U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934 (Fee Required)
For the quarterly period ended June 30, 1998
|_| Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from _______ to _______.
Commission File No. 0-21739
GENETIC VECTORS, INC.
---------------------
(Name of Small Business Issuer in Its Charter)
Florida 65-0324710
- ------- ----------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
5201 N.W. 77th Avenue, Suite 100, Miami, Florida 33166
- ------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(305) 716-0000
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
There were 2,345,017 shares of Common Stock outstanding as of August 3,
1998.
PART I
Financial Information
- ---------------------
Item 1. Financial Statements.
- -----------------------------
Genetic Vectors, Inc.
(A Development Stage Company)
Index to Financial Statements
Page
Balance Sheet 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
2
GENETIC VECTORS, INC.
(A Development Stage Company)
Balance Sheet (Unaudited)
June 30, 1998
- --------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 951,860
Other assets 99,375
- --------------------------------------------------------------------------------
Total current assets 1,051,235
Equipment, net 438,790
Deferred acquisition and patent costs, net 388,136
- --------------------------------------------------------------------------------
$ 1,878,161
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 175,130
- --------------------------------------------------------------------------------
175,130
- --------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $.001 par value, 10,000,000 shares authorized,
2,345,017 shares issued and outstanding 2,345
Additional paid-in capital 6,194,453
Deficit accumulated during the development stage (4,493,767)
- --------------------------------------------------------------------------------
Total stockholders' equity 1,703,031
- --------------------------------------------------------------------------------
$ 1,878,161
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
3
GENETIC VECTORS, INC.
(A Development Stage Company)
Consolidated Statement of Operations (Unaudited)
Cumulative from For the three For the three For the six For the six
January 1, 1992 months ended months ended months ended months ended
(inception) through June 30, June 30, June 30, June 30,
June 30, 1998 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue:
Sales $ 39,260 $ -- $ -- $ -- $ --
Grant income 149,147 -- 35,897
- ------------------------------------------------------------------------------------------------------------------------------------
-- --
Total revenue 188,407 -- -- 35,897
- ------------------------------------------------------------------------------------------------------------------------------------
Cost and Expenses:
Operating expenses 2,809,397 312,291 443,348 527,838 710,376
Research and development 2,034,178 276,243 175,727 481,016 291,681
Depreciation and 92,098 14,829 3,557 29,658 5,395
amortization
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 4,935,673 603,363 622,632 1,038,512 1,007,452
Interest, net 253,499 7,296 35,897 46,826 54,447
- ------------------------------------------------------------------------------------------------------------------------------------
Net (loss) $(4,493,767) $(596,067) $(586,735) (955,789) (953,005)
============ ========== ========== ========= =========
Weighted average number of common 2,340,531 2,339,634 2,340,083 2,339,634
shares outstanding.
Net (loss) per Common Stock $(.25) $(.25) $(.41) $(.41)
See accompanying notes to consolidated financial statements.
4
GENETIC VECTORS, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flow (Unaudited)
Cumulative from
January 1, 1992 For the For the
(inception) through six months ended six months
June 30, June 30, ended
1998 1998 June 30,
1997
- ---------------------------------------------------------------------------------------------------------------
Operating Activities:
Net loss (4,493,767) $(955,789) $(953,005)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 92,098 29,658 4,955
Write-off of acquired technology 15,000 -- --
Stock options granted for services 56,250 -- --
Increase in other assets (99,375) (99,375) (67,056)
Increase in accounts payable and accrued 307,952 20,588 53,491
liabilities
- ---------------------------------------------------------------------------------------------------------------
Total adjustments 371,925 (49,129) (8,610)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (4,121,842) (1,004,918) (961,615)
- ---------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of equipment and improvements (512,907) (10,170) (143,547)
Acquisition and Patent costs (421,117) (160,519) (6,587)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (934,024) (170,689) (150,134)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase due to parent 413,518 -- --
Proceeds from note payable 35,000 -- --
Payment on note payable (35,000) -- (35,000)
Net proceeds from issuance of common stock 5,074,951 25,000 --
Capital contribution 500,000 -- --
Deferred offering refund 25,500 -- --
Deferred offering costs (6,243) -- --
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used on) financing activities 6,007,726 25,000 (35,000)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 951,860 (1,150,607) (1,146,749)
Cash at beginning of period 2,102,467 4,745,208
- ---------------------------------------------------------------------------------------------------------------
Cash at end of period 951,860 $951,860 $3,598,459
- ---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures:
Conversion of due to parent in $413,518 $ -- $ --
exchange for stock
Conversion of accrued wages for stock 132,822 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
5
Genetic Vectors, Inc.
