U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File No. 1-12178
InnoVet, Inc.
----------------------------------------------
(Name of small business issuer in its charter)
Florida 59-2699441
------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P. O. Box 145, Winter Park, Florida 32790
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number None
-----------------------------------
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of
the Exchange Act: None
-----------------
(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 of 1934 during
the past 12 months (or for such shorter period that the registrant
was required to file such reports), 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 is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
The issuer had revenues of $84,446 for its fiscal year ended
December 31, 1998.
As of May 31, 2000, the aggregate market value of the voting stock
held by non-affiliates of the issuer was zero.
As of May 31, 2000, the issuer had outstanding 52,044,501 shares
of its common stock.
Transitional Small Business Disclosure Format Yes No X
---- ----
<PAGE>
PART I
Item 1. Description of Business.
(a) Business Development.
The Company was incorporated under the laws of the State of
Florida on February 3, 1986. The Company was in the specialty
animal healthcare technology business, however its operations have
been limited in the past four years because of insufficient funds.
Its only source of revenue in 1998 was derived from royalty and other fees
from its licensing agreement with SSG, Inc. ("SSG") for its IVET-629 product.
The Company owns United States patent rights to a biological product using the
trade name IVET-629 that is designed to accelerate recovery of horses with
respiratory ailments. In August 1995, the Company granted a worldwide
exclusive license to develop and market the technology to SSG, a private
Mississippi corporation. The license agreement with SSG was amended and
restated, effective April 1, 2000. See THE COMPANY'S BUSINESS - IVET-629.
The Company granted Oakes, Fitzwilliams & Co. Limited a
security interest in its IVET-629 patent rights to Oakes Fitzwilliams in
March 1997 as part of the consideration for a loan. The loan was in the
amount of $65,000 and was made mainly to provide the Company with money for
legal and accounting fees to bring the Company in compliance with the
reporting requirements of the Securities Exchange Act of 1934
("Exchange Act"). The Company did not have the cash at December 31, 1998
to repay the note. The note was due on or before September 30, 1997.
However, the Company, at its option, could repay the principal and interest
by issuing shares of its common stock. The Company exercised its option on
April 26, 2000 and issued Oakes, Fitzwilliams 33,387,620 shares of its
restricted common stock. Oakes, Fitzwilliams is currently the beneficial
owner of over 65 percent of the Company's outstanding common stock and
controls the Company. Oakes, Fitzwilliams no longer has a security interest
in the IVET-629 product. See SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(b) The Company's Business.
Search for Merger or Acquisition Partner
----------------------------------------
In the 1998 fiscal year the Company's sole activity was to
find a company to merge with or that will acquire it. So far its
efforts have not been successful. The Company believes that its
public shell can be made attractive if it can remain current in its reporting
requirements and have its common stock listed on the OTC Bulletin Board
operated by the National Association of Securities Dealers, Inc. The Company
does not know whether it will be able to find a suitable partner. If it
cannot, the Company may have to liquidate its assets and dissolve.
See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES.
IVET-629
--------
IVET-629 is a biological product used for treating target
animals for specified illnesses. The mode of operation of the
product has not been completely elucidated. The process of using
IVET-629 for treating target animals for specified illnesses is the
subject of an issued United States patent that the Company owns.
The Company acquired its rights to IVET-629 from BioQuest,
Inc., an affiliate of DRA & Associates, Inc. ("DRA"). Under the
terms of the acquisition agreement, the Company has royalty-free
rights to the technology, including sublicensing rights. The
Company acquired the assets and liabilities of DRA's business in
May 1992. In May 1994, the Company sold DRA, with the exception of
the IVET-629 intellectual property, to a principal of DRA.
On August 16, 1995, the Company licensed its development and
marketing rights to IVET-629 to SSG. The license agreement was amended and
restated, effective April 1, 2000. Under the agreement, SSG assumed
responsibility for product development, obtaining regulatory approvals and
marketing. The Company granted SSG a worldwide exclusive license, with the
right to sublicense the technology covered by the patent and any related
patents which are issued, and to make use of and sell the products
derived from the patents. SSG paid the Company $3,000 for the
license and agreed to pay it a royalty of 6 percent of net sales of
products sold by it or any of its sublicensees. The agreement requires a
minimum royalty payment of $10,000 beginning in 1998. SSG also agreed to pay
the Company 25 percent of any amounts received from a third party in
consideration of SSG's grant to such third party of rights to make use or
sell the IVET-629 product. No payments were received by the Company under
the licensing agreement until January 2000. The agreement terminates on
June 15, 2010. After that date, and subject to SSG's timely payment to the
Company of all fees and royalties, SSG shall have a perpetual, fully paid,
non-exclusive license.
