As filed with the Securities and Exchange Commission on October 24, 2000
Registration No. 333-44420
==================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GENETIC VECTORS, INC.
(Name of Small Business Issuer in Our Charter)
Florida 8731 65-0324710
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization)
Classification Code Number)
5201 N.W. 77th Avenue, Ste. 100 Mead M. McCabe, Jr.
Miami, Florida 33166 5201 N.W. 77th Avenue, Ste. 100
(305) 716-0000 Miami, Florida 33166
(Address and telephone number of Principal (305) 716-0000
Executive Offices and Principal Place of --------------------------- (Name, address and telephone number
Business) Copies to: of agent for service)
Clayton E. Parker, Esq. William M. Prifti, Esq.
Troy J. Rillo, Esq. Five Market Square, Ste. 109
Kirkpatrick & Lockhart LLP Amesbury, Massachusetts 01913
201 S. Biscayne Boulevard, Suite 2000 (978) 388-4942
Miami, Florida 33131 Telecopier No.: (978) 388-4945
(305) 539-3300
Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: AS
SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 2000
GENETIC VECTORS, INC.
1,400,000 SHARES OF COMMON STOCK
We are selling 1,400,000 shares of common stock. We anticipate that the
offering price will be $6.00 per share.
Our common stock is quoted on the Pink Sheets under the symbol "GVEC." On
October 13, 2000, the last reported sale price of our common stock on the Pink
Sheets was $7.50 per share. We propose to list and trade our common stock on the
American Stock Exchange."
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 8.
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO US*
------ ----------- --------------
Per share $_______ $__________ $__________
Total $_______ $__________ $__________
- ------------
* This table excludes estimated expenses of $660,000.00 which we expect to
incur in connection with the offering.
We have granted the underwriter a 45-day option to purchase up to 210,000
shares of common stock to cover over-allotments. This is a firm commitment
offering.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------
MERCER PARTNERS, INC.
The date of this prospectus is October ___, 2000.
1
TABLE OF CONTENTS
PAGE
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Prospectus Summary................................................. 3
The Offering....................................................... 5
Summary Consolidated Financial Information......................... 6
Key Facts.......................................................... 7
Risk Factors....................................................... 8
Forward-Looking Statements......................................... 14
Use of Proceeds.................................................... 15
Capitalization..................................................... 16
Dilution........................................................... 17
Management's Plan of Operation..................................... 18
Business........................................................... 22
Management......................................................... 30
Certain Relationships and Related Transactions..................... 36
Market for Common Equity and Related Stockholder Matters........... 37
Principal Shareholders............................................. 38
Description of Securities.......................................... 40
Underwriting....................................................... 44
Experts............................................................ 45
Legal Matters...................................................... 45
Available Information.............................................. 45
Financial Statements............................................... F-1
---------------------
We are a reporting company and intend to distribute to our shareholders
annual reports containing audited financial statements. Our annual report on
Form 10-KSB for the fiscal year December 31, 1999 was filed on June 12, 2000.
Quarterly reports for the first and second quarter of 2000 containing unaudited
interim financial statements are also available.
Certain persons who participate in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares being sold in this offering, including purchases of these shares to
maintain their market price or purchases to cover some or all of the
underwriter's short position in these shares.
2
PROSPECTUS SUMMARY
THE COMPANY
Genetic Vectors is a biotechnology company specializing in genomics and
high throughput genotyping. The company is developing and marketing genotyping
technology for the discovery of genetic patterns underlying inherited diseases,
such as autoimmune and cardiovascular diseases, and the identification of yeasts
that are pathogenic or of industrial importance. We plan to continue genotyping
large human populations to highlight genes that are linked to diseases and genes
influencing responses to therapeutic drugs.
Genetic Vectors acquired DNA Sciences, Inc. on January 17, 2000. The
technology acquired from DNA Sciences, Inc. has enabled us to develop a
universal genotyping platform for screening large human populations to discover
genetic patterns indicating disease susceptibility and therapeutic response.
This platform is marketed in the EasyID product line. Genetic Vectors plans to
genotype approximately 500,000 individuals in its targeted areas of disease
research and use the derived data to build a genetic database linked to existing
clinical and genealogical databases. Furthermore, we plan to derive our
proprietary intellectual property from these clinically relevant links between
genetics and disease and subsequently create value for shareholders through
production of products and services.
On September 29, 1999, we filed our first genomic patent application
covering the identification of pathogenic organisms responsible for deaths of
many immunocompromised patients, including HIV patients, chemotherapy patients
and transplant recipients. In addition, we are developing a new set of
technologies and products designed to screen for genes involved in
cardiovascular disease.
Genetic Vectors believes it is in the forefront of genetic research
with the combination of our proprietary technologies and the large number of
participants available to us in our population-based studies and collaborations.
Our mission is to:
o Use our universal platform to genotype approximately 500,000
individuals available to us at our collaborative sites.
o Apply modern informatics technology to create a genetic database
linked to existing clinical and geneological databases to discover
genetic patterns indicating disease susceptibility and response to
treatment.
o Use the proprietary knowledge gained in our screening process to
create and market products and services to the healthcare
community.
o Directly impact healthcare by determining the causative links
between genes and disease.
We are a developmental stage company with limited operations, capital
and revenue. Our company was formed on December 28, 1991, with our first
product, the EpiDNA Picogram Assay, introduced in 1997. We have had losses from
operations since inception. Our accumulated deficit as of June 30, 2000 was
$13.1 million.
THE INDUSTRY
Drug development is a high cost and low success endeavor. The need to
fuel the product pipeline, along with a more educated populace and the influence
of managed healthcare mandate a better cost-benefit ratio than generally is
associated with the conventional drug development and marketing scenario. The
emerging field of pharmacogenomics can impact the cost-benefit ratio by
providing a means for correlating patient genotype with the response to a
therapeutic drug, as well as predicting a patient's susceptibility to disease.
Such a capability benefits patients, physicians and drug developers. In the
future, healthcare decisions may be based upon patient genotype. Pharmaceutical,
biotechnology and diagnostic companies are striving to identify gene mutations
and patterns of mutations that can predict disease susceptibility and drug
efficacy.
Rapid advances in genomics have intensified the commercial race to
identify new gene targets for new therapeutics and diagnostics. However, the
3
ability of genomics to discover new targets is tempered by the realization that
genetic diseases may involve defects in several genes, as well as the influence
of currently unknown environmental factors.
To date, the genomics race has been focused on sequencing across the
human genome. The Human Genome Project and Celera announced completion with over
80,000 genes identified. The assembly phase, which entails putting the gene
sequences in order on the genome, has begun. The completion of the Human Genome
Project provides a "road map" of gene locations on the genome. Now companies are
focusing on the next step, identifying changes or mutations in the gene sequence
that determine disease susceptibility or drug efficacy.
STRATEGY
Genetic Vectors plans to expand its presence in the field of
pharmacogenomics through the strategy of "Practical Genomics". The company,
through its internal gene discovery program, plans to discover mutations in
genes implicated in diseases (for example: mutations such as single nucleotide
polymorphisms, or "SNPs") and design genotyping systems to detect these
mutations. The company has developed the EasyID platform, an economical,
universal genotyping platform for high throughput applications. It plans to use
genotyping systems based on this platform to genotype approximately 500,000
individuals, concentrating on genes implicated in diseases in its target areas.
We plan to supply these genotyping systems to our collaborators for genotyping
of their study populations and mine the resulting data for important links
between patterns of gene mutations and disease susceptibility and response to
therapy. The company plans to compile genetic databases, linked to existing
clinical and geneological databases, to discover correlations between genetic
information and clinical and geneological characteristics. These correlation
data are the company's intellectual property, which the company plans to protect
by patenting. Also, the company plans to develop genotyping systems for marker
genes and genetic patterns, and market these systems to the international
healthcare market.
Additionally, we believe that there are favorable business acquisition
opportunities that would enable us to expand our business more rapidly. To date,
we have completed the acquisition of DNA Sciences, Inc., a California
corporation. We believe that the successful consummation of several other
acquisition opportunities would enable us to enhance our product lines, obtain
new technologies, and increase revenue.
ABOUT US
Our principal office is located at 5201 N.W. 77th Avenue, Suite 100,
Miami, Florida 33166, telephone number (305) 716-0000. Our website is
www.gvec.com. Information contained on our website is not part of this
prospectus. For a copy of this prospectus, please contact Mercer Partners, Inc.
at 212.747.0277.
4
THE OFFERING
COMMON STOCK OFFERED 1,400,000 shares by us.
COMMON STOCK OUTSTANDING
Before Offering 3,732,843 shares as of October 19, 2000
COMMON STOCK OUTSTANDING
After Offering 5,132,843 shares
ESTIMATED NET PROCEEDS $6.9 million
USE OF PROCEEDS We intend to use the net proceeds of this
offering to purchase equipment, fund
research and development activities,
including investment in our emerging
pharmacogenomics programs, repay
approximately $3.7 million of indebtedness
and for sales and marketing activities.
See "Use of Proceeds."
RISK FACTORS The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk Factors"
and "Dilution."
PINK SHEETS GVEC
PROPOSED AMERICAN STOCK
EXCHANGE SYMBOL Pending
- ------------------------------------
This table excludes 4,276,840 shares of common stock issuable upon the
conversion of certain indebtedness and the exercise of options and warrants as
of October 19, 2000 (including the Underwriter warrants and over-allotment
option). See "Description of Securities."
5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Cumulative
from January
1, 1992
(Inception)
to June 30, Six Months Ended June 30, Years Ended December 31,
2000(4) 2000 1999(4) 1999(4) 1998(4)
-------------------------------------------------------- --------------------------------
(Unaudited) (Unaudited) (Unaudited)
STATEMENT OF OPERATIONS DATA
-------------------------------------------------------- --------------------------------
Total revenue $ 472,672 $ 85,245 $ 60,934 $ 119,809 $ 115,108
-------------------------------------------------------- --------------------------------
Cost of sales (87,008) (23,325) (36,977) (41,311) (22,372)
Selling, general and
administrative (6,255,902) (1,032,583) (601,282) (1,356,676) (1,585,567)
Research and development (3,465,655) (361,521) (277,669) (566,036) (984,937)
Depreciation and amortization (375,361) (47,778) (54,175) (139,233) (125,427)
-------------------------------------------------------- --------------------------------
Total expenses (10,183,926) (1,465,207) (970,103) (2,103,256) (2,718,303)
-------------------------------------------------------- --------------------------------
Amortization of deferred loan
costs (1,542,881) (776,319) (192,568) (748,037) (18,525)
Expense in connection with
issuance of common stock
for loan extension (1,820,000) (1,820,000) -- -- --
Interest income (expense) (40,445) (184,471) 4,099 (128,703) 66,057
-------------------------------------------------------- --------------------------------
Net loss $(13,114,580) $ $(4,160,752) $(1,097,638) (2,860,187) $(2,555,663)
-------------------------------------------------------- --------------------------------
Net loss per share - basic and
diluted $(1.16) $(0.38) $(0.90) $(0.91)
------------------------------------- --------------------------------
Weighted average number of
common shares outstanding 3,584,893 2,863,241 3,174,092 2,794,696
JUNE 30, 2000
------------------------------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA(1)(2) ADJUSTED(1)(3)(4)
--------------- ------------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 174,189 $ 8,124,189 $ 4,349,314
Working capital (2,644,180) 4,255,820 4,024,051
Total assets 748,016 8,698,016 4,923,141
Loans payable, net of unamortized discount 2,331,753 3,381,753 --
Total liabilities 2,898,430 3,948,430 405,324
Stockholders' equity or (capital deficit) $(2,150,414) $ 4,749,586 $ 4,517,817
- ----------------------
(1) Adjusted to reflect (i) the receipt of net proceeds of $6.9 million from
the sale of 1,400,000 shares of common stock in this offering after
deducting underwriting discounts and commissions and estimated offering
expenses; (ii) the receipt of net proceeds of $1,050,000 from the sale of
48 units in a private offering completed on August 1, 2000 after deducting
placement agent fees of 10% and estimated offering expenses and (iii) the
beneficial conversion feature pertaining to $1.8 million notes payable at
a conversion rate of $3.00 per share. The foregoing transaction results in
a charge to operations of approximately $1.8 million and an offsetting
credit to additional paid in capital. Excludes any proceeds from the
over-allotment option granted to the underwriter.
(2) No adjustment has been made to reflect the repayment of $3.7 million of
debt due upon the closing of this offering.
(3) Adjusted to reflect the repayment of $3.7 million of debt (which includes
accrued interest of $100,000) due upon the closing of this offering, the
write-off of related deferred loan costs and issuance of warrants to
purchase 775,000 shares of common stock. Our company is obligated to issue
these warrants upon repayment of certain indebtedness up to 30 days after
the closing of an equity financing.
(4) Adjusted to give retroactive effect to the January, 2000 merger with DNA
Sciences, Inc.
6
KEY FACTS
SHARES OFFERED TO THE PUBLIC: USE OF PROCEEDS:
1,400,000 Purchase equipment, fund research and development
activities, repay indebtedness and sales and marketing
OVER-ALLOTMENT OPTION: activities.
Up to 210,000 Shares (not included in 1,400,000)
UNDERWRITERS' WARRANTS:
TOTAL SHARES OUTSTANDING AFTER OFFERING: Underwriters will receive warrants to purchase 140,000
5,132,843 Shares (assuming no exercise of the shares at an exercise price of $8.70 exercisable for
over-allotment option) five (5) years.
TOTAL SHARES OUTSTANDING AFTER OFFERING, NET TANGIBLE BOOK VALUE AT JUNE 30, 2000:
CONVERSION OF CERTAIN DEBT TO EQUITY $(2,343,177)
AND EXERCISE OF ALL OPTIONS AND WARRANTS:
9,409,683 Shares NET TANGIBLE BOOK VALUE PER SHARE BEFORE DILUTION
(EXCLUDING CONVERSION OF CERTAIN DEBT TO EQUITY AND
PRICE PER SHARE TO PUBLIC: EXERCISE OF OPTIONS AND WARRANTS):
$6.00 per share $(0.63)
TOTAL PROCEEDS RAISED BY OFFERING: NET TANGIBLE BOOK VALUE PER SHARE AFTER DILUTION
$8.4 million (EXCLUDING CONVERSION OF CERTAIN DEBT TO EQUITY AND
EXERCISE OF OPTIONS AND WARRANTS):
UNDERWRITERS' FEES: $0.84
$840,000 (10%) of the total proceeds plus a
$252,000 (3%) non-accountable expense allowance MARKET:
Pink Sheets - GVEC
EXPENSES OF THE OFFERING (EXCLUDING
UNDERWRITERS' FEES AND NON-ACCOUNTABLE EXPENSE Proposed American Stock Exchange Symbol - Pending
ALLOWANCE):
$408,000 DIVIDEND POLICY:
No Dividends Expected
NET PROCEEDS:
$6.9 million UNDERWRITING:
Firm Commitment
7
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE
PURCHASING OUR COMMON STOCK. OUR MOST SIGNIFICANT RISKS AND UNCERTAINTIES ARE
DESCRIBED BELOW; HOWEVER, THEY ARE NOT THE ONLY ONES WE FACE. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE ARE IN DEFAULT OF SOME OF OUR OUTSTANDING INDEBTEDNESS AND MAY BE UNABLE TO
REPAY THESE LOANS.
Between November 1, 1998 and August 1, 2000, we borrowed a total of
$3.7 million from various private investors, consisting of:
o Unsecured loans of $150,000, with interest payable quarterly
beginning on April 1, 1999 and the principal payable on November
2, 1999. We are in default of these loans for failing to pay
principal and interest when due.
o Secured loan of $100,000, with interest payable quarterly
beginning on June 1, 1999 and the principal payable on April 18,
2000. We are in default of this loan for failing to pay principal
and interest when due.
o Secured loans of $1,238,500 for which the payment dates of
principal and interest were extended by the lenders to December
31, 2000.
o Loans of $175,000 convertible into shares of common stock at a
price of $5.00 per share. The lenders have extended the payment
dates of these loans to December 31, 2000.
o Loan of $100,000 convertible into shares of common stock at a
price of $5.00 per share for which the payment dates have been
extended by the lenders to December 31, 2000
o Loans of $600,000 convertible into shares of common stock at a
price of $3.00 per share, which are due in November 2000.
o Loans of $1,250,000 convertible into shares of common stock at a
price of $3.00 per share, which are 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 foreclosure against our assets. This would jeopardize our
ability to continue operations, and our stock price would likely decline.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT OR IMPOSSIBLE TO EVALUATE OUR
PERFORMANCE AND MAKE PREDICTIONS ABOUT OUR FUTURE.
We were organized in 1991 and are in the development stage. To date, we
have generated very limited revenues from the sale of our products. Our limited
operating history makes an evaluation of our future prospects very difficult. As
a development stage company, we will encounter the types of risks, uncertainties
and difficulties frequently encountered by early-stage companies. Many of these
risks and uncertainties are described in more detail elsewhere in this "Risk
Factors" section. If we do not successfully address these risks, then our future
business prospects will be significantly limited and, as a result, the trading
price of our common stock would likely decline.
WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We incurred net losses of $2.8 million and $2.6 million in 1999 and
1998, respectively. For the six months ended June 30, 2000, we incurred net
losses of $4.2 million. Our cumulative net loss since our inception on January
1, 1992 has been $13.1 million. We expect to incur substantial losses for the
8
foreseeable future in connection with our research and development efforts, as
well as the expenses associated with attempting to commercialize our products,
including manufacturing, marketing and distributing expenses.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL, WE MAY BE UNABLE TO CONTINUE
OPERATIONS.
We had $174,189 of cash-on-hand as of June 30, 2000. Since June 30,
2000, we have borrowed a total of $1.2 million. We project that our available
cash will last no longer than December 1, 2000. In connection with their report,
on our financial statements for the years ended December 31, 1999 and 1998, our
independent auditors have noted there is substantial doubt about our ability to
continue as a going concern. See Note 2 to the Financial Statements. This "going
concern" opinion is due, in part, to our need to obtain from external sources
additional financing adequate to complete development activities and to achieve
a level of sales adequate to support our cost structure. In the absence of
additional capital, we will be required to significantly curtail or cease our
business activities, and our stock price would decline.
THE INTERESTS OF OUR MANAGEMENT MAY CONFLICT WITH THE INTERESTS OF OUR COMPANY
AND THE INTERESTS OF OUR OTHER SHAREHOLDERS.
Our directors and executive officers beneficially own approximately 43%
of our company's outstanding common stock, including 853,048 shares of common
stock pursuant to a voting agreement with Nyer Medical Group. See "Principal
Shareholders." These shareholders, acting together, have the ability to elect at
least a majority of our directors. They will also be able to determine the
outcome of most corporate actions requiring shareholder approval, including our
merger with or into another entity, a sale of substantially all of our assets
and amendments to our articles of incorporation. The decisions of these
shareholders may conflict with our company's interests or those of our other
shareholders.
IF OUR ASSUMPTION ABOUT THE ROLE OF GENES IN DISEASE IS INCORRECT, WE MAY NOT BE
ABLE TO DEVELOP USEFUL PRODUCTS.
Certain of our products and the products we hope to develop involve new
and unproven approaches. They are based on the assumption that information about
genes may help scientists better understand complex disease processes.
Scientists generally have a limited understanding of the role of genes in
diseases, and few products based on gene discoveries have been developed. Of the
products that exist, all are diagnostic products. To date, we know of no
therapeutic products based on disease gene discoveries. If our assumption about
the role of genes in the disease process is incorrect, our gene discovery
programs may not result in products, the genetic data collected may not be
useful to our customers and these types of products may lose any competitive
advantage.
ETHICAL AND PRIVACY CONCERNS MAY LIMIT THE USE OF GENETIC TESTING AND THEREFORE
THE COMMERCIAL VIABILITY OF ANY PRODUCTS WE DEVELOP.
Other companies have developed genetic predisposition tests that have
raised ethical concerns. It is possible that employers or others could
discriminate against people who have a genetic predisposition to certain
diseases. Concern regarding possible discrimination may result in governmental
authorities enacting restrictions or bans on the use of all, or certain types
of, genetic testing. Similarly, such concerns may lead individuals to refuse to
use genetics tests even if permissible. These factors may limit the market for,
and therefore the commercial viability of, genetic testing products that our
collaborators and we develop.
OUR PRODUCTS MAY NOT GAIN MARKET ACCEPTANCE, WHICH WOULD JEOPARDIZE OUR ABILITY
TO GENERATE REVENUE AND CONTINUE OPERATIONS.
We are highly dependent on a limited number of products and our
long-term success may depend on the market acceptance of these products. We
currently have two products lines, the EpiDNA and EasyID product lines. Market
acceptance of our product lines will depend, in part, on 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, generate revenue to continue operations, likely
resulting in a lower stock price.
9
THE TECHNOLOGY IN OUR PRODUCTS IS RAPIDLY EVOLVING, AND OUR ABILITY TO EVOLVE
WITH THIS TECHNOLOGY MAY JEOPARDIZE THE COMMERCIAL VIABILITY OF OUR PRODUCTS.
The science and technology of the EpiDNA Picogram Assay, DNAMax,
EasyID, and DNAtect are rapidly evolving. The commercial viability of our
product lines has not been proven, as we have only conducted limited marketing
efforts for our existing products and other proposed products are in the early
stage of development. All of our products are subject to the risks of failure
inherent in the development of products based on innovative technologies. These
risks include the possibility that any or all of these products are found to be
ineffective, unsafe, or otherwise fail to receive necessary regulatory
clearances, if any, that these products, though effective, are uneconomical to
market, that third parties hold proprietary rights that preclude us from
marketing them, or that third parties market a superior or equivalent product.
Accordingly, we are unable to predict whether our products will become
commercially viable.
WE WILL NEED TO RELY ON COLLABORATIVE PARTNERS TO FACILITATE THE SALE OF OUR
PRODUCTS AND OUR FAILURE TO ENTER INTO SUCH COLLABORATIVE ARRANGEMENTS WILL
HINDER OUR ABILITY TO SELL OUR PRODUCTS AND SERVICES.
In the future we may, in order to facilitate the sale of our products,
enter into collaborative selling arrangements with one or more other persons. It
is uncertain whether we will be able to negotiate acceptable collaborative
arrangements in the future or that such collaborative arrangements will be
successful. If we are unable to identify collaborative partners to sell certain
of our services and/or products, we may be forced to develop an internal sales
force to market and sell our services and/or products in markets where we are
not intending on developing a direct selling presence. Such a process would take
more time and potentially cost more. As a result, our revenues and earnings
would be reduced. If we do enter into collaborative selling arrangements, our
success will depend upon the efforts of others and may be beyond our control.
Failure of any collaborative selling arrangement could result in reduced
revenues and possible losses.
WE ARE SUBJECT TO RISKS RELATED TO PRODUCT LIABILITY CLAIMS, WHICH ARE EXPENSIVE
TO DEFEND AND MAY RESULT IN NEGATIVE PUBLICITY.
The nature of our business exposes us to risk from product liability
claims. We maintain product liability insurance for some of our products with
limits of $1 million per occurrence and $2 million in the aggregate per year.
Such insurance coverage is, however, becoming increasingly expensive and there
can be no assurance that our insurance will be adequate to cover future product
liability claims, or that we will be successful in maintaining adequate product
liability insurance at acceptable rates. In addition, due to our working capital
shortage, there can be no assurance that we will be able to fund the premiums
for our existing insurance. Any losses that we may suffer from future liability
claims, and any adverse publicity from product liability litigation, may
adversely affect our business operations and our stock price.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OUR MANUFACTURING PROCESS, WHICH
WOULD JEOPARDIZE OUR ABILITY TO GENERATE REVENUE.
We have limited experience in manufacturing our products, and we have
not yet determined whether we will be able to produce sufficient quantities of
such products at commercially reasonable costs. Our inability to produce
sufficient quantities at commercially reasonable costs would jeopardize our
ability to generate revenue sufficient to support our operations. In such event,
our stock price would likely decline.
WE MAY NOT BE ABLE TO SUCCESSFULLY MARKET OUR PRODUCTS IN THE UNITED STATES
OR INTERNATIONALLY.
We have limited experience in marketing our products. We intend to
market our products in the United States, Europe and Asia through collaborative
selling arrangements and/or through a network of independent distributors
supported by a direct sales force. We do not currently have a sales force in
place and no distribution agreements have been entered into. Our ability to
market our products in Europe and Asia and other areas will depend on our
ability to fund such efforts, as well as our ability to develop strategic
alliances with marketing partners. Our inability to successfully market our
products would jeopardize our ability to generate revenue sufficient to support
our operations.
10
WE FACE RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION.
Changes in existing regulations could require advance regulatory
approval of genetic susceptibility tests that may result in a substantial
curtailment or even prohibition of our activities without regulatory approval.
If our tests ever require regulatory approval, the costs of introduction will
increase and marketing and sales may be significantly delayed.
Further, several years ago the FDA proposed to regulate as medical
devices the "active ingredients" (known as "analyte specific reagents" or
"ASRs") of certain tests developed by, or in conjunction with, clinical
laboratories. Currently, a final rule has not been issued. The FDA has
specifically stated that it is not proposing a comprehensive regulatory scheme
over the final tests, but rather the active ingredients ASRs provided to the
laboratories that perform them. According to the FDA, any contemplated
additional controls (e.g. submission for Pre-Market Approval applications) over
the tests themselves would likely involve those tests which identify genes
associated with cancer or diseases associated with dementia. If the FDA requires
Pre-Market Approval of our genetic susceptibility test, our company may be
required to conduct pre-clinical studies, obtain an investigational device
exemption to conduct clinical tests, file a Pre-Market Approval application, and
obtain FDA approval. There can be no assurance such approval would be received
on a timely basis, if at all. The failure to receive such approval could require
us to develop alternative testing methods or utilize approved ASRs, which could
result in the delay or cause the termination of the use of such test. Such a
delay or termination could result in reduced revenues or losses.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAINTAIN OUR CURRENT PATENTS, OBTAIN NEW
PATENTS, OR OPERATE WITHOUT INFRINGING UPON THE PROPRIETARY RIGHTS OF OTHER
PARTIES.
Our success will depend in part on our ability to obtain and maintain
patent protection for our products, preserve our trade secrets, and operate
without infringing upon the proprietary rights of other parties. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the biotechnology industry places
considerable importance on obtaining and maintaining patent and trade secret
protection for new technologies, products and processes. In addition, the laws
of certain countries may not protect our intellectual property. Legal standards
relating to the scope of claims and the validity of patents in the biotechnology
field are uncertain and evolving. There can be no assurance that patent
applications to which we hold ownership or license rights will result in the
issuance of patents, that any patents issued or licensed to us will not be
challenged and held to be invalid, or that any such patents will provide
commercially significant protection to our technology, products and processes.
In addition, there can be no assurance that others will not independently
develop substantially equivalent proprietary information not covered by patents
to which we have rights or obtain access to our know-how or that others will not
be issued patents which may prevent the sale of one or more of our products, or
require licensing and the payment of significant fees or royalties by us to
third parties in order to enable us to conduct our business. Defense and
prosecution of patent claims can be expensive and time consuming, regardless of
whether the outcome is favorable to us, and can result in the diversion of
substantial financial, management, and other resources from our other
activities. An adverse outcome could subject us to significant liability to
third parties, require us to obtain licenses from third parties, or require us
to cease any related research and development activities or product sales. No
assurance can be given that any licenses required under any such third-party
patents or proprietary rights would be made available on commercially reasonable
terms, if at all. In addition, due to our working capital shortage, there can be
no assurance that we will be able to continue our existing patent applications.