Notes to Financial Statements (unaudited)
1. Financial Statements
In the opinion of the Company, the accompanying unaudited financial
statements include all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the results for the
periods presented. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the Company's Annual Report for
the year ended December 31, 1997. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of the results to be expected
for the full year.
2. Earnings Per Share
The following reconciles the components of the earnings per share (EPS)
computation.
For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
---------------------------------------- ---------------------------------------------
Loss Shares Per Share Loss Share Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
- --------------------------------------------------------------------- ----------------------------------------------
Loss per common share - $(955,789) 2,340,083 $(.41) $(953,005) 2,339,634 $(.41)
basic
Effect of Dilutive
Securities
Options
Warrants
- ----------------------------------------------------------------------------------------------------------------------
Loss per common share $(955,789) 2,340,083 $(.41) $(953,005) 2,339,634 $(.41)
assuming dilution
6
Item 2. Management's Plan of Operation and Discussion and Analysis.
- --------------------------------------------------------------------
Introductory Statements
Forward-Looking Statements and Associated Risks. This Quarterly Report
contains forward-looking statements, including statements regarding, among other
things, (a) the Company's growth strategies, (b) anticipated trends in the
Company's industry and (c) the Company's future financing plans. In addition,
when used in this Quarterly Report, the words "believes," "anticipates,"
"intends," "in anticipation of," and similar words are intended to identify
certain forward-looking statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
changes in trends in the economy and the Company's industry, reductions in the
availability of financing and other factors. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Quarterly Report will in fact occur. The Company does not
undertake any obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
The Company has continued its efforts to refine the EpiDNA Picogram
Assay Kit (the "Picogram Assay Kit") after removing it from the marketplace
during the third quarter of 1997. As of the three-month period ended June 30,
1998, the Company has not generated significant revenues. As a result, the
Company intends to continue to report its plan of operations. In July 1998, the
Company reintroduced the Picogram Assay Kit to the marketplace and is closely
monitoring its market acceptance. There can be no assurances that the Picogram
Assay Kit will be accepted by the marketplace. Absent significant sales, the
Company projects that its available funds will last through November of 1998.
Additional financing will be necessary at that time for the Company to continue
operations. See "Management's Plan of Operations and Discussion and Analysis -
Liquidity and Capital Resources."
Plan of Operation
ADDITIONAL FUND RAISING ACTIVITIES. The Company had originally
projected that the funds raised in its initial public offering (the "Offering"),
which was closed on December 26, 1996, would last for approximately eighteen
months after the date of the Offering. The Company now believes it has
sufficient funds to last through November of 1998 even if no significant product
sales are achieved. This projection is based upon certain assumptions by the
Company which may or may not prove to be accurate. Prior to November of 1998,
the Company will need to raise additional funds to continue operations.
SUMMARY OF ANTICIPATED PRODUCT RESEARCH AND DEVELOPMENT. The Company
will continue its product research and development and continue to implement
what the Company believes to be a feasible plan for product development. The
Company has modified the feasibility plan by placing development of the EpiDNA
Nanogram Assay kits on hold while the Company further evaluates the market
7
potential of this product. The Company currently believes its resources can be
better employed in the research and development of other products and
technologies, including potential applications of its nucleic acid labeling
technology. The Company is also evaluating the outsourcing commercial production
of the Picogram Assay Kit. The major components of the plan of operations are as
follows:
1998 o Complete reintroduction of modified Picogram Assay Kit.
o Development of automated production protocols for the Picogram
Assay Kit. (The Company is evaluating the feasibility of
outsourcing commercial production).
o Continued research in applications of Genetic Vectors' nucleic
acid labeling technology. Based on current circumstances, the
Company will devote more time and resources to its research
connected with these applications in 1998 than previously
projected.