Gender Selection Technology
---------------------------
The Company was developing a semen cell separation technology
for gender selection of livestock by livestock farmers. The
technology, if developed, would have allowed dairy farmers, for example,
to reproduce female offspring from their highest producing animal
(to increase milk yield).
Research was discontinued in March 1996 because of insufficient funds.
The results of the experiments were mixed and the Company has ceased this
program in light of the results achieved and the Company's current financial
condition.
Competition
-----------
Competition in the pharmaceutical and biological industries in
general is based on such factors as product performance, safety,
patient compliance, ease of use, price, acceptance by veterinarians,
marketing, distribution and adaptability to various types of application. In
addition, technological competition may be based on the development of
alternative products and approaches aimed at the treatment or prevention of
the same diseases as the Company's products.
Product Liability
-----------------
The Company currently does not have any product liability
insurance because it is not conducting any business and cannot
afford to pay the insurance premium.
Government Regulation
---------------------
The Company's IVET-629 product is regulated in the United
States by the United States Department of Agriculture by specific
illness claims in the host animal. If a product is approved in the
United States, and is guaranteed to be safe in the environment, it
will generally be accepted for import to other countries. Human
applications of IVET-629 would be regulated by the Food and Drug
Administration and comparable agencies in other countries.
Procedures for seeking and obtaining governmental approval for
products can involve the expenditure of substantial time and
resources, and there can be no assurance that any such approval
will be granted on a timely basis, if at all. Product approvals can
also be withdrawn if compliance with regulatory guidelines is not
maintained or if problems occur following product introduction to
the market.
Patent Protection
-----------------
The Company's proprietary process for treating target animals
for specified illnesses with the IVET-629 product is the subject of
an issued United States patent. The Company has filed two foreign
applications for patents claiming various additional aspects of
this technology.
There can be no assurance that the Company's patents will
afford the Company commercially significant protection of its
proprietary technology or have commercial application. The
Company's patents have not been tested in courts and litigation may
be necessary to determine the validity and scope of its proprietary
rights. Moreover, the patent laws of foreign countries may differ
from those of the United States and the degree of protection
afforded by foreign patents may therefore be different.
The Company is the owner of a United States trademark
registration for the trade name IVET-629. The Company intends to
rely on unpatented trade secrets and proprietary know-how in
continuing technological information to maintain and develop its
commercial position. It has entered into confidentiality agreements
with former employees, consultants and SSG. These agreements may
not provide sufficient protection for the Company's trade secrets
or proprietary know-how in the event of any unauthorized use or
disclosure of such know-how. In addition, there can be no assurance
that others will not obtain access or independently develop these
trade secrets or know-how.
Employees
---------
The Company has one employee.
Item 2. Description of Property.
The Company does not own or rent any property, other than
fully depreciated property.
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the year ended December 31, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) Market Information.
The Company's common stock trades in the so-called "pink sheets." During
the past three fiscal years and through the first quarter of fiscal 2000,
trading in the common stock has been limited. The closing bid price during
this period has ranged from zero to one cent. It would not be meaningful to
present a quarter by quarter breakdown of the high and low bid
price during the above period.
The closing bid price for the common stock on May 31, 2000 was zero.
(b) Holders.
As of May 31, 2000, there were approximately 700 holders of
record of the Company's common stock.
(c) Dividends.
The Company has not paid dividends and does not anticipate
that it will pay dividends in the foreseeable future. The Company
is not under any contractual restriction concerning its present or
future ability to pay dividends.
(d) Recent Sales of Unregistered Securities.
On December 13, 1999, the Company, pursuant to the terms of an
employment agreement with Arnold E. Ewell, issued Mr. Ewell shares of its
common stock for performing the services of Chairman. The Company agreed to
pay Mr. Ewell a bonus for the year 1999 of $40,000 and compensation in the
year 2000 of $20,000. The bonus and compensation are payable in shares of
restricted common stock of the Company. The shares have not been issued as
yet. Mr. Ewell and the Company have agreed that the value of the common stock
shall be based on its fair market value beginning one week after the Company
has made all filings with the U.S. Securites and Exchange Commission required
to make it current in its filings. This event has not yet occurred. The
Company does not have the money to pay Mr. Ewell his bonus and 2000 compensation
in cash. The Company believes that once it is current in its filings, the
market price of its common stock will rise to a reasonable level and, at that
time, a fair value can be placed on the stock to be issued to Mr. Ewell.