WE MAY NOT BE ABLE TO SUCCESSFULLY PROTECT OUR PROPRIETARY INFORMATION.
Our success is also dependent upon the skills, knowledge, and
experience of our scientific and technical personnel. To help protect our
rights, we plan to require all of our employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside our company and require
disclosure and in most cases assignment to us of their ideas, developments,
discoveries and inventions. There can be no assurance, however, that these
agreements will provide adequate protection for our trade secrets, know-how or
other proprietary information in the event of any unauthorized use or
disclosure.
11
WE MAY FAIL TO HIRE, RETAIN AND INTEGRATE KEY PERSONNEL.
Our ability to successfully manage our growth will substantially depend
on our ability to attract and retain additional qualified management personnel.
Because of our extreme cash shortage, our ability to attract or retain qualified
personnel has been hindered. There is significant competition for qualified
personnel, and there can be no assurance that we will be successful in
recruiting, retaining or training the management personnel we require.
FUTURE SALES BY OUR SHAREHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Sales of our common stock in the public market following this offering
could lower the market price of our common stock. Sales may also make if more
difficult for us to sell equity securities or equity-related securities in the
future at a time and price that our management deems acceptable or at all. Of
the 5,132,843 shares of our common stock that will be outstanding after this
offering (assuming no conversion of outstanding indebtedness and no exercise of
outstanding options, warrants or the over-allotment option), 2,699,570 shares
will be freely tradable without restriction, including all of the shares sold in
this offering. The remaining 2,433,273 shares of common stock held by existing
shareholders are "restricted securities" and may be resold in the public market
only if registered or pursuant to an exemption from registration. Of that number
of shares, 1,252,830 shares of common stock (excluding 300,677 shares of common
stock issuable upon the exercise of options and warrants) are subject to certain
lock-up agreements. These agreements prohibit the sale of shares of common stock
by certain officers, directors and other shareholders for a period of six months
after the date of this prospectus without the prior written consent of the
underwriter. After the six month period, and if the market price of the common
stock trades above 125% of the price in this offering for five consecutive
trading days, such officers, directors and other shareholders together may
freely sell their shares of common stock without restriction. If the market
price of the common stock does not trade above 125% of the offering price for
five consecutive trading days, then such officers, directors and other
shareholders may freely sell their shares of common stock after one year after
the date of this prospectus. Upon expiration of the lock-up agreements, an
additional 2,433,273 shares will become eligible for sale, subject to the
provisions of Rule 144. Of that total, 1,208,273 shares will be eligible for
resale under Rule 144 following this offering. The remaining 1,225,000 shares
will have been held for less than one year and will become eligible for sale at
various dates as the one-year holding period under Rule 144 is satisfied.
We have issued options to purchase an aggregate of 788,029 shares of
our common stock at exercise prices ranging from $5.00 to $12.00 per share
(including the over-allotment option), warrants to purchase 2,677,144 shares of
our common stock at an exercise price ranging from $.01 to $8.70 per share and
indebtedness convertible into 671,667 shares of common stock at prices of $3.00
and $5.00 per share. Holders of warrants to purchase shares are entitled to
certain registration rights with respect to such shares. Upon registration, such
shares may be sold in the market without limitation. Sales of such shares may
decrease the market price for our common stock. See "Underwriting." We have
filed a registration statement on Form S-8 with respect to the shares of our
common stock issuable upon exercise of options under the 1996 Stock Incentive
Plan. The 1996 Plan authorizes the issuance of options relating to 300,000
shares of our common stock. Currently, there are 260,029 options that have been
issued under the 1996 Plan, all of which are vested. See "Management - 1996
Stock Incentive Plan." As result of such registration statement, the holders of
such options may, subject to vesting requirements, exercise and sell their
shares immediately without restriction, except affiliates who are subject to
certain volume limitations and manner of sale requirements of Rule 144. We also
have options to purchase 400,000 shares of common stock authorized under our
1999 Stock Option Plan. See "Management - 1999 Stock Option Plan." Currently,
there are 318,000 options that have been issued under the 1999 Plan, of which
111,666 are vested. No registration statement is in effect for the 1999 Stock
Option Plan.
OUR MANAGEMENT HAS BROAD DISCRETION IN THE USE OF PROCEEDS RECEIVED FROM THIS
OFFERING.
We presently intend to use the net proceeds of this offering for the
purposes set forth in "Use of Proceeds." However, management of our company has
broad discretion to adjust the application and allocation of the net proceeds of
this offering in order to address different circumstances and opportunities. As
a result, our success will be substantially dependent upon the discretion and
judgment of our management with respect to the application and allocation of the
net proceeds of this offering.
THERE ARE RISKS SPECIFICALLY RELATED TO THE PURCHASE OF OUR STOCK IN THIS
OFFERING.
12
Our stock price could be extremely volatile, as is typical of
biotechnology companies. You may not be able to resell your shares of common
stock at or above the public offering price due to the possible volatility of
our common stock after this offering. The stock market has experienced
significant price and volume fluctuations, and the market prices of securities
of technology companies, particularly biotechnology companies, have been highly
volatile. Some factors contributing to these price and volume fluctuations
include:
o actual or anticipated variations in our quarterly operating results;
o announcements of technological innovations or new products or services
by us or our competitors;
o changes in financial estimates by securities analysts;
o conditions or trends in biotechnology;
o changes in the economic performance or market valuations of other
biotechnology companies;
o announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments.
o additions or departures of key personnel;
o release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock;
and
o potential litigation.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. The institution of such litigation against us
could result in substantial costs to us and a diversion of our management's
attention and resources.
WE DO NOT ANTICIPATE DISTRIBUTING ANY DIVIDENDS TO OUR SHAREHOLDERS.
It is unlikely that an investor in our stock will derive current income
from dividends resulting from ownership of our stock. This means that your
potential for economic gain from ownership of our stock depends on an
appreciation in the value of our stock and will only be realized upon a sale of
the stock at a price higher than your purchase price.
OUR CHARTER DOCUMENTS AND FLORIDA LAW CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY
MAKE IT MORE DIFFICULT TO ACQUIRE US.
Certain provisions in our charter documents and Florida law may have
anti-takeover effects, making it more difficult for a third party to acquire us,
even if a change in control would be beneficial to our shareholders.
13
FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENTS.
Information included or incorporated by reference in this prospectus
may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. This information may involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from the
future results, performance or achievements expressed or implied by any
forward-looking statements. Forward-looking statements, which involve
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "may," "will," "should," "expect,"
"anticipate," "estimate," "believe," "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology.
This filing contains forward-looking statements, including statements
regarding, among other things, (a) our projected sales and profitability, (b)
our company's growth strategies, (c) anticipated trends in our company's
industry, (d) our company's future financing plans, (e) our company's
anticipated needs for working capital and (f) benefits related to the
acquisition of DNA Sciences. These statements may be found under "Management's
Plan of Operation" and "Business," as well as in this prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under "Risk Factors" and matters described in
this prospectus generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this filing
will in fact occur. In addition to the information expressly required to be
included in this filing, we will provide such further material information, if
any, as may be necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.
14
USE OF PROCEEDS
The net proceeds to be received by our company from the sale of the
1,400,000 shares of our common stock sold in this offering (after deducting
estimated offering expenses payable by us) are estimated to be approximately
$6.9 million and $8.0 million if the over-allotment option is exercised in full.
We intend to use the net proceeds of this offering for the following
purposes:
Percentage of
Amount(1) Net Proceeds(1)
--------------- ------------------
o Expenditures for additional equipment and personnel to $1,000,000 14.5%
prepare for and to increase production capacity.
o Research and development activities and regulatory matters. $1,200,000 17.4%
o Expenditures for sales and marketing personnel, introducing $1,000,000 14.5%
new products, market research studies, marketing collateral
materials, trade show participation, public relations, and
advertising expenses.
o Repayment of existing indebtedness.(2) $3,700,000 53.6%
- -----------------------
(1) Excluding over-allotment.
(2) This assumes that all of the convertible indebtedness (a total of
$2,125,000) will be repaid at the closing of this offering and that none of this
indebtedness will be converted into shares of common stock. If some or all of
the convertible indebtedness is converted into shares of common stock, then a
smaller portion of the net proceeds of this offering will be allocated to repay
indebtedness. Any proceeds not needed for the repayment of convertible
indebtedness will be used for working capital.
The amount and timing of the above expenditures may vary significantly
depending upon numerous factors, including the progress of our research and
development programs, the timing and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent
claims, competing technological and market developments, payments received under
collaborative agreements, changes in collaborative research relationships, the
costs associated with potential commercialization of our products, including the
development of sales and marketing capabilities, the cost and availability of
third-party financing for capital expenditures and administrative and legal
expenses.
We believe that our available cash and existing sources of funding,
together with the proceeds of this offering and interest earned thereon, will be
adequate to maintain our current and planned operations for the next 15 months.
Until used, we intend to invest the net proceeds of this offering in
interest bearing, investment-grade securities. While the net proceeds are so
invested, the interest earned by us on such proceeds will be limited by
available market rates. We intend to invest and use such proceeds so as not to
be considered an "investment company" under the Investment Company Act of 1940.
15
CAPITALIZATION
The following table sets forth the total capitalization of our company
(i) as of June 30, 2000; (ii) on a pro forma basis after giving effect to (x)
the receipt of net proceeds of $6.9 million from the sale of 1,400,000 shares of
common stock in this offering after deducting underwriting discounts and
commissions and estimated offering expenses and (y) the receipt of net proceeds
of $1,050,000 from the sale of 48 units in a private offering completed on
August 1, 2000 after deducting placement agent fees and estimated offering
expenses; and (iii) on a pro forma basis as adjusted to give effect to the
receipt of net proceeds in this offering and the private offering and the
repayment of approximately $3.7 million of indebtedness (including accrued
interest of $100,000) which will be repaid upon the closing of this offering:
June 30, 2000
------------------------------------------------------
Pro Forma As
Actual Pro Forma(1) Adjusted(2)(3)
------------- ------------- --------------------
Current portion of long-term debt, net of discount $ 2,331,753 $ 3,381,753 $ 0
Stockholders' equity or capital deficit:
Common stock, $0.001 par value; 10,000,000 shares 3,733 5,133 5,133
authorized, 3,732,843 shares issued and outstanding and
5,132,843 shares issued and outstanding (pro forma)(1)
Additional paid-in capital 10,960,433 19,659,033 19,659,033
Deficit accumulated during the development stage (13,114,580) (14,914,580) (15,146,349)
------------ ------------ ------------
Total stockholders' equity or (capital deficit) (2,150,414) 4,749,586 4,517,817
------------ ------------ ------------
Total capitalization $ 181,339 $ 8,131,339 $ 4,517,817
============ ============ ============
- -----------------------
(1) Adjusted to reflect the beneficial conversion feature pertaining to $1.8
million of notes payable at a conversion rate of $3.00 per share.
(2) This column includes the issuance of warrants to purchase 775,000 shares of
common stock that our Company is obligated to issue upon the repayment of
certain indebtedness (a total of $1,238,500, plus accrued interest), up to
thirty days after the closing of an equity financing. This column excludes
(a) 671,667 shares of common stock issuable upon the conversion of certain
indebtedness into equity and (b) outstanding options and warrants to
purchase 788,029 and 2,042,144 shares of our common stock, respectively,
including (i) warrants to purchase 1,233,294 shares of our common stock to
be issued if certain indebtedness is converted into shares of common stock,
(ii) warrants to purchase 140,000 shares of our common stock to be issued
to the underwriter in connection with this offering, (iii) warrants to
purchase 668,850 shares of our common stock outstanding as of the date
hereof, (iv) options to purchase 578,029 shares of our common stock
outstanding as of the date hereof under employee benefit plans and (v) the
over-allotment option to purchase 210,000 shares of our common stock.
(3) Adjusted to reflect the repayment of $3.7 million of debt (which includes
accrued interest of $100,000) due upon the closing of this offering and the
write-off of related deferred loan costs.
16
DILUTION
The net tangible book value of our company as of June 30, 2000 was
$(2,343,177) or $(0.63) per share of common stock. Net tangible book value per
share is determined by dividing the tangible book value of our company (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. After giving effect to the sale by us of the 1,400,000 shares
of common stock in this offering at an assumed price of $6.00 per share, less
underwriting discounts and commissions and other estimated offering expenses and
less the repayment of $3.7 million, including interest, due upon the closing of
this offering (but assuming (i) none of the indebtedness is converted into
equity and (ii) none of the options or warrants are exercised), our net tangible
book value as of June 30, 2000 would have been $4,325,053 or $0.84 per share.
This represents an immediate increase in net tangible book value to existing
shareholders of $1.47 per share and an immediate dilution to new shareholders of
$5.16 per share, or 86.0%. The following table illustrates the per share
dilution:
Assumed public offering price per share $ 6.00
Net tangible book value per share before this offering $ (0.63)
Increase attributable to new investors $ 1.47
-----------
Net tangible book value per share after this offering $ 0.84
---------
Dilution per share to new shareholders $ 5.16
==========
As of the date hereof, the following table shows the difference between
existing shareholders and new shareholders with respect to the number of shares
of common stock purchased in this offering, the total consideration paid and the
average price paid per share. The table assumes that the public offering price
will be $6.00 per share.
Average Price
Shares Purchased Total Consideration
---------------- -------------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ----------
Existing Shareholders 3,732,843 72.7% $8,158,940 49.3% $2.19
New Investors 1,400,000 27.3% 8,400,000 50.7% $6.00
------------- --------- --------------- ---------- -----------
Total 5,132,843 100.0% $16,558,940 100.0%
============= ========= =============== ==========
As of the date hereof, the foregoing tables assume no conversion of
certain indebtedness into equity or exercise of outstanding options and
warrants. To the extent that any of the shares of common stock are issued upon
conversion of debt to equity or upon exercise of any of the options and
warrants, there will be further dilution to new investors. See "Capitalization,"
"Description of Securities" and Notes to Consolidated Financial Statements.
17
MANAGEMENT'S PLAN OF OPERATION
The following information should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this prospectus.
PLAN OF OPERATION
We specialize in the development of molecular systems in the area of
disease management and risk assessment. We plan to develop and manufacture these
tests for sale to the pharmaceutical and healthcare industries. We are currently
selling the EpiDNA and the EasyID product lines and are developing several other
products of these lines. Through our acquisition of DNA Sciences, Inc., we
acquired the technology used in the DNAtect and DNAMax products. These products
have been incorporated into our EasyID and EpiDNA product lines.
ACQUISITION OF DNA SCIENCES, INC.
On January 17, 2000, we acquired all of the outstanding capital stock
of DNA Sciences, Inc., a California corporation. In consideration for the shares
of DNA Sciences, we issued the former shareholders of DNA Sciences, Inc. a total
450,000 shares of our common stock. The shareholders of DNA Sciences have the
ability to nominate one director to our Board of Directors. Subsequent to the
acquisition, DNA Sciences changed its name to Genetic Vectors of California,
Inc. In the past, DNA Sciences, Inc.'s operations have been insignificant.
FINANCIAL RESOURCES AND CASH REQUIREMENTS
We are dependent on external capital to finance our operations, and
have not generated a significant amount of cash from operations. As of June 30,
2000, we had cash and cash equivalents of $174,189. Since that date, we borrowed
an additional $1,200,000. Our available cash is 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 and would likely result in our need to curtail or cease
operations.
Since November 1, 1998, we have borrowed $3.4 million to fund our
operations. We are in default on some of these loans for failing to pay
principal and interest when due, a total $250,000, plus interest. See "Risk
Factors - We are in default of some of our outstanding indebtedness and may be
unable to repay these loans."
CONTINGENT NON-CASH CHARGES
Our company is obligated to issue additional warrants to purchase a
total of 2,008,294 shares of common stock upon the occurrence of certain
contingent events. In particular, we are obligated to issue additional warrants
to purchase 775,000 shares of our common stock upon the full repayment of
certain loans or our successful consummation of a financing in an amount equal
to or greater than $1.5 million. In addition, if the holders elect to convert
certain indebtedness into shares of common stock within a specified period, then
the holders would be entitled to additional warrants to purchase (a) 616,647
shares of common stock at an exercise price of $6.00 per share and (b) 616,647
shares of common stock at an exercise price of $7.10 per share. If the holders
do not elect to so convert, then the holders would receive warrants to purchase
370,000 shares of common stock at an exercise price of $6.60 per share and
warrants to purchase 370,000 shares of common stock at an exercise price of
$8.00 per share. The issuance of these contingent or any other warrants will
result in a significant non-cash charge to our company in the period in which
these additional warrants are issued.
RESEARCH AND DEVELOPMENT
We will continue our product research and development efforts and
continue to implement what we believe to be a feasible plan for product
development. We intend to complete the build-out of research and development and
production areas in our Florida facility. For the twelve-month period following
our receipt of significant additional capital, our activities will focus on the
following:
18
o Continued enhancement of our EasyID Juvenile Diabetes Risk
Assessment System.
o Development of new EasyID detection systems in collaboration with
the Norwegian Institute of Public Health.
o Continuation of EasyID DNA probe product development for new
diagnostic uses, drug discovery and certain industrial
applications.
o Continued research and development of EasyID products for the
detection of genes involved in cardiovascular diseases.
o Continued research in applications of our EpiDNA nucleic acid
labeling technology.
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES
We anticipate the need to purchase and/or lease various equipment
valued at approximately $500,000. Equipment will be used primarily to
manufacture the EasyID line of products currently being marketed and develop
additional products.
CHANGES IN THE NUMBER OF EMPLOYEES
We currently have ten employees. If we are successful in raising
significant new capital, then we anticipate hiring ten 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999. Our company remains largely a
development stage company. Revenues aggregated approximately $85,000 and $61,000
for the six months ended June 30, 2000 and 1999, respectively. These increases
are attributable to the company's increased selling efforts of the EpiDNA
product line.
Costs of sales aggregated approximately $23,000 and $37,000 for six
months ended June 30, 2000 and 1999 respectively. This decrease is attributable
to the Company's obtaining better manufacturing costs.
Research and development expenses for the six months ended June 30,
2000 increased by $84,000 over the comparable period in the prior year. This
increase is largely attributable to the research and development costs
associated with our San Diego facility, which was closed on June 30, 2000.
Selling, general and administrative expenses increased $431,000 in the
six months ended June 30, 2000 over the comparable period in 1999. This increase
is primarily attributable to increases in (i) salaries of $125,000, (ii)
professional fees of $132,000, (iii) consulting expenses of $49,000 and (iv)
travel and lodging of $52,000.
Amortization of deferred loan costs increased by approximately $584,000
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 six months
ended June 30, 2000 and the granting of related warrants. These warrants were
valued based on the Black-Scholes Option Pricing Model and resulted in $776,000
of amortization during the six months ended June 30, 2000.
Interest expense, net for the six months ended June 30, 2000 increased
by $189,000, representing the interest on various loans obtained by us in the
latter part of 1999 and during 2000. As of June 30, 2000, we had approximately
$2.4 million, plus interest and before discount, in outstanding notes payable.
During the comparable period in the prior year we had a minimum amount of
outstanding notes payable.
During the six months ended June 30, 2000 we recorded a charge of
$1,820,000 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 our common stock at $6.50 per share were issued.
YEARS ENDED DECEMBER 31, 1999 AND 1998. Revenues aggregated
approximately $120,000 and $115,000 for the years ended December 31, 1999 and
1998, respectively. These increases are discussed below, and are net of $36,000
of grant income that was earned and completed in 1998.
19
Revenues from the Picogram Assay sales aggregated approximately $45,000
and $11,000 for the years ended December 31, 1999 and 1998 respectively. This
increase is attributable to the company's reintroduction of the Picogram Assay
Kit in the later part of 1998.
Revenues from DNA Sciences, Inc. sales aggregated approximately $75,000
and $68,000 for the years ended December 31, 1999 and 1998 respectively. This
increase is attributable to the Company's increased selling efforts.
Cost of sales aggregated approximately $41,000 and $22,000 for the
years ended December 31, 1999 and 1998, respectively. The increase is
attribtuable to the company's increased selling efforts and substantially
relates to the activities of DNA Sciences, Inc.
Research and development expenses for the fiscal year ended December
31, 1999 decreased by $419,000 to $566,000 as compared with the prior year. This
decrease is largely attributable to cutbacks due to our shortage of available
funds.
Selling, general and administrative expenses decreased by $229,000 to
$1.4 million in the year ended December 31, 1999 over the comparable period in
1998. This decrease is primarily attributable to a $332,500 non-cash charge,
resulting from the valuation of 50,000 warrants issued to a financial consultant
in 1998.
Depreciation and amortization expense was in line with the prior year.
Amortization of deferred loan costs increased by approximately
$730,000. The increase was directly related to us borrowing approximately $1
million in 1999 and $150,000 in 1998 and granting approximately 619,000 and
30,000 warrants, respectively, to the lenders. These warrants were valued based
on the Black-Scholes Option Pricing Model and resulted in approximately $1
million of deferred loan costs, of which approximately $748,000 and $19,000,
respectively, were amortized in our statements of operations for 1999 and 1998.
Interest expense for the fiscal year ended December 31, 1999 was
$129,000, representing the interest on various loans received by us. During
1999, we borrowed $1 million. This compares to interest income of $66,000 in the
comparable period in the prior year. This represented interest earned on
certificates of deposit and money market accounts in 1998, offset by interest
expense on loans outstanding during the latter part of 1998.
LIQUIDITY AND CAPITAL RESOURCES.
SIX MONTHS ENDED JUNE 30, 2000. The net cash used by us in operating
activities aggregated $1.3 million in the six months ended June 30, 2000, as
compared with $0.7 million in the same period in the prior year. This increase
was largely attributable to increases in research and development and increases
in general and administrative expenses pertaining to the merger and integration
and operations of DNA Sciences, Inc. Our net cash provided by financing
activities aggregated $1.3 million during the six months ended June 30, 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 June 30, 2000, we had $174,189 of
cash. Since that date, we have borrowed a total of $1.2 million. These proceeds
are expected to last no longer than December 1, 2000. 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.
As of June 30, 2000, we had a capital deficit of $2,150,414. 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.
We anticipate netting approximatley $6.9 million from gross proceeds of $8.4
million in this offering. Of the $6.9 million in net proceeds, we expect to
repay $3.7 million of outstanding indebtedness and to utilize the balance of
$3.2 million for research andevelopment, marketing and advertising, as well as
hiring additional personnel and purchasing equipment. Our inability to raise
significant capital in such a registered offering will jeopardize our ability to
continue operations.
YEAR ENDED DECEMBER 31, 1999. The net cash used by us in operating
activities aggregated $1.6 million in the year ended December 31, 1999, as
compared with $2.1 million used in 1998. This was largely attributable to
20
operating expenses and research and development activities, and increases in
accounts payable. Our net cash provided in financing activities aggregated $1.7
million during the year ended December 31, 1999, consisting mainly of proceeds
from the sale of unregistered securities and loan transactions. As of December
31, 1999, we had a capital deficit of $456,000.
GOING CONCERN OPINION. Our independent public accountants have added an
explanatory paragraph to their audit opinion issued in connection with the 1999
and 1998 financial statements which states that our company's dependence on
outside financing and our losses since inception raise substantial doubt about
our ability to continue as a going concern.
IMPACT OF INFLATION. Although inflation has slowed in recent years, it
is still a factor in the United States economy and we continue to seek ways to
mitigate its impact. To the extent permitted by competition, we intend to pass
increased costs on to our customers by increasing sales prices over time. In
addition, we place all of our major supplier purchases out to bid.
NEW FASB PRONOUNCEMENTS. In March 2000, the Financial Accounting
Standards Board issued FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, An Interpretation of APB Opinion No.
25. The company adopted the Interpretation on July 1, 2000. The Interpretation
requires, among other things, that stock options that have been modified be
accounted for as variable. Management anticipates that the implementation of
FASB Interpretation No. 44 will not have a material effect on the company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued FASB 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in operations
in the period of change. SFAS 133, as amended by FAS 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2001.
Historically, we have not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, we do not expect
adoption of the new standard on January 1, 2001 to affect our financial
statements.
21
BUSINESS
THE COMPANY
Dr. Mead McCabe (the Chairman of the Board of Directors) founded our
company in 1991 based on a new nucleic acid labeling and detection technology.
Our first product, EpiDNA, was introduced in 1997. Today we are a biotechnology
company that specializes in the discovery of genetic patterns from which we
intend to develop systems to determine disease risk, drug resistance, and
therapeutic response. We intend to market our products and services to the
healthcare and pharmaceutical industries. Recently, we acquired DNA Sciences,
Inc., a San Diego biotechnology company with products and technology that we
believe enhance our current ability to detect genetic differences.
Our products include the EpiDNA and EasyID product lines. We
reintroduced the EpiDNA product line to the marketplace in the third quarter of
1998. To date, this product has produced limited sales in the marketplace. In
addition, we recently introduced the EasyID product line and we are also using
it as a product platform for development of new technologies.
We formed several collaborations with academic and industrial
institutions for the discovery of new genes involved in disease management.
These institutions include the University of Miami, the United States Department
of Agriculture, and the Norwegian Institute of Public Health. The intent of
these collaborations is the discovery of new genetic sequences that our company
intends to develop and manufacture as systems for sale to the healthcare and
pharmaceutical industries. We also intend to patent new genetic sequences and
patterns and license these to pharmaceutical companies for use in drug
development. In addition, we intend to form collaborations with equipment
companies to automate the company's products for use in high throughput
applications.
Also, we recently formed a collaboration with a leading wine producer
to develop a high throughput screening procedure for spoilage microorganisms in
wine. The intent of this collaboration is to develop a screening system that
will enable the producer to dramatically increase quality control accuracy and
throughput, as well as reduce costs associated with warehousing entire lots of
wine awaiting quality control results. If successful, we believe this
collaboration will demonstrate the broad applicability of our technology.
OUR PRODUCTS
EASYID PRODUCT LINE
The subtle differences in DNA structure are the basis for numerous
genetic diseases, including diabetes, cancer and heart disease. Our efforts in
gene discovery have resulted in the development of a product line, EasyID, that
detects these subtle differences.
The EasyID product line comprises a universal format that uses standard
laboratory equipment and techniques to achieve results quickly. This universal
format enables us to adapt our systems for any genetic target of interest.
To date, the EasyID line has focused on three areas of development:
1. juvenile diabetes predisposition assessment;
2. genes involved in cardiovascular disease; and
3. yeast detection and genotyping.
JUVENILE DIABETES. Scientific reports have linked the onset of juvenile
diabetes (IDDM1) to a particular DNA fingerprint (genotype) within a region of
the human genome. We have developed a system for the rapid detection of this
high-risk genotype. The Norwegian Institute of Public Health is currently using
our system to test for genetic predisposition to juvenile diabetes in a
population-based study.
CARDIOVASCULAR DISEASES. Cardiovascular disease is among the leading
causes of death in the United States. Scientific publications have recently
reported links between naturally occurring genetic variations and the onset of
cardiovascular disease. Publications have also described the influence of
genetic differences in response to common therapeutics. One of the most dramatic
examples of this is a polymorphic variation in the CETP gene, which influences
response to the statins, a class of widely prescribed cholesterol-lowering
medications.
22
Through our collaborations, we are attempting to develop systems to
discover and identify genetic differences that result in differential
therapeutic response. Our first product in development is a system designed to
detect the CETP genotypes.