1999 o Initiation of EasyID DNA probe product development for quality
assurance in the food and beverage industry.
o Completion of first DNA labeling product for test marketing
in the molecular biology research market. (The Company
anticipates that this product will be completed in 1999 instead
of 1998.)
o Research in the application of automated techniques of DNA
analysis for EpiDNA.
SIGNIFICANT PLANT OR EQUIPMENT PURCHASES. The Company does not
currently anticipate any significant plant or equipment purchases during the
next twelve months.
CHANGES IN THE NUMBER OF EMPLOYEES. The Company currently has nine
employees. As shown in the following chart, the Company anticipates hiring
additional personnel during 1998 and 1999 in connection with its research and
development and product development plan. The Company believes that these
personnel will be adequate to accomplish the tasks set forth in its plan.
Proposed Personnel Addition Plan 1998 1999
- -------------------------------- ---- ----
Sales and Administration
Administrative Personnel ............................... 0 1
Director - Sales and Marketing ......................... 1 0
Salespersons ........................................... 1 2
Technical Info/Inside Sales ............................ 1 2
Supervisors ............................................ 0 1
Technicians ............................................ 2 3
---- ----
Total Proposed New Employees ........................... 6 9
==== ====
Total Employees at end of year.......................... 14 23
==== ====
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Other than grant income, the Company did not generate revenues during
the six months ended June 30, 1998. The Company had no cost of sales for that
period. The Company reported no revenues for the quarter ended June 30, 1997
("Second Quarter 1997").
Although the Company did generate some revenue from sales of its
Picogram Assay Kit during Fiscal 1997, it must be stressed that such sales were
preliminary in nature, and represented the purchase of product samples by the
purchasers primarily for evaluation purposes. The Company had temporarily
removed the Picogram Assay Kit from the market and the Company did not generate
any sales revenue from the sale of the Picogram Assay Kit in the six months
ended June 30, 1998. The Company reintroduced the Picogram Assay Kit in July of
1998; however, the Company remains largely a development stage company with
expenditures far exceeding revenues.
Research and development expenses for the six months ended June 30,
1998 increased by $189,335 over 1997. This increase was largely attributable to
additional costs associated with the Picogram Assay Kit redevelopment program.
Operating expenses for the six months ended June 30, 1998 decreased by
$182,538 over 1997. This decrease was primarily related to the Company's focused
efforts on research and development.
LIQUIDITY AND CAPITAL RESOURCES. The net cash used by the Company in
operating activities aggregated $1,004,918. This was largely attributable to
increases in operating expenses and research and development activities. The
Company's net cash used in investing activities aggregated $170,689 during 1998,
consisting mainly of purchases of equipment and patent costs. The Company's net
cash provided in financing activities aggregated $25,000 during 1998, consisting
mainly of proceeds from stock issuances.
As of June 30, 1998, the Company had total stockholders' equity of
$1,703,031. The Company has no long term debt. The Company had $951,860 in cash
and cash equivalents as of this date. These amounts represent, in large part,
the remainder of the net proceeds generated from the Offering. The Company
anticipates that such proceeds will last through November of 1998. Absent
significant sales, additional financing will be necessary at that time for the
Company to continue operations. Additionally, the Company expects to evaluate
acquisition candidates. The Company may have to use some of its available cash
in connection with these acquisitions whether or not any of them are
consummated.
9
PART II
Other Information.
- -----------------
Item 2. Changes in Securities and Use of Proceeds.
