U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange
Act of 1934
For the quarterly period ended MARCH 31, 2000
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______ to _______.
Commission File No. 0-21739
GENETIC VECTORS, INC.
---------------------
(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0324710
------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation No.)
or Organization)
5201 N.W. 77TH AVENUE, SUITE 100, 33166
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MIAMI, FLORIDA (Zip Code)
--------------
(Address of Principal Executive
Offices)
(305) 716-0000
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes |_| No |X|
There were 3,732,843 shares of Common Stock outstanding as of June 23,
2000.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
PAGE
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 7
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GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (UNAUDITED)
MARCH 31, 2000
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 58,913
Accounts receivable 21,537
Inventory 5,377
Prepaid expenses 58,112
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TOTAL CURRENT ASSETS 143,939
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EQUIPMENT AND IMPROVEMENTS, NET 266,100
PATENTS AND LICENSE AGREEMENT, NET OF $44,130 OF
ACCUMULATED AMORTIZATION 202,834
RESTRICTED CASH EQUIVALENTS 46,130
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659,003
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LIABILITY AND CAPITAL DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 483,128
Loans payable, net of unamortized discount 223,674
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TOTAL LIABILITIES 706,802
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CAPITAL DEFICIT:
Common stock, $.001 par value, 10,000,000
shares authorized, 3,732,843 shares issued 3,733
and outstanding
Additional paid-in capital 10,912,937
Deficit accumulated during the development stage (10,964,469)
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TOTAL CAPITAL DEFICIT (47,799)
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$ 659,003
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SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
3
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<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
CUMULATIVE
FROM
JANUARY 1,
1992
(INCEPTION) FOR THE THREE FOR THE THREE
THROUGH MONTHS ENDED MONTHS ENDED
MARCH 31, 2000 MARCH 31, 2000 MARCH 31, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Sales $ 131,192 $ 35,825 $ 7,654
Grant income 149,147 -- --
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Total revenue 280,339 35,825 7,654
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COST AND EXPENSES:
Cost of sales 18,255 9,067 --
Selling, general and administration 5,641,860 547,198 256,641
Research and development 3,281,336 177,202 132,089
Depreciation and amortization 350,989 23,889 19,903
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Total expenses 9,292,440 757,356 408,633
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OTHER INCOME (EXPENSE):
Amortization of deferred loan costs (1,253,055) (486,493) --
Expense in connection with issuance of common stock
for loan extension (751,769) (751,769) --
Interest income (expense), net 52,456 (84,320) 1,871
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Total other (1,952,368) (1,322,582) 1,871
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Net loss $(10,964,469) $(2,044,113) $(399,108)
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Weighted average number of common shares outstanding 3,433,623 2,349,843
Net (loss) per common share ($0.60) ($0.17)
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.
</TABLE>
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<TABLE>
<CAPTION>
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
CUMULATIVE FROM FOR THE THREE FOR THE THREE
JANUARY 1, 1992 MONTHS ENDED MONTHS ENDED
(INCEPTION) THROUGH MARCH 31, MARCH 31,
MARCH 31, 2000 2000 1999
--------------------------------------------------------- ------------------------ ------------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (10,964,469) $(2,044,113) $(399,108)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 350,989 23,889 19,903
Amortization of deferred loan costs 1,253,055 486,493 --
Write-off of acquired technology 71,250 -- --
Common stock issued for loan extension 751,769 751,769 --
Warrants issued for loan extension 117,150 43,450 --
Consulting services provided for common stock
6,000 -- --
Stock options and warrants granted for services
364,572 -- --
(Increase) decrease in accounts receivable (21,537) (15,597) 1,167
(Increase) in prepaid expenses (58,112) (7,688) (346)
(Increase) decrease in inventory (5,377) 1,704 (11,244)
(Increase) in restricted cash equivalents (46,130) -- --
Increase (decrease) in accounts payable and
accrued liabilities 615,950 50,681 45,508
--------------------------------------------------------- ------------------------ ------------------- -------------------
TOTAL ADJUSTMENTS 3,399,579 1,334,701 54,988
--------------------------------------------------------- ------------------------ ------------------- -------------------
NET CASH USED IN OPERATING ACTIVITIES (7,564,890) (709,412) (344,120)
--------------------------------------------------------- ------------------------ ------------------- -------------------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (572,958) (3,477) (590)
Patent costs (261,964) -- --
--------------------------------------------------------- ------------------------ ------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (834,922) (3,477) (590)
--------------------------------------------------------- ------------------------ ------------------- -------------------
FINANCING ACTIVITIES:
Increase due to parent 413,518 -- --
Proceeds from notes payable 1,698,500 425,000 302,155
Payment on notes payable (35,000) -- --
Net proceeds from issuance of common stock 5,862,450 140,000 --
Capital contribution 500,000 -- --
Offering refund 25,500 -- --
Offering costs (6,243) -- --
--------------------------------------------------------- ------------------------ ------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,458,725 565,000 302,155
--------------------------------------------------------- ------------------------ ------------------- -------------------
NET INCREASE (DECREASE) IN CASH 58,913 (147,889) (42,555)
Cash at beginning of period -- 206,802 109,924
--------------------------------------------------------- ------------------------ ------------------- -------------------
CASH AT END OF PERIOD $58,913 $58,913 $67,369
--------------------------------------------------------- ------------------------ ------------------- -------------------
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CUMULATIVE FROM FOR THE THREE FOR THE THREE
JANUARY 1, 1992 MONTHS ENDED MONTHS ENDED
(INCEPTION) THROUGH MARCH 31, MARCH 31,
MARCH 31, 2000 2000 1999
--------------------------------------------------------- ------------------------ ------------------- -------------------
SUPPLEMENTAL DISCLOSURES:
Conversion of due to parent in exchange for stock $413,518 $-- --
Conversion of accrued wages for stock 132,822 -- --
Warrants issued in connection with loan financing 1,624,650 425,000 --
Issuance of common stock for loan extension $1,820,000 $1,820,000 --
--------------------------------------------------------- ------------------------ ------------------- -------------------
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
</TABLE>
6
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GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
GENETIC VECTORS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited financial
statements include all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the results for the
periods presented. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the Company's Annual Report for
the year ended December 31, 1999. The results of operations for the three months
ended March 31, 2000 are not necessarily indicative of the results to be
expected for the full year.