Our future development will focus on other genes related to cholesterol
and heart disease. We plan to collect genetic information from over 2,000 heart
patients enrolled in a collaborative study. We will use this information to
develop new systems designed to predict clinical outcomes, disease progression,
and therapeutic response. We intend to file patent applications on genetic
patterns we discover that are useful as disease markers or for prediction of
therapeutic response.
MICROBIAL IDENTIFICATION. We are developing the EasyID technology for
the rapid identification of microbes of commercial, research, and clinical
interest. The EasyID technology is based on a series of small DNA probes that
are designed to discriminate subtle genetic differences. The product line
originates from a collaboration with both the University of Miami and the United
States Department of Agriculture. This collaboration has resulted in a patent
application for the genetic sequences of CRYPTOCOCCUS NEOFORMANS, a pathogenic
yeast responsible for deaths in AIDS infected patients and other patients with
suppressed immune systems. We intend to commercialize these sequences using our
EasyID technology and market to healthcare institutions.
Yeast have emerged as major pathogens in the growing population of
patients with weakened or suppressed immune systems. These patients include
transplant recipients and patients with cancer, leukemia or AIDS. The mortality
rates for systemic yeast infection are high, primarily a reflection of the
absence of adequate and timely diagnostic tests. Rapid, sensitive and dependable
tests for pathogenic yeast are of critical importance for the prompt treatment
of disease. We have developed a rapid molecular test that identifies yeast
species, strains or genotypes in a few hours.
A commercial antibody-based test for yeast is available, but costs
about $15 per test. Other available tests are based upon biochemical and
physiological characteristics and require days to weeks to perform. We believe
that our EASYID products, based upon DNA probe hybridzation, will allow accurate
identification of yeast species and strains, at a lower cost than existing
products and much more rapidly than conventional techniques.
EPIDNA PRODUCT LINE
DETECTION OF NUCLEIC ACIDS. The EpiDNA technology is a broadly
applicable method for labeling and detecting nucleic acids, particularly DNA.
The importance of the ability to attach labels to nucleic acids arises from the
use of nucleic acids as probes to identify, locate and isolate DNA fragments
containing a single gene in a mixture of DNA fragments containing thousands of
different genes. DNA labeling technology is analogous to the photographic
development process. The label makes the results of esoteric DNA hybridization
reactions visible to the naked eye in the same sense that developing solutions
render the latent image in a photograph visible. The visual results of this
process are pictures of DNA hybrids or DNA fingerprints. Nucleic acid probes are
usually labeled with radioactivity so that the probe and the gene to which it is
bound can be located. The use of nonradioactive labels on probes has become an
attractive alternative because of the dangers associated with radioactivity and
the expense of disposing of radioactive waste. Chemiluminescent and florescent
detection methods for nonradioactive probes provide sensitivity rivaling that of
radioactive probes, without the risks and expenses of radioactivity. The
patented EpiDNA technology can be used to make these types of non-radioactive
labeled nucleic acid probes.
The EPIDNA labeling technology involves a versatile chemical procedure
for attaching labels to nucleic acids. We believe this process is superior in
its ability to attach a variety of labels to nucleic acids, regardless of the
size of the nucleic acid. The process is normally completed within a few hours,
and can be accomplished in a single test tube with no loss of nucleic acid. We
believe that scaling the reaction up to production levels (milligram amounts of
nucleic acids) is possible. The core EpiDNA technology is suited for the
attachment of any detectable molecule (such as biotin, fluorescent or
phosphorescent compounds, enzymes or chelators) to nucleic acids.
The EPIDNA technology is not restricted to the labeling of probes, but
can also provide a method to accurately measure nucleic acids at very low
concentrations. This characteristic of our technology provides the basis for the
Picogram Assay, which is targeted to process development and monitoring, and to
quality control laboratories.
23
THE PICOGRAM ASSAY. This assay combines chemical and immunochemical
procedures to measure trace amounts of DNA. It is intended for process
monitoring and validation of final product purity. Processes for manufacturing
biopharmaceuticals, such as monoclonal antibodies and recombinant proteins,
result in potentially harmful contamination with DNA, the material that carries
the genetic code and could carry cancer-causing oncogenes. FDA guidelines
recommend that manufacturers monitor the content of DNA to assure that the level
of DNA does not exceed 100 picograms per injected dose. This recommendation
creates a niche in the biotechnology industry market into which we market the
Picogram Assay kit for the measurement of DNA in biopharmaceuticals.
The assay is relatively easy to perform, measures DNA in a range of one
to one hundred picograms, and can detect small fragments of DNA. It does not
require the purchase of major equipment, since it utilizes a standard microtiter
plate reader.
NUCLEIC ACID PROBE LABELING AND DETECTION KITS. DNA technology is
rapidly expanding in the life sciences in areas that can benefit from genetic
analysis or the manipulation of genetic material. Nucleic acid probes are
routinely used in many of these applications to identify specific genes and
separate them from all other genes. We believe that the EpiDNA labeling kits
will provide the components for the preparation of DNA or ribonucleic acid
("RNA") probes for the detection of specific nucleic acids. We intend to develop
kits specialized for the attachment of compounds as diverse as biotin,
digoxigenin, enzymes and fluorescent compounds and chelators using the labeling
procedure.
DNAMAX PROTEIN REMOVAL KITS. A kit designed to remove high
concentrations of protein from biopharmaceuticals was developed by our company
to be used to separate trace DNA from proteins in samples before testing with
the EpiDNA Picogram Assay. We believe the DNAMax kit provides a superior method
for recovering picogram amounts of DNA from very concentrated protein solutions.
We believe this kit will be useful for basic research uses where small amounts
of DNA must be extracted from samples and tested by techniques such as the
polymerase chain reaction. A utility patent application covering the DNAMax
technology has been filed with the United States Patent and Trademark Office and
a PCT application has been filed.
MARKETING AND SALES
EASYID GENOMICS SYSTEMS. Since our scientific collaborators are also
large clinical sites that are anticipated to order a high volume of our
products, we do not anticipate a need for a large direct marketing or sales
force in 2000. Our marketing efforts will primarily consist of designing,
installing, and servicing our genomic-based systems at our collaborative sites.
Our scientific staff will act as technical consultants to these locations.
We anticipate that our gene discovery program, combined with our
scientific collaborations, will also result in technology licensing
opportunities to large clinical institutions and pharmaceutical companies. Our
plan includes licensing the use of our proprietary genetic sequences to these
institutions for use in pharmaceutical development and direct patient care.
Our current projects may result in the development of new technologies,
as well as the discoveries of important genetic sequence patterns. It may become
desirable to form a joint venture with our scientific collaborators to more
effectively pursue the commercialization of these new technologies.
We plan to market our products in 2001 through the use of domestic and
international distributors. Distributors will have the opportunity to sell
certain products on a limited, non-exclusive basis. Other products may become
available for private label or an exclusive license in certain cases. In
addition, we plan to utilize electronic commerce to market and sell all of our
products.
Subsequently, we intend to introduce and market the yeast analysis
products developed by our EasyID product research and development activities.
This is a long-term development activity to formulate products that we believe
will have quality assurance applications in the food and beverage industry.
EPIDNA QUALITY SYSTEMS. We began targeting the biopharmaceutical
quality assurance market during the second half of 1998. Since this market
comprises relatively few companies, we have been using a direct sales approach.
We plan to supplement our direct sales efforts with the use of independent
distributors. Our marketing plan will target companies in the biopharmaceutical
industry and in the reference laboratories serving as quality assurance testing
24
sites for smaller biopharmaceutical companies. Our marketing and sales strategy
will be to establish direct contact with specific individuals within each target
company or reference laboratory. We intend to place limited advertising in major
trade journals such as Science, Biotechniques and BioPharm to inform potential
customers of the existence and potential benefit of the Picogram Assay. We
intend to have representatives attend major national and international industry
trade shows to gain direct access to potential customers and to establish
overseas distributors to reach international customers. We also intend to
present our product to a variety of potential customers via the Internet. We
currently have no sales force, and there can be no assurance that a sales force
can be hired, or, if hired, that such sales force will be able to successfully
sell our products.
MANUFACTURING AND SUPPLIERS
Our manufacturing and research and development activities are conducted
in our facility in Miami. We intend to complete a build-out of research and
development and production areas in our facility and we believe that, after such
build-out, this floor space will be adequate for our manufacturing and research
and development facilities for the foreseeable future.
Certain key components of our Picogram Assay and DNAMax products are
currently provided by a limited number of sources, and many components are
provided by outside vendors. One component is provided by a single source. We
are utilizing contract manufacturers to manufacture required reagents for our
Picogram Assay. Two key components of the EpiDNA Picogram Assay Kit, the
"GeNuncTM" reaction modules and the "MaxisorpTM" immunomodules are manufactured
by NUNC (a Danish entity), but can also be obtained from United States
distributors. One of the key components of the Picogram Assay is available only
from a single supplier.
OUR ACQUISITION OF DNA SCIENCES, INC.
On January 17, 2000, we acquired DNA Sciences, Inc. In the transaction,
we issued 450,000 shares of our common stock to the shareholders of DNA
Sciences, Inc. in exchange for all of their shares of DNA Sciences, Inc. The
shareholders of DNA Sciences, Inc. also have the ability to nominate one
director to our Board of Directors and have nominated Eric Wilkinson to the
Board. On February 14, 2000, DNA Sciences, Inc.'s name was changed to Genetic
Vectors of California, Inc.
Founded in 1999, DNA Sciences, Inc. was a development stage
biotechnology company that intended to specialize in the development of genetic
systems for medical and industrial markets. DNA Sciences, Inc.'s initial target
market was the DNA probe market, which includes tissue typing, infections
disease detection and quantification and genetic predispostion testing.
Acquisitions, including the acquisition of Genetic Vectors of
California, involve a number of risks that could adversely affect our operating
results, including: (i) the diversion of management's attention; (ii) the
difficulty of assimilation of the operations and personnel of the acquired
companies; (iii) the amortization of acquired intangible assets; (iv) the
assumption of potential liabilities, disclosed or undisclosed, associated with
the businesses acquired, which may exceed the amount of indemnification
available from the seller, if any; (v) the incorrect assessment of the value and
potential profitability of acquisition candidates; (vi) the risk that the
financial and accounting systems utilized by the businesses acquired will not
meet our standards; and (vii) the inability to attract and retain qualified
local management. There can be no assurance that we will be able to consummate
any future acquisitions on satisfactory terms, if at all, that adequate
financing will be available on terms acceptable to us, that any acquired
operations, including the acquisition of Genetic Vectors of California, will be
successfully integrated or that such operations will ultimately have a positive
impact on our business, financial condition and results of operations. Any
acquisition may result in potentially dilutive issuances of equity securities,
the incurring of debt and contingent liabilities, and amortization expense
related to intangible assets acquired, any of which could have a material
adverse effect on our business, results of operations or financial condition. In
addition, acquired businesses may experience operating losses.
COMPETITION
The biotechnology industry is subject to intense competition. Our
competitors in the United States and internationally are numerous and include,
among others, diagnostics, health care, pharmaceutical and biotechnology
companies, universities and other research institutions, the United
25
States-funded Human Genome Project and other government-sponsored entities.
Additionally, other companies, including large biotechnology companies, may
enter our business in the future. Potential competitors may be able to develop
technologies that are as effective as, or more effective or easier to interpret
than those offered by us, which would render our products noncompetitive or
obsolete. Moreover, many of our existing and potential competitors have
substantially greater financial, marketing, sales, distribution and
technological resources than us. Such existing and potential competitors may
also enjoy substantial advantages over us in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and distribution channels. There can be no assurance that we will be
able to compete successfully against current or future competitors or that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
One area of our business lies in the labeling and detection of nucleic
acids using our technology. The market that we intend to serve includes tests
for quality control of biopharmaceutical drug production. In addition, we intend
to market our products to the life science research community. These diverse
markets result in a wide variety of competitive situations.
Research in the field of disease predisposing genes, genetic markers
and microbial identification is intense and highly competitive. Genetic research
is characterized by rapid technological change. Our competitors in the United
States and abroad are numerous and include, among others, major pharmaceutical
and diagnostic companies, specialized biotechnology firms, universities and
other research institutions (including those receiving funding from the Human
Genome Project). Many of our potential competitors have considerably greater
financial, technical, marketing and other resources than us. These greater
resources may allow our competitors to discover important genes or genetic
markers before us. If we do not discover disease predisposing genes or genetic
markers associated with increased disease severity, characterize their function,
develop susceptibility tests and related information services based on such
discoveries, obtain regulatory and other approvals, if needed, and launch such
services or products before competitors, then our revenues and earnings will be
reduced or eliminated. In addition, any of the susceptibility tests that we may
develop, including our EasyID products could be made obsolete by less expensive
or more effective tests or methods that may be developed in the future. We
expect competition to intensify in our industry as technical advances are made
and become more widely known.
DNA CONTAMINATION ASSAYS IN BIOPHARMACEUTICALS. Several companies are
currently involved in making or selling trace DNA detection reagents or
equipment, or performing assays. In this market there are two types of
competitors: (1) instrument and reagent sellers and (2) specialty reference
laboratories. We believe that the largest competitive element in the current
market is specialty reference laboratories. These reference laboratories offer
DNA assaying at their own facilities based on their own individually developed
assays. While clearly competitors, we believe that these facilities also
represent potential customers for our products.
NUCLEIC ACID LABELING AND DNA DETECTION KITS. The market served by
nucleic acid labeling and detection reagents is the molecular biology research
market. There are at least 50 companies that are primarily identified with this
market. Of these, several offer nucleic acid labeling and detection kits. In the
DNA detection area, we know of several vendors that provide reagents for
detecting DNA.
We believe that our products will lend themselves to low cost
manufacturing of DNA labeling and detection products on a large-scale basis. We
also believe our technology can be used to produce reagents and test kits at a
quality equivalent to or better than our direct competitors. There can be no
assurance that this large-scale development or quality level will occur.
GOVERNMENTAL REGULATION
We may, in the future, endeavor to partner with pharmaceutical
companies in the area of drug development. Any drug products developed by us or
our future collaborative partners, prior to marketing in the United States,
would be required to undergo an extensive regulatory approval process by the
FDA. The regulatory process, which includes preclinical testing and clinical
trials of each therapeutic product in order to establish its safety and
efficacy, can take many years and requires the expenditure of substantial
resources. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations that could delay, limit or prevent
regulatory agency approval. In addition, delays or rejections may be encountered
during the period of therapeutic development, including delays during the period
26
of review of any application. Delays in obtaining regulatory approvals could
adversely affect the marketing of any therapeutics developed by us or our
collaborative partners, impose costly procedures upon us and our collaborative
partners' activities, diminish any competitive advantages that we or our
collaborative partners may attain and adversely affect our ability to receive
royalties. Once regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which it may be marketed. Further,
even if such regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. The discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturer. Such restriction could include withdrawal of the
product from the market.
EMPLOYEES
We have ten employees, three of whom are executive officers and all of
whom are full-time employees. None of our employees are covered by a collective
bargaining agreement and we believe our employee relations are satisfactory.
PROPERTIES
We currently lease approximatley 14,000 square feet of office and
laboratory space located at 5201 N.W. 77th Avenue, Suite 100, Miami, Florida
33166. This lease, which was entered into on June 12, 1997, has a ten year term
and the property is in good condition. Effective June 30, 2000, we no longer
lease space in California.
INSURANCE
We maintain product liability insurance for some of our products with
limits of $1 million per occurrence and $2 million in the aggregate per year. We
also maintain key man life insurance policies of $1 million each on Mead McCabe,
Sr. We intend to obtain key man life insurance policies on Mead M. McCabe, Jr.
and Eric Wilkinson.
LEGAL PROCEEDINGS
We are not involved in any legal proceedings.
INTELLECTUAL PROPERTY RIGHTS
We have acquired rights to make, use and sell certain products under
the patents referred to herein pursuant to a License Agreement dated September
7, 1990 (the "License Agreement") between ProVec, Inc., a company owned by Dr.
Mead McCabe, and the University of Miami and its School of Medicine, the owner
of the patents and patent applications. The University of Miami acquired the
rights by virtue of an employee agreement and the University Patent Policy.
Parts of the invention were made using funds of the United States Government. On
January 20, 1992, ProVec assigned its rights under the License Agreement to
EpiDNA, Inc., a wholly owned subsidiary of ours. EpiDNA merged into us on
September 6, 1996.
The license granted under the License Agreement is worldwide and
exclusive (except for the rights of the Federal Government) providing us with
the right to manufacture, use and sell products utilizing the patents and patent
applications referred to herein. We have the obligation, at our own expense, to
prosecute and maintain patents in the name of or on behalf of the University of
Miami. Further, we are obligated to maintain product liability insurance, with
the University of Miami being named as an additional insured. The License
Agreement provides for payment of a maintenance fee of $500 and a running
royalty of 4% of net sales of products using the technology. The maintenance fee
is creditable against royalties subsequently due in a given year. The term of
the License Agreement is the life of the U.S. patent and/or our foreign
counterpart patents. The patent expires on July 22, 2013. The License Agreement
can be terminated by the University of Miami for material breaches by us.
Primary among such breaches are failure to file quarterly reports of sales,
nonpayment of royalties, failure to develop and sell products based on the
technology, cessation of sales for a period of three months and bankruptcy or
adjudication of insolvency. A two-month cure period is provided for correction
of breaches. If the License Agreement is terminated by the University of Miami,
the ownership of the patents and patent applications and all rights to develop,
manufacture and sell products under the patents and patent applications will
revert to the University of Miami and we will be unable to produce, market or
sell products whose manufacture, use or sale is covered by the claims of the
patents and patent applications referred to herein. Thus, we would suffer a
material adverse effect on our business, financial condition and viability if
the University of Miami terminated the License Agreement.
27
Since the patents and patent applications referred to herein were made,
in part, using federal funds provided by a federal agency, the National
Institute of Health (the "NIH") has a nonexclusive, nontransferable,
irrevocable, paid-up worldwide license to practice the invention (35 U.S.C. 202
(c)(4)). Under this nonexclusive license, the NIH can use the technology in
federally-funded projects or it can, if provided in a treaty or agreement,
sublicense the technology to a foreign government or international organization.
The NIH also has certain rights (35 U.S.C. 203) allowing it to grant licenses to
third parties if it is determined that practical application of the invention is
not occurring, even exclusive licenses, as well as march-in rights to meet unmet
health or safety needs, to meet requirements for public use specified in federal
regulations or for failure to manufacture in the United States or to obtain a
waiver of such provisions. The grant of an exclusive license or the exercise of
the march-in rights would cause us to suffer a material adverse effect on our
business, financial condition and viability. As described herein, we have
already developed products based on the technology and intend to continue the
commercialization of the technology.
At our expense, we applied on behalf of the University of Miami for
patent protection for part of the technology in the United States and other
countries. Patents have issued from the United States (Patent Numbers 5,593,829
and 5,656,742), New Zealand (246228G), Australia (671970G), EPO (0625985,
patents in 15 countries) and Germany (69220383).
We filed the Utility Patent Application "Method of Protein Removal"
with the United States Patent and Trademark Office on December 9, 1999, and a
PCT application of the same title on December 10, 1999, claiming a DNA
extraction method solely invented by us. We believe this method, sold under the
trademark DNAMax, is unique in its ability to recover trace amounts of DNA from
protein solutions in a form that can be measured with our EpiDNA Picogram Assay
or amplified with the polymerase chain reaction ("PCR").
RESEARCH AND DEVELOPMENT AGREEMENTS
We entered into a Research and Development Agreement with the
University of Miami on October 14, 1997. Under the agreement, the University
provides scientific expertise in the identification of yeast and conducts
sequencing of yeast genes for the development of sequence databases for the
identification of pathogenic yeast and yeast of commercial interest. We pay
$17,410 per month under this agreement to the University to provide salaries for
scientists and supplies for this work. The University provides sequencing
equipment and laboratory facilities. The terms of the agreement provide that
inventions that are jointly invented are jointly owned, while those invented
solely by the University or solely by us are owned by the inventing party. Under
the agreement, we have the right, at our expense, to file patents on inventions
jointly invented or invented solely by the University. We filed a Provisional
Patent Application, "Method of Identifying Pathogenic Yeast," on September 29,
1999 describing a gene sequence database and a method, based on DNA probes and
primers, for the identification of the pathogen Cryptococcus neoformans and its
genotypes. We have the right of first refusal on any licensing agreement for 180
days after the filing of a Utility Patent Application. We filed a Utility Patent
Application with the U.S. Patent and Trademark Office and a PCT Application
covering the invention described in the Provisional Patent Application "Method
of Identifying Pathogenic Yeast".
We entered into a three-year Cooperative Research and Development
Agreement ("CRADA") with the Agricultural Research Services of the United States
Department of Agriculture (the "ARS") on June 1, 1998 (R&D Agreement No.
58-3K95-8-643, "Development of Arrayed Probes for Rapid Identification of
Yeast"). The ARS will provide expertise in the identification of yeast, provide
access to an existing database, sequence genes of yeast to construct new
sequence databases for the identification of pathogenic yeast and yeast of
commercial interest, and test and evaluate our products for yeast
identification. We are paying to the ARS $192,775 over the 3-year term of the
CRADA for a technician, supplies and a maintenance contract on the DNA
sequencer, in support of this sequencing effort. Under the terms of the CRADA,
we provide expertise on arrayed probe development, synthesis of probes and
detection of probes, and we agree to develop, market and sell or otherwise
commercialize products developed from the technology discovered. We agree to pay
the ARS a royalty of 2% of net sales of these products. The inventing party owns
inventions made solely by us or solely by the ARS and joint inventions are owned
jointly. The ARS is granted a royalty-free, nonexclusive, worldwide,
irrevocable, nontransferable license on any subject invention solely owned by
us. The ARS has first option to prepare and prosecute patent applications on
subject inventions solely owned by ARS or jointly owned with us. This option may
be waived in whole or in part. We have the right of first refusal to an
exclusive license in subject inventions owned or co-owned by the ARS. We shall
own copyrightable material that we produce in whole or in part. We granted the
ARS a worldwide royalty-free and nonexclusive license to use such copyrightable
work for U.S. Government purposes.
28
We believe this CRADA, in combination with the agreement with the
University of Miami, provides us with world-class scientific expertise in yeast,
as well as the ability to develop sequence databases and products for the
identification of pathogenic yeast and yeast of commercial importance.
During 1999 and 1998, we spent $566,000 and $985,000, respectively, for
research and development activities.
29
MANAGEMENT
The following table sets forth certain information regarding our
directors and officers:
Our present directors and executive officers are as follows:
NAME AGE POSITION
---- --- --------
Mead M. McCabe, Sr., Ph.D. ................ 63 Chairman of the Board of Directors
Mead M. McCabe, Jr. ....................... 34 CEO, Secretary, Chief Financial Officer and
Director
Eric Wilkinson............................. 41 President and Director
Mark E. Burroughs ......................... 43 Director
Jack W. Fell, Ph.D. ....................... 67 Director
Michael C. Foley........................... 56 Director
The following is a brief description of the background of the officers
and directors of our company.
MEAD M. MCCABE, SR., PH.D. is the founder of our company and the
inventor of the EpiDNA technology. Dr. McCabe is the Chairman of the Board of
Directors of our company. He holds a B.S. in Zoology from Pennsylvania State
University and a Ph.D. in Biology from the University of Miami. From 1972 to
1999, he was on the faculty of the University of Miami School of Medicine. Dr.
McCabe's research interests center on the molecular mechanisms of microbial
diseases and he has taught courses in molecular pathogenesis. Dr. McCabe served
four years on the Oral Biology and Medicine Study Section at the National
Institutes of Health and has consulted for the NIH on numerous other occasions
since 1976. He has been awarded several NIH research grants, including a
S.B.I.R. Phase I grant. Dr. McCabe has been Chairman since our inception. Dr.
McCabe is the father of Mead M. McCabe, Jr.
MEAD M. MCCABE, JR. is the Chief Executive Officer, Chief Financial
Officer and Secretary of our company and is responsible for the execution of our
company's corporate strategy. Mr. McCabe has a B.S. in International Business
from Auburn University and a dual M.B.A. in both Finance and International
Business from the University of Miami. Mr. McCabe joined us in September 1993.
Prior to that, Mr. McCabe was a financial consultant with Merrill Lynch for two
years. Mr. McCabe is the son of Dr. McCabe. Mr. McCabe became a director on
October 16, 1993.
ERIC WILKINSON has been the President of our company and President of
our wholly-owned subsidiary, Genetic Vectors of California, Inc. since January
17, 2000. Mr. Wilkinson is responsible for our company's daily operations,
including business development, sales and marketing and manufacturing. Mr.
Wilkinson became a director on January 18, 2000. He served as the President of
DNA Sciences, Inc. since its inception in March 1997. Between December 1995 and
February 1997, Mr. Wilkinson was President of Immune Complex Corporation, a
biotechnology company specializing in DNA diagnostics, drug metabolism, and
immunodiagnostics. Between June 1996 and February 1997, Mr. Wilkinson served as
Director of Chemistry with Synthetic Genetics, a biotechnology company involved
in the development of DNA diagnostic kits. Mr. Wilkinson received a B.S. in
Biology from the University of California in San Diego in 1982 and has served in
senior management and product development positions in several biotechnology
companies.
MARK E. BURROUGHS has served as a director since March 1995. He is
currently a principal of Burroughs Properties, L.L.C., a full service real
estate development, brokerage and asset management concern. He has been the
Managing Partner/Broker-In-Charge of Diversified Holdings International, Inc.,
an investment and venture capital firm with primary holdings in real estate,
management consulting, computer software and wine making since 1984. From 1988
to 1991 Mr. Burroughs also represented Stiles Corporation/Tribune Company Joint
Venture as Owner's Representative/Senior Development Manager, managing the
development of the New River Center in Fort Lauderdale, Florida. He also served
from 1980 to 1983 as Vice President and Project Manager of Cheezem Development
Corp., a publicly held real estate development and asset management company.
30
JACK W. FELL, PH.D. has served as a director since February 1997. He is
currently a professor of Microbiology at the University of Miami's Rosenstiel
School of Marine and Atmospheric Science and has served in that capacity since
1977. Dr. Fell has a B.S. in Biology from Northwestern University, an M.S. in
Marine Biology from the University of Miami's Institute of Marine Science, a
Ph.D. in Microbiology from the University of Miami's School of Medicine and
Institute of Marine Science and a post-doctorate in Microbiology from the
University of California, Davis.
MICHAEL C. FOLEY has served as a director since January 1998. He is
currently a Senior Vice President and Director of Janney Montgomery Scott, Inc.,
an investment banking firm, where he has been employed since 1994. Prior to
these positions he served as President and Chief Executive Officer of Foley
Mufson Howe & Company, an investment banking firm, from 1992 to 1994. Mr. Foley
has worked in the securities industry for over twenty-five years. He is past
Chairman of the Securities Industry Association's Mid-Atlantic Division and past
President of the Bond Club of Philadelphia. Mr. Foley has a B.S. in Mechanical
Engineering from Villanova University and received a Masters Degree in Business
Administration from the University of Pittsburgh.
RESIGNATIONS OF DIRECTORS. Allyn L. Goulb and James A. Joyce resigned
from our Board of Directors on December 4, 1998 and March 5, 1999, respectively.
We have filled one of these vacancies by nominating Eric Wilkinson. The
remaining vacancy has not been filled.
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS. Our executive officers
are elected annually by the Board of Directors and serve at the discretion of
the Board of Directors. Our directors are elected by the shareholders of our
company and hold office until the first annual meeting of shareholders following
their election or appointment and until their successors have been duly elected
and qualified. We have never held a shareholder meeting.
