the Company's Annual
Report on Form 10-KSB for the year
ended December 31, 1997
10.12 Promissory Note dated as of Incorporated by reference to Exhibit
November 2, 1998 in the Original No. 10.13 to the Company's Annual
Principal Amount of $50,000 given Report on Form 10-KSB for the year
by the Company to Ms. Patricia A. ended December 31, 1998
Gionone
10.13 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-2 dated as of November 2, 1998 No. 10.14 to the Company's Annual
granted by the Company to Ms. Report on Form 10-KSB for the year
Patricia A. Gionone ended December 31, 1998
10.14 Promissory Note dated as of Incorporated by reference to Exhibit
November 2, 1998 in the Original No. 10.15 to the Company's Annual Report
Principal Amount of $100,000 on Form 10-KSB for the year ended
given by the Company to Jerome December 31, 1998
P. Seiden Irrevocable Trust Dated
April 22, 1998
10.15 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-1 dated as of November 2, 1998 No. 10.16 to the Company's Annual
granted by the Company to Jerome P. Report on Form 10-KSB for the year
Seiden Irrevocable Trust Dated ended December 31, 1998
April 22, 1998
10.16 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-5 dated as of September 3, 1998 No. 10.17 to the Company's Annual
granted by the Company to Sterling Report on Form 10-KSB for the year
Technology Partners, Ltd. ended December 31, 1998
10.17 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-4 dated as of January 19, 1999 No. 10.18 to the Company's Annual
granted by the Company to Sterling Report on Form 10-KSB for the year
Technology Partners, Ltd. ended December 31, 1998
10.18 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-7 dated as of March 9, 1999 No. 10.19 to the Company's Annual
granted by the Company to Sterling Report on Form 10-KSB for the year
Technology Partners, Ltd. ended December 31, 1998
10.19 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-3 dated as of January 19, 1999 No. 10.20 to the Company's Annual
granted by the Company to Capital Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.20 Promissory Note dated as of January Incorporated by reference to Exhibit
19, 1999 in the Original Principal No. 10.21 to the Company's Annual
Amount of $163,500 given by the Report on Form 10-KSB for the year
Company to Capital Research, Ltd. ended December 31, 1998
10.21 Pledge and Security Agreement dated Incorporated by reference to Exhibit
as of January 19, 1999 between the No. 10.22 to the Company's Annual
Company and Capital Research, Ltd. Report on Form 10-KSB for the year
ended December 31, 1998
10.22 Registration Rights Agreement dated Incorporated by reference to Exhibit
as of January 19, 1999 between the No. 10.23 to the Company's Annual
Company and Capital Research, Ltd. Report on Form 10-KSB for the year
ended December 31, 1998
41
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.23 Promissory Note dated as of March Incorporated by reference to Exhibit
9, 1999 in the Original Principal No. 10.24 to the Company's Annual
Amount of $125,000 given by the Report on Form 10-KSB for the year
Company to Capital Research, Ltd. ended December 31, 1998
10.24 Common Stock Purchase Warrant No. Incorporated by reference to Exhibit
W-6 dated as of March 9, 1999 No. 10.25 to the Company's Annual
granted by the Company to Capital Report on Form 10-KSB for the year
Research, Ltd. ended December 31, 1998
10.25 Registration Rights Agreement dated Incorporated by reference to Exhibit
as of March 9, 1999 between the No. 10.26 to the Company's Annual
Company and Capital Research, Ltd. Report on Form 10-KSB for the year
ended December 31, 1998
10.26 Executive Employment Agreement, Incorporated by reference to Exhibit
together with stock Option 10.26 to the Company's Annual Report on
Addendum, dated as of July 1, 1999 Amendment No. 1 to the Form 10 KSB for
between Mead M. McCabe, Jr. and the the year ended December 31, 1998
Company
10.27 Executive Employment Agreement, Incorporated by reference to Exhibit
together with Stock Option 10.27 to the Company's Annual Report on
Addendum, dated as of July 1, 1999 Amendment No. 1 to the Form 10 KSB for
between Mead M. McCabe, Sr. and the the year ended December 31, 1998
Company
10.28 Executive Employment Agreement, Provided herewith
together with Stock Option
Addendum, dated as of January 17,
2000 between Jerome Streifel and
the Company
10.29 Executive Employment Agreement, Provided herewith
together with Stock Option
Addendum, dated as of January 17,
2000 between Eric Wilkinson and the
Company
10.30 Promissory Note dated as of April Provided herewith
19, 1999 in the Original Principal
Amount of $100,000 given by the
Company to Jack Surgent
10.31 Registration Rights Agreement dated Provided herewith
as of April 19, 1999 between the
Company and Jack Surgent
10.32 Common Stock Purchase Warrant dated Provided herewith
as of April 19, 1999 granted by the
Company to Jack Surgent
10.33 Promissory Note dated as of October Provided herewith
6, 1999 in the Original Principal
Amount of $200,000 given by the
Company to Orbiter Fund, Ltd.