2. EARNINGS PER SHARE
The following reconciles the components of the earnings per share (EPS)
computation.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 ENDED MARCH 31, 1999
------------------------------------------------------------------------------------------------
LOSS SHARES PER SHARE LOSS SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loss per common
share - basic ($2,044,113) 3,433,623 ($0.60) ($399,108) 2,349,843 ($0.17)
------------------------------------------------------------------------------------------------------------------------
Effect of Dilutive:
Securities -- -- -- -- -- --
Options -- -- -- -- -- --
Warrants -- -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Loss per common
share, assuming
dilution ($2,044,113) 3,433,623 ($0.60) ($399,108) 2,349,843 ($0.17)
</TABLE>
Net loss per share of common stock is based on the weighted average number of
common shares outstanding during each period. Diluted loss per share of common
stock is computed on the basis of the weighted average number of common shares
and diluted options and warrants outstanding. Dilutive options and warrants
having an anti-dilutive effect are excluded from the calculation.
3. ACQUISITION
On January 17, 2000 Genetic Vectors, Inc. completed a merger with DNA
Sciences, Inc., by exchanging 450,000 shares of its common stock for all the
common stock of DNA Sciences, Inc. Each share of DNA Sciences, Inc. was
exchanged for .45 of one share of Genetic Vectors, Inc. common stock. The merger
has been accounted for as a pooling of interest. DNA Sciences, Inc. was formed
in November 1999 and, accordingly, the accompanying financial statements
include the operations of DNA Sciences, Inc., effective January 1, 2000. There
were no material transactions between Genetic Vectors, Inc. and DNA Sciences,
Inc. prior to the merger. Unaudited proforma information related to this merger
is not included, as impact of the merger is not material.
4. NOTES PAYABLE
During the three months ended March 31, 2000, the Company borrowed
$425,000 (See Item 2, Changes in Securities and Use of Proceeds; Item 3,
Defaults upon Senior Securities). In connection with these borrowings, the
Company issued 142,500 warrants with exercise prices ranging from $1.00 to
$6.20. The exercise prices of such warrants were below the market price of the
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Company's common stock. In connection with these transactions, the value
ascribed to the warrants was equal to the amount borrowed. Accordingly, the
Company has recorded a debt discount and has offset the amounts borrowed by the
value ascribed to these warrants. The Company will amortize the deferred
discount over the term of the related borrowings.
Notes payable as of March 31, 2000 are as follows:
Notes payable $ 1,663,500
Debt discount (1,439,826)
-----------
Net $ 223,674
==========
5. SUBSEQUENT EVENTS
Effective March 31, 2000, the Company was no longer in compliance with the
National Association of Securities Dealers, Inc. filing requirements.
Accordingly, the letter "E" was appended to the trading symbol. Once the NASD
receives notification that the Company complies with the filing requirement, the
fifth character "E" will be removed. The Company expects to be compliant in the
near future.
On April 4, 2000, the Company borrowed $100,000 from a private investor.
The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan is due in October 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.
On May 8, 2000, the Company borrowed $100,000 ("LOAN NO. 1") and on May
26, 2000 the Company borrowed $500,000 from a private investor ("LOAN NO. 2").