Since there is no market for the Company's common stock at present, there is no
fair way to determine how many shares of stock to issue Mr. Ewell. See
DIRECTORS AND EXECUTIVE OFFICERS; EXECUTIVE COMPENSATION; CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.
Effective April 26, 2000, the Company issued 33,387,620 shares of its
restricted common stock to Oakes, Fitzwilliams to discharge a debt. The loan
was made on March 17, 1997, in the principal amount of $65,000 with interest
to be 6 months Libor plus 4 percent as of March 17, 1997. The Company had
the option to repay the principal and interest on the loan by issuing shares
of its common stock at a price of $.0025 per share. The principal and
accrued interest totaled $83,469.05, as of March 10, 2000, which equals
33,387,620 shares at a price of $.0025 per share. See SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
The Company believes that the above securities transactions are exempt from
registration under the Securities Act of 1933 (the "Act") pursuant to
section 4(2) of such Act, as a transaction by an issuer not involving any
public offering for, among other reasons, the following: (i) no general
solicitation or advertising was used; (ii) the transactions were isolated;
and (iii) Oakes, Fitzwilliams and Mr. Ewell have access to information about
the Company that an available registration would provide.
Item 6. Management's Discussion and Analysis
(a) Results of Operations.
Revenues consisted solely of royalty and licensing fee income from the
IVET-629 licensing agreement with SSG that expires on June 15, 2010. The
total revenue of $84,446 consisted of $20,000 for two years of minimum
royalty fees and $64,446 of sublicensee fees equal to twenty-five percent of
third party consideration paid to SSG.
Total Selling, General and Administrative expense of $26,706 consisted mainly
of accounting and legal fees related to the public shell as well as the
stock transfer agent fees for the common shares.
The interest expense in 1998 of $6,305 was accrued but not paid and resulted
from a loan granted by a significant shareholder. See LIQUIDITY AND CAPITAL
RESOURCES.
(b) Liquidity and Capital Resources.
In the spring of 1997, a shareholder loaned the Company $65,000 in order to
complete audits from prior periods and bring securities filings into
compliance. See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company currently has no sources of revenue other than the IVET-629
licensing agreement with SSG and minimal cash. It is possible that the
shell may be used by an active entity seeking public company status;
however, it is uncertain if or when such an event will occur. If such an
event does not occur within a short period of time, the Company may liquidate.
Item 7. Financial Statements.
The following financial statements are filed as part of this
Annual Report.
Financial Statements Page
-------------------------------------------- ----
(1) Report of Grant Thornton LLP F1
(2) Balance Sheets F2
(3) Statements of Operations F3
(4) Statement of Stockholders' Equity F4
(5) Statements of Cash Flows F5
(6) Notes to Financial Statements F6 to F11
<PAGE>
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
INNOVET, INC.
December 31, 1998 and 1997
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
InnoVet, Inc.
We have audited the accompanying balance sheets of InnoVet, Inc. as
of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then
ended. 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
InnoVet, Inc. as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note
B to the financial statements, the Company previously has generated
significant losses from operations and has no continuing business operations.
This raises substantial doubt about the entity's ability
to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Weston, Florida
September 28, 1999
F-1
<PAGE>
InnoVet, Inc.
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets
Cash and cash
equivalents $ 124 $ 44,500
Accounts receivable, net of
Allowance for doubtful
Accounts of $0 for
1998 and 1997 84,446 -
----------- -----------
Total assets $ 84,570 $ 44,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable $ - $ 40,670
Loans from stockholder 65,000 65,000
Accrued liabilities 23,000 -
Accrued interest 11,279 4,974
--------- -----------
Total current
liabilities 99,279 110,644
Stockholders' (deficit)
Common stock, $.001 par value,
100,000,000 shares authorized;
18,656,881 shares issued at
December 31, 1998, and 1997 18,657 18,657
Capital in excess of
par value 18,856,654 18,856,654
Capital representing
stock grants 5,514,990 5,514,990
Accumulated deficit (24,405,010) (24,456,445)
---------- -----------
(14,709) (66,144)
---------- -----------
Total liabilities and
stockholders' (deficit) $ 84,570 $ 44,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
InnoVet, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Royalty and licensing income $ 84,446 $ -
--------- ---------
Costs and expenses
Cost of sales - -
Consulting - 20,000
Selling, general and
administrative 26,706 116,591
Depreciation expense - 546
Interest expense 6,305 4,974
---------- --------
33,011 (142,111)
---------- --------
Income (loss)
before income taxes 51,435 (142,111)
Provision for income taxes - -
---------- ---------
Net income (loss) $ 51,435 $ (142,111)
========== ==========
Net income(loss)per share $ 0.00 $ (.01)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
InnoVet, Inc.