PRIOR UNDERWRITER. Pursuant to an agreement with the underwriter that
managed our initial public offering, we have agreed that this underwriter may
designate one member of the Board of Directors. The underwriter has chosen not
to designate director since its previous designee, James Joyce, resigned on
March 5, 1999 to pursue other interests. The underwriter's designee's service on
the Board of Directors will be subject to the approval of the holders of a
majority of the outstanding shares of our common stock.
In connection with our acquisition of DNA Sciences, the former
shareholders of DNA Sciences are entitled to nominate one director to our Board
of Directors. This person is Eric Wilkinson.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to authority conferred by applicable Florida law, our Articles
of Incorporation and By-laws provide that our directors, officers, and employees
be indemnified to the fullest extent permitted by Florida law.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We are aware of the following instances between January 1, 1999 and
August 18, 2000, when an executive officer, director or owner of more than ten
percent of the outstanding shares of common stock failed to comply with
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934:
o Mr. McCabe, Jr. failed to timely file a Form 4 in connection with
the grant on July 1, 1999 of options to purchase up to 10,000 shares of our
common stock.
o Mr. McCabe, Sr. failed to timely file a Form 4 in connection with
the grant on July 1, 1999 of options to purchase up to 10,000 shares of our
common stock.
o Mr. Wilkinson failed to timely file a Form 3 in connection with
his receipt of 135,000 shares of our common stock on January 17, 2000, as well
as the grant of options to purchase up to 75,000 shares of common stock.
o Orbiter Fund, Ltd. failed to timely file a Schedule 13D and, if
required, Form 3 in connection with its purchase of 130,000 shares of common
stock and warrants to purchase 250,000 shares of common stock. In addition, and
upon certain events, Orbiter Fund will receive warrants to purchase 575,000
shares of common stock at $3.00 per share.
31
o Lancer Partners failed to timely file a Schedule 13D and Form 3
in connection with its purchase of 525,000 shares of common stock.
o Jim Kelly failed to timely file a Schedule 13D and, if required,
Form 3 in connection with his purchase of 100,000 shares of common stock and
$600,000 of debt convertible into 200,000 shares of common stock at a price of
$3.00 per share. In addition, upon conversion Jim Kelly would receive warrants
to purchase 399,996 shares of common stock, of which 199,998 are exercisable at
$6.00 per share and 199,998 are exercisable at $7.10 per share.
o Capital Research failed to timely file a Schedule 13D and,
if required, Form 3 in connection with its purchase of 150,000 shares of common
stock. In addition, and upon certain events, Capital Research will receive
warrants to purchase 200,000 shares of common stock, of which 150,000 have an
exercise price of $5.50 per share and 50,000 have an exercise price of $1.50 per
share.
COMMITTEES OF THE BOARD OF DIRECTORS
Mark Burroughs serves as the sole member of the Audit Committee. The
functions of the Audit Committee are to: (1) recommend annually to our Board of
Directors the appointment of our independent auditors, (2) discuss and review,
in advance, the scope and the fees of the annual audit and review the results
thereof with the independent auditors, (3) review and approve non-audit services
of the independent auditors, (4) review compliance with our existing major
accounting and financial reporting policies, (5) review the adequacy of our
financial organization, and (6) review management's procedures and policies
relating to the adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices.
Mark Burroughs serves as the sole member of our Compensation and Stock
Option Committee (the "Compensation Committee"), which is responsible for making
recommendations to our Board of Directors regarding compensation arrangements
for our officers and for making recommendations to our Board of Directors
regarding the adoption of any employee benefit plans and the grant of stock
options or other benefits under such plans.
DIRECTOR COMPENSATION
Non-employee directors receive $500 plus expenses for attendance at
Board of Director meetings in person and by telephone. Directors are reimbursed
for all out-of-pocket expenses incurred in attending meetings of the Board of
Directors and committees thereof. In addition, on June 9, 2000, the non-employee
directors received a one-time grant of options based on the number of years of
service to our company. Mr. Burroughs, Mr. Fell and Mr. Foley received 17,500,
12,500 and 10,000 options, respectively. These options are exercisable for ten
years at an exercise price of $6.03 per share.
Our 1996 Incentive Plan (the "1996 Incentive Plan") provides that
directors who are not employees are automatically granted an option to purchase
5,000 shares of our common stock in connection with their appointment to the
Board of Directors. Such options will vest after one year of service on the
Board of Directors. The options granted to non-employee directors (Mr. Burroughs
and Dr. Fell) have an exercise price of $12.00 per share (120% of the offering
price in our IPO). Options to purchase 5,000 shares of common stock were granted
to Mr. Michael Foley on January 12, 1998 (the date he joined the Board of
Directors) at an exercise price of $7.75. Options granted in the future under
the 1996 Incentive Plan will be priced at no less than 100% of the common
stock's fair market value on the date of the grant. Options granted to
non-employee directors will be non-statutory options and will become exercisable
after one year of service on the Board and will be exercisable for ten years
from the date of the grant, except that options exercisable at the time of a
director's death may be exercised for twelve months thereafter. Under the terms
of the 1996 Incentive Plan, neither the Board of Directors nor any committee of
the Board of Directors will have any discretion with respect to options granted
to directors.
SCIENTIFIC ADVISORY BOARD
Our company has recently formed a Scientific Advisory Board to advise
us on scientific matters. Our Scientific Advisory Board intends to meet
periodically to review specific projects with those members who are experts in
certain subjects, including microbiology, metabalomics, bioinformatics, DNA
diagnostics and molecular biology. Our Scientific Advisory Board currently is
composed of the following individuals:
32
DANIEL J. COOK, PH.D. is the Director of Allogen Laboratories, a
wholly-owned subsidiary of the Cleveland Clinic Foundation responsible for
tissue typing for the tranplantation program. Dr. Cook received his Ph.D. from
the University of Florida and completed his post doctoral studies at UCLA with
Dr. Paul Terasaki. He has served on the Board of Directors of the American
Society of Histocompatibility and Immunogenetics, the United Network for Organ
Sharing, and the National Marrow Donor Program.
JACK W. FELL, PH.D. has served as a director since February 1997. He is
currently a professor of Microbiology at the University of Miami's Rosenstiel
School of Marine and Atmospheric Science and has served in that capacity since
1977. Dr. Fell has a B.S. in Biology from Northwestern University, an M.S. in
Marine Biology from the University of Miami's Institute of Marine Science, a
Ph.D. in Microbiology from the University of Miami's School of Medicine and
Institute of Marine Science and a post-doctorate in Microbiology from the
University of California, Davis.
LUC D'AURIOL, PH. D. is currently the Chief Executive Officer of
Metabolic Explorer, a company involved in metabalomics and bioinformatics. Prior
to that Dr. D'auriol was the Chief Scientific Officer and a founder of Genset, a
French genomics company. He has also worked as a consultant to the French Genome
Project. Dr. D'auriol received his Ph.D. from the University of Paris in 1977.
KJERSTI RONNINGEN, PH.D. currently serves as the Director of the
Norwegian Newborn Cohort. She is a Senior Scientist/Senior Physician at
Folkehelsa, the Norwegian Institute of Public Health. Dr. Ronningen received her
M.D. in 1984 and her Ph.D. in 1991 from the University of Oslo. She is an expert
in HLA disease association and has served as the President of the 11th
International Workshop in the area of disease association, responsible for over
40 laboratories worldwide. In addition to her duties at the Newborn Cohort, Dr.
Ronningen is also the Director of the Juvenile Diabetes Mother and Child Study,
working closely with our company's scientific staff.
DENNIS SPRECHER, M.D. is currently the Section Head of Cardiology at
the Cleveland Clinic Foundation. In addition, he serves as Professor of Internal
Medicine at the University of Ohio. He received his M.D. from Boston University
in 1978 and completed a Fellowship in Cardiology at Duke University. Dr.
Sprecher is an expert in Lipid metabolism and is instrumental in our genetic
analysis program.
GRAHAM FLEET, PH.D. is a Professor at the University of New South
Wales, Sydney, Australia. He is an expert in food spoilage and pathogenic yeast.
1999 STOCK OPTION PLAN
OVERVIEW OF THE 1999 INCENTIVE PLAN
Incentive compensation for non-employee directors, executives and other
key employees is also provided under our 1999 Incentive Plan. The purpose of the
1999 Incentive Plan is to (a) increase the proprietary and vested interest of
our non-employee directors in the growth and performance of our company, (b)
assist in attracting and retaining highly competent employees, (c) provide an
incentive for motivating selected officers and other key employees of our
company, (d) achieve long-term corporate objectives and (e) enable cash
incentive awards to qualify as performance-based for purposes of the tax
deduction limitations under Section 162(m) of the Internal Revenue Code of 1986,
as amended.
The 1999 Incentive Plan is administered by the Compensation Committee
of the Board of Directors of our company. Eligible participants include our
non-employee directors and such officers and other key employees as the plan
administrator may designate from time to time. The 1999 Incentive Plan will
continue in effect until terminated by its terms or, if earlier, by the Board of
Directors.
ADMINISTRATION
The 1999 Incentive Plan is administered by a plan administrator, which
is currently the Compensation Committee of the Board of Directors. The plan
administrator has been granted exclusive and final authority under the 1999
Incentive Plan with respect to all determinations, interpretations and other
actions affecting the 1999 Incentive Plan and its participants.
33
SHARES SUBJECT TO THE 1999 INCENTIVE PLAN
Four hundred thousand shares of our common stock have been initially
authorized to be issued under the 1999 Incentive Plan. Such authorized shares
will be appropriately adjusted to reflect adjustments (if any) to our capital
structure. As of October 19, 2000, 318,000 options have been issued under the
1999 Plan.
1996 STOCK INCENTIVE PLAN
OVERVIEW OF THE 1996 INCENTIVE PLAN
Incentive compensation for non-employee directors, executives and other
key employees is provided under our 1996 Incentive Plan. The purpose of the 1996
Incentive Plan is to (a) increase the proprietary and vested interest of our
non-employee directors in the growth and performance of our company, (b) assist
in attracting and retaining highly competent employees, (c) provide an incentive
for motivating selected officers and other key employees of our company, (d)
achieve long-term corporate objectives and (e) enable cash incentive awards to
qualify as performance-based for purposes of the tax deduction limitations under
Section 162(m) of the Internal Revenue Code of 1986, as amended.
Eligible participants of the 1996 Incentive Plan include our
non-employee directors and such officers and other key employees as the Board of
Directors of our company may designate from time to time. The 1996 Incentive
Plan will continue in effect until terminated by its terms or, if earlier, by
the Board of Directors.
The 1996 Incentive Plan authorizes the plan administrator to grant any
or all of the following types of awards: (1) stock options, including
nonqualified stock options and incentive stock options, (2) stock appreciation
rights, (3) restricted shares of our common stock, (4) performance awards, (5)
other stock-based awards, and (6) short-term cash incentive awards.
ADMINISTRATION
The Board of Directors has been granted exclusive and final authority
under the 1996 Incentive Plan with respect to all determinations,
interpretations and other actions affecting the 1996 Incentive Plan and its
participants.
SHARES SUBJECT TO THE 1996 INCENTIVE PLAN
Three hundred thousand shares of our common stock have been authorized
to be issued under the 1996 Incentive Plan. Such authorized shares will be
appropriately adjusted to reflect adjustments (if any) to our capital structure.
As of October 19, 2000, 260,029 options have been issued under the 1996 Plan.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by us, as well
as certain other compensation paid or accrued, during the fiscal years ended
December 31, 1999, 1998 and 1997 to Mead M. McCabe, Sr., Ph.D., Chairman of our
company, and to Mead McCabe, Jr., CEO and Secretary of our company. No
restricted stock awards, long-term incentive plan payouts or other types of
compensation, other than the compensation identified in the chart below, were
paid to Dr. McCabe or Mr. McCabe during fiscal years 1999, 1998 and 1997. No
other executive officer earned a total annual salary and bonus for any of these
years in excess of $100,000. The summary compensation table that follows
includes all payments to Dr. McCabe and Mr. McCabe for fiscal years 1999, 1998
and 1997.
34
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Restricted
Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation(1) Award(s) SARs(2) Payouts Compensation
------ ----- --------------- -------- ------- ------- ------------
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- --- ---
Mead M. McCabe, Sr., 1999 $146,129 -0- $6,000 -0- 10,000 -0- -0-
Ph.D., Chairman of the 1998 $125,000 -0- -0- -0- -0- -0- -0-
Board of Directors 1997 $125,000 -0- -0- -0- -0- -0-
Mead M. McCabe, Jr., 1999 $126,692 -0- $5,250 -0- 10,000 -0- -0-
CEO, CFO and Secretary 1998 $73,558 -0- -0- -0- -0- -0- -0-
1997 $75,866 -0- -0- -0- -0- -0- -0-
- ---------------------------------
(1) This other annual compensation represents a $750 per month automobile allowance.
(2) These options were granted on July 1, 1999, and have an exercise price of $5.75 per share. These options are fully vested.
All of these grants are for options to purchase our common stock. No SAR's were granted.
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SAR'S AT FISCAL OPTIONS/SAR'S AT FISCAL
NAME EXERCISE REALIZED ($) YEAR END YEAR END
- -----------------------------------------------------------------------------------------------------------------------------------
Mead M. McCabe, Sr. -0- -0- Exercisable: 110,000 -0-
Mead M. McCabe, Jr. -0- -0- Exercisable: 85,000 -0-
- ---------------------------------
(1) These grants represent options to purchase common stock. No SAR's have been granted.
(2) None of these options were in-the-money as of December 31, 1999.
On June 9, 2000, we granted the following options under our 1999 Stock
Option Plan:
o To Mead M. McCabe, Sr., the Chairman of our company, options to
purchase up to 100,000 shares of common stock at an exercise price of
$6.03125 per share. These options vest one-third immediately and
one-third on each of the second and third anniversaries of Dr.
McCabe's 1999 employment agreement. These options may be exercised
within ten years of the date of grant.
o To Mead M. McCabe, Jr., the Chief Executive Officer of our company,
options to purchase up to 100,000 shares of common stock at an
exercise price of $6.03125 per share. These options vest one-third
immediately and one-third on each of the second and third
anniversaries of Mr. McCabe's 1999 employment agreement. These options
may be exercised within ten years of the date of grant.
o To Mark Burroughs, a director of our company, options to purchase
17,500 shares of common stock at an exercise price of $6.03125 per
share. 12,500 of these options vest immediately and 5,000 vest in
March 2001. These options may be exercised within ten years of the
date of grant.
o To Jack Fell, a director of our company, options to purchase 12,500
shares of common stock at an exercise price of $6.03125 per share.
7,500 of these options vest immediately and 5,000 vest in March 2001.
These options may be exercised within ten years of the date of grant.
35
o To Michael Foley, a director of our company, options to purchase
10,000 shares of common stock at an exercise price of $6.03125 per
share. 5,000 of these options vest immediately and 5,000 vest in
January 2001. These options may be exercised within ten years of the
date of grant.
On January 17, 2000, we granted the following options under our 1999 Stock
Option Plan:
o To Eric Wilkinson, options to purchase up to 75,000 shares of common
stock at an exercise price of $7.25 per share. These options vest
one-third in one year, one-third in two years and one-third in three
years. These options may be exercised within ten years of the date of
grant.
Employment Agreements
Effective July 1, 1999, our company and Mead M. McCabe, Jr. entered
into a new employment agreement pursuant to which Mr. McCabe will serve as the
Chief Executive Officer. The agreement has a three year term and pays Mr. McCabe
a base salary of $125,000, plus annual cost of living adjustments and other
increases to be determined by the Board of Directors. Mr. McCabe also receives a
monthly automobile allowance of $750. Mr. McCabe was granted options to purchase
10,000 shares of common stock at an exercise price of $5.75 per share. These
options are immediately exercisable. In addition, Mr. McCabe is entitled to an
annual bonus in an amount to be determined by the Board of Directors. The
agreement further provides that Mr. McCabe will devote his full working time and
efforts to the business and affairs of our company. The agreement also provides
that upon termination of employment without "cause" or termination by the
executive for "good reason" (which includes a change of control), the executive
is entitled to receive, in addition to all accrued or earned but unpaid salary,
bonus or benefits, an amount equal to two times the compensation such executive
would be entitled to receive in the then current fiscal year, including base
salary and incentive bonus compensation. For the purposes of the employment
agreement, the amount of incentive bonus compensation such executive would be
entitled to receive in the then current fiscal year is equal to the largest
amount accrued for any of the two most recently completed fiscal years. The
agreement also provides that the executive will not compete with us during his
employment and for one year thereafter.
Effective July 1, 1999, our company and Mead M. McCabe, Sr. entered
into a new employment agreement pursuant to which Dr. McCabe will serve as the
Chairman of the Board of Directors. The agreement has a three year term and pays
Dr. McCabe a base salary of $132,750, plus annual cost of living adjustments and
other increases to be determined by the Board of Directors. Dr. McCabe also
receives a monthly automobile allowance of $750. Dr. McCabe was granted options
to purchase 10,000 shares of common stock at an exercise price of $5.75 per
share. These options are immediately exercisable. In addition, Dr. McCabe is
entitled to an annual bonus in an amount to be determined by the Board of
Directors. The agreement further provides that Dr. McCabe will devote his full
working time and efforts to the business and affairs of our company. The
agreement also provides that upon termination of employment without "cause" or
termination by the executive for "good reason" (which includes a change of
control), the executive is entitled to receive, in addition to all accrued or
earned but unpaid salary, bonus or benefits, an amount equal to two times the
compensation such executive would be entitled to receive in the then current
fiscal year, including base salary and incentive bonus compensation. For the
purposes of the employment agreement, the amount of incentive bonus compensation
such executive would be entitled to receive in the then current fiscal year is
equal to the largest amount accrued for any of the two most recently completed
fiscal years. The agreement also provides that the executive will not compete
with us during his employment and for one year thereafter.
Effective January 17, 2000, our company and Eric Wilkinson entered into
an employment agreement pursuant to which Mr. Wilkinson will serve as the
President of our company and our wholly-owned subsidiary, Genetic Vectors of
California, Inc. The agreement has a two-year term that may be renewed on its
then-current terms by us for subsequent one year extension terms. Mr.
Wilkinson's base salary is $125,000 per year, plus a bonus as determined by the
Board of Directors. Mr. Wilkinson also received options to purchase up to 75,000
shares at an exercise price of $7.25 per share. The agreement requires Mr.
Wilkinson to devote his full working time and efforts to our company. Mr.
Wilkinson has agreed not to compete with us during his employment and for two
years thereafter.
36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement with the University of Miami, our company has
agreed to pay approximately $44,000 of Dr. Fell's, a director of our company,
salary as an employee of the University of Miami. In exchange, Dr. Fell devotes
approximately one-half of his business time to research and development efforts
on behalf of our company.
On January 17, 2000, we acquired all of the outstanding capital stock
of DNA Sciences, Inc., a California corporation. In consideration for the shares
of DNA Sciences, we issued the former shareholders of DNA Sciences, Inc. a total
450,000 shares of our common stock. Eric Wilkinson was one of the former
shareholders of DNA Sciences, Inc. After the acquisition, Mr. Wilkinson became
the President and a Director of our company.
37
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock has historically been quoted on the OTC Bulletin Board
under the symbol "GVEC." Our common stock was no longer eligible for such
quotation as of March 31, 2000 because we were delinquent in filing certain
reports under the Securities Exchange Act of 1934, as amended. Our common stock
is currently quoted on the "pink sheets." The following tables show the high and
low closing bid prices for our common stock for each quarter within the last two
fiscal years and for the first and second calendar quarters in 2000.(1) Our last
trade on the pink sheets occurred on October 13, 2000, was $7.50.
Bid Price Per Share(2)
----------------------
High Low
---- ---
First Quarter 1998 $ 8.75 $ 7.00
Second Quarter 1998 $ 9.88 $ 8.75
Third Quarter 1998 $ 9.95 $ 7.50
Fourth Quarter 1998 $ 8.50 $ 3.50
Bid Price Per Share(2)
----------------------
High Low
---- ---
First Quarter 1999 $ 6.75 $ 4.75
Second Quarter 1999 $ 6.75 $ 5.50
Third Quarter 1999 $ 5.75 $ 4.50
Fourth Quarter 1999 $ 6.00 $ 5.03
Bid Price Per Share(2)
----------------------
High Low
---- ---
First Quarter 2000 $ 7.50 $ 5.50
Second Quarter 2000 $ 6.06 $ 5.00
Third Quarter 2000 $ 7.00 $ 5.00
---------------------------
(1) This information represents prices obtained from the OTC Bulletin
Board and pink sheets, as applicable.
(2) We believe that these quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not
represent actual transactions.
HOLDERS OF COMMON STOCK
As of October 19, 2000, there were approximately 400 holders of
record of the Common Stock.
DIVIDENDS
Our company has not paid any dividends on its common stock at any time.
Section 607.06401 of Florida Statutes prohibits the payment of dividends by any
corporation that, after taking into account such dividend, would not be able to
pay its debts as they become due or which would result in such corporation's
total assets being less than its total liabilities. This provision may prohibit
us from paying dividends unless we obtain significant new capital. Other than
the foregoing, we are not aware of any restrictions on our ability to pay
dividends on our common stock, but our company's management does not anticipate
paying any dividends for the foreseeable future.
38
PRINCIPAL SHAREHOLDERS
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of October 19, 2000, information
with respect to the beneficial ownership of our common stock by (i) persons
known by us to beneficially own more than five percent of the outstanding
shares, (ii) each director, (iii) each executive officer and (iv) all directors
and executive officers as a group.
Common Stock
Beneficially Owned (1), (2)
-----------------------------------------
Name/Address Number Percent
- ------------ ------------------- --------------------
Mead M. McCabe, Sr. ............................ 295,166(2) 7.6%(2)
12901 SW 63rd Ct.
Miami, Florida 33156
Mead M. McCabe, Jr.............................. 230,293(2) 6.0%(2)
5201 N.W. 77th Avenue
Suite 100
Miami, Florida 33133
Jack W. Fell, Jr., Ph.D. ....................... 12,500(1),(5) *
University of Miami-RSMAS
4600 Rickenbacker Causeway
Key Biscayne, Florida 33149
Michael C. Foley 10,000(1),(5) *
5201 N.W. 77th Avenue
Suite 100
Miami, Florida 33133
Mark E. Burroughs............................... 17,500(1),(5) *
7440 Six Forks Road, Suite 16
Raleigh, North Carolina 27615
Eric Wilkinson.................................. 135,000(6) 3.6%(1)
5201 N.W. 77th Avenue, Suite 100
Miami, Florida 33133
All directors and executive officers 700,459 19.7%
as a group (4)(5) ..............................
Nyer Medical Group.............................. 853,048(2),(3) 22.9%(2),(3)
1292 Hammond St.
Bangor, ME 04401
Capital Research, Ltd........................... 150,000(7) 4.0%
27241 Pasco Peregrino
San Juan Capistrano, California 92675-5041
Orbiter Fund, Ltd............................... 380,000(8) 9.6%
375 Park Avenue, 20th Floor
New York, New York 10152
39
Common Stock
Beneficially Owned (1), (2)
-----------------------------------------
Name/Address Number Percent
- ------------ ------------------- --------------------
Lancer Partners................................. 525,000 14.1%
375 Park Avenue, 20th Floor
New York, New York 10152
Jim Kelly....................................... 340,000(9) 9.1%
111 Veterans Square
Media, Pennsylvania 19063
- ----------------------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 3,732,843 shares of common
stock outstanding as of October 19, 2000 together with applicable options
for each shareholder. Beneficial ownership is determined in accordance with
the rules of the Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
that are currently exercisable or exercisable within 60 days of October 19,
2000 are deemed to be beneficially owned by the person holding such options
for the purpose of computing the percentage of ownership of such person,
but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. The common stock is the only
outstanding class of equity securities of our company.
(2) Mr. McCabe, Sr. and his wife, Marigrace McCabe, hold most of these shares
jointly. Pursuant to a five-year letter agreement dated March 25, 1996,
Nyer Medical agreed to vote the shares of common stock held by it to elect
one member of the Board of Directors designated by Nyer Medical and the
remaining members of the Board of Directors as designated by Dr. McCabe,
Mrs. McCabe and Mr. McCabe. If, pursuant to this agreement, the beneficial
ownership of Nyer Medical's Common Stock is attributed to Dr. McCabe and
Mr. McCabe, they would own 1,148,214 and 1,083,341 shares of common stock,
respectively. Their ownership percentages would be 30.7% and 29.0%,
respectively. Dr. McCabe, Sr. has vested options to purchase 143,333 shares
of common stock, of which 33,333 are exercisable at $6.03125 per share,
100,000 are exercisable at $12.00 per share and 10,000 are exercisable at
$6.75 per share. Mr. McCabe, Jr. has vested options to purchase 118,333
shares of common stock, of which 33,333 are exercisable at $6.03125 per
share, 75,000 are exercisable at $12.00 per share and 10,000 are
exercisable at $6.75 per share.
(3) Includes common stock owned by Nyle International Corp. (118,333 shares)
and Mr. Samuel Nyer (10,999 shares), which are deemed to be beneficially
owned by Nyer Medical Group, which he is a principal shareholder, officer
and director. Mr. Samuel Nyer may be deemed to be the beneficial owner of
the shares of the Common Stock held by Nyer Medical.
(4) Six (6) persons
(5) Represents shares which may be acquired upon the exercise of presently
exercisable stock options.
(6) Excludes 75,000 shares of common stock held by Messrs. Wilkinson. These
options are exercisable at $7.25 per share. These options vest one-third on
each of the first, second and third anniversary of the date of the grant.
(7) Upon the repayment of outstanding loan proceeds or if $1.5 million is
subsequently raised by us, we are obligated to issue additional warrants to
purchase 200,000 shares of common stock, of which 150,000 are exercisable
at $5.50 per share and 50,000 are exercisable at $1.50 per share. See
"Sales of Unregistered Securities."
(8) Includes 130,000 shares of common stock and warrants to purchase 250,000
shares of common stock, of which 30,000 are exercisable at $0.01 per share
and 220,000 are exercisable at $1.00 per share. Upon the repayment of
outstanding loan proceeds or if $1.5 million is subsequently raised by us,
we are obligated to issue additional warrants to purchase 575,000 shares of
common stock, of which 455,000 have an exercise price of $3.00 per share
and 120,000 have an exercise price of $2.50 per share.
See "Sales of Unregistered Securities."
(9) In addition, Mr. Kelly owns $600,000 of notes convertible into shares of
common stock at a conversion price of $3.00 per share. Further, upon
exercise, Mr. Kelly would receive warrants to purchase 399,996 shares of
common stock, of which 199,998 are exercisable at $6.00 per share and
199,998 are exercisable at $7.10 per share. If no conversion occurs, then
Mr. Kelly would receive warrants to purchase 240,000 shares of common
stock, of which 120,000 are exercisable at $6.60 per share and 120,000 are
exercisable at $8.00 per share.
Nyer Medical Group, Inc., a Florida corporation ("Nyer Medical"), is a
publicly held holding company with various interests in the medical products
business. In addition to its investment in our company, its interests include
distribution of medical and rehabilitation supplies and equipment and
distribution of fire, police and rescue supplies and equipment, all primarily in
the New England area. Nyer Medical's common stock is listed and traded on the
NASDAQ SmallCap Market under the symbol "NYER."