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 the Company
of $5 million or more, all amounts due into shares of the common stock at a
conversion rate of $3.00 per share. In addition, and in the event of a
conversion, the private investor will receive warrants to purchase (a) 33,333
(Loan No. 1) and 166,665 (Loan No. 2) shares of common stock at an exercise
price of $6.00 per share and (b) 33,333 (Loan No. 1) and 166,665 (Loan No. 2)
shares of common stock at an exercise price of $7.10 per share. If no conversion
occurs, then the private investor will receive warrants to purchase (a) 20,000
(Loan No. 1) and 100,000 (Loan No. 2) shares of common stock at an exercise
price of $6.60 per share and (b) 20,000 (Loan No. 1) and 100,000 (Loan No. 2)
shares of common stock at an exercise price of $8.00 per share. Additionally, in
the event of a default, the investor would be entitled to warrants to purchase
(a) 10,000 (Loan No. 1) and (b) 10,000 (Loan No. 2) shares of common stock at an
exercise price of $5.00 per share for each month that any amounts are
outstanding under the note.
On June 9, 2000, the Company borrowed $50,000 from a private investor.
This loan has an annual interest rate of 12%, simple interest, payable at
maturity. The loan is due in December 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 the company
of $5 million or more, all amounts due into shares of our common stock at a
conversion rate of $3.00 per share. In addition, and in the event of a
conversion, the private investor will receive warrants to purchase 16,665 shares
of common stock at an exercise price of $6.00 per share and 16,665 shares of
common stock at an exercise price of $7.10 per share. If no conversion occurs,
then the private investors will receive warrants to purchase 10,000 shares of
common stock at an exercise price of $6.60 per share and 10,000 shares of common
stock at an exercise price of $8.00 per share. Additionally, in the event of a
default, the investor would be entitled to warrants to purchase 5,000 shares at
an exercise price of $5.00 per share for each month that any amounts are
outstanding under the note.
8
<PAGE>
On June 9, 2000, we granted the following options under our 1999 Stock
Option Plan:
o To Mead M. McCabe, Sr., the Chairman of our company, options to
purchase up to 100,000 shares of common stock at an exercise price
of $6.03125 per share. These options vest one-third immediately and
one-third on each of the second and third anniversaries of Dr.
McCabe's 1999 employment agreement. These options may be exercised
within ten years of the date of grant.
o To Mead M. McCabe, Jr., the Chief Executive Officer of our company,
options to purchase up to 100,000 shares of common stock at an
exercise price of $6.03125 per share. These options vest one-third
immediately and one-third on each of the second and third
anniversaries of Mr. McCabe's 1999 employment agreement. These
options may be exercised within ten years of the date of grant.
o To Mark Burroughs, a director of our company, options to purchase
17,500 shares of common stock at an exercise price of $6.03125 per
share. 12,500 of these options vest immediately and 5,000 vest in
March 2001. These options may be exercised within ten years of the
date of grant.
o To Jack Fell, a director of our company, options to purchase 12,500
shares of common stock at an exercise price of $6.03125 per share.
7,500 of these options vest immediately and 5,000 vest in March
2001. These options may be exercised within ten years of the date of
grant.
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.
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<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS.
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-QSB.
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.
PLAN OF OPERATION
We specialize in the development of molecular systems in the area of
disease management, risk assessment and certain industrial markets. We plan to
develop and manufacture these tests for sale to pharmaceutical, healthcare and
certain industrial markets. We are currently selling the EpiDNAtm and the
EASYIDtm product lines and are developing several other products of the EASYID
product line.
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 March 31, 2000, we had
cash and cash equivalents of $58,913. Since that date, we have raised an
additional $0.8 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.
On June 30, 2000, the date of this filing, $1.2 million of loans are due
and payable. Our company does not have sufficient funds to pay these loans. As a
result, our company will be in default of these loans after the date of this
filing.
RESEARCH AND DEVELOPMENT
We will continue our product research and development efforts and continue
to implement what we believe to be a feasible plan for product development. We
intend to complete the build-out of research and development and production
areas in our Florida facility. For the twelve-month period following our receipt
of significant additional capital, our activities will focus on the following:
o Continued enhancement of our Juvenile Diabetes Risk Assessment
System.
o Development of new detection systems in collaboration with the
Norwegian Institute of Public Health.
o Continuation of EASYID DNA probe product development for diagnostic
uses, drug discovery and certain industrial applications.
o Continued research and development of products for the detection of
genes involved in cardiovascular diseases.
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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 fourteen 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 2
Administrative Personnel 1
Director - QA/QC 1
Director - Sales and Marketing 1
Scientists 2
Technicians 7
TOTAL PROPOSED NEW EMPLOYEES 14
TOTAL PROPOSED EMPLOYEES AT END OF YEAR 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We remain largely a development stage company. We generated revenues of
$36,000 during the three months ended March 31, 2000 and had related cost of
sales of $9,000. These sales are attributable to sales of the Picogram Assay and
sales related to DNA Sciences' product. Our expenditures far exceed our
revenues. We reported $8,000 of revenues for the three months ended March 31,
1999.
Research and development expenses for the three months ended March 31,
2000 increased by $45,000 to $177,000 from the comparable period in the prior
year. This increase is largely attributable to the research and development of
costs associated with our San Diego facility.