STATEMENT OF STOCKHOLDERS' (DEFICIT)
For the two years ended December 31, 1998
<TABLE>
<CAPTION>
Total
Capital in Capital Stock-
Common Stock Excess of Representing Accumulated holders'
Shares Amount Par Value Stock Grants Deficit Equity
---------- ------- ---------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1997 18,656,881 $18,657 $18,856,654 $5,514,990 $(24,314,334) $75,967
Net loss - - - - (142,111) (142,111)
-------- ------ --------- --------- ---------- --------
Balance,
December
31, 1997 18,656,881 18,657 18,856,654 5,514,990 (24,456,445)(66,144)
Net income - - - - 51,435 51,435
---------- ------ ---------- ---------- ----------- --------
Balance,
December
31, 1998 18,656,881 $18,657 $18,856,654 $5,514,990 $(24,405,010)$(14,709)
========== ======= =========== ========== ========== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
InnoVet, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
1998 1997
Cash flows from operating activities: ---------- ---------
<S> <C> <C>
Net income (loss) $ 51,435 $(142,111)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense - 546
(Gain)loss on sale of equipment - (400)
Changes in operating assets and liabilities of:
Increase in accounts receivable (84,446) -
Decrease (increase) in prepaid expenses - 747
Decrease in other assets - 85
Increase (decrease) in accounts payable (40,670) 38,000
Increase (decrease) in accrued expenses 29,305 4,974
Net cash (used for) provided by -------- -------
operating activities (44,376) (98,159)
Cash flows from investing activities:
Sale of property, plant and equipment - 500
-------- ------
Net cash provided by investing
activities - 500
Cash flows from financing activities:
Loans from stockholder - 65,000
-------- -------
Net cash provided by financing
activities - 65,000
(Decrease) increase in cash and
cash equivalents (44,376) (32,659)
Cash and cash equivalents,
beginning of year 44,500 77,159
-------- -------
Cash and cash equivalents,
end of year $ 124 44,500
======== =======
Supplemental disclosures of cash flow information
Cash paid during the year:
Interest $ - $ -
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
InnoVet, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
InnoVet was in the specialty animal health care technology
business. The Company's business consisted of a cleaning product
which removes pet stains and odors from carpeting. The Company is currently a
shell Company pursuing a merger or acquisition opportunity.
Net Earnings (Loss) Per Share
-----------------------------
The computation of diluted net earnings per share includes dilutive common
stock equivalents in the weighted average shares outstanding.
Net Earnings Basic Shares Basic EPS Diluted Shares Diluted EPS
1998 $51,435 18,656,881 $0.00 18,924,974 $0.00
Included in diluted shares are common stock equivalents relating to options
of 268,093. Options to purchase 1,880,175 shares of common stock at prices
ranging from $.375 to $2.19 and warrants to purchase 5,839,999 shares of
common stock at prices ranging from .1875 - $3.50, which were outstanding
during 1998 were not included in the computation of diluted EPS because the
exercise prices were greater than the annual average market price of the
common shares.
Basic earnings (loss) per share is calculated by dividing net loss by the
weighted average common shares outstanding. In 1997, the effect of the
common stock equivalents on diluted loss per common share was antidilutive.
Therefore, they were not considered in the calculation.
Cash and Cash Equivalents
--------------------------
Cash and cash equivalents include repurchase agreements all with
maturities of three months or less when purchased.
(continued)
F-6
<PAGE>
InnoVet, Inc.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
December 31, 1998 and 1997
Stock Options
-------------
At December 31, 1998, the Company had three stock option plans (see Note F).
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans.
Use of Estimates
-----------------
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 the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting
period. Accordingly, actual results could differ from those
estimates.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
However, the Company had sustained substantial losses from
operations in recent years and has a significant accumulated
deficit. Also, the Company has sold off substantially all of its
operating businesses and in 1998 and 1997, the Company's sole activity was to
find a company to merge with or that will acquire it. The
Company believes that its public shell can be made attractive if it
is able to meet its reporting requirements under the Exchange Act
and maintain its OTC Bulletin Board listing with the National Association of
Securities Dealers, Inc.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
<S> <C> <C>
1998 1997
--------- ---------
Furniture and fixtures $ 7,164 $12,364
--------- ---------
Less accumulated depreciation
and amortization 7,164 12,364
--------- ---------
$ - $ -
========= =========
</TABLE>
F-7 (continued)
<PAGE>
InnoVet, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE D - LOANS FROM STOCKHOLDER