- ---------------------------------------------------
Use of Proceeds
1. Effective date of registration statement: December 20, 1996; Commission
File Number 333-5530-A.
2. The Offering commenced on December 20, 1996.
3. The Offering did not terminate before any securities were sold.
(i) The Offering did not terminate before the sale of all securities
registered.
(ii) The managing underwriter was Shamrock Partners, Ltd.
(iii) Securities registered:
(a) Common Stock ($0.001 par value)
(b) Underwriter warrants to purchase an aggregate of 50,000
shares of Common Stock. Those warrants will become
exercisable on December 21, 1997 and expire on December 19,
2001.
(iv) Securities sold (all sold for account of the issuer):
Aggregate Aggregate
Offering Price Offering
Amount of Amount Amount Price of
Title Registered Registered Sold Amount Sold
- --------------------------------------------------------------------------------------------------------
1. Common Stock 575,000 $5,750,000 $575,000 $5,750,000
2. Common Stock pursuant to
Underwriter Warrants 50,000 750,000 - 0 - - 0 -
3. Underwriter Warrants 50,000 500 50,000 500
(v) Underwriting discounts and commissions: $ 517,500
Finder's fees: - 0 -
Expenses paid for Underwriters: 217,139
Other expenses: 445,610
-------
10
Total Expenses $1,180,249
(vi) Net Proceeds of Offering Before Referral $4,569,751
Refund of Offering Costs: $ 19,257
Net Proceeds of Offering: $4,589,008
(vii) Uses of Net Proceeds:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any class
of equity securities of the issuer; Direct or indirect payment
and to affiliates of the issuer to others
------------------------------------ ---------------------------
Construction of plant, building
and facilities:
Purchase and installation of -- $450,351
machinery and equipment:
Purchase of real estate: -- --
Acquisition of other business(es): -- --
Repayment of indebtedness: -- --
Working capital: $30,000 $1,009,808
Temporary investments (specify)
- -------------------------------
Merrill Lynch Money Market Account: $ 60,730
Certificate of Deposit: $891,130
Other purposes (specify)
- ------------------------
Research and Development and
patent protection expenditures: -- $1,188,567
Expansion of Manufacturing facilities:
$109,000 $235,580
11
Sales and marketing capabilities: -- $158,571
Management Salaries $375,865 --
Investor Relations -- $ 79,406
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits.
Exhibit
- -------
No. Description Location Page
-- ----------- -------- ----
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No.
as amended 3.1 to Registrant's Registration Statement
(the "Registration Statement") on Form
SB-2 (Registration Number 333-5530-A).
3.2 By-laws of the Company Incorporated by reference to Exhibit No.
3.2 to the Registration Statement.
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.
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No.
between the University of Miami and its 10.1 to the Registration Statement.
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit No.
January 20, 1992 between ProVec, Inc. and 10.2 to the Registration Statement.
EpiDNA, Inc.
10.3 Agreement between University of Miami and Incorporated by reference to Exhibit No.
its School of Medicine and the Company 10.3 to the Registration Statement.
dated August 21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Sr. and the Company 10.4 to the Registration Statement.
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Jr. and the Company 10.6 to the Registration Statement.
10.7 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
12
10.8 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit No.
between James A. Joyce and the Company 10.10 to the Registration Statement.
10.9 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No.
among Nyer Medical Group, Inc., the 10.11 to the Registration Statement.
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
10.10 Investors Finders Agreement dated Incorporated by reference to Exhibit No.
June 9, 1994 among Nyer Medical Group, 10.12 to the Registration Statement.
Inc., and the Company and Gulf American
Trading Company
10.11 Industrial Real Estate Lease dated June 12, Incorporated by reference to Exhibit
1997 among the Company and Jetex Group, Inc. No. 10.13 to the Company's Quarterly
Report on Form 10-QSB for the Quarter
ended June 30, 1997
10.12 Letter from University of Miami dated April Incorporated by reference to Exhibit No.
8, 1998 10.12 to the Company's Annual Report on
Form 10-KSB for the Fiscal Year ended
December 31, 1997
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
19. Reports furnished to Security holders Not applicable
22. Published report regarding matters Not applicable
submitted to vote
23. Consents of experts and counsel Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
(b) Reports on Form 8-K.