Selling, general and administrative expenses increased by $291,000 to
$547,000 in the three months ended March 31, 2000 over the comparable period in
1999. This increase is primarily attributable to salaries of two executives and
costs associated with merger, integration and operations of DNA Sciences, Inc.
Amortization of deferred loan costs increased by approximately $486,000
from the same period in the prior year. The increase was directly related to our
increased borrowing during the latter part of 1999 and during the three months
ended March 31, 2000 and the granting of related warrants. These warrants were
valued based on the Black-Scholes Option Pricing Model and resulted in $486,000
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of amortization related to deferred loan costs associated to loans taken in 1999
and 2000.
Other income (expense):
Interest expense for the three months ended March 31, 2000 was $84,000,
representing the interest on various loans received by us and costs associated
with the issuance of warrants for loan extension. As of March 31, 2000, we had
approximately $1.7 million, before discount, in outstanding notes payable.
During the comparable period in the prior year we had very little outstanding
notes payable.
Expense in connection with issuance of common stock for loan extension
increased by $752,000 in the three months ended March 31, 2000 over the
comparable period in 1999. This increase is primarily attributable to the fact
that in 2000 the Company recorded a charge in connection with the issuance of
common stock for the extension of the maturity date of certain loans to June 30,
2000. In this connection 280,000 shares of the Company's common stock at $6.50
per share were issued.
LIQUIDITY AND CAPITAL RESOURCES. The net cash used by us in operating
activities aggregated $0.7 million in the three months ended March 31, 2000, as
compared with $0.3 million in the same period in the prior year. This increase
was largely attributable to increases pertaining to the merger and integration
and operations of DNA Sciences, Inc. Our net cash provided by financing
activities aggregated $0.6 million during the three months ended March 31, 2000,
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 March 31, 2000, we had $58,913 of cash.
Since that date, we have raised a total of $0.8 million. We are and after the
date of this filing will be in default of certain indebtedness. Our company does
not have sufficient funds to repay these loans. See "DEFAULTS IN SENIOR
SECURITIES."
Substantially all of these proceeds are expected to be spent prior to
December 1, 2000. As of March 31, 2000, we had a capital deficit of $48,000. 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.
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. 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
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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.
CERTAIN BUSINESS RISK FACTORS
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 9, 2000, we borrowed a total of $2.4
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. After the date of this filing, we will be in default of
this loan for failing to pay principal and interest when due.
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 Loan of $100,000 convertible into shares of common stock at a price
of $5.00 per share and which is due in October 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.
o Loan of $50,000 convertible into shares of common stock at a price
of $3.00 per share and which is due in December 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.
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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
In the three months ended March 31, 2000, we incurred a net loss of $2
million. Our cumulative net loss since our inception on January 1, 1992 was $11
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 $58,914 of cash as of March 31, 2000. Since March 31, 2000, we have
borrowed a total of $0.8 million. We project that these proceeds will fund our
operations no longer than December 1, 2000. In connection with our financial
statements for the year ended December 31, 1999, our independent auditors have
noted there is substantial doubt about our ability to continue as a going
concern. 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 certain 1934 Act
filings, including this filing. 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.
WE MAY 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 may depend upon the efforts of others and may be beyond our control.
Failure of any collaborative selling arrangement could result in reduced
revenues and possible losses.
WE 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
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products in Europe and Asia and other areas will depend on our ability to fund
such efforts as well as our ability to develop strategic alliances with
marketing partners. Our inability to successfully market our products would
jeopardize our ability to generate revenue sufficient to support our operations.
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 EASYID product lines. 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.
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
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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.
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 "analyte specific reagents" or "ASRs") of
certain tests developed by, or in conjunction with, clinical laboratories.
Currently, a final rule has not been issued. 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.
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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
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."
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PART II
OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company is not aware of any legal proceedings involving the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a), (b) and (d) None.
(c) SALES OF UNREGISTERED SECURITIES.
On February 11, 2000, we borrowed $250,000 ("LOAN NO. 1") from a private
investor. 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. In addition, we issued the private investor warrants to purchase 100,000
shares of common stock at an exercise price of $1.00 per share. These warrants
were immediately exercisable. On March 3, 2000, the private investor extended
the due date of the principal and interest to June 30, 2000. The loan is secured
by substantially all of our assets. The closing price of our common stock on
February 11, 2000 was $7.25. In addition, when the loan is paid back or if $1.5
million is subsequently raised, we will issue warrants to purchase 125,000
shares of common stock at an exercise price of $3.00 per share. In connection
with this loan, we granted to the Consultant warrants to purchase 25,000 shares
of common stock at an exercise price of $3.00 per share for helping us locate
the financing. These warrants are immediately exercisable. This offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On March 2, 2000, we borrowed $75,000 from a private investor ("LOAN NO.
2"). 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. The offering was exempt from registration pursuant to Section 4(2) of
the Act and Rule 506 promulgated thereunder.
On March 7, 2000, we borrowed $100,000 from a private investor ("LOAN NO.
3"). 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. The offering was exempt from registration pursuant to Section 4(2) of
the Act and Rule 506 promulgated thereunder.