In March 1997, the Company borrowed $65,000 under the terms of a
secured promissory note and security agreement. The note was due
and payable on or before September 30, 1997 with interest at the
London InterBank Offered Rate ("Libor") plus 4% as of March 17,
1997. Although the principal and interest on the loan has not been demanded.
The Company has the option to repay the principal and interest by issuing
shares of its common stock to the stockholder pursuant to Regulation S under
the Securities Act at a price of $.0025 per share. The security
agreement grants a security interest in the Company's patent
covering the IVET-629 technology and two foreign patent
applications related to the technology. In addition, the Company
was required to assign its licensing rights in the gender selection
technology and its licensing rights to its pet stains and odor
remover product.
Under the terms of an arrangement agent agreement, the stockholder was
entitled to receive a $5,000 arrangement fee for the loan, as well as
$10,000 for expenses, these amounts are included in accounts payable at
December 31, 1997. Additionally, the stockholder will receive a "breakup fee"
of $25,000 if it introduces the Company to an acquisition or merger
candidate and the Company enters into an agreement with the
candidate but elects not to proceed. The arrangements fee, out-of-
pocket expenses and any "breakup fee" can, at the option of the
Company, be paid in shares of its common stock issued pursuant to
Regulation S under the Securities Act at a price of $.0025 per
share.
NOTE E - INCOME TAXES
No tax benefit has been provided for the 1998 and earlier losses as there is
no carryback benefit available.
At December 31, 1998 and 1997, the Company had approximately $11,830,000 and
$11,800,000, respectively in unused net operating loss carryforwards for
income tax purposes which, if not otherwise used, will expire in years 2002
through 2013. All of these net operating loss carryforwards can be utilized
without limitation. The future tax benefit associated with these items is
approximately $4,400,000 as of December 31, 1998 and 1997 for which a 100%
valuation allowance has been provided, as the realization of these benefits
is not assured.
F-8 (continued)
<PAGE>
InnoVet, Inc.
NOTES TO FINANCIAL STATEMENTS - Continued
December 31, 1998 and 1997
NOTE F - STOCK OPTION PLANS
The Company has three stock option plans: the ("1988 Plan"), the
("1989 Plan") and a Consultants and Independent Contractors Non-
Qualified Stock Option Plan (CIC Plan). The exercise price of all
options granted by the Company equals or exceeds the market price
at the date of grant. No compensation expense has been recognized.
The Company accounts for stock options under the intrinsic value
method specified by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees." As required by
Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock Based Compensation," the following table
presents pro forma net income and income per share data.
Had compensation cost for the 1989 Plan options issued to employees
been determined based on the fair value of the options at the grant
dates consistent with the method of SFAS 123, the Company's net
earnings (loss) and earnings (loss) per share would have been
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
Net income(loss) ----------- ---------
<S> <C> <C>
As reported $ (33,011) $(142,111)
Pro forma $ (33,011) $(142,111)
Income (loss) per share
As reported $ .00 $ (.01)
Pro forma $ .00 $ (.01)
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the binomial option-pricing model with the following
weighted-average assumptions used for grants in 1995: dividend
yield of 0.0 percent for all years; expected volatility of 412
percent; risk-free interest rate of 7.75 percent; and expected
holding period of 10 years.
F-9 (continued)
<PAGE>
InnoVet, Inc.
NOTE F - STOCK OPTION PLANS - Continued
December 31, 1998 and 1997
The following information applies to options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
------------------------------------
Weighted -
Weighted- Average
Range of Average Remaining
Exercise Prices Shares Exercise Price Contractual
Life
--------------- ----------- -------------- ---------
<S> <C> <C> <C>
$.001 268,093 $ .001 3.60 years
$.37 - $.50 200,000 .438 5.42 years
$1.00 - $1.50 1,128,175 1.173 4.66 years
$1.75 - $2.19 552,000 1.830 4.16 years
---------
2,148,268
=========
</TABLE>
The 1989 Plan
-------------
The 1989 Plan is identical to the 1988 Plan except for limiting the
maximum number of shares which all directors, officers, and key
employees may receive to 800,000, 150,000, and 50,000,
respectively. The number of shares increased by 1,000,000 per
Board of Directors' Action in 1991, in 1993 and in 1994. It also
provides that the purchase price for the shares granted shall be
not less than par value or more than the price per share of the
last transaction of the date prior to the day on which the options
are granted. No compensation was charged to operations in 1998 and
1997 in accordance with APB No. 25.