Nyer Medical has entered into an agreement (the "Voting Agreement")
dated March 25, 1996 with Mead M. McCabe, Sr., Marigrace M. McCabe and Mead M.
McCabe, Jr., (collectively, the "McCabes"). This agreement provides among other
things, that, for a period of five years, Nyer Medical will vote its shares of
Common Stock to elect (a) one member of our company's Board of Directors
designated by Nyer Medical, and (b) all other Board of Directors nominees
designated by the McCabes. The Voting Agreement will not affect Nyer Medical's
rights to vote its shares of Common Stock in connection with other matters on
which our company's shareholders vote.
Dr. McCabe is the founder of our company and currently serves as its
Chairman. Marigrace McCabe is the wife of Dr. McCabe. Mead McCabe, Jr. is the
son of Dr. McCabe and the nephew of Mr. Foley.
40
DESCRIPTION OF SECURITIES
The authorized capital stock of our company consists of 10,000,000
shares, par value $0.001 per share, of common stock. As of October 19, 2000, we
have 3,732,843 shares of our common stock outstanding. In addition, we have (a)
outstanding indebtedness convertible into 671,667 shares of our common stock and
(b) outstanding options and warrants to purchase 578,029 and 2,677,144 shares of
common stock, respectively, including (i) warrants to purchase 775,000 shares of
our common stock to be issued upon the repayment of certain indebtedness or the
closing of this offering, (ii) warrants to purchase 1,233,294 shares of our
common stock to be issued if certain indebtedness is converted into shares of
our common stock; (iii) warrants to purchase 668,850 shares of our common stock
outstanding as of the date hereof, and (iv) options to purchase 578,029 shares
of our common stock outstanding as of the date hereof. Immediately after this
offering, assuming it is successful, our company will have an additional
1,400,000 shares of common stock outstanding, as well as an additional warrant
to purchase 140,000 shares of common stock to be issued to the Underwriter and
the over-allotment option to purchase 210,000 shares of common stock. The
following description is a summary of the capital stock of our company and
contains the material terms of our capital stock. Additional information can be
found in our Articles of Incorporation and our Bylaws, which were filed as
exhibits to our registration statement for our initial public offering.
COMMON STOCK
Each share of our common stock entitles the holder to one vote on each
matter submitted to a vote of our shareholders, including the election of
directors. There is no cumulative voting. The holders of our common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by our Board of Directors out of funds legally available therefore.
Holders of our common stock have no preemptive, conversion or other subscription
rights. There are no redemption or sinking fund provisions available to our
common stock. In the event of liquidation, dissolution or winding up our
company, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities.
CONVERTIBLE INDEBTEDNESS
In March 2000, we borrowed $175,000 in the form of convertible notes.
These loans have an annual interest rate of 12% and were due in September 2000.
The lenders have extended the due date to December 31, 2000. At the lenders'
option, these notes are convertible into shares of our common stock at a
conversion rate of $5.00 per share.
In April 2000, we borrowed $100,000 in the form of a convertible note.
This loan has an annual interest rate of 12% and was due in October 2000. The
lender has extended the due date to December 31, 2000. At the lenders' option,
this note is convertible into shares of our common stock at a conversion rate of
$5.00 per share.
In May 2000, we borrowed $600,000 in the form of convertible notes.
These loans have an annual interest rate of 12% and are due in November 2000. At
the lenders' option, these notes are convertible into shares of our common stock
at a conversion rate of $3.00 per share.
In June 2000, we borrowed $50,000 in the form of a convertible note.
This loan has an annual interest rate of 12% and is due in December 2000. At the
lenders' option, this note is convertible into shares of our common stock at a
conversion rate of $3.00 per share.
In July 2000, we borrowed $1,200,000 in the form of convertible notes.
These loans have an annual interest rate of 12% and are due in December 2000. At
the lenders' option, these notes are convertible into shares of our common stock
at a conversion rate of $3.00 per share.
41
OPTIONS
As of October 19, 2000, we have outstanding options to purchase 578,029
shares of our common, consisting of:
Number of Options Exercise Price
----------------- --------------
210,000 $12.00
2,020 10.375
7,963 8.00
75,000 7.25
20,000 6.75
243,000 6.03
20,046 5.00
PRIVATE PLACEMENT WARRANTS
We have outstanding warrants to purchase 668,850 shares of our common
stock in connection with previous private placement efforts, consisting of:
Number of Warrants Exercise Price
------------------ --------------
80,000 0.01
220,000 1.00
100,000 3.00
35,000 3.50
28,850 5.50
177,500 6.00
27,500 6.20
-----------------------
We are also obligated to issue additional warrants to purchase 775,000
shares of our common stock upon the full repayment of certain loans or our
successful consummation of a financing in an amount equal to or greater than
$1.5 million. In addition, if the holders elect to convert certain indebtedness
into shares of common stock, then we will issue warrants to purchase (a) 616,647
shares of common stock at an exercise price of $6.00 per share and (b) 616,647
shares of common stock at an exercise price of $7.10 per share. These warrants
consist of:
Number of Warrants Exercise Price
------------------ --------------
50,000 1.50
120,000 2.50
455,000 3.00
616,647* 6.00
616,647* 7.10
-----------------------
* To be issued if the holder elects to convert certain
indebtedness into shares of common stock. If the holder does not elect to so
convert, then the holders would receive warrants to purchase 370,000 shares of
common stock at an exercise price of $6.60 per share and warrants to purchase
370,000 shares of common stock at an exercise price of $8.00 per share.
REPRESENTATIVE'S WARRANT
At the closing of this offering, we will issue to the underwriter
warrants to purchase 140,000 shares of our common stock. The underwriter's
warrants will be exercisable for a four-year period commencing one year from the
date of this prospectus. The exercise price of the underwriter's warrants will
be $8.70. The underwriter's warrants will not be transferable prior to their
42
exercise date except to officers of the underwriter and members of the syndicate
and officers and partners thereof. The underwriter's warrants will contain
provisions providing adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
underwriter's warrants and the securities issuable upon their exercise may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. We have agreed that, for a period of five years from the date of
this prospectus, we intend to file a registration statement for the public sale
of securities (other than a registration statement on Form S-4, S-8 or a
comparable registration statement), we will notify all of the holders of the
underwriter's warrants and securities issued upon exercise thereof, and if so
requested, it will include therein material to permit a public offering of the
securities underlying the underwriter's warrants solely at our expense
(excluding fees and expenses of the holders' counsel any underwriting or selling
commissions). The underwriter has demand registration right for a 5-year period
after the completion of this offering. See "Underwriting."
CONVERTIBLE PROMISSORY NOTES
In connection with a private offering completed on August 1, 2000, our
company issued 50 Units of which 2 units were issued prior to June 30, 2000 for
a total of $1,250,000, consisting of a Convertible Promissory Note and the right
to receive Warrants to purchase shares of a specified amount of our company's
common stock. Each Note is due December 31, 2000. Interest will accrue at 12%
per year on the outstanding principal balance of the Note. Prior to the
repayment of the principal balance of the Note, the holders may convert, at
their option at anytime up to 30 days after the closing of an equity financing
by our company of $5 million or more, all amounts due into shares of the Common
Stock at a conversion rate of $3.00 per share. In addition, and in the event of
a conversion of the Note, the holders will receive for each Unit purchased in
this offering warrants to purchase 8,333 shares of Common Stock at an exercise
price of $6.00 per share and 8,333 shares of Common Stock at an exercise price
of $7.10 per share. If no conversion occurs, then holders will receive for each
Unit purchased in this offering warrants to purchase 5,000 shares of Common
Stock at an exercise price of $6.60 per share and 5,000 shares of Common Stock
at an exercise price of $8.00 per share. In the event of default, the holders
may choose between two exclusive remedies: (a) the holders may elect to convert
all amounts due into shares of Common Stock at a conversion rate of $3.00 per
share or (b) the holders may request repayment of all amounts due, in which case
the holders would be issued warrants to purchase 2,500 shares of Common Stock at
an exercise price of $5.00 per share for each month that the principal balance
remains unpaid under the Note up to a total of six months. The holders must
elect one of these exclusive remedies within 15 days of an event of default and
upon the expiration of any notice or cure period. All warrants to be issued in
connection with these notes will expire on June 30, 2004.
The issuance of these contingent or any other warrants will result in a
significant non-cash charge to our company in the period in which these
additional warrants are issued.
LIMITATION OF LIABILITY; INDEMNIFICATION
We have entered into Indemnification Agreements with each of our
directors and officers in which we have agreed to indemnify each director and
officer, to the fullest extent permitted by law, from and against any and all
claims of any type arising from or related to his past or future acts or
omissions as a director or officer of our company and any of our subsidiaries.
In addition, we have agreed to advance all expenses of each director and officer
as they are incurred and in advance of the final disposition of any claim upon
the submission of appropriate undertakings.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS AND
FLORIDA LAW
Authorized but Unissued Stock. The authorized but unissued shares of
our common stock are available for future issuance without our shareholders'
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans.
NOTICE PROCEDURES FOR SHAREHOLDER PROPOSALS AT ANNUAL MEETINGS
Our Bylaws establish advance notice procedures with respect to
shareholder proposals to be brought before an annual meeting of our
shareholders. These procedures, which are in addition to any other applicable
requirements of law, require that a shareholder must give notice to us not less
than 120 days nor more than 180 days prior to the first anniversary of the date
of the notice of annual meeting provided with respect to the previous year's
annual meeting.
43
TRANSFER AGENT AND REGISTRAR
Continental Stock and Transfer Company is the transfer agent and
registrar for our common stock. Its address is 2 Broadway, 19th Floor, New York,
New York 10004.
44
UNDERWRITING
The underwriter named below has agreed, subject to the terms and
conditions of the firm commitment Underwriting Agreement between our company and
the underwriter, to purchase from us the number of shares of our common stock
set forth opposite its name. The underwriting discount set forth on the cover
page of this prospectus will be allowed to the underwriter at the time of
delivery to the underwriter of shares of our common stock so purchased.
NAMES OF UNDERWRITER NUMBER OF SHARES
-------------------- ----------------
Mercer Partners, Inc. 1,400,000
TOTAL 1,400,000
The underwriter has advised us that it proposes to offer the shares of
our common stock to the public at an offering price of $6.00 per share and that
it may allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. a concession not in excess of $[_____] per share.
The following table summarizes the compensation to be paid to the
underwriter by us.
Total
----------------------------------------
Without With
Per Share Over-allotment Over-allotment
----------- ---------------- ----------------
Underwriting discounts paid by us $0.60 $840,000 $966,000
We have granted to the underwriter an over-allotment option exercisable
during the 45-day period following the date of this prospectus to purchase up to
a maximum of 210,000 additional shares of our common stock at the public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. The underwriter may exercise such option only to satisfy
over-allotments in the sale of shares of our common stock.
We have agreed to pay to the underwriter a non-accountable expense
allowance equal to 3% of the total proceeds of this offering, or $252,000
($289,800 if the underwriter exercises the over-allotment option in full), of
which $30,000 has already been paid. The underwriter does not intend to offer or
sell shares of our common stock to accounts over which it exercises
discretionary authority.
At the closing of this offering, we will issue to the underwriter, for
nominal consideration the underwriter's warrants to purchase 140,000 shares of
our common stock at a purchase price of $8.70 per share. See "Description of
Securities - Underwriter's Warrants."
For the period during which the underwriter's warrants are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of our common stock, with a resulting dilution in the interests of the
other shareholders of our company. The holder(s) of the underwriter's warrants
can be expected to exercise them at a time which we would, in all likelihood, be
able to obtain any needed capital from an offering of unissued common stock on
terms more favorable to us than those provided for in the underwriter's
warrants. Such facts may adversely affect the terms on which we can obtain
additional financing. To the extent that the underwriters realize any gain from
the resale of the underwriter's warrants or the securities issuable thereunder,
such gain may be deemed additional underwriting compensation under the
Securities Act of 1933.
The Underwriter will serve as our company's non-exclusive financial
consultant and advisor for two years following the closing date of this
offering. The Underwriter will be paid a total of $58,800 at the closing of this
offering.
Our officers, directors and holders of 5% or more of the amount of our
outstanding common stock, excluding Lancer Partners, calculated as of the date
immediately preceding the commencement of the public offering, have agreed to a
lock-up of their stock, options and underlying shares, commencing the date of
the closing, for a period of 6 months. These officers, directors and 5%
45
holders, excluding Lancer Partners, also agree not to dispose of (sell or
transfer) their shares of common stock for six additional months unless the
market price of such common stock trades above 125% of the offering price for
five consecutive trading days. This lock-up period expires one year from the
effective date of this offering.
In addition, in the event the underwriter receives an order to purchase
a block of the company's common stock, then the underwriter has the right to
offer to fill such order through sales by the company's officers and directors.
Upon such offer, and company's officers and directors will then have the option
(but not the obligation) to sell their shares of common stock on the terms
offered.
The Underwriting Agreement provides for reciprocal indemnification
between our company and the underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of our company pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
The underwriters have advised us that, pursuant to Regulation M under
the Securities Act, some persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of our common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is a bid for or the purchase of common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
Representative to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the Representative in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
underwriters have advised us that such transactions may be effected on the
Nasdaq Small Cap Market or otherwise and, if commenced, may be discontinued at
any time.
DETERMINATION OF OFFERING PRICE
The offering price of the securities and the exercise price of the
warrants being offered hereby was determined by negotiation between us and the
underwriters. Factors considered in determining such prices include the history
and the prospects for the industry in which we compete, the past and present
operations of our company, the future prospects of our company, the abilities of
our management, the earnings, net worth and financial condition of our company,
the general condition of the securities markets at the time of this offering,
and the prices of similar securities of comparable companies.
EXPERTS
The financial statements included in the Prospectus and Registration
Statement have been audited by BDO Seidman, LLP, independent certified public
accountants to the extent and for the periods set forth in their report (which
contain an explanatory paragraph regarding the company's ability to continue as
a going concern) appearing elsewhere herein and in the Registration Statement
and are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity
of the shares of common stock offered hereby for us. William M. Prifti, Esq.,
Amesbury, Massachusetts will pass upon certain legal matters in connection with
the offering for the underwriter.
AVAILABLE INFORMATION
For further information regarding our company and the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto. Statements herein concerning the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to such contract or other document filed with the Securities and Exchange
Commission or included as an exhibit, or otherwise, each such statement, being
qualified by and subject to such reference in all respects.
46
Reports, registration statements, proxy and information statements, and
other information filed by us with the Securities and Exchange Commission can be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at our regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of these materials may be
obtained at prescribed rates from the Public Reference Section of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. The Securities and Exchange Commission maintains a site on the World Wide
Web (http://www.sec.gov) that contains reports, registration statements, proxy
and information statements and other information.
47
Item 7. Financial Statements
- -----------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Genetic Vectors, Inc.
(A Development Stage Company)
We have audited the accompanying consolidated balance sheet of Genetic Vectors,
Inc. (a Development Stage Company) as of December 31, 1999 and the related
consolidated statements of operations, capital deficit and cash flows for each
of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Genetic Vectors,
Inc., (a development stage company) as of December 31, 1999 and the results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's dependence on outside financing
and its losses since inception raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Miami, Florida /s/ BDO Seidman, LLP
March 3, 2000, except for Note 1 BDO Seidman, LLP
which is as of August 14, 2000
F-1
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
Assets (Note 4)
June 30,2000 December 31, 1999
(unaudited)
CURRENT ASSETS
Cash $ 174,189 $ 221,322
Accounts receivable 29,503 9,125
Inventory 20,512 7,081
Prepaid expenses 30,046 50,424
----------- -----------
Total current assets 254,250 287,952
Equipment and improvements, net (Note 3) 254,873 284,621
Patents and license agreement, net of
$54,201 and $40,353 of accumulated
amortization in 2000 and 1999,
respectively (Note 9(a)) 192,763 206,611
Restricted cash (Note 5) 46,130 46,130
----------- -----------
$ 748,016 $ 825,314
=========== ===========
LIABILITIES AND CAPITAL DEFICIT
CURRENT LIABILITIES
Accounts payable $ 369,793 $ 273,009
Accrued interest payable 161,353 54,020
Accrued expenses 35,531 148,481
Loans payable, net of unamortized discounts (Note 4) 2,331,753 805,412
----------- -----------
2,898,430 1,280,922
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 6 and 9)
CAPITAL DEFICIT (Notes 8 and 10)
Common stock, $.001 par value, 10,000,000 shares authorized,
3,732,843 and 3,424,843 shares issued and outstanding
in 2000 and 1999, respectively 3,733 3,425
Additional paid-in capital 10,960,433 8,494,795
Deficit accumulated during the development stage (13,114,580) (8,953,828)
----------- -----------
CAPITAL DEFICIT (2,150,414) (455,608)
----------- -----------
$ 748,016 $ 825,314
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE FROM
JANUARY 1, 1992 FOR THE FOR THE FOR THE FOR THE
(INCEPTION) SIX SIX YEAR YEAR
THROUGH MONTHS ENDED MONTHS ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
2000 2000 1999 1999 1998
(unaudited) (unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE:
Sales $ 323,525 $ 85,245 $ 60,934 $ 119,809 $ 79,211
Grant income 149,147 ---- ---- ---- 35,897
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 472,672 85,245 60,934 119,809 115,108
- ------------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Costs of sales 87,008 23,325 36,977 41,311 22,372
Research and development (Notes 9(b) and (c)) 3,465,655 361,521 277,669 566,036 984,937
General and administrative 6,255,894 1,032,583 601,282 1,356,308 1,585,444
Depreciation and amortization 375,369 47,778 54,175 139,601 125,550
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 10,183,926 1,465,207 970,103 2,103,256 2,718,303
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)(Note 4)
Amortization of deferred loan
costs (1,542,881) (776,319) (192,568) (748,037) (18,525)
Interest income (expense), net (40,445) (184,471) 4,099 (128,703) 66,057
Expense in connection with
issuance of common stock for
loan extension (1,820,000) (1,820,000) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER (3,403,326) (2,780,790) (188,469) (876,740) 47,532
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS (Note 7) $ (13,114,580) $(4,160,752) $(1,097,638) $(2,860,187) $(2,555,663)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding (Note 8) - 3,584,893 2,863,241 3,174,092 2,794,696
Net loss per common share - basic
and diluted - $ (1.16) $ (0.38) $ (0.90) $ (0.91)
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE FROM
JANUARY 1, 1992 FOR THE FOR THE
(INCEPTION) SIX SIX FOR THE FOR THE
THROUGH MONTHS ENDED MONTHS ENDED YEAR YEAR
JUNE 30, JUNE 30, JUNE 30, ENDED ENDED
2000 2000 1999 DECEMBER 31, DECEMBER 31,
(unaudited) (unaudited) (unaudited) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Loss $(13,114,580) $(4,160,752) $(1,097,638) $(2,860,187) $(2,555,663)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 375,369 47,778 54,175 139,601 125,550
Amortization of deferred loan costs 1,542,881 776,319 192,568 748,037 18,525
Write-off of acquired technology 71,250 - - - -
Common stock issued for loan extension 1,820,000 1,820,000 - - -
Consulting services provided for common stock 6,000 - - - 6,000
Warrants issued for loan extension 154,646 80,946 - 73,700
Stock options granted for services 364,572 - - 24,000 340,572
(Increase)decrease in accounts receivable (32,688) (23,563) (16,597) 26,273 (35,398)
(Increase) decreases in inventory (20,512) (13,431) (5,543) 6,419 (13,500)
(Increase)decrease in prepaid expenses (30,046) 20,378 20 (27,572) (22,852)
(Increase) in restricted cash equivalents (46,130) - - - (46,130)
Increase in accounts payable and accrued liabilities $ 714,595 96,262 141,941 269,935 61,033
- -----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 4,919,937 2,804,689 366,564 1,260,393 433,800
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (8,194,643) (1,356,063) (731,074) (1,599,794) (2,121,863)
- -----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of equipment and improvements (577,929) (6,070) (1,130) ( 3,504) (65,618)
Insurance proceeds in excess of loss on fixed assets - - 3,254 - -
Purchase of certificate of deposit (261,964) - - - (1,366)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (839,893) (6,070) 2,124 (3,504) (66,984)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Increase due to parent 413,518 - - - -
Proceeds from note payable 2,448,500 1,175,000 388,500 1,081,808 156,692
Payment on notes payable (35,000) - - - -
Net proceeds from issuance of common stock 5,862,450 140,000 225,000 625,000 47,500
Capital contribution 500,000 - - - -
Deferred offering refund 25,500 - - - -
Deffered offering costs (6,243) - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,208,725 1,315,000 613,500 1,706,808 204,192
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (decrease in cash) 174,189 (47,133) (115,450) 103,510 (1,984,655)
Cash at beginning of period - 221,322 117,812 117,812 2,102,467
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 174,189 $ 174,189 $ 2,362 $ 221,322 $ 117,812
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Warrants issued in connection with loan financing $1,624,650 $ 425,000 $ 388,500 $ 1,088,500 $ 111,150
Conversion of due to parent in exchange for stock $ 413,518 - - - -
Conversion of accrued wages for stock $ 132,822 - - - -
Issuance of common stock for loan extension $1,820,000 $1,820,000 - - -
Warrants issued for loan extension $ 154,646 $ 80,946 - $ 73,700 -
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Initial capitalization for cash at
$0.0000625
per share (Note 8(a)) 1,600,000 $ 1,600 $ (1,500) $ - $ 100
Capital contribution (Note 8(b)) - - 500,000 - 500,000
- --------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1992 - - - (260,484) (260,484)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1993 - - - (205,753) (205,753)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1994 - - - (318,927) (318,927)
- --------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1995 - - - (226,666) (226,666)
- --------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for cash, at
$5.00 per share, net of offering costs
of $70,000 (Note 8(c)) 110,000 110 479,990 - 480,100
Conversion of $413,518 due to parent in
exchange for 41,352 shares of common
stock (Note 8(g)) 41,352 42 413,476 - 413,518
Conversion of $132,822 of accrued payroll
and consulting to the president and
chairman of the Board for 13,282 shares
of common stock (Note 8(g)) 13,282 13 132,809 - 132,822
Issuance of common stock at $10.00 per
share, net of offering costs of
$1,180,249 575,000 575 4,569,176 - 4,569,751
(Note 8(h))
Stock options granted for services (Note 8(c)) - - 56,250 - 56,250
- --------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1996 - - - (393,434) (393,434)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,339,634 $ 2,340 $ 6,150,201 $ (1,405,264) $ 4,747,277
Offering cost refund (Note 8(h)) - - 25,500 - 25,500
Offering costs (Note 8(h)) - - (6,243) - (6,243)
F-5
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Net loss - year ended December 31, 1997 - - - (2,132,714) (2,132,714)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
- --------------------------------------------------------------------------------------------------------------------------------
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,339,634 $ 2,340 $ 6,169,458 $ (3,537,978) $ 2,633,820
Issuance of Common Stock for DNA
Sciences acquisition (Note 1) 450,000 450 9,550 ---- 10,000
Issuance of common stock for services
(Note 8(k)) 709 1 5,999 - 6,000
Issuance of common stock for cash, at
$5.00 per share (Note 8(l)) 9,500 9 47,491 - 47,500
Warrants granted for consulting services
(Note 8(n)) - - 332,500 - 332,500
Warrants granted for loan financing costs
(Note 4(d)) - - 111,150 - 111,150
Options granted for services rendered
(Note 8(o)) - - 8,072 - 8,072
Net loss - year ended December 31, 1998 - - - (2,555,663) (2,555,663)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 2,799,843 2,800 6,684,220 (6,093,641) 593,379
Issuance of common stock for cash, at
$1.00 per share (Note 8(q) and (r)) 625,000 625 624,375 - 625,000
Warrants granted for loan financing costs
(Note 4) - - 1,088,500 - 1,088,500
- --------------------------------------------------------------------------------------------------------------------------------
F-6
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT
DEFICIT
ADDITIONAL ACCUMULATED
PAID-IN DURING THE
SHARES AMOUNT CAPITAL DEVELOPMENT STAGE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
Options granted for services rendered
(Note 8(p)) - - 24,000 - 24,000
Warrants granted for loan extension (Note 4(a)) - - 73,700 - 73,700
Net loss - year ended December 31, 1999 - - - (2,860,187) (2,860,187)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 3,424,843 $ 3,425 $ 8,494,795 $ (8,953,828) $ (455,608)
- --------------------------------------------------------------------------------------------------------------------------------
Issuance of Common Stock for loan
extension (Note 4(d)) 280,000 280 1,819,720 - 1,820,000
Issuance of Common Stock and
exercise of options 28,000 28 139,972 - 140,000
Warrants granted for loan extension (Note 4(a)) - - 80,946 - 80,946
Warrants granted for loan financing
costs (Note 4(d)) - - 425,000 - 425,000
Net loss for the period - - - (4,160,752) (4,160,752)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 3,732,843 $ 3,733 $10,960,433 $(13,114,580) $(2,150,414)
UNAUDITED
- --------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
1. SUMMARY OF ORGANIZATION AND BUSINESS
SIGNIFICANT
ACCOUNTING Genetic Vectors, Inc. (the "Company"), formerly a
POLICIES subsidiary of Nyer Medical Group, Inc. ("Nyer"), was
incorporated on December 28, 1991. The Company was
organized to supply genetic engineering tools and
analytical kits to the biotechnology and molecular
biology markets. The Company's products are intended to
allow biopharmaceutical companies to test for
biopharmaceutical product purity in compliance with
regulatory standards. The Company is in the development
stage and its operations to date have largely consisted
of the research and development of its products. The
Company had no financial activities from December 28,
1991 to December 31, 1991. Accordingly, January 1, 1992
has been used as the inception date of these financial
statements.
These financial statements include the specifically
identifiable expenses of the Company incurred by Nyer on
behalf of the Company.
Nyer, which previously owned 74.9% of the Company's
common stock, distributed to its shareholders 512,000
shares, representing 32% of the outstanding shares of
the Company's common stock as of May 31, 1996.
ACQUISITION
On January 17, 2000 Genetic Vectors, Inc. completed a
merger with DNA Sciences, Inc., by exchanging 450,000
shares of its common stock for all the common stock of
DNA Sciences, Inc. Each share of DNA Sciences, Inc. was
exchanged for .45 of one share of Genetic Vectors, Inc.
common stock. The merger has been accounted for as a
pooling of interest. DNA Sciences, Inc. was formed in
March 1998 and, accordingly, the accompanying financial
statements have been retroactively adjusted to include
the operations of DNA Sciences, Inc. as if the
acquisition took place in March 1998. The following
information presents certain statement of operation data
of the separate companies for the periods preceding the
merger:
Six months
ended
June 30, 1999
1999 1998 (unaudited)
---- ---- --------------
Revenue:
Genetic Vectors, Inc. $ 44,832 $ 47,172 $ 32,769
DNA Sciences, Inc. 74,977 67,936 28,165
------- ------- -------
$119,809 $115,108 $ 60,934
======== ======== ========
Net Income (Loss)
Genetic Vectors, Inc. $(2,806,911) $(2,575,467) $(1,089,435)
DNA Sciences, Inc. (53,276) 19,804 (8,203)
----------- ----------- -----------
$(2,860,187) $(2,555,663) $(1,097,638)
=========== ============ ============
There were no material transactions between Genetic
Vectors, Inc. and DNA Sciences, Inc., prior to the
merger. The effects of conforming DNA Sciences, Inc.
accounting policies to those of Genetic Vectors, Inc.
were not material.