On April 4, 2000, we borrowed $100,000 from a private investor ("LOAN NO.
4"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan is due on October 3, 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
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the note. 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. 5") and on May 26, 2000 we
borrowed $500,000 from a private investor ("LOAN NO. 6"). 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. 5) and 166,665 (Loan No. 6)
shares of common stock at an exercise price of $6.00 per share and (b) 33,333
(Loan No. 5) and 166,665 (Loan No. 6) shares of common stock at an exercise
price of $7.10 per share. If no conversion occurs, then the private investor
will receive warrants to purchase (a) 20,000 (Loan No. 5) and 100,000 (Loan No.
6) shares of common stock at an exercise price of $6.60 per share and (b) 20,000
(Loan No. 5) and 100,000 (Loan No. 6) shares of common stock at an exercise
price of $8.00 per share. Additionally, in the event of a default, the investor
would be entitled to warrants to purchase (a) 10,000 (Loan No. 5) and (b) 10,000
(Loan No. 6) shares of common stock at an exercise price of $5.00 per share for
each month that any amounts are outstanding under the note. The offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On June 9, 2000, we borrowed $50,000 ("LOAN NO. 7") from a private
investor. This loan has an annual interest rate of 12%, simple interest, payable
at maturity. The loan is due in December 2000. Prior to the payment of the
principal balance of the loan, the private investor may convert, at his option
at anytime up to 30 days after the closing of an equity financing by our company
of $5 million or more, all amounts due into shares of our common stock at a
conversion rate of $3.00 per share. In addition, and in the event of a
conversion, the private investor will receive warrants to purchase 16,665 shares
of common stock at an exercise price of $6.00 per share and 16,665 shares of
common stock at an exercise price of $7.10 per share. If no conversion occurs,
then the private investors will receive warrants to purchase 10,000 shares of
common stock at an exercise price of $6.60 per share and 10,000 shares of common
stock at an exercise price of $8.00 per share. Additionally, in the event of a
default, the investor would be entitled to warrants to purchase 5,000 shares at
an exercise price of $5.00 per share for each month that any amounts are
outstanding under the note. The offering was exempt from registration pursuant
to Section 4(2) of the Act and Rule 506 promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Since November 2, 1998, the Company received a total of $2.4 million in
loans in fourteen separate loan transactions. Interest became payable on two of
these loans (a total of $150,000) on April 1, 1999 and on another loan (a total
of $100,000) on June 1, 1999. The Company is in default on these loans for
failing to pay the required principal and interest payments. Principal and
interest on six of the loans (a total of $1,238,500) are due on June 30, 2000
(the maturity dates on these loans were extended by the lenders to June 30,
2000, but we will be in default of these loans after the date of this filings).
Two of the remaining loans (a total of $175,000) will become payable in
September 2000. Of the four remaining loans (a total of $750,000), a total of
$100,000 will become payable in October 2000, a total of $600,000 will become
payable in November 2000, and $50,000 will become payable in December 2000. Of
the total number of loans, seven of them (a total of $1,338,500, plus interest)
are secured by substantially all of the Company's assets. The Company's ability
to pay any interest or to repay such loans is completely dependent on the
Company's ability to raise additional capital from external sources. The
Company's failure to raise such capital and to pay all accrued but unpaid
interest and subsequently to repay the loans upon maturity may result in the
foreclosure on the Company's assets. This would have a material adverse effect
on the Company's business, financial condition and results of operations and
would jeopardize the Company's ability to continue as a going concern.
As of June 23, 2000, the Company owed $162,352 in interest on these loans,
with interest accruing at a rate of $547 per day.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS. SEE EXHIBIT INDEX IN THIS FILING.
(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. As of the date of this filing, the Company
has not provided the financial information required by Item 7 of the Form 8-K.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 30, 2000 GENETIC VECTORS, INC.
By:/s/ Mead M. McCabe, Jr.
-----------------------
Mead M. McCabe, Jr.
President
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
3.1 Articles of Incorporation of Incorporated by reference to
the Company, as amended Exhibit 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 of the Incorporated by reference to
Company Exhibit No. 3.3 to the Annual
Report on Form 10-KSB for the
year ended December 31, 1999
4.1 Form of Common Stock Incorporated by reference to
certificate 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 Incorporated by reference to
Plan Exhibit No. 4.4 to the Annual
Report on Form 10-KSB for the
year ended December 31, 1999
10.1 License Agreement dated Incorporated by reference to
September 7, 1990 between Exhibit No. 10.1 to the
the University of Miami and Registration Statement
its School of Medicine and
ProVec, Inc.
10.2 Assignment of License Incorporated by reference to
Agreement dated January 20, Exhibit No. 10.2 to the
1992 between ProVec, Inc. Registration Statement
and EpiDNA, Inc.