Consultants and Independent Contractors (CIC) Plan
--------------------------------------------------
The Company has reserved 250,000 shares at an exercise price of
$.001 per share of common stock under a Consultants and Independent
Contractors Non-Qualified Stock Option Plan, which was adopted
during 1989.
F-10 (continued)
<PAGE>
InnoVet, Inc.
NOTE F - STOCK OPTION PLANS - Continued
December 31, 1998 and 1997
Option activity regarding the Company's stock option plans, is as follows:
<TABLE>
<CAPTION>
1989 CIC
Plan Plan Total
------- -------- ------
<S> <C> <C> <C>
Shares under option:
Outstanding at
January 1, 1997 2,144,768 3,500 2,148,268
Granted - - -
Exercised - - -
Canceled - - -
--------- ------- ---------
Outstanding at
December 31, 1997 2,144,768 3,500 2,148,268
Granted - - -
Exercised - - -
Canceled - - -
--------- ------- ---------
Outstanding at
December 31, 1998 2,144,768 3,500 2,148,268
========= ======= =========
</TABLE>
NOTE G - STOCKHOLDERS'EQUITY
Summary of Warrants
-------------------
Warranty activity during the year ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Exercisable Exercise Expiration
Shares Price Date
----------- -------- ----------
<S> <C> <C> <C>
January 1, 1997 6,222,910 $.1875 - $3.50 2/4/97- 6/28/99
Less: Expired warrants 150,000 $2.00 - $3.50 2/4/97 - 9/24/97
December 31, 1997 6,072,910 $.1875 - $3.00 3/26/98- 6/28/99
Less: Expired warrants 232,911 $3.00 3/26/98
---------
December 31,1998 5,839,999 $.1875 6/28/99
=========
</TABLE>
All warrants expired on June 28, 1999. No warrants were exercised.
F-11
<PAGE>
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Item 9. Directors and Executive Officers; Compliance with
Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers.
Information about the directors and executive officers of the
Company is set forth below.
Director Date Director's
Name Age Positions Since Term Expires
----------------------- --- --------- --------- ----------------
Arnold E. Ewell 55 Chairman 2000 2000 (Agreed to
continue to serve
until next Annual
Shareholders
Meeting)
Scott P. Cielewich 49 Executive 1993 1996(Agreed to
Vice continue to serve
President and until next Annual
Chief Financial Shareholders
Officer Meeting)
All directors hold office for three years. They continue to
hold office until the annual meeting of shareholders of the Company
that occurs after the third anniversary of their election and until
their successors have been elected and qualified. Officers are
elected or appointed by the Board of Directors and hold office
until their successors have been elected or appointed and
qualified.
Arnold E. Ewell has been Chairman of the Company since March 2000. Since
April 2000 he has been an investment manager for Oakes, Fitzwilliams and is
in charge of the firm's investment funds. From June 1998 to February 2000, he
operated Broadbourne Investments Ltd., Sussex, England, a financial
consultancy specializing in global emerging markets, small companies and
financial futures. From April 1997 to February 1998 he was a securities
salesman and advisor with ING Barings Securities Ltd., London. From June 1994
to June 1996, Mr. Ewell was an executive officer and registered securities
principal ofInteracciones Global Inc. in London, England. This company is a
subsidiary of Grupo Financiero Interacciones, a Mexican financial institution.
For over 20 years prior to June 1994, Mr. Ewell was employed by various
securities firms in England, primarily as a securities salesman and investment
banker.
Scott P. Cielewich has been Executive Vice President since
1993 and Chief Financial Officer since April 1989. Since August
1995, he has devoted time to the Company as needed but has been
employed full time elsewhere. From August 1995 to December 1995 he
was Regional Vice President of Operations of the South Florida
Region of MedPartners, Inc. In 1996 he was self-employed as a
physician's practice management consultant. From January 1997 to June 1998 he
was employed as Vice President of Operations for the Eastern United States of
Physicians Resource Group, Inc. He is currently self-employed as a healthcare
consultant. Mr. Cielewich's other work experience includes eight years as a
staff accountant and, later, audit manager for Price Waterhouse & Co.,
Buffalo, New York. Mr. Cielewich is a Certified Public Accountant and is a
member of the Florida Institute and New York State Society of Certified
Public Accountants. Mr. Cielewich has a B.B.A. degree with a major in
accounting from St. Bonaventure University.
(b) Compliance with Section 16(a) of the Exchange Act.