On May 21, 1998, the Company filed a Form 8-K disclosing that the
Company had issued a press release on May 13, 1998 announcing that it had agreed
in principle to acquire all of the stock of Gen Trak, Inc. The filing noted that
the proposed transaction was conditioned upon the parties negotiating and
entering into a definitive agreement. As of the date hereof, the Company has not
entered into a definitive agreement and no assurances can be given that the
Company will enter into such an agreement. On August 7, 1998, the Company
announced that the acquisition of Gen Trak, Inc. had been terminated.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 13, 1998 GENETIC VECTORS, INC.
By: /s/ Mead M. McCabe, Jr.
--------------------------------
Mead M. McCabe, Jr.,
President
14
EXHIBIT INDEX
Exhibit
No. Description Location Page
--- ----------- -------- ----
3.1 Articles of Incorporation of the Company, Incorporated by reference to Exhibit No.
as amended 3.1 to Registrant's Registration
Statement (the "Registration Statement")
on Form SB-2 (Registration Number
333-5530-A).
3.2 By-laws of the Company Incorporated by reference to Exhibit No.
3.2 to the Registration Statement.
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.
10.1 License Agreement dated September 7, 1990 Incorporated by reference to Exhibit No.
between the University of Miami and its 10.1 to the Registration Statement.
School of Medicine and ProVec, Inc.
10.2 Assignment of License Agreement dated Incorporated by reference to Exhibit No.
January 20, 1992 between ProVec, Inc. and 10.2 to the Registration Statement.
EpiDNA, Inc.
10.3 Agreement between University of Miami and Incorporated by reference to Exhibit No.
its School of Medicine and the Company 10.3 to the Registration Statement.
dated August 21, 1996
10.4 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Sr. and the Company 10.4 to the Registration Statement.
10.5 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.5 to the Registration Statement.
Mead M. McCabe, Sr. And the Company
10.6 Employment Agreement dated August 15, 1996 Incorporated by reference to Exhibit No.
between Mead M. McCabe, Jr. and the Company 10.6 to the Registration Statement.
10.7 Stock Option Addendum to Employment Incorporated by reference to Exhibit No.
Agreement dated August 15, 1996 between 10.7 to the Registration Statement.
Mead M. McCabe, Jr. and the Company
10.8 Consulting Agreement dated June 19, 1996 Incorporated by reference to Exhibit No.
between James A. Joyce and the Company 10.10 to the Registration Statement.
10.9 Letter Agreement dated December 16, 1994 Incorporated by reference to Exhibit No.
among Nyer Medical Group, Inc., the 10.11 to the Registration Statement.
Company, Mead M. McCabe, Sr. And Mead M.
McCabe, Jr.
10.10 Investors Finders Agreement dated Incorporated by reference to Exhibit No.
June 9, 1994 among Nyer Medical Group, 10.12 to the Registration Statement.
15
Inc., and the Company and Gulf American
Trading Company
10.11 Industrial Real Estate Lease dated June 12, Incorporated by reference to Exhibit
1997 among the Company and Jetex Group, Inc. No. 10.13 to the Company's Quarterly
Report on Form 10-QSB for the Quarter
ended June 30, 1997
10.12 Letter from University of Miami dated April Incorporated by reference to Exhibit No.
8, 1998 10.12 to the Company's Annual Report on
Form 10-KSB for the Fiscal Year ended
December 31, 1997
11. Statement re: computation of earnings Not applicable
18. Letter on change in accounting principles Not applicable
19. Reports furnished to Security holders Not applicable
22. Published report regarding matters Not applicable
submitted to Vote
23. Consents of experts and counsel Not applicable
24. Power of Attorney Not applicable
27. Financial Data Schedule Provided herewith
16