10.3 Agreement between University Incorporated by reference to
of Miami and its School of Exhibit No. 10.3 to the
Medicine and the Company Registration Statement
dated August 21, 1996
10.4 Employment Agreement dated Incorporated by reference to
August 15, 1996 between Mead Exhibit No. 10.4 to the
M. McCabe, Sr. and the Registration Statement
Company
10.5 Stock Option Addendum to Incorporated by reference to
Employment Agreement dated Exhibit No. 10.5 to the
August 15, 1996 between Mead Registration Statement
M. McCabe, Sr. and the
Company
10.6 Stock Option Addendum to Incorporated by reference to
Employment Agreement dated Exhibit No. 10.7 to the
August 15, 1996 between Mead Registration Statement
M. McCabe, Sr. and the
Company
10.7 Consulting Agreement dated Incorporated by reference to
June 19, 1996 between James Exhibit No. 10.10 to the
A. Joyce and the Company Registration Statement
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EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.8 Letter Agreement dated Incorporated by reference to
December 16, 1994 among Nyer Exhibit No. 10.11 to the
Medical Group, Inc., the Registration Statement
Company, Mead M. McCabe, Sr.
And Mead M. McCabe, Jr.
10.9 Investors Finders Agreement Incorporated by reference to
dated June 9, 1994 among Exhibit No. 10.12 to the
Nyer Medical Group, Inc., Registration Statement
and the Company and Gulf
American Trading Company
10.10 Industrial Real Estate Lease Incorporated by reference to
dated June 12, 1997 among Exhibit No. 10.13 to the
the Company and Jetex Group, Company's Quarterly Report on
Inc. Form 10-QSB for the Quarter
ended June 30, 1997
10.11 Letter from University of Incorporated by reference to
Miami dated April 8, 1998 Exhibit No. 10.12 to the Company's
Annual Report on Form 10-KSB
for the year ended December 31,
1997
10.12 Promissory Note dated as of Incorporated by reference to
November 2, 1998 in the Exhibit No. 10.13 to the
Original Principal Amount of Company's Annual Report on Form
$50,000 given by the Company 10-KSB for the year ended
to Ms. Patricia A. Gionone December 31, 1998
10.13 Common Stock Purchase Incorporated by reference to
Warrant No. W-2 dated as of Exhibit No. 10.14 to the
November 2, 1998 granted by Company's Annual Report on Form
the Company to Ms. Patricia 10-KSB for the year ended
A. Gionone December 31, 1998
10.14 Promissory Note dated as of Incorporated by reference to
November 2, 1998 in the Exhibit No. 10.15 to the
Original Principal Amount Company's Annual Report on Form
of $100,000 given by the 10-KSB for the year ended
Company to Jerome P. Seiden December 31, 1998
Irrevocable Trust Dated
April 22, 1998
10.15 Common Stock Purchase Incorporated by reference to
Warrant No. W-1 dated as of Exhibit No. 10.16 to the
November 2, 1998 granted by Company's Annual Report on Form
the Company to Jerome P. 10-KSB for the year ended
Seiden Irrevocable Trust December 31, 1998
Dated April 22, 1998
10.16 Common Stock Purchase Incorporated by reference to
Warrant No. W-5 dated as of Exhibit No. 10.17 to the
September 3, 1998 granted by Company's Annual Report on Form
the Company to Sterling 10-KSB for the year ended
Technology Partners, Ltd. December 31, 1998
10.17 Common Stock Purchase Incorporated by reference to
Warrant No. W-4 dated as of Exhibit No. 10.18 to the
January 19, 1999 granted by Company's Annual Report on Form
the Company to Sterling 10-KSB for the year ended
Technology Partners, Ltd. December 31, 1998
10.18 Common Stock Purchase Incorporated by reference to
Warrant No. W-7 dated as of Exhibit No. 10.19 to the
March 9, 1999 granted by the Company's Annual Report on Form
Company to Sterling 10-KSB for the year ended
Technology Partners, Ltd. December 31, 1998
10.19 Common Stock Purchase Incorporated by reference to
Warrant No. W-3 dated as of Exhibit No. 10.20 to the
January 19, 1999 granted by Company's Annual Report on Form
the Company to Capital 10-KSB for the year ended
Research, Ltd. December 31, 1998
23
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.20 Promissory Note dated as of Incorporated by reference to
January 19, 1999 in the Exhibit No. 10.21 to the
Original Principal Amount of Company's Annual Report on Form
$163,500 given by the 10-KSB for the year ended
Company to Capital Research, December 31, 1998
Ltd.
10.21 Pledge and Security Incorporated by reference to
Agreement dated as of Exhibit No. 10.22 to the
January 19, 1999 between the Company's Annual Report on Form
Company and Capital 10-KSB for the year ended
Research, Ltd. December 31, 1998
10.22 Registration Rights Incorporated by reference to
Agreement dated as of Exhibit No. 10.23 to the
January 19, 1999 between the Company's Annual Report on Form
Company and Capital 10-KSB for the year ended
Research, Ltd. December 31, 1998
10.23 Promissory Note dated as of Incorporated by reference to
March 9, 1999 in the Exhibit No. 10.24 to the
Original Principal Amount of Company's Annual Report on Form
$125,000 given by the 10-KSB for the year ended
Company to Capital December 31, 1998
Research, Ltd.