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) under
the Exchange Act during its last three fiscal years and Form 5 and
amendments thereto furnished to it in the last three fiscal years
and any written representation from reporting persons, as defined
in the Exchange Act, the Company is not aware of late reports, or
any transactions not reported timely, or any failure to file any
reports required by Section 16(a) of the Exchange Act during its
most recent fiscal year.
Item 10. Executive Compensation.
(a) Summary Compensation Table.
The compensation of the Company's chief executive officer is shown on the
Summary Compensation Table presented below.
SUMMARY COMPENSATION TABLE
Annual Compensation
(a) (b) (d)
Name and Year Bonus $
Principal Position
Arnold E. Ewell, Chairman(1) 1999 40,000
(1) Mr. Ewell's bonus for 1999 is to be paid in stock based on the fair
market value of the Company's common stock one week after it becomes current
in its reporting requirements with the Securities and Exchange Commission
under the Exchange Act. No shares have yet been issued.
(b) Options/SAR Grants Table.
Not applicable.
(c) Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value Table.
Not applicable.
(d) Long-Term Incentive Plan Awards Table.
Not applicable.
(e) Compensation of Directors.
Not applicable.
(f) Employment Agreement with Arnold E. Ewell.
Effective December 13, 1999, the Company entered into an Employment
Agreement with Arnold E. Ewell. The Employment Agreement terminates, unless
agreed to mutually by the Company and Mr. Ewell in writing, on December 31,
2000. Pursuant to the terms of the Employment Agreement, Mr. Ewell will act
as the Company's Chairman. Mr. Ewell is an employee of Oakes, Fitzwilliams,
the controlling shareholder of the Company. Mr. Ewell is not required to
work full time. For the year 1999, Mr. Ewell was entitled to a bonus of
$40,000 payable in restricted common stock of the Company. The common stock
shall be based on fair market value begining one week after the Company has
made all filings with the Securities and Exchange commission required to
become current. For the year 2000, Mr. Ewell shall receive compensation
equal to $20,000 for his services. This compensation shall be payable
quarterly in advance , retroactive to January 1, 2000. Payment shall be in
shares of stock of the Company based on the same valuation and current
filings requirement as for the 1999 bonus. The Employment Agreement
prohibits Mr. Ewell from using the Company's trade secrets, as defined in the
Agreement, for a two-year period after his employment terminates.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
The following table sets forth the name and address of each
beneficial owner of more than five percent of the Company's voting
stock known to the Company, the number of shares known to be
beneficially owned as of May 31, 2000, and the percent of the
total shares outstanding so owned. Each person named in the table
has sole investment and voting power regarding the shares set forth
opposite his name, except as otherwise noted. All beneficial
ownership is direct or of shares held for the stockholder in street
name, except as otherwise indicated.
Amount and
Nature of Percent
Title of Name and Address Beneficial of Class
Class Beneficial Owner Ownership Outstanding
---------- -------------------- ---------- -----------
Common Stock Oakes, Fitzwilliams & 34,822,953(1) 65.6 (1)
Co. Limited
100 Piccadilly, 5th Floor
London, W1V 9FN ENGLAND
-------------------
(1) Includes currently exercisable warrants to purchase 1,027,333
shares.
(b) Security Ownership of Management.
The following table shows the beneficial ownership of the
Company's common stock as of May 31, 2000, by each director and executive
officer and by all directors and executive officers as a group.
Amount and
Nature of Percent
Positions Beneficial of Class
Name Held Ownership (1) Outstanding
--------------------- --------- ------------- -----------
Arnold E. Ewell Chairman -0- -0-
Scott P. Cielewich Executive Vice 639,166(2) 1.22%(2)
President, Chief
Financial Officer
and Director
Directors and Executive
Officers as a Group, 639,166(2) 1.22%(2)
(2 persons)
---------------------
(1) All shares are beneficially owned, and sole voting and
investment power is held, by the persons named except as
otherwise noted.
(2) Includes currently exercisable options to purchase 342,500
shares and currently exercisable warrants to purchase 266,666
shares.
Item 12. Certain Relationships and Related Transactions.
Oakes, Fitzwilliams, is the controlling shareholder of the company. It
is a beneficial owner of over 65% of the Company's outstanding common stock.