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
SEGMENT INFORMATION
Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and
Related Information, supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. SFAS
No. 131 establishes standards for the way that public
F-8
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
companies report information about operating segments in
annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS
No. 131 defines operating segments as components of a
company about which separate financial information is
available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate
resources and in assessing performance.
The Company currently operates solely in one line of
business.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with
an initial maturity of three months or less when
purchased to be cash equivalents.
RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the Company's product research,
development and testing are expensed as incurred.
EQUIPMENT AND IMPROVEMENTS AND DEPRECIATION
Equipment and improvements are recorded at cost.
Depreciation is provided over the estimated useful life
of the assets which range from three to ten years.
PATENTS AND LICENSE AGREEMENT
Patents and the license agreement are carried at cost
less accumulated amortization. Amortization is computed
using the straight line method over the estimated useful
life of the patents which range from 15.5 to 17 years.
The Company continually evaluates the carrying value of
its patents and license agreement. Impairments are
recognized when the expected future operating cash flows
to be derived from such intangible assets are less than
their carrying values.
REVENUE
The Company recognizes revenue from sales upon delivery
of the product to a customer.
F-9
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
During 1997 the Company was awarded a grant for $99,897
from the National Institute of Health and the National
Institute of Allergy and Infectious Diseases for rapid
identification of fungal species. The award terminated
on February 27, 1998. In this connection, the Company
recognized grant revenue aggregating $35,897 and $64,000
in 1998 and 1997, respectively.
INCOME TAXES
Income taxes are accounted for using the liability
approach under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
NET LOSS PER COMMON SHARE
Net loss per common share is calculated according to
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" which requires companies to present
basic and diluted earnings per share. Net loss per
common share - Basic is based on the weighted average
number of common shares outstanding during the year. Net
loss per common share - Diluted is based on the weighted
average number of common shares and dilutive potential
common shares outstanding during the year.
The Company's potential issuable shares of common stock
pursuant to outstanding stock purchase options and
warrants are excluded from the Company's diluted
computation for each of the periods presented as their
effect would be antidilutive to the Company's net loss.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally
of cash and cash equivalents, receivables, accounts
payable and notes payable. The carrying amounts of such
financial instruments as reflected in the balance sheet
approximate their estimated fair value as of December
31, 1999. The estimated fair value is not necessarily
indicative of the amounts the Company could realize in a
current market exchange or of future earnings or cash
flows.
RECLASSIFICATION
Certain reclassifications have been made to the 1998
statement of operations to conform to the
classifications used in 1999.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of June 30, 2000 and
for the six months ended June 30, 2000 and 1999 are
unaudited. In the opinion of management, such statements
reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation
of the financial position, results of operations and
changes in cash flows. The results of operations of the
six months ended June 30, 2000 and 1999 are not
necessarily indicative of the results for the entire
year.
F-10
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board
issued FASB Interpretation No. 44, Accounting for
certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25. The Company
adopted the Interpretation on July 1, 2000. The
interpretation requires, among other things, that stock
options that have been modified be accounted for as
variable. Management anticipates the implementation of
FASB Interpretation No. 44, will not have a material
effect as the Company's financial position or results of
operations.
In June 1999, the Financial Accounting Standards Board
issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 requires companies to
recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective
of which is to match the timing of gain or loss
recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated
as a hedging instrument, the gain or loss is recognized
in operations in the period of change. SFAS 133, as
amended by SFAS 137, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2001.
Historically, the Company has not entered into
derivatives contracts either to hedge existing risks or
for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1,
2002 to affect its financial statements.
2. LIQUIDITY The accompanying financial statements have been prepared
assuming the Company will continue as a going concern.
This basis of accounting contemplates the recovery of
the Company's assets and the satisfaction of its
liabilities in the normal course of operations. Since
inception, the Company has been involved in the research
and design of its product, the development of an
organizational infrastructure, and the performance of
preliminary marketing and promotional activities. The
Company's ultimate ability to attain profitable
operations is dependent upon obtaining additional
financing adequate to complete its development
activities, and to achieve a level of sales adequate to
support its cost structure. Through June 30, 2000 the
Company has incurred losses totaling $13,114,580 has
been unable to develop a customer base for its product
and has been in default of certain loans, all of which
raise substantial doubt about the Company's ability to
continue as a going concern.
Subsequent to December 31, 1999, the Company has raised
$2,375,000 from loans and equity investments. On
December 15, 1999, the Company entered into a
non-binding letter of intent with an underwriter to sell
up to $8.4 million
F-11
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
of securities in a firm commitment. On January 17, 2000,
the Company acquired DNA Sciences, Inc. (Note 1) This
acquisition may result in the use of additional funds as
well as other unanticipated expenditures. There can be
no assurance that the Company will be successful in
consummating its plans, or that such plans, if
consummated, will enable the Company to attain
profitable operations or continue as a going concern.
3. EQUIPMENT AND The Company's equipment is summarized as follows:
IMPROVEMENTS
DECEMBER 31, 1999
------------------------------------------------------
Laboratory equipment $ 388,573
Computers 52,787
Phone equipment 58,826
Leasehold improvements 35,477
Office furniture 22,520
Other 13,676
------------------------------------------------------
571,859
Less accumulated depreciation (287,238)
------------------------------------------------------
$ 284,621
------------------------------------------------------
Loans payable as of December 31, 1999 are as follows:
4. LOANS PAYABLE a) Unsecured loans - 12% interest
payable quarterly beginning April
1, 1999, with 1% increases per
month for each month that any
portion of the note remains
outstanding after April 1, 1999. $ 150,000
b) Loans - 12% interest payable
quarterly beginning April 19, 1999,
with 1% increases monthly for each
month that any portion of
the note remains outstanding after
January 19, 2000. 288,500
c) Loan - 12% interest payable
quarterly beginning June 1, 1999 100,000
----------------------------------------------------
F-12
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
d) Loans - with 12% interest rate
payable quarterly, commencing
January 19, 2000, with 1%
increases per month for each month
that any portion of the note
remains outstanding after January
19, 2000 and April 22, 2000. 700,000
------------------------------------------------------
$ 1,238,500
Unamortized debt discount (433,088)
------------------------------------------------------
$ 805,412
------------------------------------------------------
a) These loans became due on April 1, 1999. The Company
is currently in default of this loan for failing to
pay the required principal and interest. In the event
the Company does not make principal payments for
these loans in accordance with the terms of each
obligation, each holder is entitled to receive
warrants to purchase a number of shares (as defined)
of the Company's common stock until the obligation is
satisfied. In this connection, the Company recorded a
deemed interest charge of $73,700 during 1999. The
fair value of such warrants was estimated using the
Black-Scholes Option Pricing Model.
b) Consists of two loans, the first of which bears a
face amount of $163,500 and became due on January 19,
2000. The second loan for $125,000 became due on
January 19, 2000. The Company is not in compliance
with the payment terms of these loans at December 31,
1999.
c) The loan is due upon the earlier of April 18, 2000 or
the closing of a private placement of securities with
gross proceeds of $2 million.
d) Consists of three loans, the first of which for
$200,000 became due on January 18, 2000. The second
loan for $200,000 became due on January 19, 2000. The
Company was not in compliance with the payment terms
of these loans at December 31, 1999. The third loan
for $300,000 is due on April 22, 2000.
During 1999, the Company borrowed from an investor,
$1,088,500 and granted 613,850 warrants with exercise
prices ranging from $.01 to $5.50. Such warrants
expire in 2004. The exercise prices of the warrants
at the grant date were below the market price of the
Company's common stock and the value ascribed to the
warrants exceeded the amount borrowed. Accordingly,
F-13
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
the Company recorded debt discount up to the amounts
borrowed. The Company amortizes the debt discount
over the term of the related borrowings, generally
less than one year. The fair value of such warrants
amounted to $1,088,500 and was estimated using the
Black-Scholes model.
During 1998, the Company borrowed $150,000 and
granted to the lender 30,000 warrants at an exercise
price of $6.00, which expire in 2003. The fair value
of the warrants amounting to $111,150 was estimated
using the Black-Scholes model.
On March 3, 2000, the Company negotiated an extension
of certain of the above past due notes aggregating
$1,235,000 to June 30, 2000. In exchange for this
extension, the Company agreed to cancel 280,000
previously issued common stock warrants and issue
280,000 shares of the Company's common stock to the
lenders. The foregoing extension transaction resulted
in an additional charge to earnings in 2000 for the
consideration issued.
In addition, certain of these loans provide that, if
$1.5 million is subsequently raised by the Company or
the loan is paid back, the Company will issue
warrants to the lenders to purchase 700,000 shares of
common stock at exercise prices ranging from $3 to
$5.50 per share. The Company will record a charge to
operations for an amount equal to the value ascribed
to these contingent warrants upon occurrence of these
future events.
The Company has paid success fees to consultants who
assisted in obtaining the financing. Such fees
aggregated $79,000 in 1999 and $12,000 in 1998.
During the six months ended June 30, 2000, the
Company borrowed $1,175,000. These loans bear
interest at 12% a year and are due between September
and December 2000. In connection with these
borrowings, the Company issued 152,000 warrants at an
exercise price ranging from $1.00 to $6.20. The
exercise price of such warrants were below the market
price of the Company's common stock.
In connection with these transactions from January 1,
2000 to June 30, 2000, the value ascribed to the
warrants was equal to the amount borrowed.
Accordingly, the Company has recorded a debt discount
and has offset the amounts borrowed by the value
ascribed to these warrants. The Company will amortize
the deferred discount over the term of the related
borrowings.
Notes payable as of June 30, 2000 are as follows:
Notes payable $ 2,413,522
Debt discount (81,769)
-----------
Net $ 2,331,753
===========
As of June 30, 2000, the Company was past due on
loans with an original principal balance of
$1,488,500. On July 7, 2000, the maturity dates were
extended from June 30, 2000 to September 30, 2000 on
loans with an original principal balance of
$1,238,500. As of the date hereof, the Company is in
default on loans with an original principal balance
of $250,000 for failing to pay principal and interest
when due.
In addition, the Company has collateralized all of
its assets for the loans referred to above.
(Notes 4(b), (c) and (d)).
5. RESTRICTED CASH Restricted cash represents a certificate of deposit of
$46,130 held as security on a letter of credit in
connection with the Company's facility lease.
6. DEPENDENCE ON Certain key components of the Company's products are
LIMITED NUMBER currently provided by a limited number of sources,
OF SUPPLIERS and one component is provided by a single source.
7. INCOME TAXES At December 31, 1999, the Company had Federal net
operating losses (NOL) of approximately $8,562,000.
The NOL expires during the years 2007 to 2014. In
the event of a change in ownership of the Company,
the utilization of the NOL carryforward in any one
year will be subject to limitation under Section 382
F-14
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
"Change of Ownership Rules" of the Internal Revenue
Code.
Realization of any portion of the approximately
$3,300,000 federal deferred tax asset at December 31,
1999, resulting from the NOL, is not considered more
likely than not by management, accordingly, a valuation
allowance has been established for the full amount of
the tax asset.
Net operating loss carryforward $ 3,300,000
Less: valuation allowance (3,300,000)
------------------------------------------------------
Net deferred tax asset $ -
------------------------------------------------------
During the six months ended June 30, 2000 the Company
continued to incur operating losses. Accordingly, a
valuation allowance has been established for the full
amount of the tax asset arising from such operating
losses.
There are no significant temporary differences.
8. CAPITAL DEFICIT a. During 1992, the Company issued 100 shares of common
stock for $100 as the initial capitalization of the
Company. In June 1996, the Company issued a stock
dividend in the form of a 15,999 for 1 stock split.
The components of stockholders' deficit, all shares
and per share amounts have been retroactively
adjusted to reflect the stock split. The Company also
recapitalized its common stock to 10,000,000 shares,
$.001 par value.
b. During 1992, the Company received $500,000 in
additional capital contributions.
c. In June 1996, in connection with a private placement,
the Company issued 110,000 shares of common stock, at
$5.00 per share for cash of $480,100 net of offering
costs of $70,000.
In addition, during June 1996, the Company granted
non-plan stock options to purchase 75,000 shares of
common stock at an exercise price of $5.00 per share
(estimated fair value based upon the price of common
stock sold in the private placement) to a consultant
who became a director in August 1996. Options to
purchase 25,000 of such shares were exercisable
immediately. Options to purchase 25,000 of such
shares became exercisable July 24, 1996 upon the
execution of the employment agreement with the
Company's Chief Executive Officer. The remaining
25,000 of such shares became exercisable upon the
closing of the Company's initial public offering. The
fair value of such options amounting to $56,250 was
F-15
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
charged to operations during the period ended
December 31, 1996.
d) In July 1996, the Company granted ten year stock
options to purchase 75,000 shares of common stock at
120% of the initial public offering price to the
President. Options to purchase 25,000, 25,000 and
25,000 of such shares vest immediately, six months
after the completion of the initial public offering,
and one year after the completion of the initial
public offering, respectively.
e) In August 1996, the Company entered into a three year
employment agreement with the Chairman of the Board
for a base salary of $125,000. Pursuant to the
agreement, the Company granted ten year options
vesting over a three year period, exercisable during
the period of employment, to purchase 100,000 shares
of common stock at an exercise price equal to 120% of
the initial public offering price per share of common
stock.
f) In August 1996, the Company granted ten year options,
which vested one year after the grant date, to
purchase 5,000 shares each of common stock at 120% of
the initial public offering price to two directors of
the Company.
g) In August 1996, the Company converted the then
outstanding $413,518 due to parent (Nyer) in exchange
for 41,352 shares of common stock and the then
outstanding $132,822 of accrued payroll and
consulting fees to the President and Chairman of the
Board in exchange for 13,282 shares of common stock.
The conversion price was $10.00 per share.
h) In December 1996, the Company completed its initial
public offering. The offering consisted of 575,000
shares of common stock which raised net proceeds of
approximately $4,570,000 (gross proceeds of
approximately $5,750,000 less underwriting discounts,
commissions and other expenses of the offering
totaling approximately $1,180,249). During 1997, the
Company incurred additional offering costs of $6,243
and received a refund of $25,500 for overpayment of
expenses relating to this transaction.
i) In February 1997, the Company granted ten year
options, which vest one year after the grant date, to
purchase 5,000 shares each of common stock at 120% of
the initial public offering price to two directors of
the Company.
F-16
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
j) In March 1998, the Company granted two year options
to six of its employees under the 1996 Incentive Plan
which vest one year after the grant date, to purchase
13,848 shares of common stock at $8.00 per share.
k) In June and August of 1998, the Company issued 709
shares of common stock at market, valued at $6,000 to
an individual for consulting services.
l) In June, July and August of 1998, a board member
exercised options to purchase 5,000, 2,000 and 2,500
shares of the Company's common stock, respectively,
at $5.00 per share.
m) In July 1998, the Company granted two year options to
five of its employees under the 1996 Incentive Plan,
which vest one year after the grant date, to purchase
3,367 shares of common stock at $10.375 per share.
n) In September 1998, in connection with the signing of
the consulting agreement to obtain approximately
$3,000,000 in financing for the Company, a consultant
to the Company was issued 50,000 warrants to purchase
shares of the Company's common stock at $6.00 per
share. The Company estimated the fair value of the
warrants at the grant date by using the Black-Scholes
option pricing model with the following
weighted-average assumptions: no dividend yield
percent; expected volatility of 0.488 risk free
interest rate of 5.03%, and an estimated life of 10
years. The fair value of such services of $332,500
was charged to operations during the year ended
December 31, 1998.
o) In December of 1998, the Company granted five year
options, which vest two months after the grant date,
to purchase 4,393 shares of common stock at $5.00 per
share to seven employees of the Company in lieu of
50% pay for two pay periods. The fair value of such
options amounting to $8,072 was charged to operations
during the period ended December 31, 1998. In 1999,
the Company has repurchased 2,342 options for a
purchase price of $5,270.
p) During 1999, the Company granted five year options,
which vest two months after the grant date, to
purchase 17,995 shares of common stock at $5.00 per
share to five employees of the Company in lieu of 50%
of their salaries for four pay periods. The fair
value of such options amounted to $24,000 and was
charged to operations during the year ended December
31, 1999.
F-17
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
q) On May 10, 1999, the Company issued 225,000 shares of
common stock to a private investor in exchange for
$225,000. The private investor paid $1.00 per share
for the 225,000 shares, or $4.75 per share less than
the OTC Bulletin Board closing price of $5.75 per
share on May 10, 1999.
r) On July 16, 1999, the Company issued 400,000 shares
of common stock to two private investors in exchange
for $400,000. These private investors paid $1.00 per
share for the 400,000 shares, or $4.75 per share less
than the OTC Bulletin Board closing price of $5.75
per share on July 16, 1999.
s) The following reconciles the components of the
earnings per share (EPS) computation:
FOR THE YEARS ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
PER- PER-
LOSS SHARES SHARE LOSS SHARE SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Loss per common share - basic: $ (2,860,187) 3,174,092 $ (0.90) $ (2,555,663) 2,794,696 $ (0.91)
Effect of Dilutive Securities
Options - - - - - -
Warrants - - - - - -
- -----------------------------------------------------------------------------------------------------------------------
Loss per common share - assuming
dilution: $ (2,860,187) 3,174,092 $ (0.90) $ (2,555,663) 2,794,696 $ (0.91)
- -----------------------------------------------------------------------------------------------------------------------
Options to purchase 316,650 shares of common stock at
prices ranging from $5.00 to $12.00 per share, were
not included in the computation of loss per share
assuming dilution for 1999 and for 1998 as they would
have an antidilutive effect. 316,650 options which
expire through 2009, are still outstanding at
December 31, 1999. Warrants to purchase 643,850
shares of common stock at prices ranging from $.01 to
$6.00 per share were not included in the computation
of loss per common share assuming dilution for 1999
and for 1998 as they would have an antidilutive
effect. 643,850 warrants which expire through 2004
are outstanding at December 31, 1999.
The following reconciles the components of the earnins per share (EPS)
computation
For the six months ended June 30, 2000 For the six months ended June 30, 1999
-------------------------------------- --------------------------------------
Loss Shares Per Share Loss Share Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------------------------------
Less per common share - basis $(4,160,752) 3,584,883 $(1.16) $(1,097,638) 2,863,241 $(0.38)
- ----------------------------- ----------- --------- ------- ------------ --------- -------
Effect of Dilutive Securities:
Options
Warrants
- -----------------------------------------------------------------------------------------------------------------------------
Less per common share,
assuming dilution $(4,160,752) 3,584,883 $(1.16) $(1,097,638) 2,863,241 $(0.38)
- -----------------------------------------------------------------------------------------------------------------------------
9. COMMITMENTS a) The Company has acquired rights to a new nucleic
AND acid labeling and detection technology (the
CONTINGENCIES "Technology") pursuant to a license agreement
between ProVec, Inc. and the University of Miami
and its School of Medicine which was assigned to
the Company on January 20, 1992. ProVec, Inc., was
owned by the Company's Chairman of the Board.
These rights were acquired under certain patents
and patent applications pursuant to the license
agreement and include the manufacture of products
F-18
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
utilizing the Technology and the marketing and
sale of such products. The license agreement
provides for a royalty equal to 4% of net sales
and can expire or be terminated prior to the
Company's development of products using the
Technology.
In addition, certain of the Company's patents and
patent applications were made, in part, using
federal funds provided by a federal agency,
National Institute of Health (NIH), which has a
nonexclusive, nontransferable, irrevocable
license. Under this nonexclusive license, NIH can
use the Technology in federally-funded projects or
it can, if provided in a treaty or agreement,
sublicense the Technology. This nonexclusive
license did not terminate with the licensing of
the Technology to the Company. NIH also has
certain rights allowing it to grant licenses to
third parties, even exclusive licenses, if it is
determined that practical application of the
invention is not occurring, as well as march-in
rights to meet unmet health or safety needs. The
grant of an exclusive license, or the exercise of
march-in rights, would cause the Company to suffer
a material adverse effect on its business,
financial condition and viability.
b) On March 12, 1997, the Company entered into a
Research and Development Agreement with the
University of Miami to provide scientific
expertise in the identification and yeast and
conduct sequencing of yeast genes for the
development of sequencing databases. The contract
is renewable annually and provides for the Company
to pay the University of Miami approximately
$17,000 each month for salaries of scientists and
supplies.
c) On June 1, 1998, the Company entered into a
three-year cooperative research and development
agreement with the Agricultural Research Services
of the U.S. Department of Agriculture for the
Development (ARS) of "Arrayed Probes for Rapid
Identification of Yeasts". The Company is
obligated to pay ARS $192,757 over the three year
term of the agreement for technical, supplies, and
a maintenance contract for a DNA sequencer. In
addition, the Company is obligated to pay ARS 2%
of net sales of the related products.
d) On July 1, 1999, the Company entered into a three
year employment agreement with the Chief Executive
Officer/ President and Chairman of the Board of
Directors of the Company for a base salary of
$125,000 and $132,750, respectively, per year.
Pursuant to this agreement, the Company granted
ten year options, vesting immediately, exercisable
up to 180 days following the employment date to
purchase 10,000 and 10,000, respectively, shares
of common stock at an
F-19
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
exercise price of $5.75. These agreements provide
for a bonus as determined by the Board of
Directors.
e) On January 17, 2000, the Company entered into an
employment agreement with its President and
Director of Business Development. The agreement
provides for a term of two years with base annual
salary of $125,000. Under the terms of the
agreement, the executive is entitled to a
performance bonus. In connection with this
agreement, the Company issued 75,000 options to
purchase the Company's common stock over three
years beginning one year following the employment
date at an exercise price of $7.25.
f) Minimum guaranteed lease payments for the
Company's lease are as follows:
YEAR ENDED DECEMBER 31, AMOUNT
----------------------------------------------------
2000 $ 169,000
2001 174,000
2002 179,000
2003 184,000
2004 190,000
Thereafter 500,000
----------------------------------------------------
$ 1,396,000
----------------------------------------------------
After five years the Company has the option to
cancel its lease agreement for a cancellation fee
equal to three months of the then monthly rent. In
December of 1998, the Company renegotiated the
lease reducing annual rental payments to
approximately $164,000 and annual increases of 3%.
Rent expense for 1999 and 1998 aggregated
approximately $188,000 and $192,300, respectively.
The Company anticipates purchasing or leasing
equipment of approximately $500,000 during 2000.
10. STOCK BASED At December 31, 1999, the Company has two stock option
COMPENSATION plans which are described below. The Company applies APB
Opinion 25, "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for the plan.
Under APB Opinion 25, because the exercise price of the
Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of
grant, no compensation cost is recognized.
In August 1996, the Company adopted an Incentive Plan
(the "Plan") under which 300,000 shares of common stock
are reserved for issuance upon exercise of stock based
awards including, non-qualified stock options, incentive
stock options, stock appreciation rights or for issuance
of restricted shares of common stock or other
stock-based awards. The Plan is also authorized to issue
short-term cash incentive awards. The Plan is currently
administered by a plan administrator which consists of
the Board of Directors, but may consist of such
committees, officers and/or employees of the Company as
the Board may so designate. The purchase price of each
share of common stock purchased upon exercise of any
option granted is as follows: i) Incentive stock options
F-20
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
shall be equal to or greater than the fair market value
of the common stock on the date of grant as required
under Section 422 of the Internal Revenue Code, ii)
Options granted to 10% holders and designated by the
Plan Administrator as Incentive Stock Options shall be
equal to or greater than 110% of the fair market value
of the common stock on the date of grant as required
under Section 422 of the Internal Revenue Code, (iii)
Non-employee director options shall be equal to or
greater than the fair market value of the common stock
on the date of the grant.
On December 31, 1999, the Company adopted a Stock Option
Plan (the "1999 Plan") under which 400,000 shares of
common stock are reserved for issuance upon exercise of
stock based awards including, non-statutory stock
options and incentive stock options. The 1999 Plan will
be administered by a plan administrator which consists
of the Board of Directors, but may consist of such
committees, officers and/or employees of the Company as
the Board may so designate. The purchase price of each
share of common stock purchases upon exercise of any
option granted is as follows: i) incentive stock options
shall be equal to or greater than the fair market value
of the common stock on the date of grant as required
under Section 422 of the Internal Revenue Code ii)
incentive options granted to 10% holders shall be equal
to or greater than 110% of the fair market value of the
common stock on the date of grant as required under
Section 422 of the Internal Revenue Code.
FASB Statement 123, Accounting for Stock-Based
Compensation, requires the Company to provide pro forma
information regarding net income (loss) and net income
(loss) per share as if compensation cost for the
Company's stock option plan had been determined in
accordance with the fair value based method prescribed
in FASB Statement 123. The Company estimates the fair
value of each stock option at the grant date by using
the Black-Scholes option-pricing model based on the
following assumptions:
Year ended December 31, 1999 1998
-------------------------------------------------------------
Risk free interest rate 5.14 - 5.88% 4.4-5.4%
Expected life 4.83 - 10 Years 1.5 to 10 Years
Expected volatility .458 .500 - .568
Dividend yield 0.0 0.0
F-21
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
Under the accounting provisions of FASB Statement 123,
the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below:
1999 1998
------------------------------------------------------
Net loss
As reported $ (2,860,187) $ (2,555,663)
Pro forma (3,115,187) (2,822,676)
Net loss per common share
As reported $ (0.90) $ (0.91)
Pro forma (0.98) (1.01)
A summary of the status of the Company's fixed stock
option plan and non-plan options as of December 31, 1999
and 1998 and changes during the years ended is presented
below:
DECEMBER 31, DECEMBER 31,
----------- ------------
1999 1998
---- --------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------------------------------------------------------------------------------------
Outstanding at beginning of year 282,108 $ 10.05 345,000 $ 10.48
Granted 37,995 6.33 21,608 7.76
Exercised - - (9,500 ) 5.00
Forfeited (3,453 ) 5.00 (75,000 ) 12.00
--------------------------------------------------------------------------------------
Outstanding at end of year 316,650 9.55 282,108 10.05
--------------------------------------------------------------------------------------
Options exercisable at year-end 316,650 9.55 202,166 9.73
Weighted-average fair value of
options granted during the year 37,995 $ 2.74 21,608 $ 2.78
--------------------------------------------------------------------------------------
The following table summarizes information about fixed
stock options and non-plan options outstanding at
December 31, 1999.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
====================================================== ========================
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
-------------------------------------------------------------------------------------
$5.00 - $12.00 316,650 6.14 9.55 316,650 9.55
On June 9, 2000, the Company granted the following options under the 1999 Stock
Option Plan:
o To Mead M. McCabe, Sr., the Chairman of the Company, options to purchase up
to 100,000 shares of common stock at an exercise price of $6.03 per share.
These options vest one-third immediately and one-third on each of the second
and third anniversaries of Mr. McCabe's 1999 employment agreement. These
options may be exercised within ten years of the date of grant.
o To Mead M. McCabe, Jr., the Chief Executive Officer of the Company. Options
to purchase up to 100,000 shares of common stock at an exercise price of
$6.03 per share. Those 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 the Company, options to purchase 17,500
shares of common stock at an exercise price of $6.03 per share, 12,000 of
those options vest immediately and 6,000 vest in March 2001. These options
may be exercised within ten years of the date of grant.
o To Jack Fell, a director of the Company, options to purchase 12,500 shares
of common stock at an exercise price of $6.03 per share, 7,500 of these
options vest immediately and 5,000 vest in March 2001. These options may be
exercised within ten years of the date of grant.
o To Michael Foley, a director of the Company, options to purchase 10,000
shares of common stock at an exercise price of $6.03 per share. 5,000 of
those options vest imediately and 5,000 vest in January 2001. These options
may be exercised within ten years of the date of grant.