10.24 Common Stock Purchase Incorporated by reference to
Warrant No. W-6 dated as of Exhibit No. 10.25 to the
March 9, 1999 granted by the Company's Annual Report on Form
Company to Capital Research, 10-KSB for the year ended
Ltd. December 31, 1998
10.25 Registration Rights Incorporated by reference to
Agreement dated as of March Exhibit No. 10.26 to the
9, 1999 between the Company Company's Annual Report on Form
and Capital Research, Ltd. 10-KSB for the year ended
December 31, 1998
10.26 Executive Employment Incorporated by reference to
Agreement, together with Exhibit 10.26 to the Company's
Stock Option Addendum, dated Annual Report on Amendment No.
as of July 1, 1999 between 1 to the Form 10 KSB for the
Mead M. McCabe, Jr. and the year ended December 31, 1998
Company
10.27 Executive Employment Incorporated by reference to
Agreement, together with Exhibit 10.27 to the Company's
Stock Option Addendum, dated Annual Report on Amendment No.
as of July 1, 1999 between 1 to the Form 10 KSB for the
Mead M. McCabe, Sr. and the year ended December 31, 1998
Company
10.28 Executive Employment Incorporated by reference to
Agreement, together with Exhibit No. 10.29 to the Annual
Stock Option Addendum, dated Report on Form 10-KSB for the
as of January 17, 2000 year ended December 31, 1999
between Eric Wilkinson and
the Company
10.29 Promissory Note dated as of Incorporated by reference to
April 19, 1999 in the Exhibit No. 10.30 to the Annual
Original Principal Amount of Report on Form 10-KSB for the
$100,000 given by the year ended December 31, 1999
Company to Jack Surgent
10.30 Registration Rights Incorporated by reference to
Agreement dated as of April Exhibit No. 10.31 to the Annual
19, 1999 between the Company Report on Form 10-KSB for the
and Jack Surgent year ended December 31, 1999
10.31 Common Stock Purchase Incorporated by reference to
Warrant dated as of April Exhibit No. 10.32 to the Annual
19, 1999 granted by the Report on Form 10-KSB for the
Company to Jack Surgent year ended December 31, 1999
24
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.32 Promissory Note dated as of Incorporated by reference to
October 6, 1999 in the Exhibit No. 10.33 to the Annual
Original Principal Amount of Report on Form 10-KSB for the
$200,000 given by the year ended December 31, 1999
Company to Orbiter Fund, Ltd.
10.33 Pledge and Security Incorporated by reference to
Agreement dated as of Exhibit No. 10.34 to the Annual
October 6, 1999 between the Report on Form 10-KSB for the
Company and Orbiter Fund, year ended December 31, 1999
Ltd.
10.34 Registration Rights Incorporated by reference to
Agreement dated as of Exhibit No. 10.35 to the Annual
October 6, 1999 between the Report on Form 10-KSB for the
Company and Orbiter Fund, year ended December 31, 1999
Ltd.
10.35 Common Stock Purchase Incorporated by reference to
Warrant dated as of October Exhibit No. 10.36 to the Annual
6, 1999 granted by the Report on Form 10-KSB for the
Company to Orbiter Fund, Ltd. year ended December 31, 1999
10.36 Promissory Note dated as of Incorporated by reference to
November 19, 1999 in the Exhibit No. 10.37 to the Annual
Original Principal Amount of Report on Form 10-KSB for the
$200,000 given by the year ended December 31, 1999
Company to Orbiter Fund, Ltd.
10.37 Pledge and Security Incorporated by reference to
Agreement dated as of Exhibit No. 10.38 to the Annual
November 19, 1999 between Report on Form 10-KSB for the
the Company and Orbiter year ended December 31, 1999
Fund, Ltd.
10.38 Registration Rights Incorporated by reference to
Agreement dated as of Exhibit No. 10.39 to the Annual
November 19, 1999 between Report on Form 10-KSB for the
the Company and Orbiter year ended December 31, 1999
Fund, Ltd.
10.39 Common Stock Purchase Incorporated by reference to
Warrant dated as of December Exhibit No. 10.40 to the Annual
22, 1999 granted by the Report on Form 10-KSB for the
Company to Orbiter Fund, Ltd. year ended December 31, 1999
10.40 Promissory Note dated as of Incorporated by reference to
November 19, 1999 in the Exhibit No. 10.41 to the Annual
Original Principal Amount of Report on Form 10-KSB for the
$300,000 given by the year ended December 31, 1999
Company to Orbiter Fund, Ltd.
10.41 Pledge and Security Incorporated by reference to
Agreement dated as of Exhibit No. 10.42 to the Annual
December 22, 1999 between Report on Form 10-KSB for the
the Company and Orbiter year ended December 31, 1999
Fund, Ltd.