10.34 Pledge and Security Agreement dated Provided hereiwth
as of October 6, 1999 between the
Company and Orbiter Fund, Ltd.
42
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.35 Registration Rights Agreement dated Provided herewith
as of October 6, 1999 between the
Company and Orbiter Fund, Ltd.
10.36 Common Stock Purchase Warrant dated Provided herewith
as of October 6, 1999 granted by the
Company to Orbiter Fund, Ltd.
10.37 Promissory Note dated as of Provided herewith
November 19, 1999 in Original
Principal Amount of $200,000 given
by the Company to Orbiter Fund, Ltd.
10.38 Pledge and Security Agreement dated Provided herewith
as of November 19, 1999 between the
Company and Orbiter Fund, Ltd.
10.39 Registration Rights Agreement dated Provided herewith
as of November 19, 1999 between the
Company and Orbiter Fund, Ltd.
10.40 Common Stock Purchase Warrant dated Provided herewith
as of December 22, 1999 granted by
the Company to Orbiter Fund, Ltd.
10.41 Promissory Note dated as of Provided herewith
December 22, 1999 in the Original
Principal Amount of $300,000 given
by the Company to Orbiter Fund, Ltd.
10.42 Pledge and Security Agreement dated Provided herewith
as of December 22, 1999 between the
Company and Orbiter Fund, Ltd.
10.43 Registration Rights Agreement dated Provided herewith
as of December 22, 1999 between the
Company and The Orbiter Fund, Ltd.
10.44 Common Stock Purchase Warrant dated Provided herewith
as of December 22, 1999 granted by
the Company to The Orbiter Fund, Ltd.
10.45 Promissory Note dated as of February, Provided herewith
2000 in the Original Principal Amount
of $250,000 give by the Company to
The Orbiter Fund, Ltd.
10.46 Pledge and Security Agreement dated Provided herewith
as of , 2000 between the Company and
The Orbiter Fund, Ltd.
10.47 Registration Rights Agreement dated Provided herewith
as of February, 2000 between the
Company and The Orbiter Fund, Ltd.
43
<PAGE>
Exhibit
No. Description Location Page
-- ----------- -------- ----
10.48 Stock Purchase Agreement dated as Provided herewith
of January 17, 2000 among the
Company, DNA Sciences, Inc. and the
shareholders of DNA Sciences, Inc.
10.49 Common Stock Purchase Warrant dated Provided herewith
as of February, 2000 given by the
Company to The Orbiter Fund, Ltd.
10.50 Convertible Promissory Note dated Provided herewith
as of March 2, in the Original
Principal Amount of $75,000 given
by the to Jack Higgins
10.51 Common Stock Purchase Warrant dated Provided herewith
as of March 2, 2000 between the
Company and Jack Higgins
10.52 Convertible Promissory Note dated Provided herewith
as of March 7, 2000 in the Original
Principal Amount of $100,000 given
by the Company to Frederick &
Company
10.53 Common Stock Purchase Warrant dated Provided herewith
as of March 7, 2000 between the
Company and Frederick & Company
10.54 Convertible Promissory Note in the Provided herewith
Original Principal Amount of
$100,000 dated as of May 8, 2000
between the Company and Jim Kelly.
10.55 Common Stock Purchase Warrant dated Provided herewith
as of May 8, 2000 between the Company
and Jim Kelly.
10.56 Convertible Promissory Note dated Provided herewith
as of May 26, 2000 between the
Company and Jim Kelly.
10.57 Common Stock Purchase Warrant Provided herewith
dated as of May 26, 2000 between
the Company and Jim Kelly.
11. Statement re: computation of Not applicable
earnings
18. Letter on change in accounting Not applicable
principles
21. Subsidiaries of the Registrant Provided herewith
22. Published report regarding matters Not applicable
submitted to Vote
23. Consent of Independent Accountant Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
</TABLE>
44