Arnold E. Ewell, an employee of Oakes, Fitzwilliams, is the Company's
Chairman. Oakes Fitzwilliams loaned the Company $65,000 on
March 17, 1997 under the terms of a secured promissory note and
security agreement. The note was due and payable on or before
September 30, 1997 with interest at the London InterBank Offered
Rate ("Libor") plus 4% as of March 17, 1997. Although the principal
and interest on the loan has not been repaid, Oakes, Fitzwilliams
has not demanded repayment. The Company has the option to repay the
principal and interest by issuing shares of its common stock to
Oakes, Fitzwilliams pursuant to Regulation S under the Securities
Act at a price of $.0025 per share. The security agreement gives
Oakes, Fitzwilliams a security interest in the Company's patent
covering the IVET-629 technology and two foreign patent
applications related to the technology. The security agreement
required the Company to assign its licensing rights in the gender
selection technology under its agreement with Applied Immune
Sciences, Inc. The Company also assigned to Oakes, Fitzwilliams the
licensing rights to its pet stains and odor remover product,
however that license agreement has since terminated. Under the
terms of an arrangement agent agreement, Oakes, Fitzwilliams was
entitled to receive a $5,000 arrangement fee for the loan, as well
as $10,000 for expenses. Additionally, Oakes, Fitzwilliams will
receive a "breakup fee" of $25,000 if it introduces the Company to
an acquisition or merger candidate and the Company enters into an
agreement with the candidate but elects not to proceed. The
arrangements fee, out-of-pocket expenses and any "breakup fee" can,
at the option of the Company, be paid in shares of its common
stock issued pursuant to Regulation S under the Securities Act at
a price of $.0025 per share. Effective April 26, 2000, the Company exercised
its option and satisfied its obligations in full to Oakes, Fitzwilliams by
issuing Oakes, Fitzwilliams 33,387,620 shares of its common stock at the
agreed upon price per share of $.0025. The number of shares was based on
principal and accrued interest of $83,469.05 as of March 10, 2000. The
Company believes this action is in its best interest and the best interest
of its shareholders. The Company did not have the money to pay back the
principal and interest. The longer the Company waited, the more shares it
would have to pay Oakes, Fitzwilliams to satisfy the debt. Also, by
discharging the debt, Oakes, Fitzwilliams released its securities interest in
the Company's patented technology. Issuance of the shares was the most
realistic way of relieving the Company of its debt obligation to Oakes,
Fitzwilliams.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The Company hereby incorporates by reference the following documents:
Exhibit
Number Description of Exhibit
------- -------------------------------------------------
3.1 Articles of Incorporation
3.2 Amendment to Articles of Incorporation
3.3 Bylaws
4.1 Form of Certificate for Shares of Common Stock
4.7 InnoVet, Inc. Officers, Directors and Key Employees Stock
Option Plan (1988)
4.8 InnoVet, Inc. Consultants and Independent Contractors'
Non-Qualified Stock Option Plan
4.9 InnoVet, Inc. Officers, Directors and Key Employees' Non-
Qualified Stock Option Plan (1989)
10.52 Arrangement Agent Agreement Between InnoVet, Inc. and
Oakes, Fitzwilliams dated March 17, 1997.
Exhibits 3.1 through 3.3 and 4.1 were filed
as part of Form S-18 Registration Statement of InnoVet, Inc. and
Pre-Effective Amendments thereto, declared effective on March 9,
1988, Registration No. 33-19593-A.
Exhibits 4.7 and 4.8 were filed as part of Post-Effective
Amendment No. 2 to Form S-18 Registration Statement of InnoVet,
Inc., declared effective on May 15, 1989.
Exhibit 4.9 was filed as part of InnoVet, Inc.'s Form 10-KSB for
the fiscal year ended December 31, 1989, Commission File No. 1-
12178.
Exhibit 10.52 was filed on July 24, 1998, as part of InnoVet Inc.'s Form
10-KSB for the years ended December 31, 1995, 1996 and 1997, Commission File
No. 1-12178.
The following exhibits are filed herewith:
Exhibit
Number Description of Exhibit
------ ----------------------
3.4 October 1994 Amendment to Articles of Incorporation
10.53 Employment Agreement with Arnold E. Ewell
10.54 License Agreement with SSG, Inc., effective April 1, 2000
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by this Form
10-KSB.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
INNOVET, INC.
By: /S/ Scott P. Cielewich
--------------------------
Scott P. Cielewich,
Executive Vice President
and Chief Financial Officer
(Acting Principal Executive
Officer)
Date: June 29, 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.
Signature Title Date
----------------------- ------------------------- ------------
/S/ Arnold E. Ewell Chairman June 29, 2000
--------------------
Arnold E. Ewell
/S/ Scott P. Cielewich Executive Vice President, June 29, 2000,
----------------------- Chief Financial Officer and
Scott P. Cielewich Director (Principal Financial
and Accounting Officer)