10.42 Registration Rights Incorporated by reference to
Agreement dated as of Exhibit No. 10.43 to the Annual
December 22, 1999 between Report on Form 10-KSB for the
the Company and The Orbiter year ended December 31, 1999
Fund, Ltd.
10.43 Common Stock Purchase Incorporated by reference to
Warrant dated as of Exhibit No. 10.44 to the Annual
December 22, 1999 granted by Report on Form 10-KSB for the
the Company to The Orbiter year ended December 31, 1999
Fund, Ltd.
25
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.44 Promissory Note dated as of Incorporated by reference to
February, 2000 in the Exhibit No. 10.45 to the Annual
Original Principal Amount of Report on Form 10-KSB for the
$250,000 give by the Company year ended December 31, 1999
to The Orbiter Fund, Ltd.
10.45 Pledge and Security Incorporated by reference to
Agreement dated as of Exhibit No. 10.46 to the Annual
February, 2000 between the Report on Form 10-KSB for the
Company and The Orbiter year ended December 31, 1999
Fund, Ltd.
10.46 Registration Rights Incorporated by reference to
Agreement dated as of Exhibit No. 10.47 to the Annual
February, 2000 between the Report on Form 10-KSB for the
Company and The Orbiter year ended December 31, 1999
Fund, Ltd.
10.47 Stock Purchase Agreement Incorporated by reference to
dated as of January 17, 2000 Exhibit No. 10.48 to the Annual
among the Company, DNA Report on Form 10-KSB for the
Sciences, Inc. and the year ended December 31, 1999
shareholders of DNA
Sciences, Inc.
10.48 Common Stock Purchase Incorporated by reference to
Warrant dated as of Exhibit No. 10.49 to the Annual
February, 2000 given by the Report on Form 10-KSB for the
Company to The Orbiter Fund, year ended December 31, 1999
Ltd.
10.49 Convertible Promissory Note Incorporated by reference to
dated as of March 2, 2000 in Exhibit No. 10.50 to the Annual
the Original Principal Report on Form 10-KSB for the
Amount of $75,000 given by year ended December 31, 1999
the Company to Jack Higgins
10.50 Common Stock Purchase Incorporated by reference to
Warrant dated as of March 2, Exhibit No. 10.513 to the
2000 between the Company and Annual Report on Form 10-KSB
Jack Higgins for the year ended December 31,
1999
10.51 Convertible Promissory Note Incorporated by reference to
dated as of March 7, 2000 in Exhibit No. 10.52 to the Annual
the Original Principal Report on Form 10-KSB for the
Amount of $100,000 given by year ended December 31, 1999
the Company to Frederick &
Company
10.52 Common Stock Purchase Incorporated by reference to
Warrant dated as of March 7, Exhibit No. 10.53 to the Annual
2000 between the Company and Report on Form 10-KSB for the
Frederick & Company year ended December 31, 1999
10.53 Convertible Promissory Note Incorporated by reference to
in the Original Principal Exhibit No. 10.54 to the Annual
Amount of $100,000 dated as Report on Form 10-KSB for the
of May 8, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.54 Common Stock Purchase Incorporated by reference to
Warrant dated as of May 8, Exhibit No. 10.55 to the Annual
2000 between the Company and Report on Form 10-KSB for the
Jim Kelly. year ended December 31, 1999
26
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.55 Convertible Promissory Note Incorporated by reference to in
the Original Principal Exhibit No. 10.56 to the Annual
Amount of $500,000 dated as Report on Form 10-KSB for the
of May 26, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.56 Common Stock Purchase Incorporated by reference to
Warrant dated as of May 26, Exhibit No. 10.57 to the Annual
2000 between the Company and Report on Form 10-KSB for the
Jim Kelly. year ended December 31, 1999
10.57 Convertible Promissory Note Provided herewith
in the Original Principal
Amount of $100,000 dated
as of April 4, 2000 between
the Company and Donald Heap.
10.58 Common Stock Purchase Provided herewith
Warrant No. W-18 dated as of
April 4, 2000 between the
Company and Donald Heap.
10.59 Convertible Promissory Note Provided herewith
in the Original Principal
Amount of $50,000 dated
as of June 9, 2000 between
the Company and Michael and
Lois Halbert
10.60 Common Stock Purchase Provided herewith
Warrant dated as of June 9,
2000 between the Company and
Michael and Lois Halbert
10.61 Common Stock Purchase Provided herewith
Warrant No. W-12 dated as of
October 6, 1999 between the
Company and Sterling
Technology Partners, Ltd.
10.62 Common Stock Purchase Provided herewith
Warrant No. W-13 dated as of
December 22, 1999 between
the Company and Sterling
Technology Partners, Ltd.
11. Statement re: computation of Not applicable
earnings
18. Letter on change in Not applicable
accounting principles
21. Subsidiaries of the Provided herewith
Registrant
22. Published report regarding Not applicable
matters submitted to Vote
23. Consent of Independent Not applicable
Accountant
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
27