F-22
GENETIC VECTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited with respect to
the six months ended
June 30, 2000 and 1999
11. Subsequent Events (Unaudited)
Between July 24 and August 1, 2000, the company borrowed $1.2 million from
thirty-five private investors from the sale of 48 Units, consisting of a
Convertible Note and warrant. Those loans have an annual interest rate of 12%
simple interest, payable at maturity. The loans are due in December 2000. Prior
to the payment of the principal balance of the loan, each private investor may
convert, at his option at anytime up to 30 days after the closing of an equity
financing by the Company of $5 million or more, all amounts due into shares of
common stock at a converstion rate of $3.00 per share. In addition, and in the
event of a conversion, each private investor will receive for each Unit
purchased warrants to purchase 8,300 shares of common stock at an exercise price
of $6.00 per share and 8,300 shares of common stock at an exercise price of
$7.10 per share. If no conversion occurs, then each private investor will
receive for each Unit purchased warrants to purchase 5,000 shares of common
stock at an exercise price of $6.60 per share and 5,000 shares of common stock
at an exercise price of $8.00 per share. Additionally, in the event of a
default, each investor would be entitled to receive for each Unit purchased
warrants to purchase 5,000 shares at an exercise price of $5.00 per share for
each month that any amounts are outstanding under the note.
F-23
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR
OTHER PERSON TO PROVIDE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS ABOUT GENETIC VECTORS, INC. EXCEPT
THE INFORMATION OR REPRESENTATIONS CONTAINED IN THIS
PROSPECTUS. YOU SHOULD NOT RELY ON ANY ADDITIONAL
INFORMATION OR REPRESENTATIONS IF MADE.
----------------------
-----------------------
PROSPECTUS
This prospectus does not constitute an offer to sell, or
a solicitation of an offer to buy any securities: ---------------------
o except the common stock offered by this
prospectus;
o in any jurisdiction in which the offer or 1,400,000 SHARES OF COMMON STOCK
solicitation is not authorized;
o in any jurisdiction where the dealer or other
salesperson is not qualified to make the offer
or solicitation;
o to any person to whom it is unlawful to make the
offer or solicitation; or
o to any person who is not a United States MERCER PARTNERS, INC.
resident or who is outside the jurisdiction of
the United States.
The delivery of this prospectus or any accompanying sale
does not imply that:
o there have been no changes in the affairs of October ___, 2000
Genetic Vectors, Inc. after the date of this
prospectus; or
o the information contained in this prospectus is
correct after the date of this prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our company's Articles of Incorporation and Bylaws provide that our
company shall indemnify all officers and directors to the fullest extent
permitted by law. In addition to these indemnification rights, officers and
directors are entitled to indemnification under the Florida Business Corporation
Act (the "FBCA").
Pursuant to Section 607.0850(1) of the FBCA, our company may
indemnify any person who was or is a party to any proceeding (other than an
action by, or in the right of, the corporation), by reason of the fact that he
is or was a director, officer, employee, or agent of our company or is or was
serving at the request of our company as a director, officer, employee, or agent
of our company or is or was serving at the request of our company as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against liability incurred in connection with such
proceeding, including any appeal thereof, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
our company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Pursuant to Section 607.0850(2) of the FBCA, our company may
indemnify any person, who was or is a party to any proceeding by or in the right
of our company to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of our company or is or was
serving at the request of our company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
our company, except that no indemnification shall be made under this subsection
in respect of any claim, issue, or matter as to which such person shall have
been adjudged to be liable unless, and only to the extent that, the court in
which such proceeding was brought, or any other court of competent jurisdiction,
shall determine upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any proceeding referred to in
subsection (1) or subsection (2), or in defense of any claim, issue, or matter
therein, he shall be indemnified against expense actually and reasonably
incurred by him in connection therewith; (ii) indemnification provided pursuant
to Section 607.0850 is not exclusive; and (iii) our company may purchase and
maintain insurance on behalf of a director or officer of our company against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not our company would have the
power to indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides
that indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of our company in a proceeding by or in the
right of our company to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to our company or any
other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
II-1
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of our company to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of our
company, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than our company or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
In addition, the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriter to our
company's directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act, under certain
circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered.
Securities and Exchange Commission Registration Fee $ 2,800
NASD Filing Fee $ 1,500
Underwriter's Commission $840,000
Printing and Engraving Expenses $75,000
Accounting Fees and Expenses $50,000
Legal Fees and Expenses $146,700
Blue Sky Qualification Fees and Expenses $20,000
Transfer Agent Fees and Expenses $ 3,500
Non-Accountable Expense Allowance $252,000
Consulting Agreement $72,000
American Stock Exchange Listing Fee $36,500
----------
TOTAL $1,500,000
==========
All amounts except the Securities and Exchange Commission Registration
Fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June and August of 1998, we issued to Jim Drewitz an aggregate of
709 shares in exchange for consulting services valued by us at $6,000, based on
the closing price on the date of grant. This offering was exempt from
registration pursuant to Section 4(2) of the Securities Act.
On September 8, 1998, we granted warrants to purchase 50,000 shares of
our common stock at an exercise price of $6.00 per share to Sterling Technology
Partners, Ltd. (the "Consultant") to assist us in obtaining additional
financing. These warrants were immediately exercisable. The closing price of our
common stock on September 8, 1998 was $9.125. This offering was exempt from
registration pursuant to Section 4(2) of the Act.
On November 2, 1998, we borrowed $150,000 from Patricia Gianone
($50,000 loan) and Jerome P. Seiden Revocable Trust dated April 4, 1993
($100,000 loan) ("Loan No. 1"). The terms of Loan No. 1 provided for an annual
interest rate of 12% which will increase 1% for each month that any portion of
Loan No. 1 remains unpaid after April 1, 1999, up to the maximum rate permitted
by law. Accrued interest is payable monthly beginning on April 1, 1999. The
outstanding principal was due on November 2, 1999. We issued to the private
investors warrants to purchase 15,000 shares of our common stock at an exercise
price of $6.00 per share. These warrants may be exercised at any time before
November 2, 2003. The closing price of our common stock on November 2, 1998 was
$7.00. We are obligated to grant the private investors warrants to purchase an
additional 2,500 shares of our common stock at an exercise price of $6.00 per
share on April 1, 1999 and each month thereafter through October 1, 1999. On
November 1, 1999 and each month thereafter that the loans are outstanding, we
are obligated to grant the private investors warrants to purchase an additional
5,000 shares of common stock at an exercise price of $6.00. The proceeds of
these loans have been used by us to fund our working capital needs. This
offering was exempt from registration pursuant to Section 4(2) of the Act and
Rule 506 promulgated thereunder. We are in default of this loan for failing to
pay principal and interest when due.
II-2
In addition, on November 2, 1998, in connection with Loan No. 1, we
issued to the Consultant warrants to purchase 15,000 shares of our common stock
at an exercise price of $6.00 per share. These warrants are immediately
exercisable. This offering was exempt from registration pursuant to Section 4(2)
of the Act.
On January 19, 1999, we borrowed $163,500 from Capital Research Ltd.
("Loan No. 2"). The terms of Loan No. 2 provided for an annual interest rate of
12% that will increase 1% for each month that any portion of the loan remains
unpaid after its due date, up to the maximum rate permitted by law. Accrued
interest was payable quarterly in arrears beginning on April 19, 1999. The
outstanding principal balance was due on January 19, 2000. On March 3, 2000, the
private investor extended the due date of the principal and interest to June 30,
2000 and reduced the interest rate to 12% for the period of January 19, 2000 to
June 30, 2000. On July 7, 2000, the private investor extended the due date of
the principal and interest to September 30, 2000 and reduced the interest rate
to 12% until September 30, 2000. On October 4, 2000, the investor extended the
due date of the principal and interest to December 31, 2000. In the event the
loan is not repaid by December 31, 2000, the interest rate will increase to 16%
retroactive to January 19, 2000. The loan is secured by substantially all of our
assets. In addition, we issued the private investor warrants to purchase 50,000
shares of our common stock at an exercise price of $0.01 per share. These
warrants were immediately exercisable. The closing price of our common stock on
January 19, 1999 was $5.125. On March 3, 2000, in connection with the extension
of the maturity date, these warrants were cancelled and we issued 50,000 shares
of common stock to the private investor at no cost. On July 7, 2000, in
connection with the extension of the maturity date, we reduced the exercise
price of warrants to purchase 50,000 shares of common stock from $3.00 per share
to $1.50 per share. We are obligated to grant the private investor warrants to
purchase 150,000 shares at an exercise price of $5.50 per share upon the
repayment of the loan or the closing on the sale of our securities in an
aggregate amount of $1,500,000. Such additional warrants become exercisable on
the fifth anniversary of the grant. The proceeds of this loan have already been
expended by us to fund our working capital needs. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
On March 9, 1999, we borrowed an additional $125,000 ("Loan No. 3")
from Capital Research Ltd. The terms of Loan No. 3 provided for an annual
interest rate of 12% which will increase 1% for each month that any portion of
the loan remains unpaid after its due date, up to the maximum rate permitted by
law. Accrued interest was payable quarterly in arrears beginning on April 19,
1999. The outstanding principal balance was due on January 19, 2000. On March 3,
2000, the private investor extended the due date of the principal and interest
to June 30, 2000 and reduced the interest rate to 12% for the period of January
19, 2000 to June 30, 2000. On July 7, 2000, the private investor extended the
due date of the principal and interest to September 30, 2000 and reduced the
interest rate to 12% until September 30, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. In the
event the loan is not repaid by December 31, 2000, the interest rate will
increase to 16% retroactive to January 19, 2000. The loan is secured by
substantially all of our assets. In addition, we issued the private investor
warrants to purchase 50,000 shares of our common stock at an exercise price of
$0.01 per share. These warrants were immediately exercisable. The closing price
of our common stock on March 9, 1999 was $7.875. On March 3, 2000, in connection
with the extension of the maturity date, these warrants were cancelled and we
issued 50,000 shares of common stock to the private investor at no cost. We are
obligated to grant the private investor warrants to purchase 50,000 shares of
common stock at an exercise price of $3.00 per share upon the repayment of the
loan or the closing on the sale of our securities in an aggregate amount of
$1,500,000. On July 7, 2000, in connection with the extension of the maturity
date, we reduced the exercise price of warrants to purchase 50,000 shares of
common stock from $3.00 per share to $2.50 per share. Substantially all of the
proceeds of this loan have been expended by us to fund our working capital
needs. This offering was exempt from registration pursuant to Section 4(2) of
the Act and Rule 506 promulgated thereunder.
In connection with Loan No. 2 and Loan No. 3, we granted warrants to
purchase 16,350 shares of our common stock on January 19, 1999 and 12,500 shares
of our common stock on March 9, 1999 at an exercise price of $5.50 per share to
the Consultant for helping us to locate the financing. These warrants were
immediately exercisable. The closing price of our common stock was $5.125 and
$7.875 on January 19, 1999 and March 9, 1999, respectively. This offering was
exempt from registration pursuant to Section 4(2) of the Act.
On April 19, 1999, we borrowed an additional $100,000 ("Loan No. 4")
from Jack Surgent. This loan has an annual interest rate of 12%. Accrued
interest was payable quarterly, commencing on June 1, 1999. The outstanding
principal balance was due April 19, 2000. The loan is secured by substantially
all of our assets. In addition, we issued the private investor warrants to
purchase 25,000 shares of our common stock at an exercise price of $3.50 per
share. These warrants were immediately exercisable. The closing price of our
common stock on April 19, 1999 was $6.00. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder. We are in default of this loan for failing to pay principal and
interest when due. In connection with this loan, we granted warrants to purchase
10,000 shares of common stock at an exercise price of $3.50 per share to the
Consultant for helping us to locate the financing.
II-3
On May 10, 1999, we issued 225,000 shares of our common stock to Lancer
Partners in exchange for $225,000. The private investor paid $1.00 per share for
the 225,000 shares, or $4.75 per share less than the closing price of $5.75
pershare on May 10, 1999. The proceeds from this offering were expended by us to
fund our working capital needs. This offering was exempt from registration
pursuant to Section 4(2) of the Act and Rule 506 promulgated thereunder.
On July 16, 1999, we issued 400,000 shares of our common stock to
Lancer Partners (300,000 shares) and Jim Kelly (100,000 shares) in exchange for
$400,000. These private investors paid $1.00 per share for the 400,000 shares,
or $4.75 per share less than the closing price of $5.75 per share on July 16,
1999. The proceeds from this offering were expended by us to fund our working
capital needs. In connection with this financing, we canceled warrants in
connection with Loan No. 3 to purchase 100,000 shares of common stock at an
exercise price of $5.50 per share and issued new warrants to purchase 100,000
shares of common stock at an exercise price of $3.00 per share. This offering
was exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On October 6, 1999, we borrowed an additional $200,000 ("Loan No. 5")
from The Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued
interest was payable quarterly, commencing January 19, 2000, which will increase
one percent (1%) for each month that any portion of the loan remains unpaid
after its due date. The outstanding principal balance was due on January 19,
2000. On March 3, 2000, the private investor extended the due date of the
principal and interest to June 30, 2000. On July 7, 2000, the private investor
extended the due date of the principal and interest to September 30, 2000 and
reduced the interest rate to 12% until September 30, 2000. On October 4, 2000,
the investor extended the due date of the principal and interest to December 31,
2000. In the event the loan is not repaid by December 31, 2000, the interest
rate will increase to 16% retroactive to January 19, 2000. The loan is secured
by substantially all of our assets. In addition, we issued the private investor
warrants to purchase 80,000 shares of our common stock at an exercise price of
$.01 per share. These warrants were immediately exercisable. The closing price
of our common stock on October 7, 1999 was $5.75. On March 3, 2000, in
connection with the extension of the maturity date, these warrants were
cancelled and we issued 50,000 shares of common stock to the private investor at
no cost. On July 7, 2000, in connection with the extension of the maturity date,
we reduced the exercise price of warrants to purchase 120,000 shares of common
stock from $3.00 per share to $2.50 per share. In addition, when the loan is
paid back or if $1.5 million is subsequently raised by us, we are obligated to
issue warrants to purchase 150,000 shares of common stock at an exercise price
of $3.00 per share. In connection with this loan, we granted warrants to
purchase 20,000 shares of common stock on October 7, 1999 at an exercise price
of $3.00 per share to the Consultant for helping us locate the financing. These
warrants were exercisable immediately. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
On November 19, 1999, we borrowed an additional $200,000 ("Loan No. 6")
from The Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued
interest was payable quarterly, commencing January 19, 2000, which will increase
one percent (1%) for each month that any portion of the loan remains unpaid
after its due date. The outstanding principal balance is due on January 19,
2000. On March 3, 2000, the private investor extended the due date of the
principal and interest to June 30, 2000. On July 7, 2000, the private investor
extended the due date of the principal and interest to September 30, 2000 and
reduced the interest rate to 12% until September 30, 2000. On October 4, 2000,
the investor extended the due date of the principal and interest to December 31,
2000. In the event the loan is not repaid by December 31, 2000, the interest
rate will increase to 16% retroactive to January 19, 2000. The loan is secured
by substantially all of our assets. In addition, our company issued the private
investor warrants to purchase 80,000 shares of common stock at an exercise price
of $.01 per share. These warrants were immediately exercisable. The closing
price of our common stock on November 19, 1999 was $6.00. On March 3, 2000, in
connection with the extension of the maturity date, these warrants were
cancelled and we issued 80,000 shares of common stock to the private investor.
On July 7, 2000, in connection with the extension of the maturity date, we
reduced the exercise price of warrants to purchase 120,000 shares of common
stock from $3.00 per share to $2.50 per share. In addition, when the loan is
paid back or if $1.5 million is subsequently raised, we are obligated to issue
warrants to purchase 150,000 shares of our common stock at an exercise price of
$3.00 per share. In connection with this loan, we granted warrants to purchase
20,000 shares of our common stock on November 19, 1999 at an exercise price of
$3.00 per share to the Consultant for helping us locate the financing. These
warrants were exercisable immediately. This offering was exempt from
registration pursuant to Section 4(2) of the Act and Rule 506 promulgated
thereunder.
On December 22, 1999, we borrowed an additional $300,000 ("Loan No. 7")
from The Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued
interest is payable quarterly, commencing on April 22, 2000, which will increase
one percent (1%) for each month that any portion of the loan remains unpaid
after its due date. The outstanding principal balance was due on April 22, 2000.
On March 3, 2000, the private investor extended the due date of the principal
and interest to June 30, 2000. On July 7, 2000, the private investor extended
the due date of the principal and interest to September 30, 2000 and reduced the
interest rate to 12% until September 30, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31,
II-4
2000. In the event the loan is not repaid by December 31, 2000, the interest
rate will increase to 16% retroactive to January 19, 2000. The loan is secured
by substantially all of our assets. In addition, we issued the private investor
warrants to purchase 120,000 shares of common stock at an exercise price of
$1.00 per share. These warrants were immediately exercisable. The closing price
of our common stock on December 22, 1999 was $5.25. In addition, when the loan
is paid back or if $1.5 million is subsequently raised, we are obligated to
issue warrants to purchase 150,000 shares of common stock at an exercise price
of $3.00 per share. On July 7, 2000, in connection with the extension of the
maturity date, we reduced the exercise price of warrants to purchase 120,000
shares of common stock from $3.00 per share to $2.50 per share. In connection
with this loan, we granted to the Consultant warrants to purchase 30,000 shares
of common stock at an exercise price of $3.00 per share for helping us locate
the financing. These warrants are immediately exercisable. This offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On February 11, 2000, we borrowed $250,000 ("Loan No. 8") from The
Orbiter Fund, Ltd. The loan has an annual interest rate of 12%, accrued interest
is payable quarterly, commencing on its due date, which will increase one
percent (1%) for each month that any portion of the loan remains unpaid after
April 22, 2000. In addition, we issued the private investor warrants to purchase
100,000 shares of common stock at an exercise price of $1.00 per share. These
warrants were immediately exercisable. On March 3, 2000, the private investor
extended the due date of the principal and interest to June 30, 2000. On July 7,
2000, the private investor extended the due date of the principal and interest
to September 30, 2000 and reduced the interest rate to 12% until September 30,
2000. On October 4, 2000, the investor extended the due date of the principal
and interest to December 31, 2000. In the event the loan is not repaid by
December 31, 2000, the interest rate will increase to 16% retroactive to January
19, 2000.The loan is secured by substantially all of our assets. The closing
price of our common stock on February 11, 2000 was $7.25. In addition, when the
loan is paid back or if $1.5 million is subsequently raised, we will issue
warrants to purchase 125,000 shares of common stock at an exercise price of
$3.00 per share. On July 7, 2000, in connection with the extension of the
maturity date, we reduced the exercise price of warrants to purchase 120,000
shares of common stock from $3.00 per share to $2.50 per share. In connection
with this loan, we granted to the Consultant warrants to purchase 25,000 shares
of common stock at an exercise price of $3.00 per share for helping us locate
the financing. These warrants are immediately exercisable. This offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On March 2, 2000, we borrowed $75,000 from John D. Higgins ("Loan No.
9"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan was due on August 30, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. Prior
to the payment of the principal balance of the loan, the private investor may
convert, at his option, all amounts due into shares of our common stock at a
conversion rate of $5.00 per share. In addition, we issued the private investor
warrants to purchase 7,500 shares of common stock at an exercise price of $6.20
per share. In the event of a default, this note is convertible into shares of
common stock at a conversion rate of $3.00 per share. Additionally, in the event
of a default, the investor would be entitled to warrants to purchase 750 shares
at an exercise price of $5.00 per share for each month that any amounts are
outstanding under the note. The offering was exempt from registration pursuant
to Section 4(2) of the Act and Rule 506 promulgated thereunder.
On March 7, 2000, we borrowed $100,000 from Frederick & Company ("Loan
No. 10"). The loan has an annual interest rate of 12%, simple interest, payable
at maturity. This loan was due on September 5, 2000. On October 4, 2000, the
investor extended the due date of the principal and interest to December 31,
2000. Prior to the payment of the principal balance of the loan, the private
investor may convert, at his option, all amounts due into shares of our common
stock at a conversion rate of $5.00 per share. In addition, we issued the
private investor warrants to purchase 10,000 shares of common stock at an
exercise price of $6.20 per share. In the event of a default, this note is
convertible into shares of common stock at a conversion rate of $3.00 per share.
Additionally, in the event of a default, the investor would be entitled to
warrants to purchase 1,000 shares at an exercise price of $5.00 per share for
each month that any amounts are outstanding under the note. The offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder.
On April 4, 2000, we borrowed $100,000 from Donald Heap ("Loan No.
11"). The loan has an annual interest rate of 12%, simple interest, payable at
maturity. This loan was due on October 3, 2000. On October 4, 2000, the investor
extended the due date of the principal and interest to December 31, 2000. Prior
to the payment of the principal balance of the loan, the private investor may
convert, at his option, all amounts due into shares of our common stock at a
conversion rate of $5.00 per share. In addition, we issued the private investor
warrants to purchase 10,000 shares of common stock at an exercise price of $6.20
per share. In the event of a default, this note is convertible into shares of
common stock at a conversion rate of $3.00 per share. Additionally, in the event
of a default, the investor would be entitled to warrants to purchase 1,000
shares at an exercise price of $5.00 per share for each month that any amounts
are outstanding under the note. The offering was exempt from registration
pursuant to Section 4(2) of the Act and Rule 506 promulgated thereunder.
II-5
On May 8, 2000, we borrowed $100,000 ("Loan No. 12") and on May 26,
2000 we borrowed $500,000 from Jim Kelly ("Loan No. 13"). These loans have an
annual interest rate of 12%, simple interest, payable at maturity. The 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. 12) and 166,665 (Loan No. 13)
shares of common stock at an exercise price of $6.00 per share and (b) 33,333
(Loan No. 12) and 166,665 (Loan No. 13) shares of common stock at an exercise
price of $7.10 per share. If no conversion occurs, then the private investor
will receive warrants to purchase (a) 20,000 (Loan No. 12) and 100,000 (Loan No.
13) shares of common stock at an exercise price of $6.60 per share and (b)
20,000 (Loan No. 12) and 100,000 (Loan No. 13) shares of common stock at an
exercise price of $8.00 per share. Additionally, in the event of a default, the
investor would be entitled to warrants to purchase (a) 10,000 (Loan No. 12) and
(b) 10,000 (Loan No. 13) shares of common stock at an exercise price of $5.00
per share for each month that any amounts are outstanding under the note. The
offering was exempt from registration pursuant to Section 4(2) of the Act and
Rule 506 promulgated thereunder.
On June 9, 2000, we borrowed $50,000 ("Loan No. 14") from Michael and
Lois Halbert. This loan has an annual interest rate of 12%, simple interest,
payable at maturity. The loan is due 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.
Between July 24 and August 1, 2000, we borrowed $1,200,000 ("Loan No.
14") from thirty-five private investors from the sale of 48 Units, consisting of
a convertible note and warrant. These loans have an annual interest rate of 12%,
simple interest, payable at maturity. The loans are due in December 2000. Prior
to the payment of the principal balance of the loan, each private investor may
convert, at his option at anytime up to 30 days after the closing of an equity
financing by our company of $5 million or more, all amounts due into shares of
our common stock at a conversion rate of $3.00 per share. In addition, and in
the event of a conversion, each private investor will receive for each Unit
purchased warrants to purchase 8,333 shares of common stock at an exercise price
of $6.00 per share and 8,333 shares of common stock at an exercise price of
$7.10 per share. If no conversion occurs, then each private investor will
receive for each Unit purchased warrants to purchase 5,000 shares of common
stock at an exercise price of $6.60 per share and 5,000 shares of common stock
at an exercise price of $8.00 per share. Additionally, in the event of a
default, each investor would be entitled to receive for each Unit purchased
warrants to purchase 2,500 shares at an exercise price of $5.00 per share for
each month that any amounts are outstanding under the note. The offering was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506
promulgated thereunder. The names of the thirty-five private investors are David
A. Brady, Jr., Tom Vinson, John W. McGriff, James Lasbury Mitchell III, C. Frank
Foster, Jr., Anthony Balsamo, Jim Avramovich, Dewayne Truitt, Herman A. Vonhof,
Scott Davis, Dr. Will Brantley, Arthur Dietz, Leo Thompson, L. Scott Stankavage,
Ben Biacchino, Robert L. Stanley, Michael Chatham, Anthony Byrne, Ralph Anderson
III, Bryan Carr, George Levin, Richard Wunderlich, J.R. Frangipane, James
Leiferman, Mark Spector, James Owen, Robert Stranger, The Estate of Milton
Smithloff, Robert Benninger Jr., Bruce Rothmann, Joseph J. Steinkirchner,
Jeffrey Rinde, Will Hendrick, Mark Jesuroga and Thomas Johnston.
II-6
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration
statement:
Exhibit
No. Description Location
--- ----------- --------
1.1 Form of Underwriting Agreement between Incorporated by reference to Exhibit 1.1 to
Mercer Partners, Inc. and the Company the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
1.2 Form of Consulting Agreement between Provided herewith
Mercer Partners, Inc. and the Company
1.3 Form of Selected Dealers Agreement between Incorporated by reference to Exhibit No. 1.3
Mercer Partners, Inc. and the Company to the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
1.4 Form of Agreement among Underwriters Incorporated by reference to Exhibit No. 1.4
to the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
1.5 Form of Underwriter's Warrant from the Incorporated by reference to Exhibit No. 1.5
Company to Mercer Partners, Inc. to the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
2.1 Stock Purchase Agreement dated as of Incorporated by reference to Exhibit 2.1 to
January 15, 2000, among the Company and Registrant's Current Report on Form 8-K filed
shareholders of DNA Sciences, Inc. with the SEC on February 14, 2000
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No. 3.1
as amended 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 Company Incorporated by reference to Exhibit No. 3.3
to the Annual Report on Form 10-KSB for the
year ended December 31, 1999
4.1 Form of Common Stock certificate Incorporated by reference to Exhibit No. 4.1
to the Registration Statement
4.2 Form of Underwriters' Warrant Incorporated by reference to Exhibit No. 4.2
to the Registration Statement
4.3 Form of 1996 Incentive Plan Incorporated by reference to Exhibit No. 4.3
to the Registration Statement
4.4 Form of 1999 Stock Option Plan Incorporated by reference to Exhibit No. 4.4
to the Annual Report on Form 10-KSB for the
year ended December 31, 1999
5.1 Opinion re: Legality Incorporated by reference to Exhibit No. 5.1
to the Registration Statement on Form SB-2
filed with the Securities and Exchange
Commission on August 24, 2000
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No. 10.1
between the University of Miami and its to the Registration Statement
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit No. 10.2
January 20, 1992 between ProVec, Inc. and to the Registration Statement
EpiDNA, Inc.
II-7
Exhibit
No. Description Location
--- ----------- --------
10.3 Agreement between University of Miami Incorporated by reference to Exhibit No. 10.3
and its School of Medicine and the to the Registration Statement
Company dated August 21, 1996
10.4 Employment Agreement dated Incorporated by reference to Exhibit No. 10.4
August 15, 1996 between Mead M. to the Registration Statement
McCabe, Sr. and the Company
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit No. 10.5
Agreement dated August 15, 1996 between to the Registration Statement
Mead M. McCabe, Sr. and the Company
10.6 Stock Option Addendum to Employment Incorporated by reference to Exhibit No. 10.7
Agreement dated August 15, 1996 between to the Registration Statement
Mead M. McCabe, Sr. and the Company
10.7 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit No. 10.10
between James A. Joyce and the Company to the Registration Statement
10.8 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No. 10.11
among Nyer Medical Group, Inc., the to the Registration Statement
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
10.9 Investors Finders Agreement dated Incorporated by reference to Exhibit No. 10.12
June 9, 1994 among Nyer Medical Group, to the Registration Statement
Inc., and the Company and Gulf American
Trading Company
10.10 Industrial Real Estate Lease dated June Incorporated by reference to Exhibit No. 10.13
12, 1997 among the Company and Jetex to the Company's Quarterly Report on Form
Group, Inc. 10-QSB for the Quarter ended June 30, 1997
10.11 Letter from University of Miami dated Incorporated by reference to Exhibit No. 10.12
April 8, 1998 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997
10.12 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.13
1998 in the Original Principal Amount of to the Company's Annual Report on Form 10-KSB
$50,000 given by the Company to Ms. for the year ended December 31, 1998
Patricia A. Gionone
10.13 Common Stock Purchase Warrant No. W-2 Incorporated by reference to Exhibit No. 10.14
dated as of November 2, 1998 granted by to the Company's Annual Report on Form 10-KSB
the Company to Ms. Patricia A. Gionone for the year ended December 31, 1998
10.14 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.15
1998 in the Original Principal Amount of to the Company's Annual Report on Form 10-KSB
$100,000 given by the Company to Jerome P. for the year ended December 31, 1998
Seiden Irrevocable Trust Dated April 22,
1998
10.15 Common Stock Purchase Warrant No. W-1 Incorporated by reference to Exhibit No. 10.16
dated as of November 2, 1998 granted by to the Company's Annual Report on Form 10-KSB
the Company to Jerome P. Seiden for the year ended December 31, 1998
Irrevocable Trust Dated April 22, 1998
II-8
Exhibit
No. Description Location
--- ----------- --------
10.16 Common Stock Purchase Warrant No. W-5 Incorporated by reference to Exhibit No. 10.17
dated as of September 3, 1998 granted by to the Company's Annual Report on Form 10-KSB
the Company to Sterling Technology for the year ended December 31, 1998
Partners, Ltd.
10.17 Common Stock Purchase Warrant No. W-4 Incorporated by reference to Exhibit No. 10.18
dated as of January 19, 1999 granted by to the Company's Annual Report on Form 10-KSB
the Company to Sterling Technology for the year ended December 31, 1998
Partners, Ltd.
10.18 Common Stock Purchase Warrant No. W-7 Incorporated by reference to Exhibit No. 10.19
dated as of March 9, 1999 granted by the to the Company's Annual Report on Form 10-KSB
Company to Sterling Technology Partners, for the year ended December 31, 1998
Ltd.
10.19 Common Stock Purchase Warrant No. W-3 Incorporated by reference to Exhibit No. 10.20
dated as of January 19, 1999 granted by to the Company's Annual Report on Form 10-KSB
the Company to Capital Research, Ltd. for the year ended December 31, 1998
10.20 Promissory Note dated as of January 19, Incorporated by reference to Exhibit No. 10.21
1999 in the Original Principal Amount of to the Company's Annual Report on Form 10-
$163,500 given by the Company to Capital KSB for the year ended December 31, 1998
Research, Ltd.
10.21 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.22
January 19, 1999 between the Company and to the Company's Annual Report on Form 10-KSB
Capital Research, Ltd. for the year ended December 31, 1998
10.22 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.23
January 19, 1999 between the Company and to the Company's Annual Report on Form 10-KSB
Capital Research, Ltd. for the year ended December 31, 1998
10.23 Promissory Note dated as of March 9, Incorporated by reference to Exhibit No. 10.24
1999 in the Original Principal Amount of to the Company's Annual Report on Form 10-
$125,000 given by the Company to KSB for the year ended December 31, 1998
Capital Research, Ltd.
10.24 Common Stock Purchase Warrant No. W-6 Incorporated by reference to Exhibit No. 10.25
dated as of March 9, 1999 granted by the to the Company's Annual Report on Form 10-KSB
Company to Capital Research, Ltd. for the year ended December 31, 1998
10.25 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.26
March 9, 1999 between the Company and to the Company's Annual Report on Form 10-KSB
Capital Research, Ltd. for the year ended December 31, 1998
10.26 Executive Employment Agreement, together Incorporated by reference to Exhibit 10.26 to
with Stock Option Addendum, dated as of the Company's Annual Report on Amendment No. 1
July 1, 1999 between Mead M. McCabe, Jr. to the Form 10 KSB for the year ended December
and the Company 31, 1998
10.27 Executive Employment Agreement, together Incorporated by reference to Exhibit 10.27 to
with Stock Option Addendum, dated as of the Company's Annual Report on Amendment No. 1
July 1, 1999 between Mead M. McCabe, Sr. to the Form 10 KSB for the year ended December
and the Company 31, 1998
10.28 Executive Employment Agreement, together Incorporated by reference to Exhibit No. 10.29
with Stock Option Addendum, dated as of to the Annual Report on Form 10-KSB for the
January 17, 2000 between Eric Wilkinson year ended December 31, 1999
and the Company
II-9
Exhibit
No. Description Location
--- ----------- --------
10.29 Promissory Note dated as of April 19, Incorporated by reference to Exhibit No. 10.30
1999 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$100,000 given by the Company to Jack year ended December 31, 1999
Surgent
10.30 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.31
April 19, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Jack Surgent year ended December 31, 1999
10.31 Common Stock Purchase Warrant dated as Incorporated by reference to Exhibit No. 10.32
of April 19, 1999 granted by the to the Annual Report on Form 10-KSB for the
Company to Jack Surgent year ended December 31, 1999
10.32 Promissory Note dated as of October 6, Incorporated by reference to Exhibit No. 10.33
1999 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$200,000 given by the Fund, Ltd. Company to Orbiter year ended December 31, 1999
10.33 Pledge and Security Agreement dated Incorporated by reference to Exhibit No. 10.34
as of October 6, 1999 between the and to the Annual Report on Form 10-KSB for the
Company Orbiter Fund, Ltd. year ended December 31, 1999
10.34 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.35
of October 6, 1999 between the and to the Annual Report on Form 10-KSB for the
Company Orbiter Fund, Ltd. year ended December 31, 1999
10.35 Common Stock Purchase Warrant dated as Incorporated by reference to Exhibit No. 10.36
of October 6, 1999 granted by the to the Annual 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 Exhibit No. 10.37
November 19, 1999 in the Original to the Annual Report on Form 10-KSB for the
Principal Amount of $200,000 given by year ended December 31, 1999
the Company to Orbiter Fund, Ltd.
10.37 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.38
November 19, 1999 between the Company to the Annual Report on Form 10-KSB for the
and Orbiter Fund, Ltd. year ended December 31, 1999
10.38 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.39
November 19, 1999 between the Company to the Annual Report on Form 10-KSB for the
and Orbiter Fund, Ltd. year ended December 31, 1999
10.39 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.40
December 22, 1999 granted by the Company to the Annual Report on Form 10-KSB for the
to Orbiter Fund, Ltd. year ended December 31, 1999
10.40 Promissory Note dated as of November 19, Incorporated by reference to Exhibit No. 10.41
1999 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$300,000 given by the Company to Orbiter year ended December 31, 1999
Fund, Ltd.
II-10
Exhibit
No. Description Location
--- ----------- --------
10.41 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.42
December 22, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.42 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.43
December 22, 1999 between the Company and to the Annual Report on Form 10-KSB for the
The Orbiter Fund, Ltd. year ended December 31, 1999
10.43 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.44
December 22, 1999 granted by the Company to the Annual Report on Form 10-KSB for the
to The Orbiter Fund, Ltd. year ended December 31, 1999
10.44 Promissory Note dated as of February, Incorporated by reference to Exhibit No. 10.45
2000 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$250,000 give by the Company to The year ended December 31, 1999
Orbiter Fund, Ltd.
10.45 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.46
February, 2000 between the Company and The to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.46 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.47
February, 2000 between the Company and The to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.47 Stock Purchase Agreement dated as of Incorporated by reference to Exhibit No. 10.48
January 17, 2000 among the Company, DNA to the Annual Report on Form 10-KSB for the
Sciences, Inc. and the shareholders of year ended December 31, 1999
DNA Sciences, Inc.
10.48 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.49
February, 2000 given by the Company to The to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.49 Convertible Promissory Note dated as of Incorporated by reference to Exhibit No. 10.50
March 2, 2000 in the Original Principal to the Annual Report on Form 10-KSB for the
Amount of $75,000 given by the Company to year ended December 31, 1999 Jack Higgins
10.50 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No.
March 2, 2000 between the Company and Jack 10.51 to the Annual Report on Form 10-KSB for
Higgins the year ended December 31, 1999
10.51 Convertible Promissory Note dated as of Incorporated by reference to Exhibit No. 10.52
March 7, 2000 in the Original Principal to the Annual Report on Form 10-KSB for the
Amount of $100,000 given by the Company year ended December 31, 1999
to Frederick & Company
10.52 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.53
March 7, 2000 between the Company and to the Annual Report on Form 10-KSB for the
Frederick & Company year ended December 31, 1999
II-11
Exhibit
No. Description Location
--- ----------- --------
10.53 Convertible Promissory Note in the Incorporated by reference to Exhibit No. 10.54
Original Principal Amount of $100,000 to the Annual Report on Form 10-KSB for the
dated as of May 8, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.54 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.55
May 8, 2000 between the Company and Jim to the Annual Report on Form 10-KSB for the
Jim Kelly. year ended December 31, 1999
10.55 Convertible Promissory Note in the Incorporated by reference to Exhibit No. 10.56
Original Principal Amount of $500,000 to the Annual Report on Form 10-KSB for the
dated as of May 26, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.56 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.57
May 26, 2000 between the Company and Jim to the Annual Report on Form 10-KSB for the
Kelly. year ended December 31, 1999
10.57 Convertible Promissory Note in the Incorporated by reference to Exhibit 10.57 to
Original Principal Amount of $100,000 the Quarterly Report on Form 10-QSB for the
dated as of April 4, 2000 between the three months ended March 31, 2000 Company
and Donald Heap.
10.58 Common Stock Purchase Warrant No. W-18 Incorporated by reference to Exhibit 10.58 to
dated as of April 4, 2000 between the the Quarterly Report on Form 10-QSB for the
Company and Donald Heap. three months ended March 31, 2000
10.59 Convertible Promissory Note in the Incorporated by reference to Exhibit 10.59 to
Original Principal Amount of $50,000 the Quarterly Report on Form 10-QSB for the
dated as of June 9, 2000 between the three months ended March 31, 2000
Company and Michael Lois Halbert
10.60 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit 10.60 to
June 9, 2000 between the Company and the Quarterly Report on Form 10-QSB for the
Michael and Lois Halbert three months ended March 31, 2000
10.61 Common Stock Purchase Warrant No. W-12 Incorporated by reference to Exhibit 10.61 to
dated as of October 6, 1999 between the the Quarterly Report on Form 10-QSB for the
Company and Sterling Technology Partners, three months ended March 31, 2000
Ltd.
10.62 Common Stock Purchase Warrant No. W-13 Incorporated by reference to Exhibit 10.62 to
dated as of December 22, 1999 between the the Quarterly Report on Form 10-QSB for the
Company and Sterling Technology Partners, three months ended March 31, 2000 Ltd.
11. Statement re: computation of earnings Not applicable
15. Opinion re: Legality Provided herewith
18. Letter on change in accounting principles Not applicable
21. Subsidiaries of the Registrant Incorporated by reference to Exhibit No. 21 to
the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
August 24, 2000
II-12
Exhibit
No. Description Location
--- ----------- --------
22. Published report regarding matters Not applicable
submitted to Vote
23.1 Consent of Independent Accountant Provided herewith
23.2 Consent of Counsel Incorporated by reference to Exhibit No. 23.2
to the Registration Statement on Form SB-2
filed with the Securities and Exchange
Commission on August 24, 2000
24. Power of Attorney Not applicable
27. Financial Data Schedule Incorporated by reference to Exhibit No. 27 to
the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
August 24, 2000
Item 28. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be a bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-13
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the bona fide offering thereof.
II-14
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, in the City of Miami,
Florida, on October 23, 2000.
GENETIC VECTORS, INC.
By: /s/ Mead M. McCabe, Jr.
-------------------------------------
Name: Mead M. McCabe, Jr.
Title: Chief Executive Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Mead M. McCabe, Jr. October 23, 2000
- ------------------------------------
Mead M. McCabe, Jr. Chief Executive Officer, Secretary,
Chief Financial Officer, Director
/s/ Mead M. McCabe, Sr. October 23, 2000
- ------------------------------------
Mead M. McCabe, Sr. Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Eric Wilkinson October 23, 2000
- ------------------------------------
Eric Wilkinson President and Director
/s/ Mark E. Burroughs October 23, 2000
- ------------------------------------
Mark E. Burroughs Director
/s/ Jack W. Fell, Ph.D. October 23, 2000
- ------------------------------------
Jack W. Fell, Ph.D. Director
/s/ Michael C. Foley October 23, 2000
- ------------------------------------
Michael C. Foley Director
II-15
INDEX TO EXHIBITS
Exhibit
No. Description Location
--- ----------- --------
1.1 Form of Underwriting Agreement between Incorporated by reference to Exhibit 1.1 to
Mercer Partners, Inc. and the Company the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
1.2 Form of Consulting Agreement between Provided herewith
Mercer Partners, Inc. and the Company
1.3 Form of Selected Dealers Agreement between Incorporated by reference to Exhibit No. 1.3
Mercer Partners, Inc. and the Company to the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
1.4 Form of Agreement among Underwriters Incorporated by reference to Exhibit No. 1.4
to the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
1.5 Form of Underwriter's Warrant from the Incorporated by reference to Exhibit No. 1.5
Company to Mercer Partners, Inc. to the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
October 20, 2000
2.1 Stock Purchase Agreement dated as of Incorporated by reference to Exhibit 2.1 to
January 15, 2000, among the Company and Registrant's Current Report on Form 8-K filed
shareholders of DNA Sciences, Inc. with the SEC on February 14, 2000
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No. 3.1
as amended 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 Company Incorporated by reference to Exhibit No. 3.3
to the Annual Report on Form 10-KSB for the
year ended December 31, 1999
4.1 Form of Common Stock certificate Incorporated by reference to Exhibit No. 4.1
to the Registration Statement
4.2 Form of Underwriters' Warrant Incorporated by reference to Exhibit No. 4.2
to the Registration Statement
4.3 Form of 1996 Incentive Plan Incorporated by reference to Exhibit No. 4.3
to the Registration Statement
4.4 Form of 1999 Stock Option Plan Incorporated by reference to Exhibit No. 4.4
to the Annual Report on Form 10-KSB for the
year ended December 31, 1999
5.1 Opinion re: Legality Incorporated by reference to Exhibit No. 5.1
to the Registration Statement on Form SB-2
filed with the Securities and Exchange
Commission on August 24, 2000
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No. 10.1
between the University of Miami and its to the Registration Statement
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit No. 10.2
January 20, 1992 between ProVec, Inc. and to the Registration Statement
EpiDNA, Inc.
Exhibit
No. Description Location
--- ----------- --------
10.3 Agreement between University of Miami and Incorporated by reference to Exhibit No. 10.3
its School of Medicine and the Company to the Registration Statement
dated August 21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No. 10.4
between Mead M. McCabe, Sr. and the Company to the Registration Statement
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit No. 10.5
Agreement dated August 15, 1996 between to the Registration Statement
Mead M. McCabe, Sr. and the Company
10.6 Stock Option Addendum to Employment Incorporated by reference to Exhibit No. 10.7
Agreement dated August 15, 1996 between to the Registration Statement
Mead M. McCabe, Sr. and the Company
10.7 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit No. 10.10
between James A. Joyce and the Company to the Registration Statement
10.8 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No. 10.11
among Nyer Medical Group, Inc., the to the Registration Statement
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
10.9 Investors Finders Agreement dated Incorporated by reference to Exhibit No. 10.12
June 9, 1994 among Nyer Medical Group, to the Registration Statement
Inc., and the Company and Gulf American
Trading Company
10.10 Industrial Real Estate Lease dated June Incorporated by reference to Exhibit No. 10.13
12, 1997 among the Company and Jetex to the Company's Quarterly Report on Form
Group, Inc. 10-QSB for the Quarter ended June 30, 1997
10.11 Letter from University of Miami dated Incorporated by reference to Exhibit No. 10.12
April 8, 1998 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997
10.12 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.13
1998 in the Original Principal Amount of to the Company's Annual Report on Form 10-KSB
$50,000 given by the Company to Ms. for the year ended December 31, 1998
Patricia A. Gionone
10.13 Common Stock Purchase Warrant No. W-2 Incorporated by reference to Exhibit No. 10.14
dated as of November 2, 1998 granted by to the Company's Annual Report on Form 10-KSB
the Company to Ms. Patricia A. Gionone for the year ended December 31, 1998
10.14 Promissory Note dated as of November 2, Incorporated by reference to Exhibit No. 10.15
1998 in the Original Principal Amount of to the Company's Annual Report on Form 10-KSB
$100,000 given by the Company to Jerome P. for the year ended December 31, 1998
Seiden Irrevocable Trust Dated April
22, 1998
10.15 Common Stock Purchase Warrant No. W-1 Incorporated by reference to Exhibit No. 10.16
dated as of November 2, 1998 granted by to the Company's Annual Report on Form 10-KSB
the Company to Jerome P. Seiden for the year ended December 31, 1998
Irrevocable Trust Dated April 22, 1998
2
Exhibit
No. Description Location
--- ----------- --------
10.16 Common Stock Purchase Warrant No. W-5 Incorporated by reference to Exhibit No. 10.17
dated as of September 3, 1998 granted by to the Company's Annual Report on Form 10-KSB
the Company to Sterling Technology for the year ended December 31, 1998
Partners, Ltd.
10.17 Common Stock Purchase Warrant No. W-4 Incorporated by reference to Exhibit No. 10.18
dated as of January 19, 1999 granted by to the Company's Annual Report on Form 10-KSB
the Company to Sterling Technology for the year ended December 31, 1998
Partners, Ltd.
10.18 Common Stock Purchase Warrant No. W-7 Incorporated by reference to Exhibit No. 10.19
dated as of March 9, 1999 granted by the to the Company's Annual Report on Form 10-KSB
Company to Sterling Technology Partners, for the year ended December 31, 1998
Ltd.
10.19 Common Stock Purchase Warrant No. W-3 Incorporated by reference to Exhibit No. 10.20
dated as of January 19, 1999 granted by to the Company's Annual Report on Form 10-KSB
the Company to Capital Research, Ltd. for the year ended December 31, 1998
10.20 Promissory Note dated as of January 19, Incorporated by reference to Exhibit No. 10.21
1999 in the Original Principal Amount of to the Company's Annual Report on Form 10-KSB
$163,500 given by the Company to Capital for the year ended December 31, 1998
Research, Ltd.
10.21 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.22
January 19, 1999 between the Company and to the Company's Annual Report on Form 10-KSB
Capital Research, Ltd. for the year ended December 31, 1998
10.22 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.23
January 19, 1999 between the Company and to the Company's Annual Report on Form 10-KSB
Capital Research, Ltd. for the year ended December 31, 1998
10.23 Promissory Note dated as of March 9, 1999 Incorporated by reference to Exhibit No. 10.24
in the Original Principal Amount of to the Company's Annual Report on Form 10-KSB
$125,000 given by the Company to Capital for the year ended December 31, 1998
Research, Ltd.
10.24 Common Stock Purchase Warrant No. W-6 Incorporated by reference to Exhibit No. 10.25
dated as of March 9, 1999 granted by the to the Company's Annual Report on Form 10-KSB
Company to Capital Research, Ltd. for the year ended December 31, 1998
10.25 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.26
March 9, 1999 between the Company and to the Company's Annual Report on Form 10-KSB
Capital Research, Ltd. for the year ended December 31, 1998
10.26 Executive Employment Agreement, together Incorporated by reference to Exhibit 10.26 to
with Stock Option Addendum, dated as of the Company's Annual Report on Amendment No. 1
July 1, 1999 between Mead M. McCabe, Jr. to the Form 10 KSB for the year ended December
and the Company 31, 1998
10.27 Executive Employment Agreement, together Incorporated by reference to Exhibit 10.27 to
with Stock Option Addendum, dated as of the Company's Annual Report on Amendment No. 1
July 1, 1999 between Mead M. McCabe, Sr. to the Form 10 KSB for the year ended December
and the Company 31, 1998
10.28 Executive Employment Agreement, together Incorporated by reference to Exhibit No. 10.29
with Stock Option Addendum, dated as of to the Annual Report on Form 10-KSB for the
January 17, 2000 between Eric Wilkinson year ended December 31, 1999
and the Company
3
Exhibit
No. Description Location
--- ----------- --------
10.29 Promissory Note dated as of April 19, 1999 Incorporated by reference to Exhibit No. 10.30
in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$100,000 given by the Company to Jack year ended December 31, 1999
Surgent
10.30 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.31
April 19, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Jack Surgent year ended December 31, 1999
10.31 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.32
April 19, 1999 granted by the Company to to the Annual Report on Form 10-KSB for the
Jack Surgent year ended December 31, 1999
10.32 Promissory Note dated as of October 6, Incorporated by reference to Exhibit No. 10.33
1999 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$200,000 given by the Company to Orbiter year ended December 31, 1999
Fund, Ltd.
10.33 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.34
October 6, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.34 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.35
October 6, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.35 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.36
October 6, 1999 granted by the Company to to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.36 Promissory Note dated as of November 19, Incorporated by reference to Exhibit No.10.37
1999 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$200,000 given by the Company to Orbiter year ended December 31, 1999
Fund, Ltd.
10.37 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.38
November 19, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.38 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.39
November 19, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.39 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.40
December 22, 1999 granted by the Company to the Annual Report on Form 10-KSB for the
to Orbiter Fund, Ltd. year ended December 31, 1999
10.40 Promissory Note dated as of November 19, Incorporated by reference to Exhibit No. 10.41
1999 in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$300,000 given by the Company to Orbiter year ended December 31, 1999
Fund, Ltd.
4
Exhibit
No. Description Location
--- ----------- --------
10.41 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.42
December 22, 1999 between the Company and to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.42 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.43
December 22, 1999 between the Company and to the Annual Report on Form 10-KSB for the
The Orbiter Fund, Ltd. year ended December 31, 1999
10.43 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.44
December 22, 1999 granted by the Company to the Annual Report on Form 10-KSB for the
to The Orbiter Fund, Ltd. year ended December 31, 1999
10.44 Promissory Note dated as of February, 2000 Incorporated by reference to Exhibit No. 10.45
in the Original Principal Amount of to the Annual Report on Form 10-KSB for the
$250,000 give by the Company to The year ended December 31, 1999
Orbiter Fund, Ltd.
10.45 Pledge and Security Agreement dated as of Incorporated by reference to Exhibit No. 10.46
February, 2000 between the Company and The to the Annual Report on Form 10-KSB for the
Orbiter Fund, Ltd. year ended December 31, 1999
10.46 Registration Rights Agreement dated as of Incorporated by reference to Exhibit No. 10.47
February, 2000 between the Company and to the Annual Report on Form 10-KSB for the
The Orbiter Fund, Ltd. year ended December 31, 1999
10.47 Stock Purchase Agreement dated as of Incorporated by reference to Exhibit No. 10.48
January 17, 2000 among the Company, DNA to the Annual Report on Form 10-KSB for the
Sciences, Inc. and the shareholders of year ended December 31, 1999
DNA Sciences, Inc.
10.48 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.49
February, 2000 given by the Company to to the Annual Report on Form 10-KSB for the
The Orbiter Fund, Ltd. year ended December 31, 1999
10.49 Convertible Promissory Note dated as of Incorporated by reference to Exhibit No. 10.50
March 2, 2000 in the Original Principal to the Annual Report on Form 10-KSB for the
Amount of $75,000 given by the Company to year ended December 31, 1999 Jack Higgins
10.50 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No.
March 2, 2000 between the Company and Jack 10.51 to the Annual Report on Form 10-KSB for
Higgins the year ended December 31, 1999
10.51 Convertible Promissory Note dated as of Incorporated by reference to Exhibit No. 10.52
March 7, 2000 in the Original Principal to the Annual Report on Form 10-KSB for the
Amount of $100,000 given by the Company to year ended December 31, 1999
to Frederick & Company
10.52 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.53
March 7, 2000 between the Company and to the Annual Report on Form 10-KSB for the
Frederick & Company year ended December 31, 1999
5
Exhibit
No. Description Location
--- ----------- --------
10.53 Convertible Promissory Note in the Incorporated by reference to Exhibit No. 10.54
Original Principal Amount of $100,000 to the Annual Report on Form 10-KSB for the
dated as of May 8, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.54 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.55
May 8, 2000 between the Company and Jim to the Annual Report on Form 10-KSB for the
Kelly. year ended December 31, 1999
10.55 Convertible Promissory Note in the Incorporated by reference to Exhibit No. 10.56
Original Principal Amount of $500,000 to the Annual Report on Form 10-KSB for the
dated as of May 26, 2000 between the year ended December 31, 1999
Company and Jim Kelly.
10.56 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit No. 10.57
May 26, 2000 between the Company and Jim to the Annual Report on Form 10-KSB for the
Kelly. year ended December 31, 1999
10.57 Convertible Promissory Note in the Incorporated by reference to Exhibit 10.57 to
Original Principal Amount of $100,000 the Quarterly Report on Form 10-QSB for the
dated as of April 4, 2000 between the three months ended March 31, 2000
Company and Donald Heap.
10.58 Common Stock Purchase Warrant No. W-18 Incorporated by reference to Exhibit 10.58 to
dated as of April 4, 2000 between the the Quarterly Report on Form 10-QSB for the
Company and Donald Heap. three months ended March 31, 2000
10.59 Convertible Promissory Note in the Incorporated by reference to Exhibit 10.59 to
Original Principal Amount of $50,000 the Quarterly Report on Form 10-QSB for the
dated as of June 9, 2000 between the and three months ended March 31, 2000
Company and Michael and Lois Halbert
10.60 Common Stock Purchase Warrant dated as of Incorporated by reference to Exhibit 10.60 to
June 9, 2000 between the Company and the Quarterly Report on Form 10-QSB for the
Michael and Lois Halbert three months ended March 31, 2000
10.61 Common Stock Purchase Warrant No. W-12 Incorporated by reference to Exhibit 10.61 to
dated as of October 6, 1999 between the the Quarterly Report on Form 10-QSB for the
Company and Sterling Technology Partners, three months ended March 31, 2000
Ltd.
10.62 Common Stock Purchase Warrant No. W-13 Incorporated by reference to Exhibit 10.62 to
dated as of December 22, 1999 between the the Quarterly Report on Form 10-QSB for the
Company and Sterling Technology Partners, three months ended March 31, 2000
Ltd.
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
21. Subsidiaries of the Registrant Incorporated by reference to Exhibit No. 21 to
the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
August 24, 2000
6
Exhibit
No. Description Location
--- ----------- --------
22. Published report regarding matters Not applicable
submitted to Vote
23.1 Consent of Independent Accountant Provided herewith
23.2 Consent of Counsel Incorporated by reference to Exhibit No. 23.2
to the Registration Statement on Form SB-2
filed with the Securities and Exchange
Commission on August 24, 2000
24. Power of Attorney Not applicable
27. Financial Data Schedule Incorporated by reference to Exhibit No. 27 to
the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission on
August 24, 2000
7